No. 409.
Mr. Gibbs to Mr. Evarts.

No. 189.]

Sir: I have the honor to refer you to my dispatch No. 167, of June 19, in relation to the finances of this country.

The government made several attempts to arrange finance, and had various interviews with the directors of the associated banks, without coming to any agreement. Matters were daily growing worse, and much excitement was caused by the refusal of storekeepers and commercial houses to receive the bills known as the “Meiggs Mission,” issued by the Public Works Company of Peru.

In my dispatch No. 128, of February 5, I refer to this company; also in dispatch No. 108, of November 21, I inclosed copies of Mr. Meiggs’s proposition to finish the roads. The proposal was accepted, and he commenced operations on the three roads referred to; also to work on the great tunnel to drain the Cerro del Pasco; all these works to be carried on by what is called the “Public Works Company” of Peru.

The government advanced bonds, and on the strength of them, by depositing the bonds with the tribunal of commerce, the company made an issue of notes as above referred to. The commercial houses, by refusing to take them, checked Mr. Meiggs’s operations, and he directed a note with a proposition to the government, which was accepted by a decree of the 17th instant. I inclose copy of Mr. Meiggs’s proposition and the decree, from the South Pacific Times of Callao.

This had the effect of creating an excitement in the money market. Exchange on London went from 22d. per sol to 18d.; American gold from 130 per cent, premium to 160 per cent. Now the decree is looked at in a more favorable light, and exchange to day is 20d. per sol and gold 140 per cent. The feeling is that if the government carries out in good faith the decree, financial affairs will be on a more stable basis, but to my view it is hardly possible, as there is one great drawback—expenditures are more than the ways and means; the outgo heavier than the income—and until economy is practiced on one, and the other improved, no paper decrees will equalize the difference.

All of the leading retail houses here in Lima held a meeting in reference to the decree, approving of it, and passed resolutions to ask the government to allow the free exportation of coined silver, now prohibited, and to prohibit the exportation of silver in bars, now paying three per cent, export duty. As silver coin is continually leaving the country and [Page 713] is the coin of the country by law, the merchants argue that, if it had free egress, much would be reimported, and if bars were coined, some of it would remain in the country.

I refer to my dispatch No. 108, of November 21, for information on coinage.

I am, &c.,

[Inclosure 1 in No. 189.—Translation.]

The Meiggs emission.—Important decree of the government on the subject of Meiggs’s notes and those of associated banks.

[From the South Pacific Times, Tuesday, August 21, 1877.]

The following is a translation of the petition presented by Mr. Meiggs:

Your Excellency: I, Henry Meiggs, railroad contractor, respectfully submit to your excellency, that for the purpose of carrying out the works with which I am intrusted, I made an arrangement with the Public Works Company of Peru, of which I am president, in virtue of which the said company gave me 1,030,000 soles in paper, which I guaranteed by depositing 1,500,000 soles of the bonds which your excellency had given me in payment, according to the contract of February 3, 1877; and in order that the public might receive the notes with confidence, I deposited the bonds in the consular tribunal, and gave due notice to the public of said deposit.

On the strength of this guarantee the notes have circulated in this capital and outside of it, with the full appreciation of the persons who have received them. But in consequence of the supreme decree of 21st February last, which varied the conditions of the treasury bonds, known as the “Meiggs,” various persons have thought that the service of the bonds, which I have deposited in the Consulate, might at some time be deficient, and consequently the fear has arisen that the notes of the public works company, guaranteed by said bonds, do not offer sufficient security.

This fear has reached such an extreme, that at a meeting of the merchants, held on the 15th June last, they compromised themselves not to admit notes which were unprovided with the government stamp; and the conflict has assumed such proportions that public works of the highest importance, with the execution and realization of which I am intrusted, are about to be completely paralyzed through the want of the necessary funds to continue them.

The emission of special bonds having been depreciated through the aforesaid supreme decree of 21st February, a depreciation which has interfered with the carrying out of works of the utmost importance to the country, and which has caused me irreparable loss, I find myself compelled to have recourse to your excellency, making known to you that having no funds at my disposal, for even the notes which I issued for the sum of 1,030,000 soles have been rejected by the “Junta Comercial,” in consequence of the depreciation previously referred to; and further, taking into consideration that in the complete absence of resources, the notes issued by the Public Works Company, having been rejected (as already stated) after being put into circulation, and having no longer any means of continuing the work suspended, for the reasons which I have explained, I find myself, after making all sorts of sacrifices, under the painful necessity of announcing to your excellency that from this moment all the works will remain suspended if your excellency does not at once come to my assistance in preventing the continuance of the evil.

The credit of the supreme government is involved in this matter, as also my personal honor and the future of the country.

