File No 838.001 Au 4/2.]

The Secretary of State to the American Minister to Haiti.

DEPARTMENT OF STATE, Washington, October 28, 1912.

[Translation.]

SIR: I enclose, with office copy, a letter addressed by the President to His Excellency Tancrède Auguste, acknowledging his letter of August 19 last in which he announced his election, on the 8th of that month, to the Presidency of the Republic of Haiti and his entrance upon the duties of that office.

You will forward the copy to the Foreign Office and deliver the original in the manner most agreeable to His Excellency.

I am [etc.]

[Inclosure.]

P. C. KNOX.

The President of the Republic of Haiti to the President of the United States

of America.

DEAR AND GREAT FRIEND: I hasten to inform Your Excellency that the National Assembly, in its session of August 8 current, has honored me with its high confidence in calling me to the Presidency of the Republic. Having taken the 9th of the same month the oath required by the Constitution in order to assume the exercise of the Executive Power, it is peculiarly agreeable to me to inform Your Excellency of this important event and to give you the assurance that in the elevated post to which the esteem of my fellow citizens has just called me. I shall use every endeavor to maintain and to develop the friendly relations which so happily exist between our two countries. In the meantime, I express my sincere wishes for the personal happiness of Your Excellency as well as for the prosperity of the Nation whose destinies have been confided to you, and I avail myself, with pleasure, of this occasion to address to Your Excellency the assurances of the high esteem and of the unalterable friendship with which I am [etc.].

T. AUGUSTE.

[Inclosure.]

The President of the United States to the President of Haiti.

GREAT AND GOOD FRIEND: I have received the letter of the 19th of August, in which Your Excellency announced your election, on the 8th of the same month, to the Presidency of the Republic of Haiti, and your entrance upon the duties of the office.

I cordially reciprocate the sentiments you express for the continuance of the friendly relations which have heretofore existed between the United States and Haiti, and I assure Your Excellency of my best wishes for your personal welfare and for the prosperity of the Republic over which you have been called to preside.

Your Good Friend,

WM. H. TAft.

HONDURAS.

FINANCIAL AFFAIRS. PROPOSED LOAN CONVENTION BETWEEN HONDURAS AND THE UNITED STATES. PROPOSED LOAN CONTRACTS. GOOD OFFICES OF THE UNITED STATES; ARBITRATION PROPOSAL.

File No. 815.51/222.

Proposed adjustment of the debt of Honduras by the United States.

[Memorandum prepared by the Department of State about September, 1909. Undated.]

One of the most important provisions of the Washington Conventions of 1907 was that for the maintenance from within and the respect from without of the neutrality of Honduras. The five Central American Republics signed these conventions and the United States and Mexico, as advising and consenting parties, have to them an important relation frequently confirmed in respect to the United States by the acts of the five Republics. Thus the seven Governments concerned put on record their appreciation of the fact that the neutrality of Honduras, which forms a broad band across Central America, would contribute more than any other one thing to the peace, progress, and prosperity which all desire to see in those rich. and fertile countries.

To maintain its neutrality Honduras must be strong, and the fact is almost too obvious to state that to be strong and stable a government must have its finances well ordered and upon a sound basis.

For these reasons, for some years the Government of Honduras has greatly desired to place its financial house in order, and for the same reasons the Department of State has, for some years, cherished the hope that an American syndicate would come forward prepared to carry out a plan which should be of such undoubted merit and fairness as to justify its diplomatic support by the Government of the United States and the assumption by this Government of such relations to the arrangement as would supply the lenders with a proper degree of security.

The external debt of Honduras consists of the principal and arrears of interest on four distinct loans issued in 1867-1870. Since 1873 all of these loans have been in default.

Anyone who will consult the published reports of the Council of Foreign Bondholders of London will find that this debt reaches on paper the enormous sum of about $110,000,000. This debt has been rolling up for many years and has been increased through a series of contracts and of abortive efforts at consolidation. Honduras itself has little to show in return but a very few miles of railway. All these transactions seem to have been peculiarly unfortunate. That this was recognized by the British Parliament may be seen from published reports. The British lenders were especially active during the period following our Civil War, when there seemed to be a forward movement of British enterprise on the Mosquito Coast, where, it will

be remembered, Great Britain has possessions today. An American syndicate also made several efforts to consolidate the debt, but these likewise failed.

