Papers Relating to the Foreign Relations of the United States, 1919, Volume II

882.51/1026

The Assistant Secretary of the Treasury (Davis) to the Secretary of State

Washington, December 8, 1919.

My Dear Mr. Secretary: Your two letters of November 20 to the Secretary and your letter of November 28 to me have been received concerning the amount of advances proposed to be made to the Government of Liberia against the credit of $5,000,000 which the Secretary of the Treasury established in favor of that Government on September 9, 1918.⁴² This credit was established after receipt and in consequence of your letter of September 9, 1918⁴³ and upon the understandings therein set forth.

That the mere establishment of a credit, subject to further determination as to the amount of advances to be made thereunder, does not bind the Treasury Department to make advances to the full amount of the credit has been recognized by all the Governments for which the Treasury has established credits, and by your Department in the specific case of Liberia as evidenced by your letter above cited of September 9, 1918, the second paragraph of which I venture to quote as follows:

“This Department understands that the mere establishment of a credit of $5,000,000 does not bind the Treasury Department to make any advances until a satisfactory form of obligation has been agreed upon nor does it fix the amount of advances from that credit which the Treasury Department is prepared to approve. With this understanding, this Department considers it desirable as a matter of policy immediately to announce that a credit of $5,000,000 in favor of Liberia has been established.”

On October 17, 1918, Secretary McAdoo wrote you⁴⁴ that unless further study should modify his views it was the plan of this Department to make advances to Liberia for the purpose of paying arrears of interest on the 5% Bonds of 1912, and to discharge the debt due to the Bank of British West Africa. He added that other payments would undoubtedly be required to liquidate back salaries of officials, internal debts and to provide for needed road improvements, etc. on some moderate basis. On October 25, Mr. Rathbone wrote Mr. Phillips⁴⁵ that in his judgment subject to correction on receipt of further information advances to Liberia should be confined to provision for the payment of the arrears on existing obligations of the Republic, provision for a limited number of years of sums necessary to pay administrative expenses and interest on the Bonds of 1912 should current revenues prove insufficient, and a moderate amount for necessary improvement in transportation facilities, etc.

On September 12 last, Mr. Rathbone wrote Mr. Phillips⁴⁶ with regard to advances to the Government of Liberia that the situation now is very different from that which existed at the time the credit was established for war purposes, and that if the question were now presented to the Treasury de novo it would not feel that it was authorized to establish such a credit, nor would it feel itself able to make advances therefrom and that accordingly it would seem necessary to limit advances to Liberia from the credit heretofore established in favor of the government of that country to the amounts and for the purposes as to which the Department of State had already obligated the government. Mr. Rathbone added that he did not find from the record and that it was not his recollection that any specific promises for advances had been made to the Liberian Government directly by the Treasury. He stated that if on the faith of the letters of this Department of October 17 and 25, 1918 the State Department on behalf of the Government of the United States had entered into obligations to make to Liberia the advances set forth in those letters the Treasury felt that such obligations so entered into must be carried out, and that it is authorized to make the advances as to which such obligations were incurred, but that other or additional advances from this credit the Treasury did not feel in a position to make, in view of the present situation respecting the war. On September 20, Mr. Phillips replied⁴⁷ that relying on the assurances contained in said letters the Secretary of State, on behalf of the Government of the United States, had in fact entered into obligations to make to Liberia the advances referred to in those letters. Mr. Phillips did not, however, mention any obligations incurred by the Secretary of State to make to Liberia advances beyond those referred to in such letters.

From your letter of November 28 [20]⁴⁸ I understand that the replies of Great Britain and France concerning withdrawal were both so unacceptable as to lead you to the conclusion that the Treasury must find money in order to make it possible for Liberia to take up the 1912 Bonds and terminate the Receivership without such withdrawal. It would seem, therefore, that any commitments to Great Britain and France to make advances to Liberia for the purposes mentioned in the memorandum of November 19, 1918 have been cancelled. This memorandum is apparently identical with the memorandum which was handed to the British and French Embassies on November 5, 1918, and as to which Mr. Rathbone in his letter of March 10, 1919 advised the Department of State that it went considerably beyond the views of this Department.

