Habana, Cuba, January 22, AIR MAIL. Dear Sumner:

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1 AIR MAIL Habana, Cuba, January 22, Dear Sumner: 1 think we are about to arrive at the moment when the contract for our purchase of the 1942 Cuban sugar crop will be signed* There is substantial agreement between our people and the Cubans on (ell major points with respect to the purchase and the Minor ones, I think, will be cleared up in the next day or two so that the contract may be signed early next week. It will prove to be I think a most advantageous transaction for both parties* It will certainly be an advantageous one for us for it will assure) us of the entire Cuban crop for 1942 at a very reasonable prloe. If we had not succeeded in making this arrangement with the Cubans, we would have mad to pay at least two or three times the price in the open market and the ceiling price of sugar at home would in the next months have gone to 7 or 8. For the Cubans the advantage in the sale lies almost entirely on the morale* side and in insurance for the future. They will make a reasonable profit on the crop tut in no sense the profit which, they could have made if there had been no sugar Mala* I think wo must not forget that the Cubans carried through this sugar sale almost entirely as an act of cooperation with us and because they believe that such an aet of cooperation on their part and the reasonable price will give them a more favorable position and protect their position when attempts may be made again in the future to cut the Cuban quota* AS a matter of fact, I think the fact that the Cubans have carried through this sugar operation and the reasonable prloe at which they have been willing to sell, contracts oa WW part, that is on the part of our govern* ment and people, a definite obligation not to eat the Cuban quota below that provided in the sugar Act of and which position we have agreed to protect in the The Honorable Sumner Welles, Undersecretary of state, Washington, D. 0* exchange

2 - 2 - exchange of notes accompanying the supplementary trade agreement recently signed. There are, of course, those here who have tried to sabotage this sugar purchase and X should give you some details as background. After agreement had been reached in principle on pries and details and the war broke out and the Philippine situation developed ss it nas 9 there were elements here la and out of the sugar industry which realized that under these new conditions more than ever Cuba could get s much better price. They began quietly to endeavor to sabotage the purchase. When this was brought to the attention of President Batista, he said in the most energetic terms that the said* had been agreed to largely as a natter of cooperation before the war broke out and now that Both countries wers in the war, the sals would have to be carried through, as agreed upon* even if it would be necessary to use the Army to enforce the deliver is* of ths sugsjr. The principal persons who trisd to sabotage the sugar purchase were Vlriato Gutierrez and Julio Lobo. While ths sugar commission was in Washington talking with our people with respect to the sals of ths Cuban crop, Gutierrez was writing letters to isaskington and to people la the United States, urging ths noat extraordinary demands. He was so rabid aad radical in what he said that a responsible Cuban la Washington wrote to him that If ths Cuban commission should Insist on such demands as those he proposed, ths United States would have do recourse except to occupy Cuba. Only yesterday again Viriato Gutierrez appeared at s meeting of ths Hacendados and said that now that ths government had raised the salaries of ths sugar workers so considerably, the sugar sale should not ha gone through with unless our Government agresd to a considerable increase in ths price. He found no sympathy among ths Hacendados * in spits of ths fact of course that they naturally would have liked a higher prloe. Vlriato Gutierrez does not enjoy any prestige or any influence here sad his attitude la recent years has been utterly lacking in anything constructive. I know him very well and have maintained personal relations with him but there is no doubt that he is vain, authoritstivs and would make a, first-class fascist or nazi. His ideas are utterly

