THE DOMINICAN DEBT AND THE FISCAL TREATY WITH THE UNITED STATES
Financial situation in 1905.--Causes of debt.--Amount of debt.--Bonded
debt.--Liquidated debt.--Floating debt.--Declared claims.--Undeclared
claims.--Surrender of Puerto Plata custom-house.--Fiscal convention of
1905.--Modus vivendi.--Negotiations for adjustment of debt.--New bond
issue.--Fiscal treaty of 1907.--Adjustment with creditors.--1912
loan.--Present financial situation.
Rarely have the fiscal affairs of a country experienced so rapid and
radical a change for the better as those of Santo Domingo since 1904,
and rarely has a financial measure so quickly proved its efficacy as
the fiscal convention between the United States and Santo Domingo. In
the beginning of the year 1905 Santo Domingo had fallen to the lowest
depths of bankruptcy and financial discredit. After decades of civil
disturbance, misrule and reckless debt contraction, the deluge had
come. The substance of the country had been wasted in military
expenditures; agriculture and commerce were stagnant; a debt of over
$30,000,000 had been contracted with nothing to show for it but
forty-two miles of narrow-gauge railroad and two small gunboats; the
government obligations were chronically in default and interest
charges were piling up at ruinous rates; every port of the Republic
was pledged to foreign creditors who were clamoring for payment; one
port had already been seized and the occupation of the others by
foreign powers was imminent. At this juncture the Dominican government
applied to the United States for assistance and the custom-houses of
the Republic were placed in charge of an American general receiver,
with the obligation of reserving a specified portion of the customs
income for the creditors and turning the remainder over to the
Dominican government. The situation immediately changed as if by
magic. The imports and exports, and with them the income of the
government, quickly reached higher figures than the country had ever
seen, the national debt was scaled down by almost one-half and the new
Dominican bonds issued in 1907 to convert the old debt went nearly to
par in the markets of the world.
(a) Periodic accumulation of floating debt, owing to:
1. Political instability, requiring large outlays for soldiery,
for bribery of potential revolutionists, and for suppression
of actual revolutions.
2. Corruption of officials.
3. "Asignaciones" or pensions to mollify enemies and to reward
friends of the existing régime.
(b) Usurious interest computations, on account of:
1. "Bonus" in principal,
2. Extravagant interest rates.
(c) Interest default and compounding accumulations.
(d) Recognition and liquidation of excessive or illegal claims as a
condition of further advances.
In order to obtain more positive information with reference to
outstanding Dominican indebtedness, for use in connection with the
pending fiscal treaty, the American government in the early part of
1905 commissioned a financial expert, Prof. Jacob H. Hollander, of
Johns Hopkins University, to proceed to Santo Domingo and make an
investigation of financial conditions. Prof. Hollander, in an
elaborate report, found the amount of the claims pending against the
Dominican Republic on June I, 1905, to be $40,269,404.38, distributed
as follows:
Bonded debt........................ $17,670,312.75
Liquidated debt...................... 9,595,530.40
Floating debt........................ 1,553,507.79
Declared claims...................... 7,450,053.89
Undeclared claims.................... 4,000,000.00
--------------
Total indebtedness................. $40,269,404.38
The bonded debt, as above designated, comprised the public
indebtedness represented by outstanding bonds; the liquidated debt
consisted of items secured by international protocols or by formal
contracts; the floating debt consisted of admitted indebtedness,
neither funded nor secured, but evidenced by public obligations; the
declared claims were claims presented for reimbursement or indemnity
but not expressly recognized by the government; and the undeclared
claims were claims of the same nature not yet formally presented. A
brief description of each of these items will afford an idea of the
general character, of Dominican financiering and a better
understanding of Dominican history.
_Bonded Debt_. The bonded debt held by Belgians and
French and amounting to $17,670,312.75, was the final
outcome of eight consecutive bond issues floated by the
Republic, as follows:
Interest
per Term
Date Amount cent years Name_
1869 £ 757,700 6 25 Hartmont loan
1888 £ 770,000 6 30 Westendorp loan
1890 £ 900,000 6 56 Railway loan
1893 £2,035,000 4 66 4 per cent consolidated gold bonds
1893 $1,250,000 4 66 4 per cent gold debentures
1894 $1,250,000 4 66 French-American reclamation
consols
1895 $1,750,000 4 66
1897 £1,736,750 2-3/4 102 Obligations or de Saint Domingue
£1,500,000 4 83 Dominican unified debt 4 per cent
bonds
In making its very first loan, in 1869, the Dominican government fell
into the hands of sharpers and was mercilessly fleeced. The bargain,
even if it had been honestly carried out, was improvident enough.
