Memorandum by the Ambassador to Cuba (Messersmith)45
I offer the following comments on the counterproposals submitted by the Minister of State of Cuba, Dr. Cortina,46 for the Department’s consideration:
The prolonged conversations which the Cuban Delegation had in Washington with respect to the loan for $50,000,000 requested by the Cuban Government and the failure to arrive at any definite conclusions before the return of the Delegation to Habana have had an undoubted effect in decreasing the prestige and authority of the present Cuban Government. It will be recalled that the Cuban Government passed the authorizing act for a $50,000,000 loan without previous consultation with our Government and that there had been no preliminary preparation between the two Governments for the negotiation of a loan. I have every reason to believe that the Cuban Government caused this authorizing act to be passed on the basis of misapprehensions which it had concerning the form and the conditions under which a loan could be secured from our Government.
The counterproposals made by the Minister of State, Dr. Cortina, now before the Department for its consideration, have been made, I believe, in good faith and with the desire to present a basis for economic and financial cooperation and assistance acceptable to our Government. The situation in Cuba is such, and our interest in the Cuban situation for economic and defense reasons is such, that I believe the counterproposals should be given as prompt consideration as possible and considered in the light of all the factors involved in our relationships with Cuba.
The situation with which Cuba is faced through the loss of her European markets for sugar and tobacco is a serious one and one which we cannot ignore and must take into account in all consideration which we give to the political and defense factors involved in our relationships. There is not only the loss to the Cuban economy involved in the practical disappearance of these exports to Europe, but also the loss of revenue to the Cuban Government through import duties on goods which formerly were imported from Europe and which now come from the United States, paying under our reciprocal trade treaty lower rates than if they came from Europe. There is, therefore, a [Page 128] definite loss to the Cuban economy through the dropping off of exports and loss in revenue to the Cuban Treasury through lower customs revenue on imports.
Any consideration of the economic situation in Cuba emphasizes the importance of aid first on sugar. The closing of the European market will make it necessary for the Cuban Government to fix the grinding quota for this year at 2,000,000 tons, as this is all that the American and Cuban markets will absorb under present quotas and conditions. If this action has to be taken by the Cuban Government, there will be, within three or four months at the latest, economic distress of a character which will with almost definite certainty bring about social and political unrest of a serious character. A considerable part of the Cuban population earns during the cutting and grinding season the actual money on which they have to exist during the whole of the year. If this grinding season is materially reduced, there will be economic distress which will assume serious proportions first in the rural districts and then in the cities. The Communist elements in Cuba are already exploiting the rural laborers and the poorer people in the cities, and would be the active factor to bring about social and political disorders.
It is my considered opinion that the most effective step we can take to maintain the Cuban economic situation is to make it possible for the grinding quota to be fixed for this year at 2,500,000 tons instead of 2,000,000 tons. This is the Department’s attitude and appropriate measures are now in progress to secure the cooperation of the Export-Import Bank in the financing of these 500,000 tons. I will not discuss here the details of this measure, nor its effects, because these are so well known in the Department, but it is sufficient to say here that the money loaned by the Export-Import Bank on this sugar would go almost entirely into the payment of wages. It is the one step which we can take immediately which is certain to avoid economic disaster in Cuba and its inevitable consequences, which we wish to avoid.
This aid on sugar, therefore, is as imperative as it is desirable and I have the conviction that it will prove to have been a desirable transaction for our Government not only from the point of view of maintaining stability in Cuba, but also that the sugars involved can in various ways be disposed of, so that there will be no loss, or at the most no appreciable loss, to our Government through the transaction.
The effect of the sugar transaction will be to strengthen the position of the Cuban Government by increasing its prestige and authority and laying the first basis for measures which it is indispensable that the Cuban Government take. There are, however, in my opinion further measures which must be taken by our Government on the basis of the proposals made by the Minister of State, Dr. Cortina.[Page 129]
In the counterproposals submitted by the Cuban Government, there is a request for the immediate consideration by our Government of the agreement in principle on a credit to the Cuban Government of $10,000,000 for agricultural diversification projects and a credit for public works in an amount not fixed and left to the determination of our Government. The memorandum of the Minister of State points out that no money would actually pass into the hands of the Cuban Government on the basis of this agreement in principle. He has indicated that the individual projects under the agricultural program and the public works program would be agreed upon between the Cuban Government and the representative or representatives of the Export-Import Bank. No money would be paid out on the basis of any approved project for which an allocation had been made under the credit by agreement, except on the basis of vouchers approved by the representative of the Export-Import Bank. I believe that such an arrangement would offer ample safeguards to both Governments to prevent the passing of money into the hands of improper persons and that the control which would be exercised over the expenditure of funds which we might loan to Cuba would be greater than that envisaged in any proposals which we have made to the Cuban Government.
