Evening star., 1934-01-13
BILL THREATENS
FOREIGN FINANCING
Senate Measure, Aimed at
Debt DefauIters, Would
Hurt Investors.
BY DAVID LAWRENCE.


Financial relations between the
United States and Germany, Russia,
Great Britain and France may be seri-
ously disturbed if a bill just adopted
by the Senate ultimately becomes law.
The Senate Itself isn't sure what 1t
has done. Just after the measure
which is aimed at foreign governments
that have defaulted on war debts, was
passed by an oral vote, Senator Robin
son, Democratic leader. came into the
Senate chamber and asked reconsidera-
ton.
The bill, sponsored by Senator Hiram
johnson of California, was reported at
the last session of Congress. This cor
respondent directed attention a few
weeks ago to the text of the bill, point
ing out that unless amended 1t might
mean the loss of hundreds of millions
of dollars to innocent American citi-
zens. AS the bill was drawn 1t pro-
hibited any sale of any foreign govern
ment bonds including those now in the
possession of American citizens or
banks or institutions.
Measure Is Amended.
President Roosevelt conferred with
Senator johnson after the publication
of the newspaper article In question and
the California Senator inserted an
amendment to the effect that the bill
should apply only to foreign bonds or
securities which are issued after the
bill becomes law This removes many
objections, but the text as it reads today
still prohibits all loans of any kind to
any foreign government which has de-
faulted on any loan.
The language used in the bill could
be construed to affect short-time as well
as long-term loane. The purpose Of the
measure. of cou1 ye. is to prevent Amer
ican citizens from buying any securities
issued by foreign governments that
have defaulted, and this is in line with
the desire of many Americans, who feel
that there ought to be some way to
show Americas displeasure over the
reputation of debts. But while this
can be accomplished by prohibiting
transactions in bond issues of the
future. the troubles that arise over the
renewal of existing Short-term loans or
the refunding Of old issues are numer-
Gus.
$4,000, 900 in German Notes.
Thus if the bill that has passed the
Senate is not changed, 1t will mean
that anybody connected with any bank
or institution who approves credit
of any kind to foreign government
may go to jail 1t is estimated that
about $4,000 900 of short-term notes
now are outstanding in the United
States which were issued by the Ger
man government The latter is in de-
fault On its loans TO American citi-
ZenS. which loans are also made the
cause of boycotting a foreign govern
ment's issues in the Senate bill even
though the default was not on loan
held by the American Government.
Should the American banks which
now hold the 100000 900 of German
credits be unable to renew these loans
because they fall under the ban OF the
law. the German government would
probably retaliate in other ways. In
other words. serious financial crisis
in the relations between Germany and
the United States may be precipitated.
Even more serious are the complica-
tions between the United States and
Russia on the one hand and the
United States and Latin American
countries. It would be possible for an
Injunction to be obtained in the courts
asking that no money be loaned to
any Russian corporation owned by the
Russian government on the ground
that this is advancing money to a
government which has defaulted on Its
loans. The war loans made to Rus
sia are in process Of settlement. but
the courts would be bound to recog-
nize them as in a state Of default
until paid or a final agreement reached
to accept smaller payments. 1t had
been thought that $50, 100000 credit
might be made available to the Soviet
government.
Cuba Readjustment Under Way.
In the case of Cuba, efforts are being
made to adjust the financial relations
of that country with American holders
of Cuban government securities. Usu-
ally short-term loans are needed to
settle such difficulties. Ifs a loan for
Cuba should be needed and the Con-
gress was not in session, 1t would be
unlawful under the johnson bill to
extend such credit.
With respect to several South Anieri-
can countries, short term loans have
been or will be necessary. Already Ar
gentina has borrowed of a short term
basis When the time comes for re-
newal it may be held unlawful to ex-
tend the loan or make a new one, thus
embarrassing and Furnishing American
citizens who are innocent victims of the
defaults of foreign governments.
What may have to be included In
the legislation is some proviso permit
ting short term borrwing. especially
when existing notes or credits are being
renewed. Also some amendments may
be necessary to care for the temporary
credits held by the British and French
governments in this country Tt has
been suggested that the British and
French might get around the difficulty
by having the Bank of England or the
Bank of France maintain credits in
America, which, of course, would not be
covered under the heading of foreign
government loans. French cities which
/ have borrowed money in the United
| States would be prohibited from doing
| so, as well as German cities. In the
past the proceeds of such loans have
been used to some extent to buy Ameri-
can goods, so it may be anticipated that