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

No. 3280

Sir: Confirming my telegram No. 12 of April 22, 1936,1 p.m.,47 reporting consideration in the Dominican Congress of a bill transferring for irrigation purposes the amount of $225,000 from the appropriation in the amount of $600,000 in the budget for 1936 for the payment of floating debt claims against the Dominican Government, I have the honor to enclose for the Department’s information the official publication, taken from the newspaper Listin Diario today, of the bill as enacted. I enclose also a translation of the new law, No. 1096,48 approved by President Trujillo on April 29.

It will be observed that the law provides for the issuance of Treasury certificates of indebtedness to the holders of approved claims after examination and audit by a special commission to be set up for the purpose. The membership of this commission has not been announced. In somewhat ambiguous language, a period of 180 days from the promulgation of the law is given by Article 2 for effecting [Page 459] the exchange of evidences of approved claims for the Treasury certificates of indebtedness. By Article 4 of the law the Executive Power is authorized to discount audited claims up to 25% of their amount before issuing certificates of indebtedness which, by Article 1, are to be in such form as to be acceptable by third parties.

The new law provides for the conversion of evidence of admitted claims against the Dominican Government, which has heretofore been in the form of certificates of so-called “analyses,” signed by the National Auditor, into new negotiable instruments in the form of certificates of indebtedness to be signed by the National Treasurer and the Auditor of the Republic. The latter certificates will thus constitute new Treasury obligations of the Dominican Government. The negotiability of the proposed new Treasury certificates does not appear to be essentially different from that of the certificates of analyses, which have apparently been assignable to third parties and have in some cases been so assigned, though it may be that the certificates of analyses may have required for validation for the benefit of third parties some form of consent by the Dominican Government. So far as I am aware, the consent of the American Government has not been requested in pursuance of Article III of the Dominican-American Convention of December 27, 1924,49 for the increase, if it be an increase, of the public debt of the Dominican Republic represented by the proposed issuance of the new certificates of indebtedness, nor did the Dominican Government request such consent when, by exceeding its budget heretofore, it did increase its public debt and subsequently issue the certificates of analyses above mentioned to cover obligations incurred and unpaid.

The discretionary authority granted in Article 4 of the new law to the Executive Power to discount admitted claims and “audited credits” against the Government up to a maximum of 25% before issuing certificates of indebtedness appears to be inadmissible without the consent of our Government or of the holders of such claims and credits, so far as admitted claims and credits held by American nationals against the Dominican Government are concerned.

The reduction of the appropriation made for the current fiscal and calendar year for paying floating debt of the Dominican Government by the amount of $225,000 now appropriated for additional public works, brings the appropriation for payment of floating debt down to $375,000 for the current year. Retaining the existing right of the Executive Power to determine whether claims shall be paid and who shall receive payment, appears to fall short of the need for a plan of systematic and impersonal amortization of the floating debt. This provision of the law may be described rather as a new device in a [Page 460] series of such devices in recent years for deferring comprehensive and equitable action on the floating debt of the Dominican Government and for the continuance of the abusive method employed during this administration in determining priority among floating debt creditors.

Subject to the Department’s judgment of the question from the standpoint of our general Latin American policy, the new legislation would seem to afford an opportunity for entering into conversations with the Dominican Government regarding its floating debt. The Department, by virtue of the general provisions of the Convention of 1924, but more especially by virtue of the necessary meaning of Article III of the Convention, appears to have a treaty right to urge upon the Dominican Government its views with respect to the proper disposition of funds applicable to the payment of floating debt, not only to American nationals but to others as well.

The reference in Article 3 of the enclosed law to the eventual appropriation of further funds by the National Congress for the amortization of the floating debt is to sub-head 17 of Article 33 of the Dominican Constitution giving the Congress power, in translation, “to legislate as concerns the national debt.” It appears that the new legislation is, therefore, regarded by the Dominican Government as affecting the national or public debt. Hence, the Dominican Government seems to recognize the floating debt as coming within the stipulations of Article III of the Convention providing for the consent of the United States Government to any increase in the public debt of the Dominican Government.

. . . . . . . . . . . . . .

In the present circumstances and in view of the evident inadequacy of the latest Dominican legislation herein reported to effect any substantial progress in settling the floating debt of the Dominican Government within a measurable time, I beg leave respectfully to submit to the Department the question of the advisability of urging upon the Dominican Government at this time a more equitable and effective method of dealing with its floating debt—a course of action which it is believed could be followed without undue irritation of the Dominican Government, without departure from the general policy of the Department regarding assistance to American claimants against foreign governments and also without disregarding the logical intention of the high contracting parties when they agreed on the stipulations of Article III of the Dominican-American Convention of 1924. For this purpose, it would seem to be sufficient to call the Dominican Government’s attention to our recognition of its difficulties in the period preceding the Dominican Emergency Law of October, 1931;51 our having, in consequence, refrained from invoking the Convention [Page 461] at that time and subsequently in respect of the floating debt, though we had noted the Dominican Government’s formal assurances at the time of the enactment of the Emergency Law regarding its intention of liquidating that debt; our subsequent considerate attitude during the period which culminated in the external funded debt agreement of August 10, 1934, with the Foreign Bondholders Protective Council, Inc.;52 our observation of the expansion of the Dominican Government’s income and its disbursements in recent years for other governmental purposes; and, finally, a friendly inquiry as to the period of time within which the Government now expects to be able to liquidate the floating debt, with an offer of such cooperation as may be welcome to the Dominican Government in working out an equitable and scientific method of taking care of this obligation. At the same time, an intimation might be conveyed to the Dominican Government that the new law herewith enclosed is considered inadequate for the reasons above described.

Respectfully yours,

H. F. Arthur Schoenfeld
  1. Not printed.
  2. Translation not printed; the text of the law also appears in Spanish in Dominican Republic, Coleccón de Leyes, Decretos y Resoluciones Emanados de los Poderes Legislativo y Ejecutivo de la República, 1936, p. 57.
  3. Foreign Relations, 1924, vol. i, p. 662.
  4. See Foreign Relations, 1931, vol. ii, pp. 110 ff.
  5. For the texts of documents exchanged between the Dominican President and the Council, see Foreign Bondholders Protective Council, Inc., Annual Report, 1934, pp. 59–62. See also Foreign Relations, 1934, vol. v, pp. 189 ff.