mittee the arrangement for the settlement of the Guatemala Debt which I have had the honour to submit to you, I trust you will allow me to put in writing some of the arguments which I hope will induce the Committee to consider favourably the scheme as I have presented it.

I may commence by saying that I recognise that the results of past negotiations have left in the minds of the Bondholders a certain want of confidence in the genuineness of the desire of my Government to meet its creditors to the fullest extent to which its resources admit of its doing. Bearing this in mind, I have impressed upon my Government the desirability of avoiding any appearance of acting in such a manner as to give the Bondholders any reason to think that the terms now offered are dictated by any other desire than to make the best settlement in favour of its creditors which the financial position of the country admits of.

That the position should be so unfavourable is a matter of extreme regret to my Government, but I trust the Committee will make every allowance for the crippled condition in which the Government finds itself, through no fault of its own. The fall in the prices of our staple article of production, Coffee, has been sufficient to seriously reduce the resources of the Government. When I tell you that "Middling Guatemala" Coffee, which at one time in 1891 was quoted in the London Market at 105s. per cwt., has fallen steadily since then, and last year was quoted as low as 42s. per cwt., you will be able to appreciate the losses which the country suffered. If we take an average Coffee crop as 750,000 cwts., we find that a crop which in 1891 gave gross nearly £4,000,000 sterling, has gradually since then declined in value, and last year only gave a little over £1,500,000 sterling gross. What this fall in prices means to my country will be manifest to the Committee when I call its attention to the figures of Trade Statistics given in the Report of the Council of Foreign Bondholders issued in August, 1902, where the total value of exports from Guatemala during 1901 is given as $7,519,485, of which Coffee accounts for $6,762,125. If to this is added the serious increase in the gold premium which in 1898, when the present Government came into power, was from 150 to 200, whereas to-day 90 days' sight Bills on London are quoted at 1,450 per cent. premium, I hope the Committee will admit that the problem which His Excellency the President has had to cope with has been and is a very serious one. I would further beg to draw the Committee's attention to the fact that President

Estrada Cabrera inherited from his predecessor not only an empty Treasury, but a large volume of debts.

With the object in view, as previously mentioned, of arriving at the best terms to which the Government could bind itself, I have been communicating with the President by cable, and the result I have had the honour of submitting to you in the draft proposal which you will, I understand, shortly lay before the Committee.

You have pointed out that the condition in the proposal which provides for interest being payable at 1 per cent. during 1905 and 1906, and 3 per cent. thereafter, ought to be modified by paying 2 per cent. in 1906 instead of 1 per cent. Allow me to assure you that in offering 1 per cent. for the year 1906, the President has been actuated by no desire to make a good arrangement for the Government at the expense of the Bondholders. He has been guided solely by the financial position of the country, and a desire only to enter into an agreement justified by that position, and consequently one which he will be able to carry out.

The Committee will kindly remember that no attempt has been made to make any reduction in the arrears of interest, and that they have been capitalised in full. It must also not be forgotten that the present arrangement, if carried through, involves either a serious outlay in cash or a material increase in the Government indebtedness.

The present opportunity is one which in my humble opinion—if the Committee will do me the honour to attach any value to it-the Committee would be well advised to consider as a genuine effort on the part of the Government of Guatemala to meet to the fullest extent in its power the just claims of the Bondholders.

I am, etc.,

J. PADILLA.

Negotiations ensued between Dr. Padilla and the Committee with the result that the following ad referendum Contract was signed on the 18th July, the terms of which are generally in accord with the Agreement entered into with Señor Medina in 1903 :—

N

EXTERNAL DEBT OF GUATEMALA.

AGREEMENT Ad Referendum made between SEÑOR DR. DON JUAN PADILLA, acting on behalf of, and duly authorised by, the Government of Guatemala of the one part, and THE COUNCIL OF FOREIGN BONDHOLDERS of London acting in conjunction with THE COMMITTEE OF GUATEMALA BONDHOLDERS and as representing THE BONDHOLDERS OF THE EXTERNAL DEBT OF GUATEMALA of the other part.

