Foreign Relations of the United States Diplomatic Papers, 1932, The American Republics, Volume V

838.51/2453

The Secretary of State to the Minister in Haiti (Munro), Temporarily in the United States

No. 204

Washington, June 27, 1932.

Sir: The Department has received your despatch No. 381 of April 21, discussing the further Haitianization of the Garde d’Haïti, and your despatch No. 418 of June 6, regarding the negotiation of an agreement for the administration of Haiti’s finances after 1936.

The Department desires, if possible, to enter into an agreement with the Haitian Government along the lines proposed in your despatch No. 418. It is also prepared to enter into an agreement providing for the further Haitianization of the Garde but only upon condition that a satisfactory arrangement regarding the finances is reached. You may, therefore, notify the Haitian Government that you are authorized to discuss both questions but that the Government of the United States does not desire to enter into any agreement regarding the Haitianization of the Garde unless a new agreement regarding financial control can be signed either previously or at the same time.

As stated in the note which you delivered under instructions from the Department on April 6, this Government feels that the provisions of Article VIII of the Protocol of 1919 justify the Government of the United States in insisting upon such arrangements with regard to the administration of Haiti’s finances after 1936 as in the reasonable view of the United States will assure that adequate provision is made for the amortization and interest of the bonds issued under the Protocol. It feels that a reasonable interpretation of Article VIII of the Protocol would justify this Government in insisting upon the maintenance of the existing system of financial control substantially in its present form if this appeared necessary for the protection of the interest of the bondholders. Since it appears, however, that the interests of the bondholders would not be unduly endangered by concessions to the wishes of the Haitian Government with respect to certain features of the present system of control, this Government is prepared to make such concessions if, but only if, it proves possible to conclude a satisfactory agreement at the present time. You may advise the Haitian Government to this effect, stating that the Government of the United States reserves the right to withdraw all proposals which may be made and to reconsider the entire question of the character of the financial organization to be set up in 1936 if the negotiations which you are now undertaking are not brought to a successful conclusion before your contemplated departure from Haiti in September next.

If you find that the Haitian Government is prepared to negotiate a new agreement along the general lines of the draft transmitted with your despatch No. 418 of June 6 you are authorized to present this draft, modified as indicated in the enclosure to this instruction, to the Minister of Foreign Affairs as a basis for discussion. During the subsequent negotiations you will be guided by the instructions hereinbelow set forth.

I. Customs Administration

The Department concurs in your view that the officer appointed upon the nomination of the President of the United States under Article VIII of the Protocol should have full administrative control of the customs service, including (1) the right to appoint and remove personnel, (2) the right to have such American collectors and other personnel as may appear necessary and (3) full administrative authority. Articles I and II of the draft agreement submitted by you cover this subject satisfactorily so far as the views of this Government are concerned.

The Haitian Government may, however, insist that the Protocol contemplates simply that the officer nominated by the President of the United States should supervise the collection of the customs duties without justifying this Government in a demand that he should actually collect, receive and apply them as under the Treaty of 1915. If this point is raised you will insist that the control given to the American Financial Representative must be adequate really to enable him to assure that the customs service is efficiently administered and that any arrangement for control must cover the three points above enumerated. In other words, the Department cannot accept an arrangement which would make any real change in the present system of customs administration. It would, however, have no objection to an arrangement under which officers in the customs service were appointed and commissioned by the President of Haiti, provided that such officers were appointed and removed solely upon the recommendation of the American Fiscal Representative.

