839.51/2274

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

Sir: I have the honor to acknowledge the receipt of your letters of March 14, and 21, 1922,59 in which you inform me of the various bids from bankers for the proposed new issue of bonds of the Dominican Republic, and in which you discuss conditions under which these bonds are to be issued.

In your letter of March 21, you suggest that there would appear to be good ground for authorizing a total issue of $10,500,000. instead of $10,000,000. in view of the fact that the bonds will be sold at 90.5 instead of 95, as previously contemplated. I now understand, however, after our recent conversation on this point, that you consider sufficient an authorized issue of $10,000,000, of which $6,700,000 are to be issued at once, and the remainder when required by the Dominican Government and only with the approval of the Government of the United States.

I now have the honor to inform you that this Department will consent to the issuance by the Dominican Government of a total bond issue of $10,000,000, of which $6,700,000 are to be issued at once and of which the remainder will be issued only after previous agreement between the two Governments. It is my understanding that the sum of approximately $6,000,000 to be realized from the bonds now sold will be used for the refunding of the loans contracted in 1921 and 1922; for the cancellation of the Dominican Government’s internal indebtedness; for the payment of the tobacco acceptances; and for concluding work upon the main north and south highway. This letter may be regarded as conveying the agreement of the United States Government to the issue of $6,700,000 as required in Article III of the Treaty of 1907, between this Government and the Dominican Government.

In your letter of March 14, you recommended that the provisions of the Treaty of 1907 be extended to cover the new loan. You state in your letter of March 21, however, that the collection and application of the pledged revenues by the General Receiver of Dominican Customs will be sufficient to meet the requirements of the bankers with whom the bond issue is being negotiated and that certain other provisions appearing in the present Convention may be included in the loan contract between the Dominican Republic and the bankers. I believe that this latter procedure would be more appropriate and that the conditions attaching to the loan and the assurances given in connection with the loan should all be embodied in a contract between [Page 83] the Military Government, acting on behalf of the Dominican Republic, and the bankers.

With the understanding that this procedure will be followed, the Government of the United States will give its consent that the General Receiver of Dominican Customs, appointed under the Convention of 1907, shall, during the life of that Convention, make such payments as are necessary for the service of the new loan from the revenues accruing to the Dominican Government, and will further consent to the giving of assurances by the Military Government, acting on behalf of the Dominican Republic, to the following effect:—

1.
That the bond issue now made will be accepted and validated by any subsequent Government of the Dominican Republic;
2.
That after the expiration of the Convention of 1907, any subsequent Government of the Dominican Republic will agree that the customs revenues pledged for the service of the loan shall be collected and applied by an official appointed by the President of the United States in the same manner as the present General Receiver of Customs;
3.
That after the expiration of the Convention of 1907, the loan now authorized shall have a first lien upon such customs revenues, after the payment of the necessary expenses of collection, until all the bonds thereof are paid in full.

I perceive no objection to the inclusion in the loan contract of a provision substantially similar to that quoted in your letter, but altered to read as follows, namely:—

“The Military Government of Santo Domingo engages that during the term of this loan, no future bonds of the Republic will be issued, secured by customs revenues, other than the total authorized amount of bonds of this issue, unless the annual average customs revenues for the five years immediately preceding amount to at least 1½ times total charges on all obligations secured by customs revenues, including charges of any new loan, and that the present customs tariff will not be changed during the life of this loan without previous agreement between the Dominican Government and the Government of the United States.”

In view of the above, there would be no objection to the inclusion in the bonds of the following statement:—

“The acceptance and validation of this bond issue by any Government of the Dominican Republic as a legal, binding and irrevocable obligation of the Dominican Republic is hereby guaranteed by the Military Government of Santo Domingo, and, with the consent of the United States Government, the General Receiver of Dominican Customs, appointed under the Convention of 1907, will, during the life of that Convention, make such payments as are necessary for the service of the new loan from the revenues accruing to the Dominican Government. The Military Government further agrees that after the expiration of the Convention of 1907, such customs revenues shall be [Page 84] collected and applied by an official appointed by the President of the United States in the same manner as the present General Receiver of Customs, and that the loan now authorized shall have a first lien upon such customs revenues until all the bonds thereof are paid in full.”

In view of the peculiar situation now existing in the Dominican Republic, I should like to have the loan contract drawn in such a manner that no lien is created upon any revenues other than the customs revenues. I believe that the pledging of revenues now free would have an unfortunate effect upon Dominican public opinion.

I have [etc.]

Charles E. Hughes
  1. Neither printed.