Rarely have the fiscal affairs of a country experienced so rapid and radical a change for the better as those of Santo Domingo since 1904, and rarely has a financial measure so quickly proved its efficacy as the fiscal convention between the United States and Santo Domingo. In the beginning of the year 1905 Santo Domingo had fallen to the lowest depths of bankruptcy and financial discredit. After decades of civil disturbance, misrule and reckless debt contraction, the deluge had come. The substance of the country had been wasted in military expenditures; agriculture and commerce were stagnant; a debt of over $30,000,000 had been contracted with nothing to show for it but forty-two miles of narrow-gauge railroad and two small gunboats; the government obligations were chronically in default and interest charges were piling up at ruinous rates; every port of the Republic was pledged to foreign creditors who were clamoring for payment; one port had already been seized and the occupation of the others by foreign powers was imminent. At this juncture the Dominican government applied to the United States for assistance and the custom-houses of the Republic were placed in charge of an American general receiver, with the obligation of reserving a specified portion of the customs income for the creditors and turning the remainder over to the Dominican government. The situation immediately changed as if by magic. The imports and exports, and with them the income of the government, quickly reached higher figures than the country had ever seen, the national debt was scaled down by almost one-half and the new Dominican bonds issued in 1907 to convert the old debt went nearly to par in the markets of the world.
(a) Periodic accumulation of floating debt, owing to:
1. Political instability, requiring large outlays for soldiery,
for bribery of potential revolutionists, and for suppression
of actual revolutions.
2. Corruption of officials.
3. "Asignaciones" or pensions to mollify enemies and to reward
friends of the existing régime.
(b) Usurious interest computations, on account of:
1. "Bonus" in principal,
2. Extravagant interest rates.
(c) Interest default and compounding accumulations.
(d) Recognition and liquidation of excessive or illegal claims as a
condition of further advances.
In order to obtain more positive information with reference to outstanding Dominican indebtedness, for use in connection with the pending fiscal treaty, the American government in the early part of 1905 commissioned a financial expert, Prof. Jacob H. Hollander, of Johns Hopkins University, to proceed to Santo Domingo and make an investigation of financial conditions. Prof. Hollander, in an elaborate report, found the amount of the claims pending against the Dominican Republic on June I, 1905, to be $40,269,404.38, distributed as follows:
Bonded debt…………………… $17,670,312.75
Liquidated debt…………………. 9,595,530.40
Floating debt…………………… 1,553,507.79
Declared claims…………………. 7,450,053.89
Undeclared claims……………….. 4,000,000.00
———————
Total indebtedness…………….. $40,269,404.38
The bonded debt, as above designated, comprised the public indebtedness represented by outstanding bonds; the liquidated debt consisted of items secured by international protocols or by formal contracts; the floating debt consisted of admitted indebtedness, neither funded nor secured, but evidenced by public obligations; the declared claims were claims presented for reimbursement or indemnity but not expressly recognized by the government; and the undeclared claims were claims of the same nature not yet formally presented. A brief description of each of these items will afford an idea of the general character, of Dominican financiering and a better understanding of Dominican history.
Bonded Debt. The bonded debt held by Belgians and French and amounting to $17,670,312.75, was the final outcome of eight consecutive bond issues floated by the Republic, as follows:
Interest
per Term
Date Amount cent years Name_
1869 £ 757,700 6 25 Hartmont loan 1888 £ 770,000 6 30 Westendorp loan 1890 £ 900,000 6 56 Railway loan 1893 £2,035,000 4 66 4 per cent consolidated gold bonds 1893 $1,250,000 4 66 4 per cent gold debentures 1894 $1,250,000 4 66 French-American reclamation consols 1895 $1,750,000 4 66 1897 £1,736,750 2-3/4 102 Obligations or de Saint Domingue £1,500,000 4 83 Dominican unified debt 4 per cent bonds
In making its very first loan, in 1869, the Dominican government fell into the hands of sharpers and was mercilessly fleeced. The bargain, even if it had been honestly carried out, was improvident enough. Reduced to American money the nominal amount of the loan was $3,788,500; of this amount the Republic was to receive but $1,600,000; yet it contracted to pay as interest and sinking fund in twenty-five years a sum amounting to $7,362,500. The contractors for the loan, Hartmont & Co., of London, were authorized to retain $500,000 as their commission. In fact, however, no more than $190,455 was ever paid to the Dominican government. The brokers claimed that they tendered a further sum of $1,055,500, though after the expiration of the time limited in their contract, and that the tender was refused because of negotiations then under way for the annexation of the Republic to the United States, but such tender is denied on the Dominican side. At all events, the loan contract was cancelled by the Dominican senate in 1870 on the ground of non-compliance of the brokers with its conditions and the government made no payments for interest or sinking fund. The brokers nevertheless continued to sell bonds in London and pay the current interest with the proceeds. Incidentally in addition to collecting their commission, they turned a penny for themselves by taking the bonds with their friends at 50 and selling them to the public at 70. When the Dominican repudiation of the bond issue was published in England in 1872 a cash balance of $466,500 still remained to the credit of the Dominican government, but it was coolly pocketed by the principal agent, who claimed it as a set-off against alleged damages in connection with a concession he had near Samana. In the ten years of anarchy that followed in Santo Domingo no attempt was made to straighten out the matter. The bonds having gone into default in 1872 dropped lower and lower until they reached 3 per cent in 1878.
The setback received by the credit of the Republic by reason of the defaulted Hartmont bonds made further bond issues impossible for a number of years. Finally an Amsterdam banking house, Westendorp & Co., was interested and in 1888 and 1890 floated the second and third bond issues for £770,000 and £900,000 respectively. The object of the second issue was to retire the Hartmont bonds at 20 per cent, to pay a number of floating interior debts the owners of which were harassing the government, and to provide cash for the treasury, principally for military and naval expenditures, while the third issue was designed to secure funds for the construction of a railroad between Puerto Plata and Santiago. For the purpose of providing for the service of the loan a collection office known as the "caisse de la regie," or simply "regie," under the management of Westendorp, took charge of the customhouses with the obligation of paying a certain amount to the government monthly and devoting the remainder to payment of interest and sinking fund of the loans. The arrangement was thus similar to the later receivership plan, but its vulnerable point was that it was operated by a private concern.