3 3 are utterly Snaking In anything constructive and in business he aees no further than his nose. He has no comprehension of Cuba's relationships with the United states and X believe that fundamentally be It not friendly to us, although he professes such friendship. You may recall that it is he who from tine to tine in recent years h&a endeavored to raise the question of Cuba claiming one-half of the profits ^e made out of the former sugar purchase during the last war. While X believe, myself, that in principle and as a matter of equity, the profits made out of t>he last war transaction should have hmn divided between our two governments instead of being placed entirely in our Treasury as they were, the matter was really a closed one and the Cuban Government refused to raise it* There is no doubt, however, that this particular matter poisoned our relationships over ft good many years. While we were in the last stages of the contract for the sals of the 1942 crop, there was some objection on the part of seme of our people to agree to a clause Is the oontraot which in effect provides that If there is any profit it will be divided. This Of course is such elemental Justice that there should have basa no question about it but X had a great deal of difficulty in persuading Clayton and to fact I think I Aid not si* together persuade him, but it was Mr. Jones who finally reached the deoision that suoh a clause in the contract was eminently fair. For s day or two our unwillingness to have such a clause 4A the contract was seriously pro* judioing the oonsumation of the purchase. Happily this hurdle has tees passed also. Julio Lobo BOS also been most active in trying to sabotage the sugar purchase. Before the Cuban commission actually reached Washington Loho was there trying to raise difficulties. He bad a masting with some Louisiana produoers and aloft with soma of the member of Congress and he tried to create s division between the Louisiana and the Florida producers. He went so far as to say that left had Bade a contract with ft Florida firm to sell sugar at ft pries above the sailing price which had been fixed by our Government. V.hsn ho was asked to appear before some of our people to give information with regard to this alleged sals abovs the ceiling price, be had conveniently disappeared from the city. He endeavored

4 - 4 - He endeavored to see all kinds of people and did see some in Washington. He got in to see Clayton but what he said to Clayton X do not know and anything he eould have said to Clayton would not have done much harm as Clayton was so interested and so helpful in tarrying through the purchase. The significant thing in this connection, however, la that ha told the members of the Cuban commission that he had seen Clayton who had received him "when he merely sent in his card*. As a matter of fact Lobo had asked young Hedges who is a good cotton customer of Clayton*s to introduce fain to Clayton and Hedges of course did so as an ast of friendship without realising what sinister purposes Lobo was following out. Whan the Cuban somtaisaion told Hedgss what Lobo was doing, he refused to facilitate any further contact for Lobo. Lobo was able to get in touch With a -well-known Washington columnist and tried to gat the columnist to write oartain articles against the sugar purchase* He told this columnist that he was raally "the big man of Cuba" and that hs was ia Washington to handle this transaction and that the members of the commitslog wers merely "his Instruments" Ha said to the columnist that ho was so tig in Cuba that hs wished to remain is background. By this sort of talk hs was trying to gat the columnist to put out stuff tending to tiacredlt the sale. The columnist, having dealt with shrewder people than Lobo, got is tou h with the Cuban commission to verify some of the statements mads by Lobo, with the result that the columnist wrote nothing* Hars in Cuba Lobo has been tarrying oa s campaign la a part of the press against the sugar sals and parti* eularly directed against Casanova. This campaign apparently has teen almost completely financed by Julio Lobo sad partially by Viriato Gutierrez. During the two years that 2 have been here Lobo has promoted at least tv?o, and probably three, operations which were in no sense desirable sad which would save seen against the test Interests of our country and of Cuba. He has speculated heavily and has had s good many losses whloh hs is trying to recoup. It is a source of a great deal of distress for his father who is s verjr worthy man. 1 cm passing the foregoing oa to you with regard to Loco as X am surs that you would wish to know that he has

5 - f be has lost all prestige here* It has reached the point where any venture with which he Is connected most be viewed with concern* Ths sugar situation here has beam complicated y the faet that the Oovernmant has Issued two decrees raising the wages.in the sugar industry very soneldsrawly and without consulting tha industry. The Minister of Labor here, Cans, is responsible for the bad advice given to the President and for the arbitrary aatlon which was taken. I personally believe that the Industry can pay tha wage* and probably could pay the waga# which tha decrees provided for in tha form lit which they have actually been issued* The decrees In the form propoaed by Gans had however been elaborated on by him and by Lazero Pane* the Communist leader* Gans la a man without principle who talks fluently and who learned his lesson is the Mexican school f -fplsdano. He is a nan of extraordinary ambition and wishes to' ' males himself the leader of advanced social movements in Cuba* He is so unprincipled that lie would put s knife in Batista*s back at any time* Lopez Castro was able to avoid the issuance of the salary decrees in tha form fro posed ty Gans, and tha proposals of Gans would have meant s definite socialization of the sugar Industry* Fortunately L6pez Castro wan able to arrange things so that tha salary increases under the decrees are limited to this year and this crop. Z think that Batista so definitely realises how dangerous Dana is, that he will shortly eliminate him from the picture With all good wishes, Cordially yours,