.' .

This report is not to be published nor may it be quoted as representing the Bank's views.

No. E 96

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

THE HISTORY AND PRESENT POSITION OF THE

EXTERNAL DEBT OF COLOMBIA

Economic Department

Prepared by: James J. Lynch

June 30, 1950

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THE HISTORY AND PRESENT POSITION OF ru lR;TEIJi!T& J}:m:BTS 01' O¢l,.OMDIA

lable or Contents

Summary

a) External Debts Outstanding b) Current Service Items

I. p,etailed DescriQtion of the External.Debt-!nd ~~~ Service Reguirem~

II. Colombia's Debt Reoord - ,..

a) History to 1930 bc} Course of Defaults ) Causes of Defaults

d) Final Adjustment of the External Debt

Appendix I - Colombia Loans Floated on the New York Market 1920 - 1929

!p~endix II - Estimated Interest and Amortization Payments on External Debt of Colombia

Appendix III - Prices and Yields of Selected Colombian External Bonds

Appendix IV - Statement of Foreign Bondholders Protective Counoil t Inc.

Summary

T:fl'E HI ST03.Y Al:!D Pm.:~~\iT POSITIOn OF THE EXTERl:rAL DEET S OF COLmJIBIA.

Colombia's external debt at the end of 1949 Came to around $146 million at

the present rates of exchange; this includes loans authorized but not yet dr&\-in (lo~m.

a) External Debts Outstanding

At the end of 1949 external credits o\'lned by or available to Colombia tota1led

$146 million,ll of \",hich ;P22 • .5 million had not yet been utilized. A lare;e part of

the latter funds will presumably be dra"m do,:m during 19.50; amortization payments

will, on the other hand, reduce the debt durins the ye&r. The net debt outstanding

by the end of 1950 should be around $135#hillion.

Of the total debts contracted by the end of 1949 ($146 million) the public1y-

held external dollar bonds amount to about $84 million. Of the remainder, Export-

Import BaIL~ loans accou.~t for $40 million, including $17.4 million undisbursed.

Other credits include $7.6 million in Treasury notes (o'Vled to ~\Te\'J York banks). a

$.5 mill ion loan from the IEED (of \"h1ch $2.7 mill ion had been di sbursed by JU."19

19.50). $6 million in sterling bonds, and various minor items. There are no out-

standing unsettled long-term obligations of Colombia.

b) Current Service Items

Total interest and amortization payments on the external debt should amount to

around ~13 million for the year 19.50, of which one~third represents interest pay-

ments. With the exception of the equivalent of $378,000, all of the service ~ay-

ments \'rill be in U.S. dollars. About one-third (;;;3.9 million) of the service re-

quirements are for the external privately-held dollar debt and some $6 million for

loans from the Export-Import Bank. Service charges \-rill rise to a peak of nearly

$14~illion in 19.52 and thereafter decrease fairly quickly.

11 Excluding $2.5 million Paz Del Rio steel plant loan. See Footnote .5. Page 3, for further details.

2.

I. Detailed Description of the Extern0l Debt ~nd Its Service Requirements

The major portion of the extern:.;>,l (lebt of Co1ombi:- '"tt the end of 1949

consisted of do1l'-",r oblig:<'.tions of ,.,bout ,?140 million. Rel'>.tively sml'lll at

oblig2tions equivalent to 8.bout $6 million rHise the tot""l debt (outst~,n(linf'

authorized) to *146 million.

DetaIls of the individual issues are listed belo,,": (in thouSal'lds of do112rs)

I. Publicly held Dol1px Bonds 1. Public of Colombia.

2. Dep~,rtmentBl and Hunicipal

3 .. City of Barr'-'nauil1a

Total Do118r 30ncls

II. Other Do11~r Debts 1. Treasur,y Notes

2. Debts ~.rising from: I1,!'l.ri time Termin<:'.l at

3

4

3

Barranquilla 6 Docks !".t J3uena.ventura, 6 Cantr:".1 Telel)hone Co.

Tot:).1of (lther. :Q'ollarDebts

III. U.S. Gov't Lo~ns

Date De.te of of II,?:­

Issue turitx

Total Debt Purpose authorized or

outsttmding End of End of

1949 1950

1941

1949

1970 41,710

1975Y 40,825

39,734 (For refunaing (old bonds

1939 1964 1.:::45

39,600 - see App. I for origin~~

1,227 use of funds

1949 1952

83,880 80.551

7,650

399 250

2,778

11,077

5,100 Settlenent of previous debtedness

399 250

2,778

8,527

1. Export-Import Brolic Disbursed 3-1/2 1959 22,302

17,i131 28

273

(Hateric_ls, 29,759 {machinery 5,587~(3nd services

IV.

Undi sbursed 2. R.F.C. 3. O.F.L. C.

Tot~1 U.S. Gov't Lo~ns

Disbursed Undi sbursed

V. Totpl Dollar Debt Of ",hlch unc1isbursed

VI.

4-1/2

2-3/8 1946 1951

3-1/2 1949 1956

137

40,034 35,583

5,000 3, 833/l I It167~

13 9 , 991 129, 671 22,431 6,854

1. Republic of Jo1ombi8. (I:, 1,422) 1972 3,983)

2. Agriculturd IItge. 3:mk (I:, 795)

Tot::-l sterling bomls

VII. Grand Tot~l - including undisbursed

- excluding undisbursed

.) I 19'72!;;J 2,:'27) 5.826

6.:),10 5,826

~46,210~135)497Q} 123,779~128,643~/

( l'IDTE: Refer to Page 2-D. for Footnotes.)

20..

JJ Includes French fcs. 1,553,227 (3:! 61,636) 6~;, 1913.

Y Under neu debt plan nO\'l in operc,tion of \l1hioh 1:)23 million or ~,bout G9~ of old bonds he.ve been assented.

iJ Estim!',te b"sed on the expir?,tion d~tes of the indiviitual loem contr~ots.

11 13rsed on Lo?n Depr'rtment estim0,tes of the disbursement r:""te.

§} Excluded from the Interest, Amorti z;:',tion p,nd Debt T:"ble is ~, 5',; 1950-1963 $25 million loon to Paz Del Rio steel pbnt from ?'-ris ,-,nd 1'Tetherlrnds lkn1:s and French m['nufp,cturers' interests, negoti,.,ted through the Colombinn locn.l brGnch of the lI]3rnque Ji'r:".nccdse et ItG,lienne Pour L~'meric;ue J}..l SU(1.!I [',cting ",6

intermediary. It is understooct th~,t this is only ,""bout he,lf of the present lo:::>n:,nd that the fin"'l 'CX:10unt 1<l"Y be 's much ""s :)50 million. The present $25 million lloulCi cC'~ll for service pcyments of ~,bout S3.?' million per yep,r re.",ching th~.t level in 1950 ,,,hen ye~rl~" ?J:lortiz['.tion :;yyments begin. In the event th?t the ".ddition~l $25 million is gr~ntec1.., service ch."rc;es on this project~'lone l'."oul(l rise to ~:;6.4 million "nd lo'lo1.ud rf',ise t~1e present tot"'l service poyments, inclttrling ,,11 ot:1er extern ~1 service pf:'Yr.1ents of $10.5 million, to $16.9 million.

As shown above, the total debts amount to $146.2 million. The un&is-

bursed portion, $22.5 million, is expected to be fully dr~wn by the end of 1951.

