The Chargé in Cuba ( Reed ) to the Secretary of State
[Received May 9.]
Sir: I have the honor to acknowledge the receipt of the Department’s instruction No. 548 of April 30, 1932,85 with which was enclosed a copy of a memorandum of a conversation, dated April 20, 1932, between the Cuban Ambassador at Washington and Assistant Secretary White with respect to Cuban financial matters.
Ambassador Ferrara, who returned to Habana April 28, called on me yesterday and, alluding to the subject of his conversation with Mr. White, said that the matter had not yet crystallized and that he was consequently not in a position to discuss it with me in detail. He was proceeding very cautiously as he did not wish to give the appearance of encroaching on the province of the competent officials of the Government, such, for instance, as the Secretary of Finance. I gathered that he would endeavor to keep me informed of developments but that he could not be entirely sure that he would always be in a position to do so. I, of course, impressed upon him the desirability of seeing that the Embassy or the Department is furnished the necessary data to enable the latter to consider the project. He intimated that there would be some delay due to the lack of any exact estimate of Cuba’s floating debt. It was his idea that the floating debt should be divided into two parts: i. e. that incurred for public works and that resulting from accumulated deficits under the regular or ordinary budget. He felt that the first part should be liquidated by some arrangement with the bankers who undertook the public works financing and that the proposed issue of treasury notes should be applied only to the payment of debts of the second category.
Dr. Ferrara said he expected to return to Washington about the end of May in order to present his letters of recall. He would in any event come and see me again before his departure.
With regard to the project presented in the Cuban Ambassador’s memorandum of April 20, I may say that the proposed issue of treasury [Page 553] notes for the purpose indicated has been under active consideration here for some time past. Its most ardent advocates are the employees of the Government, whose salaries are from two to three months in arrears; merchants to whom the latter are heavily indebted, and various creditors, many of them Americans and other foreigners, to whom the Government owes large sums on long standing accounts for supplies and services. The Embassy knows it to be a fact that the diplomatic representative of at least one foreign country has been exerting his influence to induce the Government to resort to this method of liquidating amounts due his compatriots.
Payment of these debts in some form, even though it be in part only, would undoubtedly act as a much needed tonic to business in Cuba. However, it is apparent that the expected benefits would be minimized in proportion to the discount at which the proposed treasury notes would sell when issued. Furthermore, it would not be easy to exaggerate the difficulties that would arise when it comes to determining which accounts are to be liquidated and which are not. Even presuming that the note issue is to be applied exclusively to discharging the deficit incurred in the present fiscal year, a procedure which would scarcely be equitable toward creditors of longer standing, these difficulties would not be entirely eliminated unless, as now seems unlikely, the current deficit proves to be less than $10,000,000.
These are, however, questions which would appear to be the peculiar concern of the Cuban Government. Consideration of the larger question, whether revenues will be available to pay the interest charges and amortization on this new public debt after defraying the current expenses of the Government and the service of already existing loans, should in my opinion at least be deferred until the intentions of the Cuban Government regarding expenditures for the fiscal year beginning July 1, 1932, are definitely known. The Secretary of Finance has announced in the press that the budget estimates will be submitted to the Senate between May 15 and May 20.
I am enclosing a memorandum prepared for me by the Acting Commercial Attaché86 which contains an analysis of the statements appearing in the memorandum which accompanied the Department’s instruction and other information which I am sure will be of interest to the Department.