Reduced to American money the nominal amount of the loan was
$3,788,500; of this amount the Republic was to receive but $1,600,000;
yet it contracted to pay as interest and sinking fund in twenty-five
years a sum amounting to $7,362,500. The contractors for the loan,
Hartmont & Co., of London, were authorized to retain $500,000 as their
commission. In fact, however, no more than $190,455 was ever paid to
the Dominican government. The brokers claimed that they tendered a
further sum of $1,055,500, though after the expiration of the time
limited in their contract, and that the tender was refused because of
negotiations then under way for the annexation of the Republic to the
United States, but such tender is denied on the Dominican side. At all
events, the loan contract was cancelled by the Dominican senate in
1870 on the ground of non-compliance of the brokers with its
conditions and the government made no payments for interest or sinking
fund. The brokers nevertheless continued to sell bonds in London and
pay the current interest with the proceeds. Incidentally in addition
to collecting their commission, they turned a penny for themselves by
taking the bonds with their friends at 50 and selling them to the
public at 70. When the Dominican repudiation of the bond issue was
published in England in 1872 a cash balance of $466,500 still remained
to the credit of the Dominican government, but it was coolly pocketed
by the principal agent, who claimed it as a set-off against alleged
damages in connection with a concession he had near Samana. In the ten
years of anarchy that followed in Santo Domingo no attempt was made to
straighten out the matter. The bonds having gone into default in 1872
dropped lower and lower until they reached 3 per cent in 1878.
The setback received by the credit of the Republic by reason of the
defaulted Hartmont bonds made further bond issues impossible for a
number of years. Finally an Amsterdam banking house, Westendorp & Co.,
was interested and in 1888 and 1890 floated the second and third bond
issues for £770,000 and £900,000 respectively. The object of the
second issue was to retire the Hartmont bonds at 20 per cent, to pay a
number of floating interior debts the owners of which were harassing
the government, and to provide cash for the treasury, principally for
military and naval expenditures, while the third issue was designed to
secure funds for the construction of a railroad between Puerto Plata
and Santiago. For the purpose of providing for the service of the loan
a collection office known as the "caisse de la regie," or simply
"regie," under the management of Westendorp, took charge of the
customhouses with the obligation of paying a certain amount to the
government monthly and devoting the remainder to payment of interest
and sinking fund of the loans. The arrangement was thus similar to the
later receivership plan, but its vulnerable point was that it was
operated by a private concern.
The first instalments of interest and sinking fund on these two bond
issues were paid from the proceeds of the bonds, then for several
months the "regie" supplied funds, and then came the first crash. The
government was ever in need of money and to secure the same violated
its agreements by seizing certain revenues to pledge them to local
merchants for advances, and by conniving at customs irregularities. As
a result, after paying the sums for the budget, the "regie" had
nothing left for the service of the bonds and they went into
default in 1892.
Westendorp was almost ruined by this occurrence and became anxious to
draw out of his Dominican entanglements. He applied to Smith M. Weed
and Brown and Wells, New York attorneys, to negotiate a sale of his
bonds to the United States government, transferring also his right to
collect the Dominican customs. The United States government declined,
whereupon Weed, Wells and Brown organized the famous San Domingo
Improvement Company under the laws of New Jersey, the claim of which
was later the prime factor in bringing about American intervention in
Santo Domingo. Subsequently two other companies, the San Domingo
Finance Company and the Company of the Central Dominican Railway, were
incorporated, also under the laws of New Jersey, as auxiliaries of the
Improvement Company, but they were all managed by the same persons.
The San Domingo Improvement Company took over Westendorp's holdings
and was placed in control of the "regie." A fourth bond issue, of
£2,035,000 was floated through the agency of the Improvement Company
in 1893 for the conversion of the outstanding government bonds. The
Improvement Company also completed the railroad from Puerto Plata to
Santiago, which was the only improvement it ever effected in the
Republic and this it did with Dominican money. It further took from
the Republic at rates very favorable to the Company a fifth, sixth and
seventh bond issue, in 1893, 1894 and 1895 respectively, aggregating
$4,250,000, for the payment of government indebtedness. The
obligations paid by the first two of these issues were in considerable
part inflated claims against the government, capitalized at excessive
interest rates, those satisfied by the 1895 issue arose principally
out of indemnity claims made by France for mistreatment of French
citizens and for debts due them.