The major portion of the debt consists of dollar bonds, the ne\V' Republic

3 1 s due in 1970 ($42 million) and the departmental a~d municipal 3'8 due in 1978

($41 million). These tvlO bond issues pre ne"l securities offered in exchange for

the old debts under the permanent debt adjustment plans of 1940, 1946 f".nd 19"-19

(described in detail in Section III (c) of this report). The second important

category of the debt is the intergovernmental loans frOID the U.S. Government,

mainly in the form of funds received from the Export-Import B!:'.n.1I:::. In December 1949.,

$22 million had been disbursed while $17 million had been authorized but not di6-

bursed; it is expected that the undisbursed amoQ~t ",ill be entirely drat1Tn dO'.ffl in

1950 <3nd 1951. The remainder of the debt is accounted for mainl~r by ~;7. 6 million

in Colombian TreasUT"J 3% lIotes held in Ue\V' York banlcs in settlement of old.er

obligations, the IBIID lO1:l.!l of $5 million (of t1hich 2,680,840 had been disbursed

by June 30, 1950) and $10 million of misce1lar~eous loans of which a little over

half is payable in sterling.

The e_bove debts call for interest and 0IDortization payments as folIous:

(in thousands of dolbrs)

Out s tandin,gll Junorti zationll Interestll I

Year TotalY

1950 133,700 8,539 4,257 12,796 1951 130,500 8,929 4,177 13.106 1952 120,800 lO,ll15 3,895 14,040 1953 108,500 7,769 3,473 11,242 1954 98,~100 7,391 3,121 10,512 1955 88,300 7,065 2,774 9,839 1960 44,600 3,567 1,366 4, 1965 16,900 1,325 519 1,844 1970 200 127 8 135

This Table excludes payments on certain issues in the Table on P~ge 2

under "Other Do119,r Debt, u Item 2, with $3.4 million lJrincip'1.l QutstC'nding, on

which details of the service requirements are not kno':m; hO\"ever, be,sed on the

11 Excludes the 5% 1950-1963. $25 million dollar loan to Paz Del Rio steel plant. See Appendix I I, P:::'ge 4.

. ' .

4.

assumption that this debt will be paid off over [;" 5-yet",r period, the reaDl ting

ch~,rges would 8)l10unt to ne~,rlY?llother million doll ';I,ra, bringing the tot01 ex­

tern[l,l debt charges to $13 .. 5 million in 1950.

In the C1:l,se of the dollar bonds, it h",s been estimo,tec1 that the bonds

\'!ill be bought in the mt',rket [l,t to. price of !i',round 40 so th:?,t each $1,000 spent on

~)l1ortize.tion 'trill reduce the debt outst~nding by $2,500.

The service chccrges set forth ~,bove ~nd in ~\p:pendix I overste,te to some

degree the foreign exchcnge dol10T requirements since a smrll portio:::l of the

dollD.r bonds are held in Colombia. The U. S. DepA.rtment of CO!llll1erCe estim;"l,tes

tha.t :;'I,bout one-ho,lf of the (';40 Dillion 3;; issue of 1970 is held in the United

States, the rest being held either in Colombia or in other countries. No official

figures are availe,ble on the ownershilJ of dollar bonds in Colombi~ .•

It is believed the.t the Ql:1nership of these bonds \Ii thin the country

would reduce the p~ying abroa,c'!. of foreign e:x.ch<',nge somei:!i1,-"t uncler $1 million per

year.

II. Colonblel s Debt Record

a) History to 1930

Colombia has been 3, borrot-Ter in the intern3,tlonal capi tn,l ml:",rkets for

more then 125 ye1'rs. Until 1927 the :.:>nlount Colombia borro1:!ed !,"bro~,d 1:18,S moa.er",te,

mainly lO'3ns from :ari t::-,in for r(>,ilvifay construction. Borro'Jing ::rom the United.

St2.tes uas l1eo.vy from 1927 to 1929, inimr.rily in order to secure funds for the

construction of rp,ilro[',ds snd other public '.fOrks. Totd borrouing during this

period emounted to 2,bout $190 million.V From 1930 through 1949 ColombiA, issued

no long-term securities in foreign countdes but during the l:".tter hr-lf of the

perioo. the government borrol;led directly from the Uni tecl Stl".tes Government through

the Export-Import B::'n1,-= •

V See Appendix I for iC', det[',ilect list of the dollar loans contrl',ctecl.

l3et"Jeen 1821 and 1905 Co1ombin, unden'lent a series of l)rtrti~l

def:-.ults and adjustments on its external debts. In 1905 a finr..l settleoent ~·J!:,.S

reached covering future service pryyments. From th"ot time through 1930, 11i th tJ::e

exception of 1::', fe\1 tD.rdy interest remi tt"l1lces in 1915, Colombie. fai thfull:;T m",in ....

tained service on all its ob1ig!;J,tions ..

13eC::1use of the heavy increase in foreign borrot-Ting by the central

government <"ud its vr;;,rious dep~.rtments and municipcli ties during 1927 Dnd 1928,

the totf:ll extern!":.l debt of Colombir.>. h::>.d risen shcrply by the end of the lotter

yet),r to f),bout $200 million, p.s com:;?:cred to ". totd extern"'.! debt in 1926 of

approximr.t ely million. In consequence, the n~.tion~l government pa.ssed i".

le.\1 on June 5, 1928. limiting the borro\<J'ing c'11',"oi ty of the dep".rtments [md

municipali ties :'nd requiring th".t dl future extern!"l loans be revieued pnd f!.P'"

proved by the cent govern.:'Jent. Therer..fter neu issues \'Iere sm211.

The growth of Colombi?' s extern["l debt from 1923 to 1931 is s11o,,"m belm;;,,:

Ex:tern::-:.l Debt of Colombi?,l/

(in thousand ~esos)

End Ne.t1onal Dep"'.rt- Huni- lIortg[1.ge Tot~l

of: ment,::d cipel J3:mks

1923 21,085 3,000 24,085 1926 14,501 27,132 12,939 8,921 63,493 1929 70,295 66,186 24,098 53,221 213,800 1930 68,056 64,417 23,995 51,682 208,151 1931 64,071 63,052 23,361 48,563 199,047

Note: The re,te of eJcchange for the peso r.ne!. the U. S, dol1,':'.r r"nged from e.bout $0.95 in 1923 to $0.996 in 1931.

b) Course of Def.<>.ults

After h"ving consistently met its extern::>1 clebts fron 1905 to 1930

Colombie, def.:'l,ult first on its extern:'! dep"rtl:1ent~.1 "ncl municip:'l clebts in 1931

and finf:llly on its nC",tion"l extern!",l tlebts in July 1933 1;Jhen one-third of the

externd interest payments t'l~,S mo,de in c:<.8h [In;:'. the b"lrnce in scrip. This

parti~l j?ayment qrr<mgement continued through Ju.'1.e 19~\lh. Interest cO'l.1;?ons ma.turing

See Appendix I for a detailed list of the dollar loans included in these totals.

6 ..

bet't11een Janue,ry I, 1934 :-no. J.';'l,nuD.ry 1, 1935 uere pr.id in 4~ fund.ing certificRtcs

due JS;:lU2.rtJ 1, 1946. fTo further peyments \-,ere me,de to December 31, 1939 eXcellt

on the scrip, ':/hich \11:3-S p~.1d off in 1937, f,nd on the 4% funcling certific~tes,

on '::hio11 full interest !",ncl nmortiz('I,tion pr>yments 'tJere reguln.rl:r m~cle.

