The Chargé in Cuba (Curtis) to the Secretary of State

No. 227

Sir: Referring to the Embassy’s despatch No. 183 of April 16, 1928,9 and my telegram No. 62 of May 2, three p.m.,9 I have the honor to transmit herewith the Spanish text and English translation of an invitation, dated April 28, 1928,9 which yesterday reached local bankers, to submit bids on their own behalf or that of their home offices for the further financing of the Central Highway project to the amount of not less than forty nor more than fifty million dollars. It will be seen that from the text of the communication the bidders are [Page 644] desired to consider the operation as a simple advance to the contractors of sums which the Government is subsequently to receive from the normal estimated revenues during the last four years of the operation of the Public Works plan of July 15, 1925, it evidently being intended that the bankers’ security shall lie in some sort of lien on the revenues of the last four years cited. The bidders are to draft their proposals for such an “advance”, drawing up their own terms, which shall be submitted for the consideration of a board comprised of the Secretaries of Treasury and Public Works, the bids to be opened at three p.m. on May 12, 1928.

The authority (?) to call for bids without resort to general advertising is found in Article 282 of the Contract for the construction of the Highway, entered into between the Cuban Government and Warren Brothers, the sixth paragraph of that article permitting the contractor to make proposals concerning necessary additional financing. Theoretically, I understand, such proposals as shall now be made by banking entities will be considered as made in conjunction with Warren Brothers under its contractual authority. The English text of this contract is available to the Department by reference to the Embassy’s despatch No. 193 of April 17, 1928.10

As to the security for the projected “advance” of funds, it will be observed that the invitation makes specific mention of the fact that use has already been made of the special revenues to accrue during the fiscal year 1930–1931 for the carrying out of the contract with the Chase National Bank of New York. It will be recalled from that contract, the text of which was transmitted with the Embassy’s despatch No. 1893 of March 5, 1927,10 that by Article 9 the Government pledged to the Bank, as security for principal and interest, a first preferential right to ninety per cent of the normal revenues, estimated at $18,000,000, for the period from July 1, 1930 to June 30, 1931 and if said revenues should not be sufficient, the same preferential right in each subsequent fiscal year for the balance of the ten year period which the special Public Works taxes are to run. The Government also pledged a preferential right to ninety per cent of the estimated normal revenues to be derived each fiscal year during the intervening period from July 1, 1927, to June 30, 1930, as a special guarantee of payment of interest accruing in each such intervening year. Likewise the last paragraph of Article 282 of the Warren Brothers’ contract allocates to that Company as security forty per cent of the special revenues accruing under the Public Works Law.

From the above, it is evident that not only are the revenues for the fiscal year 1930–1931 pledged to the Chase Bank but also, in a contingent manner, the revenues are encumbered for the years prior [Page 645] and subsequent to that year. This being the case, any banking institution which bids upon the suggested financing, if it accepts the revenues from the last four years of the taxes as security for the “advance”, must do so subject to the prior rights thereon of the Chase Bank or must discover some means to cause that bank to relinquish its lien on those revenues. It may be that it is contemplated paying off the Chase loan from the sum to be derived from the anticipated credit of forty to fifty million dollars, so liquidating in entirety the mortgage held by the Chase Bank.

In this general connection, it should be asserted that during the month of April the Government commenced to draw for the first time against the ten million dollar Chase credit. Slightly in excess of one and one half million dollars has thus far been so drawn, leaving a balance as of today of approximately eight and a half million. …

When the Chase credit was under process of negotiation—a credit smaller but analogous in nature to the advance now solicited—the Department sent to the Embassy a telegraphic instruction, No. 147 of December 11, two p.m., 1926,11 by which the Embassy was authorized to inform the President that the Government of the United States did not raise any objection to the proposed financing or request the Cuban Government formally to consult the United States in the premises, this stand being taken in view of the constructive purpose of the loan, and the relatively improved financial condition of Cuba. It is respectfully requested that the Department indicate whether it is desirous of adopting the same attitude with regard to the present financing.

In formulating its attitude, it is recommended that the Department study my despatch No. 223 of today’s date concerning the financial condition of the Cuban treasury.11 From that despatch it will be evident that instead of reflecting a relatively improved financial condition, as was the case at the time the Department’s above cited telegram was drafted, the Government revenues are falling off seriously and give promise of declining further before improving. With a continuation of the economic crisis a deficit of considerable size looms as probable for the present fiscal year. The receipts from the special Public Works taxes, on the other hand, are being maintained satisfactorily at approximately $17,000,000 per annum and it is, of course, on these revenues and not the general budget that the projected credit is predicated; although the state of the treasury should not be lost sight of.

In closing, it should be remarked that, in view of the Department’s telegraphic instruction No. 147 of December 11, two p.m., 1926, in which it was stated that consultation on the Chase credit was not requested, I am not surprised that the President did not consult the Embassy before addressing the banks on April 28. I am, however, [Page 646] considerably surprised that he should have permitted that step to have been taken at all when one considers his repeated assurances that no further financing would be undertaken. Particularly categorical was his statement, as quoted in my despatch No. 2425 of December 17, 1925 [1927],12 that:

“There will be no loan made by Cuba during my administration. If any bill is passed by the Congress providing for a loan, I shall veto it. If any loan bill is approved by the President, it will be by my successor and not by me.”

and his assertion, paraphrased in despatch No. 162 of March 31, 1928,12 to the effect that the Government was not going to make any loan, that the special Public Works taxes were bringing in more money than had been anticipated and that he would have enough money from this source to complete his program of public works.

I have [etc.]

C. B. Curtis
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