The Secretary of State to the Minister in the Dominican Republic (Schoenfeld)

No. 43

Sir: The Department has been greatly impressed by the number of instances which you have recently reported, and which have been confirmed to some extent from other sources, which represent important departures on the part of the Dominican Government from the plan for meeting the economic emergency which was proposed by the Dominican Government in its note dated October 20, 1931,7 and given effect in related legislation. The Department has noted also a recent tendency on the part of the Dominican Government to make or consider financial commitments whose effect would be to increase the public debt of the Republic, without requesting the approval of this Government in accordance with Article III of the Convention.8 In connection with this apparent trend in financial matters, the Department has noted also your reports concerning certain difficulties which have arisen in the relationship between the Dominican Government and its Financial Adviser.

To assist you in dealing with these questions, the Department has set forth in the enclosed memorandum its views concerning the status of the Financial Adviser and what it deems essential in carrying out the Emergency Plan. It is felt that the expression of the Department’s views in this memorandum will serve as a general guide in your handling of these matters but the Department desires to leave entirely to your discretion the time, manner and scope of any discussions which you may find it desirable to enter into with the Dominican Government or the Financial Adviser. It is, in fact, even possible that the situation may appear to be showing such an improving tendency [Page 592] that you may feel it desirable to defer any action at this time. But the Department feels that a firm insistence at an early stage to prevent substantial deviation from the spirit of the Emergency Plan may prevent a much more serious situation later. A recapitulation has been made of various instances which appear to present important departures from the provisions of the emergency legislation or the general spirit of the promises which were made by the Dominican Government in its note of October 20, 1931, but you are in a position to have a better perspective on these matters than the Department and to judge more accurately their relative importance.

The Department has felt it desirable to set forth clearly its position in regard to the relationship between the Dominican Government and its Financial Adviser. It believes that you may find it necessary to clear up this matter in an informal and friendly conversation with President Trujillo or the Financial Adviser or both should the situation continue unsatisfactory. The Department feels, of course, that there is a distinct value in the Dominican Government’s having available the services of a Financial Adviser of the experience and technical proficiency of Mr. Dunn and hopes that you may be able to correct any misconceptions which may exist concerning the status of the Financial Adviser without unduly discouraging Mr. Dunn or President Trujillo.

Should you feel that it would be useful, the Department will be glad to take up with the Dominican Minister in Washington any of the various questions discussed above after receiving your considered opinion thereon.

Very truly yours,

For the Secretary of State:
Francis White

There are two questions which now claim the Department’s consideration, first, the relations between the Financial Adviser and the Dominican Government, second the failure of the Dominican Government to live up to the terms and spirit of the Emergency Plan in certain important respects. The Department views these as two separate questions, its position thereon being as follows:

1. After the failure of the Dominican Financial Mission to negotiate a loan in the United States,9 the Dominican Government requested this Government to lend the services of Mr. Sidney de la Rue, the Financial Adviser to Haiti, to assist the representatives of the Dominican Government in the negotiation of a loan. The Department replied that it could not meet this request as Mr. de la Rue was not [Page 593] available because of his employment by the Haitian Government, but that it would, however, be willing to find another Financial Adviser for President Trujillo, should that be his desire. Mr. William E. Dunn, who from his long previous experience in connection with Latin American financial matters, appeared to have the proper qualifications, was suggested as a suitable person for that position. The Dominican Government expressed its desire to appoint Mr. Dunn and he was first employed for a temporary period, his services, however, being subsequently extended, as Special Agent for the Emergency Plan in addition to his other duties as Financial Adviser. The Department was glad to be of assistance to the Dominican Government by suggesting Mr. Dunn as a suitable officer for the position of Financial Adviser and it feels that the employment of Mr. Dunn by the Dominican Government is a constructive and useful step in assisting that Government to carry out the provisions of the Emergency Plan and in general to put its financial house in order. The Department also feels that Mr. Dunn has made numerous sound and desirable recommendations looking to a more scientific budget and more efficient methods of taxation and other desirable financial reforms. While it does not take the position that the Dominican Government is necessarily bound to follow all such recommendations and while Mr. Dunn is in no sense an official of or connected with the American Government, this Government is, however, interested and must insist that there shall not be such deviations from sound financial practices that the result will not be within the spirit of the Emergency Plan.

