''»aojnv:jo-^" '^J'iuoNvsoi^^ "v/sajAiNn-Jwv -^•i/ojiWDjo^ '^mumi^'^ ^OfCAlIfO/?^ :5 >— '» •- £;• ■%a3AINfl3WV^ ^OFCAilFO/?^ ^^.OfCAllfO/?^ 30 ^ ^^ 5^lllBRARY6>/ ^^^l■llBRARY6'/:^ ^.OFCAUFO^, ^OFCAllFOff^ '^/ia3AiNn3WV** ^(JAbvaam^'^ ^^^AavaaiH^^"^ ^Wf•lNIVERS//, o ,\WEUNIVER% S -n o ^10SAKCE15J> o ■%a3AINn-3WV** v^lOSANCElf/. "^/saaAiNO^wv ^>MllBRARYQr ^WEIIN1VER5'//, o aWEUNIVERJ//, ^lOSANCElfj> O %J13AINn3WV vvlOSANCElfj> o A^UIBRARYQr -^^^lllBRARYQr^■ «^ ^A;OFCAlIF0fiV ^OFCAIIFOP^. y/9iMVHfinTx\^ ' ■^/5a3AiNn 3W^^ %03iiv3JO'^ ^^m\mi^ .^;OFCALIFO% ,^,OFCAIIFO% 2? -35. .\WEINIVERS/A vS:lOSANCElfj> "^/iaaMNH^wv^ '%A}ivaan# "^^^AnvaaiH^^ %i33nvso\^ '^/5a3A!Nn-3,wv' ^^^lUBRARYQ/r 1^1 \WEUNIVER5'/A v^VOSANCElfj> o ^^^l•llBRARYQ<. ^:JM■EIBRARYac '^ A. m-^ ■'/^ajAIMIJWV "'audiivjju' ''auiiivjdu' ^JiliJNVbUJ- n^ 01^ .o %a3AINn3WV ^OFCAllFO/?^ ^0FCAllF0/?4^ ^WEUNIVERS/A o &Aavaan-# >&Aavaan# aWEUNIVERVa %a3AiNa-3\<^ -s^lllBRARYQ<> -s^ll '^Aa3AiNn-3W^ %Qi\mif^^ %oi\ ^OFCAUFOff^ ^OFC ^^Aavaan-# ^ payable in land at the rate of P. 1.25 per acre, or if the bankers pre- ferred, l^f payable in cash, when the financial condition of the country permitted. This decision was communicated to Lizardi & Company, who now requested that their commission be fixed at 21/2'/^, payable in cash. As the agreement of 1837 was at this time still in the con- dition of having been rejected, the Council of State replied that because of this fact there would be no conversion, and, therefore, no commission. Upon approval of the agreement of June 1, 1839, the gov- ernment issued instructions for the conversion, and confined itself to requiring that a detailed statement be kept of expenses incurred by the bankers, without, however, indi- cating how they were to be paid. In fact, it stipulated that not a single new bond was to be issued, except in exchange for an old one, thus tacitly prohibiting the issue of bonds in pay- ment of commissions. The question of commissions appar- ently did not come up again until the London Stock Exchange began its investigation in 1842. After the bonds were issued, the government was obligad to back them since Lizardi & Company were its agents. This it did in two orders issued on October 10, 1842, the first fixing the commission for the conversion of 1837 at 21/2/^ payable equally in active and deferred bonds, and 5% of the capitali- zation of interest payments in 1842, payable preferably from the proceeds of the additional 31/2% customs duties, or in bonds. 30 These orders did not wholly clear up the matter, since Lizardi & Company had issued active bonds only, instead of dividing the issue. In addition to these bonds, Lizardi & Company had also issued bonds amounting to £91,650 in part payment of the interest coupons which became due on April 1, 1843. On July 29, 1843, President Santa Ana authorized Lizardi & Company to issue an additional £200,000 of bonds for ths payment of interest on bonds issued or to be issued by them, and for the payment of the 5^( commission allowed them bv order of October 10, 1842. • These various issues of bonds were confusing, and the disputes as to the legality of some of them convinced the government of the necessity of determining the total amount of the British debt. Accordingly, on December 15, 1843, a law was passed specifying and recognizing the British debt to be as follows: 5% active bonds i5,500,000 57o interest bearing deferred bonds 91,650 Deferred bonds - 4,624,000 Debentures issued for unpaid interest _ 499,096 5% bonds in payment of commission for capitalizing interest - 200,000 Total £10,914,746-0-0 This did not, however, conclude the matter, since the Mexican charge d'affaires in London declined to sign the £200,000 of bonds. The government then issued specific orders to him to countersign the bonds, but again he did not comply. The many disputes with Lizardi & Company over the pay- ment of interest, issue of bonds, etc., induced the government to change agents, and accordingly John Schneider & Company, of London, were appointed on April 5, 1845. 1843-1846 CONVERSION OF 1846 Why was another conversion of the British debt necessary so soon after the passage of the law of December 15, 1843? The law authorizing the new conversion was passed April 28, 1845, yet the April and October, 1844, interest coupons appear to have been paid. Montellano indicates in one part of his book that these were not, and in another that they were, paid. Since these two coupons do not appear to have been the subject of negotiations, it is probable that they were paid, and it is so considered. The coupon of April 1, 1845, then, was the only one in default when the new law was passed. It is probable that the change in administration and the desire to establish a reputa- tion for financial ability, were the leading causes for the conversion. 31 The new law was short, definite, and provided for the con- solidation of the debt, on the following basis: 1. Unpaid interest shall not be capitalized. 2. Interest shall not exceed 57^ per annum. 3. The legal debt as it now stands shall not be increased. 4. No property of the nation shall be given in payment, nor shall any part of the national territory be mortgaged. Manning and Mackintosh, who now represented the bond- holders' committee, on April 29, 1845, made a proposal for a new loan of £4,000,000 bearing interest at 57' , payable in eighty years, with pledge of all revenues of the Republic and especially those from tolDacco. The proceeds of the loan were to be used to retire all deferred bonds and outstanding deben- tures, and to pay the three coupons in default. The balance was to be liquidated as follows : Pesos 1,500,000 In tobacco bonds. 500,000 In so-called 26^? bonds. 2,500,000 In interest bearing obligations. 500,000 In non-interest bearing obligations. 1,600,000 In cash. 6,600,000 The proposal was approved by the government as soon as presented, and instructions were sent to Schneider & Com- pany to proceed to secure the deferred bonds and debentures, in accordance with the contract. Schneider & Company immediately stated that the scheme was impractical and recommended a change in the proposal. As the holders of the deferred bonds and debentures would receive a greatly reduced price for their securities without gaining anything, since the securities in question, in accord- ance with the agreement of 1837, would begin to draw interest in 1847, the bondholders would not agree to the new proposal. By reason of the difficulties encountered in the carrying out of their proposal, Manning & Mackintosh, on September 20, 1845, withdrew their offer, asking at the same time for the return of P. 500,000 which they had advanced to the government. The government now offered on September 29, 1845, a new agreement which was substantially the same as the foregoing, except that the amount was raised to £4,200,000. This proposal was likewise declined by the bankers, who again asked for the return of the P. 500,000 advanced, stating, however, that they would offer some modification which would enable them to enter into a contract. On March 5, 1846, a new Minister of Finance raised the amount of the loan to £4,650,000 with other conditions 32 unchanged. This proposal was accepted by Manning & Mack- intosh and the government on the above date, and communi- cated to the agents of the government in London with an additional statement addressed to the Mexican Minister authorizing him to solve any difficulties presented in the conversion of the debt, in accordance with the contract. The project was submitted to the bondholders on May 9, 1846, and rejected, mainly because it was not considered fair to the holders of the deferred bonds and debentures. They felt that the reduction in the debt should be distributed equally among all bondholders. As the Mexican Minister believed he possessed full authority to conclude a satisfactory agreement, he then proposed on June 1, 1846, the creation of a new 5%> bond issue, which was to be used as follows: Par Proceeds £5,591,650 Active Bonds at 90% _ £5,032,475 4,624,000 Deferred Bonds at 60% 2,774,400 499,096 Debenture at 60% 299,457 489,269 Interest in Default £11,204,015 Total ~ £8,106,332 Old Debt „ £11,204,015 As Converted „ 8,106,332 Reduction £3,097,683 The total amount of the new loan was fixed at £10,241,650, the difference of £2,135,318 being issued to Manning & Mack- intosh to provide cash for the use of the government and to retire domestic obligations. This proposal was embodied in a contract and signed by the Mexican Minister, Sr. Murphy, and by the duly qualified repre- sentative of the bondholders. There were now two contracts outstanding providing for the conversion of the debt, one dated March 5, 1846, between the Minister of Finance and Messrs. Manning & Mackintosh for a bond issue of £4,650,000, and the other dated June 4, 1846, between the Mexican Minister in London and the bondholders' committee. Shortly after the date of this last agreement, a revolution caused a change in administration, and the nev/ Minister of Finance, Sr. Farias, on August 28, 1846, repudiated the con- tract executed in London, removed Sr. Murphy from office, transferred the agency from Schneider & Company to Manuel J. de Lizardi, and advertised that the Mexican Government proposed to effect a new settlement of its foreign debt. Then followed another secretary and another decision. This new secretary, Sr. Haro y Tamariz, who succeeded Sr. Farias, approved the contract on October 29, 1846, and ordered a copy to be furnished to M. J. de Lizardi. 33 still another secretary, Sr. Villamil, followetl shortly, who disapproved the contract in effect by disapproving the approval of October 29th. Casasus says that ''these three contradictory orders which were successively received in London, during the months of September, November and December, 1846, signed by three different Ministers of Finance, produced an inconceivable but justifiable scandal." The bondholders now submitted the matter to the British crow^n attorneys who held that a most important contract had been entered into between an independent State on one part and certain public creditors, subjects of a foreign country, on the other; that the contract had been fully ratified without a single condition by the State that had promoted and authorized the negotiations ; that in accordance with the laws of man, neither of the contracting parties could withdraw from the agreement without the consent of the other, that no subse- quent change in the interior government of the State that had entered into the contract, nor the opinion of its officials could give it the right to break the solemnly pledged word, which, if done, would constitute a flagrant breach of the most sacred and best established principles of international law. The bondholders likewise held a general meeting and passed a set of resolutions upholding the actions of the Mexican Min- ister in London, Sr. Murphy, in entering into the agreement of June 4, 1846. The war with the United States of America, which soon followed, prevented Congress from passing on the matter, and Santa Ana, again President, on July 27, 1847, issued a decree approving the contract which had been so long in dispute. His approval was conditioned upon the consent of Messrs. Manning & Mackintosh, which appears to have been given on July 19, 1847. It likewise appears that these gentlemen took advantage of this opportunity to impose new conditions to their own profit. The new debt amounted to £10,241,650 bearing interest from July 1, 1846, and was to be amortized each year by the purchase of bonds in the open market to the extent of $500,000. Th3 principal and interest was to be secured by a general pledge of all the revenues of the government. 1846-1850. CONVERSION OF 1850. The war between Mexico and the United States was now over, but the after-effects in Mexico were such as to make it impossible to pay interest and amortization charges on its foreign debt. 34 The larger portion of the lands of Texas, Chihuahua, New Mexico, Sonora and California, formerly pledged as security for the payment of part of its foreign debt, now belonged to the United States, which paid Mexico $15,000,000 (then equal to P15,000,000) as indemnity under the treaty of peace. After the treaty of peace was signed, Mr. George B. Robin- son, Chairman of the Bondholders' Committee, directed their agents in Mexico, Messrs. Manning & Mackintosh, to request the government to set aside for the bondholders 207f of the receipts of the custom houses at Vera Cruz and Tampico, and the receipts from tobacco, and to secure payment of the three coupons then in default with a part of the proceeds of the American indemnity. They held that since a portion of the territory ceded to the United States had formerly been pledged to the bondholders, the government could do no less than dis- tribute part of this indeirnity. The Minister of Finance replied that orders had already besn given respecting the separation of revenues, but that with regard to the American indemnity, the decree of June 16th prohibited the use of any part of the P15,000,000 without special authorization of Congress. At the same time that this decision was made, the Mexican Minister in London addressed all the Consuls and Legations in Europe and stated that the Mexican Government would not and could not devote any part of the American indemnity to its British creditors, because it had in 1846 voluntarily renounced the pledge of the lands which had been transferred to the United States Government. The bondholders, as a result of the above action, again consulted the crown attorneys with a view to ascertaining what their rights were under the mortgage of 1837. The attorneys handed down an opinion to the effect that the conversion of 1846 had not destroyed the rights of the bondholders under the mortgage of 1837, and that conse- quently they should participate proportionally in the indemnity. It is difficult indeed to see how this opinion is justified by the facts. The law of April 25, 1845, previously cited, pro- vided specifically that no part of the territory of the Republic should be mortgaged. The conversion of 1846 was based upon this law, and since the bondholders accepted the conversion which eliminated the objectionable mortgage, they clearly waived their rights thereunder. The conversion was also made in consideration of increased payments and increased guar- antees. The bondholders, acting on the very favorable opinion of the British crown attorneys, held a general meeting on Sep- tember 6, 1848, and resolved to send Mr. William P. Robertson to Mexico, to enter into an agreement with the government upon the grant of a portion of the indemnity. Robertson arrived in March, 1849, and began negotiations with Secretary Pena y Cuevas, who conditioned the settlement of the debt upon the establishment of a National Bank. Sr. Arrangoiz, who succeeded Sr. Pena y Cuevas within a short time, advocated a purchase of bonds in the open market with the proceeds of the indemnity, a reduction of the interest rate to 3V2/'f > and a reduction of the amount of interest in default. Continuous discussion led to an agreement being signed by Mr. Robertson and the Minister of Finance. Since it was not approved by Congress and not carried out, the details are not important. Robertson returned to London in October, 1849, and reported to the bondholders, who decided to defer the approval of the contract entered into by him until it was ratified by Congress. In view of the opposition to this proposal by a number of bondholders, a new committee was formed called the Com- mittee of Mexican Bondholders. A special committee of the Chamber of Deputies now began a studv of Robertson's proposals, and their conclusions were embodied in a law dated October 14, 1850, which constituted a rejection of his proposals. This law provided that if the holders of the Mexican bonds issued in London and converted in 1846 accepted its provisions the government would pay over to them P. 2,500,000 of the American indemnity. The conditions were as follows : 1. Interest shall be reduced to 3% on a total debt of £10,241,650, which is all that the Nation recognizes. 2. All unpaid interest up to the date of the signing of a new contract in accordance with this law, shall be considered paid with the P. 2,500,000. 3. For the payment of interest the following reve- nues are set aside: (a) 25% of all import taxes from maritime and frontier custom houses. (b) 75% of all export taxes. Pacific ports. (c) 5% of all export taxes, Gulf ports. (d) If the proceeds of the above are not suffi- cient, the balance is to be made up from the general revenues of the nation. 