Papers relating to the foreign relations of the United States, 1931, Volume II

839.53./3477

The President of the Dominican Republic (Trujillo) to President Hoover²³

[Translation]

Santo Domingo, August 25, 1931.

No. 25788

Great and Good Friend: The peculiarly intimate friendly relations that have existed for many years between the United States of America and the Dominican Republic impel me to bring directly to Your Excellency’s personal attention the critical situation through which my country is passing with respect to its public debt and its finances.

The Dominican Republic has maintained an uninterrupted record for many years and up to the present time of the exact fulfillment of its obligations in connection with its foreign debt. This record is due in large part to the arrangement under which our customs revenues have been pledged as security and are collected in accordance with the Dominican-American Convention;²⁴ but the Dominican people, on its part, has loyally cooperated in carrying out the said Convention and it considers with pride that to this is due in part the high credit enjoyed by the country in the financial circles of the world.

For some time, however, it has become daily more evident that, due to the existing world-wide economic depression, the Dominican Republic is making efforts to pay its foreign public debt to an extent exceeding its capacity to pay. Even though the total amount of our public debt is not excessive, the provisions for the payment of the sinking fund agreed upon by previous administrations are so onerous and unscientific that they constitute a burden which our diminished national receipts can no longer support.

It is not without great regret that my Government finds itself obliged to admit this fact. During my own administration I have put into practice all means within our reach, carrying out administrative and economic reforms in order to be able to continue as hitherto to fulfill our foreign obligations. Not even such a fatal and unforeseen event as the cyclone of September 3, 1930,²⁵ was sufficient ground for us to interrupt the payments or seek means of suspending them. Our national revenues have diminished from a total of approximately $14,000,000 in 1929 to a level of $7,000,000 per annum at present, with a prospect of continuing to diminish unless a prompt reaction takes place in the world situation.

Our customs revenues, pledged under the Dominican-American Convention as security for the payment of the bonds of the debt, have also been affected by the economic crisis, having gone down to such an extent that, while the Dominican Government formerly received a considerable residue after taking care of the service of its foreign debt, it is now necessary to supplement the proceeds from the customs revenues allotted to our Fiscal Agents in New York with funds taken from our scanty domestic receipts.

This entirely wipes out the revenues received by the Government as customs receipts for administrative purposes. It is really impossible for the Government to continue to function under such conditions, and to attempt to continue in this way would incur the risk of a complete disorganization of the Public Administration.

I have the satisfaction of having done everything humanly possible during my term at the head of the Public Administration to maintain an orderly economic situation and be able to continue making the burdensome payments on our public debt. In proportion as the receipts have diminished I have made corresponding reductions in our expenditures, to such an extent that our estimates are now balanced on the basis of approximately $7,000,000, in which are included $3,000,000 for the payment of the debt, while in 1929 the sum of $13,841,019.58 was collected and the service of the debt amounted to only $1,221,639.13, and in 1930 the sum of $9,975,673.95 was collected and the service of the debt amounted to only $2,345,119.86. So drastic a reduction was rendered possible only by decreasing expenditures in all Departments of the Government, beginning with the offices of the Executive Branch and not omitting the forces of the National Army; but in order to secure the aforementioned balance it was also necessary to abolish public services which should be restored if the Dominican Republic is to continue satisfying its legitimate aspirations for progress.

Some months ago I engaged the services of an American expert to advise the Government in solving its fiscal problems, an expert who was recommended, at my instance, by the State Department at Washington.²⁶ Since his appointment, and in fact for several months previously, negotiations have been carried out with various American banking groups for the purpose of securing some relief even though it be but temporary;²⁷ but the conditions existing in the world’s financial markets have frustrated all efforts and we have been unable to assure ourselves of obtaining money on any terms.

The Dominican Government has, then, exhausted all possibilities of finding help by utilizing the ordinary banking resources or through domestic expedients. It is physically impossible for the country to continue to spend about 40% of its receipts solely to maintain the service of its foreign debt. The balance remaining at our disposal is such that it is a physical impossibility to obtain the necessary funds or credits for the current expenses. The country is being constantly impoverished by the continual exportation of capital, the result being that it is no longer a question of what the Dominican people and government would like to do, but of what it is physically possible for them to perform.

Please permit me to state here, Mr. President, that the Dominican Republic neither intends nor desires to evade in the least its obligations toward the bond holders of its foreign debt or toward its creditors, and that, after adjusting and thoroughly cleaning up its domestic debt, it is firmly determined to pay every cent of the interest and principal owed. Far from wishing to scale down or repudiate its debts, the Government is anxious to protect itself against the remotest possibility of such a contingency. It wishes on the contrary to increase the fundamental solidity of its foreign obligations by placing them on such a basis that they shall always be within the limits of our capacity to pay.

