Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 5, 1905

Minister Dawson to the President.

Washington, July 1, 1905.

memorandum on the dominican modus vivendi, its effects up to the present time, and the reasons that lead to its adoption.

The financial modus vivendi put into effect April 1 by a decree of the Dominican Government was the natural outcome of the situation—the logical development from what had gone before—the surest method of tiding over the interval until the ratification of the pending treaty—the only means apparent by which the Dominican Government could get money enough to exist and to maintain order and at the same time all the creditors receive a reasonably satisfactory guaranty.

Its provisions are simply that impartial and competent Americans shall collect all the customs duties, paying 45 per cent to the Dominican Government and depositing the remainder as a trust fund, which will later be distributed among the creditors in proportion to their just claims. In the meantime all creditors are temporarily to relinquish any special rights they possess and are not to be permitted to insist on immediate payment.

Santo Domingo’s history proves conclusively that no government there can, no matter how well intentioned, either enforce the regular remittance of the total cutsoms revenues to the national treasury or apply to the payment of its debts such revenues as may in fact come into its hands.

Further, the desire to get possession of custom-houses is the principal motive for and incentive to revolutions. Foreign collection and receivership were, therefore, necessary if the creditors were ever to be paid and civil war to cease.

The modus vivendi has now been in force three months, and up to the present time has been gratifyingly successful. It has given the Dominican Republic all and more than the benefits which President Morales and his advisors hoped for when they framed and adopted it and obtained its acceptance by the United States and the European creditor nations.

effects of the modus vivendi.

1. Since it was put into effect no revolution or serious disorders have occurred, and for the first time since 1899 there has been a cessation of active plotting against the established government.

2. The country feels a reasonable assurance that peace will continue, and all branches of productive industry have felt a strong impulse. The tobacco growers of the northern valleys, who had almost abandoned that crop during the revolutionary years, have again begun planting on a large scale. This year’s tobacco crop will be more than double that of last year. For the first time in years the sugar industry is on the increase, and most of the plantations are planting extensive new fields. In spite of low prices the cacao industry is prosperous, and the stocks of cattle are again being replenished.

3. Although 55 per cent of all custom receipts are being remitted to New York, the Central Dominican Government has more cash available for its expenses than at any time in the last five years. This apparent paradox is explained by the fact that for the first time in the country’s history control of receipts by central authority is real and not merely nominal. Formerly the local military and fiscal authorities disposed of the receipts of the different ports at their pleasure.

4. The Dominican Government has been relieved of the necessity of making short-time loans at ruinous interest and bonuses, and of conceding to importers enormous reductions from the legal tariff rates. For the first time the central government knows exactly how much money it is sure of receiving, and is in a position to keep its expenditures within its real income. A small cash surplus has been accumulated; the government pays its employees regularly, and obtains the advantage of purchasing its supplies for cash.

5. The introduction of honest and sensible business methods in the custom-houses has largely increased the cash revenue. Mr. Colton has been collecting at the rate of $2,500,000 a year. In preceding years the paper revenues did not exceed $1,800,000, and since 1901 not half of this amount ever really came under the control of any central government.

6. For the moment, at least, the country has been freed from the menace of a forcible seizure by foreign powers of those ports whose proceeds have been mortgaged.

7. The outstanding unliquidated claims against the Dominican Government amount to several millions of dollars, and if it had not been for the adoption of the modus vivendi the Dominican Government would have found itself forced to acknowledge itself indebted for exorbitant and unjust amounts. The existing arrangement, however, prevents any present efforts to secure the liquidation of these claims and gives the assurance that when they are liquidated it will be on terms fair, just, and favorable to Santo Domingo. This is a great advantage, because former Dominican Governments have never been in a position to demand or obtain equal or just treatment when claims were pressed by foreign creditors. The frequent violent changes of the administration, the corrupt arrangements often entered into between those temporarily in power and foreign financiers or local merchants, and the country’s bad reputation for performing its financial agreements deprived its representatives of all moral force. Physical force they had none. As a rule the original transactions upon which the claims were based were private and verbal, and after a revolution no documents would remain in the hands of the new Dominican officials to enable them to contest the statements of the claimants. The successive Dominican Governments have therefore been practically at the mercy of their creditors in the determination of the amounts of unliquidated debts. When, as was usually the case, a foreign claim was backed by the vigorous representations of a diplomatic representative, who naturally took his countryman’s word and whose representations and demands were necessarily given prompt attention on account of the presence of a war vessel, it is clear that a Dominican Government could do nothing but accept the amount and terms insisted upon by the foreign creditor. Further, being notoriously poor pay, Santo Domingo could expect no discounts and the face of the claim was often systematically swelled as a sort of insurance against the undeniable risk that nothing would in fact ever be collected, no matter how much was agreed upon.

