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

839.51/3920a

The Acting Secretary of State to President Roosevelt

[Washington,] July 19, 1933.

My Dear Mr. President: Referring to the conversation we had this morning regarding Dominican loans and the responsibility of the United States Government towards the bondholders, I am sending you herewith a copy of a memorandum entitled “Dominican Situation” which, I believe, is self-explanatory.

Of course, if you decide to proclaim the formation of the Corporation of Foreign Bondholders,³⁷ that body, if appealed to, will be able to act as an intermediary between the Dominican Government and the American bondholders.

Faithfully yours,

William Phillips

[Enclosure—Memorandum]

July 19, 1933.

Dominican Situation

If the Dominican Government believes it necessary to approach the U. S. Government regarding an extension of the Emergency Law,^* before it is possible to set up a bondholders committee and obtain the consent of the bondholders, then there must be a showing of absolute necessity. Any such proposal should be accompanied by an objective study of the present financial situation and the possibilities—or impossibilities as the case may be—of resuming Sinking Fund payments at this time. Such study should be prepared by persons recognized as competent and impartial.

Any such proposed extension should be for only a short period, say, one year, which would give time to organize bondholders and obtain their consent.

The U. S. Government has definite obligations towards the bondholders. Bonds outstanding were issued on the strength of the customs receivership provided for by treaty between the U. S. Government and the Dominican Government.

Dominican Bonds

The loan contracts under which the Dominican bonds were issued provide that one issue of the bonds is to be retired in 1940 and the other issue in 1942. Any extension of this date of final payment made without the consent of the bondholders would, of course, be a breach of contract. If the Dominican Government desires to extend the date for final payment, it should negotiate with the bondholders. Unilateral action by the Dominican Government without first obtaining the consent of the bondholders would place the U. S. Government in an embarrassing situation in view of our obligations to the bondholders.

37. On a photostatic copy of the original letter in the Department’s files there appears in the margin at this point the following penciled comment: “in a couple of weeks F. D. R.”
38. This law went into effect October, 1931, and provides in effect for diversion of Sinking Fund payments on the foreign loans to current running expenses of the Government. It was caused by the drastic decline in governmental revenues. It expires December 31, 1933. [Footnote in the original.]