No. 414.
Mr. Morgan
to Mr. Frelinghuysen.
Mexico, July 10, 1883. (Received July 26.)
Sir: In my dispatch No. 647, 19th June, 1883, I inclosed a copy and translation of the law of the Mexican Congress which authorizes the President to settle the national debt of the Republic.
The purpose of this law appears to be a settlement of the entire debt of the country, internal as well as external. To this end the Executive is authorized to establish the forms, conditions, and terms for the examination, recognition, and liquidation thereof, and to consolidate the same by issuing new bonds, which shall bear 3 per cent, interest per annum.
The debt once consolidated is to be considered as a Mexican debt, and has no international character. Neither is the interest thereon to be paid out of any special fund.
The debt due in England is, as you are aware, of two kinds, viz, that which is known as the London debt and that which is known as the convention [Page 664] debt. This debt has been the subject of repeated agreements between the British and Mexican Governments, and its payment has been guaranteed by the pledge of a certain percentage of the customs dues, as well as public lands, and so sacred has it been considered by Mexico, that in 1862 a treaty was entered into upon the subject between Juarez, then President, and the British minister, which, while it reaffirmed the former conventions, stipulated in addition that if the officials failed to pay the duties which were pledged for the payment of interest the British Government should have the right to take possession of certain ports with military force and collect and appropriate the duties. This treaty was not ratified by England, owing to its recent engagements with Spain and France, but it was ratified by the Mexican Government.
This debt has been the great obstacle in the way of the resumption of diplomatic relations between the two countries, Mexico contending that the war of intervention, in which she claims that England took a part, destroyed all treaties between the two Governments, while England contested the position assumed, and she has, I believe, always declared that she would not renew relations except with the condition that provision should be made for carrying out the provisions of these treaties. It therefore results that if the holders of this debt accept the proposition which the law to which I have referred authorizes the President to make, the holders of the “convention bonds” will be upon the same footing with the other bondholders. In this sense they will have given up their right to look for protection from their Government in respect of the past; and as the action of their Government hitherto has been actuated by a desire to protect them, under treaty stipulations, if they make a new arrangement and change the character of their security, this obstacle to the renewal of relations will disappear.
While it is to be supposed that the law passed by the Mexican Congress was passed with a view of making arrangements for the future, it would seem that, in reality, it was passed for the purpose of ratifying arrangements which were already perfected. The law in question was published on the 18th of June, 1883. In an English paper, published in London, the Bullion st, of the 19th May, I find the record of the proceedings had by the English bondholders (London debt) in which an entire plan for the conversion of the debt seems to have been agreed upon. By this plan it would appear that the Mexican Government proposes to issue new bonds, bearing 3 per cent, interest to the amount of £20,000,000. Of this, £15,300,000 is to be applied to the conversion of the London debt. To some of the holders of this debt £112 in new bonds is to be issued for each £100 of old bonds. Others are to receive in different proportions. The balance, £4,700,000, is to be appropriated to the convention debt, to the settlement of the interior debt of the country, and to the payment of commissions to the parties who have made the negotiations, and of other expenses incidental thereto.
The law, as I have before stated, was passed in June last. The proposition for the settlement of the debt in England was made in May, anterior, therefore, to the passage of the law. It is understood that the proposition is now being discussed by the Mexican Government.
What practical advantage the arrangement proposed, if carried out, will be to the bondholders depends upon the ability and willingness of the Government to pay the interest and make regular amortization of the principal, for, at the outset, it is only new bonds which are issued for an old and larger debt. What the capacity of the Government will be to provide for these payments in the future it is impossible, of [Page 665] course, for me, or any one, to say.* * * The default in the treasury for the current year amounts to many million dollars. The sources of revenue do not appear to be increasing. No provision has been made by the law for increasing the revenue in view of the increased demands which it is proposed to subject it to, and where the $3,000,000 additional, which the proposed new bonds will require, is to come from I have not been able to ascertain. I know it is published that the estimate for the expenses of the Government will be, in round numbers, about $25,000,000, while the receipts are estimated in round numbers at $30,000,000, showing a round sum to the good. But the fact, or rather the deficit, remains. At the same time it would appear that while Mexico is settling her debt she should settle all around, and this does not appear to be in her view at the present moment. The negotiations appear to have centered upon the debt due in Europe. There are many Mexican bonds, equal in validity with those held in England, in the hands of citizens of the United States. My predecessor, in his dispatch No. 802, October 8,1878, called attention to some of these bonds. There are, I believe, others. At all events, the records of this legation show that in the year 1850 the then minister here, acting under instructions from the Department of State, presented the claim of a Mr. Musson for settlement. This claim was in the shape of bonds, amounting to £200,000, and, as it is to be presumed that all citizens of the United States who happen to be holders of Mexican bonds, and who, in point of justice and law, are as much entitled to be settled with as are the holders of them in other foreign countries, and as it is to be expected that the parties in interest whom 1 hare named will desire to have their rights inquired into, I have considered it proper to call your attention to the subject.
