The Secretary of State to President Roosevelt

My Dear Mr. President: With reference to my memorandum of February 21st, regarding the payment by this Government of the Panama Canal annuity of $250,000, and to the conversations I have had with you since, I have gone into the matter in the most thorough manner and have now reached the following conclusions:

That our legal obligation to pay the yearly amount due Panama in gold dollars as of the weight and fineness of 1904 is a very doubtful question;
That if we persist in our present contention, the Government of Panama will, in all probability, insist upon arbitration of the question, which, for obvious reasons, is undesirable;
That it would be likewise unwise, because of its effect upon other obligations of the United States, either to admit Panama’s contention or to make any settlement which would appear to imply such admission.

Consequently, I suggest that as the most satisfactory and practical solution of the difficulty, the Government of Panama be advised that we will deal with this matter in the negotiations which we are shortly to undertake41 in accordance with your authorization for the new treaty between the two Governments and that, in the meantime, the payment of $250,000. will be made “on account”. In the new Convention, the annuities to be paid to Panama could be increased in such an amount as would take care of the present obligation and such additional concessions as we may be able to obtain with respect to other matters now under consideration. The new annuities should not be expressed in terms of gold, but should be expressed in dollars, with the understanding that if the dollar is devaluated below the present standard, the difference shall be made up to Panama, and if the dollar rises above the present standard, a smaller amount shall be paid to Panama.

Finally, in connection with any arrangement that is made, we would take into account the rights of the Trustee and of the holders of the bonds of the Republic of Panama and the existing agreement on the part of Panama to turn over these annuity payments to its Fiscal Agent in New York for the benefit of the bondholders.

Since the matter has now been pending for some time, and the Government of Panama is increasingly impatient, I shall appreciate your letting me know whether the procedure above indicated meets with your approval.42

Faithfully yours,

Cordell Hull
  1. See pp. 581 ff.
  2. A photostatic copy of the original of this letter bears the notation: “C. H. OK FDR.” (711.1928/225)