Citation
Manuel Jose Arce and the formation of the Federal Republic of Centra America.

Material Information

Title:
Manuel Jose Arce and the formation of the Federal Republic of Centra America.
Series Title:
Manuel José Arce and the formation of the Federal Republic of Centra America.
Alternate Title:
Manuel José Arce and the formation of the Federal Republic of Centra America.
Creator:
Flemion, Philip Frederick
Place of Publication:
Gainesville FL
Publisher:
University of Florida
Publication Date:
Language:
English

Subjects

Subjects / Keywords:
Annexation ( jstor )
Aristocracy ( jstor )
Business executives ( jstor )
Congressional elections ( jstor )
Conservatism ( jstor )
Creoles ( jstor )
Liberalism ( jstor )
Rhetorical memorization ( jstor )
United States government ( jstor )
Voting ( jstor )

Record Information

Source Institution:
University of Florida
Holding Location:
University of Florida
Rights Management:
Copyright Philip Frederick Flemion. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Resource Identifier:
022273735 ( alephbibnum )
13584754 ( oclc )

Downloads

This item has the following downloads:

UF00091565_00001 ( .pdf )

00006.txt

UF00091565_00001_0159.txt

UF00091565_00001_0095.txt

UF00091565_00001_0154.txt

00026.txt

UF00091565_00001_0184.txt

00047.txt

00080.txt

UF00091565_00001_0090.txt

UF00091565_00001_0092.txt

00058.txt

UF00091565_00001_0175.txt

00043a0005.txt

UF00091565_00001_0075.txt

00116a0001.txt

00105.txt

00060.txt

UF00091565_00001_0082.txt

UF00091565_00001_0203.txt

00054.txt

00092.txt

UF00091565_00001_0168.txt

UF00091565_00001_0041.txt

UF00091565_00001_0189.txt

00068a0002.txt

00051.txt

UF00091565_00001_0057.txt

UF00091565_00001_0058.txt

00177.txt

00055.txt

00061.txt

00153.txt

UF00091565_00001_0101.txt

00162.txt

00137.txt

UF00091565_00001_0177.txt

00183.txt

00067.txt

00142.txt

00181.txt

00037.txt

UF00091565_00001_0094.txt

UF00091565_00001_0138.txt

UF00091565_00001_0008.txt

00033.txt

UF00091565_00001_0026.txt

UF00091565_00001_0015.txt

00100.txt

UF00091565_00001_0096.txt

00096.txt

00145.txt

UF00091565_00001_0147.txt

UF00091565_00001_0061.txt

UF00091565_00001_0152.txt

00108.txt

UF00091565_00001_0128.txt

UF00091565_00001_0167.txt

UF00091565_00001_0210.txt

UF00091565_00001_0033.txt

UF00091565_00001_0173.txt

UF00091565_00001_0105.txt

00174.txt

UF00091565_00001_0149.txt

UF00091565_00001_0042.txt

UF00091565_00001_0087.txt

00062.txt

UF00091565_00001_0030.txt

00051a0001.txt

00002.txt

00112.txt

00146.txt

UF00091565_00001_0081.txt

00076.txt

00057.txt

UF00091565_00001_0112.txt

UF00091565_00001_0191.txt

00148.txt

UF00091565_00001_0062.txt

UF00091565_00001_0098.txt

00182.txt

00158.txt

00087.txt

00066.txt

00186.txt

UF00091565_00001_0025.txt

00073.txt

00075.txt

UF00091565_00001_0201.txt

UF00091565_00001_0001.txt

UF00091565_00001_0195.txt

00116a0004.txt

UF00091565_00001_0053.txt

UF00091565_00001_0074.txt

00007.txt

00051b0003.txt

00127.txt

UF00091565_00001_0121.txt

UF00091565_00001_0146.txt

00027.txt

00063.txt

UF00091565_00001_0207.txt

UF00091565_00001_0040.txt

00114.txt

00091.txt

00071.txt

00120.txt

UF00091565_00001_0064.txt

00059.txt

UF00091565_00001_0006.txt

UF00091565_00001_0202.txt

00136.txt

UF00091565_00001_0099.txt

00150.txt

UF00091565_00001_0039.txt

UF00091565_00001_0060.txt

UF00091565_00001_0131.txt

UF00091565_00001_0050.txt

UF00091565_00001_0088.txt

00042.txt

00051b0001.txt

UF00091565_00001_0020.txt

00012.txt

UF00091565_00001_0124.txt

UF00091565_00001_0198.txt

00156.txt

00125.txt

00023.txt

UF00091565_00001_0089.txt

UF00091565_00001_0181.txt

00167.txt

00039.txt

UF00091565_00001_0156.txt

UF00091565_00001_0056.txt

00122.txt

00163.txt

UF00091565_00001_0017.txt

UF00091565_00001_0049.txt

00133.txt

UF00091565_00001_0125.txt

00072.txt

UF00091565_00001_0077.txt

00081.txt

00020.txt

UF00091565_00001_0012.txt

UF00091565_00001_0126.txt

00038.txt

UF00091565_00001_0106.txt

UF00091565_00001_0108.txt

UF00091565_00001_0197.txt

UF00091565_00001_0205.txt

UF00091565_00001_0002.txt

UF00091565_00001_0155.txt

00188.txt

UF00091565_00001_0158.txt

00179.txt

UF00091565_00001_0145.txt

00151.txt

UF00091565_00001_0170.txt

00101.txt

00011.txt

00190.txt

UF00091565_00001_0014.txt

00160.txt

UF00091565_00001_0079.txt

00034.txt

00010.txt

00083.txt

UF00091565_00001_0022.txt

00157.txt

00143.txt

00024.txt

00100a0003.txt

UF00091565_00001_0174.txt

00110.txt

UF00091565_00001_0063.txt

00093.txt

00117.txt

UF00091565_00001_0161.txt

00152.txt

00184.txt

UF00091565_00001_0011.txt

00043a0004.txt

00022.txt

00119.txt

UF00091565_00001_0178.txt

00189.txt

00168.txt

00111.txt

00154.txt

00019.txt

UF00091565_00001_0091.txt

00126.txt

00135.txt

UF00091565_00001_0024.txt

00172.txt

00191.txt

UF00091565_00001_0140.txt

00170.txt

UF00091565_00001_0018.txt

UF00091565_00001_0065.txt

00169.txt

00070.txt

00032.txt

UF00091565_00001_0069.txt

UF00091565_00001_0028.txt

00138.txt

00068.txt

00116a0002.txt

UF00091565_00001_0110.txt

UF00091565_00001_0120.txt

UF00091565_00001_0142.txt

00107.txt

UF00091565_00001_0133.txt

00128.txt

00140.txt

00064.txt

00008.txt

UF00091565_00001_0097.txt

UF00091565_00001_0144.txt

00035.txt

00095.txt

UF00091565_00001_0153.txt

UF00091565_00001_0188.txt

UF00091565_00001_0171.txt

UF00091565_00001_0037.txt

00090.txt

UF00091565_00001_0182.txt

UF00091565_00001_0151.txt

00016.txt

00116.txt

UF00091565_00001_0199.txt

00118.txt

00005.txt

UF00091565_00001_0085.txt

UF00091565_00001_0186.txt

UF00091565_00001_0109.txt

UF00091565_00001_0135.txt

00103.txt

UF00091565_00001_0044.txt

00100a0002.txt

UF00091565_00001_0029.txt

00166.txt

00017.txt

00139.txt

00178.txt

UF00091565_00001_0165.txt

00097.txt

UF00091565_00001_0193.txt

UF00091565_00001_0176.txt

00050.txt

00121.txt

UF00091565_00001_0163.txt

00085.txt

UF00091565_00001_0066.txt

00018.txt

UF00091565_00001_0164.txt

UF00091565_00001_0054.txt

UF00091565_00001_0031.txt

00098.txt

UF00091565_00001_0172.txt

UF00091565_00001_0180.txt

UF00091565_00001_0183.txt

00113.txt

00052.txt

UF00091565_00001_0036.txt

00144.txt

UF00091565_00001_0150.txt

00100a0001.txt

UF00091565_00001_0157.txt

00084.txt

UF00091565_00001_0194.txt

00069.txt

00134.txt

UF00091565_00001_0071.txt

UF00091565_00001_0111.txt

UF00091565_00001_0185.txt

00004.txt

UF00091565_00001_0196.txt

UF00091565_00001_0123.txt

00088.txt

00187.txt

UF00091565_00001_pdf.txt

UF00091565_00001_0038.txt

UF00091565_00001_0003.txt

UF00091565_00001_0103.txt

UF00091565_00001_0005.txt

UF00091565_00001_0127.txt

UF00091565_00001_0117.txt

00029.txt

UF00091565_00001_0007.txt

UF00091565_00001_0113.txt

00116a0003.txt

00175.txt

UF00091565_00001_0023.txt

00074.txt

UF00091565_00001_0118.txt

00132.txt

UF00091565_00001_0169.txt

UF00091565_00001_0160.txt

UF00091565_00001_0192.txt

UF00091565_00001_0019.txt

UF00091565_00001_0059.txt

UF00091565_00001_0051.txt

UF00091565_00001_0209.txt

00077.txt

UF00091565_00001_0072.txt

UF00091565_00001_0132.txt

00041.txt

00053.txt

00164.txt

UF00091565_00001_0104.txt

00104.txt

00185.txt

00115.txt

00078.txt

00149.txt

00141.txt

UF00091565_00001_0047.txt

00131.txt

UF00091565_00001_0200.txt

00021.txt

00028.txt

UF00091565_00001_0035.txt

UF00091565_00001_0100.txt

UF00091565_00001_0143.txt

00031.txt

00009.txt

UF00091565_00001_0187.txt

UF00091565_00001_0076.txt

00046.txt

UF00091565_00001_0162.txt

00147.txt

UF00091565_00001_0107.txt

UF00091565_00001_0080.txt

00044.txt

UF00091565_00001_0086.txt

UF00091565_00001_0021.txt

00013.txt

UF00091565_00001_0032.txt

00001.txt

00109.txt

00099.txt

UF00091565_00001_0190.txt

UF00091565_00001_0102.txt

00043a0002.txt

00102.txt

UF00091565_00001_0070.txt

00068a0001.txt

UF00091565_00001_0166.txt

00180.txt

00040.txt

UF00091565_00001_0119.txt

00129.txt

UF00091565_00001_0083.txt

UF00091565_00001_0141.txt

UF00091565_00001_0208.txt

UF00091565_00001_0137.txt

00094.txt

00159.txt

UF00091565_00001_0055.txt

00014.txt

UF00091565_00001_0084.txt

UF00091565_00001_0052.txt

00043a0001.txt

00086.txt

UF00091565_00001_0078.txt

UF00091565_00001_0046.txt

00130.txt

UF00091565_00001_0204.txt

00049.txt

UF00091565_00001_0114.txt

00079.txt

UF00091565_00001_0206.txt

UF00091565_00001_0016.txt

UF00091565_00001_0093.txt

00048.txt

00165.txt

UF00091565_00001_0045.txt

UF00091565_00001_0009.txt

00123.txt

UF00091565_00001_0034.txt

UF00091565_00001_0136.txt

UF00091565_00001_0148.txt

00065.txt

UF00091565_00001_0134.txt

00106.txt

UF00091565_00001_0122.txt

00015.txt

00056.txt

00045.txt

UF00091565_00001_0043.txt

00161.txt

00171.txt

UF00091565_00001_0068.txt

00176.txt

00173.txt

00043a0003.txt

UF00091565_00001_0048.txt

UF00091565_00001_0129.txt

UF00091565_00001_0115.txt

00030.txt

UF00091565_00001_0004.txt

UF00091565_00001_0073.txt

UF00091565_00001_0013.txt

UF00091565_00001_0010.txt

UF00091565_00001_0139.txt

00089.txt

UF00091565_00001_0179.txt

UF00091565_00001_0067.txt

UF00091565_00001_0116.txt

00082.txt

UF00091565_00001_0027.txt

00051b0002.txt

00155.txt

UF00091565_00001_0130.txt

00036.txt

00124.txt

00043.txt

00025.txt

00003.txt


Full Text











MANUEL JOSE ARCE AND THE FORMATION OF THE FEDERAL REPUBLIC OF CENTRAL AMERICA













By
PHILIP FREDERICK FLEMION


A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY











UNIVERSITY OF FLORIDA 1969






























�Copyright by
Philip Frederick Flemion
1969













PREFACE


In several respects, the following study may be viewed as the product of paths not followed. Its objective is far different from that which the author originally envisioned, and the goal was not clearly determined until a number of alternate courses had been charted and rejected. As is often the case, attraction to a particular area arose from papers prepared for seminars; and, in this instance, led to an interest in the history of Central America during the early nineteenth century. Casting about for a suitable dissertation topic, the writer was attracted to the idea of examining the

-role played by Francisco Moraza'n in the struggle to weld the five states into a single nation. Yet, the desire to continue with a study of Morazan ultimately declined. This loss of interest was partially due to the fact that Latin American writers have told the better part of what can be said about the Central American hero. The real cause for the shift in direction, however, was a growing curiosity about Morazan's early opponent, Manuel Jose Arce.

In the development of Central American historiography, Arce has been depicted as a far less attractive figure than the tragic Morazan. Although he served as the first President of the Central American federation, Arce has been assigned the role of a minor character, and he is often dismissed as iii








a petty man whose accomplishments were inadequate for the demands of his office. Despite the lack of heroic appeal, certain enigmatic aspects of Arce's career could not be ignored. With further study, it became clear that while the standard accounts were critical, the nature of the criticism varied. Some authors thought that Arce was ruthless and vindictive; others found that he was indecisive and timid. More importantly, none of these authorities offered a satisfactory explanation for the fact that Arce appears to have reversed his political position when he assumed the office of President. Arce was identified in the pre-national period as a libe-ral leader who was committed to Salvadoran autonomy. After his inauguration, he was seen as a conservative sycophiant, who caused a civil war in 1827 by his attempt to establish a unitary state.

The present study constitutes an effort to resolve

the incongruities in Arce's career. Hopefully, the pursuit of this objective will provide an explanation for whatever shifts occurred in Arce's political position. The work is not intended to serve as a complete biographical account. Instead its scope is limited to an attempt to define the nature of Central. American political dynamics and Arce 's relationship to these forces during the period 1811 to 1827.

The author would like to thank his Chairman, Dr. Lyle N. McAlister, for his guidance and assistance in the preparation of this study.














TABLE OF CONTENTS


Chapter

I. INTRODUCTION. . . . . . . .

II. ARCE AND THE PURSUIT OF CENTRAL AMERICAN INDEPENDENCE .

III. THE CREATION OF THE FEDERAL REPUBLIC IV. THE CONTEST FOR THE PRESIDENCY. .

V. ARCEtS PRESIDENCY AND THE DISRUPTION OF THE FEDERATION . . . . .

VI. CONCLUSION . . . . . . . . BIBLIOGRAPHY . . . . . . . . . . . . . .


. . . . 29

* . . . 87

* . . . 121



* . . . 145

* . . . 186

* 191













CHAPTER I

INTRODUCT ION


Of the various facets of Central American history,

none has engendered greater interest among scholars than the division of th e "Ancient Kingdom" of Guatemala into five sovereign nations.1 Sustained by repeated attempts to restore the territorial integrity of the colonial era, this interest arises from the fact that separatism appears tc fly in the face of reason. As a political unit, the area as a whole would constitute a nation of reasonable proportions, though it would still be less than half the size of modernday Bolivia or Venezuela. Individually, the countries of Central America are of barely adequate dimensions and, with the exception of the insular states, are the smallest of the Latin American republics. Furthermore, the political experience of Central America suggests a distinctly retrograde movement with the fragmentation of one entity into several. Given the apparent unity of the colonial period, it would seem that the erection of separate Central American states demanded active efforts on behalf of dismemberment; while the much professed goal of union could have been attained by simply maintaining the colonial status quo in republican form. As a consequence of these incongruities, a number of writers

1







2

have sought to account for Central America's failure to achieve political unification. While these efforts have produced a variety of explanations of differing merit, they have pointed to certain factors which ought to be considered as impediments to successful union.

At the time they achieved their independence, the provinces of Central America appeared as possibly better prospects for federation than the colonies which formed the United States of America. The suitability of this form of government, however, may have been more "apparent than real. Thi.s is particularly true in respect to the supposed cohesiveness of the colonial regime. While the Captaincy General was one of the smaller political subdivisions of the empire, it was by no means thoroughly integrated. Geography had.dictated otherwise. The most attractive areas for habitation are so located that the settlement process in Central America led to the familiar pattern of population clusters. Communities were generally established in temperate upland valleys that were separated from one another by difficult though not impassable terrain. During the colonial period this physical isolation was further compounded by the lack of an adequate system of transportation and communication. In'terms of time, Guatemala was closer to Mexico City than it was to Cartago. 2 These conditions gave rise toa high degree of localism -not only between the provinces but within them as well.

It has also been pointed out that the Captaincy







3
General of Guatemala was little more than "an arbitrary unit of the Spanish Empire.",3 At various times in its early history, Central America was subject to authority emanating from Santo Domingo, New Spain and Panama. When the Central American audiencia was established in 1542, its name, Audiencia de los Confines, indicated a lack of precision concerning the location of the council. Accordingly, the seat of the audiencia was shifted three times before it was permanently located in Santiago de los Caballeros.4

Again in respect to the relationship between the

colonial heritage and national experience, many authors take the position that political separatism may be understood as an antipathetic response to the centralized control of the imperial regime. It is argued that by 1821, the creoles of El Salvador, Honduras, Nicaragua, and Costa Rica had their fill of political domination by Guatemala. This resentment of the authority exercised in the capital of the Captaincy General is thought to be demonstrated by those areas which, in 1821, opted for either absolute independence or annexation to Mexico.5

A contrary proposition -which the writer finds more attractive -,holds that the attitudes of the provincianos

were shaped more by the prospect of domination imagined than by memory of authority experienced. With the substantial difficulties of inter-provincial communication, there must have been ample opportunities for the practice of the 'Obedezco pero no cumplot ritual. More importantly, there









is evidence that the provincial creoles experienced greater control over local affairs than was normally afforded through the cabildos. In 1799 Luis de Arquedos y Brugueiros was appointed intendente of San Salvador. Because of illness he failed to assume his office. From time to time the post was filled by interim appointees, but the management of provincial affairs was left largely in the hands of creole leaders until the appointment of Antonio Gutie'rrez y Ulloa as intendente in 1804. 6It would appear that the degree of authority which Guatemala exercised over provincial affairs was not so great as to stifle the pro .v i ncianost conviction that, by right, they were the masters of their own destinies.

There can be little disagreement concerning the depth of provincial dissatisfaction caused by the concentration of economic power in Guatemala. Guatemala City served as the entrepot for all legitimate trade between the provinces and Spain, and it was also the chief market for domestic trade. In part, the dominance of the Guatemalan merchants was based on control of transportation. Both Guatemala and Honduras possess natural harbor facilities, and during the sixteenth century the Honduran port of Trujillo served as the principal roadstead for ships of the flota destined for Central America. Considerations of defense, however, caused the primary shipping point to be relocated in 1605 at Santo Tomas de Castilla, which is in the vicinity of present-day Pu -erto Barrios. 7This advantage - the value of which was later demonstrated in the form of Guatemalan opposition to efforts








by the Crown to open additional ports - was reinforced as Guatemalan merchants established close' commercial and, in some cases, familial relationships with the trading houses .of Seville.

Between the seventeenth and nineteenth centuries, indigo provided the chief source of provincial income. Throughout this period and in the face of royal attempts to assist the producers through price fixing, the Guatemalan merchant oligopoly was able to set the going price for indigo.8 The indigo growers found all phases of their industry controlled by the merchant princes. The Guatemalan trading houses were the chief, if not only, source of commercial credit, and over the years, a kind of crop-lien system evolved.9 This form of financing apparently extended also to the production of goods for domestic consumption, which were equally subject to mercantile price control. Thus, provincial ranchers were legally restrained from seeking alternatives to the Guatemalan cattle market.10 The resentment engendered by this economic domination was clearly indicated in the provincial complaint that Guatemalan merchants "dress us at prices that keep us more nude than clothed."" Such antagonism unquestionably dimmed the prospects for postindependence cooperation between Guatemala and the provinces.

It is generally agreed that -religion served as a divisive rather than unifying force in Central America. For the period under consideration, this disruptive tendency arose primarily from the episcopal pretensions of El Salvador. In







6

terms of wealth and population, the province was second only to Guatemala; and of all the provinces, El Salvador most envied and resented the prominence of the capital. The demand for the erection of a bishopric in El Salvador was not, however, solely a matter of prestige. In the eighteenth century, Bishop Corte"s y Larraz had informed Charles III that El Salvador not only was capable of supporting a diocese, but also that the pastoral needs of the province were inadequately served from Guatemala. 12 As independence from Spain approached, Salvadorefios grew increasingly convinced of the validity of this claim and frustrated by the inaction of religious authorities. The ambitions of Father Jose** Matias Delgado gave further impetus to the pressure for a new bishopric, and in large part, the path pursued by El Salvador before and after the establishment of the federation can be explained by the failure to meet this demand.

The dissections brought into being by Liberal attacks on the position of the Church should also be noted. Keeping step with their compatriots throughout Latin America, Central American Liberals sought to reduce clerical economic and political power. While they met with considerable success over the short run, their efforts seriously alienated large sectors of Central American society. Insofar as liberal and conservative ideologies had geographic loci, anticlericalism drove another wedge between the federal government and the states.

A portion of the blame for Central America's unhappy








experience with federalism is often attributed to the Constitution promulgated in 1824. Criticism of the Constitution takes several forms. On the one hand, it is claimed that the authority granted to the states was so generous, as to encourage the development of their centrifugal tendencies. Arce, himself, lamented that the division of power between the states and the national government was so poorly balanc ed that it made him the "victim of a Constitution which instead of establishing a political system of liberty and order, had systematized anarchy. *ui13 Looking back from the present,

it would appear that a more centralized regime might have been more durable, but the erection of such a government would have totally ignored the realities of contemporary Central American politics.

The 1824 Constitution also has been charged with a fault often cited in Latin American constitutions: that of being too sophisticated or idealistic. With some foresight, a member of the Central American constituent assembly raised this issue prior to the adoption of the organic law. It was argued that the inhabitants of the infant nation had not attained the level of culture requisite for the burdens of responsible citizenship and that the reservoir of competent individuals was inadequate for the number of public officials required by a federal form of government.14 Inasmuch as all of the natural born inhabitants over the age of eighteen were granted the rights and duties of citizenship, the first charge is certainly valid. A contemporary observer reported that less








than thirty per cent of the population possessed any political
is
opinions. Given thelarge proportion of indigenous peoples, this estimate must be considered overly optimistic. 16 The worth of the second criticism is difficult to assess. In any case, it appears that a primary consequence of the federal experiment was the proliferation of local empire builders.

Of the major obstacles to successful federation, there remain to be noted Central America's chronic fiscal difficulties. !The area had been incapable of producing adequate public revenue during the colonial era, and the Captaincy General received an annual subsidy from New Spain in amounts 17
ranging Jetween 100,000 and 200,000 pesos. This support was drastically curtailed after 1810, and when the nation declared its independence, the public debt amounted to 3,138,451 pesos. This deficit increased over the next th ree years as the flush of freedom led the Central Americans to either suppress or substantially reduce the taxes which 18
Spain had imposed. When the federal government began operation in 182S, it was faced with a debt that had grown to 3,583,575 pes . os. 19.

Responsibility for the federation's money problems

cannot be placed on the Constitution which gave the central government adequate power to raise revenue. The Congress was authorized to raise fundsby means of duties on foreign trade, internal taxes, and foreign and domestic loans. The federal government also retained the exercise of certain monopolies, the most important of which'was the production and sale of








tobacco. If these sources of-inc6me proved inadequate, Congress was empowered to meet deficits through levies on the states.20

In practice, these.grants of power were meaningless. Widespread smuggling reduced not only customs receipts, but the profits of the government monopolies as well. Gradually, the states assumed the actual collection of taxes, and with their own treasuries in disorder, they were ill disposed to remit to the national government its share of the -revenue. The federal administration, operating on a hand to mouth basis, repeatedly had to resort to loans (often collected by force) as its chief means of support. By 1831, the public debt had increased to 4,748,965 pesos.21 With the continuous shortage of funds, effective operation of the government was a difficult, if not impossible, ta sk.

The development of this paper will entail repeated

references to political groupings, and in the first decades of the nineteenth century, there is a bewildering succession of parties or factions. The structuring of these.groups was extremely fluid. With certain exceptions, there does not appear to have been any consistent evolution along ideological lines. In response to emerging issues, expediency was the prime factor in determining the formation of bodies whose membership cut across the standard lines of class and interest. As the nature of these associations makes them subject to considerable confusion, an attempt to define their character and development appears, advisable.






10

To begin with, Central America exhibited the conflict typically found between creole and peninsular. This division is readily comprehended, in the familiar root of creole envy of the peninsular's social prominence and monopolization of the better government positions. It may be, however, that the split between creole and peninsular Spaniard did not run so deeply in Central America as there was not a particularly heavy concentration of peninsulars in the region, and offices were available to the aspiring creole. In 1812 the Captain General Jose de Bustamante y Guerra reported that there were six hundred and seventy-one creoles on the government payroll.22 Also, the experiences of Jose Cecilio del Valle indicate that a talented Central American could rise to a position of considerable importance.23 If the conflict between creole and peninsular was of a comparatively benign nature, this might in part explain the lassitude which Central America demonstrated in regard to independence from Spain.

Prior to independence, a division of more lasting

significance had developed within the creole community itself. A rather clearly defined aristocracy composed of wealthy merchants had emerged in Guatemala by the end of the eighteenth century. Membership in this group appears to have been based primarily on kinship with the Aycinena family. Led by Juan Fermin Aycinena, who had purchased the colony's only title of nobility in 1780, this family proved quite prolific and through intermarriage came to include the Asturias,
.0
Arrivillaga, Barrutia, Batres, Beltranena, Larrave, Montufar,








Munoz, Najera, Palomo, Pavan, Pijol, Saravia, and Urruela families.24 The economic power of this elite led to such a degree of social prestige and political preference that by the 1800's its members were referred to simply as "the family." In 1820 Josi del Valle published in his Amigo de la patria a list of fifty-nine members of the family who held public offices that yielded 89,000 pesos in annual salaries.25 As Captain General Bustamante had reported in his Informe of 1812 that the total salaries paid to creoles amounted to 162,430 pesos, it appears that the family had cornered most of the positions worth having.26

To be sure, those creoles not incorporated in this extended family resented its social prominence, and its political power did not go unopposed.27 In fact, the appearance of the first political parties was partly a product of the family's existence. To a degree, the political polarization aroused by the Guatemalan aristocracy was aused by its social pretentions, but economics provided a more substantial foundation for conflict between the family and its opponents.

Due to increasing competition and natural disasters, the decade before 1800 marked the beginning of a steady decline in the indigo trade. Faced with a concomitant drop in income, the merchants of the Aycinena family became favorably disposed towards further modifications in Spain's mercantile policies which would provide expanded opportunities for overseas trade.28 Although the Aycinenas dominated the









Guatemalan consulado for a brief period following its establishment in 1793, control of the institution had gradually shifted to the hands of smaller merchants. Thereafter the family employed the ayuntamiento as the vehicle for giving official expression of its views, and the desire for increased liberalization of trade was amply -reflected in the instructions which the ayuntamiento gave its delegate to the Cortes of Cadiz in 1810.29 This position regarding free trade provided a basis for conflict as it was not accepted by the merchants of the consulado who preferred to maintain the security of close association with the Spanish trading houses.30 The breach between these two groups was deepened after the arrival of Captain General Bustamante in 1811. He was little impressed by the prestige of the aristocracy and sought to bring the family down to size. By 1821 the scars left by Bustamante's whittling, together with unrelieved economic decline, had the Guatemalan aristocracy seriously pondering the worth of continued association with Spain. As will be seen, the question was answered in a marriage of the sheerest convenience.

There is no evidence that the tensions created in

Guatemala by the family either moderated or exacerbated the conflict between the provincianos and the capital during the colonial era. Membership in the Aycinena family was largely restricted to residents of Guatemala. Similar kinship elites existed in the provinces, but identity of social standing did not provide a basis for cooperation. The presence of the






13

Guatemalan aristocracy did assist in the later formation of political associations. The early liberalism came to be revealed as an expedient of self-interest, and the family provided the nucleus for the organization of a conservative alliance after the establishment of independence.31

The restoration of the Constitution of 1812 following the Riego rebellion provided an enviroment in which creole attitudes could be more clearly expressed. In the spring of 1820, the accumulation of their discontent was given substance in the formation of a tertulia which met in the home of Jose Maria Castilla. The composition of this tertulia, whose members included Jose Francisco Barrundia, Manuel Montufar, Juan Montufar, Pedro Molina, Marcial Zebadua, Jose Beteta, and Vicente Garcia Granados, announced the formation of an alliance between the Guatemalan aristocracy and that stratum of society (largely middle class professionals) which had become imbued with ideals of nineteenth century liberalism.32 Emotionally, the members of the tertulia were united by their resentment of the repressive measures adopted by Captain General Bustamante after the return of Ferdinand VII in 1814. Ideologically, they were on common ground in their attachment to the principle of free trade.

In order to advance their views, the members of the tertulia undertook the publication of a newspaper which was titled El editor constitucional. Edited by Pedro Molina, the paper appeared on the streets of Guatemala on July 24, 1820. Molina not only reported foreign and domestic news, but also







14

attempted to catechize the citizenry in its rights under the restored constitution. The concern with liberalization of trade became evident in the seventh number of the paper which introduced a dialogue on the subject conducted by "the true 33
patriot" and "the liberal Spaniard."

The immediate political objective of El editor centered on the elections being held for seats on the ayuntamientos and the diputacion' provincial. The adherents of the tertulia, popularly known as Cacos (thieves), presented a slate of candidates which was opposed by a conservatively oriented faction 34
which Molina tagged with names Bacos (drunks) and Serviles. (Of the two, the latter name proved more durable as it was applied to conservatives after the formation of the federation. The genuine liberals among the Cacos came to be known as Fiebres.) The Bacos were led by Jose Cecilio del Valle, and their views were carried in the newspaper El amigo de la patria. Apart from attacks on the aristocracy, El amigo pursued a moderate course advocating adherence to the Constitution of 1812, respect for property rights and cautious reforms which would contribute to the development of the colony. Support for the Bacos came from the peninsulares, creoles excluded from the family, and artisans and merchants who, having suffered from the contraband trade carried on with the British at Walis, opposed free trade. 35

The elections of 1820, conducted throughout the fall, were subject to charges and counter-charges, intrigues and coercion. 36 Despite Molina's editorial campaign and the







15

attempts of the aristocracy to influence its inferiors, the position of the Bacos was approved by the electorate as the party won a majority of ayuntamiento seats. But the efforts of the Cacos did not go entirely unrewarded. Control of the diputacion fell to sympathetic provincianos, foremost of whom was Jose Matias Delgado.37 Whatever the degree of failure suffered at the polls, Caco ardor went undimmed, and the pages of El editor grew progressively more forthright in advocating separation from Spain. Molina raised a considerable furor in early June when he published an account of an imaginary journey to a land ruled by a tyrant named Odnanref le Otargni.38 Though they may have been guilty of lese majesty, the Cacos had both time and Agustin de Iturbide on their side.

Initially, the response of Central Americans to

Iturbide's Plan of Iguala was largely negative. On April 10, 18Z Gabino Gainza, the acting Captain General, issued a proclamation denouncing the Mexican upstart, but Iturbide's example proved to be increasingly attractive to Gainza's followers.39 Over the summer, the distance between the Cacos and the Bacos on the question of independence diminished considerably as even a number of peninsulares became convinced of the advantages of independence. Most authorities view the shift in attitudes as an echo of the reaction of Mexican conservatives to the course of events in Spain. Of course, none of the liberals were so enthralled by the vision of Spanish liberalism that they were caused to oppose independence.

By September the path for Central America had been









clearly marked; but the Gacos took no chances, and on the evening of September 14, the city of Guatemala was treated to the sight of the aristocratic Mariano Aycinena and the illegitimate Pedro Molina tramping the streets to round up supporters to attend the meeting of the cabildo abierto which would consider the question of independence on the following day. 40The support appeared, and independence was declared, though the convergence of Caco and Baco views probably rendered the efforts of Aycinena and Molina unnecessary. The degree of accord between these two factions was demonstrated 41
on November 17 when freedom of trade was declared.

The declaration of independence on September 15 was a tentative step at best. The break with Spain was made, but

the Act of Independence stated that this was done in order to evade the "frightening consequences" of a declaration of independence by the masses. Though this hedging may have been a device to win over unco mmitted creoles and peninsulars, a decision on absolute independence was referred to a general congress which would meet in March, 1822. 42Just as the withdrawal of allegiance from Ferdinand VII was not irrevocable, there was little significant change in the government of the new nation. Gainza continued to exercise executive authority, and other public officials retained their positions.

The establishment of independence immediately led to the restructuring of political alliances. The Act of Independence provided for the addition of five members to the disputaco'#n pr .o v incial which would then assume legislative









responsibilities as the junta provisional consultiva. The only Cacos granted seats on the junta were aristocrats, and these individuals were undoubtedly dismayed by the fact that the Caco liberals Jose Francisco IBarrundia, Pedro Molina and Jose Francisco Cofrdova assumed the role of tribunes in the public meetings of the junta. The liberals demanded that Spanish officials be replaced by creole patriots, that the direction of the government be in accord with the wishes of the populace, and that positive action be taken on the question of absolute independence. 43These requests were hardly in accord with the aims of the aristocrats, and the gulf between them and their former allies was demonstrated on September 29 when the meetings of the junta were henceforth closed to the public. 44Left to their own devices, the liberals confirmed the political realignment with the formation of the Tertulia Patriotica on October 14.

The basis for the formation of new political ties was provided by the issue of Central America's relationship with Mexico. The inherent opportunism of the aristocracy's advocacy of independence was clearly exposed by the ingratiating letters sent to Iturbide by Mariano Aycinena. This correspondence demonstrated that the members of the family were more than willing to trade independence for appropriate honors and monetary rewards. 45The aristocrats were joined in their efforts on behalf of annexation to Mexico by former opponents of independence such as Archbishop Ramon Casaus y Torres. Convinced of the-threat of liberal reforms, these individuals







18

believed that the established order of position and prestige could be best preserved through union with Mexico. This is not to say, however, that self-interest was the sole motivation of Iturbide's Central American friends. Many shared the conviction of such liberals as Mariano Gdolvez and Cirilo Flores who believed that Central America was totally unprepared for independent existence.46

Opposition to annexation was centered in the Tertulia Patriotica whose members regarded the aspirations of the imperialistas as little better than treasonous. In an address delivered before the Tertulia on November 10, 1821, Jose Francisco Cordova acknowledged the perfidy of the aristocrats and denounced the Plan of Iguala as a:

pretext of the ambitious and enemies of independence for resisting our absolute liberty,
and has been the means which they have adopted
as the last recourse for managing, misleading and corrupting the intentions of the people.47

The expression of such sentiments led to abuse and bloodshed, but the Guatemalan liberals had some consolation in the fact that they were not alone in their resistance to annexation. Costa Rica remained aloof, and Granada and Tegucigalpa actively opposed union with Mexico. The bond with Salvadorans born of the uprisings of 1811 and 1814, was reconfirmed by the armed opposition to Iturbide offered by the Salvadoran army. Yet the weight of public opinion supported the imperialistas, as a canvass of provincial ayuntamientos revealed that a sizeable majority favored annexation.48 The Act of Union was proclaimed on January 5, 1822, and for the








following fourteen months, the political development of Central America remained in a state of suspension.

Following the downfall of Iturbide, political maneuvering resumed when Iturbide's agent, Vicente Filisola convoked the congress originally ordered by the 1821 Act of Independence. Except for the decision of the more ardent supporters of the Empire to boycott the elections, the political situation in Central America during the spring months can only be described as a conglomerate of ill-defined positions. According to Alejandro Marure, the earlier patriots, espalolistas, Bacos, Cacos, imperialistas, and opponents of annexation were not able to sort themselves out properly until after the Asamblea Nacional Constituyente convened on June 24, 1823.49 The question of independence was the first concern of the assembly, and while this issue was under consideration, the delegates were largely of the same mind. Following the proclamation of absolute independence from Spain and Mexico, the members of the assembly began to line up in Liberal and Conservative factions. The Liberals, known to their enemies as fiebres or anarquistas, were, for the most part, Salvadorans and former members of the Tertulia Patri*tica. The Conservatives, called serviles or aristocratas by the Liberals, were generally members of the aristocracy or Guatemalans who feared possible domination by the provinces.50

The precise degree of difference between Liberal and Conservative thought is difficult to determine. In general terms, the Liberals hoped to achieve social reform (aimed









primarily at leveling distinctions within the creole community), economic development and diversification, an expansion of educational opportunities, a reduction in the secular power of the Church, and the establishment of a federal form of government. The Conservatives seem to have had few specific concerns apart from the preference for a unitary type of government and the general desire to preserve established institutions insofar as possible. Of all the issues raised by the Liberals, none appears to have had greater divisive force than that of religious reform. For a Conservative writing at the time of Moraza'n's triumph in 1829, the question of religion was the basic ingredient in the conflict.

The best indication for distinguishing a fiebre
from a moderado comes in a quarter hour of conversation when you immediately begin to hear his detest
for the friars and nuns, talk against ecclesiastical
revenues and against the precepts of the Church,
denial of the efficacy of the sacraments, derision
of everything that pertains to religion, and.
laughter about those who still attend mass or comply
with any other precepts of the Church. In a word, a fiebre is one who, denying 'all that pertains to
the teaching of Christ and'boasting of not being a
Roman Catholic, neithy recognizes nor practices
religion or morality.H

In all other areas, there was an absence of vigorous Conservative opposition to Liberal programs which suggests that the ideological differences between the two groups was quite limited.

In the months of July, August and September, the

Liberals controlled the assembly and elected three of their fellows to the 'Supremo' Poder Ejecutivo. Anticipating the







21

spoils system, the party replaced all civil servants who held office under the Spanish or Mexican governments. The Liberals also passed laws which eliminated all titles of distinction (including the ubiquitous "Don") , and removed all restrictions on the importation of printed materials.52 Following the first Central American barracks revolt on September 14, control of the provisional government shifted to the hands of the Conservatives as their position in the assembly was strengthened with the arrival of delegates from Nicaragua and Honduras. Pablo Alvarado, a Liberal from Costa Rica, later reported that the Conservatives outnumbered the Liberals forty-six to eighteen.53 Yet, apart from the replacement of two of the Liberal triumvirs on the Supremo Poder Ejecutivo, this numerical superiority did not give rise to any clear-cut Conservative reaction.

The working draft of the constitution was prepared by a committee composed of four Liberals, and a comparison of this document with the finished product reveals no basic alterations in the structure of government proposed by the Liberals. Despite Conservative control, the constituent assembly enacted legislation which prohibited the sale of bulas de cruzada, established a land grant program to encourage immigration, made the nation an asylum for foreign exiles, conceded certain privileges and immunities to foreign merchants, and abolished slavery.54 While there was a later, definite repudiation of Liberal policy by the Guatemalan government led by Mariano Aycinena, this reaction appears to







22

have been in the nature of a conditioned reflex to anything associated with liberalism. The record of the constituent assembly indicates that the Liberal-Conservative conflict, which continued throughout the life of the federation was based not so much on irreconcilable differences as it was on personal enmities and simple struggles for power.

A final comment on the politics of the federation concerns the geographic orientation of political alignments. After the outbreak of civil war in 1827, Guatemala was dominated by Conservatives who were opposed by Liberals residing in the other states of the federation. Reality is often blurred by the assumption that a similar distribution of political views prevailed since independence. The tendency toward this misconception undoubtedly has its roots in the stance taken by political parties in respect to the issue of federalism. It is generally understood that support for federation was the hallmark of Liberals and provincianos. Opposition to this form of government is seen as a characteristic of Conservatives and Guatemalans. Understandably, there is a strong inclination to merge the elements of these two propositions. The ease with which this may be done encour.ages such statements as: "there was a marked cleavage between Guatemalan conservatives who advocated centralism and the liberal elements from the other province s who favored a
55
federation."

While the sense of this observation is not improper, it has the effect of reinforcing the idea that Guatemalans









were Conservatives and provincianos were Liberals. Such a conclusion, however, is not warranted by the facts. Of' the four Liberals who drafted the basic structure of the government, three, Jose' Francisco Barrundia, Pedro Molina, and Mariano Galvez, were Guatemalans and one, Jose *Mati 4as Delgado, was a provinciano. 56It should also be noted that the Conservatives did not obtain a majority in the constituent assembly until after the arrival of the delegates from the outlying provinces. Undoubtedly, the political outlook of

the provincial Conservatives was moderated by the traditional resentment of Guatemala's dominance. Thus, it appears that support for federalism was restricted neither to Liberals nor provincianos, and the decision to establish a federal government was achieved as Guatemalan Conservatives were outvoted by provincial Conservatives and Liberals from all areas.






24,


NOTES

IAlthough the area was technically a Captaincy General, it was commonly referred to as "elreino."
2George Alexander Thompson, Narrative of an Official Visit to Guatemala from Mexico (London, 1829), p. 303.

3Thomas L. Karnes, The Failure of Union: Central America, 1824-1960 (Chapel Hill, 1961), p. 11.
4Clarence H. Haring, The Spanish Empire in America (New York, 1963), pp. 75-76:.

5Alberto Herrarte, La Union de Centroamerica (Guatemala, 1955), p. 94; Mario Rodriguez, Central America (Englewood Cliffs, N. J., 1965), pp. 61-62.
6_odolfo Baron Castro, Jose Matras Delgado y el
.movimiento insurgente de 1811 (San Salvador, 1962), p. 61; Hector Humberto Samayoa Guevara, Implantacion del regimen de intendencias en el Reino de Guatemala (Guatemala, 1960), p. 194. Samayoa Guevara believes that as they reduced central authority and fused together older units of local government, the establishment of intendencies contributed to the centrifugal tendencies of the provinces.

7Troy S. Floyd, "The Guatemalan Merchants, the Government and the Provincianos," Hispanic American Historical Review, XLI (February, 1961), p. 93.
8Ibid., p. 102; Ralph Lee Woodward, Jr., "Economic and Social Origins of the Guatemalan Political Parties," Hispanic American Historical Review, XLV (November, 1965), pp. 547-548.

9Floyd, "The Guatemalan Merchants," p. 99.

10Ibid., p. 101; Alejandro D. Marroquin, Apreciacion SociologicFe la Independencia Salvadore-ia (San Salvador, 1964), pp. 52-53.
llFloyd, "The Guatemalan Merchants," p. 92.

12Francisco Gavidia, Historia moderna de El Salvador (San Salvador, 1958), p. 235.
13Manuel Jose Arce, Memoria del General Manuel Jose Arce (San Salvador, 1959), p. 17.








14Aljnr Maue osu0
Alejandro Marure, 'Bosquejo historico de las revoluciones de Centro America desde 1811 hasta 1834, 2 vols. (Guatemala, 1960), I, 201.
15Thompson, Narrative, p. 228.

16It is assumed that the Indian population was then no less divorced from national life than it is today and that it formerly constituted a much larger proportion of the population. At the present time El Salvador is thought to be entirely mestizo. Figures given by the intendent Antonio Gutierrez y Ulloa in his Estado general de la provincia de San Salvador indicate that in 1807 Indians constituted approximately forty per cent of the population.
17Marure, Bosquejo, I, 202; Manuel Montufar y Coronado,
Memorias para la historia de la revolucion de Centro-America,
2 vols, (Guatemala, 1963), I, 57,
18" "eorapeetaal
Federacion de Centroamerica, Memoria presented al
Congreso general de los estados federados de Centro America por el secretario de estado, encagado de despacho universal, al comen-iar las sesiones del aTio de 1825. (Guatemala, 1825).
19Montufar y Coronado, Memorias, I, 59.

20Article 69, Constitution of 1824; the text of the
Constitution is reproduced in Ricardo Gallardo, Las Constituciones de la Republica Federal de Centro-America, 2 vols. (Madrid, 1958) II, 703-738.
21Montufar y Coronado, Memorias, I, 59.

22
Leon Fernandez, Documentos relativos a los movimientos de independencia en el reino de Guatemala (San Salvador, 1929), p. 20. This document is titled, "Informe del Capitan General de Guatemala al Secretaria de Gracia y Justicia," and attempts to show that there was no basis for creole discontent as there were only 69 peninsulares holding official positions. The Captain General's case loses a good bit of its strength as it includes salary figures which show that the average income of the peninsulares was 1,208 pesos while the creoles earned an average of 242 pesos.
23Louis E. Bumgartner's biography Jose del Valle of Central America (Durham 1963) demonstrates that the Captain General relied quite heavily on the Honduran savant.
24Susan Emily Strobeck, "The Political Activities of
Some Members of the Aristocratic Families of Guatemala, 1821-1839," M. A. thesis (Tulane University, 1958), p. 5; Woodward, "Economic and Social Origins," p. 546.








25This list is reproduced in an appendix to Ramon A. Salazar's Mariano de Aycinena (Guatemala, 1952).
26Fernandez, Documentos, p. 20.

27Bumgartner, Valle, pp. 97-120 provides an excellent
account of the conflict--Eetween the family and its antagonists.
28Woodward, "Economic and Social Origins," pp. 556-557.

29Ayuntamiento de la Ciudad de Guatemala, Instrucciones para la constitucioon fundamental de la monarquia espanola y su gobierno, de que ha de tratarse en las pr~ximas cortes generales de la nacidn. (Guatemala, 1953).
30Ralph Lee Woodward, Jr., Class Privilege and
Economic Development: The Consulado de Comercio of Guatemala, 1793-1871 (Chapel Hill, 1966), p. 119.
31Strobeck, "The Political Activities," demonstrates that aristocrats were to be found on both sides of every issue, but after independence the majority of politically active aristocrats came down on the side of conservatism.
32Ramon A. Salazar, Historia de veintiin anos: la independencia de Guatemala (Guatemala, 1928), p. 205.

33EI editor constitucional, August 21, 1820; September 18, 1820. All issues of El edior constitucional and its successor El genio de la libertad are reproduced in Pedro Molina, Escritos del Doctor Pedro Molina, 3 vols. (Guatemala, 1954).
34Ibid., October 16, 1820; December 2, 1820.

35Ibid., August 21, 1820; Marure, Bosquejo, I, 59.

36Archivo Nacional de Guatemala (hereafter cited as ANG), B1.13, leg. 494, exp. 8338; Bumgartner, Valle, pp. 113-118.
37Marure, Bosquejo, I, 59; Montufar y Coronado, Memorias, I, 65.
38El editor constitucional, June 4, 1821. In the next issue of the paper Molina apologized for the satire and ingenuously protested that he had not recognized the anagram for Fernando el Ingrato.
39Marure, Bosquejo, I, 61.

401bid., p. 62.






2 7


41Alejandro Marure, Efemerides de los hechos notables acaecidos en la republica desde el aiode-182l hasta el de 1842 (Guatemala, 1844), p. 3; Valentin SolcrzanoF Evolucion economica de Guatemala (Guatemala, 1963), p. 266.
42"Acta de Independencia de 15 de Septiembre de 1821," reproduced in Gallardo, Las Constituciones, II, 661-665.
43
El genio de la libertad, October 1, 1821. El editor constitucional was rechristened El genio de la libertad on August 27, 1821.
44Ibid., October 4, 1821.

45Copies of these letters are contained in Miguel
Angel Garcia, ed., El Doctor Jos Matias Delgado; homenaje en el primer centenario de su muerte, 1832-1932; documentos para el estudio de su vida y de su obra, 2 vols. (San Salvador, 1933-1939), II, 490-516.

46Antonio Batres Jauregui, El Dr. Mariano Galvez Ay su epoca (G,,atemala, 1957), p. 54.
47El genio de la libertad, November 19, 1821.

48Marure, Bosquejo, I, 82.

49Ibid., p. 122. The decision by some imperialistas to boycottt-e elections for the constituent assembly had considerable significance as it meant that extreme conservatives had little voice in the assembly.
50
Ibid. It should be noted that the composition of these parties was not so clear-cut as is indicated here. Representatives of the earlier factions were to be found in both camps.

51F. D. L., Apuntamientos para la historia de la revolucion en Centro Am6rica (San Cristobal de Chiapas, 1829), quoted in Pedro Joaquin Chamorro, Historia de la federacion de la America Central, 1823-1840 (Madrid, 1951), p. 47.

52Marure, Bosquejo, I, i35. Copies of these acts are contained in Miguel Angel Garcia, ed., Manuel Jose Arce; homenaje en el primer centenario de su fallecimiento; recopilacidn de documentos para el estudio de su vida y su
obra, 3 vols. (San Salvador, 1944-1945), I, 276-277, 284-285.

53Pablo Alvarado to Gobierno Superior de Costa Rica, November 3, 1823 in Garcia, Arce, I, 291.






28

54Marure, Bosquejo, I, 168; Marure, Efemerides, pp. 15-16; Montiffar y Coronado, Memorias, I, 98.
55Karnes, Failure of Union, p. 38. It should be
pointed out that, taken by itself, this statement carries greater force than it does within the context of the work. Professor Karnes makes it very clear that political alignments were extremely complex.
56Marure, Bosquejo, I, 200.













CHAPTER II

ARCE AND THE PURSUIT OF CENTRAL AMERICAN INDEPENDENCE


To the misfortune of his would-be biographers, Manuel Jose Arce was not the sort of individual who bequeaths much of his personal life to history. Private letters are few. If he kept a diary (which seems unlikely), it has yet to be found, and his memoirs deal only with his public life. There is adequate material for the reconstruction of Arce's political career, but apart from extrapolations, the man himself remains hidden in the past.

The details of Arce's early life are particularly scanty. It is known that he was born of a prominent San Salvadoran family on January 1, 1787. In addition to their first-born son, Arce's parents, Bernardo Jose and Manuela Antonia, had six other children. Three of these offspring died during childhood, and Tomas, a brother born eleven months after Manuel Jose, lived the half-life of the mentally retarded.1 As were most of the more substantial Salvadorans, Bernardo Arce was an indigo grower, and the income from his haciendas was sufficient to allow his eldest son to go to Guatemala in 1801 to attend the Colegio de San Borja.2 His biographers assure us that Manuel Jose was an excellent student. Whatever his scholastic abilities, Arce received his bachillerato and possibly intended to pursue the study 29








of medicine. The illness of his father, however, obliged Arce to return to El1 Salvador to assist with the operation of the family estates.3 In December, 1808,he married his cousin Felipa Aranzamendi, and in the ensuing years this union produced six children.

This cursory review presents only a skeletal outline of Arce's first twenty-one years, yet it contains nearly all of the substantive statements that can be made in regard to' his personal life during this formative period. This paucity of information requires that any attempt to explain the political behavior of the young Salvadoran be based on circumstantial evidence. Nevertheless,, it is not impossible to account for Arce's involvement in Central America's first, open confrontation with the colonial establishment. Basically, there are three factors which explain his appearance at the forefront of the uprising of 1811. These include Arce's familial ties, his father's service in public office and the financial situation of his family.

In the first decades of the nineteenth century, the po litical leaders of El Salvador were largely drawn from a kinship elite similar to the aristocracy of Guatemala. Bound togeth er through the marriages of the seven daughters of Diego de Leon, this extended family included the surnames: Aguilar, Aranzamendi, Arce, Delgado, Fagoaga, Lara, Morales,
? 4
and Rodriguez. In addition to exercising political leadership, the family had a further resemblance to the Guatemalan aristocracy in that its members adopted a position of








political liberalism prior to the coming of independence. The similarity ends at that point, however, as the liberal stance taken by the Salvadoran "tfamily"t proved to be much more durable. This political commitment was doubtlessly shaped by a predisposition towards change arising from the years of conflict with Guatemalan merchants and to the leadership of Jose' Mati'as Delgado.

Delgado was born in San Salvador in 1767, and he

received his training in Guatemala at the Tridentine Seminary and the University of San Carlos where he obtained a doctorate in canon law. After he completed his studies, Delgado served as curate of San Salvador, and in 1797 he was appointed to the office of provincial vicar. The origin of Delgado's liberalism is unclear, but as Montu-far suggests, it may have simply been an outgrowth of his desire to establish a bishopric in El Salvador.5 A man of considerable ability, Delgado's manner was such that he enjoyed not only the prestige of his offices but substantial popular support as well, and it seems likely that his convictions became those of his parishioners.

While there were a number of other individuals

involved, all of the above-named Salvadoran aristocratic families had representatives who played leading roles in the 1811 revolt. It is commonly held that the moving spirits of the uprising were Jose' Mati as Delgado together with Nicole's, Vicente, and Manuel Aguilar, and there were close ties between these men and Manuel Jose"Arce. Arce was a








second cousin to Delgado as the mother of the Salvadoran vicar and Arce's paternal grandmother were sisters.6 The Arces were also related by marriage to the Aguilars, and this bond was strengthened in May, 1811 when Arce's sister Manuela married Domingo Antonio de Lara, a nephew of the Aguilar brothers. With connections such as these, Arce's involvement in the movement was almost inevitable.

Though Arce's admission to the group of dissidents

was provided by kinship, this factor alone does not account for the position of leadership assumed by the twenty-four year old creole. To assert that Arce was a born leader begs the question, but the assumption that he had leadership capabilities is not unreasonable. A thoroughly retiring young man would likely have remained on the sidelines. Arce's actions in the 1811 uprising demonstrate that he possessed a considerable amount of drive and spirit, so it may be inferred that he expressed himself quite vigorously in the conversations and meetings which ultimately led to the open expression of creole discontent. Still, the fact that Arce was able to assume the role of a key figure was probably due not so much to his own energy as it was to the position of his father within the creole community. In fact, as member of the ayuntamiento, Bernardo Arce was one of the leading citizens of San Salvador. In 1787, the year that Manuel Jose" was born, Bernardo Arce was chosen for the post of alcalde segundo7. He was elected to this office again in 1793 and also served a term as alferez real.8 What might be








considered the culmination of Arce's political career occurred in 1799 when he was selected to be alcalde primero. In that year, Luis de Arquedos declined to accept his appointment as intendente of the province, and so the authority of that office devolved upon Bernardo Arce.9 Thus, the name of Arce commanded a degree of respect which would accord Manuel Jose a place of prominence in whatever endeavors he elected to pursue.

Inasmuch as the Arce family can be considered a part of the local establishment, the question of its motivation for participating in the revolt of 1811 arises. The intendente Antonio Gutilrrez y Ulloa, a peninsular appointed in 1804, was noted for his deprecative behavior in dealing with the creoles.10 It may be argued then, that the Arce's were simply seeking to regain the authority they had once tasted. It also may be supposed that Manuel and his father shared the frustration of cousin Josd Matas Delgado concerning the attempt to erect a bishopric in the province. To this writer, it appears that their discontent may very well have had economic origins, as El Salvador had experienced a marked decline in its indigo-based economy by the end of the first decade of the nineteenth century.

This deterioration was partly the product of natural causes. In several years the size of the harvest was severly reduced by locust plagues.II The introduction of indigo into Venezuela in 1777 prevented compensation for crop shortages by means of price increases, as Venezuelan








indigo captured a g-rowing share of the Spanish market. Furthermore, the profit margin for Salvadoran producers was, reduced by increased local taxes and support for the montepio of the Sociedad de Cosecheros de Anil, and these factors ultimately destroyed the competitive position of Central American indigo.12 The decay of the indigo industry is dramatically demonstrated by the official production figures given to Henry Dunn in 1827.13 The fact that the output of indigo in 1811 was less than half of what it had been twenty years earlier must have meant that serious financial difficulties confronted the Arce family. This supposition is supported by the fact that Bernardo Arce was forced to contract sizeable debts. After his death in 1814, Arce left an estate which owed the montepio a sum of 6,000 pesos and Gregorio Castriciones, the wealthiest Spaniard in the province, a total of 25,185 pesos.14 It is not suggested that the Arces embraced insurrection merely as a means of avoiding their obligations, but it seems more than plausible that increasing financial pressures would have encouraged their disaffection.