The law has caused a good deal of discussion here. The third section thereof, as you are aware, declares that—
Whatever may have been the origin of the debt, or the nationality of the holders thereof, the entire debt shall retain its Mexican character, to which no international character can be given; nor shall it be paid out of any special fund.
The Spanish minister here, acting under instructions from his Government, addressed a note on the 17th June to the Department for Foreign Affairs, in which he called attention to the clause in the law above quoted, claiming that the execution thereof clashed with the convention entered into between Spain and Mexico on the 12th of November, 1853, the fourteenth article of which provides that—
The present convention cannot be altered under any circumstances, nor under any pretext whatever, without the express and formal consent of the two contracting parties.
Señor Crespo claims that this express declaration contained in an international agreement has not been invalidated since by any act in the form limited therein and that its annulment cannot be invoked by reason of any act or writing which would establish the acquiescence therein of the Spanish Government. He admits that President Juarez, on the reestablishing of the Republic in 1867, proclaimed that the treaties with European nations who had taken part in the war against the Republic were not to be considered as being any longer in existence; but he contends that this declaration cannot be admitted as an absolute principle of international law, nor does he think it just to confound it with those who waged the war and those who, before the commencement of hostilities, retired, thus giving (to Mexico) a moral support instead of making war upon the Mexican nation. He therefore protests against the application of the third section of the law referred to in respect of Spain, as it would be a violation of the 12th of November, 1853.
[Page 666]Señor Fernandez on the 26th of the same month replied that the declaration of President Juarez that the treaties between Mexico and those European nations which had made war upon her existed no longer, was adopted by Congress and sustained by four successive administrations, and had been acquiesced in, in fact, or expressly, by several European powers.
As to the law, he considers that war destroys treaties, especially those which were the cause thereof, and that a treaty once destroyed cannot be reintegrated except by another treaty. This principle, which he says is disputed in theory by several authors, has been repeatedly recognized and applied by Spain, who, now that it is invoked and sought to be applied by Mexico, appears to repudiate it.
In conclusion, he informs Señor Crespo that the President has instrueted him to say, without intending the least bravado, but simply for the purpose to exactly define his position, and, in the interest of the two nations, to avoid the inconveniences of a doubtful position, that .the Mexican Government maintains, and will maintain, that the convention of the 12th of November, 1853, no longer exists, and that he is determined to accept any situation, no matter what, rather than consent to put the Republic twenty years back, and thus place it in the same position which it occupied in 1861.
The newspapers discussed the correspondence at considerable length, but it was, at least, more theoretical than practical if it be true, as I have assumed it is, that very few of the bonds which gave rise to it are in Spanish hands. I am told they are almost all of them held here. They are largely used in negotiations with the Government. They are worth in the market about 25 cents on the dollar. When the Government borrows from a money-lender, say, $100,000, $25,000 thereof is paid on these bonds at par. In consideration whereof the lender makes a donation to the Government of one-half of the interest accrued thereon. At last it is optional with the holders, under the law, to accept the settlement and conversion to be proposed, or to retain them as they are. Be all this, however, as it may, the correspondence has, in so far as the public know, come to an end.
To assist him in carrying out the law, the President has appointed a commission (junta consultiva) to advise the department of hacienda as to the best methods of making the proposed arrangements with the public creditors, as you will see by the letter addressed by the Secretary to the commissioners appointed by the President, a translation of “which I inclose.
I am, &c.,