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her destiny with those of the Allied Nations for the defense and victory of that noble cause and its high and supreme ideals.

It was not possible, therefore, to restore the constitutional guaranties in the absence of special laws for the detection of espionage and for the surveillance and repression of enemy aliens; for without such laws the Government would have been helpless in the face of unavoidable exigencies of the existing state of war, as compelling for our own safety as for the loyal fulfilment of our obligations to the Allied Nations.

Those laws have now been enacted and vest in me, if not all the exceptional means and all the extraordinary powers available, in this terrible world crisis, not only to the governments of belligerent nations but to those of nearly all the neutral nations, and especially of our great neighbor Republic, illustrious model of liberty and democracy, which has omitted no precaution nor effort, nor sacrificed to vain theories the supreme necessity of national defense, at least the most indispensable of such means and powers. Although deeming them insufficient in certain contingencies for the object sought, I have not cared further to delay the restoration of constitutional guaranties, the suspension of which, I must repeat, no one can rightly claim has been used for purposes of internal politics nor for the purpose of preventing or interfering with the exercise of their rights by any party or person.

Those who wish and whose duty it is to participate in the forthcoming elec toral struggle have wide and free avenues open to them in the law and with no other restrictions than those prescribed by law. All may and ought to go to the polls in defense of their respective ideals, of their political aspirations, and of their candidates. with enthusiasm and decision, but also with the composure and discipline proper in free peoples.

To all I offer, whatever their party badges or their purposes or platforms, entire impartiality on the part of the Government and the most effective guaranties for the purity and freedom of suffrage. I hope that all will observe the limits which wisdom and civism impose upon the activities of contestants. and that none will forget that the rights of each must be harmonized with the rights of others and that never as in the present moment has it been so important to raise and dignify party strife by that scrupulous respect for law and order which is the prime necessity of democracies. I pin my faith in that the forthcoming election will be held with the utmost freedom and will be as hard-fought as orderly, without prejudice to the higher sentiments of national solidarity which the state of war ought to awaken in all hearts animated by the pure throbs of patriotism.

HABANA, August 14, 1918.

M. G. MENOCAL

FINANCIAL AFFAIRS

Authorization by the Government of Cuba of a Loan of Thirty Million Pesos; Attitude of the United States; Establishment of a Credit for Fifteen Million Dollars by the Treasury of the United States Secured by Bonds Issued by the Government of Cuba

File No. 837.51/247a

The Secretary of State to the Minister in Cuba (Gonzales)

[Telegram]

WASHINGTON, June 18, 1917, 5 p. m.

Mail Department full translation of provisions of decree authorizing loan of thirty million pesos and for increased revenues, reported in La Lucha of May 27 last.

LANSING

File No. 837.51/248

The Minister in Cuba (Gonzales) to the Secretary of State

No. 470

:

[Extracts]

HABANA, July 2, 1917. SIR Referring to the Department's cabled instruction of June 18, 1917, I have the honor to transmit herewith a translation of President Menocal's decree1 providing for a 30,000,000-dollar loan and the taxation measure to furnish revenue for the interest and amortization of the same, together with the Gaceta Oficial containing the decree.

This decree was issued after the President had failed to get action by Congress, and I interpreted it as giving notice to Congress that if it refused to support the administration plans, the President would act independently. Such course would be the last resort and he wishes action by Congress, which is, however, bent upon driving bargains before agreeing to any administration measure.

After the President issued his decree the opposition in Congress indicated a disposition to pass the measure in the regular way. No attempt therefore has been made to put the decree into effect, as, in view of its legality being questioned, the President greatly prefers congressional action.

The administration's majority in the House is exceedingly narrow, and as the tactics of the Liberals is to break quorum, it requires the attendance of practically every Conservative, and a few of these are disaffected. A deadlock is now in practical effect, with adjournment of Congress set for July 13.

I asked the President on Saturday what he would do if, in this time of war, the Congress adjourned without acting on war measures or the matter of the Ports Company settlement. He said that it was a serious situation, but that he had greater powers when Congress was not sitting and might be forced to assume the responsibility of decided, if unusual action.

I have [etc.]

File No. 837.51/249

WILLIAM E. GONZALES

The Minister in Cuba (Gonzales) to the Secretary of State

[Telegram]

HABANA, July 13, 1917, noon.