Whatever their personal motives, the creoles of San

Salvador were prepared by 1811 to take the steps most feared by colonial authorities. In a sense, they were merely keeping in step with their times. Though Central America is generally considered to have been one of the backwaters of the empire, its residents were by no means unaware of the currents of political change flowing about them. This






35

was plainly demonstrated when the ayuntamiento of Guatemala prefaced the instructions given to its representative to the Cortes of Cadiz with the "Declaration of the Rights of Man and of the Citizen." Clearly concerned with stemming the spread of disloyalty, Captain General Antonio Gonzdlez y Saravia established a tribunal de fidelidad on May 27, 1810, and offered a reward of five hundred pesos for information leading to the apprehension of foreign agents. None of Napoleon's representatives were uncovered, but seditious material was found and promptly burned.15

On March 14, 1811, Gonzalez y Saravia was replaced by Jose* Bustamante y Guerra who immediately issued a manifesto which demanded nothing less than total obedience to Spain. Bustamante was not long in deciding that the murmurings of discontent issuing from San Salvador signaled the greatest threat to tranquility, and he later reported:

when I took possession of command, I saw substantiated
the reports I had been given of the secret spirit of unrest in this kingdom; I most feared its effects in
the province of San Salvador, where my predecesor
feared them; and in order to remove the means by which it might be possible to instigate an insurrection, I gave orders for the removal to the capital
of the arms and funds that were in San Salvador.
And in its accomplishment, there were removed in
August of that year 11,700 rifles and 95,201 pesos
from the public treasury . . 16

Undeterred by Bustamante's action (and possibly spurred by it), the Salvadorans proceeded to emulate the example then being set by creoles in other areas of the Spanish empire, and in the words of Bustamante, "the fire which had burned in secret manifested itself publicly," on November 5, 1811.17








The 1811 uprising had religious fervor as its chief

impetus and open expression of the creole-peninsular conflict as its immediate consequence. The outbreak was precipitated by the action which the government took against the Aguilar brothers. These men were all members of the clergy and apparently were held in considerable esteem by the Salvadoran masses. The Aguilar ' loyalty, however, had been suspect since the beginning of the year when they had declined to publish an edict condemning the Mexican revolutionaries, and early in November, Manuel Aguilar was arrested in Guatemala on the charge of having had correspondence with Miguel Hidalgo.18 When the news of this event reached San Salvador, the result was a storm of popular protest. Such a response was not surprising as the seeds of unrest had already been sewn among the people. In the latter part of October, Bernardo Torres, an alclade of one of the city's barrios., informed the residents of his district that Bernardino Molina, a peninsular Spaniard, intended to assassinate Jose Matias Delgado.19 Apparently, there was little validity to the charge, but the fact that a rumor of this sort was planted has considerable significance. It indicates that certain individuals sought to marshal the force of the masses, realized that this could best be done by appealing to religious sentiments, and expected to employ this force against the Spaniards resident in San Salvador. The most likely authors of this plan were, of course, those creoles who assumed leadership of the November revolt. In








the previous year, young Arce had exposed the antipathy that existed between his group and the peninsulares. Testimony offered in the subsequent investigation of the rebellion revealed that in 1810 Arce had encouraged Manuel Paredes to join a junta that met in the home of the Aguilar brothers and which planned to throw off the yoke of peninsular domination.20 In the resort to religion as a means for achieving their purposes, the Salvadoran creoles uncovered a political device that would later be employed with equal facility by Central American conservatives.

On the evening of November 4, a crowd of townspeople gathered before the home of the provincial vicar to inquire about the fate of the Aguilars. Delgado confirmed the news concerning the arrests and suggested that those present might pay a call on Antonio Gutilrrez y Ulloa and demand that the intendente secure the release of Manuel and extend his protection to Nicolas Aguilar.21 Led by Manuel Jose", his father, his uncle Juan Jose Arce and Manuel Delgado, a brother of the vicar, the throng made its way to the home of the intendente. In response to the uproar, Gutierrez y Ulloa appeared at a second floor window and was informed of the Salvadorans' wishes. The intendente responded that he was powerless to take such action as they requested. This hardly satisfied, but the besieged official was finally able to convince the crowd to disperse. Manuel Jose left the intendent's home swearing to even the score by taking Bernardino Molina into custody. Failing in this, he spent








the night with his cousin Jose Mati'as Delgado "in order to protect him.,,22

The turmoil continued the next day, and by noon it was clear that a plan of action had been established. Approximately four hundred men again appeared before the home of Gutierrez y Ulloa. Manuel Josd Arce, with the title of "deputy of the people" acted as spokesman for the group and directed the intendente to sound the bell which would summon a meeting of the ayuntamiento. Gutierrez y Ulloa complied with this command and then was escorted to the town hall where an even larger crowd was assembled. After the meeting was brought to order, Gutierrez y Ulloa was deposed and the arrest of all Spanish officials was ordered.23

A creole government was then established. Bernardo Arce was named alcalde primero, but he declined to accept the post which then went to Leandro Fagoaga. Josef Mari a Villasefor was chosen as alcalde segundo, and Jose Mariano Batres was given the office of intendente. The ayuntamiento was also reorganized with Bernardo Arce, Juan Delgado, Tomas Carillo, Domingo Durdn, Manuel Morales, Miguel Rivera, Fernando Silva, Francisco Vallosa as members and Juan Manuel Rodriguez as secretary. Jose Aguilar replaced Jose Rossi as comandante general de las armas.24

While the meeting was in session, Manuel Jose Arce, in a burst of youthful exuberance, climbed on a chair by the door of the building and proclaimed, "there is no King"''25 Arce told the assembled throng that it need no longer take






39

orders from Spanish officials and should only obey the newly elected creole authorities. He also promised the people that the alcabala would be abolished and that the monopolies on tobacco and aguardiente would be suppressed.26 Though some authors, following the account of Alejandro Marure, assume that a condition bordering on anarchy prevailed for the balance of the month, this does not seem to have been the case. Apart from Arce's outburst, it appears that the creoles conducted themselves with a considerable degree of discretion. Following the establishment of the new government, tranquility was restored and there were no outrages committed against the Spainiards. Antonio Gutierrez y Ulloa, who was confined to the premises of the Convent of Santo Domingo, later testified that the Arces had treated him with courtesy and had exercised a restraining influence on the mobs that formed during the revolt.27

On November 6 the creole government, in an attempt to establish its legitimacy (and possibly buy a little time), informed the colonial officials in Guatemala that there had been a disturbance in San Salvador, but order had since been restored.28 To further protect themselves, the Salvador an officials swore loyalty to Ferdinand VII on the following day. The creoles were not so naive as to believe that their assumption of power would go unchallenged, and they realized that by themselves they could not successfully withstand the authority of the Captain General. In hopes of bolstering their position, the rebels drafted a manifesto which gave a







40

brief account of the uprising and attempted to justify their actions.29 This document along with an invitation to send a delegate to a proposed provincial congress was sent to all the towns in the province and possibly to other provinces as well.30

Manuel Jose Arce had a hand in this propaganda

campaign as on November 8 he spent the day at his father's house dictating letters to the scribes Bonifacio Paniagua and Joaquin Chavez. The evidence indicates, however, that Arce had no personal -responsibility for the substantive content of these letters. Bernardo Arcets house apparently served as a kind of headquarters for the creoles as there were others there on the same day dictating similar letters.31 In addition to assisting with such details, Arce, retaining his title of "deputy of the people" served as a liason officer betwee n the people and the government. He also had the responsibility of maintaining order in the city, and was given one hundred pesos from the public treasury to cover the costs of police patrols.32

The Salvadoran insurgents were not at all unique in their dissatisfaction with peninsular dominance. In Nicaragua the citizens of Le'ri deposed the intendente Josel Salvador on December 13. Nine days later Spanish officials in Granada were forced to resign their posts. While these actions further disturbed the structure of colonial government, they came too late to provide support for the Salvadoran venture. Within the province of San Salvador, the revolt








was seconded by the communities of Metapan, Zacatecoluc, Chalatenango, and Usulutdn where the cry of, "death to the chapetones," was heard in the streets.33 Of much greater significance in determining the outcome of the Salvadoran revolt was the reaction of San Miguel, Santa Ana and San Vicente. If the creole government of San Salvador was to have the least chance of coming to terms with the colonial authorities, it had to have the solid support of the entire province, but the above named towns refused to sanction the transfer of power. San Miguel directed the town executioner to burn the Salvadoran manifesto in the central plaza, while the community of Santa Ana forwarded the correspondence it received to the audiencia along with the declaration that it considered the action of San Salvador to be "sacrilegious, subversive and seditious,"34 Deciding to take more vigorous action, Jose Santin del Castillo, the alcalde primero of San Vicente, gathered a force of one hundred and fifty men for the purpose of restoring the legitimate government.35 In response to this action, the ayuntamiento of San Salvador commissioned Manuel Jose Arce to ascertain the intentions of alcalde Santin del Castillo.36 The nature of the inquiry made by Arce is not known, but it had the effect of eliminating the threat posed by San Vicente. The ayuntamiento of San Salvador was informed that the San Vicentians had never thought of mounting an invasion and had marshaled its troops in the belief that San Salvador might request assistance for repressing a popular uprising.37







42
While the rebels were able to maintain their position in the face of opposition within the province, this lack of unity meant that they could not successfully resist the authority of the Captain General. With the arrival of the teniente letrado of Nicaragua, Captain General Bustamante was apprised of the true character of the situation in San Salvador, and on November 15, he appointed Juan Jose Aycinena to the post of intendente and directed him to restore order to the province.38 Aycinena was joined by Jose Maria Peinado who was commissioned by the ayuntamiento of Guatemala to assist in the pacification effort. Whatever may have been the Captain General's thoughts on the proper method for dealing with the insurgents, he acceded to the ayuntamiento's wish to handle the Salvadorans gently. Although Aycinena was provided with a sizeable militia force, the commissioners were instructed to pursue a policy of suasion and grant amnesty to those who had participated in the revolt.39 Faced with a choice between futile warfare and honorable defeat, the creoles turned their backs on the dream of selfgovernment. At least they could claim a victory of sorts as the Spanish intendente was replaced by a native son of Central America. When Aycinena and Peinado entered San Salvador on December 3, they found the streets lined with citizens who greeted them as liberators rather than conquerors. A Te Deum was sung, and two days later the ayuntamiento wrote a letter to its sister body in Guatemala expressing gratitude for the "swift measures" taken to









restore lawful authority.40

There has been some debate as to the status which

should be assigned to the 1811 revolt. A number of Central American writers have taken the position that the uprising marked the beginning of Central America's struggle for independence. The product of a nationalistic desire to share in the glory of the bygone battles for freedom, this concept is held together by rather slender threads and seems closer to myth than reality. As a coherent, vital movement, a "struggle" for independence in Central America never took place. Authors who have taken a more critical view of the uprising regard it as little more than a manifestation of the creoles' envy and resentment of the peninsulares. Certainly the slogan, "down with bad government; long live Ferdinand VII,"1 expresses the character of the revolt, and the ready acceptance of amnesty suggests that the creoles' objective was simply that of cutting the peninsulares down to size. Captain General Bustamante held this belief in 1813 when he wrote:

desire for office and commercial cupidity have been
in former times and will be in the future the only
cause of disturbances in America. They [the creoles]
exaggerate rigidities in the law, they extoll the
rights of the people, they speak with horror of despotism, they affect tender sentiments for the unfortunate, etc., but there are no causes other
than those indicated.41

Despite this evidence , there is reason to believe that the 1811 revolt was a definite, albeit faltering step in the direction of independence. The officials who directed the treason hearings begun in 1814 did not share the earlier






44

cynicism of the Cap tain General concerning the causes of unrest. They sought and received confirmation of the charge that independence had been the object of the uprising.42 It is unlikely that the corroborating witnesses, who were members of the colonial militia, were privy to the thoughts of the rebels, yet it appears that their testimony came close to the truth. The oath of allegiance to Ferdinand VII may be viewed as a step taken to gain time while allaying the fears of the conservatives. There is no doubt that the creoles coveted the positions held by the penisulares, but this ambition is indistinguishable from a genuine commitment to self-jovernment. The assertion that the desire for office defined the limits of creole aspirations belongs to the realm of speculation. Proof of this contention would demand a demonstration that creoles were given the reins of government and subsequently remained obedient to the dictates of Spain. In the case of San Salvador, a creole was placed in a position of authority, but it later became clear that he was no more palatable to the Salvadorans than his Spanish predecessor.

Moreover, it is evident that the Salvadorans had a motivation superior to the acquisition of offices: the desire for religi ous autonomy. While they took no action on the matter during the brief period that they were in power, it is certain that the creoles had this goal in mind. When Jose Ignacio Avila was chosen in 1811 as the Salvadoran representative to the Cortes of Cadiz, he was instructed to






45

press for the erection of a bishopric in the province, and he addressed a petition on this subject to the Cortes on March 21, 1812.43 Had the creoles.been able to maintain their position for a fair amount of time after the November revolt, it seems probable that the issue of the bishopric would have provided the rationale justifying a declaration of independence.

The thesis that the Salvadorans had embarked on a course leading to independence is given greater substance by certain actions taken by the creole government. In attempting to convene a provincial congress, the Salvadorans clearly exceeded the bounds of colonial law as such meetings had long been forbidden by royal order.44 The downward flow of policy was a part of the natural order of things which the congress would have blatantly inverted as its announced purpose included the formulation of local policy decisions. In itself the summoning of a provincial assembly signaled that the creoles were prepared to defy the authority of the Captain General. The willingness to run counter to established modes of behavior is further demonstrated by the reaction to the hostile attitude of San Vicente. It is difficult to believe that the Salvadorans had any illusions concerning the reason behind the massing of troops in the neighboring city, and they sought to preserve their integrity in the face of this threat.45

Isolated in time, the 1811 rebellion was of little or no political consequence. Having no real relationship to the actual establishment of Central American independence,






46

it is easy to dismiss the revolt as being devoid of content. Yet to this writer it appears that the uprising was the beginning of a genuine independence movement that was aborted after its leaders made a realistic appraisal of the uneven odds they faced. If the resources of San Salvador had been sufficient to have encouraged resistance to the colonial authorities, Central Americans might have had the fight for freedom they now long to remember.

Following the restoration of colonial authority, San Salvador assumed an air of tranquility. In March, 1812 Aycinena left the province to accept an appointment to the Council of the Indies, and the office of intendente was transferred to Jose Maria Peinado who had authored the Instrucciones given to the delegate to the Cortes of Cadiz, Arce retired to the hacienda San Lucas and apparently spent the better part of the year there.46 Following the promulgation of the Constitution of 1812 in San Salvador on November 8, 1812, Arce was selected to represent the province in the Spanish Cortes. He declined this honor, however, and was subsequently elected to the constitutional ayuntamiento of San Salvador.47 Showing a similar disinterest in journeying to Spain, Jose" Matias Delgado accepted a post on the newly created diputacion provincial in preference to a seat in the Cortes.

Peinado, a creole and a liberal, attempted to govern the province in a fair and understanding fashion, but buoyed by the atmosphere of political change, the Salvadorans








proved to be more than he could handle. With the passing months of 1813, the colonial -regime was increasingly subjected to verbal attacks, anonymous broadsides, and threatening graffiti. Both political inclinations and festering enmities were exposed in the little rhyme:

Cuidadanos del Tambor
Decid de muy buen gana
Que viva el padre Morelos
Y mueran los de Santa Ana. %0

It is not clear whether the liberal reforms of 1812 incited the Salvadoran liberals to move further to the left or merely provided a favorable climate for the growth'of preexistent radicalism. In any case, the leading forces of Salvadoran politics demonstrated the underlying sincerity of the 1811 movement as they refused to be pacified by the

-rights granted under the Constitution of 1812. Reconvening the secret juntas formed in 1810, the creoles began to discuss plans and ideas which the Captain General would have considered extremely alarming. The direction of creole ambitions was made clear by Miguel Delgado, Juan Manuel Rodriguez, and Santiago Jose Celis, (all friends of Arce, though probably ahead of him in their thinking) on March 1, 1813, when they wrote to Jose Maria Morelos:

For some time we, the undersigned residents of
this city, have been considering a means for
communicating with you, none being free of risk, we
are employing the most daring and sending this by
courier. We are begging for arrest, but as our
ideas are in close conformity with yours . . . inform us of the present state of your important activities
and of succeeding events as they occur. We await
this kindness protesting that our adherence to your person is identical to that which we have for your
interesting and just cause, assuring you that we








work constantly to maintain the high opinion whic h
you enjoy in this kingdom. . ' .We equally hope
that you will inform us of the plan for the constitution adopted by your country . . . .4


in the face of ominous rumors and obvious discontent, Peinado repeatedly attempted to convince Captain General Bustamante (and possibly himself as well) that all was well in San Salvador. Having other sources of information in San Salvador, Bustamante wrote to Peinado inquiring about the nature of the public attacks on the government. Peinado admitted that there had been some manifestations of disrespect, but on April 22 he avowed that suspect behavior was a thing of the past and that the people of the province were "good, simple and religious."150 These qualities did not prevent the citizens of San Salvador from taking to the streets on September 5 in response to a rumor that Delgado had been arrested in Guatemala. The intendente had some difficult moments as he faced a situation that had the makings for a re-enactment of the events of 1811. Order was restored, however, with the arrival of mail from Guatemala which proved the rumor groundless. Maintaining his convictions, Peinado later wrote to the Captain General that the disturbance was of little consequence as it was merely an expression of the peoples' affection for Delgado and that the loyalty of the province was unquestionable. Bustamante was unconvinced as his own sources continued to send him troubling reports. Fearing that the fact that Delgado was residing with Peinado's family in Guatemala might have a lulling









effect, Bustamante advised the intendente to exercise extreme vigilance. Undisturbed, Peinado blandly replied on October 24 that the citizens of all classes were "submerged in the grossest ignorance."51 It is not clear when he changed his mind, but by December 3 Peinado had become convinced of the things the Captain General had feared. On that date he wrote to Bustamante that he could not find the proper means of controlling the province, obedience was lost, and the people resembled "cynical academicians" disputing and discussing the constitution with enthusiasm.52 With this change in attitude, the intendente initiated a policy of rigorous control which shortly led to the second confrontation between the Salvadorans and the colonial government.

The first demonstration of Peinado's new approach to government came with the December elections for the alcaldes of the barrios. Believing the victors in the election to be "vicious" and "suspect" persons, Peinado ordered that new elections be held. The alcaldes chosen in the second balloting were equally distasteful to the intendente, and though he allowed them to take office, he refused to confirm their election. On January 9, Peinado referred confirmation of the election to the Captain General. At the same time he ordered a secret distribution of arms and ammunition to the royal garrison and corps of volunteers in response to the request of the ayuntamiento that all weapons be placed in the local armory where they would be at the disposal of








the people.53 Continuing with his pacification program, Peinado summoned the members of the ayuntamiento to his home on January 16, entertained them with a play, and then lectured them on their behavior and responsibilities. It appears that his guests may have been more impressed by the dramatic presentation which bore the suggestive title Mas vale tarde que nunca.54 Two days later the Captain General informed the ayuntamiento that the disposition of armaments was none of their concern, and more importantly, he directed Jose Rossi, the comandante general, to increase the number of night patrols and to keep all suspicious activities under close surveillance. It was Rossi's compliance with this order that led to the uprising of 1814.

On the twenty-second of January, Rossi reported to

the intendente that a group of men had been seen leaving the home of Pablo Castillo, the alcalde segundo, at one o'clock in the morning. Suggesting that a conspiracy was afoot, Rossi urged the intendente to take strong countermeasures. It was learned from informers that the alcaldes of the Remedies and Candelaria barrios had attended the meeting at Castillo's home, and Peinado had these men arrested on January 23.55 This firm action only served to provoke the very thing that Peinado was seeking to avoid. News of the arrests spread quickly, and by ten o'clock on the morning of the twenty-fourth, the situation in San Salvador was such that Peinado doubled the guard at all public buildings and ordered that each man be given all the cartridges he








could carry.56 Apart from agitated conversations in the streets, the situation at first seemed under control. The first confrontation did not come until two o'clock in the afternoon when an alcalde from the barrio of San Jose appeared before Peinado and urged that the prisoners be released. The intendente flatly refused the request and sent the alcalde packing. During this time a junta had gathered at the home of Miguel Delgado to hold a series of strategy sessions. The participants in these meetings included the creoles Delgado, Arce, his brothers-in-law Domingo Lara and Juan Aranzamendi, Jose Santiago Celis, the alcalde primero Juan Manuel Rodriguez, the mestizo alcalde segundo Pablo Castillo, Silvestre Anaya, a zambo, and several other persons of mixed blood.57 There is no record of the discussions that were held, but subsequent events indicate that the creoles, with the possible exception of Rodriguez, advocated a cautious approach in opposition to more vigorous action proposed by the pardos.

In any case, an apparently moderate response followed Peinado's first refusal to liberate the prisoners. At four o'clock in the afternoon, Rodriguez approached the intendente and requested the summoning of a cabildo abierto. Fearing a trap, Peinado asked what would be the purpose of such a meeting. He was informed that it would help to calm the citizens who had been greatly disturbed by the arrest of the alcaldes. Peinado replied that such matters were his responsibility alone but offered to have the ayuntamiento









meet at his home at seven o'clock.58 Peinado's suspicion that a cabildo abierto had been requested for a purpose similar to that obtained in 1811 appears confirmed by the fact that his proposal for a meeting of the ayuntamiento failed to satisfy the junta assembled at Delgado's home. Around six o'clock Arce entered a plea for the release of the prisoners, but the intendente's only response was to direct the young creole to disperse the crowd which was gathering near the church of La Merced.59 Arce made a halfhearted attempt to comply with this order and then rejoined the junta which was now convened in the sacristy of the church. At seven o'clock Rodriguez returned to Peinado's home, and after informing the intendente that a meeting of the ayuntamiento would not be necessary, demanded that the prisoners be freed. The matter was debated for some time, and finally Juan Miguel Bustamante, who was now serving as the teniente letrado of San Salvador, counselled that the demand be met in the interests of peace.60 A release order was signed, and at nine o'clock Rodriguez led the alcaldes back to the exuberant welcome awaiting them at La Merced.

Believing the crisis was resolved, Arce and a number of other creoles returned to their homes; but under the leadership of Pablo Castillo, those who were determined to put an end to their troubles with the intendente remained at the church. Shortly before midnight the conspirators sounded the bells of La Merced. Armed with a brace of pistols, Arce answered the summons and learned of a plan to







53

seal off the city and sieze the arms of Peinado's mon. With little chance for success, Arce assumed the task of putting the mob assembled at the church in some semblance of fighting order.61 He had hardly begun, however, when troops from the local garrison appeared. In the ensuing skirmish the insurgents were routed as two of the rebels were killed and three men, one of whom was Domingo Lara, were wounded.62 This brief encounter put an end to the uprising. On the following day Peinado had the city under his complete command. Rodriguez, Delgado and Celis were arrested immediately. Arce and Lara were able to make their way to San Lucas, and Castillo also fled the city. In view of the attitudes reflected in the letter to Morelos, there can be little doubt that the creoles were anticipating separation from Spain. Their hesitant behavior on the twenty-fourth suggests that they were not yet ready to move. Castillo's agitation, however, forced precipitate action which resulted in the total emasculationi of the independence movement.

As he remained unmolested on his hacienda for several

months,, Arce may have thought that he was safe from prosecution, but the revelation of his participation in the uprising was inescapable. Called in on April 4, 1814 to account for his presence at the scene of the tumult, Arce testified that he had gone out merely to learn why the church bells had been rung.63 While this statement was true and Arce was allowed to return to his home, the authorities were far from accepting his declaration of innocence. On May 5, 1814v






54

Arce was placed under arrest, and for the next five years the glacial movement of Spanish justice would be the dominant factor in his life. Arce was not informed of the charges against him nor was he allowed to contact his family throughout the summer of 1814. During these months his wife directed several petitions to the audiencia pleading that she be allowed to contact her husband and that the cause of his arrest be made known.64 Arce was permitted to communicate with his family, but the request for an indictment was futile. By October, while demanding that his case be brought to a speedy conclusion, Arce was still complaining that charges against him had not been filed. One wonders what Arce's reaction would have been had he known that his trial would drag on for nearly two more years. He filed protests that Juan Miguel Bustamante, the judge assigned to his case, was prejudiced against him, and in February, 1815 he admonished his tormentors not to behave in such a manner that it

would be said in the future, "gue los satrapes de las provincias distante eran mas que Reyes.'65 All that he received for his troubles was further interrogation from Bustamante.

Arce was by no means a docile prisoner. In addition

to demands for his legal rights, he filed numerous complaints concerning prison conditions. He believed that his cell was too small and that he was denied adequate contact with his family.66 He was harassed by the jailers and forced to remain in his cell when the prison was shaken by an earthquake.








His food, often consisting of nothing more than moldy tortillas, was abominable. Consequently his health declined, and Arce suffered alternately from diarrhea and constipation all the while he was held in confinement.67 It appears that Arce's health in fact may have been permanently damaged by his term in prison as he was plagued with illnesses throughout the rest of his life.

Arce's most serious concern was the financial

difficulties that were caused by his arrest and the impounding of his possessions. When Arce first petitioned to have his case brought to a conclusion, he cited the need to attend to his business affairs; after he had been held for a number of months, he pled the cause of impending poverty.68 Arce's economic problems extended to other members of his family as well. Following his death in November, 1814, Bernardo Arce's property was included in the attachment of his son's possesions. This action made it impossible to settle the estate and caused considerable hardship for those dependent upon its revenues.69 When Manuela Arce journeyed to Guatemala to plead the cause of her brother and her husband in 1816, she stated that, having already sold her jewelry to maintain her family, she had been forced to sell her silverware to pay for the trip.70 After Arce was finally released, his property--less a portion sold to pay debts incurred during his confinement--was restored to him, but it appears that he never fully recovered from the economic difficulties that arose from his imprisonment.






56
As the proceedings against Arce slowly crept forward, he continued to maintain his innocence. He charged that the testimony entered against him was made by either mortal enemies or unqualified witnesses. He flatly denied most of the charges, and what he was forced to admit, he attempted to put in the very best light. In 1811 he had promised abolition of the alcabala only as a means of quieting the mob. He had armed himself on the night of January 24 as he intended to assist the militia with the settlement of any disturbance.71 Such testimony, however, had little effect on his judges who continued to amass evidence of Arce's guilt. In 1815 Bustamante was named interim intendente and his place as judge in Arce's case was taken by Isidro Marin. This change made little difference to the accused who soon complained that Marin was as biased and unfair as his predecessor.72

By the end of the year, the investigation had been

completed, but it required six months to reach a decision in the case and three more years to conclude all of the litigation that was involved. Franco Ruis, who had been appointed as Arce's defensor, resigned from the case in March, 1816, and Arce asked that his sister be named to represent him. This request was denied, and Arce was saddled with Domingo Baraona, a "mortal enemy" who was regarded by Mariano Fagoaga as a "professional drunkard."'73 Baraona went through the motions of presenting a defense, but by this time it made little difference who handled the defense or how it was








presented. On June 19, 1816,Arce was condemned to serve eight years in the prison at Ceuta.74 This sentence was not carried out as Arce's sister immediately appealed his case to the audiencia. While this appeal was being considered, Ferdinand VII, in celebration of his marriage to Maria Isabella de Braganza, issued a general amnesty on January 25, 1817. The royal order was proclaimed in Guatemala in June of that year, and Arce requested his freedom under the terms of the amnesty. Achieving his release was, however, no simple matter. By April, 1818 the court had yet to act on his petition, and Arce addressed a complaint to Captain General Carlos Urrutia that he was still being held in confinement.75 In part, the exasperating delays which Arce experienced were caused by bureaucratic sluggishness. Also, the audiencia, possessing considerable latitude in the application of amnesties, had to review all of the testimony taken in Arce's case. Finally, on July 7, 1818, the court recommended that Arce's sentence be suspended.76

Following his release from prison, Arce's energies were totally absorbed by the needs of his family and the effort of putting his financial affairs in order. As the market for indigo was by this time almost nonexistent and the production of cochineal had not yet taken hold, it is likely that he was able to do little more than retrench. Supported by a few rents and several small herds of cattle, his family never again enjoyed the income of earlier days. Possibly it was this economic hardship which caused Arce to









be little chastened by his years in prison, as not many months passed before it became clear that Arce's attitudes had not been influenced by his repeated protestations that he had always been a "good vassal."

With the restoration of the Constitution of 1812 following the Riego revolt, Delgado was returned to his seat on the diputacion provincial. Conservative interests were, however, able to maintain control of the government of San Salvador. 77The repression of the preceding years undoubtedly had weakened the position of Arce and his liberal colleagues to the extent that they were unable to exert much influence in the elections of 1820. Still, Arce pursued the old cause and established contact with those kindred spirits in Guatemala, Pedro Molina and Jose oFrancisco Barrundia. The correspondence indicates that, despite their lack of an official voice in local Affairs, the Salvadoran liberals were able to build a foundation of support for independence. When the day of separation from Spain was close at hand, Arce asked Molina to keep him well informed of events in the capital inasmuch as San Salvador "only lacks the right hand to direct opinion, or better said, lacks an example that will expell the phantoms which bind us to the old government." 78

In this same letter, Arce displayed a remarkable degree of generosity for a man who had been made to pay so dearly for his beliefs. Placing the interests of the future nation ahead of the desire for personal revenge, Arce wrote:

The mongrel spirits which trampled over all with
indomitable pride, have fallen dead in the face of








the unity of sentiment that cries for liberty, and
we see them now as humble as they were proud during
the bloody era of Bustamante.
I am of the opinion that we should take them
back as prodigal sons; perhaps they will be insincere
in admitting to their errors, but that is not
important because the great secret of politics is
to make use of all men.79

Unfortunately for Arce, this disposition towards reconciliation would later cost him more support than it would gain.

By the time that Molina received the letter of his Salvadoran compatriot, The Bacos and Cacos had united to proclaim the independence of Guatemala. Whatever their personal 'attitudes, the officials of San Salvador ratified this action with a proclamation of independence on September 21, 1821. Possibly they hoped that all would remain as it had been, but the liberal creoles were determined to alter the structure of the government in a way that would give them a voice in Its direction. In the letter written to Molina just prior to independence, Arce mentioned the circulation of a petition for the establishment in San Salvador of a body similar to the diputacid'n provincial, and on October 1 Pedro Barriere, the jefe politico, was presented with a document which informed him that, "the people have determined to erect a junta gobernativa subalterna in this city according to the plan of the one in the capital."80 Apparently assuming that conservatives would control the junta, Barriere accepted the petition and set October 4 as the day for electing the members of the new body. In attempting to round up conservative support for the elections, Ignacio Saldana 'and Jose' Viteri discovered that there was








little prospect for a conservative victory, and at eleven o'clock on the morning of the fourth, Barriere announced that he had changed his mind and the junta would not be
I
formed.81 Led by Rodriguez, Arce and Lara, the people protested this decision with such vigor that Barriere sent out troops to restore order. As a means of insuring against further disturbances, the ringleaders were brought in; and Arce was once again imprisoned for his political activities.82

In this instance the Salvadoran patriots were not

left totally unsupported as the ayuntamiento of San Vicente immediately protested their arrest.83 This opposition had little effect on the jefe politico, but fearing the nature of local response to his action, he decided to have the prisoners taken to Guatemala to be tried for their crimes.84 Barriere was probably greatly relieved on October 7 when Rodriguez, Arce and Lara were sent on their way. It never occurred to him that the protest of San Vicente would be heard and that the central government would disapprove of his behavior. Convinced that Barriere's repressive tactics posed a greater threat to stability than did the aspirations of the Salvadoran liberals, the junta provisional consultiva and jefe politico superior Gabino Gainza directed Jose' Matias Delgado to return to San Salvador, assume Barriere's office, release the prisoners, and replace all untrustworthy officials.85 Armed with these broad powers, Delgado encountered the prisoners on the road to San Salvador and ordered their release. There must have been a fair amount of









surprise when Delgado and his retinue arrived in the city. Barriere was ordered to leave the province and all of the members of the ayuntamiento were removed from office. The administration of provincial affairs was entrusted to a diputacion which had Delgado as president and Arce, Rodrrguez, Leandro Fagoaga, Basilio Zecena, and Miguel Jose Castro as members 86

Their goal of self-government was finally attained, but the creole liberals had little time for the leisurely enjoyment of the fruit of their labors as their newly won independence was immediately challenged by the ambitions of Agustin Iturbide and his followers. In Leon, Nicaragua intendente Miguel Gonzalez Saravia and bishop Nicolas Garcia Jerez had responded to the Guatemalan declaration of independence by securing the independence of their province with a statement of support for the Plan of Iguala. Jose Tinoco pursued a similar course in Comayagua, Honduras, announcing separation from Guatemala and adhesion to Mexico. On November 11, Gabino Gainza informed the two provinces that no official or corporate body possessed the authority to make such decisions which were reserved for the consideration of the congress ordained by the act of September 15.87 At about the same time it was decided to move the opening of the congress up to February 1, 1822, but this action was not adequate to contain the growing pressures for union with Mexico. While he had possibly hoped to preserve Central America as his own domain, Gainza's resistance to








the dissident provinces and fickle Guatemalan aristocrats weakened considerably after Jose Orate arrived on November 27 bearing a note from the Mexican Liberator. Iturbide's letter pointed out the political and economic advantages that would arise from the union of the two areas and suggested that the creation of separate nations would threaten the security of all concerned. This veiled threat was made more explicit in the concluding paragraph which informed Gainza that a Mexican division under the command of Vicente Filisola was on its way to "protect the salutary endeavors of the patriots of your country. '88 Fearing that Iturbide intended to take direct action, Gainza and the junta consultiva decided not to wait on a decision by the impending congress and referred the matter to the town councils of the provinces. On Noember 30, Gainza sent the various municipal bodies copies of Iturbide's letter and instructed them to ascertain local preferences regarding annexation by means of cabildos abiertos. The decisions reached in these meetings were to be reported to the capital by the end of December.89

The issue of annexation was raised in a meeting of the Salvadoran diputacidn on December 12. Ill disposed to trade their independence for the benefits of union with Mexico, the creoles immediately decided to oppose the policy being pursued by Gainza. Two days later the diputacioqn informed the jefe politico superior that, though the diputacion had not been included in the circularization of Iturbide's letter, it was aware of Gainza's order and viewed the directive as a repudiation of the Act of Independence.









Gainza was also reminded of his earlier statement that a decision concerning annexation was beyond the faculties of any existing agency.90 Having determined that Gainza's proposal for deciding the question of annexation was illegal, the Salvadorans might have refrained from further action; but form was observed, and a cabildo abierto was held on the eighteenth of December. At this meeting the citizens opted to have the ayuntamiento and diputaci~n make the decision for them. In a closed session the members of these bodies maintained the position originally taken by the diputaci~n, and refusing to either advocate or reject union with Mexico, dictated the reply that the issue of annexation could only be resolved by the provincial congress.91

Sensing the determination of the Iturbide's friends to have their way in the matter, and realizing that they could not stand alone, the Salvadorans initiated a rather naive attempt to form a union which could successfully resist annexation. Possibly hoping that the previously announced support for the Plan of Iguala was based more on antipathy to Guatemala than friendship for Mexico, the Salvadoran diputacion wrote to the diputaciones of Comayagua and Lean on December 25 and proposed the formation of a confederation by the three provinces.92 Stating that Gainza's actions had led to numerous disorders in Central America, the Salvadorans suggested that the issue of annexation might give rise to internecine warfare. This possibility could be avoided by a union of the provinces which, with the exclusion






64

of Guatemala, would guarantee the well-being of all concerned. One wonders what passed through the minds of the leaders of Leodn and Comayagua as they read this proposal. If anything, they were arch-conservatives, and based on the belief that he could best preserve the old order, their attachment to Iturbide was most sincere. The Salvadorans might as well have looked to the man-in-the-moon for support, and were left to face the empire by themselves.

On January 5, 1822, the responses of the cabildos

abiertos were tabulated with the following results: twentyone reserved the decision for the provincial congress, one hundred and four supported annexation, eleven favored annexation with some conditions, thirty-two agreed to accept any decision made by the central government, and two opposed annexation.93 In accordance with these returns, Gainza announced on the same day the annexation of Central America to Mexico in a manifesto that appears to have been written primarily for Iturbide's consumption. Declining to accept this decree as binding on them,the Salvadoran diputacion and ayuntamiento met in joint session on January 11 and drafted a statement in which they reaffirmed their contention that the poll of the towns carried no authority. The Salvadorans also pointed out that the results of the poll could not definitely be said to represent the wishes of the majority of the people as the vote of a small community carried just as much weight as that of a town twenty times larger. Still, they did not totally reject the idea of








union with Mexico but expressed the now forlorn hope that the provincial congress would be convened to consider the matter. It was further declared that the province acceded to sovereign status inasmuch as the decree of annexation had brought about the demise of the central government. Pending the fulfillment of the terms of the September 15 Act of Independence, the diputacion would serve as the provisional government of the province.94

The news of San Salvador's independent action soon

reached Guatemala, and sycophant Mariano Aycinena immediately informed Iturbide of the Salvadoran perfidy. Urging the dispatch of a Mexican expeditionary force, Aycinena attempted to impress his new master with the gravity of the situation by reporting the rumor that Lord Cochrane had provided the Salvadorans with five hundred rifles.95 Gabino Gainza, however, was anxious to prove that there was no need for Mexican intervention. The security of his position in the empire depended on the demonstration of his ability to maintain a condition of tranquil obedience to Iturbide. Gainza's first response to the Salvadoran threat resembled the approach he had adopted in dealing with Leon and Comayagua the previous year. He informed the Salvadorans that there was no legal justification for their action which was insubordinate if not treasonous. In a reply drafted on January 29, Delgado argued that San Salvador had become a sovereign entity at the time of independence. Obedience to the central government during the preceeding months had been






66.'.

based on Salvador's acceptance of the Guatemalan declaration of September 15, 1821, which was viewed as a kind of pact between the provinces. As this pact had been abrogated by the annexation decree, Delgado claimed that the Salvadorans were justified in reasserting their independence.96 While there was little basis for this argument, it convinced Gainza that the Salvadorans could not be won over by persuasion, and he asked the junta consultiva for permission to use force in bringing the Salvadorans back into the fold. The junta replied that such measures could be employed only if the Salvadorans engaged in hostile activities.97 Though temporary frustrated, Gainza did not have long to wait before he was provided with an excuse for action.

The Salvadorans had not received any assistance from Lord Cochrane, but they were convinced that their security demanded the organization of military force. The diputacion entrusted this responsibility to Arce who was appointed comandante general of the province. The comandante quickly organized a one hundred and fifty man squadron of dragoons, and by the first of February he was in the field, ostensibly for the purpose of protecting the "liberty and independence" of San Salvador.98 Arce's primary concern, however, was the elimination of the threat posed by towns such as Santa Ana which had declared for annexation to Mexico and refused to recognize the authority of the government of San Salvador. Santa Ana especially attracted Arce's attention as it was under the protection of a garrison led by Nicolas Abos








Padilla who had been actively promoting defection in other areas of the province. Claiming that the communities of-the province did not enjoy the right of independent action, Arce moved on Santa Ana as the end of the month approached. When he learned of Arce's action, Padilla demonstrated that he lacked the courage of his convictions by withdrawing his troops to the district of Sonsonate which was then under the jurisdiction of Guatemala. Santa Ana was taken without a shot being fired, and Arce had little difficulty in securing a declaration of the town's allegiance to San Salvador. 99 With the intention of consolidating his position, Arce then pursued Padilla into Sonsonate. The Salvadorans occupied the town of Ahuachapan, and encountering Padilla on March 11, they completely routed his force in a battle near El Espinal.100 Following this victory, Arce returned to San Salvador which now exercised uncontested authority in the province.

The move into Sonsonate had been a tactical error,

however, as it provided Gainza with grounds for launching an attack against San Salvador. On March 18, he ordered Colonel Manuel Arziu to occupy the provincial capital. At the same time, he informed Iturbide that the situation was well in hand and Mexican assistance would not be necessary. 101 Had he been able to anticipate the behavior of his colonel and the Salvadorans, Gainza would have been much less optimistic. The Salvadorans were not at all eager for a military confrontation with Guatemala, and on learning of the preparations







68
for Arzu's campaign, the ayuntamiento sent Gainza a proposal for the peaceful settlement of their differences. The letter restated the legality of Salvadoran independence which had not been proclaimed in a spirit of hostility to Guatemala. It was asserted that the incursion into Sonsonate had been made at the request of officials of the district, and the encounter at El Espinal was the consequence of an attack by Padilla. In conclusion the ayuntamiento offered to send representatives to Guatemala to discuss the means of preventing further disputes between the two states.102

While the ayuntamiento was drafting its letter to

Gainza, Delgado dispatched a note to General Vicente Filisola. Leading a division of six hundred men, Filisola had arrived in Chiapas at the end of February, and on March 19 he had informed the Salvadorans that they could consider themselves under the protection of the Mexican empire. Delgado told the General that his letter had been received with great joy in San Salvador and hinted that the province would attach itself to the empire. There would be no need for military action as a congress would meet in San Salvador on May 1 to decide the question of annexation.103 At the same time, the diputaciAn, which now included Delgado, Arce,
/
Rodriguez, Leandro Fagoaga, Mariano Fagoaga, Domingo Lara, Antonio Jose Canas, and Juan de Dios Mayorga, demonstrated its independence by decreeing the erection of a bishopric and named Delgado bishop of the province.104

All of this activity had little effect on Gainza who








allowed Colonel Arzu to continue his march on San Salvador. Throughout his campaign, Arzi& moved with such caution that it appears he did not really favor military action against the Salvadorans. He had spent nearly a month on the march when he finally drew near the city and camped at Apopa on April 13. A few minor skirmishes occurred, but Arce hesitated to engage in a major battle and on the sixteenth proposed the negotiation of an armistice. Equally hesitant, Arziu readily agreed to negotiations on the following day and dispatched Rafael Montiufar to treat with the Salvadorans. Both the discussions and the armistice were peculiarly onesided. On April 18, Montu far attended a joint session of the ayuntamiento and the diputacion in which the Salvadorans presented a lengthy condemnation of the Guatemalan invasion and dictated the terms of the armistice. The more significant terms of this agreement provided for: Arzi 's withdrawal t-o Quezaltepeque, the free movement of persons in areas under Guatemalan control, a prohibition on the acquisition of reinforcements, permission for Guatemalan residents to attend the Salvadoran congress that would decide the question of annexation, and final disposition of the issue by means of direct negotiations between San Salvador and Mexico.105 Despite these unfavorable terms, Arzu' signed the armistice on April 22, and forwarded it to Gainza for approval.

Gainza spent a very busy day when he learned of the armistice on the third of May. In a letter to Iturbide, he protested that San Salvador's continued resistance was due








solely) Arz 's failure to carry out his orders. Though Gainza complained that Filisola, who had now reached Quezaltenango, had refused to send the Mexican cavalry to ArzI's assistance, he assured Iturbide that San Salvador would soon
I
be brought into line.106 The jefe politico then wrote to the Salvadorans stating that, as he had not authorized any settlement, he would not be bound by the armistice and that Arzu would shortly present them with the only acceptable armistice terms. He also informed the Salvadorans that Pedro Molina, Jose Francisco Barrundia, Jose Francisco
e
Cordova, and Manuel Ibarra, who had been elected to represent various Salvadoran districts in the provincial congress, would not be permitted to attend the proposed congress in San Salvador as they were now citizens of the Mexican empire.107 Finally, Gainza sent Arzif a blistering note which stated that the commander's behavior was totally incomprehensible. There had been no military reason for agreement to an armistice, and if Arzu had merely wanted to avoid bloodshed, he could have at least secured a more advantageous settlement. This was followed by a lengthy letter designed to convince Arzu of the justice of the campaign against San Salvador. Writing in terms that could be understood, by a child, Gainza presented a damning indictment of Salvadoran perfidy and agression. He directed the rejection of any armistice that did not provide for: the disbanding of Salvadoran forces, the deliverance of all arms, payment of indemnities, and the establishment of garrisons in the









provinces. Until these terms were accepted, Arzu was to give no thought to the suspension of hostilities.108

As might be expected, the Salvadoran government

rejected Gainza's terms, and on May 27 the reluctant Arzu began to move against the city. Hoping to take Arce by surprise, Arzu elected to approach the city by way of a little used route which crossed the slopes of the volcano lying to the west; and after considerable difficulty, reached the outskirts of San Salvador on the second of June. Arzi 's stealth proved to have been a wasted effort as Arce had decided not to engage in open combat and had withdrawn to the city. Leading his 1,000 man force into San Salvador on the following morning, Arzu found that he also had been denied the opportunity for a frontal assault as the Salvadoran commander had stationed his men at doorways and windows, behind walls, and on rooftops.10 Once engaged, Arzu maintained the battle for nearly eight hours, but he was not prepared to cope with the type of defense presented by the Salvadorans. The Guatemalan force was broken into a number of isolated units, many of which demonstrated greater interest in looting than fighting. Informed of numerous desertions,,Arztl began a withdrawal at three o'clock in the afternoon. The Salvadorans pursued the invading force as it left the city, and the retreat gradually became a rout. Losing its armaments on the way, the Guatemalan column suffered continued harassment until it reached a point some fifteen leagues from San Salvador three days later.110








This victory brought to a close the first phase of the Salvadorans' struggle to maintain their independence. Arce's forces occupied the towns of Santa Ana, Ahuachapan and Sonsonante, restoring San Salvador to the position it had held following the defeat of Padilla. Gainza was unable to offer further opposition. On June 12, General Filisola arrived in Guatemala, and eight days later he ordered the jefe politico to report to Iturbide in Mexico City. With the arrival of the Mexican general, the Salvadorans initiated a prolonged series of negotiations which extended almost to the end of the year. Apparently, Delgado's letter of March 30 and subsequent letters written by Arce achieved the desired effect as Filisola had become convinced that the Salvadorans did not genuinely oppose union with Mexico and, if treated gently, would declare for annexation.ill While Gainza was in the process of convincing Arz" to take vigorous action, Filisola had advised the Guatemalan commander that a peaceful approach would be the most productive as he believed that the conflict was caused not so much by the issue of annexation as it was by old rivalries.112 Following the defeat of Arz , the Salvadorans reinforced Filisola's conviction as they welcomed the news of his arrival in Guatemala with the statement that it meant the end of the unjust treatment they had suffered. Their resistance, they said, had not been directed against union with Mexico but against the oppression of Guatemala.113 In letters to Delgado and Arce, Filisola assured the Salvadorans








that he was only interested in a peaceful settlement of differences and suggested that commissioners be sent to negotiate an armistice.

The better part of the summer was spent in the exchange of correspondence, but on August 20, Antonio Josee Canasamd Juan Francisco de Sosa finally arrived in Guatemala to represent San Salvador in the armistice negotiations. After the discussions began, Filisola's belief that the Salvadoran plan to convene a provincial congress for the purpose of declaring annexation represented a punctilious concern for prestige and independent action gradually faded. Salvadoran pressure for recognition of such a congress in the armistice terms caused Filisola to view the plan as a strategem for securing tacit authorization for a declaration of absolute independence. While he believed that the Salvadorans lacked the resources necessary to maintain independent existence, Filirsbla became convinced that they would make the attempt if given the opportunity. Fearing that an example set by San Salvador might have disruptive tendencies in other areas of the empire, Filisola refused to include any mention of a congress in the armistice agreement.114 The terms of the armistice which was signed on September 10 provided that San Salvador would send representatives to Mexico to negotiate the territorial status of the province. While these negotiations were under way, the Salvadoran government would exercise provisional authority over those areas of the province which had not declared for annexation.






74

During the period of the armistice, San Salvador was free to engage in any non-hostile activities, but it was required to return the arms that had been siezed at Sonsonate.115

The Salvadoran government ratified the armistice on September 28, and-four days later ordered elections for a provincial congress which would convene on November 10. Filisola disapproved of this action, but holding to the terms of the armistice, did nothing. By declining to intervene in the province, Filisola demonstrated his belief that the Salvadorans could ultimately be brought to their senses through persuasion and acted in accordance with the July 10 order of the Mexican congress which forbade the use of force against the dissident province. Then on October 1, Emperor Iturbide dissolved the congress and nine days later rejected the armistice, denying that the Salvadorans had the right to convene a provincial assembly. Filisola announced the Emperor's decision in a manifesto issued on October 26, and he warned the Salvadorans that if their congress met, it could only "pronounce the union of San Salvador with the Mexican Empire," or "resist it with arms. ',116 Refusing to be intimidated, the Salvadoran congress convened on November 10 with Delgado representing San Vicente and Arce representing the city of San Salvador. While they preserved their honor, the Salvadorans were not prepared to offer further opposition to the empire; and after two days of discussion, the delegates declared for union with Mexico. In a secret letter written on November 14, Delgado informed Fili sola of






75

the decision which was said to demonstrate the fact that the congress had never had any purpose other than that of issuing a decree of annexation. It is clear, however, that the Salvadorans intended to preserve a degree of autonomy as they tied to annexation conditions which called for the establishment of a bishopric, complete independence from Guatemala, maintenance of a Salvadoran military force, and retention of all Salvadoran officials.117

This attempt to secure the accomodation of both Mexican and Salvadoran ambitions did not succeed. On November 17, Filisola rejected the annexation decree and informed the Salvadorans that they had no option other than unconditional adherence to the empire. Fearing that they could not survive as an independent nation but determined not to sacrifice themselves to Mexico, the members of the congress engaged in a frantic search for a deus ex machina. The desire to preserve some remnant of Salvadoran identity ultimately led to the pathetic gesture of decreeing annexation to the United States on November 22, 1822.118 This action made little impression on Filisola who moved into the province and on December 11, established his headquarters at the Mapilapa hacienda some four leagues from the city of San Salvador. Once in the field, Filisola proved to be as reluctant to engage in hostilities as Arzi had been. Possibly he believed that the Salvadorans could be subdued by intimidation. In any case, the next fifty-eight days saw nothing but minor skirmishes and the exchange of declarations and counter-declarations. Finally, in the latter part of






76

January, Filisola received a letter informing him that he was trying the patience of the Emperor. The Mexican general was reminded that his role was not that of "a friendly arbitrator but a soldier who goes out in the service of his government to repress as he must a rebellious faction which has disturbed public order." Filisola was commanded to initiate military action to take San Salvador "at all costs . . . treating those who oppose you as rebels and traitors."119

In accordance with this order, on February 7 Filisola led his troops in an attack against the Salvadoran forces assembled on the plains of Angel. From the start, the Salvadorans were at a disadvantage as Arce had been struck by an illness that rendered him unable to lead his men.120 Still, the Salvadorans were able to repulse several assaults and held their position for two hours before they were forced to retire to Mejicanos, on the outskirts of San Salvador. The imperial column immediately advanced to the suburb where the battle was resumed. After three hours of combat, the Salvadorans were forced to give up the fight. Carrying their commander on a litter, the defeated troops
s
withdrew to a point beyond San Salvador, and Filisola entered the city the following morning. Although Mexican soldiers broke into Arce's home, their commander generally kept a close rein on his troops and treated the Salvadorans with consideration. On February 9, Filisola wrote a letter to Arce urging his surrender, but the Salvadoran army continued to roam the countryside for over a week. The Salvadorans







77

finally capitulated in Gualcince on February 21, 1823. Arce was given a safe-conduct pass, and he made his way to Belice. Arriving in Walis on March 25, Arce wrote to Filisola thanking him for his generous behavior and commending the protection of his family to the Mexican general.121 Arce then joined Juan Manuel Rodriguez on a ship bound for the United States where the two exiles would attempt to represent the interests of their nonexistent nation. As the sails were set, Arce may have wondered what had been accomplished by the years of struggle.






78



NOTES

1Roberto Molina y Morales "Don Bernardo de Arce,
ReroMlnyMoae, "oBenrodAre" in Garcia, Arce, I, 4.
2Pedro rce y Rubio, "Biografia de don Manuel Jose Arce," in Garcia, Arce, I, 82.

3Ibid.; Jorge Larde y Larin, El Grito de la Merced;
5 de 1oviie-i re de 1811 (San Salvador, 1960), p. 53.

4Molina y Morales, "Don Bernardo de Arce," p. 8;
Manuel Valladares, "Biografia del General don Manuel Jose Arce," in Garcia, Arce, I, 15; Larde y Larin, Grito, pp. 5055; Bar~n Castro, Jose Matias Delgado, p. 25.

SMontffar y Coronado, Memorias, I, 93.
6Delgado is usually referred to as Arce's uncle, and in view of the age difference, this term probably best describes the nature of the relationship between the two men.
7Roberto Molina y Morales, "Procer Linaje: Arce" in Miguel Angel Garcia, ed., Procesos por infidencia contra los roceres Salvadorenos de la independencia de Centroamirica, desde 1811 hasta 1818 (San Salvador, 1940), p. ix.
8ANG, Al.40, le. 1763; Pases de titulos; Molina y Morales, "Don Bernar0de Arce," p. S.

9Molina y Morales, ibid.; Baron Castro, Jose Matias Delgado, p. 61.

10Salazar, Historia de veintiun a'os, p. 152; Lardey Larin, p. 39; J. Antonio Villacorta, Historia de la Capitania General de Guatemala (Guatemala, 1942),p. 472.

llRobert S. Smith, "Indigo Production and Trade in Colonial Guatemala," Hispanic American Historical Review, XXXIX (May, 1959), p. 183.
12Woodward, "Economic and Social Origins," p. 551.

13Henry Dunn, Guatimala [sic], or the Republic of
Central America, in 1827-8; Being Sketches and Memorandums Made During a Twelve-Month's Residence (London, 1829), p. 212. For the years 1791-1818, the following production figures were given:








Year Pounds of Indigo Year Pounds of Indigo

1791 1,015,200 1804 732,570
1792 1,139,250 1810 740,820
1793 1,149,800 1811 536,475
1794 789,950 1812 450,425
1795 852,100 1813 257,300
1796 865,100 1814 422,507
1797 763,425 1815 41Z,781
1798 749,775 1816 376,800
1799 625,612 1817 332,200
1800 802,350 1818 332,200
14ANG, A1.1, leg. 6926, exp. 57032, "Instancia de

Manuela Antonia de Arce, sobre desembargo de bienes suyos y hermanos, por hallarse pro indivisos los embargados a D. , Manuel Jost"; Vicente Filisola, Manifesto del general Filisola sobre su expedicion a Guatemala (Puebla, 1824).
isSalazar, Historia de veinti'n anos, pp. 123, 133;
Villacorta, Historia de la Capitania General, p. 465; Laudelino Morono, "Independencia de la Cap tania General de Guatemala," Anales de la Sociedad de Geografia e Historia, VI (September, 1929), p. 13. The first person to be investigated by the tribunal de fidelidad was Jose Francisco Cordova. Corrdova and Jose Maria Castilla perfectly exemplify the manner in which Central Americans shifted from one political faction to another. Both Spaniards, they supported independence, opposed annexation to Mexico, favored a unitary form of government, and ended up as staunch conservatives.
16jose Bustamante y Guerra, "Informe del Capitan
General de Guatemala al Consejo de Regencia" [March 3, 1813], in Fernandez, Documentos, p. 55.
17Ibid.
/
18Larde y Larin, Grito, p. 64.

19 ANG, A1.1, leg. 6924, exp. 57003, "Contra D. Manuel Jose" Arce por infidencia que le resultof en las sublevaciones de 5 de noviembre de 1811 y 24 de enero de 1814." This expediente contains the major part of the testimony concerning Arce's participation in the uprisings of 1811 ajid 1814. It and related expedientes are reproduced in Garcia, Procesos.
20Ibid.

21Ibid.

221bid.

231bid.; "Contra D. Mariano Fagoaga por ciertas Juntas y expresiones sospechosas de infidencia," in Garcia, Procesos,








p. 270. Juan Miguel Bustamante, the teniente letrado of Nicaragua was making a trip to Guatemala and passed through San Salvador at the time of the uprising. Bustamante, who later prosecuted the case against Arce, was threatened with imprisonment by Miguel Delgado.
24ANG, A1.1, leg. 6924, exp. 57003, "Contra D. Manuel Jose Arce."
25Ibid.

261bid.; ANG, A1.1, leg. 6926, exp. 57043, "Don
Manuel Jose- Arze reo de YnfIdencia quejandose de qe. el Juez en comsn. le ha estrechado el arresto y negando los recursos."
J# 27ANG, A1.1, leg. 6924, exp. 57003, "Contra D. Manuel Jose Arce."
28ANG, B2.1, leg, 22, 22p. 681, "Sobre las conmociones de la ciudad de San Salvador."

29ANG, Al.l, lg. 6924, exp. 57003, "Contra D. Manuel JoseoArce."1 There is some variation between the details of the uprising as presented in the Salvadoran manifesto and the present account which follows the testimony given in the proceedings against Arce.
30ibid.

31Ibid. One of the pieces of evidence introduced in Arce's case was a letter bearing his signature that had been received by Serapio Melendes of Zacatecoluca. Both Arce and Melendes testified that they had never met, and Melendes, who had no part in the revolt, stated that the tone of the letter indicated that it had been written by an old acquaintance. Arce swore that the letter was not his but allowed that it might have been written by someone else in his father's house. Possibly in the rush to get the announcements out, Arce signed the letter by mistake.
32Ibid.

33"Don Domingo Palles, sobre Io acaecido con los
insurgentes en el Pueblo de Usulutan," in Garci a, Procesos, p. 353; Marure, Bosquejo, I, 47.
34Gazeta extraordinaria de Guatemala, November 21, 1811, in Garcea, Delgado, I, 476.
35ANG, B2.1, le 22, exp. 681, "Sobre las conmociones''-' Gazeta extrordinariade Guatemala, November 28, 1811, in Garcia, Delgado, I, 486. The opposition of these towns appears to have been the product of genuine conservatism, jealousy of the creoles of San Salvador, and the inclination








to bet on the stronger side. The towns were rewarded for their loyalty as San Miguel was given the title Muy Noble y Leal, the villa of San Vicente was promoted to the status of ciudad, anat-he pueblo of Santa Ana was raised to the rank of villa.
36ANG, B2.9 le. 38, exp. 860. Untitled report on the negotiations conducted between San Salvador and San Vicente.
37Ibid.

38ANG, B2.1, leg, 22, exp. 669, "Oficio del Capitan General Jose de Bustamante dirigido a la Audiencia," November 16, 1811.
39Bustamante y Guerra, "Informe al Consejo de Regencia," in Fernandez, Documentos, pp. 57-58.
40ANG, B2.9 leg. 38. exp. 840. Ayuntamiento of San
Salvador to the ayuntamientoof Guatemala, December 5, 1811.
41Bustamante y Guerra, "Informe al Consejo de Regencia," in , Documentos, pp. 53-54.
42ANG, A1.1, leg. 6924, exp. 57003, "Contra D. Manuel Jos' Arce."
43Gavidia, Historia Moderna, p. 235.

44Haring, The Spanish Empire, p. 161.

