File No. 837.51/293
[Enclosure]
The Adviser to the Secretary of the
Treasury (
Davis) to the Minister in Cuba (
Gonzales)
Washington,
January 29,
1918.
Dear Mr. Gonzales: Judging from your
letter of the 14th instant, there has been some mistake in
regard to the Cuban loan, because I have been waiting to hear
from you. I shall therefore endeavor to review the entire matter
in accordance with my understanding. Secretary McAdoo is anxious
to assist Cuba and is disposed to make a special effort to do
so. He was prepared some time ago to make a loan of $15,000,000
applied for by the Cuban Government, but could not do so because
the bonds or obligations which the Cuban Congress authorized the
President to issue and negotiate did not conform to some of the
essential requisites of the act of the United States Congress,
authorizing the Secretary of the Treasury to make loans to
foreign governments. It was then suggested that the President of
Cuba get a supplementary authority to issue obligations in
accordance with such requirements, but later on the Cuban
Minister notified the Secretary of the Treasury that under the
Cuban Constitution, Congress could not authorize the President
to issue obligations to conform to the American law.
Subsequently, in an interview with Secretary McAdoo, you
explained that the Cuban Government, relying upon obtaining a
loan from the United States, had, at the suggestion of our State
Department, made commitments to advance approximately $2,500,000
to the Cuba Railroad and, at the request or approval of the Navy
Department, to make certain naval preparations, including the
purchase of 16 submarine chasers. Secretary McAdoo then told you
that he would take the matter up with the State and Navy
Departments, and that he would feel justified in making an
exception in order to assist Cuba to the extent of any such
commitments. At the time, you were under the impression that the
commitments made would amount to approximately $10,000,000, but,
subsequently, the Navy Department informed us that the total
expenditures involved in the plan approved by them would not
exceed $2,500,000. I explained to you in my letter of November
23 and in a subsequent conversation that, according to the
information obtained, $5,000,000 would cover all commitments
made by Cuba of which the State and Navy Departments had any
knowledge, but that it would be advisable to ask the Cuban
Government to furnish a statement of commitments and financial
requirements incident to the war, in order to conform to the
custom of the Treasury Department of obtaining from all
governments statements showing financial requirements in excess
of available funds. I also told you I thought the difficulty
regarding the changeable rate of interest, which prevented the
Secretary of the Treasury from purchasing Cuban obligations as
now authorized, could be overcome to the extent of at least
giving Cuba temporary financial assistance by making a demand or
short-time loan. According to the Cuban law, authorizing the
$30,000,000 loan, the President is authorized to sell all or a
part of the bonds or to give them in payment of other
obligations or to pledge them as security for funds which he may
borrow. It therefore seemed to me that he could borrow, say,
$5,000,000 from this Government giving a demand note guaranteed
by bonds. At present, the rate of interest would be 4¼ per cent,
and when it becomes necessary to change the rate, a new demand
note could accordingly be given in exchange. Of course, the
objection to this plan is that such operations could not be
continued indefinitely, but it would provide Cuba with funds
needed now and give a reasonable time in which either to pass
necessary legislation for obtaining a more permanent loan or to
make arrangements to take up the short-time loan. I had
understood that you would take this matter up with President
Menocal along these lines and advise us of his views and wishes.
It seems to me that is the next step to take before anything
further can be done, and I would suggest that
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you proceed along the lines
indicated. Mr. Stabler came to see me only a few days ago to
inquire if anything had been decided definitely regarding a loan
to Cuba, and I told him that nothing further had been done or
could be done until we heard from you.
With kindest regards [etc.]