The Dominican government took no warning from previous disasters but
continued in its course of reckless debt contraction. In order to
equip warships and arsenals it borrowed money right and left at rates
of interest which ranged anywhere from 18 to 30 per cent per annum.
The loans were guaranteed by customs revenues which the creditors were
authorized to collect direct from the importer. Thus the amount
collected by the "regie" was not sufficient to provide for the service
of the ever increasing bonded debt and in 1897 there was
another default.
The old remedy of a new bond issue was to be tried again. The San
Domingo Improvement Company undertook to float the eighth bond issue
of £2,736,750 in bonds at 2-3/4 per cent and £1,500,000 in bonds at
four per cent. With these bonds it contracted to convert all previous
bonds then outstanding, to pay overdue interest and to secure for the
government over $1,000,000 in cash. President Heureaux issued drafts
on this presumption, but it soon became evident that it would be
impossible for the Improvement Company to carry out the contract. The
company blamed the government and the government the company. The
situation quickly became chaotic. Eventually the conversion of the
older bond issues was completed, though at enormous cost. Bonds to the
value of £600,000 were absorbed during the transaction with at most a
cash payment of $250,000 to the Dominican fiscal agent in Europe. In
the meantime the government tried the experiment of a large emission
of paper money in which the customs dues were partly payable. The
paper depreciated as fast as it was issued, the revenues were again
insufficient and the new bond issue suffered default in April, 1899.
While plans for further action were under consideration, President
Heureaux was shot in July, 1899, and the revolution which followed his
death made Jimenez president. The new administration in 1900 entered
into a contract with the San Domingo Improvement Company for a
different distribution of the customs revenues, but a condition was
introduced that the consent of the majority of bondholders be obtained
for the funding of interest up to 1903. A large number of Belgian and
French bondholders had become dissatisfied with the Improvement
Company, however, and repudiated the contract and all connection with
the Company. In Santo Domingo, too, there was general hostility
towards the Improvement Company which was regarded as an associate of
President Heureaux and an incubus on the development of the country.
The Company claimed it had secured the consent of a majority of
bondholders but the government decided it had not and in January,
1901, President Jimenez issued a decree excluding the Improvement
Company from the custom-houses.
The government now made a new contract with the Franco-Belgian
bondholders, and for the payment of its obligations pledged its
customs revenues, and specifically the income of the ports of Santo
Domingo City and San Pedro de Macoris. But if there had been default
before, in time of peace, with the "regie" in charge of the
custom-houses, there was still less money available for the creditors
now, with no control by creditors over collections and the government
harassed by constant revolutionary uprisings. Small partial payments
were made for two years and then ceased. As the Improvement Company's
bond holdings became the subject of a special arrangement, the bonded
debt of the Republic was considered to be that held by the French and
Belgian creditors. However unsavory the debts which gave origin to the
bond issues, and however imprudent most of the bond issues themselves,
the great majority of bonds had passed into the hands of small
holders, innocent third parties who sustained great loss by the
continued suspension of payments.
_Liquidated Debt_. The liquidated debt, secured by international
protocol or formal contract, Prof. Hollander found to be as follows on
June 1, 1905:
San Domingo Improvement Company
(American and British)................. $4,403,532.71
Consolidated internal debt
(chiefly Spanish, German and American).. 1,737.151.35
Internal debt held by Vicini heirs
(Italian)............................... 1,598,876.04
Old foreign debt
(chiefly Italian and Dutch)............... 365,183.20
Sala claim (American)....................... 356,314.20
Vicini heirs (Italian)...................... 242,716.32
Italian protocol............................ 186,750.36
Spanish-German protocol..................... 100,034.00
B. Bancalari (Italian)...................... 175,000.00
J. B. Vicini Burgos (Italian)................ 55,500.00
Ros claim (American)......................... 39,967.78
Two cacao contracts
(chiefly Dominican and German)............... 68,296.16
Bancalari, Lample & Co. (Italian)............ 16,733.19
Twenty-eight minor contracts
(chiefly Spanish, American)............... 249,475.19
------------
Total.................................... $9,595,530.40
The claim of the San Domingo Improvement Company was secured by a
protocol between the American and Dominican governments. When the San
Domingo Improvement Company was ousted from the custom-houses in 1901,
it immediately appealed to the State Department in Washington. The
State Department counselled a private settlement and negotiations with
the Dominican government dragged on for almost two years. The
Improvement Company claimed no less than $11,000,000 for the bonds it
held or controlled, for its interest in the railroad from Puerto Plata
to Santiago, for its shares of the extinct National Bank of Santo
Domingo which it had purchased at the government's request, and for
the settlement of a long list of minor claims. Arbitration was
suggested by the Company, but the Dominican government finally offered
a round sum of $4,500,000 and the offer was accepted. It is probable
that the Republic fared better under this compromise than if the case
had been submitted to arbitration, for though the Improvement
Company's demands were greatly exaggerated, its position toward the
government was that of a careful creditor who has kept minute account
of all transactions as against a spendthrift debtor who has squandered
his property with little or no record of his expenditures.
