[Inclosure 2 in No. 361.] Mr. Foster to Mr. Elduayen. LEGATION OF THE UNITED STATES, EXCELLENCY: I have the honor to acknowledge your excellency's note of yester day, in which you state that His Majesty the King has deigned to direct that I be informed that the arbitral decision rendered by the minister of Italy in the case of the Masonic is regarded as binding and without appeal, and that the necessary measures be taken for the payment in the manner agreed upon. I will have great pleasure in communicating this satisfactory information to my Government, and I have no doubt that I will be authorized by it to make, on its behalf, a similar declaration to your excellency. With sentiments, &c., No. 549. JOHN W. FOSTER. No. 364.] Mr. Foster to Mr. Bayard. LEGATION OF THE UNITED STATES, Madrid, July 23, 1885. (Received August 10.) SIR: After a lengthy discussion in both Chambers, the budget of Cuba for the fiscal year 1885-'86 was voted by the Cortes on the day before their final adjournment, and was published in the Gaceta de Madrid on the 17th instant. The budget, as is usual, is preceded by a law conferring upon the ministry authority to adopt various important measures in connection with the finances of the islaud. It is authorized to revise the customs tariff in accordance with the law 1880-'81, which contemplates its consolidation and simplification. The existing tariff was hastily framed in 1870, avowedly as a tempor ary measure, is possessed of very little classification or system, and contains over six hundred paragraphs of different dutiable classes. Under the law of 1880-'81 the tariff of Porto Rico was revised in1882, was reduced to two hundred and forty paragraphs, and greatly simplified and improved. A similar work has been projected for a long time past as to that of Cuba, but whether it will be realized the current year is doubtful. Under the law of July 20, 1882, a gradual reduction of the duties of the first and second columns of the tariffs is to take place, so that in ten years all duties on Spanish or Peninsula products will be abolished, and a similar reduction is to be made in the difference between the third and fourth columns, so that in 1892 only the third column (on foreign products) will be in force. This reduction on the 1st of July amounted to 25 per cent. in the published tariff rates. In the table which I embrace in this dispatch it will be noted that there is a deficit already anticipated in the estimate of receipts, which is provided for by a loan from the Bank of Spain of $4,134,499, and authority is conferred for negotiating further loans if during the fiscal year the deficit should be still greater, or if war or extraordinary disturbance of public order should occur. For several years past there has been a constantly growing deficit in the budget, that for the year just closed being stated during the discussion in the Cortes to be $10,000,000, but this was stoutly denied by the minister of the colonies (ultramar). At the end of each year this deficit is converted into a floating debt. To take up the debt of this character which has accumulated for the past three fiscal years, the minister of ultramar was authorized to negotiate a loan of $20,000,000, bearing 6 per cent. interest, redeemable in fifteen years, guaranteed by a pledge of the stamp-tax, which it will be noted is estimated for the current year at $2,119,000. The present interest and sinking fund charge on account of the Cuban public debt is estimated at $12,386,000. When the new loans contemplated during the year are effected this charge will be increased to $15,000,000; and the recognized debt, now about $190,000,000, will be increased, to say, $220,000,000. The interest charge will then be, per capita $10, and the debt charge per capita $146.66. It was repeatedly stated during the discussion of the budget in the Cortes that in a very short time the interest charge alone would consume the entire receipts of the insular treasury, and the only practicable remedy proposed to escape complete bankruptcy was the assumption of the Cuban debt by the peninsula or national treasury. But the minister of ultramar replied to this proposition, that in the present condition of the peninsula finances no minister would recommend it, that if recommended no ministry would approve it, and that no Cortes would vote it. The next charge in importance in the budget is $9,900,000 for the support of the army (22,000 men) and the navy; this item, added to the interest charge, constituting considerably more than two-thirds of the budget, and more than the total amount of the probable receipts for the year. Efforts have been made to reduce the expenses of Government by the abolition of various offices, the reduction and discounting of salaries, &c., the total reduction, as compared with the preceding year, being $1,300,000. The following are the estimates for the fiscal year ending June 30, 1886: I inclose a copy of the law and budget in detail, from which I have compiled the following abstract: No. 366.] Mr. Foster to Mr. Bayard. LEGATION OF THE UNITED STATES, Madrid, July 25, 1885. (Received August 