The Minister in Haiti (Munro) to the Secretary of State

No. 418

Sir: Since the delivery of the Department’s reply to the Haitian Government’s proposal for a reorganization of the system of financial control, the Minister of Foreign Affairs has repeatedly indicated a desire to continue the negotiations on this subject and to receive a counterproposal from this Legation. I have pointed out to him that the United States Government, in the proposal for a new financial convention which I outlined to Mr. Sannon last spring, has already indicated what it would consider desirable in the new agreement. M. Leger has replied, however, that this agreement, involving as it would a continuation of practically all features of the present control, would be absolutely unacceptable to the Haitian Government and could never receive the approval of the Haitian Congress. He has insisted that neither the Protocol nor the loan contracts give the Government of the United States any right to demand such complete control as that envisaged in the plan presented by the Legation and he has emphasized the unfairness of continuing so far-reaching an intervention in the Haitian Government’s internal affairs simply to assure the payment of the small amount of bonds which will remain outstanding after 1936.

Pending a reply to the Haitian Government’s proposal and in view of other circumstances which made me feel that the time was not yet ripe to undertake serious discussions on this subject, I have hitherto not considered it advisable to lay a concrete plan before the Department or to attempt to inaugurate active negotiations with the Haitian Government. I now feel that the time has come when an effort should be made to adjust all of the remaining questions connected with the Treaty of 1915 and that the present state of our relations with the Haitian Government makes it probable that we can obtain as satisfactory a settlement of these questions now as we could hope to obtain at any time in the future.

With reference to the financial control, there are two principal questions involved: (1) Should further changes in the existing financial control be made before 1936, and (2) what arrangements should be made to safeguard the bondholders after the expiration of the Treaty.

With regard to the first question, the United States Government would clearly have a right to insist upon the maintenance intact of the present system of financial control if it saw fit to do so. It would [Page 638] perhaps be advisable to refuse to accept changes in the present system if the service of the bonds until 1936 was the only question to be considered; but it is obvious that the character of the arrangement governing the period after 1936 will be of greater importance from the standpoint of the bondholders than the precise nature of the system prevailing during the remaining years of the Treaty. It may, therefore, prove to be in their best interests to make some concessions with regard to the present system, if it proves that such action will make it possible to obtain a better arrangement after the termination of the Treaty. I do not think that we should propose such concessions in the first instance, but I believe that we should be prepared to make them during the course of the negotiations if necessary in order to obtain a satisfactory agreement.

In considering the second question, it is necessary to have in mind the exact situation which will exist when the Treaty expires. At that time there will be between nine and ten million dollars par value of bonds outstanding, the exact amount depending upon the rate at which amortization purchases are made in the meantime. Series B of the loan will be amortized in full before or just after 1936, so that the contractual requirements for interest and amortization will amount to approximately $1,375,000.00 per annum or just under 20% of the Republic’s average annual revenue for the past ten years. The service of the loan will, therefore, still require large annual payments and the interests of the bondholders will not be secure unless the Haitian Government continues to follow a sufficiently sound financial policy to assure the payment not only of the debt service but of the essential expenses of government. Before 1915 the Haitian Government showed itself totally unable to maintain such a policy; and despite the progress which has unquestionably been made in other respects, there is nothing in our recent experience which affords any ground for hope that the Haitian Government will be more competent to conduct its finances properly after 1936 than it was before 1915. A new financial agreement involving an adequate measure of control by representatives of the United States Government will, therefore, be necessary. The problem would be solved automatically if a general refunding arrangement were effected in the meantime, but the possibility of making a refunding loan between now and 1936 seems very small under current financial conditions and in view of the difficulties created by the existing loan contracts. Any new agreement which is made will remain in effect a relatively short time, however, as the entire outstanding debt will be retired by 1946, at the latest, and by 1942 or 1943 unless there is a much greater increase in the prices of the bonds than now seems probable.

