711.1928/376
The Panamanian Legation to the Department of State
Aide-Mémoire
In view of the difficulties which up to the present have been encountered in connection with the payment by the United States to the Republic of Panama of the annuity stipulated in Article XIV of the Treaty of November 18, 1903, and in view of the urgency with which a prompt settlement of this matter is needed by Panama in order to avoid further interruption in the service of its public debt, the Government of Panama has considered the possibility of a plan which would do away with many of the objections which up to the present have been made to the different solutions proposed by one or the other party.
The plan would be the following:
- 1.
- The Government of the United States, directly or through the instrumentality of one of its agencies, will advance the Republic of Panama the sum of $12,000,000.00 lawful currency which is the equivalent of approximately 28 annuities calculated at $425,000.00 each.
- 2.
- The Republic of Panama, by way of interest on this loan, would agree that the United States retain the Canal annuity for as long a time as there will be an outstanding balance due to the United States.
- 3.
- For repayment of the principal, the Republic of Panama would bind itself to pay the United States annual instalments of $250,000.00 for which payment the revenue from the Constitutional Fund of $6,000,000.00 invested in mortgages in the City of New York would be pledged, and the United States would recognize interest at the rate of 3½% on all such instalments for as long as a balance of the loan is outstanding.
The substance of the agreement would be that the Republic of Panama pay the United States 3½% interest on the outstanding balance of the loan and that the annuity be calculated in the amount of $425,000.00.
Another way in which the arrangement could be expressed is that the United States advance to the Republic of Panama $12,000,000.00 and that the Republic obligates itself to repay the loan in approximately 28 years by means of annual payments of $675,000.00 to cover interest and amortization, of which $425,000.00 would come from the Canal annuity and $250,000.00 would come from the revenue of the Constitutional Fund of $6,000,000.00 invested in mortgages in the City of New York.
The purpose of this scheme is to avoid an explicit statement that the annuity is paid in the equivalent of gold inasmuch as if the loan is worked out on the basis of Panama recognizing an interest of 3½% upon such balances as she may owe it would be necessary to express the amount assigned to the annuity.
The advantages resulting from this or any other similar arrangement to the United States, would be the following:
- 1.
- The gold clause issue would be eliminated thus avoiding questions which the United States Government may consider as jeopardizing in any way the monetary or other internal policies of the administration.
- 2.
- That the bondholders of the Panama debt, who in their majority are American citizens, would be in a much better position to obtain an immediate settlement of their outstanding credits against the Republic of Panama.
- 3.
- That the United States would not have to depend on remittances from the Republic of Panama for the repayment of the loan, inasmuch as all of the money will come from sources which are within the United States.
The advantages resulting to the Republic of Panama would be the following:
- 1.
- That the Republic would be in a position to cancel perhaps the whole amount of the external debt of the Republic which amounts to over $15,000,000.00.
- 2.
- That by this operation the Republic would pay a rate of interest considerably less than the rates she is paying today.
- 3.
- The Republic would not have to appropriate and use any part of its internal revenues for the service of its debt, inasmuch as it would be entirely covered by revenues coming from the United States.