8. Being temporarily relieved of the menace of internal revolution and foreign intervention, the present Dominican Government is earnestly and successfully devoting itself to the organization of its civil, municipal, and judicial administration. The military chieftains, whose principal qualifications for local government were their courage and resolution in putting down revolt, are being replaced by officials with more knowledge of and respect for law and personal liberty. The municipalities are improving their streets, and their revenues are no longer liable to confiscation by military chieftains. The city of Santo Domingo, which was almost ruined by three protracted sieges, is being improved. A few necessary public edifices are already under construction or repair, and the next step contemplated by President Morales’s administration is the making of the roads through the interior practicable for wagons. At present there is not a wagon road 10 miles long in the whole Republic. Many schools have been reopened and the civil and criminal courts are resuming their normal functions.

9. Mr. Colton is depositing in a New York bank $100,000 a month. These sums are entirely out of the control of any Dominican Government, constitutional or revolutionary, and all creditors feel assured that these substantial amounts are being placed beyond the reach of confiscation and will be devoted as promptly as possible to the proportional payment of all just claims. For the past five years no Dominican Government has made any attempt to pay any substantial amount on any of its debts. Now, for the first time, the creditors have an assurance that they will really get something. Therefore they are all, with hardly an exception, much pleased with the modus vivendi and will take no action tending to disturb it.

10. Lastly, the modus vivendi, for the present at least, absolutely eliminates Santo Domingo as a potentially disturbing international factor. Her governments have signed one protocol after another with the creditor nations, solemnly agreeing to pay annual sums fixed therein. Not one of these treaties has been observed, and the yearly amount which by their terms Santo Domingo has obligated itself to pay is now greater than the yearly revenues which any Dominican Government has been able to collect by its own officials and machinery. In the past few years forcible foreign intervention for the enforcement of debts has repeatedly been imminent and could not have been long deferred had not the modus vivendi been proposed and accepted. Further, certain of these treaties pledge the revenues of specific custom-houses to the payment of specific annual amounts. The foreign creditors not so secured can confidently be expected to obtain, through diplomatic pressure by their respective governments, similar hypothecations of the ports not already pledged. If one of these mortgages is foreclosed, the rest will surely follow suit. It can not be expected that each nation will voluntarily consent to take from the receipts of the custom-house thus in its hands less than the full amount agreed upon in its respective treaty. The Dominican Government has no appreciable revenues outside of those collected through the custom-houses, and would therefore remain without any funds whatever to meet its administrative expenses and to maintain order. This would mean anarchy, and to prevent it the nations involved would be forced to make some agreement among themselves by which a living revenue would be assigned to Santo Domingo. To such an agreement the United States would necessarily be a party and be obliged to assume at least its proportional responsibility thereunder. But the negotiation of such an agreement would be extremely complicated and difficult, while under the modus vivendi the creditor nations are relieved of the trouble of taking possession each of a different custom-house and of establishing a series of separate and possibly discordant customs administrations; also, the creditors themselves are disposed to accept a distribution of the total net income realized under the modus vivendi, providing it be made under the impartial auspices of the United States Government. Another consideration which is of the first importance is the fact that a separate seizure of the custom-houses by the different creditor nations would result in practically permanent possession. For example, 55 per cent of the receipts of Santo Domingo and Macoris would not give an amount large enough to pay more than 2 per cent per annum upon the French and Belgian bonds. Therefore, no sinking fund Could be provided. The Italian claims amount to about $2,500,000, and the receipts of Samana and Sanchez could not be expected to furnish more than $150,000 a year to be applied to their payment. But if all the custom-houses are placed under a single management, Dominican statesmen and financiers, having an object lesson in sound finance before their eyes, would soon become competent to work the machinery themselves; creditors would acquire confidence as their dividends came in with regularity; foreign collectors could gradually be replaced by Dominicans; the debts could be converted on favorable terms, and, finally, the necessity for foreign financial control would disappear of itself.

instability of the present situation.