13;l 1934 the tot..,l IIDnu:->.l service requirements on the outst"ncling

extern~,l funded debt of the n8.tion91 government, departments, municiI'di ties "'.1:0.

priv::-·.te mortg0.ge b[lllks ::-mounted to around $18,500,000, of \1hich the equivC'.ler.t

of ~;2 million \'le.s :i.Jen,ble in :i.Jounds sterling.

The ColombiDn Government ceased to issue scrip for interest due

January 1, 1935. "nd. after th""t tiDe, failec. to me)re Dn;~r cash pa~rments eycept

on the old scrips. Furthermore, no prOVisions for service of the external debt

\'Jere included in the 1935 QUo. 1936 budgets. Fror:} 1935 through 1941 only $2.5

million 'VQS paid on the external debt ser'Tice .::'.8 contrs.steeL to the tatr.l con­

tr?ctual reCl..uire:r:lents during this lJerioct of $133 million. Inte::-est p['yments uere

resumed in 1940 on the nationr'l do11~,r 1o"'ns of 1927snd 1928 due 1961 !'l,t r').tes

of 3% per ~nnum.

c) Ca.uses of Defo.ul ts

The rne,jor defaults of 1931"ncl 1933 arose from overborro\ving, the '·JOrld­

\'lide depression l a flight of c::'yitol from Colorn'0ia nncL, fino.11y, hostilities t·:ith

Peru.

The yen"r 1931 \"1as a particulD,rly difficult one for Colombi.,.. In

add! tion to other unf""vorable f~.ctors" the abrU1Jt cc>nce11!:ltion of longstanding

credi t lines granted to Colombia's be:1.ks by many foreign commercial b;.>nks cs.used

a. serious flight of capi t[',l from the country •.

In September 1931, ,,,hen the decrea.se in the gold reserves of the

Centrd Rank assumed. threo,tening proportions, avittu?~ emb?rgo on 0'11 but the

most urgently needed imports 1.!D.S put into effect, ['long 'ITi th rigid control of

" .

foreign exchange translwtions. :lhen these exchnnge restrictions ',\Tere im:posed,

1 t WD,S the decIa,red intention of the government not only to continue to pey in

full the service on 1 ts mm extern~l debt but also to perMit the depe,rtments

and IDlmicip!"!.1i ties to do like\iise. H011ever, the government bec<:'me f~"cecl "lith

the !'Ilternative of restricting transfers of pa,rt of the external debt service

or of further depleting the gold reserve. It decided to defer payments on p~rt

of the external debt until the gold reserves of the country could <~G~1n be

restored.

The external o_ifficulties of Colombie. in the early 1930' S \'fere further

complicr.tecl. by .~ conflict ".!1 th Peru over Letici'J. The purch".se of \'J''tr ffic.teri9,l

(;').bro~dt plus increl.'.sed c:ar eX:"JencUtures vri thin the count!';" ",'18.8 e, hee,vy drain

on Colombi.,.,} s resources,!C1.llcl incre".sed the Government t s difficulty in [lccumu­

lG',ting the neceSSC,T'J 10c'711 currency. If the full nc,tion",l goverr .... '11ent extern:'·1

debt service hr.d been ~Jnid in 1934, it !;{ould h."ve ~bsorbe(l. 33< of the total

estimated government revenue for the yee,r.

The course of Colombi?} s full p~yments, pD.rti~l Dnd total defo.uJ.ts in

the 1930' s, and the resumption of payments on the extern:J.l (tebt is ir;.dic'lted

in the table on pD,ge 8:

,-

Year End

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 194:1 1942 1943 1944 1945 1946 1947 1948 1949 1950

E - Estimated

8.

Colombia.' s Extern&l Debt Service, Contr'Cctuf:'lY Adjusted and Paid

(In millions of ~.S. Dollars)

Estimated Original

Con t ractR.!tl

18.0 18.0 18.0 18.0 18.0 18.5 18.5 18.5 18.5 19.8 19.0 19.0 19.0 19.0 19.0 19.0 19.0 19.0 19.0 19.0 19.0 19.0

Revised :Basis Under Debt Adjustr~ent

P1!;'ns

16.0 16.0 16.0 16.0 16.0 16.0 16.0 10.0

6.0 '4.3

Actual Amounts Patel in

Cash.

18.0 18.0 5.0 5.0~1 1.5a, __ 21

0.1 0.1 l.ll: 0.8 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.8

V Excluding ~ll intergovernment:::l loan service requirements and paY1:nents. (See Appendix II fordet~ils)

gJ Interest on ncttional issues ($1,,5 million) p('\icl. one-third in c~tsh I:md t\-I0-thirds in non-interest beering scrip due end prdcl. October 1937.

21 Interest on n8.tionnl issues paid in 45~ funding certific[,-tes \111.iOh "lere paid off uhen due J2nU:'1ry 1, 1946.

9.

d) Final Adjustment of the Extern?l Debt

Since the defaults in 1931 and 1933, ColombiE' has .-,dopted 0. number of

me.:\sures for the adjustment of its n!'l,tionl?l extern~,l debt [lnd h9,S no", 8,lso

put into oper!"tlon fl, plnn for settlement of the debt of its political sub-

divisions. The debt p18.ns were designed to reduce service payments and correct

defaults on ell external funded public debt.

Settlement of the N?,tion~,l Dolbr Debt: In 1941 Colombie, took the first

major step t01'Tl'l.rds ry, perm:ment settlement of its def~ults. On June 5 of thD.t

ye"),r the Republic offeredY $50 :r:;i1lion of extern~l sinking fund 3% :Hationct1

bonds d["ted October 1, 1940, C'nd due October l, 1970 I in exch"nge--p?r for lY'.r--

for outstcnding extern..,l sinking fund 61 s of 1927 due J"nur;l,ry 1, 1961, rnd 6'a

of 1928 due October 1, 1961. Certifies,tes for half of the interest~rre8,rs

convertible into the lO,bO"J'e 3;~ Republic bonds ''lere "'],so to be Ir,id. As of

December 31, 19"19,"11 except $922,500 of the 1927 ;nd $954,500 of the 1928

issues h.s,d been exch?nged for the new 3) Republic bonels.

Identical 35'& bonds \V'ere offered on June 25, 1942, to the ho1clers of

the 6~ ~nd 7% A.e:ricul turd Mortf?-j2:6 ::S"'nk bonds gu",rry,teed by the Colombip.n

Government, with convertibleal certificfl.tes of $100 for interest ~,rre~rs of

approximately 7-1/2 ye8.rs, ::-J'lounting to $447 to $540 on e8ch $1,000 bond._ $4.7

million of these bonds h"'.ve been exch2nged for ne':1 3% bonds and only $623,500

of old bonds remG.ined outst~!'nding ."s of December 31, 1949.

At the SPJ!le time, holo.ers of seven issues of non-guaranteed mort,o:~ge

bonds-Bank of Colombi?,~ Hortf'''ge Bank of Bogot~, 8nd !Iortg~_ge BMl: of Co1ombi9.-­

\V'ere offered the same 3% Republic bonds ~nd convertib1egj certificates for

Y The Foreign Bondholders Protective Coa~ci1, Inc., ~o~ised bonc~olders th~t it could not "recommend their plan to the bondholders r:,s 2. just, fair ~nd equitA.b1e offer.1I See Appendix Pl.

at Convertible into 3% Republic of Colombia bonds, due 1970.