ARTICLE I. The total amount of the External Debt of Guatemala, made up to the 30th December, 1904, is as follows:

ARTICLE II. The rate of interest on the External Debt shall here

ARTICLE III. The unpaid interest mentioned in Article I. shall be exchanged at par for New Bonds which the Government of Guate

mala will issue in accordance with the provisions of this Agreement. The existing Bonds will either be stamped as participating in this Agreement or exchanged at par for New Bonds as may be found most convenient.

ARTICLE IV. Commencing from the 30th December, 1909, an accumulative Sinking Fund of 1 per cent. per annum shall be applied half-yearly to the redemption of the Bonds of the External Debt by tenders or purchases on the market when the price of the Bonds is under par, and by drawings at par when the price of the Bonds is at or above par. The first redemption shall take place in the month of June, 1910, drawn Bonds being paid on the due date of the next maturing Coupon. Bonds redeemed by purchase or drawings shall be cancelled and delivered to the Government.

ARTICLE V. As security for the payment of the annual sum required for the service of the Debt, to which this Agreement refers, and for the expenses of the Debt service, the Government assigns, and will from the 31st day of December, 1904, pay in the manner hereinafter specified such an amount of the 30 per cent., which in accordance with the Decree of the Government No. 585 is to be paid in gold on account of the total of the Import Duties on merchandise which are collected in the Customs Houses of the Republic, as may be necessary to provide for the same. Such assignment, which the Government hereby declares will be free and available for the purposes of this Agreement from the 31st day of December, 1904, shall be a first charge on the above-mentioned 30 per cent., and shall be provided preferentially over all other payments thereout.

A Commission shall be established at Guatemala, consisting of two members, one of whom shall be appointed by the Government, and the other by the Council of Foreign Bondholders, which Commission shall be charged with the duty of supervising the due execution of this Contract.

The Collectors of Customs shall each week deposit direct with a Bank in Guatemala, to be agreed upon between the Government and the Council, the whole of the said 30 per cent. in gold of the Import Duties, and the Bank shall set aside each week to the account of the said Commissioners, out of the said duties, one fifty-second part of the sum required to provide in gold for the service of the Debt and the expenses of the Debt service.

In the event of the receipts for one week not being sufficient

to make up the one fifty-second part of the necessary sum, the deficiency shall be made good from the receipts of the week or weeks following.

The Bank shall remit monthly the sums so received to the Agents in London charged with the service of the Debt, in such manner that the necessary amount may be available there in cash at least fifteen days before the dates of maturity of the Coupons, and in the event of any deficiency arising, such deficiency shall be provided in due time by the Government by additional payment from the Customs Receipts or other sources.

The remuneration of the English representative on the Commission, which shall not exceed £200 per annum, shall be fixed by agreement between the Government of Guatemala and the Council of Foreign Bondholders, and shall be paid by the Government as part of the expenses of the Debt service.

ARTICLE VI. In case of any dispute arising between the Government and the Bondholders, it shall be settled by the Commissioners in joint agreement, and their decision shall be final and binding on both parties. If, however, the Commissioners should fail to agree, the matter in dispute shall be at once referred to H.M. the King of the Belgians, or to His Excellency General Porfirio Diaz, President of the Republic of Mexico, at the option of the Government of Guatemala. Should they be unable to act, some other suitable Arbitrator shall be chosen by mutual agreement between the Government of Guatemala and the Council of Foreign Bondholders, who shall be empowered to settle the dispute in the most expedient way for the proper safeguarding of the respective rights of the Government and the Bondholders, both parties hereby pledging themselves irrevocably and unreservedly to accept and comply with the Arbitrator's decision.

ARTICLE VII. The expenses of this arrangement, including the stamp duties, shall be borne by the Government, and shall be paid in cash or covered by the issue of a sufficient amount of New Bonds, at the option of the Government. The Bonds will be signed by the Agent of the Government, free of cost to the Council.

ARTICLE VIII. The Council of Foreign Bondholders, in agreenient with the Government or its representative, shall undertake the operation of carrying out this arrangement, and shall conclude all the necessary details.