File No. 422.11G93/916

Minister Hartman to the Secretary of State

No. 205

Sir: Referring to the several telegrams which have passed between the Department and this Legation on the subject of interest due on prior hen bonds of the Guayaquil & Quito Railway Co., since, and including Department’s telegram of December 14, 1916, 5 p.m.,2 I have the honor to report as follows:

As stated in my telegram of January 3, 1917, 1 p.m., I brought the subject to the attention of the Minister for Foreign Affairs by memorandum dated December 18, which I presented in person, and of which I enclose herewith duplicate copies.

On that occasion the Minister for Foreign Affairs informed me that, by reason of the absence from Quito of the Minister of Hacienda, it would be necessary to delay answering until his return. He returned on Saturday evening December 30, and on January 2, I again brought the matter to the attention of the Minister for Foreign Affairs, who agreed to answer within two days. This time was extended, at his request, until Tuesday, January 9, to enable the Minister of Hacienda to study the subject. On January 12, I again called upon the Minister to urge an answer, and was promised that the answer would be delivered in the afternoon of that day. It was so delivered, and duplicate copies of it together with translation are herewith enclosed.

On January 13, 10 a.m., I telegraphed the Department the substance of its contents, wherein I said that owing to the unsatisfactory answer of Ecuador, I would immediately prepare and file a note with the Foreign Office, restating the case, and basing the note upon the telegram of the Department dated December 31, 7 p.m.2 Accordingly, on January 15, I prepared and presented my note No. 219 to Foreign Office, of which duplicate copies are herewith enclosed. To that note, the Minister for Foreign Affairs replied in his note No. 10, of January 16, 1917, and I am enclosing herewith duplicate copies of same, together with translation.

The offer by Ecuador to contribute 1,000 tons of coal at 57 sucres per ton towards the payment of said interest, provided the railway company would pay the balance, was telegraphed by the local office to the New York office of the railway about January 18, but no [Page 733] reply had been received up to yesterday afternoon. In the absence of Mr. Norton, the controller of the railway, Mr. Dobbie, and Dr. Leroux, its general counsel, have been in frequent consultation with me on this subject and have been of much assistance.

I regret very much that the results of our efforts in the matter, have, thus far, been so disappointing; but in reviewing the several steps taken in the case, I am unable to discover where I could have taken a different course to advantage.

I therefore submit the foregoing report and respectfully await the further instructions of the Department.

I have [etc.]

Charles S. Hartman
[Inclosure 1—Memorandum]

Minister Hartman to the Minister of Foreign Relations

The American Minister respectfully salutes his excellency the Minister for Foreign Affairs and has the honor to submit for the information and consideration of his excellency the following data:

Upon receipt of his excellency’s note No. 48, of November 4, 1916, the American Minister transmitted to his Government, by mail, copies of that note and of the Legation’s note No. 210 to his excellency, of date October 3, 1916.

On December 16, 1916, the Legation received a cable from the Department of State at Washington in relation to the subject of said notes.

My Government is particularly gratified at that portion of your excellency’s said note which follows:

“After the Government was changed, as your excellency is well aware, the Esmeraldas revolution having been in fact ended, a new, reasonable and economic budget having been issued, which will be in force after January 1, 1917, it is very probable that the economic situation will be adjusted without having to appeal for a loan, and when this occurs, Ecuador will be able, and that is what my Government desires, to meet its obligations fully and completely. The President and his Cabinet have the firm disposition to do this, and I hope that this attention will be accomplished to the satisfaction of all those who have interest in the national revenues.”

Though not so definitely stated, the views expressed in the foregoing quotation appear to be in harmony with those orally expressed by his excellency to the American Minister in the interview at the Foreign Office a few days before said note of November 4 was written, in which interview his excellency expressed the hope and belief that in January the Government of Ecuador would resume deposits. This fair and just attitude of the Government of Ecuador in the premises is especially gratifying to the Government of the United States, because a duly certified statement has been presented to the Department of State by the President of the Guayaquil and Quito Railway Company, stating that, owing to unfavorable exchange and the great cost of coal, the railway company will not be able to pay interest on the prior lien bonds in January as it did last year. Entertaining, as it does, a most friendly feeling for the Government and people of Ecuador, and earnestly desiring that nothing may occur to injure or impair the credit of Ecuador, the Government of the United States sincerely hopes that the Government of Ecuador will be able to make payment of the interest on said bonds in January, in accordance with the above-expressed desires of his excellency the Minister for Foreign Affairs.

