Memorandum by the Minister in the Dominican Republic (Schoenfeld)15

I had a conversation with the Secretary of Finance, Señor Rafael Brache, on the night of June 16 in the course of which he asked me [Page 198] whether I had any news as to the progress of the Dominican external debt negotiations in the United States. When I told him that I had no recent information as to progress, he mentioned that some opposition had developed on the part of some bondholders, especially Mr. Frank H. Vedder, to the proposition of the Dominican Government for a four year moratorium in the sinking fund payments. He said he was acquainted with Mr. Vedder who had been in business in this country. The Minister said that in his opinion it was desirable in the interests of the bondholders themselves to place no obstacle in the way of the reconstruction of the Republic and to facilitate this reconstruction by President Trujillo’s administration. I said to the Minister that I was confident the Bondholders Protective Council would consider this aspect of the matter in a spirit of entire fairness, although I would not advise the Government to count on the Council’s sanctioning a complete suspension of sinking fund for four years. I added that the basic question seemed to be whether such a complete suspension of the sinking fund was necessary or whether, on the other hand, a rate of sinking fund payments should not be agreed on which would permit the development of the reconstruction program while at the same time providing for regular reduction of the external funded debt at a reasonable rate. The Minister thereupon said that, in his personal opinion, the continuance of some sinking fund payments might be beneficial to the Government in providing an element of financial stability and maintaining the Government’s credit.

The Minister alluded to the recent protest of the sugar industry against the proposed levy of export taxes and said that he did not believe the “alarm” of the industry was justified, inasmuch as the Government had merely taken “precautionary” measures in causing the Constitution to be amended as it was recently by the Constituent Assembly. The Minister said that President Trujillo throughout his Administration had been very “fortunate” in all his measures. The Minister evidently desired me to understand that while the recent protest of the sugar industry had been a somewhat unpleasant surprise for the Government, the matter was not deemed serious in view of the assurances given by the President to the sugar companies on June 14. I said that the recent amendments to the Constitution appeared to have caused considerable repercussion in the business community, both here and in the United States, and that the situation might be thought to illustrate the wisdom of keeping in mind in matters of public policy the timeliness of any measures proposed. I said it was my impression that the Government’s recent action in amending the Constitution was regarded in some quarters as having the aspect of a kind of pressure to facilitate the debt negotiations pending in the United States. The Minister pointed out that there [Page 199] was no direct connection between holders of Dominican bonds, many of whom were not American citizens, and the business interests whose fears had been aroused by the Government’s recent action in amending the Constitution. I asked the Minister whether information was now available as to the number and identity of individual holdings of Dominican bonds. The Minister seemed to be uninformed on this point.

The Minister said he was now studying the contract recently signed by the Haitian Government and the National City Bank of New York for the transfer to that Government of the National Bank of Haiti.16 He felt there was a possibility that some similar arrangement might be made in the Dominican Republic to set up a national bank of issue and turn over certain fiscal duties and the functions of the General Receivership of Dominican Customs to it, though he said, of course, it would be expected that the present General Receiver, Mr. Pulliam, would continue to function in that capacity under any such arrangement.

I gained the distinct impression from my conversation with the Minister of Finance that the recent protest of the sugar industry against the possible imposition of export taxes and the attitude of other companies that may be affected by the newly instituted policy regarding contractual tax exemptions, were giving the Government concern and causing it at least to pause momentarily in the execution of its program. Incidentally, the Minister said that some measures had been suggested that he himself had undertaken to stop on the ground that they would cause too much alarm in the business world. He did not indicate what these measures were but, judging from rumors current here, it seems possible that they have to do with the possible establishment of certain Government monopolies under some of the newly amended provisions of the Constitution.

H. F. A[rthur] S[choenfeld]
  1. Copy transmitted to the Department by the Minister in his despatch No. 1674, June 18, 1934; received June 25.
  2. For the plan for the transfer of the National Bank of Haiti, see pp. 339 ff.