File No. 814.51/196. The Secretary of State to the American Ambassador to Great Britain. SIR: The Department encloses herewith for your careful study a copy of a signed memorandum regarding the financial situation of Guatemala, which was delivered to the British Ambassador on December 3rd. The Department is most anxious that the program proposed therein should be accepted by the British Government. You are accordingly instructed to avail of the first opportunity to explain the matter to Sir Edward Grey. In so doing you should emphasize the following points: First. The fact that we have to deal with a general situation involving to a great extent the policy of this Government towards a portion of the world where the influence of the United States must naturally be pre-eminent. Secondly. The fact that the restitution of the coffee revenues offers no guarantee of permanency. The revenues might again be diverted and a situation similar to the present one which we wish definitely to cure would then result. Thirdly. The security of the new bonds is made doubly effective by the mode of collecting the customs revenues. Fourthly. The fact that the American bankers have endeavored to consult the bondholders as to what terms they would find satisfactory before concluding negotiations with Guatemala. And finally, the importance of cooperation between Great Britain. and the United States, which cooperation is arranged for by the definite limitations contained in the memorandum as to the time in which the American plan may be completed. The British Government may feel inclined to press the bankers for even more favorable terms for the bondholders, arguing that the back interest on the debt amounts to almost as much as the principal thereof. When the British Embassy raised that point at the Department it was pointed out that no matter what steps might be taken there seemed no way for the bondholders to recover the back interest, whereas the carrying out of the American plan should definitely assure to the bondholders the payment of the future interest. When the American bankers telegraphed to the Secretary of the Council of Foreign Bondholders some weeks ago the only reply they received was to the effect that as the matter had been placed in the hands of the British Foreign Office the Council could entertain no outside proposals. I am [etc.] P. C. KNOX. The Secretary of State to the British Ambassador. [Inclosure. Memorandum.] While the Government of the United States recognizes that the grievances of the British bondholders against the Government of Guatemala are just, it feels that the interests of the bondholders, of Guatemala, and of the United States, will be best served not by the restitution of the coffee revenues to the service of the debt but by the early conclusion of the loan negotiations into which reputable American bankers have entered with the Government of Guatemala. The present situation is unsatisfactory for both Great Britain and the United States, and while the Federal Government desires to aid the Government of Great Britain to safeguard the interests of the British bondholders, it wishes to do so in a manner promising the permanent satisfaction of the bondholders and calculated to effect a definite cure of a troublesome situation to the benefit of all the parties concerned, namely the bondholders, the large foreign commercial interests, the people of Guatemala and the interests of the United States rather than to the benefit of the bondholders alone. In the light of past experience it is felt that merely to secure the restoration of the revenues in question would offer no guaranties of permanency or the non-recurrence of the present situation, which has arisen through a disregard on the part of Guatemala of pledges exactly similar to those which the Government of Great Britain now seeks to have renewed. If the Government of the United States is asked to assist the creditors of Central American states, it feels that they should be willing to consider favorably whatever equitable assistance it is most convenient for the United States to render them. The Federal Government, however, must consider not only the interests of the foreign bondholders but also the general situation which involves, in addition to the bondholders, its own important interests and its convenience, as well as the future of Guatemala and her people. As the Embassy was informally advised through Mr. Kerr, this Government takes the keenest interest in the consummation of a loan involving a broad plan for the financial rehabilitation of Guatemala, provided it equitably disposes of the British claims now being pressed upon the Government of Guatemala and is duly considerate of American and other pending claims. Mr. Kerr was also informed that the Department of State would suggest to the American bankers that they immediately cable their representatives at London to lay before the British interests concerned the outline of their plan so far as it concerns those interests and to seek a tentative agreement whereby those interests will be satisfied. This the American bankers at once did, thus creating a situation very different from that