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not prove to be a hard creditor and will not enhance the difficulties of settlement.
I am enclosing a copy of the resolution of release of securities passed by the International Relief Bonds Committee.85 It requires a little elucidation. The "consent in principle” refers to the conditions (1), (2) and (3) therein incorporated. As to the clause relating to legislative approval, Schüller assures me that in the protocol of the proceedings, in response to his enquiry for information, it transpired, upon roll call, that legislation to subordinate securities to the new loan was not required, but only legislative approval of a proposal to postpone beyond 1943 the payment of the principal and interest on relief credits. Legislative sanction therefore does not here come into question, the Austrian Government having abandoned its original request for postponement until 1957.
As to the final paragraph relating to the views of the Netherlands and Swiss governments, the concurrence of these governments has since been obtained, as is evidenced by a communication of the International Relief Bonds Committee dated December 20th, addressed to the Austrian Minister in London, a copy of which is herewith enclosed.
There is further enclosed, as of possible interest to the Department and to complete its file of official action thus far taken, a copy of the resolution of the Control Committee (translated from German), Jated London, October 12th, 1927. There is finally enclosed a copy of the letter, dated October 12th, 1927, addressed to the Austrian Minister of Finance by the Committee of Guarantor States.86 The resolution of the Control Committee (enclosure 3) states that the Committee has been informed that the Austrian Government intends “to continue to comply with the recommendations of the Control Committee of the League of Nations of the year 1924 concerning the interest on the investment sum to be obtained through the post and railway administration.” This rather obscure allusion really refers, I am advised, to Par. 6 of Annex I of the Joint Report by the League Financial Committee and the Commissioner General (Dr. Zimmerman), dated September 15th, 1924.87 The pertinent language is:
“The Austrian Government, in agreement with the Financial Committee, and with the Commissioner General, declares its willingness to adopt the following measures, and pledges itself: 88
35 Enclosure 1, infra.
Printed as enclosure 1 to the letter of Oct. 18, 1927, from Mr. R. C. Leffingwell, of J. P. Morgan & Co., to the Secretary of State, p. 452.
League of Nations, The Financial Reconstruction of Austria, pp. 216, 230. * Omission which follows is indicated in the original despatch.
6. To take all necessary steps to ensure that, when the State supplies State undertakings (“Betriebe') with money for carrying out investments, the State undertakings in question shall pay to the State reasonable interest and amortisation charges on such loans.” The findings of the Financial Committee embodied in Annex I were reported to the Department by F. S. Report No. 48 of September 17th, 1924.89 In my despatch No. 573 of October 23rd, 1924,89 page 3. I reported in relation to this Par. 6:
“The Budget before Parliament contains provisions to redeem the pledge in Point 6, especially with reference to the State Railways and Posts. (Point 6. To take all necessary steps to ensure that, when the State supplies State undertakings (Betriebe') with money for carrying out investments, the State undertakings in question shall pay to the State reasonable interest and amortisation charges on such Ioans.)”
Because of the interruption in the courier service and also on account of the fact that the pouch leaving the 1st proximo goes via the Southern Route to Constantinople, I am proposing to transmit the enclosures herein contained, with explanations, by open mail.“ There will be duplication to this extent, but it may be desirable for the Department to have this information at an early date and I cannot assume that it is being otherwise advised. The documents in question, I know, were not sent to Minister Prochnik. I have [etc.]
ALBERT H. WASHBURN
[Annex 3271-J] The Secretary of the International Relief Bonds Committee (Leith Ro88) to the Austrian Minister in Great Britain (Franckenstein)
LONDON, 12 December, 1927. SIR: The Relief Bond Committee, representing the Governments of Denmark, France, Great Britain, Italy, Norway and Sweden, having referred to their respective Governments the request of the Austrian Government for the suspension of the first charge enjoyed by the Relief Bonds in favour of a development loan or loans for a sum not exceeding 725 million schillings which the Austrian Government propose to issue, have the honour to inform you that the Government[s] which they represent would be willing, subject to such approval by their respective legislatures as may be required, to consent in principle to the release from the prior charge in favour of
Not printed. ** Despatch No. 1665, Dec. 30, 1927, received in the Department Jan. 11, 1928 (file No. 863.51 Relief Credits/11, not printed). Copies were transmitted to the Treasury Department, Jan. 11, 1928 (file No. 863.51 Relief Credits/13, not printed).
the Relief Bonds, for the period of the new Loan, not exceeding 30 years, of such securities as may be necessary for the development loan or loans now in question, not exceeding 725 million schillings, without, however, prejudicing the priority over reparations to which Relief Bonds are entitled, provided that:
(1) Similar consent is obtained from any other Powers interested as holders of Austrian Relief Bonds;
(2) Consent is also obtained from the Reparation Commission for the release of the securities in question from the charge for reparation and other Treaty Costs:
(3) The specific securities which it is desired to release are, in due course, submitted to the Chairman of the Committee who is authorised to approve them.
