837.51 Cooperative Program/47a

The Under Secretary of State (Welles) to the Cuban Ambassador (Martínez Fraga)

My Dear Mr. Ambassador: There is enclosed a memorandum, of which I have spoken to you, which outlines a program of economic cooperation between the United States and Cuba which is submitted by this Government for the consideration of the Financial Commission over which you preside.

With regard to the specific undertakings mentioned therein which involve the Export-Import Bank, I quote a statement of the Federal Loan Administrator, Mr. Jesse H. Jones:

“On your recommendation, and upon the proper undertakings and fulfillment by Cuba of the conditions outlined in your memorandum, the Trustees of Export-Import Bank will lend the Republic of Cuba up to $4,000,000 for six months, with renewal privileges for like periods up to but not exceeding two years at an interest rate of 3.6% per annum, satisfactory legislation authorizing such a loan having first been approved by the Cuban Congress.

“The Trustees will give consideration to a loan application for the rehabilitation of the Havana Waterworks if presented on a sound engineering, commercial and legal basis. In addition, applications for other beneficial self-liquidating projects will be considered on their merits and in relation to the funds which we will have for lending.

“Furthermore, the Trustees will give consideration to applications for loans of a total amount not to exceed $10,000,000 in connection with such self-liquidating projects of agriculture development and diversification as may be recommended by representatives of the Bank, Department of Agriculture, Farm Credit Administration, and the Federal Reserve System, in connection with appropriate Cuban officials.”

Believe me [etc.]

Sumner Welles
[Page 785]
[Enclosure—Memorandum]

A Program of Economic Cooperation Between the United States and Cuba

a. scope of program

1. Fiscal System

a) Reorganization—

It is essential that a thoroughgoing reorganization of the fiscal administration and reform of the tax system be undertaken at once by a Joint Cuban-American Committee working principally at Habana. Such a committee should include experts in all phases of Treasury administration, as well as broad tax economists. It should begin its work at once and, with assistance of previous studies of Seligman, Magill, and Shoup,81 should be able to conclude its general studies within three months. Thereafter a small group of administration specialists should remain at least a year to carry out fully the recommendations. The constitutional requirement that a new organic law of the Ministry of Finance be enacted should facilitate the adoption of satisfactory legislation.

b) Mineral Legislation—

One of the principal points made in the memorandum of the Cuban Commission is the desirability of constructing highways to open up mineral resources. Mineral development in Cuba is hindered by antiquated mineral legislation as well as by lack of transportation. It is suggested accordingly that appropriate experts, including one or more on mineral taxation, cooperate with the Cuban Government in connection with the general fiscal study.

c) Budgetary Problem—

The immediate budgetary problem should be speedily attacked. Reports indicate that it would be possible to reduce expenditures by at least 10 per cent without throwing any Government employees out of their jobs.

d) Revolving Fund—

Upon a general 10 per cent reduction in budgetary expenditures and the undertaking of fiscal reform, the Export-Import Bank would be disposed to establish a short-term revolving fund credit of $4,000,000 to the Republic of Cuba.

2. Agriculture

a) Reorientation—

The execution of a broad program of agricultural development is of basic importance in the readjustment of the Cuban economy. The [Page 786] Department of Agriculture is in general accord with the projects recommended in the Cuban Memorandum but it is not prepared to comment specifically on the feasibility or desirability of any particular item until a detailed investigation has been made on the spot. Rice growing, tick eradication, resettlement, reforestation, and irrigation projects all appear to offer some possibilities of productive development which further study may bring out.

b) Agricultural Credit—

Closely associated with a program of agricultural development and diversification is the study of a suitable system of agricultural credit. The establishment of agricultural credit institutions must be considered in relation to the general monetary, exchange, banking, and credit situation.

c) Recommendation—

It is recommended that the Department of Agriculture assign technical experts to cooperate with the Cuban Government in the study of appropriate agricultural development projects. It is also recommended that experts of the Federal Loan Agency, the Farm Credit Administration, the Federal Reserve System, and the Department of Agriculture proceed to Cuba to consider, in cooperation with the Cuban authorities, a plan of agricultural credit—this plan to be correlated with a broader study of the entire Cuban financial mechanism. The Export-Import Bank is prepared to give sympathetic consideration to applications for loans of a total amount not to exceed $10,000,000 in connection with such self-liquidating projects of agricultural development and diversification as may be recommended by representatives of the Bank, the Department of Agriculture, the Farm Credit Administration, and the Federal Reserve System, in conjunction with appropriate Cuban officials.

