818.51/12–644
Memorandum by Mr. Eugene LeBaron of the Export-Import Bank 14
Dr. Francisco de P. Gutiérrez, Costa Rican Ambassador, called this morning with regard to our Amendatory Agreement of September 28, 1944.15
[Page 886]The above-mentioned Amendatory Agreement would postpone by one year the payment of the installments of principal on the loan made to Costa Rica by our Agreement of July 9, 1942. The entire $2,000,000 under that line of credit was disbursed. Interest only was payable to August 1, 1944. All interest payments to that date were promptly made. The first installment of principal, equivalent to 5% of the entire loan, will become due and payable on February 1, 1945. Under the Amendatory Agreement interest only would be paid on February 1 and August 1, 1945 and the first installment of principal would become due and payable on February 1, 1946. The Amendatory Agreement “shall enter into effect only on publication in the Diario Oficial of the law of approval adopted by the National Congress” of Costa Rica.
The President of Costa Rica submitted the Amendatory Agreement to Congress and requested legislative approval thereof. The Congressional Committee to which the bill was referred declined to report but issued a statement, a copy of which is attached,16 calling upon the Executive to request Export-Import Bank to postpone the payment of installments of principal until one year after the establishment of “world peace”.
The Ambassador told me this morning that the President of Costa Rica has not been able to effect the fiscal and monetary reforms which he had in mind at the time he was inaugurated and which were outlined to us by Don Julio Peña in May. The various Ministries are still spending money in excess of requirements and probably in excess of sums appropriated in the national budget. Taxes already on the statute books are not being collected. Governmental economies have not been effected. Certain steps have been taken to reform control of Government accounting and disbursements but these reforms apparently have been of no avail to date.
The Ambassador says that any drastic steps to put Costa Rican finances on a sound basis would result in an overthrow of the Picado Administration either by peaceful or violent means. Apparently Don Julio’s usually sound judgment was colored by his desire to aid the Picado Administration when he informed us by cable on August 29 that the fiscal changes previously discussed had been adopted. It was on the basis of Don Julio’s cable and his recommendation that we agreed to postpone payment of installments of principal by one year.
The Ambassador stated that Costa Rica will be just as badly off in August 1946 as it was last August—that the situation cannot improve and that any change will only be for the worse. Notwithstanding his frank appraisal of the present situation in that country, the Ambassador is anxious to obtain from Eximbank a revision of the Amendatory Agreement improving its terms, from the Costa Rican [Page 887] point of view, even though he may not be able to obtain all the Congressional Committee wants. The Ambassador’s efforts are due to (1) the declination of the Congressional Committee to recommend legislative approval of the Amendatory Agreement in the hope that more liberal terms could be obtained from Export-Import Bank and (2) instructions to the Ambassador from the President.
The Ambassador asked me to look into the above possibility informally and to let him know whether or not Eximbank was prepared to review the terms of the Amendatory Agreement. In the event of an affirmative answer, the Ambassador will then file a formal request with us along the foregoing lines. If our reply should be negative, he would so advise his Government so that the Costa Rican Congress could then be requested promptly to approve the Amendatory Agreement in its present form.
The tobacco tax, which is pledged further to secure our loan, produced during the semester ending July 31, 1944 the sum of ¢1,199,771.62, equivalent to $213,500. The installment of principal due February 1, 1945 is $100,000. Interest due will amount to $40,000. Total due on February 1 will be $140,000. If the tobacco tax should produce between August 1, 1944 and January 31, 1945 the same revenues it did during the preceding semester, the sum thus deposited to service our loan would leave an excess of approximately $73,500. During the month of August 1944, the only month for which we have any figures, the tobacco tax produced ¢214,741.97. If this rate were maintained throughout the present semester, revenues from this tax would produce ¢1,285,000, equivalent to $215,000, or slightly in excess of the yield during the preceding semester.
Inasmuch as the Bank was probably misinformed and should not postpone amortization of principal for a vague or indefinite period, it is recommended that consideration be given to withdrawing the Amendatory Agreement of September 28 and allowing matters to proceed on the basis contemplated at the time we made the loan in July 1942 and in accordance with the Agreement of that date.