Advantageous as the modus vivendi has proved to the Dominican people, the Dominican Government, to the creditors and the foreign powers having relations with and interests in Santo Domingo, it is only a makeshift and rests upon very insecure foundations. * * * As a matter of fact, the two things which have given strength to and secured a general acceptance of the modus vivendi are: First, the prestige of its prompt and unanimous acceptance by all the creditor nations. The most thoughtless Dominican realizes that its faithful observance is the last chance for a rehabilitation of Santo Domingo in the eyes of the civilized world. Second, the modus vivendi is considered in Santo Domingo as a necessary preparation for and preliminary to the ratification and entering into effect of the treaty of February 7. Its repudiation would, therefore, be regarded by Dominicans as a virtual notification to the United States that the treaty would not be ratified by the Dominican Congress. Such radical action all parties shrink from.

Nevertheless, the condition under the modus vivendi is one of unstable equilibrium, and the people of Santo Domingo, her rulers, and especially her commercial and industrial classes, wait anxiously the ratification of the treaty.

explanatory sketch of recent dominican history and conditions.

I have endeavored above to incorporate enough details to make clear what the modus vivendi really is, what conditions it was framed to meet, and why it has proved so well suited to the requirements of the situation. It was not a plan conceived de novo by the President of Santo Domingo or his advisers, but the natural and almost inevitable sequence of the previous history of that unhappy country. A brief sketch of that history will therefore be likely to throw further light on the present situation and may tend to convince those not familiar with the subject of the truth of the foregoing statements.

From the foundation of the Republic in 1844 until 1886 one revolution rapidly succeeded to another; no President ever finished out his term, and hardly a year passed without a civil war. In 1861 Santana, then President, convinced that no independent government was workable in Santo Domingo, negotiated a treaty of annexation with Spain. But three years later his opponents revolted against Spain’s misrule and her officials were expelled. In 1873 the country had again reached such a pass that Baez, the then President, negotiated a treaty of annexation with the United States, but the project fell through on account of the refusal of the United States Senate to ratify. On its failure Baez was driven from power, after another bloody civil war. But his successful opponents were unable to establish a stable government, and disorder was almost continuous until about the year 1886, when Ulises Heureaux succeeded in fighting his exhausted opponents to a standstill and in gaining recognition of his supremacy from all the local chieftains.

Heureaux was a man of invincible personal courage, an indefatigable worker, a shrewd judge of human motives—ruthless, relentless, and cold-blooded. He took the country as he found it, concerned himself little with civil or administrative reforms, and confined his efforts to repressing revolts and endeavoring to enrich himself. The method he adopted to insure peace and his own supremacy was to secure a following in every part of the country by employing a large number of officials and by paying pensions to all whose courage or influence made it worth his while to placate. I have seen his secret budget for the province of Samana, and it shows that at least 10 per cent of all able-bodied men were on his pay-roll, and most of these without pretense of rendering any service to the state except that of being ready to support Heureaux in case of revolt. If this bribery did not succeed in holding an individual quiet, Heureaux resorted to threats, banishments, secret assassination, and, if all these failed, to a military execution. During thirteen years he succeeded in preventing any serious revolts against his rule, and if his financial abilities had been equal to his political abilities he doubtless would have continued undisputed ruler of Santo Domingo to the present day. But he would trust nobody, persisted in trying to run the finances without responsible and competent assistance, did not understand the necessity for bookkeeping, was foolishly lavish in his gifts to friends, spent large sums on his personal vices, and worst of all, confidently measured his own financial shrewdness against the trained wits of professional money lenders. The result was that he was overwhelmed by the demands made upon him by the Dominicans he was subsidizing, borrowed money from abroad on disadvantageous terms, when interest fell due made new emissions of bonds, went into partnership with concessionaries and merchants, and sunk deeper and deeper into the financial mire, until by 1898 the nominal debt exceeded twenty millions of dollars, and he did not know where to turn for a dollar of ready money.

