File No. 839.00/1750.

Chargé Johnson to the Secretary of State.

No. 200.]

Sir: In compliance with your telegraphic instruction dated July 27, 5 p.m., I have the honor to send enclosed herein the Legation’s recommendations upon the subject of the., liquidation of diversions of revenue by the Dominican Government due to its extraordinary expenses since July 7, 1915, in attempting to suppress minor uprisings that have occurred; and upon the subject of the reestablishment of the Government’s finances on a sound basis, once order is restored. As the enclosed report deals only with current obligations a later supplemental report will be sent on the subject of the unpaid claims against the Dominican Government.

I have [etc.]

Stewart Johnson.

Recommendations of the American Legation in regard to Dominican financial affairs.

financial conditions in the dominican republic prior to july 7, 1915.

During the six months preceding July 7, 1915, being the first six months of the administration of President Jiménes, the adjustment of the current obligations of the Government to its revenues showed a steady improvement until, during the last two months of the period, a small balance remained at the end of the month with which to pay a portion of the current excess obligations of the previous months. Nothing however was done during this period to improve the defective administration organization of the army and navy and the Republican Guard, under the departments of War and Navy and Interior, respectively, [Page 318] to anticipation of the constantly expected revolution, even though with the aid of only current appropriations and revenues the organization could have been made sufficiently effective to quell any disturbances that have yet arisen with despatch and at small extraordinary expense. During this period also occurred the elimination of the American “Financial Expert” from control of the expenditures and the substitution of the General Receiver of Customs in an advisory capacity.

The budget in force for the fiscal year July 1, 1915, to June 30, 1916, is the same as that for the two preceding fiscal years and carries appropriations about $600,000 in excess of estimated revenues. However, the plan of operation under which favorable results were obtained under this budget last year during the last few months is to be followed again and that plan is to not avail of certain appropriations and to not fill certain offices so that the total obligations of the Government shall not be greater than its estimated revenues. This plan is excellent if adhered to. A promise was obtained from Mr. Perdomo, the late Minister of Finance, now spoken of as Dominican Minister in Washington, to publish a list of the items suppressed, in order to give some measure of certainty and binding force to the plan of operation, and I shall also now try to obtain publication of the list from the new Minister of Finance when appointed, and transmit a copy to the Department. Two copies of the budget now in force were transmitted to the Department in the Legation’s No. 327, dated August 19, 1913.6

conditions since july 7, 1915, and at the present time.

On July 7, 1915, an armed revolutionary movement broke, out, led by Ex-Governor Quirico Feliu, of Puerto Plata, and he still remains at large with a varying number of followers, requiring the Government to keep on a war footing until he is captured or terms are made with him. Efforts are now being directed to the latter end. Several bodies of self-styled revolutionists, who have become little better than brigands, also are at large. Since the beginning of the present uprising it is calculated that the Government has exceeded its ordinary expenditures on its two armed forces by over $40,000. There are in the budget items totaling $24,000 to which by a stretch of the letter of the law, in some cases, these war expenditures could be Charged. This leaves up to the present moment at least $16,000 expended for which there is no appropriation. Not only this amount but also the $24,000 credit in the budget has to come out of the current revenues, leaving the corresponding amount on the civil side of the budget unpaid until the expended sum of $40,000 is accumulated month by month out of the current revenues. In order to repay the entire amount these would have to exceed the estimates by $16,000.

The situation is then at the present time that the Government has ample ready money in its current revenues with which to meet war expenses. These are paid in cash and as many of the civil obligations are left delinquent or unpaid as may be necessary. Salaries of civil employees in this city are now being paid for the first half of the month of July and are therefore one and a half months behind. Salaries in the interior are somewhat further behind.

