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

No. 827

Sir: I have the honor to enclose for the Department’s strictly confidential information copy of a memorandum of conversation today with Mr. William E. Dunn, Financial Adviser to the Dominican Government and Special Agent for the Emergency, who returned today from a month’s sojourn in the United States.

The memorandum is self-explanatory and sets forth in outline the recommendations to be made by the Financial Adviser to the Dominican Government as to the next step in the procedure for a re-adjustment of the external debt of the Dominican Republic. It is possible that Mr. Dunn’s recommendations, if found acceptable to the President of the Republic, will be acted on in the near future.

Respectfully yours,

H. F. Arthur Schoenfeld

Memorandum by the Minister in the Dominican Republic (Schoenfeld)

Mr. William E. Dunn, Financial Adviser to the Dominican Government, who returned from the United States this morning, called on me at 11 a.m. Mr. Dunn said that shortly after his arrival in New York a meeting was held by him with representatives respectively of the National City Bank, Lee, Higginson & Company, Brown Brothers-Harriman, Dillon, Read & Company and the Continental Illinois [Page 625] Trust Company, for the purpose of discussing the Dominican external debt situation. As a result of that and subsequent meetings with representatives of these banks and of the Guaranty Trust Company, Fiscal Agents for Dominican loans, and after consultation of counsel (Mr. Jesse Knight of the firm of Curtis, Mallet-Prevost, Mosle and Colt) a plan had been evolved for further procedure. The plan contemplated the formation of an Advisory Committee, consisting of Messrs. W. W. Cumberland (Chairman), Dana G. Munro and A. W. Kimber of White, Weld, with the assistance of such representatives as the bankers might designate for the purpose, to study the entire question of the Dominican external debt with a view to the eventual formulation of a plan of adjustment which would be considered by a committee to represent the bondholders, to whom the plan would be submitted by the Advisory Committee after consultation with the Fiscal Agents, the Dominican Government and the American Government.

A necessary next step in the procedure, therefore, would be legislative action by the Dominican Government authorizing the Executive Power to deal with the Advisory Committee in order to link up the Dominican Government with the Committee and the other parties in interest, if and as a plan for the permanent re-adjustment of the debt is developed. The legislation in question would simply extend the Emergency Plan in its present form for another year beyond the present date of expiration and would grant the Executive the authority above referred to and authority to make the necessary disbursements from the reserve in the Emergency Fund. Official advice of the Dominican Government’s intention to legislate in this sense would be transmitted to the American Government either directly or through this Legation.

I told Mr. Dunn that I was not in a position to express any opinion on the proposed procedure. Mr. Dunn said that he fully understood that any action which might be taken by the Dominican Government in pursuance of his recommendation along the lines above indicated must necessarily be purely unilateral, in the same way as the Emergency Law, etc., had been unilateral. He urged, however, that without the proposed legislation neither the Advisory Committee, the Fiscal Agents nor the other bankers could properly proceed with the study of any plan for the regularization of the foreign debt question or the correction of the default in sinking fund payments since the Emergency Law went into effect. Under these circumstances it was necessary in his opinion and, as he said, in the opinion of all those whom he had consulted in New York, for the Dominican Government to secure the legislative authority in question. Mr. Dunn pointed out also that under the proposed plan of procedure the Dominican Government would get no more from the Emergency Fund than at present, [Page 626] pending the permanent re-adjustment of the amortization rate, and that this plan admitted of no further delay in execution since continued uncertainty in the existing precarious state of the matter would be harmful to the political and economic stability of the Dominican Republic.

I gathered from what Mr. Dunn said that if the President accepts his recommendation the official note from the Dominican Government notifying of the proposed procedure may soon be forthcoming.

H. F. A[rthur] S[choenfeld]