By a protocol signed January 31, 1903, the Dominican government
formally agreed to pay the sum of $4,500,000, leaving details to be
settled by a board of arbitrators to be designated by the American and
Dominican governments. The board met in Washington and rendered its
award under date of July 14, 1904. It fixed the interest on the debt
at four per cent per annum and designated the custom-houses of Puerto
Plata, Sanchez, Samana and Monte Cristi as security for the debt. In
the event of failure by the Dominican government to pay any of the
monthly instalments specified, a financial agent, appointed by the
United States, was authorized to enter into possession of the Puerto
Plata custom-house, and if its revenues proved insufficient to take
possession also of the other custom-houses designated. The Dominican
government never made any payments and the financial agent took
possession of the Puerto Plata custom-house in October, 1904. Most
of the other claims comprised in the liquidated debt had their origin
in advances made to the government--often bearing interest at two or
three per cent a month, or even more--and in indemnity claims for
revolutionary damages. In making the liquidations, musty credits and a
generous amount of compound interest were generally included and it
was usually provided that the sums so agreed upon were themselves to
bear interest. The greater portion of these claims was held by
foreigners, Italian, German, Spanish and American holdings
predominating. Payments, more or less feeble, were made in many cases
on account of principal or interest up to 1903, but in that year, when
the government was reduced to desperate straits in combatting
insurrections, practically every item of the debt went into
permanent default.
The principal Italian claimants were the heirs of an Italian merchant,
J.B. Vicini, and an Italian in business at Samana, Bartolo Bancalari
by name, who with other Italian subjects became loud in their
complaints at the non-payment of their claims. The Italian government
began to do a little sword-clanking, the Italian minister came from
Havana in a warship, and the upshot was the signing in 1904 of three
protocols admitting most of these claims and solemnly promising to pay
them. Payment of the internal debt held by the Vicini heirs and of the
Italian revolutionary claims was guaranteed by five per cent of all
the customs receipts of the Republic, the revenues of Santo Domingo
City, Macoris, Sanchez and Puerto Plata being specifically pledged.
The Bancalari debt was guaranteed by part of the customs revenues of
Samana. Notwithstanding the protocols, no payments were made by the
Dominican government.
_Floating Debt_. The floating debt, consisting of admitted
indebtedness, neither funded nor liquidated, but evidenced by some
kind of public obligation, was found to be as follows:
Registered deferred debt................... $587,710.24
Registered floating debt.................... 140,850.27
Privileged revolutionary debt................ 79,812.12
Certificates of comptroller's office........ 633,124.60
Certificates of treasury offices............. 31,771.07
Open unsecured accounts...................... 80,239.49
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Total.................................... $1,553.507.79
By the year 1902, a large number of small claims--many of them for
supplies furnished and services rendered--had accumulated, the justice
of which the government admitted but of which owing to the
deficiencies in its books it had no record. Notices were accordingly
published calling on holders of such lawful credits to present the
same for registration. This was the origin of the so-called registered
debts. The largest item was constituted by what was very aptly
denominated the "deferred" debt, created in 1888. Prior to that time
the government had covered its military deficits with money obtained
from loan associations known as "credit companies," which flourished
in the larger towns and which did business at an interest rate that
fluctuated between five and ten per cent a month. When a settlement
was finally made, part of the amount due these companies was paid in
certificates of indebtedness, the law directing with subtle humor that
they be paid from the annual surplus in the budget. There never was a
surplus, nothing was ever paid, and the market value of these
certificates fell to three per cent of their nominal value.
