837.51/931
The Representative on Special Mission in Cuba
(Crowder)
to the Secretary of
State
[Extract]
Habana, February 3,
1923.
[Received February 9.]
C–S–258Dear Mr. Secretary: On the occasion of my visit
to Washington in early October 1922,2 we conferred at some length upon the terms
and conditions upon which the Department ought to sanction the
application of the Cuban Government for an exterior loan. You will
recall that I expressed some apprehension as to the effect upon the
selling price of the bond[s], and generally upon the Cuban credit, if
the then pending amnesty bill which I read to you, was enacted into law,
or if President Zayas should reorganize his Cabinet upon political lines
in the interest of his own reelection, and to the detriment of the
moralization campaign inaugurated as a result of the several memoranda
that I have submitted to the Cuban Government, particularly Memoranda
Nos. 83 and 10.4 It was your opinion that
it would not be wise to attempt to condition the loan upon any
commitment by President Zayas that he would not approve the amnesty bill
or that he would not make a political re-organization of his Cabinet.
You stated, however, that you would take the matter up in a verbal
conference with the Cuban Minister at Washington. I have ascertained
from Secretary of State Céspedes that the conference took place between
Mr. Padro, the Cuban Chargé d’Affaires, and Mr. Phillips, and was
reported by the former; and that in his cable report to the Cuban
Secretary of State, Mr. Padro attributes to Mr. Secretary Phillips the
following statement:
“That this Government (United States) when
granting said authorization for the foreign loan, wished to
express its great worry [sic]
[Page 839]
regarding two matters;
that is: First, the Amnesty recently voted by the Cuban Senate;
and, secondly the possibility of changes being attempted in the
present Cabinet, and from the phrases and tone used by the
Sub-Secretary, I deduct that this Government (United States)
would be greatly displeased and alarmed by the realization of
any of these two propositions.”
Further on in the telegram, a full copy of which is hereto attached
marked “A”,5 Mr. Padro makes it plain that the
Department considers these two measures, or propositions “at odds with
the success of the policy of reform in Cuba, the success of which is
essential, according to the judgment of this Government (United
States).”
. . . . . . . . . . . . . .
Very respectfully,
[Enclosure 1]
Mr. Elliot C.
Bacon, Representing Messrs. J. P. Morgan and
Company, to General Crowder6
Habana, January 22,
1923.
My Dear General Crowder: As the
representative of the group of bankers and banks which offered for
sale to the investing public in the United States the new issue of
$50,000,000. External Loan Thirty-year Sinking Fund 5½% Gold Bonds
of the Republic of Cuba, I feel it incumbent upon me to lay before
you, for your consideration, certain facts that have come to my
attention. In order that these facts may more clearly be understood,
I shall rehearse briefly the steps leading up to the time when this
group decided to present its tender.
You will recall that during the three visits to Cuba made by my
partner, Mr. Dwight W. Morrow, between the fall of 1921 and the fall
of 1922, the financial, economic and governmental conditions of Cuba
were critical. Notwithstanding this condition of affairs, my firm,
together with a group of associated bankers, on January 23, 1922,
advanced to the Republic of Cuba the sum of $5,000,000. believing
that we might expect substantial improvement and ultimate recovery
through a courageous handling of the situation and the execution of
President Zayas’ plans for strict economy and reform. Among the
improvements we had in mind were the revision of the taxes, the more
efficient collection of revenues, the elimination of lottery
maladministration, the balancing of the national Budget, and,
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perhaps most important of
all, a cabinet composed of strong men having the confidence of the
public and capable of executing the reform program of President
Zayas. This loan was, therefore, made, and the proceeds provided
funds for the service of the exterior loans and other pressing
needs, and gave a breathing space to the administration so that when
conditions should become improved the Republic might sell more
advantageously a larger and permanent loan in the American market.
Throughout the past twelve months the administration has made marked
and substantial progress in achieving the hoped for and promised
improvements and the great gain in efficient administration,
together with improved economic conditions, made possible the issue
of the $50,000,000 loan.
The principal reasons that induced the group of bankers and banks to
enter a bid for this new $50,000,000. loan were their belief that
the improvement in the financial situation, which has taken place
during the administration of President Zayas, might be permanent and
their confidence that the services of a strong able cabinet could be
depended upon. Throughout the negotiations conducted during the past
year and one-half, this group has recognized its obligation
definitely to determine, as far as possible, that the loan, if made,
would really serve the best interests of the Cuban people and that
its proceeds should, without possibility of a failure, be devoted to
the needs of the hospitals and to the payment of wages, pensions,
salaries and other obligations to the school teachers, soldiers,
veterans and other public employes. Moreover it was also recognized
that, as far as possible, the just and audited claims against the
government for supplies and construction would be satisfied and that
important and necessary improvements to roads, sanitary systems and
other public works could be made. In the opinion of the group under
no other conditions would the loan have been justified.
