839.51/2240

The Secretary of State to the Chargé in the Dominican Republic (Herod)

No. 429

Sir: There is sent to you enclosed herein two copies of the Department’s letter of December 17, 1921, to the Secretary of the Navy, in reply to his request that this Government agree to a further loan [Page 867] to the Dominican Republic of $7,500,000. You will retain the carbon copy in the Legation files and transmit the other copy to the Military Governor, under cover of a letter addressed directly to him, for the information of the Dominican Government.

I am [etc.]

For the Secretary of State:
Henry P. Fletcher
[Enclosure]

The Secretary of State to the Secretary of the Navy (Denby)

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 [Page 868] 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 [Page 869] 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 [Page 870] 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.]

Charles E. Hughes
  1. Not printed.
  2. Proclamation of June 14, 1921, by the Military Governor; for text, see p. 835.
  3. Ante, p. 849.
  4. Ante, p. 857.