The Minister in Ecuador ( Bading ) to the Secretary of State

No. 236

Sir: Referring to the Department’s telegraphic instruction No. 15, October 26, 4 P.M.,27 instructing me to address a note to the President of Ecuador calling his attention to the assurances which he gave to former Minister Hartman in 1922 to the effect that if a foreign loan were obtained half of the debt of the Association of Agriculturists to the Mercantile Bank of the Americas would be paid, I have the honor to confirm my telegram No. 18, November 30, 4 P.M.,28 in which I reported the interview which I had with the President on the subject.

I began the conversation by calling the President’s attention to the assurances given and stating the confidence which my Government had that although the loan contract made no provision for such payment the Government of Ecuador would see that the assurances were complied with. He replied that it was his belief that the case in hand was not one which should call for diplomatic intervention on the part of the United States Government, as it was purely a question between the Association of Agriculturists and the Mercantile Bank. The loan from said bank had been contracted by the Association [Page 943] without the approval of the Government having been obtained, although its statutes stated clearly that such approval was necessary. He, for the honor of the country, had caused the debt to be recognized by the Government, after refusal to do so by Congress, by the insertion in the bill which created taxes to pay the debts of the Association of a phrase stating that the proceeds of the tax were to be used in the payment of the vale holders, the local banks, “and other creditors”. While the debt was recognized by the Government, there was as yet no possibility of making any provision for it, as its exact amount was not known. While he admitted that the balance shown by the Association was probably erroneous because of its extreme smallness, he was not sure that the account presented by the Bank was correct either, and stated that this question would have to be settled privately between the Bank and the Association, either by direct agreement, arbitration, or lawsuit.

I asked the President whether it were not true that the Association was established by Congress and could in the same way be dissolved by that body, leaving the Bank with no one to sue should it desire to bring legal action. He replied that this was not the case, that the Association was a private body, and that Congress had merely authorized it to collect taxes for the payment of its debts. Congress could take away from it the administration of these taxes but could not dissolve the Association. He had hoped that this action would be taken by the last Congress, but the opposition in the Senate was too strong and the bill failed. The taxes, however, still remained in force, and when a settlement was once agreed upon as to the amount of the debt, the Bank would be paid. He thought even that once this matter were settled, he might very probably be able to obtain a loan for this particular purpose, guaranteed by the Three Sucre Tax, in which case the Bank would be paid immediately. Nothing could be done, however, until the amount of the debt was determined, and while he would continue to use his influence to bring about such determination, that was really a purely private matter between the Bank and the Association.

In reply to my inquiry whether it would be possible for the Government, should the loan be obtained, to pay any part of the Association’s debt, he stated that the present loan was intended merely to consolidate Ecuador’s foreign debt and to pay off the local banks, and that there would not be a cent remaining to the Government for use in other purposes. The gold which would come to the country for the payment of the local banks he intended to have placed in a reserve bank and pay off the domestic debts with notes based on this gold supply. The country would thus be economically benefited by the influx of a large sum of money. Production would be stimulated [Page 944] and a favorable effect would be felt on the rate of exchange. In case the Government had been able to obtain a larger loan, it would have very gladly taken care of the Association’s debt, but the size of the loan was determined by the Government’s ability to meet the service and could not be increased.

In conclusion, in order to remove any question of doubt with regard to the attitude of the Government towards this debt, I asked the President whether the Government of Ecuador recognized any obligation towards the debt other than a moral one. He replied that the Government had directly acknowledged the debt by creating taxes for its payment, and that it was therefore more than a moral obligation to the Government. The determination of the amount of the debt, on the other hand, was not a matter for the Government to decide, but must be settled privately between the Bank and the Association.

In this connection I would add that Mr. Stabler has not yet returned from Guayaquil, and that I have had no news from him for some time as to the status of his negotiations in that city.

I have [etc.]

G. A. Bading
  1. Ante, p. 933.
  2. Ante, p. 936.