This realization was actually represented in each year as follows:

Service of the impost in 1865

Service of the impost in 1870, at 6 per cent. interest on S.59,600, total
of the bonds of the Oroga and Puno Railway
Service of the bonds by the Pisco and Ica Railway.

Service of 7 per cent. upon S.75,000,000 of the impost of 1872..

Difference in favor of the exchequer

S. 5, 000, 000 00

3,576, 000 00 101, 500 00 5, 250, 000 00

S.13, 927, 500 00

929, 256 91

This difference is represented at the payment of capital and interest by the advances of Dreyfus Brothers & Co., which, according to document No 4, amounted at the end of July last to S.16,871,368.50, and this, after deducting the S.7,500,000 which had been re-imbursed with the product of the loan of £15,000,000.

The résumé of these sums, and the result we arrive at, is, that the guano of Peru is totally detached for the service of the foreign debt and other creditors with which it is burdened and absorbed by those obligations.

According to the accounts of the returns of the republic in 1871,

which are numbered 5, the total expenditure in the year has been..S.112, 514, 952 30 There has to be deducted from this amount the sums which figure in the account for the works on the railways, national exhibition, commissions and exchanges, creditors on former loans, interest, and other extraordinary expenses which come out of the product of guano, besides the interest and the liquidation of bonds of the foreign debt, according to the statement of the appended account, amount to

Showing the result of the ordinary interior expenditure for the year 1871 to be....

95, 385, 111 00

17, 124,841 30

Referring again to the figures of this account, and the debt which remains up to the last of December, 1871, and which ought to be added to this sum, as the most part which ought to be paid to the different departments during the year to which this account refers, we will now examine the estimates made by the former administra tion to present to Congress, and deduct from them the ordinary expenditure to our foreign minister, public works, and extraordinary expenditures which ought to be charged against the guano account. We arrive at the following figures, which are required for the different branches of the service:

Government department
Police department.
Equity department

Religious department.
Public instruction

Hospitals.

War department..
Marine department
Foreign relations
Interior relations

But nothing is voted for public works or the ordinary service of the country; to those estimates requires to be added a yearly sum of. According to the preceding, the ordinary expenditure of the country may be computed at..

But again, according to the accounts for last year, the expenditure for the service of the country was

S.1, 002, 000 00 2,913, 000 00 1,026, 000 00 291, 000 00 1, 498, 000 00 353, 000 00 7,042, 000 00 2,568, 000 00 341, 000 00 4,341, 000 00

21, 375, 000 00

21, 375, 000 00

17, 129, 000 00

We will now look at the revenue of the country, without taking into account the guano, which is, as we all know, expended in the payment of the foreign and other debts.

According to the returns for last year, the amount collected as taxes is, as by the papers No. 6:

Custom-house

Income-tax

Tax on various establishments, public lighting, &c..
Different branches of the census, &c., collected by the fiscal.
The rent of the railways of Mollendo, Oroya and Pisco
Guano sold on the islands....

Total interior revenue.

S.6, 213, 000 00 575,000 00 935, 000 00 380,000 00 500, 000 00 74, 000 00

8,677, 000 00

Calculated at an ordinary increase, we are still within the limits of
the expenditure last year, or say
Considering the increase by the new scale of wages, all we have to
place in front of the ordinary taxes is

So that we have an annual deficit of .

S. 17, 100, 000 00

8,600, 000 00

8, 500, 000 00

Nor is this all. We have also a debt which hangs over the fiscal of Lima and the departments, and also over the receipts of the custom-house, and has been augmented by various sums which have been paid by decree of the government; others are being arranged for payment, with the rest of the public works now in progress, of which the actual cost would be lost if they are not finished. By reason of the number of those debts, and on account of the origin of some, and the nature of others, it is very difficult to give an exact enumeration of them; a special commission has been appointed with this object, and from the notes furnished by them the government has made those approximations.

