Minister Dawson to the Secretary of State.

[Extracts.
No. 247.]

Sir: I have the honor to report that eleven months ago, during my absence on leave, the Dominican Congress passed a law appropriating 30 per cent of all export duties to a fund intended to be devoted to [Page 560]the construction of railways. Mr. Langhorne, who was in charge of this legation during my absence, did not, so far as the records show, send on a copy and translation of this law. It will be found inclosed herewith.

On its face this law appears to be in conflict with the decree of March 31, 1905, usually referred to as the “modus vivendi,” since the latter provides that all the revenues collected through the customs-houses, including export as well as import duties, shall be divided into two portions, the larger of which is to be remitted to New York. This has been done by Colonel Colton, and the fund now in the National City Bank includes substantially 50 per cent of all the export duties collected since April 1, 1905.

The Dominican Government regards it as a part of its moral obligations to the creditors and as good policy not to change the revenue laws during the pendency of the convention of February 7, 1905, except as contemplated by that instrument. The department will remember that the convention provides in general that import duties may not be decreased, but that export duties may be reduced or abolished. The theory under which this Congress proceeded in adopting the inclosed law seems to have been that the right to abolish the export duties includes the right to divert them to the building of railroads. The privilege of abolishing export duties was retained in the convention because it was thought that such an abolition would not only benefit producers, but would also ultimately benefit creditors by stimulating productive industry. It is believed that the building of railroads would tend to achieve the same object.

For a long time after the passage of the law in question nothing was done looking to an enforcement of its provisions. About March 1 the Government made a contract with ex-President Horacio Vasquez in accordance with this law for the construction of a railroad from Santiago to Moca. Such a road would supply an outlet to the largest interior town which remains without railway facilities, and cheapen the transportation to the seaboard of the principal cacao region of the Republic. Further, ex-President Vasquez is a man of integrity, and his purpose in accepting the responsibility for the work was to furnish a guaranty that the money would not be squandered, as well as to use his wide personal acquaintance in selecting the laborers among the class whose lack of employment constitutes a continual menace to internal tranquillity.

About the time this contract was made the minister of finance directed a communication to Colonel Colton asking that one-half—the proportion assigned to Señor Vasquez by his contract—of 30 per cent of the already collected export duties now on deposit in New York be turned over. Thereupon Colonel Colton asked me for my unofficial opinion as to the legality and propriety of his complying. Previously I had declined to discuss the law with anyone, although watching the matter carefully.

Colonel Colton has as yet taken no definite action. He believes, as I do, that the intelligent and honest expenditure of the small amount involved would have a most happy effect on the political and industrial situation in the Cibao. Nor can we see that the substantial interests of the creditors would be harmed. On the contrary, it would probably be a step in the direction of increased revenue, and therefore a greater guaranty.

[Page 561]

On the legal and semilegal questions involved I have said that it seemed to me—

1.
That this Government can on its motion and when it likes to suspend entirely or modify as it pleases the decree of March 31, 1905. That Valesquez, Tejera, and Caceres think, however, that a suspension would bring about the overthrow of their Government, and further see the advisability of not opening up the question of a formal modification of the “modus vivendi.” On the other hand, if they do not find some way to carry out the railroad law the opponents of the convention will receive an immense increase of strength, especially in Congress itself.
2.
That the view taken by this Government that it is under obligations to act as if the provisions of the convention in effect are applicable to the “modus vivendi,” is taken voluntarily by it, and that the American Government can not sustain such a proposition, or protest against its violation. However, the position of the Dominican Government on this point shows good faith toward the creditors, is good policy, and altogether beneficial and commendable.
3.
In case of a modification of the “modus vivendi” in a form injurious to the creditors their Governments, including the American, would of course be free to take such action as might appear wise to secure the payment of those debts.
4.
That personally I did not think my own Government would consider an abolition of export duties a modification injurious to creditors, since in making the convention of February 1, 1905, it had consented that this might be done whenever the Dominican Government deemed advisable.
5.
That personally I could see no reason why the expenditure of export duties for an object directly tending to favor internal production should be considered more injurious to the creditors than the total abolition of such duties. On this point, however, I had not consulted the Department of State and must not be understood as committing it to my opinion.
6.
That if it was decided to pay out this money no formal modification of the decree of March 31, 1905, would be necessary, since the law of June 27, 1905, in effect constituted the modification desired.

