Page images
PDF
EPUB

In presenting the views of the Department regarding the cacao situation, I referred the President to the memorandum which I left with him in Guayaquil, dated December 6, 1920, a copy of which I enclosed with my despatch No. 621 of December 14, 1920,85 and emphasized the importance of his adopting the plan therein outlined. He expressed the opinion that it would be inconvenient to call an extra session of Congress before March or April, as he had some other matters to present to Congress which are not yet prepared, and because the Government is short of funds to pay the expenses of an extra session.

When I called his attention to the failure of his Government to remit the sums to London now on deposit for the service of the Guayaquil & Quito Railway bonds, he said that this failure to make remittances was due to the inability of the Government to buy British exchange at any reasonable price, and that as soon as exchange was obtainable at a fair figure the remittances would be made.

I then expressed the hope that none of the funds now, or hereafter to be, deposited would be withdrawn and used for other purposes. He assured me that none of these funds would be withdrawn or devoted to other uses.

I then called his attention to the endeavors of the Department to assist, in every way possible, Minister Elizalde in his efforts to negotiate with American bankers a solution of the difficult situation, and assured him that his Government "might count upon the assistance of " the Government of the United States "in every way possible and proper, but that in its opinion the situation is rendered more difficult of solution by the failure of the Government of Ecuador to meet its obligations."

To this he replied that he appreciated the friendly attitude of the Department, and that it might assist his Government by assisting the banks of Ecuador to obtain loans to the extent of five to seven million dollars on the security of real estate mortgages. I agreed to transmit that suggestion to the Department.

I called the President's attention to the reported interview with him published in the London Times, wherein he was quoted as favoring foreclosure of the Guayaquil & Quito Railway. He immediately confirmed the interview. He said that he gave it as his opinion as a lawyer that under the terms of the mortgage contract, foreclosure was the proper course to take, as the Government of Ecuador was only a guarantor, and that by foreclosure the primary burden would fall upon the Railway Company. I sug

24 Not printed; it was based upon Department's telegram no. 40, Nov. 29, p. 210. 35 Not printed.

gested to him, in reply, that if a foreclosure was made, and the property sold, as it doubtless would be, at a price far below the bonded indebtedness, there would be a large deficiency judgment to be taken care of. He agreed to that, but said that the purchasers of the Railway would take the same without changing the rights and obligations of the Government as stipulated in the contracts.

I pointed out that the views expressed in his said interview would not enhance the credit of Ecuador nor favorably impress the American bankers who have a proposed refunding loan under consideration. He stated that Ecuador would probably not ask for a refunding loan under these circumstances.

In short, he did not exhibit any interest in the proposed refunding loan.

In further compliance with Department's said instruction, I have today addressed a note 35 to the Minister for Foreign Affairs, expressing Department's regret at the President's attitude toward this legitimate American enterprise, the affairs of which are being carried on in accordance with the provisions of an award made by representatives of the Government of the United States and of the Government of Ecuador.

I have [etc.]

CHAS. S. HARTMAN

CACAO TRADE

Efforts to Sustain the Credit of the Cacao Association-Measures Urged upon the Government of Ecuador by the Government of the United States 822.61334/16a: Telegram

The Secretary of State to the Minister in Ecuador (Hartman)

WASHINGTON, October 27, 1920-6 p.m.

37. Ecuadorean Minister has approached this Department on behalf of his Government for suggestions as to best means of solving crisis in Ecuadorean cacao. Discussion with Mercantile Bank of [the] Americas and other study has led to following propositions which Department is considering. Your views are desired as to whether propositions meet Ecuadorean situation, and your further suggestions are invited. When proper plan is evolved it will be presented in memorandum to Ecuadorean Minister.

1. That the Ecuadorean Government allow and induce the Association as well as the local banks to release enough cacao to cover deficit of Mercantile Bank.

2. That the proceeds from the three sucre export cacao tax be, as far as possible, applied pro rata to the holdings of the Mercantile Bank and the local banks.

25 Not printed.

3. That the three sucre tax be also continued beyond October 1921 until such time as the debts of the Association to the Mercantile Bank are paid.

It is the Department's understanding that local banks have sufficient security already, but that Mercantile Bank has not. Loss on the part of the Mercantile Bank would involve losses and serious disaster to all Ecuadorean interests concerned. Consultation with Consul General at Guayaquil might be appropriate.

COLBY

822.61334/21

The Minister in Ecuador (Hartman) to the Secretary of State

No. 614

[Extract]

QUITO, November 15, 1920.
[Received December 3.]

