Foreign Relations of the United States, Diplomatic Papers, 1933, The American Republics, Volume V

837.51 Chase National Bank/87

Memorandum by the Assistant Secretary of State (White)⁹³

[Washington,] November 4, 1932.

Mr. Shepard Morgan⁹⁴ telephoned from New York regarding the Cuban situation. He said that of the sum advanced to the Cuban Government last June $500,000 has been paid and the remaining $258,000 will be paid the end of November.

The short term bankers’ credit falling due on November 7 has been extended from that date until December 31. This is the bankers’ $20,000,000 credit and brings its maturity at the same date as the other maturities.

Regarding the December maturities there will be a deficit of $4,000,000. The bank has been examining this question very carefully and has come to the conclusion that it is not warranted in doing anything about it. Secretary of State Ferrara had told the bank that only public works revenues on which there are three prior liens would be available as security for any money put up in December by the bank to tide the Government over. What has been worked out accordingly is this:

Cuba will make a partial payment, probably 50 per cent of the maturing certificates. It will pay the interest charges falling due. $1,250,000 of first lien certificates which will be retired will exhaust all revenues available for such payments until next June. The remaining 50 per cent will have to await the collection of further public works revenues which will be paid off in installments every couple of months thereafter.

In December there will be no public works funds for the public works bonds falling due and for the bankers’ short term credit. These sums are $1,100,000 and $550,000 respectively, or a total of $1,650,000. The same situation will exist next June.

The banking group will provide $1,100,000 for interest on the bonds; the interest on the bank credit will simply be rolled along. The Cuban Government will be asked to earmark the proceeds of the ten cent tax per bag on sugar to pay off this advance. These funds will partially pay for it. At the end of June the same procedure will be followed. This will use up all the sugar tax money through 1934 but after July 1, 1933, the situation will be somewhat improved. By that time the first lien bonds will be nearly paid off. They will actually be paid off in August, 1933, and there will then be something for redemption of the bank credit. Nothing will be available for payment of the money advanced to pay the interest on the bonds or for the other due interest on the short term credit until 1934. This will be a technical default but the bank hopes that the default will not extend to other securities. Mr. Morgan said that this depends, first, on the goodwill of the Cubans, and, second, on the Department’s not disapproving of the arrangement. He said that technically this bankers’ arrangement does not require the Department’s approval but he wants to keep the Department informed regarding the matter in advance. The matter can not be put through before two or three days when a letter will be sent to Ferrara to try to put the agreement into effect. If the Department has any observations to make Mr. Morgan would like it to make them, if possible, by noon on Monday, November 7.⁹⁵ I thanked Mr. Morgan for this information.

Ambassador Guggenheim called me up just after Mr. Morgan had rung off and said that he was returning to Cuba on Thursday night. He can come to the Department on Thursday if we will let him know before next Wednesday. He said that he knew of the bankers’ proposal regarding Cuba. As first drawn up, he thought there were some objectionable features in the plan but these were eliminated and he now thinks that it presents the least objectionable course of action. Of course it is not ideal but he thinks it is the lesser of other possible evils.

F[rancis] W[hite]

93. Copy transmitted to the Ambassador in Cuba in instruction No. 688, November 19, 1932.
94. Vice President of the Chase National Bank.
95. In response to a renewed request from Mr. Morgan, he was informed on November 8 by Mr. Edwin C. Wilson, Chief of the Division of Latin American Affairs, that Mr. White’s view was that he had merely been informed in general terms of what the Chase National Bank had in mind, that he felt the Department did not come into the picture, and that he had, therefore, made no comment (837.51 Chase National Bank/86).