The revolutionary debt above referred to, consisting of claims arising
in the revolutions which brought Jimenez into power, was called
"privileged" because it was assigned interest. To some extent it was,
indeed, privileged, for partial payments were made until the middle of
1903. The government certificates forming part of the floating debt,
were acknowledgments of indebtedness issued by the government when it
was pressed for ready money. Many bore no interest, others bore
interest as high as two per cent a month. In view of the great
uncertainty of payment the amount of indebtedness was generally either
frankly or disguisedly inflated before being expressed in the
certificate. Such certificates were sometimes admitted in part payment
of customs dues.
_Declared Claims_ Besides the admitted indebtedness, there were many
claims for indemnity and reimbursement which had not been acknowledged
by the government in contract form. Some had been formally filed with
the government for the payment of specific amounts, while others were
still general demands. The declared claims were as follows:
Internal revolutionary claims................... $ 885,258.10
American revolutionary claims................... 71,000.00
Spanish revolutionary claims.................... 40,000.00
French revolutionary claims..................... 190,000.00
Italian revolutionary claims.................... 40,000.00
German revolutionary claims..................... 10,000.00
British revolutionary claims.................... 5,000.00
Cuban revolutionary claims...................... 35,000.00
Font claim (Spanish)............................ 186,643.00
Heureaux estate claim (Dominican)............... 3,100,000.00
National bank notes............................. 1,574,647.00
Lluberes contract (Dominican)................... 250,000.00
West India Public Works Company claim (British). 250,000.00
Vicini heirs claim (Italian).................... 812,505.00
______________
Total...........................................$7,450,053.89
Most of the older claims of indemnity for damages suffered during
revolutions crystallized into bonded indebtedness, were recognized in
government contracts or protocols, drifted into the old foreign debt,
or were represented by certificates of indebtedness. Some remained,
however, and their number was greatly increased by the disturbances
between 1899 and 1905. How exaggerated many such claims were, is
illustrated by a story told by the Danish consul in Santo Domingo. A
Danish subject came to him and complained that government soldiers had
invaded his store and carried off merchandise. He begged the consul to
present a damage claim of $10,000 gold, which was equivalent to
$50,000 silver. The consul listened to his story and said: "You are
asking for a large sum, I cannot get you that. I doubt whether I can
get you more than $40, silver." "Make it gold, consul," was the
immediate reply. Many other claims would not have suffered by a
similar scaling down. Most claims were for houses burned, cattle
killed, horses commandeered and fences and other property destroyed by
government forces or revolutionists.
The other declared claims arose principally out of alleged violations
of concessions or other contractual obligations. The Heureaux estate
claim, advanced by creditors of the Heureaux estate and based on the
practical identity of the accounts of Heureaux and those of the
government was later rejected by the Dominican courts. The outstanding
national bank notes were those issued by the defunct Banque Nationale
de Saint Domingue.
_Undeclared Claims_. The undeclared claims, such as
had not been formally presented, were estimated as
follows:--
American claims......................... £1,000,000
British claims.......................... 50,000
Italian claims.......................... 200,000
Spanish and German claims............... 200,000
Other foreign claims.................... 50,000
Dominican claims........................ 2,500,000
----------
Total............................ £4,000,000
The foreign claims were principally for damages during revolutions,
violations of contract, failure of justice, false imprisonment, etc.
The principal one was an American claim, that of Wm. P. Clyde & Co.,
of New York, of over $600,000 and was based on the failure of the
Dominican government regularly to enforce certain high port dues
against all vessels, save those of the Clyde line, as agreed in the
Clyde concession. The Dominican claims were mostly old claims for
unpaid salaries, revolutionary losses, merchandise furnished the
government, etc.
The situation towards the latter part of 1904 appeared hopeless. Every
item of the enormous debt had been in default for many months and
interest was accruing at such rate that the whole income of the
country would hardly have been sufficient for the payment of interest
alone. Commerce was handicapped by high wharf and harbor charges
collected by private individuals under their concessions from the
government, and by prohibitive port dues imposed on foreign vessels in
accordance with the concession of the Clyde line. More than
three-fourths of the debt was held by foreigners who were clamoring
for payment. The general revenues of the country and every important
custom-house had been mortgaged to these foreign creditors. In general
terms it may be said that the ports of the northern coast were pledged
primarily to Americans and secondarily to Italians, those of Samana
Bay primarily to Italians and secondarily to Americans, and those of
the southern coast primarily to French and Belgians and secondarily
to Italians.