10.) SIR: An important law was passed by the Cortes on the 6th instant, in regard to a general net-work or system of railroad construction in Cuba. By the "authorizations" voted last year by the Cortes (see my No. 233, of July 28, 1884), the ministry was empowered to modify the existing conditions for the construction of what is known as the Central Railroad of Cuba, but it was found that nothing could be accomplished by virtue of that authorization, and it was determined to pass a new law offering such advantages and conferring upon the minister of ultramar (the colonies) such powers as would secure the realization of this enterprise, which was felt to be one of the greatest needs of the island. The lines to be constructed under this law cover the central and eastern districts or the provinces of Santa Clara, Puerto Principe, and Santiago de Cuba, and are to have an extent of 891 kilometers, consisting of eight lines or branches. The construction is to be commenced within four months from the date of the contract, and the entire work to be completed within six years. The Government guarantees the company 8 per cent. net profit upon the total capital invested, and the concession or charter is to continue for 99 years. The 8-per cent. guarantee will begin to run on each section which is completed, accepted by the Government, and put in operation, and is to be paid quarterly in gold. If the profits exceed 8 per cent. the surplus is to be divided equally between the company and the Government. The concession may be forfeited if one-fourth of the work is not completed in two years, or the half in three and a half years. The forfeiture having been decreed, the Government may grant a new concession under conditions specitied as to the work done by the first company. Within twenty days after the law is officially promulgated the minister of ultramar shall publish a call for proposals for the concession, to be presented within thirty days. This call shall set forth in full the terms or conditions upon which the concession is to be granted, and shall designate the maximum of the cost of construction upon which the 8 per cent. profit is guaranteed. The proposals shall state (1) the reduction offered on the maximum cost upon which 8 per cent. is guaranteed; (2) other advantages offered to the Government over the published conditions; (3) the security or financial credit of those who sign the proposals. Before any proposal is received a provisional deposit of 1,000,000 pesetas ($200,000) must be made, and to secure the concession a definite deposit of 5,000,000 pesetas ($1,000,000) in cash or public bonds at the lowest quotations. For further details as to the provisions of this law reference is made to the text, which is inclosed herewith. The language of the law is that "the Government" (el Gobierno) will guarantee the 8 per cent. profits of the company. This expression gave rise to a debate in the Senate on the meaning of the words "the Government," and to remove any doubt it was proposed to substitute these words by either "the Spanish nation" or "the treasury of Cuba," but the minister of ultramar objected to any amendment as unnecessary, stating that wherever in legislation connected with Cuba the words "the government" were used they had no other application or meaning than the government or treasury of Cuba, and that, in order to remove all doubt on the subject, when the public proposals were asked as contemplated by the law, the terms or conditions under which they were to be made would state explicitly that it was the treasury of Cuba which guarantees the 8 per cent. profits. The minister also made a similar statement in the Chamber of Deputies after the law had been voted. These declarations have given great dissatisfaction to some of the most active advocates of this enterprise, and grave doubts are expressed whether it will be possible to secure the proposals of responsible capitalists when the concession is offered to public competition. On the other hand, it is claimed that in some way the guarantee of the national or Peninsula treasury will be obtained, and it is upon this understanding that a number of French, German, and English syndicates are reported to be preparing to make proposals. The minister of ultramar informed me two days ago that the law had been signed by the King, but that it would possibly not be published for two months, as it was desired to postpone the time for receiving the proposals until a more favorable state of the money market. SIR: With reference to an instruction addressed to you by my predecessor on the 27th of February last, relative to the fine imposed at Matanzas, Cuba, upon the American vessel Ocean Pearl for alleged error in her manifest, and your reply of the 10th ultimo, copy of which was sent to the consul at Matanzas, I have now to inclose a copy of that officer's reply, dated the 8th instant, setting forth a view of the proceedings in this case, which may be well deserving of thoughtful consideration. It appears that the Matanzas office, which imposed the fine, was the one which, at the same time, recommended to the superior |