45This action appears to refute the thesis presented in Alejandro D. Marroquin, ApreciaciSn Sociol~gica, pp. 6071. Taking creole testimony at face value, Marroquin argues that the November revolt was a popularly based independence movement which was subverted by the creoles who maintained a holding action until legitimate authority could be reestablished.
46ANG, A1.1, leg, 6924, exp. 57003. "Contra D. Manuel
Jose( Arce."
47Gavidia, Historia Moderna, p. 291.
48Ibid.$ p. 278.

49D a
Delgado, Rodriguez and Celis to Morelos, March 1, 1813, in Garcia, Delgado, I, 507.

50JosI Bustamante y Guerra, "El Capitan General de Guatemala a la Regencia del Reino sobre las insurreciones de San Salvador" [May 18, 1814], in Fernandez, Documentos, p.71.








51Ibid., p. 74.

52Ibid.

53JoseNMar"a Peinado, "Comunicacion dirigida por el
Intendente D. JosdMar-a Peinado al Capitn General del Reino, d~ndole cuenta de la insurreccion efectuada en la ciudad de San S lvador el 24 de Enero de 1814" [February 9, 1814], in Garcia, Delgado, I, 406.
541bid. p. 407; "Contra D. Mariano Fagoaga," in Garcfa, Procesos, p. 275.

/ 55Peinado, "Comunicacion al Capit'n General," in Garcia, Delgado, I, 409.
56Ibid.

57ANG, Al.l, leg. 6924, exp. 57003, "Contra D. Manuel Josee Arce."
58
1 8p PindoQ, "�Comunicacidn al Capita'n Genoralb" in Garcia, Delgado, I, 410.
59Ibid., p. 411.

60Ibid.

61ANG, A1.1, leg, 6924, exp. 57003, "Contra D. Manuel
Jos c Arce. "
62Ibid. Bustamante y Guerra, "El Capitan General a la Regency," in Garcfa, Delgado, I, 432. According to several of his biographers, Arce fought a rear-guard action while his comrades escaped, but evidence to support this
story was not found.
63ANG, A1.1, leg. 6924, exp. 57003, "Contra D. Manuel Jos e** ce.,'t

64ANG, A1.1, leg. 6925, exp. 57025 "Da. Felipa
Aranzamendi Sre. que se reciva Ynformacion contra el Juez de letras Dn. Juan Miguel Bustamante."
6SANG, A1.1, leg. 6924 exp. 57003, "Contra D. Manuel Jose Arce;'' ANG, A.l. leg. 6925 ex. 57024, "Queja de Don Manuel Jose de Arze, por los agravios que le ha inferido el Intendente Ynterino Don Juan Miguel Bustamante."
66ANG, A1.1, leg. 6923, exp. 56995, "Varias solicitudes de parte de Don Manuel Jose Arce en resueltas de su arresto." In reply to Arce's complaint, his jailers testified that they had to open his door for visitors as often as six times
a day.








671bid.

68ANG, Al.1, leg. 6926, exp. 57027, "Incidente de la causa contra D. Manl Jose de Arce--recusacion y apartamento: diligencias de embargo de bienes a que se opone su herma Da. Manuela Antonia."
69Ibid.; ANG, A., leg. 6926, exp. 57032, "Instancia de Manuela Antonia de Arce."
70ANG, A1.1, leg. 6926, exp. 57043, "Don Manuel Jose de Arze reo de Ynfidencia."
71ANG, A1.1, leg, 6924, exp. 57003, "Contra D. Manuel Jose" Arce.
72ANG, Al.1, leg. 6926, exp. 57043, "Don Manuel Jose de Arze reo de Ynfidencia."

3Ii. "Contra D. Mariano Fagoaga," in Garcra, Procesos, p. 274.
74ANG, A1.1, leg. 6924, exp. 57003, "Contra D. Manuel
Jose Arce."
75ANG, B2 6, leg. 30, exp. 765. Manuel Jose"Arce to Carlos Urrutia, April 9, 1818.
76ANG, A1.1, leg. 6926, exp. 57043, "Don Manuel Jose de Arze reo de Ynfidencia." The writer was unable to determine the precise date on which Arce was released from custody.
77None of the participants in the uprisings of 1811 and 1814 were included in the group of officials who signed the Act of Independence on September 21, 1821, and the ayuntamiento supported the arrest of Arce, Rodriguez and others when they pressed for the reorganization of the government.
78Manuel Jose**Arce to Pedro Molina, September 13, 1821, in Garcia, Arce, 1, 104.
79Ibid. pp. 104-105.

80ANG, B5.4, leg, 60, exp. 1452, fol. 4, "Cuaderno que comprende la solicitud de formaciSn de la .unta gobernativa subalterna."
81E1 genio de la libertad, October 15, 1821.

82ANG, B5.4, leg. 59, e2_R. 1408, fol. 1, Jose Rossi to Gabino Gainza, October 4, 1821.
83ANG, B5.4, leg. 60, exp. 1477, fol. 1, Ayuntamiento of San Vicente to Gabino Gainza, October 5, 1821.






84


84ANG, B5.4, leg. 60, ex. 1510, Pedro Barriere:to Gabino Gainza, October 7, 1821.
85El genio de la libertad, October 29, 1821. Delgado undoubtedly played a large part in determining the government's response to Barriere's actions.
86ANG, B5.4, leg. 61, exp. 1586. Untitled report on the establishment of the diputacion in San Salvador.
87El genio de la libertad, October 29, 1821.
88Agustin Iturbide to Gabino Gainza, October 19, 1821, in Garcia, Delgado, I, 519-523.
89"El Jefe Politico de Guatemala, don Gabino Gainza, se$ dirige a los Ayuntamientos del antiguo Reino, trascrib-. � iendoles el oficio de Iturbide, en que se invita a la anexion a Mexico; y les pide que en cabildo abierto resuelvan," in Garcia, Delgado, I, 524-525.
90Diputacion of San Salvador to Gabino Gainza, December 14, 1821, in Garcia, Delgado, I, 538-541.
9lJose*'Matias Delgado to Gabino Gainza, December 20, 1821, in Garcia, Delgado, 1, 531-533.
92 Diputacin of San Salvador to the Diputaciones of
LeonaGd Comayagua, December, 25, 1821, in Garcia, ea , I,
563-565.
93Marure, Bosquejo, I, 332.__94"Acta del Ayuntamiento y la Diputacion Provicial de San Salvador, en que la Provincia asume su soberania,, nombra Intendente y Jefe Politico al doctor don Jose Matias Delgado y reserva al Congreso resuelva la union al Imperio Mexicano," in Garcfa, Delgado, II, 493-495.
95Mariano Aycinena to Agusti n Iturbide, January 18, 1822, in Garcia, Delgado, II, 497-498.
96ANG, B5.4, leg. 62, exp. 1669, Jose Matias Delgado to Gabino Gainza, January 29, 1822. There was little legal justification for Delgado's argument as the act of September 21, 1821 did not mention the independence of San Salvador, and there was nothing in the Guatemalan declaration of independence that would give it the character of a contract between the provinces.
97Marure, Bosquejo, I, 87.

98ANG, B5.4, leg. 59, ep. 1378. Untitled proclamation by Arce dated February 3, 1822.








99ANG, B5.4, leg. 63, exp. 1714. Acta of the cabildo of Santa Ana dated February 27, 1822.

100Gabino Gainza to Agusti*n Iturbide, March 18, 1822, in Garcia Delgado, II, 516-517; Marure, Bosquejo, I, 89; Montfar y Coronado, Memorias, I, 72.

101Gabino Gainza to Agustin Iturbide, March 18, 1822, in Garcia Delgado, II, 516-517.
102A untamiento of San Salvador to Gabino Gainza, March 30, 182, in Garcia, Delgado, II, 517-520.
103JoseplMatias Delgado to Vicente Filisola, March 30, 1822 in Garcfa, Delgado, II, 521.
104Acta of the diputacid'n of San Salvador dated
March 30, 1 in Garcia, Delgado, II, 118-119. This action
may have been a tactical move designed to insure the popular support of the government.

105"Acta del Gvno. de S. Salvador" [April 22, 1822], in Garcia, Delgado, II, 530-531.

106Gabino Gainza to Agustin Iturbide, May 3, 1822, in
Garcia, Delgado, II 544-547. In a letter written to Iturbide on May 15, 1822 Filisola expressed the belief that Gainza had ulterior motives for the request that a part of the Mexican division be placed under Arzu's command.
107"El Capit~n General de Guatemala, Brigadier don Gabino Gainza, se dirige a la Junta de Gobierno de la Provincia de San Salvador desaprobando el armisticio firmado con el Comandante General de las tropas expedicionarias, Coronel don Manuel de Arzif," in Garcia, Delgado, II, 541543. The Salvadorans had been anxious to secure the participation of Molina, et al. in order to build a base of support for their cause in Guatemala.

108Letters of Gabino Gainza to Manuel Arzu, May 3,
/
1822, in Garcia, Delgado, II, 538-541, 548-554.
109"Los Ayudantes del Estado Mayor del Jefe de la Columna Imperial Expedicionaria sobre San Salvador, don Pedro Gonzalez y don Antonio de Aycineia, dan detalles del ataque a aquella ciudad," in Garcia, Delgado, II, 561563.
01bid.; Manuel Arzu to Gabino Gainza, June 18, 1822, in Garca, Delgado, II, 566-569.

Vicesite Filisola to Agustin Iturbide, April 28, 1822, in Garcia, Delgado, II, 537.








112Vicente Filisola to Manuel Arz, May 18, 1822 in Garcia, Delgado, 1, 590-591; Vicente Filsola to Agust

Iturbide, May 15, 1822, in Garcia, Delgado, II, 555-558.
113Letters of the diputacidn of San Salvador to / Vicente Fillsola, June 14, 1822 and June 20, 1822, in Garcia, Delgado, II, 563-565, 571-573.

4vicente Filisola to Secretario de Guerrqy Marina
del Imperio Mexicano, September 16, 1822, in Garcia, Delgado, II, 591-597.

1l5"Bases del armisticio firmado por el Capitan General de Guatemala Brigadier don Vicente Filisola, sus comisionados los se'ores Coronel. don Felipe Codallos y Teniente Coronel don Josd Luis Gonzalez Ojeda y los de la Provincia de San Salvador, disidente del Imperio Mexicano, Coronel don Antonio Jose Ca~ias y don Juan Francisco de Sosa," in Garcia, Delgado, II, 588-591.
1l6"Proclama del Capitdn General, Jefe Superior de
Guatemala, General don Vicente Filisola, a los pueblos de la Provincial de San Salvador," in Garcia, Delgado, I, 615-620,
ll7Jose' Matias Delgado to Vicente Filsola, November 14, 1822, in Garcifa, Delgado, I, 631-633; Marure, Bosquejo, I, 100-101.

118Acta of the congress of San Salvador dated December 2, 1822, in Garcia, Delgado, I, 636-637.

l19Secretario de Guerra y Marina del Imperio Mexicano to Vicente Filisola, in Garcia, Delgado, II, 628.
120Marure, Bosquejo, I, 102.

121Manuel Jose Arce to Vicente Filisola, March 25, 1823, in Filisola, Manifesto.














CHAPTER III

THE CREATION OF THE FEDERAL REPUBLIC


Well in advance of Arce's departure for the United States, external events had once again determined Central America's political future. The -Salvadoran efforts to resist incorporation in the Mexican empire may have caused Iturbide some difficulties, but of much greater consequence was the fact that Santa Anna had begun to stir in Veracruz. News of the proclamation of the Plan de Casa Mata reached Guatemala just prior to Filisola's victory at Mejicanos, and shortly thereafter, the Mexican commander learned of the decision of Victoria, Bravo and Guerrero to move in support of Santa Anna's pronunciamiento.1 With the receipt of this information, Filisola placed supervision of San Salvador in the hands of Felipe Codallos and hurriedly returned to the capital. Filisola initially acted with considerable caution following his arrival in Guatemala City, and he issued a proclamation which urged the citizens to remain calm and refrain from precipitate action. The latter admonition doubtlessly referred to the agitation generated by Jose* Barrundia regarding the convocation of a provincial assembly. Within the space of a few weeks, however, Filisola came to recognize the grave doubts concerning the legitimacy of his authority. Faced with the confusion of events 87








in Mexico, he demonstrated a considerable sense of justice or lack of personal ambition and deferred to Barrundia's demands.2 On March 29, Filisola issued a proclamation which called for the election of deputies to a provincial congress which would resolve the question of further association with Mexico. Until the congress convened, the government as then constituted would continue to administer the provinces. Filisola was careful to point out in this decree that he was not calling the congress on his own authority but was merely implementing the provision for a congress of the provinces contained in the second article of the Act of Independence.3 In effect, the Central Americans were back where they had been over a year before.

Representation in the congress was to be determined

by population with one representative for each 15,000 inhabitants. On this basis, the junta consultiva drew up allotments which provided for a total of 76 deputies with Guatemala choosing 36; San Salvador, 16; Honduras, 10; Nicaragua, 11; and Costa Rica, 3.4 A planning committee appointed by the junta consultiva set June 1 for the opening of the congress, but the deputies did not arrive in numbers sufficient to form a quorum until June 23. On the following day, twenty-eight delegates from Guatemala, twelve from San Salvador and one from Honduras assembled at the palace of the Captain General. They were joined by Filisola, members of the junta consultiva, the audiencia and the ayuntamiento and, together with other secular and








religious officials, proceeded to the cathedral where the archbishop celebrated a pontifical high mass and the oath of office was administered. The dignitaries then made their way to the university where the congress was to hold its sessions. Following a short speech in which Fili sola expressed his good wishes, the congress devoted the rest of the day to internal organization and the selection of its first officers. Jose *Matias Delgado was elected president of the body by thirty-seven votes with Pedro Molina and Fernando Antonio Da'vila each receiving two votes. Davila was then chosen as vice president in a run-off election with Jose Frr-'icisco Barrundia. Following the elections, Delgado appointed a committee composed of himself, Francisco Flores, Pedro Molina, Felipe Vega, and Jose Simeon Cal7as to prepare recommendations concerning the area's future political status. The assembly then adjourned until June 29.5

Delgado's hand was clearly evident in the report that was submitted when the congress reconvened. Reviewing the events of the preceding years,.the committee charged that incorporation with Mexico directly violated the desire for absolute independence which had been expressed in September, 1821. It was asserted that support for annexation had been achieved by the use of deception and fear. The people had been promised that peaceful union would bring ."mountains of gold" and warned that resistance would mean military domination. The use of the poll of the town councils to authorize the decree of annexation was regarded as an illegal








device which denied the January 5 proclamation any binding quality. Turning to the future, the committee expressed the fear that with continued union, Central America would probably receive treatment little better than th'at accorded to a conquered province. Pointing out the fact that Central Americans could expect little in the way of material assistance, the report claimed that aid was not necessary in any case. Mexican arms were not needed for the defense of the territory and the maintenance of a Mexican garrison would only have undesirable consequences such as an "increase in prostitution." With the statement that the area did in fact possess the resources necessary for the erection of a sovereign state, the committee recommended that absolute independence be proclaimed.6

While the committee's report was favorably received, its recommendation was not immediately adopted, and the following day was devoted to discussion of the proposal. Some delegates feared that the area could not survive as an independent nation and suggested that a survey of needs and resources be conducted prior to the taking of any action. This cautious approach was rejected on the grounds that valid criteria for such a study were unknown and by the time a survey was completed it would be unlikely that the Central Americans would want to reunite with either Spain or Mexico. 7 With little inclination to search for alternatives, the congress re-proclaimed the independence of Central America on July 1, 1823. Stating that independence









from Spain had been the natural consequence of physical separation and the fact that Spanish sovereignty had proved inimical to the best interests of Americans, the act categorized annexation to Mexico as a de facto arrangement that had been maintained by force. Totally independent of Spain and Mexico, the area would henceforth constitute a sovereign nation known as the Provincias Unidas del Centro de

_______a. Having decreed independence, the members of the congress then took upon themselves the twofold task of drafting a constitution and governing the newborn nation until such time as the fundamental law was completed. While historians have found much to criticize in the product of their labors, it appears that, given the conditions then prevailing, the deputies performed their functions remarkably well during their nineteen months of service. Apparently the individuals selected for the congress were of uniformly high calibre as both the liberal Alejandro Marure and the conservative Manuel Montiffar viewed the participants with considerable esteem.9

On the day after independence was declared, the

congress adopted a resolution by which it assumed sovereign powers under the name Asamblea Nacional Gonstituyente. The decree also provided for the division of power with the assembly retaining legislative authority and executive power to be exercised by the person or persons named by the assembly. Judicial authority was assigned to the courts then in existence and any other courts that might be






92

created. This act also extended personal immunity to legislators, recognized the public debt, and confirmed the authority of all existing civil and religious authorities. Catholicism was acknowledged as the national religion, and pending the enactment of the laws of the nation, the Constitution of 1812 and all laws of Spain which did not contravene the liberties of the people were to remain in effect.0 0 While Pedro Molina and Juan Vicente Villacorta vigorously opposed the establishment of Catholicism, this provision and the interim retention of Spanish law indicate that the Liberals who then controlled the assembly were not possessed by Jacobin spirits.11

When the Asamblea turned to the business of implementing the provision for an executive branch of the government, it entered upon its first, clear-cut political battle. The Conservative members of the assembly were anxious to have the reins of the government in a firm and familiar hand and attempted to have the executive power entrusted to Vicente Filisola who did not deny his availability. Outside of the halls of the assembly, this move was strongly supported (and possibly had been suggested) by the aristocratic imperialistas who were now thinking in terms of half a loaf.12 The retention of Filisola in a position of authority was totally abhorrent to the Liberals. Not only might he act as a cat's paw for the Conservatives, but he would serve as a constant reminder of the humiliating annexation to Mexico. Yet the Liberals, either unable or disinclined








to secure outright rejection of Filisola, followed a circuitous route, and disqualified the Mexican general from office through the enactment of a decree which was obviously designed to appeal to nationalistic sentiments. On July 8, the Asamblea ordered that executive authority could be exercised only by natural born citizens who had resided in the territory of the republic for seven years.13 The following day, the Asamblea provided for the creation of a three-man executive board and acknowledged Arce's past services to the nation by selecting him as the first-named member of the body.14 The remaining seats on the Supremo Poder Ejecutivo were awarded to the Liberals Pedro Molina and Juan Vicente Villacorta. The Conservatives were undoubtedly unhappy with the appointment of the firebrand Molina, but they used most of their energy to oppose the election of Villacorta. While they apparently were prepared to accept Liberal control of the executive, the Guatemalan Conservatives definitely feared the prospect of Salvadoran dominance and attempted to secure the third seat on the SPE for the Honduran Jose Dionisio Herrera.15 To serve as Arce's substitute, the assembly chose Antonio Larrazabal, a member of "the family" who had been the Guatemalan delegate to the Cortes of Cadiz. Larrazabal declined the honor, however, and the position went to the Liberal Antonio Rivera Cabezas.
/
Despite his exclusion from the government, Filisola lingered on in Guatemala. Though he later wrote that his







94

intention was to prevent the outbreak of anarchy, Filirsola's uncerain.16
purpose in remaining is uneti. Possibly he experienced a change of heart in regard to his political ambitions. The Guatemalan aristocrats were anxious for Filisola to stay on and contributed to his support, but the opposition of other sectors of society to the continued presence of the Mexican force was unmistakable. For some time Jose Francisco Barrundia had been introducing petitions calling for Filisola's withdrawal, and there had been an increasing number of incidents involving verbal and physical clashes between the citizens and Mexican troops.1 This antagonism was further demonstrated by the refusal of the deputies from Honduras, Nicaragua, and Costa Rica to assume their seats in the Asamblea so long as the Mexican division remained in the country.' In an attempt to use Fili'sola's supposed political ambitions as a means for diminishing his power, the SPE appointed him jefe politico of Guatemala. Filisola at first accepted this position, but he quickly changed his mind when he learned that it carried no military authority and command of his forces would fall into the hands of the triumvirate.18 As the Mexican government discouraged any further interference in the affairs of Central America, Filisola finally led his division out of Guatemala on August 3, 1823.

With Filisola out of the way, the government got down to the business of establishing the identity of the new nation. On August 11, the SPE was authorized to








remove from office those individuals whose loyalty was suspect. The triumvirs made extensive use of this power and a number of officials were replaced by supporters of the new regime. During this time the Asamblea concerned itself primarily with the trappings of independence. A flag and national coat of arms were designed, and the phrase "Dios guarde a Vd. muchos an~os" which closed official correspondence was replaced with "Dios, Union y Libertad." The use of costumes which denoted rank was forbidden as was the use of all terms of address other than "ciudadano."19 The nation would have been better served if the government had addressed itself to the resolution of more serious problems. The most immediate of these included the need for providing adequate revenue and assuring the loyalty of the military. The lack of attention given these matters was directly responsible for the serious difficulties which soon confronted the government.

Apart from militia organizations, Central America's military force consisted of a single battalion of regulars garrisoned in Guatemala City. While spared the financial burden of a sizeable military establishment, the government failed, to provide adequate support for this token force, and the troops' pay was several months in arrears. The discontent caused by this situation encouraged the schemes of Sergeant Rafael Ariza y Torres who was in a rebellious mood as the SPE had rejected him for promotion to lieutenant in preference for Manuel Zelaya. In the




Full Text
154
conviction that the Holy Alliance posed a serious threat
to Central American independence. On August 9, 1825, he
issued a manifesto which announced the arrival of a squadron
of twenty-eight French ships at Martinique, and raised the
spectre of a European attempt to reconquer Latin America.
With a passing reference to the assurance of the support of
the United States and Great Britain on the high seas, the
President stressed the danger presented by a 10,000 man
Spanish force in Cuba, and he called upon his country men to
prepare to defend their liberty in the spirit of the New
Worlds motto "Live free or die."^ While the European
invasion failed to materialize, Arce's fears were given some
substance on January 29, 1826 when Jose* Zamora, a peninsular
from Colombia led a small band of malcontents in an abortive
attack on Alejuela, Costa Rica. Zamora testified after his
capture that he had acted as a "vassal of the King of Spain"
who had given him a "special commission to raise revolutions
in the Americas.
Zamora's testimony doubtlessly convinced Arce that
his estimate of European intentions was sound, but it appears
to have had little effect on the opinions of his Liberal
antagonists who believed that the alarms sounded against the
Holy Alliance were merely a device to increase the power of
the President.^4 Hence, the Liberals regularly opposed all
of the measures that were proposed to strengthen the nations
armed forces. Arce found that his recommendations were
either rejected or became a cause for considerable embarrass
ment, and the issue of his authority in military matters was


90
device which denied the January 5 proclamation any binding
quality. Turning to the future, the committee expressed the
fear that with continued union, Central America would
probably receive treatment little better than that accorded
to a conquered province. Pointing out the fact that Central
Americans could expect little in the way of material assis
tance, the report claimed that aid was not necessary in any
case. Mexican arms were not needed for the defense of the
territory and the maintenance of a Mexican garrison would
only have undesirable consequences such as an "increase in
prostitution." With the statement that the area did in
fact possess the resources necessary for the erection of a
sovereign state, the committee recommended that absolute
independence be proclaimed.^
While the committee's report was favorably received,
its recommendation was not immediately adopted, and the
following day was devoted to discussion of the proposal.
Some delegates feared that the area could not survive as an
independent nation and suggested that a survey of needs and
resources be conducted prior to the taking of any action.
This cautious approach was rejected on the grounds that
valid criteria for such a study were unknown and by the
time a survey was completed it would be unlikely that the
Central Americans would want to reunite with either Spain or
7
Mexico. With little inclination to search for alterna
tives, the congress re-proclaimed the independence of
Central America on July 1, 1823. Stating that independence


149
homes of Francisco Aguirre and Juan Miguel Bustamante.-*-4
These individuals appealed to the federal Congress for redress
on the grounds of Article 175 of the Constitution which pro
hibited government seizure of private property except in
cases of extreme emergency and, then, with prior indemnifica
tion. The Congress issued an order which declared Barrundia's
action null and void and directed the President to extend
his protection to the interested parties. As soon as he
received the order on July 16, 1825, Arce, determined to use
greater tact than he had employed in the previous conflict,
"took his hat and left to see the Chief of State."15 Finding
Barrundia at home with his brother Jose Francisco and vice-
jefe Cirilo Flores, Arce attempted to resolve the issue by
personal diplomacy. The Guatemalan leader refused to make
any commitment other than the promise that he would inform
the President of his intentions before taking any action.
Barrundia's performance did not match his words. On the
following day, he obtained from the state legislature blanket
authority to raise an army, spend state money, and manufacture
gunpowder in order "to contain the despotism of a tyrant. . .
The threat to peace posed by this belligerent behavior caused
the Congress to seek a means for accommodation, and it
granted the state government use of a building that had been
assigned to officials of the tobacco monopoly.
While these quarrels did not embrace matters of great
importance, they provided a forewarning of the impending
rupture between Arce and the Liberals which would lead to
.,16


179
the end of the civil war in 1829, Francisco Morazan was able
to hold the federal government together for nearly a decade,
but it appears that the federation was little more than a
facade. Morazans ultimate fate had been foretold by Arce's
experiences, and in both cases, the lack of success should be
attributed more to the times than to the man. Or, as
expressed by Robert S. Smith, "federal government has failed
8 2
because too many people did not want it to succeed."


85
^ANG, B5.4, leg. 63, exp. 1714. Acta of the cabildo
of Santa Ana dated February 27, 1822.
^^Gabino Gainza to Agustn Iturbide, March 18, 1822,
in Garcia Delgado, II, 516-517; Marure, Bosquejo, I, 89;
Montifar y Coronado, Memorias, I, 72.
-^OlGabino Gainza to Agustn Iturbide, March 18, 1822,
in Garcia Delgado, II, 516-517.
^Ayuntamiento of San Salvador to Gabino Gainza,
March 30, 1822, in Garcia, Delgado, II, 517-520.
l-OSjose^ Matas Delgado to Vicente Filisola, March 30,
1822 in Garcia, Delgado,11, 521.
^-O^Acta 0f the diputacio'n of San Salvador dated
March 30, 1822 in Garca, Delgado, II, 118-119. This action
may have been a tactical move designed to insure the popular
support of the government.
105"Acta del Gvno. de S. Salvador [April 22, 1822],
in Garcia, Delgado, II, 530-531.
^^Gabino Gainza to Agustn Iturbide, May 3, 1822, in
Garcia, Delgado, II,y 544-547. In a letter written to Iturbide
on May 15, 1822 Filisola expressed the belief that Gainza
had ulterior motives for the request that a part of the
Mexican division be placed under Arzu's command.
107.i£i Capitn General de Guatemala, Brigadier don
Gabino Gainza, se dirige a la Junta de Gobierno de la
Provincia de San Salvador desaprobando el armisticio firmado
con el Comandante General de las trocas expedicionarias,
Coronel don Manuel de Arzi, in Garcia, Delgado, II, 541-
543. The Salvadorans had been anxious to secure the parti
cipation of Molina, et al. in order to build a base of
support for their cause in Guatemala.
108Lefters of Gabino Gainza to Manuel Arzu, May 3,
1822, in Garcia, Delgado, II, 538-541, 548-554.
^^"Los Ayudantes del Estado Mayor del Jefe de la
Columna Imperial Expedicionaria sobre San Salvador, don
Pedro Gonzalez y don Antonio de Aycin^ia, dan detalles
del ataque a aquella ciudad, in Garcia, Delgado, II, 561-
563.
jy^Ibid. ; Manuel Arzi to Gabino Gainza, June 18, 1822,
in Garcia, Delgado, II, 566-569.
^^VicejLte Filisola to Agustn Iturbide, April 28,
1822, in Garcia, Delgado, II, 537.


CHAPTER III
THE CREATION OF THE FEDERAL REPUBLIC
Well in advance of Arce's departure for the United
States, external events had once again determined Central
America's political future. The Salvadoran efforts to
resist incorporation in the Mexican empire may have caused
Iturbide some difficulties, but of much greater consequence
was the fact that Santa Anna had begun to stir in Veracruz.
News of the proclamation of the Plan de Casa Mata reached
Guatemala just prior to Filisola's victory at Mejicanos,
and shortly thereafter, the Mexican commander learned of the
decision of Victoria, Bravo and Guerrero to move in support
of Santa Anna's pronunciamiento.1 With the receipt of this
information, Filisola placed supervision of San Salvador in
the hands of Felipe Codallos and hurriedly returned to the
capital. Filisola initially acted with considerable caution
following his arrival in Guatemala City, and he issued a
proclamation which urged the citizens to remain calm and
refrain from precipitate action. The latter admonition
doubtlessly referred to the agitation generated by Jose*
Barrundia regarding the convocation of a provincial assem
bly. Within the space of a few weeks, however, Filisola
came to recognize the grave doubts concerning the legiti
macy of his authority. Faced with the confusion of events
87


170
with a request for assistance.
The federal government is almost an orphan: There is
no Congress, there is no Senate; and as the President
does not plan to govern the Republic by himself, he
looks to . the Assemblies and Chiefs of the states
for aid in guiding the fatherland . 4
Arce adhered to the provisions of Article 127 insofar
as he observed the time limit on detention. Barrundia was
released three days after his arrest, but the President did
not fully comply with the law as he neglected to submit a
statement of the cause for his action. This failure was due
to the fact Arce did not possess adequate evidence to support
his case. He later published a collection of materials in
defense of his decision, but these documents offered only
the suggestion rather than the proof of a conspiracy.65 in
retrospect, it appears that Arce acted in a state of panic
on September 5, and from that time onward, his political
fortunes spiraled ever downward.
Following Barrundia's arrest, vice-jefe Cirilo Flores
assumed leadership of the Guatemalan government, and Arce was
soon disabused of any belief that the former jefe had been
the main source of opposition. He was presented with a
memorandum from the State Assembly which denied the legiti
macy of his actions and compared him with Napoleon, Ferdinand
VII, Iturbide, and Filisola.66 These statements did not
mean, however, that the state government intended to engage
in a direct confrontation with the President. At the time
Barrundia was taken into custody, Guatemalan armaments were
impounded, and Arces subsequent offer to provide federal
protection for state officials sounded threatening.


70
solely to Arzu's failure to carry out his orders. Though
Gainza complained that Filisola, who had now reached Que.zal-
tenango, had refused to send the Mexican cavalry to Arzu's
assistance, he assured Iturbide that San Salvador would soon
be brought into line.1^6 The jefe politico then wrote to
the Salvadorans stating that, as he had not authorized any
settlement, he would not be bound by the armistice and that
Arzu would shortly present them with the only acceptable
armistice terms. He also informed the Salvadorans that
Pedro Molina, Jose* Francisco Barrundia, Jose Francisco
Cordova, and Manuel Ibarra, who had been elected to represent
various Salvadoran districts in the provincial congress,
would not be permitted to attend the proposed congress in
San Salvador as they were now citizens of the Mexican empire. -*-07
Finally, Gainza sent Arzu a blistering note which stated that
the commander's behavior was totally incomprehensible.
There had been no military reason for agreement to an
armistice, and if Arzu had merely wanted to avoid bloodshed,
he could have at least secured a more advantageous settle
ment. This was followed by a lengthy letter designed to
convince Arzu of the justice of the campaign against San
Salvador. Writing in terms that could be understood, by a
child, Gainza presented a damning indictment of Salvadoran
perfidy and agression. He directed the rejection of any
armistice that did not provide for: the disbanding of
Salvadoran forces, the deliverance of all arms, payment of
indemnities, and the establishment of garrisons in the


77
finally capitulated in Gualcince on February 21, 1823. Arce
was given a safe-conduct pass, and he made his way to Belice.
/
Arriving in Walis on March 25, Arce wrote to Filisola
thanking him for his generous behavior and commending the
protection of his family to the Mexican general. Arce
then joined Juan Manuel Rodrguez on a ship bound for the
United States where the two exiles would attempt to represent
the interests of their nonexistent nation. As the sails were
set, Arce may have wondered what had been accomplished by
the years of struggle.


198 -
El Dr. Mariano Galvez y su poca. Guatemala,
1757.
Bumgartner, Louis E. Jose^ del Valle of Central America.
Durham, 1963.
Bustamante, Gregorio. Historia militar de El Salvador. San
Salvador, 1951.
Cevallos, Jos*' Antonio. Recuerdos Salvadoreos. 2 vols.
San Salvador, 1964.
Chamberlain, Robert S. Francisco Morazan, Champion of Central
American Federation. Coral Gables, 1950.
Chamorro, Pedro Joaquin. Historia de la federacin de la
America Central, 182~3-1840. Madrid, 1951.
Chavez Orozco, Luis. Morazn, heroe continental. Teguci
galpa, 1941.
Chinchilla Aguilar, Ernesto. El ayuntamiento colonial de la
ciudad de Guatemala. Guatemala, 1961.
Cid Fernndez, Enrique. Don Gabino Gainza y otros estudios.
Guatemala, 1959.
y /
Contreras, J. Daniel. Una rebelin indgena en el partido de
Totonicapn en 1920; el Indio y la Independencia.
Guatemala, 1951.
Duran, Miguel Angel. Ausencia y presencia de Jos Matas
Delgado en el proceso emancipador. San Salvador, 1961.
El Salvador. Comit Pro-Centenario Jos/ Matas Delgado.
Josd'Matas Delgado, padre de la patria. San Salvador,
1961.
Faci, Rodrigo. Trayectoria y crisis de la Federacin Cen
troamericana. San Jos, 1949.
Fernndez Guardia, Ricardo. La Independencia y otros epi-
sodos. San Jos, 1928.
Gallardo, Ricardo. Las Constituciones de la Repblica Fed
eral de Centro-mefrica. 2 vols. Madrid, 1958.
Gavidia, Francisco. Historia moderna de El Salvador. San
Salvador, 1958.
Haring, Clarence H. The Spanish Empire in America. New York,
1963.


163
loan simply had never been received, and the various depart
ments of the government had not had time to submit all of
the information required for the preparation of the budget.51
Arce never had the opportunity to disprove these accusations,
however, because of the action taken by the deputies from El
Salvador in conjunction with the few Conservatives in the
Congress. The representatives from El Salvador had not taken
part in the attacks of Arce. Their position was due not
only to concern for their countryman in the executive office
but also to the conviction that Guatemalan Liberals placed
personal vendettas above the interests of the nation. In
April, 1826, the Salvadoran legislature expressed contempt
for both of the Guatemalan'factions. "The Congress dominated
by serviles inflicted evil on us. The Congress dominated by
Guatemalan Liberals has done the same."52 it appears that
the Salvadorans perhaps still carrying the resentments of
the colonial era attempted to prevent the growth of
political power in Guatemala by taking the side of whichever
party happened to be in the minority. In any case, the
deputies from El Salvador were determined to head off the
threat to the President; and, with the prior authorization
of the state government, they withdrew from the Congress on
June 2, 1826.^3 This action forced adjournment due to the
lack of a quorum. Although the Salvadoran deputies did not
return to their seats, the Congress was able to reconvene
ten days later when a number of Conservatives sufficient to
form a quorum agreed to take their seats on the condition


36
The 1811 uprising had religious fervor as its chief
impetus and open expression of the creole-peninsular conflict
as its immediate consequence. The outbreak was precipitated
by the action which the government took against the Aguilar
brothers. These men were all members of the clergy and
apparently were held in considerable esteem by the Salvadoran
masses. The Aguilars* loyalty, however, had been suspect
since the beginning of the year when they had declined to
publish an edict condemning the Mexican revolutionaries,
and early in November, Manuel Aguilar was arrested in
Guatemala on the charge of having had correspondence with
Miguel Hidalgo.^ When the news of this event reached San
Salvador, the result was a storm of popular protest. Such a
response was not surprising as the seeds of unrest had
already been sewn among the people. In the latter part of
October, Bernardo Torres, an alclade of one of the city's
barrios, informed the residents of his district that
Bernardino Molina, a peninsular Spaniard, intended to
f / I Q
assassinate Jose Matias Delgado. y Apparently, there was
little validity to the charge, but the fact that a rumor of
this sort was planted has considerable significance. It
indicates that certain individuals sought to marshal the
force of the masses, realized that this could best be done
by appealing to religious sentiments, and expected to employ
this force against the Spaniards resident in San Salvador.
The most likely authors of this plan were, of course, those
creoles who assumed leadership of the November revolt. In


184
^Marure, Bosquejo, I, 280-281.
^Arce, Memoria, pp. 82-85.
^2Ibid., pp. 87-88; Marure, Bosquejo, I, 282-283.
^Gallardo, Las Constituciones, II, 723.
^"Circular a ios je£es de los Estados," in Garcia,
Arce, III, 540-544.
6%ontufar y Coronado, Memorias, I, 117.
^Marure, Bosquejo, I, 285 .
^7Arce, Memoria, p. 105.
68ANG, B7.26, le£. 3480, ex£. 79487, £ol. 3. Presi
dential decree dated October 10, 1826.
^Manuel Jose7Arce, Manifiesto del gobierno a los
pueblos de Centro-America (Guatemala, 1826) T
7 0
/uThis decree is reproduced in Marure, Bosquejo, II,
623-625.
A"Sesion de la Junta preparatoria al Congreso fed
eral, de 11 octubre de 1826," in Marure, Bosquejo, II, 625-
629.
72ANG, B7.26, leg.. 3480, ex£. 79487, fol. 1, ^Acuerdo
que no reconocer facultad en el Presidente de la Repblica
por la convocacin que ha hecho de un congreso extraordinario."
73Arce, Memoria, pp. 112-113.
74Ibid., p. 123.
7 5
Department of State, Consular Despatches, Charles
Savage to Henry Clay, March 10, 1828; Dunn, Guatimala, p. 202;
Marure, Bosquejo, II, 607-608.
7^Arce. Memoria, pp. 115-122; Marure, Bosquej o, II,
421-426; Montufar y Coronado, Memorias, I, 122-123.The fore
going authorities recognized the several causes for the change
in Salvadoran attitudes, and the account given here does not
alter earlier interpretations.
77Ramon Casaus y Torres to Leo XII, March 13, 1826,
in Garcia Delgado, II, 385-387.
7^This decree is reproduced in Marure, Bosquejo, II,
629-632.


52
meet at his home at seven o'clock.^8 Peinado's suspicion
that a cabildo abierto had been requested for a purpose
similar to that obtained in 1811 appears confirmed by the
fact that his proposal for a meeting of the ayuntamiento
failed to satisfy the junta assembled at Delgado's home.
Around six o'clock Arce entered a plea for the release of
the prisoners, but the intendente's only response was to
direct the young creole to disperse the crowd which was
gathering near the church of La Merced.^ Arce made a half
hearted attempt to comply with this order and then rejoined
the junta which was now convened in the sacristy of the
church. At seven o'clock Rodriguez returned to Peinado's
home, and after informing the intendente that a meeting of
the ayuntamiento would not be necessary, demanded that the
prisoners be freed. The matter was debated for some time,
and finally Juan Miguel Bustamante, who was now serving
as the teniente letrado of San Salvador, counselled that the
demand be met in the interests of peace.^0 a release order
was signed, and at nine o'clock Rodriguez led the alcaldes
back to the exuberant welcome awaiting them at La Merced.
Believing the crisis was resolved, Arce and a number
of other creoles returned to their homes; but under the
leadership of Pablo Castillo, those who were determined to
put an end to their troubles with the intendente remained
at the church. Shortly before midnight the conspirators
sounded the bells of La Merced. Armed with a brace of
pistols, Arce answered the summons and learned of a plan to


53
seal off the city and sieze the arms of Peinado's men. With
little chance for success, Arce assumed the task of putting
the mob assembled at the church in some semblance of fighting
order.He had hardly begun, however, when troops from
the local garrison appeared. In the ensuing skirmish the
insurgents were routed as two of the rebels were killed and
three men, one of whom was Domingo Lara, were wounded.62
This brief encounter put an end to the uprising. On the
following day Peinado had the city under his complete
command. Rodriguez, Delgado and Celis were arrested
immediately. Arce and Lara were able to make their way to
San Lucas, and Castillo also fled the city. In view of the
attitudes reflected in the letter to Morelos, there can be
little doubt that, the creoles were anticipating separation
from Spain. Their hesitant behavior on the twenty-fourth
suggests that they were not yet ready to move. Castillo's
agitation, however, forced precipitate action which resulted
in the total emasculation of the independence movement.
As he remained unmolested on his hacienda for several
months, Arce may have thought that he was safe from prosecu
tion, but the revelation of his participation in the uprising
was inescapable. Called in on April 4, 1814 to account for
his presence at the scene of the tumult, Arce testified that
he had gone out merely to learn why the church bells had
been rung.63 While this statement was true and Arce was
allowed to return to his home, the authorities were far
from accepting his declaration of innocence. On May 5, 1814,


96
latter part of August, Ariza began to stir up dissention by
encouraging the troops to give voice to their grievances and
by criticizing the abilities of the battalion commander
Lorenzo Romana. Ariza's activities soon came to the
attention of the government, but it hesitated to reprimand
the sergeant for fear that such action would only generate
greater ill will. Believing that a gesture wrould restore
order, the Asamblea commissioned Ignacio Larrazabal to
investigate the matter. Apparently Ariza was not too sure
of his support within the battalion as he decided to make
his move as soon as he learned of the assembly's action.
September 14 and 15 had been designated as holidays in
celebration of the anniversary of independence, but the
volleys heard on the morning of the fourteenth were not
fired to announce the start of festivities but the begin
ning of the nation's first military coup.
On the evening of September 13, Ariza had fortified
his followers with liberal amounts of aguardiente and then
n -i
ordered that Romana be taken prisoner. 1 Following the
fusillade which announced this action, the rebels took
command of the central plaza, while the Asamblea convened
in an open session to determine a course of action. After
a number of deputies had taken turns denouncing Ariza's
behavior, Father Antonio Corral, the chaplain of the
battalion, proposed that the soldiers be offered an
amnesty and their back pay. A delegation sent to present
this offer shortly returned with the information that the


172
prevent the Liberals from punishing the President for the
steps he had taken against the Guatemalan government. In
addition, the Salvadoran deputies had been instructed that
they should attend the session only in order to secure the
z* n
removal of the seat of the government from Guatemala.'
The fiscal requirements of the federal government
demanded legislative action, but the political disposition
of the deputies suggested that the Congress could not be
expected to meet. Seeking a path out of this dilemma, Arce
issued an ill-considered decree on October 10, which called
for the creation of an extraordinary federal Congress. The
new body, which would be composed of twice as many deputies
as had formed the previous legislature, was to convene in
Cojutepeque, El Salvador.in an effort to still adverse
responses to the decree, the President published on the same
day a message which explained the reasons for his decision.
This statement reviewed the events of the past two months
and asserted that the activities of the Guatemalan govern
ment had produced a constitutional crisis that threatened
the existence of the federation. As the present Congress
had been reduced to impotence by factional strife, the con
vocation of a special legislature was said to provide the
only means for restoring constitutional order.^
The states did not react unfavorably to Arce's propo
sal, and Costa Rica and Nicaragua shortly ordered elections
for the purpose of choosing deputies to the new Congress.
On Ocrober 28, Mariano Prado, the vice-jefe of El Salvador,


89
religious officials, proceeded to the cathedral where the
archbishop celebrated a pontifical high mass and the oath of
office was administered. The dignitaries then made their
way to the university where the congress was to hold its
sessions. Following a short speech in which Filisola
expressed his good wishes, the congress devoted the rest of
the day to internal organization and the selection of its
first officers. Jose/Matas Delgado was elected president
of the body by thirty-seven votes with Pedro Molina and
Fernando Antonio Davila each receiving two votes. Davila
was then chosen as vice president in a run-off election with
Jose/ Frrhcisco Barrundia. Following the elections, Delgado
appointed a committee composed of himself, Francisco Flores,
Pedro Molina, Felipe Vega, and Jose Simeon Canas to prepare
recommendations concerning the areas future political
status. The assembly then adjourned until June 29.^
Delgado's hand was clearly evident in the report that
was submitted when the congress reconvened. Reviewing the
events of the preceding years, the committee charged that
incorporation with Mexico directly violated the desire for
absolute independence which had been expressed in September,
1821. It was asserted that support for annexation had been
achieved by the use of deception and fear. The people had
been promised that peaceful union would bring "mountains of
gold" and warned that resistance \rould mean military domi
nation. The use of the poll of the town councils to author
ize the decree of annexation was regarded as an illegal


133
the Ministers request that he attend a special meeting called
for that evening, Arce remained firm in his resolve, and as
he anticipated, the SPE issued an order which denied El
Salvador the right to send troops into Nicaragua. v Arce's
position involved much more than a simple boycott of the SPE
as he sent a letter of resignation to the Asamblea on the
same day. One week later, the assembly replied that it
could not accept his resignation because "the public good
demanded" that Arce continue to hold office. Determined to
escape from Valle's control, the reluctant executive responded
that his membership in the SPE forced him to accept decisions
which violated his conscience and again requested that he be
relieved of his duties.^ This letter convinced the Asamblea,
of the sincerity of Arce's decision, and it announced the
acceptance of his resignation on September 4, 1824.^
Arce's departure for San Salvador marked a victory for
Valle, but the struggle was far from over. Proceeding with
his plans for the pacification of Nicaragua, Valle appointed
Manuel Arzu jefe politico of the province and advised the
old warrior to employ persuasion and conciliation as the
chief means for restoring order. On September 16, Arzu
addressed a proclamation to the Nicaraguan people which was
in keeping with Valle's instructions. Arzif assured his
readers that the sole object of his mission was to promote
the well being of the province. He argued that the quality
of government was far more important than its location and
pointed out that no one could hope for prosperity and progress


3
General of Guatemala was little more than "an arbitrary unit
of the Spanish Empire.At various times in its early
history, Central America was subject to authority emanating
from Santo Domingo, New Spain and Panama. When the Central
American audiencia was established in 1542, its name,
Audiencia de los Confines, indicated a lack of precision con
cerning the location of the council. Accordingly, the seat
of the audiencia was shifted three times before it was perma
nently located in Santiago de los Caballeros.^
Again in respect to the relationship between the
colonial heritage and national experience, many authors take
the position that political separatism may be understood as
an antipathetic response to the centralized control of the
imperial regime. It is argued that by 1821, the creoles of
El Salvador, Honduras, Nicaragua, and Costa Rica had their
fill of political domination by Guatemala. This resentment
of the authority exercised in the capital of the Captaincy
General is thought to be demonstrated by those areas which, in
1821, opted for either absolute independence or annexation
to Mexico.5
A contrary proposition which the writer finds more
attractive holds that the attitudes of the provincianos
were shaped more by the prospect of domination imagined than
by memory of authority experienced. With the substantial
difficulties of inter-provincial communication, there must
have been ample opportunities for the practice of the
"Obedezco pero no cumplo" ritual. More importantly, there


21
spoils system, the party replaced all civil servants who held
office under the Spanish or Mexican governments. The Liberals
also passed laws which eliminated all titles of distinction
(including the ubiquitous "Don"), and removed all restrictions
on the importation of printed materials.52 Following the
first Central American barracks revolt on September 14, con
trol of the provisional government shifted to the hands of
the Conservatives as their position in the assembly was
strengthened with the arrival of delegates from Nicaragua
and Honduras. Pablo Alvarado, a Liberal from Costa Rica,
later reported that the Conservatives outnumbered the
Liberals forty-six to eighteen.^3 Yet, apart from the re
placement of two of the Liberal triumvirs on the Supremo
Poder Ejecutivo, this numerical superiority did not give
rise to any clear-cut Conservative reaction.
The working draft of the constitution was prepared by
a committee composed of four Liberals, and a comparison of
this document with the finished product reveals no basic al
terations in the structure of government proposed by the
Liberals. Despite Conservative control, the constituent
assembly enacted legislation which prohibited the sale of
bulas de cruzada, established a land grant program to en
courage immigration, made the nation an asylum for foreign
exiles, conceded certain privileges and immunities to foreign
merchants, and abolished slavery.54 While there was a later,
definite repudiation of Liberal policy by the Guatemalan
government led by Mariano Aycinena, this reaction appears to


10
To begin with, Central America exhibited the conflict
typically found between creole and peninsular. This divi
sion is readily comprehended, in the familiar root of creole
envy of the peninsular's social prominence and monopolization
of the better government positions. It may be, however, that
the split between creole and peninsular Spaniard did not run
so deeply in Central America as there was not a particularly
heavy concentration of peninsulars in the region, and offices
were available to the aspiring creole. In 1812 the Captain
General Jose de Bustamante y Guerra reported that there were
six hundred and seventy-one creoles on the government pay-
roll. Also, the experiences of Jose Cecilio del Valle indi
cate that a talented Central American could rise to a position
of considerable importance.^3 if the conflict between
creole and peninsular was of a comparatively benign nature,
this might in part explain the lassitude which Central America
demonstrated in regard to independence from Spain.
Prior to independence, a division of more lasting
significance had developed within the creole community itself.
A rather clearly defined aristocracy composed of wealthy
merchants had emerged in Guatemala by the end of the eighteenth
century. Membership in this group appears to have been based
primarily on kinship with the Aycinena family. Led by Juan
Fermin Aycinena, who had purchased the colony's only title of
nobility in 1780, this family proved quite prolific and
through intermarriage came to include the Asturias,
Arrivillaga, Barrutia, Batres, Beltranena, Larrave, Montufar,


91
from Spain had been the natural consequence of physical
separation and the fact that Spanish sovereignty had proved
inimical to the best interests of Americans, the act cate
gorized annexation to Mexico as a de facto arrangement that
had been maintained by force. Totally independent of Spain
and Mexico, the area would henceforth constitute a sovereign
nation known as the Provincias Unidas del Centro de
^ 8
America. Having decreed independence, the members of the
congress then took upon themselves the twofold task of
drafting a constitution and governing the newborn nation
until such time as the fundamental law was completed. While
historians have found much to criticize in the product of
their labors, it appears that, given the conditions then
prevailing, the deputies performed their functions remark
ably well during their nineteen months of service. Appar
ently the individuals selected for the congress were of
uniformly high calibre as both the liberal Alejandro Marure
and the conservative Manuel Montiifar viewed the partici-
o
pants with considerable esteem.
On the day after independence was declared, the
congress adopted a resolution by which it assumed sovereign
powers under the name Asamblea Nacional Constituyente. The
decree also provided for the division of power with the
assembly retaining legislative authority and executive
power to be exercised by the person or persons named by the
assembly. Judicial authority was assigned to the courts
then in existence and any other courts that might be


142
NOTES
^-United States, National Archives, Department of
State, Notes from Foreign Legations, Central America, 1823-
1906, I (Hereafter: Notes), Manuel Jose Arce and Juan
Manuel Rodriguez to John Quincy Adadms, September 9, 1823.
z Fragment of a letter by Arce dated July 26, 1823, in
Garcia, Arce, I, 275.
*7 f
^Department of State, Notes, Arce and Rodriguez to
Adams, September 9, 1823.
^Ibid., Arce and Rodriguez to Adams, September 11, 1823
r *
JIbid., Arce and Rodriguez to Adams, September 13, 1823
^Ibid., Vicente Rocafuerte to John Quincy Adams,
October 16, 1823.
^Arce, Memoria, p. 23.
8Ibid.
9ANG, B8.10, leg. 100, ex£. 2804, fol. 1. Untitled
pamphlet dated August 11, 1823.
*-9ANG, B8.10, leg. 100, exp. 2804, fol. 5. Rodriguez
to the ayuntamiento of Cartago, August 19, 1823.
-^Arce, Memoria, p. 23; Bumgartner, Valle, p. 213.
^Pablo Alvarado to the Secretario del Gobierno de
Costa Rica, May 15, 1824, in Garcia, Arce, 417'.
^Bumgartner, Valle, p. 25 ff. This sketch of Valle's
career is based on Bumgartner's biography.
^Montifar y Coronado, Memorias, I, 91.
^Manuel Jose^ Arce, Cartas, (San Salvador, 1824),
p. 3.
16Ibid.
17 /
X/Marure, Bosquejo, I, 184-185; Montufar y Coronado,
Memorias, I, 91. Both writers agree that the activities of
Arce and Valle in 1824 were governed by their presidential
ambitions.


56
As the proceedings against Arce slowly crept forward,
he continued to maintain his innocence. He charged that the
testimony entered against him was made by either mortal
enemies or unqualified witnesses. He flatly denied most
of the charges, and what he was forced to admit, he attempted
to put in the very best light. In 1811 he had promised
abolition of the alcabala only as a means of quieting the
mob. He had armed himself on the night of January 24 as he
intended to assist the militia with the settlement of any
disturbance. Such testimony, however, had little effect
on his judges who continued to amass evidence of Arces
guilt. In 1815 Bustamante was named interim intendente and
his place as judge in Arce's case was taken by Isidro Marin.
This change made little difference to the accused who soon
complained that Marin was as biased and unfair as his
predecessor.^
By the end of the year, the investigation had been
completed, but it required six months to reach a decision in
the case and three more years to conclude all of the litiga
tion that was involved. Franco Ruis, who had been appointed
as Arces defensor, resigned from the case in March, 1816,
and Arce asked that his sister be named to represent him.
This request was denied, and Arce was saddled with Domingo
Baraona, a "mortal enemy" who was regarded by Mariano Fagoaga
as a "professional drunkard.Baraona went through the
motions of presenting a defense, but by this time it made
little difference who handled the defense or how it was


147
executive; and the position went to Mariano Beltranena, a
Conservative.7 in a similar fashion, Pedro Molina rejected
his appointment as Foreign Secretary and Mariano Galvez
declined to serve as Secretary of the Treasury. Explanations
for this administrative reluctance on the part of the Liberals
have been and will probably continue to be nothing more
than guesses.^ Barrundias behavior might be accounted for
by the fact that he held a seat in the federal Senate which
had far more authority than either executive office. Beyond
this observation, one can only speculate that the Liberals'
opposition to Ferdinand VII had conditioned them to view with
repugnance all forms of executive authority or that they felt
that Arce had become tainted by the Conservative support he
received in Congress on April 20, 1825, If the latter
proposition is true, it would indicate a high degree of
dogmatism in Liberal attitudes since none of the critics of
the Congressional election raised an explicit charge that
q
Arce had been a party to a corrupt bargain. Whatever the
cause of Liberal disaffection, it meant that the President
was forced to employ Conservative ministers in order to
carry out the duties of his office.
Arce was not only isolated from the Liberals within
the confines of the federal government, but he was also
shortly involved in a brace of petty quarrels with the state
of Guatemala. Juan Barrundia, the jefe politico of the state
and brother of Jos'Francisco Barrundia, was an ardent Liberal,
and some observers felt that his attitude concerning federal


123
expected from a Salvadoran patriot. In a letter written to
Father Delgado, Arce expressed a preference for a much
stronger central government. Yet his democratic faith
obliged him to forego outright opposition to the Bases in the
belief that "if the people wish ... to imitate the North
Americans [it is] necessary to conform to their will and
pass over convictions of patriotism and wisdom.To say
the least, this was a strange position for someone who had
suffered so much in the name of provincial independence.
Arce later ascribed his attitude to his experiences while in
exile. He asserted that his examination of the mechanics of
the United States government led to the conclusion that
federalism was far too sophisticated for the people of Central
America.'* Due to his lack of familiarity with the language
and the fact that he was bedridden a great part of the time,
it seems unlikely that Arce could have made a very penetrating
study of United States politics. In any case, the future
President of the federation had good and compelling reasons
to favor a strong national government. The ease with which
Filisola was able to overrun San Salvador must have raised
doubts concerning the desirability of local autonomy. More
over, there was reason to believe that Central America faced
a threat far more serious than that which had been posed by
Iturbide's imperial army. Arces grasp of the workings of
American government may be questioned, but it is certain
that he was aware of the situation in Europe that would lead
to the enunciation of the Monroe Doctrine shortly after his


162
the states. Whatever sense of victory the executive may
have obtained from this action was dashed in mid-May when he
learned that the Congress had appointed Raoul as the commis
sioner in charge of recruiting in Guatemala. Arce responded
to this news with a spluttering note to Congress which
claimed that the appointment constituted another.infringement
of his authority and asserted that a foreigner could not
adequately perform the duties of a recruiting officer. Since
the appointment was made in a manner that did not require
the sanction of the Senate, the legislature merely replied
that Arce should execute the commission. Having no other
alternative under the Constitution, the President resorted
to tradition and obeyed but did not comply with the directive
When the Congress received word of this devious tactic
it decided that, if harassment could not force the President
into line, it was necessary to launch a direct attack. At
this time, the legislature was composed of 16 deputies from
Guatemala, 7 Salvadoran deputies, and 5 deputies from the
other states, and approximately three-fourths of these
representatives were opposed to Arce.^0 Consequently, Arce's
activities had been under constant review since the opening
of Congress, but it was now determined that his behavior
made him subject to impeachment. The proposed charges were
mainly concerned with Arce's management of public funds and
the fact that he had failed to present the budget for the
coming fiscal year. There was little substance to these
allegations as the supposedly missing funds from the Barclay
49


Internet Distribution Consent Agreement
In reference to the following dissertation:
AUTHOR: Flemion, Philip
TITLE: Manuel Jose Arce and the formation of the Federal Republic of
Central America, (record number: 565793)
PUBLICATION 1969
DATE:
I,
£1 ew\ov\
i dissertation, hVreby grant specific and
, as copyright holder for the
aforementioned dissertation, hVreby grant specific and limited archive and distribution
rights to the Board of Trustees of the University of Florida and its agents. I authorize the
University of Florida to digitize and distribute the dissertation described above for
nonprofit, educational purposes via the Internet or successive technologies.
This is a non-exclusive grant of permissions for specific off-line and on-line uses for an
indefinite term. Off-line uses shall be limited to those specifically allowed by "Fair Use"
as prescribed by the terms of United States copyright legislation (cf, Title 17, U.S. Code)
as well as to the maintenance and preservation of a digital archive copy. Digitization
allows the University of Florida or its scanning vendor to generate image- and text-based
versions as appropriate and to provide and enhance access using search software.
This grant of permissions prohibits use of the digitized versions for commercial use or
Signature of Copyright Holder
J^hliP Elk r)M
Printed or Typ^d Name of Copyright Holder/Licensee
Personal information blurred
3-/7 6 9
Date of Signature
Picase print, sign and return to:
Cathleen Martyniak
TJF Dissertation Project
Preservation Department
University of Florida Libraries
P.O. Box 117008
Gainesville, FL 32611-7008


^Marure, Bosquejo, I, 168; Marure, Efemrides,
pp. 15-16; Montufar y Coronado, Memorias, I, 98.
^Karnes, Failure of Union, p. 38. It should be
pointed out that, taken by itself, this statement carries
greater force than it does within the context of the work
Professor Karnes makes it very clear that political align
ments were extremely complex.
56
Marure, Bosquejo, I, 200.