The American Minister believes that the Government of Ecuador will concur with the Government of the United States in considering that it would be most regrettable if payment of the interest on prior lien bonds should go by default.

In view of the deep interest felt by the Government of the United States in the welfare of Ecuador, and of the common desire of both Governments to maintain and strengthen the credit of Ecuador, the American Minister will take pleasure in transmitting to his Government, by cable at the earliest possible moment after notification thereof by his excellency, the news of the prompt payment of the interest on said bonds by the Government of Ecuador.

[Page 734]

Fully appreciating the honorable intentions and desires of the Government of Ecuador, so well expressed by his excellency the Minister for Foreign Affairs, the American Minister indulges the hope that those desires may soon be realized.

Charles S. Hartman avails [etc.]

[Inclosure 2—Memorandum—Translation]

The Minister of Foreign Relations to Minister Hartman

In reply to the memorandum of his excellency, the Minister of the United States in Quito, the Minister of Foreign Relations, after duly greeting him, has the honor to repeat what has been stated in several previous communications to that Legation, namely; that it is the intention of the Government, which coincides with the national will and with the international juridical rules and customs, not to discuss through diplomatic channels anything relating to the private contracts it may have entered into with private parties or persons. This general doctrine is the same it has observed in the particular case of the Guayaquil and Quito Railway, and which has been followed invariably, with unusual uniformity, by the Ecuadorean Governments and by the different Ministers who have held the portfolio of Foreign Relations.

The Government of the United States which, on many occasions, has made statements that honor it, with respect to the rights of the weaker nations, statements which the Secretary of State has recently repeated, in so clear and recommendable a manner, in the name of the President, can not ignore the right Ecuador has in its desire to deal, on the only grounds possible—those of simple justice—with the different discussions that have arisen between it and the railway company or its legal representatives.

Since, neither in the original contract, nor in the successive reformatory contracts with the Guayaquil and Quito Railway Company, no foreign government took part; since it is an invariable rule in this country not to admit of diplomatic intervention in agreements of that kind; since there was explicitly rejected a certain proposed protocol, in which the American Secretary of State was made to figure, even though only in a passive character and extra-officially, in connection with these affairs of the Southern Railway; since, only the other day, the Minister of Foreign Relations stated to his excellency, the Minister of the United States, that the attitude of the Ecuadoran Government had not changed with respect thereto, because it could not change: his excellency, the Minister of the United States can not wonder at the surprise the Ecuadoran Government has felt at the renewed attempt to employ a method of procedure it does not consider the most adequate for many reasons of justice and convenience.

If this Minister answers the memorandum of the 18th of December last in the form in which it does, this reply can have no other character than that of an unofficial communication, since it is given, very largely, on account of the courtesy due to the very worthy Mr. Charles S. Hartman.

The Government’s purpose, set forth in an official communication from this Ministry, No. 48 of November 4, 1916,3 has not changed; its firm and resolute intention, its irrevocable will is to comply with its obligations, with all its obligations, however burdensome they may have been in their constitution, and of complying therewith in the shortest possible time, according to the measure of its ability.

It has been stated to his excellency, Mr. Hartman, and to-day it is regarded as a great honor to repeat to him, that the present Ecuadorean Government entertains hopes that the financial situation of the country will improve, from the first day of the present month of January; that is to say: from the date on which the new budget became effective; and it is a pleasure to inform the Minister that those hopes, up to date, can not be held to have been frustrated, since, as the month of January has just begun, it is not yet possible to talk of immediate payments, since it will first be necessary to collect the money before disbursing it. Will three, four, six, ten weeks be necessary to meet such and such a payment? Probably; we can not give assurance thereof.

[Page 735]

With respect to the particular case of the deposit for the prior lien bonds, it is to be observed that the president of the railway company has requested of the Government its mere assistance as such for the January payment; it is not therefore comprehensible how, at the same time, the company should have addressed the American State Department explaining something only pertaining to the Ecuadorean Government, namely, that, on account of the present unfavorable rate of exchange and the high price of coal, the said company is not in a position to pay the interest on the prior lien bonds as it did last year.

No one is more interested than the Ecuadorean Government in maintaining and strengthening its credit; and for that very reason it will spare no effort to assure it permanently and definitely.