According to return No. 7, there are waiting for payment bills and papers accepted by the treasury and the custom-house, and they will have to be paid at the value specified in the documents which accompany them; or, say:

For bills granted by those offices on account of the railways of Payta and Piura, Chimbote and Huaraz, Pacasmayo and Magdalena, Ilo and Moquegua, Huacho, Sayan, Salaverry and Trujillo, Lima and Chancay

For returning to H. Meigs, esq., the 10 per cent. guarantee which
was given in deposit on the railways, and which is secured in bills
against the custom-house in Callao..

For various payments made in July.
Debts due by the fiscals of departments

These together amounting to

S. 2, 799, 000 00

2,200, 000 00 1,727,000 00 632,000 00

7,358,000 00

As it is impossible to say how much will be necessary to complete the various public works (outside of railways) in the course of construction in the republic, and for which must be allowed for one year the sum of at least S. 2,000,000.

Without going into an examination of the state of the loan of 1872, as it does not belong to this department, we will notice only the results of its relations with the objects which it effects. The amount of this loan authorized by Congress for public works represents a nominal value of £15,000,000, whose approximate produce will be the following:

£15,000,000, at 75 per cent., is £11,250,000

Deduct two millions sterling of the same, say 75 per cent., which has

been taken by Dreyfus for his previous loan

S. 56, 250, C00 00

7,500,000 00

48, 750, 000 00 2, 325, 000 00

46, 425, 000 00 2, 416, 643 83

48,841, 643 83

With this sum the preference ought to be given to the public works authorized by the law of the Congress, and which have been contracted for in the following sums, as shown in the account No. 8:

Railway Juliaca to Cuzco......

Railway Chimbote to Huaraz..

Railway Ilo and Moquegua, contracted for at S.6,700,000, and bought by Meigs at 75 per cent. by decree December 30, 1871

Section of railway Pacasmayo to Guadalupe.

Section of railway Calasñique and Magdaleno, contracted for at 8.5,000,000, and bought at 75 per cent. by the same decree....

Railway Payta to Piura

Works of irrigation in Peru..

Total......

Over and above this, we have contracts to pay for other public works which are not included in the law which authorized the loan of 1872; or, say, the following:

In this is not included the two millions six hundred soles which the government is obliged to lend to the contractors of the railway between Lima and Pisco, according to contract dated 12th July, 1869, which sum is to be returned by them during the term of their privilege, which is for twenty-five years.

On account of railway works has been granted, as is shown in account No. 7, orders for payment on the treasury in Lima, and on the custom-houses of Callao, Arica, and Iquique, for the sum of S.2,799,000, and in such a manner that should one of those fail it can be recovered from the others, leaving a debt to be paid for railways and irrigation of S.80,121,000, to pay which there is only the sum of S.48,841,000, the realized produce of the last loan.

The financial position of Peru is now comprehended in the five preceding paragraphs with all necessary clearness, not so much to lament the state which the country has been reduced to, as in order to discover the remedies which must be resorted to for its salvation. It is the place of the government to take the initiative to point those out, no matter how pain or difficult its mission.

Peru, therefore, must expend in a most profitable manner the proceeds of this loan, as the works on the railways, on which depend the welfare of this people, cannot be realized, and it is impossible to discharge by the proceeds of the taxation of the country the immense weight which overhangs it, and impedes the proper attention being given to the general expenditure of the country.

To secure the proper discharge of this loan, it is requisite, first, to liquidate the home expenses and create resources to support the country's vitality, without placing any dependence upon the proceeds obtained by the sale of guano; 1st, because this resource is totally expended in maintaining our foreign credit; and, 2d, we can only rely on this as a guarantee, when it is seen that this tax is not required to confront the ordinary expenditure.

The liquidation of the ordinary home expenditure can be obtained in two ways: 1st, the paying off of our floating debt; 2d, the filling up of the deficit between our revenue and home expenditure. But it is not possible to transact any operations on credit in order to obtain this first result, without having first obtained the second; because we can only have recourse to credit when we see that we are secure in our daily expenditure, and still less can we trust to that credit which has been employed to such an extent, the repayment of which is first necessary before we obtain further supplies. Our financial position, at the present moment, is to create such resources as will cover the difference between our ordinary payments and receipts, or, say S.8,500,000 a year; then we can have foreign credit to confront the works already contracted for; home credit to pay engagements due, and secure at the same time the progress of the administration, in which is included foreign and home credit, railways, public prosperity, and management.

