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 page i

International Financial
Management
Ninth Edition
 page ii

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 page iii

International Financial
Management
Ninth
Editio
n

Cheol S. Eun
Georgia Institute of
Technology
 Bruce G.
Resnick
Wake Forest University

Tuugi Chuluun
Loyola University Maryland
 page iv

INTERNATIONAL FINANCIAL MANAGEMENT

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 page v

To Elizabeth
C.S.E.

To Donna
B.G.R.

To Arig and Amur

T.C.

page vi
 page vii

About the Authors

Cheol S. Eun,
Georgia Institute of Technology

Cheol S. Eun (Ph.D., NYU) is the Thomas R. Williams Chair and

Professor of Finance at the Scheller ­College of Business, ­Georgia
Institute of Technology. Before joining ­Georgia Tech, he taught at
the University of Minnesota and the University of Maryland. He also
taught at the ­Wharton School of the University of Pennsylvania,
Korea Advanced Institute of Science and Technology (KAIST),
Singapore Management University, and the Esslingen University of
Technology (Germany) as a visiting professor. He has published
extensively on international finance issues in such major journals as
the Journal of Finance, Journal of Financial Economics, JFQA, Journal
of Banking and Finance, Journal of International Money and Finance,
Management Science, and Oxford Economic Papers. Also, he has
served on the editorial boards of the Journal of Banking and Finance,
Journal of Financial Research, Journal of International Business
Studies, and European Financial Management. His research is widely
quoted and referenced in various scholarly articles and textbooks in
the United States as well as abroad.
Dr. Eun is the founding chair of the Fortis/Georgia Tech
Conference on International Finance. The key objectives of the
conference are to promote research on international finance and
provide a forum for interactions among academics, practitioners, and
regulators who are interested in vital current issues of international
finance.
Dr. Eun has taught a variety of courses at the undergraduate,
graduate, and executive levels, and was the winner of the Krowe
Teaching Excellence Award at the University of Maryland. He also
has served as a consultant to many national and international
organizations, including the World Bank, Apex Capital, and the
Korean Development Institute, advising on issues relating to capital
market liberalization, global capital raising, international investment,
and exchange risk management. In addition, he has been a frequent
speaker at academic and professional meetings held throughout the
world.

Bruce G. Resnick,
Wake Forest University

Bruce G. Resnick is Professor Emeritus of Finance at the Wake Forest

University School of Business in Winston-Salem, North Carolina. Prior
to retiring, he was the Joseph M. Bryan Jr. Professor of Banking and
Finance. He has a D.B.A. in finance from Indiana University.
Additionally, he has an M.B.A. from the University of Colorado and a
B.B.A. from the University of Wisconsin-Oshkosh. Prior to coming to
Wake Forest, he taught at Indiana University for ten years, page viii
the University of Minnesota for five years, and California
State University, Chico for two years. He has also taught as a visiting
professor at Bond University, Gold Coast, Queensland, Australia, and
at the Helsinki School of Economics and Business Administration in
Finland. Additionally, he served as the Indiana University resident
director at the Center for European Studies at Maastricht University,
the Netherlands. He also served as an external examiner to the
Business Administration Department of Singapore Polytechnic and as
the faculty advisor on Wake Forest University study trips to Japan,
China, and Hong Kong.
Dr. Resnick taught M.B.A. courses at Wake Forest University. He
specialized in the areas of investments, portfolio management, and
international financial management. Dr. Resnick’s research interests
include market efficiency studies of options and financial futures
markets and empirical tests of asset pricing models. A major interest
has been the optimal design of internationally diversified portfolios
constructed to control for parameter uncertainty and exchange rate
risk. In recent years, he has focused on information transmission in
the world money markets and yield spread comparisons of domestic
and international bonds. His research articles have been published in
most of the major academic journals in finance. His research is
widely cited by other researchers and textbook authors. He served
as an associate editor for the Journal of Financial Research,
Emerging Markets Review, Journal of Economics and Business, and
the Journal of Multinational Financial Management.

Tuugi Chuluun,
Loyola University Maryland

Tuugi Chuluun is an Associate Professor of Finance at Sellinger

School of Business and Management at Loyola University Maryland.
Her research areas include international finance, corporate finance,
and behavioral finance. She has published in journals such as
Journal of Banking and Finance, Financial Management, Journal of
Corporate Finance, Journal of Economic Behavior and Organization,
and Small Business Economics. Her research has also been featured
in magazines such as The Economist and Forbes Mongolia and on
popular websites such as HBR.org and Inc.com. She holds a Ph.D. in
Finance from Georgia Institute of Technology, a master’s in Financial
Economics and a bachelor’s degree in Economics from Ohio
University. Dr. Chuluun has taught a variety of undergraduate and
graduate courses, including international finance, corporate finance,
investments, microeconomics, and macroeconomics at Loyola
University Maryland, Georgia Institute of Technology, and West
Virginia University–Parkersburg, often incorporating innovative
teaching practices. At Loyola University Maryland, she was selected
as the ELMBA Program Distinguished Professor of the Year and
received the Sellinger School STAR Award in Research. She has also
received the Financial Management Association’s Superior Faculty
Advisor award.
Dr. Chuluun holds the Chartered Financial Analyst (CFA)
designation. She is the former president of the CFA Society
Baltimore, Maryland’s largest membership organization for
investment professionals, and has served on the board of the society
since 2013. She was also the co-chair of the “Alpha and Gender
Diversity Baltimore Conference 2018” that was designed to offer
collaborative discussion on how gender diversity creates a
competitive advantage for investment professionals and the broader
finance industry. Dr. Chuluun was a Visiting Scholar at the Brookings
Institution and has international consulting experience.
 page ix

Preface

Our Reason for Writing this Textbook

We (Cheol and Bruce) have been teaching international financial
management to undergraduates and M.B.A. students at Georgia
Institute of Technology, Wake Forest University, and at other
universities we have visited for more than three decades. During this
time period, we conducted many research studies, published in
major finance and statistics journals, concerning the operation of
international financial markets. As one might imagine, in doing this
we put together an extensive set of teaching materials that we used
successfully in the classroom. As the years went by, we individually
relied more on our own teaching materials and notes and less on
any one of the major existing textbooks in international finance
(most of which we tried at some point). In this Ninth Edition, we
introduce Tuugi Chuluun from Loyola University Maryland, who joins
us as a co-author and will continue the tradition we have established
in offering up-to-date and timely coverage of the subject of
international financial management.
As you may be aware, the scope and content of international
finance have been fast evolving due to cycles of deregulations and
regulations of financial markets, product innovations, and
technological advancements. As capital markets of the world are
becoming more integrated, a solid understanding of international
finance has become essential for astute corporate decision making.
Reflecting the growing importance of international finance as a
discipline, we have seen a sharp increase in the demand for experts
in the area in both the corporate and academic worlds.
In writing International Financial Management, Ninth Edition, our
goal was to provide well-organized, comprehensive, and up-to-date
coverage of the topics that take advantage of our many years of
teaching and research in this area. We hope the text is challenging
to students. This does not mean that it lacks readability. The text
discussion is written so that a self-contained treatment of each
subject is presented in a user-friendly fashion. The text is intended
for use at both the advanced undergraduate and M.B.A. levels.

