838.51/2127

The Chargé in Haiti ( Grummon ) to the Secretary of State

No. 1498

Sir: Replying to the Department’s instruction No. 914 of August 17th last with further reference to the question of the exchange of Series C bonds, I have the honor to inform the Department that the matter was duly brought to the attention of the Financial Adviser with instructions to arrive at an informal understanding with the National City Bank before the matter was formally discussed with the Haitian Government.

However before receiving the above instruction Mr. de la Rue had already conferred with the President about the matter in view of previous conversations which had taken place between the latter and the French Minister regarding the exchange of the bonds in question. Subsequently Mr. de la Rue, in accordance with the Department’s instruction under acknowledgment, pointed out to President Borno that the limitation of time placed on the exchange of the bonds by the Haitian Government could not operate to bar the right of bondholders under the Government’s guarantee to them. The President agreed as to the advisability of effecting a settlement in the matter but in view of the fact that the bond-holders have already had an opportunity to surrender their bonds at a time when the Government had provided funds therefor, as accepted by the other bondholders, he felt that the Government would be justified in not granting [Page 224] them quite as generous terms as to the others. The President authorized Mr. de la Rue in the event that the cooperation of the National City Bank could be obtained, to offer to exchange the 471 outstanding certificates of Series C bonds, at a rate of $72.39 in Series C bonds bearing the current coupon per certificate. Under the original settlement the value of the certificates was $72.39 in bonds with interest from October 1st, 1923, and in addition the bondholder received the sum of $24.14 in cash as payment on principal. The President, however, refused to agree to the payment of any cash as a part of the present settlements, inasmuch as the money provided for the full cash settlement was turned over to the Receiver of the National Railroad in February 1924, and, as far as the Haitian Government is concerned, is still in his possession. President Borno feels that the obligations of the Government have thereby been completely carried out and that the bond-holders must look for such cash settlement to the Receiver of the National Railroad.

Mr. de la Rue considers that the President’s offer justifies serious consideration and has therefore written to the National City Bank to request its cooperation. He would like to be informed as to whether it is the desire of the Department for the interest to run on the new Series C bonds from October 1st, 1923, as in the case of the previous exchanges. The amount required for such back interest payments would approximate $12,300.00 and Mr. de la Rue points out that no reserve has been set up for this purpose. Such payments would consequently have to be made from the very small portion of the surplus which is available over and above the marginal safety requirements for general purposes of the Government. In this connection the Department will be interested to learn that available funds for sanitation, public works and education, have been so low during the present fiscal year, due to the drop in revenues, as to preclude the appropriation of the usual extraordinary credits for the above purposes during the summer months. Any additional obligations assumed at this time must therefore be undertaken at the expense of delaying the further carrying out of the program for sanitation, public works and education.

In connection with the whole matter of settlement of the Series C bonds still outstanding, the Financial Adviser desires to invite the Department’s attention to one phase of a settlement of this sort. I have to quote herewith from a recent communication on the subject explaining the reason that action on the exchange of these bonds has been delayed:

“I desire to have the Department’s attention directed to one phase of a settlement of this sort, because it must appear obvious to it that such a settlement could have been effected at any time since 1926, provided of course no opposition was raised by the National City [Page 225] Bank. The Government has been reluctant to do anything about these bonds because it felt that further moneys expended for the National Railroad was throwing good money after bad, and that the pressure which was being brought to bear on the Receivership of the National Railroad might have some effect in getting a better settlement between the National Railroad and the Government. It is recalled that under the contract which has just been refused by the Haitian Government, the National Railroad would have assumed the obligation of immediate settlement of these claims.”

I have [etc.]

Stuart S. Grummon