837.51/627: Telegram
The Representative on Special Mission in Cuba (Crowder) to the Secretary of State
[Received 6:25 p.m.]
129. Reference to your 165, October 20, 2 p.m. Zayas approved advance loan statute yesterday and late last night transmitted to me a copy. Material portion of said statute is article 1, which reads as follows:
“The National Executive is authorized to use the bonds of the issue of 1917, and the securities obtained through the forfeiture of the bonds of the Banco Nacional, reaching in all the amount of $7,000,000, in nominal value, which are today deposited in the National Treasury, with the object of realizing a financial transaction which would result in the obtaining of a loan of $5,000,000, [Page 756] more or less, for the National Treasury, for the satisfaction of pending obligations, preferably [foreign], such as postal money orders, interest and amortization of the public debt and others without alienating said securities but only giving them as a pledged guarantee.
The rate of interest on this hypothecation shall not exceed 8 percent per annum.
The National Executive shall be able to pay preferred creditors, with the funds that are obtained from the transaction entered into with said bonds, in all cases in which the Government shall be a creditor as against real property.”
Article 2 directs the President to report to Congress as to the use he makes of funds obtained by this loan and the concluding article 3 provides that the law shall become effective from the date of publication in the Official Gazette.
The material part of President Zayas’s letter transmitting to me this law reads as follows:
“I understand that this transaction is a part of a program of economic reconstruction, an outcome of which will be a revision of the customs tariffs and interior imposts, and a loan of $50,000,000 with the object of permitting [sic] the floating indebtedness, to restore the special funds of the Treasury and for other purposes, the $5,000,000 received temporarily to be returned, once said loan is obtained.
Under this plan, and this temporary loan becoming a part or step toward the definite loan, I accept the opinion which considers it as coming under the precepts of the permanent treaty, and I hope that it will meet with no inconvenience nor objection on the part of the Washington Government as a consequence of the matters that we have discussed by correspondence and verbally.”
I know from verbal conference that Zayas feels that he could defend the right of the Cuban Government to pledge these bonds as security for a loan without the sanction of the United States Government. The Department will note that he avoids this question by linking up this transaction with the constructive financial program he has adopted and with the permanent loan which is to follow and out of which the temporary loan is to be reimbursed. I have explained to Zayas that the Department’s sanction of the temporary loan of $5,000,000 must be upon terms which will leave the Department full discretion to act as it sees fit upon the application for the permanent loan of $50,000,000 when that application is presented. While Zayas in our last conference conceded this point I think it would be wise if the Department, in granting its sanction for the temporary loan, should reserve in express terms freedom of action in case of the permanent loan.
A tentative form of contract for the advance loan has been prepared by Claudio Mendoza acting for Morgan and Company. Presumably [Page 757] this contract, which I have not seen, is in full accord with the proposition of Morgan and Company communicated in my 123 of October 9th. Request instructions.