The Underlying Philosophy

International Financial Management, Ninth Edition, like the first eight
editions, is written based on two tenets: emphasis on the basics and
emphasis on a managerial perspective.

Emphasis on the Basics

We believe that any subject is better learned if one first is well
grounded in the basics. Consequently, we initially devote several
chapters to the fundamental concepts of international finance. After
these are learned, the remaining material flows easily from them.
We always bring the reader back, as the more advanced topics are
developed, to their relationship to the fundamentals. By doing this,
we believe students will be left with a framework for analysis that
will serve them well when they need to apply this material in their
careers in the years ahead.
We believe this approach has produced a successfuI textbook:
International Financial Management is used in many of the best
business schools in the world. Various editions of the page x
text have been translated into Chinese (in both
traditional and simplified forms), Spanish, and Indonesian. In
addition, local co-authors have assisted in preparing Malaysian, and
Indian adaptations.

Ninth Edition Organization

International Financial Management, Ninth Edition, has been
completely updated. All data tables and statistics are the most
current available when the text went to press. Additionally, the
chapters incorporate several new International Finance in Practice
boxes that contain real-world illustrations of chapter topics and
concepts. In the margins below, we highlight specific changes in the
Ninth Edition.
 page xi

A Managerial Perspective
The text presentation never loses sight of the fact that it is teaching
students how to make managerial decisions. International Financial
Management, Ninth Edition, is founded in the belief that the
fundamental job of the financial manager is to maximize shareholder
wealth. This belief permeates the decision-making process we
present from cover to cover. To reinforce the managerial perspective,
we provide numerous real-world examples whenever appropriate.
 page xii

Key Features
Examples—These are integrated throughout the text, providing
students with immediate application of the text concepts.

International Finance in Practice Boxes—Selected chapters

contain International Finance in Practice boxes. These real-
world illustrations offer students a practical look at the major
concepts presented in the chapter.
In More Depth—Some topics are by nature more complex than
others. The chapter sections that contain such material are
indicated by the section heading “In More Depth”’ and are in
colored text. These sections may be skipped without loss of
continuity, enabling the instructor to easily tailor the reading
assignments to the students. End-of-chapter Questions and
Problems relating to the In More Depth sections of the text are
also indicated by blue type.
 page xiii

Questions and Problems—Each chapter contains a set of

Questions and problems. This material can be used by
students on their own to test their understanding of the
material, or as homework exercises assigned by the instructor.
Questions and Problems relating to the in more depth sections
of the text are indicated by blue type.
Questions with Excel Software—An icon in the margin indicates
that the end-of-chapter question is linked to an Excel program
created by the authors. See the Ancillary Materials section for
more information on the software.

CFA Questions—Many chapters include problems from CFA

Program Curriculum study materials. These CFA problems,
indicated with the CFA logo, show students the relevancy of
what is expected of certified professional analysts.
Case Applications—Case Applications are incorporated within
selected chapters throughout the text in order to enhance
specific topics and help students apply theories and concepts
to real-world situations.

Mini Cases—Almost every chapter includes a mini case for

student analysis of multiple concepts covered throughout the
chapter. These Mini Case problems are real world in nature to
show students how the theory and concepts in the textbook
relate to the everyday world.
 page xiv

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 page xvi

Ancillary Materials
To assist in course preparation, the following instructor ancillaries
are within the Instructor Library in Connect:

Solutions Manual—Includes detailed suggested answers and

solutions to the end-of-chapter questions and problems, written
by the authors.
Test Bank—True/false and multiple-choice test questions for
each chapter prepared by Leslie Rush, University of Hawaii–West
Oahu. Available as Word documents and assignable within
Connect.
PowerPoint Presentations—PowerPoint slides for each chapter
to use in classroom lecture settings, created by Courtney Baggett,
Troy University.
The resources also include the International Finance Software that
can be used with this book. This Excel software has four main
programs:

A currency options pricing program allows students to price put

and call options on foreign exchange.
A hedging program allows students to compare forward, money
market instruments, futures, and options for hedging exchange
risk.
A currency swap program allows students to calculate the cash
flows and notional values associated with swapping fixed-rate
debt from one currency into another.
A portfolio optimization program based on the Markowitz model
allows for examining the benefits of international portfolio
diversification.
The four programs can be used to solve certain end-of-chapter
problems (marked with an Excel icon) or assignments the instructor
devises. A User’s Manual and sample projects are included in the
Instructor Resources.

Acknowledgments
We are indebted to the many colleagues who provided insight and
guidance throughout the development process. Their careful work
enabled us to create a text that is current, accurate, and modern in
its approach. Among all who helped in this endeavor for the Ninth
Edition:

Richard Ajayi
University of Central Florida

Lawrence A. Beer
Arizona State University

Nishant Dass
Georgia Institute of Technology

John Hund
Rice Univèrsity

Irina Khindanova
University of Denver

Gew-rae Kim
University of Bridgeport

Jaemin Kim
San Diego State University

Yong-Cheol Kim
University of Wisconsin, Milwaukee
Yen-Sheng Lee
Bellevue University

Charmen Loh
Rider University

Atsuyuki Naka
University of New Orleans

Richard L. Patterson
Indiana University, Bloomington

Adrian Shopp
Metropolitan State University of Denver

John Wald
University of Texas at San Antonio

H. Douglas Witte
Missouri State University

page xvii

Many people assisted in the production of this textbook. At the

risk of ­overlooking some individuals, we would like to acknowledge
Brian Conzachi for the ­outstanding job he did proofreading the entire
manuscript. Additionally, we thank Yusri Zaro for his hard work ­‐
checking the accuracy of the solutions manual. Marta Gaia Bras,
Ernest Jang, Rohan-Rao Ganduri, Kristen Seaver, Milind Shrikhande,
Jin-Gil Jeong, Sanjiv Sabherwal, Sandy Lai, Jinsoo Lee, Hyung Suk
Choi, Teng Zhang, Minho Wang, and Victor Huang provided useful
inputs into the text. ­Professor Martin Glaum of the Giessen University
(Germany) also provided valuable comments.
We also wish to thank the many professionals at McGraw-Hill
Education for their time and patience with us. Charles Synovec,
executive brand manager; Allison McCabe-Carroll, senior product
developer; and Jill Eccher, content project manager have done a
marvelous job guiding us through this edition.
Last, but not least, we would like to thank our families, Christine,
James, and Elizabeth Eun; Donna Resnick; and Puje Olkhanud, Maya
Chuluun, and Dolgormaa Tsegmed, for their tireless love and
support, without which this book would not have become a reality.
We hope that you enjoy using International Financial
Management, Ninth ­Edition. In addition, we welcome your
comments for improvement. Please let us know either through
McGraw-Hill Education, c/o Editorial, or at our e-mail addresses
provided below.

