Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 7, 1915
File No. 422.11/833.
Minister Hartman to the Secretary of State.
Quito, December 11, 1915.
Sir: Referring to Department’s telegram of November 19, 1915, 6 p.m., and to my telegram of December 10, 1915, 4 p.m., I have the honor to make the following report:
Upon receipt of the Department’s said telegram, I prepared and delivered in person to President Plaza, on November 22, 1915, my memorandum, copies of which are herewith enclosed.
On December 2, I received from President Plaza his memorandum in reply thereto, copies of which are herewith enclosed; and on December 10, 4 p.m., I telegraphed the Department the closing paragraph of the memorandum, which seemed to me all that was necessary.
I have [etc.]
Minister Hartman to President Plaza.
memorandum.
The American Minister presents his compliments to His Excellency General Leónidas Plaza G., President of the Republic of Ecuador, and has the honor respectfully to submit for His Excellency’s consideration the following views, observations and proposals of the Government of the United States, with special reference to the memorandum submitted by His Excellency to the Minister under date of August 9, 1915, all of which views, observations and proposals being included in a telegram, received by the Minister from the Department of State under date of November 19, and being substantially as follows: [Here follows paraphrase of the above-mentioned telegram, printed ante.]
In submitting the foregoing to the consideration of His Excellency, the Minister expresses the sincere hope that the proposals of his Government, herein set forth, will appeal to His Excellency’s high sense of just and fair dealing, and that His Excellency will, at an early day, signify his formal approval and acceptance of the proposals and stipulations herein contained.
Chas. S. Hartman avails [etc.]
Quito, November 22, 1915.
President Plaza to Minister Hartman.
Quito, [not dated; received December 2, 1915.]
confidential memorandum by the president of the republic of ecuador in reply to the confidential proposals of the government of the united states of north america.
The President of Ecuador has the honor to salute his excellency, the Envoy Extraordinary and Minister Plenipotentiary of the United States of North [Page 371] America, Chas. S. Hartman, Esquire, and to beg of him that, in reply to his memorandum of the 22d instant, he will be pleased to transmit to his Government the following answer:
I have studied with particular attention the conditions the Government at Washington formulates in order to resolve to aid our Government in the placing of a loan of ten million dollars; and as the result of that study it becomes my duty to remark on said conditions in the following terms:
first proposition.
The memorandum to which I refer says:
First. That Ecuador immediately resume daily payments for the service of the bonds, the payments thereof having been stopped solely because of the application of the pledged customs revenues to other and different purposes.
If my Government were in a position to resume the daily payments to which the proposition refers, it would not need to negotiate a loan, nor wait for a foreign power to suggest that measure, since it would of its own accord hasten to adopt it. If we apply for credit abroad it is because we have not the means to pay, on account of the decrease of about five million sucres in our customs revenues, the only ones we possess, for we lack internal taxes of any importance. And as we have not the means of living, which is a government’s first care, we have been obliged to employ in administrative expenses all the fiscal revenues, including the revenues designed to cover the guaranty of the railway bonds which should be attended to with the profits of the company, and only in the second place by the Ecuadorian State simply as a subsidiary guarantor.
In normal times, our ordinary revenues suffice to satisfy all our needs. But for the European war which has absolutely restricted our import commerce, and our internal war of three years duration which has obliged us to keep in active service a numerous army which is barely fed, our financial situation would not have needed the help of a loan to satisfy the internal and foreign obligations of the country, so that, with that 45% of the import duties and of the other revenues pledged to the guaranty of the railway bonds, we should have not only enough to cover two coupons of those bonds, annually, but four. And my own Government has proved this during its administration of 1901 to 1905 and 1912 to 1914.
In that connection I recall with legitimate satisfaction that, notwithstanding the heavy disbursements we had to make in 1912, 1913 and the first half of 1914, to quell the internal revolt which afflicted us, my Government punctually attended to the service of the railway bonds, not only in respect of what was due thereby, but paying three of the five coupons which the Government of Sr. Alfaro left in default. It was only on the outbreak of the European war and on account of the falling off of our imports that we were obliged to suspend that service. And, in suspending it, let it be understood that we did so with the firm resolve to resume it as soon as we might be barely in a position to do so, appealing meanwhile to foreign credit to place us up to date with the holders of those bonds. If the Department of State of the American Government and the railway company had not prevented, through their influence, the placing of the loan we have had in project in the United States market, our country would perhaps have obtained it long since, and the bondholders would have been paid.
On account of the wealth of its treasury, the American Government does not appreciate the position of the Government of Ecuador; but if the former could imagine itself with its customs revenues reduced to a minimum, without internal resources, and with the burden of a civil war, I am sure it would agree with us that it could not avoid adopting the measure of investing the whole of the fiscal receipts in the maintenance of public administration. We who have suspended the service of the State’s guaranty of the railway bonds have not yet reached the extreme of issuing treasury notes of obligatory circulation. And it is certain that we shall not reach that extreme, even though, as at the present moment, we may not be able to cover even the salaries of the personnel of military, police and civil employees, and confine ourselves to provide the first mentioned with food.
