(2.) The arrear Coupons from 1st July, 1892, to 1st January, 1896, inclusive, to be funded at par into New Bonds bearing the above rates of interest.

(3.) A Sinking Fund of per cent. per annum to commence from 1st January, 1900.

(4.) As security the State to assign the Export Duties on Yerba Maté, whilst reserving the right to increase, diminish, or suppress them; in which case some other Tax to be assigned for the service of the Debt. One twelfth part of the sum required for the annual service to be placed in the hands of the Bondholders' agent at Asuncion on the first day of each month. In the event of the yield from the Yerba Duties being insufficient to provide the necessary amount, the deficiency to be made good by the Government. Any surplus to go to amortisation.

(5.) In the event of the monthly payments not being made for a period of twelve months, the Bondholders to recover all their rights under the 1885 Arrangement.

REPORT.

The Government of Paraguay has continued to discharge its obligations towards the Bondholders with entire regularity during the past year.

APPLICATION OF THE SINKING FUNDS.

The Ordinary Sinking Fund of per cent. came into operation from the 1st of January, 1900. This has been applied to purchases of the Bonds on the market, as and when the funds have been available. In comparing the amount of Bonds amortised during each year, it must be borne in mind that the purchases are effected at irregular intervals, as and when the Bills, which are mostly at 90 days sight, mature, and after the necessary cash is in hand

This,

for the payment of the Coupon next maturing. together with the increased market value of the Bonds, and the effect of the rise in the rate of interest on the accumulative Sinking Fund, accounts for the variation in the amounts redeemed in each year.

The Extraordinary Sinking Fund (arising from surpluses in the product of the duties on Yerba Maté) was applied only in 1901 and 1902.

The result up to date, as regards both the Ordinary and Extraordinary Sinking Funds, has been as follows:-

THE PRESIDENT'S MESSAGE.

President Escurra delivered his Annual Message to Congress on the 1st April last. This document, of which the most interesting features are reproduced below in a summarised form, is the only available source of information with regard to the state of affairs in Paraguay during 1903.

GENERAL REMARKS.-The condition of Paraguay was one of growing prosperity. The monetary situation, which for years had been the object of special solicitude on the part of the Government, had improved considerably. The productive forces of the country had developed in an extraordinary manner, and commerce and industry had advanced in a way which gave rise to the most sanguine hopes for the future. These signs of progress had produced a favourable reaction abroad, the desire to enter into commercial relations with Paraguay being awakened. By means of a welldirected system of propaganda the attention of foreigners was being more and more drawn to the country. The number of immigrants in 1903 had been twice as great as in 1902, and a further increase was to be expected. Moreover, although owing to the smallness of the sum set aside in the Budget for the purpose, official encouragement of immigration produced but little effect, the proposed Law relating to colonisation would, if passed, place the Government in a position to take vigorous action in this direction.

FINANCE. The financial and economic situation of the Republic had unquestionably entered upon a new period of progress. The Receipts for 1903 had amounted to $15,392,701.47, and showed an increase of 39.7 per cent. as compared with 1902. The condition of the public finances had, from every point of view, improved in a very marked degree, and the Executive Power was convinced that when the time came for giving an account of the state of affairs in 1904, it would be possible to submit further satisfactory proofs of the progress achieved by the nation. Financial matters were receiving special attention on the part of the Government, and various important measures, including one relating to taxes, and another concerning the Customs Revenue, would shortly be submitted to Congress.

REVENUE. The details of the Revenue for 1903 were as follows:Customs Receipts

Internal Taxes...

Postal and Telegraph Services
Sundries...

Total

...

$12,960,674.59

1,924,593.78

206,014.06
301,422.04

$15,392,704.47

EXPENDITURE.-Owing to the fact that, in accordance with the Law, the Accounts for 1903 were only closed on the 31st March, 1904, it was impossible as yet to state the amount of the total expenditure incurred in 1903.

EXTERNAL DEBT.-During 1903 a sum of $126,195 gold had been expended on the service of the External Debt, the amount outstanding on the 31st December being $4,592,717.84 gold. The Government had continued to carry out the service of this Debt with the utmost punctuality, thus bringing about a revival of the foreign credit of Paraguay.

INTERNAL DEBT.-The outstanding Treasury Certificates, amounting to $220,000, and the Bonds of the Internal Debt had been redeemed, whilst at the same time practically the whole of the Treasury arrears had been paid off. The Internal Debt was, therefore, now represented by the notes in circulation, which, on the 21st March, 1904, reached a total of $20,411,794.66.

IMPORTS AND EXPORTS.-The value of the Imports and Exports had amounted to $3,551,824.92 gold and $4,020,785.15 gold respectively in 1903, as compared with $2,394,877.65 and $3,017,475.03 in 1902. The increase in 1903 had, therefore, amounted to $1,156,947.27 gold in the case of Imports, and $1,003,310.12 gold in that of Exports.

BANCO AGRICOLA.-By a Law passed on the 14th July, 1903, this institution had been placed in a position to adequately fulfil its mission. Its capital had been increased from $2,871,827 in 1902 to $7,646,226, and was to be further raised to $14,209,777. This increase, together with the reduction in the rates of interest and amortisation charged by the Bank to 6 per cent. and 8 per cent. per arnum respectively, had greatly enhanced its usefulness. The outstanding loans granted by the Bank stood at $6,348,763 on the 31st December, 1903, and during that year its receipts in respect of interest and amortisation amounted to $1,576,568.

Conversion OFFICE (Caja de Conversion).—The Conversion Office had been established at a time when both gold and paper were becoming scarce, and by its action had gradually lowered the gold premium from 1,170 to 870, and had recently, in pursuance of its interests, raised it again to 900. The Office lent both gold and paper, the latter at the moderate charge of from 9 to 10 per cent. By these means it had done away with the extortionate rates of interest formerly demanded, and had prevented a recurrence of the violent fluctuations in the gold premium which at times ranged from 100 to 200 per cent. in a week. The capital of this institution amounted to $3,000,000, to which, in accordance of the Law of 14th July 1903,

U

was to be added $150,000 gold per annum. During 1903 it had received, under this head, $68,750 gold. The business transacted by the Office was very considerable. Up to the end of February, 1904, it had sold gold to the amount of $1,454,227.

PARAGUAY CENTRAL RAILWAY.-The settlement of the claims of the Railway Company remained in statu quo. The Government was not neglecting the question of arriving at an arrangement, but the nature of the many interests involved rendered careful .consideration essential.

BUDGET FOR 1904.

The Estimates of Revenue and Expenditure for 1904 were published in the Official Gazette of the 2nd December last. The details are as follows:

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