GONZALES

Congress last night voted authority for 30,000,000-dollar loan asked for by the President.

The Acting Secretary of State to the Minister in Cuba (Gonzales)

[Telegram]

WASHINGTON, July 19, 1917, 4 p. m. Your July 13, 12 noon. You are instructed to remind Cuban Government of treaty provisions as to loans and previous practice to

'Not printed.

obtain approval of the United States after submitting full data as to existing and proposed new indebtedness and revenues applicable to payment of principal and interest. See Department's telegram September 25, 6 p. m., 1912.1

POLK

File No. 837.51/251

The Minister in Cuba (Gonzales) to the Secretary of State

[Telegram]

HABANA, July 24, 1917, noon.

President Menocal has vetoed bill granting authority to make issue 30,000,000-dollar loan. Cause of veto certain restrictive provisions, one requiring advertisements for bids and also elimination by Congress of certain taxes including stamp tax proposed by President for interest and amortization.

GONZALES

File No. 837.51/252

The Minister in Cuba (Gonzales) to the Secretary of State

[Telegram]

HABANA, July 26, 1917, 11 a. m. My telegram of July 24, noon. Congress accepted veto and House passed new measure satisfactory to President except that tax on iron and copper too high. He hopes to get Senate pass same bill before adjournment that is imminent, and will suspend part of iron and copper tax expecting reduction by Congress next winter.

GONZALES

File No. 837.51/253

The Minister in Cuba (Gonzales) to the Secretary of State

[Telegram]

HABANA, July 28, 1917, 11 a. m. Cuban Senate has passed House bill authorizing 30,000,000-dollar loan with the accompanying tax measure providing for interest and sinking fund. This bill carries tax one-quarter of a cent a gallon on molasses produced in Cuba.

GONZALES

File No. 837.51/255

The Minister in Cuba (Gonzales) to the Secretary of State

No. 481

HABANA, August 1, 1917.

SIR: I have the honor to send herewith a translation of President Menocal's message vetoing the act of Congress which authorized a

'Not printed.

30,000,000-dollar loan and imposed special taxes to provide for interest and the retirement of said bonds. The veto, as already announced to the Department by cable, was sustained, and a measure having the President's approval, passed.

The lengthy translation of this message has been prepared for the Department because, besides being unusual for Cuban Executives to present arguments to Congress in this manner, it furnishes in as succinct form as is likely to be obtained, the viewpoint of the Government on taxation problems of the country, and therefore is of interest and value. I have [etc.]

WILLIAM E. GONZALES

[Enclosure-Translation] Presidential veto to the loan law

TO THE HOUSE OF REPRESENTATIVES:

I have the honor of returning to the honorable legislative body from which it proceeds and with the objections appearing to me, the bill authorizing the issue of bonds up to 30,000,000 dollars, which was submitted to me, as provided in the Constitution, on the 12th instant.

The time which has elapsed since a great problem of public order, internal first and international war afterwards, brought a serious financial crisis to our Republic, has somewhat diminished in the minds of everyone the nature of the pending problems, and it is well that we recall the facts in order to appreciate to their full extent the obligations we are endeavoring to meet.

Since the beginning of the month of February, the execution of the budgetwhich is defective in itself-suffered a serious interruption, as it was the budget approved in the fiscal year of 1914 to 1915 and extended in accordance with the laws in force. By means of the law of March 7, it was necessary to authorize the Executive to suspend the application of the budget and authorize him to dispose of the funds in the Treasury to meet the needs arising from the military rebellion.

The principal thing then was to maintain public order; the budget was strictly limited to the fulfilment of the ordinary obligations expressly set forth in same, suspending the application of the laws and special credits, which constitute a special budget of the legislative body already (it can be said) traditional among us.

During such an abnormal situation and while suffering from the ravages of the civil war, we were confronted with the international war, and I was authorized by the joint resolution of April 7, to dispose of the Nation's land and naval forces as I thought fit, using the existing forces, reorganizing same or creating others, and to dispose of the financial resources of the nation to the extent that the needs demanded.

