Minister Bowen to the Secretary of State.

No. 378.]

Sir: I have the honor to inclose herewith copies of notes exchanged with the minister of foreign affairs in regard to the payment of the claims of the foreign bondholders.

My note to him was purely personal and written in great haste, immediately after I had discovered that President Castro was entertaining a proposition to add 130,000,000 to the diplomatic debt.

The answer I received was so friendly in tone that I called at once upon the minister of foreign affairs, and suggested that he should submit to President Castro a plan for settling all pending questions with foreign nations. I outlined the plan (copy of which I inclose), and this morning he called on me and said that President Castro would authorize me to propose it to you.

This afternoon he brought me a letter (of which I inclose herewith a copy), and Which contains an unsatisfactory modification of my plan, inasmuch as it ignores the settlement of the claims of the European creditor nations. When I pointed out to the minister of foreign affairs that defect in the letter, he said: “My letter to you should be regarded as the first step.”

I then asked him whether President Castro intends to submit to arbitration all of his pending disputes, including the asphalt case. He answered: “Certainly.”

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I then intimated that no arrangement could possibly be satisfactory that ignored the right of the other creditor nations to have their claims also submitted to arbitration. He answered: “We shall, of course, have to take up that question when we hear that Washington desires it to be settled.”

I then agreed to send a cablegram to you in regard to what had been done. A copy of the cablegram I inclose herewith.

I have, etc.,

Herbert W. Bowen.
[Inclosure 1.]

Minister Bowen to the Minister of Foreign Affairs.

My Dear Mr. Sanabria: Word has reached me from home to-day that the German and British bondholders wish President Castro to agree to settle their claims by giving to them about 130,000,000 bolivars in the so-called “diplomatic debt.” I earnestly hope that President Castro will not consent to enter into that agreement.

In the first place, as the claims of the bondholders were not settled by the Washington protocols, the claims that were settled by them should enjoy preferential treatment. The only proper way, in my opinion, to pay the bondholders is to let them have 30 per cent of the customs receipts of La Guaira and Puerto Cabello after the claims of the allies and the peace powers shall have been fully paid.

In the second place, by adding 130,000,000 to the diplomatic debt the value of the French, Dutch, and Spanish holdings of that debt will be diminished very greatly, and France, Holland, and Spain would all have reason to complain that they had not been treated justly.

Finally, according to the existing law of Venezuela, as I understand it, only 2,000,000 bolivars can be set aside per annum for paying interest, etc., on the diplomatic debt. It is evident that with only 2,000,000 it would be impossible to pay interest on 130,000,000.

Please do me the kindness to present these personal views of mine to President Castro, and believe me,

Yours, very sincerely,

Herbert W. Bowen.
[Inclosure 2.—Translation.]

The Minister of Foreign Affairs to Minister Bowen.

Mr. Minister: I am charged by the Provisional President of the Republic to say to your excellency as follows regarding your letter of the 4th instant:

The Venezuelan Government has not yet made the agreement to which your excellency refers, but it feels forced to enter into negotiations with the bondholders of Germany and Great Britain, etc., in conformity with the protocols which your excellency, as representative of Venezuela, signed at Washington, and which say in article 6 (see German protocol and British protocol).a

Moreover, the President while acknowledging what you state, that the claims of the bondholders were not arranged by the protocols of Washington, because they did not have to be, as they were recognized as debts by valid agreements, previously made by the Venezuelan Government, recognizes that the obligation exists in said article of the said protocols. As to the opinion of your excellency that preferential treatment be accorded to the claims of the allied and peace powers, and the 30 per cent be afterwards given to the bondholders, the Government of the Republic would have no objection, if your excellency would aid Venezuela to make that arrangement, and support our government if necessary.

The President states that if the claims of the bondholders are reduced to the 130,000,000, which your excellency refers to in your said letter, there would be no diminution in value of the French, Dutch, and Spanish holdings, first, because of the diminution of these holdings; second, because of the security; and third, because the new diplomatic debt would be incorporated in the existing diplomatic debt.

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Lastly, the President would have to put aside, in order to conclude the said new agreement with the bondholders, a sufficient sum of money for that purpose, as it is true that the 2,000,000 bolivars would not be sufficient to cover the interest and amortization of the whole debt.

I am, etc.,

Gust. J. Sanabria.
[Inclosure 3.—Translation.]

The Minister of Foreign Affairs to Minister Bowen.

Mr. Minister: In connection with my talk with your excellency last night I am pleased to inform you that I am authorized by the Provisional President of the Republic to say to you the following:

The Venezuelan Government being obliged in conformity with Art. 6 of the Washington protocols to make an agreement with the bondholders, and at the same time being obliged by the same protocols to continue paying 30 per cent of the customs revenues of La Guaira and Puerto Cabello to the allied and peace nations, and mindful at the same time of its desire to effect a satisfactory arrangement with all the creditors of the Republic, the Venezuelan Government would not be indisposed to fix at 5,000,000 of bolivars the sum which the 30 per cent would invariably yield and which by virtue of the said protocols the government is obliged to pay in twelve installments—a sum which, once the allied and peace powers have been paid would continue to be paid in the same proportion to the British and German bondholders. This agreement could become effective in the fiscal year beginning July 1.
The Venezuelan Government, desiring to maintain its good relations with the United States, offers to make with the United States an arbitration treaty for the solution of all legal questions which, having legally acquired diplomatic character, can not be settled by mutual consent by the two governments.

I am, etc.,

Gust. J. Sanabria.
[Inclosure 4.]

Plan proposed by Mr. Bowen.

Venezuela will guarantee that the 30 per cent of the revenues of La Guaira and Puerto Cabello to be paid to the allied and peace powers shall amount to the fixed sum of 5,000,000 bolivars per annum. This agreement applies to the current year ending in March, as well as to the future.
Venezuela will pay the British and German bondholders interest and amortization out of the 30 per cent of the customs revenues of Puerto Cabello and La Guaira after the allied and peace powers shall have been fully paid, if the American Government will induce the bondholders to accept this agreement.
Venezuela agrees to submit to arbitration all pending questions between Venezuela and the United States, including the asphalt case.
President Castro is ready and willing to submit to arbitration all questions relating to claims.

(Note.—After a long talk about arbitration with the minister for foreign affairs I decided not to ask for a permanent arbitration treaty at present, but first to try to induce the President to sign a protocol to arbitrate pending questions and claims. I told the minister that it takes a long time to get a treaty ratified, and that I did not believe you would be satisfied with any proposition involving delay. Of course President Castro prefers to negotiate a treaty.

H. W. B.)
  1. Printed in Foreign Relations, 1903, pp. 439 and 477, respectively.