File No. 837.51/279

Memorandum of the Division of Latin American Affairs of the Department of State

The Cuban Minister having called on Mr. Phillips in regard to the urgency of the United States making the proposed loan to Cuba, I, at Mr. Phillips’ suggestion, requested the Cuban Minister and Mr. Patterson to call at the Department this afternoon.

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They did so, and I first stated to them that the Treasury Department, without having reached any definite decision, had indicated that it was inclined to view favorably a loan to Cuba of $15,000,000 provided the War and Navy Departments were satisfied as to the manner in which this sum should be expended and provided certain technical requirements, as to the maturity and interest rate of the obligations of the Cuban Government could be satisfactorily adjusted. I then stated that the Department of State was disposed to approve the loan provided it was satisfied as to two matters:

The first of these was that the Department felt that it had not received sufficient data to permit it to determine whether the provisions of the Piatt amendment and of the Cuban Constitution, relative to the creation of public debt, were being complied with. The Minister stated that further financial data had been filed with the Treasury Department and he stated that he believed that this, with what had been filed with the State Department, would satisfy that Department that the proposed new indebtedness was within the terms of the Piatt amendment. The Minister and Mr. Patterson added, however, that if the Department of State, after examination of the data above referred to, was not satisfied, then they would promptly furnish all further information which the Department of State might desire. They expressed, however, the strong hope that the compilation of such further information would not require the making of the loan to be deferred.

I stated that the other matter, as to which the Department was concerned, related to the Cuba Railway. I said that it was felt that Cuba’s greatest aid to the United States in the prosecution of the war would be economic rather than military, and that it was of the utmost importance that the economic resources of Cuba in the way of sugar, manganese, etc., be made readily available to the United States and those cooperating with it in the prosecution of the war. This being the case, I stated that the Department would hesitate to approve a loan for war purposes unless as part of the same arrangement provision were made for the restoration of the Cuba Railway which had been so damaged in the recent revolution that it was not now adequate to transport Cuba’s products. The Minister called my attention to the fact that Cuba fully recognized the importance of the Cuba Railway as evidenced by the fact that they were now advancing to the railway company $1,000,000 to permit it to inaugurate much needed repairs. I stated that the railway company did not feel that it could accept further moneys as a loan, as this would be mortgaging its future income. What they required was an outright payment by the Cuban Government on account of damage suffered during the revolution. I further stated that it was of the utmost importance that such a payment be made promptly on account of the imminence of the new sugar crop and that this necessity for prompt payment would probably require some sum to be paid tentatively subject to a future determination of the precise amount of the damage caused by the revolution. I stated that the Cuba Railway had indicated to the Department that it had suffered loss aggregating $2,870,000, and Mr. Patterson suggested that $2,500,000 would be a sum which could tentatively be agreed upon and paid by the Cuban Government. The Minister stated that it [Page 303] would probably be necessary either to make such payment in bonds themselves or else that the United States should buy the additional $2,500,000 of bonds. I stated that I was of the opinion that the railway company would accept the bonds themselves.

The Minister stated that he thought that this matter of the railway should be made the subject of an independent recommendation by the Department rather than that it should be made an explicit condition to the granting of the loan. I stated that it was a matter of indifference to the Department as to what form the arrangement took, but that I felt that it was essential that before the loan was actually made, assurances should be received acceptable to the Department of State that the railway matter would be properly taken care of.

I went on to say that this Government would probably desire some supervision of the manner in which the payment to the railway should be applied so as to be assured that the expenditure would be made for improving the railway for the benefit of the entire island and not for the selfish interests of the railway or of certain favored companies. The Minister fully agreed with the necessity of some such supervision, but suggested that it might be exercised by the Cuban Government or by representatives of both Governments. I stated that the United States would probably desire to be satisfied independently as to the purposes for which the payment would be expended as this would be in line with its general policy, in the case of loans to Allied Governments, of assuring itself as to the precise purposes to which the proceeds of the loan would be applied.

The Minister and Mr. Patterson stated their confidence that the two matters above referred to would be adjusted to the satisfaction of the Department and stated that they would at once cable their Government for authority to deal with the railway situation which was at present beyond the scope of their authority.

I stated that Mr. Crosby had indicated to me that there might be technical difficulties in the way of the loan since their proposed bonds had a maturity different from that of the United States bond. I suggested that it might be possible to obviate this difficulty by the Cuban Government giving a warrant of indebtedness of the same maturity as the United States bond and then depositing the Cuban bonds as security for the payment of this warrant. The Minister and Mr. Patterson welcomed this suggestion and expressed their desire to discuss it at once with the Treasury Department. I, accordingly, arranged for them an appointment with Mr. Crosby for 11 a.m. to-morrow.

John Foster Dulles

[Special Counsel]