For these reasons, without making use of the powers conferred, I addressed Congress on April 18, requesting it to join in the task imposed upon me, and asking that I be allowed to create taxes to meet the needs resulting from both wars and other obligations of the Treasury; I did not limit my request to the issue of bonds (as the financial administration is authorized to do so in any serious emergency) but asked assistance from the financial resources of the nation-as set forth in the joint resolution-in the two ways of obtaining same, namely, by taxation and by making use of the nation's credit in order to collect funds, as neither way, if taken separately, would suffice to meet the great public requirements already existing, and other permanent needs to come, as the obligations of the treasury of a nation and national needs never return to what they were prior to great historic happenings.

An unmistakable exposition of this situation is set forth in the decree of May 26, intended to arrive at a definite conclusion in the matter. In said decree it is stated that the taxes are intended to cover the interest and amortization of the floating debt and to provide the Public Treasury with permanent means; and in case it was not thus stated, it could be so clearly understood from the kind and nature of the taxes which were to be imposed.

It is not possible that the Nation rely only upon its credit for the fulfilment of its obligations. In all loans or extension of time for the payments of debts there are two volitions (meaning that of the debtor and that of the creditor) and when the big nations of Europe and America, in which the transactions of capitals really exist, have found themselves tangled up in the awful struggle which actually absorb their activity and energy, they all have appealed to the taxable resources, imposing them as far as they can resist. Bond issues, hypothecation of securities, direct and indirect taxes, charges upon circulation and consumption, suspension of free trade, limiting trade competition, all kinds of monopolies are created, and this is the way that the problem is solved in the free countries of North America as well as in the autocratic countries of Europe and Asia. The United States have started in the great struggle by authorizing the disposal of an amount up to $10,000,000 and by fixing taxes up to $1,800,000,000 per year.

It is not therefore an unusual thing that the Republic of Cuba should need, besides the authorization for the disposal of an amount up to $30,000,000, ways and means that may, during the disposal of the bonds, bring in about ten or twelve million dollars, three millions of which are required for a special purpose. Our public finances can well stand it, as our international commerce in 1916 amounted to over $600,000,000; and the amounts consigned in our budget, with the exception of those applied to our foreign debt, run through all the arteries of our social body especially in the shape of salaries. A proof that we require permanent funds to meet current needs, because they consist of permanent services which tend to increase instead of diminish, is the increase of salaries to public teachers, which is not provided for in the present budget, because the law ordering that the salaries be paid from ordinary public incomes (and not from the surplus from salaries of employees of Public Instruction as previously ordered) was not duly adopted until January of the current year. Said increase amounts to $1,737,719 a year. During the last days of the past session Congress voted a law creating 972 schools of elementary instruction, thereby increasing the liabilities of the Treasury in more than a million dollars. Including other less important appropriations, the new expenses for Public Instruction amount to nearly $3,000,000 a year.

The annual credits of the fixed budget have also been increased by additional salaries of Senators and Representatives and of the employees of the Judicial Power. Big subventions for railroad companies in the Provinces of Pinar del Rio, Santa Clara and Camaguey have been approved, and it is further necessary, as was noted in the last campaign, to construct the central road and to repair the existing roads, which were poorly constructed and are now very deteriorated by the productive, but destructive, traffic of the sugar mills. By taking a look at the figures contained in my message to Congress in regard to the current budget, it will be seen that the credits for Public Works services amount to millions of dollars, and which were not included in said budget because the income is insufficient (in spite of the maximum output which has been reached in the past years) to cover so many and so heavy obligations.

It is very important to note that the income is not reduced in the current budget so as to leave a fictitious surplus, but is included in its highest yielding under the present special circumstances, and that the expenses reach the same amount as the income, giving an exact balance; it can thus be seen that there is no margin for unexpected payments from Treasury funds not available. Congress has thought fit to cancel in the expense column the sum of $1,841,736.66, being the amount required for amortization and interest during the fiscal year of a part of the 5,000,000-dollar bond issue of January 1, 1915, authorized by the financial defense law of October 1914, based upon the fact that the bonds of the new 30,000,000-dollar issue may among other things be exchanged for the outstanding bonds of said issue; but the exchange thereof depends upon the will of the bondholders and they are not obliged to do so; further, the amount included in the budget can not be disposed of only to the extent the creditors may desire. It is an eventual resource which can not be counted upon.

I forgot to note, among other credits, the increase of salary to the diplomatic and consular officers on account of the war and the $675,000 just voted for the pavement and sewerage of streets in Matanzas and Cardenas.

Another reason for the unavoidable increase of public expenses and for providing the National Treasury with ample resources, is the high cost of

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