4. During the first 6 years the excess revenues under clause four, if any, shall be used for amortization purposes, and thereafter, P. 250,000 shall be remitted annually for amortization purposes. 5. The bondholders may appoint agents in the ports to receive funds collected, 36 The same day that the law was approved by the Senate, Francisco Falconet, representing the bondholders, arrived in Mexico and began working to secure a modification of the terms which would be more favorable to his employers. The government, however, preferred to deal directly with the committee and forwarded a copy of the law to London, together with a note addressed to the chairman of the com- mittee explaining the serious condition of the treasury, so that he would appreciate the sacrifice the nation would make in disposing of its best revenues to pay its debts. The bondholders, in a general meeting in December, 1850, accepted the law of October 14, 1850, asking the government to consider bettering their condition when the finances of the State showed improvement. Referring to the measures taken by the government to convert its debt, Casasus says that in view of the attacks made by the conservative press the government at that time could not, and should not, have acted in any other manner. The committee of bondholders would not have believed in promises or agreements, which, although made in accordance with express authorizations of the government, were rejected by it, approved by a new Secretary or disapproved by his successor in office. The memory was still fresh of the conversion of 1846, which was declared void by Gomez Farias, accepted by Haro y Tamariz, disapproved by Villamil and again approved by Santa Ana. The bondholders had not yet forgotten the capitalization of 1842, which was not ratified, nor the con- version of 1837, which was not approved until 1839. The following statement of the conversion, though it does not agree with Casasus' account, is confirmed by Montellano in one part of his book, and yet apparently disavowed by him in another. The difference consists in the fact that Casasus only considers eight coupons, from July 1, 1847, to January 1, 1851. The law specifically states that interest shall begin on July 1, 1846, which makes nine coupons to January 1, 1851. If interest did not begin on the date fixed by law, it is apparent that interest on the old debt should be computed to the date the new debt began to bear interest : July 1, 1846, principal of debt - - £10,241,650-00-0 Accrued interest to January 1, 1851 _ 2,304,371-05-0 Total „ - £12,546,021-05-0 Less: Remittance of cash during period from July 1, 1846, to January 1, 1851 „ £393,015-12-0 Part of American Indemnity, P. 2,500,000 at five to one 500,000- 0-0 Total Deduction £893,015-12-0 Total debt, July 1, 1851 - £11,653,005-13-0 Reduction granted by bondholders -.... 1,411,355-13-0 Amount of new debt £10,241,650- 0-0 37 The reduction in the amount of the debt was unimportant in comparison with the reduction of interest as follows: b'/'r interest on £10,241,650— old debt £512,082-10-0 3% interest on £10,241.650— new debt 307,249-10-0 Difference £204,833- 0-0 Equal to P. 1,024,165.00 per annum. Additional advantages were also secured in the matter of amortization charges. For six years, only the excess receipts aft3r the payment of interest were to be used for amortization purposes, after which date P. 250,000 per annum, instead of P. 500,000 per annum, was to be paid, as stipulated in the law of 1846. 1850-1863. CONVERSION OF 1863 Manuel Payno was appointed by the government late in 1850 to proceed to London, effect the conversion of the debt, and pay over the P. 2,500,000 previously mentioned. He arrived in London on May 10, 1851, concluded the conversion and paid the first coupon, although to do this, he had to borrow £10,000. The United States Government declined to pay the warrant for P. 2,500,000 in London on the ground that it was required to pay the indemnity in Mexico City in accordance with the terms of the treaty between the United States and Mexico. The government later turned over the specified amount in silver to the agent of the bondholders in Mexico during May, 1852. Difficulties now arose over the exportation of the silver, which was subject to an export tax. When the matter was referred to Congress, it decided that the tax must be paid. The Minister of Finance, however, gave permission to export the silver tax free. French, British and Spanish creditors of tne government who, under various diplomatic conventions were entitled to a portion of the taxes, protested against this decision, and the lower house preferred charges against the Minister of Finance for violating various articles of the constitution. However, before he could be impeached, political changes resulted in his removal from office. A serious disagreement now arose over the interpretation of Section 2 of the law of 1850, which reads: "That said P. 2,500,000 with the funds already received to the date of this law and which may be received up to the date of the approval of the agreement which is proposed today, shall be exchanged in full payment of all interest accrued to the date of the approval of the agreement." 38 The Mexican Government construed this to mean all tunds which had been received in London up to the date specifiea. The bondholders claimed all funds which had been collected for their account in Mexico to the same date, in accordance with previous agreements. The committee submitted the question to the attorneys of the British Crown, who ruled that the bondholders were correct in their contention. This ruling, communicated to the Mexican Congress by the agent of the bondholders, produced no result. Interest payments were met with difficulty up to Decem- ber, 1853, after which they were again suspended on account of the revolution of Ayutla. Upon the establishment of a new government, about 1855, the bondholders again sought payment of their claims. On January 3, 1857, the government issued a decree author- izing the bondholders to name agents in each of the ports of the Republic, with authority to collect the amounts due direct from the importers and exporters. At this point a short review of political events from 1847 to 1867 is necessary to a proper understanding of Mexico's financial condition and of her policy relating to her foreign debt. The war with the United States was concluded on February 2, 1848, by the treaty of Guadalupe Hidalgo. General Joaquin Herrera became President, June 3, 1848, and held office until December 31, 1850. He was the sponsor for the conversion law of 1850. Aristi was elected and took office January 1, 1851, and resigned in 1852 as the result of a revolution. In 1853, Congress elected Juan Bautista Ceballos, who was formerly President of the Supreme Court. He disliked the attitude of Congress and dissolved it. Congress met in a private house, declared Ceballos a traitor and elected as President Mugica y Osorio. This gentleman declined the office and Ceballos re- signed. Manual Mario Lombardini then became Acting Presi- dent, and secured the election of Santa Ana, who again became President on April 15, 1853. Santa Ana played the role of a dictator, dissolving Con- gress, abolishing state legislatures, re-establishing the Jesuits, and adopting other measures to centralize and enhance his power. Long before this there had been a strong movement on foot to establish a monarchy in Mexico, under the rule of a Euro- pean prince. This plan was now revived, and Santa Ana appointed Gutierrez Estrada a special commissioner to negoti- ate with Great Britain, France, Austria and Spain to that end. On December 16, 1853, Santa Ana declared himself "Per- petual Dictator," which caused another revolution and resulted in Santa Ana's departure from Mexico in August, 1855. 39 This revolution was the bej?inning of the general reform movement which terminated with the adoption of the Consti- tution of 1857. The Constitution of 1824, modeled upon that of the United States, was apparently nat suited to the Mexicans, The Catholic Church owned more than one-fourth of all the land in Mexico. Ecclesiastical and military courts had exclusive jurisdiction over offenses committed by the clergy and the military. In 1856 the first reform law was passed which sought to crush the pov/er of the church. In February, 1857, the new Constitution was adopted which, it was hoped, would remove many of the causes of past revolutions. It destroyed the dominion of the church, and by its democratic provisions antagonized all those who thought that a monarchy was the solution of the Mexican problem. The monarchial and clerical parties now combined to fight the constitutionalists, and were- strong enough to gain tempo- rary success. Threatened by arrest, seventy constitutionalist deputies fled to Queretaro, organized under the Constitution and elected Benito Juarez as President on January 10, 1858. Leaving Mexico City, Juarez proceeded to Vera Cruz, via Mazatlan, Panama and Havana and established his govern- ment at Vera Cruz on May 4, 1858. He was recognized as President of Mexico by the United States on April 9, 1859. The adherents of the administration in power were known as the Reactionaries. The supporters of Juarez were known as the Constitutionalistas or Juaristas. These were the two parties in the field, the first repre- senting the church and army, and the other formed of a small group of intelligent men determined upon the establishment of a stable government. The struggle between the two factions is known as the "War of the Reform" and was by all odds the bloodiest in the history of Mexico, except the conquest of Mexico by Cortes. Due to the church question, it partook of the nature of a religious war. It was during this period that Juarez issued the decree nationalizing and sequestrating church property in Mexico, establishing civil marriage and providing for religious toler- ation and the secularization of cemeteries. Juarez, successful in the field, called an election for Presi- dent, was elected and installed in office during May, 1861. In July, 1861, Congress suspended all payments on the foreign debt for two years which, although necessary, was soon followed by the foreign intervention of Great Britain, France and Spain. The treaty between these nations was signed in London on October 31, 1861. Spain secretly desired to establish an empire in Mexico with a member of the Bourbon family on the throne. France also planned to establish an 40 Empire, and Napoleon III secretly offered the crown to Ferdi- nand Maximilian, Archduke of Austria. The Spanish squad- ron appeared before Vera Cruz in the latter part of December, 1861, and the Spanish forces proceeded to occupy the city. The English ^nd French fleets arrived during January, 1862. With a view to arranging matters amicably, if possible, President Juarez invited the representatives of the invading nations to a conference which was held in Orizaba in April, 1862. France demanded $12,000,000 with no specifications, in addition to $1,500,000 for the Jecker claim for funds advanced to Juarez's opponents, although it was proved that only one- half of this latter amount had been delivered. It being evident that France was determined on war, Great Britain and Spain withdrew. The first battle of the war was won by Mexico on May 5, 1862, but French reinforcements resulted in the capture of Puebla in May, 1863, and the entrance of French troops into Mexico City during the next month. Juarez successively established his government in San Luis Potosi, Saltillo, Monterey, Chihuahua and Ciudad Juarez, just across the border from El Paso. The United States Government, of course, vigorously opposed the establishment of an empire in Mexico, but could do little more than protest while the War of the RelDellion was in progress. The Washington authorities consistently treated with the Juarez Government as the de facto government of Mexico, and aided it with money and arms. At the end of the War of the Rebellion, in 1865, the United States had a formidable army of veterans which could take aggressive action to support its views. President Lincoln had already declared that the occupation of Mexico by the French was an offense to the people of the United States and he now demanded that the French troops be withdrawn without delay. Napoleon III yielded to this demand and ordered the French troops withdrawn. Maximilian, badly advised, decided to continue the fight and after varying fortunes, surrendered to Juarez on May 15, 1867. He was convicted by court-martial and executed June 19, 1867. To what extent the foreign debt situation influenced Great Britain to intervene with France and Spain, is not apparent. It was probably one of a number of factors which brought matters to a crisis, but it certainly was not the only reason nor the most important one. All three nations presented claims during 1861-1862. Great Britain demanded reparation for the taking of P. 660,000 from her legation in Mexico City by one of the generals opposed to Juarez. This money had been collected by Juarez and had been turned over to the British legation for British bond- holders. 41 Another purpose of the intervention was to secure the payment of amounts due to the subjects of the subscribing nations in accordance with diplomatic conventions. From time to time during the preceding years these con- ventions had been entered into, providing for the payment of amounts claimed to be due to citizens of foreign countries. When payment was suspended on all foreign indebtedness in July, 1861, there were a number of such treaties in force, providing that payment should be made in the usual way by a percentage of the customs receipts. The following statement, showing the commitment against customs receipts, is taken from Mr. Payno's book on ''Mexico y sus Cuestiones Financieras" : DUTIES ON GOODS BROUGHT IN BY FRENCH VESSELS. British debt „ 25% British convention 29% French convention „ 25% Spanish convention „ 8% British debt for payment of arrears ~ 5% Total _ 92% DUTIES ON GOODS BROUGHT 'iN BY VESSELS OF OTHER NATIONS British debt _ 30% British convention _ 29% French convention _ _ 8% Spanish convention 8% Total „ 75% If the additional charge agreed to by the party in oppo- sition to Juarez for the payment of the Jecker claim had been assessed, the total customs receipts would not have sufficed for the settlement of these claims. As the customs duties were the principal source of revenue in those days, it is clear why payments were suspended. Customs revenues were further reduced by the vicious practice which prevailed up to a comparatively recent date of sailing custom house certificates at a discount. We can now return to a discussion of the events leading up to the conversion of 1863, with a reference to the legal aspects of intervention for the payment of loans made by foreign citizens. After the law of July 17, 1861, was passed, suspending payments to all classes of creditors for two years, the British Minister, Sir Charles Wyke, began negotiations with the Mexican Secretary of Foreign Relations, with a view to secur- ing a modification of this law. On November 21, 1861, an agreement was signed but not ratified, known as the Zamacona- Wyke convention, providing for the payment to British repre- sentatives of a portion of the customs revenues in accordance with former agreements, and practically nullifying the law of July 17, 1861. Casasus states that this agreement was 4S rejected by Congress and that Sir Charles Wyke presented an ultimatum shortly afterwards. The sequence of events thereafter is not clear. On Novem- ber 23, 1861, Congress passed a law repealing the provisions of the law of July 17, 1861, relating to the diplomatic conven- tions and the British debt, and directing that payments be made immediately in accordance with laws and conventions in force prior to that date. About a month before Congress took this action, the treaty between Great Britain, France and Spain, for intervention in Mexico, had been signed in London on October 31, 1861. The ultimatum of Great Britain submitted by Sir Charles Wyke is interesting as indicating the measures considered necessary at that time to secure payment of amounts due. Its terms were as follows: 1. The immediate repeal of the law of July 17, 1861. 2. Commissions to be established in the ports of the Republic to be appointed by the British Government to secure the payment of amounts due under diplomatic conventions. 