File No. 819.77/159.

The American Minister to the Secretary of State.

No. 341.]

Sir: Referring to my telegram of February 22,1 have the honor to enclose a copy of the paraphrase of the Department’s telegram of February 17, which I sent to Señor Lefevre, Minister for Foreign Affairs, for President Porras.

I also enclose a memorandum of my interview with President Porras. I have not yet received the statement which he said that he would send me as to the attitude of the Panaman Government. Regarding the statement made by Señor Lefevre at this interview, that he had advised me duly that the proposed general railway construction law would be considered in the Assembly on February 14th, it will be remembered that I informed the Department of this in my telegrams of February 7, and February 12.

I have [etc.]

H. Percival Dodge.
[Page 1101]
[Inclosure 1.]

aide mémoire.

The Government of the United States has instructed the American Minister earnestly to lay the following personally before His Excellency the President of the Republic relative to the “Ley__ de__ sobre construcción de ferrocarriles y autorización al Poder Ejecutivo para contratar un empréstito”:

Paragraph D of Article 3, of this bill appears to include the annual payment of $250,000 United States currency, which will soon be payable by the Government of the United States to the Government of Panama, as well as the income of the fund of $6,000,000 United States currency, which is at present invested in the City of New York.

The position of the Government of the United States relative to the former of these matters was made clear in the communication F. O. No. 71 of June 3rd 1912, which the American Minister had the honor to address to his excellency the Minister for Foreign Affairs of Panama, relative to the proposed railway contract between the Panaman Government and Messrs. J. N. Hyatt, H. G. Prescott, and R. Wilcox.

Regarding the latter matter the Government of the United States considers that this is a question which ought to be given the most attentive consideration and determined only subsequently to the consultation together of the Governments of the United States and of Panama. The Government of the United States would accordingly have objection to the bill being passed as it is framed at present and considers that there should be included in it an addition to Paragraph D of Article 3 that will exclude both the interest and principal of the sum of $6,000,000 United States currency, and the annuity of $250,000 United States currency.

The Government of the United States has instructed the Minister to indicate that his Government would be unable to assent, to appearing to be bound by any bill of this character in case it should pass and that his Government would feel compelled to address representations of a formal character relative to it to the Panaman Government.

[Inclosure 2.]

Memorandum of interview of Mr. Dodge with President Porras and Señor Lefevre, Minister for Foreign Affairs, February 22, 1913.

After Mr. Dodge had explained the Department’s instructions, which President Porras had already read from the paraphrase sent to him, President Porras replied that the geographical situation of the towns of Panama required in his opinion a lateral railway, otherwise it would be necessary to have forty short lines running to the coast where the ports would have to be improved, there being practically no natural ones. It seemed to him that it was not the desire of the United States that Panama should construct railways, which were necessary for her development, for except through some guaranty of the annuity or the revenue from the 6 millions it would probably not be possible to obtain the money to build them. He did not see what right the United States had to prevent Panama using these funds which belonged to Panama and which she should be able to use as she pleased. In the past the United States had never attempted to restrain their use. The revenue from the 6 millions had been used for general purposes, often useless ones, yet the United States had never interfered nor even enquired into its use. According to Law 2 of 1911, providing for the construction of the Panama-David Railway, which was still in force, these same funds could be used for guaranteeing a loan, yet the United States had never objected to this law.

Mr. Dodge stated substantially that his Government had many times declared that it desired the development of Panama, that it was prepared to assist Panama to secure this development in every way it properly could, that the United States had no objection whatever to the construction of railways in Panama provided their construction did not interfere with the proper protection of the Canal, in which Panama was as greatly interested as the United States, and provided the plans for their construction appeared advantageous [Page 1102] to Panama from all viewpoints including the financial one. He believed that from the very beginning the United States had shown its interest in seeing the funds which it had paid to Panama only used for the best advantage and permanent benefit of the Panaman people. The terms of Law 2 of 1911 did not seem very clear.

President Porras replied with some vexation that Panama’s financial stability was a matter in which both he himself and his Government took the greatest interest, which was apparent by the improvement in the finances since the beginning of his administration. The interest of the United States in the financial stability of Panama was new and could not be greater than his own. He enquired why the United States took this interest and Mr. Dodge replied that it seemed to him to come directly from the fact that the United States had guaranteed the independence of Panama: financial stability was essential to political stability. President Porras then said that although he had no objection to this new interest, he thought it unnecessary in view of his own careful financial management.

President Porras enquired why Panama could not use the annuity and interest of the 6 millions as she saw fit. As to the 6 millions themselves, both he and his advisers were absolutely decided not to touch it. I stated that as to the annuity a sufficient reason was the fact that the Colombian treaties, which theoretically might be ratified by Colombia at any time, made these annuities payable to Colombia for a number of years. As to the interest of the 6 millions he invited President Porras attention to the communication which he had sent to him which nowhere stated that Panama could not use this interest but that its use was a matter for the most attentive consideration and consultation between the two Governments.

Señor Lefevre asked why the American Government assumed that Panama intended to do anything contrary to the Colombian treaties as it was not stated in the law that these funds were to be used. Mr. Dodge replied that the law as worded appeared to include these funds and that his Government was merely inviting attention to this wording.

Señor Lefevre then stated that he had duly informed Mr. Dodge that the discussion of this law would be postponed until February 14th and that he had heard no objection from the United States to the law until February 18th when the law had already passed. In fact he had received a telegram on February 12th from Dr. Valdes, Panaman Minister at Washington, stating that he had been informed by the Department of State that there was no objection to the employment of the interest of the 6 millions as security. President Porras added that although he had not yet signed the law when he received Mr. Dodge’s communication, yet as the bill had originally been presented by him he could not then properly modify it and return it to the Assembly. Nevertheless if the United States did not desire him to use the annuity and interest of the 6 millions to carry out this law, he would not do so; in that case this railway could probably not be built. He would send Mr. Dodge a reply to his aide mémoire which would give the attitude of the Panaman Government.

President Porras then said that he had promised Secretary Stimson while he was here that he would build no railways without consulting the United States; he would fulfill his promise. This law was simply a general enabling law.

During this interview President Porras seemed vexed at the Department’s communication, inclined to misunderstand the attitude of the United States and to insist that the United States really had no desire for Panama’s development.