File No. 439.00/11
The Dominican Claims Commission to Admiral Knapp
In compliance with paragraph 6 of Executive Order No. 65 of the Military Government of Santo Domingo, dated July 9, 1917, the Dominican Claims Commission of 1917 respectfully submits the following memoranda and recommendation regarding the means of liquidating the awards upon claims approved by the Commission.
In its study of this subject the Commission has given due consideration to the three essential points:
First: The amount of the floating indebtedness;
Second: The resources of the Government; and
Third: The requirements of the Government for ordinary annual expenditures.
The total amount of the floating indebtedness cannot be ascertained with any degree of certainty at present, and the total amount of awards to be made by the Commission will remain an unknown factor until all of the claims have been presented and adjudicated. The reports of previous commissions, and the records of claims filed subsequently with other offices of the Government, indicate that the total of such claims is approximately $12,000,000. Without in any sense presuming to prejudge any of such claims, the Commission is inclined to accept the opinion of others who have made a study of the matter and whose conclusions are that, in all probability, all of the claims against the Dominican Government can be equitably liquidated within a total of not to exceed $5,000,000.
The resources of the Government consist of customs and internal revenues; other sources of revenue may be developed but the levying of new taxes should, and doubtless will, permit modification and reduction of existing customs and internal revenue tariffs. The average amounts per month received by the Government from its customs revenue since 1910, in round figures show as follows: 1911, $160,000; 1912, $169,000; 1913, $139,000; 1914, $97,000; 1915, $137,000; 1916, $139,000; and during the six months, January to June, 1917, $194,000. Since 1912, $30,000 per month has been required from customs revenues for the payment of interest and amortization [Page 724] of the loan of $1,500,000 of that year. That loan will be canceled within a few months, and the $30,000 per month heretofore applied to it will again revert to the Government. The internal revenues prior to July 1916 averaged about $50,000 per month; from July to December 1916 they averaged $63,000 per month; and from January to June 1917 the average was $96,000 per month. A very conservative estimate for the future is that the customs revenue (accruing to the Government) will not average less than $160,000 per month, and the internal revenues not less than $90,000 per month, a total of $250,000 per month or $3,000,000 per year.
The present budget, exclusive of the items which have been eliminated and inclusive of those which have been specially appropriated by the Military Government, provides for an annual expenditure of approximately $2,120,000. The Commission assumes that a new budget will be prepared in the near future and that provision will be made for certain necessary purposes not heretofore covered by appropriation, so that the budgetary requirement should be estimated at not less than $2,500,000 per year. Our conclusions are therefore based upon an estimated income of not less than $3,000,000 per year, a probable budget of $2,500,000, thus leaving $500,000 or more per year available for the service of a loan or bond issue.
Apparently the only means of liquidating the awards on claims to be made by the Commission will be the issuance of bonds, as it is obvious that such liquidation could not be made from current surplus revenues without discrimination and preferential treatment. In the opinion of the Commission, the adjudication of claims and the awards made thereon will constitute incurring new indebtedness within the meaning of the provisions of the American Dominican Convention of 1907 and the issuance of bonds for the liquidation of awards will therefore require the consent and approval of the United States Government. In order to make such bonds acceptable and attractive to investors, the payment of interest and amount required for amortization would have to be provided for from the revenues of the Dominican Government, preferably the customs revenue. The Dominican Government would have to authorize, and the United States Government instruct, the General Receiver of Dominican Customs to segregate and pay the required amounts each month to such agency as may be decided upon as the custodian of the sinking fund for amortization and the medium through which interest payment would be made.
The Commission recommends that the Government arrange for the issuance of bonds in the principal amount of not to exceed $5,000,000, such part thereof as may be necessary to be applied to the liquidation of awards upon claims to be approved by the Commission. Such bonds to be in coupon form, not registered, to bear interest at the rate of 5% per annum, interest payable semiannually on January 1, and July 1, the bonds to be dated and draw interest from January 1, 1918, and to mature on January 1, 1938, but to be redeemable at par on any first day of January beginning January 1, 1919, in such amounts as the funds available in the sinking fund provided for the purpose will permit, the bonds to be redeemed to be drawn by lot and when so redeemed to be permanently retired and canceled; the payments into the sinking fund for the purpose of [Page 725] amortization to be not less than five per cent of the principal amount each year.
Two methods of issuing such bonds are suggested: first, by advertising and inviting bids, and second, by issuing the bonds direct to creditors in settlement of the awards.
The first method would mean, in effect, selling the bonds to bankers and others at the prices offered by them; the Government would then be in position to pay the amounts of the awards to the creditors in cash, and this method would doubtless prove more satisfactory to the greatest number of creditors. It is considered advisable to call attention to the fact, however, that the specific amount which will be required cannot now be determined and that feature may offer some difficulty in placing the bonds; also that, in view of the large bond issues now being made by various countries and the condition of the financial markets of the world it is possible the bonds offered by the Dominican Government may not attract advantageous offers; and also that, if the ordinary procedure is followed, the negotiation of the sale through any one bank or firm of bankers would involve considerable expense. It is deemed proper, in this connection, to suggest that if this plan is adopted it might be possible to obtain the assistance of the Bureau of Insular Affairs of the War Department, Washington; it is understood that the Bureau has sold most of the bonds issued by the Government of Porto Rico in a very satisfactory manner and with a considerable saving in expense.
The second method would enable the Government to issue only the amount of bonds actually required for this specific purpose, and would avoid much of the expense incidental to selling the bonds as suggested in the first method; it would also have the effect of placing the bonds in the hands of Dominican citizens thus giving them a greater direct interest in the affairs of their Government. The objections to this method are: first, the possibility that some of the creditors might object or decline to accept the bonds; and second, the probability that the small holders of such bonds would find themselves at the mercy of local speculators unless the Government took some precautionary measures to protect them. It is believed that the great majority of creditors would accept the bonds, and that it would be practicable for the Government to protect the small holders against speculators by providing for the investment of surplus treasury funds in the purchase of such bonds in such amounts as might be possible and necessary. Provided the Government can afford this protection, the Commission recommends the second method in preference to the first.
The attached memorandum shows the amounts which would be required annually for the payment of interest and amortization of a bond issue such as suggested; the expenses incidental to the operation and the interest which would accrue on the sinking fund are not shown as they would more or less offset each other
Respectfully submitted.
- J. H. Edwards
- J. T. Bootes
- Martin Travieso, Jr.
- M. de J. Troncoso de la Concha
- Emilio C. Joubert