This Government has not up to the present insisted on a rigid compliance with every detail of the Emergency Plan, realizing that some flexibility may be necessary and desirable and that in starting to put the plan into operation certain difficulties may necessitate a departure from the literal terms of the governing legislation. It is felt, however, that this Government because of the serious responsibility involved in taking no action up to this time in spite of the definite breach of certain provisions of the Convention, a breach by which funds for absolutely vital administrative functions were made available to the Dominican Government, is entitled to watch closely all developments in order to be able at all times to see to the proper functioning of the Emergency Plan or, in the event of any default thereof, to insist that the control of the customs houses be returned to the Receiver General of Customs. In availing itself of the sympathetic attitude of this Government and the sacrifice which has of necessity been made by the bondholders, the Dominican Government has a very solemn responsibility to comply faithfully with the spirit of the Emergency Plan and any squandering or improper diversion of the moneys which represent the sinking fund due the bondholders is, of course, absolutely indefensible.

[Page 594]

In its note of October 20, 1931, in which the Dominican Government set forth in some detail the desperate nature of its economic situation, it agreed to expend the emergency fund created from the diversion of the sinking fund in the manner most beneficial to the entire country, namely, first for the payment of current salaries and any balance to the partial payment of back salaries and the most urgent part of the floating debt. The note stated further that “ample safeguards have been provided for the careful expenditure [not only] of the emergency fund but also of the ordinary government revenues.”

The Department has noted with great concern an apparently growing tendency on the part of the Dominican Government to initiate certain measures departing in important respects from the Emergency Plan, measures which would not appear to be consistent with the “careful expenditure of the emergency fund and the ordinary government revenues”. It has noted also a tendency to consider making important commitments which would have the effect of substantially increasing the public debt without the previous agreement of this Government as provided for in Article III of the Convention. According to the information available to the Department, the principal measures or policies which appear to be contrary to the Emergency Plan or in violation of the Convention, may be recapitulated as follows:

Violation of priority of payments.
Arrears of salaries paid to the army.
Payments of political importance, such as the expenditure for the acquisition of an old cargo boat, etc.
Payment for Spanish arms and munitions.
Diversion of fund, estimated at $250,000, resulting from the ten percent reduction in salaries. The method of spending this sum does not appear to be clear.
Disposal of the excess due amortization account.
The specialization of new revenues. The apparent tendency to specialize revenues as in the case of the aqueduct revenues in contravention of Article 8 of the Emergency Law.
Increase in the public debt.
The negotiation for a credit of $100,000 and obtaining of $50,000 without the approval of this Government. It appears that the $50,000 was spent for a type of military equipment some part of which at least can in no way be justified by a government which has asked for the diversion of funds owed to bondholders in order to assure the carrying on of necessary governmental functions.
The apparent willingness of the Dominican Government to consider commitments for public works which would add substantial burdens to the public debt, for example, the proposed $3,000,000 harbor improvements discussed with the Clark Dredging [Page 595] Company which would apparently, even under the most optimistic estimate, leave a balance unpaid from current revenues of $1,000,000.

In citing the examples given above, the Department does not take the position that certain of the expenditures, although not in accordance with the priority schedule established in the Emergency Plan and its accompanying legislation, were necessarily unjustified. It may have been quite imperative, for example, to pay the arrears of salary due the army, for the proper maintenance of order. There may have been sound reasons of which the Department is not aware also for certain of the other payments. In this connection, the Department has been pleased to note that President Trujillo has now approved the issuance of a monthly report on a suitable form giving a detailed and business-like statement of the movement of the Emergency Fund. This action on the part of the President would seem to be an earnest of his intention to preclude any extensive or flagrant violation of the legal schedule established for the priority of payment.

In summary it may be stated, therefore, that the Department, without taking a narrow view as to technical violations of the Emergency Plan, feels that it is vital that this plan shall be faithfully and loyally carried out. This it conceives to be the careful expenditure of the emergency fund for the general purposes and in the manner contemplated in the Emergency Plan as well as the utilization of the utmost care in the expenditure of the ordinary government revenues. The Department feels that the Dominican Government should avoid the specialization of any new revenues which may be created and that in due course a start should be made toward paying to the amortization account any excess which may be available under the conditions specified in Article 6 (d) of the Emergency Law.

Of even more importance than the points discussed above is the question of any increase in the public debt. The Department appreciates the urgent necessity for certain public works and fully understands the desire of the Dominican Government to accomplish as rapidly as possible such projects as the repaving of the streets of Santo Domingo and reconditioning the water system of that city, the resurfacing of trunk highways, the repair of bridges and buildings damaged by the hurricane10 and works of a similar nature. For this reason the Department has felt that within certain reasonable limits the Dominican Government would be justified in undertaking public works of the character of those mentioned above where the payment for such work would be made currently from current revenues. The Department feels that the recent contract which the Dominican Government has entered into for public works, involving as it does the [Page 596] imposition of new taxes of various types, represents a very great effort and that any further important financial commitments which may be considered must be fully discussed with this Government where an increase in debt is contemplated or where the Emergency Plan is substantially affected.