Cheol S. Eun
cheol.eun@scheller.gatech.edu

Bruce G. Resnick
resnicbg@wfu.edu

Tuugi Chuluun
tchuluun@loyola.edu
 page xviii

Contents in Brief

PART ONE Foundations of International Financial

Management
1 Globalization and the Multinational Firm, 3
2 International Monetary System, 29
3 Balance of Payments, 65
4 Corporate Governance Around the World, 87

PART TWO The Foreign Exchange Market,

Exchange Rate Determination, and Currency
Derivatives
5 The Market for Foreign Exchange, 119
6 International Parity Relationships and
Forecasting Foreign Exchange Rates, 151
7 Futures and Options on Foreign Exchange,
185

PART THREE Foreign Exchange Exposure and

Management
8 Management of Transaction Exposure, 211
9 Management of Economic Exposure, 241
 10 Management of Translation Exposure, 261

PART FOUR World Financial Markets and

Institutions
11 International Banking and Money Market,
281
12 International Bond Market, 321
13 International Equity Markets, 339
14 Interest Rate and Currency Swaps, 365
15 International Portfolio Investment, 385

PART FIVE Financial Management of the

Multinational Firm
16 Foreign Direct Investment and Cross-Border
Acquisitions, 421
17 International Capital Structure and the Cost
of Capital, 449
18 International Capital Budgeting, 477
19 Multinational Cash Management, 497
20 International Trade Finance, 509
21 International Tax Environment and Transfer
Pricing, 521

Glossary, 543
Index, 550
 page xix

Contents

PART ONE Foundations of International

Financial Management
What’s Special about Trade
CHAPTER 1 International Finance?, 4 Liberalization and
Globalization and Foreign Exchange and Economic
Political Risks, 4 Integration, 12
the Multinational Market Imperfections, Privatization, 15
Firm, 3 5 Global Financial
Expanded Opportunity Crisis of 2008–
Set, 6 2009, 16
Goals for International Brexit, 18
Financial Management, 7 Multinational
Globalization of the World Corporations, 19
Economy: Major Trends and Summary, 22
Developments, 9
Emergence of Globalized MINI CASE: Nike and
Financial Markets, 9 Sweatshop Labor, 24

Emergence of the Euro APPENDIX 1A: Gain

as a Global Currency, from Trade: The
10 Theory of Comparative
Europe’s Sovereign Debt Advantage, 26
Crisis of 2010, 11
Evolution of the International
CHAPTER 2 Monetary System, 29
INTERNATIONAL
FINANCE IN
International Bimetallism: Before 1875, PRACTICE: Mundell
30
Monetary Classical Gold Standard:
Wins Nobel Prize in
Economics, 50
System, 29 1875–1914, 30
 Interwar Period: 1915– The Mexican Peso
1944, 32 Crisis, 52
Bretton Woods System: The Asian Currency
1945–1972, 33 Crisis, 53
The Flexible Exchange Rate Origins of the
Regime: 1973–Present, 36 Asian Currency
The Current Exchange Rate Crisis, 54
Arrangements, 38 Lessons from the
European Monetary Asian Currency
System, 43 Crisis, 56
The Euro and the European The Argentine Peso
Monetary Union, 45 Crisis, 57
A Brief History of The Rise of the
the Euro, 45 Chinese Renminbi, 58
What Are the Benefits of Fixed versus Flexible
Monetary Union?, 47 Exchange Rate
Regimes, 59
Costs of Monetary
Union, 48 Summary, 61
Prospects of the Euro: MINI CASE: Grexit or
Some Critical Not? 63
Questions, 49
Balance of Payments Balance of Payments
CHAPTER 3 Accounting, 65 Trends in Major
Balance of Balance of Payments Countries, 76
Accounts, 67
Payments, 65 The Current Account,
INTERNATIONAL
FINANCE IN
68 PRACTICE: The
The Capital Account, Dollar and the
69 Deficit, 78
The Financial Account, Summary, 82
70
Statistical Discrepancy, MINI CASE: Mexico’s
72 Balance of Payments
Problem, 84
Official Reserve
Account, 72 APPENDIX 3A: The
The Balance of Payments Relationship between
Identity, 76 Balance of Payments
and National Income
Accounting, 86

page xx
 Governance of the Public Law and Corporate
CHAPTER 4 Corporation: Key Issues, 88 Governance, 97
Corporate The Agency Problem, 89 Consequences of
Law, 100
Governance Around Remedies for the Agency
Problem, 91 Ownership and
the World, 87 Board of Directors, 92 Control Pattern,
101
Incentive Contracts, 92
Private Benefits of
INTERNATIONAL Control, 103
FINANCE IN PRACTICE: Capital Markets
When Boards Are All in the and Valuation,
Family, 93 105
Concentrated Corporate Governance
Ownership, 93 Reform, 105
Accounting Objectives of
Transparency, 95 Reform, 106
Debt, 95 Political
Shareholder Activism, Dynamics, 106
95 The Sarbanes-
Overseas Stock Oxley Act, 107
Listings, 96 The Cadbury Code
Market for Corporate of Best Practice,
Control, 97 108
The Dodd-Frank
Act, 109
Summary, 110

MINI CASE:
Parmalat: Europe’s
Enron, 113
PART TWO The Foreign Exchange Market,
Exchange Rate Determination,
and Currency Derivatives
Function and Structure of the Triangular
CHAPTER 5 FX Market, 120 Arbitrage, 135
The Market for INTERNATIONAL
Spot Foreign
Exchange Market
Foreign FINANCE IN PRACTICE: Microstructure,
Electronification of the
Exchange, 119 Foreign Exchange Market,
138
121 The Forward Market,
139
 FX Market Participants, Forward Rate
123 Quotations, 139
Correspondent Banking Long and Short
Relationships, 125 Forward
Positions, 140
INTERNATIONAL Forward
FINANCE IN PRACTICE: Premium, 140
Chinese Yuan’s Road to
Internationalization, 126 Forward Cross-
Exchange
The Spot Market, 127
Rates, 141
Spot Rate Quotations, Non-Deliverable
128 Forward
Cross-Exchange Rate Contracts, 142
Quotations, 130
Swap
The Bid-Ask Spread, Transactions,
131 143
Spot FX Trading, 132 Exchange-Traded
The Cross-Rate Trading Currency Funds, 145
Desk, 133 Summary, 146

MINI CASE:
Shrewsbury Herbal
Products Ltd., 149
Interest Rate Parity, 151 Fisher Effects, 168
CHAPTER 6
Covered Interest Forecasting Exchange
International Parity Arbitrage, 154 Rates, 170
Relationships and Interest Rate Parity and
Exchange Rate
Efficient Market
Approach, 171
Forecasting Foreign Determination, 157 Fundamental
Currency Carry Trade, Approach, 172
Exchange Rates, 158 Technical
151 Reasons for Deviations Approach, 173
from Interest Rate Performance of
Parity, 159 the Forecasters,
Purchasing Power Parity, 175
161 Summary, 177
PPP Deviations and the
Real Exchange Rate, MINI CASE: Turkish
163 Lira and Purchasing
Power Parity, 182
Evidence on Purchasing
Power Parity, 163 APPENDIX 6A:
Purchasing Power
INTERNATIONAL
Parity and Exchange
FINANCE IN PRACTICE:
 The Big Mac Index Shows Rate Determination,
Currencies Are Very Cheap 184
against the Dollar, 164