3. That such commissioners shall have the right to reduce the dues imposed by the present tariff, one-half or less, if considered neces- sary. The above ultimatum does not include any reference to the payment of interest on the British debt. As stated above, this note was presented about one month after the intervention agreement was signed by Great Britain, France and Spain. The Zamacona-Wyke convention is the only one of a nuni- ber of agreements entered into between the British diplomatic representatives and the Mexican Government in which the payment of interest and amortization charges on the British debt is mentioned, but this convention was not ratified by either of the two countries interested. It does not appear that the settlement of the British debt was ever made the subject of a treaty between Great Britain and Mexico, but a precedent for such action was estabhshed by a treaty of 1851 between the two countries providing for the settlement of a loan of P. 2,000,000 made by Montgomery, Nicod & Company to the Mexican Government. What conditions surrounded this loan which induced the British Government to act, while it consistently refrained from official action to secure payment of the British debt, are unknown. The committee of Mexican bondholders in London made repeated attempts to induce the British Government to take measures to secure payment of their claims. The policy of the government, as indicated by Lord Russell on several occasions, was that the claims of British subjects against a foreign gov- ernment for the repayment of sums voluntarily loaned with interest due were not matters justifying governmental action. The bondholders held a meeting in conjunction with mer- chants of Glasgow, Liverpool and Manchester, in September, 1861, and petitioned Lord Russell not only for the guarantees which they had repeatedly requested, but also for intervention in Mexico by Great Britain to reestablish public order, afford protection to British subjects and defend the sacred interests of humanity. Lord Russell replied in substance: "That Her Majesty's government had the right under treaties and in accordance with all the laws which ruled inter- national relations to demand the security of persons and prop- erty of British subjects and compliance with special obliga- tions contracted by Mexico; that Her Majesty's government would exercise this right, but did not think it would be wise to intervene in the interior government of Mexico. "You think that a protecting force, although small, with the simple object of maintaining the public tranquility, would be sufficient to accomplish the purpose. A large army would not be sufficient to restore tranquility. This is a task for the Mexicans themselves. There are very few cases where foreign intervention is beneficial, and in these few cases it is necessary that a large and numerous party exist prepared to approve foreign aid. I am obliged to state that I see no proof that a party like this exists in Mexico. "Her Majesty's government, therefore, will limit its action to the clear and legitimate purpose of demanding from the Mexican Government de facto, even if not regularly organized, respect for the persons and properties of British subjects in Mexico and compliance with obligations which have been con- tracted." (1). After the intervention treaty of 1861 was signed, the bond- holders again presented their claims to Lord Russell, with the statement that their settlement should be included as one of the objects of the intervention. His reply was to the effect that he could not enter into a detailed discussion with the bondholders; that Sir Charles Wyke had been given ample discretion to do what he could regarding Mexican claims, and that such instruction should not be fettered with special instructions regarding details. Nevertheless, there was a great difference between claims founded on agreements between the Mexican government and British subjects, in which the latter were responsible for all the risks incurred to obtain the consequent profits, and those other claims which had been recognized by British Ministers accredited to Mexico, or government employees, and which had also been approved and ratified by the Crown. (1) Translated freely from Casasus' "Historia de la Deuda Inglesa." English original not available. 44 Regarding the same matter of securing payment by forcible measures, Lord Palmerston before Parliament said that the British Government never had taken measures, nor would it, to require the government of Mexico to settle claims of persons who, by voluntary act, had loaned funds to the government of the Republic, nor could the failure to pay such debts ever be considered as a reason for war. The intervention treaty likewise contains no direct refer- ence to the British debt, although the language used would permit action to be taken towards securing a settlement if desired. The preamble states the purpose of the treaty, which was to demand from the authorities of Mexico better protection for the persons and property of subjects of the contracting nations, as well as compliance with obligations which the said Republic had contracted with them. The high contracting parties being desirous that the measures to be taken should not be exclusive, invited the United States to become a fourth member of the concert, but Secretary of State Seward declined in the most positive terms. So much for the position of Great Britain. The attitude of France regarding her claims at that time, including the Jecker claim, has been universally condemned and affords no precedents worthy of emulation. Jecker was a Swiss who had loaned some money to the Mexican Government upon disgraceful terms. Not being able to recover, he approached the Duke of Morny, the illegitimate brother of Napoleon III, and offered him 30% of all sums recovered, if he should induce his brother to intervene in Mexico for that purpose. This appears to have been the incep- tion of the intervention idea, which subsequently resulted to the great financial advantage of Jecker and the Duke of Morny. If the British Government officially refrained from using forceful means to collect interest due British subjects by the Mexican Government, those subjects did not refrain from using the intervention to secure a settlement. Before the new Emperor could sell a new bond issue in Europe to provide funds for the enterprise, it was necessary to reestablish confidence in Mexican securities by providing for bonds already in circulation. Maximilian took the oath of office in the castle of Miramar on the Gulf of Trieste, on April 10, 1864, and on the same day signed what is called the Treaty of Miramar, by which he agreed to pay the Jecker claims, reimburse France for the expenses of the intervention, pay French troops in Mexico, and issue 3% bonds in settlement of unpaid interest on the British debt, at the rate of £100 of new bonds for every £60 of interest outstanding. The fact that the British bondholders accepted Maximil- ian's term.s, received new bonds for their unpaid interest and indirectly aided him in his project of abolishing constitutional government in Mexico, was used after the second empire had collapsed as an argument why the British bonds and interest should not be paid. The basis for the argument was that the British bondholders had violated the laws of neutrality. The computation of unpaid interest in accordance with tho Treaty of Miramar was as follows: Amount of debt, January 1, 1851, after conversion £10,241,650-0-0 Interest accrued to July 1, 1863 £3,840,618-15-0 Interest paid to July 1, 1863 921,748-10 Balance of interest due £2,918,870-50-0 Capitalized at 60 4,864,800-0-0 Total debt, July 1, 1863 £15,106,450-0-0 What happened to the various agreements and laws pro- viding for the setting aside of portions of the customs revenues for foreign bondholders is not apparent. 1863-1885. After the conversion of 1863, the Mexican Imperial Gov- ernment appears to have paid the interest on the 1851, as well as on the 1864 bonds until July 1, 1866. Napoleon III had by this time become tired of the Mexican enterprise and the constant need of furnishing funds to Maxi- milian. The War of the Rebellion in the United States had terminated in 1865 without the dismemberment of the Union, which he had counted upon to aid his Mexican project. Con- gress took active measures to force France to withdraw, and Marshal Bazaine, in 1866, began to concentrate his troops for transportation to France. Maximilian's death in June, 1867, was followed in July of that year by President Juarez's return to Mexico City after an absence of five years. In August he called a general elec- tion, was elected, and began a new term as President in December, 1867. Negotiations with the Mexican Government were again begun by the committee of bondholders early in 1868, but the old subject of unpaid interest was now compficated by ques- tions as to the legal position of the bondholders as a resuit of their dealings with the "Usurper Maximilian." Casasus discusses this question in detail with great ability, and quotes from communications of the government to the bondholders and from statements made by public officials at the time. In view of the situation which now exists in Mexico relating to the validity of securities issued by the "Usurper TTr.-"ta," this phase of the Mexican debt policy is of particular interest at present. Was the act of the bondholders in accepting new bonds from the Emperor of Mexico in payment of unpaid interest 46 coupons a violation of the laws of neutrality ? Mexican writers assumed that such exchange was a material aid to the Usurper in seeking to supplant a regularly organized government. Matias Romero, Minister of Finance in 1868, wrote to the Committee of Bondholders to the effect that since the bond- holders had entered into a new convention regarding the debt with the Usurper Maximilian, who never had the right to obligate the nation, and in this manner lent their aid and co-operation, they had placed themselves in a difficult position which could only be settled through negotiations and mutual concessions. The bondholders took the position that they could not be held responsible for an arrangement proposed under conditions which left them no liberty of action. Casasus quotes several authorities on international law and concludes his presentation of the case as follows: "In effect, as we have seen previously, the loan of Glyn Mills (the English agents for the imperial loan of 200,000,000 francs) was made in order to furnish necessary funds to Emperor Maximilian to continue the unjust war against the Rernb c, tho*" is fo say, to continue committing hostile acts against one of the belligerents. Therefore, as the acquiescence of the bondholders was indispensable to the success of the loan, and the Emperor proposed the capitalization of unpaid interest coupons to secure their assistance to the accomplish- ment of his aims, their acceptance made them co-authors of the hostile act directly executed by the subscribers to the loan. **Nor could they allege ignorance regarding the war in which the Republic was engaged, because the British Govern- ment had received a communication directed by Minister de la Fuente to all European governments explaining the reasons which had occasioned the departure of the government from the capital of the Republic; because, in addition, England had net official y recognized Maximilian and lastly, because a few days before the bonds of the loan were placed in circulation in the London market, Senor Jesus Escobar Armendais pub- lished a protest in the name of the government against the loan. 'The present case is not the only one which has occurred in the world. Among others may be cited that of Spain in 1821. The constitutional government at that time had issued in London 7% and 5% bonds for a purpose hostile to Fernando VII, and these acts executed by British subjects in England were characterized by the Holy Alliance as a violation of the laws of neutrality, and the loans were, in fact, repudiated by Fernando when he returned to the government of Spain." It is not the purpose of this report to show whether Casasus is correct in his conclusion. International law is a collection of precedents accepted by civilized nations as indicating the rules 47 which should be observed in their deaHngs with each other. The acts of nations in dealing with similar situations in the past have not been such as to indicate that these rules are unchangeable. A neutral state may not loan money to a belligerent state without violating the laws of neutrality. Subjects of a neutral state may lend money to a belligerent state at war with another state, but may not lend money to subjects of a state in order to assist them in prosecuting a war against their own government. If the subjects of a state in revolt against their own government had been recognized by the government of the citizens lending the money, then the loan of money was the act of a neutral. During the Civil War the Confederate States negotiated a loan without interference in London, Frankfort, Paris and Amsterdam. Since they had been recognized abroad such financial assistance was not considered a violation of neutrality. Maximilian had not been recognized by Great Britain at the time the loan was made. This difficulty, however, is met by Calvo, who holds that as a neutral state cannot control the acts of individuals in certain commercial transactions, neither can it be held responsible for the consequences of their acts. Casasus concludes that the action of the British bond- holders in reference to the Mexican Imperial Loan was a viola- tion of neutrality. He does not hold the British Government responsible for the acts of its subjects, but proceeds to discuss the penalty which the Mexican Government may impose upon those British subjects who took part in the operation. President Juarez, on December 28, 1868, stated to the rep- resentatives of the bondholders that in making agreements with the Usurp3r Maximilian they had voluntary rescinded all agreements which they had with the government of the Republic, not only in accordance with Mexican laws, but also in accordance with the rights of man. They violated their agree- ment, not only by recognizing an intruding and illegitimate power which was an enemy of Mexico, but because they had up to a certain point given this enemy their moral support, thus contributing to make it appear before the world as the rightful government of Mexico. The holders of bonds found it convenient to make agree- ments of a special character with the Usurper Maximilian as Emperor and these agreements in the judgment of the gov- ernment of Mexico changed the character of the obligations previously existing between the government and the bond- holders. "By virtue of the acts of the bondholders themselves the government of Mexico considers that the stipulations which existed between the bondholders and the government have been rendered void and that it will be necessary to enter into new agreements to define the rights and obligations of both parties. 4S "The government of Mexico is disposed to concede all that is just and equitable and has no doubt that the bondholders for their part are animated by the same desire, which will facili- tate a settlement of this matter." Juarez declined to assume any responsibility for obligations incurred by Maximilian, as well as responsibility for the pay- ment of interest during the time the bondholders had accepted another debtor. Juarez continued: "Because the bondholders had recognized an intrusive and enemy authority as the government of Mexico, and by this act had rendered moral aid which contributed largely to prolonging the war of intervention and making it more sanguinary, the bondholders are partly responsible, possibly without such intention, for the misfortunes which afflicted the Republic during this war and which helped to create the state of pros- tration and annihilation which has resulted from the said war. "Nothing else, therefore, is more natural, granting that they contributed to create the bad financial conditions which now exist in the Republic, than that they should also suffer a part of the consequences of their acts, thus giving a necessary respite so that she can again resume the payment of her legitimate debts." The above statement of President Juarez refers more par- ticularly to the validity of agreements which had existed before the intervention, providing for the separation of certain portions of the public revenues for the benefit of bondholders and other creditors as stipulated in a number of diplomatic conventions. Whether or not the bondholders had violated the laws of neutrality and thus lost their rights as creditors of the suc- ceeding government became an academic question for students of international law when the government finally recognized the validity of the British debt as it existed after the Con- vention of 1850. Such official recognition had been granted by the Minister of Finance some time prior to the statement of President Juarez. The statement referred to was not accepted as final by the Committee of Bondholders, who insisted that the Mexican government, in view of a number of favorable opinions by Mexican and British lawyers, should again study the matter. The government replied on February 28, 1869, to the effect that it had not changed its opinion. The agent of the bondholders then laid his case before Congress, which upheld the opinion of the Executive. He next proposed a settlement of their claims by an arrangement which provided for the construction of an interoceanic canal across the Isthmus of Tehuantepec, the concessionaires to pay the bondholders all back interest up to 1870 and the government 4^ to recognize the debt and interest. This proposal was rejected at a general meeting of the bondholders as being impracticable. Various other proposals were presented and discussed dur- ing 1870 and 1871 without result. In July, 1872, President Juarez died, and Sebastian Lerdo de Tejada, President of the Supreme Court, became President of the Republic. He called a special Presidential election and began a four year term in December, 1872. In January. 