839.51/3817
The Minister in the Dominican Republic (Schoenfeld) to the Secretary of State
[Received October 24.]
Sir: Referring to my despatch No. 637 of October 13, 1932,23 reporting the return to this country of Mr. W. E. Dunn, Financial Adviser to the Dominican Government, after a visit in the United States, I have the honor to enclose for the Department’s strictly confidential information copy in duplicate with translation of a memorandum prepared by Mr. Dunn for President Trujillo23 reporting the substance of Mr. Dunn’s conversations in the United States regarding the Dominican financial situation and recommending in general terms a course of procedure to be followed by this Government.
Mr. Dunn informs me today that the program set forth in the enclosed memorandum was taken up in the last few days by the Minister of Finance24 with the President of the Republic at the latter’s summer residence at San José de las Matas. Sr. Pichardo yesterday informed Mr. Dunn that it was the President’s decision to accept the Financial Adviser’s recommendation of the Guaranty Trust Company of New York as the new Fiscal Agent for Dominican loans upon the effective resignation of Messrs. Lee, Higginson & Company. Mr. Dunn told me that he had accordingly sent to Mr. Spencer Phenix of Messrs. Lee, Higginson & Company, a personal cablegram advising Mr. Phenix of the President’s choice of the Guaranty Trust Company and requesting that Mr. Phenix take the necessary steps to have Lee, Higginson & Company formally notify the Dominican Government of their resignation as Fiscal Agents, to make appropriate announcement in the press as required under the loan contracts and to do other necessary things by informal arrangement with the Guaranty Trust Company to facilitate the formal appointment of the Guaranty Trust Company as Fiscal Agent for Dominican loans under the loan contracts.
With regard to the second and more far-reaching phase of Mr. Dunn’s memorandum herewith transmitted namely, that which deals with the eventual modification of the Emergency Law so as to make available to the Dominican Government increased funds for productive public works and involving a downward adjustment of the rate of amortization of the funded debt, Mr. Dunn informed me that he was now at work making the necessary studies and outlining the general [Page 612] scope of a proposed communication to the American Government contemplating the amendment of the Emergency Law. Mr. Dunn believes that it will be possible to prepare an outline of the proposed plan in the course of the next few weeks so that it may then be submitted informally to the Department of State and to the new Fiscal Agent when appointed.
In discussing with Mr. Dunn his proposed plan for a permanent arrangement involving reduced rates of amortization on the foreign debt, I have expressed the opinion that his studies and calculations should be based upon all the revenues collected at the customs houses of the Dominican Republic, including not only what is now known as customs revenue but also the so-called internal revenue collected under the agreement of 1930 between the Government and the Receivership,25 perhaps excluding only some minor revenues made up of service fees as distinct from what may properly be called duties and taxes. In expressing this opinion I have had in mind the circumstance that during the life of the Convention of 190726 and since the conclusion of the Convention of 1924 the Dominican Government has from time to time passed so-called internal revenue legislation applicable to imports. By the simple process of imposing such taxes and calling them internal revenue, the yield of the customs revenue proper has been materially reduced and could conceivably be wiped out. I have felt, therefore, that in a situation where it was proposed permanently to reduce the amortization rate on the foreign debt and to negotiate a new agreement with the bondholders and eventually with the American Government, the possibility of future evasion by such means of the obligations of the loan contracts and of the Convention in respect of the customs revenue, should be forestalled. Mr. Dunn seems fully to understand the importance of this point and informs me that it is his intention to base his proposal on the consolidated customs revenue, including that now derived from so-called internal revenue collected at the customs houses.
Respectfully yours,