If, as a result of the proceedings mentioned in your letters, the Department of State has committed this Government to make to Liberia advances beyond the limits fixed in the Treasury’s letters of the 17th and 25th of October, 1918, and of the 12th of September, 1919, above mentioned, Congress on being apprised of the situation will doubtless grant such authority as may be necessary to comply with such commitments. I understand, however, that your Department is most anxious to proceed at once on the Liberian program and the Treasury desires to co-operate with the Department of State to the full extent of its authority. As a matter of fact the Treasury doubts if it would be possible with advantage to Liberia to expend within the next two years more than the amounts contemplated in our above mentioned letters.

I understand that at present development in Liberia is very little advanced, that the number of the civilized population on the coast is small and that the vast preponderance of the population is uncivilized natives in the interior. I understand also that for some time the imports into Liberia have exceeded its exports. In these circumstances, it is of course of the utmost importance from the economic and financial point of view that any program of development and rehabilitation shall be sufficiently gradual. True development must be looked for from the steady increase of production and revenue that are to be expected from good fiscal management under the receivership which the Treasury understands that your Department will establish and from relief from immediately pressing financial burdens. If development is attempted at a rate more rapid than the population can learn to avail itself of in increasing its production and exports, the result must inevitably be waste, inflation and sudden increase of the adverse balance of trade. The utmost care must be taken to avoid these evils with the attendant danger of complete financial breakdown which might leave the country in a condition even worse than it would have been in had the expenditures not been made. This danger is the more acute and the more to be guarded against because of the proposal at once to pay off the floating domestic indebtedness. This payment in itself increasing as it will the amount of currency and the purchasing power of the people without a corresponding increase in production is a serious matter. If there should be added expenditures for improvements in so backward a country of more than a very moderate amount of borrowed money, it is easy to foresee an inflation which may be followed by consequences most disastrous from an economic and financial point of view. The Treasury assumes that your Department had in mind considerations of this nature in making the commitments mentioned in your letters and that the contemplated program of expenditures for improvements is limited accordingly. In my opinion, the sums which can with safety and in the best interests of Liberia be expended for such purposes will prove to be not in excess of what was indicated in the Treasury’s letters of October 17 and 25, 1918 and will bring the total Treasury advances to Liberia to an amount considerably less than the $5,000,000 credit established. In view of the knowledge of all parties that the proposed advances must be made under authority granted by Congress to make loans for the national security and defense and the prosecution of the war, the Treasury believes the expenditures contemplated by your Department for improvements must have been intended to be made only during the reconstruction period of, say, approximately a year or two and are by no means intended as an indefinite program without limit of time. The Treasury feels the more assured in this belief because it does not understand that negotiations begun by your Department with Great Britain and France for the purpose of making unnecessary the spending of about $1,500,000 in taking up the principal of the 1912 loan can have had the result not only that that expenditure must be made, but that in addition this Government has also become committed to make further expenditures up to the whole $5,000,000.

On the assumption, therefore, that the program which the Department of State had in mind and in respect of which it has committed this Government is limited as above mentioned, both as to time and as to amount, the Treasury is prepared upon the request of the Liberian Government to make available so much of said credit as may be necessary for the purposes hereinafter mentioned, upon confirmation by the Liberian Government of the understandings herein set forth against the duly executed demand obligations of the Government of the Republic of Liberia in a corresponding amount. The amounts, purposes and terms of the advances which the Treasury is prepared to make within the amount of said credit and upon the understandings herein set forth are as follows:

1. $1,600,000 or such less amount as may be necessary for the purpose of enabling the Liberian Government to purchase or redeem all of its bonds now issued and outstanding, representing the 5% Sinking Fund Gold Loan, due July 1, 1952, under the Agreement for Refunding Loan dated March 7, 1912, between the Republic of Liberia, of the first part, and J. P. Morgan & Co., Kuhn, Loeb & Co., The National City Bank of New York and First National Bank of New York, acting for themselves and for Robert Fleming & Co., Banque de Paris et des Pays Bas, M. M. Warburg & Co., and Hope & Co., and for others, of the second part, including such payments of interest, costs of notices and other payments or deposits, including payments which may be due from the Republic under the Fiscal Agency Agreement dated March 7, 1912, between the Republic of Liberia, of the first part, and The National City Bank of New York, of the second part, as shall be necessary to terminate all obligations of the Republic under all of said bonds or under the Agreement for Refunding Loan or the Fiscal Agency Agreement above mentioned, and as shall entitle the Republic in accordance with the terms of said Agreements to the cancellation and destruction of all of said bonds held by the Fiscal Agents in the sinking fund mentioned in said agreements. Advances for this purpose will be made at such times and in such amounts as shall hereafter be agreed between the Liberian Government and the Secretary of the Treasury.

