711.1928/367: Telegram

The Secretary of State to the Minister in Panama (Summerlin)

21. Your 58, May 1, 11 a.m. The memorandum transmitted in your cable has been carefully considered. The United States appreciates fully Panama’s desire to have the annuity paid in gold coin of the weight and fineness existing in 1904 or the equivalent in actual value thereof, and this Government has formally offered to meet in full Panama’s desire by making appropriate provision therefor in the general treaty under negotiation. We are, however, somewhat perplexed by the statement at the close of the Panamanian memorandum that “the matter of the payment of the annuity of the Canal is not a question which should be incorporated in the proposed new treaty.”

The annuity matter was first raised with the Department by the Panamanian Minister in January, 1934. Following Panama’s unwillingness to accept the payment tendered by the United States on February 26, 1934, Assistant Secretary Welles suggested to Minister Alfaro on March 31, 1934,39 the advisability of informal discussions to explore the possibilities of negotiating agreements to adjust and settle in a mutually satisfactory manner all points of difference and misunderstanding which might have arisen in the relations between the two countries, including specifically the matter of the Canal annuity. Panama agreed to hold these informal discussions, which [Page 929] thereupon took place and progressed in a satisfactory manner. On September 22, 1934, the Minister of Panama submitted to the Department a draft general treaty,40 Article IX of which contained specific provisions for the payment of the annuity. In other words, the Government of Panama itself proposed a specific article to deal with the payment of the Canal annuity to be incorporated in the general treaty. On October 30 the Department submitted its draft of a general treaty41 to Dr. Alfaro, the annuity matter being comprised in Article VIII thereof. In view of the satisfactory progress in the informal discussions, President Arias appointed a Commission to undertake the negotiation of agreements with the United States for the purpose of removing all differences and causes of misunderstanding which had arisen in the relations between the two countries, and the Commission met with representatives of the United States Government for the first time in November, 1934. From the outset, that is, from the date of submission of the Department’s draft treaty, the Department proposed, and has continued to propose, to give Panama all that she desires as regards the annuity matter.

The Department sincerely regrets that any inconvenience may have been suffered by Panama in connection with the annuity matter, but is convinced that the United States is not in any wise responsible therefor. On the contrary, the United States has made every possible and practicable effort not only to meet Panama’s desires in full as to the amount of money to be paid, but also to facilitate a practical modus vivendi in Panama’s interests pending the conclusion and entrance into force of the general treaty. When Mr. Welles, on March 31, 1934, suggested to Dr. Alfaro the advisability of informal discussions to explore the possibilities of negotiating agreements between the two countries, including the matter of the Canal annuity, he also suggested that Panama accept the $250,000 tendered on February 26, 1934, as a payment “on account” without prejudice in any way, shape or manner to the legal position of either Government. Panama, however, declined to accept this payment “on account”. When the time approached for the payment of the February 26, 1935, annuity, the United States again pointed to the fact that Panama’s desires regarding the annuity would be met in full as soon as the treaty could be completed and placed in effect, and the United States again urged that pending that time Panama accept “on account” both the 1934 and 1935 payments in the amount of $250,000 legal tender each, the only payments which the United States could make under existing law. Panama again declined to receive the tendered payments “on account”. Recently Dr. Alfaro advised the Department [Page 930] of the possibility that Panama might have to default entirely on the May 15 payment due on certain bonds issued by Panama in the United States, the service of this bond issue having been met by Panama since 1933 only to the extent of 33⅓ percent. The Department, being so informed, again urged the wisdom of accepting as “on account” the two payments tendered in 1934 and 1935, totalling $500,000, pointing out that the United States had formally proposed in the draft general treaty that beginning with the annuity payable in 1934 the payments under Article XIY of the treaty of 1903 should be $430,000 rather than $250,000.

The various proposals which Panama has suggested for paying the annuity, referred to in the memorandum of April 30, have been, as have all the proposals, suggestions and recommendations put forward by Panama during the course of these negotiations, most carefully and sympathetically considered and studied by the competent officials of this Government. These specific proposals on the annuity, in order to be made effective, would require action by Congress. They are, moreover, open to objection from the point of view of the United States in that they do not seem to deal clearly and frankly with the problem of the annuity but seek to adjust that problem temporarily and indirectly. The United States desires openly and without reserve to meet fully Panama’s wishes in this matter and has proposed a sound and effective manner of accomplishing this objective. As has already been stated, President Roosevelt is convinced that the only legal and practicable means of accomplishing this purpose is that envisaged since the inception of these treaty discussions over a year ago, namely, by making appropriate provision therefor in a treaty between the two Governments. The Department earnestly trusts that complete agreement may now shortly be reached on the general treaty and the Department will bend its best efforts to this end.

You may furnish President Arias with a copy of the foregoing.

Hull
  1. See Foreign Relations, 1934, vol. v, p. 625.
  2. Not printed.
  3. Not found in Department files.