839.51/3989
The Minister in the Dominican Republic (Schoenfeld) to the Secretary of State
[Received November 9.]
Sir: I have the honor to enclose for the Department’s information a memorandum prepared in this Legation44 undertaking to summarize for ready reference the main facts in the recent financial and fiscal history of the Dominican Government, with special regard to the so-called Emergency Law and the apparent purpose of the Dominican Government, if possible, to extend the operation of the law after its expiration on December 31 next, either in its present form or in a form more advantageous to the Government. No conclusions as to policy on our part are drawn in the enclosed memorandum, which is designed to be factual in character.
When, as in the present case, the head of the Dominican Government has shown, and is conscious of possessing, administrative capacity somewhat unusual in Dominican history, it is less surprising than natural that he should strive to obtain the financial means with which to carry out his administrative program at the expense of prior obligations. The conditions that prevailed at the time the Dominican Emergency Law was passed two years ago undoubtedly obscured in [Page 656] the mind of President Trujillo the possibility, which has since become more evident to him, of being enabled throughout the present administration and through subsequent administrations by him to enjoy the advantages afforded him by the income reaching the Treasury through the operation of the Emergency Law. The general feeling of the Dominican Government and of President Trujillo personally after the Emergency Law was enacted, was, at first, one of relieved appreciation of the helpful spirit shown by the American Government in having raised no objection to the enactment of the law. With the continued enjoyment of the funds made available through its operation, this sentiment of appreciation gradually became less conspicuous in the attitude of the Dominican Government until, at the present time, it is certain that the Dominican Government would feel deeply aggrieved by action on our part which would have the effect of reducing the amount of money the Government diverts to its own use from the customs revenue. The Dominican Government has lately seemed to be almost confident that, so far from objection being raised to continued enjoyment on its part of the funds so diverted, it may be permitted by the American Government to use an increased amount of money from the same source.
The present temper of the American people with regard to foreign governmental debts to private American bondholders is interpreted by the Dominican Government as being opposed to the continuance of a policy on the part of the American Government that was thought formerly to be approved by American public opinion and that was expressed, in the case of the Dominican Republic, by the Conventions of 1907 and 1924. The President of the Dominican Republic is not yet convinced that the American Government and, specifically, the Department of State have accepted the assumed change of public opinion in the United States to the extent of giving up in great part what, until the Dominican Emergency Law was enacted, were considered American governmental, as distinct from private, rights in relation to the service of the Dominican external debt. The Dominican Government hopes, however, to facilitate acceptance of that change by the American Government. It is the aim of President Trujillo so to arrange matters that the obligations of this Government to its American creditors may be dealt with from the standpoint of the theoretical maintenance of the Dominican Government’s credit, with wide discretionary freedom for the President of the Dominican Republic in deciding how it may be expedient to meet this theoretical requirement in practice.
It would be untrue to say that the Dominican Government is not conscious of special circumstances which tend to differentiate the relation of the United States to the financial status of this country from [Page 657] that relation with other Latin American republics. But, as above suggested, the Dominican Government is not without hope that the American Government may be willing substantially to modify its previous concept of that relation and the policy formulated on the basis thereof.
The policy of the American Government will, in my opinion, turn upon the question whether, in the case of the funded debt of the Dominican Government, the American Government assumed a responsibility towards the holders of Dominican external bonds so different, if at all different, from the ordinary relationship between the American Government and the private purchaser of a foreign governmental bond as to be not merely special, but unique. It is known that the authority of the Dominican Government to issue its present outstanding external bonds involved the express consent of the American Government to their issuance. It involved also the maintenance by the American Government of the General Receivership of Dominican Customs as its own administrative machinery to assure the service of the bond issues. With the exception of a somewhat similar situation in the Republic of Haiti, it is understood that, in the case of no other Latin American government bond issue, including Cuba, have these conditions obtained. If the conditions mentioned created a specific and unique responsibility upon the American Government with regard to the Dominican funded debt, that responsibility can not be said to have been changed in character by the unilateral action of the Dominican Government in enacting the Emergency Law in October, 1931. Nor does it appear that the Emergency Law changed the obligations of the United States in respect of the maintenance of the General Receivership of Customs until the Dominican funded debt now outstanding shall be redeemed.
Without undertaking to go over the ground covered in the attached memorandum, the factual material compiled therein points unmistakably to the early adoption by the United States of a policy that seems to be logically incumbent on our Government. The question of the wisdom or unwisdom of former American policy as represented by the Convention of 1924, may here be disregarded. For the purposes of the present discussion, the question may also be disregarded whether the American Government shall in future adopt a different policy in relation to such cases as that Convention was designed to meet. We are concerned for the present with the fact that the Dominican Emergency Law is now seen to have created a set of circumstances which touch not merely American governmental rights under the Convention but, more particularly, American governmental obligations imposed by the Convention. It may be expedient on occasion to forego rights, but it is believed that our Government [Page 658] cannot safely fail to meet obligations which, in this case, run not only to the holders of Dominican external bonds but to the Dominican Government itself.
The frankly emergency status in the Dominican debt service has now continued with our acquiescence for two years. It may well be questioned whether the American Government would be justified, in the light of the pertinent facts set forth in the attached memorandum, in permitting the emergency status to continue longer than the minimum time needed to enable the private American holders of Dominican bonds to express themselves as to the conditions under which, if at all, the amortization service of the debt shall be resumed. The American Government acquiesced in the enactment of the Dominican Emergency Law on an ascertained showing of necessity on the part of the Dominican Government. The American Government’s obligations under the Convention of 1924 have continued unimpaired during the life of the Emergency Law. The forthcoming date of expiration of the explicitly limited period during which the Law was to remain in force appears to be the latest appropriate time for the Dominican Government to show cause why the practice contemplated in the Convention and its ancillary loan contracts for the amortization service of the debt shall not be resumed. For this purpose the Dominican Government could hardly object to a technical investigation of its financial and fiscal condition by disinterested experts.
It seems likely that the American Government will be unable to take a merely passive attitude while efforts, which thus far have been manifestly ineffective and perhaps listless, are made by the Dominican Government to reach an agreement as to resumption with the holders of the Dominican external debt. The American Government will probably be obliged by the unique circumstances of its relation to the Dominican funded debt to urge upon the Dominican Government positive and energetic efforts to expedite negotiations for an agreement with these holders. The same circumstances may be found to require affirmative co-operation by the American Government, as distinct from the co-operation of any special agency now in process of formation for the protection of American holders of other foreign governmental securities, in reaching the agreement in question. The Dominican Government may be inclined to object that such affirmative co-operation by the American Government would constitute into a privileged group the holders of Dominican external bonds, in comparison with American holders of other foreign government bonds; if so, it may have to be admitted that this has in fact been the case since the moment when the Dominican loans now outstanding were issued and that this state of things was the result neither of the deliberate purpose of the purchasers of Dominican bonds nor of design on the [Page 659] part of the Dominican Government, but arose from the special responsibility towards both the holders of the bonds and the Dominican Government voluntarily accepted in pursuance of its then prevailing policy by the American Government.
It is respectfully submitted that, to save the specific responsibility of the American Government under the Convention of 1924 in respect of the loans issued by the Dominican Government with its express consent, the forthcoming expiration of the Dominican Emergency Law calls for a notification in unequivocal form to the Dominican Government of the American Government’s position as revealed by study of all pertinent data, and that such notification had best be given the Dominican Government before the latter commits itself by legislation or otherwise to action in which the American Government would be unable to acquiesce.
Respectfully yours,
- Not printed.↩