The present position and history of the external debt of the Dominican Republic

 No. E-137 ------- 67060 r \ o· '''I \ ... ~ is report is not to be published nor may it L_~ ___,__---+-m15' quoted as representing the Bank's views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT THE PRESENT POSITION AND HISTORY OF THE EXTERNAL DEBT OF THE DOMINICAN REPUBLIC February 1, 1951 Economic Department Prepared by: William D. S. Fraser  THE PF~SENT POSITION AiID HISTORY OF THE EXTER}I~ DEBT OF THE DOi1!iUCAn R'DPUBLIC Table of Contents ~ 1. Present POSl Hon 1 II. Historical Review of External Loans 1 (a) Publicly Offered Sterling Loans 1 (b) Publicly Offered Dollar Loans 1 (c) Export.,..lmport Bank Credits .5 III. Service Payments .5  THE PRESEiifT POSITION AJ.\JD HI STORY OF THE EXTER1!AL DEBT OF THE DOMIiUC.l£i REPUSLIC t. Present Position The only external debt of the Dominican Republic at the end of November 1950 was $97,976, the amount outstanding on an Export-Import Bank credit of $3,000,000 authorized in 1940, all of which has been disbursed. It is expected that this small debt \-lill be redeemed by the end of 1951. At present no publicly offered dollar bonds or other external obli- gations of the Republic are outstanding in the United States or elsewhere. lTar, as far as can be ascertained, are there any ?rivate external obligations out- standing which might have a bearing on the balance of payments. II. Historical Review of ,External Loans (a) Publicly Offered Sterling Loans - Prior to 1907 when the first United States-Dominican Republic Convention "las signed, the Dominican Republic floated seven loans, the first in 1869 and the last in 1897. These were all sterling loans and ;'lere issued at prices ranging from 50;1 to 8J~%. All these loans vTent into default within four years of the date of issue. The only other sterling obligation recorded vIas the Samana and Santiago Baihlay Co. Ltd. 3% debentures for ];,75,000, which vJas issued in the 1880 1 s. This loan. however, was not an obligation of the Dominican Government and \'las retired by 1930. (b) Publicl;x- Offered Dollar ~oans - At the turn of the century political conditions in the Dominican Republic were SO disturbed that by 1907 debts and claims against the government amounted to $30,000,000. During the same year these debts and claims were adjusted by the Republic so that the total sum ... / ...  - 2 - payable amounted to not more than <jl17.000,OOO. The plan of settlement included the issue and sale 0'; bonds amounting to $20.000,000, part of uhieh '-TaS to be applied to the settlement of claims and the remainder for public works and the purchase of concessions. The plan ,'JS,S conditioned upon the assistance of the United States in the collection of customs revenue. The consent of the United states ",as obtained and the first American-Dominican Convention "Tas signed in 1907. Under the Convention the first public offer of bonds, amounting to $20.000,000, was issued in 1908. This loan VIas regularly serviced ancl ,-TaS finally repaid in 1927. In 1912 the United States agreed to an increase of the Dominican public debt and a second loan of $1,500,000, secured by customs receipts, was floated and paid off by 1917. For the next four years new indebtedness "Jas incurred by the Republic itJithout the consent of the United States because of revolt and financial mismanagement. By 1916 disorder became SO serious that the United States \'laS forced to take action and a military governrnent \'las established. The control of finances was assumed by tile General Receiver of Dominican Customs who was a:j::r90inted by the President of the United States. To effect settlement of claims which by then aggregated over $15,000,000. the military governor created liThe Dominican Claims Commission of 1917" and prOVided for the payment of all a\19.rds by the commission in bonds amounting to $4,161,300. In 1922 the military government floated an issue of $6.700.000 and in 1924 a further issue of $2.500,000 vias made, both of ",hich 'iJere secured by customs revenues. Later in 1924 a nev1 Convention bet"reen the United States and the Dominican Republic ''las approved abrogating the old Convention of 1907, and in the same year the military governr:Jent was wi thdraltlU. The llE.l1rf Convention :?rovided • '" . / ,. " fI  - 3 - for the issue of a loan to refund and consolidate the then outstanding loans and for the extension of the customs receivership until amortization of the new loan. The Dominican Republic in 1926 authorized tVTO $10.000.000 loans, The first, due in 1942. was issued to retire external indebtedness, and the second, due in 1940, vras to be used for public ",orks. These t\'TO loans \-1ere the last public offer of dollar bonds made by the Dominican Republic. and were the only loans outstanding at the time of the depression. There follows a su~~ary of the above loans in chronological order. Due Issue Par Date Price Ve,lue Customs Administration 5's of 1908 1958 n,a. S20,COO,ooO 11 11 5' s of 1912 1917 n.a. 1,500,000 11 11 5's of 1918 1938 n.a. 4,161,000 11 11 5t of 1922 1942 94! 6,700.000 2-year 5!