For the reasons set forth above, the Government has decided to adopt a plan of procedure which appears to be the only rapid solution of the present difficulties without affecting the high credit which this country has won.

The adoption of this plan entails, however, the making of great sacrifices on our part, but it will without doubt afford some prospects of hope to our people and enable the Government to restore certain services which are indispensable and which cannot be neglected any longer without causing considerable injury to the whole nation.

One of the most obvious realities in our present situation is that the aid must be given without any delay. For over a year we have been avoiding the adoption of emergency measures in the hope that an improvement in the world’s economic situation would be reflected in our own country. We have now come to the limit of our strength. The main feature of the plan I am now proposing is that it must be put into execution no later than October 1, 1931, that is, just as soon as the current semi-annual payments of interest and for amortization have been made.

What the Government proposes to accomplish, in short, is an immediate readjustment of our foreign obligations by means of an exchange of our bonds of the foreign debt for new conversion bonds to be issued in accordance with the terms of the Dominican American Convention now in force.

There are at the present time approximately $17,000,000 of our 5½% bonds maturing in 1940 and 1942 that are unredeemed. The Government proposes to exchange these bonds for new ones similarly secured but bearing a higher interest rate, namely, 6% annually and having a 1% sinking fund instead of the mistaken and burdensome rate of amortization of the present bonds. The $17,000,000 in bonds necessary to effect this exchange will be part of a total issue of $25,000,000 which will give to the Republic additional bonds to the nominal amount of $8,000,000, which may be used in paying the floating debt, claims, urgent repairs to our roads and the construction of other public works which are of vital importance to the economic and commercial development of the country. The fundamental aspects of the Government’s plans are comprised within the appended copy of a bill which will be voted on soon by the National Congress. This bill was prepared with the advice of reputable lawyers and bankers of the United States. It seems to me that it embodies the least detrimental expedient that can be resorted to in order to secure the necessary relief so as to enable us, instead of injuring, to increase the credit which we have won in financial circles. Certainly any other mode of solution, whether adopted actively or passively, would be more radical and injurious.

The Government realizes that the proposed law covers aspects of the Convention of 1924 which had not as yet been considered as a concrete problem, but it is my earnest hope that the Government of the United States will appreciate our plight and that it will endeavor not to interpret the Convention in such a way as to prevent our obtaining the immediate help which we imperatively need for our welfare, unless, indeed, Your Excellency can suggest some modification or some other plan which our own efforts have been unable to devise.

Inasmuch as the study of various points embodied in the appended draft and affecting the Convention will require considerable time, I trust that Your Excellency will agree with me that it is impossible to hope that such studies will be finished before the plan is put into execution.

In order that we may not fail to fulfill the obligations contracted toward our creditors, it will be necessary to pass the proposed law quickly enough to enable our lawyers in the United States to prepare the necessary financial contracts by October 1 of this year.

I take the liberty, therefore, to request Your Excellency’s approval of the plan of the Dominican Government as an emergency measure, making the proposed readjustment of our domestic debt subordinate to the completion of all the legal details. The approval should become effective by October 1, 1931, so that the Government may have available as of that date, from the customs receipts, the balance arising from the payment of our bonds under the plan now in execution and the payments required under the new plan.

It is understood, of course, that the details necessary to legalize the new arrangement will be completed through the usual diplomatic channels, as is proper, if Your Excellency so desires.

I beg Your Excellency kindly to accept the assurance of my highest esteem together with my deep gratitude for such attention as you may devote to the present statement.

(Your) loyal and good friend,

Rafael L. Trujillo

[Enclosure—Translation]

Plan for the Conversion of the Foreign Debt of the Dominican Republic

The National Congress in the Name of the Republic

Whereas the National Congress, by law No. 158 of July 17, 1931, authorized the Executive Power to issue bonds of the Republic to the amount of $5,000,000;

Whereas the law in question does not provide for the conversion of our foreign debt, an operation whose expediency has become revealed as necessary at present;

Whereas the economic and industrial conditions of the country, aggravated by the hurricane of September 3, 1930, and by the world crisis, make it urgently necessary that the Government should obtain and devote to public services a larger sum than that now available from the revenues of the country;

Whereas the foreign loans contracted by the country during previous years stipulate, for the payments on their sinking fund, disbursements which under present circumstances are beyond the economic capacity of the country;

Whereas measures must be adopted to relieve the situation and these measures must be such as not to injure the high credit which the Republic has won for itself in the money markets;

And whereas it is absolutely essential to the proper functioning of the public administration that the floating debt contracted by preceding administrations should be refunded;

Therefore, by virtue of the powers conferred by No. 14 of article 33 of the National Constitution, the National Congress has enacted the following law on behalf of the Republic:

No.

