No. 369.
Mr. Foster
to Mr. Evarts.
Mexico, October 8, 1878. (Received October 29.)
Sir: Frequent inquiries are addressed to this legation from the United States by holders of Mexican bonds. These inquiries embrace the market value of said bonds, whether the Mexican Government is now paying or expects at an early day to pay the interest, and in some instances whether certain bonds are genuine and recognized by the Mexican Government. Of late these inquiries have become so frequent that I have thought it best to prepare a statement for such use as you may think proper to make of it, of Mexican bonds issued in the United States, describing those which are recognized by the government as genuine, giving some information as to the security on them, the probability of the resumption of interest payment and their market value.
The bonds in question all had their origin in 1865. At the close of our civil war the republican government of Mexico, which had been driven [Page 625] by the French intervention and Maximilian empire to the extreme northern boundary of the Mexican territory, received fresh courage and increased hopes of finally triumphing, and it was regarded as an opportune moment, in view of the strong sympathy in the United States, to place upon the American market a government loan, to enable it to purchase arms and military equipments and to secure the enlistment of foreign troops to aid the native republican forces. The resolution of the Mexican Government to place this loan upon the American market was communicated by Señor Romero, the Mexican minister in Washington, to the Secretary of State, Mr. Seward, in a note dated July 23, 1865, and the objects to be attained thereby in part explained.
Gen. J. M. J. Carbajal, military governor of the States of San Luis Potosi and Tamaulipas, was intrusted by President Juarez with the mission of negotiating a loan in New York, and Gen. G. S. Ochoa in San Francisco. General Carbajal came to New York and entered into a contract, on the 15th day of May, 1865, with Daniel Woodhouse, as superintendent of The United States, European and West Yirginia Land and Mining Company, embracing, among other objects, the issuance by Carbajal, on behalf of the Mexican Government, of $30,000,000 of bonds, which were negotiated and sold by Woodhouse as financial agent of the Mexican Government.
This contract was at once disapproved by the Mexican minister at Washington, and, upon being transmitted to the Mexican Government, it was declared annulled and of no binding effect, for the reasons stated that Carbajal had exceeded his instructions, and Woodhouse had failed to comply with his obligations. Notwithstanding this action, Woodhouse proceeded to place the bonds upon the market, and several millions of dollars of this issue are believed to have been in some way put in circulation; and, from letters of inquiry which I frequently receive, there is reason to believe that some of them have found their way into the hands of innocent purchasers.
This transaction was made the subject of a lengthy note by the Mexican minister, Señor Romero, to Secretary Seward, dated April 20, 1867, and which, with inclosures giving full details, was transmitted by President Johnson to the House of Representatives July 10, 1867.
On the 11th of September, 1865, General Carbajal made a second contract with the firm of John W. Corlies & Co., of New York, for the negotiation and sale of Mexican bonds.
This contract was approved by the Mexican Government, and no question has been raised as to the legality and binding force of these bonds. The sale, however, was quite limited, the amount in circulation never having been much above $2,000,000.
General Ochoa, who was intrusted with the negotiation of the loan in San Francisco, displayed little capacity for the business intrusted to him, and involved his government in much embarrassment and litigation. He made an issue of $10,000,000 of bonds, and placed them upon the market, but they failed to sell. He afterward hypothecated them to secure his financial agent in San Francisco for $30,000, which he had expended in printing them, and other costs. The $10,009,000 of bonds were then taken to New York for sale, and there became involved in litigation. It is claimed by the Mexican Government that none of this issue of bonds have gone into general circulation, and that only $500,000 of them remain outstanding, which at last advices were in the custody of Eugene Kelly & Co., of New York, by order of the supreme court of that State. Full details of these bonds were given by Señor Romero, in [Page 626] a note to Secretary Seward, of June 4, 1867, communicated by President Johnson to Congress, as already stated.
It therefore appears that there are now held by American citizens two classes of Mexican bonds, which are known by the names of the financial agents who placed them in circulation, to wit, the Woodhouse and the Corlies bonds. The Woodhouse bonds were declared by the Mexican Government, at the time of their issue, to be fraudulent and unauthorized, and have never been recognized. On the other hand, the Corlies bonds were issued and placed upon the Kew York market with the full approval and authority of the said government, and are recognized as a binding obligation. At my request, the Mexican minister of finance sent to this legation a statement of the Corlies bonds in circulation on the 6th of March, 1874, and which is substantially the same up to the present date, as follows:
| 695 | bonds, letter L, of $50 each | $34,750 |
| 3,583 | bonds, letter C, of $100 each | 358,300 |
| 2,090 | bonds, letter D, of $500 each | 1,045,000 |
| 6,368 | 1,438,050 |
These bonds were printed in Spanish and English, dated July 4, 1865, payable twenty years from October 1, 1865, with interest payable in gold semi-annually on the 1st October and 1 of April of each year, at 7 per cent, per annum, and are signed by José M. J. Carbajal, governor, &c., certified to by Julian Cérda, secretary, attested by Igno. Mariscal, secretary of legation, and registered by Fuentes. For a more accurate description, I inclose a copy of the English text of one of the $50 bonds.