The present and past method of payment of war expenses is conducive to graft and therefore to only half-hearted attempts, on the part of those entrusted with the task, at putting an end to the condition of affairs requiring the Government to be on a war footing. Rations money, for example, is paid direct to the respective Ministers or local commanders and transmitted from hand to hand to its final destination, the individual soldier or republican guard, as the case may be. That tremendous leakage and inefficiency results from the present system has been admitted to me by the new Minister of Interior and Police, Mr. Enrique Jiménez, late Dominican Minister at Washington, who has some excellent plans of reform, but who is now and has been since his arrival here engaged solely in the task of interviewing bandit and revolutionary leaders with the object of inducing them to lay down their arms, which many of them have done but whether from patriotic or other motives I do not know.

The only resources of the Government, in view of the provisions of the Convention, are of course its current revenues, until it is allowed to borrow money by the United States.

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proposed remedies: 1, foe the liquidation of diversions of funds already made: and 2, for the reestablishment of the finances of the dominican government upon a sound basis, once order is secured.

If the revenues exceed the estimates and the finances are honestly administered, both of which things there is some ground for expecting, the diversions could be made good within a reasonable time. If however the diversions cannot be replaced out of revenues in excess of estimates, the remedy would seem to be to add the debt to the total now outstanding and unprovided for and to begin again the attempt to keep current obligations within current resources. In order, to lay the basis for requesting retrenchment, which might be thought to be the obvious remedy, it would be necessary to demonstrate to the Dominican Government, 1, that diversions were in fact made in excess of budgets credits; and, 2, that the diversions, or excess of credits, could not in all probability be recovered from revenue, in excess of the estimates. “One” could not be demonstrated to an unwilling government without the right to examine all Government books and accounts; and “two” is not capable of proof as it is a question of opinion upon which experts might differ.
The reestablishment of the finances of the Dominican Government upon a sound basis could only be brought about, it would seem, through American control, 1, of the total of the annual appropriations; 2, of the expenditure of the revenues; and, 3, of the administration and direction of the national armed forces. “One” and “two” are fairly obvious. “Three” is added because in no other way can public order be assured, without which liability of the Government for money damages incurred as the result of disorders, and of course not ordinarily provided for in a budget, cannot be prevented.

recommendations with a view to securing the proposed remedies.

The remedy proposed above for the reestablishment of the finances on a sound basis could probably only be obtained in its full extent as the result of intervention. It is however the only complete remedy that presents itself for the solution of those defects that have developed up to the present time in the financial system of the Dominican Government. A surprisingly large part however of the program stated can in my opinion, in spite of the apparent obstacles, be secured without intervention by firm adherence to one simple principle or policy, namely, to make no concessions in the matte: of deviation from the strict terms of payment to the Dominican Government provided in the Convention until not only all the lesser reforms heretofore suggested to, or the subject of negotiation with, that Government have been first provided for in legal form, but also a measure of control over the appropriations and expenditures, commensurate in each case with the importance of the deviation, and consistent with the objections admitted to the late Dominican Commission in Washington, has been granted.

Some of the reforms referred to are: 1, Publicity for, or, better, a decree naming, the items suppressed in the current otherwise admittedly excessive budget; 2, Wireless service, including both collection and disbursement of revenues, under Department of Public Works with an American expert as sub-department head; 3, Government-owned railroad under Department of Public Works while making repairs and for a reasonable time thereafter or until its inability to operate the road at a profit for the Government is demonstrated; and, 4, Reform of the army and republican guard.

general comments.

In view of the fact that it is inevitable that the Dominican Government will soon be asking the United States to permit advances, or to make concessions such as diversions from the sinking fund or the public works fund, I feel strongly that the policy outlined would be successful and that it would be a great misfortune for this country if we did not take advantage of the opportunity which will be presented to enforce internal reforms. Tremendous pressure will of course be brought to bear upon both the Department and the Legation to grant the appeals for money without the delay incident to first obtaining provision for the desired reforms. It will undoubtedly be urgently represented, for example, that the particular concession asked for is imperatively [Page 320] needed to prevent the Government from immediately falling. In view however of the money obtainable weekly from the Receivership, there can not in my opinion arise a need for money so pressing that it cannot await the settlement of negotiations; and, even if the payments should be made monthly as contemplated by the Convention the Government would at most have to postpone payment of any particular pressing obligation a month.