A further communication will be addressed to you in regard to the views of the Netherlands and Swiss Governments. I have [etc.]
F. W. LEITH Ross
The Secretary of the International Relief Bonds Committee (Leith Ross) to the Austrian Minister in Great Britain (Franckenstein)
LONDON, 20 December, 1927. SIR: With reference to my letter of the 12th instant, on the subject of the Austrian Government's request for the suspension of the first charge enjoyed by the Relief Bonds in favour of a development loan or loans for a sum not exceeding 725,000,000 schillings which the Austrian Government propose to issue, I now have the honour to inform you that the Netherlands and Swiss Governments have notified their willingness to assent to the release from the prior charge in favour of the Relief Bonds of such securities as may be necessary for the development loan or loans now in question for the same period and subject to the same conditions as have been laid down by the other creditor governments represented on the International Relief Bonds Committee. I have [etc.]
F. W. LEITH Ross
Resolution of the Control Committee, Dated London, October 12,
1927, Concerning the Contraction of an Austrian Investment Loan of 125 Million Schillings
The Committee has taken due note of the proposals of the Austrian Government and of the declarations of the Austrian representatives; it has been informed that the Austrian Government will during the coming five years not contract any other foreign loan and that it intends in the case of the proposed loan, of which a part will be floated in Austria itself, to continue to comply with the recommendations of the Control Committee of the League of Nations of the year 1924 concerning the interest on the investment sum to be obtained through the post and railway administration. The Committee takes due note that the Austrian Government intends to use certain sums from current receipts for productive investments, for instance for roads and other investments. The Austrian Government will, should need arise, address itself to the trustees in accordance with the general bond, and contemplates approaching the Reparation Commission and the Relief Powers. The Control Committee does not protest in principle against the contraction of a loan with proceeds not exceeding 725 million schillings for profit-yielding purposes of post and railways, according to the Austrian proposals. The Committee has authorized its president, after the concrete loan terms have been communicated to him to give the definitive consent.
863.51 Relief Credits/4
The Austrian Minister (Prochnik) to the Secretary of State No. 2531/70
WASHINGTON, December 28, 1927. EXCELLENCY: Further advice received from my Government on the progress of negotiations conducted in London with a view of deferring the liens held against Austria by various nations for relief credits in order to pave the way for a new Government loan, necessitates some modification of the proposal submitted to Your Excellency with my note ddo. December 6th, 1927, No. 2423/70.
In said note (par. 5) I stated that my Government came to the conclusion that a settlement of the relief credits would be preferable to a further extension of the lien,
In the meantime, however, the other creditor nations have with the consent of the relief committee deferred their liens for relief credits for a period of 30 years beginning from the date of issue of the loan.
This deferment of lien does in no way alter the resolution of the Austrian Federal Government to settle the relief credits in conformity with a plan outlined in my previous note. The pertaining negotiations are progressing favorably although final settlement may experience some delay.
In view of the aforementioned facts I have the honor to solicit Your Excellency's kind intermediary in causing an appropriate legislation to be recommended to Congress authorizing the Government
of the United States in terms similar to those adopted in the socalled Lodge-Resolution to likewise defer for a period of 30 years beginning from the date of issue of the loan the lien for relief credits extended to Austria.
On the same occasion I would appreciate an early notification as to whether or not the Government of the United States is willing to enter into negotiations for a settlement of Austria's relief debts along the lines indicated in my previous note.
In connection therewith I am in a position to state that my Government, although not being able for reasons mentioned before-to enter into an agreement stipulating for payments to be made prior to 1943, could and will reserve a right to commence payments on January 1st, 1929.
In fact my Government is contemplating to start the first payments on the relief debts on the last mentioned date. Accept [etc.]
863.51 M 82/3
Mr. R. C. Leffingwell of J. P. Morgan & Co. to the Under Secretary
NEW YORK, December 29, 1927.
[Received December 31.] DEAR MR. SECRETARY: I received your letter of December 23rd and we have cabled to our London partners to inform Baron Franckenstein, whose intention it was long since to ask the Department whether it wished to be represented in the discussions.
I have no doubt that the Department will receive first hand information from the Austrian Government in due course, but, in view of Assistant Secretary Castle's letter of October 22nd," I am writing to post you briefly concerning developments since my letter of October 18th to Secretary Kellogg was written.
As I mentioned to you when you were in town, the European Relief Creditor States, though willing to subordinate their lien to that of the proposed new loan, are unwilling to postpone their claim until after the maturity thereof. The Austrian Government, on the other hand, is anxious to stop accumulation of interest on the relief claims, for the European Relief Creditors are taking bonds from the Austrian Government for such interest. As I understand it, the Relief Creditors' Committee now have before them a proposal of the Austrian Government to pay for 25 years from 1943 onwards 40,000,000 schil