As all that is required for the public works in actual operation is the sum of 5,300,000 soles, I propose to make an emission which will save the compromises of all concerned and will give to the supreme government most advantageous results. The terms are the following:

The undersigned will return to the supreme government the 5,333,333 soles 33 cents, which he received in, special bonds for the railroad works of Chimbote to Yuramarca, of Cuzco to Marangani, and of the Oroya to the mineral district of Cerro de Pasco, as also for the drainage and mining works of the said Cerro; and the supreme government will empower the undersigned to emit through the Public Works Company, in notes payable to bearer, the aforesaid sum of 5,333,333 soles 33 cents, in order to repair the depreciation of the bonds.
The 80,000 soles which the supreme government should furnish me monthly for the service of the 5,333,333 soles 33 cents, and which is to satisfy the delegation of the associated banks, will serve for the monthly redemption of the emission which I solicit.
The supreme government will order that the said notes he received in the custom-houses and other fiscal offices, and will guarantee them so that they he admitted as current money.
With the object of aiding the supreme government disinterestedly, when its necessities may require it, I compromise myself to furnish it the monthly sum of 100,000 soles, without interest, and for the term of one year. I compromise myself equally to furnish to the supreme government, during six months, the sum of 500,000 or 600,000 soles without any interest.

Finally, at sixteen months from the date of the decree authorizing the emission, I will furnish to the supreme government, on the most equitable conditions, 150,000 soles monthly in hard money.

This petition, your excellency, is not only based on the considerations set forth, but also on the conclusive order of the law of July 7, 1874, by which the Executive is empowered to adopt any means whatever, in order to prevent the suspension of the public works in hand.

With the foregoing and the hope that an end will be put as soon as possible to the bad situation which renders the continuation of the before-mentioned public works most difficult, I pray your excellency to authorize at once the emission of 5,333,333 soles 33 cents in notes to bearer, as being an indispensable and urgent necessity for the prosecution of the public works.

[Inclosure 2 in No. 189.—Translation.]

Decree of the Supreme Government in answer to the foregoing petition.

Mariano Ignacio Prado, President of the Republic:


  • First. That there is neither unity nor uniformity in the answers given by each one of the associated banks, respectively, to the two projects presented to them by the government, with the view of arriving at a combination or arrangement which might in some measure lessen the difficulties of the situation;
  • Second. That it is necessary to begin redeeming the paper in circulation, substituting, as far as possible, sufficient coin to re-establish the equilibrium in mercantile and other transactions;
  • Third. That the perturbation caused by the emission of 1,030,000 soles which has been made in notes by the Public Works Company, guaranteed by bonds of the State, affects the character of the government, and consequently compels it to protect against loss the issuer and the holders of such paper;
  • Fourth. That it is not possible to allow the paralyzation of the railroad works contracted with Don Enrique Meiggs, and is indispensably necessary and of recognized urgency that they should be pushed forward to their completion, not only because the government must fulfill its obligations, but because the interests of the country require it, and especially those of the departments in which said railroad are being constructed;
  • Fifth. The government is fully authorized to this effect by the law of July 9, 1875;
  • Sixth. That at the same time that these results are obtained, and as a means of making them more beneficial to the country, it is desirable to put in movement some of the government bonds which are at present suspended, without advantage to the State or to the public;