page xxi

Futures Contracts: Some American Option-

CHAPTER 7 Preliminaries, 186 Pricing
Futures and Currency Futures Markets, Relationships, 197
188 European Option-
Options on Foreign Basic Currency Futures Pricing
Exchange, 185 Relationships, 189 Relationships, 199
Options Contracts: Some Binomial Option-
Preliminaries, 193 Pricing Model, 201
Currency Options Markets, European Option-
193 Pricing Formula, 203
Currency Futures Options, Empirical Tests of
194 Currency Options,
205
Basic Option-Pricing
Relationships at Expiration, Summary, 206
194
MINI CASE: The
Options Speculator,
208
PART THREE Foreign Exchange Exposure
and Management
Three Types of Exposure, Cross-Hedging Minor
CHAPTER 8 211 Currency Exposure,
Management of Should the Firm Hedge?, 223
212 Hedging Contingent
Transaction Hedging Foreign Currency Exposure, 224
Exposure, 211 Receivables, 214 Hedging Recurrent
Forward Market Exposure with Swap
Hedge, 214 Contracts, 225
Money Market Hedge, Hedging through
217 Invoice Currency,
226
Options Market Hedge,
218 Hedging via Lead and
Lag, 226
Comparison of Hedging
Strategies, 220 Exposure Netting,
227
Hedging Foreign Currency
Payables, 221
 Forward Market What Risk
Hedge, 221 Management Products
Money Market Hedge, Do Firms Use?, 227
221 Summary, 229
Options Market Hedge,
222 MINI CASE: Airbus’
Dollar Exposure, 233
Comparison of Hedging
Strategies, 222 CASE
APPLICATION:
Richard May’s
Options, 233
How to Measure Economic Diversification of
CHAPTER 9 Exposure, 243 the Market, 253
Management of Measuring Asset R&D Efforts and
Exposure, 243 Product
Economic Hedging Asset Differentiation,
Exposure, 241 Exposure, 245 253
Operating Exposure: Financial
Definition, 246 Hedging, 254
Illustration of Operating CASE
Exposure, 247 APPLICATION:
Determinants of Operating Exchange Risk
Exposure, 249 Management at
Managing Operating Merck, 254
Exposure, 251 Summary, 256
Selecting Low-Cost
Production Sites, 252 MINI CASE:
Economic Exposure of
Flexible Sourcing
Albion Computers
Policy, 252
PLC, 258
Translation Methods, 261
CHAPTER 10 CASE
Current/Noncurrent APPLICATION:
Management of Method, 261 Consolidation of
Translation Monetary/Nonmonetary
Method, 262
Accounts According to
FASB 52: The Centralia
Exposure, 261 Temporal Method, 262 Corporation, 268
Current Rate Method, Management of
262 Translation
Exposure, 271
Financial Accounting
Standards Board Statement Translation
8, 263 Exposure versus
Financial Accounting Transaction
Standards Board Statement Exposure, 271
 52, 263 Hedging
The Mechanics of the Translation
FASB 52 Translation Exposure, 272
Process, 266 Balance Sheet
Highly Inflationary Hedge, 272
Economies, 267 Derivatives
International Accounting Hedge, 273
Standards, 267 Translation
Exposure versus
Operating
Exposure, 274
Empirical Analysis of
the Change from FASB
8 to FASB 52, 274
Summary, 275

MINI CASE:
Sundance Sporting
Goods Inc., 277

page xxii

PART FOUR World Financial Markets and

Institutions
International Banking
CHAPTER 11 Services, 281
INTERNATIONAL
FINANCE IN
International The World’s Largest PRACTICE: The
Banks, 282
Banking and Money Reasons for International
Rotten Heart of
Finance, 294
Market, 281 Banking, 283 Euronotes, 296
Types of International Eurocommercial
Banking Offices, 283 Paper, 296
Correspondent Bank, Eurodollar Interest
284 Rate Futures
Representative Offices, Contracts, 296
284 International Debt
Foreign Branches, 284 Crisis, 298
Subsidiary and Affiliate History, 298
Banks, 285 Debt-for-Equity
Edge Act Banks, 285 Swaps, 299
 Offshore Banking The Solution:
Centers, 285 Brady Bonds,
International Banking 301
Facilities, 286 The Asian Crisis, 301
Capital Adequacy Global Financial
Standards, 286 Crisis, 302
International Money The Credit
Market, 289 Crunch, 302
Eurocurrency Market, Impact of the
289 Financial Crisis,
ICE LIBOR, 291 306
Eurocredits, 292 Economic
Stimulus, 308
Forward Rate
Agreements, 293 The Aftermath,
309
Summary, 311

MINI CASE: Detroit

Motors’ Latin American
Expansion, 316

APPENDIX 11A:
Eurocurrency
Creation, 318
The World’s Bond Markets: A Equity-Related
CHAPTER 12 Statistical Perspective, 321 Bonds, 326
International Bond Foreign Bonds and Dual-Currency
Eurobonds, 321 Bonds, 326
Market, 321 Bearer Bonds and Currency Distribution,
Registered Bonds, 322 Nationality, and Type
National Security of Issuer, 327
Regulations, 322 International Bond
Market Credit
INTERNATIONAL Ratings, 327
FINANCE IN PRACTICE: Eurobond Market
Saudi Arabia Debuts on the Structure and
International Bond Market, Practices, 331
323
Primary Market,
Security Regulations
331
That Ease Bond
Issuance, 324 Secondary
Market, 332
Global Bonds, 324
Clearing
Types of Instruments, 325
Procedures, 333
Another random document with
no related content on Scribd:
 upon the enemy was complete.

{612}

"At 2 p. m. on this date, the 11th, the surrender of the city

was again demanded. The firing ceased and was not again
renewed. By this date the sickness in the army was increasing
very rapidly as a result of exposure in the trenches to the
intense heat of the sun and the heavy rains. Moreover, the
dews in Cuba are almost equal to rains. The weakness of the
troops was becoming so apparent I was anxious to bring the
siege to an end, but in common with most of the officers of
the army I did not think an assault would be justifiable,
especially as the enemy seemed to be acting in good faith in
their preliminary propositions to surrender. On July 11 I
wrote General Toral as follows: 'With the largely increased
forces which have come to me, and the fact that I have your
line of retreat securely in my hands, the time seems fitting
that I should again demand of your excellency the surrender of
Santiago and of your excellency's army. I am authorized to
state that should your excellency so desire the Government of
the United States will transport the entire command of your
excellency to Spain.' General Toral replied that he had
communicated my proposition to his general-in-chief, General
Blanco.

"July 12 I informed the Spanish commander that Major-General

Miles, commander-in-chief of the American Army, had just
arrived in my camp, and requested him to grant us a personal
interview on the following day. He replied he would be pleased
to meet us. The interview took place on the 13th, and I
informed him his surrender only could be considered, and that
as he was without hope of escape he had no right to continue
the fight. On the 14th another interview took place, during
which General Toral agreed to surrender, upon the basis of his
army, the Fourth Army Corps, being returned to Spain, the
capitulation embracing all of eastern Cuba east of a line
 passing from Acerraderos on the south to Sagua de Tanamo on
the north, via Palma Soriano. It was agreed commissioners
should meet during the afternoon to definitely arrange the
terms. … The terms of surrender finally agreed upon included
about 12,000 Spanish troops in the city and as many more in
the surrendered district. It was arranged the formal surrender
should take place between the lines on the morning of July 17,
each army being represented by 100 armed men. At the time
appointed, I appeared at the place agreed upon with my general
officers, staff, and 100 troopers of the Second Cavalry under
Captain Brett. General Toral also arrived with a number of his
officers and 100 infantry. We met midway between the
representatives of our two armies, and the Spanish commander
formally consummated the surrender of the city and the 24,000
troops in Santiago and the surrendered district. After this
ceremony I entered the city with my staff and escort, and at
12 o'clock noon the American flag was raised over the
governor's palace with appropriate ceremonies."

