Thomas O. Osborn to By the President: Wm. M. Evarts, January 3, 1881

No. 89. Mr. Osborn to Mr. Evarts.

Sir: In the circular note which Minister Valderrama addressed to the diplomatic corps on the 10th of November last, a copy and translation of which accompanied my No. 181, is found the following sentence:

The cession (meaning the cession of Tarapacá by Peru), carried with it, moreover, the obligation on the part of the victorious nation of accepting as its own all the hypothecate bonds given by the Peruvian Government to its foreign creditors.

The guano beds in the Tarapacá district, as is well known, have been mortgaged by Peru to secure the payment of a large part of her public debt, and the expression here quoted was very generally accepted as a formal recognition of these obligations in the event of a change in the sovereignty of the district. Subsequent discussion in the newspapers and in the two houses of Congress, however, apparently developed the fact that the country was not prepared to accept this doctrine as its policy, and the minister has felt himself called upon to explain in another note, a copy of which I herewith inclose, with English translation.

It will be observed that the interpretation which had so very generally been accepted was entirely erroneous, and that the minister does not desire to be understood as having committed his government to the payment of any part of the Peruvian debt or the recognition of any of its mortgages, but that all claims in the district referred to are to be settled in accordance with the principles of international law.

If the influences which have driven Minister Valderrama into writing the inclosed note shall continue in the ascendency, I fear that Peruvian mortgage bonds are likely to remain a very precarious investment.

I am not aware that any of these mortgage securities are held by American citizens. The loan for which they were issued was raised in Europe, principally in Great Britain and France.

I have, &c.,