But the harm had gone deeper than the mere accumulation of this debt, disproportionate as it was to the population and wealth of the country. Thousands of the more educated, talented, courageous, and energetic citizens of the country had been demoralized by the pension system. They had been educated into the idea that the government owed them a living, and had largely lost capacity and desire to engage in business. On the other hand, the thirteen years of peace and relentless enforcement of the criminal laws had greatly improved the condition of the agricultural and commercial classes. The sugar, cacao, tobacco, and cattle industries had become prosperous, and population and wealth had increased. But the educated and military classes always bitterly resented Heureaux’s tyramry, and finally in 1898 an unsuccessful and ruinous emission of paper money lost him the confidence and support of the ignorant but industrious peasants. Symptoms of revolt appeared simultaneously in many parts of the Republic, and when on July 26, 1899, he was shot by a popular Dominican whom he was about to have arrested the country awoke as if from a nightmare. Horacio Vasquez, the head of a widely spread and wealthy family in the provinces of Moca and Santiago, and Juan Jimenes, a wealthy merchant at Monte Christi, were the two most popular and prominent men in the Republic and as such indicated as the heads of the revolution which at once broke out. The party which Heureaux had so painstakingly built up by his subsidies fell to pieces with hardly a semblance of resistance. The Vice-President gave up without a struggle when Vasquez appeared at the gates of the capital; the latter was declared Provisional President, and when Jimenes arrived a few weeks later it was agreed that the latter should be President and the former Vice-President. Jimenes started in to make a clean sweep. Heureaux’s employees and ministers were replaced by young men who, though intelligent, patriotic, and enthusiastic, had had no experience in governmental matters. The country was prosperous, exports and imports large, the new government cut off the pension list, repudiated Heureaux’s obligations toward foreign creditors, and expelled the foreign fiscal agents whom Heureaux had been obliged to accept in order to secure loans abroad. The new government therefore found itself in the free possession of a large revenue. But instead of scrupulously setting aside an amount sufficient to meet the interest on the foreign debt, it squandered its revenues in a hundred ways. Soon a new pension list was organized to satisfy the clamors of Jimenes’s friends, and shortly thereafter disagreements arose between his supporters and the Horacistas, as those who followed Vasquez were called.

The Horacistas revolted, and in 1902 succeeded in overthrowing Jimenes. The government installed by them tried to suppress the fiscal abuses which had grown up at the various ports, and appreciated the necessity of making some provision for its international obligations; but it was too weak to do the former and too poor to do the latter. It was obliged to live from hand to mouth by short-time usurious loans, and made contracts with importing merchants allowing them to bring in goods at less than legal duties. The local authorities did about as they pleased, and while the central government was in the main conducted honestly and unselfishly, it could not control its subordinates nor dispose of the nominal revenue of the country. Within a few months the Jimenistas arose again in Monte Christi and other provinces, and the Vasquez Government drained its resources in fruitless attempts to put down the rebellion. In March, 1903, while the President was absent on a campaign, a number of persons confined in the castle at Santo Domingo corrupted their jailers, were joined by the garrison, and took possession of the capital. General Wos y Gil, who had been President many years before, was induced to accept the Presidency. Vasquez promptly returned with a considerable force and laid siege to the city, but the annihilation of an attacking column under General Cordero completely demoralized him, and he fled to Cuba. Wos y Gil easily obtained from the exhausted country a nominal recognition of his supremacy, but was unable to acquire a real control of the revenues, and charges of corruption were made against his ministers. In September, 1903, the country was again ripe for revolt. A truce was patched up against the common foe between the Jimenistas and Horacistas. Carlos Morales, one of the youngest but ablest of the Jimenista chiefs, conducted a triumphant expedition from Monte Christi; while Ramon Caceres, the most popular Horacista, cooperated with him from the north. The governors who were partisans of Wos y Gil were successively expelled from all parts of the island except Santo Domingo, and that city was soon besieged by the joint forces. After a desperate resistance Wos y Gill was compelled to surrender. But the union had been merely temporary, and it was found impossible to reconcile the jealousies of the two successful parties. An argeement had been made by which the question of the Presidency was to be decided by an election, but since elections in Santo Domingo always go the way the officials in possession wish, it was impossible to agree upon who should be Provisional President. The Horacista party had no candidate competent or desirous for the position and decided that they preferred Morales to Jimenes. An alliance was accordingly made between Morales and the Horacistas, and the former declared Provisional President in December, 1903.