• Article 1. Law No. 158 of July 17, 1931, and any others that may be contrary thereto are hereby repealed.
• Article 2. The Executive Power is hereby authorized to issue bonds of the Dominican Republic to an amount not exceeding $25,000,000, with a sinking fund of not less than 1% per year, at interest not exceeding 6% per annum, and with a premium not to exceed 1% and payable only in case of extraordinary redemption in advance. The bonds may be issued either all at once or at various times.
• Article 3. The Executive Branch shall avail itself of the said bonds in the following manner:

  a. It shall allot a sufficient number thereof to redeem at par the existing bonds of the present foreign loans of the Republic contracted in the years 1922 and 1926 to 1928, at the rate of one new bond of $1,000 for each existing bond of $1,000, and it shall proceed to effect such redemption.

  b. It shall allot such number as it may deem necessary in order to pay (a) the floating debt of the Republic; (b) the claims pending against the latter; and (c) the expenses of issuance of the new bonds in so far as such expenses can be paid in bonds; and it shall proceed to make such payments. The payments of the debts, claims, and other expenses shall be made on the terms and conditions to be determined by the Executive Power in each case, but the value assigned to the new bonds in these agreements shall never be less than their nominal value (or 90% of their nominal value), and the total nominal value of the new bonds intended for these purposes shall not exceed $4,500,000.

  c. The remainder of the bonds shall remain in the possession of the Dominican Government until an opportunity offers to sell them under favorable conditions, in whole or in part, and until the Congress authorizes the Executive Power to make such sale or sales.

• Article 4. The bonds shall be secured by the customs receipts collected by the Receiver General of Customs in accordance with the Convention between the United States and the Dominican Republic of December 27, 1924, and they shall be considered as bonds issued under that Convention.
• Article 5. The bonds shall be payable in United States gold coin of the present standard, weight, and fineness, and they are hereby declared exempt from any contributions or taxes, already established or in future to be established in the Dominican Republic, either on them or on the income arising therefrom.
• Article 6. The Executive Power is empowered to conclude any agreements and take any measures that may in its opinion be necessary or suitable in order to carry out the present law, and it is likewise expressly authorized to designate the Fiscal Agents of the Bonds and to determine, within the general lines designated in this law:

  a. The form of the Contracts of Fiscal Agency;

  b. The date and form of the bonds and of the provisional and final coupons, and who is to sign them and in what manner;

  c. The mode of redeeming the bonds;

  d. The place, time, and manner of paying interest and redemption.

• Article 7. The payments connected with the interest and redemption of these bonds shall be considered as being in the nature of a continuous allocation without any additional allocation being necessary in the case, and the Auditor and Comptroller General of the Republic are hereby ordered to make the proper allowances in the account corresponding to these allocations.
• Article 8. The necessary sums are hereby assigned from the funds of the Public Treasury to defray the expenses of printing these bonds, the advertisements relating thereto, and other incidentals arising in connection with the issuance, registration, redemption, and cancellation of the bonds now in force. However, the Executive Power is hereby authorized to pay any of the aforesaid sums with the new bonds, charging them against the bonds mentioned in par. (b) of Article 3 of this law.
• Article 9. The Executive Power is hereby authorized to suspend, on any date after October 1, 1931, the service of the existing foreign loans of the Republic, being required, starting from the date of suspension, to cause a monthly deposit to be made, on account of the new bonds to be given in exchange for the existing ones, of one-twelfth of a sum equal to 6% per annum for interest on and 1% per annum for redemption of the new bonds.
• Article 10. The interest accruing on the bonds in possession of the Government (those of par. (c), article 3), shall be paid to the Government and go into the general funds of the Nation.
• Article 11. The Executive Power is hereby authorized to conclude with the United States Government, under such terms as it may consider most advantageous to the Republic, any agreements that may be necessary in order to carry out and facilitate the carrying out of the acts authorized by this law.

Given, etc., etc.

23. Handed to the Chief of the Division of Latin American Affairs on September 2 by the Dominican Minister with an accompanying note of the same date by the Dominican Minister requesting that President Trujillo’s letter be forwarded “to its high destination.” (839.51/3475)
24. Signed December 27, 1924, Foreign Relations, 1924, vol. i, p. 662.
25. See ibid., 1930, vol. ii, pp. 727 ff.
26. William E. Dunn; see telegram No. 9, March 6, 5 p.m., to the Minister in the Dominican Republic, p. 95.
27. See pp. 84 ff.