who shall collect such moneys and apply them to the interest on the new bonds until the deficiency has been cured. Upon retirement of all of the new bonds the trustee of these bonds shall deliver the old bonds to the Republic and all rights of the trustee in such bonds shall cease and determine. The Minister of Finance shall appoint the bankers agents of the Republic to negotiate for an exchange of the new bonds for bonds of the various old issues on bases to be agreed upon between the bankers and the Financial Minister; the bankers to have entire discretion at all times as to the advisability of going forward with the operation; all powers necessary, under the circumstances, to satisfactorily negotiate for such conversion, including the power to incur reasonable expenses, to be reposed in the bankers. It may be deemed advisable by the bankers at some time during the course of the operation to purchase certain or all of the old bonds from the present holders; the bankers would have entire discretion as to this but would act only after agreement with the Financial Minister; in such case the funds advanced by the bankers would constitute a loan from the bankers to the Republic for which the bankers would be reimbursed by new bonds to be taken by the bankers on bases to be agreed upon. The bankers will exert their best efforts to effect a conversion of the bonds on the bases determined. Upon notification by the bankers to the Minister of Finance at any time within one year after the signing of the primary contract between the bankers and the Republic of Ecuador, that contracts or options for the conversion or purchase of sufficient old bonds or new bonds have been entered into so that in the opinion of the bankers the operation will be successful, the Minister of Finance will issue to the bankers new bonds to the necessary principal amount. From time to time thereafter, as the bankers shall notify the Minister of Finance that they have entered into further contracts for the conversion or purchase of any of such old bonds within the bases set by the Minister, the Minister shall issue further bonds to effect such conversion or to obtain the funds for such purchase. The bankers will thereupon effect the exchange or purchase as the case may be and upon receipt of the old bonds will deposit the same with the trustee as security for the new bonds. Interest on new bonds accrued prior to the date of their exchange for old bonds will be retained by the depositary and credited to the surplus hereinbefore provided for. The bankers will receive as commission for their services in cash % of the par value of the old bonds exchanged to be paid out of proceeds of warrants as stated before; the bankers to be reim bursed in cash for any expenses which they may incur in the entire negotiation, also to be repaid out of the proceeds of warrants, as stated before, the bankers' statements as to expenses to be accepted as final; in case conversion should fail of accomplishment, bankers to be reimbursed in cash for any expenses which they may have incurred. (Method to be worked out by Mr. Lindberg on the spot.) The bankers will be appointed by the Minister of Finance as fiscal agents of the Republic and receive for their services in this connection a commission of 1% per annum on amounts disbursed for interest and sinking fund. All disputes or disagreements between the Republic and the trustee or the bankers or the fiscal agent or the depositary will be submitted to the arbitration of a member of the Ecuadorian section of the International High Commission and a member of the United States section of the International High Commission, or their nominee, whose decision shall be final and binding to all parties. In the event that these two shall disagree, they shall choose a third party, an officer of the International High Commission or his nominee or the President of the Institute of International Law or his nominee whose decision shall be final and binding on all parties. AFFAIRS OF THE GUAYAQUIL AND QUITO RAILWAY 12 Resumption, on March 6, 1920, of Daily Deposits for the Service of the Railway Bonds but in Insufficient Sums-Concern of the American Government over the Ecuadoran Government's Delay in Remitting the Accumulated Deposits 422.11G93/1071a: Telegram The Secretary of State to the Minister in Ecuador (Hartman) WASHINGTON, January 31, 1920—2 p.m. 4. Minister of Ecuador at Washington, in informal conversation stated that daily quotas for payment of interest on railway bonds would be resumed without delay. Inform Department whether such payments are being made and if not, when they will begin. LANSING 422.11G93/1073: Telegram The Minister in Ecuador (Hartman) to the Secretary of State 6. Department's January QUITO, February 3, 1920-10 a.m. Minister for Foreign Affairs informed me that daily deposits had "Continued from Foreign Relations, 1919, vol. II, pp. 171-200. been resumed and that he would answer my note, number 347,13 in two or three days. I will cable its substance when received. HARTMAN 422.11G93/1077: Telegram The Minister in Ecuador (Hartman) to the Acting Secretary of State QUITO, February 24, 1920-4 p.m. [Received February 26-12:20 a.m.] 8. My February 3, 10 a.m. Yesterday afternoon I received a note from the Minister for Foreign Affairs in answer to my number 347 of December 2, 1919 13 of which following is the substance: He asserts that the subject is not one for diplomatic intervention. He states desire of Ecuador to fulfill its obligations but says that it has been impossible to fulfill all of them because of complications and conditions enumerated growing out of war. He encloses table prepared by Ministry of Finance showing 1,044,000 sucres of revenue allotted to the service of railway bonds during first 10 months of 1919. Adding a proportionate amount for November and December will total 1,250,000 sucres for the year 1919. In the same period amounts remitted aggregated 125,500 pounds which amount does not cover annual coupons. Owing to the