II. Internal Revenue Administration

This Government considers that any new arrangement regarding the administration of the internal revenue service must provide that the official nominated by the President of the United States under the Protocol shall receive the proceeds of all of the internal taxes for disposition in accordance with the provisions of the loan contracts and that this official shall have an adequate measure of supervision over the internal revenue service. In view of the considerations set forth in your despatch No. 418 it is prepared to relinquish any demand for complete administrative control of the internal revenue service provided that the other provisions of the new agreement afford such safeguards to the interests of the bondholders as would justify this Government in making so important a concession to the wishes of the Haitian Government. The exact measure and character of the supervision by the American Financial Representative will be a matter for negotiation. While it might be desirable to obtain, if possible, the complete supervisory control contemplated by the draft agreement in its present form, the Department feels that $84,000 per annum, the amount set aside for this purpose, represents a rather large proportion of the total cost of the internal revenue collection. You may in your discretion withhold any proposal for a specific sum for purposes of inspection until you have discussed with the Haitian Government the exact character of the inspection to be provided and you may agree to a substantial reduction in the amount allowed to the American Fiscal Representative for this purpose if you find it advisable to do so. In accordance with your oral suggestion, the amount allowed to the internal revenue service for the expenses of collection under Article V of the draft agreement should be reduced to 10 per cent if so large a sum as $84,000 is expended upon the inspection service of the American Financial Representative, but that allowance may be increased to such extent as you see fit if a less complete American supervision is provided for. It is obvious that the amount of inspection work which will have to be performed by the Haitian Director will be increased if the inspection force at the disposal of the American Financial Representative is decreased.

If you find it advisable in the interest of reaching an agreement with the Haitian Government you are authorized to accept a provision placing the new system of internal revenue administration in operation either in whole or in part before the expiration of the present treaty upon condition that no important change in the organization shall be made until the ordinary revenues of the Republic shall have reached 34 or 35 million gourdes in one fiscal year or until the Haitian Government shall have so reduced its current expenses as to be able to show a surplus of 500,000 gourdes of ordinary receipts over ordinary revenues in any fiscal year.

While the Department considers it desirable to include in the new agreement a provision similar to Article IV of the draft agreement, you may in your discretion modify or withdraw this article should you find it advisable to do so.

III. Maintenance of a Balanced Budget

In offering to accept changes in the internal revenue service you will say that the Haitianization of this service can be accepted by the Government of the United States only upon condition that the Haitian Government agrees on its side to satisfactory provisions assuring the maintenance of a balanced budget. The Government of the United States will feel compelled to insist upon the incorporation of provisions substantially similar to those contained in Article X and XI of the draft agreement in any new arrangement which may be signed. With reference to the final paragraph of Article XI, however, it would be prepared to accept any other adequate provision assuring the preaudit of payments made by the Haitian Government if that Government objects to this paragraph in its present form. It simply desires that the American Financial Representative should be given some adequate means for assuring himself that each payment made out of the Treasury is made in accordance with the budget or with other appropriations to which he has given his accord.

The provisions of Article XII of the draft agreement are considered desirable but not essential and you may withdraw or modify them if you consider it advisable to do so.

IV. The Accounting System

The Department does not consider a continued control over the accounting system absolutely essential and you are, therefore, authorized to withdraw or to modify Articles XIII and XVI of the draft agreement if you consider it advisable to do so. It is obvious, however, and it should be made clear to the Haitian Government, that the American Financial Representative in carrying out the duties imposed upon him by other articles in the agreement will under any circumstances maintain proper records of the receipts passing through his hands and of the expenditures to which he gives his approval.

V. Service on Payments

The Department concurs in your recommendations on this subject as embodied in Article IX and the last paragraph of Article XI of the draft agreement. As stated above, however, Article XI may be modified if it appears advisable.

VI. Restrictions Upon Changes in the Revenue Laws

You will insist upon the inclusion in the agreement of a provision that the customs duties and the internal revenue taxes will not be reduced in such a manner as to decrease their total yield except with the accord of the American Financial Representative. Article VII of the draft agreement appears to cover this matter satisfactorily.

VII. Restrictions on Increase in the Public Debt

While the Department would prefer the wording of Article XIV of the draft agreement, it would nevertheless be willing if necessary to accept a provision to the effect that the Haitian Government will not increase its public debt unless the revenues of the Government are sufficient to provide for the interest payments and sinking fund of the new obligation. It will, however, insist that the Haitian Government relinquish any right to issue further series of the loan authorized under the Protocol of 1919 with the exception of one possible final issue to an amount not exceding $3,000,000 to be made only after consultation and agreement between the two Governments.