We cannot say if it be possible to obtain this result, but it is necessary, if the gov ernment have this intention, that they should confide in the people, without continuing to deceive them as to the true situation of the country; nor does it become them, in the dignity to which they have risen, for us to intimidate, but still to place this before them with firmness and resolution. The definite solution of this, our financial problem, is thus reduced to the three following points:

1st. The creation of S.8,500,000, in addition to the former revenue, to establish an equilibrium in the home affairs of the nation, re-establishing our home and foreign credit; then it is possible to follow the other two points.

2d. To use our home credit to cancel our floating debt.

3d. The definite emission of the loan to conclude our railways. The completion of these two problems depends entirely on the fulfillment of the first. In the creation of our ordinary home resources it is necessary, under all circumstances, to attend principally to these two essentials-public taxation; immediate and sufficient funds. These are the two beacons which must guide us to the solution of this difficult problem. The fountains from which we must obtain the results which the situation of the country demands cannot be other than "direct taxation" or "indirect taxation." The first it is very difficult for the general government to impose, and, at the same time, produces no good results; it would be better to do it regularly by recovering a contribution on sales, which is now collected under the name of "contributions on land-owners and properties, industries and patents," and is applicable only to the municipalities who will have charge of the localities, and will be responsible to the treasury.

By this means are obtained three results: 1st, a quicker return of local impost taxes; 24, less repugnance in the payment of them when it is positively known by the contributor that it will ultimately revert to his own benefit; 3d, a quicker return for produce.

Under these circumstances has been presented to the cabinet a project of decentralization in the administration, and which the government consider to be the base of public reform in the administration of Peru, and also to consign by this means the taxes of each locality to the payment of the expenses there; thus making a clear saving to the nation in the estimates of S. 1,500,000, without a diminution in the revenue, besides which, by this means of local administration, a great amount of attention will be given to the public good.

By the adoption of a decentral government and the local administration of the affairs of each district in Peru, the estimated deficit is thus reduced to S. 7,000,000, which sum ought to be still more reduced by other public taxes.

The indirect contributions which remain are two, a tax on the exportation of saltpeter, and the imposts of the custom-house.

Document No. 9 shows the gradual increase in the export of saltpeter during the last twenty-two years.

The estimated exportation of this article in the year 1873 would be S. 6,000,000. The special circumstances connected with the exportation of saltpeter show an incontestable right on the part of the country to look to this as a means to replenish the treasury, and we believe without any hurt to this industry. Without mentioning the gratitude with which we look to this rich portion of our territory to replenish our exhausted coffers, we could call the attention of the people to the monopoly which Peru exercises in the world, in the production of nitrate of farapaca, proving that in the last few years the production has been annually increased, and has nearly doubled the price during the last eight years.

While drawing attention to the great increase in the consumption and price of saltpeter, it is still worth while to apply ourselves to the greater cultivation of the land, on account of the diminution of the consumption of guano, although its present price is still relatively higher than that of saltpeter.

In referring to this duty, which can be collected on the export of saltpeter, the government is certain that eventually it will not injure the trade-leaving the exportation free to such a price as assures the producer of all the costs of its manufacture, and recovering only a duty on future profits, on a scale in proportion to these. The government indulges in the hope that by this means a new rise will take place in the European markets, and that the actual payment of this tax will fall on the consumer in place of the manufacturer.

The adoption of this project as a law awaits the decision of the supreme Congress, and by which the minister of home affairs would be enabled to supply a sum of S. 2,000,000, thus reducing the deficit to S. 5,000,000, which remains to be made up by the custom-house: nor do we think that it will be difficult to wait until this is completely paid up. The means to be adopted to augment the public taxes is the problem which must now occupy our attention; the means fixed upon must comply with the three following necessary points: The augmentation of the tax to the figure already stated, with the least prejudice to the consumer, and without any great disturbance to

commerce.

That it is necessary to raise the taxes cannot be doubted for one instant, for only by the increase of those can we hope for the financial salvation of our country; nor ought any time be allowed to elapse before it is put into execution.