1876, Porfirio Diaz headed a revolution against Lerdo which resulted in Lerdo's departure for the United States and Diaz' entrance into the Capitol in November, 1876. In the following April Diaz was elected President for the four year term ending November 80, 1880. Casasus states that the government did not again give serious consideration to the settlement of the British debt until after Diaz was established in office, when the assiduous bond- holders began a new series of negotiations. For the first time in its history there now appeared in Mexico an appreciation of the real errors which had always characterized its financial policy. Its debts had imposed a greater burden upon the revenues of the nation than could be discharged therefrom. Romero, the Minister of Finance in 1878, presented the problem in a statement to Congress as follows: "The necessity of complying punctually with agreements to establish the credit of the country, the relatively large sums necessary to pay interest on the debt, the great difficulty under the existing conditions in the nation of paying interest. Would it be better not to enter into an agreeijient than to make one and break it?" The country needed development to provide the necessary resources, and to accomplish this purpose Romero suggested to Congress that the creditors of the nation should assist in the construction of public works, with the idea that the in- crease in revenues resulting therefrom would insure the pay- ment of interest on the debt without too great a strain. Continuing, Romero said: "The Nation is now in the condition of a debtor who owns undeveloped resources sufllicient to pay all his debts and place him in a state of opulence, but without the indispensable means of realizing on his assets. In such cases the debtor frequently requests an extension of credit to enable him to open up the fountains of riches which are closed because of the lack of the things needed to make them productive." He concludes his statement by advocating the construc- tion of railroads which would put "the centres of population in communication with the coast, would develop interior com- merce and, among other things, the use of products which could not then bear the high charges of transportation. 50 The bondholders apparently accepted the ideas presented regarding the fundamental weakness of Mexico's financial situ- ation and the necessity of internal development. Their ready acceptance of the suggestion, however, in view of the proposals submitted by them, was probably due to the same reason which had guided their action for 50 years personal gain. The first proposal was for a railroad from Mexico via Toluca to the Pacific Ocean, for every 50 kilometers of finished rail- road ths governm.ent to redeem £100,000 of outstanding gov- ernment bonds at par. This proposal was modified several times by the govern- ment and the bondholders. It was finally whipped into shape and accepted by the agent of the bondholders. When the contract was published, however, the bondholders rejected it and informed the government that their agent had exceeded his instructions. The next attempt to settle the British debt was in connec- tion with the establishment of a National Bank. This does not appear to have been approved. The agent of the bondholders, having secured additional powers from London, now resumed his negotiations regarding the construction of railroads. Congress was not in session to approve the proposal, and negotiations were finally discon- tinued when the government gave a concession for the road to Messrs, Symon, Sullivan and Palmer. In June, 1880, the government appointed a commission to prepare a plan of recognition, liquidation and conversion of the entire national debt. In October they submitted a project for a consolidated debt bearing interest at 3% with the recognition of all accrued interest from July 1, 1851, to June 30, 1880, which apparently was never seriously considered by the government. Towards the end of 1882, Senor Cervantes left London for Mexico with a plan which the President of the Committee of Bondholders thought would be accepted, if presented by the govern^Tient. This plan contemplated an issue of £18,000,000, of which £2,000,000 were to satisfy certain claims not included in the conversions of 1851-1864. This proposal reached Mexico too late to receive the atten- tion of Congress, and Cervantes, accompanied by Senor Rivas, friend and private secretary to President Gonzalez, returned to London early in 1883 and signed a contract shortly after his arrival providing for the issue of a 3^^ consolidated loan of £20,000,000, of which £15,300,000 were to be used for the conversion of the old debt. The Minister of Finance in a report to the President held that under the authority of Congress the issue of bonds in excess of the amount of the old debt was illegal. He had the good sense also to point out that at the price the bonds were then quoted in London the government would have to issue 51 . £4,000,000 in Ijonda to secure £1,000,000 in cash with interest at 127r actually instead of 37^. In view of this criticism the terms of the contract were modified and authority sent to Senor Rivas to sign the modified contract, if accepted by the bondholders. The contract already signed by Rivas had been approved at a general meeting of bondholders on May 18, 1883. The rejection of this contract by the government after it had been properly executed, in the opinion of the bondholders, caused a fresh scandal in Great Britain similar to others which had occurred in the past. The Committee of Bondholders believed that they were the victims of a new fraud perpetrated by the government. Rivas, in the presence of witnesses, stated that he had received a telegram from the President to the effect that notwithstanding rumors to the contrary, the contract was irrevocable. Naturally, the committee now wanted to be informed of the nature and extent of the powers conferred upon Senor Rivas by the President. Senor Rivas left London and advised the Committee that his health required a visit to Carlsbad. The committee sent a representative there, but he had left the night before for Paris. The committee immediately ordered its secretary, Mr. Holmes, to proceed to Paris. After four or five days Mr. Holmes advised the committee that Senator Rivas had received certain authorizations, but he was unable to secure a copy. Finally, on September 19th Senor Rivas submitted a statement to the committee to the effect that some substantial modifications in the contract were necessary before it could be approved. A deputation of the bondholders called upon Senor Rivas and in the presence of all his friends urged him to furnish them with a copy of his authority to negotiate, advising him at the same time that they were disposed to solve any difficulty presented. Senor Rivas expressed himself most cordially and stated that he was extraordinarily obliged to the deputation for their frankness, and promised to consider their suggestions and com- municate them to the President, After the contract referred to had been signed by Rivas, but before it had reached Mexico, the Mexican Congress had passed the law of June 14, 1883, prescribing the basis for conversion of the debt, by which the Executive was authorized to: 1. Fix the form, condition and time for the examination, recognition, liquidation and conversion of the debt. 2. Consolidate the total debt in new bonds bearing interest at 37r. 3. Whatever the origin of the credits and the nationality of the bondholders the whole debt was to preserve its Mexican quality without international character, nor should special revenues be assigned for the pay- ment of interest. The prohibition against the pledging of certain revenues, together with certain other provisions of the law limited the action to be taken to that of conversion only, without authoriz- ing an additional indebtedness, and served to discourage fur- ther action by the administration in power until Eduardo Noetzlin, director of the French-Egyptian Bank, arrived in Mexico to consolidate the National and Mercantile Banks under the name of the National Bank of Mexico. On June 10, 1884, a new contract was signed providing for the issue of £16,500,000 with interest beginning at 1% and increasing to 3% after the fifth year. This contract, like the preceding one, recognized the validity of the bonds of 1851, as well as those issued in 1864 by Max- imilian, with interest to the date of conversion. An amend- ment provided for £700,000 additional. As soon as the terms of this contract became known in Mexico a storm of opposition arose. The rate of conversion was exorbitant, the contract contained clauses humiliating to the nation, a part of the customs revenues was pledged, and the amount to be issued was in excess of the outstanding debt authorized by law. In addition, the Maximilian bonds of 1864 were recognized contrary to the decision of Juarez. The excess issue amounted to £2,952,000, of which £700,000 was to belong to the government to pay the first interest coupons on the new loan, while the balance £2,052,000 was to go to Noetzlin to pay the expenses and commissions of the transaction. The opposition to this contract became practically an in- surrection, in which the students of the University took part, and the historian cites this event as evidence of an awakened national conscience. It certainly was a healthy sign that the old style of vicious contracts would no longer be tolerated. The result of the popular opposition was that the settle- ment of the national debt was postponed until after Porfirio Diaz had been inaugurated for his second term. The Committee of Bondholders was notified that since the contract required the approval of Congress during its first term, which had terminated without action, it was considered null and void. With this frank and explicit statement, says Casasus, the government terminated a negotiation which had not only caused more than disturbances in the interior, but, as always, dishonor and discredit abroad. The rejection of the Rivas and Noetzlin contracts, added to similar previous occurrences, still further reduced the credit of the nation, particularly in Great Britain. There is no doubt, however, in view of the condition of the country, that this rejection was necessary, and the act 53 indicates the beginning of a new and more business-like financial policy which continued throughout Diaz' regime. The settlement of the British debt was finally provided for in a decree issued by President Diaz on June 22, 1885, under authority of the law of June 14, 1883. Before discussing the law it may be well to quote from the message sent to Congress by Manuel Dublan, Minister of Finance, which shows the reasons why the passage of this law was urged. "While the state was weighed down by the floating and funded debt, without a plan of payment, it was impossible to re-establish the credit of the nation and regularize the ad- ministration. "From information at hand, the deficit for the year, which shortly terminates, will be more than P25,000,000. If this balance should be carried over to the next year it would be impossible to provide for the regular needs of the service. "The executive acknowledges that justice is on the side of each one of the creditors of the nation in demanding payment of his claims, but between the duty of preserving the gov- ernment and the claims of the creditors, he has not hesitated to decide which of these two interests is paramount. "Thus it is that the President of the Republic confronted by financial difficulties which he did not create, counting on the patriotism and self-denial of public officers, believes that the remedy for our difficulties will be found in the consolidation of the floating debt and the adoption of a general plan of economy by making a prudent and proportional reduction in the salaries of all from the Supreme Magistrate to employees drawing a salary of P500 per annum. "The government does not repudiate legitimate obligations, it only postpones their settlement, compelled by the inevitable law of necessity. To overcome the difficulties of the moment the government has begun to introduce administrative econo- mies and to reduce salaries and, in view of the justice of the claims whose payment has been postponed, it has fixed a rate of interest and amortization therefore, and has entrusted this service to the National Bank of Mexico. "The above measures alone are not enough to restore our disordered finances to their natural level, but they will un- doubtedly help and will permit regularity of payment in the future, "Convinced of this, and believing that without the settle- ment of the public debt a renaissance of public credit cannot be expected, without which foreign capital so necessary for the development of enterprises in the country will not have sufficient confidence to come and animate us, the President has decided to exercise the powers conferred upon him by the law of June 14, 1883." The new decree was dated June 22, 1885, and provided for 54 the consolidation of all the debts of the nation incurred up to July 1, 1882. It specified the debts which would be recog- nized and fixed the basis for conversion. Nineteen different bond issues or other documents of in- debtedness were specified. The bonds of 1851 were to be exchanged at par. Interest coupons unpaid from July 1, 1854, as well as other unpaid interest, were left to special arrange- ments to be made with creditors. On June 23, 1886, an agreement was signed with the Com- mittee of Bondholders in London whereby they accepted the following conditions : 1. The £4,864,800 37. bonds of 1864 to he exchanged for new 3% bonds of the consolidated debt at the rate of £100 of old bonds with all coupons attached for £50 of new bonds. 