10.

75% of the pe,r emount \'1i th 10 to 10-1/2 yecTs' interest C·.rre"rs c,"nce11ec:. Ezce~-,t

for $940,000 of these bonds aJ.1 hC'!.ve been exchpnf,:ecl for neH 3% bonds.

During the period tht'\,t the old Hortgage B0nk bonds, gur-,r"nteed "nd

non-gu".rr-nteed, \'Tere not ceins serviced either "'s to intere~t or sin~:in:?: f'mCl.,

more than 50;~ uere reported as repB,triated ,",t ver:;; 1m! prices.

The total par amount of the mortf,:age issues discussed ''',bove '!l[1S

listed b~r the trustees as outstanding in the amount of !',Ilproxim':'.tcly $22 milEon

at the time of their defa·\.llt. Since. ho~.reyer, r-. gooo. ::?ortlon, possibly 60~~,

h[1,d. been rep.."trigtecJ. at Yery lou lJrices \>Then the bonds \'lere in o.ef<'ult, it is

estim9.ted that the bonds held outsicLe of Colombio, emounted to less than $10

million, e,t the time the debt 0,dj'J.stment 1)1p,n uent into operf'tion. None of the

debt adjustment pI ",."lS di scuss ed ~bove recei "led the ~.1):rrov~1 of the Foreign Bond.­

holders Protective Council, Inc. (See Appeno.ix IV for det[1.Us.)

On November 15, 19~4 ne~'r 3;~ government bonds (uhieh h;;.(1. been further

repurchased in the market by the Co1ombinn ruthorities) ,'rere offered, ':Jitb. coupons

det9ched fron 1941 through 19{4, to ~101ders of 8~ f'ncl 6-' 12~ City of Bogot:" bonds,

\;,i th cancellp,tion of 13 years' lY'st clue interest n.':lou.n.ting to 01,040 on 8C'.ch

$1,000 8% bond ['.ncl to $834.50 on e~.ch $1,000 6-1/2c? bone'.. The exch.?nge agent

advised the Council of Foreign BonCll1.o1ders th,.,t less them $2,800,000 in Bogota

bonds uere in the h"'nds of the public, inclicating that, during the }Jeriod ,-!hen

Bogot~, bonds were not beins serviced, more th<'.n 60% Vlere re]?~tri.<'),ted :'.t very

101'" prices. liThe Council p.dvised bondholders tb,t it '-"fI,S not consulted. in re­

gard to the offer, that it took no l)art in its discussion, D.ud could not juc,ge

''lhether representations rnD,de in beho,l: of the bondholders \;,ould h,,),ve t.f:ected

the terms, 'lnel further t:V?,t uhile considering unilnter:"'l offers ':me:' complete

cancellD,tion of past due interest :lere both unsound in principle, th2,t the

Council could hold out no prospect of [" better offer to the boncll101ders. 1I

-,

11 ..

The City of Barranguilla h0.d adjusted the default on its 8% bO:1cls

alrec.dy in 1939 by offering new' city 4% bonds due 1964 p~,r for pr-r, plus s",;ne

bonds in paYment of 60% of t~e past due interest.

Settlements of Other DeIlA.rtmental and I-iuniciIl!'l Dollar~: In

October 1949 there still remt:'dned some $34 million in old bonds of dep~rtmental

ancl municipal issuesll on "/hich no interest had been paid for seventeen ~ret",rs

(8.bout ~;35 million back interest). ,

On December 22, 1947 f p, planat for payment

of these obligations hed been rl;',tified b;\r the Federal Congress. This plan

called for the issuance by the oriGinal obliger of ~ 3D-year bond, guarE~teed

as to interest, siru<ing fund ~nd principal by the Colombian Government. The

new bond "!ould carry interest ~,t the rate of 3~, due in 1978, ::md interest arrears

for more than seventeen years (about ~l t 100 per bonc1J, t>Toulc1 be settled by issuing

$200 of new bonds per $1,000 old bond. The plan 8lso provided a cumulative

annual sinking funcl of 0.6;; for the first five ye.?~s nncl 1% theref',fter. The

federal la,v gu,2.r,9nteed foreign exchange for the service of the nel'; bonds ~nd

provided the establishment of the necessary budget credits "lith ,,,hich to meet

the obligations in the Case of net" defaults. As shown in the Registration Sk.te-

ment to the Securities ,:->nd Exchange Commission, the Foreign Bondholders Fro-

tecti ve Council he,s negotiatecl this debt settlement ui th the Colombian officic.ls

Clncl recommended the ~.cceptence of the re-a.djustJ:1ent plDn to the bonC1J'lolders.

As of . July 15, 1950, $2.1.0 million or about of the total bonds out-

stDnding (;";34 million) J have been assented to this debt '3.djustment l)lfl.n "nel it

is expected th8.t practically all of the bondholders \'1111 he.va assented by the

lat'lt half of 1950.

Through offici?l purchases I'md repatriation, the tokl amount of bonds reportedly had been reduced from $73 million (shmTn by old trusteos) to $34 million principal amount. Plan negotiated "\1i tIl [lnd received the approval of !i'oreign Bondholders Pro­tective Council, Inc.

13.

Description Principal Exchange for Amount of 3% Bonds of Repaid or Dec .. 3, 19~8

Issue or Debt 1940 - 1948 Retired Outs tnnu.i..11€">-

Dollar Bonds Issued by the Nation8~ Government $113,222,679 41,839,500 71,625,366 41,596,213

Dollar Bonds Issued by the' Departments ~md lIunici-palities 92,939,200 2,768,500 56,516,900 36,422,300

Dollar Bonds GUc~xanteed by the Republic 16,000,000 4,706,500 15,376,500 623,500

Dollar Bonds of Certain Bflnks Not Guar~nteed by the Republic 22,009,500 4,459,000 21,069,500 940,000

Sterling Obligations of the Nc.tional Government 11 1723 1 564 5,400,914 6 2299,748

Grant Total ~a5518941943 53.763 2500 169 1990.180 85 2 881.761

Source: Registration Statement to Securities end Exch8nge Commission, October 3, 1949.

As C9D be seen from the p.bove table, some $256 million l:lO.S originally

issued of the securities outstemo.ing f'>.t the end of 1948. ~lost of these securities

l'fere issued in the t,,!}'enties. Since th2.t time some $170 million ~)8.r v r lue of the

original bonds tvere repaid or retired. Host of this Ftlllount c'las acquired by

l)urchase in the open market during periods in \"1hich p~rtia1 or no interest ,.ras

being paid on the bonds D-'I'ld ",hen the prices of the securities uere beloT:l 40% of

the par value of the bond. There remnined outstanding in 1948 2.bout $86 million

\'lTorth of extern!?,l publicly-issued, pri v".tely-held C!.ebts. Sinldng fund opere.tions

through purchases in the open me.rket h?ve resulteD. in reducing this ;:>.mount out-

standing further ilnd it is estimated tho,t by the end of 1950 ~.bout $81 million

of this debt \Till be outsta.'I'lding.

The net effect of carryin€,; out the va.rious debt adjustment pltns dis-

cussed ".bove, t;,long "Ii th the gener::;l improvement of economic conditions in

Colombia Dnd the rest of the 'l<lorld has been ". m.?terie.1 improvement in the price

of the externDl oblig:~.tions of Colombie, ~.S ShO\1Il in .l\.ppencUx III.