described in the British Embassy's note of November 13th as having occurred in the past, wherein it is stated that after previous negotiations had failed, it had been subsequently learned that the terms which it was proposed to lay before the British bondholders were most unfair. The terms now offered by the bankers to the bondholders, appear to the Government of the United States to be not only reasonable but more advantageous to the bondholders than the restitution of the coffee revenues would be. According to the information of the Federal Government, the American bankers have offered the bondholders at par of their present holdings new 4% bonds to an amount equal to the principal of the old debt; the new bonds to be a part of a larger issue in connection with the refunding of the entire debt of the country and, through the establishment of a bank, replacing the present fluctuating and unsecured paper currency by one on a stable metallic basis. The new bonds would be secured by all the customs revenues. The customs would be administered by an agent to be named by the bankers, the duties being payable only in customs certificates which the agency alone may issue. These provisions of the proposed arrangement would seem to guarantee the regular payment of the interest on the new bonds and to insure the maintenance of their market value at a corresponding level, as the customs revenues are thus payable directly to the banker's agent and not merely pledged. The Federal Government is convinced that the carrying out of such a comprehensive plan for the financial rehabilitation of Guatemala would materially benefit the bondholders and that it would be of the greatest advantage to Guatemala as well as to British and general commercial interests in that republic. In this view it would be the more surprising and regrettable if the apparently uncompromising attitude of the British Government, which is attributed to discouragement due to the repeated past delays on the part of Guatemala, should be definitely maintained. The Government of the United States feels that the prospects for the early consummation of the loan would be excellent if the Government of Great Britain would cooperate for a short time with the United States in its present attempt to rehabilitate the finances of Guatemala. The bankers have stated that they prefer not to continue their negotiations with Guatemala until they have reached an agreement as to the terms that would be satisfactory to the British bondholders; and it is confidently believed that if the British Foreign Office would expedite an agreement between the American bankers and the British bondholders as to the terms to be accorded the holders of the present bonds, the two Governments would then be in a position effectively to work together. The Federal Government would, after the conclusion of such an agreement, be glad to use its best efforts to cause the loan agreement to be signed by the Government of Guatemala within a reasonable time thereafter, say fifteen days, and to be ratified within thirty days after signature, provided that the National Assembly should be in session during this period, and, if not, then within thirty days after the date for the opening of the next regular session. If, under the circumstances above outlined, the Government of the United States should not secure that result within such period it would then be prepared at once to support the demand of Great Britain for the restitution by Guatemala of the coffee revenues to the service of the foreign debt. DEPARTMENT OF STATE, Washington, December 3, 1912. P. C. KNOX. File No. 814.51/196. The Secretary of State to the American Chargé d'Affaires. No. 193.] DEPARTMENT OF STATE. Washington December 11, 1912. Sir: The Department encloses for your confidential information a copy of a signed memorandum delivered to the British Ambassador on December 3, 1912, on the subject of the Guatemalan financial situation. A copy of the British Embassy's note of November 13, upon which the memorandum is based, is also enclosed. The Department is now informed by the Guatemalan Minister that Guatemala and the bankers are now in accord as to the terms of the loan contract; that the contract will be ready for transmission to Guatemala by December 21st; and that President Estrada Cabrera intends to call a special session of the Assembly for its consideration. Should such a course appear necessary or advisable at a later date the Department will instruct you by telegraph to make the contents of the memorandum known to the Government of Guatemala. I am [etc.] P. C. KNOX. File No. 814.51/199. The British Ambassador to the Secretary of State. BRITISH EMBASSY, Washington, December 30, 1912. 