168
Thus, Arce was left to bear sole responsibility for
the federal government, and, whatever the information
supplied by Conservative advisers, the activities of the
Guatemalan state government in the latter part of August had
convinced him that the continued existence of the federation
was in danger. In this frame of mind, he received on
September 5, a letter which informed him that state troops
had been sent in pursuit of Espinla as part of a Liberal
plan to destroy the federal army and depose the President.
This allegation appeared to be confirmed several hours
later when Arce was given a report of the confrontation
between Espinla and Cerda which led him to believe that the
federal captain had been overpowered.61 Certain that
Barrundia intended to overthrow what little remained of the
federal government, the President felt that he occupied the
weaken position and decided to protect himself by seizing
the initiative. Early in the evening on September 5, Arce
issued a decree which directed the commander of the federal
army to arrest the Guatemalan jefe politico on the following
day. Citing chapter and verse of the Constitution, the
decree charged that Barrundia had threatened the peace and
independence of the nation by ordering an attack on federal
troops.62 Barrundia was unable to offer any resistance
when he was arrested at six-thirty in the morning on
September 6.
The President sent an account of his actions to the
jefes of the other states on September 7. Perhaps to assure


100
wanted to be certain that the executive power would be used
to prevent the Salvadoran force from entering the city.^
On October 5, the new triumvirate sent Rivas a note inform
ing him that, as order had been restored, his assistance
would not be needed and the Salvadorans should return to
their homes. The government at the same time sought to
strengthen its position by requesting that troops be sent
to the capital from the conservative district of
Quezaltenango.
In accordance with his orders, Rivas disregarded
the SPE1s letter and continued with his march, yet he took
the precaution of sending two agents to observe the situa
tion in the capital. The Conservatives attempted to con
vince these representatives that the government enjoyed
complete freedom of action. The Liberals, on the other
hand, urged the Salvadorans to proceed to the city, and
this plea carried much greater weight in the report which
Rivas received from his men.^ As Rivas ignored a second
note which ordered him to halt at Villa Nueva, the Asamblea,
in the hope of avoiding bloodshed, ordered that the
Salvadoran force should be offered no resistance. The
Salvadorans peacefully entered Guatemala City on October 12
and were greeted by a speech of welcome delivered by Pedro
Molina. When Rivas appeared before the government on the
following day, it became clear that the Salvadorans had
come to settle an old score and protect the interests of
the Liberals. Rivas demanded that Salvadoran arms seized


144
4^ANG, B6.9, leg. 99, exp. 2753, "Comisin de guerra."
42Draft of a letter by Arzu, in Garcia, Arce, I, 519.
4^In this case, the author's guess, is that the Conser
vatives prediliction for centralism caused them to focus
their attention on the federal rather than state elections.
44ANG, B5.8, leg. 72, exp. 2037, "Estado que manifiesta
el escrutino de votos populares."
45Ibid.
46Marure, Bosquejo, I, 184, 240; Montufar y Coronado,
Memorias, I, 89, 101.
47Arce, Memoria, p. 26.
48Marure, Bosquejo, I, 194; Montufar y Coronado,
Memorias, I, 91.


37
the previous year, young Arce had exposed the antipathy
that existed between his group and the peninsulares. Testi
mony offered in the subsequent investigation of the rebellion
revealed that in 1810 Arce had encouraged Manuel Paredes to
join a junta that met in the home of the Aguilar brothers
and which planned to throw off the yoke of peninsular
domination. In the resort to religion as a means for
achieving their purposes, the Salvadoran creoles uncovered a
political device that would later be employed with equal
facility by Central American conservatives.
On the evening of November 4, a crowd of townspeople
gathered before the home of the provincial vicar to inquire
about the fate of the Aguilars. Delgado confirmed the news
concerning the arrests and suggested that those present
might pay a call on Antonio Gutierrez y Ulloa and demand
that the intendente secure the release of Manuel and extend
his protection to Nicolas Aguilar.21 Led by Manuel Jose,
his father, his uncle Juan Jose/ Arce and Manuel Delgado, a
brother of the vicar, the throng made its way to the home of
the intendente. In response to the uproar, Gutierrez y
Ulloa appeared at a second floor window and was informed of
the Salvadorans' wishes. The intendente responded that he
was powerless to take such action as they requested. This
hardly satisfied, but the besieged official was finally able
to convince the crowd to disperse. Manuel Jose" left the
intendent's home swearing to even the score by taking
Bernardino Molina into custody. Failing in this, he spent


82
51
52
Ibid., p. 74 .
Ibid.
Jose7 Mara Peinado, "Comunicacin dirigida por el
Intendente D. Jos'Mara Peinado al Capitn General del Reino,
dndole cuenta de la insurreccin efectuada en la ciudad de
San Salvador el 24 de Enero de 1814" [February 9, 1814], in
Garcia, Delgado, I, 406.
^Ib_id. p. 407; "Contra D. Mariano Fagoaga," in
Garcia, Procesos, p. 275.
. ^Peinado, "Comunicacin al Capitn General," in
Garcia, Delgado, I, 409.
56
Ibid.
57
Jose Arce."
ANG, Al.l, leg. 6924, exp, 57003, "Contra D. Manuel
* ^Peinado, 'Comunicacin al Capitn General," in
Garca, Delgado, I, 410.
59Ibid., p. 411.
60Ibid.
6I-ANG, Al.l, leg, 6924, exp. 57003, "Contra D. Manuel
Jos7 Arce."
^Ibid.; Bustamante y Guerra, "El Capitn General a
la Regencia," in Garca, Delgado, I, 432. According to
several of his biographers, Arce fought a rear-guard action
while his comrades escaped, but evidence to support this
story was not found.
63ANG, Al.l, leg. 6924, ex£. 57003, "Contra D. Manuel
Jose7Arce."
64ANG, Al.l, leg. 6925, e^gp. 57025^ "Da. Felipa
Aranzamendi Sre. que se reciva Ynformacion contra el Juez de
letras Dn. Juan Miguel Bustamante."
63ANG, Al.l, leg. 6924, exp. 57003, "Contra D. Manuel
Jose7 Arce;" ANG, Al.l, leg. 6925, exp. 57024, "Queja de Don
Manuel Jose7 de Arze, por los agravios que le ha inferido el
Intendente Ynterino Don Juan Miguel Bustamante."
6^ANG, Al.l, leg. 6923, exp. 56995, "Varias solicitudes
de parte de Don Manuel Jos7 Arce en resueltas de su arresto."
In reply to Arce's complaint, his jailers testified that
they had to open his door for visitors as often as six times
a day.


25
Alejandro Marure, Bosquejo histrico de las revo
luciones de Centro America desde 1811 hasta 1834, 2 vols.
(Guatemala, 1960), 1, 201.
15
Thompson,
Narrative,
p. 228.
It is assumed that the Indian population was then no
less divorced from national life than it is today and that it
formerly constituted a much larger proportion of the popula
tion. At the present time El Salvador is thought to be
entirely mestizo. Figures given by the intendent Antonio
Gutie'rrez y Ulloa in his Estado general de la provincia de
San Salvador indicate that in 1807 Indians constituted ap-
proximately forty per cent of the population.
Marure, Bosquejo, I, 20 2; Manuel Montufar y Coronado,
Memorias para la historia de la revolucin de Centro-America,
2 vols, [Guatemala, 1963) Fj 5Ti
X 81
Federacin de Centroamerica, Memoria presentada al
Congreso general de los estados federados de Centro Amdyica
por el secretario de estado, encagado de despacho universal,
al comen.lar las sesiones del ao de 1825. (Guatemala, 1825)
19
Montufar y Coronado, Memorias, I, 59.
20
Article 69, Constitution of 1824; the tejxt of the
Constitution is reproduced in Ricardo Gallardo, Las Constitu-
ciones de la Repblica Federal de Centro-America, 2 vols.
(Madrid, 1958) II, 703-738.
21 v
Montufar y Coronado, Memorias, I, 59.
Leon Fernandez, Documentos relativos a los movi
mientos de independencia en el reino de Guatemala (San
Salvador, 1929), p. 20. This document is titled, "Informe
del Capitn General de Guatemala al Secretaria de Gracia y
Justicia," and attempts to show that there was no basis for
creole discontent as there were only 69 peninsulares holding
official positions. The Captain General's case loses a good
bit of its strength as it includes salary figures which show
that the average income of the peninsulares x^as 1,208 pesos
while the creoles earned an average of 242 pesos.
23 *
Louis' E. Bumgartner's biography Jose del Valle of
Central America (Durham 1963) demonstrates that the Captain
General relied quite heavily on the Honduran savant.
24
Susan Emily Strobeck, "The Political Activities of
Some Members of the Aristocratic Families of Guatemala,
1821-1839," M. A. thesis (Tulane University, 1958), p. 5;
Woodward, "Economic and Social Origins," p. 546.


76
January, Filisola received a letter informing him that he was
trying the patience of the Emperor. The Mexican general was
reminded that his role was not that of "a friendly arbitrator
but a soldier who goes out in the service of his government
to repress as he must a rebellious faction which has distur
bed public order." Filisola was commanded to initiate
military action to take San Salvador "at all costs . .
treating those who oppose you as rebels and traitors.
In accordance with this order, on February 7 Filisola
led his troops in an attack against the Salvadoran forces
assembled on the plains of Angel. From the start, the
Salvadorans were at a disadvantage as Arce had been struck
1 20
by an illness that rendered him unable to lead his men.
Still, the Salvadorans were able to repulse several assaults
and held their position for two hours before they were
forced to retire to Mejicanos, on the outskirts of San
Salvador. The imperial column immediately advanced to the
suburb where the battle was resumed. After three hours of
combat, the Salvadorans were forced to give up the fight.
Carrying their commander on a litter, the defeated troops
withdrew to a point beyond San Salvador, and Filisola entered
the city the following morning. Although Mexican soldiers
broke into Arce's home, their commander generally kept a
close rein on his troops and treated the Salvadorans with
consideration. On February 9, Filisola wrote a letter to
Arce urging his surrender, but the Salvadoran army continued
to roam the countryside for over a week. The Salvadorans


107
the end of 1825 that the federation established a corps of
inspectors to destroy illegal plantings.51
Import duties furnished the greatest amount of
national revenue. In 1824, customs charges were raised
4 per cent to a maximum of 12 per cent of value, and pro
tectionist revision the following year brought rates of
30 per cent on goods that competed with domestic products.
These increases apparently caused customs receipts to exceed
the expectations of government officials. The 1825 budget
anticipated that duty payments would yield 200,000 pesos,
but it is thought that actual income was considerably
5 2
greater. Whatever the amount of revenue, larger sums
could have been realized but for the fact that the admini
stration of customs suffered from the same difficulties that
plagued the tobacco monopoly. The states were provided with
the opportunity to secure control of customs receipts as the
Asamblea restricted the activities of federal customs
officials to the ports of Omoa, Trujillo, and Gualan.55
Duties collected by the states at other ports were supposed
to be forwarded to the central government, but these funds
often remained in state coffers. The failure to provide for
a uniform system of collection further reduced federal
revenue as it contributed to the growth of contraband trade.
While it is impossible to determine precisely the extent of
smuggling, contemporary observers estimated that the volume
of such trade was as great as that conducted through


CHAPTER VI
CONCLUSION
There can be no doubt that Arce was a Liberal in good
standing at the time of his election in 1825. It is equally
clear that he was aligned with the Conservatives by the end
of his first year in office. Yet--in the view of this writer
--the causes and consequences of this shift have been dis
torted by the misinterpretations passed along by several
generations of liberal Central American historians. Alejan
dro Marure wrote that Arces association with the Conserva
tives was responsible for "his ruin and all of the misfortunes
that the nation suffered during the period of his administra
tion."^ Lorenzo Montufar regarded the first President of the
federation as little more than a lackey of the Guatemalan
aristocracy, and Ramon Salazar charged that Arce "destroyed
the federation and proposed to impose centralism by force of
arms." The latter writer also thought it was unfortunate
that the Salvadoran patriot did not have "the good fortune
2
to have died shortly after independence . ." This tra
dition of unsympathetic treatment has provided the basis for
a number of standard judgements concerning Arce's political
career. The material contained in this study suggests, how
ever, that many of these interpretations are in need of
revision.
186


57
presented. On June 19, 1816,Arce was condemned to serve
eight years in the prison at Ceuta.^4 This sentence was not
carried out as Arce's sister immediately appealed his case
to the audiencia. While this appeal was being considered,
Ferdinand VII, in celebration of his marriage to Maria
Isabella de Braganza, issued a general amnesty on January
25, 1817. The royal order was proclaimed in Guatemala in
June of that year, and Arce requested his freedom under the
terms of the amnesty. Achieving his release was, however,
no simple matter. By April, 1818 the court had yet to act
on his petition, and Arce addressed a complaint to Captain
General Carlos Urrutia that he was still being held in
confinement.in part, the exasperating delays which Arce
experienced were caused by bureaucratic sluggishness. Also,
the audiencia, possessing considerable latitude in the
application of amnesties, had to review all of the testimony
taken in Arce's case. Finally, on July 7, 1818, the court
recommended that Arce's sentence be suspended.^
Following his release from prison, Arce's energies
were totally absorbed by the needs of his family and the
effort of putting his financial affairs in order. As the
market for indigo was by this time almost nonexistent and
the production of cochineal had not yet taken hold, it is
likely that he was able to do little more than retrench.
Supported by a few rents and several small herds of cattle,
his family never again enjoyed the income of earlier days.
Possibly it was this economic hardship which caused Arce to


93
to secure outright rejection of Filisola, followed a
circuitous route, and disqualified the Mexican general from
office through the enactment of a decree which was obviously
designed to appeal to nationalistic sentiments. On July 8,
the Asamblea ordered that executive authority could be
exercised only by natural born citizens who had resided in
the territory of the republic for seven years. The
following day, the Asamblea provided for the creation of a
three-man executive board and acknowledged Arces past
services to the nation by selecting him as the first-named
14
member of the body. The remaining seats on the Supremo
Poder Ejecutivo were awarded to the Liberals Pedro Molina
and Juan Vicente Villacorta. The Conservatives were
undoubtedly unhappy with the appointment of the firebrand
Molina, but they used most of their energy to oppose the
election of Villacorta. While they apparently were pre
pared to accept Liberal control of the executive, the
Guatemalan Conservatives definitely feared the prospect of
Salvadoran dominance and attempted to secure the third
seat on the SPE for the Honduran Jose Dionisio Herrera.
To serve as Arces substitute, the assembly chose Antonio
Larrazbal, a member of "the family" who had been the
Guatemalan delegate to the Cortes of Cadiz. Larrazabal
declined the honor, however, and the position went to the
Liberal Antonio Rivera Cabezas.
/
Despite his exclusion from the government, Filisola
lingered on in Guatemala. Though he later wrote that his


20
primarily at leveling distinctions within the creole com
munity) economic development and diversification, an
expansion of educational opportunities, a reduction in the
secular power of the Church, and the establishment of a
federal form of government. The Conservatives seem to have
had few specific concerns apart from the preference for a
unitary type of government and the general desire to preserve
established institutions insofar as possible. Of all the
issues raised by the Liberals, none appears to have had
greater divisive force than that of religious reform. For a
Conservative writing at the time of Morazan's triumph in
1829, the question of religion was the basic ingredient in
the conflict.
The best indication for distinguishing a fiebre
from a moderado comes in a quarter hour of conversa
tion when you immediately begin to hear his detest
for the friars and nuns, talk against ecclesiastical
revenues and against the precepts of the Church,
denial of the efficacy of the sacraments, derision
of everything that pertains to religion, and
laughter about those who still attend mass or comply
with any other precepts of the Church. In a word,
a fiebre is one who, denying all that pertains to
the teaching of Christ and boasting of not being a
Roman Catholic, neither recognizes nor practices
religion or morality.
In all other areas, there was an absence of vigorous
Conservative opposition to Liberal programs which suggests
that the ideological differences between the two groups was
quite limited.
In the months of July, August and September, the
Liberals controlled the assembly and elected three of their
fellows to the 'Supremo Poder Ejecutivo. Anticipating the


196
Guatemala, Ayuntamiento de la Ciudad. Instrucciones para la
constitucin fundamental de la monarqua espaola y
su gobierno, de que ha de tratarse en las prximas
cortes generales ~d la nacdoir." Guatemala, iy53.
Gutierrez y Ulloa, Antonio. Estado general de la provincia
de San Salvador: Reyno de Guatemala (Ano de 1807).
San Salvador, 1962.
Manning, William R., ed. Diplomatic Correspondence Concern
ing the Independence of the Latin American Nations.
3 vols. "New York, 1925.
Valle, Jose7 Cecilio del. Discurso del presidente del Poder
ejecutivo a la apertura del Congreso federal en 25
febrero de 1825. Guatemala, 1825.
Valle, Rafael Jeliodoro, ed. La anexio'n de Centro America
a Mexico. 6 vols. Mexico, 1924-1949.
Contemporary Accounts, Memoirs, and Newspapers
Arce, Manuel Jose7. Breves indicaciones sobre la reorganiza
cin de Centro Ame*rica. San Salvador, 1846.
. Memoria del General Manuel Jos7Arce. San Sal-
vador, 1959.
Bailey, John. Central America; Describing Each of the States
of Guatemala, Honduras, Salvador, Nicaragua, and Costa
Rica; Their Natural Features, Products, Population,
and Remarkable Capacity for Colonization. London,
1850.
Dunlop, Robert Glasgow. Travels in Central America, Being a
Journal of Nearly Three Year's Residence in the
Country, Together with a Sketch of the History of the
Republic and an Account of its Climate, Productions,
Commerce'^ Etc. London, 1847".
Dunn, Henry. Guatimala fs\r .j or the Republic of Central
AmericaJ in 1827-8; Being Sketches and Memorandums
Made During a Twelve-Month's Residence. London, 1829.
El editor constitucional. July, 1820-August, 1821.
Juarros, Domingo. Compendio de la historia de la ciudad de
Guatemala. Guatemala, 1936.
Gaceta del Gobierno Supremo de Guatemala. March, 1824-
November, 1825.


MANUEL JOSE ARCE AND THE FORMATION OF
THE FEDERAL REPUBLIC OF CENTRAL AMERICA
By
PHILIP FREDERICK FLEMION
A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1969


NOTES
iMarure, Bosquejo, I, 247.
^Montufar, Resea histrica, I, 9.
^Department o£ State, Diplomatic Despatches,
Williams to Henry Clay, November 24, 1826.


48.
work constantly to maintain the high opinion which
you enjoy in this kingdom. . .We equally hope
that you will inform us of the plan for the
constitution adopted by your country. . .49
In the face of ominous rumors and obvious discontent,
Peinado repeatedly attempted to convince Captain General
Bustamante (and possibly himself as well) that all was well
in San Salvador. Having other sources of information in
San Salvador, Bustamante wrote to Peinado inquiring about
the nature of the public attacks on the government. Peinado
admitted that there had been some manifestations of disrespect,
but on April 22 he avowed that suspect behavior was a thing
of the past and that the people of the province were "good,
simple and religious."50 These qualities did not prevent
the citizens of San Salvador from taking to the streets on
September 5 in response to a rumor that Delgado had been
arrested in Guatemala. The intendente had some difficult
moments as he faced a situation that had the makings for a
re-enactment of the events of 1811. Order was restored,
however, with the arrival of mail from Guatemala which
proved the rumor groundless. Maintaining his convictions,
Peinado later wrote to the Captain General that the disturb
ance was of little consequence as it was merely an expression
of the peoples' affection for Delgado and that the loyalty
of the province was unquestionable. Bustamante was uncon
vinced as his own sources continued to send him troubling
reports. Fearing that the fact that Delgado was residing
with Peinado's family in Guatemala might have a lulling


69
allowed Colonel Arzu to continue his march on San Salvador.
Throughout his campaign, Arzu moved with such caution that
it appears he did not really favor military action against
the Salvadorans. He had spent nearly a month on the march
when he finally drew near the city and camped at Apopa on
April 13. A few minor skirmishes occurred, but Arce
hesitated to engage in a major battle and on the sixteenth
proposed the negotiation of an armistice. Equally hesitant,
Arzu readily agreed to negotiations on the following day and
dispatched Rafael Montufar to treat with the Salvadorans.
Both the discussions and the armistice were peculiarly one
sided. On April 18, Montufar attended a joint session of
the ayuntamiento and the diputacin in which the Salvadorans
presented a lengthy condemnation of the Guatemalan invasion
and dictated the terms of the armistice. The more significant
terms of this agreement provided for: Arzu*s withdrawal to
Quezaltepeque, the free movement of persons in areas under
Guatemalan control, a prohibition on the acquisition of
reinforcements, permission for Guatemalan residents to
attend the Salvadoran congress that would decide the question
of annexation, and final disposition of the issue by means of
direct negotiations between San Salvador and Mexico.10 5
Despite these unfavorable terms, Arzu signed the armistice
on April 22, and forwarded it to Gainza for approval.
Gainza spent a very busy day when he learned of the
armistice on the third of May. In a letter to Iturbide,
he protested that San Salvador's continued resistance was due


116,
NOTES
^Vicente Filisola, "El ciudadano General de Brigado
Vicente Filisola a Jos Francisco Barrundia, emisario de la
faccin San Salvadorea en Guatemala, en contestacin de su
libelo de 10 de agosto del presente ao, o sean apuntes para
la historia de la libertad de aquellas provincias," in
Garca, Delgado, II, 47; Montufar y Coronado, Memorias, I,
79.
^Although his actions were severely criticized by
Barrundia and others, Filisola passed up a perfect oppor
tunity for self-aggrandizement. Following the fall of
Iturbide, he commanded the only effective military force in
Central America and had the support of Guatemalan conserva
tives who urged him to retain political power.
JFilisolas proclamation is reproduced in Marure,
Bosquej c j. I, 334-342.
"Tabla para facilitar la eleccin de diputados y
suplentes para el Congreso de las Provincias Unidas de
Guatemala," in Garca, Arce, I, 92-100. There were no
accurate census figures available when the congress was
called, and the population of 1,110,000 represented by 76
deputies was an arbitrary approximation. The population
estimates for San Salvador, Honduras, Nicaragua, and Costa
Rica were later raised in response to pressure regarding
representation in the federal Gongress. The junta
consultiva also provided for the election of 20 suplentes
to' the constituent assembly with Guatemala electing 13; San
Salvador, 4; Honduras, 3; Nicaragua, 3; and Costa Rica, 1.
The representatives elected by some districts never attended
the assembly, and suplentes apparently served at large as
the four delegates from Costa Rica regularly participated in
the sessions of the assembly.
^Federacio^n de Centroamerica, Proyecto de ceremonial
para la instalacin y apertura del congreso '[Guatemala,
1823). :
^"Dictamen que la comisin nombrada por la Junta
Preparatoria ha presentado acerca de la independencia
absoluta," in Garcia, Arce, I, 259-269.
n / j
'Pedro Joaqun Chamorro, Historia de la federacin de
la Amrica Central, 1823-1840 (Madrid, 1951), pp~[ 42-43.


141
lost control of the state government, Guatemalan Conservatives
found themselves in the majority in the federal Congress.
Familiarity with Valles independent mind probably caused the
Guatemalan deputies to wonder if his opponent might not be
more amenable to legislative supervision.
Arce believed that his Conservative support in the
Congressional vote was based on the open-handed manner in
which he carried out the pacification of Nicaragua.^
Although his campaign appears to have been directed against
the military superiority of the conservative faction, he
attempted to deal fairly with both sides and eschewed
vindictive action. Both Cleto Ordonez and Bishop Garcia
Jerez were ordered to take up residence in Guatemala follow
ing the restoration of order.Arce's statement that the
most vital issue in El Salvador would not be allowed to
influence his actions as President, together with his concil
iatory behavior in Nicaragua, should have been sufficient to
convince Guatemalan Conservatives that he, rather than Valle,
posed the lesser threat to their power in Congress. Thus,
Conservatives and Liberals joined hands to select the first
President of the Federation. Unfortunately for Arce, this
consensus did not extend beyond his election.


202
Williams, Mary WilheInline. "The Ecclesiastical Policy of
Francisco Morazan and other Central American Lib
erals," Hispanic American Historical Review, III
(May, 1920), 119-143.
Woodward, Ralph Lee, Jr. "Economic and Social Origins of
the Guatemalan Political Parties (1773-1823),"
Hispanic American Historical Review, XLV (November,
1965), 544-566. ~
Unpublished Materials
Beltranena Valladares, Luis. "Attempts to Form a Union of
Central America." Ph.D. dissertation, University of
Notre Dame, 1947.
Field, Harold Bond. "The Central American Federation, A
Political Study, 1826-1839." Ph.D. dissertation,
University of Chicago, 1942.
Parker, Franklin D. "The Histories and Historians of Cen
tral America." Ph.D. dissertation, University of
Illinois, 1951.
Rastetter, Richard W. "Central American Unionism." M. A.
thesis, Georgetown University, 1949.
Strobeck, Susan Emily. "The Political Activities of Some
Members of the Aristocratic Families of Guatemala,
1821-1839." M. A. thesis, Tulane University, 1958.
Szasdi, Adam Matthias. "The Career of Nicholas Raoul in
Central America." M. A. thesis, Tulane University,
1954.


35
was plainly demonstrated when the ayuntamiento of Guatemala
prefaced the instructions given to its representative to
the Cortes of Cadiz with the "Declaration of the Rights of
Man and of the Citizen." Clearly concerned with stemming
the spread of disloyalty, Captain General Antonio Gonzalez y
Saravia established a tribunal de fidelidad on May 27, 1810,
and offered a reward of five hundred pesos for information
leading to the apprehension of foreign agents. None of
Napoleon's representatives were uncovered, but seditious
material was found and promptly burned.^
On March 14, 1811, Gonzalez y Saravia was replaced by
Jose Bustamante y Guerra who immediately issued a manifesto
which demanded nothing less than total obedience to Spain.
Bustamante was not long in deciding that the murmurings of
discontent issuing from San Salvador signaled the greatest
threat to tranquility, and he later reported:
when I took possession of command, I saw substantiated
the reports I had been given of the secret spirit of
unrest in this kingdom; I most feared its effects in
the province of San Salvador, where my predecesor
feared them; and in order to remove the means by
which it might be possible to instigate an insur
rection, I gave orders for the removal to the capital
of the arms and funds that were in San Salvador.
And in its accomplishment, there were removed in
August of that year 11,700 rifles and 95,201 pesos
from the public treasury. . .16
Undeterred by Bustamante's action (and possibly spurred by
it), the Salvadorans proceeded to emulate the example then
being set by creoles in other areas of the Spanish empire,
and in the words of Bustamante, "the fire which had burned
in secret manifested itself publicly," on November 5, 1811.1?


59
the unity of sentiment that cries for liberty, and
we see them now as humble as they were proud during
the bloody era of Bustamante.
I am of the opinion that we should take them
back as prodigal sons; perhaps they will be insincere
in admitting to their errors, but that is not
important because the great secret of politics is
to make use of all men.79
Unfortunately for Arce, this disposition towards reconciliation
would later cost him more support than it would gain.
By the time that Molina received the letter of his
Salvadoran compatriot, The Bacos and Cacos had united to
proclaim the independence of Guatemala. Whatever their
personal attitudes, the officials of San Salvador ratified
this action with a proclamation of independence on September
i.
21, 1821. Possibly they hoped that all would remain as it
had been, but the liberal creoles were determined to alter
the structure of the government in a way that would give
them a voice in its direction. In the letter written to
Molina just prior to independence, Arce mentioned the
circulation of a petition for the establishment in San
Salvador of a body similar to the diputacin provincial, and
on October 1 Pedro Barriere, the jefe politico, was present
ed with a document which informed him that, "the people
have determined to erect a junta gobernativa subalterna in
Of)
this city according to the plan of the one in the capital."
Apparently assuming that conservatives would control the
junta, Barriere accepted the petition and set October 4 as
the day for electing the members of the new body. In
attempting to round up conservative support for the elections,
Ignacio Saldana 'and Jose' Viteri discovered that there was


CHAPTER I
INTRODUCTION
Of the various facets of Central American history,
none has engendered greater interest among scholars than the
division of the "Ancient Kingdom" of Guatemala into five
sovereign nations.-*- Sustained by repeated attempts to re
store the territorial integrity of the colonial era, this
interest arises from the fact that separatism appears to^ fly
in the face of reason. As a political unit, the area as a
whole would constitute a nation of reasonable proportions,
though it would still be less than half the size of modern-
day Bolivia or Venezuela. Individually, the countries of
Central America are of barely adequate dimensions and, with
the exception of the insular states, are the smallest of the
Latin American republics. Furthermore, the political expe
rience of Central America suggests a distinctly retrograde
movement with the fragmentation of one entity into several.
Given the apparent unity of the colonial period, it would
seem that the erection of separate Central American states
demanded active efforts on behalf of dismemberment; while the
much professed goal of union could have been attained by
simply maintaining the colonial status quo in republican form.
As a consequence of these incongruities, a number of writers
1


197,'
/ /
Garca Granados, Miguel. Memorias del General Miguel Garca
Granados. 4 vols. Guatemala, 1952.
El genio de la libertad. August-December, 1821.
Marure, Alejandro. Bosquejo histrico de las revoluciones
de Centro America desde 1811 hasta 1854. 2 vols.
Guatemala, I960.
. Efemrides de los hechos notables acaecidos en
la repblica desde en ao de 1821 hasta el de 1842.
Guatemala, 1844.
Molina, Pedro. Escritos del doctor Pedro Molina. 3 vols.
Guatemala, 1954.
Montgomery, G. W. Narrative of a Journey to Guatemala in
Central America. New York, 1839.
Montufar y Coronado, Manuel. Memorias para la historia de
la:revolucin de Centro -Ame*rica. 2 vols. Guatemala,
1963.
Morazn, Francisco. Memorias de David y Manifiesto al pueblo
centroamericano^ Tegucigalpa, 1953.
Squier,'Ephraim George. Notes on Central America; particu
larly the states of Honduras and San Salvador! their
geography, topography, climate, population, resources,
productions, etc., and the proposed Honduras inter-
oceanic railway^ New York, 1855 ^
Stephens, John Lloyd. Incidents of Travel in Central America,
Chiapas and Yucatan. New Brunswick^ 1949. .
Thompson, George Alexander. Narrative of an Official Visit
to Guatemala from Mexico. London, 1829.
Secondary Sources
Books
Bancroft, Hubert Howe. History of Central America. 3 vols.
New York, 1883-1887.
Baron Castro, Rodolfo. Jose^Matas Delgado y el movimiento
insurgente de 1811. San Salvador, 1962.
Batres Jauregui, Antonio. America Central ante la historia.
5 vols. Guatemala, 1949.


94
intention was to prevent the outbreak of anarchy, Filisola's
purpose in remaining is uncertain.^ Possibly he exper
ienced a change of heart in regard to his political ambi
tions. The Guatemalan aristocrats were anxious for
Filisola to stay on and contributed to his support, but the
opposition of other sectors of society to the continued
presence of the Mexican force was unmistakable. For some
time Jose* Francisco Barrundia had been introducing petitions
calling for Filisolas withdrawal, and there had been an
increasing number of incidents involving verbal and physical
clashes between the citizens and Mexican troops. This
antagonism was further demonstrated by the refusal of the
deputies from Honduras, Nicaragua, and Costa Rica to assume
their seats in the Asamblea so long as the Mexican division
f
remained in the country. In an attempt to use Filisola's
supposed political ambitions as a means for diminishing his
power, the SPE appointed him jefe politico of Guatemala.
Filisola at first accepted this position, but he quickly
changed his mind when he learned that it carried no military
authority and command of his forces would fall into the
1 8
hands of the triumvirate. As the Mexican government
discouraged any further interference in the affairs of
Central America, Filisola finally led his division out of
Guatemala on August 3, 1823.
With Filisola out of the way, the government got
down to the business of establishing the identity of the
new nation. On August 11, the SPE was authorized to


34
indigo captured a growing share of the Spanish market.
Furthermore, the profit margin for Salvadoran producers was
reduced by increased local taxes and support for the montepo
of the Sociedad de Cosecheros de Anil, and these factors
ultimately destroyed the competitive position of Central
American indigo.12 The decay of the indigo industry is
dramatically demonstrated by the official production figures
given to Henry Dunn in 1827.1^ The fact that the output of
indigo in 1811 was less than half of what it had been twenty
years earlier must have meant that serious financial
difficulties confronted the Arce family. This supposition
is supported by the fact that Bernardo Arce was forced to
contract sizeable debts. After his death in 1814, Arce
left an estate which owed the montepo a sum of 6,000 pesos
and Gregorio Castriciones, the wealthiest Spaniard in the
province, a total of 25,185 pesos.1^ It is not suggested
that the Arces embraced insurrection merely as a means of
avoiding their obligations, but it seems more than plausible
that increasing financial pressures would have encouraged
their disaffection.
Whatever their personal motives, the creoles of San
Salvador were prepared by 1811 to take the steps most feared
by colonial authorities. In a sense, they were merely
keeping in step with their times. Though Central America
is generally considered to have been one of the backwaters
of the empire, its residents were by no means unaware of
the currents of political change flowing about them. This


55
His food, often consisting of nothing more than moldy
tortillas, was abominable. Consequently his health declined,
and Arce suffered alternately from diarrhea and constipation
all the while he was held in confinement.^7 It appears that
Arce's health in fact may have been permanently damaged by
his term in prison as he was plagued with illnesses through
out the rest of his life.
Arce's most serious concern was the financial
difficulties that were caused by his arrest and the impounding
of his possessions. When Arce first petitioned to have his
case brought to a conclusion, he cited the need to attend
to his business affairs; after he had been held for a number
of months, he pled the cause of impending poverty.^
Arce's economic problems extended to other members of his
family as well. Following his death in November, 1814,
Bernardo Arce's property was included in the attachment of
his son's possesions. This action made it impossible to
settle the estate and caused considerable hardship for those
dependent upon its revenues.^9 When Manuela Arce journeyed
to Guatemala to plead the cause of her brother and her
husband in 1816, she stated that, having already sold her
jewelry to maintain her family, she had been forced to sell
her silverware to pay for the trip.70 After Arce was finally
released, his property--less a portion sold to pay debts
incurred during his confinement--was restored to him, but it
appears that he never fully recovered from the economic
difficulties that arose from his imprisonment.


126
his initial reluctance, Valle's attitude concerning indepen
dence changed with the passing months. By September, 1821 he
had come down on the right side and was given the honor of
drafting die Act of Independence. He then assumed a prominent
role in the provisional government, serving. Gainza as he had
served Bustamante. Valle refused to commit himself on the
issue of annexation to Mexico, but three months after the
event, he was elected to a seat in the Mexican Congress.
After a month's service in the Congress, the Central American
deputy was arrested and confined in prison for six months.
He was released in February, 1823 and informed that it had
all been a mistake and he was now Iturbide's Secretary of
Foreign and Domestic Affairs. Valle next delivered himself
of the opinion that the annexation of Central America was
illegal when he resumed his seat in Congress following the
overthrow of the Mexican Emperor. He remained in Mexico
until November, 1823 when he returned to Guatemala to assume
his post on the SPE. After taking his oath of office in
February, 1824, Valle became the acknowledged leader of the
triumvirate, and he threw himself into a number of projects
to secure the betterment of his country. By the time Arce
joined the executive council, Valle had initiated a program
for the modernization of agriculture, formulated a plan for
industrial growth, initiated a variety of projects related
to the development of education, and prepared a lengthy
memorial designed to convince the Asamblea of the necessity
for providing the national government with adequate sources


45
press for the erection of a bishopric in the province, and he
addressed a petition on this subject to the Cortes on March
21, 1812.^3 Had the creoles been able to maintain their
position for a fair amount of time after the November revolt,
it seems probable that the issue of the bishopric would have
provided the rationale justifying a declaration of indepen
dence .
The thesis that the Salvadorans had embarked on a
course leading to independence is given greater substance
by certain actions taken by the creole government. In
attempting to convene a provincial congress, the Salvadorans
clearly exceeded the bounds of colonial law as such meetings
had long been forbidden by royal order.44 The downward flow
of policy was a part of the natural order of things which
the congress would have blatantly inverted as its announced
purpose included the formulation of local policy decisions.
In itself the summoning of a provincial assembly signaled
that the creoles were prepared to defy the authority of the
Captain General. The willingness to run counter to
established modes of behavior is further demonstrated by
the reaction to the hostile attitude of San Vicente. It is
difficult to believe that the Salvadorans had any illusions
concerning the reason behind the massing of troops in the
neighboring city, and they sought to preserve their integrity
in the face of this threat.45
Isolated in time, the 1811 rebellion was of little or
no political consequence. Having no real relationship to
the actual establishment of Central American independence,


83-
67Ibid. -
^^ANG, Al.l, leg. 6926, exp. 57027 "Incidente de la
causa contra D. Man Jose" de Arce--recusacin y apartamento:
diligencias de embargo de bienes a que se opone su herma Da.
Manuela Antonia."
69;
le;
70,
Ibid.; ANG, Al.l, leg. 6926, exp. 57032, "Instancia
de Manuela Antonia de Arce."
ex£.
57043,
"Don
Manuel
Jos
exp.
57003,
"Contra D.
Manuel
ex£.
57043,
"Don
Manuel
Jos**
de Arze reo de Ynfidencia."
71ANG, Al.l, leg, 6924
JoseS Arce."
72ANG, Al.l, leg. 6926
de Arze reo de Ynfidencia."
7 *7 y
'JIbid.; "Contra D. Mariano Fagoaga," in Garcia,
Procesos, p. 274.
7^ANG, Al.l, leg. 6924, exp. 57003, "Contra D. Manuel
Jos Arce."
78ANG, B2.6, leg. 30, exp. 765. Manuel Jose^ Arce to
Carlos Urrutia, April 9, 1818.
76ANG, Al.l, le£. 6926, ex£. 57043, "Don Manuel Josef
de Arze reo de Ynfidencia." The writer was unable to deter
mine the precise date on wrhich Arce was released from custody.
77None of the participants in the uprisings of 1811 and
1814 were included in the group of officials who signed the
Act of Independence on September 21, 1821, and the ayuntamiento
supported the arrest of Arce, Rodriguez and others when they
pressed for the reorganization of the government.
78Manuel Jos^* Arce to Pedro Molina, September 13, 1821,
in Garca, Arce, I, 104.
79Ibid, pp. 104-105.
80ANG, B5.4, le£, 60, ex£. 1452, fol. 4, "Cuaderno
que comprende la solicitud de formacin de la .junta gober
nativa subalterna."
8^E1 genio de la libertad, October 15, 1821.
^7ANG? B5.4, leg. 59, exp. 1408, fol. 1, Jos^Rossi
to Gabino Gainza, October 4, 1821.
83ANG, B5.4, leg. 60? exp. 1477, fol. 1, Ayuntamiento
of San Vicente to Gabino Gainza, October 5, 1821.


15
attempts of the aristocracy to influence its inferiors, the
position of the Bacos was approved by the electorate as the
party won a majority of ayuntamiento seats. But the efforts
of the Cacos did not go entirely unrewarded. Control of the
diputacin fell to sympathetic provincianos, foremost of whom
was Jose Matas Delgado.Whatever the degree of failure
suffered at the polls, Caco ardor went undimmed, and the pages
of El editor grew progressively more forthright in advocating
separation from Spain. Molina raised a considerable furor in
early June when he published an account of an imaginary jour
ney to a land ruled by a tyrant named Odnanref le Otargni.38
Though they may have been guilty of lese majesty, the Cacos
had both time and Agustn de Iturbide on their side.
Initially, the response of Central Americans to
Iturbide's Plan of Iguala was largely negative. On April 10,
1821 Gabino Gainza, the acting Captain General, issued a pro
clamation denouncing the Mexican upstart, but Iturbides
example proved to be increasingly attractive to Gainzas
followers.^9 Over the summer, the distance between the Cacos
and the Bacos on the question of independence diminished con
siderably as even a number of peninsulares became convinced
of the advantages of independence. Most authorities view the
shift in attitudes as an echo of the reaction of Mexican con
servatives to the course of events in Spain. Of course, none
of the liberals were so enthralled by the vision of Spanish
liberalism that they were caused to oppose independence.
By September the path for Central America had been


119,
^Bumgartner, Valle, pp. 216-217.
4Smith, "Financing the Central American Federation,"
p. 489.
^Federacin de Centroamerica, Memoria presentada por
el secretario de estado; Thompson, Narrative, p. 471.
^"Ordenanza para la recaudacin, administracin del
impuesto general" [January 22, 1824], in Garcia, Arce, I,
311-316.
^Federacin de Centroamerica, Memoria presentada por
el secretario de estado.
44 Ibid.
45Ibid. The federal government also received a
limited amount of income from such sources as the sale of
stamped paper and operation of the mint.
4^Chamorro, Historia de la federacin, p. 118.
47
Marure, Bosquejo, I, 175.
48 /
Chamorro, Historia de la federacin, p. 121.
4^Smith, "Financing the Central American Federation,"
pp. 492-493.
^Ibid.; Bumgartner, Valle, p. 222.
^Director General de Tobaco to Secretario del
Estado, December 14, 1825, Secretario del Estado to Director
General de Tobaco, January TT] 1826, in Garcia, Arce, III,
192-193, 213'.
c 7
Smith, "Financing the Central American Federation,"
pp. 490-491; Marure, Bosquejo, I, 176.
^Decree dated June 23, 1824, in Garca, Arce, I,
423-426.
^4United States, National Archives, Department of
State, Despatches from United States Consuls in Guatemala,
18 24-1906", I (Hereafter: Consular Despatches)^ Charles
Savage to the Secretary of State, August 22, 1832; Dunn,
Guatmala, p. 213.
^^Marure, Bosquej o, I, 358.
^Thompson, Narrative, p. 148.
c 7 f
^'Chamorro, Historia de la federacin, p. 122.


B5.4, 60, 1510. Pedro Barriere to Gabino Gainza, October 7,
1821.
B5.4, 61, 1586. Untitled report on the establishment of the
diputacin in San Salvador dated November 11, 1821.
B5.4, 62, 1669. Jose*Delgado to Gabino Gainza, January 29,
1822.
B5.4, 63, 1708. "Sobre el estado de hostilidad de que se
hallen amenazados los pueblos de St. Ana, Quezalte-
peque y. el mismo Sonsonate por la ciudad de San Salva
dor." (February, 1822)
B5.4, 63, 1714. Acta of the cabildo of Santa Ana dated
February 27, 1822.
B5,8, 72, 2037. "Estado que manifiesta el escrutino de
votos populares." (April 20, 1825)
B6.9, 99,;2753. "Comisin de guerra." (1825)
l
B7.26, 3-1-80, 79487, 1. "Acuerdo que no reconocer facultad
en el Presidente de la Repblica por la convocacin
que ha hecho de un Congreso extraordinario."
(October 13, 1826)
B7.26, 3480, 79487, 3. Presidential decree dated October 10,
1826.
B7.9, 135, 3145. "Comisin de puntos constitucionales."
(July, 1825)
B8.10, 100, 2804, 1. Untitled pamphlet by Juan Manuel
Rodriguez dated August 11, 1823.
B8.10, 100, 2804, 5. Juan Manuel Rodriguez to the ayunta
miento of Cartago, August 19, 1823.
B11.6, 196, 4356, 9. "Sobre las medidas que el gobierno
debe adoptar en la excitacin que le ha hecho el
estado de San Salvador, a toma parte en la pacifica
cin de Nicaragua." (January, 1825)
B118.1, 2430, 50839. Report from the Ministerio de Hacienda
to the jefe politico of Guatemala dated January 16, ~
1827.
B118.9, 2430 50853. Executive order announcing Arces
assumption of command of the federal army dated
March 16, 1827.


84
84ANG, B5.4, leg. 60, exp. 1510, Pedro Barriere:to
Gabino Gainza, October 7, 1821.
^E1 genio de la libertad, October 29, 1821. Delgado
undoubtedly played a large part in determining the govern
ment's response to Barriere's actions.
^ANG, B5.4, leg. 61, exp. 1586. Untitled report on
the establishment of the.diputacin in San Salvador.
^E1 genio de la libertad, October 29, 1821.
^Agustn Iturbide to Gabino Gainza, October 19, 1821,
in Garca, Delgado, I, 519-523.
^9"E1 Jefe Politico de Guatemala, don Gabino Gainza,
se, dirige a los Ayuntamientos del antiguo Reino, trascrib- /
iendoles el oficio de Iturbide, en que se invita a la anexin
a Medico; y les pide que en cabildo abierto resuelvan," in
Garcia, Delgado, I, 524-525.
^Diputacin of San ^Salvador to Gabino Gainza,
December ¡14, 1821, in Garcia, Delgado, I, 538-541.
91jose/ Matas Delgado to Gabino Gainza, December 20,
1821, in Garca, Delgado, I, 531-533.
92 Diputacin of San Salvador to the Diputaciones of
Leo^ aid Comayagua, December, 25, 1821, in Garcia, Delgado, I,
563-565.
9-^Marure, Bosquejo, I, 332.
94"Acta del Ayuntamiento y la Diputacin Provincial
de San Salvador, en que la Provincia asume su soberana,
nombra Intendente y Jefe Politico al doctor don Jos Matas
Delgado y reserva al Congreso resuelva la union al Imperio
Mexicano," in Garca, Delgado, II, 493-495.
9^Mariano Aycinena to Agustn Iturbide, January 18,
1822, in Garca, Delgado, II, 497-498.
9^ANG, B5.4, leg. 62, exp. 1669, Jose Matas Delgado
to Gabino Gainza, January 29, 1822. There was little legal
justification for Delgado's argument as the act of September
21, 1821 did not mention the independence of San Salvador,
and there was nothing in the Guatemalan declaration of
independence that would give it the character of a contract
between the provinces..
9^Marure, Bosquejo, I, 87.
98ang, B5.4, leg. 59, exp. 1378. Untitled proclamation
by Arce dated February 3, 1822.


176
The Presidents difficulties with his native state
also arose from the Salvadoran practice of supporting the
weaker party in Guatemalan politics. This policy caused Sal
vadoran opposition to focus on the Conservatives after the
November elections, and, by way of association, this shift
caught Arce as well. The repressive measures of the Conser
vative government generated further antagonism which was
reinforced by the activities of exiled Liberals. Individuals
such as Pedro Molina, who had recently returned from the Pan
ama Congress, took advantage of every opportunity to raise
Salvadoran passions to a level that might lead to action
which would restore the Liberals to power in Guatemala.
Finally, Arce's old friend, Juan Vicente Villacorta, had
retired from the post of jefe of El Salvador in October,
1826, and Mariano Prado had assumed supervision of the state
government. Prado initially maintained Villacorta's policy
of supporting the President of the federation, but he soon
demonstrated that he was willing to hear opposition argu
ments. It appears that the acting jefe accepted the allega
tions of Liberal refugees at face value and came to believe
that he had a mission to protect the federation from the evil
designs of Arce and the Guatemalan Conservatives.
Convinced that the President had called for a new
Congress in order to secure the creation of a unitary state,
Prado issued a contrary decree on December 6, 1826, which
invited the governments of Nicaragua, Honduras and Costa Rica
to send their regular Congressional delegations to a special


151,
was officially recognized by the Netherlands which dispatched
a charge d'affaires to represent its interests in Central
America.20 The federal government established relations with
a number of sister nations in Latin America, and Arce granted
exequaturs to consuls from Great Britain and the United
States which had recognized the federation the previous year.21
In addition, treaties were formalized with Colombia
and the United States. The Colombian treaty was negotiated
by Pedro Molina and signed on March 15, 1825. The federal
Senate, on September 12, 1825, ratified the treaty which
provided for perpetual peace between the two nations, mutual
assistance in the defense of independence, freedom of trade,
adjustment of boundary disputes, and participation in the
proposed Bolivarian Congress.22 Although Molina had refused
to serve as Foreign Secretary, he accepted the appointment
issued by the federal Congress in November, 1825, and joined
Antonio Larrazabal, the former deputy to the Cortes of Cadiz,
in representing Central America at the international assembly
held in Panama during the months of June and July, 1826. The
treaty with the United States was signed by Antonio Jose
Caas, the Central American minister, in Washington on
December 5, 1825, and was ratified by the Senate on July 29,
1826. While this treaty declared the mutual friendship of
the contracting parties, its provisions concerned commercial
affairs-granting rights of navigation and "most favored
nation" status to the signatories.23
The only difficulties experienced with other nations
during Arce's first year in office involved Mexico and


si
could carry.^6 Apart from agitated conversations in the
streets, the situation at first seemed under control. The
first confrontation did not come until two o'clock in the
afternoon when an alcalde from the barrio of San Jose
appeared before Peinado and urged that the prisoners be
released. The intendente flatly refused the request and
sent the alcalde packing. During this time a junta had
gathered at the home of Miguel Delgado to hold a series of
strategy sessions. The participants in these meetings
included the creoles Delgado, Arce, his brothers-in-law
Domingo Lara and Juan Aranzamendi, Jose* Santiago Celis,
the alcalde primero Juan Manuel Rodrguez, the mestizo
alcalde segundo Pablo Castillo, Silvestre Anaya, a zambo,
and several other persons of mixed blood.^ There is no
record of the discussions that were held, but subsequent
events indicate that the creoles, with the possible exception
/
of Rodriguez, advocated a cautious approach in opposition to
more vigorous action proposed by the pardos.
In any case, an apparently moderate response followed
Peinado's first refusal to liberate the prisoners. At four
o'clock in the afternoon, Rodriguez approached the intendente
and requested the summoning of a cabildo abierto. Fearing
a trap, Peinado asked what would be the purpose of such a
meeting. He was informed that it would help to calm the
citizens who had been greatly disturbed by the arrest of the
alcaldes. Peinado replied that such matters were his
responsibility alone but offered to have the ayuntamiento


12
Guatemalan consulado for a brief period following its
establishment in 1793, control of the institution had gradu
ally shifted to the hands of smaller merchants. Thereafter
the family employed the ayuntamiento as the vehicle for
giving official expression of its views, and the desire for
increased liberalization of trade was amply reflected in the
instructions which the ayuntamiento gave its delegate to the
Cortes of Cadiz in 1810.^ This position regarding free
trade provided a basis for conflict as it was not accepted
by the merchants of the consulado who preferred to maintain
the security of close association with the Spanish trading
houses.20 The breach between these two groups was deepened
after the arrival of Captain General Bustamante in 1811. He
was little impressed by the prestige of the aristocracy and
sought to bring the family down to size. By 1821 the scars
left by Bustamantes whittling, together with unrelieved
economic decline, had the Guatemalan aristocracy seriously
pondering the worth of continued association with Spain. As
will be seen, the question was answered in a marriage of the
sheerest convenience.
There is no evidence that the tensions created in
Guatemala by the family either moderated or exacerbated the
conflict between the provincianos and the capital during the
colonial era. Membership in the Aycinena family was largely
restricted to residents of Guatemala. Similar kinship elites
existed in the provinces, but identity of social standing did
not provide a basis for cooperation. The presence of the


' 44
cynicism o£ the Captain General concerning the causes of
unrest. They Sought and received confirmation of the charge
that independence had been the object of the uprising.42
It is unlikely that the corroborating witnesses, who were
members of the colonial militia, were privy to the thoughts
of the rebels, yet it appears that their testimony came
close to the truth. The oath of allegiance to Ferdinand
VII may be viewed as a step taken to gain time while allaying
the fears of the conservatives. There is no doubt that the
creoles coveted the positions held by the peninsulares, but
this ambition is indistinguishable from a genuine commitment
to self- government. The assertion that the desire for office
defined the limits of creole aspirations belongs to the
realm of speculation. Proof of this contention would demand
a demonstration that creoles were given the reins of
government and subsequently remained obedient to the dictates
of Spain. In the case of San Salvador, a creole was placed
in a position of authority, but it later became clear that
he was no more palatable to the Salvadorans than his Spanish
predecessor.
Moreover, it is evident that the Salvadorans had a
motivation superior to the acquisition of offices: the
desire for religious autonomy. While they took no action on
the matter during the brief period that they were in power,
it is certain that the creoles had this goal in mind. When
Jose* Ignacio Avila was chosen in 1811 as the Salvadoran
representative to the Cortes of Cadiz, he was instructed to


120-
^ANG, B118.1, leg. 2430, exp. 50839^. Report from
the Ministerio de Hacienda to the jefe politico of Guatemala
dated January 16, 18 27.
59
Marure, Bos que j' o, I, 178.
60Ibid., p. 181.
^Smith, "Financing the Central'American Federation,"
pp. 487-488.
Ibid. Arce, Memoria, pp. 50-52.
^^Minutes of the October 27, 1825 meeting of the
Asamblea Constityente de Honduras, in Garcia, Arce, II, 70.
6^This letter is quoted in Chamorro, Historia de la
federacin, pp. 124-125.
^Marure, Bosquejo, I, 168.
f\f\ f
DOChamorro, Historia de la federacin, p. 57.
f\ 7
'Gallardo, Las Constituciones, I, 258.
68
Marure, Bosquejo, I, 171.
^Federacin de Centroamerica, Memoria presentada por
el secretario de estado; Gallardo, Las Constituciones, II,
MT.
Marure, Bosquejo, I, 229; Montufar y Coronado,
Memorias, I, 88.
71
Acta of the Congreso del estado de San Salvador
dated April 21, 1824, in Garca, Arce~j T~, 334-336. Arce
considered for the post of jefe politico, but he was not
elected because of his membership in the SPE.
^Bumgartner, Valle, p. 217.
7 ^
Comments on the Constitution of 1824 are based on
the text of the document contained in Gallardo, Las Consti
tuciones II, 703-738. For critical examination of the
Constitution, see: Marure, Bosquej o, I, 207-213; Karnes,
Failure of Union, pp. 49-56; Gallardo, Las Constituciones,
283-323; and Harold Bond Field, "The Central American
Federation, A Political Study, 1826-1839," Ph.D. disserta
tion (University of Chicago, 1942), pp. 32-39.
^Rodrigo Faci, Trayectoria y crisis de la
Federacin Centroamericana (San Jos, 1949), p. 6T.


