The November, 1897 Drawing and May, 1898, Coupons on the 1892 Bonds, and the July, 1898 Drawing and February, 1899, Coupons on the 1889 Bonds were not paid.

1899.-On 8th February, 1899, a Contract was entered into between the Government and Mr. M. J. Kelly, representing the Central American Public Works Company (approved by Congress in March, 1899), of which the following were the principal provisions :—

1. The Company was to hand over to the Government for cancellation the outstanding 1889 and 1892 Bonds (in round figures £725,000) within six months from the date of ratification of the Contract by Congress. The Company might, however, leave outstanding £60,000 of the Bonds if they could not make delivery of the whole of them, but on these they were to pay on their own account the same interest (6 per cent.) and amortisation (2 per cent.) as the Government was under obligation to do.

2. The Government was to pay the Company for 18 years from 1st January, 1899, a fixed annual subsidy of £24,000 in lieu of the previous guarantee, and to hand over all the Railways free of charge. The subsidy was to be secured on 15 per cent. of the Import Duties in respect of which the Government was to issue special Customs Notes. These notes were to be handed to a Bank named by the Company, who were to sell them and collect the proceeds.

The Company engaged themselves to complete the line to the capital by 30th June, 1900. If the Bonds of the External Debt were not handed over within the period stipulated, the Government was to have the right to take possession of the Railways, subject to existing hypothecations.

In April, 1899, an Agreement was entered into between the Council acting in conjunction with the Committee of 1889 Bondholders, and the Central American Public Works Company for the transfer to the Salvador Railway Company of the Railways and Concessions held by the Works Company, including the subsidy payable under the Contract of 8th February, 1899, on such terms as might be agreed between the Works Company and the Railway Company.

The Railway Company to issue :—

I. Prior Lien Debentures to the amount of £163,000, forming part of a total authorised issue of £250,000, and bearing 5 per cent. interest and 1 per cent. accumulative Sinking Fund, to be applied by purchase or drawings at par. Such issue to be for the purpose of providing the funds for the completion of the Railway, repairs, working capital and expenses.

2. Five per Cent. Mortgage Debentures to the amount of £660,000, to provide for the cancellation of the outstanding Bonds of the 1889 and 1892 Loans, the Debentures of the Public Works Company (£150,000), and other claims.

These Debentures to be redeemable by an accumulative Sinking Fund of 1 per cent. per annum, commencing from the 15th of August, 1906, to be applied by purchases or drawings, at the price in the case of drawings of £103 for each £100 of Debentures.

The holders of the 1889 Bonds to receive, in respect of each £100 Bonds, 100 in Mortgage Debentures of the Railway Company, bearing interest from 15th August, 1899. The 1889 Bonds to be deposited with the Council against the issue of Negotiable Receipts, with two Coupons of £2. 10s. each attached, payable out of the first two instalments of the subsidy in respect of the Coupons on each Bond of £100 due 15th February and 15th August, 1899.

This Arrangement was accepted by the holders of the Bonds of the 1889 and 1892 Loans, who by the necessary majorities authorised the Trustees of the Loans to release the respective Mortgages. It was also approved by the holders of the Debentures of the Public Works Company, and was duly carried into effect.

REPORT.

The Coupons on the Mortgage Debentures of the Salvador Railway Company maturing 15th August, 1903, and 15th February, 1904, were duly paid by the London Bank of Mexico and South America.

SALVADOR RAILWAY COMPANY.

The Ordinary General Meeting of the Salvador Railway Company took place on the 2nd December last. In the course of his speech the Chairman alluded to the encouraging progress which had been made since the last meeting. The gross receipts, exclusive of the Government subsidy, had amounted to £52,041 in 1902-3, against £42,195 in 1901-2, and the working expenses had been reduced from 71 to 64 per cent. of the gross earnings, the result being that a deficit of only £893 had to be carried to revenue account, as compared with £5,904 in the previous year. The issue of the balance of the Prior Lien Debentures had taken place, and the total capital stood at £1,403,600. The new issue was authorised in order to acquire the lighterage and warehousing business at Acajutla together with an interest in the pier, with the object of concentrating the transport of goods in the hands of the Railway Company. The former undertaking, from which the Vendor Company had derived a profit of about £8,000 in 1902, had been purchased for £32,690, whilst, as regards the latter, 2,026 of the 10,000 shares in the Pier Company had been bought for £11,300. Moreover, the warehousing facilities had been increased by new constructions. New cars of greater capacity had been added to the rolling stock, and it was believed that these improvements would place the Company in such a favourable position for dealing with imports and exports as would lead to a continued growth in the amount of freight. The coffee crop promised to be an excellent one, and prices had improved. The Government were using intelligent efforts to promote

the cultivation of other staples besides coffee, and the growing of cotton was likely to be taken up again. In addition to this, the mineral wealth of the country, which was considerable, was beginning to attract attention. All these elements should contribute to the development of the Republic and bring increased traffic to the Railway.

THE PRESIDENT'S MESSAGE.

A brief Message dealing with the financial and economic situation in Salvador during 1903 was delivered by President Escalon on the 20th February last, on the occasion of the opening of Congress.

After dealing with certain administrative improvements, the President stated that progress had been made with various public works which were already in hand, and that others had been commenced, but that owing to the critical state of the Treasury it had proved impossible to resume work on the railway from La Union to San Miguel, or to begin the construction of the line to Ahuachapan, which was so greatly needed in view of the important agricultural and commercial interests of the western district. The mineral resources of the country were very considerable, and the development of the mining industry, which during recent years had become important, deserved the special attention of both the Executive and Legislative branches of the Government. The value of the mineral exports viâ the port of La Union had reached a total of $2,019,196 in 1903, and this result indicated the prospective value of the industry.

With regard to finance, the President stated that though the country appeared to produce enough to

meet the ordinary cost of Public Administration, it should not be forgotten that heavy debts existed, which had been contracted in earlier years, and formed a permanent and burdensome deficit for the Treasury, apart from the new obligations which had been contracted in order to maintain the credit of the Government, of which the most important was that resulting from the so-called Burrell claim.*

REPORT OF THE FINANCE MINISTER.

The Minister of Finance presented his Annual Report to Congress on the 7th March last.

The Minister stated that the Revenue receipts in 1903 had, on the whole, been good, and would have met the cost of Administration had it not been for unforeseen expenses which had disturbed the equilibrium of the Budget and rendered difficult the execution of important works connected with the progress of the country. Due economy had, however, been practised, not only in order to alleviate the situation of the Treasury, but also to avoid the necessity for fresh taxation. With the latter object, it had been decided not to publish a Decree issued by Congress in September, 1903, creating various new Internal taxes, destined to cover the Burrell claim and the building of the National Palace. The Executive had therefore contented itself with the product of the Ordinary Revenues, and not only had the subsidy to the Salvador Railway Company been punctually paid, but the funds for the first payment in respect of the Burrell claim were being collected, various foreign debts incurred

This was a claim on the part of the "Salvador Commercial Company" and certain United States citizens, which was decided by arbitration, the amount to be paid by the Salvador Government being fixed at $353,314 gold, payable, with interest at 6 per cent. per annum, in seven annual instalments.