837.51/672
The Secretary of State to President Harding
My Dear Mr. President: Secretary Hoover has very kindly shown me the letter which he addressed to you on December 13th, in regard to the sugar situation in Cuba. I note that among his recommendations there is the following statement:
“(e) There should be an immediate settlement of the loan contract between the Cuban Government and Messrs. Morgan so as to relieve the trades of apprehension of Cuban Government bankruptcy and social chaos. This latter matter is so important that we would be well justified in at once instructing General Crowder to be more liberal in the requirements (no doubt very properly set up) as a condition of American government approval for this loan.”
In view of this statement, I feel that you may be interested in knowing just what is the present situation in regard to this loan.
This Department has endeavored in every way to expedite the conclusion of a loan by the Cuban Government by cooperating with that Government in measures aiming to place Cuba’s finances in such a position that the United States could properly give its sanction to the loan without disregarding the obligations imposed upon us by our Treaty with Cuba.
Article II of the Treaty of 1904 [sic] provides as follows:
“The Government of Cuba shall not assume or contract any public debt to pay interest upon which, and to make reasonable sinking fund provision for the ultimate discharge of which, the ordinary revenues of the Island of Cuba, after defraying the current expenses of the Government, shall be inadequate.”
Under present conditions, it is very evident that the ordinary revenues of Cuba are not adequate to provide for the service of an increased public debt after defraying the necessary expenses of the Government. For some months, there has been a steadily increasing governmental deficit. It has been felt that the further growth of this deficit must be stopped and a margin of receipts over expenditures adequate to provide for the service of the new loan must be created before the United States Government could properly give its consent to this new loan. For this reason, General Crowder has been discussing with the Cuban Government methods of increasing the public revenues by revising the tariff and the internal taxation system and methods of decreasing the expenditures by a downward revision of the budget. The consummation of the loan has thus far been delayed because President Zayas has as yet been unable to effect economies in the budget for the current year which would offer any hope of leaving a margin of receipts over expenditures.
I am glad to be able to inform you, however, that a Presidential Decree, making the desired revision of the current budget, will probably be issued within a very short time since President Zayas has confidentially informed General Crowder that such a Decree was being prepared. I hope, therefore, that this Department will be able to approve the loan in the very near future.
Faithfully yours,