12.

Settlement of Sterling Debt: An agreement of 1942 concerning t~e

direct sterling debt became operative in JanUB.r.l 1944. Holders were offered

3% 30-yeax funding Republic of Colombia bond sto~~. par for par plus additional

bonds, equd to 50% of interest erreQrs a":'.ting from 1935 to December 31, 1939.

~nd 60~ of interest arre~rs from January 1, 1940 to March 31. 1942. From

April 1, 1942 interest 'tlas pa.yable !",t one-half the old contr'lctuB.l rE\tes. The

sinI:ing fund, operating from April 1, 1942, lv-ould repey .;-J.l assented bonds rnd

funding stock at par by 1972 if not previously redeemed or amortized. The

offer tv-as 8.ppliC8.ble to <'11 bonds of the follo1!ling issues: 5% (Bogote,-Se.bana)

Re.ilwr:y LOf:1n of 1905; Gold Loan of 1911; 6:~ debt of 1913; 5% Gold Bonds of

1916 !'nd 6% bonds of 1920 2.11 direct Republic of Colombie. obligations.

Holders of Republic government-glk"lxa..TJ.teed ;Agricultural Mortge.ge Brink

of Colombie. 6-1/2% sterling bonds received the follouing offer: arrears of

interest for 7-1/2 yes.rs to April 1942 to be cancelled, interest from that date

reduced to 3% and fine.l redemption date extended from 1959 to 1972; bondholders

to receive a ce.sh bonus of 5;~ r-nd cumulative sinking func. to operate from

April 1942.

The amount of debt under e8.ch c.-:tegory of the debt ;",.djustment plan

described above is sho\\Tll in the trcbul?r form on J?3.ge 13.

APPENDIX I Colombian Loana Floated on the New York Market, 1920-1929

(in thousands of dollars) ..

Tel"m Inte-Borrower Total New Refunding Date in rest Purpose

C~ital Years ~ Republic of Colombia 445 445 May 1920 7 Purchase of locomotives. Republic of Colombia 5,000 4,000 1,000 Nov. 1922 5 6-1/2 Retire floating debt and other purposes. Republic of Colombia 10,000 10,000 Aug. 1926 1/2 5-1/2 Not stated. Republic of Colombia 5,000 5,000 Mar. 1927 1/2 5 Not stated. Republic of Colombia 25,000 15,000 10,000 Sept. 1927 33 6 Retire Short-term loan and public works. Republic of Colombia ~2~00 35,000 Mar. 1928 33 6 Highway construction.

80, 45 fi9,445 11,000

Agricultural Mtge. Bank 3,000 3,000 May 1926 20 7 Provide working capital. Agricultural Mtge. Bank 3,000 3,000 Feb. 1927 20 7 Provide working capital. Agricultural Mtge. Bank 5,000 5,000 Oct. 1927 20 6 Provide working capital. Agri cultural Mtge. Bank 5,000 ~,ooo Apr. 1928 20 6 Provide working capital.

lb,OOO 1 ,000

Total liability of Republic 96,445* 85,445 11,000

Pept. of Ant10quia 3,000 3,000 Oct. 1925 20 7 Retire internal and external debt principally. Dept. of Antioquia 6,000 6,000 Apr. 1926 20 7 Additions and extension of railway. Dept. of Antioquia 3,000 3,000 Oct. 1928 20 7 To retire debt. Dept. of Antioquia 820 820 Nov. 1926 20 8 High'ilays. Dept. of Antioquia 2,500 2,500 Feb. 1927 20 7 Railroads. Dept. of Antioquia 4,000 2,647 1,353 July 1927 30-1/2 7 Retire internal debt for highways. Dept. of Antioquia 4,000 3,700 300 Nov. 1927 30-1/2 7 Retire internal debt for highways. Dept. of Antioquia 3,750 3,750 Feb. 1928 20 7 Railway improvements. Dept. of Antioquia 4,350 4,350 June 1928 30 7 Retire debt and for highways. Dept. of Antioquia 11. 750 ~o Jan. 1929 20 7 Railway improvements.

33,200 25,5 B 7,653

Dept. of Caldas 6,000 6,000 Mar. 1926 20 7-1/2 Railways and roads. Dept. of Caldaa 4,000 4,000 Nov. 1926 20 7-1/2 Railways and roads. Dept. of Ca1daa 200 200 Aug. 1927 19 6 Not stated.

10,200 10,200

Borrower

Municipality of Medellin Municipality of Medellin Municipality of Medellin Municipality of Medellin

Total Municipal loans

Total loans to Central Gov't. Agricultural Mortgage Bank, Departments & Municipalities

Banco Hipoticario de Colombia Banco Hipoticario de Colombia Banco Hipoticario de Colombia Banco Hipoticario de Colombia

Banco Hipoticario de Bogota Banco Hipoticario de Bogota Banco de Colombia Banco de Colombia

Total to private banks

Total to mining companies Total to oil companies

Total New Capital

2,500 2,500 3,000 2,500 3,000 3,000 9z000 6z274

17,500 14,274

30,835 24,684

200,831 171,777

6,000 6,000 3,064 3,064 4,000 4,000 ~40 1~840 14,904 14,904

3,000 3,000 3,000 3,000 2,000 2,000 2,000 2,000

10,000 10,000

24,904 24,904

1,500 1,500 20,846 20,846

APPENDIX I - Page 3

Refunding Date

1920 500 June 1924

Jan. 1927 2,726

3,226 June 1928

6,151

29,054

Nov. 1926 Feb. 1927 Nov. 1927

- Apr. 1928 --.- ... -

May 1927 Dec. 1927 May 1921 May 1928

Term Inte-in rest

Years %_

3-1/2 6 25 8 25 7 26 6-1/2

20 20 20

20 20 20 20

7 7 6-1/2

7 7 7 7

Purpose

Public works. Retire debt, publ:i.c utili ties. Public utilities. Retire external and internal debt, public

utilities, sewer and paving work.

Provide working capital. Provide working capital. Provide working capital. ~~erican shares.

Provide working capital. Provide working capital. Provide working capital. Provide working capital.

Borrower Total

Loans to Central Government 80,445 Agri c. Mtge _ Bank 16,000 Departments 73,550 Municipalities 30,835

Total Gov't, Agr. Mtge. Bank, Dept. and Munic. 200,831

Loans to Private Banks 24,904 Mining companies 1,500 Oil companies 201. 846

248,081

New C~ital

69,445 16,000 61,648 24,684

171,777

24,904 1,500 20,~46

219,027

APPENDIX I - Page 4

Term Inte-Refunding Date in rest Purpose

~ ....•. ~---~ ...... -

11,000

11,903 6,121

29,054

29,0-51"

Years %

* Does not include issues floated originally in sterling and resold in the United States. Such a case, for instance, is the b200,000 of the 1913 sterling loan offered to United States investors in January 1922.

** Does not include $1,000,000 reported to have been obtained by the Department of Haila and listed by the Banco de la Republica in its compilation of foreign loans contracted by Colombian Departments in its issue of December 1927.

Source: The Capitalists and Colombia, J. Fred Rippy, pp. 156-159- Handbook of Arr1erican Underwriting of F'oreign Securities, U.S. Department of Commerce.

APPENDIX II .....