Annual Reports of the War Department, 1898,

volume 2, pages 157-159.

UNITED STATES OF AMERICA: A. D. 1898

(July-August: Army administration).
Red-tape and politics.
Their working in the campaign.

"The Cuban campaign had been foreseen by intelligent officers

for more than a year, but the department which clothes the
army had taken no steps toward providing a suitable uniform
for campaigning in the tropics until war was declared. The
Fifth Army Corps, a comparatively small body of 17,000 men,
was concentrated at Tampa on the railroad within reach of all
the appliances for expediting business. Between April 26, when
war was declared, and, June 6, when the corps embarked for
Cuba, sufficient time elapsed to have clothed 1,000,000 men if
the matter had been handled in the same manner a wholesale
clothing firm would handle similar business. Yet the corps
went to Cuba wearing the winter clothing it had brought on its
backs from Montana, Wyoming, and Michigan. It endured the heat
of the tropics clad in this, and was furnished with light
summer clothing by the department to wear for its return to
Montauk, where the breezes were so bracing that the teeth
chattered even when the men were clad in winter clothing. The
only reason for this absolute failure to properly clothe the
army was that the methods of the department are too slow and
antiquated for the proper performance of business. There was
no lack of money. It was a simple case of red-tape delays.
There can be no doubt that the intention was that the summer
clothing should be worn in Cuba and that there should be warm
clothing issued at Montauk. It was issued after the troops had
shivered for days in their light clothes. The delays
unavoidably connected with an obsolete method caused great
suffering that should not have been inflicted upon men
expected to do arduous duty. A sensible man would not put a
heavy blanket on a horse to do draught work on a hot day; but
the red tape of an antiquated way of doing business caused our
soldiers to wear heavy woolen clothes in torrid heat, when every
nerve was to be strained to the breaking point in athletic
exertion. This is not pointed out in a fault-finding spirit.
The men are proud to have been in the Fifth Corps and to have
endured these things for the country and the flag; but these
unnecessary sufferings impaired the fighting strength of the
army, caused much of the sickness that visited the Fifth
Corps, and might have caused the failure of the whole
expedition. …

"The difficulty here depicted was one which beset the

department at every turn in the whole campaign. It is a
typical case. Transports, tentage, transportation—it was the
same in everything. With the most heroic exertions the
department was able to meet emergencies only after they had
passed. This was caused partly by lack of ready material, but
mainly by an inelastic system of doing business which broke
 down in emergencies. This, in turn, was caused mainly by the
illiberal treatment accorded to this, as well as to every
other department of the army by Congress. It uniformly cuts
mercilessly all estimates of this, as of every other
department, and leaves no margin of expenditure or chance of
improvement. It dabbles in matters which are purely technical
and require the handling of expert executive talent. …

"Plans for war should be prepared in advance. This was

especially true of the last war, which had been foreseen for
years and considered a probability for several months. All
details should have been previously worked out, all
contingencies foreseen before hostilities began. Such plans
would require some modifications, of course, but would form a
working basis.
{613}
Neither Santiago nor Manila Bay would have been foreseen; but
any plans for war would have involved the consideration and
solution of the following problems: How to raise, arm, equip,
organize, mobilize, clothe, feed, shelter, and transport large
bodies of soldiers. The point where the battle might occur
would be a mere tactical detail to be worked out at the proper
time. The above problems could all be solved in time of peace and
should have been solved. The general staff performs this
function in foreign armies, but we had no such body in our
service and nothing to imperfectly take its place. …

"The most urgently needed reform is the absolute divorcement

of the army in all of its departments from politics. … No
department of the army should be more exempt from political
influence than the staff. This points at once to the most
urgent reform, viz., make the commanding general the real
working head of the army, instead of the Secretary of War. No
good results have come to the service by the extension of the
Secretary's powers in Grant's first administration. Most of
the evils of the service can be traced to the fact that the
general commanding has since that time been practically
 deprived of his proper functions, and the real head of the
army has been a politician."

Lieutenant J. H. Parker,
Our Army Supply Department and the need of a General Staff
(Review of Reviews, December, 1898).

UNITED STATES OF AMERICA: A. D. 1898 (July-August: Cuba).

The War with Spain.
Sickness in the American army at Santiago.
Its alarming state.
Hurried removal of troops to Montauk Point, Long Island.

"After the surrender of General Toral's army General Shafter

urged the War Department from time to time to hasten the
shipment of the Spanish prisoners to their homes, in order
that the American Army, whose condition was now deplorable,
might be transported to the United States. At this time about
half the command had been attacked by malarial fever, with a
few cases of yellow fever, dysentery, and typhoid fever. The
yellow-fever cases were mainly confined to the troops at
Siboney, and the few cases found among the troops at the front
were at once transferred to that place. … There was great
fear, and excellent grounds for it, that the yellow fever, now
sporadic throughout the command, would become epidemic. With
the command weakened by malarial fevers, and its general tone
and vitality much reduced by all the circumstances incident to
the campaign, the effects of such an epidemic would
practically mean its annihilation. The first step taken to
check the spread of disease was the removal of all the troops
to new camping grounds. … It was directed that the command be
moved in this way every few days, isolating the cases of
yellow fever as they arose, and it was expected that in a
short time the yellow fever would be stamped out. … But the
effect produced on the command by the work necessary to set up
the tents and in the removal of the camps increased the number
on the sick report to an alarming degree. Convalescents from
malarial fever were taken again with the fever, and yellow
fever, dysentery, and typhoid increased. It was useless now to
attempt to confine the yellow-fever cases to Siboney, and
isolation hospitals were established around Santiago. It was
apparent that to keep moving the command every few days simply
weakened the troops and increased the fever cases. Any exertion
in this heat caused a return of the fever, and it must be
remembered that the convalescents now included about 75 per
cent. of the command. The Commanding General was now directed
to move the entire command into the mountains to the end of
the San Luis railroad, where the troops would be above the
yellow fever limit; but this was a physical impossibility. …

"The situation was desperate; the yellow-fever cases were

increasing in number, and the month of August, the period in
which it is epidemic, was at hand. It was with these
conditions staring them in the face, that the officers
commanding divisions and brigades and the Chief Surgeon were
invited by General Shafter to discuss the situation. As a
result of this conference the General sent the following
telegram giving his views [and those of the General Officers
and Medical Officers]. … 'In reply to telegram of this date
[August 3], stating that it is deemed best that my command be
moved to end of railroad, where yellow fever is impossible, I
have to say that under the circumstances this move is
practically impossible. The railroad is not yet repaired,
although it will be in about a week. Its capacity is not to
exceed 1,000 men a day, at the best, and it will take until
the end of August to make this move, even if the sick-list
should not increase. An officer of my staff, Lieutenant Miley,
who has looked over the ground, says it is not a good camping
ground. … In my opinion there is but one course to take, and
that is to immediately transport the Fifth Corps and the
detached regiments that came with it, and were sent
immediately after it, with the least delay possible, to the
United States. If this is not done I believe the death-rate
will be appalling. I am sustained in this view by every
 medical officer present. I called together to-day the General
Officers and the senior Medical Officers and telegraph you
their views.' …

"On August 4th instructions were received from the War

Department to begin the removal of the command to Montauk
Point, Long Island. Some of the immune regiments were on the
way to Santiago, and other regiments were at once ordered
there to garrison the district as General Shafter's command
was withdrawn. The first of the fleet of vessels to return the
Spanish troops arrived in time to be loaded and leave August
9th, and by the end of the month nearly all were transported.

