839.51/3949
The Minister in the Dominican Republic (Schoenfeld) to the Secretary of State
[Received September 25.]
Sir: I have the honor to inform the Department that in conversation yesterday with Lcdo. Logroño, Minister of Foreign Affairs, Dr. Cestero, Minister of Finance, and Señor Roberto Despradel, Dominican Minister to the United States, with all of whom I had a confidential talk after a luncheon at the Legation, I gathered that the Dominican Government intends in the immediate future to concentrate its efforts in the direction of organizing the holders of Dominican bonds in such a way as to make it possible to negotiate with them or their representatives a modification of the contracts under which the Dominican loans of 1922 and 1926 were issued. An endeavor is apparently to be made to bring these negotiations to a successful conclusion prior to the expiration of the so-called Emergency Law at the end of this year.
[Page 649]As the Department is aware, there has been some confusion in the mind of the Dominican Government as a result of its desire to secure a fundamental revision of the Convention of 1924 and its hope of continuing to enjoy the benefits it now enjoys from the operation of the Emergency Law or of securing even greater benefits from the customs revenue than at present. It appears now to be possible that the question of attaining the aims of the Dominican Government with reference to the revision of the Convention is one which the Government may deem it better to defer taking up with the American Government until after a new agreement is reached with at least a substantial group of the holders of Dominican external bonds.
One of the purposes of Señor Despradel’s visit in Santo Domingo is, as he stated, to guide (orientar) the Dominican Government’s understanding of the position of the American Government in relation to the forthcoming negotiations with the bondholders and to make it plain to his Government that the attitude of the American Government in this matter was one of entire benevolence. Since, however, relatively little time remained before the expiration of the Emergency Law, Señor Despradel believed that special efforts should now be made to constitute some representative agency on behalf of the bondholders with whom this Government could negotiate. He said difficulties had been encountered in ascertaining the identity of all or even the principal holders of Dominican bonds but, with the cooperation of the Fiscal Agents, there was now hope that these difficulties would soon be overcome.
Although it seems likely that the Dominican Government does not intend in the first instance to press upon the American Government its aspirations with reference to the removal of the restrictions, represented by the Convention of 1924, upon its freedom of action in financial and economic matters, the thought of attaining a greater measure of freedom in this respect may be expected to have a prominent place in this Government’s consideration of the proposed debt re-adjustment. As already frequently reported to the Department, the principal aims of the Dominican Government in this relation appear to be to secure a market in the United States for at least a substantial quantity of Dominican sugar and, on the other hand, greater liberty to control its own tariff policy with a view to the negotiation of reciprocal trade agreements, especially with European countries that now take the bulk of certain important Dominican exports.
It was emphasized yesterday by the Dominican officials mentioned that by reason of both geographic and treaty relations between the Dominican Republic and the United States, this Government had a stronger claim than other Latin American countries to special consideration on the part of the United States in the matter of opening [Page 650] the American market to Dominican sugar exports. At the same time, the present limitation of the European market for Dominican sugar, chiefly to Great Britain and France, exposed Dominican economy to the hazards of arbitrary action by either of those two countries, with results that might be disastrous to the agricultural industry in this country. Since American investments in the Dominican agricultural industry are very large, such arbitrary action on the part of England or France would involve catastrophe for these American interests under present conditions.
While I did not undertake to discuss the cogency of these arguments in so far as they might justify the eventual removal of some existing restrictions of the Convention of 1924 upon the Dominican Government’s freedom of action, I took occasion yesterday to express to the Dominican officials mentioned my agreement with the belief that it would be a wise policy at present to confine the principal efforts of the Dominican Government to seeking a new basis of settlement with its creditors as above outlined, rather than to dissipate any energy at this time in endeavoring to secure revision of the Convention. I said that it appeared to me to be a necessary prerequisite to any ulterior negotiations for revision of the Convention that the full practice of the Convention in respect of the collection of the customs revenue should first be resumed. I added that if a new agreement with the bondholders were concluded calling for the service of the external debt upon a revised but definite basis, the full authority of the General Receiver of Dominican Customs should be restored, without the intervention of the so-called Special Emergency Agent. I pointed out that the mechanism set up under the Emergency Law was not meant to become a permanent feature of the fiscal machinery here. I indicated that, in my opinion, the eventual success of negotiations for a revision of the Convention would be better assured by the cessation, if possible at the time the present Emergency Law expires, of the extra-legal practice which has been followed since October, 1931, involving an admittedly unilateral violation of the Convention. I said it would seem to be in the best interest of the Dominican Government as soon as possible to put an end to this extra-legal state of affairs, to return to legality under the Convention in respect of the service of the foreign debt and then to devote attention to achieving the broader diplomatic aims of the Dominican Government in an atmosphere of strict compliance with Treaty obligations.