2. Unpaid interest coupons from July 1, 1866, to July 1, 1886, amounting to £6,144,990 to be exchanged for new 3% bonds of the consolidated debt at the rate of 15%. The agreement further provided for the exchange of rem- nants of prior bond issues which had not been converted in former years. The government reserved the right to fix the date for the exchange of 1851 bonds for the new 37c bonds, provided that the exchange was effected prior to December 31, 1890; also, until the date mentioned, to purchase the 1851 bonds or the new bonds which were to be issued at the market price; and, further, to redeem both classes of bonds issued at 40 7: of par. After this date the rate was to be increased to 50%. The new 37 consolidated debt bonds were authorized by decree of January 29, 1886, with a total issue of P150,000,000, the principal of the bonds to be accepted at par by the govern- ment for the payment of land. Coupons were made legal tender for the payment of taxes up to 57^ of the total taxes collected. Bonds were to demonstrate their value in American, British and Mexican money, and interest was to be paid semi- annually, January 1st and July 1st in Mexico City, New York or London. In view of the provision of the law regarding the use of equivalent foreign values and the payment of interest abroad, it would appear that the provision of the enabling act passed by Congress on June 14, 1883, specifying that this loan was to be purely Mexican without any international character, was not fulfilled. In the actual conversion of the debt the 1851 bonds were not exchanged for the new 37^ bonds. Apparently some un- derstanding existed between the bondholders and the govern- ment, or the government found it expedient to settle its foreign debt in a different manner, since a new 6% loan of £10,500,000 was authorized by law on December 13, 1887, the proceeds of 55 which were to be used to retire the British debt and to pay off interest bearing floating indebtedness. The 1864 bonds and unpaid interest coupons were converted into the new 3% consolidated debt bonds which shortly after- wards were redeemed with the proceeds of the new G'/r issue of 1888. This latter loan indicates that the Mexicans had finally determined to break loose from their British creditors, who had been the bankers of the Mexican Government since 1823. The synopsis of the loan is as follows: Syndicate formed by Baron Bleichroeder of Berlin. Title Consolidated Exterior Mexican Debt. Amount £10,500,000. Interest 6^/( , first coupon July 1, 1888. Payments 1st of January, April, July and October. Amortization One-half of one percent, (after 1893) of the par value of bonds issued. Purpose To pay current indebtedness amounting to about P13,000,000. Redeem 1851 bonds and part of 1886 bonds. Balance, if any, for public works. Of this issue £3,700,000 bonds were sold to Bleichroeder & Company at 709?, funds to be transferred to the Mexican government in four equal parts in three, four, five and six months, £55,000 to be retained by Bleichroeder from the first and third credits to pay the first and second coupons. Bleich- roeder took an option on the balance of the loan $6,800,000, at 86i/2/'f > with the right to pay over to the government bonds with interest coupons attached, at 40^/f of their par value, in accordance with the agreement with the bondholders. That is, £200,000 in bonds at this price would produce £173,000 in cash, for which Bleichroeder agreed to turn over to the government old bonds amounting to £432,500. The first emission was sold at 78I/2 by the bankers and was over-subscribed twenty times. The subscription lists in Berlin were open fifteen minutes, while in London they closed at noon. What caused such a startling reversal of all previous prac- tice? It was probably due to the clear cut business-like deal- ing with financial matters, instead of the child-like negotiations of former years, a well defined policy regarding the use of the proceeds, surplus funds in Europe seeking investment and clever advertising and manipulation. The last conversion of the British debt had taken place in 1863. From that time until 1886 no payments had been made on account of interest or principal. The successive steps in the new operation were as follows: r)6 SUMMARY OF DEBT DECEMBER 31, 1885. Principal: ^ „ „ Bonds issued under law of 1851 £10,241,660-0-0 Bonc'.s issued by Maximilian, 1864 4,864,800-0-0 Total - '■■ £15,106,450-0-0 On 1851 bonds, January 1, 1866, to December 31, 1885 £6,144,990-0-0 On 1864 bonds to December 31, 1885 2,918,880-0-0 Total - £9,063,870-0-0 Total debt December 31, 1885 £24,170,520-0-0 DEBT RECOGNIZED BY BRITISH AGREEMENT JUNE 23, 1886. Pound Sterling 1851 bonds at par „ - £10,241,650-0-0 1864 bonds at 507r of par - 2,432,400-0-0 Interest on 1851 bonds, £6,144,990, at 15% 921,748-0-0 Total debt ,...- '. £13,595,798-0-0 Interest on 1864 Bonds Not Recognized. REDEEMED FROM PROCEEDS OF GERMAN 6% LOAN OF 1888. 1851 bonds at 40%, £10,241,650 £4,096,660-0-0 1864 bonds at 40%, £2,432,400 972,960-0-0 Interest on 1851 bonds, £921,748-0-0, at 40% 368,699-0-0 Amount realized by bondholders £5,438,319-0-0 RECAPITULATION. Pound Sterling Total debt December 31, 1885 £24,170,320-0-0 Amount ijaid to bondholders 5,438,319-0-0 Loss £18,732,001-0-0 The figures regarding the amount of bonds redeemed are not exact, since a small number were not presented for final' redemption. OTHER BRITISH INDEBTEDNESS To avoid confusion, I have so far confined myself to dis- cussing the main debt which is popularly known as the British or London debt. In addition; however, various other outstand- ing obligations were recognized and converted under the law of June 22, 1885. Such obligations consist of remnants of old bond issues, unconverted certificates, etc. The statement on page 58 submitted to Congress by Min- ister Dublan, gives the details of the various items outstand- ing in 1888, comprising the London debt. The difference be- tween the total of the debt as shown in this statement and that shown in the above Summary of the Debt is due mainly to the omission in the Dublan statement of the interest on the 1864 bonds. NOTE • — From 1823 to IQO'i the Mexican peso was worth practically the same as an American dollar. In 1905 the currency system was reorganized and th^ villi'' )MS(. lixi-d at aiii)roxiiaately .")(( conts i:. S. Currency. To avoid confusion the unit value of the peso as fixed by the law of 1905 Is used for transactions during the period from 1885 to date — viz, approximately 50 cents U. S. Currency. ?7 o 00 00 o i-H u w z O D ►-9 D fe o o ^ H < o w 2 K CQ H P O « O Z z O >< O H O S <: W z" w o Q O m ^ Q z W t— t Z Q < H H CO Q 00 o 00 M H eg S z o w s o z o p z H <-) o o CQ w Q w/ o z z o ? fe z o O > w z z o o H o z 5^ ^ K c a z > < 03 m O O o o o o OO o O o 6 o oo O O o s.s , , '-^ o a (N o o o o o eg (M T-l la o 00 o -M O o -^ o ■^^ ■^ o ■T<^0 c- c- 05 o o w CO co" t-^ ■^ o c>r -DO CD (M 03 ■^ TT CO ^ Lf5 T-( f-H eg ■^ CO "—I CO t^ ITD (>f w" O O o o o oo oo o 1 0) o o o o 00 o o o o o o oo c^ o o o 1 1 -^ o o 4^1 — . 0) ■<-• ^ & 3 £ o 00 o o o o r-H O cg Z o "^ a> y-i T-H c > Tf -C Uh 1 a> c m IV a> o -»-> u en "S-^ .2 ir, ? a> r> c o o k! J3 in '*-* '-I -tJ^ c OT ttH eg o ?J ® . c +^ c ^ o ,c a) rt '^ -« S - a> C a> (->• > C3 I- CO ^ o ^ « -^ ^ o -=« S = '- ?i ^- Cj QJ C •3 CO ■"■ _ ^ ►=; '^- «t-i CD CD O 00 00 00 00 jn '-1 - c - TO o£' n^ '' G O C •♦-4 o coo tf CO O QJ 00 0) 00 Q c . tx fcjcco" c3 c eg CD ^ S.22 CD c +-' eg -rp Spg ■'^ ;-. c ti-, fct+j rt o « g^ C co-^'S-2 X ID -u i? T; C ° r- c go S «> en' o o 05E ^ 3 ■^Ph •^ u 1-1 a> «H .C ■^ (I) -c jn c <4H J=t «H a; -C U ^ 0) JS H 00 +5*" v^ be c c SCO OX) -a o i2 O a:' ° cl 4^ c o *;-= • LO O d) CD l-s £^' I 58 DIAZ ADMINISTRATION 1884 to 1911. Porfirio Diaz was President of Mexico from 1877 to 1880. General Manuel Gonzalez was elected President in 1880 and held office until December 1, 1884, when Diaz began his second term as President. General Diaz was President from Decem- ber 1, 1884, until May 25, 1911, when he resigned as a result of the Madero Revolution. During these twenty-seven and a half years Mexico made her greatest advance in material prosperity, and also enjoyed the longest period of peace in her history. It has frequently been said that her prosperity was due to peace, but it is much more probable that her peace was due to her prosperity. The construction of railroads was the largest single factor in her progress. During this period Mexico's public debt increased about P375,000,000 net. Some of this increase in the public debt was due to grants to railroads for construction purposes, following the example of the United States in the early days, and some of it was due to the sums spent in the construction of public works. By the law of June 22, 1885, and the agreement with the bondholders of June 23, 1886, Mexico fixed the public debt at £14,626,279, as reported to Congress in 1888 by Manuel Dub- Ian, then Minister of Finance. Under the terms of the agree- ment the government reserved the right to purchase the above debt at 40% of its par value, which it did in 1888. Therefore, £5,850,511, or 40% of the total debt may be said to represent the amount of the foreign indebtedness of Mexico at the begin- ning of the second Diaz administration. INTERIOR DEBT The amount of the interior public debt at the time Diaz assumed office in 1884 was unknown. The law of June 22, 1885, provided for the submission of claims, created the machinery for their examination, and authorized the issuance of bonds to pay those approved. The first interior loan was authorized by the decree of June 22, 1885. To avoid confusion amortization payments made after Diaz resigned are included in the figures immedi- ately following, as such amounts do not noticeably affect the discussion. Full information regarding each loan mentioned is contained in Appendix B. 59 37f CONSOLIDATED INTERIOR DEBT OF 1886. Pesos Authorized issue 150,000,000.00 Amount issued - 76,063,100.00 Outstanding, December 31, 1918 42,383,850.00 Interest: 1% during 1886. 1%% during 1887. 2% during 1888. 2%7r during 1889. 3% during 1890 and thereafter. Interest was to be paid in Mexico City, New York and Lon- don, and the law provides that, although, interest payments may be made outside of Mexico, and the bonds are stated in , foreign currency, the debt shall not be deprived of its essential internal character. The bonds were made admissible in pay- ment for government bonds and interest coupons were made ad-Pissiblc in payment of Federal taxes. Information is not available as to the actual disposition of the proceeds. The law provided that these bonds were to be issued in exchange for 19 different kinds of indebtedness, in- cluding the British debt. As stated on page 55, the 1851 bonds were not exchanged for bonds of this issue. The bonds of 1864, together with the unpaid interest coupons of both issues, were exchanged in London for new bonds and later redeemed in cash at 407^ of their par value. Of the P76,063,100 issued, P23,485,675 were redeemed during the period from July 1, 1886, to June 30, 1890, and it is probable that this entire amount represented the bonds redeemed with the proceeds of the German loan of 1888. Deducting the amount redeemed from the total amount issued leaves P52,577,425, which represents the amount of bonds issued in satisfaction of interior debts. The second interior loan, authorized September 6, 1894, provided for a loan of P100,000,000 at 5^ per annum. 5 7c Amortizable Interior Debt of 1894 Pesos Authorized issue 1 OO.Ono 000.00 Issued 98,579,000.00 Outstanding, Dec. 31, 1918 _ 92,911,700.00 In accordance with the decree of September 6, 1894, the following bonds were issued: Date of Authorization Pesos Sept. 26, 1894 19.985,800.00 Dec. 10, 1895 „ _ _ „ _ 20,000,000.00 Jan. 3. 1898 20,000,000.00 Dec. 23, 1899 „ „ „.... 20.000,000.00 June 9, 1902 16,472,600.00 Issued during 1913 and 1914 „ 2,120,600.00 Total issue _ 98,579,000.00 GO The loan was authorized for the purpose of completing the consolidation of all debts of, and claims against, the Republic which originated prior to June 30, 1882, as well as to fund the following indebtedness originating from that date to June 30, 1894. First Class Due railroad companies as subsidiaries for new construc- tion. Due contractors for public works. Due railroads for freight and passenger service. And in general, amounts due for loans, mortgages, con- tracts to purchase or rent, by virtue of which the government was obligated to pay cash and the pay- ment of which was then due, as well as vouchers pay- able issued by the Treasurer General. Second Class Amounts due for salaries, traveling expenses, pensions, gratuities, honorariums, etc., being, in general, all credits not included in the first class. Special Class Bonds or certificates of indebtedness issued after June 30, 1882, and issued for the construction of railroads and public works. Interest Interest payable in Mexico City and London, and elsewhere if designated by the President. Interest coupons are admissible in settlement of all classes of payments which may be made directly to the General Treasury. The authorization for the issue of the last series of bonds was enacted in the form of a law which provided that this issue be used only for the construction of railroads. Additional authority was also granted to the President to issue other bonds to enable him to meet the cost of the following works: Pesos 7,000,000 For construction of Tehuantepec Railroad. 1,000,000 Capital subscribed to above Railroad Company. " Port works at Saliha Cruz and Coatzacoalcos. " Port works at Manzanillo. 2,000,000 Buildings and works at Vera Cruz. " Construction of iron wharf at Tampico. " Construction of Legislative Palace, Mexico City. " Construction of water supply system for Mexico City. " Payment of obligations issued for sanitary works in Mexico City. The above list of improvements has no bearing on the disposition of the second interior loan, but is inserted to show that the Diaz administration had prepared a program of public improvement. Information is not available to determine what 61 portion of the h'/, P100,000,000 loan was used for the con- struction of railroads and public improvements. State Loans Assumed by the Federal Government of Mexico. Since the Federal Government has assumed the responsi- bility for the payment of their principal and interest, various state loans are now considered to be part of the interior debt of Mexico. Such loans outstanding on December 31, 1918, were as follows : of Interest Amount Amount Issue Rate Title Issued Outstanding 1901 5 State of Vera Cruz P. 4,551,000.00 P. 831,200.00 1902 5 State of Tamaulipas, 1st Series - 2,700,000.00 741,500.00 1905 5 State of Sinaloa 698,000.00 466,700.00 1906 5 State of Tamaulipas, 2nd Series 950,000.00 796,600.00 1906 5 State of Vera Cruz, Im- provement of Puerto Mexico 739,000.00 664,000.00 Total „ P. 9,638, 000.00 P. 3,500,0 00.00 Summary of Interior Loans. ' Amount Amount Title Issued Outstanding 3% Loan of"l886::.~ - - P. 76,063,100.00 P. 42,383,850.00 5% Loan of 1894 - 98,579,000.00 92,911,700.00 State Loan 9,638,000.00 3,500,000.00 Total - P. 184,280,100.00 P. 138,795,550.00 EXTERIOR OR FOREIGN LOANS A number of foreign loans were placed abroad by the Mexican government in the period from 1887 to 1910. To give a clear picture of the gradual growth of the debt it is necessary to trace each loan from its inception to its final consolidation. The first foreign loan of the Diaz administra- tion has been referred to in the previous chapter. Further details are given here. 6% CONSOLIDATED EXTERIOR MEXICAN DEBT OF 1888 Pounds Sterling Authorized and issued ~ £10,500,000-0-0 Proceeds: £3,700,000-0-0 at 70 7f 2 ,590,000-0-0 6,800,000-0-0 at 85% 5,780,000-0-0 Total .« £8,370,000-0-0 Less \\i'7r commission on £10,500,000-0-0 _ 131,250-0-0 Net proceeds £8,238,750-0-0 The above figures are taken from Limantour's report to Congress in 1910 on the subject of refunding the National 62 Debt. They do not agree with statements in other reports, but are sufficiently correct for our purpose. The amounts re- tained by the bankers from the proceeds of the loan to pay the first two interest coupons are not taken into consideration. The contract with the syndicate of bankers provided that the proceeds of the loan were to be paid over to the Mexican gov- ernment in London in four equal parts in three, four, five and six months' time. The contract further provided that Bleichroeder & Com- pany should pay all the expenses of the bond issue amounting to £46,250-0-0, to be deducted by them from the proceeds of the loan. This amount is 1147^ of £3,700,000-0-0, the amount of the first issue. A deduction of I'^A'yr from the second issue of £6,800,- 000-0-0 was likewise made, presumably as commission. The correspondence between the two contracting parties was as follows: November 7, 1887 November 8, 1887 January 12, 1888 March 10, 1888 March 12, 1888 March 17, 1888 March 17, 1888 March 18, 1888 March 19, 1888 March 24, 1888 Bleichroeder to Government Request commission of 2%%. Government to Bleichroeder Other conditions satisfactory, but President in- sists on obtaining 70% net. Government to Bleichroeder Impossible to allow 2i/^% for expenses. Financial Agent of Government in London to Gov- ernment in Mexico Bankers propose commission of 2^/^%. Government to Financial Agent Government will not consider proposed modifica- tions unless bankers state explicitly they will accept contract if modified. Blei<'broeder to Government If acceptance of modifications arrive tomorrow will immediately sign in London, fo -ernmrrt to Financial Agent Proposed modifications accepted, except the 2%% commission. Government to Financial Agent If those gentlemen are agreeable to 1%% com- mission, the maximum which we will concede, sign contract immediately. Financial Agent to Government Signed today. Financial Agent to Government Final contract signed- — expenses amounting to 1^/4% on par value of issue allowed bankers. Participaticn of Bankers This loan was taken as follows: Per Cent Bleichroeder & Company, Berlin 61.584 Anthony Gibbs & Sons, London 20.000 National Bank of Mexico -.. 