Meanwhile Jimenista governors had succeeded in installing themselves in most of the northern and western provinces, and Morales was immediately attacked by their forces at the capital. He retaliated by sending troops by sea to the northern ports, and soon succeeded in getting possession of all of them except Monte Christi; while Caceres and Guayabin recaptured the large interior cities of Santiago, Moca, and La Vega. These successes were followed by a recognition of the Morales Government by the foreign powers.

Foreign war ships hurried to the scene of the fighting at Santo Domingo City. Among them was the U. S. S. Yankee. On February 1 one of her steam launches was fired upon by the revolutionists on the left bank of the river and Machinist Johnson killed. A few days later the American mail steamer New York was fired on by the same revolutionists. It being clear that the Dominican Government was unable to prevent such outrages, Captain Wainwright, of the Newark, compelled, but without bloodshed, the revolutionists to retire from the position whence they threatened the free communication of the port. President Morales, having returned from his successful expedition to the north, next vigorously attacked the besiegers and defeated them. Part retired east to Macoris, which town was not reduced until March, while the remainder dispersed or fled to Monte Christi and Azua Provinces. There they maintained themselves, in spite of all the efforts of Morales and his generals, through April and May.

events immediately preceding the negotiation of the treaty and the promulgation of the modus vivendi.

At the end of May, 1904, after nine months of civil war, during which every city and town in the country had been taken and retaken and every province made the scene of bloodshed, burning, and rapine, the opponents of the Morales government had been compelled by sheer exhaustion to cease aggressive operations. The whole country was thoroughly sick of fighting and anarchy. Even the professional revolutionists and politicians, who at most constitute 5 per cent of the population, with a few exceptions desired a respite, and the agricultural and commercial classes were clamoring for peace. The small farmers had been compelled to flee from their homes to escape conscription; cattle, horses, and mules, and even pigs and poultry had been swept away by the small armed bands under independent chiefs which traversed the island in every direction. But what most rendered the prospects of the revolutionary party so hopeless was the fact that five of the eight custom-houses were securely in the hands of Morales and his Horacista allies, and could not be recovered by the Jimenistas as long as the President controlled the two gunboats, which enabled him to transport troops for the prompt reenforcement of threatened points.

But hopeless as was the situation of the revolutionary party, that of the government was little better. The revolutionists still held Monte Christi, Azua, and Barahona Provinces, and although Morales had concentrated all his resources in an invasion of the former the bloody fighting there during April and May had brought no decisive result. Demetrio and Arias seemed as impregnably established in Monte Christi as Morales at the capital and Macoris, Caceres at Mosa and Santiago, Guayabin at La Vega and Sanchez, and Cespedes at Puerto Plata. In spite of its military successes the Morales Government was in the gravest financial difficulties. In the five years of almost continual civil war that had raged since the death of President Heureaux the central government had lost all habit of effective control over subordinate officials, fiscal as well as military and civil. That small proportion of the nominal revenues which was really at its disposition had been mortgaged and remortgaged to local money lenders for advances made and at incredibly usurious rates under pressure of the necessities of the war. Practically the only method by which either Morales or the provincial governors, who were cooperating with him, could get hold of any ready money was by turning over to some merchant the right to collect the revenues at a given port or by giving some importer a heavy discount from the lawful duties.

