Foreign Relations of the United States Diplomatic Papers, 1939, The American Republics, Volume V

822.51/818

The Ecuadoran Embassy to the Department of State ⁷

undated

Memorandum

Because of the geographical position and topography of its lands, the Republic of Ecuador offers great potentiality for the economic production of every kind of agricultural produce and livestock which up to now has not been developed nor increased due to lack of roads joining productive zones with the shipping ports. The result is that production has been limited to fill in the requirements of local markets and this restriction means that the country has but poorly taken advantage of its agricultural wealth without it being able to reach full rendering desired.

Ecuador’s mineral wealth is apparent but the number of exploiting enterprises working its deposits at present are almost insignificant. Consequently, a net of roads giving access to mining zones and which would connect, safely and economically with sea ports, is indispensable for developing this inexhaustible source towards individual and public prosperity.

Ecuador disposes of vast and extremely fertile lands situated but at a short distance from the chief interior markets and export centers, lands which enjoy healthy climates and suitable for the welcome of thousands of colonists who, without having to bring with them large capital, would soon reach economic independence.

Up to now Ecuador has not stood out as a country which offers great tourist attraction. Its natural beauty and treasures of art as exhibited by her ancient monuments are hardly known. Slow means of traveling has resulted in that Ecuador, much to its economic prejudice, finds itself shut out from the great tourist streams of the world.

The country has tried to live and progress almost by itself and its development has therefore been slow. A working plan to include the elementary requirements of modern commercial intensive living has never been able to be put into practice. It is felt that the moment has arrived when, leaving this conservative policy aside, active development of a programme which includes the scientific exploitation of its natural wealth, can be begun. This would necessarily involve disbursing a large capital and as it is unobtainable within the country, it will have to be obtained from abroad.

The Government of Ecuador began by acknowledging that it is from every point of view essential to come to an arrangement respecting the payment, in cash, of the external debt as represented by the Bonds of the Guayaquil & Quito Railway,⁸ and it is because of this that it has firmly resolved to arrive at a solution which shall equitably consider mutual rights and interests both of the country and its creditors. Nobody has a greater interest than the Government to have its credit unencumbered as soon as ever possible, because it is fully alive to the fact that it is the only way open towards its national economic reconstruction.

The possibility of reaching an agreement with the Bondholders, whereby they would take over the technical management of the Guayaquil and Quito Railway and the Quito Ibarra Railway, for a certain number of years, might also be considered, the Government guaranteeing tariffs which, after carefully studying their relation with the various interests concerned, can render a sufficient margin to cover interest and amortization services on the final amount agreed through negotiation, an arrangement which might be based more or less on the following conditions:

a) If the Bondholders were to esteem it convenient, they would modernize the services of both railways and place them in a condition to render greater revenues;

b) The Bondholders would have to agree as to the necessity of reducing the amount of capital owing in harmony with the net revenue of both railways which would be the only one applicable to the interest and amortization of the capital that would represent the new and final amount of the debt;

c) The Bondholders might furnish the capital necessary to complete the Railway from Ibarra to San Lorenzo or to any other port of the Pacific.

The general idea is that the present development of the country’s business makes it indispensable that a corporation will direct and finance in a thoroughly efficient manner both railways as to place them in a state of paying for the operating, maintenance and depreciation requirements as well as cover interest and amortization of the debt and of the new capital to be furnished by the Bondholders over a prudential number of years. It is thus that the Government would relieve itself of the payment of the debt and the Bondholders would become sufficiently covered. In the event that the railways exploitation revenues showed an excess after meeting interest and amortization services, the Government would have a right to 50% of such excess.

Running parallel to aforementioned, and as an essential complement, efforts should also be made concerning the obtaining of a loan of sixteen million, five hundred thousand dollars.

The Government of Ecuador would distribute the proceeds of the Loan as follows:–

a)	Settlement of Bondholders and Banco Central; payments on outstanding internal debt for fiscal practice during 1938 and for the Salt Bonds	5.5.00,000.00
b)	Highways and Railway betterments	9.000,000.00
c)	Agriculture, Industries and Irrigation	2.000,000.00
	Total	16.500,000.00

The Nation disposes of the following resources for the Loan’s interest and amortization services:

a)	Dues on petroleum and gold productions	680,00.00
b)	Tax on cable service	60,000.00
c)	Consular dues	120,000.00
	Total	860,000.00

It should be observed that these dues are received by the Government in American currency or its equivalent.

It should also be noted that the Government of Ecuador is open to invest what is necessary from this Loan in machinery to carry on the work or to enter into contracts with Foreign Companies to execute same.

It is not opportune to enter into details within the confines of this Memorandum in regard to the reconstructive and reproductive nature of the Loan’s investment, from the point of view of the enormous increment that the many national productive fields would give, based on the incalculable natural wealth of the country, awaiting only the vivifying impulse given by Capital that would obtain a fecund development in productivity, sound and sure foundation for economic individual and collective progress.

At the time of dealing with the details of the financial operation, all the antecedents and statistical data respecting the double fiscal and general economy can be made known, all of which will decidedly strengthen the solidness and security of the guarantee which from now is offered for the payment of the Loan.

7. Handed by the Ecuadoran Ambassador to Under Secretary of State Welles on May 23, 1939.
8. See Foreign Relations, 1936, vol. v, pp. 536 ff.