Estimated Interest and Amortization Pa~menta on External Debt of Colombia

(Expressed in thousands of U. S. dollars)

1./ 7.!xport-Import Bank Dollar Bonds

Out stand_.Jl~.::. 1'2/11J49 Und~abUrsed Portion 12i11l42 Out- !mor- In- Out- knor- In- Out- A.'11or- In-

standing tization terest Total standin2' tization terest Total §tandin~ tization terest Total y

356 19.50 83.880 1,363 2,.530 3,893 22,302 3.k73 839 4,312 11,744 814 1,170 , 19.51 80,561 1,219 2t 429 3,648 18,829 3.'377 714 4,291 16,617 1,230 550 1,780 1952 77.607 1,309 2,339 3,648 15,252 3,577 573 4,150 15,387 1,480 591 2,071 1953 74,433 1,514 2,243 ).757 11.675 3,448 428 3,876 13.908 1,565 ;35 2,100 1954 70,753 1,681 2,131 3.812 8,227 2,845 297 3~142 12,3L13 1.608 476 2,084 1955 66,662 11'805 2.007 3,812 5.382 2,380 186 2,566 10.735 1,608 414 2,022 1956 62,267 1,938 1,874 3,812 3,002 1,420 103 1,523 9,127 1,608 353 1,961 1957 57,545 2,082 1,730 3,812 1,582 925 51 976 7,519 1,608 292 1,900 1958 52,472 2,235 1,576 3,811 657 422 21 443 5,912 1,608 2}0 1,838 1959 47,022 2,264 1,411 3,675 235 130 8 138 4,304 1,608 169 1,777 1960 41,361 2,434 1,241 3,675 105 105 3 108 2,696 794 108 902 1961 35,276 2,617 1.058 3,675 1.902 373 72 445 1962 28,735 2,813 862 3,675 1,529 170 61 231 1963 21,703 1,236 651 1.887 1,359 170 54 224 1964 18,614 1,075 558 1,633 1,189 170 48 218 1965 15,927 1,155 478 1,633 1,.019 170 41 211 1966 13,039 1,242 391 1,633 84-9 170 34 204 1967 9.935 1,335 298 1,633 679 170 27 197 1968 6,597 1,435 198 1,633 509 170 20 190 1969 3,010 1,204 90 1,294 339 170 14 184 1970 169 127 8 135 1971 42 42 1 43

(cont ir!Ued)

1950 1951 1952 1953 1954 1955 1956 1957 19~8

1959 1960 1961 1962 1963 1964 196.5 1966 1967 1968 1969 1970 1971

Out­standi~

y 273 137

O.F.L.C.

Amor­tization

136 137

In­terest

6 3

APP~NDIX 11- Page 2

(EA~ressed in thousands of U.S. dollars)

IBRD Loan

Out- Amor- In Total standinr; tizt:ttion terestJi Total

142 2~000 121 121 140 ),8)3 166 166

5,000 1,000 166 1.166 4.000 1,000 131 1,131 3.000 1.000 96 1,096 2,000 1,000 61 1,061 1,000 1,000 26 1,026

(Co nt inued)

T-::-~asury Notes

Out- Amor- In-standi!!B:, tization tereRt Total

?J 7,650 2,550 230 2,780 .~, 100 2.550 153 2,703 2,550 2.550 77 2,627

APPENDIX 1I- Page '3

(Expressed in thousands of U.S. Dollars)

fl/ 5./2./ Grand Total'll Total Dollar Debt Sterling Bonds

Out- Amor- In- Out- Amor- In- Out- Amor- In-standing tization tereflt Total standing tization terest Total standing tization terest total

1950 127.849 8,336 4,082 12.418 5t826Y 203 175 378 133,675 8,539 4,257 12,796 1951 125,077 8,713 Lt,015 12.728 5,419 216 162 378 130.496 8,929 4,177 13.106 1952 115,796 9,916 3,746 13.662 4.988 229 149 378 120.784 10,145 },895 14,040 1953 104,016 7,527 },337 10.864 4,531 242 136 378 108,547 7,769 3,473 11,242 1954 94,323 7,134 3,000 10,134 4,046 257 121 378 98,369 7,391 3,121 10,512 1955 84,779 6,793 2,668 9,461 3,533 272 106 378 88.312 7,065 2,:774- 9.839 1956 75,396 5,966 2,356 8.322 2,989 288 90 378 78,385 6,254 2.4l.!6 8,700 1957 66,6l.),6 4,615 2,073 6,688 2,413 306 72 378 69,059 h,921 2,145 7,066 1958 59.041 4,265 1,827 6,092 1,802 324 54 378 60,843 4,589 1,881 6,470 1959 51,561 4,002 1,588 5.590 1,154 343 3c 378 52,715 4,)45 1,623 5,968 1960 44,162 3.333 1,352 4,685 Lt68 23k 14 248 44,630 3,567 1,366 4,933 1961 37.178 2,990 1,130 Lt,120 37,178 2,990 1,130 4,120 1962 30,264 2,983 923 3,906 30,264 2.983 923 3,906 1963 2),062 1.406 706 2,111 23,062 1,406 705 2,111 1964 19.803 1,245 606 1.851 19.803 1.245 606 1,851 1965 16.946 1,325 519 1.8h4 16,946 1,325 519 1,844 1966 13.888 1,412 425 1,837 13,888 1,412 425 1,837 1967 10.614 1.5°5 325 l,E30 10,614 1,505 325 1,830 1968 7.106 1,605 218 1.823 7,106 1,605 218 1,823 1969 3.)49 It 374 104 1,478 3,)49 1,374 104 l,k78 1970 169 127 8 135 169 127 8 135 1971 42 42 1 43 42 42 1 43

Note: This table does not include charges on debts arising from: (Outstanding 12/31/48) Maritime Terminal at Barranquil1a- 6% $399,238 Docks at Buenaventura - 6% 250,004 Central Telephone Company 2.777,700

If these were liquidated over a five-year period, charges ~rould amount to approx. $81).544 annually_ (for footnotes see next page)

j.

I.

APPENDIX II -Page 4 (continued)

11 It was assumed that dollar bonds would be bought in at an average of 40, except for Barranqullla bonds at 70. Includes non-assented bonds at new par value.

~ Assumed to be outstanding on 1/1/50 if normal amortization takes pIece in 1949.

21 Includes estimated commitment fee.

~ Excludes $28,170 R.F.C. credit.

21 Includes Fr. Fcs. 1,553,227 (~6l,636) of 6% Bonds of 1913 which are payable in France at Fcs. 25.20 = ~l.

21 It was assumed that sterling bonds would be bought in at an average price of 50. Includes non-assented bonds.

zj Excluded from the Interest, Amortization nnd Debt Table is a 5% 1950-1963 $25 minion loan to P8.Z Del Rio Steel Plant from P',ris tend Nether ... lands :Sank interest Imd Frenc:' mO.nu:.C'·',cturers negotiated throllch the Colombian loc~l br:mch of the "BanquG frs,neaise et ItaUenne Pour Lamerique Du Sud" acting D.S intermediary. It is further 1.mc1erstood that this is only about half of the iJresent 10M and th,'Ctt the final 2Jno:mt may be as much as ~;50 million. The present ':;25 million 'Jould c<:1.11 for service payments of [\bout:3.2 million per yeL:.r rea.ching th~.t level in 195Ll u11en yearly ~"mortization payments begin. In the event that the addi tional ~25 million is gr9.nted, service chl.'l,rges on this project [1.10ne would rise to $6.4 million and ,,,ould raise the present total service p,syment!3 including all other external service pa..,V1Ilents of :)10.5 million to $16.9 million.