This being the situation of the opposing parties, it was not strange that both decided that it was wiser to compromise. Commander Dillingham, of the U. S. S. Detroit, was then in Dominican waters for the purpose of protecting American lives and property, and enjoyed the confidence of both sides. It was in a conference on board his ship that a peace arrangement was agreed upon and signed. By its terms the Jimenista chiefs then in power at Monte Christi and Azua were recognized by Morales as the legal authorities of those provinces, and in return they recognized him as President. This arrangement went into effect in June and within a short time restored peace to the distracted country. The independent bands of marauders soon disintegrated; many of the more persistent revolutionaries who had failed to get positions and salaries under the new arrangement went into exile, and the bulk of the troops on both sides gladly left the irksome service into which they had been impressed against their will. The laborers of the large plantations returned from their hiding places and the small farmers took up again the simple agriculture which on that fertile island so readily furnishes the few necessaries which the average Dominican requires. But it soon became evident that the arrangement afforded no assurance of a permanent maintenance of peace. The exiled Jimenistas and their friends were determined to renew the conflict just as soon as they should be able to gather new resources or disagreements should arise among their successful opponents. In fact, the arrangement left Monte Christi Province virtually independent. Morales was afraid that Governor Arias would allow the exiles to come to Monte Christi, and that that port and the revenues of its custom-house would be used as a base for a new rebellion. On the other hand, Arias feared that Morales was only waiting for a favorable chance to dispossess him. A still graver but less probable danger threatened the Morales Government in the intrigues that were constantly going on within the Horacista party looking to expelling him and putting a simon-pure Horacista in his place.

Back of both these anxieties was the question of the foreign debt and the attitude in regard thereto which would be taken by the French, Belgian, German, Spanish, Italian, and American Governments. The contract of 1901 with the French and Belgian bondholders, although liberal to the Dominican Government, had not been carried out by it. Jimenes, Vasquez, Wos y Gil, and Morales had successively failed to make the payments provided for therein. It gave those creditors a specific mortgage on the revenues of the ports of Santo Domingo and Macoris, and the Morales Government was in daily dread and expectation that a demand would be made for the possession of those custom-houses. This would have been ruinous, as the resources of these very ports were the only ones upon which the central government could rely for the payment of its expenses, the revenues of all the other ports being absorbed by their own localities. Therefore in a sense the Morales administration existed only by the forbearance of the French and Belgian Governments. In July, 1903, the German, Spanish, and Italian Governments had required the Wos y Gil Government to sign protocols agreeing to pay specific monthly sums. In May, 1904, the Italian Government had declared that the time had come when it must insist upon a definite settlement, and a new set of protocols were signed hypothecating 10 per cent of the total revenues of all the ports and creating a specific lien on the port of Samana. In July, 1904, came the decision of the arbitrators appointed to determine how the $4,500,000 which the Vasquez Government had agreed was due the Santo Domingo Improvement Company should be paid. Their award required monthly payments of over $40,000, and in default thereof directed that the custom-house at Puerto Plata should be turned over to an American representative, besides giving a specific but subsidiary lien similarly enforceable upon the ports of Monte Christi, Sanchez, and Samana. In September the Morales Government was unable to pay the installment, and accordingly on October 17, 1904, was obliged to deliver up possession of the custom-house at Puerto Plata.

From the receipts of Puerto Plata had been paid the administrative expenses not only of that town but of the important interior provinces of Santiago and Moca, and these expenses were thus suddenly thrown upon the already overburdened receipts of the southern ports. The government begged the Santo Domingo Improvement Company for a respite, which was granted for two weeks, during which the government made desperate efforts to get enough revenue to meet the northern budgets from the ports that still remained in its hands. The French and Belgian representatives protested vigorously against the diversion of the receipts of Santo Domingo and Macoris, on which they had a first claim, claiming that the net effect of the Improvement Company award was to deprive them of any reasonable hope of realizing on their security. Meanwhile, the revenues from Santo Domingo, Macoris, and Sanchez, the principal ports remaining in the government’s hands, were falling off, because the Monte Christi authorities permitted importations through that port at less than the legal tariff rates.