During the Government of Sr. Alfaro, the railway company ignored the bondholders. The payment of five coupons was postponed; and the company said nothing, because in exchange for its passivity the head of that Government, intimately bound up with the company, allowed the latter to do whatever [Page 372] it had a mind to, always to the detriment of Ecuadorian sovereignty and interests. Today it remonstrates, because my Government does not leave it the former margin of arbitrary acts and iniquitous exploitation. Now, in spite of the fact that my Government has employed the services of the railway in the frequent transportation of troops during the three years the revolution has lasted, what we have paid month by month to the company is infinitely less than what the Government of Sr. Alfaro caused the company to earn in freight ad hoc, in an equal proportion of time. It is natural it should complain.
But, on the ground of justice, it is not natural that the Government of the United States should extend its decided protection in terms so unequivocal that said Government should have only pressure for the Ecuadorian Government and favors for the company. Your Government has the undoubted right to deprive us, in its own Country, of the benefits of credit; but in doing so, yielding to the efforts of the railway company, and without taking into the slightest consideration the grounds of our complaints and claims, it forgets that our economic ills have their origin in the conduct of that company; for an upright and intelligent administration of the railway should leave over sufficient profits to cover those very obligations that today burden Ecuador, for no other reason than that of its position as guarantor who must pay all instead of the company.
In short, I judge that, unless we obtain the loan, we shall not be able to resume the daily payment to the bondholders of the 45% of the import duties and other fiscal receipts pledged to the service of the railway. On the other hand, I wish to place on record that if we strive to place a foreign loan, It is precisely with a view to cancel all arrears due to the bondholders.
second proposition.
The memorandum to which I refer says:
Second. That in view of the declaration made by President Plaza that he would be willing to have the cause of Ecuador judged by an American functionary, Ecuador shall agree to designate such official subject to the approval of the United States Government, and that such functionary shall examine into the merits and rightfulness of the claims of Ecuador against the railway company, and the claims of the railway company against Ecuador, and shall render a final decision thereon; it being understood, however, that the functionary so named shall not question the settlement under the contract agreed upon and passed by arbitral award of 1908.
This proposition makes it clear that an erroneous interpretation has been given to the statement made by me in the memorandum of August 9 last. In that document, on page 9, lines 4 to 10 inclusive, I said literally as follows:
So profound is my conviction respecting these particulars that if it depended on me alone I should not hesitate to appoint as judge of our cause any honorable functionary of the United States, with the full assurance that he would do us so much justice that it would exceed what we strive for—so unfounded are the claims of the company and so just our demands.
As is seen by the paragraph transcribed, I made an hypothesis, when declaring that, if it depended on me alone, I should not hesitate, etc. But that step, which I should be ready to take as head of the State, does not depend upon the Ecuadorian Executive, for it is manifest that so important a measure would be solely within the competence of the Legislative Power, unless I resolved to evade the Constitution and the laws, a thing of which I am incapable, and which would settle nothing because such a dictatorial act would lack any validity, present or future. That design did not pass through my mind, for I confined myself to declaring that my faith in the justice of our cause is so profound that, if it were possible for me to do so, I should not hesitate a minute to submit it to the decision of any honorable American magistrate. I said nothing more, for I had nothing more to advance, and I attribute the said erroneous interpretation to a disfigurement of ideas produced in translating the Spanish text of the said memorandum into English.
And today I maintain what I then said: if I were empowered to act discretionally in the settlement of these questions with the railway company—but let it be understood that I am not so empowered and that consequently I can not do so—I should not hesitate to ask of President Wilson himself, or of his Secretary of the Treasury, Mr. McAdoo, that, after studying personally the history of the relations of the Government of Ecuador with the railway company, he decide without appeal all the claims submitted by both parties.
[Page 373]I am not, however, authorized to act as the American Government suggests in its second proposition; and in this respect could do nothing more than seek a way to reach a direct settlement with the company, should the latter formulate concrete and admissible propositions, which settlement would have to be submitted for the approval of Congress.
Without any intention of discussing the point, and with the desire to refrain from accepting a false precedent, I deem it necessary to remark that a manifest error is incurred in making reference to an arbitral award of 1908, which has not existed, for as a settlement was agreed upon at that time the necessity for arbitration was thereby eliminated.11
My Government can not, therefore, accept the propositions of the Government of the United States; the first, because it implies for my country an obligation that the present economic situation does not warrant; and the second, because the Executive is not authorized to accept it.
Hence my confidential memorandum of August 9 last stands unimpaired.
I am pleased to avail [etc.]