"After the surrender the relations between the American and

Spanish troops were very cordial. There could be little or no
conversation between individuals, but in many ways the respect
each had for the other was shown, and there seemed to be no
hatred on either side. Most of the Spanish officers remained
in their quarters in town, and they shared in the feeling
displayed by their men. Salutations were generally exchanged
between the officers, and American ways and manners became
very popular among the Spaniards. …
{614}
"By the 25th of the month General Shafter's entire command,
with the exception of a few organizations just ready to
embark, had departed, and, turning over the command to General
Lawton, he sailed that day with his staff on the 'Mexico,' one
of the captured transports, and at noon September 1st went
ashore at Montauk Point, Long Island."

J. D. Miley, In Cuba with Shafter,

chapter 12 (New York: Charles Scribner's Sons).

UNITED STATES OF AMERICA: A. D. 1898 (July-August: Philippines).

Correspondence between the General commanding
United States forces at Cavite and Manila,
and Aguinaldo, the Filipino leader.
On the 4th of July, General Thomas M. Anderson, then
commanding the "United States Expeditionary Forces" at Cavite
Arsenal, addressed the following communication to "Señor Don
Emilio Aguinaldo y Famy, Commanding Philippine Forces":

"General: I have the honor to inform you that the United

States of America, whose land forces I have the honor to
command in this vicinity, being at war with the Kingdom of
Spain, has entire sympathy and most friendly sentiments for
the native people of the Philippine Islands. For these reasons
I desire to have the most amicable relations with you, and to
have you and your people co-operate with us in military
operations against the Spanish forces. In our operations it
has become necessary for us to occupy the town of Cavite as a
base of operations. In doing this I do not wish to interfere
with your residence here and the exercise by yourself and
other native citizens of all functions and privileges not
inconsistent with military rule. I would be pleased to be
informed at once of any misconduct of soldiers under my
command, as it is the intention of my Government to maintain
order and to treat all citizens with justice, courtesy, and
kindness. I have therefore the honor to ask your excellency to
instruct your officials not to interfere with my officers in
the performance of their duties and not to assume that they
can not visit Cavite without permission."

On the following day Aguinaldo replied:

"General: Interpreting the sentiments of the Philippine

people, I have the honor to express to your excellency my most
profound gratefulness for the sympathy and amicable sentiments
with which the natives of these islands inspire the great North
American nation and your excellency. I also thank most
profoundly your desire of having friendly relations with us,
and of treating us with justice, courtesy, and kindness, which
is also our constant wish to prove the same, and special
satisfaction whenever occasion represents. I have already
ordered my people not to interfere in the least with your
officers and men, orders which I shall reiterate to prevent
their being unfulfilled; hoping that you will inform me of
whatever misconduct that may be done by those in my command,
so as to reprimand them and correspond with your wishes." …

To this communication General Anderson returned the following

on the 6th: "General: I am encouraged by the friendly
sentiment expressed by your excellency in your welcome letter
received on the 5th instant to endeavor to come to a definite
understanding, which I hope will be advantageous to both. Very
soon we expect a large addition to our forces, and it must be
apparent to you as a military officer that we will require
much more room to camp our soldiers, and also storeroom for
our supplies. For this I would like to have your excellency's
advice and co-operation, as you are best acquainted with the
resources of this country. It must be apparent to you that we
do not intend to remain here inactive, but to move promptly
against our common enemy. But for a short time we must
organize and land supplies, and also retain a place for
storing them near our fleet and transports. I am solicitous to
avoid any conflict of authority which may result from having
two sets of military officers exercising command in the same
place. I am also anxious to avoid sickness by taking sanitary
precaution. Your own medical officers have been making
voluntary inspections with mine, and fear epidemic diseases if
the vicinity is not made clean. Would it not be well to have
prisoners work to this end under the advice of the surgeons?"
…

On the 9th of July General Anderson reported to the War

Department at Washington: "General Aguinaldo tells me he has
about 15,000 fighting men, but only 11,000 armed with guns,
which mostly were taken from the Spaniards. He claims to have
in all 4,000 prisoners. When we first landed he seemed very
suspicious, and not at all friendly, but I have now come to a
better understanding with him and he is much more friendly and
seems willing to co-operate. But he has declared himself
dictator and president, and is trying to take Manila without
our assistance. This is not probable, but if he can effect his
purpose he will, I apprehend, antagonize any attempt on our
part to establish a provisional government."

On the 17th the American commander caused another

communication to be addressed to "General Emilio Aguinaldo" as
follows: "Sir: General Anderson wishes me to say that, the
second expedition having arrived, he expects to encamp in the
vicinity of Paranaque from 5,000 to 7,000 men. To do this,
supply this army and shelter, will require certain assistance
from the Filipinos in this neighborhood. We will want horses,
buffaloes, carts, etc., for transportation, bamboo for
shelter, wood to cook with, etc. For all this we are willing
to pay a fair price, but no more. We find so far that the
native population are not willing to give us this assistance
as promptly as required. But we must have it, and if it
becomes necessary we will be compelled to send out parties to
seize what we may need. We would regret very much to do this,
as we are here to befriend the Filipinos. Our nation has spent
millions of money to send forces here to expel the Spaniards
and to give good government to the whole people, and the
return we are asking is comparatively slight. General Anderson
wishes you to inform your people that we are here for their
good, and that they must supply us with labor and material at
the current market prices. We are prepared to purchase 500
horses at a fair price, but can not undertake to bargain for
horses with each individual owner. I regret very much that I
am unable to see you personally, as it is of the utmost
importance that these arrangements should be made as soon as
possible."

To this communication there seems to have been no written

reply until the 24th; and, on the 20th, the Chief
Quartermaster reported to General Anderson "that it is
 impossible to procure transportation except upon Señor
Aguinaldo's order, in this section, who has an inventory of
everything. The natives have removed their wheels and hid
them." On the 23d General Anderson repeated his request, as
follows:

{615}

"General: When I came here three weeks ago I requested your

excellency to give what assistance you could to procure means
of transportation for the American Army, as it was to fight
the cause of your people. So far we have received no response.
As you represent your people, I now have the honor to make
requisition on you for 500 horses and 50 oxen and ox carts. If
you can not secure these, I will have to pass you and make
requisition directly on the people. I beg leave to request an
answer at your earliest convenience."