The Santo Domingo Improvement Company offered to guarantee that the government should receive $30,000 monthly out of the receipts of all the northern ports, provided the government would turn them over to it. In his desperate strait President Morales was inclined to accept, thinking that he might obtain a similar guaranty from representatives of the other foreign creditors in regard to the southern ports, thus securing him a small but certain revenue. After careful consideration, however, the offer was rejected because of the deep distrust of the Santo Domingo Improvement Company felt by most Dominicans, which feeling had been aggravated by the refusal of the Improvement Company to make any further concessions in October. For awhile the policy of inaction prevailed, and Morales’s financial advisers seemed inclined to await results, thinking that nothing worse could happen to them. But reflection and discussion convinced them that the situation was not hopeless if the United States could be induced to lend its friendly help. The crisis came in December with certain information that the Monte Christi authorities could not be induced to cease acting for their own benefit, and with the expiration of the time limited by the Italian protocols and the last promise given the French and Belgian bondholders for the beginning of monthly payments. The latter had in June consented to wait until November, but no longer.

Just after the beginning of the year President Morales asked the American minister if the United States would be willing to act as receiver, taking charge of the collection of the revenues and of the determination of the amounts of the debts. The State Department indicated its willingness to discuss the matter, and negotiations were begun which culminated in the treaty of February 7, 1905. When the fact that some sort of negotiations were taking place became known to the Dominican public the enemies of the government industriously circulated the report that annexation was contemplated. A storm of protest arose and revolution was on the point of breaking out at the capital itself. To quiet the public misapprehension President Morales thought himself obliged to publish the preliminary draft of what was really in contemplation. Public indignation at once subsided, and while the proposed treaty was warmly discussed all talk of revolution died down.

But though one peril thus disappeared, another arose immediately. Since by the terms of the treaty the Dominican Government gave up all control of its revenues, it was no longer in a position to secure advances by hypothecating them in advance. Customs revenues in Santo Domingo are not collected in cash, but in promissory notes running as long as sixty days. All of these which were currently falling due had already been hypothecated. The money lenders would make no advances on the ones given for arriving cargoes because it was expected momentarily that the right to collect these would pass to the representative of the United States on the ratification of the treaty. This difficulty at first seemed insoluble, but it was happily solved by the action of a Porto Rican merchant doing business in Santo Domingo who made a contract by which he agreed to advance $75,000 a month for administrative necessities on the security of the delivery to him of the promissory notes received at all the ports except the two in possession of the Santo Domingo Improvement Company. He was justly confident that in the event of ratification he would be allowed to reimburse himself for his advances.

This arrangement afforded the further advantage of centralizing and facilitating collections. Mr. Michelena refused to accept from merchants old obligations of the government in payment of those promissory notes, and during February and March succeeded in collecting a much larger net sum per month than the government officials themselves had ever been able to get. Indeed, the collections amounted to considerably more than the advances, and this surplus was retained, with the consent of the. Dominican Government, in Mr. Michelena’s hands as a fund with which to meet administrative expenses during the interval between the expected ratification of the convention and the time when the promissory notes given subsequent thereto should begin to fall due.

About March 10 an Italian war vessel arrived in Santo Domingo, whose captain had orders to take such measures as he saw fit to secure observance of the Dominico-Italian protocol; but on his learning that the Dominican Government was really in earnest in its efforts to pay its debts and would ratify the convention, he expressed himself as-satisfied that Italian rights would be protected, and depaited for Jamaica. On March 19 a telegram was received in Santo Domingo announcing that the United States Senate had rejected the treaty. Meetings of opponents of the government were immediately held and messages sent to revolutionists in all parts of the Republic. It seemed certain that a formidable revolution would break out at once. The next day, however, came the correct news that the Senate had simply adjourned and that the treaty was still pending before it for ratification. The excitement died down, but anxiety was renewed by the return of the Italian war vessel. Without hesitation or delay the government announced to the creditors that it would do anything in its power which they might suggest, and that it was willing to devote 55 per cent of its revenues to their payment. It immediately became evident that the creditors would be satisfied with such an amount, and that they even would be willing to wait an indefinite time for actual payment, providing they could be assured that the revenues would be honestly collected and the creditors’ proportion placed in secure hands. Accordingly, the Dominican Government submitted to the American minister a draft of a proposed modus vivendi, which after some modifications was submitted to the President of the United States and by him accepted. An examination of its provisions will, I think, show that it was a natural and inevitable outgrowth of the Michelena contract, and that it is another step on the stairway leading from the hopeless financial confusion of past years to the order, security, economy, and prosperity reasonably to be expected from the treaty now pending.

Respectfully submitted.

Thomas C. Dawson.