839.51/4731

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

No. 873

Sir: In the trust that renewed study of the plan to replace the Receiver General of Dominican Customs by a fiscal agent representing the bondholders might afford a basis for revision of the 1924 Convention, I have the honor to submit the following observations, together with a sketch of such a proposed arrangement.

The history of the negotiations between the American and Dominican Governments since 1937, seeking revision of the 1924 Convention, makes it abundantly clear that the two sides to the conversations have been attempting to achieve two mutually conflicting objects: the maintenance of foreign control of Dominican customs collection for the protection of holders of Dominican bonds while at the same time preserving the fiction of Dominican sovereignty over the customs service.

The time has come for a restatement of objectives. … The United States Government in line with its present Latin American policy is willing to give up its present position vis-à-vis the Dominican Government as a tutelary state: to drop out of the picture in so far as collection of the Dominican customs revenues is concerned. It cannot, however, because of the fact that in 19078 and 1924 it pledged its moral credit to the holders of Dominican bonds, admit that the collection of the custom revenues pledged to the repayment of those bonds revert wholly to Dominican hands, in view of the lamentable record of the past with respect to Dominican finances. It is willing, however, by means of a new agreement between the two governments to perfect an arrangement by which the bondholders themselves and the Dominican Government mutually arrange for the collection of customs to be applied to the Dominican foreign debt.

Once these premises have been understood and accepted by the Dominicans the framework of a possible new arrangement could be discussed. As pointed out above it would be in essence an agreement between the Dominican Government and the bondholders themselves confirmed, however, by a new Convention between the American and Dominican Governments thus placing the seal of both states upon an instrument doing away with the now anachronistic Convention of 1924.

The collection of Dominican customs would be arranged by a voluntary delegation of power by the Dominican Republic to its creditors [Page 589] and not to a foreign state as under the existing Convention. Technically this would not be an impairment of sovereignty as the personnel of the customs service would be appointed by the Dominican Executive even though they were selected by the bondholders or their representative, the Fiscal Agent. This in itself is a considerable advance over the juridical position of the Dominican Republic at the present time as a state bound by the 1924 Convention to the American Government. Actually, however—and the Dominicans should not blink the fact—real control of the customs collection would be in the hands of the bondholders through their representative.

The draft of the proposed Convention set forth below would, therefore, contain a considerable amount of sugar-coating and to this country of lawyers should be more acceptable from a legal point of view, particularly with reference to sovereignty. Even though no pretense would be made that the Dominican Government was to have entire control of its customs collection for the application of the revenues therefrom to the payment of the foreign debt, the Dominican Government could truthfully say that it had appointed the Fiscal Agent and other officials charged with such collection and that therefore the customs service was essentially a Dominican organism. The provision in the draft below that the customs service should be staffed by Dominican citizens with the possible exception of the Fiscal Agent and the two assistants he is empowered to nominate, would not change materially the present set up in the Receivership but would satisfy national aspirations in this regard. Furthermore there is nothing in the draft Convention to prevent the appointment of Dominicans to any or all of these three essential posts were they to be nominated by the bondholders or the Fiscal Agent.

In this connection the present draft does not include any phraseology to prevent a stalemate between the nominating power of the Foreign Bondholders Protective Council (this might likewise read the Committee of Dominican Bondholders) and the appointive power of the Dominican President, since this might be more tactfully handled by an exchange of notes in which the two Governments would agree that the President of the Dominican Republic would at once appoint the Fiscal Agent nominated by the bondholders and that he would further at once appoint the personnel of the customs service selected by the Fiscal Agent.

The new draft eliminates two factors of the 1924 Convention which have been onerous to the Dominican Government. The first of these is Article III of the 1924 agreement which gave the United States veto power over the right of the Dominican Government to increase the public debt. Retained, however, is the proviso included in previous drafts of the “Bank Plan” Convention which prevents the Dominican Government from pledging the remainder of the amalgamated customs [Page 590] revenues not applied to the interest and amortization of the present foreign debt as the basis for any new financial obligation.

Another objectionable feature from the Dominican point of view to the 1924 Convention has been the practical freezing of the customs tariff in effect when the 1924 Convention was ratified without ease of modification. The draft Convention9 appended to this memorandum, in interjecting the idea of an amalgamation of the old customs tariff and the present duties on imports levied in the guise of so-called internal revenue taxes, gives the Dominican Republic a welcome opportunity for a scientific revision of its present antiquated tariff structure. This revision would, it is logical to expect, result in improved revenues for the Government as compared with the present tariff schedules. It would also serve, provided the study be made by expert economists, to increase commerce in the Dominican Republic. Furthermore, it would be possible under the proposed draft Convention for this new amalgamated customs tariff to be revised from time to time as the needs of the Dominican Republic gave warrant, provided always, of course, that such revision would not so diminish the customs revenues as to impair the services of amortization and interest on the foreign debt.

Under the draft Convention appended herewith there would be no need for any reference to the bank plan. It is an open question if the Dominican Republic is particularly enthusiastic for a national bank. … There is an unlimited field of potential legislation open to the Dominican Government which would in effect create a monopoly for the national bank of all commercial financial transactions. … Should a Dominican National Bank be created under the auspices of the American Government and prove a failure it would be difficult for the United States to escape censure.

However, as between the two governments it appears that the Department of State is not directly concerned with whether the Dominican Republic acquires a national bank or not. Our sole objective is to remove the United States Government from its present position of fiscal guardian to the Dominican Republic and to replace the American Government by a representative of the bondholders for the protection of their equity as represented by the Dominican foreign debt. The establishment of a national bank has no particular effect upon the attainment of these objectives. The question should more properly be one for private negotiation between the Dominican Government and the American bank now apparently eager to dispose of its business in the Dominican Republic. It would appear that the fundamental policy of the Department may become beclouded by connecting a new political arrangement between the two governments with a private contract of sale between a bank and the Dominican Government; and [Page 591] that the success of our own negotiations may be impaired because of their linking with private negotiations.

Also to be considered as an essential concomitant to the proposed draft Convention would be an exchange of notes providing for an orderly liquidation of the Dominican floating debt and an exchange of notes establishing a Receivership pension plan. If the Dominican Government is, as it will claim in the negotiations, a solvent organization whose credit is sound and whose finances are in order there is no reason on earth why its long outstanding floating debt obligations, most of which are small in amount and owned by persons fully as necessitous of money as the Dominican Government, should not be paid. As for the pension plan it is a sound system which has received Government approval and to which no objection can be offered.

In the final analysis there are only two points upon which agreement must be reached. One of these points is already accepted by both governments—that the United States shall cease to collect Dominican customs for the benefit of the bondholders of the Dominican Republic. The other point has not been accepted but it seems reasonable and might eventually form the basis of agreement—that the bondholders be assured their money will be repaid to them by supervising the collection of the revenues pledged to their debt, through an official of their own choosing, whose authority over the customs service shall be adequate, but who shall act for the Dominican Government as well as for the bondholders.

Respectfully yours,

R. Henry Norweb
  1. See convention signed February 8, 1907, Foreign Relations, 1907, vol. i, p. 307.
  2. Not printed.