Only one of the international protocols, however, specified when the
custom-houses to which it referred were to be turned over and the
manner in which the surrender was to be made. The others merely made
the pledge in general terms, further negotiations being necessary to
render it effective. The exception was the arbitral award of the San
Domingo Improvement Company, which determined that in case of the
nonpayment of any of the monthly instalments a financial agent, to be
named by the United States government, was to enter into possession of
the Puerto Plata custom-house. No payments of instalments were made by
the Dominican government and in September, 1904, compliance with the
terms of the award was demanded. On October 20, 1904, the
vice-president of the San Domingo Improvement Company, designated as
American financial agent, was placed in possession of the custom-house
at Puerto Plata.
A cry of dismay ran through the land and the leading newspaper of
Santo Domingo, the "Listin Diario," published an editorial under the
expressive heading "Consummatum est," It was, indeed, the beginning of
the end. The other foreign creditors now pressed their claims with
more vigor than ever, and the preparations for turning over the Monte
Cristi custom-house to the American financial agent, accomplished in
February, 1905, stimulated them to greater exertions. In December,
1904, the French representative in Santo Domingo, acting in behalf of
the French and Belgian interests, threatened to seize the custom-house
of Santo Domingo City, the mainstay of the government. The Italian
creditors also demanded compliance with their agreements. It was
obvious that the foreclosure of these foreign mortgages would mean
indefinite foreign occupation and the absolute destruction of the
Dominican government, as there would be no revenue left to sustain it.
In this difficulty, the Dominican government proposed that all the
ports of the Republic be taken over by the United States. The
negotiations were carried on through the capable American minister in
Santo Domingo, Thomas C. Dawson, and on February 7,1905, culminated in
the signing of a treaty convention which provided that all Dominican
customs duties be collected under the direction of the United States,
that 45 per cent of the collections be turned over to the Dominican
government for its expenses and the remaining 55 per cent be reserved
as a creditors' fund, and that a commission be appointed to ascertain
the true amount of Dominican indebtedness and the sums payable to
each claimant.
The treaty was laid before the United States Senate and met with a
cold reception. In the United States there was even less desire than
in Santo Domingo for American intervention in Dominican matters.
Further the treaty was strongly advocated by President Roosevelt and
the tension then existing between the Senate and the President
endangered many of his measures. The Senate accordingly adjourned in
March, 1905, without action on the Dominican treaty.
It was the darkest hour for Santo Domingo. The creditors, tired of
waiting, were in no mood to admit of further delay and the government,
totally without resources, was in no position to appease them.
Diplomacy was equal to the emergency and a modus vivendi was arranged,
under which the President of the United States was to designate a
person to receive the revenues of all the custom-houses of the
Republic and distribute the sums collected in a manner similar to that
determined by the pending treaty, namely, to turn over 45 per cent of
the receipts to the Dominican government and to deposit 55 per cent as
a creditors' fund in a New York bank. This temporary arrangement went
into effect on April 1, 1905. The new controller and general receiver
of Dominican customs arrived with several American assistants and soon
had the receivership service admirably organized. The effect was
immediate. The creditors ceased their pressure, confidence returned,
interior trade revived, smuggling was eliminated, the exports and
imports increased and the customs receipts took a leap upwards.
It was believed that the opposition in the United States Senate would
be diminished, if, instead of the United States both adjusting the
debt and collecting the money for its payment, the Dominican Republic
should make a direct settlement with the creditors, and the United
States merely undertake to administer the customs for the service of
the debt as adjusted. Accordingly the Dominican government appointed
the minister of finance, Federico Velazquez, as special commissioner
to adjust the Republic's financial difficulties. After long and
tedious negotiations, Minister Velazquez and his able adviser Dr.
Hollander evolved three conditional agreements:
(1) An agreement with the banking firm of Kuhn, Loeb & Co. of New
York, for the issue of fifty year 5 per cent bonds of the Dominican
Republic to the amount of $20,000,000.
(2) An agreement with the Morion Trust Company of New York to act as
fiscal agent of the Dominican Republic and as depository in the debt
adjustment.
(3) An offer of settlement to the holders of recognized debts and
claims, to adjust these in cash at rates varying from 10 to 90 per
cent of the nominal values specified in the offer. The nominal
aggregate, as recognized by the Republic, exclusive of accrued
interest, was $31,833,510, for which it was proposed to pay
$15,526,240, together with certain interest allowances.
The proposed scaling down of the debts provoked opposition and
remonstrance, but the creditors wisely reflected on the difference
between a bird in the hand and more in the bush, and by the beginning
of 1907 holders of credits had signified their assent in sufficient
amount to assure the success of the readjustment.
