When the note was handed to the Cuban Ambassador, occasion was taken to say that there appears to be little chance of a revision of the treaty, and that if the question were re-opened, it is not impossible that Congress would take action looking toward an arrangement less favorable to Cuba than the present arrangement.

As to the general effects of the treaty, it was pointed out that under the treaty the proportion of American consumption of sugar supplied by Cuba has grown from about 32% in 1901-04 to about 60% at present. During the period since the treaty was signed, Cuban sugar production has increased nearly five fold, and Cuba has been given a practical monopoly of the sugar import trade of the United States.

Regarding the disappearance of the price differential which during earlier years operated in favor of Cuban sugar, the observation was made that such a temporary advantage is of an unusual nature in the operation of reciprocity treaties; and that its disappearance was due to the rapid progress of the Cuban sugar industry so that it could supply all the import requirements of the United States.

I am [etc.]

For the Secretary of State:

FRANCIS WHITE

EXTENSION OF CREDIT FOR $50,000,000 TO THE CUBAN GOVERNMENT BY THE CHASE NATIONAL BANK

837.51/1265

Memorandum by the Acting Economic Adviser (Livesey)

[WASHINGTON,] May 3, 1928. Ambassador Judah on his recent visit to the Department left for its files the attached copy of the Cuban Department of Public Works' statement of November 1927 showing the revenues collected on account of the Public Works Special Fund by months and years from July 1925 through November 1927. The total collections are shown as $36,038,724.14, a monthly average of $1,315,330.60 and an annual average of $14,997,228.80. The statement shows the detail of the collections of each revenue created for the fund. These details do not appear to have been previously available to the Department as the accounts of the Special Fund are not included in the Cuban budget accounts of which the Department receives detailed monthly extracts.

It is notable that the law of July 15, 1925, establishing the fund included a provision that:

"The Executive will adopt the methods and procedures it may deem most effective; but at no time shall they be contracted in such a man

'Not printed.

ner that the total annual amount to be paid, in whole or in part, can not be covered within each fiscal year, from the nominal income calculated for that year, from the special fund created by this Law for such works in order that it will not be necessary to issue certificates of indebtedness or other documents of a similar nature for the payment of obligations contracted, it being understood that the Executive shall be authorized to enter into all contracts deemed convenient, within said four years, provided that in carrying same out, the above-mentioned conditions are strictly adhered to, even if the mentioned contracts have to be fulfilled after the four years."

In February, 1927, however, the Republic of Cuba contracted for the issue of certificates representing and constituting

"the irrevocable and incontestable contract obligation of the Republic to pay the principal amount hereof and interest thereon . . .sa without right of reduction or counter claim for any reason whatsoever, such payments being secured . . . by a first preferential right to 90 per centum of the normal revenues... to be derived from the taxes and economic resources specified in the Public Works Law of July 15, 1925."

On March 31, 1928, the embassy reported that the Government of Cuba was negotiating for a $20,000,000 revolving credit similar to the credit extended by the Chase National Bank. On April 16 it reported that the Government had increased the amount of the proposed credit to $25,000,000 and a day or two later proposed a further increase of $7,000,000. On May 2 it telegraphed that the Secretary of the Treasury had requested bids for a credit of $40,000,000 to $50,000,000 to be submitted May 12.

F[REDERICK] LIVESEY]

837.51/1267

The Chargé in Cuba (Curtis) to the Secretary of State No. 227

HABANA, May 3, 1928.
[Received May 7.]

SIR: Referring to the Embassy's despatch No. 183 of April 16, 1928, and my telegram No. 62 of May 2, three p. m., I have the honor to transmit herewith the Spanish text and English translation of an invitation, dated April 28, 1928, which yesterday reached local bankers, to submit bids on their own behalf or that of their home offices for the further financing of the Central Highway project to the amount of not less than forty nor more than fifty million dollars. It will be seen that from the text of the communication the bidders are

The omissions in this paragraph are indicated in the original memorandum. "Not printed.

desired to consider the operation as a simple advance to the contractors of sums which the Government is subsequently to receive from the normal estimated revenues during the last four years of the operation of the Public Works plan of July 15, 1925, it evidently being intended that the bankers' security shall lie in some sort of lien on the revenues of the last four years cited. The bidders are to draft their proposals for such an "advance", drawing up their own terms, which shall be submitted for the consideration of a board comprised of the Secretaries of Treasury and Public Works, the bids to be opened at three p. m. on May 12, 1928.