I would add for the Department’s information that I had not previously, in conversation with Dominican officials, emphasized the matter of resumption of the collection of all the customs revenue by General Receivership, simultaneously with the going into effect of a new debt agreement. My mention of it yesterday was the first [Page 651] definite expression of this kind on my part and was occasioned by the development of the conversation above described. I beg leave to call the Department’s attention to it at this time in the belief that, with the expiration of the Emergency Law in its present form, and with the accomplishment of the proposed debt re-adjustment on a permanent basis, the reasons of a legal nature which led to the original creation of the Office of the Special Emergency Agent could no longer be regarded as obtaining. The abolition of that Office would render possible again effective control by the General Receivership, as was the case prior to the enactment of the Emergency Law, over the collection of all the customs revenue. Such resumption would entail obvious advantages in point of administrative simplification, economy and, of course, the cessation of the extra-legal condition above referred to which is admittedly in violation of the Convention.
There is another point of importance in this relation which, in my opinion, we should be well advised to keep steadily in mind. While it may be contended that, if negotiations for a re-adjustment of the external debt are now to be undertaken directly with the holders of Dominican bonds, the responsibility of our Government under the Convention is strictly confined to the collection of the customs revenue and its application as may be stipulated in the old or in new loan contracts, our Government’s acquiescence in the original enactment of the Emergency Law was based upon a showing of necessity on the part of the Dominican Government. In the intervening time, as is well known, new Dominican taxes have been created and are apparently being collected in substantial amounts, aside from the increased yield of certain old taxes through improved administration. Either the bondholders or our Government may therefore properly require a renewed showing of necessity to warrant the “permanent” re-adjustment now being sought. In the Dominican note of September 15, 1933, transmitted with my despatch No. 1167 of that date, there is a clear intimation of the desire of the Dominican Government for a further partial or complete “moratorium” in amortization payments on the funded debt. If the proposed re-adjustment of the debt does not contemplate a complete “moratorium” but involves only the downward revision of the amortization rate on a “permanent” basis, the question arises of the indefinite continuance of the life of the Receivership, to which reference was made in the Department’s note of October 23, 1931, to the Dominican Legation at Washington.43 It would seem to be important, consequently, before the Department could express itself favorably or unfavorably as to any new agreement between the Dominican Government and the bondholders, to ascertain not only the exact amount the Dominican Government is deriving [Page 652] from both budgetary and non-budgetary sources of income, but also the items of disbursement to which that income is being and would be applied, including such items as floating debt reduction.
In this connection, I sounded the Minister of Finance yesterday as to the possibility of his providing me with the figures of extra-budgetary income and disbursement of the Dominican Government during the current fiscal year. No statistics on this subject are in my possession and, at the same time, it is known that the extra-budgetary income of the Government will this year attain very substantial proportions, estimated at in excess of $600,000. The Minister of Finance indicated that this information would be made available but I shall continue my efforts to obtain it. In any event, and although the good faith of the Dominican Government is by no means in question, an investigation of the actual total budgetary and extra-budgetary income and disbursements of the Dominican Government seems to be indispensable to enable the bondholders or the Department to reach a decision as to what may be a fair basis for the “permanent” re-adjustment of the external debt now contemplated by the Dominican Government.
In negotiating a new debt agreement other points of importance, bearing more especially upon the obligations of the Dominican Government and those of the United States under the Convention of 1924, would appear to be involved in such matters as the long standing evasion of Article IV of the Convention of 1924 by means of Law 190 and other laws imposing so-called internal revenue taxes upon imports; as well as the evasion, largely prior to the Trujillo administration, of Article III of the Convention forbidding increase of the public debt except with our consent. It may be suggested that the phrase “public debt” does not apply to the floating debt of the Dominican Government so long as this debt is not funded. The existing floating debt does, however, have an obvious effect upon the credit of the Government and its financial administration, and would appear to this extent to involve the article of the Convention just cited.
Respectfully yours,