The Dominican Commission in Washington took the attitude that the Convention should be reexamined with a view to the elimination of financial control exercised by machinery not named in the Convention itself. In view of our concession on this point we could now with propriety take the attitude that in future we too would be guided by the strict terms of the Convention and that no matter what the new necessity might be we would not again depart from the Convention, at any rate without first receiving in return not only all we had expected to receive out of a spirit of gratitude for concessions already made to this Government, but also some additional concession in return for the new one made. In my opinion only by trading concessions within our lawful power to grant or withhold can we hope successfully to impose upon the Dominican Government measures for internal reform which as such we cannot in all cases clearly demand as of right. Placing the matter upon a strict basis of compensation could not be justly criticised in view of our failure to always obtain results reasonably to be expected from merely placing the Dominican Government under obligation to us.

The General Receiver with whom I have conferred is in agreement with me as to the probability of the Dominican Government soon needing funds in addition to those to which it is strictly entitled under the terms of the Convention, with which to pay salaries of civil employees now in arrears as a result of the use of the convention receipts in whatever extent was necessary to pay the extraordinary expenses of the Government while on a war footing, and that a crisis of a serious nature might result if the money is not forthcoming. I am not wholly clear as to his opinion with reference to the advisability of holding back concessions, no matter what the consequences of the greater or less delay involved in first settling negotiations, for the purpose of securing the desired reforms. The point of view of the General Receiver is naturally less influenced than the Legation’s by the desire to secure success for those specific policies in this country of the Department whose carrying out is not sought through his efforts alone, although his cooperation as the General Receiver of Dominican Customs is invaluable and always earnestly desired and sought by the Legation. It may perhaps be urged that because we are publicly “supporting” this Government, because we urged it to suppress the revolution and because much money is necessarily spent in so doing, we should promptly acquiesce in plans to facilitate the Dominican Government in obtaining money that belongs to it but which, is now tied up in the public works fund or in which it has a degree of ownership such as the Convention sinking fund. In answer it may be said that our support of the Government is of course in this connection merely as against revolutions, and this support would be given whether it granted the reforms we have urged, or may urge, or not. Moreover at the same time that we urged the prompt suppression of the disorders we in addition formally protested against any increase of the public debt and called attention to our expressions in the past to the effect that we are willing to support the Government with armed forces and that it should not be put to needless expense in putting down revolutions. It is also a fact that as previously pointed out no diversions would have been necessary had proper heed been given to suggestions of reform, both financial and military, and that unfortunate consequences of inability to obtain extra-convention funds must be laid at the door of the Government itself.

However, the recommendations presented herein are not based upon the premise that the needs of the Dominican Government will not be real or that its requests will be unreasonable or that we could not with propriety grant them. The recommendations are merely that concessions should be granted only upon reasonable terms first complied with by the Dominican Government. A crisis which might result from delay on our part might even bring about the desirable result of placing matters upon a permanent and sound footing by bringing home to this country a full realization of the obligations of a nation under its treaties and towards the family of nations in the matter of keeping its house in order. If a new revolution resulted from our delay, this would in my opinion be better than yielding and failing to obtain those reforms without which in any event the country could not long exist as an independent nation.

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In this connection I would further respectfully recommend that the moment further difficulty is encountered here in the matter of settling any of the matters now under negotiation with this Government, that the Convention basis of payment of the customs revenues to the Dominican Government at the end of each month be reestablished, but only in case a request from the Dominican Government for an advance of funds or for some other concession shall not already have been made.

The problem of the payment of the liquidated and unliquidated claims against the Government, amounting to about $7,000,000 up to the present, will be treated in a supplemental report.

Respectfully submitted,

Stewart Johnson.

  1. Not printed.