A new convention between the United States and the Dominican Republic
was accordingly prepared, being signed in Santo Domingo on February 8,
1907. It was ratified by the United States Senate on February 25, and
by the Dominican Congress on May 3, 1907. The Dominican Congress added
what it called explanatory articles to the law by which it approved
the convention but made no change therein.
This convention, a copy of which will be found in the appendix,
recited that disturbed political conditions in the Dominican Republic
had created debts and claims amounting to over $30,000,000; and that
such debts and claims were a burden to the country and a barrier to
progress; that the Dominican Republic had effected a conditional
adjustment under which the total sum payable would amount to not more
than $17,000,000; that part of the plan of settlement was the issue
and sale of bonds to the amount of $20,000,000; that the plan was
conditional upon the assistance of the United States in the collection
of custom revenues of the Dominican Republic; and that "the Dominican
Republic has requested the United States to give and the United
States is willing to give such assistance."
The two governments therefore agreed that the President of the United
States shall appoint a general receiver of Dominican customs, who
shall collect all the customs duties in the custom-houses of Santo
Domingo until the payment or redemption of the entire bond issue. From
the sums collected, after paying the expenses of the receivership the
general receiver is on the first of each month to pay $100,000 to the
Fiscal Agent of the loan and the remainder to the Dominican
government. Whenever the customs collections exceed $3,000,000 in any
year, one-half the excess shall be applied to the sinking fund for the
further redemption of bonds.
The Dominican government agrees to give the general receiver and his
assistants all needful aid and full protection to the extent of its
powers. The United States also undertakes to give the general receiver
and his assistants such protection as it, may find to be required for
the performance of their duties.
The convention further stipulates that until the payment of the full
amount of the bonds the Dominican Republic is not to increase its
public debt except by previous agreement with the United States, and
that a like agreement shall be necessary to modify the import duties.
Even with the approval of the convention difficulties lay in the way
of the debt adjustment. In Santo Domingo there was opposition to the
plan by interested parties and by persons not sufficiently mindful of
past errors and present dangers. The Dominican Congress mutilated the
contracts with the bankers, who not only refused to accept the
modifications, but declined to treat further with Minister Velazquez
unless he were first invested with plenary powers. The Dominican
Congress then extended the necessary authority, but it came late, for
the fall of 1907 witnessed a money panic in the United States and the
floating of a bond issue was impossible.
After months of negotiations and struggle with recalcitrant creditors
Minister Velazquez and Prof. Hollander finally perfected an
arrangement under which the creditors were paid the amounts specified
in the plan of adjustment, twenty per cent in cash and eighty per cent
in bonds guaranteed by the fiscal convention. For the purpose of the
cash payments the creditors' fund accumulated under the modus vivendi
was utilized. The bonds were delivered to the creditors at the rate of
98-1/2 per cent of their face value.
Under the plan of settlement the outstanding Franco-Belgian bonds and
most of the other debt items were redeemed at fifty per cent of their
face value, the Improvement Company's claim at ninety per cent, the
deferred debts and comptroller's certificates at ten per cent, and the
remaining claims at rates varying from ten to forty per cent.
Accumulated interest was remitted entirely by the creditors, except in
three cases, in which it was greatly reduced. These terms were much
better than the Republic could have expected from any commission of
investigation. The arbitral award of the San Domingo Improvement
Company was scaled down by only ten per cent, because the bonds
comprised in the award had been included therein at only one-half
their face value and the other credits had also been largely reduced;
even this small discount brought howls of protest from British
interests that had remained discreetly silent while the State
Department was pressing the claim thinking it completely American.
Payment under the plan of settlement was soon practically completed.
Only one important group of creditors, the Vicini heirs, still refuses
to assent to the plan and accept the amount set aside for them.
Upon payment to the San Domingo Improvement Company, the Company
turned over the Central Dominican Railway, from Puerto Plata to
Santiago, to the Dominican government. The right of the
Samana-Santiago Railroad to receive a percentage of the import duties
collected at the port of Sanchez was redeemed by the delivery of
$195,000 in bonds at par, an excellent bargain, made all the better by
the circumstance that the railroad invested the proceeds of these
bonds in the extension of its line in the interior. The restrictive
concession and heavy damage claim of the Clyde Steamship Line were
also cancelled, and the onerous wharf and harbor concessions at the
various ports of the Republic were among the other important
concessions acquired by the government by means of the bond issue.