I believe that it is desirable that we should proceed immediately with the appropriate consultation with the Export-Import Bank and other agencies of our Government to secure agreement by our Government on the opening of a credit to Cuba under the above conditions for $10,000,000 for agricultural projects and $20,000,000 for public works projects. As legislation by the Cuban Government will be necessary for the funding and repayment of the debt, et cetera, it will be necessary to fix a maximum amount which we are prepared to give for agricultural diversification and public works projects, and such an amount would have to be included in the Cuban law.
On the basis of the assumption that we will make a loan on 500,000 tons of sugar within a very short period, I believe that this further action of announcing agreement in principle between the American and Cuban Governments for a credit of $10,000,000 for agricultural diversification projects and $20,000,000 for public works projects is essential and desirable. The loan on sugar will meet the immediate situation in avoiding economic distress and consequent social and political disorders. The effect of the action on sugar will be immediate and widespread throughout the island. If we agree in principle with the Cuban Government for the agricultural credit and public works credit, there will be a period of six to eight months before the effects will be felt in the Cuban economy through actual work on projects because of the surveys which will have to be made, the decisions which will have to be reached and the actual work on the projects.[Page 130]
The Minister of State has emphasized the importance of the announcement of agreement in principle on agricultural and public works credits. The successful conclusion of action on sugar will give the Government the prestige which it sadly needs, he says. This further action on agricultural and public works credits, he says, is necessary to meet the economic problem of Cuba, et cetera, and also as a further measure to give the Cuban Government the prestige which is necessary among the mass of the people in order to enable it to proceed with the reforms in the Treasury, in the Customs, in the Army, and in the Budget, which the Cuban Government is in agreement are essential and in which our Government is also interested so definitely. He says that, without this prestige which such action by our Government will give, it is quite impossible for the Cuban Government to proceed with a program of reforms in the Treasury, in the Customs, in the Army and in certain other administrative organisms and practices.
The Foreign Minister has stated that these reforms will have to be made by the Cuban Government itself rather than through joint committees of Cuban and American officials. Any action through joint committees, he states, would simply undermine the already too-small prestige of the Cuban Government. This would not exclude, however, the collaboration of experts of our Government, who would be welcomed by the Cuban Government and who could lend their effective assistance as definitely in this way as if they were actually on a joint committee. The procedure would avoid further lowering of the prestige of the Cuban Government.
The Minister of State has indicated that he realizes our interest in certain administrative reforms and procedures. These, he says, the Cuban Government is prepared to carry through. Under present circumstances, they could not carry through such reforms, as the Government is without the necessary prestige. With the action on sugar contemplated and with agreement in principle announced between the two Governments on agricultural and public works credits, the Government would have the necessary prestige among the masses to proceed with the necessary reforms and changes. He emphasized that reforms would have to be made in the Army at the same time that they are made in the civil administration, and it is quite obvious that, if the Government takes these steps without the necessary prestige which comes from the assurance of these agreements and the support of our Government, the Government would be destroying itself.
I am on the whole in agreement with this attitude of the Minister and I believe that we cannot expect performance under any circumstances unless we give the Cuban Government the prestige which it so sadly needs. Unless we take the appropriate steps we will be faced eventually by economic and social disorders, with political consequences. [Page 131] These would not lead necessarily, and in my opinion would not lead, to a better government to replace the present one, unless we intervened either indirectly or directly in the establishment of the new Government. Such intervention, even indirect, I believe we wish to avoid.
The proposals of the Foreign Minister, I believe, present a sound basis of approach to the problem and for the purpose the only feasible one. We are interested in the maintenance of economic, social and political stability in Cuba not only for economic reasons, but now for compelling political and strategic reasons. This is the first constitutional Government which Cuba has had for seven years and we would, I believe, be placing ourselves in an impossible position if we do not give the present Government the support which it needs.