72
This victory brought to a close the first phase of
the Salvadorans4 struggle to maintain their independence.
Arce's forces occupied the towns of Santa Ana, Ahuachapan
and Sonsonante, restoring San Salvador to the position it had
held following the defeat of Padilla. Gainza was unable to
offer further opposition. On June 12, General Filisola
arrived in Guatemala, and eight days later he ordered the
jefe politico to report to Iturbide in Mexico City. With
the arrival of the Mexican general, the Salvadorans initiated
a prolonged series of negotiations which extended almost to
the end of the year. Apparently, Delgado's letter of March
30 and subsequent letters written by Arce achieved the
desired effect as Filisola had become convinced that the
Salvadorans did not genuinely oppose union with Mexico and,
if treated gently, would declare for annexation. While
Gainza was in the process of convincing Arzu to take
vigorous action, Filisola had advised the Guatemalan
commander that a peaceful approach would be the most pro
ductive as he believed that the conflict was caused not so
much by the issue of annexation as it was by old rivalries.1^
Following the defeat of Arzu, the Salvadorans reinforced

Filisola's conviction as they welcomed the news of his
arrival in Guatemala with the statement that it meant the
end of the unjust treatment they had suffered. Their resis
tance, they said, had not been directed against union with
Mexico but against the oppression of Guatemala.In
letters to Delgado and Arce, Filisola assured the Salvadorans


7
\
experience with federalism is often attributed to the Con
stitution promulgated in 1824. Criticism of the Constitution
takes several forms. On the one hand, it is claimed that the
authority granted to the states was so generous as to encour
age the development of their centrifugal tendencies. Arce,
himself, lamented that the division of power between the
states and the national government was so poorly balanced
that it made him the "victim of a Constitution which instead
of establishing a political system of liberty and order, had
systematized anarchy. . ."13 Looking back from the present,
it would appear that a more centralized regime might have been
more durable, but the erection of such a government would have
totally ignored the realities of contemporary Central American
politics.
The 1824 Constitution also has been charged with a fault
often cited in Latin American constitutions: that of being
too sophisticated or idealistic. With some foresight, a mem
ber of the Central American constituent assembly raised this
issue prior to the adoption of the organic law. It was argued
that the inhabitants of the infant nation had not attained
the level of culture requisite for the burdens of responsible
citizenship and that the reservoir of competent individuals
was inadequate for the number of public officials required
by a federal form of government.^ Inasmuch as all of the
natural born inhabitants over the age of eighteen were granted
the rights and duties of citizenship, the first charge is
certainly valid. A contemporary observer reported that less


CHAPTER IV
THE CONTEST FOR THE PRESIDENCY
/
Following a two month voyage, Arce and Rodriguez
arrived in Boston in the latter part of May, 1823. Ignorant
of the changes that had taken place in Central America, the
Salvadoran envoys immediately departed for Washington. Their
mission was delayed in Philadelphia, however, because of a
recurrence of Arce's illness.-*- During their stay in Phila
delphia, the ministers learned by way of reports filtering
up from Mexico that a shift had occured in the political
fortunes of their homeland. They first received news of
Iturbide's downfall and somewhat later heard that a congress
had been convened in Guatemala City. Yet for several months,
the two Salvadorans were uncertain of the actual state of
affairs in Central America. In late July, Arce voiced the
fear that the provincial congress might be under the control
of conservative interests and that Filisola still dominated
San Salvador.^ Consequently, Arce and Rodriguez decided to
delay their journey to Washington pending the receipt of
more definitive information, and they apparently did not
learn of the re-establishment of Central American independence
and Arce's election to the Supremo Poder Ejecutivo until late
August.
While this news meant that there was no need to
121


101
by Filisola be returned and that all acts passed by the
Asamblea between September 14 and October 12, including the
7. ?
reorganization of the SPE, be rescinded. Although the
government rejected these claims, Rivas did not resort to
force to achieve his ends, and an atmosphere of quiet ten
sion prevailed for the next few days. The situation
became much more serious on October 17, however, when
troops sent from Quezaltenango arrived in the city. This
force included a number of men who had participated in
Filisola*s invasion of San Salvador, and lingering animos
ities sparked several isolated clashes with Salvadoran
soldiers. Though peace was maintained, it appeared that
the two groups were approaching a final confrontation; and
the fear of a possible holocaust, which had already caused
a number of persons to abandon the city, led the govern
ment to order the withdrawal of both forces on October 20.^
Rivas did not wish to abandon his Liberal allies to possible
reprisals and refused to depart in advance of the Quezal-
tenangan troops. He also demanded that he be given 15,000
pesos to cover the cost of his expedition. In response, the
SPE arranged for the simultaneous departure of both forces
and offered the Salvadorans 5,000 pesos for their
expenses.^ After some hesitation, Rivas accepted this
sum, and the two armies finally left the city on November
The difficulties caused by the presence of two


103
a supreme court and such inferior courts as might be
created. Following the pattern established for the other
branches of the government, the members of the supreme
court were selected by the vote of the people. The Bases
also provided an outline for state constitutions. While
the state constituent assemblies were to decide on the
specific provisions contained in these documents, the
structure of the state governments was to be identical with
that of the federal government.
Although the Rivas expedition presented a powerful
reminder of the fact that the provinces would not accept
further supervision from Guatemala, the Conservative advo
cates of centralism were not ready to accept the form of
government presented in the Bases. In opposing federalism,
these Conservatives argued that it was much too sophisti
cated for Central America and that the multiplication of
offices would place the cost of such a government far
above available revenue. A unitary form of government was
preferred as it would counteract the divisive influence of
geography while federalism would only encourage the ten
dency towards localism. In reply, the federalists trotted
out the standard arguments supporting their cause. A
federal form of government would better protect the liberty
of the people as the distribution of power would prevent the
establishment of a dictatorship. Federalism would prove
more responsive to local needs and would increase popular
identification with the government as it would provide


192
Al.l, 6927, 57067. "Contra D. Manuel Jos' de Arce por infi
dente."
Al.40, 1763 (legajo). Pases de ttulos.
B1.13, 494, 8338. Untitled report of the diputacin on the
election of 1820.
B2.1, 22, 669. "Oficio del Capitn General Jose^ de Busta
mante dirigido a la Audiencia." (November 16, 1811)
B2.1, 22, 681. "Sobre las conmociones de la ciudad de San
Salvador."
B2.6, 30, 763, 17. "Testimonio de los pedimentos del Seor
Fiscal del Crimen y minuta del Real Acuerdo en las
causas de infidencia de la ciudad de San Salvador."
B2.6, 30, 765. Manuel Jos Arce to Carlos Urrutia, April 9,
1818.
B2.9, 38, 840. Ayuntamiento of San Salvador to the ayunta
miento of Guatemala, December 5, 1811.
B2.9, 38, 860. Untitled report on negotiations conducted
between San Salvador and San Vicente dated November
18, 1811.
B2.9, 38, 888. Jose* Mara Peinado and Jos/ Aycinena to the
ayuntamiento of Guatemala, February 27, 1812.
B2.9, 38, 891. Jose Mara Peinado and Jose* Aycinena to the
ayuntamiento of Guatemala, February 7, 1812.
B3.6, 48, 1129. Manuel Jose* Arce to the junta provisional
consultiva, October 6, 1821.
B5.4, 59, 1378. Untitled proclamation by Manuel Jose* Arce
dated February 3, 1822.
B5.4, 59, 1408. Jose- Rossi to Gabino Gainza, October 4,
1821.
B5.4, 60, 1452, 4. "Cuaderno que comprende la solicitud de
formacin de la junta gobernativa subalterna."
(November, 1821)
B5.4, 60, 1453, 4. Speech delivered by Manuel Jos*Arce
before the cabildo abierto of San Salvador on Novem
ber 6, 1821.
B5.4, 60, 1477, 1. Ayuntamiento of San Vicente to Gabino
Gainza, October 5, 1821.


200
Robertson, William Spence. Iturbide of Mexico. Durham,
1952.
Rodriguez, Mario. Central America. Englewood Cliffs, N. j., 1965
. A Palmerstonian Diplomat in Central America:
Frederick Chatfield, Esq. Tucson, 1964.
Rubio Melhado, Adolfo. Manuel Jose'Arce, fundador del Ejer
cito Salvadoreo. San Salvador, 1958.
Salazar, Ramn A. Historia de veintiui aos: la indepen
dencia de Guatemala-! Guatemala, T578.
. Manuel JosexArce. Guatemala, 1952.
. Mariano de Aycinena. Guatemala, 1952.
Samayoa Guevara, Hector Humberto. Implantacio'n del rgimen
de intendencias en el Reino de Guatemala. Guatemala,
1960.
Solo'rzano Fernandez, Valentn. Evolucin econmica de
Guatemala. Guatemala, 1963.
Townsend Ezcurra, Andrs. Fundacin de la Repblica. Gua
temala, 1958.
Urtecho, Jose^. Reflexiones sobre la historia de Nicaragua:
la guerra civil de 1824. Len, 1962.
Valdes Oliva, Arturo. Caminos y luchas por la independencia.
Guatemala, 1956.
Valenzuela, Gilberto. Bibliografa guatemalteca y catalogo
general de libros, folfetos, peridicos, revistas,
etc. 3 vols. Guatemala, 1961.
. Guatemala y sus gobernantes, 1821-1958;
recopilacio'nT Guatemala, 1959.
Vela, David. Barrundia ante el espejo de su tiempo. 2 vols.
Guatemala, 1956. ~
Velasquez, Rolando. Carcter, fisonoma y acciones de don
Manuel Josex Arce San Salvador, 1948 .
Villacorta, J. Antonio. Historia de la Capitana General de
Guatemala. Guatemala, 1942.
Woodward, Ralph Lee, Jr. Class Privilege and Economic
Development: The Consulado de Comercio of Guatemala,
1793-1871. Chapel Hill, 1966.


Copyright by
Philip Frederick Flemion
1969


150
civil war. Manuel Montu^far y Coronado wrote that Liberal
opposition to the President was stimulated by the Draconian
measures he adopted in the first of the two squabbles.^
Arce may have over-responded on that occasion, but he did not
act without reason. As he had failed in an attempt to secure
cooperation by means of persuasion, Arce was convinced that
the state officials were determined to ignore the order of
Congress; and he feared that, unless they were forced to
recognize federal authority, Central America would soon be a
federation in name only.-^ The President's action in this
particular situation continues to elicit second-guesses in the
"Chamberlain's timidity encouraged World War II," or
"Roosevelt's rigidity led to Pearl Harbor," category.
Arce's behavior probably accelerated Liberal alienation, but,
in the opinion of this writer, the immediate outcome would
have remained the same no matter what policy he adopted.
The attitude of state officials was such that, under a
passive President, the history of the federation would have
differed only by the reduction in the amount of conflict
associated with separation.
In his Memoria, Arce recalled 1825 as a year of
prosperity and tranquility. Considering the events of the
following years, it must have seemed a pleasant period as
he was free to devote most of his attention to the nation's
foreign affairs, financial problems and military establish
ment. There was a considerable amount of activity in the
area of foreign relations. During the year, the government


153
area were equally unproductive. On July 28, 1825, Arce
signed a decree granting rights to exploit the iron deposits
located in Honduras to the Compaia Nacional de Centro-
America which was organized in London by Antonio de Irisarri.20
The activities of the company were expected to greatly
increase the wealth of the area. Development of the mines
proceeded as far as the importation of equipment, but the
outbreak of civil war caused the entire project to collapse.
Plans for the construction of an inter-oceanic canal in
Nicaragua met a similar fate. Ideas for such a project had
been accumulating since the early colonial period, and, in
the belief that a canal might provide instant prosperity,
Arce called for bids on the construction of a waterway in
August, 1825.29 Proposals were received from British and
American companies during the six month period open to bid
ding, and in June, 1826, a contract was awarded to a firm
organized by Aaron Palmer. The design came to an end when
the "canal bubble" burst, and Palmer was unable to secure
funds for the work.30
Arce probably devoted most of his energy to military
matters. Although the Asamblea had authorized the expansion
of the armed forces, lack of funds had held the military
establishment to a minimal size. The standing army consisted
of only 300 officers and men when Arce entered the Presidency.3^
Hindsight suggests that this force was more than adequate
for the needs of the federation. But Arce felt obliged to
strengthen national defenses because of his previously noted


140
deputies from Guatemala. Explanations of this Conservative
about-face are usually based on the account in Arce's Memoria
of an interview he had with a representative of the Conserva
tive faction prior to the Congressional election on April 20.
Arce relates that he was asked for his opinion concerning the
erection of a bishopric in El Salvador. He replied that he
favored such action but realized the issue could only be decided
by the federal Congress. It is known that Guatemalan Con
servatives were not in sympathy with Delgado's episcopal
ambitions, and some authorities believe that Conservatives
reached an agreement with Arce whereby they would support
his candidacy in return for a pledge that he would not press
for the creation of a diocese in El Salvador. Still, there
is reason to doubt that the Salvadoran bishopric was the
crucial issue. On July 18, 1825, the federal Congress, which
was controlled by Conservatives, denied the legitimacy of
prior Salvadoran decrees concerning the matter and referred
the issue to the Vatican with the recommendation that a bishop
be assigned to the state.
Any attempt to explain the 1825 Presidential election
in terms of a secret deal ignores the fact that the Conserva
tives must have made a prior rejection of Valle. According
to contemporary accounts, Liberals supported Arce in the
popular elections because of his past sacrifices in the
struggles against Spain and Mexico. The Conservatives voted
for Valle in recognition of his outstanding ability and
because they had no other available candidate.46 While they


165
polarization between political positions in Guatemala. The
Liberal state government engaged in an orgy of anticlerical
legislation. The tithe was reduced by one-half, and members
of regular clergy were forbidden to correspond with superiors
in Spain. The Order of Carmelites was abolished and all
monasteries were forbidden to accept novices who had not
attained the age of twenty-three.55 Whatever Arce's opinions
may have been in regard to these laws, they brought him into
closer association with Guatemalan Conservatives who sought
to use his power as a means to resist if not overthrow -
the Liberal regime. Arce may have viewed his Conservative
following as a source of political support, or, perhaps it
provided relief from the isolation he experienced in his
office. In any case, he welcomed the Conservatives with open
arms, so much so that contemporaries believed that the
President was completely dominated by the men around him.^6
It may be, however, that Arce's situation was the product of
a natural alliance, and the attainment of Conservative
objectives was simply a by-product of his efforts to fulfill
his obligations as President of the nation. At the close of
the summer in 1826, the Guatemalan government led by Juan
Barrundia posed as great a threat to the principle of
federation as it did to the ideals of Conservatives.
Barrundia's opposition to the federal executive was
obvious to anyone who cared to take notice. His attitude
was probably determined by both sheer political rivalry and
a strong attachment to state autonomy. Whatever the driving


9-
tobacco. If these sources of income proved inadequate,
Congress was empowered to meet deficits through levies on
the states.
In practice, these grants of power were meaningless.
Widespread smuggling reduced not only customs receipts, but
the profits of the government monopolies as well. Gradually,
the states assumed the actual collection of taxes, and with
their own treasuries in disorder, they were ill disposed to
remit to the national government its share of the revenue.
The federal administration, operating on a hand to mouth
basis, repeatedly had to resort to loans (often collected by
force) as its chief means of support. By 1831, the public
debt had increased to 4,748,965 pesos.21 With the continuous
shortage of funds, effective operation of the government was
a difficult, if not impossible, task.
The development of this paper will entail repeated
references to political groupings, and in the first decades
of the nineteenth century, there is a bewildering succession
of parties or factions. The structuring of these groups was
extremely fluid. With certain exceptions, there does not
appear to have been any consistent evolution along ideologi
cal lines. In response to emerging issues, expediency was
the prime factor in determining the formation of bodies whose
membership cut across the standard lines of class and inter
est. As the nature of these associations makes them subject
to considerable confusion, an attempt to define their char
acter and development appears' advisable.


74
During the period of the armistice, San Salvador was free to
engage in any non-hostile activities, but it was required to
return the arms that had been siezed at Sonsonate.^-S
The Salvadoran government ratified the armistice on
September 28, and four days later ordered elections for a
provincial congress which would convene on November 10.
Filisola disapproved of this action, but holding to the
terms of the armistice, did nothing. By declining to
intervene in the province, Filisola demonstrated his belief
that the Salvadorans could ultimately be brought to their
senses through persuasion and acted in accordance with the
July 10 order of the Mexican congress which forbade the use
of force against the dissident province. Then on October 1,
Emperor Iturbide dissolved the congress and nine days later
rejected the armistice, denying that the Salvadorans had the
right to convene a provincial assembly. Fil/sola announced
the Emperor's decision in a manifesto issued on October 26,
and he warned the Salvadorans that if their congress met, it
could only "pronounce the union of San Salvador with the
Mexican Empire," or "resist it with arms."^^^ Refusing to
be intimidated, the Salvadoran congress convened on November
10 with Delgado representing San Vicente and Arce represent
ing the city of San Salvador. While they preserved their
honor, the Salvadorans were not prepared to offer further
opposition to the empire; and after two days of discussion,
the delegates declared for union with Mexico. In a secret
letter written on November 14, Delgado informed Filisola of


17
responsibilities as the junta provisional consultiva. The
only Cacos granted seats on the junta were aristocrats, and
these individuals were undoubtedly dismayed by the fact that
the Caco liberals Jose Francisco Barrundia, Pedro Molina and
Jose Francisco Cordova assumed the role of tribunes in the
public meetings of the junta. The liberals demanded that
Spanish officials be replaced by creole patriots, that the
direction of the government be in accord with the wishes of
the populace, and that positive action be taken on the ques-
43
tion of absolute independence. These requests were hardly
in accord with the aims of the aristocrats, and the gulf
between them and their former allies was demonstrated on
September 29 when the meetings of the junta were henceforth
44
closed to the public. Left to their own devices, the
liberals confirmed the political realignment with the forma
tion of the Tertulia Patritica on October 14.
The basis for the formation of new political ties was
provided by the issue of Central America's relationship with
Mexico. The inherent opportunism of the aristocracy's advo
cacy of independence was clearly exposed by the ingratiating
letters sent to Iturbide by Mariano Aycinena. This corres
pondence demonstrated that the members of the family were
more than willing to trade independence for appropriate honors
45
and monetary rewards. The aristocrats were joined in their
efforts on behalf of annexation to Mexico by former opponents
of independence such as Archbishop Ramon Casaus y Torres.
Convinced of the threat of liberal reforms, these individuals


169
them that he did not plan any further arrests, Arce stated
that he regarded the office of jefe as a "sacred" and
"integral part" of the system of government but was forced
to detain Barrundia in order to prevent the outbreak of
civil war. The bulk of the message was taken up by a review
of the events which led to the arrest and a statement of the
legal justification for the action. Arce based his authority
in the matter on Article 127 of the Constitution which
provided:
whenever the President may be informed of any
conspiracy or treason against the Republic and which
threatens immediate danger, he shall give orders
fo;r the arrest of the presumed offenders . .
The Liberals later protested that this grant of power could
only be employed in cases involving private individuals, but
the Article did not contain any restrictive clauses except
for a provision which required the arraignment of suspects
within seventy-two hours. While Title IX of the Constitution
established special procedures for the initiation of
proceedings against federal officials, Article 127 stood by
itself and was so loosely cast that it could be interpreted
in a variety of ways. In the closing portion of the circular,
Arce indicated that he faced a very difficult situation
because of the nature of Guatemalan politics. He asserted
that citizens of the state, for no reason other than
parentage or location, joined in factions that caused
continuous turmoil and seriously hampered the work of federal
officials. The message contained in this paragraph was so
clear that, rather than belabor the obvious, Arce concluded


58
be little chastened by his years in prison, as not many
months passed before it became clear that Arce's attitudes
had not been influenced by his repeated protestations that
he had always been a "good vassal."
With the restoration of the Constitution of 1812 fol
lowing the Riego revolt, Delgado was returned to his seat on
the diputacin provincial. Conservative interests were,
however, able to maintain control of the government of San
77
Salvador. The repression of the preceding years undoubtedly
had weakened the position of Arce and his liberal colleagues
to the extent that they were unable to exert much influence
in the elections of 1820. Still, Arce pursued the old
cause and established contact with those kindred spirits in
Guatemala, Pedro Molina and Jose7 Francisco Barrundia. The
correspondence indicates that, despite their lack of an
official voice in local affairs, the Salvadoran liberals
were able to build a foundation of support for independence.
When the day of separation from Spain was close at hand,
Arce asked Molina to keep him well informed of events in the
capital inasmuch as San Salvador "only lacks the right hand
to direct opinion, or better said, lacks an example that
will expel the phantoms which bind us to the old government."
In this same letter, Arce displayed a remarkable degree
of generosity for a man who had been made to pay so dearly
for his beliefs. Placing the interests of the future nation
ahead of the desire for personal revenge, Arce wrote:
The mongrel spirits which trampled over all with
indomitable pride, have fallen dead in the face of


156
aloof from the political battles that raged in the first
session of the Congress. Pablo Alvarado complained that he
was denied the floor by the Conservatives who insulted,
embarrassed, and terrorized him. The Costa Rican deputy also
asserted that Mif' he wanted to count the ways and means they
have attempted to introduce discord between Federal authorit
ies and the states, he could not finish in a day."38 That
Arce was not drawn into these disputes was probably due in
part to the fact that poor health forced him to relinquish
his office to Vice President Mariano Beltranena during the
months of October and November. More significantly, the
troubled executive felt that he should avoid involvement in
political wrangles. His efforts would only succeed in carry
ing him from the Liberal to Conservative camp, but, until
March, 1826, Arce pursued the illusion that an attitude of
neutrality would enable him to reconcile the differences
between the two parties.^ As if words could heal the breach
between the factions, the President voiced an appeal for a
spirit of unity and cooperation when he proclaimed the
ratification of the Constitution in September, 1825. Recog
nizing the most serious danger confronting the federation,
Arce stressed the fact that the success of the federal
experiment would depend upon the states' willingness to
provide support for the central government and reconcile
their desires for autonomy with the need for unity.^ He
provided a more concrete demonstration of his convictions
when Congressional elections were held in December, 1825.


6
terms of wealth and population, the province was second only
to Guatemala; and of all the provinces, El Salvador most
envied and resented the prominence of the capital. The
1
demand for the erection of a bishopric in El Salvador was not,
however, solely a matter of prestige. In the eighteenth cen
tury, Bishop Cortes y Larraz had informed Charles III that
El Salvador not only was capable of supporting a diocese,
but also that the pastoral needs of the province were inade-
12
quately served from Guatemala. As independence from Spain
approached, Salvadoreos grew increasingly convinced of the
validity of this claim and frustrated by the inaction of
z f
religious authorities. The ambitions of Father Jose Matas
Delgado gave further impetus to the pressure for a new
bishopric, and in large part, the path pursued by El Salvador
before and after the establishment of the federation can be
explained by the failure to meet this demand.
The dissentions brought into being by Liberal attacks
on the position of the Church should also be noted. Keeping
step with their compatriots throughout Latin America, Central
American Liberals sought to reduce clerical economic and
political power. While they met with considerable success
over the short run, their efforts seriously alienated large
sectors of Central American society. Insofar as liberal and
conservative ideologies had geographic loci, anticlericalism
drove another wedge between the federal government and the
states.
A portion of the blame for Central Americas unhappy


173
signed an order which provided for Salvadoran participation
with the conditions that the Congress should not attempt to
revise the Constitution and that, in addition to a numerical
majority, approval by the deputies representing a majority
of the states would be required for the passage of resolu
tions. Prado's decree also proposed that the President order
elections for the formation of a new government in the state
of Guatemala.Despite Arce's message and the actions of
the states, Guatemalan Liberals raised a number of objections
to the decree issued on October 10. In a meeting of the com
mittee which had been appointed to plan arrangements for the
special session of the regular Congress, Arce's Guatemalan
opponents charged that there were sinister motives behind
his action. The decision to move the site of the Congress
to El Salvador was said to be the result of the President's
desire to avoid the possibility of impeachment. This asser
tion ignored the fact that the relocation of the government
was in accord with the expressed wishes of the other states.
Furthermore, if Arce had been primarily concerned with the
prospects for his removal from office, it seems that he would
have attempted to manage the government without Congressional
assistance. The Liberals also raised the spectre of central
ism and charged that the entire project was designed to
bring about the creation of a unitary state. This charge
was totally unfounded. There was nothing in the Presidential
decree that gave the slightest hint of such an objective,
and, if centralization was wanted, El Salvador was the least


86
112vicente Filxsola to Manuel Arzu, May 18, 1822, in
Garcia, Delgado, I, 590-591; Vicente Filisola to Agustn
Iturbide, May 15, 1822, in Garcia, Delgado, II, 555-558.
H^Letters of the diputacin of San Salvador to f
Vicente Filisola, June 14, 1822 and June 20, 1822, in Garcia,
Delgado, II, 563-565, 571-573.
^^Vicente Filisola to Secretario de Guerra y Marina
del Imperio Mexicano, September 16, lWFZ~, in Garcia, Delgado,
I, 591-59 7.
1 1 r s
"Bases del armisticio firmado, por el Capitn General
de Guatemala Brigadier don Vicente Filisola, sus comisionados
los seores Coronel, don Felipe Codallos y Teniente Coronel
don Josef Luis Gonzalez Ojeda y los de la Provincia de San
Salvador, disidente del Imperio Mexicano, Coronel don
Antonio Jos' Caas y don Juan Francisco de Sosa," in Garcia,
Delgado, II, 588-591.
116"Pr0Clama del Capitn General, Jefe Superior de
Guatemala, General don Vicente Filisola, a los pueblos de la
Provincia de San Salvador," in Garcia, Delgado, I, 615-620,
*"17Jose/ Matas Delgado to Vicente Filisola, November
14, 1822, in Garca, Delgado, I, 631-633; Marure, Bosquejo,
I, 100-101.
l-^Acta of the congress of San Salvador dated
December 2, 1822, in Garcia, Delgado, I, 636-637.
^^Secretario de Guerrea y Marina del Imperio Mexicano
to Vicente Filisola, in Garcia, Delgado, II, 628.
^Marure, Bosquejo, I, 102.
*-2lManuel Jose Arce to Vicente Filisola, March 25,
1823, in Filisola, Manifesto.


19
following fourteen months, the political development of
Central America remained in a state of suspension.
Following the downfall of Iturbide, political maneu-
vering resumed when Iturbides agent, Vicente Filisola con
voked the congress originally ordered by the 1821 Act of
Independence. Except for the decision of the more ardent
supporters of the Empire to boycott the elections, the
political situation in Central America during the spring
months can only be described as a conglomerate of ill-defined
positions. According to Alejandro Marure, the earlier
patriots, espaolistas, Bacos, Cacos, imperialistas, and
opponents of annexation were not able to sort themselves
out properly until after the Asamblea Nacional Constituyente
convened on June 24, 1823.^ The question of independence
was the first concern of the assembly, and while this issue
was under consideration, the delegates were largely of the
same mind. Following the proclamation of absolute independ
ence from Spain and Mexico, the members of the assembly began
to line up in Liberal and Conservative factions. The Liberals,
known to their enemies as fiebres or anarquistas, were, for
the most part, Salvadorans and former members of the Tertulia
Patritica. The Conservatives, called serviles or aristcratas
by the Liberals, were generally members of the aristocracy or
Guatemalans who feared possible domination by the provinces.^
The precise degree of difference between Liberal and
Conservative thought is difficult to determine. In general
terms, the Liberals hoped to achieve social reform (aimed


135
government, Arce began preparations for the expedition to
Nicaragua in mid-November. The march was held up, however,
by another of Arce's bouts with poor health. In a letter
written to Arzu on December 21, the Salvadoran commander
apologised for the delay and promised that he would arrive
in the near future. 33 By this time, the contending factions
had reached a point of exhaustion such that the introduction
of any new force would have an overwhelming influence.
Consequently, the mere approach of the Salvadoran army
brought about the withdrawal of the conservative forces, and
Arce was able to enter Leon on January 9, 1825 without firing
a single shot.36 Although they had faced each other from
opposite sides of the line in 1822, Arzu gave the Salvadoran
commander a most grateful welcome. The jefe politico
complimented Arce on the high level of discipline he maintained
and acknowledged that the Salvadoran expedition was responsible
for the termination of the seige.3^ In turn, Arce invited
Arzu to assume command of the Salvadoran Army. This offer
was declined, however, and Arce was appointed to lead a
joint force which would secure the pacification of Managua.
Arce met no armed resistance as he approached the conservative
stronghold; instead he was presented with an offer of surren
der that was qualified by a "thousand interpretations."33
The Managuan leaders ultimately agreed to turn over their
arms in return for the promise that troops from Leo^ and
Granada would not be permitted to enter the city. Arce did
not feel that this was an important concession, but he


13
Guatemalan aristocracy did assist in the later formation of
political associations. The early liberalism came to be
revealed as an expedient of self-interest, and the family pro
vided the nucleus for the organization of a conservative
alliance after the establishment of independence.
The restoration of the Constitution of 1812 following
the Riego rebellion provided an enviroment in which creole
attitudes could be more clearly expressed. In the spring of
1820, the accumulation of their discontent was given substance
in the formation of a tertulia which met in the home of Jose
Maria Castilla. The composition of this tertulia, whose mem
bers included Jose7 Francisco Barrundia, Manuel Montufar, Juan
Montufar, Pedro Molina, Marcial Zebadua, Jose Beteta, and
Vicente Garcia Granados, announced the formation of an alli
ance between the Guatemalan aristocracy and that stratum of
society (largely middle class professionals) which had become
imbued with ideals of nineteenth century liberalism.
Emotionally, the members of the tertulia were united by their
resentment of the repressive measures adopted by Captain
General Bustamante after the return of Ferdinand VII in 1814.
Ideologically, they were on common ground in their attachment
to the principle of free trade.
In order to advance their views, the members of the
tertulia undertook the publication of a newspaper which was
titled El editor constitucional. Edited by Pedro Molina, the
paper appeared on the streets of Guatemala on July 24, 1820.
Molina not only reported foreign and domestic news, but also


60
little prospect for a conservative victory, and at eleven
o'clock on the morning of the fourth, Barriere announced
that he had changed his mind and the junta would not be
formed.81 Led by Rodriguez, Arce and Lara, the people
protested this decision with such vigor that Barriere sent
out troops to restore order. As a means of insuring against
further disturbances, the ringleaders were brought in; and
Arce was once again imprisoned for his political activities.
In this instance the Salvadoran patriots were not
left totally unsupported as the ayuntamiento of San Vicente
immediately protested their arrest.88 This opposition had
little effect on the jefe politico, but fearing the nature
of local response to his action, he decided to have the
prisoners taken to Guatemala to be tried for their crimes.84
Barriere was probably greatly relieved on October 7 when
Rodrguez, Arce and Lara were sent on their way. It never
occurred to him that the protest of San Vicente would be
heard and that the central government would disapprove of
his behavior. Convinced that Barriere's repressive tactics
posed a greater threat to stability than did the aspirations
of the Salvadoran liberals, the junta provisional consultiva
and jefe politico superior Gabino Gainza directed Josd*
/
Matias Delgado to return to San Salvador, assume Barriere's
office, release the prisoners,and replace all untrustworthy
officials.88 Armed with these broad powers, Delgado encoun
tered the prisoners on the road to San Salvador and ordered
their release. There must have been a fair amount of
82


64
of Guatemala, would guarantee the well-being of all concerned.
One wonders what passed through the minds of the leaders of
Len and Comayagua as they read this proposal. If anything,
they were arch-conservatives, and based on the belief that
he could best preserve the old order, their attachment to
Iturbide was most sincere. The Salvadorans might as well
have looked to the man-in-the-moon for support, and were
left to face the empire by themselves.
On January 5, 1822, the responses of the cabildos
abiertos were tabulated with the following results: twenty-
one reserved the decision for the provincial congress, one
hundred and four supported annexation, eleven favored annex
ation with some conditions, thirty-two agreed to accept any
decision made by the central government, and two opposed
annexation.^3 In accordance with these returns, Gainza
announced on the same day the annexation of Central America
to Mexico in a manifesto that appears to have been written
primarily for Iturbide's consumption. Declining to accept
this decree as binding on them,the Salvadoran diputacin
and ayuntamiento met in joint session on January 11 and
drafted a statement in which they reaffirmed their contention
that the poll of the towns carried no authority. The
Salvadorans also pointed out that the results of the poll
could not definitely be said to represent the wishes of
the majority of the people as the vote of a small community
carried just as much weight as that of a town twenty times
i
larger. Still, they did not totally reject the idea of


23
were Conservatives and provincianos were Liberals. Such a
conclusion, however, is not warranted by the facts. Of the
four Liberals who drafted the basic structure of the govern
ment, three, Jos Francisco Barrundia, Pedro Molina, and
/ / /
Mariano Galvez, were Guatemalans and one, Jose Matias Delgado,
was a provinciano.^ it should also be noted that the Con
servatives did not obtain a majority in the constituent
assembly until after the arrival of the delegates from the
outlying provinces. Undoubtedly, the political outlook of
the provincial Conservatives was moderated by the tradition
al resentment of Guatemalas dominance. Thus, it appears
that support for federalism was restricted neither to Liberals
nor provincianos, and the decision to establish a federal
government was achieved as Guatemalan Conservatives were out
voted by provincial Conservatives and Liberals from all areas.


105
revenues of the consulado. The financial collapse of the
provisional federal government in the latter part of 1824
was prevented only by a Guatemalan subvention of 23,000
40
pesos.
The federation's constant shortage of funds arose as
the zeal to repudiate taxes of the colonial era outweighed
efforts to secure new sources of revenue. The collection
of Indian tribute had been suppressed by the Cortes of
Cadiz; and the Asamblea subsequently abolished government
monopolies on the sale of ice and playing cards, revoked
the collection of annates and one-fifth tax on precious
metals, reduced the alcabala from 6 to 4 per cent, and
exempted the producers of iron and tobacco from payment of
the alcabala.^ To replace these sources of income, the
assembly experimented with two new taxes, but neither of
these produced much revenue. An annual occupational tax
was ordered in December, 1823. Tax rates ranged from four
reales for domestic servants to twenty pesos for wholesale
4 2
merchants. Only Guatemala and Honduras made an effort to
collect this tax, and it appears that the law was never
fully implemented.^^ An attempt to place a 7 per cent levy
on the value of Church properties was equally unsuccessful.
Ecclesiastical opposition to this impost was so strong that
no effort was made to collect the tax.^
In accordance with the recommendations contained in
a report submitted by the treasury commission in April,
1824, the Asamblea finally decided to reserve for the


115
Moreover, Central Americans apparently believed that execu
tive authority was not really an essential part of govern
ment. There does not seem to have been any concern gener
ated by the fact that the laws which provided for the
dissolution of the SPE and the election of the President
would leave the nation without executive leadership for a
period of two months. Consequently, the Constitution pro
vided for a President who was "merely decorative.The
Chief Executive of Central America was subject to the
authority of both the Congress and the Senate. He could be
called before the Congress to account for his actions.
Though entrusted with the enforcement of law, he was
required to consult with the Senate before acting on any
matter. Presidential power was further reduced in that
prerogatives usually associated with executive authority
were granted to the Senate. It exercised the right of veto
over federal legislation and, for all practical purposes,
appointed federal officers. The President enjoyed the
greatest freedom of action in the area of military affairs
and, with the permission of the Senate, could assume personal
command of the army. In view of Arce's background, it is
not surprising that after his election to the Presidency he
looked to the military as the means for establishing his
authority.


137
control of the area. In any case, Arce's position in regard
to the requirements for the pacification of Nicaragua was
vindicated by Manuel Arzu who believed that he would have
faced "fatal consequences" had it not been for the opportune
arrival of the Salvadoran expedition.42
While the struggles related to the pacification of
Nicaragua were taking place, elections were being held
throughout Central America to fill state and national offices.
In certain respects, it is difficult to account for the
results of these elections. Little is known about manner in
which elections were held, other than the fact that uniform
procedures were not followed. Except for a few national
returns, election figures are not available; and the factors
which decided elections remain hidden in the past. Therefore,
attempts to explain salient features of the election, such as
the fact that Guatmala provided itself with a liberal state
government and a conservative delegation in the federal
Congress, constitute little more than educated guesses.^ The
election of the President of the federation does not provide
an exception to the foregoing statement. While it is possible
to describe what happened, one cannot definitively explain
why it happened.
All available evidence indicates that, in the elections
of 1824, the Liberals supported Arce and the Conservatives
gave their backing to Valle. The distribution of votes casts
o
by the states supports this observation, but it does not
apply to the decisions made by the deputies in the federal
\


128
origin in the pre-independence disturbance of December 13,
1811 when the citizens of Leon deposed the intendente Jose/
Salvador. Leonese discontent apparently focused only on
Salvador for the dissidents were satisfied with the appoint
ment of the arch-conservative Bishop Nicolas Garcia Jerez as
the new intendente and the creation of a government advisory
junta. When amnesty was granted to participants in the
disturbance, the affair was generally viewed as a matter
best forgotten. Yet there were several more links in the
chain of events. Creoles in Granada had taken inspiration
from the action of Leo^n and elected to pursue a similar
course, but in this case, the outcome was much less fortunate.
Granadan liberals gathered in the town square on December 22,
and demanded that all Spanish officials be removed from
office. Two weeks later, they moved to achieve this objective
by seizing control of the town fort and imprisoning or
expelling the hated penisulares. The victorious insurgents
did not demonstrate a desire to divorce themselves from the
provincial capital; rather, they recognized the authority of
Bishop Garca Jerez and prepared to send two deputies to the
Leonese advisory junta. The deputies never carried out
their mission as the former Spanish residents had raised a
force of 1,000 men which laid siege to the city. On April 22,
1812, the creoles agreed to surrender in return for a general
amnesty. The amnesty was revoked, however, by Captain
General Bustamante who charged the government of Leo*n with
responsibility for the apprehension and punishment of the


92
created. This act also extended personal immunity to legis
lators, recognized the public debt, and confirmed the
authority of all existing civil and religious authorities.
Catholicism was acknowledged as the national religion, and
pending the enactment of the laws of the nation, the Consti
tution of 1812 and all laws of Spain which did not contra
vene the liberties of the people were to remain in effect.-'-
While Pedro Molina and Juan Vicente Villacorta vigorously
opposed the establishment of Catholicism, this provision
and the interim retention of Spanish law indicate that the
Liberals who then, controlled the assembly were not possessed
by Jacobin spirits.H
When the Asamblea turned to the business of imple
menting the provision for an executive branch of the govern
ment, it entered upon its first, clear-cut political battle.
The Conservative members of the assembly were anxious to
have the reins of the government in a firm and familiar
hand and attempted to have the executive power entrusted to
Vicente Filisola who did not deny his availability. Outside
of the halls of the assembly, this move was strongly sup
ported (and possibly had been suggested) by the aristo
cratic imperialistas who were now thinking in terms of half
a loaf.1^ The retention of Filisola in a position of authority
was totally abhorrent to the Liberals. Not only might he act
as a cat's paw for the Conservatives, but he would serve
as a constant reminder of the humiliating annexation to
Mexico. Yet the Liberals, either unable or disinclined


139
who cast their votes in the manner shown below.
State
Deputy
Political
Vote
Deviation
Orientation
from
District
Vote
Francisc^ Carrascal
Liberal
Arce
No
Jose7 Maria Castilla
Conservative
Valle
Yes
Jose7 Cordova
Conservative
Arce
Yes
Mariano Cordova
Conservative
Arce
Yes
Domingo Dieguez
Conservative
Arce
Yes
Jose Echeverra
Conservative
Arce
Yes
Guatemala
Francisco Flores
Liberal
Arce
No
Carlos Galvez
Liberal
Arce
No
Mariano Galvez
Liberal
Arce
Yes
Manuel Lara
Liberal
Arce
Yes
Juan Montufar
Conservative
Valle
No
Jose7 Maria Ponce
Conservative
Arce
Yes
Ramo7n Solis
Conservative
Valle
No
Doroteo Vasconcelos
Unknown
Arce
No
Mariano Fuez
Liberal
Arce
No
Isidro Menendez
Liberal
Arce
No
Jose Antonio Pea
Liberal
Arce
Yes
El Salvador
Juan Rodriguez
Liberal
Valle
No
Carlos Salazar
Unknown
Arce
No
Ciriaco Villacorta
Liberal
Arce
No
Honduras
Santiago Milla
Conservative
Arce
Yes
Toribio Arguello
Conservative
Arce
No
Nicaragua
Filadelfo Benavent
Unknown
Arce
No
Francisco Benavent
Conservative
Arce
No
Francisco Quiones
Conservative
Arce
No
Costa Rica
Policarpo Bonilla
Conservative
Arce
No
Pablo Alvarado
Liberal
Valle
Yes
Sources: ANG, B5.8, leg~ 72, exp~ 2037, "Estado que manifiesta
el escrutino de votos populares""; Thompson, Narrative, pp. 509-
510.
From the foregoing table, it is evident that the
election of Manuel Jose* Arce as the first President of the
federation was due to a shift in the vote of Conservative


148
authority was not what might "be wished for the tranquility of
the republic . . June 24 had been designated as a
national holiday in commemoration of the Asamblea's opening
session in 1823. Although the state government was located
in Antigua, state officials residing in Guatemala City were
expected to join with federal officers in attendance at the
capital's anniversary ceremonies. Gregorio Salazar, the
administrator of the district of Guatemala City, declined
to attend, however, on the grounds that the places of honor at
the event were reserved for federal authorities.H Salazar's
position was supported by jefe Barrundia who directed all
state officers to attend a separate celebration. Taken aback
by this punctilious concern with protocol, Arce postponed
the affair until the following day and sought the advice of
Congress regarding the proper course of action. L The
legislature replied that the President should secure full
compliance with the law. On the basis of this counsel and
his desire to insure respect for the federal government, Arce
caused a minor.constitutional crisis when he used federal
troops to escort reluctant state officials to the federally
sanctioned commemorative celebration.^
The anniversary affair still clouded the relationship
between the two governments when a second dispute arose from
the decision of the Guatemalan legislature to move the state
offices from Antigua to Guatemala City. Since the public
buildings in the capital were occupied by the federal govern
ment, Barrundia secured office space by confiscating the


183 ...
44For a detailed discussion of Raouls activities in
Central America, see Adam Matthias Szasdi, "The Career of
Nicholas Raoul in Central America," M. A. thesis (Tulane
University, 1954).
48Quoted in Manuel Valladares, "Biografa del General
don Manuel Jose Arce," in Garcia Arce, I, 69.
^Marure, Bosquejo, I, 260; Montiffar y Coronado,
Memorias, I, 111.
H/Arce, Memoria, 55; "Dictamen de la comisin especial
nombrada por la Asamblea Legislativa del Estado del Salvador
. . para examinar los documentos remitidos por el Supremo
Gobierno de la Federacin al del Estado, relativos todc^s a
la posicin peligrosa de la Repblica . ," in Garcia,
Arce, III, 517.
48Ibid.
4Arce, Memoria, pp. 60-61.
88United States, National Archives, Department of
State, Despatches from United States Ministers to Central
America, 1824-1906, I (Hereafter: Diplomatic Despatches),
J. Williams to Henry Clay, November 24, 1826.
84Marure, Bosquejo, I, 268.
8^Arce, Memoria, p. 45.
r 7 / f
"Dictamen de la comisin especial," in Garcia, Arce,
III, 517-518.
^4A copy of this letter is reproduced in Arce,
Memoria, pp. 67-69.
88Marure, Bosquej o, I, 274; Holleran, Church and State,
p. 309.
^Department of State, Diplomatic Despatches, J.
Williams to Henry Clay, November 24, 1826; Dunn, Guatimala,
p.252.
57
Marure, Bosquej o, I, 281. Prior to this encounter,
Raoul had been sent by ship to the fortress at Omoa. He was
held there for several months and then was permitted to take
up residence in El Salvador.
r o
JOArce, Memoria, p. 75.
8"Dictamen de la comisicfn especial," in Garca, Arce,
III, 518-519.


166
forces, he adopted policies which, if allowed to stand,
would have transformed the federal government into a myth.
The jefe of Guatemala was clearly determined to assume the
role of Raoul's protector and in order to implement this
aim, he secured from the state assembly on August 16 several
decrees which went far beyond the bounds of the Constitution.
Barrundia was empowered to withdraw recognition of the
President unless he delivered Raoul's appointment to the
post of recruiting commissioner, raise an army and manufacture
arms, and reserve the proceeds of the tobacco monopoly for
the purposes of the state. Barrundia was also authorized to
intercept the federal force that had been sent out to effect
Raoul's arrest on the grounds that agents of the federation
could not act in the state unless they had the permission of
the jefe. Thereupon, Barrundia dispatched on August 21, 300
men under Cayetano de la Cerda with orders to arrest Jose*
Maria Espinla, the leader of the 50 man federal contingent.
When the state and national troops encountered each other
near the Acasaguastlan River at the beginning of September,
they demonstrated somewhat better wisdom than that exhibited
by their respective commanders-in-chief and decided that an
armistice was preferable to action that might initiate a
... 57
civil war.
Meanwhile, Arce was attempting to counter the actions
of the Guatemalan government. He informed the state legis
lature that income from the tobacco monopoly was reserved
for the support of the federal government and could not be


32
second cousin to Delgado as the mother of the Salvadoran
vicar and Arces paternal grandmother were sisters.^ The
Arces were also related by marriage to the Aguilars, and
this bond was strengthened in May, 1811 when Arces sister
Manuela married Domingo Antonio de Lara, a nephew of the
Aguilar brothers. With connections such as these, Arce's
involvement in the movement was almost inevitable.
Though Arce's admission to the group of dissidents
was provided by kinship, this factor alone does not account
for the position of leadership assumed by the twenty-four
year old creole. To assert that Arce was a born leader begs
the question, but the assumption that he had leadership
capabilities is not unreasonable. A thoroughly retiring
young man would likely have remained on the sidelines.
Arce's actions in the 1811 uprising demonstrate that he
possessed a considerable amount of drive and spirit, so it
may be inferred that he expressed himself quite vigorously
in the conversations and meetings which ultimately led to
the open expression of creole discontent. Still, the fact
that Arce was able to assume the role of a key figure was
probably due not so much to his own energy as it was to the
position of his father within the creole community. In fact,
as member of the ayuntamiento, Bernardo Arce was one of the
leading citizens of San Salvador. In 1787, the year that
Manuel Jos* was born, Bernardo Arce was chosen for the post
of alcalde segundo^. He was elected to this office again in
1793 and also served a term as alfrez real.** What might be


177
session of the federal legislature which would meet at Ahua
chapan. Guatemala was excluded from the invitation on the
grounds that the state did not have a legitimately constituted
government. Deputies attending the Ahuachapan Congress were
expected to assume responsibility for securing the re-estab
lishment of constitutional order and reaching a decision in
78
regard to the future seat of the federal government. While
Liberals applauded Prado's action, they ignored the fact that
his decree carried even less authority than that which Arce
had issued two months earlier. The President noted this
inconsistency, but he made no effort to interfere with the
79
plans for the Salvadoran Congress. By the end of the
month, Honduras and Nicaragua had responded favorably to
Prado's proposal, and the Salvadoran jefe garrisoned troops
in the area around Ahuachapan for the ostensible purpose of
providing protection from the possibility of Guatemalan inter
vention. As might have been expected, this action caused
considerable alarm in Guatemala. Arce responded by dispatch
ing several hundred federal soldiers to protect the Guate
malan border, and the early months of 1827 witnessed the
escalation of hostile attitudes between the two states.
While confronting the problem posed by El Salvador,
the President also became enmeshed in difficulties with Hon
duras. The latter state had been the scene of turmoil since
1826 as a consequence of Liberal jefe Dionisio Herrera's
conflicts with the state Assembly and Bishop Nicolas Irias.
The Assembly had attempted to terminate the jefe *s term of


146
Valle did not lack for supporters in the ranks of
Central American pamphleteers and journalists. While the
views of the conservative establishment had been aired from
the beginning of the year in El indicador, which was edited
by Jose* Francisco Cordova, Manuel Montufar y Coronado, Jose*
Francisco Sosa, and Jose* Maria Castilla, there was no
opposition press until the appearance of El liberal and El don
Meliton in the spring of 1825. Heaping scorn and ridicule on
anything associated with the Guatemalan aristocracy, these papers
did not hesitate to criticize Arce's election and subsequent
administration. To Arce's credit, he did not allow these
attacks to goad him into ignoring the Constitution's guaranties
regarding freedom of speech.^ Despite Valle's denunciations
and the barbs of the liberal press, the President was able
to maintain fairly amicable relations with Central American
Liberals during the remainder of his first year in office.^
It soon became clear, however, that while the Liberals
did not immediately intend to oppose Arce, they were not
inclined to support him. A number of authors contend that the
difficulties experienced in the early years of the federation
grew out of the fact that Arce deserted his Liberal colleagues.^
Yet there is evidence which suggests that the defection should
be attributed to the party rather than the man. After Valle
declined the Vice Presidency, the federal Congress elected
Jose Francisco Barrundia to the post. Although Arce pleaded
with Barrundia to accept the office, the Liberal leader
steadfastly refused to associate himself with the federal


United States Library of Congress
Molina Papers
194
United States National Archives
Department of State. Despatches from United States Consuls
in Guatemala, 1824-1906. Vol. I.
. Despatches from United States Ministers to
Central America, 1824-1906. Vol. H
. Notes from Foreign Legations, Central America,
TS73-15W:
Published Documents
Arce, Manuel Jose^. Cartas. San Salvador, 1824.
. Manifiesto del gobierno a los pueblos de Centro-
America"! Guatemala, 1826.
Manifiesto del Presidente de la Repblica a los
Centro-Americanos. Guatemala, 1825.
. Mensaje del C. Manuel Jose^Arce, Presidente de
la Repblica de Centro-Ame*rica al Congreso Federal,
pronunciada en el acto de abrir las sesiones de su
segunda legislatura constitucional el 1 de marzo de
1826. Guatemala, 1826.
. El Presidente de la Repblica a los Centro-
Americanos Guatemala, 1825.
Federacin de Centroamerica. Convencin general de paz,^
amistad, comercio, y navigacidn entre la Federacin de
Centro-America y los Estados Unidos de America. Gua
temala 1826T
. Convencin de union, liga y confederacin per
petua ejitre la Repblica Federal de Centro-America y
la Repblica de Colombia. Guatemala, 1826.
. Proyecto de ceremonial para la instalacin y
apertura del congreso"! Guatemala, 1823.
. Congreso. Conducta pura y areglada del congreso
general de la repblica en la eleccin de las supremas
autoridades federales"! Guatemala, 1825!


80
p. 270. Juan Miguel Bustamante, the teniente letrado of
Nicaragua was making a trip to Guatemala and passed through
San Salvador at the time of the uprising. Bustamante, who
later prosecuted the case against Arce, was threatened with
imprisonment by Miguel Delgado.
f 2^ANG, Al.l, leg. 6924, exp. 57003, "Contra D. Manuel
Jose Arce."
25Ibid.
26ibid.; ANG, Al.l, leg. 6926, ex£. 57043, "Don
Manuel Jose' Arze reo de Ynfidencia quejndose de qe. el Juez
en comsn. le ha estrechado el arresto y negando los recursos."
t 2^ANG, Al.l, leg. 6924, exp. 57003, "Contra D. Manuel
Jos Arce."
28ANG, B2.1, leg. 22, exp. 681, "Sobre las conmociones
de la ciudad de San Salvador."
2^ANG, Al.l, log. 6924, exp. 57003, "Contra D. Manuel
Jos' Arce." There is some variation between the details of
the uprising as presented in the Salvadoran manifesto and
the present account which follows the testimony given in
the proceedings against Arce.
T 1
Ibid. One of the pieces of evidence introduced in
Arce's case was a letter bearing his signature that had
been received by Serapio Melendes of Zacatecoluca. Both
Arce and Melendes testified that they had never met, and
Melendes, who had no part in the revolt, stated that the
tone of the letter indicated that it had been written by an
old acquaintance. Arce swore that the letter was not his
but allowed that it might have been written by someone else
in his father's house. Possibly in the rush to get the
announcements out, Arce signed the letter by mistake.
52Ibid.
33
"Don Domingo Palles, sobre, lo acaecidc^, con los
insurgentes en el Pueblo de Usulutan," in Garcia, Procesos,
p. 353; Marure, Bosquejo, I, 47.
^Gazeta extraordinaria de Guatemala, November 21,
1811, in Garca, Delgado^ I, 476.
88ANG, B2.1, leg. 22, exp. 681, "Sobre las conmociones':'*,'
Gazeta extrordinaria de Guatemala, November 28, 1811, in
Garcia, Delgad~o~] 1 486. The opposition of these towns
appears to have been the product of genuine conservatism,
jealousy of the creoles of San Salvador, and the inclination


181-
13Ibid.
i^Arce, Memoria, p. 36; Marure, Bosquejo, I, 250.
The author was not able tp determine whether the Juan Miguel
Bustamante involved in this incident was the same individual
who served as the judge in the proceedings against Arce in
1815.
Arce, Ibid.
l^Ibid.; Marure, Bosquejo, I, 251. In view of Marure's
statement that Juan Barrundia "did not know how to combine
prudence with his liberalism" and "was inaccessible to
persons not of his party," Arce's account of this affair is
probably accurate.
17 /
'Montufar y Coronado, Memorias, I, 140.
l^ANG, B7.9, leg. 135, exp. 3145, "Comisin de puntos
constitucionales."
^Reference to these assertions was not made in order
to demonstrate that the circumstances which gave rise to
the statements are comparable to the situation in Guatemala
in 1825, but to suggest that such speculation may lose
sight of real issues.
^Federacin e Centroamrica, Secretario de Estado
y del Despacho, Esposicion presentada al Congreso Federal al
comenzar la sesin ordinaria del ano de 1826 (Guatemala^
1826) .
21Manuel Jos/jArce, Mensaje, del C. Manuel Jos-Arce.
Presidente de la Repblica de Centro-Ame^rica al Congreso
Federal, pronunciada en el acto de abrir las sesiones de su
segunda legislatura constitucional el 1 de marzo de 1826
(Guatemala, 1826).
^Federacin de Centroamerica, Convencin de union,
liga y confederacin perpetua entre a~Repiblica Federal Je
Centro-Ame'rica y la Repblica de Colombia (Guatemala, 1826) .
23Federacion de Centroamrica, Convencin general de
paz, amistad, comercio, y navigacion entre la Federacin de
Centro-Amrica v los Estado Unidos de Amrica (Guatemala,
1826) :
^Federacin de Centroamerica, Esposicion del ao de
1826.
23Thompson, Narrative, p. 69.
4Marure, Bosquejo, I, 259.


104
greater opportunities for political participation. The
federalists most effective argument, however, was that the
provincianos simply would not accept the creation of a
unitary government, and this point determined the attitude
of a majority of the deputies. Still, the centralists
attempted to circumvent federalist strength in the Asamblea
and proposed that the town councils be polled on the
question. This suggestion was defeated as it was too
reminiscent of the means by which annexation to Mexico was
authorized. Consequently, the assembly accepted the
Bases as a working plan, and on December 17, 1823, the
draft of the constitution was circulated throughout the
provinces with the request that any suggestions for
T Q
revision be forwarded to the Asamblea.
While the provinces were examining the proposed
constitution, the assembly concerned itself with the busi
ness of governing the nation. Most of the legislation
enacted at this time was concerned more with long range
development than with immediate needs or problems. Sub
stantial programs to improve levels of education or communi
cation among the provinces were not considered for the
simple reason that the government did not have the money to
spend. In fact, public revenues were not sufficient to
cover the arrears in the salaries of civil servants. For
their day to day existence, federal authorities were largely
dependent upon the generosity of the province of Guatemala
which raised funds by issuing bonds and appropriating


130 ,
Granadans in December of the diminishing prospects for
lasting independence, and, with the decree of annexation,
Sacasa passively accepted the supremacy of Leon.
While 1822 proved to be a peaceful year for Nicaragua,
the issue of annexation continued to be a source of discord.
Sacasa's submission to Leon had alienated Granadan liberals,
and they transferred their allegiance to Cleto Ordonez, a
mestizo demagogue. On January 13, 1823, Ordonez gained
control of Granada by means of a barracks revolt which
forced Sacasa to flee from the city. This event led to the
renewal of hostilities with Lecfn as Gonzalez Saravia led
1,000 men in an assault on Granada in February. Ordez,
who had prior military experience, was able to repel the
invading force. A second attack on the liberal stronghold
was being prepared when the contending armies were informed
of Filisola's decision to convene a provincial congress and
the intendente was recalled to Guatemala. The resumption of
Central America's independent status eliminated the immediate
th-reat to Granada, but it did not reduce Nicaragua's potential
for violence. Agreement concerning the establishment of a
unified government for the province could not be secured, and
the area remained divided into two armed camps throughout
1823. In Leon, Bishop Garcia Jerez would not recognize any
outside authority including that of the national government
in Guatemala. While Ordonez played fast and free in Granada
with the property of exiled conservatives, Crisnto Sacasa
assumed command of the Leonese forces and began preparations


39
orders from Spanish officials and should only obey the newly
elected creole authorities. He also promised the people
that the alcabala would be abolished and that the monopolies
on tobacco and aguardiente would be suppressed.^6 Though
some authors, following the account of Alejandro Marure,
assume that a condition bordering on anarchy prevailed for
the balance of the month, this does not seem to have been
the case. Apart from Arce's outburst, it appears that the
creoles conducted themselves with a considerable degree of
discretion. Following the establishment of the new govern
ment, tranquility was restored and there were no outrages
committed against the Spaniards. Antonio Gutierrez y Ulloa,
who was confined to the premises of the Convent of Santo
Domingo, later testified that the Arces had treated him with
courtesy and had exercised a restraining influence on the
mobs that formed during the revolt.27
On November 6 the creole government, in an attempt to
establish its legitimacy (and possibly buy a little time),
informed the colonial officials in Guatemala that there had
been a disturbance in San Salvador, but order had since been
restored.28 To further protect themselves, the Salvadoran
officials swore loyalty to Ferdinand VII on the following
day. The creoles were not so naive as to believe that their
assumption of power would go unchallenged, and they realized
that by themselves they could not successfully withstand
the authority of the Captain General. In hopes of bolstering
their position, the rebels drafted a manifesto which gave a


24-
NOTES
^Although the area was technically a Captaincy General,
it was commonly referred to as "el reino.1*
^George Alexander Thompson, Narrative of an Official
Visit to Guatemala from Mexico (London, 1829), p. 303.
3
Thomas L. Karnes, The Failure of Union: Central
America, 1824-1960 (Chapel Hill, 1961), p. 11.
^Clarence H. Haring, The Spanish Empire in America
(New York, 1963), pp. 75-76:,
8Alberto Herrarte, La Union de Centroamerica (Guate
mala, 1955), p. 94; Mario Rodriguez, Central America
(Englewood Cliffs, N. J., 1965), pp. 61-62.
r ,
"Jodolfo Baron Castro, Jose Matas Delgado y el
movimiento insurgente de 1811 (San Salvador, 1962), p. 61;
Hector Humberto Samayoa Guevara, Implantacin del rgimen de
intendencias en el Reino de Guatemala (Guatemala, 1960), p. 194.
Samayoa Guevara believes that as they reduced central
authority and fused together older units of local government,
the establishment of intendencies contributed to the centrifugal
tendencies of the provinces.
^Troy S. Floyd, "The Guatemalan Merchants, the Govern
ment and the Provincianos," Hispanic American Historical
Review, XLI (February, 1961) p. 93.
8Ibid., p. .102; Ralph Lee Woodward, Jr., "Economic
and Social Origins of the Guatemalan Political Parties,"
Hispanic American Historical Review, XLV (November, 1965) ,
pp. 547-548.
^Floyd, "The Guatemalan Merchants," p. 99.
-*-8Ibid. p. 101; Alejandro D. Marroquin, Apreciacin
Sociolgica de la Independencia Salvadorea (San Salvador,
1964) pp. 52-53.
^Floyd, "The Guatemalan Merchants," p. 92.
*i o
Francisco Gavidia, Historia moderna de El Salvador
(San Salvador, 1958), p. 235.
^Manuel Jose/ Arce, Memoria del General Manuel Jos
Arce (San Salvador, 1959) p. 17.