The three cardinal objects of this Government are the maintenance of peace, economical and honest administration, and the setting aside for the creditors an amount satisfactory to them. This railroad project will directly tend to favor the first, will not affect the last, and with proper precautions and supervision on the part of Colonel Colton will not endanger the second.

I have reason to believe that Colonel Colton has or is about to make a full report on the subject to the Secretary of War. Doubtless you will find in that report a fuller and better discussion of the practical aspects of the question, especially as to the monetary stringency that is feared on account of the large remittances to New York. This is an aspect of the matter which should not be lost sight of. While production is steadily increasing with the continuance of peace, commercial operations are beginning to be hampered by the export of currency. The prices of Dominican products in foreign markets are already low and it would be regrettable if they should still further be reduced to the small cacao and tobacco grower by a scarcity of [Page 562]currency. Probably the wholesale exporter with credit abroad would receive an ultimate benefit from such a state of affairs, but this would not compensate for the suffering and discontent of the small farmers, upon whose prosperity and multiplication depends the hope of a permanently peaceful future.

The longer I live in this country the more confident I am that the danger from the professional revolutionary class can be temporarily eliminated by keeping the custom-houses out of their reach. But back of the danger from this class is the possibility of a revolution caused by sheer poverty. That is the real reason Monte Christi is such a dangerous Province, and the fall of Heureaux was due to his extravagance, which led to his interfering with the currency and the consequent ruin of the small producer and laborer.

I shall be glad to know if the department approves of the views I tentatively expressed in my conversation with Colonel Colton, and if it is desired that I continue to maintain the same attitude of reserve with this Government in regard to the railroad matter.

I have, etc.,

T. C. Dawson.

[Translation from the Official Gazette of July 1, 1905.]

The National Congress in name of the Republic.

Considering that transportation facilities are the best means to promote agricultural prosperity;

Considering that it is the duty of the state to promote by all means within its power the increase of roads of communication and transport,

decrees.

Article 1. From and after the 1st of January, 1906, 30 per cent of the present export duties shall be known as the “Internal fund,” and shall be destined to the construction of railroads on account of the State in conformity with the contracts that the executive may make and Congress approve.

The executive is authorized to use a part of this revenue for the payment of premiums or guaranteeing an interest on the capital employed in the construction of private railroads built under duly issued concessions.

The interest may reach, according as may be determined, as much as 6 per cent per annum, and the premiums as much as $2,000 for each kilometer constructed.

Art. 2. The product of this revenue may not be dedicated under any pretext to another purpose than that stipulated in this decree.

Every contract or obligation contracted on the basis of this revenue shall be ipso facto null, whenever it may not be for the purpose stipulated in the foregoing article.

Art. 3. The executive in celebrating contracts or granting concessions for the construction of railroads shall try, conditions being equal, to give preference to the railroads from Moca to Monte Christi, which may connect with the Dominican Central Railroad (which now runs from Santiago to Puerto Plata); that from Barahona to Laguna del Fondo; that from Romana or Macoris in the east of Seybo; and that from Azua to Banica.

Art. 4. Let this be sent to the executive for constitutional purposes.


Ramon Lovaton,
Vice-President, Acting
.
J. D. Alfonseca
,
A. Acevedo,
Secretaries.
[Page 563]

Let it be executed and communicated by the corresponding departments, being published in the whole territory of the Republic for its fulfillment.


Morales L.

Countersigned:

Federico Valesquez,
Minister of Finance and Commerce.
F. L. Vasquez,
Minister of Fomento and Public Works.