3. Public Works (Excluding Irrigation and Other Directly Agricultural Projects)

The Export-Import Bank is prepared to consider the extension of credits for the construction of productive public works such as the Habana waterworks, other waterworks and sanitation systems, highways, and certain tourist developments. It is prepared to discuss the rehabilitation of the Habana waterworks immediately upon the submission of a project which has been soundly worked out from the engineering, the commercial, and the legal points of view, and to take up other projects after careful engineering and commercial analyses by competent Cuban and United States experts.

4. Monetary, Exchange, Banking, and Credit System

It is recommended that a group of experts from the Treasury and the Federal Reserve System, assisted by experts from Farm Credit and Agriculture as to agricultural credit, cooperate with the Cuban authorities, [Page 787] in a complete study, largely carried out in Cuba, of the Cuban financial mechanism, pushing forward from the preliminary discussions which have taken place over three years. Such a study should include such matters as the legal tender status of the existing currencies, regulation of banks, exchange system, monetary reforms, new credit institutions and so forth.

5. Sugar and Tobacco

a) Law 522—

It is essential that Law 522 be extended at once.

b) Commercial Arrangements—

Consideration should be given immediately to commercial arrangements which might involve further concessions on sugar and tobacco.

6. Treaty of Establishment

It is recommended that discussions be resumed at once in Habana.82

b. time schedule

I. First Period—Immediate Action

A.
Cuba to
1)
Reduce budgetary expenditures by 10 per cent.
2)
Initiate negotiations for settlement of the Morris claim and other United States claims.
3)
Initiate congressional action for extension of Decree Law 522, new law to remain in effect as long as United States sugar quota plan is in effect.
B.
United States and Cuba to
1)
Appoint joint committees, all to work in Cuba, and all to report as soon as possible but no later than February 28, 1941, as follows:
a)
Fiscal reorganization, revision of the tax system, including the mining code.
b)
Monetary, banking, exchange, especially agricultural credits.
c)
Agricultural projects.
d)
Public works projects, including mining development.
2)
Resume negotiations of a Treaty of Establishment.
3)
Begin discussions of additional commercial arrangements.
C.
United States
1)
Upon the reduction in budgetary expenditures of 10 per cent and the undertaking of fiscal reform, the Export-Import Bank will lend the Republic of Cuba up to $4,000,000 for six months, with renewal privileges for like periods up to but not exceeding two years at an interest rate of 3.6% per annum, satisfactory legislation authorizing such a loan having first been approved by the Cuban Congress.
2)
The Export-Import Bank will give consideration to a loan application for the rehabilitation of the Habana waterworks if presented on a sound engineering, commercial, and legal basis.

II. Second Period—Now to February 28, 1941

A.
Cuba to
1)
Arrive at settlements of Morris claim and other United States claims.
2)
Adopt law extending Decree-law 522.
B.
United States and Cuba to
1)
Four joint commissions to report.
2)
Conclude negotiation of the Treaty of Establishment.
3)
Conclude commercial arrangements.

III. Third Period—March 1, 1941 On

A.
Cuba to
1)
Ratify Treaty of Establishment.
2)
Adopt legislation to make effective recommendations of the four joint committees (e. g., organic law for the Treasury Department, law establishing agricultural bank).
B.
United States
1)
Ratify Treaty of Establishment.
2)
Export-Import Bank to give sympathetic consideration to the extension, upon the adoption by Cuba of requisite legislation, of appropriate financial assistance for the execution of useful projects recommended by the joint technical committees:
a)
Public works.
b)
Agricultural development.
  1. Edwin R. A. Seligman and Carl S. Shoup, A Report on the Revenue System of Cuba (Habana, 1932); Roswell Magill and Carl Shoup, The Cuban Fiscal System, 1939 (n. p., n. d.).
  2. Preliminary negotiations for a Treaty of Establishment were suspended in July 1939.