As you know, my partner, Mr. Morrow, discussed this situation, in all
its aspects, with the Secretary of State of the United States, who
gave his approval of the loan to Cuba with the understanding that a
Cuban cabinet, holding the confidence of the public both in Cuba and
abroad, would be retained in office. This was clearly and definitely
understood by the group and largely influenced it in making a bid of
96.77, this price placing the credit of Cuba on a higher plane than
ever before attained. With this in mind, therefore, it is a matter
of very great concern to me that from the daily press in Havana I
learn there is the threat of a crisis in the Cuban cabinet and that
it is possible, in the near future, changes in the personnel of the
cabinet may be expected. Such changes would be viewed with disquiet
by those who have participated in the purchase of the bonds
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of this loan with the
result that the credit of Cuba abroad might seriously be affected. I
refer in particular to any changes that might be made that would
affect the management of the financial affairs of the Republic and
the liquidation of the contracts for Public Works. I do not wish to
imply that such changes necessarily will affect the revenues of the
Republic, but I feel very strongly that the confidence in the
administration would be impaired and Cuba’s credit injured.
As you well know the Group of bankers has an important duty to the
investors in the United States to whom it is offering these bonds.
Anything that tends to weaken the guaranties is of vital concern to
purchasers of these bonds. Furthermore our bid for the loan was upon
our definite understanding that the acquiescence of the United
States Government in the bond issue was in effect conditional upon
the assurance of the Cuban Government that there would be stability
in the announced policy and the existing personnel of the
departments dealing with the finances and public works. We do not
like to contemplate the ill effect upon the foreign credit of Cuba,
nor in particular the future status of the present bond issue,
legally or politically, if important changes in the government are
presently to occur.
I take the liberty of submitting the foregoing to you as the official
and personal representative of the President of the United States in
Cuba and trust that you will be able very promptly to give me your
advice in the premises.
I am [etc.]
[Enclosure 2]
President Zayas
to General Crowder
Habana, February 1,
1923.
Esteemed General: I. The correspondence
passed between you, as Special Envoy, and my Government, as well as
numerous conferences which we have held, have left me in no doubt as
to the very great importance that the Government of the United
States grants to the program of moralization, described in various
Memoranda which you have submitted to my consideration at the
suggestion of your Government, and particularly, Nos. 8 and 10,
dated respectively on the 5th and 15th of May, 1922. It can be
deduced from said data that the Government of the United States, on
approving, in accordance with Article 2 of the Permanent Treaty, the
$50,000,000 loan, and the preferred bidders, Messrs. J. P. Morgan
and Company, on presenting their very advantageous proposition, took
as a principal base the realization of said program of moralization,
considering
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it a very
important factor for appreciating the public credit of this
nation.
II. I also understand that the remarks transmitted to me by the Cuban
Legation in Washington, relative to the points of view of the State
Department of the United States, on granting the authorization for a
loan, advising that the Government of the United States,
“wished to express its great displeasure
[disquietude?] regarding two
matters; that is, first, the amnesty recently voted by the
Cuban Senate, and, second, the possibility of changes being
attempted in the present Cabinet,”
signify that the Government of the United States,
because of its effects on the credit, would see with grave concern
the voting of a general amnesty, such as was proposed at the Senate
and was pending in the Cuban Congress; as well as any change in the
Cuban Cabinet, which might alter the program of moralization, being
an obstacle to its complete realization.
III. In connection with the preceding paragraphs Nos. I and II, I
wish to advise you that in the reorganization of the Cabinet I have
endeavored to select men whom I thought possessed the necessary
qualities for efficiently applying the said program of reforms in
their respective Departments. I have no intention of changing the
present Cabinet, as has been announced by the press, but on the
contrary, I propose to keep its members indefinitely in their
offices, as convenient for the total realization of the moralizing
program. This, of course, does not imply any renouncement of my
constitutional faculty of replacing the members of the Cabinet, but
you can rest assured that, in the unexpected event of the need of
making changes, there will be no appointment in the Cabinet that
might weaken the execution of said moralization program; and in view
of the fact, to which you have called my attention, that the action
of your Government, in sanctioning the loan, was based principally
on the effective realization of the said moralization program (in
its opinion important factor for establishing the public credit of
Cuba) I will have no inconvenience, in case of any appointment in
the Cabinet, in dissipating any doubt as to its effect upon the
realization of said program.
IV. As regards the contracts of the Department of Public Works, which
have been object of correspondence and conferences between us, I
wish to state that I have seen projects of Decrees presented by the
Secretary of Public Works, regarding the annulment and rescission of
those contracts as an act of the Administration, without impairing
the jurisdiction of the Commission of Debts, recently created, for
deciding what equitably corresponds to the contractors, for the work
done, in accordance with the Law creating said Commission.
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I have devoted careful
examination and study to those projects, and will make the
modifications I deem convenient in them, to express precisely their
purpose, preventing any other interpretations.
. . . . . . . . . . . . . .
VI. I wish to explain a detail of my letter of the 22nd of
January,7
referring to one of Mr. Bacon. It might be understood that I meant
to say that Mr. Morrow determined to make the $5,000,000 loan only
on finding the guarantee sufficient; and that is not so, inasmuch
as, when I state that, besides, he could not doubt our good faith
and good intentions, which Mr. Bacon acknowledges have been put into
realization during the past 12 months, I refer to the plans of
administration which I explained to Mr. Morrow, and to his friendly
and intelligent suggestions, inspired in his affection to the Cuban
interests. I keep an excellent memory of sympathy towards Mr.
Morrow.
Yours very truly,
