839.51/3983
Mr. Joseph E. Davies and Mr. Oliver P. Newman to the Secretary of State
My Dear Mr. Secretary: After careful study of the Dominican situation, it is our judgment that the Dominican Government should enact a new Emergency Law with reference to the external debt. embodying the following points: [Page 653]
- (1)
- Reiteration of the general principles of the Emergency Law 1931, which specifically provides for payment of interest in full on Dominican bonds from custom revenues.
- (2)
- Further suspension of amortization payments on principal until Dec. 31, 1937.
- (3)
- Application of remaining custom revenues and of the present balance in the Emergency Fund to vital government requirements and specified public works to employ labor, relieve distress due to the economic crisis and forward permanent rehabilitation.
Our reasons for reaching this conclusion are:
(1) The Emergency Law of 1931 (which expires Dec. 31, 1933) has proven inadequate to meet the crisis for which it was created.
It has enabled the Dominican Government to live. Without it, chaos would have resulted. Its deficiency is its failure to provide funds for necessary repair or replacement of equipment with which to conduct government in a physical sense. Depreciation in roads, bridges, buildings, wharves, railways, etc., has advanced rapidly. Substantial expenditures to off-set such depreciation are imperative.
As all of the allotment of $125,000.00 per month under the Emergency Law of 1931 is necessary to complete requirements for salaries and routine government expenses, additional funds must be made available for repair and replacement or worn out roads, structures and equipment. These expenditures are necessary to the economic life of the people—the ordinary transaction of business, the flow of commerce, the movement of people, merchandise and crops, and the rehabilitation of the country.
Under existing estimates all that the Dominican government can receive from future custom revenues, above the monthly allocation of $125,000. referred to, will be about $35,000. per month.
(2) The continuation of the world depression has caused consequent continuation of diminished Dominican revenues.
Total revenues decreased from about $15,000,000. in 1927 to about $7,000,000. in 1932. Of these custom revenues decreased from $5,900,000. to $2,700,000. in the same period.
Sinking fund payments became due in 1930, and during 1930 and 1931 such payments were made to a total of $2,600,000.
These conditions produced the Emergency Law of 1931. They have not materially improved. In some respects they are worse. Falling commodity prices have seriously affected the Republic’s three principal products—sugar, coffee and cocoa.
The same reasons for suspension of sinking fund payments obtain today as did in 1931, with the added necessity of repair and replacement of plant.
(3) The maintenance of stable government.
A strong, stable government has been established and is maintained. Law and order are preserved. Life and property are protected, and are secure. Enactment of the proposed new Emergency Law is necessary in our opinion to insure continuation of these conditions.
(4) The Dominican Government has demonstrated efficiency and good faith under the Emergency Law of 1931.
[Page 654]With the help of the Emergency Law of 1931, the Dominican Government has balanced its budget. It has enforced rigid budgetary principles and requirements in every department. It has drastically reduced salaries and personnel. It has improved public administration. It has reduced waste and extravagance. It has enforced economies and, at the same time, has made some progress in needed public works, despite limited resources.
It has paid off $600,000. of its floating, internal debt, and has imposed new, domestic taxes on its people, to the extent of about $500,000. per annum, to off-set partially the decline in revenues. Besides paying its bond interest of over $900,000. each year, (nearly one-seventh of its total yearly income for interest alone), it has applied $150,000. to retirement of bonds.
(Evidence to substantiate statements under (4) will be submitted if desired).
(5) A four-year suspension of amortization is necessary for the protection of bondholders, to guarantee interest and assure ultimate payment of principal in full.
The rehabilitation of Santo Domingo cannot be acomplished without time and opportunity for constructive public works, which will not only provide labor for those now unemployed, but will be a major factor in restoration of business, increase in buying power and improvement in the whole economic condition of the Republic. Harbors need dredging as a necessity to commerce. Extension of trunk and feeder roads is imperative. A large number of new bridges are needed.
None of these are luxuries or mere conveniences. All are immediate necessities upon which the rehabilitation of the Republic depends. Specified projects will be listed in the new Emergency Law. Long-time planning of such projects is necessary for reasons of economy.
Use of a part of custom revenues for such a reproductive program for the next four years, we believe, will constitute greater protection to bondholders than the use of such funds for retirement of bonds.
(6) Holders of Dominican bonds are satisfied.
Holders of Dominican bonds make no demand for amortization at this time. They seem satisfied. A month ago the Dominican Government caused $100,000. to be sent to its fiscal agents to use in retiring Dominican bonds. The fiscal agents announced they would buy all bonds offered on the market. They have been able to expend only $19,000, for the reason that few bonds are offered for sale.
It is pointed out, therefore, that no objection to a new Emergency Law can be made because of dissatisfied bondholders. Apparently there are none.
(7) Immediate passage of a new Emergency Law is necessary.
Business interests in Santo Domingo are beginning to hold up normal activities until they are advised what is to be done in connection with the expiration of the Emergency Law of 1931. Merchants are restricting credit. Orders for imported goods for early consumption, usually placed at this time, are being held up.
[Page 655]The Government is being delayed in making up its budget for 1934, and is not able to place orders for future supplies advantageously. Public works plans are being held in abeyance.
For these reasons, as well as for the basic equities in the case, it is necessary that the enactment of the proposed new Emergency Law be at once expedited.
Therefore, in accord with the attitude of the Dominican Government at the time of the proposal of the existing Emergency Law, enacted in 1931, we desire to informally acquaint you with these suggested proposals and the conditions to which they are directed, to the end that we may have the benefit of any suggestions which you may conclude to offer, before we submit our conclusions to the Dominican Government for formal consideration.
Very truly yours,
Economic and Financial Adviser
General Counsel