Last year the Council of Foreign Bondholders, representing British creditors, drew up a contract. for the funding of the debt, and this was diplomatically supported by the British Government. The terms seemed unnecessarily onerous. The scheme also looked to the raising of the customs duties and the mortgaging of nearly everything in sight to the detriment of commerce and future enterprise. Among the properties to be involved in the British scheme were wharves and railways in which certain American citizens had a direct legitimate interest. These considerations led the American Minister to Honduras, acting on his own responsibility, to advise the Government of Honduras not to ratify the latest British agreement. The same considerations were found so cogent that the Department of State supported the Minister in his position.

In June, 1909, the Legation in Honduras telegraphed that Mr. Washington Valentine, the American actually interested in the railroad and wharves whose hypothecation was contemplated in connection with the British loan, had submitted to the Government of Honduras a plan for refunding all its debts. The Minister for Foreign Affairs had asked the opinion of our Minister as to how the Department of State would view such an arrangement with guaranties somewhat like those afforded in Santo Domingo. The then Secretary of State replied that the Department would not then itself suggest such a plan, but that our Minister might express the opinion that any overtures of the kind in question from the Government of Honduras would be received with the strongest possible desire on the part of the United States to be of service to Honduras and to contribute toward bringing about so satisfactory a result as that attained in Santo Domingo.

Referring to the pending plan of the Council of Foreign Bondholders in London, the American Minister to Honduras reported at the end of April:

I had the honor of a visit on the 23rd instant from President Dávila, who, in the course of a conversation on this subject, indicated that he now realizes how highly disadvantageous to the interests of Honduras the proposed arrangement would be. President Dávila also stated that his Government would be most grateful if, through the friendly offices of this Legation, a satisfactory arrangement could be made with an American syndicate for the general refunding of the entire debt of Honduras. It is most probable that the proposed arrange ment with the British bondholders would never be definitely concluded if a responsible group of financiers should send to Tegucigalpa, in the near future, a special financial agent of experience in such negotiations, fully empowered to make an arrangement for the settlement of the national debt, equally advantageous to Honduras and to the refunding syndicate.

In view of the positive guaranties which the American Government now offers to assure the permanent neutrality of Honduras and its consequent immunity from further external difficulties, it should not be difficult to obtain a financial agreement for the refunding of the Honduran debt, which with the official cognizance of the American Government should afford all necessary and satisfactory safeguards for the faithful compliance of Honduras with its engagements in this respect.

The objection of this Government to the British bondholders' plan was a frequent subject of frank discussion between the Department and the British Embassy, and the Department soon reached the con

Iclusion that the United States must either afford an alternative or else withdraw its opposition to the British bondholders' plan.

This state of affairs naturally made more evident than ever the desirability that an American syndicate should be interested in Honduras. The desirability of this had been fully realized by the previous Administration, but with the rich opportunities of domestic investment there had never seemed to be much hope that American capital would flow into this channel.

The first indication of hope was when Mr. F. B. Jennings called at the Department as attorney for Mr. Valentine and showed great interest in the project and expressed the idea that perhaps Morgan and Company, with whom he was also associated, might be willing to interest themselves. This was on May 24th. On May 26th Mr. Jennings wrote a letter to the Assistant Secretary of State, who had had immediate charge of this whole matter and who conducted ail the conversations now being referred to, wherein he stated that he found that Morgan and Company indicated a willingness to purchase Honduran bonds at a fair price if the English plan failed and if Honduras should issue bonds secured by the customs. He went on to suggest as a basis, the assembling under American control of the various outstanding obligations of Honduras, and he intimated that Morgan and Company would be prepared to open negotiations with the Council of Foreign Bondholders. This seemed very hopeful but was not regarded as definitive.

Owing to the Department's keen interest, for diplomatic reasons, in the Honduran financial adjustment, whenever anyone at all likely to be interested happened to call at the Department the Honduran situation was freely discussed on the chance that some one might be willing to go into it. In this way, about the middle of June it was discussed with Mr. Albert Strauss, representing J. and W. Seligman and Company, who had called at the Department in regard to another

matter.

