No. 190.
Mr. Frelinghuysen to Mr. Sargent.

No. 102½.]

Sir: As you are doubtless aware, the Government of Great Britain is a creditor of Venezuela, and a portion of the foreign debt of that Be-public has been recognized in its favor. The Governments of France, [Page 365] Germany, The Netherlands, Spain, Denmark, and the United States are also creditors of Venezuela to a large amount.

These indebtednesses are recognized by agreements between Venezuela and the creditor Governments as follows, thus:

On the 29th July, 1864, France and Venezuela concluded a convention by which it was agreed that Venezuela should pay to France 600,000 francs in full of all claims, payable in installments, of which the last was to be paid July 29, 1869 these payments to be secured by hypothecation of 10 per cent. of the gross products of the custom-houses of Laguayra, Puerto Cabello, Maracaibo, and Ciudad Bolivar. In 1867 an uncompleted convention with France substituted for the 10 per cent. of four custom-houses, 17 per cent. of the gross receipts of Laguayra and Puerto Cabello. This convention was made subject to approval by each Government. It was never approved by Venezuela; nevertheless an amount equivalent to the 17 per cent. provided for was paid under it from October, 1867, to February, 1868. Since that time a fixed annual quota has been assigned to France by Venezuela, while the debt itself has increased through sundry causes, until in July, 1881, it amounted, according to the statement of Venezuela, to 3,455,155.60 francs.

In 1866 the claims of the Netherlands were adjusted diplomatically. Holland is understood to maintain that their payment was secured by a pledge of 10 per cent. of the duties in Puerto Cabello, Carupano, and Guircia, and 7 per cent. of those in Laguayra, but Venezuela controverts this.

The Danish claims were also adjusted in 1866. They were small in amount and secured by no pledge.

In 1866, also, the United States concluded a claims convention with Venezuela, referring all pending questions to the decision of a commission, which ended its labors in 1868, making certain awards against Venezuela.

Subsequently Venezuela made conventions with Spain, with England, and with Germany, by which a diplomatic debt was recognized.

In July, 1881, the aggregate of all these foreign debts of Venezuela was (in francs) reported to be as follows:

France 3,455,155.60
Holland 4,190,906.56
Denmark 161,241.16
United States 5,847,163.32
Spain 7,704,457.64
Germany 200,000.00
Great Britain 2,192,835.24

Until 1873, the payments made by Venezuela on account of these debts followed no fixed rule. In July of that year, a law was enacted by which 40 per cent, of the customs revenues were set aside for the benefit of national creditors, and thirteen one-hundredths of this 40 per cent. was to be applied toward paying the foreign creditors. The division of this last thirteen one-hundredths appears not to have been made pro rata, but with reference to the superior rights claimed by France.

[Page 366]

The following table of the monthly payments made from July 29, 1873, to May 1, 1880, shows the manner of the distribution and the percentage paid annually upon the capital debt as above tabulated:

Countries. Monthly payment. Annual payment. Approximate percentage on capital debt.
Francs. Francs.
France 28,275 339,300 9.8
Holland 7,220 86,640 2.06
Denmark 881.25 10,575 6.5
United States 13,980 167,760 2.8
Spain 13,980 167,760 2.2
Germany 4,000 48,000 2.4
Great Britain 10,020 120,240 5.4

Although these monthly payments, even when exceeding the annual interest on the debt, as in the case of France, Denmark, and Great Britain, were small compared with the debt itself, they continued to be made up to May, 1880, without, so far as is known, any objection on the part of France. By law or decree of Venezuela made without consulting the foreign Governments or creditors, the division of the thirteen one-huudredths was then changed, and apparently to make the change less objectionable to those injuriously affected, the amount to be distributed was increased on twelfth. The new division was made pro rata on a technical arrangement of the principal sum due the creditor Governments, and was as follows:

France 11,637.55
Holland 14,115.70
Denmark 543.09
United States 19,694.25
Spain 25,949.94
Germany 674.63
Great Britain 7,385.84

being slightly over 4 (4.04) per cent. annually for each on the capitalized debt.

It will be seen that the largest creditor Governments, Holland, Spain and the United States, whose quotas theretofore were actually less than the interest due on their claims, now received an increased aliotmen, while the share of France, Denmark, Germany, and Great Britain was proportionately diminished, although in no case does the quota extinguish the stipulated interest of 5 per cent.

France and Great Britain, who suffered by the new distribution, protested against it, and demanded the fulfillment of the conditions of the original conventions. The French Government notified that of Venezuela that no smaller proportion could be accepted than that assigned under the arrangement made in 1873; and, upon a failure to obtain such terms, suspended diplomatic relations.

When the question between France and Venezuela first assumed a menacing aspect, the latter solicited the good offices of the United States to bring about an amicable understanding. Although these good offices were earnestly exerted, they failed to prevent the diplomatic rupture, which occurred by the withdrawal of the French chargé d’affaires from Caracas in April, 1881. The efforts of the United States [Page 367] have since been constantly at the disposal of both parties in the interest of peace.

Venezuela having proposed an arrangement whereby the United States should receive under certain guarantees of prompt and regular payment the thirteen one-hundredths above mentioned, and distribute it among the several creditor Governments, the United States minister at Paris was instructed, under date of 5th May, 1881, to say to the minister of foreign affairs that while the United States Government would be unwilling to guarantee any portion of the foreign debt of Venezuela, it would assent, if desired, to act as the receiver and distributer of the monthly payments; and he was further instructed to ask France to delay action while considering the proposition. At the same time, the good offices of this Government to bring about a settlement were formally tendered to that of France.