[Page 639]

As stated above, the present state of our relations with the Haitian Government makes this a favorable time to begin negotiations. I believe that our own position is stronger now than it will be later. If no general financial agreement is reached, we shall unquestionably continue to have controversies on such questions as the annual budget, the finance laws, and the powers of the Financial Adviser; and the almost inevitable result of such controversies during a period when we are rapidly relaxing our control in other respects will be a loss of influence and prestige. In dealing with questions connected with the financial control, we have discovered several points where our position from a legal and a practical point of view is somewhat weak and where a controversy almost inevitably involves some loss of authority unless we assume an extremely arbitrary position. It is obviously desirable to have a clear understanding on such points insofar as they are essential to continued financial control and to reach such an understanding before they have become the subjects of long-continued and bitter controversies.

It must be realized, however, that no agreement can be reached by friendly negotiation either now or later without making substantial concessions to the point of view and to the political necessities of the Haitian Government. A plan such as was proposed last year, involving practically the continuation of the financial control established by the Treaty, might perhaps have been accepted as a part of the Haitianization agreement by President Vincent’s first Cabinet, which had been very modest in its demands, but it was summarily rejected by the following Cabinet and I do not believe that it would be voluntarily accepted by any future Haitian Government. The chief concrete advantage offered to the Haitian Government in this plan was the removal of the Financial Adviser’s control over the distribution of funds as between the different Haitian Departments and activities, but this control was in fact abandoned during the budget negotiations last year because it proved utterly impracticable and inadvisable to attempt to maintain it. Without attempting to go into the history of last year’s budget negotiations, I may point out that they offer an excellent example of the manner in which our actual authority in financial questions will be imperilled by each controversy even when we are prepared to take a very firm stand and to insist upon our point of view at the risk of serious disturbances in Haiti.

While emphasizing the fact that substantial concessions must be made if an agreement is to be reached, I nevertheless believe that we can obtain a more satisfactory agreement with less harmful concessions at the present time than if the negotiations are postponed until the Treaty is about to expire. By 1936 our control over the Haitian [Page 640] Government’s affairs in other respects will presumably have been reduced to a minimum and we shall have withdrawn or be on the point of withdrawing the Marine Brigade. The Haitian Government and people will be enthusiastically awaiting the end of the Treaty as the beginning of their second independence and will be disinclined to accept any agreement which would translate the rather general provisions of the protocol and the loan contracts into an effective financial control, except under such compulsion as the United States Government would find it exceedingly embarrassing to exercise. Whatever demands were put forward as a basis for negotiations, I believe that the Department would in the end find itself accepting as the only way out of a troublesome and noisy controversy an arrangement much less satisfactory than we can probably obtain now by friendly negotiations.

. . . . . . . . . . . . . .

I am enclosing herewith a draft convention embodying the suggestions which I have made above. It will be noted that this draft departs in many respects from the language of the present Treaty even with regard to matters where the powers conferred by the Treaty are to be retained. I believe that it will be helpful to the success of any negotiations that the new convention should resemble the present Treaty as little as possible. It will also be noted that the draft does not embody the maximum concessions above suggested. It is intended to serve as a first proposal and a basis for negotiations. The question of possible changes to be put into effect before 1936 has been left to be considered during the course of the negotiations.

The Financial Adviser-General Receiver has read the rough draft of this despatch and has expressed his general accord with the views and recommendations contained therein. He has made a number of helpful suggestions regarding the draft agreement, practically all of which have been incorporated in the text as herewith transmitted. A copy of a letter written by him in response to my request for his views on the subject is transmitted herewith.

Respectfully yours,

Dana G. Munro

Draft Convention Regarding Financial Control


After the expiration of the Treaty of September 16, 1915, and until the total retirement of all bonds issued in accord with the Protocol of October 3, 1919, a Fiscal Representative and a Deputy Fiscal Representative appointed by the President of Haiti upon the nomination [Page 641] of the President of the United States, shall control the collection and allocation of the revenues hypothecated for the service of these bonds as provided in Article VIII of the said Protocol.


