File No. 422.11G93/901
The Secretary of State to Minister Hartman
Washington, February 13, 1917, 5 p.m.
Your January 13, 10 a.m. and January 18, 11 a.m. For your information. Ecuadorean Chargé d’Affaires called at Department January 18 and challenged statement of railroad company that it could not pay interest on prior lien bonds at this time on account of company’s present financial position. He stated that in report of Price, Waterhouse and Company, of January 1916, [sic] it was made clear that management of railroad was not on economical basis and that for that reason company was not in position to pay interest [Page 737] as it did last year. He further desired that a commission composed of one engineer, one financial expert and one legal expert be sent to investigate all controversies between Government and railroad. The Secretary of State informed Mr. Carbo that payment by Ecuadorean Government of interest on prior lien bonds and commencement of daily deposits was of first importance and that after this was done it would then be time enough to have investigation of outstanding controversies and as to whether management of railroad company was not economical and that if proven that railroad company owed money to Government matter could then be adjusted. The Secretary of State impressed upon Mr. Carbo the importance of payment by Ecuadorean Government of interest and commencement of daily deposits at this time and stated that he insisted on this being done before any question of investigation was taken up.
Mr. Carbo may have misinterpreted this interview to his Government or have misconstrued statement by Secretary of State to mean that this Government would forego diplomatic action and not insist on Government meeting these obligations. You should take steps to correct any erroneous idea upon this point apparently entertained by authorities.
Advise Foreign Office that its reply to your note of January 15 is wholly unsatisfactory to Government of United States which finds ample warrant for its diplomatic intervention in the needed protection for large American interests threatened with destruction through failure of Government of Ecuador to respect its contractual obligations, and in the whole record of the dealings by that Government with these American interests. You will say that the railroad company finds itself unable to accept the offer of coal in part payment interest, and you will add that the Government of the United States in your note of January 15 attempted to point out to the Government of Ecuador in a most friendly manner the desirability of the early payment of the interest on the prior lien bonds of the Guayaquil and Quito Railroad Company and the wisdom of immediately cabling to the bondholders that the payments would be made promptly.
In giving this friendly advice to the Government of Ecuador, the Government of the United States did not consider it necessary to recall the arbitration proceeding of 19084 to which the Government of the United States was a party, nor the contract of that year in which the Government of Ecuador bound itself in any event to make daily deposits for the payment of the interest on all railway bonds as these facts were too well understood to necessitate further mention, but it was clearly set forth that in the event of failure on the part of the Government of Ecuador, many complications might arise, notably the impairment of the Government’s credit.
Besides sending this advice through the Legation at Quito, the Government of tire United States took pains to impress upon the Chargé d’Affaires of Ecuador in Washington the necessity for the payment of the interest and commencement of daily deposits, on account of the American interests involved.[Page 738]
Four weeks have elapsed since this friendly advice was sent to the Government of Ecuador in the two ways outlined above and it is understood that neither has the interest on the prior lien bonds been paid nor the daily deposits been resumed in spite of the assurance given October 30, 1916.
In the absence of any definite assurances as to the time the interest will be paid or the daily deposits resumed, and in view of the statement of the Minister for Foreign Affairs to the American Minister to the effect that the economic conditions of the Republic had greatly improved only one conclusion may be reached and that is that the Government of Ecuador is not willing to live up to her contractual obligations toward the Guayaquil and Quito Railroad Company, an American corporation, in which large American interests are involved, and is willing to permit through her default great losses to be occasioned to these American citizens.
Therefore the Government of the United States, unless a definite statement is received in the very near future as to the date when the interest will be paid and the deposits resumed, will be forced to give consideration to the question of taking such action as may be necessary properly to protect these American interests.
You may intimate orally to the Minister for Foreign Affairs that in no case will the Department give its approval to any loan by American bankers to Ecuador until interest is paid and daily deposits resumed.