160
control of the jefes and limited the federal government to
the maintenance of a general staff.^ While-this plan was
not put into effect, Raouls connection with the proposal
caused Arce to realize the desirability of restricting the
activities of the liberal warrior.
The Presidents realization became a matter of con
viction as a result of an affair involving the son of Pedro
Molina. A lieutenant in the infantry, young Molina had been
ordered to Costa Rica to escort some recruits back to the
capital. Molina was not anxious to make the trip and appealed
to Raoul for assistance. Remembering his friendship with
the boys father, Raoul cancelled the order and transferred
Molina to the artillery. Since Arce had approved the orders
for Molina's journey to Costa Rica, he believed that Raoul's
action demonstrated open contempt for the President's
authority. The angered executive revoked Molina's transfer,
ordered the lieutenant to proceed to Costa Rica, and required
the Frenchman to offer an explanation for his behavior.
When, in response to this demand, Raoul grumbled to his
colleagues on the junta de guerra that he "was opposed to
the orders of a tyrannical President," he determined not only
his own fate but that of the nation as well.^
Arce learned of Raoul's statement in late March and
immediately took advantage of the fact that his power as
President permitted him to eliminate this particular source
of difficulty. On March 29, 1826, Raoul was ordered to make
a thorough reconnaissance of the region around Lake Izabal.


188
the President was seeking to place the federation on a sound
footing while the Liberals were attempting to expand the
power of the states at the expense of the federal government.
Perhaps, the character of the split with the Liberals may
have been best expressed in the contemporary observation
that "the President was considered at the time of his elec
tion to be of the Liberal party. But subsequent events threw
him into the arms of the other party.(Italics mine.)
The policies which Arce pursued in regard to the Lib
eral government of Guatemala do not necessarily indicate that
he was acting as a tool of the Conservatives. If it may be
assumed that Arce did not accept the Presidency in order to
preside over the dissolution of the federation, there is no
need to posit Conservative control in order to explain his
responses to the actions of Juan Barrundia and the state
government. Nor is there adequate justification for allega
tion that the President ran roughshod over the state in order
to concentrate power in his own hands. The decisions which
Arce made in the fall of 1826 left something to be desired,
but his behavior seems to have been the product of despera
tion rather than ambition. A potential tyrant possessing
Arce's low level of cunning would never have issued the plea
for assistance contained in the message sent to the jefes of
the states on September 7, 1826. Arce's actions undoubtedly
contributed to the coming of the civil war, but the charge
that he caused the war by his attempt to erect a unitary
government is cut from whole cloth. While the President may


171
Consequently, the Guatemalan government decided to retire
to the interior of the state. For reasons that are difficult
to comprehend, the Assembly decided to establish the seat
of the government at Quezaltenango, which was known to be a
center of Conservative strength. The Liberal retreat
occupied the better part of September, and during this time
conditions within the state became increasingly chaotic. On
October 13, shortly after the state officials arrived in
Quezaltenango, Flores was literally torn to pieces by a mob
that had been stirred into an anti-Liberal, religious frenzy
by several friars. Following this tragic event, there were
a few clashes between state and federal troops, but the
state government dissolved, reducing Guatemala to a condition
that bordered on anarchy.
Prior to the political collapse in Guatemala, there
had been another failure in Central Americas experiment with
federalism. The Congress had not provided funds for the
operation of the government when it adjourned on June 30,
1826. In order to remedy this situation, Arce obtained an
order from the Senate which called for a special session of
the Congress to convene on October 1, 1826. However, the
number of deputies who were present on the appointed day
was insufficient to form a quorum. For the most part, the
missing deputies were those who had withdrawn from the legis
lature on June 2, and their continued abstention now forced
the cancellation of the special session. While Arce, himself,
was responsible for the convocation of the session, it is
thought that the deputies who boycotted the meeting acted to


158
chief executive paused to stress the need for a patriotic
sense of unity; and, in a brief passage that suggests the
faculty of prescience, he reminded the deputies that there
were clearly defined boundaries which separated the powers
of the several branches of the federal government. Arce
then pointed to the benefits that were expected to accrue
from the development of the mining industry and the construc
tion of the Nicaraguan canal. He placed greatest emphasis,
however, on the military needs of the nation. With a brief
review of his efforts in this area, the President called
attention to the lack of an adequate standing army and
asserted 'that the nation would never experience the degree
of security it ought to enjoy until the obstacles which pre
vented the creation of such a force were removed.^2
Any illusions that Arce may have had concerning the
effect of his speech were quickly shattered. He found him
self confronted by a Congress which in the words of the
deputies from El Salvador "devoted itself to interrogating
the President. .," enacted numerous laws that "had nothing
to do with the purposes of the legislature . .," and
attempted to restrict executive power with resolutions "not
conforming to the Constitution. . ."43 As noted above,
Arces difficulties with the Liberal Congress centered on
his authority in military affairs, and this conflict arose
from the activities of Nicolas Raoul.44 This individual had
served as an officer in Napoleons army and later emigrated
to Colombia at the time that Pedro Molina was representing


61
surprise when Delgado and his retinue arrived in the city.
Barriere was ordered to leave the province and all of the
members of the ayuntamiento were removed from office. The
administration of provincial affairs was entrusted to a
diputacin which had Delgado as president and Arce, Rodri
guez, Leandro Fagoaga, Basilio Zecena, and Miguel Jose'* Castro
as members.^6
Their goal of self-government was finally attained,
but the creole liberals had little time for the leisurely
enjoyment of the fruit of their labors as their newly won
independence was immediately challenged by the ambitions of
Agustn Iturbide and his followers. In Leon, Nicaragua
intendente Miguel Gonzalez Saravia and bishop Nicolas Garcia
Jerez had responded to the Guatemalan declaration of inde
pendence by securing the independence of their province
with a statement of support for the Plan of Iguala. Jose*
Tinoco pursued a similar course in Comayagua, Honduras,
announcing separation from Guatemala and adhesion to Mexico.
On November 11, Gabino Gainza informed the two provinces
that no official or corporate body possessed the authority
to make such decisions which were reserved for the consid
eration of the congress ordained by the act of September
8 7
15. At about the same time it was decided to move the
opening of the congress up to February 1, 1822, but this
action was not adequate to contain the growing pressures for
union with Mexico. While he had possibly hoped to preserve
Central America as his own domain, Gainza's resistance to


159
Central America in the treaty negotiations between the two
states. The Guatemalan minister and the French emigre were
apparently drawn together by their attachment to liberal
principles, and Molina offered his compatriot a commission
in the Central American army. Raoul accepted the offer and
arrived in Guatemala City to claim his appointment in June,
1825. Given command of the artillery and a seat on the
junta de guerra, Raoul initially maintained cordial relations
with the President of the federation. Following the publica
tion of a pamphlet by Jose* Antonio Alvarado which criticized
Arce's election, the French mercenary offered to place "a
crown of lead on the head" of the author.^
This sympathetic attitude soon changed. Raoul's
political opinions brought him into the circle of Guatemalan
Liberals, and he rode the rising tide of discontent to a
position of outright opposition to the President. By 1826,
Conservatives who now had Arce's ear were whispering
that the Liberals planned to use Raoul as the means for
either removing the President from office or destroying his
authority in military matters. These rumors appeared to be
confirmed when the Liberals called on Raoul to advise the
Congress' comisin de guerra. With Raoul's assistance,
the comisin drafted a military code that would have made a
dead letter of the clause in the Constitution which placed
command of the armed forces in the hands of the President.
The proposed table of organization allocated all combat
units to state militias where they would be- under the


49
effect, Bustamante advised the intendente to exercise
extreme vigilance. Undisturbed, Peinado blandly replied on
October 24 that the citizens of all classes were "submerged
in the grossest ignorance. It is not clear when he
changed his mind, but by December 3 Peinado had become
convinced of the things the Captain General had feared. On
that date he wrote to Bustamante that he could not find the
proper means of controlling the province, obedience was
lost, and the people resembled "cynical academicians"
disputing and discussing the constitution with enthusiasm.^
With this change in attitude, the intendente initiated a
policy of rigorous control which shortly led to the second
confrontation between the Salvadorans and the colonial
government.
The first demonstration of Peinado's new approach to
government came with the December elections for the alcaldes
of the barrios. Believing the victors in the election to
be "vicious" and "suspect" persons, Peinado ordered that
new elections be held. The alcaldes chosen in the second
balloting were equally distasteful to the intendente, and
though he allowed them to take office, he refused to confirm
their election. On January 9, Peinado referred confirmation
of the election to the Captain General. At the same time
he ordered a secret distribution of arms and ammunition to
the royal garrison and corps of volunteers in response to
the request of the ayuntamiento that all weapons be placed
in the local armory where they would be at the disposal of


26
25ihis list is reproduced in an appendix to Ramon A.
Salazar's Mariano de Aycinena (Guatemala, 1952).
^Fernandez, Documentos, p. 20.
^Bumgartnerf Valle, pp. 97-120 provides an excellent
account of the conflict between the family and its antagonists.
28]Voodward, "Economic and Social Origins," pp. 556-557.
^Ayuntamiento de la Ciudad de Guatemala, Instrucciones
para la constitucin fundamental de la monarqua espaola y
su gobierno, de que ha de tratarse en las prdximas cortes
generales de la nacidr (Guatemala, 1953).
^Ralph Lee Woodward, Jr., Class Privilege and
Economic Development: The Consulado de Comercio of Guatemala,
1795-1871 (Chapel Hill, 1966), p. 119.
^Strobeck, "The Political Activities," demonstrates
that aristocrats were to be found on both sides of every
issue, but after independence the majority of politically
active aristocrats came down on the side of conservatism.
^Ramon A. Salazar, Historia de veintin anos: la
independencia de Guatemala (Guatemala, 1928) p. 20 5 .
5^E1 editor constitucional, August 21, 1820; September
18 1820. Allissues o F~E 1 e d i to r constitucional and its suc
cessor El genio de la libertad are reproduced in Pedro Molina,
Escritos del Doctor Pedro Molina, 3 vols. (Guatemala, 1954).
34Ibid., October 16, 1820; December 2, 1820.
35Ibid., August 21, 1820 ; Marure, Bosquejo, I, 59.
^Archivo Nacional de Guatemala (hereafter cited as
ANG), B1.13, leg. 494, exp. 8338; Bumgartner, Valle,
pp. 113-118.
3?Marure, Bosquejo, I, 59; Montufar y Coronado,
Memorias, I, 65.
38e1 editor constitucional, June 4, 1821. In the next
issue of the paper Molina apologized for the satire and
ingenuously protested that he had not recognized the anagram
for Fernando el Ingrato.
^Marure, Bosquejo, I, 61.
40Ibid., p. 62.


167
appropriated by the states. The Guatemalan reply to the
President's demand that tobacco revenues be forwarded within
four days called attention to the fact that the state had
already paid its fair share of the costs of the federal
government, and the matter was left unresolved.^8 Arce also
sent the government of El Salvador a lengthy report on the
conflict between the federation and Guatemala in which he
expressed the fear that he might be overthrown by a Liberal
revolt. In response, the Salvadoran officials assured the
President of their support and promised to provide him with
a force of 1,000 men should the need arise.59
At the same time, a Presidential report on Barrundia's
activities caused the Senate to initiate an investigation
which Conservatives hoped would result in the jefe being
charged with violation of the Constitution. This possibility
was forestalled when Liberal Senators adopted the device
that the Salvadorans had used to protect Arce. In the
previous case, the Salvadoran representatives had withdrawn
from the Congress on the grounds that the presence of an
excessive number of Guatemalan alternates meant that the
legislature did not have a legitimate quorum. In this
instance., Liberal Senators denied the existence of a quorum
in the Senate by questioning a rule which permitted a Con
servative Senator from Honduras to retain his seat after the
expiration of his term of office. This action led to
adjournment on September 2, 1826, and the Senate did not
meet again thereafter.6


175
the federal government forced the President to cooperate
closely with Conservative authorities, but there was a con
siderable amount of distrust between the two parties. In
the following year, Arce broke with the state government and
vindicated the judgement of observers who believed that his
association with the Conservatives amounted to nothing more
75
than a marriage of convenience. Still, he was indirectly
responsible for the establishment of the Conservative govern
ment, and this event caused Arce to lose the key to his
strength--the support of El Salvador.
Until December, 1826, Arce's policies were supported
-- and in some cases anticipated--by the Salvadoran govern
ment. After that time, his relationship with leaders in the
state deteriorated so far as to produce open conflict. There
7
were a number of factors responsible for this transformation.
The loss of the support of Father Delgado probably consti
tuted the President's greatest personal concern. The split
between the two men did not arise directly from the issue of
the Salvadoran bishopric as Arce had loyally sustained his
77
cousin's interests in that matter. But on December 3, 1826,
Arce committed the error of sanctioning the publication of
Archbishop Casaus' pastoral letter which excluded El Salvador
from the celebration of the Holy Year Jubilee. This blunder
threatened to undermine Delgado's position in the state and
caused the priest to believe that his cousin had turned
against him. Arce eventually restored his ties with the Sal
vadoran prelate, but, for the time being, he had lost the
favor of an important ally.


178
office after the promulgation of the state constitution and
Irias' efforts to resist Herrera's anticlerical tendencies
had resulted in the issuance of reciprocal orders for the
arrest of the Bishop and the excommunication of the jefe.
These disputes brought the state to the verge of open war by
the end of the year and caused Arce to send a federal force
to assume control of tobacco warehouses in the department of
Gracias which had withdrawn its recognition of Herrera's
authority.^
Influenced by the Liberals contention that Arce
intended to depose the Honduran j efe and frustrated by the
fact that the Ahuachapan Congress had failed to achieve a
quorum, Prado decided to put an end to his differences with
the federal government, In the second week of March, 1826,
the Salvadoran army crossed the Guatemalan border and
launched a civil war that would wrack the federation for the
next two years. Arce responded to this action by relinquish
ing his post and assuming personal command of the federal
army on March 16, 1827. Although he would return in Octo
ber to hold office for four more months, Arce's service as
President of the federation had--for all practical purposes--
come to an end, and he had no further opportunity to improve
his record in the eyes of historians.
It is clear that Arce was guilty of errors which con
tributed to the early disruption of the federation. Yet there
is reason to believe that any other individual would have
experienced a similar fate in the office of President. After


31
political liberalism prior to the coming of independence.
The similarity ends at that point, however, as the liberal
stance taken by the Salvadoran "family" proved to be much
more durable. This political commitment was doubtlessly
shaped by a predisposition towards change arising from the
years of conflict with Guatemalan merchants and to the
leadership of Jose' Matas Delgado.
Delgado was born in San Salvador in 1767, and he
received his training in Guatemala at the Tridentine Seminary
and the University of San Carlos where he obtained a doctorate
in canon law. After he completed his studies, Delgado served
as curate of San Salvador, and in 1797 he was appointed to
the office of provincial vicar. The origin of Delgados
liberalism is unclear, but as Montufar suggests, it may have
simply been an outgrowth of his desire to establish a
bishopric in El Salvador.^ A man of considerable ability,
Delgado's manner was such that he enjoyed not only the
prestige of his offices but substantial popular support as
well, and it seems likely that his convictions became those
of his parishioners.
While there were a number of other individuals
involved, all of the above-named Salvadoran aristocratic
families had representatives who played leading roles in
the 1811 revolt. It is commonly held that the moving spirits
of the uprising were Jos^ Matias Delgado together with
Nicolas, Vicente, and Manuel Aguilar, and there were close
ties between these men and Manuel Jose Arce. Arce was a


CHAPTER V
ARCE'S PRESIDENCY AND THE DISRUPTION OF THE FEDERATION
When Arce took the" oath of office as President on
April 26, 1825, he expressed the hope that Central Americans
would put old enmities behind them.^ But, given the circum
stances of his election, he was bound to face immediate
discord. The federal Congress had attempted to mollify Valle
by electing him to the office of Vice President. The would-
be executive angrily rejected this consolation prize and
shortly produced a pamphlet which attacked the legitimacy of
the Congressional election. Valle first summarized his past
services to the nation preparation of the Declaration of
Independence, opposition to Mexican annexation, and direction
of the SPE. He then reviewed the returns from the popular
elections, and, finding that he had received the support of
a majority of the citizens, declared the action of Congress
to be null and void.^ The Congress responded to this slur on
its honor by issuing several reports which defended the
electoral decision. These documents placed heavy emphasis on
legal issues and pointed out that the lack of clarity in the
decree of May, 1824, which provided for a Congressional
decision in the absence of a popular majority, demanded that
the Congress determine the number of votes required for
election.3
145


152
Great Britain. The annexation of Chiapas to Mexico had led
to a dispute over the boundary between Central America and
its northern neighbor. While the problem was not resolved
until much later in the century, the two nations held
discussions throughout 1825 in an effort to settle the issue.24
A minor conflict with Great Britain developed in May, 1825,
when 100 Negro slaves escaped from Walis (Belize) to Central
America. Under the terms of the Constitution, the slaves were
now free men; but General Codd, the Superintendent of Belize,
demanded that the fugitives be returned.25 Arce submitted
the question to the Congress which directed him to comply
with the Superintendent's request. The Senate, however,
refused to sanction the Congressional order. A Liberal
proposal for the payment of compensation to the former owners
made no headway in the federal legislature, and the matter
remained undecided for some time.26 British pressure
ultimately forced the return of the slaves, but the contro
versy gave birth to antipathies which have not yet disappeared.
Arce's statements in his Memoria and message to Congress
in 1826 indicate that he took a great deal of pride in his
efforts to organize the accounts of the federal government.
Regretably, these labors produced few visible results. The
financial difficulties of the federation have already been
discussed, and these doomed to failure any attempt to balance
income and expenditures. Arce, himself admitted that the
state tax quotas could be collected only from Guatemala and
the proceeds from the Barclay loan barely covered current
expenses.27 Designs to broaden economic resources of the


189
be faulted for his willingness to submit the dispute to a
decision by arms, the conflict was primarily due to the par
tisan struggles between Guatemalan Liberals and Conserva
tives.
The distinct differences between the young Salvadoran
patriot and the President of the federation cannot be satis
factorily explained in terms of lust for power or lack of
will. Granting credence to Arce's explanation for his desire
to strengthen the federal army, it appears that his executive
program can be best understood as the product of an expansion
in his political horizons. San Salvador's inability to with
stand the power of the Mexican empire convinced the future
President that national existence would require a high degree
of mutual trust and cooperation among the states. In other
words, by the time he returned from exile in the United
States, Arce had become a Central American. His failure as
President resulted from the fact that he was surrounded by
Guatemalans, Salvadorans, Hondurans, Nicaraguans, and Costa
Ricans.


66
based on Salvador's acceptance of the Guatemalan declaration
of September 15, 1821, which was viewed as a kind of pact
between the provinces. As this pact had been abrogated by
the annexation decree, Delgado claimed that the Salvadorans
were justified in reasserting their independence.^ While
there was little basis for this argument, it convinced
Gainza that the Salvadorans could not be won over by persua
sion, and he asked the junta consultiva for permission to use
force in bringing the Salvadorans back into the fold. The
junta replied that such measures could be employed only if
f
9 7
the Salvadorans engaged in hostile activities. Though
temporarily frustrated, Gainza did not have long to wait
before he was provided with an excuse for action.
The Salvadorans had not received any assistance from
Lord Cochrane, but they were convinced that their security
demanded the organization of military force. The diputacin
entrusted this responsibility to Arce who was appointed
comandante general of the province. The comandante quickly
organized a one hundred and fifty man squadron of dragoons,
and by the first of February he was in the field, ostensibly
for the purpose of protecting the "liberty and independence"
of San Salvador.^ Arces primary concern, however, was the
elimination of the threat posed by towns such as Santa Ana
which had declared for annexation to Mexico and refused to
recognize the authority of the government of San Salvador.
Santa Ana especially attracted Arce's attention as it was
under the protection of a garrison led by Nicolas Abos


106
federal government four existing sources of revenue: the
postal service, monopolies on gunpowder and tobacco, and
45
customs duties. While the postal service was expected to
provide a small net income, it proved to be a liability
rather than an asset as operation of the service required an
46
annual subsidy from the national treasury. The monopoly
on the sale of gunpowder had little significance. In the
best years, it provided an income of only 15,000 pesos.^
The sale of tobacco, however, constituted one of the major
sources of federal revenue. Contemporary opinion held that
the monopoly could provide an income of 300,000 pesos a
year, and the federal budget for 1825 projected 263,360
4 8
pesos in revenue from the sale of tobacco. These esti
mates were overly optimistic as the returns from the
tobacco monopoly probably amounted to not more than half
49
of the expected income. The deficiencies in tobacco
revenues were partially due to the decision of the Asamblea
to place supervision of the monopoly under state control.
By this arrangement, income from the sale of tobacco was to
be applied to assessments levied by the federal government,
and the balance of the profits reverted to the states. In
practice, the states tended to give their own obligations
priority over federal assessments in the disbursement of
revenue from the monopoly. Clandestine production of
tobacco further reduced potential income. Although crop
lands and tobacco seed were supposed to be subject to rigor
ous controls, unauthorized harvests reached such a volume by


180
NOTES
i y ^
^Manuel Jos Arce, "Discurso que pronuncio el Presidente
de la Repblica en el Congreso," in Garcia, Arce, I, 557.
2jos/ Cecilio del Valle, "Manifiesto a la nacio*n
Guatemalana," in Garcia, Arce, I, 567-590.
*7 j f
-Federacin de Centroamerica, Conducta pura y areglada
del congreso general de la repblica en la eleccin de las
supremas autoridades federales (Guatemala, 182 5) ; Dictame^n
que 'dio* al Congreso federal de Centro-America una comisin de
su seno, nombrada especialmente para examinar el impreso que
dio^ al publico el ciudadano Jos*1 Antonio Alvarado bajo el
titulo de "Nulidad de la primera eleccin de presidente de
la repblica y medio legal y pacifico de restablacer el orden
constitucional" (Guatemala, 1825) .
^Marure, Bosquejo, I, 218-220 ; Arce, Memoria, pp. 30-31.
^Thompson, Narrative, pp. 323-324; Dunn, Guatimala,
p. 189.
^Ramdn A. Salazar, Manuel Jos/ Arce (Guatemala, 1952) ,
p. 38; Lorenzo Montufar, Resena histrica de Centro America,
7 vols. (Guatemala, 1878-1888), I, 8; Mary P. Holleran,
Church and State in Guatemala (New York, 1949), p. 73.
7Arce, Memoria, p. 28; Marure, Bosquejo, I, 244.
^David Vela, Barrundia ante el espejo de su tiempo, 2
vols. (Guatemala, 1956), I, 192; Chamorro, Historia, p. 52.
Vela offers no explanation for Barrundia's behavior; Chamorro
believes that the Liberals were alienated by Arce's refusal
to place party ahead of country.
^Dunn, Guatimala, pp. 92-93. Dunn charged the Liberals
with a narrow perspective which caused them to "plunge into
new schemes of which they understand nothing. In their zeal
to overthrow all existing institutions, they forget to
separate the good from the bad."
^Thompson, Narrative, p. 252.
Hang, B7.9, leg. 135, ex£. 3145, "Comisin de puntos
constitucionales."
Hibid.; Arce, Memoria, pp. 34-35; Marure, Bosquejo,
I, 249-250.


BIBLIOGRAPHY
Primary Sources
Manuscripts
Archivo Nacional de Guatemala
Since a number of the manuscripts consulted in the
Archivo were untitled, these documents have been arranged
according to their archival classification numbers. The
letters and figures are presented in the order of: seccin,
legajo, expediente, and, in some cases, folio.
Al.l, 6923, 56995. "Varias solicitudes de parte de Don Manuel
Jose* Arce en resueltas de su arresto."
Al.l, 6924, 57003. "Contra D. Manuel Jos' Arce por infidencia
que le resulto en las sublevaciones de 5 de noviembre
de 1811 y 24 de enero de 1814."
Al.l, 6925 57024. "Queja de Don Manuel Jos* de Arze, por
los agravios que le ha inferido el Intendente Ynterino
Don Juan Miguel Bustamante."
Al.l, 6925, 57025. "Da Felipa Aranzamendi Sre. que se reciva
Ynformacion contra el Juez de letras Dn. Juan Miguel
Bustamante."
Al.l, 6926, 57027. "Incidente^de la causa contra D. Man
Jos' de Arce recusacin y apartamento; diligencias
de embargo de bienes a que se opone su herma Da.
Manuela Antonia."
Al.l, 6926, 57032. "Instancia de Manuela Antonia de Arce,
sobre desembargo de bienes suyos y hermanos, por
hallarse pro indivisos los embargados a D. Manuel
Jos'."
Al.l, 6926, 57043. "Don Manuel Jos'Arze reo de Ynfidencia
quejndose de qe. el Juez en comsn. le ha estrechado
el arresto y negando los recursos."
191


118
"^Marure, Bosquejo, I, 139-141.
24Ibid., pp. 141-142.
2^Ibid., p. 145; Montifar y Coronado, Memorias, I,
86. Ariza's second in command Manuel Estrada was less
fortunate as he was captured and hanged for his participa
tion in the revolt.
Pablo Alvarado to Gobierno Superior de Costa Rica,
November 3, 1823, in Garca, Arce, 1^ 291. According to
Alvarado, all of the eleven deputies from Honduras were
Conservatives, and the eight man delegation from Nicaragua
was evenly divided between the two parties. El Salvador
provided the bulk of Liberal strength as all but four of
the Guatemalan deputies were said to be Conservatives.
7 7
Marure, Bosquejo, I, 143.
2 8
Ibid. In order to elect OHoran who was a
Spaniard, the assembly had to repeal the act of July 8 which
restricted membership in the SPE to native born citizens.
7 q
L Alvarado to Gobierno Superior, November 3, 1823, m
Garca, Arce, I, 294.
30
Marure, Bosquej o, I, 146.
Ibid., p. 147. Marure*s contention that the
Liberals intended to use the Salvadoran force as a means for
regaining power appears to be confirmed by the demands which
Rivas presented to the government.
3 2
Alvarado to Gobierno Superior, November 3, 1823, m
Garcia Arce, I, 295; Townsend Ezcurra, Fundacin, p. 236.
33
Marure, Bosquejo, I, 150.
"^Alvarado to Gobierno Superior, November 3, 1823, in
Garcia Arce, I, 297.
^Ibid.; Marure, Bosquej o, I, 150. Rivas did not
return completely empty handed as he stopped in Sonsonate
long enough to secure the district's annexation to San
Salvador.
^"Bases de la Constitucin Federal," in Garcia,
Arce, I, 303-310.
3 7
Alvarado to Gobierno Superior, November 3, 1823, in
Garcia, Arce, I, 299.
^"Bases," in Garcia, Arce, I, 310.



PAGE 1

0$18(/ -26( $5&( $1' 7+( )250$7,21 2) 7+( )('(5$/ 5(38%/,& 2) &(175$/ $0(5,&$ %\ 3+,/,3 )5('(5,&. )/(0,21 $ ',66(57$7,21 35(6(17(' 72 7+( *5$'8$7( &281&,/ 2) 7+( 81,9(56,7< 2) )/25,'$ ,1 3$57,$/ )8/),//0(17 2) 7+( 5(48,5(0(176 )25 7+( '(*5(( 2) '2&725 2) 3+,/2623+< 81,9(56,7< 2) )/25,'$

PAGE 2

fµ&RS\ULJKW E\ 3KLOLS )UHGHULFN )OHPLRQ

PAGE 3

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
PAGE 4

D SHWW\ PDQ ZKRVH DFFRPSOLVKPHQWV ZHUH LQDGHTXDWH IRU WKH GHPDQGV RI KLV RIILFH 'HVSLWH WKH ODFN RI KHURLF DSSHDO FHUWDLQ HQLJPDWLF DVSHFWV RI $UFHnV FDUHHU FRXOG QRW EH LJQRUHG :LWK IXUWKHU VWXG\ LW EHFDPH FOHDU WKDW ZKLOH WKH VWDQGDUG DFFRXQWV ZHUH FULWLFDO WKH QDWXUH RI WKH FULWLFLVP YDULHG 6RPH DXWKRUV WKRXJKW WKDW $UFH ZDV UXWKOHVV DQG YLQGLFWLYH RWKHUV IRXQG WKDW KH ZDV LQGHFLVLYH DQG WLPLG 0RUH LPSRUWDQWO\ QRQH RI WKHVH DXWKRULWLHV RIIHUHG D VDWLVn IDFWRU\ H[SODQDWLRQ IRU WKH IDFW WKDW $UFH DSSHDUV WR KDYH UHYHUVHG KLV SROLWLFDO SRVLWLRQ ZKHQ KH DVVXPHG WKH RIILFH RI 3UHVLGHQW $UFH ZDV LGHQWLILHG LQ WKH SUHQDWLRQDO SHULRG DV D OLEHUDO OHDGHU ZKR ZDV FRPPLWWHG WR 6DOYDGRUDQ DXWRQRP\ $IWHU KLV LQDXJXUDWLRQ KH ZDV VHHQ DV D FRQVHUYDWLYH V\FRSKDQW ZKR FDXVHG D FLYLO ZDU LQ E\ KLV DWWHPSW WR HVWDEOLVK D XQLWDU\ VWDWH 7KH SUHVHQW VWXG\ FRQVWLWXWHV DQ HIIRUW WR UHVROYH WKH LQFRQJUXLWLHV LQ $UFHnV FDUHHU +RSHIXOO\ WKH SXUVXLW RI WKLV REMHFWLYH ZLOO SURYLGH DQ H[SODQDWLRQ IRU ZKDWHYHU VKLIWV RFFXUUHG LQ $UFHnV SROLWLFDO SRVLWLRQ 7KH ZRUN LV QRW LQWHQGHG WR VHUYH DV D FRPSOHWH ELRJUDSKLFDO DFFRXQW ,QVWHDG LWV VFRSH LV OLPLWHG WR DQ DWWHPSW WR GHILQH WKH QDWXUH RI &HQWUDO $PHULFDQ SROLWLFDO G\QDPLFV DQG $UFHnV UHODWLRQVKLS WR WKHVH IRUFHV GXULQJ WKH SHULRG WR 7KH DXWKRU ZRXOG OLNH WR WKDQN KLV &KDLUPDQ 'U /\OH 1 0F$OLVWHU IRU KLV JXLGDQFH DQG DVVLVWDQFH LQ WKH SUHSDUDWLRQ RI WKLV VWXG\ ,9

PAGE 5

7$%/( 2) &217(176 &KDSWHU , ,1752'8&7,21 ,,$5&( $1' 7+( 38568,7 2) &(175$/ $0(5,&$1 ,1'(3(1'(1&( ,,, 7+( &5($7,21 2) 7+( )('(5$/ 5(38%/,& ,9 7+( &217(67 )25 7+( 35(6,'(1&< 9 $5&(n6 35(6,'(1&< $1' 7+( ',65837,21 2) 7+( )('(5$7,21 9, &21&/86,21 %,%/,2*5$3+<

PAGE 6

&+$37(5 , ,1752'8&7,21 2I WKH YDULRXV IDFHWV RI &HQWUDO $PHULFDQ KLVWRU\ QRQH KDV HQJHQGHUHG JUHDWHU LQWHUHVW DPRQJ VFKRODUV WKDQ WKH GLYLVLRQ RI WKH $QFLHQW .LQJGRP RI *XDWHPDOD LQWR ILYH VRYHUHLJQ QDWLRQVr 6XVWDLQHG E\ UHSHDWHG DWWHPSWV WR UHn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n ULHQFH RI &HQWUDO $PHULFD VXJJHVWV D GLVWLQFWO\ UHWURJUDGH PRYHPHQW ZLWK WKH IUDJPHQWDWLRQ RI RQH HQWLW\ LQWR VHYHUDO *LYHQ WKH DSSDUHQW XQLW\ RI WKH FRORQLDO SHULRG LW ZRXOG VHHP WKDW WKH HUHFWLRQ RI VHSDUDWH &HQWUDO $PHULFDQ VWDWHV GHPDQGHG DFWLYH HIIRUWV RQ EHKDOI RI GLVPHPEHUPHQW ZKLOH WKH PXFK SURIHVVHG JRDO RI XQLRQ FRXOG KDYH EHHQ DWWDLQHG E\ VLPSO\ PDLQWDLQLQJ WKH FRORQLDO VWDWXV TXR LQ UHSXEOLFDQ IRUP $V D FRQVHTXHQFH RI WKHVH LQFRQJUXLWLHV D QXPEHU RI ZULWHUV

PAGE 7

KDYH VRXJKW WR DFFRXQW IRU &HQWUDO $PHULFDn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n KHVLYHQHVV RI WKH FRORQLDO UHJLPH :KLOH WKH &DSWDLQF\ *HQHUDO ZDV RQH RI WKH VPDOOHU SROLWLFDO VXEGLYLVLRQV RI WKH HPSLUH LW ZDV E\ QR PHDQV WKRURXJKO\ LQWHJUDWHG *HRJUDSK\ KDG GLFWDWHG RWKHUZLVH 7KH PRVW DWWUDFWLYH DUHDV IRU KDELWDWLRQ DUH VR ORFDWHG WKDW WKH VHWWOHPHQW SURFHVV LQ &HQWUDO $PHULFD OHG WR WKH IDPLOLDU SDWWHUQ RI SRSXODWLRQ FOXVWHUV &RPPXQLWLHV ZHUH JHQHUDOO\ HVWDEOLVKHG LQ WHPSHUn DWH XSODQG YDOOH\V WKDW ZHUH VHSDUDWHG IURP RQH DQRWKHU E\ GLIILFXOW WKRXJK QRW LPSDVVDEOH WHUUDLQ 'XULQJ WKH FRORQLDO SHULRG WKLV SK\VLFDO LVRODWLRQ ZDV IXUWKHU FRPSRXQGHG E\ WKH ODFN RI DQ DGHTXDWH V\VWHP RI WUDQVSRUWDWLRQ DQG FRPPXQLFDn WLRQ ,Q WHUPV RI WLPH *XDWHPDOD ZDV FORVHU WR 0H[LFR &LW\ WKDQ LW ZDV WR &DUWDJR 7KHVH FRQGLWLRQV JDYH ULVH WR D KLJK GHJUHH RI ORFDOLVP QRW RQO\ EHWZHHQ WKH SURYLQFHV EXW ZLWKLQ WKHP DV ZHOO ,W KDV DOVR EHHQ SRLQWHG RXW WKDW WKH &DSWDLQF\

PAGE 8

*HQHUDO RI *XDWHPDOD ZDV OLWWOH PRUH WKDQ DQ DUELWUDU\ XQLW RI WKH 6SDQLVK (PSLUH$W YDULRXV WLPHV LQ LWV HDUO\ KLVWRU\ &HQWUDO $PHULFD ZDV VXEMHFW WR DXWKRULW\ HPDQDWLQJ IURP 6DQWR 'RPLQJR 1HZ 6SDLQ DQG 3DQDPD :KHQ WKH &HQWUDO $PHULFDQ DXGLHQFLD ZDV HVWDEOLVKHG LQ LWV QDPH $XGLHQFLD GH ORV &RQILQHV LQGLFDWHG D ODFN RI SUHFLVLRQ FRQn FHUQLQJ WKH ORFDWLRQ RI WKH FRXQFLO $FFRUGLQJO\ WKH VHDW RI WKH DXGLHQFLD ZDV VKLIWHG WKUHH WLPHV EHIRUH LW ZDV SHUPDn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

PAGE 9

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n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

PAGE 10

E\ WKH &URZQ WR RSHQ DGGLWLRQDO SRUWV ZDV UHLQIRUFHG DV *XDWHPDODQ PHUFKDQWV HVWDEOLVKHG FORVH FRPPHUFLDO DQG LQ VRPH FDVHV IDPLOLDO UHODWLRQVKLSV ZLWK WKH WUDGLQJ KRXVHV RI 6HYLOOH %HWZHHQ WKH VHYHQWHHQWK DQG QLQHWHHQWK FHQWXULHV LQGLJR SURYLGHG WKH FKLHI VRXUFH RI SURYLQFLDO LQFRPH 7KURXJKRXW WKLV SHULRG DQG LQ WKH IDFH RI UR\DO DWWHPSWV WR DVVLVW WKH SURGXFHUV WKURXJK SULFH IL[LQJ WKH *XDWHPDODQ PHUFKDQW ROLJRSRO\ ZDV DEOH WR VHW WKH JRLQJ SULFH IRU LQGLJR 7KH LQGLJR JURZHUV IRXQG DOO SKDVHV RI WKHLU LQn GXVWU\ FRQWUROOHG E\ WKH PHUFKDQW SULQFHV 7KH *XDWHPDODQ WUDGLQJ KRXVHV ZHUH WKH FKLHI LI QRW RQO\ VRXUFH RI FRPn PHUFLDO FUHGLW DQG RYHU WKH \HDUV D NLQG RI FURSOLHQ V\VWHP HYROYHG 7KLV IRUP RI ILQDQFLQJ DSSDUHQWO\ H[WHQGHG DOVR WR WKH SURGXFWLRQ RI JRRGV IRU GRPHVWLF FRQVXPSWLRQ ZKLFK ZHUH HTXDOO\ VXEMHFW WR PHUFDQWLOH SULFH FRQWURO 7KXV SURYLQFLDO UDQFKHUV ZHUH OHJDOO\ UHVWUDLQHG IURP VHHNLQJ DOn WHUQDWLYHV WR WKH *XDWHPDODQ FDWWOH PDUNHWA 7KH UHVHQWPHQW HQJHQGHUHG E\ WKLV HFRQRPLF GRPLQDWLRQ ZDV FOHDUO\ LQGLFDWHG LQ WKH SURYLQFLDO FRPSODLQW WKDW *XDWHPDODQ PHUFKDQWV GUHVV XV DW SULFHV WKDW NHHS XV PRUH QXGH WKDQ FORWKHG6XFK DQWDJRQLVP XQTXHVWLRQDEO\ GLPPHG WKH SURVSHFWV IRU SRVWn LQGHSHQGHQFH FRRSHUDWLRQ EHWZHHQ *XDWHPDOD DQG WKH SURYLQFHV ,W LV JHQHUDOO\ DJUHHG WKDW UHOLJLRQ VHUYHG DV D GLYLn VLYH UDWKHU WKDQ XQLI\LQJ IRUFH LQ &HQWUDO $PHULFD )RU WKH SHULRG XQGHU FRQVLGHUDWLRQ WKLV GLVUXSWLYH WHQGHQF\ DURVH SULPDULO\ IURP WKH HSLVFRSDO SUHWHQVLRQV RI (O 6DOYDGRU ,Q

PAGE 11

WHUPV RI ZHDOWK DQG SRSXODWLRQ WKH SURYLQFH ZDV VHFRQG RQO\ WR *XDWHPDOD DQG RI DOO WKH SURYLQFHV (O 6DOYDGRU PRVW HQYLHG DQG UHVHQWHG WKH SURPLQHQFH RI WKH FDSLWDO 7KH GHPDQG IRU WKH HUHFWLRQ RI D ELVKRSULF LQ (O 6DOYDGRU ZDV QRW KRZHYHU VROHO\ D PDWWHU RI SUHVWLJH ,Q WKH HLJKWHHQWK FHQn WXU\ %LVKRS &RUWHV \ /DUUD] KDG LQIRUPHG &KDUOHV ,,, WKDW (O 6DOYDGRU QRW RQO\ ZDV FDSDEOH RI VXSSRUWLQJ D GLRFHVH EXW DOVR WKDW WKH SDVWRUDO QHHGV RI WKH SURYLQFH ZHUH LQDGH TXDWHO\ VHUYHG IURP *XDWHPDOD $V LQGHSHQGHQFH IURP 6SDLQ DSSURDFKHG 6DOYDGRUH³RV JUHZ LQFUHDVLQJO\ FRQYLQFHG RI WKH YDOLGLW\ RI WKLV FODLP DQG IUXVWUDWHG E\ WKH LQDFWLRQ RI ] I UHOLJLRXV DXWKRULWLHV 7KH DPELWLRQV RI )DWKHU -RVH 0DW¯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f¬V XQKDSS\

PAGE 12

? H[SHULHQFH ZLWK IHGHUDOLVP LV RIWHQ DWWULEXWHG WR WKH &RQn VWLWXWLRQ SURPXOJDWHG LQ &ULWLFLVP RI WKH &RQVWLWXWLRQ WDNHV VHYHUDO IRUPV 2Q WKH RQH KDQG LW LV FODLPHG WKDW WKH DXWKRULW\ JUDQWHG WR WKH VWDWHV ZDV VR JHQHURXV DV WR HQFRXUn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n EHU RI WKH &HQWUDO $PHULFDQ FRQVWLWXHQW DVVHPEO\ UDLVHG WKLV LVVXH SULRU WR WKH DGRSWLRQ RI WKH RUJDQLF ODZ ,W ZDV DUJXHG WKDW WKH LQKDELWDQWV RI WKH LQIDQW QDWLRQ KDG QRW DWWDLQHG WKH OHYHO RI FXOWXUH UHTXLVLWH IRU WKH EXUGHQV RI UHVSRQVLEOH FLWL]HQVKLS DQG WKDW WKH UHVHUYRLU RI FRPSHWHQW LQGLYLGXDOV ZDV LQDGHTXDWH IRU WKH QXPEHU RI SXEOLF RIILFLDOV UHTXLUHG E\ D IHGHUDO IRUP RI JRYHUQPHQWA ,QDVPXFK DV DOO RI WKH QDWXUDO ERUQ LQKDELWDQWV RYHU WKH DJH RI HLJKWHHQ ZHUH JUDQWHG WKH ULJKWV DQG GXWLHV RI FLWL]HQVKLS WKH ILUVW FKDUJH LV FHUWDLQO\ YDOLG $ FRQWHPSRUDU\ REVHUYHU UHSRUWHG WKDW OHVV

PAGE 13

WKDQ WKLUW\ SHU FHQW RI WKH SRSXODWLRQ SRVVHVVHG DQ\ SROLWLFDO RSLQLRQV *LYHQ WKH ODUJH SURSRUWLRQ RI LQGLJHQRXV SHRSOHV WKLV HVWLPDWH PXVW EH FRQVLGHUHG RYHUO\ RSWLPLVWLF 7KH ZRUWK RI WKH VHFRQG FULWLFLVP LV GLIILFXOW WR DVVHVV ,Q DQ\ FDVH LW DSSHDUV WKDW D SULPDU\ FRQVHTXHQFH RI WKH IHGHUDO H[SHULPHQW ZDV WKH SUROLIHUDWLRQ RI ORFDO HPSLUH EXLOGHUV 2I WKH PDMRU REVWDFOHV WR VXFFHVVIXO IHGHUDWLRQ WKHUH UHPDLQ WR EH QRWHG &HQWUDO $PHULFDf¬V FKURQLF ILVFDO GLIILn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n DWLRQ LQ LW ZDV IDFHG ZLWK D GHEW WKDW KDG JURZQ WR 4 SHVRV 5HVSRQVLELOLW\ IRU WKH IHGHUDWLRQf¬V PRQH\ SUREOHPV FDQQRW EH SODFHG RQ WKH &RQVWLWXWLRQ ZKLFK JDYH WKH FHQWUDO JRYHUQPHQW DGHTXDWH SRZHU WR UDLVH UHYHQXH 7KH &RQJUHVV ZDV DXWKRUL]HG WR UDLVH IXQGV E\ PHDQV RI GXWLHV RQ IRUHLJQ WUDGH LQWHUQDO WD[HV DQG IRUHLJQ DQG GRPHVWLF ORDQV 7KH IHGHUDO JRYHUQPHQW DOVR UHWDLQHG WKH H[HUFLVH RI FHUWDLQ PRQRSROLHV WKH PRVW LPSRUWDQW RI ZKLFK ZDV WKH SURGXFWLRQ DQG VDOH RI

PAGE 14

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f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n FDO OLQHV ,Q UHVSRQVH WR HPHUJLQJ LVVXHV H[SHGLHQF\ ZDV WKH SULPH IDFWRU LQ GHWHUPLQLQJ WKH IRUPDWLRQ RI ERGLHV ZKRVH PHPEHUVKLS FXW DFURVV WKH VWDQGDUG OLQHV RI FODVV DQG LQWHUn HVW $V WKH QDWXUH RI WKHVH DVVRFLDWLRQV PDNHV WKHP VXEMHFW WR FRQVLGHUDEOH FRQIXVLRQ DQ DWWHPSW WR GHILQH WKHLU FKDUn DFWHU DQG GHYHORSPHQW DSSHDUVn DGYLVDEOH

PAGE 15

7R EHJLQ ZLWK &HQWUDO $PHULFD H[KLELWHG WKH FRQIOLFW W\SLFDOO\ IRXQG EHWZHHQ FUHROH DQG SHQLQVXODU 7KLV GLYLn VLRQ LV UHDGLO\ FRPSUHKHQGHG LQ WKH IDPLOLDU URRW RI FUHROH HQY\ RI WKH SHQLQVXODUn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n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nV RQO\ WLWOH RI QRELOLW\ LQ WKLV IDPLO\ SURYHG TXLWH SUROLILF DQG WKURXJK LQWHUPDUULDJH FDPH WR LQFOXGH WKH $VWXULDV $UULYLOODJD %DUUXWLD %DWUHV %HOWUDQHQD /DUUDYH 0RQWXIDU

PAGE 16

0X³R] 1DMHUD 3DORPR 3DYµQ 3LQRO 6DUDYLD DQG 8UUXHOD IDPLOLHV 7KH HFRQRPLF SRZHU RI WKLV HOLWH OHG WR VXFK D GHJUHH RI VRFLDO SUHVWLJH DQG SROLWLFDO SUHIHUHQFH WKDW E\ WKH f¬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n SHDUDQFH RI WKH ILUVW SROLWLFDO SDUWLHV ZDV SDUWO\ D SURGXFW RI WKH IDPLO\nV H[LVWHQFH 7R D GHJUHH WKH SROLWLFDO SRODUL]DWLRQ DURXVHG E\ WKH *XDWHPDODQ DULVWRFUDF\ ZDV m DXVHG E\ LWV VRFLDO SUHWHQWLRQV EXW HFRQRPLFV SURYLGHG D PRUH VXEVWDQWLDO IRXQGDWLRQ IRU FRQIOLFW EHWZHHQ WKH IDPLO\ DQG LWV RSSRQHQWV 'XH WR LQFUHDVLQJ FRPSHWLWLRQ DQG QDWXUDO GLVDVWHUV WKH GHFDGH EHIRUH PDUNHG WKH EHJLQQLQJ RI D VWHDG\ GHFOLQH LQ WKH LQGLJR WUDGH )DFHG ZLWK D FRQFRPLWDQW GURS LQ LQFRPH WKH PHUFKDQWV RI WKH $\FLQHQD IDPLO\ EHFDPH IDYRUn DEO\ GLVSRVHG WRZDUGV IXUWKHU PRGLILFDWLRQV LQ 6SDLQf¬V PHUn FDQWLOH SROLFLHV ZKLFK ZRXOG SURYLGH H[SDQGHG RSSRUWXQLWLHV IRU RYHUVHDV WUDGH $OWKRXJK WKH $\FLQHQDV GRPLQDWHG WKH

PAGE 17

*XDWHPDODQ FRQVXODGR IRU D EULHI SHULRG IROORZLQJ LWV HVWDEOLVKPHQW LQ FRQWURO RI WKH LQVWLWXWLRQ KDG JUDGXn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f¬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

PAGE 18

*XDWHPDODQ DULVWRFUDF\ GLG DVVLVW LQ WKH ODWHU IRUPDWLRQ RI SROLWLFDO DVVRFLDWLRQV 7KH HDUO\ OLEHUDOLVP FDPH WR EH UHYHDOHG DV DQ H[SHGLHQW RI VHOILQWHUHVW DQG WKH IDPLO\ SURn YLGHG WKH QXFOHXV IRU WKH RUJDQL]DWLRQ RI D FRQVHUYDWLYH DOOLDQFH DIWHU WKH HVWDEOLVKPHQW RI LQGHSHQGHQFH 7KH UHVWRUDWLRQ RI WKH &RQVWLWXWLRQ RI IROORZLQJ WKH 5LHJR UHEHOOLRQ SURYLGHG DQ HQYLURPHQW LQ ZKLFK FUHROH DWWLWXGHV FRXOG EH PRUH FOHDUO\ H[SUHVVHG ,Q WKH VSULQJ RI WKH DFFXPXODWLRQ RI WKHLU GLVFRQWHQW ZDV JLYHQ VXEVWDQFH LQ WKH IRUPDWLRQ RI D WHUWXOLD ZKLFK PHW LQ WKH KRPH RI -RVH 0DULD &DVWLOOD 7KH FRPSRVLWLRQ RI WKLV WHUWXOLD ZKRVH PHPn EHUV LQFOXGHG -RVH )UDQFLVFR %DUUXQGLD 0DQXHO 0RQWXIDU -XDQ 0RQWXIDU 3HGUR 0ROLQD 0DUFLDO =HEDGXD -RVH %HWHWD DQG 9LFHQWH *DUFLD *UDQDGRV DQQRXQFHG WKH IRUPDWLRQ RI DQ DOOLn DQFH EHWZHHQ WKH *XDWHPDODQ DULVWRFUDF\ DQG WKDW VWUDWXP RI VRFLHW\ ODUJHO\ PLGGOH FODVV SURIHVVLRQDOVf ZKLFK KDG EHFRPH LPEXHG ZLWK LGHDOV RI QLQHWHHQWK FHQWXU\ OLEHUDOLVP r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

PAGE 19

DWWHPSWHG WR FDWHFKL]H WKH FLWL]HQU\ LQ LWV ULJKWV XQGHU WKH UHVWRUHG FRQVWLWXWLRQ 7KH FRQFHUQ ZLWK OLEHUDOL]DWLRQ RI WUDGH EHFDPH HYLGHQW LQ WKH VHYHQWK QXPEHU RI WKH SDSHU ZKLFK LQWURGXFHG D GLDORJXH RQ WKH VXEMHFW FRQGXFWHG E\ WKH WUXH SDWULRW DQG WKH OLEHUDO 6SDQLDUG 7KH LPPHGLDWH SROLWLFDO REMHFWLYH RI (O HGLWRU FHQWHUHG RQ WKH HOHFWLRQV EHLQJ KHOG IRU VHDWV RQ WKH D\XQWDPLHQWRV DQG WKH GLSXWDFLµQ SURYLQFLDO 7KH DGKHUHQWV RI WKH WHUWXOLD SRSXODUO\ NQRZQ DV &DFRV WKLHYHVf SUHVHQWHG D VODWH RI FDQn GLGDWHV ZKLFK ZDV RSSRVHG E\ D FRQVHUYDWLYHO\ RULHQWHG IDFWLRQ ZKLFK 0ROLQD WDJJHG ZLWK QDPHV %DFRV GUXQNVf DQG 6HUYLOHV 2I WKH WZR WKH ODWWHU QDPH SURYHG PRUH GXUDEOH DV LW ZDV DSSOLHG WR FRQVHUYDWLYHV DIWHU WKH IRUPDWLRQ RI WKH IHGHUDWLRQ 7KH JHQXLQH OLEHUDOV DPRQJ WKH &DFRV FDPH WR EH NQRZQ DV )LHEUHVf 7KH %DFRV ZHUH OHG E\ -RVHA &HFLOLR GHO 9DOOH DQG WKHLU YLHZV ZHUH FDUULHG LQ WKH QHZVSDSHU (O DPLJR GH OD SDWULD $SDUW IURP DWWDFNV RQ WKH DULVWRFUDF\ (O DPLJR SXUn VXHG D PRGHUDWH FRXUVH DGYRFDWLQJ DGKHUHQFH WR WKH &RQVWLWXn WLRQ RI UHVSHFW IRU SURSHUW\ ULJKWV DQG FDXWLRXV UHIRUPV ZKLFK ZRXOG FRQWULEXWH WR WKH GHYHORSPHQW RI WKH FRORQ\ 6XSSRUW IRU WKH %DFRV FDPH IURP WKH SHQLQVXODUHV FUHROHV H[FOXGHG IURP WKH IDPLO\ DQG DUWLVDQV DQG PHUFKDQWV ZKR KDYLQJ VXIIHUHG IURP WKH FRQWUDEDQG WUDGH FDUULHG RQ ZLWK WKH %ULWLVK DW :DOLV RSSRVHG IUHH WUDGH 7KH HOHFWLRQV RI FRQGXFWHG WKURXJKRXW WKH IDOO ZHUH VXEMHFW WR FKDUJHV DQG FRXQWHUFKDUJHV LQWULJXHV DQG FRHUFLRQ 'HVSLWH 0ROLQDnV HGLWRULDO FDPSDLJQ DQG WKH

PAGE 20

DWWHPSWV RI WKH DULVWRFUDF\ WR LQIOXHQFH LWV LQIHULRUV WKH SRVLWLRQ RI WKH %DFRV ZDV DSSURYHG E\ WKH HOHFWRUDWH DV WKH SDUW\ ZRQ D PDMRULW\ RI D\XQWDPLHQWR VHDWV %XW WKH HIIRUWV RI WKH &DFRV GLG QRW JR HQWLUHO\ XQUHZDUGHG &RQWURO RI WKH GLSXWDFLµQ IHOO WR V\PSDWKHWLF SURYLQFLDQRV IRUHPRVW RI ZKRP ZDV -RVH 0DW¯DV 'HOJDGR:KDWHYHU WKH GHJUHH RI IDLOXUH VXIIHUHG DW WKH SROOV &DFR DUGRU ZHQW XQGLPPHG DQG WKH SDJHV RI (O HGLWRU JUHZ SURJUHVVLYHO\ PRUH IRUWKULJKW LQ DGYRFDWLQJ VHSDUDWLRQ IURP 6SDLQ 0ROLQD UDLVHG D FRQVLGHUDEOH IXURU LQ HDUO\ -XQH ZKHQ KH SXEOLVKHG DQ DFFRXQW RI DQ LPDJLQDU\ MRXUn QH\ WR D ODQG UXOHG E\ D W\UDQW QDPHG 2GQDQUHI OH 2WDUJQL 7KRXJK WKH\ PD\ KDYH EHHQ JXLOW\ RI OHVH PDMHVW\ WKH &DFRV KDG ERWK WLPH DQG $JXVW¯Q GH ,WXUELGH RQ WKHLU VLGH ,QLWLDOO\ WKH UHVSRQVH RI &HQWUDO $PHULFDQV WR ,WXUELGHnV 3ODQ RI ,JXDOD ZDV ODUJHO\ QHJDWLYH 2Q $SULO *DELQR *DLQ]D WKH DFWLQJ &DSWDLQ *HQHUDO LVVXHG D SURn FODPDWLRQ GHQRXQFLQJ WKH 0H[LFDQ XSVWDUW EXW ,WXUELGHf¬V H[DPSOH SURYHG WR EH LQFUHDVLQJO\ DWWUDFWLYH WR *DLQ]Df¬V IROORZHUVA 2YHU WKH VXPPHU WKH GLVWDQFH EHWZHHQ WKH &DFRV DQG WKH %DFRV RQ WKH TXHVWLRQ RI LQGHSHQGHQFH GLPLQLVKHG FRQn VLGHUDEO\ DV HYHQ D QXPEHU RI SHQLQVXODUHV EHFDPH FRQYLQFHG RI WKH DGYDQWDJHV RI LQGHSHQGHQFH 0RVW DXWKRULWLHV YLHZ WKH VKLIW LQ DWWLWXGHV DV DQ HFKR RI WKH UHDFWLRQ RI 0H[LFDQ FRQn VHUYDWLYHV WR WKH FRXUVH RI HYHQWV LQ 6SDLQ 2I FRXUVH QRQH RI WKH OLEHUDOV ZHUH VR HQWKUDOOHG E\ WKH YLVLRQ RI 6SDQLVK OLEHUDOLVP WKDW WKH\ ZHUH FDXVHG WR RSSRVH LQGHSHQGHQFH %\ 6HSWHPEHU WKH SDWK IRU &HQWUDO $PHULFD KDG EHHQ

PAGE 21

FOHDUO\ PDUNHG EXW WKH &DFRV WRRN QR FKDQFHV DQG RQ WKH HYHQLQJ RI 6HSWHPEHU WKH FLW\ RI *XDWHPDOD ZDV WUHDWHG WR WKH VLJKW RI WKH DULVWRFUDWLF 0DULDQR $\FLQHQD DQG WKH LOOHn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n GUDZDO RI DOOHJLDQFH IURP )HUGLQDQG 9,, ZDV QRW LUUHYRFDEOH WKHUH ZDV OLWWOH VLJQLILFDQW FKDQJH LQ WKH JRYHUQPHQW RI WKH QHZ QDWLRQ *DLQ]D FRQWLQXHG WR H[HUFLVH H[HFXWLYH DXWKRULW\ DQG RWKHU SXEOLF RIILFLDOV UHWDLQHG WKHLU SRVLWLRQV 7KH HVWDEOLVKPHQW RI LQGHSHQGHQFH LPPHGLDWHO\ OHG WR WKH UHVWUXFWXULQJ RI SROLWLFDO DOOLDQFHV 7KH $FW RI ,QGHn SHQGHQFH SURYLGHG IRU WKH DGGLWLRQ RI ILYH PHPEHUV WR WKH GLVSXWDFLµQ SURYLQFLDO ZKLFK ZRXOG WKHQ DVVXPH OHJLVODWLYH