The Fiscal Representative shall administer the tariff and shall collect all duties on imports and exports accruing at the several customs houses and ports of entry of the Republic of Haiti under the customs tariff now or hereafter in force. He shall have for this purpose and for the necessary audit and accounting services such assistants and employees as he deems necessary. The expenses of the customs service, however, including the amount upon which the two Governments may agree as the salary of the Fiscal Representative, may not exceed five per centum of the receipts from the customs duties, unless by agreement of the two Governments, and these expenses will constitute a first charge upon the customs receipts.


The Service of Contributions shall be reorganized not later than May 3, 1936, under a Haitian Director and with an exclusively Haitian personnel, unless the Haitian Government should express its desire to retain the services of one or more foreign technical employes. The Director of Contributions shall have full administrative authority over the Service, under the high direction of the Minister of Finance, but the Fiscal Representative, in pursuance of the requirements of the Protocol of October 3, 1919, shall have the power and the duty to inspect all activities of the Internal Revenue Service and to make any appropriate recommendations regarding the conduct of the service or the efficiency of individual employes.

The Fiscal Representative, for this inspection service, shall employ such American and Haitian inspectors and assistants as he may deem to be necessary, providing, however, that the total amount allocated for this service shall not exceed $84,000 annually, except by previous agreement between the two governments. This allocation shall be made by means of funds established, as set forth in Article V.

If the Fiscal Representative should notify the Minister of Finance that there is reason to suppose that the conduct of any officer or employe is incorrect or inefficient, such employe will be suspended and will not be reinstated until the charges against him have been disproved to the satisfaction of the Minister of Finance and of the Fiscal Representative.

The Fiscal Representative shall present to the Minister of Finance [Page 642] such suggestions as may appear helpful regarding the perfection of existing internal revenue legislation and the enactment of new laws.

A law to be drafted by the Minister of Finance in accord with the Financial Adviser and to be enacted before the reorganization of the Service of Contributions will govern the appointment, promotion, and retirement of the personnel of this Service.


If for any reason the internal revenues should decline so that the amount collected falls below 3,000,000 gourdes during the six months from October to March inclusive, or below 2,000,000 gourdes during the six months from April to September inclusive, the Fiscal Representative shall call the situation to the attention of the Minister of Finance and shall make such recommendations as he may deem appropriate for restoring collections to their proper level. If the decline should continue, so that the total collections for any consecutive twelve months are less than 5,000,000 gourdes, the Fiscal Representative, if so instructed by the Government of the United States, may assume temporarily full control of the administration of the Service of Contributions for the purpose of reorganizing it and restoring collections to their proper level. This temporary control shall not continue for a period longer than two years, except by agreement between the two Governments.


The expenses of the Service of Contributions shall be paid by the Fiscal Representative out of the amounts collected, in accord with a schedule of payments agreed upon between that official and the Minister of Finance. These expenses shall not exceed 15% of the total amount of internal revenue collections, except by agreement between the Minister of Finance and the Fiscal Representative, but an additional amount of not exceeding 84,000 Dollars per annum, as provided in Article III above, shall be included in the same schedule to cover the salaries and expenses of the inspectors who shall be attached to the office of the Fiscal Representative for the supervision of the Service of Contributions.


The expenses of the Service of Contributions including the expenses of the inspectors attached to the office of the Fiscal Representative, shall constitute a second charge upon the internal revenues, next in order after the payment of interest and sinking fund upon the bonds issued in accord with the Protocol of October 3, 1919.

[Page 643]


The Haitian Government agrees that it will not reduce the customs duties nor modify the internal revenue laws in a manner to reduce the internal revenues without the accord of the Fiscal Representative.


All authorities of the Haitian Government will extend full protection and all proper assistance to the Customs Service and to the Internal Revenue Service in order to assure their proper operation and the enforcement of the tax laws.

Neither the Fiscal Representative nor those of his assistants who are not of Haitian nationality shall be subject to arrest or to any judicial proceedings without the consent of the Government of the United States.


