The Secretary of State to the Chargé in Haiti ( Dunn )
Washington , July 18, 1922—4 p.m.
- Department proposes that the Haitian Government, through its Financial Adviser, should invite all interested American bankers to submit bids upon $16,000,000 bonds of Series A of the bond issue authorized by the Protocol and the recent loan law. It suggests that these should be 30-year bonds bearing 6 per cent interest, redeemable by annual drawings at par, or by purchase below par in the open market, and that the Haitian Government shall reserve the right to pay off the entire loan at par at any time after 15 years from date of issue upon reasonable previous notice. These bonds would be secured as provided in Article 8 of the Protocol, and would have a sinking fund similar to that outlined in Lee, Higginson’s [Page 503] proposal last fall. In addition to the sinking fund a market fund, equal to 25 per cent of any amount by which the total revenues of the Government in any given year should exceed $7,000,000, but in no case exceeding $250,000 a year, should be provided for purchasing bonds of this issue in the open market at a price not exceeding par.
- In order that bids may be invited under conditions which will make possible the immediate realization of the loan, it is essential that the Haitian Government should immediately authorize the Financial Adviser to call for bids, to open these bids in the presence of the duly appointed Haitian representative in Washington, and to sign a loan contract with the firm or group submitting the best bid. This contract would be forwarded at once to Haiti for the sanction of the Council of State, and the bonds would be offered for sale immediately on the basis of when as and if issued. Department desires, in order that there may be no delay in the negotiations and for the previous confidential information of the bankers submitting bids, that you obtain definite written confirmation of the agreement mentioned in your 70, June 23, 3 p.m., that the contract signed by the Financial Adviser with the successful bidder, in accordance with conditions agreed upon, will be signed by the President and enacted by the Council of State immediately and without change.
- At the same time, in order that the Haitian Government may offer for sale bonds secured by a lien on its revenues subsequent only to the expenses of collection, it is essential that the Haitian Government should immediately authorize the projected issue of internal bonds Series B in the amount of $5,000,000 which may be used in conjunction with funds from the external loan for the cancellation of the internal and floating debt. The Financial Adviser believes that the $5,000,000 of internal bonds should be gourde bonds with interest and amortization payable in Haiti and in gourdes at the rate of 5 gourdes to $1 gold since the bankers fear that should Series B bonds be payable in dollars, and thus readily marketable in the United States, they might be dumped upon this market shortly after their issue thereby depressing the value of Series A and possibly seriously injure the credit of Haiti. The Department, from the information at hand, is disposed to agree to Financial Adviser’s proposal, and, unless you see any serious objections, you should urge upon the President the acceptance of this proposal and telegraph the results at once. In view of the circumstances under which these bonds were issued and in view of the stabilization of the gourde, this proposal would seem equitable to holders of present internal bonds. The Department feels that unless provision has been made [Page 504] for the cancellation of this debt it will be doubtful whether bankers will decide to purchase the bonds of the new loan. Authority for the creation of the new issue apparently exists under the loan law recently passed, and it is, therefore, only necessary that the Haitian Government formally create the issue and authorize the Financial Adviser to use these bonds in the adjustment of the internal debt. Authority for the issue and use of Series B bonds should be forwarded to Financial Adviser at same time as authority for issue of Series A.
- At the same time, it would be desirable that the Claims Commission should be constituted at once, in order that the work of adjusting the internal debt may be completed at an early date, and the proceeds of the loan thus made available to the holders of that debt. The Department, therefore, urges the Haitian Government to appoint its member of the Claims Commission, and to take any other steps necessary for the constitution of the Commission at once. Immediately after these steps have been taken the Department will nominate its representative.
- In this connection, the Department desires that the question of recapitalization of the internal debt, referred to in your June 26, 4 p.m.,49 should be decided, in order that this debt may be refunded by the new internal bonds and by the proceeds of the external loan The Department is of the opinion that the Haitian Government should itself make a proposal for this recapitalization, but it calls your attention to the fact that the provisions of Article 2 and of Article 4 of the Treaty impose upon the Financial Adviser the duty of cooperating in this adjustment even though the internal bonds are not to be submitted to the Claims Commission. The Financial Adviser, therefore, does not feel that he would be justified in recommending the payment of any arrears of interest until he has been informed of the Haitian Government’s intention regarding the recapitalization, and until he is convinced that the Government’s plan adequately safeguards the interests of the Haitian Treasury. The Department concurs in his view that the scandalous circumstances which apparently attended the issue of these bonds would make it very inadvisable to refund the bonds at par.
- To provide a market for and stabilize price of internal bonds the Financial Adviser proposes out of surplus revenues to retire each year a number of these bonds, other than by regular amortization, on conditions to be agreed upon. In your discretion and after consultation with Acting Financial Adviser you may informally present this as a tentative suggestion.