[Enclosure]
The Secretary of
State to the Secretary of the Navy (Denby)
Washington, December 17,
1921.
My Dear Mr. Secretary: I have received your
letter of the 7th instant,44 enclosing a paraphrase of a confidential
telegram from the Military Governor of Santo Domingo, outlining the
present distressing condition of the Dominican Government’s finances
and suggesting as a solution a loan to the Dominican Republic of
$7,500,000.
The Military Governor in his telegram points out that there is no
working balance in the Treasury; that the receipts for the month of
November totaled $200,000, exclusive of customs receipts, which are
barely sufficient to cover the service of the three outstanding bond
issues; that the amount necessary to complete the main highway
across the country and to complete other construction projects is
$700,000; that there is $380,000 due to banks for tobacco financing
and that $500,000 more will be due to banks by April 1st, next; that
$500,000 due the Treasury for property taxes will not be collected
until June or July next. He proposes out of the proceeds of the
suggested twenty year bond issue of $7,500,000 to repay the two
smaller loans totaling about $4,000,000, the bank loans, to carry
out the public works program and to create a working treasury
balance with the remainder, approximately $2,000,000.
The Military Governor further states that it is necessary to issue
the remaining previously authorized six months temporary
certificates for $400,000 and that the proceeds from these should be
available by December 15th to prevent further suspension of salary
payments now already a month in arrears; that the bank
representatives in Santo Domingo say they will not purchase
certificates of indebtedness without the assurance that the United
States Government will approve the bond issue necessary to repay
them at their maturity.
In reply to your letter endorsing the solution proposed for the
difficult financial situation in which the Military Government finds
itself, permit me to say at once that I shall be very glad to do
what I can to relieve the situation of the Military Government. I
desire, however, to point out what appear to be certain insuperable
difficulties
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that stand in
the way of floating a bond issue at this time, or so large a bond
issue at any time.
- First: In our Proclamation announcing
our intention of withdrawing from the Republic,45 there was an implied promise that no
further loans would be floated by the Military Government. This
Government is still committed to the policy of withdrawing from
Santo Domingo at an early date. This policy cannot yet be said
to have failed since Senator McCormick is to make an effort to
bring about an agreement with the Dominican leaders under which
our plan of evacuation can be carried out. It is hoped that his
efforts will put an end to the present deadlock. It would be
very undesirable to permit a large increase in the Dominican
public debt just before we turn the Island over to a native
Government.
- Second: I believe that the attempt to
float so large a bond issue would result in a failure which
would cast discredit upon the Military Government and upon the
Department. I do not believe that any bankers would undertake to
sell so large an amount of bonds in the face of our announced
policy of withdrawing from the Island and with the realization
that the customs collectorship will come to an end within five
years through the amortization of the present Dominican debt. It
does not seem proper or practicable to enter into a treaty with
the Military Government for the continuation of this
collectorship. There is, of course, no possibility that a loan
of this size could be paid off, as the two smaller loans of 1918
and 1921 will be, before our present convention with Santo
Domingo expires.
Aside from the difficulties above mentioned it would appear upon
close examination of the Military Governor’s ‘telegram, and of his
quarterly report for the quarter ending September 30, 1921,46 that the situation of
the Military Government is not wholly without hope of being remedied
by means of current revenues. The present customs receipts, it would
appear, are sufficient for the service of the existing funded debt,
and the remaining revenues, amounting to about $200,000 a month,
should be enough for the expenses of the Government if due economy
is practiced, and if public works expenditures are confined to the
special funds available. Nicaragua, a country of about the same
population as Santo Domingo, is only permitted $131,000 a month
under our financial supervision.
With regard to public works, this Department is not fully informed as
to the commitments already made. In view of the decrease in the
revenues of the Dominican Government that has continued during the
entire current year, and of the prevailing economic depression, the
commitments of the Military Government
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cannot have been much beyond the amount of the
existing special funds including the available proceeds of the
$2,500,000 loan, authorized by the Department of State in June,
last. It would appear, however, to be desirable under the
circumstances to abrogate such of the contracts as it may be most
expedient to deal with in that manner, in case the commitments
exceed the resources of the Government for public works. This
Department would be glad to be supplied with detailed information in
this connection.
With regard to the proposed issuance of the certificates of
indebtedness running for six months and amounting to $400,000, it
appears that the issuance of these certificates was authorized by
the Department in its letter to the Secretary of the Navy of January
28, 1921,47 but as a part of
a total issue of $1,200,000. It was, however, contemplated that
these certificates would be repaid either out of current income or
out of a loan which was under discussion and which later was
floated, in June 1921, and in view of which only $800,000 of the
amount of the certificates was issued. It would appear, therefore,
that a new assent of this Government under the Convention would be
necessary before the Dominican public debt could be again increased
by means of certificates of indebtedness. However, in view of the
implied promise, referred to above, contained in the still pending
plan of evacuation offered to the Dominican people in June last, to
the effect that the $2,500,000 bond issue of June 1921, would be the
last that would be floated by the Military Government prior to its
withdrawal, the Department feels that good faith toward the
Dominican people requires that the Military Government of the
Dominican Republic before the assent of this Government is given to
a further increase in the public debt, demonstrate conclusively that
the present deficit in the budget of the Military Government is due
to the failure up to the present time of the Dominican people and of
their political leaders to accept the terms of evacuation offered
them in the Proclamation of June 14, 1921, and in the subsequent
official statements explaining the meaning of certain of its
provisions. If such a demonstration of facts is made and the need
for a loan is also more clearly shown, this Department would then
consider agreeing under the Convention to an increase in the public
debt of the Dominican Republic, in the form of certificates of
indebtedness running for six months sufficient to meet the most
pressing needs of the Government. It would, however, consider it to
be very undesirable to retire the certificates at their maturity by
means of a bond issue unless such a course should prove to be
absolutely necessary. It should be understood, therefore, in the
eventuality of the issuance of the certificates being agreed to and
of the certificates being sold, that the Military Government will
make every effort, by exercising
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still greater economy than heretofore, to
retire them, at least in part, out of economies effected in the
current revenues and out of hoped for increases in collections both
of current revenues and of taxes now in arrears.
I am [etc.]