\ .

APPThTDIX III

PRICES AND YIELDS OF SELECTED COLOMBIAN EXTERNAL BONDS

Coupon 3 per cent 3 per cent· iv,aturi ty Oct ]"970 Oct 1972 JJ Call Date Apr and Oct Apr and Oc Call Price 100 100 lv;arket New York London

Price Yield Price Yield End of: r1. % 70

........ 1937 16 1/2 2/ •••••••• 1938 27 1/2 2/ •••••••• 1939 34 -I 2, •••••••• 1940 27 1/2 ~! • ••••••• 1941 31-r/g 10:82 32 1/2 "2/ •••••••• 1942 3~ 1/2 9.10 44 "2/ • •..••.• 19~ 42 8.52 44 1/2 2/ · ..... ,. .19 I 49 1/4 7.44 56 2/ •••••••• 1945 5~ 3/8 6.33 55 1/2 6-:-61 ••••••.• 1946 a5 1/4

6.72 66 5053 ........ 1947 8.42 57 1/2 6.53 • ••.••.• 1948 36 10.52 51 7.47

• .June--1949 a9 1/2 9.80 45 1/2 8.41 • .July 2 3/4 9.21 46 1/2 8.27 • .Aug 4 / 9.09 45 1/2 8.38

4a ~!a • • Sept 8.83 4s 1/2 8.38 • .Oct 42 1/4 9.31 41+ 1/2 8.57 • .Nov 41 1/8 9.54 44 1/2 8.56 • .Dec 41 5/8 9.45 44 1/2 8.66

• .Jan --1950 42 1/2 9·35 44 1/2 8.56 • .Feb 44 1/2 9·06 44 1/2 8.82 • .ihar 46 8.69 47 1/2 8.11 • .Apr 46 1/2 8.59 48 1/2 7.96 • .lviay 46 5/8 8.57 46 1/2 8.33 • .June 45 1/2 8.77 47 1/2 8.21

*Agricultural ~iiortgage Bank, guaranteed by national government.

1/ Callable for sinking fund only.

~ In default.

APPENDIX IV

Statement of FOREIGN BOUDHOLD:8.S ?ROT3CTIV?': COUlWIL, Inc. The Republic of Co 1 omb i:>, h~,s t.od:3,y announced th''.t it \1ill offer,

effective June ~O, 1941, the holders of the REPU:BLIC OF COLO:iliIA 6% TImmS DU;; J.".}:TT],\RY 1, 1961 and RE..'PlJ.BLI C OF COL01 ;31 ... 1. 6;~ B();TDS DU'!'j OCTO ::<:-:3. 1, 1951

to exchtlnge those bonds for D. net,! issue enti tIec1 REPU3LIC OP COLOli:J3IA 3% :sAT-:RIUL sIi;T;m:m FUlID

DOLL.A.!'t 501TDS, Dated e.s of October I, 1940, due October 1, 1970.

The Republic also offers the ne,,! bonds in g :;'Jrincily',l ~.mount eqUD.1 to 501 of the fe,ce ~l!Iount of the COU1JOnS of the 1927 bonds m".turinr:; July 1, 1935, through July 1, 1939 inclusive, and 50;; of the i'D,ce t'l'lount of the COU'J)Ol1S of the 1928 bonds m~turing ~pril 1, 1905, through October 1, 1909 inclusive, against the surrender of such coupons. On the 1927 issue interest ''lill be p?id in cash :J.t the r<',te of 0~ per ",nnD.":! for the !leriod Jul;r 1, 1940 to October 1, 1940. .\6 the neu bon'"-5 ~Jill be in (l,enomin",tions of ::'1,000 rmcl ',500, Certifi­c:'.tes ~iill be issued., 1.Jit~lin the tine lini t 1)rovi cl.ed in the of£'er, \'1i th re­spect to nn~r CO'll.:pons 50; of \lhosa f"ce ~mount is less thml :.~500. The Certifi­c!"tes in multiples of ,;500 mc,y be surrenclerec., ~'Ti t~'lin the periocl described in the offer. in exch8.n~;e for the neu bonds ~'.nd 0. ne',,! Ce:;:tific ,te representing 8Xl.Y excess over (500 or a :nultiple thereof. Tot:::J_ service of t;le ne"l bonds for the first five ~re",rs l'fill be :,n,800,OOO :'.nd: ,0('0,000 per f'nnurn there1,'fter.

The Council feels th~,t it r:mst protest 2'b::',inst the in'(,l,e('!u::"cy <:Ind unf;:>,ir­ness of this offer uh1c11 uz::w not b<.::.sed on \'!h,,:,,t Oolombie. :)lainl:y C1:'ll 0.0. It represents the most Colomoi-, reluct~ntly h~,s been ':rilling to do, t',king ~'.d­

v811tc.ge of the necessities of the bondholc'.ers. The sovereign J.)O'ler unile>ter­ally to P8Y out onl~t a fr,",ction of UhD.t 'IP,S stipulc,ted rloes not canfer the right to do so. Irot\'ll thstf'ncling the foregoing i'2.cts f',nd the :)09i tion of the Council, tr.e Council does not feel justified in exp€lctinr th["t t~1.e Colombian Government T,!ill mru:e Emy more f~vorC',ble pro~)os['.l to t:1.e bono.holc:.ers.

The Council does not consider this ~. just, f:>.ir and e(ll1.i t::ble offer beca.use:

(a) A ver.J subst811ti[l,1 cut in interest is IJroviued, entirel~r out of line "Ii th Hhnt Colombi ...... C8,n eto ancl not in consone,nce Hi th her },)081 tion as a credit risl:;

(b) The offer dincriminates""f.'9.1nst the bondholders in :;;>rovic.ing only 50% interest '!lhile servin:~ internf'.l bonds and short-term crecH ts in full.

The Colombian GOVernment bJ, its clecree of July 17, 1940 h".!~ the right to stop p[l,yments if 'C',t an~r time economic or fisc!'1.l conditions prevent the countl"lJ from promptly [I,nc. completely servicinr; the nevI issue. The Council declined to gi ve approvB.l to three previol1.s suggestions of this nf,ture. The present offer provides that in the event of suspension of the remi tt.:'J,nces for pl',yment of princip'?,l, interest or sinking fund on the ne", bonels, the holders thereof sh0.11 therenfter be entitled to the ]?,:,yment of service nccording to the tenor."ncl ,

under the terms of the Outstt,ndin(~ :Sonds. Furthermore, the offer provides thl),t the Republic ';rill not offer to holclers of other extern~l bonds of the Re)ublic nO"'T outst~.no_inb :-my settlement on terms more fr'.Vorf'.ble than those cont:dned in this Offer, t!1e 70ncls !'lh'.ll be anti tIed pasl".1,1 to receive pro}.JortionD.tely more f'\vor'·.ble treetment.