The authority (?) to call for bids without resort to general advertising is found in Article 282 of the Contract for the construction of the Highway, entered into between the Cuban Government and Warren Brothers, the sixth paragraph of that article permitting the contractor to make proposals concerning necessary additional financing. Theoretically, I understand, such proposals as shall now be made by banking entities will be considered as made in conjunction with Warren Brothers under its contractual authority. The English text of this contract is available to the Department by reference to the Embassy's despatch No. 193 of April 17, 1928.10

As to the security for the projected "advance" of funds, it will be observed that the invitation makes specific mention of the fact that use has already been made of the special revenues to accrue during the fiscal year 1930-1931 for the carrying out of the contract with the Chase National Bank of New York. It will be recalled from that contract, the text of which was transmitted with the Embassy's despatch No. 1893 of March 5, 1927,10 that by Article 9 the Government pledged to the Bank, as security for principal and interest, a first preferential right to ninety per cent of the normal revenues, estimated at $18,000,000, for the period from July 1, 1930 to June 30, 1931 and if said revenues should not be sufficient, the same preferential right in each subsequent fiscal year for the balance of the ten year period which the special Public Works taxes are to run. The Government also pledged a preferential right to ninety per cent of the estimated normal revenues to be derived each fiscal year during the intervening period from July 1, 1927, to June 30, 1930, as a special guarantee of payment of interest accruing in each such intervening year. Likewise the last paragraph of Article 282 of the Warren Brothers' contract allocates to that Company as security forty per cent of the special revenues accruing under the Public Works Law.

From the above, it is evident that not only are the revenues for the fiscal year 1930-1931 pledged to the Chase Bank but also, in a contingent manner, the revenues are encumbered for the years prior

10 Not printed.

and subsequent to that year. This being the case, any banking institution which bids upon the suggested financing, if it accepts the revenues from the last four years of the taxes as security for the "advance", must do so subject to the prior rights thereon of the Chase Bank or must discover some means to cause that bank to relinquish its lien on those revenues. It may be that it is contemplated paying off the Chase loan from the sum to be derived from the anticipated credit of forty to fifty million dollars, so liquidating in entirety the mortgage held by the Chase Bank.

In this general connection, it should be asserted that during the month of April the Government commenced to draw for the first time against the ten million dollar Chase credit. Slightly in excess of one and one half million dollars has thus far been so drawn, leaving a balance as of today of approximately eight and a half million. . .

When the Chase credit was under process of negotiation-a credit smaller but analogous in nature to the advance now solicited-the Department sent to the Embassy a telegraphic instruction, No. 147 of December 11, two p. m., 1926," by which the Embassy was authorized to inform the President that the Government of the United States did not raise any objection to the proposed financing or request the Cuban Government formally to consult the United States in the premises, this stand being taken in view of the constructive purpose of the loan, and the relatively improved financial condition of Cuba. It is respectfully requested that the Department indicate whether it is desirous of adopting the same attitude with regard to the present financing.

In formulating its attitude, it is recommended that the Department study my despatch No. 223 of today's date concerning the financial condition of the Cuban treasury." From that despatch it will be evident that instead of reflecting a relatively improved financial condition, as was the case at the time the Department's above cited telegram was drafted, the Government revenues are falling off seriously and give promise of declining further before improving. With a continuation of the economic crisis a deficit of considerable size looms as probable for the present fiscal year. The receipts from the special Public Works taxes, on the other hand, are being maintained satisfactorily at approximately $17,000,000 per annum and it is, of course, on these revenues and not the general budget that the projected credit is predicated; although the state of the treasury should not be lost sight of.

In closing, it should be remarked that, in view of the Department's telegraphic instruction No. 147 of December 11, two p. m., 1926, in which it was stated that consultation on the Chase credit was not requested, I am not surprised that the President did not consult the Embassy before addressing the banks on April 28. I am, however,

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considerably surprised that he should have permitted that step to have been taken at all when one considers his repeated assurances that no further financing would be undertaken. Particularly categorical was his statement, as quoted in my despatch No. 2425 of December 17, 1925 [1927],12 that:

"There will be no loan made by Cuba during my administration. If any bill is passed by the Congress providing for a loan, I shall veto it. If any loan bill is approved by the President, it will be by my successor and not by me.

and his assertion, paraphrased in despatch No. 162 of March 31, 1928,12 to the effect that the Government was not going to make any loan, that the special Public Works taxes were bringing in more money than had been anticipated and that he would have enough money from this source to complete his program of public works. I have [etc.]

C. B. CURTIS

837.51/1263

The Secretary of State to the Chargé in Cuba (Curtis) No. 143

WASHINGTON, May 5, 1928. SIR: The Department has received your telegram No. 62, May 2, 3 p. m., and your despatches No. 162 and No. 183 of March 31, 1928, and April 16, 1928, respectively,18 regarding the desire of the Cuban Government to negotiate a further credit in connection with the Public Works Special Fund.

You are instructed to call on the Cuban Department of State and to discuss the matter informally, pointing out that in view of the public call for bids, it is expected that requests for information and a statement of the Department's views in the matter will be received by the Department. The Embassy has kept the Department informed in considerable detail regarding Cuban public finances but the Department lacks information regarding the present plans of the Cuban Government, the purpose of and the reason for the proposed financing, its relationship to the public works program, the actual progress of the execution of that plan, and whether it is to be modified or accelerated. It is possible that in connection with the contemplated financing the Cuban Government may have prepared connected studies which it will not find inconvenient to place at the disposal of the Department for its information.

It is not desired that you base your remarks on the Platt Amend

13 Not printed. 13 None printed.