All monies received by the Haitian Government from all sources shall be deposited in the first instance in the National Bank to the credit of the Fiscal Representative, in order that he may make the payments for debt service required by the loan contracts. The balance remaining on the first day of each month, after making such payments and deducting for the payment of the expenses of collection, 5% of the customs revenues and 15% of the internal revenues, shall then be deposited in the National Bank to the order of the Minister of Finance, to be used by him to meet the other expenses of the Government, as hereinafter provided.

Unexpended and non-obligated balances in the customs 5% fund and the internal revenue 15% fund shall revert to the general treasury account at the end of each fiscal year.


The Haitian Government agrees that it will balance its budget each year and that no supplemental or extraordinary appropriations will be made unless unobligated funds are available to cover them after setting up such reserves as may be necessary to assure the payment of the debt service and other budgetary expenses during those months of the fiscal year when receipts are normally reduced.

The Haitian Government further agrees to include in the budget the amounts necessary for the interest and sinking fund of the foreign debt and for the payment of other contractual obligations.

[Page 644]


In view of the requirement of Article VIII of the Protocol of October 3, 1919, that an officer nominated by the President of the United States shall control the allocation of the revenues hypothecated for the service of the bonds issued thereunder, the Haitian Government will proceed in agreement with the Fiscal Representative;

In determining the amount of the estimate of ways and means to be used in preparing the annual budget.
In estimating the ways and means available to meet extraordinary or supplemental credits.
In permitting any department of the Government under the conditions set forth in the Law of Finance, to exceed its monthly allocation (douzième).

In compliance with the same requirement of the Protocol of 1919, each check drawn by the Minister of Finance against a budgetary item or against a supplemental or extraordinary appropriation will be countersigned by the Fiscal Representative to show that he has determined the regularity of the payment under the law and the sufficiency of the justifying documents. The National Bank will be irrevocably instructed not to honor checks against government funds without such countersignature.


If it should appear during the course of a fiscal year that the revenues will be substantially less than the estimates used in preparing the budget, the Haitian Government, acting in accord with the Fiscal Representative, will adopt adequate means to meet the deficit, either by reducing expenditures or by providing new sources of revenue.

The Government will not sell the securities held in the investment account, or other public property, except with the prior accord of the Fiscal Representative.


In order to establish on a more satisfactory basis the Republic’s system of financial administration, a permanent law of finance, a copy of which is annexed to this agreement, will be enacted by the Haitian Congress, and the Haitian Government agrees that it will not make any changes in this law which may affect the work of the Fiscal Representative without obtaining the agreement of that official.


The Republic of Haiti shall not issue further series of the loan authorized June 26, 1922, nor otherwise increase its public debt, except by previous agreement with the President of the United States, and [Page 645] shall not contract any debt or assume any financial obligation unless the ordinary revenues of the Republic available for that purpose, after defraying the expenses of the Government, shall be adequate to pay the interest and provide a sinking fund for the final discharge of such debt. No subsidy shall be granted for a period of more than one year except with the accord of the Fiscal Representative.


In order to assure the maintenance of public order, the Minister of Finance will give instructions to the National Bank to set aside preferentially each month from the sums deposited by the Fiscal Representative to the credit of the Minister of Finance the monthly budgetary allocation for the Garde d’Haïti, and the sums thus set aside shall not be subject to withdrawal for any other purpose than the necessary expenses of the Garde. Any unexpended balance at the end of the fiscal year shall revert to the general fund of the Treasury.


The Fiscal Representative shall maintain adequate records of all receipts and disbursements, which records shall be open to inspection and verification by the appropriate authorities.


The Haitian Government reserves the right to retire the bonds issued under the Protocol of October 3, 1919, in advance of their due date; and the Government of the United States will not invoke the provisions of Article VI of the Protocol as an obstacle to such retirement before the expiration of the period of fifteen years fixed therein, provided that the Haitian Government is able to make an arrangement for this purpose satisfactory to the holders of the outstanding bonds.


The convention shall automatically become null and void and of no effect upon the payment or retirement of all bonds issued or to be issued under the provisions of the Protocol of October 3, 1919.