intense fiscal disturbances the proceeds from the revenues allotted to service of bonds have not produced a greater amount. Regarding present year the Government has already sent 20,000 pounds sterling to Glyn Mills Currie Company for service of the bonds and will endeavor to continue remitting successive amounts in the course of the year for this account and for that of the preferred bonds. Referring to the salt certificates he says that the Minister of Finance has provided that from the 24 of January of this year the treasurers of the four largest provinces will remit semi-monthly to the Commercial and Agricultural Bank of Guayaquil the proceeds of the receipts which during the current year shall be derived from the sale of salt after defraying expenses and that as soon as these deposits reach an amount sufficient for interest and amortization of each half-year they will be remitted upon the order of the Ministry. Thus it is calculated that for this year there will be remitted the amount of 191,291 sucres which is the amount fixed in the Government budget. Referring to the deposit of 68,000 sucres by railway company to be applied to the bond service in accordance with the agreement of 18 Not printed; see Department's instruction no. 225, Oct. 4, 1919, Foreign Relations, 1919, vol. I, p. 196. April 6, 1919,14 according to which Ecuadorean Government is obliged to transfer to said company for equipment and improvement of traffic, a sum equivalent to such deposit, he says that the Government has agreed in effect to give to the company on account of a credit which the latter claims for damages caused to it sums equal to the deposits which were invested in improvements of the railroads; but that for reasons beyond the control of the Government it has not been possible to comply with this thus far since according to the laws of consolidation and public credit in order that a claim of previous years may be binding upon the Government, it is necessary that it be liquidated by the tribunal of accounts which up to the present time has not been accomplished as the company was unable to furnish proofs of this claim and the Ministry of Interior undertook to complete the records. Notwithstanding this fact the tribunal of accounts of Guayaquil proceeded with the examination and ascertaining that the proofs were not only deficient but that the accounts of Treasury of Guayas which were indispensable for the liquidation had been destroyed in the fire of 1917. The Minister of Interior applied to Congress for a special decree in order to surmount the difficulty, but Congress did not act and the Government will recommend to the next Congress the prompt dispatch of the matter. He declares that railway company has not applied its surplus profits to pay interest, thereby imposing that obligation upon the Government. Regarding unpaid balance of 80,000 pounds by the Government from sale of cacao in 1918 he refers to his explanation in a former note to the error which caused the belief that the Government had offered eight hundred and some odd thousand dollars instead of the same amount of sucres. He then reiterated the sincere intention of the Government to fulfill its obligations to the bondholders and the company and says that the Government is at present seeking ways and means of paying the debts due, means which cannot be other than the contraction of a loan in order to prepare upon these basis a financial plan in cooperation with Congress, which will enable the Government punctually to make payments in the future. He says that the efforts to obtain a loan in the United States have been thwarted by the bondholders and the company in an endeavor to discredit financial standing of Ecuador in London and New York and cites attitude of the council of foreign bondholders in connection with the assembling of the Financial Congress in Washington in proof thereon. He closes by again complaining that the railway company has failed to fulfill its obligations. Full report by mail. HARTMAN 34 See memorandum on Advisory Commission, Guayaquil & Quito Ry. Co., Apr. 10, 1919, ibid., 1919, vol. II, p. 182. 422.11G93/1073: Telegram The Acting Secretary of State to the Minister in Ecuador (Hartman) WASHINGTON, February 24, 1920-5 p.m. 7. Your February 3, 10 a.m. Cable Department date of resumption of daily deposits, and whether their payment has been continued to present date. POLK 422.11G93/1079: Telegram The Minister in Ecuador (Hartman) to the Acting Secretary of State QUITO, February 29, 1920-6 p.m. [Received March 1-1: 42 p.m.] 9. Department's February 25 [24], 5 p.m. Daily deposits not resumed. Evidently we misunderstood the Minister for Foreign Affairs. Deposits mentioned by him were semi-monthly deposits referred to in his note of which I cabled the substance February 24. HARTMAN 422.11G93/1081: Telegram The Minister in Ecuador (Hartman) to the Acting Secretary of State QUITO, March 6, 1920-3 p.m. 11. Department's March 3, 6 p.m.18 In an interview with the Minister for Foreign Affairs the inquiry was made and answer given through interpreter as usual, the Minister stating that deposits had been ordered and I first learned from his note 17 that he referred to salt deposits and not to the usual daily deposits. Relying on our understanding of what he said I sent my telegram of February 3, 10 a.m., and did not inquire from depository banks in Guayaquil. When I learned that the information cabled was incorrect I sent my telegram of February 29, 6 p.m. In an interview with him this morning he reaffirmed the statements in his note regarding salt deposits and said that the Minister of Hacienda is now in Guayaquil with instructions to obtain and remit to London 20,000 pounds. He states he will notify me when the remittance is made. I have not failed and will not fail to keep in close touch with the situation and to keep the Department fully informed. Full report by mail. 10 Not printed. 17 HARTMAN Not printed; see telegram no. 8, Feb. 24, 1920, from the Minister in Ecuador, p. 192. |