838.51/1152 supp.: Telegram
The Secretary of State to the Chargé in Haiti (Jordan)
60. Department’s October 18, 1 p.m.
You are instructed to confer further with the Acting Financial Adviser and to request of the Minister for Foreign Affairs an audience with the President at an early date in order that you may hand [Page 218] him, in company with Mr. Maumus, the following supplements note:
“Due to the continued active assistance of the Department, the Financial Adviser has now obtained a further loan offer from the banking firm of Messrs. Lee, Higginson and Company, of New York, of which the following is a summary:
‘Subject to the approval of their Counsel as to the form and validity of the bonds and their conformity with provisions of Treaties and other diplomatic agreements between the Republic of Haiti and the United States of America, they offer 85 and interest for $16,000,000 30 year 6 per cent Sinking Fund Gold Bonds of the Republic of Haiti to be dated November 1, 1921, and to be payable November 1, 1951; the bonds shall not be callable for 15 years, except for the Sinking Fund, the operation of which shall be sufficient to retire the entire issue by maturity. Payments into Sinking Fund to be in accordance with the schedule annexed37 which provides for total annual payments, including interest and Sinking Fund of $1,110,000 per year, which amount is increased by $5,000 each year up to and including the 29th; the 30th year payment is $833,645. After all revenues of the Republic exceed $7,000,000 per annum, 25 per cent of such excess, but not more than $250,000 a year, shall be used as a market fund to buy bonds of the issue up to par; payments for the Sinking Fund shall be used to buy and retire bonds at prices up to par; if not procurable below par, they shall be drawn at par to the extent of funds available from Sinking Fund; after 15 years the Government of Haiti shall have the right to pay off the entire loan at par and interest upon reasonable notice.
As in the case of the two previous offers transmitted, the bankers require that all legislative acts necessary to give full effect to the terms of the Protocol shall be enacted. Among these requirements the most important is one enacting that if upon the expiration of the Treaty of September 16, 1915, and of any extension thereof,38 bonds of this present issue, or other bonds issued in pursuance of said Treaty shall still be outstanding, the payment of interest and the amortization of such bonds shall continue to be a first charge upon all the internal revenues of Haiti, and a second charge upon the customs revenues of Haiti next in order after the payment, first, of salaries, allowances and expenses of the officer or officers duly to be appointed by the President of Haiti upon nomination by the President of the United States, which officer or officers shall be appointed to control the collection and allocation of the hypothecated revenues aforesaid, so as to make certain that adequate provision shall be made for the amortization and interest of the loan, all as contemplated by Article VIII of the Protocol of October 3, 1919.
It is understood that the issue of bonds will be free of all Haitian taxes.[Page 219]
The bankers further state that they have recommended the sale of 6 per cent bonds by the Republic of Haiti because they believe that a 6 per cent bond can be successfully marketed at the present time, and that thus Haiti’s credit will be established in the markets of the world on a much higher plain than if 7’s and 7½’s are sold. The bankers also state that this advantage can be gained by Haiti at no greater net cost over a period of 30 years than if 10 year 7½’s are sold now at 95 and when they mature 20 year 6’s at 92, the best prices, in their opinion, at which these might be sold, provided market conditions at that time happen to be satisfactory. In either case the cost of the money would be practically 7.23 per cent over the entire period, assuming maturity of bond issue at 100. Attention is also invited by the bankers to the fact that interest and Sinking Fund charges will be lower on an issue of $16,000,000 than the larger amount required as collateral under the 10 year note plan. Moreover, $300,000 additional cash proceeds are obtained under the present plan.
The present offer also has the advantage over the 10 year note plan of concluding the loan in one transaction thus eliminating considerable expense and further negotiations at a later date between the two Governments and various groups of bankers.’
The Department has given careful study to the offer above outlined and is of the opinion that it is the most favorable thus far received, both for the reasons given by the bankers, and because the probabilities appear to be greater that the world’s money markets will not offer a better rate at the end of 10 years for 6 per cent 20 year bonds than 92.
If the 6 per cent 20 year bonds could be issued at more than 92 in 10 years the issue of short term notes is preferable, if not, it is preferable to issue 6 per cent bonds at the present time at 85. However, in view of previous financial history of periods following great wars, and in view of the great debts of all the principal countries and the great demand for capital for reconstruction, the probabilities seem to be against an important reduction in the rate of interest within the next ten years. Moreover, no offer has yet been made for the 10 year notes at as high a price as 95.
The offer herewith transmitted is stated by the bankers to be conditional upon acceptance thereof being received by them on or before November 19, 1921, and also upon the fulfillment on or before that date of the terms and conditions they have specified. They state that an early date for acceptance is fixed by them owing to the uncertainty of market conditions; that, however, if the various conditions cannot be accomplished within the time specified and their offer is nevertheless the most acceptable of those under consideration by the Government of Haiti, their offer may be provisionally accepted with the expectation that it will be renewed by the bankers when all the conditions have been complied with, unless there should be a substantial change in conditions materially affecting, in their opinion, the marketability of the bonds.”