These Colombian bonds ·),re \1idely sc -.t tered 9moug thous';,nds of smo,ll holders in every St'·,te in the Union and the District of Columbi". lrlho were induced to invest in these bonds in reli('.nce U'Jon the reiJresentgtions made by the Colombien Government uhen it ~,ske(l them to lend. it ;60,000,000 to

.APPEHDIX IV--Pa,ge 2

builct railro:.\ds, highu:!ys. port ~nd navigC,l,tion f:',c11i ties :'nd other ::,)1'0-

ducti ve 'dorks. In the prospectuses issued in 1927 ::mct 1928 the i:inister of Finr.nce of Colombi0, set forth thnt upon completion a.f th::.,t financing Colombi",' s m;\tional debt, intern",l ['.nd externn,l ~-!Ould be flequiv~t1ent to less them :511 :?er cf;'.pi te, 'lhich is among the lou8st for :m,y of the C01ll1tries of the vorlcl, Md compc,res \"i th estim::ted fii;ures for Ar$ent:ln~, of :-;109 and for Urugu(',y of :;125. II The ;Iinister of :'in~',nce st2,ted also th:J,t uvhen compared "lith on estim2,ted \'re8..l th per C.:1pitC', of over ';750 t ",ith the volume of its forei01 trr>,de and its annwl income, it c:"C,n be seen th:Jt the debt of the Republic is incleed s::!Q,11. II He also saicl lithia unUSU{'.l 8i tw,tion is 1:11'(;e1y exp1rdned by the subsk,ntia1 annu;.',l sUXlJluses of or(1,inary revenues over ordinary e~enditures,1I .9Ild refers to the country's ve,st resources of co(',1, ~)etroleum, [,:oIC1., glr.,tinum, copper, iron 2nd other minerals, ,""nd pi,lso th~~,t Co10mbi'). is the \-,orId' s chief source of sup~.lly of emerald.s. It h~s not been suggested th("t Colombi?, c?..nnot nO\1 m."'?:::e 0n adecn..l"',te offer, In this connection it is pertinent to (lUote in tr~'nsl",tion n. st(:"tement of the ilinister of Fin::.nce of Colomb!::. reg·'.rdinf the teml)or?,ry offer of 1940 on the dolb,r bon(ls. (l:er.lori·~ e1e :~t\ciencle, of 1940, piece 1:':7.)

II In accordc.nce VJl th the agreement entered into durin!; the yeo.,r 1940, the Government (ioes not h"',ve ~,!w chnrp:e ':Ii th reference to the be,ck due inte:t'est, ['.nd ~1S i.l, tot,:"',l h:,.s to pny out, for the service of the coul)ons of this ya::.r {'ncl ~,morti z",tion, the 9r:lOUllt of u. S. ';1,750,-000. As the value of the service \'I2.S origindly U. S. ;~4t200 ,000 in this yes,r ':fe ",re going to p:-.,y U. s. 0Z,(50,OOO less them the contr~,ct stil~uletec1. In other ':Jorel5, '.fe <::',re ~~oing to 11,:,ve to p~7 out only 41. s:~ of '.Jh,8,t HC,S stipul.?,ted.

"Furthermore ~.S e. reduction in the c~,:pi t<?l of the c;,ebt Has not m:1de, it is 'dell to record. thD.t the price of the bonds in the ma.rket is not the M,Dle for c, 6~ bond 2,S for a 3:; boncl :mo, the,t as the Re-1mblie can acquire in the open mar]cet the ooncls 1"hieh it must ::l,Dlortize, by the sole fact of reducing the interest the en,pi t!?,l is reduced. This is obvious enough :")Il(1, it seems useless to l',bor the point further. 1I

In other Hords, the ;'Iinister of Finance of Colombia enunci~,tes t.he policy of Co1ombir, to be to lo~"er the interest T~,te ~,S much [,,$ possible in order to delJress tIle v:'.lue of the bonfls "nd trJ:e advr.nt',l,r,e of the necessities of bonc1.holders ,:!ho are obliged to sell t:'.eir Donds ">,t the lou j)rices forced UIJOn then by t2'W :lction of the Colombisn Government itself. The CO\1..'1cil sugRestecl the tempo:r",ry continu::'nce, '.'lhile ','!orl(1. econonic con­ditions ".re disturbed, of the tem:porary offer of 1940 found so f·'worab1e to Colombia by the Einister of Fil1[',nce. This Colombio, declinec1 to do.

The de,ta "nO. figures submitted to the Council by the Colombinn Govern­ment in 1939 shol'! th::-,t Colombi'l could service the boncls in full "'.nd that it is servinf, interne'.! ~nd short-term oblir;f),tions hi th one exception) in full, p<:\Ying even up to lO~ r,nnu[>,l interest on cert~:i::l internrl bonds. Oredi ts recently m.".de to 001 o:no i.::", by tl:.e Export-I:n::.)ort 'l"111,,:, !'l,n [',geney of the United Stt,tes C'1'()vern;nent, dra\>1 4~; f',nnual interest. This is c), serious discrimin~'.tion on the p~,rt of Colombi" <?r; .... inst the forei~ bondholders 1:1ho ~,re ,~l.sked to be",r the 1:1ho1e s:':',cl'ifice. In the yer,rs \'Then interest on the do1b,r bonds 't18,S not pdct, Colombi 1, 1!3 f~V'or~,bl e b:"b,nce of tro,de '.Ii th the United St;',tes \"9,S over ten times these interest recuiremE'nts. ~~ithout in­creasing tl":e bucl{':et ."',t J,11 but by giving the bonds their due percenb.e;e of the debt service providecl. in the budget,--that is by not discrininatinc

APPENDIX IV--Page 3

against them--the scrip OQuln be paid in full, 5~ interest could be paid on the bonds 'nd there Hou1d. be P. b,<",lance for amortization. Full con­tr~ctu['.l interest and c:.mortiz?tion on the dollt'.r bonds t10uld t,:,ke but 8.6~ of ordin:>,ry budcet receipts (9.5 ~ of the estinntes for 1941). Colombia h~.s he,d <), budgetary sur-plus e~rery year but one ':rhile no interest ~'las being paid. The bu(~.get for 1939 provided. full service on the interne,l t'.nd ex­tern:',l debt excluding the forei[<:;D. bonds. This const! tutec.. :),l.J:;?roxir:ntely 11.1 '; of the estimated revenues. The full contr~.ctual service on the dollar bonc~s 'Jou.ld bring this tote.l to 'J.p:;?ro:'i:im".tely 20~ of the estim~\te(l revenues (3!'3') of t11e bud;;et estim.::.te for 1941). This is not ~, burt.ensol!le service.

other countries devote over 30:' of revenues to debt service.

The Council h",s not insisted on full service on the bonds, but it is evident from the e,bove th:,t tile Colombi'"'11 ('.TQvernment I s offer is not ~. fn.ir J,nd equi t'"'.ble one nor one th··t 2.ccords '.'T! th i ts'),bili ty to pn.y :o,n<3. con­sU tutes :'. di scrimin~"tion C' .. ";D,inst the bondholders. The oon0110lclers ["re asked to t'.sS'lUne the full burden. other expenses nnd services bein~?, m:1in­tained. .As to n:n,y sugr,estio!l tllD,t interest r:::ctes he,ve f"J.len, it m''Y be observed th::-,t Co:!.ombi~.'. contrc~cted in :Tovember 1939 to Tr.y 4;; interest on the notes for the rmrch£',se of the Colombia..."l R::~,iJ.1-fe~r t, l\":>.vi:;',tion Co. Ltd., .:end in 1940 to p::w 4)~ on the creel! t extenc.ecl. by tne Export-Irxport 3:m]~ of the United St~tes.