2. $15,000 or such less amount as shall be sufficient to enable the Liberian Government to pay forthwith the interest due and unpaid on the internal funded debt of the Republic, and the instalments due and unpaid of the sinking fund thereof.

3. $315,000 or such less amount as shall be sufficient to enable the Liberian Government to pay its internal floating debt.

4. $27,000 or such less amount as shall be sufficient to pay the salary and expenses as fixed or approved by the President or the Secretary of State of the United States, of the General Receiver [to be] designated by the President of the United States and appointed by the President of Liberia.

5. The amounts as certified as of March 31 and September 30 of each of the five fiscal years of the Republic ending on or before September 30, 1924 by the Financial Advisor [to be] designated by the President or Secretary of State of the United States and appointed by the President of Liberia by which the revenues and receipts of the Government of Liberia whether collected by the Government or by the Receivership mentioned below for the half fiscal year ending on each of said dates arising from all sources (other than advances from United States Treasury) together with any available surplus funds held by or for the Government of Liberia shall be less than the aggregate amount for such half fiscal year of (a) the costs and expenses of the collection, administration and application by the Government of Liberia or by such Receivership as shall have been established with the approval of your Department of the revenues and receipts collected by said Government or such Receivership, (b) the costs and expenses of such Receivership Administration, (c) the current administrative expenses of the Government of Liberia, including the interest and sinking fund of the internal funded debt above mentioned, in accordance with the Budget and Appropriation Acts of the Government of Liberia, approved as provided by any plan of administration that you may approve, and (d) the interest due, as hereinafter provided, from the Government of Liberia to the Government of the United States on Liberia’s obligations heretofore delivered to the United States or hereafter delivered to the United States in accordance with this letter. For the purpose of ascertaining the amount of any advance to be made by the United States Treasury, under the provisions of this paragraph, the total expenditures by the Government of Liberia for any fiscal year under clauses a, b, and c above shall not in any event be reckoned at a sum greater than $400,000.

6. Such amounts within the authority of the Treasury to advance the same as may be necessary to enable the Government of Liberia with the approval of the Financial Advisor above mentioned to make necessary improvements in transportation facilities, etc. within the program, limited as hereinbefore mentioned, to which the Department of State has committed the Government of the United States.

Advances under clauses 2, 3, 4, 5 and 6 above will be made at such times and in such amounts as shall be agreed between the Government of Liberia and the Secretary of the Treasury of the United States. All requests from the Government of Liberia for advances hereunder, must have the approval of the Financial Advisor above mentioned. Requests for advances under clauses 2 and 3 above shall be contained in certificates made by the Secretary of the Treasury of Liberia, bearing the counter-signature of said Financial Advisor, and setting out the amount of the advance requested, the purpose for which requested, the names of the creditors to be paid, the amounts of principal and interest proposed to be paid them, that such indebtedness is a valid debt of the Government of Liberia, that said Financial Advisor has made inquiry into the circumstances of the creation of such debt and is of the opinion that the amount proposed to be paid by the Government of Liberia in discharge thereof is the lowest amount for which said Government can justly settle the same. Requests for advances under clause 6 above, must be contained in certificates of the Secretary of the Treasury of Liberia, countersigned by said Financial Advisor stating the amount of the advances requested, the goods or services for which the advances are required, and that the same have been delivered or rendered or will have been delivered or rendered by the dates respectively on which advances are so requested to be made, or that payment in respect thereof in the amount requested will be due on such date under a contract for the same made with the approval of said Financial Advisor. Any certificate containing a request for an advance under clause 6 above, shall be accompanied by the certificate of the Secretary of State of the United States, that the purpose for which such advance is required is one for which the Department of State of the United States within the limitations expressed in this letter had prior to the date hereof committed this Government to make an advance to Liberia.

