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

No. 1375

Sir: Referring to my despatch No. 1360 of December 27, 1933,2 in which I reported that I had urged upon the Minister of Foreign Affairs the desirability of making a further remittance at the year-end from the surplus in the Emergency Fund for amortization of the external debt, and with reference particularly to the statement of the Minister of Foreign Affairs that he would discuss the matter with President Trujillo, I have the honor to report that I inquired of the Minister of Foreign Affairs this morning as to the President’s views on the subject.

Lcdo. Logroño told me that he had discussed my suggestion with the President but that the latter was not inclined to take any action until the return of the Secretary of State to Washington, in view of the understanding stated to have been reached between Dr. Cestero, the Dominican Delegate at the recent Pan-American Conference at Montevideo, and Secretary Hull, to the effect that this whole matter was to be deferred pending the return of the Secretary to the United States.

The Minister of Foreign Affairs said that the President readily admitted the wholesome effect which would be produced in interested quarters by strict compliance on the part of the Dominican Government with the Emergency Law, including that article of the Law providing for the remittance of surplus accumulated in the Emergency Fund to the General Receiver for amortization of Dominican bonds. At the same time, the Minister said, the President was sanguine as to the possibility of reaching an agreement with the bondholders that would enable the Government to use this surplus for other purposes. [Page 190] As the Department is aware, the purpose which the President has in mind is the application of the surplus, or as much of it as possible, to carrying out the public works program of the Administration.

The Minister said the President was anxious also to hold the surplus as a bargaining element that might be useful in negotiating the desired debt readjustment, intimating that the depletion of the surplus by making further remittance for amortization would weaken the argument that the Dominican Government requires these funds for other purposes because of decreased revenue. I said I thought the President might be mistaken as to the value of this argument in the forthcoming negotiations, the course of which would probably be determined rather by thorough analysis of the actual financial and fiscal condition of the Dominican Government on the part of the negotiators for the bondholders than by a general assertion on the part of the Government that the funds were needed, it being known that they were to be used for public works. I added that while the President’s wish to use the money for this purpose was understandable, he should not lose sight of the express terms of the Emergency Law as to disposition of these funds, nor of the obligation to comply with the Law in this respect. I did not remind the Minister that the Law itself was in admitted violation of solemn international obligations.

I pointed out to the Minister that in view of present prices of the 1942 bonds, the discreet application of say, two hundred thousand dollars of the year-end surplus in the Emergency Fund to the purchase of these bonds would make it possible to reduce the debt substantially, so that the Dominican Government would benefit not only through the saving thus effected in subsequent interest payments, but through an exceptionally large decrease in the nominal value of the debt outstanding. I called the Minister’s attention to the fact that, meanwhile, only a relatively small part of the surplus had been drawing any interest from the bank in which the funds are deposited, and that consequently the funds were practically idle. I added that while the purchase of bonds at present market prices could hardly be said to be in the best interest of bondholders who might sell at prevailing prices, it would certainly be in the interest of the Dominican Government as a matter of business only, quite aside from the moral effect of having it understood that the Dominican Government was disposed strictly to comply with the Emergency Law. The Minister was quick to see this point but repeated that the President expected to take no further action in the premises until Secretary Hull returns to Washington and resumes his personal participation in the proposed negotiations.

In this relation, I beg leave to advise the Department that in conversation some days ago with Mr. Fred Q. Rickards, Internal Revenue Adviser of the Dominican Government, I learned that the unapplied [Page 191] surplus in the Emergency Fund at the end of December, 1933, amounted to not less than $424,000. When I mentioned to Mr. Rickards that I had discussed with the Minister of Foreign Affairs the possibility of a year-end remittance from the surplus for amortization, Mr. Rickards informed me that it had been “more or less understood” between the Department of State and the unofficial agents of the Dominican Government during the recent conversations in Washington, that no further remittances for amortization would be made until the entire debt question should be settled, presumably with the Central Bondholders Committee or the holders of the Dominican external debt.

As, up to the present time, the Department has not advised me of the existence of any such understanding, I have been guided with regard to this question by the Department’s instruction No. 199 of August 25, 19333 (without file number), in which I was directed to bring to the attention of the Dominican Government the situation arising from the accumulation of a considerable surplus in the Emergency Fund, and the pertinent provision of the Emergency Laws, namely, Article 6 (d) thereof. It will be recalled from my telegram No. 35 of September 6, 1933,4 and from the enclosure to my despatch No. 1263 of November 4, 19335 (p. 19, et seq.) that I made no formal representations to the Dominican Government in pursuance of that instruction for the reason that it seemed likely at that time that the Dominican Government would make a remittance from the surplus for amortization, as indeed was done on September 14 last, when $100,000 was remitted for this purpose.

In view, however, of the present attitude of the Dominican Government, as reported in my despatch above cited and in the present despatch; in view of the fact that I am skeptical as to the accuracy of the Dominican Government’s impression that further negotiations for the readjustment of the external debt service are being deferred at the personal request of the Secretary of State of the United States; in view of the very large surplus now accumulated and unapplied in the Emergency Fund; and in view of the recent indefinite extension of the Emergency Law, with every probability of the steady accumulation of an increasing surplus through steadily increasing customs collections from the low point in 1932, I believe that it would be prudent to make a point of keeping clear the record of the American Government’s treatment of this matter, by authorizing me to deliver to the Dominican Government a note expressed substantially in the terms of the enclosed draft.6

[Page 192]

I would recommend that I be authorized to deliver this note to the Dominican Government at the earliest date possible and preferably during the current month, for the reason, among others, that until the end of this month the note would have reference only to the surplus accumulated in the Emergency Fund during the life of the original Emergency Law. It appears desirable to make a communication to the Dominican Government in the sense of the enclosed draft note (which is in pursuance of the Department’s instruction No. 199 above mentioned) for the further reason that my note of December 12, 1933, to the Minister of Foreign Affairs (copy of which was enclosed with my despatch No. 1343 of December 13),7 leaves the way open for the expression of the Department’s hope that the Dominican Government will comply with the Emergency Law in respect of the application of the surplus now accumulated in the Emergency Fund. The statement made on behalf of the Department in my note of December 12, with special reference to the application of the surplus, is of a strictly limited nature, in that it does not, and perhaps could not at that time, express the Department’s desire that the surplus should be applied as stipulated in the Emergency Law. It now appears, however, that the Dominican Government is under the impression that the remittance of the surplus is a matter of indifference to our Government. Such a misunderstanding on the part of the Dominican Government ought, I think, to be cleared up by a more definite statement of the Department’s wishes. The enclosed draft note may serve that purpose. If the Department approves this line of thought and the terms of the proposed note, I shall be glad to be so instructed by telegraph in time to deliver the note as early in the current month as possible.

Respectfully yours,

H. F. Arthur Schoenfeld