Having recently received a letter from an American citizen inclosing a coupon cut from a Mexican bond held by him, which he had forwarded to the Mexican minister in Washington, who answered that he was not able to say whether it was one of the genuine or fraudulent issue, I addressed the minister of finance a note of inquiry on the subject, and he sent me the report of which I inclose a copy, and also a copy of the coupon in question attached to the report. From the report it will be seen that the coupon is pronounced by the Mexican finance department as of the fraudulent and unrecognized issue. It is detected for the reason that the date of payment of interest is designated as September 1, and the denomination of the bond is $1,000; whereas in the recognized issue the dates of payment of interest are October 1 and April 1, and the denominations of the bonds are $50, $100, and $500.
By reference to the bond, of which I inclose a copy, it will be seen that its payment is guaranteed by the pledge of 500,000 acres of mineral and 5,000,000 acres of select agricultural lands in the States of Tamaulipas and San Luis Potosi, and also by the pledge of 60 per cent, of all the federal and State revenues accruing from port duties, imposts, and taxes in the States named; and the bond is made receivable in payment of all the above-pledged property and resources. The public lands pledged have never been made available, as there has been no survey of the same, and without such survey and an adjudication it will be difficult, if not impossible, to determine what are public lands; besides, it is a serious question whether these States are not entirely covered by private titles.
But the pledge of the public revenues of the federal and State governments is abundantly ample to cover the loan, if unincumbered by previous pledges. The last report of the minister of finance (December, 1877) showed the receipts of the custom-houses which are named in the bond, for the fiscal year 1876–’77, to be $1,899,055, and as 60 per cent. [Page 627] thereof has been pledged, the customs would yield annually at that rate $1,139,433, which, as the total amount of the bonds in circulation is $1,438,050, would be more than 75 per cent, of the total principal and more than eleven times the annual interest. But in addition to these customs receipts there are pledged “all dues in any manner payable to the said general and State government,” which would include at least $600,000 annually, making say $360,000 more to be added to the amount which has been pledged to secure the payment of the bonds now held in the United States. It will thus be seen that the revenues pledged, without the lands, are more than sufficient to pay off the entire principal of the debt in one year.
In view of these facts, the statement will doubtless appear strange that the Mexican Government has not paid to the holders of the bonds a single half year’s interest in the thirteen years since they were issued. When the bonds were placed on the market in New York, in 1865, the Mexican Government effected an arrangement with Messrs. Corlies & Co., their financial agents, whereby that firm, in order to make the bonds find a more ready sale, guaranteed the first year’s interest and paid the same on such bonds as were sold directly by them. Under this arrangement I am informed that Corlies & Co. paid to holders of the first two coupons the sum of say $68,000, which amount they have not up to this date been able to recover from the Mexican Government, although they have repeatedly sought a settlement. The total unpaid interest on the bonds now amounts to $l,308,580, a sum nearly equal to the principal. The total debt, principal and interest, aggregates $2,746,630.
The failure to pay the interest on these bonds is to be attributed not so much to the unwillingness of as to the financial embarrassments which constantly attend the Mexican Government. It has been a struggle for many years to collect enough money in the federal treasury to pay the current expenses of government, and it is not an unusual occurrence to have the salaries of public officials reduced, sometimes 50 per cent., and at others altogether unpaid, owing to the straitened circumstances of the public treasury. This poverty has led the government to violate its pledged faith with its foreign creditors, and apply the revenues, solemnly guaranteed and set apart for the bondholders, to its own necessities. And the condition of the federal treasury is generally better than that of the States, so that as fast as the customs duties and State revenues have been collected they have been used for the immediate demands of the respective governments, without any regard for or apparent thought of the American creditors, to whom 60 per cent, thereof had been sacredly pledged. President Diaz referred to the chief cause of these evils in his last message, when he attributed the embarrassments which always attend the public treasury to the frequent political convulsions to which the nation had been subject, and he justly recognized the financial question as that which must continue for some time in Mexico the one of most difficult solution.