% collateral trust gold notes of 1924 1926 n.a. 2,500,000 Customs Administration 5t of 1922-26 191 +2 98 10,000,000 II 11 sinking fund 5~'S of 1926 1940 5,000.000) @ 100 ) 10,000,000 5,000,000) G 99i ) From 1908 until the depression in 19J1 there was no failure in interest payments or sinking fund payments on the above loans. The collection of customs duties on imports into the Dominican Republic, "Thich by the terms of the Con- vention constituted a guaranty to the bondhOlders, had the effect of making these securities among the most attractive on the NeVI York bond market. In the case of the two $10,000,000 loans, the prices ranged during this period from 84 to 101~ for the 1922-26 loan and 87 to 101 for the 1926 loan. In 1931, finding its income Greatly reduced, the Dominican Republic passed an Emergency Law suspending sinking fund payments and reducing the amount of customs revenue which until then had been collected by the General Receiver ... / ...  -4- of the Customs. Although this action was a violation of the 1924 Convention, the United States made no protest in view of the recognized difficult economic ai tuation in the Republic. The amount outstanding on the t\10 loans at this time was about $16,000,000. Small amortization payments were made amounting to $50,000 in 1932 and $100,000 in 1933, instead of the approximately a million and a third dollars due each year. At the request of the Governments of the United States and the Dominican Republic. the Foreign :Bondholders Protective Conncn, Inc. negotiated a plan for a readjusted loan service 1Ilhereby sln.1dng fund payments 'lItere to be resumed immediately on a revised schedule to retire the 1922 issue by 1962 instead of 1942, and the 1926 issue by about 1970 instead of 1940. At the same time, the Convention of 1924 was restored to full force and effect. and the General Receiver of Dominican Customs 1IlaS reinstated. In 1934 the Council announced that the pro~}osal was "fair to the Republic and the Dominican people and consistent with the broad equities and longviei" interests of the bond- holders, being indeed in some respects distinctly advantageous to them over their present situation. 1I In this settlement of its foreign obligations. and by demonstrating a remarkable determination to fulfill its contracts during such a trying ~eriod, the administration of l?resident Trujillo led the way for Latin America. In 1940 a new Convention ,,,as signed behteen the Republic and the Un! ted States by ",hich the Republic resumed the collection of its o\m customs revenues, and the General Receivership of the Dominican Customs \~s terminated, The service of the t1:TO dollar loans 1:laS henceforth secured by an irrevocable lien on all Dominican revenues instead of only customs revenues. . .. / ., .  - .5 - In 1942 the l~ew York Stock Exchange ruled tf\.a.t bonds extended to 1961 and 1969 respectively must be stamped to sho'.·, extension of maturity, and have attached a certificate of modification. In 1947 the Republic announced that the h'o loans (stamped and unstamped) would be redeemed at 101% of their prin.c! pal amount on September 1, 1947. and October 1, 1947, respectively. To cover the $10,909.000 outstanding at this time, $1.2 million was provided out of income and the balance by the sale of bonds to its Reserve Bank. After this operation was completed no publicly offered dollar bonds of the Domi~ican Republic remained outstanding in the United States, and the last vestige of foreign control over the Dominican economy was removed. (c) Exuort-Imuort Bank Credl ts - The 3xport-Import Ban.":: has granted t~:!O credits to the Dominican Republic. On the first, authorized in 1940 for $3,000,000 for construction materials, eqUipment an~ services, $97,976 ~~s out- standing as of November )0. 19.50. 'rhe second credit of ,-;>JOO, 000 tvas authorized in 1941 to provide clothing and supplies ior the police department. This loan was retired in 194). III. Service Pa~ents From 1908 till 1931 service had been regularly maintained on all loans because they were secured by customs revenues collected by the General Receiver of the Customs. However. in 1931 the Dominican Government unilaterally diverted certain revenues pledged under the United States-Dominican Convention of 1924, and complained against the heavy amortization charges ror which it was solely responsible. In fact the amortization provisions of the 1922 and 1926 loans. on which the Dominican Republic insisted, were contracted against the advice of the Department of State and the ban.b;:ers unden"ri ting the loans. Ho,",- ever. interest charGes were paid in full, and a sum of ~.50.aoo ~~s paid for ... / ...  - 6 - amortization in 1932 and $100,000 in 1933. instead of an approximate amount of one and a third million dolle.rs ,\,lhich "JaS paid for each of the years 1930 and 1931. From 1934. \llhen the debt readjustment plan came into effect. untU the redemption of the bonds in 1947. service on the two loans was fully maintained. The following table gives figures on the outstanding debt. debt sel~ice and customs revenues of the ~ominican Republic for the period 1935-46. (in thousands of U.S. dollars) Debt :Debt out- Service Customs sta.nding rnt. Amort. Revenues 1935 16,292 896 61 2,839 1936 16,292 896 61 3,109 1937 15.740 896 61 3,164 1938 15,605 896 61 2,891 1939 15,2.50 896 203 3.006 1940 14.900 896 203 2.488 1941 14,430 896 203 2.593 1942 13,921 896 213 2,432 1943 13,287 896 299 2.702 1944 12,652 896 359 2,990 1945 12.202 896 483 3,481 1946 11,402 896 431 4,9/J.8 1947 - 0 - In September a.nd October, 1947 the Dominican Republic redeemed, at 101, all of its out- standing dollar bonded debt. Service charges on the Export-Import Ban.~ credits have been met regularly and in 1950 amounted to approximately ~270,OOO for amortization and 09.000 for interest and commission.