File No. 422.11G93/935

Minister Hartman to the Secretary of State

No. 236

Sir: I have the honor respectfully to invite the Department’s attention to its telegram of February 13, 1917, 5 p.m., and to my telegram of February 17, 1917, 5 p.m., and other correspondence relating to the failure of the Ecuadorean Government to pay overdue interest on Guayaquil and Quito Railway bonds and to resume daily deposits.

I respectfully point out to the Department that in spite of repeated assurances from the Foreign Office that a definite statement from the Minister of Hacienda as to when deposits could and would be resumed, would soon be forthcoming, no such statement has been made.

Since receiving and examining the President’s message to Congress, and the recent reports of the Ministers of the Interior and of Hacienda, I think the reason for the failure of the Minister of Hacienda to furnish the reply requested by me is apparent.

Those documents show that from July 1916 to June 30, 1917, there was expended for public works the sum of 2,054,101.69 sucres. Of this amount the sum of 727,817.31 sucres was devoted to the sanitation of Guayaquil and 1,127,552.75 sucres to new railway construction. And the report of the Minister of Hacienda for the fiscal year 1916 shows a net cash balance of 863,692.96 sucres after the payment of all expenses. This being the case it is apparent that, when I presented my memorandum of December 18, 1916, and my note No. 219, of January 15, 1917 (enclosures in my despatch No. 205, February 6, 1917),7 the Government of Ecuador had on hand much more than [Page 745] sufficient money in the Treasury to pay the January 1917 interest on the prior lien bonds, and therefore, it would be very embarrassing for the Government to disclose that condition of affairs, unless it intended in good faith to carry out its purpose, as declared by the Minister for Foreign Affairs in his note No. 48 of November 4, 1916, and reiterated in his memorandum of January 12, 1917, from which I quote:

The Government’s purpose set forth in an official communication from this Ministry, No. 48, of November 4, 1916, 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.

I have recently called twice on the Minister for Foreign Affairs to ascertain when 1 could expect to receive the reply to my inquiries, but he has each time said that the Minister of Hacienda had not yet responded, but that he would again bring the matter to his attention and urge an early reply.

The whole record indicates that the President does not intend to pay, but is endeavoring to shift the burden to the railway company.

Mr. Norton informs me that the railway company is unable to pay, and in support of that statement he has submitted to me the following in writing:

It is not very difficult to understand the railway company’s inability to make any payments on account of the bond service when the following conditions are taken into consideration:—

The railway company’s entire working capital has been absorbed by the unpaid Government account, and it has no reserve funds.
For the first six months of the present year, the actual loss in operation amounted to S/.52,898.95, excluding depreciation, which was met by a loan of S/.50,000 from the Pichincha Bank, which loan is still unpaid.
The fuel expense for 1916 was S/.356,705.46 in excess of the previous year, an increase of 80%, while at the rate coal is now costing us, our annual fuel expense based on an average consumption of 2,000 tons per month, would be S/. 1,355,000 as against a normal cost of S/.397,000, an increase of almost a million sucres. Also all other materials and supplies have greatly increased in price.
The increase in the rate of exchange results, in effect, in a decrease in our tariff of 25%.

In this connection I wish to say that the railway company has furnished me an official statement of its receipts and disbursements for the period beginning January 1, 1917, and ending June 30, 1917, which completely verifies the foregoing statement of Mr. Norton. I am thoroughly convinced that the company is confronted with serious difficulties in obtaining sufficient money to defray its current expenses, notwithstanding the fact that a number of substantial economies have been effected. Mr. Norton and I have had frequent consultations on these matters, and, in one of them, he informed that, in a conversation between the President and himself, he expressed the hope that the President could assure him that, in view of Ecuadors improved financial condition, the Government would resume deposits on the railway bond service. The President treated the matter as a joke, and replied, “Oh, the country is very poor.”

I have [etc.]

Chas. S. Hartman
  1. Printed ante, p. 732.