This proposal has been made on the information received from the tariff of duties, and the documents which accompany it, which has given us a clear knowledge of the Theans to be employed by the government to raise the duties collected in the customhouse to S. 2,500,000, more or less, by our increase of 5 per cent. on value, as now recovered, and by an increase of 10 per cent. on many articles which are now free, and which can easily bear the additional impost. By this means, and according to all reasonable calenlations, the actual increase in the duties collected at the custom-house will be S. 4,000,000, which thus reduces the deficit to S. 1,000,000 a year. It is impossible, in such a document as this, to enlarge upon the details of the means which occur to my mind to analyze what may follow, because it is of the utmost importance to explain to all those interested. The changes which are comprehended in the five articles before stated are based upon the present tariff. The additional charge, by this means, on a yard of calico is little more than a quarter of a cent per yard; woolen goods, one cent per yard; cotton and silk mixed, three cents per yard; woolen trousers, twenty cents per pair: boots, fifteen cents per pair.

When once, by this means now proposed, we redeem our credit and have completely established our receipts and expenses, having thus consolidated our credit at home and abroad, we can again reduce the taxes to the lowest possible limit. The government has made arrangements with the bank here for a favorable consideration of this programme, and we view with pleasure the decision arrived at by the different establish

ments of trust in Lima, who will co-operate all in their power for the financial salvation of the country.

This is also necessary in order to complete the engagements contracted for by the country, treating with respect the contractors and the people, who thus enable by their patriotism their government to adopt the means to restore the equilibrium of the nation.

Legislators, in the course of this document I have restricted myself as much as possible to our situation, limiting myself to the particulars necessary in order to allow you to judge of the same, and you have, with all the exactness with which we can obtain it, a knowledge of our financial position, which shows that we are at the junetion of the two roads which lead to very different destinations; that we are in one of those positions, of salvation or destruction, in which Providence many times places men to prove the strength of their spirit. This is, gentlemen, the mission which we have now received, and of which we have to return a faithful account to our fellowcitizens, and in our history to future generations; by our decisions now we will make our republic great-greater than it ever yet was; by our genius we will remove her from the position she now holds to the elevated situation we have dreamed of for the last twenty years; but we can also, by only abandoning her in her actual path, by only one moment of indifference, weariness, or neglect, cause for a long time the evil consequences of this period, the bitter fruits of which we now recognize, if Peru and its representatives do not place in our financial salvation the vigor which is necessary to reconquer our political rights. I trust, gentlemen, that in your patriotism will be found the hand that Peru seeks to save herself; and the same time I trust and believe that you will be sustained by the enthusiasm of the nation in every step which that patriotism and your wisdom may suggest.

MANUEL PARDO.

No. 16.]

No. 325.

Mr. Thomas to Mr. Fish.

UNITED STATES LEGATION, LIMA, PERU, November 21, 1872. (Received Dec. 16.) SIR: From the time when I was fairly out to sea, on board the steamer bound to Panama, my mind began to run in a new channel touching the diplomatic relations of the United States, and I find myself now under a conviction that the fields in which, in the future, young, enterprising, philanthropic statesmen of the United States are to win for themselves renown, and for their country a still higher character than that now accorded to our great Republic among the nations, are the countries facing on the western and eastern shores of the Pacific Ocean. The conviction is forced upon my mind that the United States need first-class diplomatic representatives at China, Japan, Mexico, Colombia, Peru, and Chili, much more than they require the services of like representatives near the government of many of the principal powers of Europe. Those countries bordering on the Pacific need, to a very great extent, the products of industry of which the United States have a superabundance, and of which the surplus in the future is to be immensely augmented; that these productions may be disposed of in a manner advantageous in the highest degree to producers and consumers, commercial treaties are required beneficial to all parties concerned, and to be preceded, as far as practicable, by treaties establishing a unification of coins, weights, and measures. With a view to the opening of those channels of commerce, increased facilities for social and political intercourse are indispensable. I am aware of the measures adopted with that view, so far as China, Japan, Mexico, and Central America are concerned.

There is, however, no subsidy to any steamship company on the Pacific, south of Panama. And I do not perceive the importance of such a