The next day Aguinaldo replied: "I have the honor to manifest
to your excellency that I am surprised beyond measure at that
which you say to me in it, lamenting the nonreceipt of any
response relative to the needs (or aids) that you have asked
of me in the way of horses, buffaloes, and carts, because I
replied in a precise manner, through the bearer, that I was
disposed to give convenient orders whenever you advised me of
the number of these with due anticipation (notice). I have
circulated orders in the provinces in the proximity that in
the shortest time possible horses be brought for sale, but I
cannot assure your excellency that we have the number of 500
that is needed, because horses are not abundant in these
vicinities, owing to deaths caused by epizootic diseases in
January and March last. Whenever we have them united (or
collected), I shall have the pleasure to advise your
excellency. I have also ordered to be placed at my disposal 50
carts that I shall place at your disposition whenever
necessary, always (premising) that you afford me a previous
advice of four days in anticipation."
Meantime, General Anderson had written to the War Department,
on the 18th: "Since reading the President's instructions to
General Merritt, I think I should state to you that the
establishment of a provisional government on our part will
probably bring us in conflict with insurgents, now in active
hostility to Spain. The insurgent chief, Aguinaldo, has
declared himself dictator and self-appointed president. He has
declared martial law and promulgated a minute method of rule and
administration under it. We have observed all official
military courtesies, and he and his followers express great
admiration and gratitude to the great American Republic of the
north, yet in many ways they obstruct our purposes and are
using every effort to take Manila without us. I suspect also
that Aguinaldo is secretly negotiating with the Spanish
authorities, as his confidential aid is in Manila. The city is
strongly fortified and hard to approach in the rainy season.
If a bombardment fails we should have the best engineering
ability here." And, again on the 21st, he had written: "Since
I wrote last, Aguinaldo has put in operation an elaborate
system of military government, under his assumed authority as
dictator, and has prohibited any supplies being given us,
except by his order. As to this last I have written to him
that our requisitions on the country for horses, ox carts,
fuel and bamboo (to make scaling ladders) must be filled, and
that he must aid in having them filled. His assumption of
civil authority I have ignored, and let him know verbally that
I could, and would, not recognize it, while I did not
recognize him as a military leader. It may seem strange that I
have made no formal protest against his proclamation as
dictator, his declaration of martial law, and publication and
execution of a despotic form of government. I wrote such a
protest, but did not publish it, at Admiral Dewey's request,
and also for fear of wounding the susceptibilities of
Major-General Merritt, but I have let it be known in every
other way that we do not recognize the dictatorship. These
people only respect force and firmness. I submit, with all
deference, that we have heretofore underrated the natives.
They are not ignorant, savage tribes, but have a civilization
of their own; and although insignificant in appearance, are
fierce fighters, and for a tropical people they are
industrious. A small detail of natives will do more work in a
given time than a regiment of volunteers."

On the 24th General Anderson received from the Philippine

leader a very clear and definite statement of his attitude
towards the "Expeditionary Forces of the United States," and
the intentions with which he and the people whom he
represented were acting. "I came," he wrote, "from Hongkong to
prevent my countrymen from making common cause with the
Spanish against the North Americans, pledging before my word
to Admiral Dewey to not give place [to allow] to any internal
discord, because, [being] a judge of their desires, I had the
strong convictions that I would succeed in both objects,
establishing a government according to their desires. Thus it
is that in the beginning I proclaimed the dictatorship, and
afterwards, when some of the provinces had already liberated
themselves from Spanish domination, I established a
revolutionary government that to-day exists, giving it a
democratic and popular character as far as the abnormal
circumstances of war permitted, in order that they [the
provinces] might be justly represented, and administered to
their satisfaction. It is true that my government has not been
acknowledged by any of the foreign powers, but we expected
that the great North American nation, which struggled first
for its independence, and afterwards for the abolition of
slavery, and is now actually struggling for the independence
of Cuba, would look upon it with greater benevolence than any
other nation. Because of this we have always acknowledged the
right of preference to our gratitude.

"Debtor to the generosity of the North Americans, and to the

favors we have received through Admiral Dewey, and [being]
more desirous than any other person of preventing any conflict
 which would have as a result foreign intervention, which must be
extremely prejudicial, not alone to my nation but also to that
of your excellency, I consider it my duty to advise you of the
undesirability of disembarking North American troops in the
places conquered by the Filipinos from the Spanish, without
previous notice to this government, because as no formal
agreement yet exists between the two nations the Philippine
people might consider the occupation of its territories by
North American troops as a violation of its rights.

"I comprehend that without the destruction of the Spanish

squadron the Philippine revolution would not have advanced so
rapidly. Because of this I take the liberty of indicating to
your excellency the necessity that, before disembarking, you
should communicate in writing to this government the places
that are to be occupied and also the object of the occupation,
that the people may be advised in due form and [thus] prevent
the commission of any transgression against friendship.
{616}
I can answer for my people, because they have given me evident
proofs of their absolute confidence in my government, but I
can not answer for that which another nation whose friendship
is not well guaranteed might inspire in it [the people]; and
it is certain that I do this not as a menace, but as a further
proof of the true and sincere friendship which I have always
professed for the North American people, in the complete
security that it will find itself completely identified with
our cause of liberty."

In the same strain, on the 1st of August, Aguinaldo wrote to

United States Consul Williams, as to a "distinguished friend:"

"I have said always, and I now repeat, that we recognize the
right of the North Americans to our gratitude, for we do not
forget for a moment the favors which we have received and are
now receiving; but however great those favors may be, it is
not possible for me to remove the distrust of my compatriots.
These say that if the object of the United States is to annex
these islands, why not recognize the government established in
them, in order in that manner to join with it the same as by
annexation? Why do not the American generals operate in
conjunction with the Filipino generals and, uniting the
forces, render the end more decisive? Is it intended, indeed,
to carry out annexation against the wish of these people,
distorting the legal sense of that word? If the revolutionary
government is the genuine representative by right and deed of
the Filipino people, as we have proved when necessary, why is
it wished to oppress instead of gaining their confidence and
friendship?

"It is useless for me to represent to my compatriots the

favors received through Admiral Dewey, for they assert that up
to the present the American forces have shown not an active,
only a passive, co-operation, from which they suppose that the
intentions of these forces are not for the best. They assert,
besides, that it is possible to suppose that I was brought
from Hongkong to assure those forces by my presence that the
Filipinos would not make common cause with the Spaniards, and
that they have delivered to the Filipinos the arms abandoned
by the former in the Cavite Arsenal, in order to save
themselves much labor, fatigue, blood, and treasure that a war
with Spain would cost. But I do not believe these unworthy
suspicions. I have full confidence in the generosity and
philanthropy which shine in characters of gold in the history
of the privileged people of the United States, and for that
reason, invoking the friendship which you profess for me and
the love which you have for my people, I pray you earnestly,
as also the distinguished generals who represent your country
in these islands, that you entreat the Government at
Washington to recognize the revolutionary government of the
Filipinos, and I, for my part, will labor with all my power
with my people that the United States shall not repent their
sentiments of humanity in coming to the aid of an oppressed
people.

"Say to the Government at Washington that the Filipino people

abominate savagery; that in the midst of their past
misfortunes they have learned to love liberty, order, justice,
and civil life, and that they are not able to lay aside their
own wishes when their future lot and history are under
discussion. Say also that I and my leaders know what we owe to
our unfortunate country; that we know how to admire and are
ready to imitate the disinterestedness, the abnegation, and
the patriotism of the grand men of America, among whom stands
pre-eminent the immortal General Washington."

United States, 56th Congress, 1st Session,

Senate Document Number 208.

