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 princ.i.p.al 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 princ.i.p.al 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 ---------- 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 acc.u.mulated, 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 const.i.tuted 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 a.s.sociations 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 a.s.signed 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 reimburs.e.m.e.nt 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 ill.u.s.trated 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 princ.i.p.ally 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 ident.i.ty 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 princ.i.p.ally for damages during revolutions, violations of contract, failure of justice, false imprisonment, etc.

The princ.i.p.al 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 a.s.sistants 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 a.s.sent in sufficient amount to a.s.sure 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 a.s.sistance 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 a.s.sistance."

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 a.s.sistants all needful aid and full protection to the extent of its powers. The United States also undertakes to give the general receiver and his a.s.sistants 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 acc.u.mulated 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.

Acc.u.mulated 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 a.s.sent 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 circ.u.mstance 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 a.s.sured. As time goes on proper appreciation will be given to the men who were the princ.i.p.al 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 acc.u.mulate a reserve fund, but spent more even than authorized by its ever increasing budgets. During the period of civil strife following the a.s.sa.s.sination 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 circ.u.mventing 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 a.s.sets 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, const.i.tuted 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.