I decree—

  • Art. 1. The government assumes and obliges itself to pay, in the form determined in this decree, the authorized emission of the associated banks to the amount of 15,000,000 of soles.
  • Art. 2. The notes of which government assumes the responsibility, up to the amount mentioned in the preceding article, will be distinguished by the new official seal which will be put on each of them, by the board of employees and merchants named for the purpose.
  • Art. 3. These notes will be the only ones admitted in the offices and establishments of the State, municipalities, instruction, and beneficiencia.
  • Art. 4. The state taking upon itself the responsibility held by the banks of paying to the public the value of their notes, the debt of the state to the said banks is thus canceled for an equal amount to that represented by the notes in actual circulation. The balance of the said debt, in order that it be definitely canceled, will be paid to the associated banks in bonds of the internal debt and out of those which the said banks hold in deposit, according to the contract of September 10, 1875, at the rate of eighty per cent., and the government will receive the balance of the bonds forming the said deposit, already mentioned, for the loan of 18,000,000 of soles, it reassumes the [Page 715] rights which, according to said contract, it conceded to said hanks, and it enters at once into possession of the administration of the nitrate and of the sale of guano in the Mauritius.
  • Art. 5. The government being released from the associated banks by this means, that is to say, by the fulfilment of the obligation which it incurred in the contract of September 10, 1875.
  • Art. 6. The associated banks will continue administering the nitrate under the same conditions as fixed in their contract with the government, and they will also continue, if it suit their interests, with the guano consignment to the Mauritius, in conformity with the stipulations of their contract, and in such case they will give from the product of the sale of the manure 1,000,000 of soles annually in equal monthly installments, and in specie, for the redemption of notes as prescribed in Article 10.
  • Art. 7. The government accepts the proposal made to it by Mr. Henry Meiggs, under date 11th instant, and consequently authorizes him to emit notes payable to bearer to the amount of 4,303,333 soles, in order that, added to the 1,030,000 soles which the Public Works Company issued and has in actual ciculation without authorization, they form a total emission of 5,333,333 soles, value of the special treasury bonds given to Meiggs for railroad construction; applying to the balance owing to Meiggs for work done, the difference resulting between the rate of 75 per cent, at which the government gave him the aforesaid bonds and the nominal rate at which they are now recovered, and the government assumes the responsibility of the payment of the notes which Meiggs or the before-mentioned company may emit up to the stated sum of 5,333,333 soles, all of which will be officially sealed, and will be admitted in the offices and establishments of the state, of the municipalities, and of the branches of instruction and beneficencia just the same as the authorized notes of the associated banks.
  • Art. 8. The government having made itself responsible for the payment of the obligations of Meiggs for the total sum of 5,333,333 soles 33 cents which are represented by the bonds payable by the state to the latter on their expiration, the said bonds will be gathered in and canceled as being definitely paid.
  • Art. 9. The means being thus provided for pushing on the railroad works contracted for by Mr. Henry Meiggs, it being understood that the notes emitted will be solely for that purpose, the government will see to the active prosecution of such works until their termination, and will hold Mr. Meiggs responsible for any damages which the State might suffer through the non-execution of those works.
  • Art. 10. The government will apply the following revenue to the redemption of the notes of the associated banks and of Mr. Henry Meiggs, the circulation of which it authorizes:
    One million of soles annually proceeding from the sale of guano in the Mauritius, which will be furnished by the government or the associated banks, if they continue with the consignment.
    The sum which it is now paying to the banks for the service of the loan of 18,000,000 of soles, and which amounts, approximately, to 1,000,000 of soles per annum.
    The 80,000 soles monthly, which Meiggs receives from the associated banks for the contract of the 3d February last for the service of the bonds given him by the government.
    The value of the £12,000 which the banks are to receive from the government, from the month of September next, in payment of the loan made to it by them of 500,000 soles in specie, with the express stipulation that they be applied to the redemption of notes.
  • Art. 11. The redemption will take place at the end of each month, beginning in September next, applying in equal monthly proportions the funds designated in the foregoing article. The redemption will take place before a board composed of the president of the government audit department, the director of the financial department, one of the fiscals of the superior court of this district, the prior of the consular tribunal, and two merchants, to be named each month by the minister of finance. The redeemed notes will be destroyed in one of the public squares of this capital and in presence of said board.
  • Art. 12. The surplus treasury bonds will be exchanged, at the rate of 80 per cent., for titles of the internal consolidated debt, out of those which may remain disposable after making the payment to which part of them are destined, in conformity with the present decree.

The minister of finance is hereby instructed to attend to the carrying out of this decree and to its publication and circulation.

  • José Felix Garcia.
[Page 716]
[Inclosure 3 in No. 189.—Translation.]

Mr. Meiggs in answer to the foregoing decree.

His Excellency General Don Mariano Ignacio Prado:

Your Excellency: The public works of the country being threatened with complete paralyzation through the want of funds wherewith to carry them forward, its commercial and financial interests overwhelmed by a crisis of most difficult solution, I had recourse to your excellency to solicit the means which, by averting serious evils, would permit the prosecution of the railroad works and the development of the national wealth.

The decree of your excellency, dated yesterday, has saved the situation; and in addressing myself to your excellency to-day, expressing my profound gratitude, it is not in the name of my own interests compromised in the matter. Your excellency, with the honorable and loyal views which characterize you, and in benefit of the fiscal interests and of the future, has been pleased to frame a resolution which will be the means of fecundating the soil in which the seed sown with so much anxiety and sacrifice was threatened with destruction.

On asking from your excellency that which your excellency has decreed, I have not been prompted by egotistical motives. Rooted in the country, and with me all I possess, my sole desire has been, and is, to see terminated the works intrusted to me, and in order to secure that object, I shall, as heretofore, omit no sacrifice.

When the public works are once terminated; when, thanks to them, industry and enterprise open their doors to all classes and fortunes; when the nation commences to reap abundant fruits and to see itself once more in the ranks of the richest and most productive, then your excellency’s decree will appear as one of the most brilliant pages in the history of your administration.

Meanwhile, with all the energy and constancy of which I am capable, and inspired by the same confidence in the future which animates your excellency, I shall redouble my efforts to terminate the works in the shortest time possible.

Heartily desiring the well-being of your excellency, I reiterate the sentiments of esteem and respect with which I subscribe myself, &c., &c.,