PAGE 22

UHVSRQVLELOLWLHV DV WKH MXQWD SURYLVLRQDO FRQVXOWLYD 7KH RQO\ &DFRV JUDQWHG VHDWV RQ WKH MXQWD ZHUH DULVWRFUDWV DQG WKHVH LQGLYLGXDOV ZHUH XQGRXEWHGO\ GLVPD\HG E\ WKH IDFW WKDW WKH &DFR OLEHUDOV -RVH )UDQFLVFR %DUUXQGLD 3HGUR 0ROLQD DQG -RVH )UDQFLVFR &RUGRYD DVVXPHG WKH UROH RI WULEXQHV LQ WKH SXEOLF PHHWLQJV RI WKH MXQWD 7KH OLEHUDOV GHPDQGHG WKDW 6SDQLVK RIILFLDOV EH UHSODFHG E\ FUHROH SDWULRWV WKDW WKH GLUHFWLRQ RI WKH JRYHUQPHQW EH LQ DFFRUG ZLWK WKH ZLVKHV RI WKH SRSXODFH DQG WKDW SRVLWLYH DFWLRQ EH WDNHQ RQ WKH TXHV WLRQ RI DEVROXWH LQGHSHQGHQFH 7KHVH UHTXHVWV ZHUH KDUGO\ LQ DFFRUG ZLWK WKH DLPV RI WKH DULVWRFUDWV DQG WKH JXOI EHWZHHQ WKHP DQG WKHLU IRUPHU DOOLHV ZDV GHPRQVWUDWHG RQ 6HSWHPEHU ZKHQ WKH PHHWLQJV RI WKH MXQWD ZHUH KHQFHIRUWK FORVHG WR WKH SXEOLF /HIW WR WKHLU RZQ GHYLFHV WKH OLEHUDOV FRQILUPHG WKH SROLWLFDO UHDOLJQPHQW ZLWK WKH IRUPDn WLRQ RI WKH 7HUWXOLD 3DWULµWLFD RQ 2FWREHU 7KH EDVLV IRU WKH IRUPDWLRQ RI QHZ SROLWLFDO WLHV ZDV SURYLGHG E\ WKH LVVXH RI &HQWUDO $PHULFDnV UHODWLRQVKLS ZLWK 0H[LFR 7KH LQKHUHQW RSSRUWXQLVP RI WKH DULVWRFUDF\nV DGYRn FDF\ RI LQGHSHQGHQFH ZDV FOHDUO\ H[SRVHG E\ WKH LQJUDWLDWLQJ OHWWHUV VHQW WR ,WXUELGH E\ 0DULDQR $\FLQHQD 7KLV FRUUHVn SRQGHQFH GHPRQVWUDWHG WKDW WKH PHPEHUV RI WKH IDPLO\ ZHUH PRUH WKDQ ZLOOLQJ WR WUDGH LQGHSHQGHQFH IRU DSSURSULDWH KRQRUV DQG PRQHWDU\ UHZDUGV 7KH DULVWRFUDWV ZHUH MRLQHG LQ WKHLU HIIRUWV RQ EHKDOI RI DQQH[DWLRQ WR 0H[LFR E\ IRUPHU RSSRQHQWV RI LQGHSHQGHQFH VXFK DV $UFKELVKRS 5DPRQ &DVDXV \ 7RUUHV &RQYLQFHG RI WKH WKUHDW RI OLEHUDO UHIRUPV WKHVH LQGLYLGXDOV

PAGE 23

EHOLHYHG WKDW WKH HVWDEOLVKHG RUGHU RI SRVLWLRQ DQG SUHVWLJH FRXOG EH EHVW SUHVHUYHG WKURXJK XQLRQ ZLWK 0H[LFR 7KLV LV QRW WR VD\ KRZHYHU WKDW VHOILQWHUHVW ZDV WKH VROH PRWLYDn WLRQ RI ,WXUELGHf¬V &HQWUDO $PHULFDQ IULHQGV 0DQ\ VKDUHG WKH FRQYLFWLRQ RI VXFK OLEHUDOV DV 0DULDQR *DOYH] DQG &LULOR )ORUHV ZKR EHOLHYHG WKDW &HQWUDO $PHULFD ZDV WRWDOO\ XQSUHn SDUHG IRU LQGHSHQGHQW H[LVWHQFHA 2SSRVLWLRQ WR DQQH[DWLRQ ZDV FHQWHUHG LQ WKH 7HUWXOLD 3DWULµWLFD ZKRVH PHPEHUV UHJDUGHG WKH DVSLUDWLRQV RI WKH LPSHULDOLVWDV DV OLWWOH EHWWHU WKDQ WUHDVRQRXV ,Q DQ DGGUHVV GHOLYHUHG EHIRUH WKH 7HUWXOLD RQ 1RYHPEHU -RVA )UDQFLVFR &RUGRYD DFNQRZOHGJHG WKH SHUILG\ RI WKH DULVWRFUDWV DQG GHQRXQFHG WKH 3ODQ RI ,JXDOD DV D SUHWH[W RI WKH DPELWLRXV DQG HQHPLHV RI LQGHn SHQGHQFH IRU UHVLVWLQJ RXU DEVROXWH OLEHUW\ DQG KDV EHHQ WKH PHDQV ZKLFK WKH\ KDYH DGRSWHG DV WKH ODVW UHFRXUVH IRU PDQDJLQJ PLVOHDGLQJ DQG FRUUXSWLQJ WKH LQWHQWLRQV RI WKH SHRSOHA 7KH H[SUHVVLRQ RI VXFK VHQWLPHQWV OHG WR DEXVH DQG EORRGVKHG EXW WKH *XDWHPDODQ OLEHUDOV KDG VRPH FRQVRODWLRQ LQ WKH IDFW WKDW WKH\ ZHUH QRW DORQH LQ WKHLU UHVLVWDQFH WR DQQH[DWLRQ &RVWD 5LFD UHPDLQHG DORRI DQG *UDQDGD DQG 7HJXFLJDOSD DFn WLYHO\ RSSRVHG XQLRQ ZLWK 0H[LFR 7KH ERQG ZLWK 6DOYDGRUDQV ERUQ RI WKH XSULVLQJV RI DQG ZDV UHFRQILUPHG E\ WKH DUPHG RSSRVLWLRQ WR ,WXUELGH RIIHUHG E\ WKH 6DOYDGRUDQ DUP\
PAGE 24

IROORZLQJ IRXUWHHQ PRQWKV WKH SROLWLFDO GHYHORSPHQW RI &HQWUDO $PHULFD UHPDLQHG LQ D VWDWH RI VXVSHQVLRQ )ROORZLQJ WKH GRZQIDOO RI ,WXUELGH SROLWLFDO PDQHX YHULQJ UHVXPHG ZKHQ ,WXUELGHf¬V DJHQW 9LFHQWH )LOLVROD FRQn YRNHG WKH FRQJUHVV RULJLQDOO\ RUGHUHG E\ WKH $FW RI ,QGHSHQGHQFH ([FHSW IRU WKH GHFLVLRQ RI WKH PRUH DUGHQW VXSSRUWHUV RI WKH (PSLUH WR ER\FRWW WKH HOHFWLRQV WKH SROLWLFDO VLWXDWLRQ LQ &HQWUDO $PHULFD GXULQJ WKH VSULQJ PRQWKV FDQ RQO\ EH GHVFULEHG DV D FRQJORPHUDWH RI LOOGHILQHG SRVLWLRQV $FFRUGLQJ WR $OHMDQGUR 0DUXUH WKH HDUOLHU SDWULRWV HVSD³ROLVWDV %DFRV &DFRV LPSHULDOLVWDV DQG RSSRQHQWV RI DQQH[DWLRQ ZHUH QRW DEOH WR VRUW WKHPVHOYHV RXW SURSHUO\ XQWLO DIWHU WKH $VDPEOHD 1DFLRQDO &RQVWLWX\HQWH FRQYHQHG RQ -XQH A 7KH TXHVWLRQ RI LQGHSHQGHQFH ZDV WKH ILUVW FRQFHUQ RI WKH DVVHPEO\ DQG ZKLOH WKLV LVVXH ZDV XQGHU FRQVLGHUDWLRQ WKH GHOHJDWHV ZHUH ODUJHO\ RI WKH VDPH PLQG )ROORZLQJ WKH SURFODPDWLRQ RI DEVROXWH LQGHSHQGn HQFH IURP 6SDLQ DQG 0H[LFR WKH PHPEHUV RI WKH DVVHPEO\ EHJDQ WR OLQH XS LQ /LEHUDO DQG &RQVHUYDWLYH IDFWLRQV 7KH /LEHUDOV NQRZQ WR WKHLU HQHPLHV DV ILHEUHV RU DQDUTXLVWDV ZHUH IRU WKH PRVW SDUW 6DOYDGRUDQV DQG IRUPHU PHPEHUV RI WKH 7HUWXOLD 3DWULµWLFD 7KH &RQVHUYDWLYHV FDOOHG VHUYLOHV RU DULVWµFUDWDV E\ WKH /LEHUDOV ZHUH JHQHUDOO\ PHPEHUV RI WKH DULVWRFUDF\ RU *XDWHPDODQV ZKR IHDUHG SRVVLEOH GRPLQDWLRQ E\ WKH SURYLQFHVAp 7KH SUHFLVH GHJUHH RI GLIIHUHQFH EHWZHHQ /LEHUDO DQG &RQVHUYDWLYH WKRXJKW LV GLIILFXOW WR GHWHUPLQH ,Q JHQHUDO WHUPV WKH /LEHUDOV KRSHG WR DFKLHYH VRFLDO UHIRUP DLPHG

PAGE 25

SULPDULO\ DW OHYHOLQJ GLVWLQFWLRQV ZLWKLQ WKH FUHROH FRPn PXQLW\f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nV WULXPSK LQ WKH TXHVWLRQ RI UHOLJLRQ ZDV WKH EDVLF LQJUHGLHQW LQ WKH FRQIOLFW 7KH EHVW LQGLFDWLRQ IRU GLVWLQJXLVKLQJ D ILHEUH IURP D PRGHUDGR FRPHV LQ D TXDUWHU KRXU RI FRQYHUVDn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n6XSUHPR 3RGHU (MHFXWLYR $QWLFLSDWLQJ WKH

PAGE 26

VSRLOV V\VWHP WKH SDUW\ UHSODFHG DOO FLYLO VHUYDQWV ZKR KHOG RIILFH XQGHU WKH 6SDQLVK RU 0H[LFDQ JRYHUQPHQWV 7KH /LEHUDOV DOVR SDVVHG ODZV ZKLFK HOLPLQDWHG DOO WLWOHV RI GLVWLQFWLRQ LQFOXGLQJ WKH XELTXLWRXV 'RQf DQG UHPRYHG DOO UHVWULFWLRQV RQ WKH LPSRUWDWLRQ RI SULQWHG PDWHULDOV )ROORZLQJ WKH ILUVW &HQWUDO $PHULFDQ EDUUDFNV UHYROW RQ 6HSWHPEHU FRQn WURO RI WKH SURYLVLRQDO JRYHUQPHQW VKLIWHG WR WKH KDQGV RI WKH &RQVHUYDWLYHV DV WKHLU SRVLWLRQ LQ WKH DVVHPEO\ ZDV VWUHQJWKHQHG ZLWK WKH DUULYDO RI GHOHJDWHV IURP 1LFDUDJXD DQG +RQGXUDV 3DEOR $OYDUDGR D /LEHUDO IURP &RVWD 5LFD ODWHU UHSRUWHG WKDW WKH &RQVHUYDWLYHV RXWQXPEHUHG WKH /LEHUDOV IRUW\VL[ WR HLJKWHHQA
PAGE 27

KDYH EHHQ LQ WKH QDWXUH RI D FRQGLWLRQHG UHIOH[ WR DQ\WKLQJ DVVRFLDWHG ZLWK OLEHUDOLVP 7KH UHFRUG RI WKH FRQVWLWXHQW DVVHPEO\ LQGLFDWHV WKDW WKH /LEHUDO&RQVHUYDWLYH FRQIOLFW ZKLFK FRQWLQXHG WKURXJKRXW WKH OLIH RI WKH IHGHUDWLRQ ZDV EDVHG QRW VR PXFK RQ LUUHFRQFLODEOH GLIIHUHQFHV DV LW ZDV RQ SHUVRQDO HQPLWLHV DQG VLPSOH VWUXJJOHV IRU SRZHU $ ILQDO FRPPHQW RQ WKH SROLWLFV RI WKH IHGHUDWLRQ FRQn FHUQV WKH JHRJUDSKLF RULHQWDWLRQ RI SROLWLFDO DOLJQPHQWV $IWHU WKH RXWEUHDN RI FLYLO ZDU LQ *XDWHPDOD ZDV GRPLn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n LVWLF RI &RQVHUYDWLYHV DQG *XDWHPDODQV 8QGHUVWDQGDEO\ WKHUH LV D VWURQJ LQFOLQDWLRQ WR PHUJH WKH HOHPHQWV RI WKHVH WZR SURSRVLWLRQV 7KH HDVH ZLWK ZKLFK WKLV PD\ EH GRQH HQFRXUn DJHV VXFK VWDWHPHQWV DV WKHUH ZDV D PDUNHG FOHDYDJH EHn WZHHQ *XDWHPDODQ FRQVHUYDWLYHV ZKR DGYRFDWHG FHQWUDOLVP DQG WKH OLEHUDO HOHPHQWV IURP WKH RWKHU SURYLQFHV ZKR IDYRUHG D n IHGHUDWLRQ :KLOH WKH VHQVH RI WKLV REVHUYDWLRQ LV QRW LPSURSHU LW KDV WKH HIIHFW RI UHLQIRUFLQJ WKH LGHD WKDW *XDWHPDODQV

PAGE 28

ZHUH &RQVHUYDWLYHV DQG SURYLQFLDQRV ZHUH /LEHUDOV 6XFK D FRQFOXVLRQ KRZHYHU LV QRW ZDUUDQWHG E\ WKH IDFWV 2I WKH IRXU /LEHUDOV ZKR GUDIWHG WKH EDVLF VWUXFWXUH RI WKH JRYHUQn PHQW WKUHH -RV« )UDQFLVFR %DUUXQGLD 3HGUR 0ROLQD DQG 0DULDQR *DOYH] ZHUH *XDWHPDODQV DQG RQH -RVH 0DWLDV 'HOJDGR ZDV D SURYLQFLDQRA LW VKRXOG DOVR EH QRWHG WKDW WKH &RQn VHUYDWLYHV GLG QRW REWDLQ D PDMRULW\ LQ WKH FRQVWLWXHQW DVVHPEO\ XQWLO DIWHU WKH DUULYDO RI WKH GHOHJDWHV IURP WKH RXWO\LQJ SURYLQFHV 8QGRXEWHGO\ WKH SROLWLFDO RXWORRN RI WKH SURYLQFLDO &RQVHUYDWLYHV ZDV PRGHUDWHG E\ WKH WUDGLWLRQn DO UHVHQWPHQW RI *XDWHPDODf¬V GRPLQDQFH 7KXV LW DSSHDUV WKDW VXSSRUW IRU IHGHUDOLVP ZDV UHVWULFWHG QHLWKHU WR /LEHUDOV QRU SURYLQFLDQRV DQG WKH GHFLVLRQ WR HVWDEOLVK D IHGHUDO JRYHUQPHQW ZDV DFKLHYHG DV *XDWHPDODQ &RQVHUYDWLYHV ZHUH RXWn YRWHG E\ SURYLQFLDO &RQVHUYDWLYHV DQG /LEHUDOV IURP DOO DUHDV

PAGE 29

127(6 A$OWKRXJK WKH DUHD ZDV WHFKQLFDOO\ D &DSWDLQF\ *HQHUDO LW ZDV FRPPRQO\ UHIHUUHG WR DV HO UHLQRr A*HRUJH $OH[DQGHU 7KRPSVRQ 1DUUDWLYH RI DQ 2IILFLDO 9LVLW WR *XDWHPDOD IURP 0H[LFR /RQGRQ f S 7KRPDV / .DUQHV 7KH )DLOXUH RI 8QLRQ &HQWUDO $PHULFD &KDSHO +LOO f S A&ODUHQFH + +DULQJ 7KH 6SDQLVK (PSLUH LQ $PHULFD 1HZ
PAGE 30

$OHMDQGUR 0DUXUH %RVTXHMR KLVWµULFR GH ODV UHYRn OXFLRQHV GH &HQWUR $PHULFD GHVGH KDVWD YROV *XDWHPDOD f 7KRPSVRQ 1DUUDWLYH S ,W LV DVVXPHG WKDW WKH ,QGLDQ SRSXODWLRQ ZDV WKHQ QR OHVV GLYRUFHG IURP QDWLRQDO OLIH WKDQ LW LV WRGD\ DQG WKDW LW IRUPHUO\ FRQVWLWXWHG D PXFK ODUJHU SURSRUWLRQ RI WKH SRSXODn WLRQ $W WKH SUHVHQW WLPH (O 6DOYDGRU LV WKRXJKW WR EH HQWLUHO\ PHVWL]R )LJXUHV JLYHQ E\ WKH LQWHQGHQW $QWRQLR *XWLHnUUH] \ 8OORD LQ KLV (VWDGR JHQHUDO GH OD SURYLQFLD GH 6DQ 6DOYDGRU LQGLFDWH WKDW LQ ,QGLDQV FRQVWLWXWHG DS SUR[LPDWHO\ IRUW\ SHU FHQW RI WKH SRSXODWLRQ 0DUXUH %RVTXHMR , 0DQXHO 0RQWXIDU \ &RURQDGR 0HPRULDV SDUD OD KLVWRULD GH OD UHYROXFLµQ GH &HQWUR$PHULFD YROV >*XDWHPDOD f )M 7L ; )HGHUDFLµQ GH &HQWURDPHULFD 0HPRULD SUHVHQWDGD DO &RQJUHVR JHQHUDO GH ORV HVWDGRV IHGHUDGRV GH &HQWUR $PG\LFD SRU HO VHFUHWDULR GH HVWDGR HQFDJDGR GH GHVSDFKR XQLYHUVDO DO FRPHQODU ODV VHVLRQHV GHO D³R GH *XDWHPDOD f 0RQWXIDU \ &RURQDGR 0HPRULDV , $UWLFOH &RQVWLWXWLRQ RI WKH WHM[W RI WKH &RQVWLWXWLRQ LV UHSURGXFHG LQ 5LFDUGR *DOODUGR /DV &RQVWLWX FLRQHV GH OD 5HS¼EOLFD )HGHUDO GH &HQWUR$PHULFD YROV 0DGULG f ,, Y 0RQWXIDU \ &RURQDGR 0HPRULDV , /HRQ )HUQDQGH] 'RFXPHQWRV UHODWLYRV D ORV PRYLn PLHQWRV GH LQGHSHQGHQFLD HQ HO UHLQR GH *XDWHPDOD 6DQ 6DOYDGRU f S 7KLV GRFXPHQW LV WLWOHG ,QIRUPH GHO &DSLW£Q *HQHUDO GH *XDWHPDOD DO 6HFUHWDULD GH *UDFLD \ -XVWLFLD DQG DWWHPSWV WR VKRZ WKDW WKHUH ZDV QR EDVLV IRU FUHROH GLVFRQWHQW DV WKHUH ZHUH RQO\ SHQLQVXODUHV KROGLQJ RIILFLDO SRVLWLRQV 7KH &DSWDLQ *HQHUDOnV FDVH ORVHV D JRRG ELW RI LWV VWUHQJWK DV LW LQFOXGHV VDODU\ ILJXUHV ZKLFK VKRZ WKDW WKH DYHUDJH LQFRPH RI WKH SHQLQVXODUHV [ADV SHVRV ZKLOH WKH FUHROHV HDUQHG DQ DYHUDJH RI SHVRV r /RXLVn ( %XPJDUWQHUnV ELRJUDSK\ -RVH GHO 9DOOH RI &HQWUDO $PHULFD 'XUKDP f GHPRQVWUDWHV WKDW WKH &DSWDLQ *HQHUDO UHOLHG TXLWH KHDYLO\ RQ WKH +RQGXUDQ VDYDQW 6XVDQ (PLO\ 6WUREHFN 7KH 3ROLWLFDO $FWLYLWLHV RI 6RPH 0HPEHUV RI WKH $ULVWRFUDWLF )DPLOLHV RI *XDWHPDOD 0 $ WKHVLV 7XODQH 8QLYHUVLW\ f S :RRGZDUG (FRQRPLF DQG 6RFLDO 2ULJLQV S

PAGE 31

LKLV OLVW LV UHSURGXFHG LQ DQ DSSHQGL[ WR 5DPRQ $ 6DOD]DUnV 0DULDQR GH $\FLQHQD *XDWHPDOD f A)HUQDQGH] 'RFXPHQWRV S A%XPJDUWQHUI 9DOOH SS SURYLGHV DQ H[FHOOHQW DFFRXQW RI WKH FRQIOLFW EHWZHHQ WKH IDPLO\ DQG LWV DQWDJRQLVWV @9RRGZDUG (FRQRPLF DQG 6RFLDO 2ULJLQV SS A$\XQWDPLHQWR GH OD &LXGDG GH *XDWHPDOD ,QVWUXFFLRQHV SDUD OD FRQVWLWXFLµQ IXQGDPHQWDO GH OD PRQDUTX¯D HVSD³ROD \ VX JRELHUQR GH TXH KD GH WUDWDUVH HQ ODV SUG[LPDV FRUWHV JHQHUDOHV GH OD QDFLGU¾ *XDWHPDOD f A5DOSK /HH :RRGZDUG -U &ODVV 3ULYLOHJH DQG (FRQRPLF 'HYHORSPHQW 7KH &RQVXODGR GH &RPHUFLR RI *XDWHPDOD &KDSHO +LOO f S fµA6WUREHFN 7KH 3ROLWLFDO $FWLYLWLHV GHPRQVWUDWHV WKDW DULVWRFUDWV ZHUH WR EH IRXQG RQ ERWK VLGHV RI HYHU\ LVVXH EXW DIWHU LQGHSHQGHQFH WKH PDMRULW\ RI SROLWLFDOO\ DFWLYH DULVWRFUDWV FDPH GRZQ RQ WKH VLGH RI FRQVHUYDWLVP fµA5DPRQ $ 6DOD]DU +LVWRULD GH YHLQWL¼Q DQRV OD LQGHSHQGHQFLD GH *XDWHPDOD *XDWHPDOD f S A( HGLWRU FRQVWLWXFLRQDO $XJXVW 6HSWHPEHU $OOLVVXHV R )a( H G L WR U FRQVWLWXFLRQDO DQG LWV VXFn FHVVRU (O JHQLR GH OD OLEHUWDG DUH UHSURGXFHG LQ 3HGUR 0ROLQD (VFULWRV GHO 'RFWRU 3HGUR 0ROLQD YROV *XDWHPDOD f ,ELG 2FWREHU 'HFHPEHU ,ELG $XJXVW 0DUXUH %RVTXHMR , A$UFKLYR 1DFLRQDO GH *XDWHPDOD KHUHDIWHU FLWHG DV $1*f % OHJ H[S %XPJDUWQHU 9DOOH SS "0DUXUH %RVTXHMR , 0RQWXIDU \ &RURQDGR 0HPRULDV , H HGLWRU FRQVWLWXFLRQDO -XQH ,Q WKH QH[W LVVXH RI WKH SDSHU 0ROLQD DSRORJL]HG IRU WKH VDWLUH DQG LQJHQXRXVO\ SURWHVWHG WKDW KH KDG QRW UHFRJQL]HG WKH DQDJUDP IRU )HUQDQGR HO ,QJUDWR fµA0DUXUH %RVTXHMR , ,ELG S

PAGE 32

A$OHM DQGUµ 0DUXUH (IHP«ULGHV GH ORV KHFKRV QRWDEOHV DFDHFLGRV HQ OD UHS¼EOLFD GHVGH HO DQR GH KDVWD HO GHn *XDWHPDOD f S 9DOHQW¯Q 6ROGU]DQR )HUQ£QGH] (YROXFLRnQ HFRQµPLFD GH *XDWHPDOD *XDWHPDOD f S $FWD GH ,QGHSHQGHQFLD GH GH 6HSWLHPEUH GH UHSURGXFHG LQ *DOODUGR /DV &RQVWLWXFLRQHV ,, (O JHQLR GH OD OLEHUWDG 2FWREHU (O HGLWRU FRQVWLWXFLRQDO ZDV UHFKULVWHQHG (O JHQLR GH OD OLEHUWDG RQ $XJXVW ,ELG 2FWREHU &RSLHV RI WKHVH OHWWHUV DUH FRQWDLQHG LQ 0LJXHO $QJHO *DUFLD HG (O 'RFWRU -RVHI 0DWLDV 'HOJDGR KRPHQDMH HQ HO SULPHU FHQWHQDULR GH VX PXHUWH GRFXPHQWRV SDUD HO HVWXGLR GH VX YLGD \ GH VX REUD YROV 6DQ 6DOYDGRU f ,, A$QWRQLR %DWUHV -DXUHJXL (O 'U 0DULDQR *DOYH]r\ VX «SRFD *XDWHPDOD f S (O JHQLR GH OD OLEHUWDG 1RYHPEHU 0DUXUH %RVTXHMR , ,ELG S 7KH GHFLVLRQ E\ VRPH LPSHULDOLVWDV WR ER\FRWW WKH HOHFWLRQV IRU WKH FRQVWLWXHQW DVVHPEO\ KDG FRQVLGHUDEOH VLJQLILFDQFH DV LW PHDQW WKDW H[WUHPH FRQVHUYDn WLYHV KDG OLWWOH YRLFH LQ WKH DVVHPEO\ A,EBLG ,W VKRXOG EH QRWHG WKDW WKH FRPSRVLWLRQ RI WKHVH SDUWLHV ZDV QRW VR FOHDUFXW DV LV LQGLFDWHG KHUH 5HSUHVHQWDWLYHV RI WKH HDUOLHU IDFWLRQV ZHUH WR EH IRXQG LQ ERWK FDPSV A) ' / $SXQWDPLHQWRV SDUD OD KLVWRULD GH OD UHYROXFLµQ HQ &HQWUR $PHULFD 6DQ &ULVWREDO GH &KLDSDV f TXRWHG LQ 3HGUR -RDTXLQ &KDPRUUR +LVWRULD GH OD IHGHUDFLµQ GH OD $PHULFD &HQWUDO 0DGULG rf S 0DUXUH %RVTXHMR , &RSLHV RI WKHVH DFWV DUH FRQWDLQHG LQ 0LJXHO $QJHO *DUFLD HG 0DQXHO -RV«r $UFH KRPHQDMH HQ HO SULPHU FHQWHQDULR GH VX IDOOHFLPLHQWR UHn FRSLODFLµQ GH GRFXPHQWRV SDUD HO HVWXGLR GH VX YLGD \ VX REUD YROV 6DQ 6DOYDGRU f , 3DEOR $OYDUDGR WR *RELHUQR 6XSHULRU GH &RVWD 5LFD 1RYHPEHU LQ *DUFLD $UFH ,

PAGE 33

A0DUXUH %RVTXHMR , 0DUXUH (IHP«ULGHV SS 0RQWXIDU \ &RURQDGR 0HPRULDV , A.DUQHV )DLOXUH RI 8QLRQ S ,W VKRXOG EH SRLQWHG RXW WKDW WDNHQ E\ LWVHOI WKLV VWDWHPHQW FDUULHV JUHDWHU IRUFH WKDQ LW GRHV ZLWKLQ WKH FRQWH[W RI WKH ZRUN 3URIHVVRU .DUQHV PDNHV LW YHU\ FOHDU WKDW SROLWLFDO DOLJQ PHQWV ZHUH H[WUHPHO\ FRPSOH[ 0DUXUH %RVTXHMR ,

PAGE 34

&+$37(5 ,, $5&( $1' 7+( 38568,7 2) &(175$/ $0(5,&$1 ,1'(3(1'(1&( 7R WKH PLVIRUWXQH RI KLV ZRXOGEH ELRJUDSKHUV 0DQXHO -RVHr $UFH ZDV QRW WKH VRUW RI LQGLYLGXDO ZKR EHTXHDWKV PXFK RI KLV SHUVRQDO OLIH WR KLVWRU\ 3ULYDWH OHWWHUV DUH IHZ ,I KH NHSW D GLDU\ ZKLFK VHHPV XQOLNHO\f LW KDV \HW WR EH IRXQG DQG KLV PHPRLUV GHDO RQO\ ZLWK KLV SXEOLF OLIH 7KHUH LV DGHTXDWH PDWHULDO IRU WKH UHFRQVWUXFWLRQ RI $UFHf¬V SROLWLFDO FDUHHU EXW DSDUW IURP H[WUDSRODWLRQV WKH PDQ KLPVHOI UHPDLQV KLGGHQ LQ WKH SDVW 7KH GHWDLOV RI $UFHf¬V HDUO\ OLIH DUH SDUWLFXODUO\ VFDQW\ ,W LV NQRZQ WKDW KH ZDV ERUQ RI D SURPLQHQW 6DQ 6DOYDGRUDQ IDPLO\ RQ -DQXDU\ ,Q DGGLWLRQ WR WKHLU ILUVWERUQ VRQ $UFHnV SDUHQWV %HUQDUGR -RVH DQG 0DQXHOD $QWRQLD KDG VL[ RWKHU FKLOGUHQ 7KUHH RI WKHVH RIIVSULQJ GLHG GXULQJ FKLOGKRRG DQG 7RP£V D EURWKHU ERUQ HOHYHQ PRQWKV DIWHU 0DQXHO -RVH OLYHG WKH KDOIOLIH RI WKH PHQWDOO\ UHWDUGHGA $V ZHUH PRVW RI WKH PRUH VXEVWDQWLDO 6DOYDGRUDQV %HUQDUGR $UFH ZDV DQ LQGLJR JURZHU DQG WKH LQFRPH IURP KLV KDFLHQGDV ZDV VXIILFLHQW WR DOORZ KLV HOGHVW VRQ WR JR WR *XDWHPDOD LQ WR DWWHQG WKH &ROHJLR GH 6DQ %RUMDA +LV ELRJUDSKHUV DVVXUH XV WKDW 0DQXHO -RV«r ZDV DQ H[FHOOHQW VWXGHQW :KDWHYHU KLV VFKRODVWLF DELOLWLHV $UFH UHFHLYHG KLV EDFKLOOHUDWR DQG SRVVLEO\ LQWHQGHG WR SXUVXH WKH VWXG\

PAGE 35

RI PHGLFLQH 7KH LOOQHVV RI KLV IDWKHU KRZHYHU REOLJHG $UFH WR UHWXUQ WR (O 6DOYDGRU WR DVVLVW ZLWK WKH RSHUDWLRQ RI WKH IDPLO\ HVWDWHVA ,Q 'HFHPEHU KH PDUULHG KLV FRXVLQ )HOLSD $UDQ]DPHQGL DQG LQ WKH HQVXLQJ \HDUV WKLV XQLRQ SURGXFHG VL[ FKLOGUHQ 7KLV FXUVRU\ UHYLHZ SUHVHQWV RQO\ D VNHOHWDO RXWOLQH RI $UFHnV ILUVW WZHQW\RQH \HDUV \HW LW FRQWDLQV QHDUO\ DOO RI WKH VXEVWDQWLYH VWDWHPHQWV WKDW FDQ EH PDGH LQ UHJDUG WR KLV SHUVRQDO OLIH GXULQJ WKLV IRUPDWLYH SHULRG 7KLV SDXFLW\ RI LQIRUPDWLRQ UHTXLUHV WKDW DQ\ DWWHPSW WR H[SODLQ WKH SROLWLFDO EHKDYLRU RI WKH \RXQJ 6DOYDGRUDQ EH EDVHG RQ FLUFXPVWDQWLDO HYLGHQFH 1HYHUWKHOHVV LW LV QRW LPSRVVLEOH WR DFFRXQW IRU $UFHf¬V LQYROYHPHQW LQ &HQWUDO $PHULFDf¬V ILUVW RSHQ FRQIURQWDWLRQ ZLWK WKH FRORQLDO HVWDEOLVKPHQW %DVLFDOO\ WKHUH DUH WKUHH IDFWRUV ZKLFK H[SODLQ KLV DSSHDUDQFH DW WKH IRUHIURQW RI WKH XSULVLQJ RI 7KHVH LQFOXGH $UFHf¬V IDPLOLDO WLHV KLV IDWKHUnV VHUYLFH LQ SXEOLF RIILFH DQG WKH ILQDQFLDO VLWXDWLRQ RI KLV IDPLO\ ,Q WKH ILUVW GHFDGHV RI WKH QLQHWHHQWK FHQWXU\ WKH SROLWLFDO OHDGHUV RI (O 6DOYDGRU ZHUH ODUJHO\ GUDZQ IURP D NLQVKLS HOLWH VLPLODU WR WKH DULVWRFUDF\ RI *XDWHPDOD %RXQG WRJHWKHU WKURXJK WKH PDUULDJHV RI WKH VHYHQ GDXJKWHUV RI 'LHJR GH /HRQ WKLV H[WHQGHG IDPLO\ LQFOXGHG WKH VXUQDPHV $JXLODU $UDQ]DPHQGL $UFH 'HOJDGR )DJRDJD /DUD 0RUDOHV W DQG 5RGULJXH] ,Q DGGLWLRQ WR H[HUFLVLQJ SROLWLFDO OHDGHUn VKLS WKH IDPLO\ KDG D IXUWKHU UHVHPEODQFH WR WKH *XDWHPDODQ DULVWRFUDF\ LQ WKDW LWV PHPEHUV DGRSWHG D SRVLWLRQ RI

PAGE 36

SROLWLFDO OLEHUDOLVP SULRU WR WKH FRPLQJ RI LQGHSHQGHQFH 7KH VLPLODULW\ HQGV DW WKDW SRLQW KRZHYHU DV WKH OLEHUDO VWDQFH WDNHQ E\ WKH 6DOYDGRUDQ IDPLO\ SURYHG WR EH PXFK PRUH GXUDEOH 7KLV SROLWLFDO FRPPLWPHQW ZDV GRXEWOHVVO\ VKDSHG E\ D SUHGLVSRVLWLRQ WRZDUGV FKDQJH DULVLQJ IURP WKH \HDUV RI FRQIOLFW ZLWK *XDWHPDODQ PHUFKDQWV DQG WR WKH OHDGHUVKLS RI -RVHn 0DW¯DV 'HOJDGR 'HOJDGR ZDV ERUQ LQ 6DQ 6DOYDGRU LQ DQG KH UHFHLYHG KLV WUDLQLQJ LQ *XDWHPDOD DW WKH 7ULGHQWLQH 6HPLQDU\ DQG WKH 8QLYHUVLW\ RI 6DQ &DUORV ZKHUH KH REWDLQHG D GRFWRUDWH LQ FDQRQ ODZ $IWHU KH FRPSOHWHG KLV VWXGLHV 'HOJDGR VHUYHG DV FXUDWH RI 6DQ 6DOYDGRU DQG LQ KH ZDV DSSRLQWHG WR WKH RIILFH RI SURYLQFLDO YLFDU 7KH RULJLQ RI 'HOJDGRf¬V OLEHUDOLVP LV XQFOHDU EXW DV 0RQWXIDU VXJJHVWV LW PD\ KDYH VLPSO\ EHHQ DQ RXWJURZWK RI KLV GHVLUH WR HVWDEOLVK D ELVKRSULF LQ (O 6DOYDGRUA $ PDQ RI FRQVLGHUDEOH DELOLW\ 'HOJDGRn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

PAGE 37

VHFRQG FRXVLQ WR 'HOJDGR DV WKH PRWKHU RI WKH 6DOYDGRUDQ YLFDU DQG $UFHf¬V SDWHUQDO JUDQGPRWKHU ZHUH VLVWHUVA 7KH $UFHV ZHUH DOVR UHODWHG E\ PDUULDJH WR WKH $JXLODUV DQG WKLV ERQG ZDV VWUHQJWKHQHG LQ 0D\ ZKHQ $UFHf¬V VLVWHU 0DQXHOD PDUULHG 'RPLQJR $QWRQLR GH /DUD D QHSKHZ RI WKH $JXLODU EURWKHUV :LWK FRQQHFWLRQV VXFK DV WKHVH $UFHnV LQYROYHPHQW LQ WKH PRYHPHQW ZDV DOPRVW LQHYLWDEOH 7KRXJK $UFHnV DGPLVVLRQ WR WKH JURXS RI GLVVLGHQWV ZDV SURYLGHG E\ NLQVKLS WKLV IDFWRU DORQH GRHV QRW DFFRXQW IRU WKH SRVLWLRQ RI OHDGHUVKLS DVVXPHG E\ WKH WZHQW\IRXU \HDU ROG FUHROH 7R DVVHUW WKDW $UFH ZDV D ERUQ OHDGHU EHJV WKH TXHVWLRQ EXW WKH DVVXPSWLRQ WKDW KH KDG OHDGHUVKLS FDSDELOLWLHV LV QRW XQUHDVRQDEOH $ WKRURXJKO\ UHWLULQJ \RXQJ PDQ ZRXOG OLNHO\ KDYH UHPDLQHG RQ WKH VLGHOLQHV $UFHn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«r ZDV ERUQ %HUQDUGR $UFH ZDV FKRVHQ IRU WKH SRVW RI DOFDOGH VHJXQGRA +H ZDV HOHFWHG WR WKLV RIILFH DJDLQ LQ DQG DOVR VHUYHG D WHUP DV DOI«UH] UHDOrr :KDW PLJKW EH

PAGE 38

FRQVLGHUHG WKH FXOPLQDWLRQ RI $UFHnV SROLWLFDO FDUHHU RFFXUUHG LQ ZKHQ KH ZDV VHOHFWHG WR EH DOFDOGH SULPHUR ,Q WKDW \HDU /XLV GH $UTXHGRV GHFOLQHG WR DFFHSW KLV DSSRLQWn PHQW DV LQWHQGHQWH RI WKH SURYLQFH DQG VR WKH DXWKRULW\ RI WKDW RIILFH GHYROYHG XSRQ %HUQDUGR $UFHA 7KXV WKH QDPH RI $UFH FRPPDQGHG D GHJUHH RI UHVSHFW ZKLFK ZRXOG DFFRUG 0DQXHO -RV« D SODFH RI SURPLQHQFH LQ ZKDWHYHU HQGHDYRUV KH HOHFWHG WR SXUVXH ,QDVPXFK DV WKH $UFH IDPLO\ FDQ EH FRQVLGHUHG D SDUW RI WKH ORFDO HVWDEOLVKPHQW WKH TXHVWLRQ RI LWV PRWLYDWLRQ IRU SDUWLFLSDWLQJ LQ WKH UHYROW RI DULVHV 7KH LQWHQGHQWH $QWRQLR *XWLHUUH] \ 8OLRD D SHQLQVXODU DSSRLQWHG LQ ZDV QRWHG IRU KLV GHSUHFDWLYH EHKDYLRU LQ GHDOLQJ ZLWK WKH FUHROHV ,W PD\ EH DUJXHG WKHQ WKDW WKH $UFHf¬V ZHUH VLPSO\ VHHNLQJ WR UHJDLQ WKH DXWKRULW\ WKH\ KDG RQFH WDVWHG ,W DOVR PD\ EH VXSSRVHG WKDW 0DQXHO DQG KLV IDWKHU VKDUHG WKH IUXVWUDWLRQ RI FRXVLQ -RV« 0DW¯DV 'HOJDGR FRQFHUQLQJ WKH DWWHPSW WR HUHFW D ELVKRSULF LQ WKH SURYLQFH 7R WKLV ZULWHU LW DSSHDUV WKDW WKHLU GLVFRQWHQW PD\ YHU\ ZHOO KDYH KDG HFRQRPLF RULJLQV DV (O 6DOYDGRU KDG H[SHULHQFHG D PDUNHG GHFOLQH LQ LWV LQGLJREDVHG HFRQRP\ E\ WKH HQG RI WKH ILUVW GHFDGH RI WKH QLQHWHHQWK FHQWXU\ 7KLV GHWHULRUDWLRQ ZDV SDUWO\ WKH SURGXFW RI QDWXUDO FDXVHV ,Q VHYHUDO \HDUV WKH VL]H RI WKH KDUYHVW ZDV VHYHUO\ UHGXFHG E\ ORFXVW SODJXHV 7KH LQWURGXFWLRQ RI LQGLJR LQWR 9HQH]XHOD LQ SUHYHQWHG FRPSHQVDWLRQ IRU FURS VKRUWDJHV E\ PHDQV RI SULFH LQFUHDVHV DV 9HQH]XHODQ

PAGE 39

LQGLJR FDSWXUHG D JURZLQJ VKDUH RI WKH 6SDQLVK PDUNHW )XUWKHUPRUH WKH SURILW PDUJLQ IRU 6DOYDGRUDQ SURGXFHUV ZDV UHGXFHG E\ LQFUHDVHG ORFDO WD[HV DQG VXSSRUW IRU WKH PRQWHS¯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¯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

PAGE 40

ZDV SODLQO\ GHPRQVWUDWHG ZKHQ WKH D\XQWDPLHQWR RI *XDWHPDOD SUHIDFHG WKH LQVWUXFWLRQV JLYHQ WR LWV UHSUHVHQWDWLYH WR WKH &RUWHV RI &DGL] ZLWK WKH 'HFODUDWLRQ RI WKH 5LJKWV RI 0DQ DQG RI WKH &LWL]HQ &OHDUO\ FRQFHUQHG ZLWK VWHPPLQJ WKH VSUHDG RI GLVOR\DOW\ &DSWDLQ *HQHUDO $QWRQLR *RQ]DOH] \ 6DUDYLD HVWDEOLVKHG D WULEXQDO GH ILGHOLGDG RQ 0D\ DQG RIIHUHG D UHZDUG RI ILYH KXQGUHG SHVRV IRU LQIRUPDWLRQ OHDGLQJ WR WKH DSSUHKHQVLRQ RI IRUHLJQ DJHQWV 1RQH RI 1DSROHRQn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n UHFWLRQ , JDYH RUGHUV IRU WKH UHPRYDO WR WKH FDSLWDO RI WKH DUPV DQG IXQGV WKDW ZHUH LQ 6DQ 6DOYDGRU $QG LQ LWV DFFRPSOLVKPHQW WKHUH ZHUH UHPRYHG LQ $XJXVW RI WKDW \HDU ULIOHV DQG SHVRV IURP WKH SXEOLF WUHDVXU\ 8QGHWHUUHG E\ %XVWDPDQWHnV DFWLRQ DQG SRVVLEO\ VSXUUHG E\ LWf WKH 6DOYDGRUDQV SURFHHGHG WR HPXODWH WKH H[DPSOH WKHQ EHLQJ VHW E\ FUHROHV LQ RWKHU DUHDV RI WKH 6SDQLVK HPSLUH DQG LQ WKH ZRUGV RI %XVWDPDQWH WKH ILUH ZKLFK KDG EXUQHG LQ VHFUHW PDQLIHVWHG LWVHOI SXEOLFO\ RQ 1RYHPEHU "

PAGE 41

7KH XSULVLQJ KDG UHOLJLRXV IHUYRU DV LWV FKLHI LPSHWXV DQG RSHQ H[SUHVVLRQ RI WKH FUHROHSHQLQVXODU FRQIOLFW DV LWV LPPHGLDWH FRQVHTXHQFH 7KH RXWEUHDN ZDV SUHFLSLWDWHG E\ WKH DFWLRQ ZKLFK WKH JRYHUQPHQW WRRN DJDLQVW WKH $JXLODU EURWKHUV 7KHVH PHQ ZHUH DOO PHPEHUV RI WKH FOHUJ\ DQG DSSDUHQWO\ ZHUH KHOG LQ FRQVLGHUDEOH HVWHHP E\ WKH 6DOYDGRUDQ PDVVHV 7KH $JXLODUVr OR\DOW\ KRZHYHU KDG EHHQ VXVSHFW VLQFH WKH EHJLQQLQJ RI WKH \HDU ZKHQ WKH\ KDG GHFOLQHG WR SXEOLVK DQ HGLFW FRQGHPQLQJ WKH 0H[LFDQ UHYROXWLRQDULHV DQG HDUO\ LQ 1RYHPEHU 0DQXHO $JXLODU ZDV DUUHVWHG LQ *XDWHPDOD RQ WKH FKDUJH RI KDYLQJ KDG FRUUHVSRQGHQFH ZLWK 0LJXHO +LGDOJRAp :KHQ WKH QHZV RI WKLV HYHQW UHDFKHG 6DQ 6DOYDGRU WKH UHVXOW ZDV D VWRUP RI SRSXODU SURWHVW 6XFK D UHVSRQVH ZDV QRW VXUSULVLQJ DV WKH VHHGV RI XQUHVW KDG DOUHDG\ EHHQ VHZQ DPRQJ WKH SHRSOH ,Q WKH ODWWHU SDUW RI 2FWREHU %HUQDUGR 7RUUHV DQ DOFODGH RI RQH RI WKH FLW\n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

PAGE 42

WKH SUHYLRXV \HDU \RXQJ $UFH KDG H[SRVHG WKH DQWLSDWK\ WKDW H[LVWHG EHWZHHQ KLV JURXS DQG WKH SHQLQVXODUHV 7HVWLn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n ZLVKHV 7KH LQWHQGHQWH UHVSRQGHG WKDW KH ZDV SRZHUOHVV WR WDNH VXFK DFWLRQ DV WKH\ UHTXHVWHG 7KLV KDUGO\ VDWLVILHG EXW WKH EHVLHJHG RIILFLDO ZDV ILQDOO\ DEOH WR FRQYLQFH WKH FURZG WR GLVSHUVH 0DQXHO -RVH OHIW WKH LQWHQGHQWnV KRPH VZHDULQJ WR HYHQ WKH VFRUH E\ WDNLQJ %HUQDUGLQR 0ROLQD LQWR FXVWRG\ )DLOLQJ LQ WKLV KH VSHQW

PAGE 43

WKH QLJKW ZLWK KLV FRXVLQ -RVH 0DW¯DV 'HOJDGR LQ RUGHU WR SURWHFW KLP 7KH WXUPRLO FRQWLQXHG WKH QH[W GD\ DQG E\ QRRQ LW ZDV FOHDU WKDW D SODQ RI DFWLRQ KDG EHHQ HVWDEOLVKHG $SSUR[LPDWHO\ IRXU KXQGUHG PHQ DJDLQ DSSHDUHG EHIRUH WKH KRPH RI *XWLHUUH] \ 8OORD 0DQXHO -RVHn $UFH ZLWK WKH WLWOH RI GHSXW\ RI WKH SHRSOH DFWHG DV VSRNHVPDQ IRU WKH JURXS DQG GLUHFWHG WKH LQWHQGHQWH WR VRXQG WKH EHOO ZKLFK ZRXOG VXPPRQ D PHHWLQJ RI WKH D\XQWDPLHQWR *XWLHnUUH] \ 8OORD FRPSOLHG ZLWK WKLV FRPPDQG DQG WKHQ ZDV HVFRUWHG WR WKH WRZQ KDOO ZKHUH DQ HYHQ ODUJHU FURZG ZDV DVVHPEOHG $IWHU WKH PHHWLQJ ZDV EURXJKW WR RUGHU *XWLHUUH] \ 8OORD ZDV GHSRVHG DQG WKH DUUHVW RI DOO 6SDQLVK RIILFLDOV ZDV RUGHUHGA $ FUHROH JRYHUQPHQW ZDV WKHQ HVWDEOLVKHG %HUQDUGR $UFH ZDV QDPHG DOFDOGH SULPHUR EXW KH GHFOLQHG WR DFFHSW WKH SRVW ZKLFK WKHQ ZHQW WR /HDQGUR )DJRDJD -RVH 0DULD 9LOODVHQRU ZDV FKRVHQ DV DOFDOGH VHJXQGR DQG -RV« 0DULDQR %DWUHV ZDV JLYHQ WKH RIILFH RI LQWHQGHQWH 7KH D\XQWDPLHQWR ZDV DOVR UHRUJDQL]HG ZLWK %HUQDUGR $UFH -XDQ 'HOJDGR 7RPDV &DULOOR 'RPLQJR 'XU«Q 0DQXHO 0RUDOHV 0LJXHO 5LYHUD )HUQDQGR 6LOYD )UDQFLVFR 9DOLRVD DV PHPEHUV DQG -XDQ 0DQXHO 5RGULJXH] DV VHFUHWDU\ -RV« $JXLODU UHSODFHG -RV« 5RVVL DV FRPDQGDQWH JHQHUDO GH ODV DUPDVA :KLOH WKH PHHWLQJ ZDV LQ VHVVLRQ 0DQXHO -RV« $UFH LQ D EXUVW RI \RXWKIXO H[XEHUDQFH FOLPEHG RQ D FKDLU E\ WKH GRRU RI WKH EXLOGLQJ DQG SURFODLPHG WKHUH LV QR .LQJ $UFH WROG WKH DVVHPEOHG WKURQJ WKDW LW QHHG QR ORQJHU WDNH

PAGE 44

RUGHUV IURP 6SDQLVK RIILFLDOV DQG VKRXOG RQO\ REH\ WKH QHZO\ HOHFWHG FUHROH DXWKRULWLHV +H DOVR SURPLVHG WKH SHRSOH WKDW WKH DOFDEDOD ZRXOG EH DEROLVKHG DQG WKDW WKH PRQRSROLHV RQ WREDFFR DQG DJXDUGLHQWH ZRXOG EH VXSSUHVVHGA 7KRXJK VRPH DXWKRUV IROORZLQJ WKH DFFRXQW RI $OHMDQGUR 0DUXUH DVVXPH WKDW D FRQGLWLRQ ERUGHULQJ RQ DQDUFK\ SUHYDLOHG IRU WKH EDODQFH RI WKH PRQWK WKLV GRHV QRW VHHP WR KDYH EHHQ WKH FDVH $SDUW IURP $UFHnV RXWEXUVW LW DSSHDUV WKDW WKH FUHROHV FRQGXFWHG WKHPVHOYHV ZLWK D FRQVLGHUDEOH GHJUHH RI GLVFUHWLRQ )ROORZLQJ WKH HVWDEOLVKPHQW RI WKH QHZ JRYHUQn PHQW WUDQTXLOLW\ ZDV UHVWRUHG DQG WKHUH ZHUH QR RXWUDJHV FRPPLWWHG DJDLQVW WKH 6SDQLDUGV $QWRQLR *XWLHUUH] \ 8OORD ZKR ZDV FRQILQHG WR WKH SUHPLVHV RI WKH &RQYHQW RI 6DQWR 'RPLQJR ODWHU WHVWLILHG WKDW WKH $UFHV KDG WUHDWHG KLP ZLWK FRXUWHV\ DQG KDG H[HUFLVHG D UHVWUDLQLQJ LQIOXHQFH RQ WKH PREV WKDW IRUPHG GXULQJ WKH UHYROW 2Q 1RYHPEHU WKH FUHROH JRYHUQPHQW LQ DQ DWWHPSW WR HVWDEOLVK LWV OHJLWLPDF\ DQG SRVVLEO\ EX\ D OLWWOH WLPHf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

PAGE 45

EULHI DFFRXQW RI WKH XSULVLQJ DQG DWWHPSWHG WR MXVWLI\ WKHLU DFWLRQV7KLV GRFXPHQW DORQJ ZLWK DQ LQYLWDWLRQ WR VHQG D GHOHJDWH WR D SURSRVHG SURYLQFLDO FRQJUHVV ZDV VHQW WR DOO WKH WRZQV LQ WKH SURYLQFH DQG SRVVLEO\ WR RWKHU SURYLQFHV DV ZHOOA 0DQXHO -RVHA $UFH KDG D KDQG LQ WKLV SURSDJDQGD FDPSDLJQ DV RQ 1RYHPEHU KH VSHQW WKH GD\ DW KLV IDWKHUnV KRXVH GLFWDWLQJ OHWWHUV WR WKH VFULEHV %RQLIDFLR 3DQLDJXD DQG -RDTXLQ &KDYH] 7KH HYLGHQFH LQGLFDWHV KRZHYHU WKDW $UFH KDG QR SHUVRQDO UHVSRQVLELOLW\ IRU WKH VXEVWDQWLYH FRQWHQW RI WKHVH OHWWHUV %HUQDUGR $UFHnV KRXVH DSSDUHQWO\ VHUYHG DV D NLQG RI KHDGTXDUWHUV IRU WKH FUHROHV DV WKHUH ZHUH RWKHUV WKHUH RQ WKH VDPH GD\ GLFWDWLQJ VLPLODU OHWWHUV ,Q DGGLWLRQ WR DVVLVWLQJ ZLWK VXFK GHWDLOV $UFH UHWDLQLQJ KLV WLWOH RI GHSXW\ RI WKH SHRSOH VHUYHG DV D OLDVRQ RIILFHU EHWZHHQ WKH SHRSOH DQG WKH JRYHUQPHQW +H DOVR KDG WKH UHVSRQVLELOLW\ RI PDLQWDLQLQJ RUGHU LQ WKH FLW\ DQG ZDV JLYHQ RQH KXQGUHG SHVRV IURP WKH SXEOLF WUHDVXU\ WR FRYHU WKH FRVWV RI SROLFH SDWUROV 7KH 6DOYDGRUDQ LQVXUJHQWV ZHUH QRW DW DOO XQLTXH LQ WKHLU GLVVDWLVIDFWLRQ ZLWK SHQLQVXODU GRPLQDQFH ,Q 1LFDUDJXD WKH FLWL]HQV RI /HRQ GHSRVHG WKH LQWHQGHQWH -RVHA 6DOYDGRU RQ 'HFHPEHU 1LQH GD\V ODWHU 6SDQLVK RIILFLDOV LQ *UDQDGD ZHUH IRUFHG WR UHVLJQ WKHLU SRVWV :KLOH WKHVH DFWLRQV IXUWKHU GLVWXUEHG WKH VWUXFWXUH RI FRORQLDO JRYHUQn PHQW WKH\ FDPH WRR ODWH WR SURYLGH VXSSRUW IRU WKH 6DOYDGRUDQ YHQWXUH :LWKLQ WKH SURYLQFH RI 6DQ 6DOYDGRU WKH UHYROW

PAGE 46

ZDV VHFRQGHG E\ WKH FRPPXQLWLHV RI 0HWDSDQ =DFDWHFROXF &KDODWHQDQJR DQG 8VXOXW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

PAGE 47

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f¬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n TXHURUV $ 7H 'HXP ZDV VXQJ DQG WZR GD\V ODWHU WKH D\XQWDPLHQWR ZURWH D OHWWHU WR LWV VLVWHU ERG\ LQ *XDWHPDOD H[SUHVVLQJ JUDWLWXGH IRU WKH VZLIW PHDVXUHV WDNHQ WR

PAGE 48

UHVWRUH ODZIXO DXWKRULW\ 7KHUH KDV EHHQ VRPH GHEDWH DV WR WKH VWDWXV ZKLFK VKRXOG EH DVVLJQHG WR WKH UHYROW $ QXPEHU RI &HQWUDO $PHULFDQ ZULWHUV KDYH WDNHQ WKH SRVLWLRQ WKDW WKH XSULVLQJ PDUNHG WKH EHJLQQLQJ RI &HQWUDO $PHULFDf¬V VWUXJJOH IRU LQGHSHQGHQFH 7KH SURGXFW RI D QDWLRQDOLVWLF GHVLUH WR VKDUH LQ WKH JORU\ RI WKH E\JRQH EDWWOHV IRU IUHHGRP WKLV FRQFHSW LV KHOG WRJHWKHU E\ UDWKHU VOHQGHU WKUHDGV DQG VHHPV FORVHU WR P\WK WKDQ UHDOLW\ $V D FRKHUHQW YLWDO PRYHPHQW D VWUXJJOH IRU LQGHSHQGHQFH LQ &HQWUDO $PHULFD QHYHU WRRN SODFH $XWKRUV ZKR KDYH WDNHQ D PRUH FULWLFDO YLHZ RI WKH XSULVLQJ UHJDUG LW DV OLWWOH PRUH WKDQ D PDQLIHVWDWLRQ RI WKH FUHROHVn HQY\ DQG UHVHQWPHQW RI WKH SHQLQVXODUHV &HUWDLQO\ WKH VORJDQ GRZQ ZLWK EDG JRYHUQPHQW ORQJ OLYH )HUGLQDQG 9,, H[SUHVVHV WKH FKDUDFWHU RI WKH UHYROW DQG WKH UHDG\ DFFHSWDQFH RI DPQHVW\ VXJJHVWV WKDW WKH FUHROHVf¬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

PAGE 49

n F\QLFLVP Re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r ,JQDFLR $YLOD ZDV FKRVHQ LQ DV WKH 6DOYDGRUDQ UHSUHVHQWDWLYH WR WKH &RUWHV RI &DGL] KH ZDV LQVWUXFWHG WR

PAGE 50

SUHVV IRU WKH HUHFWLRQ RI D ELVKRSULF LQ WKH SURYLQFH DQG KH DGGUHVVHG D SHWLWLRQ RQ WKLV VXEMHFW WR WKH &RUWHV RQ 0DUFK A +DG WKH FUHROHV EHHQ DEOH WR PDLQWDLQ WKHLU SRVLWLRQ IRU D IDLU DPRXQW RI WLPH DIWHU WKH 1RYHPEHU UHYROW LW VHHPV SUREDEOH WKDW WKH LVVXH RI WKH ELVKRSULF ZRXOG KDYH SURYLGHG WKH UDWLRQDOH MXVWLI\LQJ D GHFODUDWLRQ RI LQGHSHQn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

