Memorandum by the Chief of the Division of Caribbean and Central American Affairs (Cabot)

On December 5 Mr. LeBaron had a talk with the Costa Rican Ambassador and handed him the letter18 which had been drafted in consultation with the State Department and signed by Mr. Pierson. The Costa Rican Ambassador promptly became greatly excited and irritated. [Page 889] He said that it was not true that the Costa Rican Congress had rejected the amendatory agreement, that it had merely proposed an alternative agreement. He refused to receive the Bank’s letter and said that he would telegraph immediately to President Picado recommending that the amendatory agreement be approved by Congress. Mr. LeBaron said that he did not think that this would be correct on the part of Costa Rica and that he wished to let us know what had happened because the Costa Rican Ambassador announced that he was coming over to see us immediately.

The Costa Rican Ambassador did call on me that afternoon, but merely to give me a memorandum and invite me to lunch. The conversation was brief and affable. No mention was made of the Bank matter.

I drafted a telegram relating the day’s events to the Embassy in Costa Rica. Mr. Armour,19 however, questioned the propriety of the Bank’s act in seeking to withdraw the amendatory agreement. He pointed out that it had been signed by both parties and that legally exception might be taken to the Bank’s unilateral withdrawal.

The following morning I spoke to Mr. LeBaron. He said that there could be no legal question of the right of the Bank to withdraw from the agreement at any time previous to its acceptance by the Costa Rican Congress. It was in the nature of an offer and could not be binding on one party until it was binding on both. He said, however, that some other developments had occurred, about which he wished to come to see me.

Shortly thereafter Mr. LeBaron spoke to Mr. McGurk20 and me. He showed us copies of two telegrams from Costa Rica. The first stated that the Congressional Committee had already approved the amendatory agreement on December 4, i.e. the day before Mr. LeBaron’s talk with the Costa Rican Ambassador. The second, from Don Julio Peña, admitted that, upon receipt of word from the Bank that it would agree to an amendatory agreement, he had released funds from the account for the service of the Bank loan.

Mr. LeBaron explained that for three months the Bank had received no report from Don Julio regarding the account for the service of the loan. He had suggested to Mr. Pierson that the Bank might have released funds under pressure from the Government, and some days ago a telegram of inquiry had consequently been sent. It was now clear that Don Julio had deceived the Bank on two important matters, first, by stating that the Government had made fiscal reforms which had never been made, and secondj by releasing funds contrary to the Bank’s agreement.

[Page 890]

After some discussion it was agreed that it would be unwise to force the issue under the present circumstances. Mr. McGurk suggested that Mr. LeBaron had better fly immediately to Costa Rica to straighten the matter out. It was agreed that the alternative was to let the matter drop altogether; it was felt that this would place the Bank in the strongest possible position to refuse a further extension next year, when the Costa Rican Government would almost undoubtedly seek a further extension.

Mr. LeBaron informed me on December 9 that Mr. Pierson had decided on the latter course.

John M. Cabot
  1. Supra.
  2. Norman Armour, Acting Chief, Office of American Republic Affairs.
  3. Joseph F. McGurk, Acting Deputy Director, Office of American Republic Affairs.