18.416 Total 100.000 63 Profits of Bankers The first issue of bonds, amounting to £3,700,000-0-0 was sold at 781/2 and the profits were as follows: Pounds Sterling Commission of i\ii7< on £3,700,000-0-0 £4(5,250-0-0 Profit on sale 314,500-0-0 Total profit £3(30,750-0-0 The bankers also received li/i/r commission on the balance of the loan, amounting to £85,000-0-0. Information is not available as to the price realized by the bankers on the second issue. Security for Loan As a special guarantee for the exact compliance with the provisions of the contract, the Mexican government assigned the following revenues: 1. 20''/ of all import and export duties. 2. The total proceeds without deduction except cost of administration of the "predial, patante and profes- sional" taxes collected in the Federal District. The total revenues collected under the foregoing clauses were always to exceed the amount required for interest and amortization charges by at least lO'/r . If the collection fell below this amount the government agreed to increase the per- centage of the customs duties in favor of the bondholders. The government agreed to leave with Bleichroeder & Com- pany, until the loan was repaid, sufficient funds to pay two interest coupons, which were to be retained from the pro- ceeds of the sale. Method of Separation of Revenues The government agreed to issue customs certificates and to pass a law requiring 207r of all customs duties to be paid in such certificates. Certificates were turned over to the National Bank of Mexico for the account of bondholders, and this bank was charged with the duty of placing them on sale at the various ports of entry. The National Bank was required to remit the amounts provided for in the contract to Bleichroeder & Company not later than the 15th day of February, May, August and Novem- ber of each year. Newspaper Comment It is interesting to read the newspaper comments on this loan, the first since the Mexican Imperial Loan of November, 1864. " M(i>iil(.r is what is sought in 1888. f.4 Exactly 24 years ago the Empire of Mexico was worse off in the matter of credit. "In April, 1864, Emperor Maximilian contracted a 6% loan with Glyn Mills & Company amounting to 8,000,000-0-0 pounds sterling. The price was 63%, and to assure the pur- chasers, the Mexican government, in addition to the high in- terest rate of 10%, offered other small guarantees, such as the appointment of a Mexican Financial Commission in Paris and later the deposit of sufficient funds to pay the first coupon of July 1, 1864, and the next three interest coupons." "These measures did not prevent the Mexican bonds from being quoted at 56 before the July coupon was due. How far we have come — today a Mexican issue not at 10% but yielding 7.05% is quoted at a premium above the original selling price." The Bullionist, March 31, 1888: "In our number of Saturday we announced the brilliant success of the new Mexican loan, and we understand that it has advanced in price in Amsterdam and Berlin. "Two causes have produced this result. The first being the influence and standing of the bankers, among which figure names of the first importance in the three great centres of financial action where the loan was placed. The second cause is the prosperous administration of President Diaz to whom should be attributed the excellent prospects of the country. In the matter of mineral riches and commercial progress, the actual conditions in Mexico are better than they have been. A new era has dav/ned in Mexico but the period of active develop- ment we think will be determined by the new loan. This will affect the definite arrangement of the public finances and must l)e the starting point for all that concerns the welfare of that state." The Baltimore American declared that the period of revo- lutions had passed away for all time in Mexico. The Baltimore Sun expressed the opinion that Mexico in 1888 was not the same country as in 1883. Summary of Loan The following statement is taken from the "Memoria de Hacienda" for the fiscal year 1889-1890 : 6%c Loan of 1888— £10,500,000-0-0. Pounds Sterling- Par value of loan £10,500,000-0-0 Less discount £2,130,000-0-0 liess expenses 83,051-0-0 2,213,051-0-0 Net proceeds „ £8,286,949-0-0 65 DISPOSAL OF PROCEEDS £14,450,000-0-0 bonds of English debt at 407r £5,780,000-0-0 Deposited with Bleichroeder for interest _ ~ 315,000-0-0 Bonds of Tehuantepec Railway 195,278-0-0 Cash, used to retire floating debt 1,996,671-0-0 Total £8,286,949-0-0 AMORTIZATION ACCOUNT Pounds Sterling Par value of issue £ 10.500,000-0-0 Amortized to June 30, 1899 _ 517,200-0-0 Balance refunded in 1899 £9,982,800-0-0 57r LOAN OF 1899— £2,700,000-0-0. The law with respect to this loan is not included in the col- lection of laws and other documents relating to the public debt compiled by Juan Castillo, published in Mexico City in 1903. An extract copy of the law dated October 15, 1888, secured from the Department of Finance, approving a contract for the con- struction of the Tehuantepec Railroad refers to this loan. According to this extract the bonds were issued as the purchase price for the railroad. They were guaranteed by a first mortgage of the railroad line, equipment, telegraph line and the wharf at Salina Cruz. The bonds were to draw interest from the first of January, 1889, and the interest was to be paid by the railroad contractor for the first 21/2 years during the period of construction. The government agreed to deposit the entire issue of the bonds with the financial agent of the Mexican government in London, and to turn over bonds to the contractor as they were earned. The bonds were to be amortized in fifty years. If construction wers not comDleted within 2V2 years and turned over to the government, the contractor was required to pay the interest until the work was completed. To pay amortiza- tion and interest charges on this debt, the government as- signed 509r of the gross revenues of the railroad, telegraph and wharf; if such 507f was not sufficient to pay the charges in accordance with the contract, the government was to make un the difference. This loan was refunded in 1899, and the state of the debt at the time of the consolidation was as follows: Pounds Ste^-Iing Par value of issue £2,700,000-0-0 Amortized un to June 30. 1899 £27.000-0-0 Balance refunded in 1899 2.673,000-0-0 Totals £2,700,000-0-0 £2,700,000-0-0 66 6% LOAN OF 1890— £6,000,000-0-0. The law concerning- this loan was dated May 14, 1890, and authorized the Executive to consolidate and convert the credits in favor of the railroads which were due them as subventions. This loan was placed entirely with Bleichroeder & Company. One of the preambles of the contract states that the Executive has resolved to consolidate the various debts of the country on account of subventions granted to the railroads by means of a loan of £6,000,000-0-0 "which amount is less than that which is owing to the railroad," and the government pledged 129c additional of all import and export customs duties. For amor- tization purposes the government agreed to pay Vi. of 1% annually in addition to the 6% interest on the total amount of bonds issued. After the interest was paid on the bonds outstanding, the balance of the fund was to be used for re- demption purposes and sufficient funds were to be left in the hands of the bankers during the life of this loan to pay two interest coupons. The method of collection was the same as for the 6% loan of 1888. The government issued customs certificates to the National Bank of Mexico for the account of the bondholders, and this bank was charged with the duty of placing these cer- tificates on sale at the points required. The government also issued a decree requiring that 12% of all customs duties should be paid in these certificates. Bleich- roeder & Company took these bonds at 83%%. The expenses of issue were to be paid by Bleichroeder & Company in con- sideration of 1% of the par value of the bonds issued, or £60,000-0-0, which the bankers, were to advance to the gov- ernment, and which was to be deducted from the proceeds of the loan in four equal amounts. This loan was refunded in 1899. Notwithstanding the language of the law, it appears that all of this issue was not used entirely for the purpose stated, as is shown by the following statement : SUMMARY Pounds Sterling Par value of bonds £6 000,000-0-0 Discount of 1^47^ £675,000-0-0 17c commission 60,000-0-0 735,000-0-0 Net to government £5,265,000-0-0 USE OF PROCEEDS Payment of P. 23,082,212.30 owed to Central and Mexican Railway made with P. 17,871,486 exchanged at P. 5 x £ £3,574,297-0-0 Balance in hands of the government for miscellaneous payments 1,690,703-0-0 Total _ £5,265,000-0-0 67 AMORTIZATION ACCOUNT. Par value of issue _ „ £6,000,000-0-0 Amortized up to June 30, 1899 £147,700-0-0 Balance refunded in 1899 5,852,300-0-0 Total £6,000,000-0-0 £6,000,000-0-0 6% LOAN OF 1893— £3,000,000-0-0. This loan was authorized in two parts. The original authorization was dated May 29, 1893, and provided for an issue of £2,500,000-0-0. Later, authority was granted on November 29, 1893, for the issuance of £500,000-0-0, making a total of £3,000,000-0-0. The law of May 29th authorized the Executive to take all measures necessary to complete the arrangement of the public debt. The issuance of bonds of the 3% Consolidated Debt was only to be made for indebtedness already incurred, and in no case were these bonds to be used to secure new loans. This law is the enabling act for the issuance cf P. 100,000,000 5% amortizable interior debt issued in five series, and also authorized the issuance of £2,500,000-0-0 to be placed abroad. The provision of the law relating to the creation of this debt is as follows: Lair of Majj 29. 18^— Art id < 8. "For the better arrangement of the floating debt and to obtain an important reduction in the amounts required there- for, it is believed convenient to consolidate a part of such debt in bonds payable outside of the Republic, the emission of such new bonds not to exceed £2,500,000-0-0, and to be issued at the best price that can be obtained with conditions and other guarantees necessary which shall not be less favorable for the State than those granted for the loans of 1888 and 1889." The report of the Minister of Hacienda for 1893 and 1894 states that this loan was necessary on account of the loss of crops and the drop in the price of silver. The following statement prepared by the Department of Finance of the Mexican Government shows the amounts realized by the government and the amounts amortized up to the date of consolidation: PROCEEDS Pounds Sterling: £1,650.000-0-0 at eO^r £990,000-0-0 £950.000 at 67.323^; _ _ 639 573-0-0 £400,000 at 74 V^ % 298,000-0-0 Total _ _ _ _ _ „.. £1,927,573-0-0 Less 1 V-i % commission _ _ 37,500-0-0 Net proceeds £1,890,073-0-0 68 AMORTIZATION ACCOUNT Par value of issue £3,000,000-0-0 Amortized up to June 30, 1899 £50,580-0-0 Balance refunded in 1899 2,949,420-0-0 Total £3,000,000-0-0 £3,000,000-0-0 5% CONSOLIDATED EXTERIOR MEXICAN DEBT OF 1899. £22,700,000-0-0. CONVERSION OF 1899. In 1899 the four exterior loans described in the preceding pages were consolidated in a new 5% loan. The reasons for this loan are best summarized from the report of the Minister of Finance to Congress, May 15, 1900: "Due to the increasing prosperity of the nation and the good results which we are beginning to obtain in the finances of the Federal Government, the value of the securities of the public debt has gradually risen, and the question has presented itself in financial circles and those interested in Mexican securities as to the possibility of reducing the annual charge against the nation for debt service. "The securities which lend themselves to conversion are naturally those loans of 1888, 1890 and 1893, which draw interest at the rate of 6% and are superior to almost all other Mexican securities. The bonds of 1888 and 1890 have almost always been quoted at the same price, while the bonds of 1893, whose amortization guarantees and other conditions are practically the same as the other two loans, have been quoted at a somewhat inferior price, due only to the fact that they have not been admitted to the Berlin Stock Exchange. "In addition to the loans mentioned, there exists another loan payable in Pounds Sterling — that issued in 1899 for the construction of the National Railways of Tehuantepec, which is secured by a mortgage on the property. This bears interest at 5% and while it is true that the difference in the interest should result in a lower price in the stock market, the nature of the guarantee, as well as other special circumstances con- nected with the loan have served to offset a large part of this inferiority, so that these bonds have always been quoted at a higher price, mathematically compared, than the 6% loans." 69 COMPARATIVE STATEMENT SHOWING THE MARKET QUOTA- TIONS OF THE BONDS OF 1888, 1890, 1893 AND TEHUANTEPEC IN RELATION TO THE REVENUES FROM CUSTOMS DUTIES ON IMPORTS. 1894 Fiscal Year 1893-94 July August September ... October November ... December 1895 January February March April May June Fiscal Year 1894-95 July , August September ... October , November ... December ... 1896 January February March .'. April May June Fiscal Year 1895-96 July August September ... October November ... December 1897 January February March April May June Average Quotation for Month Lioans 1888 & 1890 58 y* 61% 64 65 69 y2 7iy4 7iy2 76% 79% 82 86 88 ys 92 92% 95 y* 94 92 90 yo 90 93 y4 94 94 95 95% 94 92% 93% 91% 93 95% 96 96 y2 95% 95 yz 961/^ 98 yo 1893 70 y2 73 74% 77 8iy2 82% 89 89% 92 y* 91% 89 85 y2 87 91% 9iy2 93 yg 94% 9378 92 U 91 ¥2 90% 89% 91 91% 94 y2 95 Va 92% 941/4 95 96 y2 Tehuantepec 46 y2 50 Vz 52 y2 52 y2 56 y2 60 61 67 y2 67 y2 67 y2 70 72 ys 77 79 ys 8414 86 84 81 82 Vz 84 ya 86 y2 86 y2 86 y2 87% 86% 84 ya 83 y2 Increase or Decrease as Compared witli Same Month Liast Year 87 84 y2 86% 87 y2 86% 87% 90 + + + + + + + + + + + + + 35,584 87,959 104,486 134,809 36,074 258,288 340,228 196,748 435,097 376,602 520,850 359,270 389,583 349 288 368,388 355,183 524,379 305,178 386,145 563.658 2n6,918 290.642 54.507 30,077 45.733 182,752 191.508 2,764 226.012 374,187 79.192 182 003 82.163 288,183 61,654 108,919 Difference Between Kevenues and Kxpenditurcs "' Deficit 1,340,415 Surplus 2,573,434 Surplus 5,451,347 70 1894 Fiscal Year 1896-97 July _ August September ... October November ... December ... 1898 January February ... March April May June Fiscal Year 1897-98 July August September ... October November .... December 1899 January February , March April May June Fiscal Year 1898-99 .