Thus debts and claims aggregating nearly $40,000,000 have been and
will be discharged for about $17,000,000. The surplus remaining from
the bond issue and the modus vivendi collections must, under the
agreements made, be devoted to public improvements approved by the
United States government: a portion has been so expended, and a fund
of over $3,000,000 still remains available. In addition the Republic's
credit was established on a high plane; burdensome concessions were
redeemed and adequate revenues for the maintenance of the government
and the progress of the country were assured. As time goes on proper
appreciation will be given to the men who were the principal agents in
securing this financial and economic regeneration, especially to the
Minister of Finance, Federico Velazquez, and to Prof. Jacob H.
Hollander. While the fiscal convention largely increased the customs
revenues, the Dominican government made no attempt to accumulate a
reserve fund, but spent more even than authorized by its ever
increasing budgets. During the period of civil strife following the
assassination of President Caceres in 1911 the government, in order to
carry on its military campaigns, neglected to pay the salaries of its
civil employees, pledged its internal revenues, diverted and
misapplied amounts of the trust fund set aside for public works, and
incurred indebtedness for supplies and materials purchased and money
borrowed. It thus violated the spirit and letter of the convention in
which the Dominican Republic expressly agreed not to increase its
public debt except by previous agreement with the United States.
The American government, in its unwillingness to interfere in the
internal affairs of the Dominican Republic, had suffered the Victoria
administration to seize the government in Santo Domingo after the
death of Caceres, and it now also condoned the violation of the fiscal
convention. The American commission which went to Santo Domingo in
1912 to reconcile the warring factions, found that an essential
condition of the restoration of peace and the rehabilitation of the
government was the payment of pending salaries and certain other
debts. Accordingly the United States consented to an increase of the
Dominican public debt by $1,500,000, and the Dominican government
contracted a loan to that amount with the National City Bank of New
York, which took the bonds at 97-1/2 Per cent. The bonds bore 6 per
cent interest, and for the service of interest and sinking fund, it
was agreed that the general receiver of customs pay over to the Bank,
beginning in January, 1913, a monthly sum of $30,000. This bond issue
was finally liquidated in 1917. The amount so borrowed was not
sufficient to pay all the indebtedness of the Dominican government.
The manner of circumventing the debt increase prohibition of the
convention having been discovered, the interior debt was further
augmented after that time by failure to pay salaries, by hypothecating
stamps and stamped paper, and by contracting other obligations, either
to combat insurrections or because of less worthy motives. In
addition, claims for revolutionary damages were filed against the
government.
The foreign debt thus consists merely of the $20,000,000 customs
administration loan of 1907. The sums paid into the sinking fund of
this loan have been used to purchase bonds of this issue at their
market price, somewhat less than par, and the interest falling due on
such purchased bonds has also gone to swell the sinking fund. The
value of the assets in the sinking fund on December 31, 1917,
estimating the purchased customs administration bonds at par, was
$6,019,161.50, exclusive of interest accruals in 1917.
The interior debt, as a result of revolutionary confusion and
defective accounting, became as problematic as in days of yore and was
estimated at widely different figures. With a view to ascertaining the
exact amount and making provision therefor, the military government,
in July, 1917, constituted a commission consisting of three American
and two Dominican citizens, who were charged with the duty of
investigating and liquidating all claims against the government
arising since the settlement of 1907. The American members appointed
were J. H. Edwards, acting comptroller-general of Santo Domingo,
chairman, Lt.-Col. J. T. Bootes, of the United States Marine Corps,
and Martin Travieso, Jr., of the Porto Rican bar; the Dominicans were
two attorneys, M. de J. Troncoso de la Concha and Emilio Joubert.
Claimants were called upon to file their claims before January 1,
1918, or be deemed to have relinquished their rights. The nominal
amount of the claims so filed--comprising all outstanding internal
debts--is a little more than $14,000,000, some of the claims being for
indefinite sums. This figure is probably greatly exaggerated and will
doubtless be subjected to drastic revision by the claims commission.
The customs receivership has continued to render invaluable service.
In peace and war its officials have distinguished themselves by a
highly efficient, tactful and fearless discharge of their duties. Up
to 1913 appointments to the service were determined by the fitness and
experience of the appointee rather than by his political antecedents,
and the officials appointed possessed unusual qualifications: the
first general receiver, Col. George R. Colton, who held until 1907,
his successor W. E. Pulliam, who continued until 1913, their deputy J.
H. Edwards, and others, were experts trained in the Philippine
customs service.