1 DEAR MR. SECRETARY: A copy of your memorandum of the 2nd 1 December was duly communicated to the Foreign Office, and has received their consideration, and I am now instructed by Sir Edward Grey to inform you that the question of the conversion of the Guatemalan bonds is one entirely apart from the question with which the Foreign Office are at present dealing, and is in the opinion of His 1 Should be 3d. Majesty's Government a matter for the private consideration of the bondholders. His Majesty's Government have not been asked to assist in any scheme of conversion, but have been asked for their support in obtaining the restitution of the rights to which the bondholders are entitled by contract and which have been unjustly withheld since the year 1899. In spite of representations to the Guatemalan Government, the latter have, in a way the injustice of which has been admitted by the United States Government, refused to comply with the request made to them, and His Majesty's Government, in their wish that a method to which no objection can be taken should be adopted, have now proposed that the matter should be settled by arbitration, and what is now asked of the United States Government is that they should lend their diplomatic assistance in obtaining from the Guatemalan Government a compliance with this obviously moderate demand. His Majesty's Government do not doubt that the bondholders will, once their rights have been restored to them, be willing to entertain proposals for the conversion of the bonds, should it appear to be to their interest to do so. His Majesty's Government have continued to hope that the United States Government, recognising the reasonableness of the attitude taken up by His Majesty's Government, would be willing to use their friendly offices with the Guatemalan Government to obtain their compliance, and Sir Edward Grey still trusts that this assistance of the United States Government will be given, as His Majesty's Government desire to avoid the necessity of considering what other measures can be resorted to for the purpose of inducing the Guatemalan Government to comply with their request. I am [etc.] JAMES BRYCE. VISIT OF THE SECRETARY OF STATE TO GUATEMALA. File No. 033.1100 K77/2. The Minister of Guatemala to the Acting Secretary of State. LEGATION OF GUATEMALA, Washington, February 12, 1912. MR. SECRETARY: This Legation has been given genuine delight in reading the notice published by the press about the visit of his excellency Mr. Philander C. Knox, Secretary of State of the United States, to Central America, and immediately transmitted by cable to the Government of Guatemala. The presence of the eminent Chief of the American Department of State among us will without a doubt be of incalculable benefit, as it will be another demonstration of the sincere, frank and loyal friendship that the great Republic happily cultivates with my country; and in appreciating and acknowledging it I take pleasure in assuring your excellency that Mr. Knox and the distinguished persons who accompany him will find in Guatemala a reception marked by all the sympathy and affectionate respect that their high merits demand. In the name of my Government I have the honor to express our deep appreciation of this act of most delicate courtesy and of the praiseworthy efforts of the American Government to bring into closer relations the peoples of the continent. This wise policy-the logical consequence of the solidarity of the American countries-upheld as it is by the United States in the warmth of brotherly sentiments, will undoubtedly be productive of the best results tributary to the cohesion of all American interests. No country is more desirous than mine to obtain these great re sults in ever growing numbers, and it will always be glad to_contribute, as it has always done, to the more perfect harmony of our peoples, and for that reason witnesses with true pleasure and boundless satisfaction any act which, like his excellency's visit, makes for the realization of those generous aspirations. I avail [etc.] File No. 033.1100K77/35.] JOAQUÍN MÉNDEZ, The Minister of Guatemala to the Acting Secretary of State. LEGATION OF GUATEMALA, Washington, February 19, 1912. MY DEAR MR. SECRETARY: I have received your kind letter of February 13th, 1912,' and take pleasure in informing you that we shall be more than pleased to have his excellency the Secretary of State, Mr. Knox, with us, also his distinguished wife, and all the members of the party accompanying them, and to further show my pleasure I will leave tonight to be present at a reception which we are to give in honor of Mr. and Mrs. Knox in Guatemala. Every effort will be made to make the visit of Mr. Knox a most happy one, a visit that will, I am sure, make the relations more intimate, as I have had the pleasure to assure you in my official letter of February 12th, 1912. Officially, and personally, I wish to state that the decision of His Excellency President Taft has been received by the Guatemalan Government and people as a high honor. I am [etc.] File No. 033.1100K77/165.] JOAQUÍN MÉNDEZ. The American Minister to the Secretary of State. No. 231.] [Extract.] AMERICAN LEGATION, Guatemala, April 8, 1912. SIR: I have the honor to make the following report, for the records of the Department, of your recent official visit to this country. Previous to your arrival you were declared by presidential decree to be a "guest of honor of the nation". This action was taken with a 1 The identic letter printed under Panama: "Visit of the Secretary of State to the Republics of Central America and the Caribbean Sea, p. 1240. |