I believe we must bear in mind certain factors which bear on our attitude during the last year. Cuba bought approximately $80,000,000 worth of American merchandise, for which we were paid without any assistance on exchange or loans. She has continued to meet the interest on her public debt promptly. She has made the last payment under the Chadbourne Plan. She has in no way interfered, through export or import restrictions, on American goods, et cetera. She has paid promptly and in dollars her current obligations without any assistance on exchange or without loans. The Cuban Congress has approved the funding of the last part of the public works obligations as a measure of reestablishment of credit. Our Government made no promises of aid and, in all my conversations, I refrained from any such promises. I indicated, as I had authorization to do, that we considered the passing of the public works bill47 as a necessary action to reestablish Cuban credit. The Cuban Government undoubtedly, however, had in mind our program of financial and economic cooperation with the other American republics and was influenced in its action on the public works bill by obvious considerations of future assistance from us.
There is the further consideration that Cuba has shown the most definite attitude of complete cooperation so far in matters of Cuban, American, and inter-American defense. Probably no other American republic has taken so completely cooperative an attitude as Cuba in matters of defense. So far this cooperation has not been a matter of quid pro quo and the President and Foreign Minister have repeatedly assured that it will not be made a question of quid pro quo. It is obvious, however, that for political and strategic reasons this complete cooperation in defense with Cuba is in many respects more important to us than that with any of the American republics.
On our side, so far as Cuba is concerned, we have done nothing in the way of assisting her in recent years beyond the maintenance of a quota for sugar and in this we cannot claim too great virtue. It was on our [Page 132] initiative and as a measure of cooperation with us in times of stress that Cuba raised her sugar production to high levels. Since then we have been consistently reducing our takings of Cuban sugar and, while we have given the advice that Cuba should resort to greater agricultural diversification in order to meet our own problem of increasing domestic sugar production, we have done nothing of a definite character in the way of financial assistance, or real cooperation on an effective scale in aiding diversification.
There appears to be, therefore, on the whole a fair balance on the side of Cuba and if we wish to maintain the very considerable market we have for American goods, to maintain economic, social and political stability and to keep the way open for the most complete cooperation in defense, there are certain measures which we shall in all prudence have to take.
These measures are:
- The completion of a mutually satisfactory arrangement for the financing of 500,000 tons of sugar;
- The announcement of the agreement in principle between American and Cuban Governments of a credit of $10,000,000 for agricultural projects and $20,000,000 for public works projects;
- The immediate consideration of the Government of Cuba’s request for studies of the establishment of a central bank, et cetera, and the sending of the appropriate experts of our Government to Cuba for the studying of this problem with the Cuban Government.
The Cuban Government on its side, on the agreement on the sugar aid and the announcement of the credits above mentioned would begin a program of administrative reforms in the Treasury, in the Customs and other organisms of the Government. These reforms would involve the dismissal of individuals who have been guilty of improper practices or have sponsored them. It would include the study and progressive carrying through of the administrative reforms and practices. The appropriate action on the reduction in the budget would be carried through and approved by the Congress.
The Minister of State has pointed out that his counterproposals call for a program of mutual fulfilment. He has emphasized that under the proposals no money comes into the hands of the Cuban Government so that our Government is in a position at any time through the Export-Import Bank to stop the approval of projects or the payment of vouchers under projects approved. In case the Cuban Government does not immediately and progressively take action along the lines on which it has indicated its willingness to proceed, we can stop any further action on approval of projects or payments on projects. The Minister states that no Cuban Government could afford not to proceed with such a program of fulfilment on its part as such failure would [Page 133] destroy the Government itself. If it became known, as it inevitably would, that it had been through failure of the Cuban Government to meet its responsibilities and promises that productive and constructive work in Cuba fostered by our Government was not being carried forward, the Cuban Government could not withstand such a situation and would therefore be forced to follow a policy of fulfilment.
The Cuban Government has expressed its willingness to begin immediately negotiations for a new treaty of navigation and residence on broad lines and also desires to proceed with a revision of the trade agreement or the negotiation of a supplementary trade agreement. It is prepared to begin these negotiations at once and in my opinion immediate steps should be taken on both sides toward the opening of such negotiations.
I realize that, on the basis of past performance in certain aspects of Cuban-American relationships, we cannot place too much dependence on certain Cuban promises and assurances. On the other hand, the performance of the Cuban Government with regard to its obligations, commercial and Government, is on the whole as good as that of any of the other American republics and it has met its debt payments, et cetera, without any assistance through recent loans. The program suggested and proposed in the memorandum of the Minister of State provides, I believe, a quite safe and in many respects sound basis for mutual fulfilment and a program which I believe the Cuban Government will be required to meet. It is, I believe, the only basis on which we can proceed at this time unless we wish to be faced by a situation in which direct or indirect intervention will become necessary for reasons of political security and defense.