Memorandum by the Assistant Chief of the Division of the American Republics (Bonsal)40

On May 13 the Coordinating Committee submitted to the Constituent Assembly two proposals, one on behalf of the majority and the other on behalf of the minority, relative to the existing credit moratoria. These two proposals are briefly described below. Both proposals take the form of transitory provisions to be inserted into the constitution and not to be subject to the terms of Articles 25 and 26 of the constitution relative to the retroactivity of laws and the impairment of the obligations of contract. Ambassador Martinez Fraga41 today furnished you with a copy of the majority proposal only.

The majority proposal

This proposal provides that:

Congress is to have complete power of legislating regarding obligations which the moratoria were intended to cover regardless of whether rights under the moratorium were waived or direct adjustments made. Certain obligations, especially those relating to the sugar industry, contracted after the enactment of the moratorium legislation of 1934 are included within the scope of the present proposal. Unless Congress legislates within a period of two and one-half years, the original moratoria would again come into force as though newly enacted without reference to economic conditions which might exist at the time. The result would be to place the credits more or less permanently on the basis provided in the first five years of the moratorium legislation now in force. This proposal is not acceptable to creditor interests.

The minority proposal

This proposal applies only to obligations affected by the moratorium legislation of 1934 and which are still in effect. The date of origin of such obligations is changed from that of their original signature to the date on which the present provision comes into force. The rate of interest is fixed at five percent for amounts of less than $50,000 and at three percent on amounts in excess thereof. (It is [Page 764] understood that a flat rate of four percent has now been agreed to by the supporters of this proposal.) Amounts accrued on account of past due interest payments or penal interests are condoned. The date of maturity of obligations is extended by five years; if the obligation falls due in its entirety at a given date according to the original instrument, payment will now be made in five annual instalments beginning one year after the original due date. In the case of amortizable obligations, the period of amortization is extended by five years.

Mr. Lancaster42 indicated a number of objections to this proposal. However, Mr. Beaulac43 reported this morning that Messrs. Rosenthall44 and Heneman45 were in general agreement therewith. This minority proposal is said to have the support of the Menocalistas, the Autenticos, and the ABC’s. Mr. Beaulac has been authorized to state, as a personal expression of opinion, that the proposal would not meet with objection from this Government.

  1. Addressed to the Ambassador to Cuba (Messersmith) and the Under Secretary of State (Welles).
  2. Cuban Ambassador in the United States.
  3. W. W. Lancaster of Shearman and Sterling, counsel for the National City Bank of New York.
  4. Willard L. Beaulac, Chargé in Cuba.
  5. Louis S. Rosenthal, vice president of Chase National Bank and head of the Habana Branch.
  6. Harry Henneman of the National City Bank of New York.