The Ambassador in Cuba (Guggenheim) to the Secretary of State.

No. 745

Sir: I have the honor to refer to my despatch No. 544 of February 3, 1931, the Department’s telegram No. 29, February 10, 5 P.M., and my telegram No. 44, February 25, 5 P.M.77 in regard to the issue of Treasury notes by the Cuban Government; also to refer to the last paragraph of my memorandum of a conversation with President Machado of May 23, 1931, (page 5 of enclosure No. 1 to my despatch No. 712 of May 29, 1931.).78

This morning the daily paper El Mundo published a report that the President would sign a message to Congress today recommending the issue of a $10,000,000 internal loan which would be used in payment of a part of the floating debt. I immediately called on the President and informed him that I had no doubt the report was without foundation, but I wished to point out the adverse effect that this and similar press notices would have on Cuba’s credit in the United States, where Cuba’s credit standing is of great importance for future operations. The President replied that he had considered sending to Congress a recommendation for the issue of a $10,000,000 loan. He argued that the former internal loan was almost entirely liquidated; that the special [Page 547] taxes which had been set aside for the liquidation of the former loan would be available for a new loan; that the Government’s creditors were pressing for payment; and that this proposed issue would wipe out last year’s budgetary deficit and leave something to spare.

I told the President that, in view of the present public debt, the revenues and expenditures of the Cuban Government, my Government, as I had pointed out to him in the past, did not consider further borrowings justifiable and, further, that should he complicate the Government’s financial difficulties with an internal loan, he might make it impossible at the appropriate time to interest the Chase Bank, to whom $40,000,000 of Cuban Government Bonds were hypothecated, in the development of a financial plan of relief. I recalled to the President that I had consistently advised him that the only way to adjust his financial problem was first to settle his political difficulties. I reiterated that the constitutional reforms should be expeditiously passed and in such a fair manner that the oppositon would be unable to condemn the reforms with any justice. Once having passed these reforms, enough confidence might be restored in order to justify an appeal by the Government to the Chase Bank for the development of a financial plan to lessen the burden of the high debt services within the next few years. The President replied that I need say nothing to him about my Government’s feelings in regard to the proposed bond issue because he thoroughly agreed with my statement in regard to the folly of attempting to issue internal bonds in view of the necessity of considering the Cuban Government’s whole financial program. The President gave orders that the message to Congress, which he had signed before my arrival this morning, should be cancelled and that the Secretary of the Treasury should be informed of this decision.

In regard to the reforms, the President assured me that he had every intention and desire to pass the reforms in a manner that would be above criticism. He stressed the point that he was personally keenly anxious to have this bill passed, and that it would pass within the near future. In the meanwhile, the President will make available to the Manager of the Chase Bank in Cuba, data upon which consideration can be given to some readjustment of Cuba’s Public Works debt. (See despatch No. 735 of June 12, 1931.)79

The President’s project for an internal bond issue, which has at least been cancelled for the moment, was conceived in desperation. A $10,000,000 internal bond issue would relieve his most pressing creditors, leave a couple of millions to liquidate further budgetary deficits in the first months of the coming fiscal year, and pave the way, it would be hoped, for the extension of further credit to make possible the building up of some more floating debt. However, if this [Page 548] internal loan had been issued, the price of the bonds would probably very quickly sink to about twenty-five cents on the dollar. In spite of the President’s promises of the past that he will not issue internal obligations without advising the Embassy, I do not feel that this would prevent him from doing so, if he was again placed under pressure.

Therefore, if the Department wishes to be assured that it will not be taken unawares, I suggest that I send the following note to the President:

“In further reference to the conversation that I had the pleasure of having with Your Excellency on Monday, June 15, in view of the present public debt, revenues and expenditures of the Cuban Government, my Government has instructed me to inform Your Excellency that it desires to be notified in advance of any decision to issue Cuban Government obligations, and to be apprised of the pertinent facts upon which it can reach a decision as to whether or not it should interpose objections under Article II of the Permanent Treaty.”80

Such a note would be a precaution for the future, to which the Department might desire to give consideration.

The Cuban Government, it would seem, can only save itself by wise, constructive political and financial measures. The enactment of unsound financial projects will, in my opinion, not prevent but only postpone a collapse that will have in the end more far reaching and harmful effects. If such financial projects are in violation of Article II of the Permanent Treaty, I recommend that the Treaty be invoked.

Respectfully yours,

Harry F. Guggenheim
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  4. Treaty of May 22, 1903, Foreign Relations, 1904, p. 243.