Memorandum by Mr. W. R. Scott of the Division of Latin American Affairs

Mr. Brache and Dr. Lamarche6 called at the request of the Secretary on Thursday, February 12. Mr. White, Mr. Miller, and Mr. Scott were also present.

The Secretary first pointed out that this Government has certain very definite duties under its treaty with the Dominican Government and that it had a responsibility for seeing that any loan which the Dominican Government might secure should be on the very best possible terms. With these considerations in mind the Department could not conscientiously approve the J. G. White proposal, at least, in its present form. At this point a memorandum embodying the specific objections which the Department had to the plan of the J. G. White Company was handed to the Dominican Minister and a copy of this memorandum is attached to this record.7 In elaborating on the points presented in this memorandum, the Secretary then said:

The first and most general objection to the White plan was that it tied up the Dominican Government with an indefinite obligation with the J. G. White Company for the performance of certain construction work for an indefinite time and for an indefinite amount of money. In short, it appeared to give the J. G. White Company a mortgage on all construction work to be performed for the Dominican Government for an indefinite period in the future. Such an arrangement would preclude the Dominican Government from having the benefit of negotiating with any other American firms who would be frightened away because of the privileged status of the J. G. White Company.

The second objection was that the sale price for the bonds was not mentioned. Under present market conditions at the price which Dominican bonds are now selling, any offer to buy thirty year bonds could only be made at an excessive rate. A loan on that basis would have to be purchased on a basis that would only net the Dominican Government perhaps 78 or even lower. Such terms would constitute improvident borrowing which this Government could not approve.

It was felt also that a part of the avails of any loan should be used to pay off the floating debt and though perhaps not quite as strong a consideration that it would be desirable that some provision should be made to guarantee the heavy sinking fund for at least a year.

The Secretary explained that he was stating the main points on which objection was based to the J. G. White proposal but that he [Page 89] would be very glad to have Mr. Miller and Mr. White go over as fully as the Minister might desire all the details of this question. He added that the Dominican Government should not feel that time had been lost as a very hopeful sign was the recent turn which had taken place in the market and the fact that one or two concerns, who had previously lost interest, were now again evincing an interest in Dominican financing.

The Secretary then discussed briefly the general principles which the Department had formulated,8 and under point No. 4 he referred the Dominican Minister to the note from the American Minister to the Minister for Foreign Affairs of the Dominican Republic, answering the note dated March 1, 1913. (Copy attached herewith).9 The Secretary explained the extreme importance which this Government attached to knowing that all allocations of funds would be made in accordance with the purpose of the loan. At this point the Minister said that he understood perfectly what the Secretary had in mind, an extreme instance of this would be, for example, were funds under a new loan devoted to building a nice statue. The Secretary replied that that was exactly what he meant, and that he might add that the disbursement of funds even to build a memorial lighthouse at a time of financial crisis, such as the present, would not be favorably looked upon.

The Secretary then said that he wished to call attention to an incident which had occurred, which was not related in any way to the Dominican Government or the present matter but which had taken place in connection with financing undertaken by another country, which, of course, he could not properly name. This incident had convinced him that it was desirable for this Government to require in the future in cases where loan contracts were submitted to its consideration, that the bankers concerned should supply a written statement that no commissions had been paid other than the ordinary commissions customarily paid to brokers or houses normally involved in the transaction. (A copy of this statement of general policy was not given to the Minister but is attached to this record).10 The Secretary explained that such a policy was in conformity with a similar requirement now in effect in connection with contracts entered into by this Government.

The Minister answered that he felt that this provision was a very sound one and that he was very glad to assure the Secretary that no question of a commission of this sort had ever arisen in connection with [Page 90] the loan negotiations which had taken place with the Dominican Financial Mission. In regard to tying up the Dominican Government to giving the J. G. White Company its construction work for an indefinite period, the Minister said that the proposed contract merely expressed a preference for the J. G. White Company but was not binding in this respect upon the Dominican Government. It was his understanding that when refunding took place the Dominican Government might very easily award construction contracts to other companies. The Minister said, however, that he felt as the Department appeared to feel, that it would be much better to have a purely banking proposition at this time and he would rather see, for instance, Lee, Higginson and Company come in again on a purely financial arrangement than to tie up a construction program with a loan contract. Mr. Brache gave, or tried to convey, the impression that he was not personally very favorably impressed with the White proposal. He concluded his remarks by stating that he had just received a telegram from President Trujillo, instructing him to refrain from entering into any further negotiations in regard to Dominican financing. He said that President Trujillo was discouraged.

The Secretary replied that he felt that President Trujillo and the Dominican Government should not be discouraged, that we want to help them out and to find terms which they can accept without being ashamed of them later.

W. R. S[cott]
  1. Carlos M. Lamarche, Secretary of the Dominican Legation.
  2. Not printed.
  3. See telegram No. 7, February 12, 7 p.m., to the Minister in the Dominican Republic, infra.
  4. See letter of the Secretary of State to the Secretary of War, March 10, 1913, Foreign Relations, 1913, p. 466.
  5. Not printed.