In an article published in the "North American Review,"

February, 1900, General Anderson discussed his relations with
Aguinaldo very frankly, in part as follows: "On the 1st of
July, 1898, I called on Aguinaldo with Admiral Dewey. He asked
me at once whether 'the United States of the North' either had
recognized or would recognize his government—I am not quite
sure as to the form of his question, whether it was 'had' or
'would.' In either form it was embarrassing. My orders were,
in substance, to effect a landing, establish a base, not to go
beyond the zone of naval co-operation, to consult Admiral
Dewey and to wait for Merritt. Aguinaldo had proclaimed his
government only a few days before (June 28), and Admiral Dewey
had no instructions as to that assumption. The facts as to the
situation at that time I believe to be these: Consul Williams
states in one of his letters to the State Department that
several thousand Tagals were in open insurrection before our
declaration of war with Spain. I do not know as to the number,
yet I believe the statement has foundation in fact. Whether
Admiral Dewey and Consuls Pratt, Wildman and Williams did or
did not give Aguinaldo assurances that a Filipino government
would be recognized, the Filipinos certainly thought so,
 probably inferring this from their acts rather than from their
statements. If an incipient rebellion was already in progress,
what could be inferred from the fact that Aguinaldo and
thirteen other banished Tagals were brought down on a naval
vessel and landed in Cavite? Admiral Dewey gave them arms and
ammunition, as I did subsequently, at his request. They were
permitted to gather up a lot of arms which the Spaniards had
thrown into the bay; and, with the four thousand rifles taken
from Spanish prisoners and two thousand purchased in Hong
Kong, they proceeded to organize three brigades and also to
arm a small steamer they had captured. I was the first to tell
Admiral Dewey that there was any disposition on the part of
the American people to hold the Philippines, if they were
captured. The current of opinion was setting that way when the
first expeditionary force left San Francisco, but this the
Admiral had had no reason to surmise.

"But to return to our interview with Aguinaldo. I told him I

was acting only in a military capacity; that I had no
authority to recognize his government; that we had come to
whip the Spaniards, and that, if we were successful, the
indirect effect would be to free them from Spanish tyranny. I
added that, as we were fighting a common enemy, I hoped we
would get along amicably together. He did not seem pleased
with this answer. The fact is, he hoped and expected to take
Manila with Admiral Dewey's assistance, and he was bitterly
disappointed when our soldiers landed at Cavite. … A few days
thereafter, he made an official call, coming with cabinet and
staff and a band of music. On that occasion he handed me an
elaborate schedule for an autonomous government which he had
received from some Filipinos in Manila, with a statement that
they had reason to believe that Spain would grant them such a
form of government.
{617}
With this was an open letter addressed to the Filipino people
from Pedro Alexandre Paterno, advising them to put their trust
in Spain rather than America. The day before, two German
officers had called on Aguinaldo and I believed they had
brought him these papers. I asked him if the scheme was
agreeable to him. He did not answer, but asked if we, the
North Americans, as he called us, intended to hold the
Philippines as dependencies. I said I could not answer that,
but that in one hundred and twenty years we had established no
colonies. He then made this remarkable statement: 'I have studied
attentively the Constitution of the United States, and I find
in it no authority for colonies and I have no fear.' It may
seem that my answer was somewhat evasive, but I was at the
time trying to contract with the Filipinos for horses, carts,
fuel and forage. …

"The origin of our controversies and conflicts with the

Filipinos can … be traced back to our refusal to recognize the
political authority of Aguinaldo. Our first serious break with
them arose from our refusal to let them co-operate with us.
About nine o'clock on the evening of August 12, I received
from General Merritt an order to notify Aguinaldo to forbid
the Filipino insurgents under his command from entering
Manila. This notification was delivered to him at twenty
minutes past ten that night. The Filipinos had made every
preparation to assail the Spanish lines in their front.
Certainly, they would not have given up part of their line to
us unless they thought they were to fight with us. They,
therefore, received General Merritt's interdict with anger and
indignation. They considered the war as their war, and Manila
as their capital, and Luzon as their country. … At seven
o'clock I received an order from General Merritt to remove the
Filipinos from the city. … I therefore took the responsibility
of telegraphing Aguinaldo, who was at Bacoor, ten miles below,
requesting him to withdraw his troops and intimating that
serious consequences would follow if he did not do so. I
received his answer at eleven, saying that a Commission would
come to me the next morning with full powers. Accordingly the
next day Señors Buencomeno, Lagarde, Araneto and Sandeco came
to Division Headquarters in Manila and stated that they were
 authorized to order the withdrawal of their troops, if we
would promise to reinstate them in their present positions on
our making peace with Spain. Thereupon I took them over to
General Merritt. Upon their repeating their demands, he told
them he could not give such a pledge, but that they could rely
on the honor of the American people. The General then read to
them the proclamation he intended to issue to the Filipino
people. …

"There is a great diversity of opinion as to whether a

conflict with the Filipinos could not have been avoided if a
more conciliatory course had been followed in dealing with
them. I believe we came to a parting of the ways when we
refused their request to leave their military force in a good
strategic position on the contingency of our making peace with
Spain without a guarantee of their independence."

T. M. Anderson,
Our Rule in the Philippines
(North American Review, volume 170, page 275).

UNITED STATES OF AMERICA: A. D. 1898 (July-August: Porto Rico).

Occupation of Porto Rico.

"With the fall of Santiago the occupation of Porto Rico became

the next strategic necessity. General Miles had previously been
assigned to organize an expedition for that purpose.
Fortunately, he was already at Santiago, where he had arrived
on the 11th of July with reinforcements for General Shafter's
army. With these troops, consisting of 3,415 infantry and
artillery, 2 companies of engineers and 1 company of the
signal corps, General Miles left Guantanamo on July 21st,
having 9 transports, convoyed by the fleet, under Captain
Higginson, with the 'Massachusetts' (flagship), 'Dixie,',
Gloucester,' 'Columbia' and 'Yale,' the two latter carrying
troops. The expedition landed at on July 25th, which port
was entered with little opposition. Here the fleet was joined
by the 'Annapolis' and the 'Wasp,' while the 'Puritan' and
'Amphitrite' went to San Juan and joined the 'New Orleans,'
which was engaged in blockading that port. The major general
commanding was subsequently reinforced by General Schwan's
brigade of the Third Army Corps, by General Wilson with a part
of his division and also by General Brooke with a part of his
corps, numbering in all 16,973 officers and men. On July 27th
he entered Ponce, one of the most important ports in the
island, from which he thereafter directed operations for the
capture of the island. With the exception of encounters with
the enemy at Guayama, Hormigueros [the Rio Prieto], Coamo, and
Yauco and an attack on a force landed at Cape San Juan, there
was no serious resistance. The campaign was prosecuted with
great vigor and by the 12th of August much of the island was
in our possession and the acquisition of the remainder was
only a matter of a short time. At most of the points in the
island our troops were enthusiastically welcomed.
Protestations of loyalty to the flag and gratitude for
delivery from Spanish rule met our commanders at every stage."

Message of the President of the United States

to Congress, December 5, 1898.

"During the nineteen days of active campaign on the island of

Puerto Rico a large portion of the island was captured by the
United States forces and brought under our control. Our forces
were in such a position as to make the positions of the
Spanish forces, outside of the garrison at San Juan, utterly
untenable. The Spaniards had been defeated or captured in the
six different engagements which took place, and in every
position they had occupied up to that time. The volunteers had
deserted their colors, and many of them had surrendered to our
forces and taken the oath of allegiance. This had a
demoralizing effect upon the regular Spanish troops. … The
loss of the enemy in killed, wounded and captured was nearly
ten times our own, which was only 3 killed and 40 wounded."