C. M. Tobar y Borgoño avails [etc.]

[Inclosure 3]

Minister Hartman to the Minister of Foreign Relations

No. 219

Mr. Minister: I have the honor to acknowledge the receipt of your excellency’s memorandum dated January 12, 1917, relating to the inquiry submitted by me to your excellency in my memorandum dated December 18, 1916, as to the approximate date when the Government of Ecuador would be in position to pay interest due January 1, 1917, on the Guayaquil and Quito prior lien railway bonds, and resume daily deposits pursuant to contract, and in accordance with its laudable purposes, so clearly announced to me by your excellency in the interview with your excellency referred to in my said memorandum of December 18, 1916.

I was greatly gratified, but not surprised, to read again the clearly expressed unalterable purpose of your excellency’s Government to meet all Ecuador’s obligations as soon as possible, but I note, with considerable disappointment, that your excellency has overlooked stating in said memorandum any date, either definite or approximate, when the interest due January 1, 1917, on the prior lien railway bonds will be paid, or daily deposits resumed.

I have of course assumed that the failure to furnish this information was not intentional on the part of your excellency, but was inadvertent, and I am therefore respectfully calling your excellency’s attention to the apparent oversight, and, at the same time, I have the honor to present for the consideration of your excellency’s Government, some additional views of my Government on this important subject, which were received January 1, 1917, by cable from the Department of State. I therefore, by way of supplement to my said memorandum of December 18, have the further honor respectfully to impress upon your excellency’s Government the necessity of the payment of the interest on the prior lien bonds, due on January 1, 1917, as soon as possible after said date, and to suggest to your excellency that definite assurances that said interest would be paid at a fixed date ought properly to be cabled to the council of foreign bondholders by your excellency’s Government.

In addition to the great desire which the Government of the United States has in seeing that these American interests are given that adequate and proper protection, to which they are entitled, by the Ecuadorean Government, its feeling of sincere friendship for Ecuador compels it to point out the very unfortunate position in which she would place herself if she made default in this payment—a position which might indeed lead to many complications and especially to the impairment of her credit.

In bringing this note to a close, it gives me great pleasure to express my sincere appreciation of the sentiments of personal friendship for me, so generously stated by your excellency, and to assure your excellency that those sentiments of personal esteem are fully reciprocated by me towards your excellency, and that I personally and officially deeply desire the welfare and prosperity of your excellency, and the Government and people of Ecuador.

I avail myself [etc.]

Chas. S. Hartman
[Page 736]
[Inclosure 4—Translation]

The Minister of Foreign Relations to Minister Hartman

No. 10

Mr. Minister: I have the honor to make an answer to the note No. 219, dated yesterday, in which your excellency insists regarding the approximate indication, by my Government, of the date on which it will be able to carry out the payment of interest on the prior lien bonds of the Guayaquil and Quito Railway Company, due January 1, 1917, and also asks assurances that the daily deposits will be hereafter effected in accordance with the contracts.

Your excellency adds that since the memorandum of December 18, already answered in similar form by me, your excellency has received instructions from the Government of the United States to point out to my Government the necessity that the payment of the interest on the bonds, due January 1, 1917, be made as soon as possible, and that the dates on which payments are to be made, be fixed, the Ecuadoran Government having to cable its decision to the council of foreign bondholders.

I have expressed to your excellency in my previous communications, in accordance with the doctrine very justly observed by my predecessors in the portfolio of Foreign Relations, the surprise with which my Government sees the intervention of the American Legation in a matter which exclusively relates to fulfilment and interpretation of a contract.

I might, within the strict right which Ecuador enjoys, excuse myself from making an answer to the concrete points contained in the communication of your excellency; this case not being one of denial of justice, it cannot be explained, in the light of international law and of usage justly and reasonably adopted by civilized countries, that a foreign Legation may officially subject a Government to interrogations of the kind contained in the note to which I answer.

This attitude is all the more surprising, since it is adopted just now, when the Ecuadorean Government has just reestablished peace, and has adopted as its rule the fulfilment of its obligations—all the obligations which belong to it—and when, in order to achieve that end, it has adopted for itself a system of economies, which may enable it to do that promptly.

In previous years no deposits were made nor coupons paid, and nevertheless, the intervention of the American Legation was never so pressing as now; indeed, Mr. Minister, I am unable to understand what is the reason for the proceeding now taken, of asking immediate answers and demanding the fixing of terms incapable of extension.

As to the balance, I repeat what has been said every time that I have discussed this point with your excellency: the Government is disposed to comply with all its proper obligations; but not to fix dates nor give other explanations than those already stated.

I avail myself [etc.]

Tobar y Borgoño