837.51 Public Works Debt/196

The Ambassador in Cuba (Wright) to the Secretary of State

No. 1704

Sir: I have the honor to transmit, as of interest to the Department, a self-explanatory memorandum of my conversation with the Cuban Secretary of the Treasury2 on February 21st with regard to the Public Works Debt and certain correlated matters.

Respectfully yours,

J. Butler Wright
[Enclosure]

Memorandum of Conversation, by the Ambassador in Cuba (Wright)

On Tuesday evening, February 21st, at 7 o’clock, I called upon the Secretary of the Treasury in order to discuss with him informally several subjects—among them the present status of the legislation for the settlement of the balance of the Public Works Debt.

The conversation having begun with the discussion of the proposed revaluation measure and its effect upon Cuba’s credit, I deemed it not only opportune to discuss this further matter, which so directly concerned Cuba’s credit, but also to inquire directly as to the present status of the measure. Dr. Garcia Montes said that he had gained the distinct impression from Mr. Warren Pierson, President of the Export-Import Bank, during his visit to Habana, that he (Mr. Pierson) was not only concerned about the revaluation proposal and very dubious, to say the least, as to the effect which it might have upon Cuba’s credit, but also of the opinion that unless or until the balance of the Public Works Debt had been settled, no credits would be extended for additional public works in Cuba. I replied to the Secretary that, although I had not expected our conversation necessarily to take that trend, I was glad to improve the opportunity thus afforded [Page 523]to observe that he had correctly appraised Mr. Pierson’s opinion—adding that, as the Secretary knew well, I had been constrained to observe to the appropriate authorities of his Government, including the President3 and Colonel Batista,4 that the Export-Import Bank, being a governmental institution, could not extend credits of this nature until the aforementioned recognized obligations of the Cuban Government had been liquidated.

The Secretary of the Treasury is a very cautious man who, while very well informed and of sound opinions, finds it difficult, if not impossible, successfully to combat the political exigencies and considerations which his superiors bring to bear upon him: he is especially cautious when replying to direct inquiries. He said that, as I was doubtless aware, the financial situation of Cuba was growing worse: I replied that I was unfortunately aware of it. He said, for that reason, the opposition consistently contended that the Government should not incur further obligations at this time when they faced a budgetary deficit and when the price of sugar showed no sign of improvement: I replied that I had been informed of this unfortunate situation and this resultant attitude by both the President and Colonel Batista. He said that as the remainder of the $85,000,000 issue5 was not sufficient to meet these obligations, a supplemental issue was necessary: I replied that I was, of course, fully aware of this fact. He then said that the Government was compelled not only to seek further revenue in order to offset the inevitable debt settlement, but was also obliged to consider the levying of further taxes in order to afford proper security for this supplemental issue: I inquired whether he had in mind a renewal of the proposal for the taxation of petroleum derivatives. He replied that he had.

As the conversation then became devoted to that phase of the question, I said that I felt obliged to bring several considerations to his attention: that Warren Brothers6 had specifically waived their insistence upon this form of security; that the oil companies and interests, not only foreign, but Cuban, had several months ago informed me of their intention to resist the imposition of further taxation upon their products and that if such was undertaken there might be expected a renewal of this resistance; further, that any imposition of taxes of this nature at this time would run counter to the provisions of the Reciprocal Trade Agreement7 which provided that no such [Page 524]changes might be made without previous negotiations between the respective Governments—a matter which I had several times brought to the attention of the Cuban Department of State during the last year. I stated further that I did not wish to occupy a position in favor of legislation which would benefit one group of American interests to the detriment of another, but that I should be remiss if I did not again call his attention to these facts.

The Secretary said that he was aware of this situation and that he was at present devoting all efforts to devising some means whereby revenue might be obtained from these sources without the renewed opposition of the oil interests. I inquired whether he had in mind the taxation of certain derivatives and not others: he replied that such was in his mind: I inquired whether he had kerosene, for example, in mind: he replied that he had and that he was further examining the possibilities of taxation (or other charges) upon products from the selling of which the companies were making large profits: reverting to the general question, I inquired whether he expected early passage of the bill: he replied that he believed that such would be possible, but again emphasized the phase of the matter to which he had previously referred. The conversation terminated at that point.

On the same day I was informed upon fairly good authority that Senator Albanés, who belongs to the Opposition, had stated that he was so convinced that liquidation of the Public Works obligations was essential to the restoration of Cuba’s credit and the extension of credits from the Export-Import Bank that he had informed the leaders of the Government party that he was prepared to vote for the passage of the bill.

Senator Verdeja, President of the Senate, also informed me recently that he believed that it was essential to Cuba’s credit that the bill be passed.

In view of the fact that I had several weeks ago received what appeared to be credible assurances from responsible parties that the question of taxation upon petroleum derivatives would not again arise, and as I had informally mentioned to one of the American oil interests here that such assurances had been conveyed to me, I deemed it proper to inform the same American oil interests—equally informally and unofficially—that I had received information that the question might be renewed. I have reason to believe that the American interests will not only take renewed steps to meet the situation if it recur, but they are willing to discuss with other oil interests, and with the Cuban authorities, methods by which the desired ends may be obtained without resorting to open friction which characterized the last incident of this nature.

J. B[utler] W[right]
  1. Oscar Garcia Montes.
  2. Federico Laredo Bru.
  3. Fulgencia Batista, Chief of Staff of the Cuban Army.
  4. See Foreign Bondholders Protective Council, Inc., Annual Report 1938 (New York, 1939), pp. 344 ff. and 387 ff.
  5. To Warren Brothers Company of Boston was due a large part of the Cuban public works debt for the construction of 481 miles of the Central Highway running from Piñar del Rio to Santiago de Cuba between 1927 and 1931.
  6. Signed August 24, 1934, Department of State Executive Agreement Series No. 67, or 49 Stat. 3559; see also Foreign Relations, 1934, vol. v, pp. 108 ff.