I have stated that the pledge of the public revenues is abundantly ample to cover the American bonds in question, if unincumbered by previous pledges. But unfortunately such is not the case. The government commissioner, Hon. Manuel Payne, in a report of the foreign debt of Mexico in 1862 (pages 321 and 322), states that the entire customs revenue, excepting what was barely sufficient to meet the expense of collecting them, had before that date been solemnly pledged by law and treaties towards the payment of the European debt.
In addition to this, in 1868, three years after the guarantee given to the American bondholders, the Mexican Congress, in apparent obliviousness [Page 628] of its previous pledges to the European and American creditors, assigned 12 per cent, of the customs of Tampico and Matamoras to the Mexican Railway Company, and again in 1873 it assigned 8 per cent. of the same customs to the International Railroad Company of Texas. The same pledge of 8 per cent, was voted by Congress the following year to another railroad company known as the “Catorce,” and a few months later to still another company called the “Central.”
There may exist in Mexico a question which of these pledges has preference. If the common-law principle of mortgage, to say nothing of public faith, applies to the guaranties made by the government on its bonds, then the customs duties maybe held to have been already fully pledged to the European debts before the issuance of the Carbajal-Corlies bonds. If the Congress has the power by subsequent legislation, which it seems to have exercised, to invalidate previous bonded pledges, there may be other and later claims upon these revenues to be satisfied before the American bondholders.
It will be inferred from the foregoing that there is very little hope of an early resumption, or rather commencement of payment of interest. The term resumption cannot properly be used, for, as has been stated, the government has never yet paid the interest on the first coupons. It might be practicable for the government to make some arrangement for the annually-accruing interest if that were the only foreign obligation it had to meet, but the interest already accrued on these bonds is now over $1,300,000; the government feels the-necessity of paying promptly the annual instalment of $300,000 due to the United States under the Mixed Claims Convention; and it has besides an anterior foreign debt which now amounts, principal and interest, to say $125,000,000.
From the foregoing statement it would hardly seem necessary to answer one of the inquiries often made to this legation by American holders of the Corlies bonds as to their market value. As no interest has been paid upon them by the Mexican Government since they were issued, and as there appears to be no prospect that the government will voluntarily assume the payment of either principal or interest at an early date, the bonds have no market quotation or value. The only transactions which tend to fix a market value on the Mexican foreign debt is a process resorted to at times by the Mexican treasury department, which is termed a “redemption” of the debt. This is nothing less than a purchase by the government, sometimes at public auction, but latterly by private negotiation, of foreign bonds at their depreciated value.
Some such transactions occurred in 1868–’69, and within the past year further purchases were made. It appears by the statement published in the government official journal in April last (noticed in my No. 701) that the bonds so purchased in 1868 cost the government 18¾ per cent, of their face value, and the purchases of the present year only cost 4 per cent. Some of the Carbajal-Corlies bonds were among those purchased in 1869, but I am not aware that any of that issue were included in the recent operations. If, however, ten years of default in payment of interest has reduced the other classes of Mexican bonds to 4 per cent., it is to be supposed that the Corlies bonds have not been an exception.
The dispatches of this legation in 1868 characterized the action of the Mexican Government in the purchase of its own bonds at the depreciated value as “at variance with every dictate of sound policy and public good faith;” and I cannot believe that after ten years’ additional default in the payment of interest the purchase of its bonds at a much greater reduction of value will be held as any more honorable observance of its plighted public faith.
[Page 629]The conduct of the Mexican Government in reference to the bonds which it sold in the United States in 1865, in order to obtain military resources to aid in overthrowing the Maximilian empire, has been the occasion of bitter complaint on the part of American citizens who purchased and now hold these bonds. But it is due to the Mexican Government to state that no unfavorable discrimination has been shown by it against Americans, as the necessities of the country, its revolutionary condition and bad management, have led to the violation of its public faith and guarantees to foreign bondholders of other nationalities as well, and this for many years anterior to the placing of the Carbajal-Corlies loan on the New York market. It might aid materially in enabling the American bondholders to form a correct opinion of the value of their securities and the probability of their payment in principal and interest, to give a statement of the other foreign indebtedness of the Mexican Republic and the treatment of the bondholders by the successive governments of this country; but it will be better to make these matters the subject of a separate dispatch.
The government official organ, the Diario Oficial, and other newspapers of this capital frequently allude to the holders of claims against the Mexican Government as the persons who are most busy in the United States in preferring charges against Mexico of bad faith and injustice toward American citizens. The foregoing statement will furnish some data from which to judge whether the complaints of the holders of the Carbajal-Corlies bonds are well founded.
I am, &c.