The French claim to a priority, both as to time and as to conventional right, in the payment of Venezuela’s foreign debt, being insisted upon, a further instruction to the United States minister at Paris, on the 23d of July, 1881, controverted this claim as unjust to the other creditor Governments, and urged that any partition of the available resources of Venezuela should be pro rata; and the proposal was renewed therein that such partition should be made by the United States, thus giving a reasonable security to each of the creditor nations, and an effectual bar against any inequitable advantage of one over the others. In fortification of this position, the circumstance was adverted to that the several debts of Venezuela toward foreign subjects were not created by the conventions which liquidated them, but sprang from acts, many, if not most of which, were done prior to the treaty of 1864 with France, and that they were simply recognized as to amounts by the conventions. The reply of Mr. Barthelemy St. Hilaire, dated 15th September, 1881, repeated the French contention that Venezuela was under specific , treaty obligations to France, which gave to French claims a certain preference not to be renounced; and he stated that the attitude of his Government was solely due to the declaration of the intention of Venezuela to pay no more heed to those treaty obligations, adding that so long as this purpose continued, France could not advantageously con sider any proposals implying a resumption of the relations between the two countries, but that no thought was entertained of forestalling the good offices of the United States by any premature action.

In this note of Mr. St. Hilaire’s there appears, however, a suggestion that by adding to the principal still due to France under the convention of 1864, “a sum designed to represent the whole or a portion of the interest stipulated by another treaty concluded in 1867, or by some similar arrangement to be devised hereafter, it might not be impossible to conclude an arrangement that would permit the Government of the French Bepublic to renounce its privilege without prejudice to its citizens, who would then be placed in the same category with the other creditors.”

This Government, which, in its capacity of a mediator between the two Governments in this matter, cannot disregard the just claims, either of its own citizens or of those of other countries, did not assent to this assumption of French preference, even as thus modified, and continued to remonstrate against it.

A reply of Mr. Gambetta, dated January 13, 1882, presents the latest position of the French Government in the premises. He reiterates the claim to preference founded on the express stipulation of 1864, to pay [Page 368] to France a fixed proportion of the product of the custom-houses, and says:

We cannot permit this principle to be contested, or appear directly or indirectly to allow our debtor to strike a blow at our own guarantees for the benefit of other debts created by a subsequent settlement. According to our views, the situation cannot be changed except by a modification introduced by mutual agreement into the conventional arrangements, which have fixed the rights and obligations of the two contracting parties. * * * The most simple solution would evidently be for Venezuela to take steps to pay the sum due on the capital of our debt of 1864, that is, twelve per centum of the sum originally agreed, or 720,000 francs. On our part we shall be disposed to agree to consolidate the overdue interest, putting the entire amount of it in the category of foreign debts.

Mr. Gambetta adds that in no event could an arrangement be made unless including the other questions which led to the rupture with Venezuela, and especially the pending claims the settlement of which by a mixed commission was broken off by Venezuela in 1879. These points being also adjusted, France would accept a pro rata distribution as respects all but the original debt of 1864, and explains that the debt so subject to pro rata payments would comprise, 1st, the stipulated interest on the debt of 1864; 2d, the sums allowed in 1867–’68, and 3d, the amount of claims now pending, and of which the liquidation has been arrested. Here the matter now rests, the French Government having consented to defer all direct action for enforcing its demands, and promised to second the good offices of the United States towards effecting an equitable settlement of the questions presented.

Although itself a creditor of Venezuela to a larger amount even than France, this Government would feel disposed to admit the justice of the solution proposed by Mr. Gambetta, if satisfied that it would not be opposed by the other creditor Governments, whose claims would, like our own, be prejudiced to some extent by the admission of a prior claim in France to any part of the debt.

The proposal of the Venezuelan Government is that by a convention between the United States and Venezuela the former will consent to receive the thirteen one hundredths of the 40 per cent. of the customs revenues of the Republic, and divide the same pro rata in monthly installments among the several creditor Governments. This Government is disposed to do so, without, however, assuming any responsibility for the collection of that percentage. And to reach such a settlement, the United States is prepared to counsel Venezuela to pay to France during the coming year, in cash, over and above the stipulated pro rata payments, the sum of 720,000 francs, to capitalize the defaulting interest on all the foreign debt, the totals of which would thus require to be readjusted as the basis of future pro rata payments, and to increase as far as possible the amount of the distributable percentage, so that it shall at least equal 5 per cent. of the total debt. We would also counsel Venezuela to resume the operation of the claims commission with France, and would use our efforts toward the conclusion of like claims commissions with other Governments, where justice may require it, adding the sum of any future awards to the amount of the foreign debt.

Before doing so, however, it is desired to know whether such an arrangement will be acceptable to all the other creditor Governments, whose interests, no less than our own, are concerned in the peaceful adjustment of the Franco-Venezuelan controversy on a basis which shall not overshadow the rights of other nations against Venezuela; and whether, in the event of accepting the arrangement proposed, the other Governments will empower their representatives in Washington to consult with representatives of the United States and Venezuela, to the end [Page 369] of protocolizing a revised statement of the capitalized indebtedness of Venezuela to each as a basis for future distributions, which for convenience might be payable by us to them quarterly or semi-annually instead of monthly, as proposed.

You will lay the foregoing statement and views before the minister” for foreign affairs of Germany. You will point out to him that the failures to attain a peaceable settlement as between France and Venezuela, and a resort to force by the former to collect her debt, could not but disastrously affect the ability of Venezuela to meet her just obligations towards the other creditor Governments; that the common interest of all is concerned in reaching an amicable solution of the complex problem presented, and that the United States, themselves creditors, will nevertheless subserve their interests in the matter to the common good. That he may be fully possessed of the points at issue, you will leave with him a copy hereof, and invite thereto his early attention.

I am, &c.,

  1. Sent also to United States ministers to Denmark, Great Britain, Netherlands, and Spain.