SIR: Referring to Department's telegram No. 37, of October 27, 6 p.m., advising me that the Ecuadorean Minister at Washington had approached the Department on behalf of his Government for suggestions as to the best means for solving the existing crisis in the cacao dealings with the Mercantile Bank of [the] America [s] and others, I have the honor to submit the following report:

In my telegram No. 76 of November 9, 12 noon,38 I advised the Department that the views of the Consul General had not yet been received, but that Lindberg thinks it necessary to extend three sucre tax to 1926, but that, on Sunday, the Congress had adjourned without passing the extension bill, because of serious opposition thereto. I also stated that the Department's proposed plan would meet the Ecuadorean situation, but that the adjournment of Congress would necessarily delay legislation until next August. In this connection, I deem it proper to refer to my despatch No. 605, of November 5, 1920,36 and to amplify the information therein contained, by informing the Department that in the debate on this measure, members became so violent and angry that personal encounters were only avoided by the President of the Chamber declaring the day's session adjourned. During the last few days of the session sufficient members absented themselves to break a quorum to prevent action on this measure. There is evidently an intense feeling among the people against granting this extension.

Not printed.

On Saturday evening, November 13, 1920, I received a letter from Mr. A. F. Lindberg, of which the enclosed is a copy. . . .

I will keep the Department advised of any developments in the

case.

I have [etc.]

[Enclosure-Extract]

CHAS. S. HARTMAN

The Assistant Manager, Mercantile Bank of the Americas (Lindberg) to the Minister in Ecuador (Hartman)

GUAYAQUIL, November 10, 1920.

38

MY DEAR MR. MINISTER: I saw Dr. Goding, the Consul General,3 Monday noon, and he agreed to send you a telephone message to find out the exact facts as to the status of the Three Sucre Tax Law in Congress, but up to this hour (Wednesday 2 p.m.) we have not received any message. I wanted to get official information from you before cabling to the Bank in New York. However, officers of the Asociacion de Agricultores del Ecuador, as well as Senators Chavez and Espinel, whom I met this morning, have informed me that Congress took no action on this law.

The refusal of Congress to take action on this law has put us in an extremely difficult and dangerous situation, both as affecting ourselves, the Association and the local banks.

The Association owes the local banks S/.4,000,000, which is guar anteed by the Three Sucre Tax of [for?] 1921. The Association also owes to growers "vales" bearing 7% interest in the amount of S/.2,608,360. The first series of these "vales" began maturing November 3rd last. At the first conference I had with the Association officials, I told them it was advisable to get extensions of these "vales," say for three months, until the situation could be worked out. You will thus see that the Association has been practically denied the right to pay its debts, even if it were willing, and creditors, both foreign and local, are exposed to a heavy loss. The action of Congress practically amounts to confiscation of our property.

For the past four years the Mercantile Bank of the Americas, Inc., has been financing the Asociacion de Agricultores del Ecuador. Through our efforts, and the efforts of our shareholding banks in San Francisco, Chicago, New Orleans, Cleveland and Boston, New

38

Frederic W. Goding, Consul General at Guayaquil.

York has become the primary world market for Ecuadorean cacao, having displaced both London and Hamburg.

.

The Association has promised to send the cacao on hand here to us in New York, to apply against their deficit. It remains to be seen whether they will comply with their promise. On Tuesday last they advised me that they would give us 7,000 bags in Bahia and 5,000 bags in Puerto Bolivar, a total of 12,000 bags. Even if the 31,000 bags now on hand in Guayaquil were shipped tomorrow, it would not balance our deficit, after we have ourselves paid about nine sucres per quintal for export duties, local imposts and expenses, as well as about $2.25 per bag (a bag contains about 175 pounds, as a rule) cost of freight and insurance, Guayaquil to New York City. All these expenses, based on the present situation, we will have to advance ourselves, and the immediate shipment of 43,000 bags of cacao means about 75,000 quitals will be shipped, producing to the National and Municipal governments about S/.300,000.

The action of Congress has completely ruined the credit of the Association, as well as any opportunity for securing further credit in order to operate and more quickly pay its debts.

The contracts between the Association and the local banks are so broad that they not only include the Three Sucre Tax for 1921, all stock of cacao in Guayaquil, on the Coast and abroad, but also any moneys due to the Association at home or abroad, in addition to whatever real property the Association may have in Ecuador, that is-warehouses. We think the application of these contracts as they stand, and in view of our prior claims and prior advances, is preferential, and that the claims of the local banks begin when ours have been paid.

In view of the quasi-public character of the Association, the Government's approval of its statutes and regulations, the levying of an impost, and the payment of this impost to the Association for the purpose of protecting the cacao industry, this in my opinion makes the Government of Ecuador both legally and morally responsible for the debts of the Association. Even opponents of the Association admit this fact.

Therefore, in view of the action of the Ecuadorean Congress, of the apparent reluctance of the Association to release cacao for moneys due us through fear of the local banks, as representative of the United States banking interests doing business in Ecuador, I respectfully appeal to you for the protection of these interests in Ecuador. If I may venture a suggestion, would the Government call an extra session in the near future to take up the law anew?

If there is any further information or facts which I can give you which would serve your more mature judgment, I am entirely at

« PreviousContinue »