839.6463/145: Telegram

The Commissioner in the Dominican Republic (Welles) to the Secretary of State

14. I received yesterday the Department’s telegram of February 18, 3 p.m. In view of the fact that the more recent developments in this case may not have been brought to [your?] knowledge and because of my belief that a basic question is involved affecting the excellent results of the policy towards this Republic which you have established, [Page 677] I venture to communicate to you the following considerations with the earnest hope that the instructions referred to may be modified.

The relation of the facts in this case contained in the Department’s telegram under reference is incomplete and in part inaccurate. The following is an outline of the more important points:

As a result of constant difficulties extending over a term of years between the Santo Domingo Water, Light and Power Company and the municipalities of Santiago and Puerto Plata, to which municipalities the company was supplying electric light and water under a concession extended by the two municipal governments, the company decided in 1921 to abandon the operation of its properties. Upon ascertaining that the municipalities refused to purchase the properties upon terms acceptable to it the company endeavored to induce the American Military Government to purchase the properties on behalf of the municipalities. This the Military Government refused to do on the ground that the national Dominican Government had no interest in the question which in its opinion was a matter which solely concerned the two municipalities. Early in 1923 as a result of popular agitation in Santiago the people of which city had been without electric light or running water for over a year, caused by a shutting down of the company’s plants, the municipalities of Santiago brought suit to obtain a forced sale of the company’s properties on the ground that the company had violated the terms of its concession.

In order to avoid the serious problems which the continuance of this suit might entail and in order to obtain a settlement of the dispute which would prove satisfactory to the American interests involved, I had, upon my return to Santo Domingo in April, 1923, several interviews with the Provisional President and stated to him that while I realized the dispute was one with which the National Government was not directly concerned, nevertheless, the continuance of it would prove detrimental to Dominican credit in the United States and would tend to promote ill feeling on the part of the Dominican people against American interests at a time when it was our common object to remove all causes of friction. The President took that point of view of the situation and adopted my suggestion that the National Government agree to lend the municipalities sufficient money to purchase the properties of the company, the National Government assuring itself that the interest and sinking fund charges on its loan to the municipalities would be paid by taking over the collection of a portion of the municipal revenues of the two cities concerned. It was upon this basis—a basis which the Military Government had refused to consider—that Mr. Hunt, representative of the American interests, negotiated the contract of June 15, 1923, mentioned in the Department’s telegram under reference.

[Page 678]

This contract provides that the Government will pay the company in Dominican Government bonds the equivalent of whatever price might be fixed as the value of properties specified by an expert selected by common accord.

Article 4 of said contract reads as follows:

“The expert will make a detailed study of the properties and of every part of them, determining their actual condition and price and specifying the cost which the repairs and improvements to assure good and regular operation may require in toto as well as in detail, it being understood that the costs of such repairs and improvements shall not exceed $60,000 American money.”

The amount of $60,000 was set because Mr. Hunt stated to me several times and stated in my presence to the Minister of the Interior, that the properties were in such good condition that the necessary repairs could be accomplished for less than that sum. His statements were confirmed by the fact that an American engineer under the Military Government the preceding year had estimated the cost of repairs at $45,000. To be certain, however, that an appraisal of repairs by the expert a few thousand dollars in excess of the limit set in the contract would not endanger the execution of the contract, Mr. Hunt, in accordance with the Government’s request, stated in a letter to the Minister of the Interior, that should the cost of repairs be fixed at a sum somewhat in excess of $60,000, he would recommend to his principals that the necessary sum be advanced by them. The expert set the value of the properties in their present condition at $533,012 and fixed the cost of necessary repairs at $323,424. The value of the properties is $133,012 in excess of the price at which the company was willing to sell to the municipalities.

2. After some delay the Government, however, would be willing to buy at this price since this is the price set by the expert in accordance with the contract were it possible to place the municipalities [properties] in good condition for a sum within or near the limit set in the same contract. It is not, however, willing to buy the plant at the price fixed by the expert when the cost of repairs fixed by the same expert is $263,424 above the limit set in the contract.

In view of these facts the final sentence of the first paragraph of the Department’s telegram referred to appears to me misleading since the Government is entirely willing to carry out its obligations to purchase the plant at the sum fixed by the expert but is not willing to spend over six times the amount for repairs when [which] it expressed its willingness to pay in the contract, which amount as fixed in the contract it was informed by the representative of the company would be ample to pay for all necessary repairs.

It is, therefore, my feeling that an attempt on our part to force the Dominican Government to accept either one of the propositions contained [Page 679] in the Department’s cable referred to would constitute material injustice; as regards the first proposition for the reasons above expressed; as regards the second because it would constitute an effort on the part of our Government to force the Dominican Government to purchase properties at a price $50,000 higher than that at which the company was willing to sell two years ago when the properties have depreciated during those two years and when the Government would have to spend $300,000 on repairs before the properties could be profitably operated.

The question of policy is, however, the following: When the Provisional Government took over from the Military Government it was with the understanding that the public works program of roads construction inaugurated in 1922 would be carried on. The funds for carrying out of this program were obtained by the 1922 loan of $10,000,000 authorized by the Department of which only $6,700,000 of bonds were actually issued, it being the understanding that the Department would agree to the issuance of the remainder whenever the public works program demanded. With this understanding the Provisional President framed his budget for 1924. He has repeatedly endeavored since last October to obtain the Department’s consent to the issuance of a portion of the remainder of the bonds of the authorized loan, without success. The situation is now such that if authorization is not granted at once the whole program must cease, when the present slight improvement in the economic situation here is due entirely to the opening up of these roads and when such cessation also means the throwing out of work of thousands of laborers at a time when the unemployment situation is peculiarly acute.

I am, however, informed by the Department’s telegram under reference that when the Department is advised that one of the propositions presented by the Santo Domingo Water, Light and Power Company is accepted by the Dominican Government, it will then be in a position to reach a decision regarding the proposed bond issue. In other words, the Department’s apparent intention is to force the Dominican Government to accept one of two propositions each of which appears unfair or else resign itself to do without funds upon the obtaining of which the present tenuous prosperity of the country actually depends. I cannot help but feel that a policy of this nature in former years has been directly responsible for the suspicion and ill will toward the United States which exists in so many of the smaller Latin American countries. And I cannot in particular reconcile the adoption of the policy outlined in the Department’s telegram referred to with our announced intention of assisting the Dominican people in every way possible to establish a stable government and to increase the prosperity of the Republic.

[Page 680]

It is because of my strong belief in the unwisdom of the policy to be adopted according to the Department’s telegraphic instructions that I have ventured to express my views at such length as well as to recommend most earnestly that the Department grant immediately the necessary authorization for the issuance of that portion of the remainder of the 1922 loan requested by the Dominican Government.

The Santo Domingo Water, Light and Power Company will find the Provisional President disposed to meet it more than half way as he has been disposed since the original negotiations were initiated in reaching an agreement which is equitable to both parties and in overcoming the difficulties which the expert’s report has presented.