Memorandum by the Assistant Secretary of State (White)82
The Cuban Ambassador83 called and left with me a memorandum reading in translation as follows:
“The salaries of Cuban functionaries have been reduced in the last two years almost 60%. The budget has been considerably lowered and is going to be lowered even more to 44,000,000 pesos, more or less.
“The public debt has been paid and the corresponding amortizations have been made. However, owing to the rapid fall of the budget in excess of all the most rigid provisions there have remained certain obligations of the State to be paid, amounting to some 10,000,000 pesos. Those interested are demanding payment and are having a certain influence on public opinion for the suspension of the service of the foreign debt.
“The Cuban Government does not desire to suspend at all the payment of interest and amortization of the public debt because it feels that it should maintain its credit and also because after this year is over it hopes that the sums to pay in the future for this account will be less.
“The Cuban Government, at the same time, desires to satisfy these creditors who do not hold obligations with a fixed due date, but which are equally legitimate, and on this account has considered a credit [Page 551] operation of an internal order with low interest which can satisfy its floating debt. The credit operation will be represented by a bond issue on long terms with 4½ per cent interest as a maximum, guaranteed by the part of the tax for port improvements or by all that tax, which up to the last year served to guarantee and pay the so-called dredging bonds.
“Cuban receipts have improved in the months of March and April and, based on the most pessimistic calculations, it is estimated that they will cover with excess a budget of 44,000,000.
“The due bills of the revenue service are being met by monthly deposits in the hands of the fiscal agent bankers.
“The operation which is now in mind will clean up completely, even in this so chaotic situation, the finances of the Republic; and has been recommended by an economic council composed of the best Cuban talent in financial matters.”
The Ambassador explained that the so-called port dredge bonds had been entirely amortized last year but that the taxes which had been allocated for their service are still being collected and are unobligated. These taxes amounted formerly to between $1,300,000 and $1,400,000 per annum. Of course they are very much reduced at present but these taxes still bring in more than $500,000 a year which would be more than enough to pay the interest and some amortization on $10,000,000 of bonds. The bonds would bear interest at the rate of not more than 4½ per cent a year and the Ambassador hoped that they might bear only 4 per cent. He would like to have $100,000 amortized every year. He said that President Machado had assured him that the floating debt does not exceed $10,000,000. Ferrara seemed to feel that there had not been any very accurate check-up on this but he was inclined to feel that this figure was more or less accurate. If this floating indebtedness could be cleared up in this way, that is, by giving the holders of the floating indebtedness bonds, which he said most of them had already signified their readiness to accept, he thought it would clear up the Cuban picture to a very great extent. The Ambassador said that if he could have anything to do with it he could make some very attractive bonds. He would put a lottery feature in the bonds, amortizing say one bond in twenty at double its face value. This would keep the bonds at par in Cuba. The bonds would be in small denominations of $100 or $200.
Ferrara is leaving for Cuba on Monday and said that when he gets to Cuba and gets full data on the matter, he will give full information to Mr. Reed84 so that he can advise us. He referred to the Piatt Amendment in this connection and said that while there was no specific provision in the Piatt Amendment requiring the Cuban Government to consult us about such an operation, nevertheless Cuba had done [Page 552] so in the past and he thought they ought to do so, and he will see that Mr. Reed is fully informed. I told him that that of course was the only frank way to deal with the matter and I always felt that it would be to Cuba’s advantage in the long run to deal openly and frankly with us in such matters. I said that when we got the full information we would of course give the matter most careful consideration.