The Ambassador in Cuba (Guggenheim) to the Secretary of State
[Received 8:25 p.m.]
122. Buchanan, representative of Standard Oil Company of Cuba, informs me that the Cuban Government has brought pressure to bear on the oil companies in Cuba to advance approximately a million and a half dollars to be repaid from taxes on oil shipments to be delivered over next 6 months. The object of this advance is to augment funds necessary to carry out plans suggested in the exchange of letters between Winthrop Aldrich96 and Secretary Averhoff.97 Buchanan informs me that Shell Company has agreed to contribute $200,000, Sinclair Company $500,000, on the understanding that $100,000 will be immediately reimbursed in payment of the Cuban Government’s existing [Page 560] debt to the company. The Standard has been asked to contribute $1,000,000, $200,000 of which is to be immediately reimbursed in payment of the Cuban Government’s existing debt to the company. Standard Oil is considering loaning up to a maximum of $750,000 with a $200,000 immediate reimbursement. Buchanan has asked my personal advice in the premises which I have refused to give him but gave him as much helpful information as possible in regard to the present Cuban financial situation.
We should reach an immediate decision whether we shall encourage, discourage or take no position in regard to this financial problem. If we take no position, in view of our relations under article 2 of the Piatt Amendment, we shall tacitly approve of at least one provision in the Chase proposal, namely: paragraph “third”, page 3,98 that is in violation of the treaty. When I first discussed with Winthrop Aldrich the general plans outlined in my despatch 1328 of August 25, 1932, for an equitable readjustment of Cuban finances, he was in agreement and attempted to develop a plan along these lines. Following the unfortunate developments in the political situation in Cuba99 and after the receipt of letters from the A.B.C, he and his associates decided that they would go no further than the plan outlined in his letter to Averhoff mentioned above. This does not relieve the Cuban people of the altogether too heavy burdens of the improvident public works financing. I think this financial plan under consideration, especially with the proposed contributions from the oil companies, will be an extremely unpopular measure and will cause ill will against the United States. The feeling will prevail that to bolster up an unpopular dictatorship American oil companies and banks are loaning money which will immediately be sent out of the country and promptly repaid by additional taxes and a further curtailment of government salaries. Furthermore, in my opinion this plan will not prevent default but merely postpone it. It is true that at the end of December the Cuban Government is faced with its maximum burden of debt repayment. However, in view of constantly diminishing revenues, an unbalanced budget, the large and increasing floating debt, the problem will again [Page 561] be acute when next debt payment becomes due in June unless the world economic situation completely changes. If the bankers on their own responsibility are unwilling to carry out some such plan as outlined in my number 1328, August 25, 1932, I recommend that we discourage the present proposals. If no further funds are advanced to the Cuban Government there will be a partial default on public works indebtedness at the end of December. At that time and thereafter all accrued public works revenue should be distributed as legally prescribed to holders of public works obligations. In view of world situation and the poor status of Cuba’s credit in spite of its payments to date, I consider that a partial default would have less serious consequences than those that would follow these proposals. Please instruct what position to take with Standard Oil Company and with Cuban Government should they contemplate making a new loan of this character.
- Vice Chairman of the Governing Board and President, Chase National Bank.↩
- Octavio Averhoff y Pla, Cuban Secretary of the Treasury.↩
- Paragraph “third” of the Chase proposal reads as follows: “that a banking group consisting of the Chase National Bank of the City of New York, the National City Bank of New York and the Continental Illinois Bank and Trust Company of Chicago, make an advance to the Cuban Government of $1,650,000 with which the coupons due on December 31, 1932, on the Public Works gold bonds of 1945, and the interest on the bank credit will be paid. This advance is to be made repayable within six months and to be made a first lien on the existing 10 cents a bag sugar production tax. The advance and the granting of the lien to be authorized by act of the Cuban Congress, passed by two-thirds vote. It should be explained in this connection that the Public Works revenues cannot be utilized for the repayment of this advance, as has been suggested, because of the existing liens on these revenues.” (837.51 Chase National Bank/88)↩
- For correspondence regarding political unrest in Cuba, see Foreign Relations, 1932, vol. v, pp. 533 ff.; also ante, pp. 270 ff.↩