\veiage Quotation for Month Loans 1888 & 1890 1893 98 951/4 94 931/2 931/2 96 9714 98% 98 lA 93% 95 96 Va 97 V2 98 98% 971/2 98 991/2 99% 100% 101% 101% 102% 102% 97% 93% 91 ¥2 92 92 941/2 95% 98 96% 92% 95 V2 951/2 96 96% 96% 951/2 96% 97% 99 1001/2 100 101% 102 y2 100% Tehuantepec 923/4 91 89% 901/2 891/2 901/2 91 94% 961/2 921/2 93 941/2 93 94 94 94 94 95% 96% 98 99 100 101 102 Increase or Decrease as Compared with .Same Month Last Year + 271,746 61,960 268,269 192,308 71,623 200,116 + + + + + + + + + + + + 352,574 129,242 45,538 208,634 95,451 146,423 69,557 124,232 431,843 324,976 506,535 323,079 601,796 511.443 257,167 691,112 598,495 972,138 Difference Between Revenues and Expenditures Surplus 3,170,123 Surplus 882,698 Surplus 6,639,670 The report goes on to say that "the attached statement clearly shows the increasing demand for Mexican securities payable in gold beginning with the disastrous financial crisis from 1892 to 1894. These figures are a clear demonstration of the rapidity and firmness with which the nation weathered the terrible economic disturbances which occurred in that period. As soon as the monthly customs revenues began to show an increase over the same months of the preceding year, confidence was reestablished in our national securities. The increasing price of the Mexican securities was practically parallel with the increasing receipts of the customs. "Beginning with 1897. the government received inquiries regarding the possibility of converting the 6% loans for others, which would draw less interest, but the government was not at liberty to make such a conversion on account of the clause in the three contracts for 1888, 1890 and 1893 loans which required that these loans should only be paid off by a regular amount up to the end of 1897. After January 1, 1898, how- ever, the amortization fund might be enlarged or the bonds might be entirely paid off. After January 1, 1898, there was 71 no delay in presenting various propositions signed by the best firms in the United States, London and Germany which merited serious consideration. The group of houses interested indicated that they were disposed to compete with the offers which would be received from the signatories for the three preceding loans, the principal being S. Bleichroeder, of Berlin. The government was disposed to secure the benefit of this consideration, but before negotiations were really begun, the Spanish-American War intervened and put an end to all cor- respondence regarding the matter. Some time after the con- clusion of peace between the belligerents, the conversion of the debt was again taken up. But, at this time, the house of Bleichroeder communicated to the government that by virtue of arrangements recently made with the other houses which Tiad made separate propositions, there had been a fusion of the two groups and that the house of Bleichroeder represented both groups. Negotiations would probably have been begun had it not been for the fact that the representative in Mexico of that firm refused to accept two conditions which the Exec- utive considered as a sine qua non for any arrangement: 1. "The Executive demanded that the banks renounce in the future the requirement that an amount sufficient to pay two interest coupons should remain on deposit with the bankers during the whole life of the loan. 2. "The Executive a\so required that the guarantees re- garding the assignment of certain revenues collected in the Federal District be suppressed." "Because of the failure to come to an agreement regarding these matters, no progress was made until April, 1899, when a commission composed of representatives of banking houses of the United States of America arrived, and indicated that they were disposed to convert the debt with more advantage- ous conditions than the government could obtain anywhere else." Limantour states that at this time it was necessary for him to take a voyaire to Europe on account of his health and, while passing throucrh New York, notwithstanding the fact that he was only in the city for one week, he "was approached by the directors and heads of the various institutions and urged to agree to a basis for conversion. The bankers referred to were very anxious to come to a definite agreement. The propositions which they presented, aided by some of the most powerful names in the United States, and favored by the prosperous conditions which surrounded such transactions in that country, warranted the government in taking them into consideration as soon as they oflfered advantages over those other propositions which had been an object of preliminary negotiations. "Powerful motives prevented the consideration of these 72 propositions, notwithstanding the fact that the project did not arrive at the point of being discussed in its essentials. Elim- inating reasons of a political character, the following con- siderations of purely a financial character are enough to justify this attitude. "The propositions in their essential points were attractive, but they also had serious inconveniences. "The propositions of the American bankers were to sub- scribe to a new Mexican loan, the proceeds of which were to be used to pay off the old loans now outstanding. To make the conversion they proposed an exchange of creditors. They did not offer other bonds bearing a smaller interest to the holders of the bonds of 1890 and 1893, but only proposed to substitute new creditors in a new world for the present creditors of the government of Mexico in the old world. This could not be accepted. The bonds of the old loans were in the hands of a public familiar with matters in Mexico and who constitute in reality a clientele whose confidence is estab- lished in the strength and stability of the said loans. "These reflections appear to be stronger, if we take into account that the Mexican 6y< bonds have been quoted in various English, German and Holland markets, which had always provided an ample basis to sustain our bonds and had contributed to the firmness of their price. While, if we con- verted our bonds with the houses referred to, we would have acquired the American market; but this advantage evidently would not compensate for the loss of the others, since we would have to depend in the future upon the houses and mar- kets of one single country. To this should be added that there is a plentiful supply of money in the United States, and in consequence it anxiously looks for investment, which fact is very favorable for the conversion. "Neither can the government fail to take into account the probable consequences of breaking with the large banking houses of London and Berlin, and others which have been associated with them in the issuance of former bond issues. Although it should not be feared that such a separation will influence the pecuniary result because, as we have said, the American establishments which have made the propositions are sufliciently strong to execute them, still, the possible hos- tility of those European houses would operate without fail against the success of the conversion, and would also influence, in an unfavorable manner, other pending operations, public, as well as private, which are connected with the credit of the nation. "On the other hand, if the complete transfer of our securities from Europe to the United States presented many serious difliculties, we should not lose sight of the fact that the American bankers and public would have participated in an operation conducted in Europe without Mexico losing a 73 single one of the markets which gave support to its bonds, nor fail to conserve the old clientele for these securities. "For these reasons, before I embarked for Europe I sought to convince the persons with whom I had been dealing that it was not possible to accede to their wishes, and that the only just and prudent course that the government could pursue under the circumstances was to secure the offers which had been made by them, and procure the amalgamation of the two groups if the European group submitted proposals which were equivalent to those made in the United States. In com- pensation, the American group would have the advantage of participating in a transaction which surely would have a great success, and if the government did not obtain a favorable result within a reasonable time, it could always continue the negotiations in New York on the basis explained. "In accordance with this program, when the heads of J. P. Morgan, of New York, and the representatives of S. Bleich- loeder. the Deutsche Bank and the Dresdener Bank of Berlin, arrived to confer with me, they were aware of the fact that the government could complete the transaction in New York on satisfactory terms. In this way, the matter of the con- version was definitely inaugurated under sufficiently favor- able auspices, not only on account of the circumstances men- tioned, but because the atmosphere was propitious in the European and American markets for a great financial under- taking. "In the preliminaries regarding the conversion which were conducted by correspondence and conference, the three loans of 1888, 1890 and 1893 were the only ones considered, since these were contracted for on terms practically the same and all bore interest at the rate of 6%. "The government had determined to take advantage of a favorable opportunity to include the loan of £2,700,000-0-0 of the National Railways of Tehuantepec in the conversion, but this idea had not proved feasible, because the conditions surrounding the bonds of this last loan were different from those surrounding the 6% bonds. "The Tehuantepec bonds had not yet been quoted at par; they were not redeemable at the option of the government, which only had the right to double the amortization fund; the mortgage back of the bonds was considered by the bondholders a better guarantee than the revenues of the custom houses or any other revenues of the State. It was not possible, however, for matters to remain in this condition from the time that the government entered into a contract to complete the railroad of Tehuantepec and to construct, in Coatzacoalcos and Salina Cruz, the terminal points of the line and the neces- sary port works to perfect this interoceanic line of communi- cation, because a project as large as this could not be brought to a conclusion without cancelling the mortgage in favor of the bondholders. 74 "It was in regard to this point that the government began to study the methods of solving the difficulty. The first tenta- tive proposals for this purpose were made to the Dresdener Bank, which was the one in union with others that placed the Tehuantepec bonds in circulation. The various methods to accomplish this purpose were discussed for two years without the proposals of the government being accepted by the bank, or the proposals of the bank receiving the approval of the government. The failure of these efforts may be attributed to the fundamental difficulties of the problem which consisted of inducing the holders of the bonds to renounce voluntarily and unanimously their right to a guarantee which was better than any other that could be offered by the government, and to exchange their rights for advantages of another kind whose valuG, with the exception of the pecuniary compensa- tion, it was not easy to demonstrate. It was indispensable, therefore, to offer a substantial premium to the holders of the bonds, and even if this were done it was not certain that they would all submit. "The year 1899 had now arrived and the excitement created in other countries regarding the opening of a canal across one of the isthmuses of the American continent made it desirable to hasten the conclusion of this matter, adopting that plan which offered the most security and which would raise the mortgage on the railroad. As we have said, this was the only obstacle to beginning the construction of the new work under contract. "It will always be a distinct advantage to Mexico in the competition which some day will exist between the Maritime Canal which is to be constructed and our interoceanic railroad, to attract the largest possible traffic before the canal is com- pleted so that we can have the necessary time to prepare for competition under favorable conditions." The report of Minister of Finance Limantour is too long to be given in full. The extracts which have been quoted serve to give an idea of the conditions which made it desirable to consolidate the debt. The contract for the loan was signed on July 1, 1899, by the following firms, whose participation in the loan is indicated opposite their names: Per Cent S. Bleichroeder 40.33587 J. P. Morgan & Co. in London and J. P. Morgan & Co. in New Yorlv 26.89058 Deutsche Bank 13.44529 Dresdener Bank 13.13261 National Bank of Mexico 6.19565 Total, per cent 100.00000 75 The essential facts regarding this loan are as follows: Authorized Issue „ _ £22,700,000-0-0 Proceeds: £1:5,000,000-0-0 at 96% _ 12,480,000-0-0 !),700,000-0-0 at 97ViVc ~ 9,433,250-0-0 Total „ £21,913,250-0-0 Less commission at I'A 227,000-0-0 Net proceeds £21,686,250-0-0 DISPOSITION OF PROCEEDS. 6%. 1888 bonds £9,982,800-0-0 5% 1889 bonds Tehuantepec Railroad 2,673,000-0-0 6% 1890 bonds 5,852,300-0-0 67c 1893 bonds 2,949,420-0-0 1»^% Premium on 1888 bonds 149,742-0-0 1% Premium on 1889 bonds Tehuantepec 26,730-0-0 11/2% Premium on 1890 bonds 87,784-0-0 27c Premium on 1893 bonds 58,988-0-0 Total £21,780,764-0-0 The difference between the amount secured and the amount paid out was probably paid from revenues. Amortization The government agreed to pay semi-annually for amortiza- tion purposes a fixed sum amounting to 31/100 of 1% of the par value of the bonds issued, the total payment being 5.62% each year. Bonds were to be redeemed each six months. After interest had been paid on the bonds outstanding at the rate of 57^ the balance of the fund was to be used for amortiza- tion purposes. Security For the payment of interest and amortization charges, the government pledged 627^ of the total import and export duties of the nation. The collections made in accordance with the above stipulation were always to exceed the amount required for debt service charges by 10^ • If collections fell below this amount, the government agreed to increase the percentage of revenues pledged in the first quarter of the following fiscal year. Method of Segregation of Revenues The government issued a decree requiring that 62% of all customs duties be paid with customs certificates which were issued to the National Bank of Mexico to be placed on sale at its ports of entry. 76 5% MUNICIPAL LOAN OF 1889— £2,400,000-0-0. This loan was issued by the City of Mexico and the pay- ment of the principal and interest was assumed by the Federal Government on July 1, 1903, in accordance with the terms of the law transferring the collection of taxes in the City of Mexico to the Federal Government. This loan is still outstanding. Full details are contained in the statement of the loan in Appendix B. 7% LOAN OF 1892— £600,000-0-0. No law appears to have been passed authorizing this loan. The contract is dated August 1, 1892, This loan has been repaid. The National Bank of Mexico for itself and in represen- tation of the various banks and banking houses in Berlin, London and Paris agreed to lend £600,000-0-0 to the govern- ment to be repaid in eight equal installments of £75,000-0-0 each on the first day of December, March, June and September. A commission of 21/?% was allowed the bankers and 10% of the customs duties was pledged as security for the payment of interest and amortization charges. The purpose of the loan was to raise funds to pay off the floating debt in London. 4% LOAN OF 1904— $40,000,000.00. DUE DECEMBER 1, 1954. This loan was authorized on November 24, 1904, for the following purposes: 1. Payment of Treasury obligations issued June 1, 1903, $12,500,000.00. 2. Payment of Treasury obligations issued June 1, 1904, $6,000,000.00. 3. Payment of Special Certificates issued under the law of December 3, 1903, $9,213,500.00. 4. Payment of 6% bonds, payable in Mexican currency, issued as subventions to the Mexican Southern Rail- way and the Vera Cruz & Pacific Railway, $5,909,500.00. 5. Balance to be applied to the construction of public works at Salina Cruz, Coalzacoalcos and Manzanillo. The bonds were to be amortized with the proceeds of semi- annual payments of $930,000.00 after interest on outstanding bonds was provided for. No special revenues were pledged or other security granted. 77 This loan was sold to — Speyer & Company, New York; Speyer Brothers, London ; Lazard Speyer-Ellison, of Frankfort; Deutsche Bank, of Berlin; Teixeira de Mattos Brothers, of Amsterdam ; Banco Nacional de Mexico, and is still outstanding 4% LOAN OF 1910—- fFrs. 560,550,000.00. £22,200,000-0-0. $107,670,000.00. P. 216,450,000.00. The original contract for the loan was executed in the French language and is dated July 2, 1910. The signatories, with the participation of each, are as follows: Per Cent. S. Bleichroeder, Deutsche Bank, Dresdener Bank, Mor- gan, Grenfell & Co., J. P. Morgan & Co 42.50 Banco Nacional de Mexico 15.00 La Banque de Paris et des Pays Bas 12,75 Le Credit Lyonnais 10.20 La Societe Generale 10.20 La Comptoir National D'Eseompte de Paris 9.35 Total 100.00 The syndicate purchased one-half of the amount author- ized at 94%% and took an option on the balance at the same price. Due to the Madero revolution in 1910-1911, the option was not exercised. The purpose of this loan was to refund the 5% loan of 1899 of £22,700,000-0-0, of which £20,778,740-0-0 was out- standing at the time. The security granted was the same as for the 5% loan of 1899, — viz. 62% of all import and export taxes. During such time as the loan of 1899 was not refunded, the revenues were to be collected by the Banco Nacional de Mexico through the use of customs certificates. After the loan referred to had been redeemed, the use of customs certificates was to be discontinued, and all customs ofl^cers were to be required to remit 62% of their collections to the Banco Nacional. Amortization The loan was to be repaid before January 1, 1945. The government agreed to pay semi-annually to the Banco Nacional for interest and amortization purposes 2.685% of the bonds authorized or 5.37% per annum. 