Advances hereunder will be made only against delivery of obligations in a form approved by the Secretary of the Treasury of the United States in a corresponding amount and bearing interest at the rate of 5% per annum. Such obligations shall be duly executed by a person designated to the Secretary of the Treasury by your Department as being authorized to execute such obligations in the name and on behalf of the Government of the Republic of Liberia and as to obligations so signed by whom your Department shall have advised the Treasury that in the opinion of your Department they are internationally valid and binding, and have the sanction of your Department. For the convenience of the Government of Liberia the Treasury is prepared to receive forthwith such an obligation duly executed in the name of the Republic of Liberia in the amount of $2,500,000, on the understanding that interest upon said obligation will not be charged until advances are made to Liberia in accordance with the requests and certificates above mentioned, so that interest shall be collected on such obligation only on amounts which the Secretary of the Treasury shall advance, and only from the respective dates when such advances are made. On October 1, 1924 if the full face amount of said obligation shall not have been advanced to the Republic, the obligation will be endorsed with a notation stating the total amount of the advances so made, and that not more than said sum is payable on said obligation, or said obligation will be exchanged for another obligation of the Republic, duly executed in its name and of like tenor, except as to the amount which shall be the amount of the advances made to the Republic less such sums as shall have been repaid. If the principal and interest of all the advances made to the Republic against any obligation of the Republic held by the United States Treasury, shall have been repaid on or before October 1, 1924, said obligation will on said day, or as soon thereafter as may be, be cancelled and surrendered to the Republic or its duly accredited agent. At any time the Government of Liberia shall at the request of the Secretary of the Treasury exchange for any obligations of said Government held by the United States Treasury, an equal aggregate face amount of other obligations duly executed in the name of the Republic in such form as shall be agreed upon by the Republic and the Secretary of the Treasury of the United States.

All advances made hereunder will be paid in the United States to such party as shall be designated to the Secretary of the Treasury of the United States, by the Secretary of State of the United States as being authorized on behalf of the Government of Liberia and in its name to receive such advances and to dispose of the same. It is understood that the Government of Liberia as nearly as may be on the first day of each month, shall pay to the Treasurer of the United States an amount equal to the interest accrued and unpaid up to the end of the preceding month on advances made to it by the Secretary of the Treasury of the United States, and at the same time shall also pay to the Treasurer of the United States on account of the principal of such advances, one half of the remainder of all revenues and receipts of the Liberian Government whether collected by such Government or said receivership from whatever source arising after the payment as they arise, of all costs and expenses of collection and administration of the revenues and receipts of the Government of Liberia, including the salaries of said Financial Advisor and General Receiver, and his American Assistants, the salaries of the employees of the revenue service, either customs or internal, and costs and expenses of maintaining a frontier force, and any other expenditures whatsoever connected with the administration of any Receivership of Revenue approved by the Government of the United States, and after the setting aside of such sums as may in the judgment of said Financial Advisor be necessary to enable the Liberian Government to pay as they become due the current administrative expenses of the Government including the service of the internal funded debt, but not in any year more than the sum provided for current administrative expenses of the Government in the Budget and appropriation acts of the Government of Liberia prepared and adopted in a manner satisfactory to the Department of State of the United States and the payment of interest on United States advances as above mentioned.

Referring to Mr. Rathbone’s letter of April 23 last,⁴⁹ in which he stated that in the financial agreement made by the Treasury with the Government of Liberia, the Treasury might include certain provisions throwing about the collection of revenue and the administration of the financial resources of Liberia, certain safeguards, I now understand that in addition to any arrangement which your Department would approve the Treasury making with Liberia, your Department contemplates making further arrangements so that in any case the agreement made by the Treasury would not constitute the whole arrangement between this Government and Liberia concerning the finance of Liberia. Under these circumstances the Treasury believes that it will find sufficient protection for its advances in such arrangements as it understands that your Department contemplates making. The Treasury, therefore, does not now expect to make any further agreement with Liberia than is mentioned above.

I am [etc.]

Norman H. Davis

42. Ibid., p. 537.
43. Ibid., p. 536.
44. See Foreign Relations, 1918, p. 543.
45. Letter not printed.
46. Ante, p. 482.
47. Ante, p. 487.
48. Ante, p. 490.
49. Not printed.