Similarly, on June 14th, when Mr. James Speyer called at the Department to express interest in the China loan negotiations, his attention was frankly drawn to the Honduran situation. After a long conversation he expressed great interest, and in the course of the same day said that he was prepared at once to send Mr. Steinhart to Tegucigalpa as his representative.

As showing the Department's great desire to get someone interested in this business and as showing its belief that this had not been definitely assured, that it might be difficult, and that the field was open, it may be interpolated here that on the 8th of June there was prepared a letter asking the Department of Commerce and Labor to circulate among reputable firms likely to be interested a circular on the opportunity in Honduras for an American financial group. However, the stage of the British plan and the feeling of the Department that definite initiative should come from Honduras had caused the issuance of this circular to be delayed for more careful consideration.

Mr. Speyer's proposal to send his representative to Honduras seemed a businesslike one, and what Mr. Jennings had said in his letter of May 26th as to what Morgan and Company might do was not at the time understood to be positive; so the Assistant Secre

tary concluded that Mr. Speyer was the one who really meant to go ahead at once. Therefore to make sure of this, the same day he saw Mr. Speyer the Assistant Secretary addressed to him a letter referring to the conversation and to his intention of sending his representative to Honduras and adding that within two or three days he would have pleasure in writing Mr. Jennings on the subject, when he would also make further communication to Mr. Speyer.

In answering this letter on June 18th, Mr. Speyer referred to conversations which his representative Mr. Steinhart had also had at the Department and said:

* and in accordance with your desires we have decided to send Mr. Steinhart to Honduras at our expense as soon as it can conveniently be arranged.

As you are aware, I am leaving for Europe next week, and I shall take up in London the matter of a settlement with the foreign bondholders.

We are undertaking this task, which involves much expert service and considerable expense, upon the understanding that the Department will cooperate solely with us and render us all possible assistance, and will also instruct its representative in Honduras to cooperate with Mr. Steinhart.

I would be much obliged to you if you would as you suggest, write to Mr. Jennings, who, I understand, represents some American claims against Honduras, informing him that we have actively taken up this matter in accordance with your desires, and asking him to furnish us all the information which he has as regards American claims.

Accordingly, the Assistant Secretary, on June 21st, addressed the following letters to Messrs. Speyer and Jennings, respectively:

MY DEAR MR. SPEYER:

Referring to your letter of June 18th, I beg to enclose herewith copy of a letter which I have this morning sent by special delivery to Mr. Jennings, and wherein you will see I have informed him that you have definitely undertaken the Honduran business and concluded to send Mr. Steinhart to Tegucigalpa and are entering on negotiations with the London bondholders, in view of all of which facts I ask him to give you in the most helpful manner all information which will tend to elucidate the situation as he knows it and as it concerns American claims and his clients in particular.

From our conversations the attitude of the Department is, I am sure, fully known to you and you are well aware of my own keen interest in the success of this undertaking on account of the excellent effect it should have upon conditions in the locality concerned. I am very glad that you have determined to approach the undertaking with promptness and energy.

Wishing you every success and with many good wishes for an agreeable trip to Europe, I remain, my dear Mr. Speyer, [etc.]

MY DEAR MR. JENNINGS:

Mr. Speyer called at the Department on the 14th instant and after a long discussion of the financial condition of Honduras and the possibility of the Honduran Government's entering into an arrangement with foreign bankers to fund its whole foreign debt, he informed me that he had concluded at once to send an agent to Tegucigalpa and look into the matter with a view to negotiating if possible an appropriate arrangement for the purpose indicated above. This definite undertaking of Mr. Speyer will, naturally, have the good offices of the Department and of the Legation in Honduras in the manner that such aid is extended in all legitimate and beneficial American enterprises in foreign countries. I may add that Mr. Speyer is simultaneously negotiating with the Council of Foreign Bondholders.

On account of your interest as the representative of Mr. Valentine and, as I understand, of another American syndicate, I advised Mr. Speyer to discuss the situation with you, and I trust that you will in the most helpful manner give him all information which will tend to elucidate the situation as you know it and as it concerns American claims and your clients in particular. Faithfully yours, [etc.]