The Chief of the Division of the American Republics (Bonsal) to the Ambassador in Panama (Wilson)

My Dear Mr. Ambassador: I refer to our recent correspondence regarding the disposition of the net surplus resulting from the water revenue collections in the Republic of Panama and acknowledge the receipt of your letter of May 7, 1943, with its enclosed copy of a communication, dated May 4, from Governor Edgerton to you.35 I note that the surplus is considerably larger than we had thought; namely, some $900,000 rather than $500,000. I feel, and believe that you agree with me, that it would be highly undesirable for us to engage [Page 658] in any discussion whatsoever with the Panamanian Government relative to the amount of this surplus.

Fortunately, Governor Edgerton is not strongly advocating that the remaining unamortized capital cost of some $824,000 be liquidated from the existing surplus for I concur fully with you that this would not be the proper method of disposing of these funds In presenting the legislation to the Congress it was made perfectly clear that the enactment of the bill would relieve Panama of all further obligation of amortization and interest payments. The House and Senate were never led to believe that the unamortized value would be collected in any way from Panama. It was contemplated that the legislation would wipe out all Panamanian indebtedness, in so far as the water and sewerage installations were concerned.

I was glad to note your reaction to my suggestion that this surplus fund should be expended for the benefit of the users of water from whom the monies were originally collected. I did not wish to imply, however, that this fund should be applied to the cost of operation of the water and sewerage systems, or to garbage disposal in the cities of Panama and Colon. In fact, I feel strongly that the surplus water fund should be used only for capital purposes.

I have examined again our files and find that in a memorandum of March 20, 194236 Dr. Stayer, Chief Health Officer of The Panama Canal, pointed out the following to Governor Edgerton with respect to the current condition of the water and sewerage systems:

“The aqueducts of both sewerage and water systems are old, the terra cotta of the sewers has resulted in seepage, and the corrosion of the water pipes is such that renewals in the near future will be required at considerable expense. It is not beyond some doubt that such deteriorated materials would lead to cross-infection from sewers to water system and since any cross-contamination would be a health hazard to Canal Zone residents as well as residents of Panama, it is best to keep control of the entire systems. The cost of replacing worn aqueducts would be prohibitive from the Republic of Panama standpoint.”

As you know and have pointed out to the Department so many times, it is very necessary that these installations be kept in good repair in order to avoid unsanitary conditions in such a vital and strategic area of the Isthmus. Obviously, the Panamanians are not able either financially or technically to make the repairs which are needed. Since the application to repairs on the water and sewerage systems of the surplus under discussion would apparently relieve Panama of appreciable expenditures in the very near future I am inclined to feel that it will not be difficult to obtain complete agreement from the interested parties regarding this use of the surplus fund.

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I shall be anxious to hear from you again on this question and to be kept fully informed on the development of Governor Edgerton’s thoughts on the matter.

With best regards,

Sincerely yours,

P[hilip] W. B[onsal]
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