File No. 422.11G93/773a.

The Secretary of State to Minister Hartman.


Our attention has just been called to the following telegram sent by the President of Ecuador on February 8 to Cooper, secretary of the foreign bondholders:

Doctor Juan Cueva García is authorized agent New York. London services will be renewed when causes for suspension disappear and when bondholders, unbinding themselves from the company, join their endeavor with that of the Government to force the company to fulfillment of its obligations. Railroad gives an annual revenue of £220,000 more or less and would produce more with a better administration; the operating expenses could be limited to half the above sum. For what reason council bondholders does not use its rights in benefit of its clients and Ecuador. Salt funds remittances order to be resumed.


You will please call upon the Foreign Office and secure information upon the following points: Does the Government mean by its telegram that it desires to have the mortgage foreclosed and the rights of the stockholders forfeited? If so upon what ground does it seek to bring this loss upon the investors? The settlement made in 1908 shows that the railroad was built at a cost of about twenty millions of dollars, something less than twelve millions of which were secured by the sale of bonds and the remainder advanced by the stockholders and construction companies. This settlement was agreed to by the Government and provision made for the payment of the interest on the bonds. At the time of the signing of the original contract the revenues of the country amounted to about four millions of dollars; now, largely through the development and progress made possible by the railroad, the revenues approximate ten millions. Upon what basis in law or equity does the Government seek a forfeiture of the rights and interests of the stockholders. For two years this Government has been endeavoring to secure a settlement of pending disputes but without avail. Finding that objection was made to the arbitrator appointed under the preceding administration, he was recalled and another arbitrator, Judge Miller, whose impartiality could not be questioned was selected, his selection being accepted and approved by both Governments. When he went to Quito he found the Ecuadorian representative unwilling to consent to the arrangement which was made here before Judge Miller started. This Government is ready to do anything in its power to secure a just and satisfactory settlement between the Government and the railroad but it does not understand the Government’s attitude at this time in attempting to act with the bondholders to the ignoring of the stockholders. Neither does it understand the suggestion in regard to the operating expenses of the railroad, in view of the fact that the directors appointed by the Government have made no protest as to present methods employed by the company and have suggested no changes or improvements. Please take the matter up with the Government. In securing this information inform them that while this Government is anxious to prevent any injustice being [Page 344] done to the Government of Ecuador, it feels it its duty to insist upon justice being done to American investors.