Foreign Relations of the United States, Diplomatic Papers, 1933, The American Republics, Volume V

837.00/3685: Telegram

The Ambassador in Cuba (Welles) to the Secretary of State

Habana, August 20, 1933—2 p.m.
[Received 7 p.m.]

175. After consulting with President Céspedes and with the Secretary of the Treasury, and after receiving the benefit of the opinion of many of the bankers and prominent business men in Habana, both Cuban and American, I desire to submit the following views to the Department:

(1) It is indispensable that measures be taken by the present Cuban Government and be taken immediately for the restoration of Cuban economic prosperity. That the Cuban Treasury is in most serious straits cannot be doubted, although I have not as yet been able to receive any official statement. Government employees are in the greatest distress, since salaries have not been paid over a period of many months with the exception of the month of July just past. All industry is practically at a standstill, the situation as regards the sugar industry being, of course, fully known to the Department. Poverty and destitution exist throughout the Republic. Under such conditions no government can stand, and particularly not a government which has come into power under existing conditions, when almost every Cuban will expect it to perform miracles without a moment’s delay and make everyone happy and prosperous by decree. I wish to emphasize my conviction that if steps are not taken immediately to make the Cuban people confident that their distress will in some measure be relieved in the not distant future, a condition of chaos will unquestionably ensue which will inevitably give rise to such conditions as to make stable and constitutional government in Cuba impossible.

(2) I cannot see any alternative to the declaration by the Cuban Government of a moratorium on its foreign debt. Such a moratorium might involve solely sinking fund charges, or both sinking fund and interest charges, and could be announced as being for a fixed and limited period during which period steps, in my opinion, should be taken looking towards a conversion of the foreign debt.

(3) The floating debt of the Republic, amounting to between forty-five and fifty millions of dollars, of which from ten to fifteen millions of dollars comprise unpaid back salaries, should be submitted immediately to a claims commission for the purpose of verifying these unpaid internal obligations of the Government. It is unquestionable that the nominal amount of the floating debt can be very materially reduced after an investigation by an honest, impartial commission.

(4) The immediate need of the Government, without which I do not believe it can long remain in power, is for a loan of [sic] sufficient at least to meet the payment of back salaries. The injection of this amount of currency into Cuba might be sufficient to tide things over until other measures, which should be taken for economic improvement, become effective.

(5) President Céspedes has requested me to suggest to my Government that it “sell” to the Cuban Government American Treasury bonds for the amount required, payment for these bonds to be made by Cuba in yearly installments but title thereto to be given to the Cuban Government immediately upon entering into the necessary agreement. The bonds, however, not to be delivered to the Cuban Government but to one or more of the American banks operating in Cuba which bank or banks would act as trustees or fiscal agents. The banks in turn would discount the securities with the Federal Reserve Bank for American currency to be delivered to the Cuban Government. The bonds in question would be paid for at a specified annual rate the interest being self-liquidating, being paid by the coupons on the bonds. Such a “sale” could only be guaranteed by the good faith of the Cuban Government and its formal agreement to include in its budget the necessary appropriations for repayment. I have informed President Céspedes that I would transmit his suggestion at once to my Government but that I personally was highly doubtful whether the Executive possessed authorization to undertake such action without the consent of the American Congress, and reminded him that the Congress presumably would not be in session again for some 5 months.

(6) It has likewise been suggested by sources other than the Cuban Government that the Reconstruction Finance Corporation might lend the sum required to American banks interested in Cuba on frozen American assets in the United States and that these banks in turn might advance the amount determined upon to the Cuban Government on such terms and conditions as might be agreed upon.

(7) So far as I can judge, the only alternative to the foregoing plans would be the flotation of a new bond issue by the Cuban Government or the obtaining of a credit by the Cuban Government from American bankers. On account of the political instability now existing it would seem to me obvious that neither one of these two latter alternatives could be considered practicable.

(8) Some minor measures affording immediate relief could be taken:

(a) At the end of June, three American oil companies advanced to the Cuban Government the sum of $1,335,000 against duties and taxes on future importations. This arrangement deprives the present Government of substantial revenues on petroleum products for the coming months. An arrangement could be made with the oil companies by which the amounts due them could be liquidated by partial deductions from duties payable on incoming shipments over a future specified period so that the new Government could get immediate revenue from this source.

(b) Six million dollars of new Cuban silver currency has been authorized by the Machado Government, of which, up to August 11th, $2,240,000 had been received, and of which amount still to be received, not more than $600,000 could be expected this month unless it is possible to expedite operations at the Philadelphia Mint which is charged with the minting of the silver. In view of the national emergency existing in Cuba, it would be highly beneficial to have a special order issued by the Treasury Department so that the remaining silver could be received at the earliest possible moment.

(9) I feel it would be a source of encouragement to the Cuban people, and a source of moral support to the Government of President Céspedes, if a highly competent technical commission of experts could be sent immediately to Habana to advise with the members of the present administration as to the steps which should be taken. In my judgment, this commission should be comprised of practical men, preferably connected with the United States Treasury Department or bankers not affiliated with those banks directly interested in Cuba.

In an interview which I shall have with President Céspedes this afternoon I shall request his opinion in the matter and should he accede to my recommendations I shall telephone the Department accordingly tomorrow morning.

(10) The immediate conclusion of a new commercial treaty with Cuba would be highly beneficial in its moral effect, although necessarily practical benefits cannot be derived from such treaty until after ratification by the United States Senate next winter.

(11) The basic question for the restoration of national prosperity of Cuba is the arrangements which will be made covering the amount of Cuban sugar to be admitted to the American market, the price at which such sugar will be sold, and the terms upon which such sugar will be admitted into the United States. It is unnecessary for me to repeat that I understand fully the domestic difficulties attendant upon giving Cuba generous treatment at the present time, but it will be evident to the Department that if favorable and generous treatment is not given Cuba in this respect all other measures above indicated must be considered solely as temporary stop-gaps.

Welles