78 As the interest rate was 4%, the rate of amortization was the highest of any loan so far placed by Mexico. Since the 1899 loan was only one-half redeemed, the pledge of 62% of the customs duties runs jointly for both issues. OTHER LOANS A study of annual reports of the Mexican government shows that the government issued at various times short time securities, and also frequently borrowed from the Banco Nacional on open account. As all such loans are reflected in the ones discussed, it is not necessary to go into detail regarding them. RECAPITULATION OF LOANS ISSUED EXCLUDING REFUNDING LOANS Title. Amount issued 3% Consolidated Interior Debt of 1885 less amount redeemed with 1888 loan P. 52,577,425.00 5% Amortizable Interior Debt of 1894 96,458,400.00 State Loans assumed - _._. 9,638,000.00 6% Consolidated Exterior Mexican Debt of 1888 portion representing new debt only £.3,700,000-0-0 37,000,000.00 5% Tehuantepec Loan of 1889 2,700,000-0-0 27,000,000.00 5% Loan of 1890 6,000,000-0-0 60,000,000.00 67o Loan of 1893 3,000,000-0-0 30,000,000.00 5% Municipal Loan of 1889 2,400,000-0-0 24,000,000.00 7% Loan of 1892 600,000-0-0 6,000,000.00 47f Loan of 1904 $40,000,000.00 80,000,000.00 Total P. 422,673,825.00 For convenience the pound sterling is reduced to pesos at the rate of PIO for 1 pound and the dollar at 2 for 1. The amount stated above represents new bonds issued. The difference between this and the amount of P375,000,000. pre- viously referred to as the new debt is due to amortization payments. PRODUCTIVE WORKS Data is not available to show the disposition of the pro- ceeds of the various government loans. Fernando Gonzalez Roa in his book "El Problema Ferrocarrilero," published in 1915, states that up to June 30, 1902, the government had paid out in subsidies to railroads the amount of P144,891,743.92. As the 4% loan of 1904 amounting to P80,000,000. was issued after the date referred to by him, and was issued for the payment of notes given as subsidies to railroads and for public works, it is probable that this amount should be added to the total stated by Sr. Roa. It is reasonably certain that the 37r loan of 1885 was used to consolidate the floating debt. What portion of the 5% 79 interior loan of 1894 was used to pay floating indebtedness, and what portion was used for public works, is not known, A statement issued on June 30, 1S96, by the Bureau of the Public Debt of Mexico shows claims recognized and subject to settlement in 1894 bonds as amounting to P2,352,661.82. This loan was issued in five series, and the decree authorizing each of the four first issues provides that the bonds shall be used to consolidate the debt and to pay subsidies to railroads and for the construction of public works. The decree authorizing the last issue of P20, 000,000. provided that the total amount was to be used for paying subsidies to railroads. From these various statements we may arrive at the fol- lowing approximation as to the disposition of the larger part of the bonds issued : For consolidation of the floating debt: 3% Loan of 1885 P. 52,577,425.00 5% Loan of 1894 2,352,661.82 Total - P. 54,930,086.82 Debts assumed by the Government: 5% Municipal Loan of 1889 - P. 24,000,000.00 State Loans _ 9,638,000.00 Total P. 33,638,000.00- Construction of Railways: Amount expended up to 1902 per Gonzales Roa P. 144,891,743.92 5th Series of 5% Loan of 1894 20,000,000.00 47f American Loan of 1904 80,000,000.00^ Total P. 244,891,743.92 Balance not segregated P. 89,213,994.26 Total P. 422,673,825.00' With a view to ascertaining the eff"ect of these large ex- penditures upon the national revenues, the following figures are presented, taken from a graphic chart published by the Department of Finance in 1918. Total Revenues of Government Fiscal Year Amount 1883-1884 P. 37,521,065.29 1884-1885 1885-1886 1886-1887 1887-1888 1888-1889 1889-1890 1890-1891 1891-1892 1892-1893 1893-1894 1894-1895 1895-1896 1896-1897 30,660,434.24 28,980,895.76 .32,126,509.07 40,962,045.23 54,801,924.58 61,908,681.53 44,142,856.61 .39,993.743.94 38,654,770.31 41,216,893.51 46,907,123.16 51,240,066.95 52,105,285.59 Amount . P. 53,288,061.53 60,633,391.67 64,675,098.45 63,283,196.17 66,774,380.15 76,620,598.98 87,002,728.79 92,666,445.61 1905-1906 102.752,751.40 1906-1907 115,027,009.4a 1907-1908 - 111,810,934.11 1908-1909 98,775,510.79 1909-1910 106,328,485.10' Fiscal Year 1897-1898 1898-1899 1899-1900 1900-1901 -. 1901-1902 1902-1903 1903-1904 1904-1905 80 It cannot be doubted that the industrial development of the country was very greatly facilitated by improved means of transportation, and that national revenues, to a certain extent, reflected this prosperity. 1911 to 1918. On September 16, 1910, Mexico celebrated the centennial of its declaration of independence and visitors from all over the world, representatives of foreign governments and native Mexicans, flocked to Mexico City for the biggest fiesta in its history. On May 25, 1911, the man who had ruled the country for 30 years and who a few months before had been the recipient of congratulations from practically the entire world, resigned the office of President and fled to France. The Madero Revolution which unseated him was a peaceful one. Francisco Madero entered Mexico City on July 7, 1911, called a special election for President and was elected and in- augurated on November 1, 1911. On February 8, 1913, a revolution against the Madero gov- ernment headed by Felix Diaz and General Reyes broke out in Mexico City. Victoriano Huerta, commanding general for Madero, came to some agreement with Diaz, and President Madero and Vice-President Pino Suarez were arrested on February 18, 1913. Congress appointed as President Pedro Lascurain, who appointed Huerta to the Cabinet and then re- signed after having acted as President 45 minutes. His resignation automatically made Huerta President. On Feb- ruary 22nd Francisco Madero and Pino Suarez were killed under circumstances which strongly indicated foul play. FINANCIAL CONDITION WHEN MADERO CAME TO OFFICE The annual report of the Treasury for the fiscal year July 1 1910 to June 30, 1911, shows cash on hand and in bank amounting to P72,000,000. It is difficult to obtain accurate information regardmg financial transactions for the period from 1911 to 1917, but it appears that the Madero government issued two short term loans which were repaid with the proceeds of the 6% Treasury notes of 1913. . -, • a m .^-.o i. The report on the public debt issued m April, 1913, shows a 414 Cc loan of $10,000,000.00 due June 10, 1913, which has since iDeen paid off. HUERTA ADMINISTRATION Victoriano Huerta was President of Mexico from February 19, 1913, to July 15, 1914. 81 During this period a series of loans were authorized of which it appears that two were issued, as follows : 6% 10 year Treasury Bonds of 1913 £20,000,000-0-0 6% 10 Year Treasury Bonds of 1914 P60,000,000.00 Of the first loan £6,000,000-0-0 was sold at home and abroad to the following: Mexican Group: Per Cent 1 Banco Nacional de Mexico 5.000 French Grouj) 45.125 2 Banque de Paris et de Fays Bas. Societe Generale pour I'Developement. Comptoir National d'Escompte. Banque de I'Union Parisienne. Morgan Harjes & Co. A Spitzer & Co. German Group 19.000 3 S. Bleichroeder. Deutsche Bank. D.esdener Bank. English Group 19.000 4 Morgan Grenfell & Co. American Group 11.875 5 J. P. Morgan & Co. Kuhn Loeb & Co. It appears that the following amounts were taken by the National Banks of Mexico : Pounds Sterling Pesos Second Issue £2,171,495-0-0 18,000,000 Third Issue 239,935-0-0 1,988,460 Fifth Issue 307,692-0-0 2,550,000 Eighth Issue - 4,685,731-0-0 41,117,299 Total £7,404,853-0-0 P. 63,655,759 The following amounts appear to have been issued to guar- antee the payment of interest on railroad bonds: Fourth Issue £595,580-0-0 P. 5,806,905.00 Seventh Issue 365,470-0-0 3,563,332.50 Ninth Issue 400,000-0-0 3,900,000.00 Total „ £1,361,050-0-0 P. 13,270,237.50 The 6th issue amounting to £3.175,580-0-0, equivalent to P30,961,905.00, was paid to John W. DeKay as the purchase price of the Mexican National Packing Company, and as an advance to Mr. DeKay to purchase munitions of war in Europe. Of the total amount issued to him, it is said that P10,000,000. was for the purchase of the Packing Company and the balance was for the purchase of arms. 82 SUMMARY OF 6% LOAN OF 1913. Sold abroad £6,000,000-0-0 Deposited with National Banks as collateral for loans 7,404,853-0-0 Deposited as guarantee of railroad interest ._ 1,361,050-0-0 John W. DeKay 3,175,580-0-0 Total _ _ £17,941,483-0-0 Of the second loan of 1914, the following amounts appear to have been issued: To guarantee interest on railroad bonds P. 11,500,000.00 To guarantee circulation of Carbajal bonds 9,216,329.00 Total : P. 20,716,329.00 The information available regarding the disposition of these two loans is far from satisfactory, and no information can be secured as to whether the balance of the bond issues are on hand or have been disposed of. The present Mexican government is not disposed to recog- nize the validity of all these issues. Regarding that portion uf the loan sold abroad, General Carranza, then First Chief of the Constitutionalist Army, notified foreign governments that any loan placed with the Huerta government was illegal and would not be recognized. However, of the total amount sold abroad, it is understood that the Huerta government realized about 50 millions of pesos. With this amount it paid off in- debtedness incurred by Madero amounting to about 42 millions, so that Huerta probably did not receive more than 8 or 9 mil- lions of pesos. The present government likewise took the position that the action of the National Banks, in purchasing Huerta bonds, was illegal, because they placed themselves in active opposition to the constitutional government. What disposition DeKay made of his bonds is not known. It would appear unlikely that the Mexican government will assume the payment of all the indebtedness created by Huerta. CARRANZA REGIME President Carranza's forces finally entered Mexico City on August 2, 1915, and beginning with October the various de- partments of government were transferred from Vera Cruz to Mexico City. A constitutional convention was held in Queretaro from December 1, 1916, to about January 31, 1917, and a new con- stitution adopted which became effective May 1, 1917. An election for President was called in April, 1917, and General Carranza was elected and inaugurated as President on May 2, 1917. 83 The revolution against Huerta and for the restoration of Constitutional Government conducted by General Carranza was financed almost entirely by the issuance of fiat currency, together with the normal revenues of the country occupied by the Constitutionalist forces. Fiat currency is usually referred to in Mexico as a debt of the Nation, and President Carranza in his message to Congress on April 15, 1917, speaking of the Debt of the Revolution, re- fers to it as follows: "Infalsificable paper currency in circulation, if it were re- deemed at the rate of P0.20 gold— P80,000,000." On the basis of redemption specified, this indicates that the amount of Infalsificable paper currency outstanding was P400,- 000,000. From information secured in Mexico, it is believed that the amount outstanding on June 30, 1917, was about P300.000,000, which is being redeemed at the rate of P60,- 000,000. per annum through taxation. Fiat currency outstanding is not included as a debt of the Nation in this report. Loans from Banks Beginning with November, 1916, the Constitutionalist gov- ernment borrowed funds from the National Banks. The amount due on November 28, 1918, according to a statement furnished by the Monetary Commission was P53,155,733.95. Vera Cruz Bonds, 1917 — No Interest These bonds were issued to redeem the so-called Vera Cruz Paper Currency. Details are given in Appendix B. CONCLUSION The outlook for the future of Mexico is bright. Law and order are being re-established, commerce is improving, and if financial aid is granted to restore communication and credit facilities, the next few years should be the most prosperous in her history. As an earnest of the future of Mexico, so far as lies in the power of the present administration, the following excerpt from President Carranza's message to Congress is quoted: "A revolution that is not prompted by a necessity, the satisfaction of which does not admit extension of time, and which does not aspire to vitalize an ideal of morality and justice, is merely a crime against the existence of a people. "The first requisite for the existence of a state is order. Order cannot prevail where there is no law, or where the law is violated constantly and with impunity. It is law which de- termines the relations among the members of a nation and serves as the intervening medium between these members. 84 Law fixes the sphere of free action to be exercised by indi- viduals and the limits within which public authority must act so that social functions may not' encounter obstacles in their multiple and legitimate manifestations. In a state where a man feels himself strong, simply because he is armed and be- lieves himself able to impose his will over others, where there is no respect for life, liberty or property of the other members of the social body, there can be neither rights nor morality, which are the main elements of order. Within a state where any representative of authority considers himself capacitated to act as he elects without a brake to control his bursts of anger, without a sentiment impelling him to realize that there are others who deserve respect— and it is precisely for the purpose of compelling the stubborn to respect others and in- spire ideas of right to the obstinate and refractory that public authority is necessary — in such a state, I repeat, c^n exist only anarchy, which is the disordered tyranny of the many; or despotism, which is the tyranny of only one." MEXICAN NATIONAL DEBT STATEMENT OP b% ENGLISH LOAN OP 1823 COVERING PERIOD FROM JANUARY, 1824, TO APRIL, 1831 65,400-0-0 217,200-0-0 198,400-0-0 279,100-0-0 162,200-0-0 107,200-0-0 35,967-10-0 33,487-10-0 29,998-16-0 27,971-06-0 26,631-05-0 26,635-12-06 26,635-12-06 26,635-12-06 26,635-12-06 £2,130,500-0-0 £399,468-15-0 £896,182-10-0 1824 1824 1824 1824 1824 1824 1826 1825 1825 1826 1826 1825 1826 1825 1824 1825 1826 1826 1826 1826 1826 1826 1827 1827 1827 1827 1828 1830 1830 1830 1831 1831 £3,200,000-0-0 Interest accrued and paid- Amortized Balance Interest accrued and paid- Interest accrued and paid— Amortized Balance Interest accrued and paid- Interest accrued and paid- Amortized — . Balance Interest accrued and paid- Amortized Balance ..— Interest accrued and paid- Amortized — Balance — Interest accrued and paid- Amortized Balance Interest accrued and paid- Amortized Balance — 33,487-10-0 29,998-15-0 26,631- 26,635. 26.635 26,635. 26,631 26,631 26,631 26.631- 26,631- 26,631- 26,631- 26,631 26,631 26,631 26,631 26.631 26,631 26.631 26,631 £3,200,000-0-0 £896.182-10-0 -12 06 -12 06 -12 06 -05 -06 -(l.'i -05 -(l.'i -05 -05 -05 -05 -06 (1 -05 -05 (1 -05 -Ob -05-0 ^ r\ o o o o ooooooooooocooooooo ooooooooooooooooooo o o o o o o o o o COCCCOCOCOCOCOC^CCCCCOCOCOC^CCCCCTCOCC CD ^D «3 50 CO CO IX' ^C CD 'sO 1^ ^ ?C' ^' 'X CC CO CO O (M (M (M (M W (M !M Ol "M <>J Ol IM (M CI (M O-l CJ D] (M 00 o > ^ O " o ■«* ~ 00 I— I fc, On ^ 2 1—1 eg w - 3 ^^ Sop S an H cd cd c^ ^ ) p, & p, a> > _ "^ : c c c s * cc cd cd ^ a> 01 0) rt > 3 3 ^-c : -r o o o o o in i£ 1— CO t: o o o o o d 1- co O' S Tl .S to W3 cn -r: ?3 M -rs ^ h c ^ ^ ^ ^ s-< ;^ ;- -4J-i^-t-> E'^-'-' e'^-'-'-'^ e "^ ->^ ->-' ->^ ->^ tfi M i- t-l to to 0) 0) +-) -t-> -k-1 to to to ti> 01 q; Sh ^ ;» 0) a> oi ■*-> +-> -4-3 to to to 01 0) (U -k^ 4J aj O) OJ ctt •*^ -*^ r? == c =« t— 1 1— I P3 (M -^ I> O O O i-H -r t^ t^ (Tft-o^^-r t^O'-H-^L^O'-i'^c-oi-i-rr LC ire lo lo -M (M (N C-J 00 00 00 X CO CO COCOCO CDC--t-t-C--0C0C000CC5CiCi05oC)'^Oi-l»-l |>J(M C>a(M(M ':io o o o T-l o (N 0-. lO w C: (M or. •^ O oc 1^ *— ' ^ ,_ •w o!© o o o o Ci o o" o' m o r-( (M S7 ooooooooo«£Oo«r Lraoooooooio(Mu:iio(M O-i-Ht— It— I'— ''— •'-H'-HOi-HOO'— I 1-1 (M (M (M CM Ol (M C: T-H O t-l ^ O CO (M oj^ CO oi^ o| oa (>J^ ^ ^ c^J^ o-i^ ^ tococooc^cocO(^occ~^■4 rt 0) C3 ; 3 13 3 ^ $-1 u ^ i tfi 1/3 o X. 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RECD LD-URL JUL 8 1988 JEC'OJUN 05 198S QL APR 9 m\ H OCT 11990 OCT 0* ^'k f ilOCTlT \m 'VlAY 3 2004 Jim 2 5^ttin ^^^lllBRARYO^ ^(i/0JllV3JO^ ;,OFCAllfOff^ ^lOSANCEtfj. 55a3AINn-3WV ^lOSANCElf/^ JSWAINnBV •vlllBRARYQ^ iyojiivjjov DfCAllFO/?^ ?A«vaaiH'^'^ ^^^lOSANCElfj> J5 - ^OFCAllfO/?^ '^.tfOJIIVJJO^^ ^OFCALIFO% ^'^ ' ^^,OFCALIFO% ,^OFCA1IFO% C3 "^^AavasiH^ < >&Aavaan# ^^MIBRARY(?^ AWEUNIVERS/a J-30>' ^.!/03llV3JO>' ^TiiJONVSOl^ .>:lOSANCElfj> o -^ ^ * - %a3AINn-3WV^ -^lUBRARYQc^ %ojnv3JO^ ^ILIBI %OJIi F0% ^.OF-CAIIFO% i ,^WEUNIVER5//- ^lOSANCElfj^