Transmittal to Congress of a Proposed Hungarian Relief Debt Settlement.

To the Congress:

I transmit herewith, for the consideration of the Congress, a communication from the Minister of Hungary on the relief indebtedness of Hungary to the United States, in which the Hungarian Government tentatively formulates for the consideration of the American Government a possible basis for a new debt arrangement between the two countries to replace completely the Debt Agreement of 1924 and accruals thereunder.

The indebtedness of the Government of Hungary to the Government of the United States is not a war debt, but is properly designated as a relief debt, having been contracted in May, 1920, under the authority of the Act of March 30, 1920, which authorized the United States Grain Corporation, with the approval of the Secretary of the Treasury, to sell or dispose of flour in its possession for cash or on credit at such prices and on such terms or conditions as considered necessary to relieve the populations in the countries of Europe or countries contiguous thereto suffering for the want of food. The American Relief Administration acted as the Fiscal Agent of the United States Grain Corporation in dispensing this relief.

The original indebtedness, the principal amount of which was $1,685,835.61, with interest accrued thereon from May, 1920, to December, 1923, at the rate of four and one-fourth per cent per annum, was funded as of the latter date, by agreement made in April, 1924, into bonds of Hungary in the aggregate principal amount of $1,939,000, maturing serially in the succeeding years for sixty-two years, bearing three per cent for the first ten years and thereafter at the rate of three and one-half per cent per annum. In approving this debt settlement, the Congress authorized the Secretary of the Treasury to subordinate the lien of the bonds taken under it to the lien of the Hungarian Reconstruction Loan, which was about to be issued and sold in numerous countries, including the United States. In May, 1924, the Secretary, acting upon this authorization, formally subordinated the American Government's lien to the lien of the Reconstruction bond issue.

On December 23, 1931, the Hungarian Government proclaimed a transfer moratorium suspending payment in foreign currencies of all Hungarian foreign obligations, public and private, except the aforesaid Reconstruction Loan of 1924. Payments on the latter loan were subsequently suspended in part. During 1937, the Hungarian Government began liquidating the transfer moratorium by negotiating agreements with the foreign holders of Hungarian obligations for the acceptance of reduced payments in full satisfaction of existing indebtedness. It is in this connection that the Hungarian Government has now come forward of its own initiative in an effort to reach an agreement with the United States Government under which the relief indebtedness can also be discharged in full.

No readjustment of the terms of payment of the Hungarian indebtedness to the United States can be made except pursuant to Act of Congress. The Hungarian Government is seeking a definitive readjustment of the terms of payment of this indebtedness on the basis of full payment over a period of years of the total original amount borrowed, without interest.

The Hungarian Government calls attention to the similarity between its suggested basis for payment and that accepted by the United States in the Austrian Debt Agreement of May 8, 1930, which provided that a sum very slightly in excess of the original Austrian indebtedness incurred in 1920 should be repaid without interest in forty annuities. The Congress of the United States, after full consideration of the nature of the Austrian indebtedness, voted by a large majority in the House of Representatives and by a unanimous procedure in the Senate, to authorize the signature of the draft agreement which had been prepared by the Treasury Department and the representatives of the Austrian Government. The Hungarian debt is a relief debt like the Austrian one.

The Hungarian Minister also suggests that the terms compare favorably with those in several other debt settlements, and that in announcing the signature of the Debt Agreement with Austria in 1930, the Secretary of the Treasury said:

The settlement compares favorably with the settlements made by the United States with the Governments of Greece, Italy and Yugoslavia.

It has of course been the consistent policy of the United States to consider each debt in the light of the circumstances of the debtor government, and it is with this in view that the Hungarian communication is transmitted to the Congress.

I believe the proposals of the Hungarian Government should receive the most careful consideration of the Congress. They represent a noteworthy wish and effort of the Hungarian Government to meet its obligations to this Government.

In its simplest terms, the offer of the Hungarian Government is to repay to the United States the whole of the Relief Loan but without payment of any interest thereon.