VIII. Priorities in Expenditures

This Government will, of course, expect the Haitian Government to inscribe each year in its budget the sums necessary for the service of its public debt and for other contractual obligations. It is not prepared to insist upon any specific provision giving the expense of the Garde priority over other expenses of the Government, but it believes that such a provision as incorporated in Article XV of the draft agreement would be desirable.

Referring to those articles of the draft agreement which are not specifically covered in the above detailed instructions, the Department considers that provisions similar to those of Article VIII are essential to the proper functioning of the new organization and it would be very reluctant to accept any substantial change in them. Article XVII of the draft agreement, which you have presumably inserted in response to the wishes of the Haitian Government as expressed in previous proposals made by it, is unobjectionable.

Article XVIII should be modified to include a specific statement that the new agreement will take effect on May 3, 1936.

The Department will instruct you later whether an agreement along the lines above outlined should take the form of a convention or merely that of an executive arrangement. It feels, however, that in any case the agreement should be specifically approved by the Haitian Congress in order to give legal force to its provisions in so far as they establish new governmental machinery in Haiti.

In negotiating the new agreement you are authorized to reject without further consultation with the Department any proposals of the Haitian Government which are obviously unacceptable in the light of the Department’s views as above set forth and you are also authorized to accept such changes in the wording of specific articles as are consistent with the provisions of this instruction. You will, of course, keep the Department fully advised at frequent intervals of the progress of your negotiations and you will submit the final text to the Department for approval before signature.

The Department will send you a separate instruction regarding the proposed Haitianization of the Garde.

Very truly yours,

Henry L. Stimson

[Enclosure]

Modified Draft Convention Regarding Financial Control

I

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 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.

II

The Fiscal Representative shall administer the tariff and shall collect all duties and other charges on imports and exports accruing at the several custom houses and ports of entry of the Republic of Haiti under the customs tariff and laws now or hereafter in force. He shall appoint 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 amounts upon which the two Governments may agree as the salary of the Fiscal Representative, and the Deputy 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 second charge upon the customs receipts next in order after the payment of the service of the bonds issued in accord with the Protocol of October 3, 1919.

III

The Internal Revenue Service 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 Internal Revenue 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 . . . . . 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 hereof.

If the Fiscal Representative should notify the Minister of Finance that there is reason to suppose that the conduct of any officer or employe of the Internal Revenue Service 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 such suggestions as may appear helpful regarding the improvement of existing internal revenue legislation and the enactment of new laws.

The revenues collected by the Internal Revenue Service shall be deposited in the National Bank to the credit of the Fiscal Representative as provided in Article IX hereof.

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 Internal Revenue Service will govern the appointment, promotion, and retirement of the personnel of this Service.

IV

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 Internal Revenue Service for the purpose of reorganizing it and restoring collections to their proper level. This temporary control shall in each case be limited to a period of not more than two years, except by agreement between the two Governments.

V

The expenses of the Internal Revenue Service 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 per cent 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 . . . . . 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 inspection of the Internal Revenue Service.

VI

The expenses of the Internal Revenue Service 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 the service of the bonds issued in accord with the Protocol of October 3, 1919.

VII

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

VIII

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.

IX

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 from each month’s revenue, after making such payments and deducting for the payment of the expenses of collection, 5 per cent of the customs revenues and 15 per cent of the internal revenues and the amount required for the internal revenue inspection service in accordance with Article V hereof shall 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 per cent fund, and the internal revenue 15 per cent fund and the internal revenue inspection service fund shall revert to the general treasury account at the end of each fiscal year.

X

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. If the revenues received in any month should be insufficient to meet the full debt service and expenses of collection, the Minister of Finance will pay to the Fiscal Representative from his reserves the amount required to make up the deficit.

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 and lump sums representing the 5 per cent and 15 per cent funds and the internal revenue inspection service fund.

XI

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:

(1) In determining the amount of the estimate of ways and means to be used in preparing the annual budget.

(2) In estimating the ways and means available to meet extraordinary or supplemental credits.

(3) 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.

XII

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.

XIII

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,²¹ 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.

XIV

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 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.

XV

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.

XVI

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.

XVII

The Haitian Government reserves the right to retire the bonds issued in accord with 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.

XVIII

This convention shall take effect on May 3, 1936, and 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.

21. Not printed.