825.51/6–1147
Memorandum by Mr. Frederick Livesey of the Office of Financial Development Policy to the Assistant Chief of That Office (Cady)
At your suggestion, I telephoned Mr. Rogers, President of the Bondholders Council, and asked him for details to enable us to interpret such phrases from Santiago as “the terms on which the bondholders insisted”. Mr. Rogers said that he told Messrs. Pedregal and Santa Cruz that Chile ought to work out an agreement from an agreed arrangement for a fixed interest rate and a fixed amortization rate. He suggested 3% interest rate on the outstanding bonds. They were prepared for this, and had apparently assumed that that would be the suggested rate, and the whole discussion proceeded on that basis. The possibility of issuing new bonds with extended periods of payment, et cetera, was raised and discussed. The subject of amortization was left very vague. Various possible rates, such as ½% or 1% were mentioned but the matter was never pushed.
The Chileans raised the problem that a settlement which increased the market value of the bonds would greatly slow down the rate of decreasing the debt by amortization. They asked if it would be possible to reduce the principal of the bonds, perhaps 20%, to offset this feature. When Mr. Rogers said that this had never been done, they asked him to submit the question to the Council. The Council declined the proposal. Mr. Rogers told the Chileans that the Council might possibly consider alternative proposals such as it had accepted in the Brazilian settlement, one of them providing for a reduction in principal compensated by a cash payment and the other providing for interest payments on bonds in the original face value. In the end the Chileans said that they could not consider a settlement which would increase the value of their bonds, as they expressed it.
I said that I had somewhere heard 3% and 1% amortization as the terms which the Council had offered. Mr. Rogers said that both the Chileans and he had gone over the figures of their current situation and both had agreed that they were enough at the present time to permit payments on that basis. However, the talks had never crystallized in respect of amortization beyond the point of proposing a “reasonable” rate of amortization.
I said Communist papers in Santiago were apparently suggesting that the Mission had fallen into the hands of New York financial imperialists. Mr. Rogers said that the Mission had visited and talked with many banks in New York and was quite critical of the attitude it found in some of them. However, they had given a big party, which [Page 543] he did not attend, at the end of their New York visit and all their discussions with the Council had been on a very courteous basis.
I did not mention the International Bank and Mr. Rogers gave no indication of having anything about it in mind.