PAGE 51

LW LV HDV\ WR GLVPLVV WKH UHYROW DV EHLQJ GHYRLG RI FRQWHQW
PAGE 52

SURYHG WR EH PRUH WKDQ KH FRXOG KDQGOH :LWK WKH SDVVLQJ PRQWKV RI WKH FRORQLDO UHJLPH ZDV LQFUHDVLQJO\ VXEn MHFWHG WR YHUEDO DWWDFNV DQRQ\PRXV EURDGVLGHV DQG WKUHDWHQLQJ JUDIILWL %RWK SROLWLFDO LQFOLQDWLRQV DQG IHVWHULQJ HQPLWLHV ZHUH H[SRVHG LQ WKH OLWWOH UK\PH &XLGDGDQRV GHO 7DPERU 'HFLG GH PX\ EXHQ JD³D 4XH YLYD HO SDGUH 0RUHORV < PXHUDQ ORV GH 6DQWD $QD ,W LV QRW FOHDU ZKHWKHU WKH OLEHUDO UHIRUPV RI LQFLWHG WKH 6DOYDGRUDQ OLEHUDOV WR PRYH IXUWKHU WR WKH OHIW RU PHUHO\ SURYLGHG D IDYRUDEOH FOLPDWH IRU WKH JURZWKnRI SUH M H[LVWHQW AUDGLFDOLVP ,Q DQ\ FDVH WKH OHDGLQJ IRUFHV RI 6DOYDGRUDQ SROLWLFV GHPRQVWUDWHG WKH XQGHUO\LQJ VLQFHULW\ RI WKH PRYHPHQW DV WKH\ UHIXVHG WR EH SDFLILHG E\ WKH ULJKWV JUDQWHG XQGHU WKH &RQVWLWXWLRQ RI 5HFRQYHQLQJ WKH VHFUHW MXQWDV IRUPHG LQ WKH FUHROHV EHJDQ WR GLVFXVV SODQV DQG LGHDV ZKLFK WKH &DSWDLQ *HQHUDO ZRXOG KDYH FRQVLGHUHG H[WUHPHO\ DODUPLQJ 7KH GLUHFWLRQ RI FUHROH DPELWLRQV ZDV PDGH FOHDU E\ 0LJXHO 'HOJDGR -XDQ 0DQXHO 5RGULJXH] DQG 6DQWLDJR -RVHr &HOLV DOO IULHQGV RI $UFH WKRXJK SUREDEO\ DKHDG RI KLP LQ WKHLU WKLQNLQJf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

PAGE 53

ZRUN FRQVWDQWO\ WR PDLQWDLQ WKH KLJK RSLQLRQ ZKLFK \RX HQMR\ LQ WKLV NLQJGRP :H HTXDOO\ KRSH WKDW \RX ZLOO LQIRUP XV RI WKH SODQ IRU WKH FRQVWLWXWLRQ DGRSWHG E\ \RXU FRXQWU\ ,Q WKH IDFH RI RPLQRXV UXPRUV DQG REYLRXV GLVFRQWHQW 3HLQDGR UHSHDWHGO\ DWWHPSWHG WR FRQYLQFH &DSWDLQ *HQHUDO %XVWDPDQWH DQG SRVVLEO\ KLPVHOI DV ZHOOf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n DQFH ZDV RI OLWWOH FRQVHTXHQFH DV LW ZDV PHUHO\ DQ H[SUHVVLRQ RI WKH SHRSOHVn DIIHFWLRQ IRU 'HOJDGR DQG WKDW WKH OR\DOW\ RI WKH SURYLQFH ZDV XQTXHVWLRQDEOH %XVWDPDQWH ZDV XQFRQn YLQFHG DV KLV RZQ VRXUFHV FRQWLQXHG WR VHQG KLP WURXEOLQJ UHSRUWV )HDULQJ WKDW WKH IDFW WKDW 'HOJDGR ZDV UHVLGLQJ ZLWK 3HLQDGRnV IDPLO\ LQ *XDWHPDOD PLJKW KDYH D OXOOLQJ

PAGE 54

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n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

PAGE 55

WKH SHRSOHf°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f«6 5RVVL WKH FRPDQGDQWH JHQHUDO WR LQFUHDVH WKH QXPEHU RI QLJKW SDWUROV DQG WR NHHS DOO VXVSLFLRXV DFWLYLWLHV XQGHU FORVH VXUYHLOODQFH ,W ZDV 5RVVLnV FRPSOLDQFH ZLWK WKLV RUGHU WKDW OHG WR WKH XSULVLQJ RI 2Q WKH WZHQW\VHFRQG RI -DQXDU\ 5RVVL UHSRUWHG WR WKH LQWHQGHQWH WKDW D JURXS RI PHQ KDG EHHQ VHHQ OHDYLQJ WKH KRPH RI 3DEOR &DVWLOOR WKH DOFDOGH VHJXQGR DW RQH RnFORFN LQ WKH PRUQLQJ 6XJJHVWLQJ WKDW D FRQVSLUDF\ ZDV DIRRW 5RVVL XUJHG WKH LQWHQGHQWH WR WDNH VWURQJ FRXQWHUPHDVXUHV ,W ZDV OHDUQHG IURP LQIRUPHUV WKDW WKH DOFDOGHV RI WKH 5HPHGLRV DQG &DQGHODULD EDUULRV KDG DWWHQGHG WKH PHHWLQJ DW &DVWLOORnV KRPH DQG 3HLQDGR KDG WKHVH PHQ DUUHVWHG RQ -DQXDU\ A 7KLV ILUP DFWLRQ RQO\ VHUYHG WR SURYRNH WKH YHU\ WKLQJ WKDW 3HLQDGR ZDV VHHNLQJ WR DYRLG 1HZV RI WKH DUUHVWV VSUHDG TXLFNO\ DQG E\ WHQ RnFORFN RQ WKH PRUQLQJ RI WKH WZHQW\IRXUWK WKH VLWXDWLRQ LQ 6DQ 6DOYDGRU ZDV VXFK WKDW 3HLQDGR GRXEOHG WKH JXDUG DW DOO SXEOLF EXLOGLQJV DQG RUGHUHG WKDW HDFK PDQ EH JLYHQ DOO WKH FDUWULGJHV KH

PAGE 56

VL FRXOG FDUU\A $SDUW IURP DJLWDWHG FRQYHUVDWLRQV LQ WKH VWUHHWV WKH VLWXDWLRQ DW ILUVW VHHPHG XQGHU FRQWURO 7KH ILUVW FRQIURQWDWLRQ GLG QRW FRPH XQWLO WZR RnFORFN LQ WKH DIWHUQRRQ ZKHQ DQ DOFDOGH IURP WKH EDUULR RI 6DQ -RVH DSSHDUHG EHIRUH 3HLQDGR DQG XUJHG WKDW WKH SULVRQHUV EH UHOHDVHG 7KH LQWHQGHQWH IODWO\ UHIXVHG WKH UHTXHVW DQG VHQW WKH DOFDOGH SDFNLQJ 'XULQJ WKLV WLPH D MXQWD KDG JDWKHUHG DW WKH KRPH RI 0LJXHO 'HOJDGR WR KROG D VHULHV RI VWUDWHJ\ VHVVLRQV 7KH SDUWLFLSDQWV LQ WKHVH PHHWLQJV LQFOXGHG WKH FUHROHV 'HOJDGR $UFH KLV EURWKHUVLQODZ 'RPLQJR /DUD DQG -XDQ $UDQ]DPHQGL -RVHr 6DQWLDJR &HOLV WKH DOFDOGH SULPHUR -XDQ 0DQXHO 5RGU¯JXH] WKH PHVWL]R DOFDOGH VHJXQGR 3DEOR &DVWLOOR 6LOYHVWUH $QD\D D ]DPER DQG VHYHUDO RWKHU SHUVRQV RI PL[HG EORRGA 7KHUH LV QR UHFRUG RI WKH GLVFXVVLRQV WKDW ZHUH KHOG EXW VXEVHTXHQW HYHQWV LQGLFDWH WKDW WKH FUHROHV ZLWK WKH SRVVLEOH H[FHSWLRQ RI 5RGULJXH] DGYRFDWHG D FDXWLRXV DSSURDFK LQ RSSRVLWLRQ WR PRUH YLJRURXV DFWLRQ SURSRVHG E\ WKH SDUGRV ,Q DQ\ FDVH DQ DSSDUHQWO\ PRGHUDWH UHVSRQVH IROORZHG 3HLQDGRnV ILUVW UHIXVDO WR OLEHUDWH WKH SULVRQHUV $W IRXU RnFORFN LQ WKH DIWHUQRRQ 5RGULJXH] DSSURDFKHG WKH LQWHQGHQWH DQG UHTXHVWHG WKH VXPPRQLQJ RI D FDELOGR DELHUWR )HDULQJ D WUDS 3HLQDGR DVNHG ZKDW ZRXOG EH WKH SXUSRVH RI VXFK D PHHWLQJ +H ZDV LQIRUPHG WKDW LW ZRXOG KHOS WR FDOP WKH FLWL]HQV ZKR KDG EHHQ JUHDWO\ GLVWXUEHG E\ WKH DUUHVW RI WKH DOFDOGHV 3HLQDGR UHSOLHG WKDW VXFK PDWWHUV ZHUH KLV UHVSRQVLELOLW\ DORQH EXW RIIHUHG WR KDYH WKH D\XQWDPLHQWR

PAGE 57

PHHW DW KLV KRPH DW VHYHQ RnFORFNA 3HLQDGRnV VXVSLFLRQ WKDW D FDELOGR DELHUWR KDG EHHQ UHTXHVWHG IRU D SXUSRVH VLPLODU WR WKDW REWDLQHG LQ DSSHDUV FRQILUPHG E\ WKH IDFW WKDW KLV SURSRVDO IRU D PHHWLQJ RI WKH D\XQWDPLHQWR IDLOHG WR VDWLVI\ WKH MXQWD DVVHPEOHG DW 'HOJDGRnV KRPH $URXQG VL[ RnFORFN $UFH HQWHUHG D SOHD IRU WKH UHOHDVH RI WKH SULVRQHUV EXW WKH LQWHQGHQWHnV RQO\ UHVSRQVH ZDV WR GLUHFW WKH \RXQJ FUHROH WR GLVSHUVH WKH FURZG ZKLFK ZDV JDWKHULQJ QHDU WKH FKXUFK RI /D 0HUFHGAp $UFH PDGH D KDOIn KHDUWHG DWWHPSW WR FRPSO\ ZLWK WKLV RUGHU DQG WKHQ UHMRLQHG WKH MXQWD ZKLFK ZDV QRZ FRQYHQHG LQ WKH VDFULVW\ RI WKH FKXUFK $W VHYHQ RnFORFN 5RGULJXH] UHWXUQHG WR 3HLQDGRnV KRPH DQG DIWHU LQIRUPLQJ WKH LQWHQGHQWH WKDW D PHHWLQJ RI WKH D\XQWDPLHQWR ZRXOG QRW EH QHFHVVDU\ GHPDQGHG WKDW WKH SULVRQHUV EH IUHHG 7KH PDWWHU ZDV GHEDWHG IRU VRPH WLPH DQG ILQDOO\ -XDQ 0LJXHO %XVWDPDQWH ZKR ZDV QRZ VHUYLQJ DV WKH WHQLHQWH OHWUDGR RI 6DQ 6DOYDGRU FRXQVHOOHG WKDW WKH GHPDQG EH PHW LQ WKH LQWHUHVWV RI SHDFHA D UHOHDVH RUGHU ZDV VLJQHG DQG DW QLQH RnFORFN 5RGULJXH] OHG WKH DOFDOGHV EDFN WR WKH H[XEHUDQW ZHOFRPH DZDLWLQJ WKHP DW /D 0HUFHG %HOLHYLQJ WKH FULVLV ZDV UHVROYHG $UFH DQG D QXPEHU RI RWKHU FUHROHV UHWXUQHG WR WKHLU KRPHV EXW XQGHU WKH OHDGHUVKLS RI 3DEOR &DVWLOOR WKRVH ZKR ZHUH GHWHUPLQHG WR SXW DQ HQG WR WKHLU WURXEOHV ZLWK WKH LQWHQGHQWH UHPDLQHG DW WKH FKXUFK 6KRUWO\ EHIRUH PLGQLJKW WKH FRQVSLUDWRUV VRXQGHG WKH EHOOV RI /D 0HUFHG $UPHG ZLWK D EUDFH RI SLVWROV $UFH DQVZHUHG WKH VXPPRQV DQG OHDUQHG RI D SODQ WR

PAGE 58

VHDO RII WKH FLW\ DQG VLH]H WKH DUPV RI 3HLQDGRn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nV DJLWDWLRQ KRZHYHU IRUFHG SUHFLSLWDWH DFWLRQ ZKLFK UHVXOWHG LQ WKH WRWDO HPDVFXODWLRQ RI WKH LQGHSHQGHQFH PRYHPHQW $V KH UHPDLQHG XQPROHVWHG RQ KLV KDFLHQGD IRU VHYHUDO PRQWKV $UFH PD\ KDYH WKRXJKW WKDW KH ZDV VDIH IURP SURVHFXn WLRQ EXW WKH UHYHODWLRQ RI KLV SDUWLFLSDWLRQ LQ WKH XSULVLQJ ZDV LQHVFDSDEOH &DOOHG LQ RQ $SULO WR DFFRXQW IRU KLV SUHVHQFH DW WKH VFHQH RI WKH WXPXOW $UFH WHVWLILHG WKDW KH KDG JRQH RXW PHUHO\ WR OHDUQ ZK\ WKH FKXUFK EHOOV KDG EHHQ UXQJ :KLOH WKLV VWDWHPHQW ZDV WUXH DQG $UFH ZDV DOORZHG WR UHWXUQ WR KLV KRPH WKH DXWKRULWLHV ZHUH IDU IURP DFFHSWLQJ KLV GHFODUDWLRQ RI LQQRFHQFH 2Q 0D\

PAGE 59

$UFH ZDV SODFHG XQGHU DUUHVW DQG IRU WKH QH[W ILYH \HDUV WKH JODFLDO PRYHPHQW RI 6SDQLVK MXVWLFH ZRXOG EH WKH GRPLQDQW IDFWRU LQ KLV OLIH $UFH ZDV QRW LQIRUPHG RI WKH FKDUJHV DJDLQVW KLP QRU ZDV KH DOORZHG WR FRQWDFW KLV IDPLO\ WKURXJKn RXW WKH VXPPHU RI 'XULQJ WKHVH PRQWKV KLV ZLIH GLUHFWHG VHYHUDO SHWLWLRQV WR WKH DXGLHQFLD SOHDGLQJ WKDW VKH EH DOORZHG WR FRQWDFW KHU KXVEDQG DQG WKDW WKH FDXVH RI KLV DUUHVW EH PDGH NQRZQ $UFH ZDV SHUPLWWHG WR FRPPXQLFDWH ZLWK KLV IDPLO\ EXW WKH UHTXHVW IRU DQ LQGLFWPHQW ZDV IXWLOH %\ 2FWREHU ZKLOH GHPDQGLQJ WKDW KLV FDVH EH EURXJKW WR D VSHHG\ FRQFOXVLRQ $UFH ZDV VWLOO FRPSODLQLQJ WKDW FKDUJHV DJDLQVW KLP KDG QRW EHHQ ILOHG 2QH ZRQGHUV ZKDW $UFHnV UHDFWLRQ ZRXOG KDYH EHHQ KDG KH NQRZQ WKDW KLV WULDO ZRXOG GUDJ RQ IRU QHDUO\ WZR PRUH \HDUV +H ILOHG SURWHVWV WKDW -XDQ 0LJXHO %XVWDPDQWH WKH MXGJH DVVLJQHG WR KLV FDVH ZDV SUHMXGLFHG DJDLQVW KLP DQG LQ )HEUXDU\ KH DGPRQn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

PAGE 60

+LV IRRG RIWHQ FRQVLVWLQJ RI QRWKLQJ PRUH WKDQ PROG\ WRUWLOODV ZDV DERPLQDEOH &RQVHTXHQWO\ KLV KHDOWK GHFOLQHG DQG $UFH VXIIHUHG DOWHUQDWHO\ IURP GLDUUKHD DQG FRQVWLSDWLRQ DOO WKH ZKLOH KH ZDV KHOG LQ FRQILQHPHQWA ,W DSSHDUV WKDW $UFHnV KHDOWK LQ IDFW PD\ KDYH EHHQ SHUPDQHQWO\ GDPDJHG E\ KLV WHUP LQ SULVRQ DV KH ZDV SODJXHG ZLWK LOOQHVVHV WKURXJKn RXW WKH UHVW RI KLV OLIH $UFHnV PRVW VHULRXV FRQFHUQ ZDV WKH ILQDQFLDO GLIILFXOWLHV WKDW ZHUH FDXVHG E\ KLV DUUHVW DQG WKH LPSRXQGLQJ RI KLV SRVVHVVLRQV :KHQ $UFH ILUVW SHWLWLRQHG WR KDYH KLV FDVH EURXJKW WR D FRQFOXVLRQ KH FLWHG WKH QHHG WR DWWHQG WR KLV EXVLQHVV DIIDLUV DIWHU KH KDG EHHQ KHOG IRU D QXPEHU RI PRQWKV KH SOHG WKH FDXVH RI LPSHQGLQJ SRYHUW\A $UFHnV HFRQRPLF SUREOHPV H[WHQGHG WR RWKHU PHPEHUV RI KLV IDPLO\ DV ZHOO )ROORZLQJ KLV GHDWK LQ 1RYHPEHU %HUQDUGR $UFHnV SURSHUW\ ZDV LQFOXGHG LQ WKH DWWDFKPHQW RI KLV VRQn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

PAGE 61

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f¬V JXLOW ,Q %XVWDPDQWH ZDV QDPHG LQWHULP LQWHQGHQWH DQG KLV SODFH DV MXGJH LQ $UFHnV FDVH ZDV WDNHQ E\ ,VLGUR 0DULQ 7KLV FKDQJH PDGH OLWWOH GLIIHUHQFH WR WKH DFFXVHG ZKR VRRQ FRPSODLQHG WKDW 0DULQ ZDV DV ELDVHG DQG XQIDLU DV KLV SUHGHFHVVRUA %\ WKH HQG RI WKH \HDU WKH LQYHVWLJDWLRQ KDG EHHQ FRPSOHWHG EXW LW UHTXLUHG VL[ PRQWKV WR UHDFK D GHFLVLRQ LQ WKH FDVH DQG WKUHH PRUH \HDUV WR FRQFOXGH DOO RI WKH OLWLJDn WLRQ WKDW ZDV LQYROYHG )UDQFR 5XLV ZKR KDG EHHQ DSSRLQWHG DV $UFHf¬V GHIHQVRU UHVLJQHG IURP WKH FDVH LQ 0DUFK DQG $UFH DVNHG WKDW KLV VLVWHU EH QDPHG WR UHSUHVHQW KLP 7KLV UHTXHVW ZDV GHQLHG DQG $UFH ZDV VDGGOHG ZLWK 'RPLQJR %DUDRQD D PRUWDO HQHP\ ZKR ZDV UHJDUGHG E\ 0DULDQR )DJRDJD DV D SURIHVVLRQDO GUXQNDUG%DUDRQD ZHQW WKURXJK WKH PRWLRQV RI SUHVHQWLQJ D GHIHQVH EXW E\ WKLV WLPH LW PDGH OLWWOH GLIIHUHQFH ZKR KDQGOHG WKH GHIHQVH RU KRZ LW ZDV

PAGE 62

SUHVHQWHG 2Q -XQH $UFH ZDV FRQGHPQHG WR VHUYH HLJKW \HDUV LQ WKH SULVRQ DW &HXWDA 7KLV VHQWHQFH ZDV QRW FDUULHG RXW DV $UFHn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nV FDVH )LQDOO\ RQ -XO\ WKH FRXUW UHFRPPHQGHG WKDW $UFHnV VHQWHQFH EH VXVSHQGHGA )ROORZLQJ KLV UHOHDVH IURP SULVRQ $UFHnV HQHUJLHV ZHUH WRWDOO\ DEVRUEHG E\ WKH QHHGV RI KLV IDPLO\ DQG WKH HIIRUW RI SXWWLQJ KLV ILQDQFLDO DIIDLUV LQ RUGHU $V WKH PDUNHW IRU LQGLJR ZDV E\ WKLV WLPH DOPRVW QRQH[LVWHQW DQG WKH SURGXFWLRQ RI FRFKLQHDO KDG QRW \HW WDNHQ KROG LW LV OLNHO\ WKDW KH ZDV DEOH WR GR OLWWOH PRUH WKDQ UHWUHQFK 6XSSRUWHG E\ D IHZ UHQWV DQG VHYHUDO VPDOO KHUGV RI FDWWOH KLV IDPLO\ QHYHU DJDLQ HQMR\HG WKH LQFRPH RI HDUOLHU GD\V 3RVVLEO\ LW ZDV WKLV HFRQRPLF KDUGVKLS ZKLFK FDXVHG $UFH WR

PAGE 63

EH OLWWOH FKDVWHQHG E\ KLV \HDUV LQ SULVRQ DV QRW PDQ\ PRQWKV SDVVHG EHIRUH LW EHFDPH FOHDU WKDW $UFHnV DWWLWXGHV KDG QRW EHHQ LQIOXHQFHG E\ KLV UHSHDWHG SURWHVWDWLRQV WKDW KH KDG DOZD\V EHHQ D JRRG YDVVDO :LWK WKH UHVWRUDWLRQ RI WKH &RQVWLWXWLRQ RI IROn ORZLQJ WKH 5LHJR UHYROW 'HOJDGR ZDV UHWXUQHG WR KLV VHDW RQ WKH GLSXWDFLµ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¯ WKH SKDQWRPV ZKLFK ELQG XV WR WKH ROG JRYHUQPHQW ,Q WKLV VDPH OHWWHU $UFH GLVSOD\HG D UHPDUNDEOH GHJUHH RI JHQHURVLW\ IRU D PDQ ZKR KDG EHHQ PDGH WR SD\ VR GHDUO\ IRU KLV EHOLHIV 3ODFLQJ WKH LQWHUHVWV RI WKH IXWXUH QDWLRQ DKHDG RI WKH GHVLUH IRU SHUVRQDO UHYHQJH $UFH ZURWH 7KH PRQJUHO VSLULWV ZKLFK WUDPSOHG RYHU DOO ZLWK LQGRPLWDEOH SULGH KDYH IDOOHQ GHDG LQ WKH IDFH RI

PAGE 64

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µQ SURYLQFLDO DQG RQ 2FWREHU 3HGUR %DUULHUH WKH MHIH SROLWLFR ZDV SUHVHQWn HG ZLWK D GRFXPHQW ZKLFK LQIRUPHG KLP WKDW WKH SHRSOH KDYH GHWHUPLQHG WR HUHFW D MXQWD JREHUQDWLYD VXEDOWHUQD LQ 2If WKLV FLW\ DFFRUGLQJ WR WKH SODQ RI WKH RQH LQ WKH FDSLWDO $SSDUHQWO\ DVVXPLQJ WKDW FRQVHUYDWLYHV ZRXOG FRQWURO WKH MXQWD %DUULHUH DFFHSWHG WKH SHWLWLRQ DQG VHW 2FWREHU DV WKH GD\ IRU HOHFWLQJ WKH PHPEHUV RI WKH QHZ ERG\ ,Q DWWHPSWLQJ WR URXQG XS FRQVHUYDWLYH VXSSRUW IRU WKH HOHFWLRQV ,JQDFLR 6DOGDQD nDQG -RVHnf¬ 9LWHUL GLVFRYHUHG WKDW WKHUH ZDV

PAGE 65

OLWWOH SURVSHFW IRU D FRQVHUYDWLYH YLFWRU\ DQG DW HOHYHQ Rn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¯JXH] $UFH DQG /DUD ZHUH VHQW RQ WKHLU ZD\ ,W QHYHU RFFXUUHG WR KLP WKDW WKH SURWHVW RI 6DQ 9LFHQWH ZRXOG EH KHDUG DQG WKDW WKH FHQWUDO JRYHUQPHQW ZRXOG GLVDSSURYH RI KLV EHKDYLRU &RQYLQFHG WKDW %DUULHUHnV UHSUHVVLYH WDFWLFV SRVHG D JUHDWHU WKUHDW WR VWDELOLW\ WKDQ GLG WKH DVSLUDWLRQV RI WKH 6DOYDGRUDQ OLEHUDOV WKH MXQWD SURYLVLRQDO FRQVXOWLYD DQG MHIH SROLWLFR VXSHULRU *DELQR *DLQ]D GLUHFWHG -RVGr 0DWLDV 'HOJDGR WR UHWXUQ WR 6DQ 6DOYDGRU DVVXPH %DUULHUHnV RIILFH UHOHDVH WKH SULVRQHUVDQG UHSODFH DOO XQWUXVWZRUWK\ RIILFLDOV $UPHG ZLWK WKHVH EURDG SRZHUV 'HOJDGR HQFRXQn WHUHG WKH SULVRQHUV RQ WKH URDG WR 6DQ 6DOYDGRU DQG RUGHUHG WKHLU UHOHDVH 7KHUH PXVW KDYH EHHQ D IDLU DPRXQW RI

PAGE 66

VXUSULVH ZKHQ 'HOJDGR DQG KLV UHWLQXH DUULYHG LQ WKH FLW\ %DUULHUH ZDV RUGHUHG WR OHDYH WKH SURYLQFH DQG DOO RI WKH PHPEHUV RI WKH D\XQWDPLHQWR ZHUH UHPRYHG IURP RIILFH 7KH DGPLQLVWUDWLRQ RI SURYLQFLDO DIIDLUV ZDV HQWUXVWHG WR D GLSXWDFLµQ ZKLFK KDG 'HOJDGR DV SUHVLGHQW DQG $UFH 5RGULn JXH] /HDQGUR )DJRDJD %DVLOLR =HFHQD DQG 0LJXHO -RVHnr &DVWUR DV PHPEHUVA 7KHLU JRDO RI VHOIJRYHUQPHQW ZDV ILQDOO\ DWWDLQHG EXW WKH FUHROH OLEHUDOV KDG OLWWOH WLPH IRU WKH OHLVXUHO\ HQMR\PHQW RI WKH IUXLW RI WKHLU ODERUV DV WKHLU QHZO\ ZRQ LQGHSHQGHQFH ZDV LPPHGLDWHO\ FKDOOHQJHG E\ WKH DPELWLRQV RI $JXVW¯Q ,WXUELGH DQG KLV IROORZHUV ,Q /HRQ 1LFDUDJXD LQWHQGHQWH 0LJXHO *RQ]DOH] 6DUDYLD DQG ELVKRS 1LFRODV *DUFLD -HUH] KDG UHVSRQGHG WR WKH *XDWHPDODQ GHFODUDWLRQ RI LQGHn SHQGHQFH E\ VHFXULQJ WKH LQGHSHQGHQFH RI WKHLU SURYLQFH ZLWK D VWDWHPHQW RI VXSSRUW IRU WKH 3ODQ RI ,JXDOD -RVHr 7LQRFR SXUVXHG D VLPLODU FRXUVH LQ &RPD\DJXD +RQGXUDV DQQRXQFLQJ VHSDUDWLRQ IURP *XDWHPDOD DQG DGKHVLRQ WR 0H[LFR 2Q 1RYHPEHU *DELQR *DLQ]D LQIRUPHG WKH WZR SURYLQFHV WKDW QR RIILFLDO RU FRUSRUDWH ERG\ SRVVHVVHG WKH DXWKRULW\ WR PDNH VXFK GHFLVLRQV ZKLFK ZHUH UHVHUYHG IRU WKH FRQVLGn HUDWLRQ RI WKH FRQJUHVV RUGDLQHG E\ WKH DFW RI 6HSWHPEHU $W DERXW WKH VDPH WLPH LW ZDV GHFLGHG WR PRYH WKH RSHQLQJ RI WKH FRQJUHVV XS WR )HEUXDU\ EXW WKLV DFWLRQ ZDV QRW DGHTXDWH WR FRQWDLQ WKH JURZLQJ SUHVVXUHV IRU XQLRQ ZLWK 0H[LFR :KLOH KH KDG SRVVLEO\ KRSHG WR SUHVHUYH &HQWUDO $PHULFD DV KLV RZQ GRPDLQ *DLQ]DnV UHVLVWDQFH WR

PAGE 67

WKH GLVVLGHQW SURYLQFHV DQG ILFNOH *XDWHPDODQ DULVWRFUDWV ZHDNHQHG FRQVLGHUDEO\ DIWHU -RVH 2QDWH DUULYHG RQ 1RYHPEHU EHDULQJ D QRWH IURP WKH 0H[LFDQ /LEHUDWRU ,WXUELGHnV OHWWHU SRLQWHG RXW WKH SROLWLFDO DQG HFRQRPLF DGYDQWDJHV WKDW ZRXOG DULVH IURP WKH XQLRQ RI WKH WZR DUHDV DQG VXJn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nV OHWWHU DQG LQVWUXFWHG WKHP WR DVFHUWDLQ ORFDO SUHIHUHQFHV UHJDUGLQJ DQQH[DWLRQ E\ PHDQV RI FDELOGRV DELHUWRV 7KH GHFLVLRQV UHDFKHG LQ WKHVH PHHWLQJV ZHUH WR EH UHSRUWHG WR WKH FDSLWDO E\ WKH HQG RI 'HFHPEHU 7KH LVVXH RI DQQH[DWLRQ ZDV UDLVHG LQ D PHHWLQJ RI WKH 6DOYDGRUDQ GLSXWDFLµQ RQ 'HFHPEHU ,OO GLVSRVHG WR WUDGH WKHLU LQGHSHQGHQFH IRU WKH EHQHILWV RI XQLRQ ZLWK 0H[LFR WKH FUHROHV LPPHGLDWHO\ GHFLGHG WR RSSRVH WKH SROLF\ EHLQJ SXUVXHG E\ *DLQ]D 7ZR GD\V ODWHU WKH GLSXWDFLµQ LQIRUPHG WKH MHIH SROLWLFR VXSHULRU WKDW WKRXJK WKH GLSXWDFLµQ KDG QRW EHHQ LQFOXGHG LQ WKH FLUFXODUL]DWLRQ RI ,WXUELGHnV OHWWHU LW ZDV DZDUH RI *DLQ]DnV RUGHU DQG YLHZHG WKH GLUHFWLYH DV D UHSXGLDWLRQ RI WKH $FW RI ,QGHSHQGHQFH

PAGE 68

*DLQ]D ZDV DOVR UHPLQGHG RI KLV HDUOLHU VWDWHPHQW WKDW D GHFLVLRQ FRQFHUQLQJ DQQH[DWLRQ ZDV EH\RQG WKH IDFXOWLHV RI DQ\ H[LVWLQJ DJHQF\Ap +DYLQJ GHWHUPLQHG WKDW *DLQ]DnV SURSRVDO IRU GHFLGLQJ WKH TXHVWLRQ RI DQQH[DWLRQ ZDV LOOHJDO WKH 6DOYDGRUDQV PLJKW KDYH UHIUDLQHG IURP IXUWKHU DFWLRQ EXW IRUP ZDV REVHUYHG DQG D FDELOGR DELHUWR ZDV KHOG RQ WKH HLJKWHHQWK RI 'HFHPEHU $W WKLV PHHWLQJ WKH FLWL]HQV RSWHG WR KDYH WKH D\XQWDPLHQWR DQG GLSXWDFLµQ PDNH WKH GHFLVLRQ IRU WKHP ,Q D FORVHG VHVVLRQ WKH PHPEHUV RI WKHVH ERGLHV PDLQWDLQHG WKH SRVLWLRQ RULJLQDOO\ WDNHQ E\ WKH GLSXWDFLµQ DQG UHIXVLQJ WR HLWKHU DGYRFDWH RU UHMHFW XQLRQ ZLWK 0H[LFR GLFWDWHG WKH UHSO\ WKDW WKH LVVXH RI DQQH[DWLRQ FRXOG RQO\ 4 EH UHVROYHG E\ WKH SURYLQFLDO FRQJUHVV 6HQVLQJ WKH GHWHUPLQDWLRQ RI WKH ,WXUELGHnV IULHQGV WR KDYH WKHLU ZD\ LQ WKH PDWWHU DQG UHDOL]LQJ WKDW WKH\ FRXOG QRW VWDQG DORQH WKH 6DOYDGRUDQV LQLWLDWHG D UDWKHU QDLYH DWWHPSW WR IRUP D XQLRQ ZKLFK FRXOG VXFFHVVIXOO\ UHVLVW DQQH[DWLRQ 3RVVLEO\ KRSLQJ WKDW WKH SUHYLRXVO\ DQQRXQFHG VXSSRUW IRU WKH 3ODQ RI ,JXDOD ZDV EDVHG PRUH RQ DQWLSDWK\ WR *XDWHPDOD WKDQ IULHQGVKLS IRU 0H[LFR WKH 6DOYDGRUDQ GLSXWDFLµQ ZURWH WR WKH GLSXWDFLRQHV RI &RPD\DJXD DQG /HµQ RQ 'HFHPEHU DQG SURSRVHG WKH IRUPDWLRQ RI D FRQIHGHUDWLRQ E\ WKH WKUHH SURYLQFHVA 6WDWLQJ WKDW *DLQ]DnV DFWLRQV KDG OHG WR QXPHURXV GLVRUGHUV LQ &HQWUDO $PHULFD WKH 6DOYDGRUDQV VXJJHVWHG WKDW WKH LVVXH RI DQQH[DWLRQ PLJKW JLYH ULVH WR LQWHUQHFLQH ZDUIDUH 7KLV SRVVLELOLW\ FRXOG EH DYRLGHG E\ D XQLRQ RI WKH SURYLQFHV ZKLFK ZLWK WKH H[FOXVLRQ

PAGE 69

RI *XDWHPDOD ZRXOG JXDUDQWHH WKH ZHOOEHLQJ RI DOO FRQFHUQHG 2QH ZRQGHUV ZKDW SDVVHG WKURXJK WKH PLQGV RI WKH OHDGHUV RI /Hµ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n DWLRQ ZLWK VRPH FRQGLWLRQV WKLUW\WZR DJUHHG WR DFFHSW DQ\ GHFLVLRQ PDGH E\ WKH FHQWUDO JRYHUQPHQW DQG WZR RSSRVHG DQQH[DWLRQA ,Q DFFRUGDQFH ZLWK WKHVH UHWXUQV *DLQ]D DQQRXQFHG RQ WKH VDPH GD\ WKH DQQH[DWLRQ RI &HQWUDO $PHULFD WR 0H[LFR LQ D PDQLIHVWR WKDW DSSHDUV WR KDYH EHHQ ZULWWHQ SULPDULO\ IRU ,WXUELGHnV FRQVXPSWLRQ 'HFOLQLQJ WR DFFHSW WKLV GHFUHH DV ELQGLQJ RQ WKHPWKH 6DOYDGRUDQ GLSXWDFLµQ DQG D\XQWDPLHQWR PHW LQ MRLQW VHVVLRQ RQ -DQXDU\ DQG GUDIWHG D VWDWHPHQW LQ ZKLFK WKH\ UHDIILUPHG WKHLU FRQWHQWLRQ WKDW WKH SROO RI WKH WRZQV FDUULHG QR DXWKRULW\ 7KH 6DOYDGRUDQV DOVR SRLQWHG RXW WKDW WKH UHVXOWV RI WKH SROO FRXOG QRW GHILQLWHO\ EH VDLG WR UHSUHVHQW WKH ZLVKHV RI WKH PDMRULW\ RI WKH SHRSOH DV WKH YRWH RI D VPDOO FRPPXQLW\ FDUULHG MXVW DV PXFK ZHLJKW DV WKDW RI D WRZQ WZHQW\ WLPHV L ODUJHU 6WLOO WKH\ GLG QRW WRWDOO\ UHMHFW WKH LGHD RI

PAGE 70

XQLRQ ZLWK 0H[LFR EXW H[SUHVVHG WKH QRZ IRUORUQ KRSH WKDW WKH SURYLQFLDO FRQJUHVV ZRXOG EH FRQYHQHG WR FRQVLGHU WKH PDWWHU ,W ZDV IXUWKHU GHFODUHG WKDW WKH SURYLQFH DFFHGHG WR VRYHUHLJQ VWDWXV LQDVPXFK DV WKH GHFUHH RI DQQH[DWLRQ KDG EURXJKW DERXW WKH GHPLVH RI WKH FHQWUDO JRYHUQPHQW 3HQGLQJ WKH IXOILOOPHQW RI WKH WHUPV RI WKH 6HSWHPEHU $FW RI ,QGHSHQGHQFH WKH GLSXWDFLµQ ZRXOG VHUYH DV WKH SURYLVLRQDO JRYHUQPHQW RI WKH SURYLQFHA 7KH QHZV RI 6DQ 6DOYDGRUnV LQGHSHQGHQW DFWLRQ VRRQ UHDFKHG *XDWHPDOD DQG V\FRSKDQW 0DULDQR $\FLQHQD LPPHGLDWHO\ LQIRUPHG ,WXUELGH RI WKH 6DOYDGRUDQ SHUILG\ 8UJLQJ WKH GLVSDWFK nRI D 0H[LFDQ H[SHGLWLRQDU\ IRUFH $\FLQHQD DWWHPSWHG WR LPSUHVV KLV QHZ PDVWHU ZLWK WKH JUDYLW\ RI WKH VLWXDWLRQ E\ UHSRUWLQJ WKH UXPRU WKDW /RUG &RFKUDQH KDG SURYLGHG WKH 6DOYDGRUDQV ZLWK ILYH KXQGUHG ULIOHVA *DELQR *DLQ]D KRZHYHU ZDV DQ[LRXV WR SURYH WKDW WKHUH ZDV QR QHHG IRU 0H[LFDQ LQWHUYHQWLRQ 7KH VHFXULW\ RI KLV SRVLWLRQ LQ WKH HPSLUH GHSHQGHG RQ WKH GHPRQVWUDWLRQ RI KLV DELOLW\ WR PDLQWDLQ D FRQGLWLRQ RI WUDQTXLO REHGLHQFH WR ,WXUELGH *DLQ]DnV ILUVW UHVSRQVH WR WKH 6DOYDGRUDQ WKUHDW UHVHPEOHG WKH DSSURDFK KH KDG DGRSWHG LQ GHDOLQJ ZLWK /HµQ DQG &RPD\DJXD WKH SUHYLRXV \HDU +H LQIRUPHG WKH 6DOYDGRUDQV WKDW WKHUH ZDV QR OHJDO MXVWLILFDWLRQ IRU WKHLU DFWLRQ ZKLFK ZDV LQVXERUGLQDWH LI QRW WUHDVRQRXV ,Q D UHSO\ GUDIWHG RQ -DQXDU\ 'HOJDGR DUJXHG WKDW 6DQ 6DOYDGRU KDG EHFRPH D VRYHUHLJQ HQWLW\ DW WKH WLPH RI LQGHSHQGHQFH 2EHGLHQFH WR WKH FHQWUDO JRYHUQPHQW GXULQJ WKH SUHFHHGLQJ PRQWKV KDG EHHQ

PAGE 71

EDVHG RQ 6DOYDGRUnV DFFHSWDQFH RI WKH *XDWHPDODQ GHFODUDWLRQ RI 6HSWHPEHU ZKLFK ZDV YLHZHG DV D NLQG RI SDFW EHWZHHQ WKH SURYLQFHV $V WKLV SDFW KDG EHHQ DEURJDWHG E\ WKH DQQH[DWLRQ GHFUHH 'HOJDGR FODLPHG WKDW WKH 6DOYDGRUDQV ZHUH MXVWLILHG LQ UHDVVHUWLQJ WKHLU LQGHSHQGHQFHA :KLOH WKHUH ZDV OLWWOH EDVLV IRU WKLV DUJXPHQW LW FRQYLQFHG *DLQ]D WKDW WKH 6DOYDGRUDQV FRXOG QRW EH ZRQ RYHU E\ SHUVXDn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µQ HQWUXVWHG WKLV UHVSRQVLELOLW\ WR $UFH ZKR ZDV DSSRLQWHG FRPDQGDQWH JHQHUDO RI WKH SURYLQFH 7KH FRPDQGDQWH TXLFNO\ RUJDQL]HG D RQH KXQGUHG DQG ILIW\ PDQ VTXDGURQ RI GUDJRRQV DQG E\ WKH ILUVW RI )HEUXDU\ KH ZDV LQ WKH ILHOG RVWHQVLEO\ IRU WKH SXUSRVH RI SURWHFWLQJ WKH OLEHUW\ DQG LQGHSHQGHQFH RI 6DQ 6DOYDGRUA $UFHf¬V SULPDU\ FRQFHUQ KRZHYHU ZDV WKH HOLPLQDWLRQ RI WKH WKUHDW SRVHG E\ WRZQV VXFK DV 6DQWD $QD ZKLFK KDG GHFODUHG IRU DQQH[DWLRQ WR 0H[LFR DQG UHIXVHG WR UHFRJQL]H WKH DXWKRULW\ RI WKH JRYHUQPHQW RI 6DQ 6DOYDGRU 6DQWD $QD HVSHFLDOO\ DWWUDFWHG $UFHnV DWWHQWLRQ DV LW ZDV XQGHU WKH SURWHFWLRQ RI D JDUULVRQ OHG E\ 1LFRODV $ERV

PAGE 72

3DGLOOD ZKR KDG EHHQ DFWLYHO\ SURPRWLQJ GHIHFWLRQ LQ RWKHU DUHDV RI WKH SURYLQFH &ODLPLQJ WKDW WKH FRPPXQLWLHV RI WKH SURYLQFH GLG QRW HQMR\ WKH ULJKW RI LQGHSHQGHQW DFWLRQ $UFH PRYHG RQ 6DQWD $QD DV WKH HQG RI WKH PRQWK DSSURDFKHG :KHQ KH OHDUQHG RI $UFHnV DFWLRQ 3DGLOOD GHPRQVWUDWHG WKDW KH ODFNHG WKH FRXUDJH RI KLV FRQYLFWLRQV E\ ZLWKGUDZLQJ KLV WURRSV WR WKH GLVWULFW RI 6RQVRQDWH ZKLFK ZDV WKHQ XQGHU WKH MXULVGLFWLRQ RI *XDWHPDOD 6DQWD $QD ZDV WDNHQ ZLWKRXW D VKRW EHLQJ ILUHG DQG $UFH KDG OLWWOH GLIILFXOW\ LQ VHFXULQJ D GHFODUDWLRQ RI WKH WRZQnV DOOHJLDQFH WR 6DQ 6DOYDGRU :LWK WKH LQWHQWLRQ RI FRQVROLGDWLQJ KLV SRVLWLRQ $UFH WKHQ SXUVXHG 3DGLOOD LQWR 6RQVRQDWH 7KH 6DOYDGRUDQV RFFXSLHG WKH WRZQ RI $KXDFKDS£Q DQG HQFRXQWHULQJ 3DGLOOD RQ 0DUFK WKH\ FRPSOHWHO\ URXWHG KLV IRUFH LQ D EDWWOH QHDU (O (VSLQDO,pp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n WDWLRQ ZLWK *XDWHPDOD DQG RQ OHDUQLQJ RI WKH SUHSDUDWLRQV

PAGE 73

IR[ $U]Xn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n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nQ ZKLFK QRZ LQFOXGHG 'HOJDGR $UFH 5RGULJXH] /HDQGUR )DJRDJD 0DULDQR )DJRDJD 'RPLQJR /DUD $QWRQLR -RVH &D³DV DQG -XDQ GH 'LRV 0D\RUJD GHPRQVWUDWHG LWV LQGHSHQGHQFH E\ GHFUHHLQJ WKH HUHFWLRQ RI D ELVKRSULF DQG QDPHG 'HOJDGR ELVKRS RI WKH SURYLQFH $OO RI WKLV DFWLYLW\ KDG OLWWOH HIIHFW RQ *DLQ]D ZKR

PAGE 74

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n VLGHG 2Q $SULO 0RQWXIDU DWWHQGHG D MRLQW VHVVLRQ RI WKH D\XQWDPLHQWR DQG WKH GLSXWDFLµQ LQ ZKLFK WKH 6DOYDGRUDQV SUHVHQWHG D OHQJWK\ FRQGHPQDWLRQ RI WKH *XDWHPDODQ LQYDVLRQ DQG GLFWDWHG WKH WHUPV RI WKH DUPLVWLFH 7KH PRUH VLJQLILFDQW WHUPV RI WKLV DJUHHPHQW SURYLGHG IRU $U]Xr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nV FRQWLQXHG UHVLVWDQFH ZDV GXH

PAGE 75

VROHO\ WR $U]XnV IDLOXUH WR FDUU\ RXW KLV RUGHUV 7KRXJK *DLQ]D FRPSODLQHG WKDW )LOLVROD ZKR KDG QRZ UHDFKHG 4XH]DO WHQDQJR KDG UHIXVHG WR VHQG WKH 0H[LFDQ FDYDOU\ WR $U]XnV DVVLVWDQFH KH DVVXUHG ,WXUELGH WKDW 6DQ 6DOYDGRU ZRXOG VRRQ EH EURXJKW LQWR OLQHA 7KH MHIH SROLWLFR WKHQ ZURWH WR WKH 6DOYDGRUDQV VWDWLQJ WKDW DV KH KDG QRW DXWKRUL]HG DQ\ VHWWOHPHQW KH ZRXOG QRW EH ERXQG E\ WKH DUPLVWLFH DQG WKDW $U]X ZRXOG VKRUWO\ SUHVHQW WKHP ZLWK WKH RQO\ DFFHSWDEOH DUPLVWLFH WHUPV +H DOVR LQIRUPHG WKH 6DOYDGRUDQV WKDW 3HGUR 0ROLQD -RVHr )UDQFLVFR %DUUXQGLD -RVH )UDQFLVFR &RUGRYD DQG 0DQXHO ,EDUUD ZKR KDG EHHQ HOHFWHG WR UHSUHVHQW YDULRXV 6DOYDGRUDQ GLVWULFWV LQ WKH SURYLQFLDO FRQJUHVV ZRXOG QRW EH SHUPLWWHG WR DWWHQG WKH SURSRVHG FRQJUHVV LQ 6DQ 6DOYDGRU DV WKH\ ZHUH QRZ FLWL]HQV RI WKH 0H[LFDQ HPSLUH r )LQDOO\ *DLQ]D VHQW $U]X D EOLVWHULQJ QRWH ZKLFK VWDWHG WKDW WKH FRPPDQGHUnV EHKDYLRU ZDV WRWDOO\ LQFRPSUHKHQVLEOH 7KHUH KDG EHHQ QR PLOLWDU\ UHDVRQ IRU DJUHHPHQW WR DQ DUPLVWLFH DQG LI $U]X KDG PHUHO\ ZDQWHG WR DYRLG EORRGVKHG KH FRXOG KDYH DW OHDVW VHFXUHG D PRUH DGYDQWDJHRXV VHWWOHn PHQW 7KLV ZDV IROORZHG E\ D OHQJWK\ OHWWHU GHVLJQHG WR FRQYLQFH $U]X RI WKH MXVWLFH RI WKH FDPSDLJQ DJDLQVW 6DQ 6DOYDGRU :ULWLQJ LQ WHUPV WKDW FRXOG EH XQGHUVWRRG E\ D FKLOG *DLQ]D SUHVHQWHG D GDPQLQJ LQGLFWPHQW RI 6DOYDGRUDQ SHUILG\ DQG DJUHVVLRQ +H GLUHFWHG WKH UHMHFWLRQ RI DQ\ DUPLVWLFH WKDW GLG QRW SURYLGH IRU WKH GLVEDQGLQJ RI 6DOYDGRUDQ IRUFHV WKH GHOLYHUDQFH RI DOO DUPV SD\PHQW RI LQGHPQLWLHV DQG WKH HVWDEOLVKPHQW RI JDUULVRQV LQ WKH

PAGE 76

SURYLQFHV 8QWLO WKHVH WHUPV ZHUH DFFHSWHG $U]LL ZDV WR JLYH QR WKRXJKW WR WKH VXVSHQVLRQ RI KRVWLOLWLHV $V PLJKW EH H[SHFWHG WKH 6DOYDGRUDQ JRYHUQPHQW UHMHFWHG *DLQ]DnV WHUPV DQG RQ 0D\ WKH UHOXFWDQW $U]X EHJDQ WR PRYH DJDLQVW WKH FLW\ +RSLQJ WR WDNH $UFH E\ VXUSULVH $U]YD HOHFWHG WR DSSURDFK WKH FLW\ E\ ZD\ RI D OLWWOH XVHG URXWH ZKLFK FURVVHG WKH VORSHV RI WKH YROFDQR O\LQJ WR WKH ZHVW DQG DIWHU FRQVLGHUDEOH GLIILFXOW\ UHDFKHG WKH RXWVNLUWV RI 6DQ 6DOYDGRU RQ WKH VHFRQG RI -XQH $U]LDnV VWHDOWK SURYHG WR KDYH EHHQ D ZDVWHG HIIRUW DV $UFH KDG GHFLGHG QRW WR HQJDJH LQ RSHQ FRPEDW DQG KDG ZLWKGUDZQ WR WKH FLW\ /HDGLQJ KLV PDQ IRUFH LQWR 6DQ 6DOYDGRU RQ WKH IROORZLQJ PRUQLQJ $U]X IRXQG WKDW KH DOVR KDG EHHQ GHQLHG WKH RSSRUWXQLW\ IRU D IURQWDO DVVDXOW DV WKH 6DOYDGRUDQ FRPPDQGHU KDG VWDWLRQHG KLV PHQ DW GRRUZD\V DQG ZLQGRZV EHKLQG ZDOOV DQG RQ URRIWRSVA 2QFH HQJDJHG $U]X PDLQn WDLQHG WKH EDWWOH IRU QHDUO\ HLJKW KRXUV EXW KH ZDV QRW SUHSDUHG WR FRSH ZLWK WKH W\SH RI GHIHQVH SUHVHQWHG E\ WKH 6DOYDGRUDQV 7KH *XDWHPDODQ IRUFH ZDV EURNHQ LQWR D QXPEHU RI LVRODWHG XQLWV PDQ\ RI ZKLFK GHPRQVWUDWHG JUHDWHU LQWHUHVW LQ ORRWLQJ WKDQ ILJKWLQJ ,QIRUPHG RI QXPHURXV GHVHUWLRQV $U]LL EHJDQ D ZLWKGUDZDO DW WKUHH RnFORFN LQ WKH DIWHUQRRQ 7KH 6DOYDGRUDQV SXUVXHG WKH LQYDGLQJ IRUFH DV LW OHIW WKH FLW\ DQG WKH UHWUHDW JUDGXDOO\ EHFDPH D URXW /RVLQJ LWV DUPDPHQWV RQ WKH ZD\ WKH *XDWHPDODQ FROXPQ VXIIHUHG FRQWLQXHG KDUDVVPHQW XQWLO LW UHDFKHG D SRLQW VRPH ILIWHHQ OHDJXHV IURP 6DQ 6DOYDGRU WKUHH GD\V ODWHU

PAGE 77

7KLV YLFWRU\ EURXJKW WR D FORVH WKH ILUVW SKDVH RI WKH 6DOYDGRUDQV VWUXJJOH WR PDLQWDLQ WKHLU LQGHSHQGHQFH $UFHnV IRUFHV RFFXSLHG WKH WRZQV RI 6DQWD $QD $KXDFKDSDQ DQG 6RQVRQDQWH UHVWRULQJ 6DQ 6DOYDGRU WR WKH SRVLWLRQ LW KDG KHOG IROORZLQJ WKH GHIHDW RI 3DGLOOD *DLQ]D ZDV XQDEOH WR RIIHU IXUWKHU RSSRVLWLRQ 2Q -XQH *HQHUDO )LOLVROD DUULYHG LQ *XDWHPDOD DQG HLJKW GD\V ODWHU KH RUGHUHG WKH MHIH SROLWLFR WR UHSRUW WR ,WXUELGH LQ 0H[LFR &LW\ :LWK WKH DUULYDO RI WKH 0H[LFDQ JHQHUDO WKH 6DOYDGRUDQV LQLWLDWHG D SURORQJHG VHULHV RI QHJRWLDWLRQV ZKLFK H[WHQGHG DOPRVW WR WKH HQG RI WKH \HDU $SSDUHQWO\ 'HOJDGRnV OHWWHU RI 0DUFK DQG VXEVHTXHQW OHWWHUV ZULWWHQ E\ $UFH DFKLHYHG WKH GHVLUHG HIIHFW DV )LOLVROD KDG EHFRPH FRQYLQFHG WKDW WKH 6DOYDGRUDQV GLG QRW JHQXLQHO\ RSSRVH XQLRQ ZLWK 0H[LFR DQG LI WUHDWHG JHQWO\ ZRXOG GHFODUH IRU DQQH[DWLRQ :KLOH *DLQ]D ZDV LQ WKH SURFHVV RI FRQYLQFLQJ $U]X WR WDNH YLJRURXV DFWLRQ )LOLVROD KDG DGYLVHG WKH *XDWHPDODQ FRPPDQGHU WKDW D SHDFHIXO DSSURDFK ZRXOG EH WKH PRVW SURn GXFWLYH DV KH EHOLHYHG WKDW WKH FRQIOLFW ZDV FDXVHG QRW VR PXFK E\ WKH LVVXH RI DQQH[DWLRQ DV LW ZDV E\ ROG ULYDOULHVA )ROORZLQJ WKH GHIHDW RI $U]X WKH 6DOYDGRUDQV UHLQIRUFHG Z )LOLVRODnV FRQYLFWLRQ DV WKH\ ZHOFRPHG WKH QHZV RI KLV DUULYDO LQ *XDWHPDOD ZLWK WKH VWDWHPHQW WKDW LW PHDQW WKH HQG RI WKH XQMXVW WUHDWPHQW WKH\ KDG VXIIHUHG 7KHLU UHVLVn WDQFH WKH\ VDLG KDG QRW EHHQ GLUHFWHG DJDLQVW XQLRQ ZLWK 0H[LFR EXW DJDLQVW WKH RSSUHVVLRQ RI *XDWHPDOD,Q OHWWHUV WR 'HOJDGR DQG $UFH )LOLVROD DVVXUHG WKH 6DOYDGRUDQV

PAGE 78

WKDW KH ZDV RQO\ LQWHUHVWHG LQ D SHDFHIXO VHWWOHPHQW RI GLIIHUHQFHV DQG VXJJHVWHG WKDW FRPPLVVLRQHUV EH VHQW WR QHJRWLDWH DQ DUPLVWLFH 7KH EHWWHU SDUW RI WKH VXPPHU ZDV VSHQW LQ WKH H[n FKDQJH RI FRUUHVSRQGHQFH EXW RQ $XJXVW $QWRQLR -RVA &DQDV DLG -XDQ )UDQFLVFR GH 6RVD ILQDOO\ DUULYHG LQ *XDWHPDOD WR UHSUHVHQW 6DQ 6DOYDGRU LQ WKH DUPLVWLFH QHJRWLDWLRQV $IWHU WKH GLVFXVVLRQV EHJDQ )LO[VRODnV EHOLHI WKDW WKH 6DOYDGRUDQ SODQ WR FRQYHQH D SURYLQFLDO FRQJUHVV IRU WKH SXUSRVH RI GHFODULQJ DQQH[DWLRQ UHSUHVHQWHG D SXQFWLOLRXV FRQFHUQ IRU SUHVWLJH DQG LQGHSHQGHQW DFWLRQ JUDGXDOO\ IDGHG 6DOYDGRUDQ SUHVVXUH IRU UHFRJQLWLRQ RI VXFK D FRQJUHVV LQ WKH DUPLVWLFH WHUPV FDXVHG )LOLVROD WR YLHZ WKH SODQ DV D VWUDWHJHP IRU VHFXULQJ WDFLW DXWKRUL]DWLRQ IRU D GHFODUDWLRQ RI DEVROXWH LQGHSHQGHQFH :KLOH KH EHOLHYHG WKDW WKH 6DOYDGRUDQV ODFNHG WKH UHVRXUFHV QHFHVVDU\ WR PDLQWDLQ LQGHSHQGHQW H[LVWHQFH )LOLVROD EHFDPH FRQYLQFHG WKDW WKH\ ZRXOG PDNH WKH DWWHPSW LI JLYHQ WKH RSSRUWXQLW\ )HDULQJ WKDW DQ H[DPSOH VHW E\ 6DQ 6DOYDGRU PLJKW KDYH GLVUXSWLYH WHQGHQFLHV LQ RWKHU DUHDV RI WKH HPSLUH )LOLVROD UHIXVHG WR LQFOXGH DQ\ PHQWLRQ RI D FRQJUHVV LQ WKH DUPLVWLFH DJUHHPHQW 7KH WHUPV RI WKH DUPLVWLFH ZKLFK ZDV VLJQHG RQ 6HSWHPEHU SURYLGHG WKDW 6DQ 6DOYDGRU ZRXOG VHQG UHSUHVHQWDWLYHV WR 0H[LFR WR QHJRWLDWH WKH WHUULWRULDO VWDWXV RI WKH SURYLQFH :KLOH WKHVH QHJRWLDWLRQV ZHUH XQGHU ZD\ WKH 6DOYDGRUDQ JRYHUQPHQW ZRXOG H[HUFLVH SURYLVLRQDO DXWKRULW\ RYHU WKRVH DUHDV RI WKH SURYLQFH ZKLFK KDG QRW GHFODUHG IRU DQQH[DWLRQ

PAGE 79

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nV GHFLVLRQ LQ D PDQLIHVWR LVVXHG RQ 2FWREHU DQG KH ZDUQHG WKH 6DOYDGRUDQV WKDW LI WKHLU FRQJUHVV PHW LW FRXOG RQO\ SURQRXQFH WKH XQLRQ RI 6DQ 6DOYDGRU ZLWK WKH 0H[LFDQ (PSLUH RU UHVLVW LW ZLWK DUPVAAA 5HIXVLQJ WR EH LQWLPLGDWHG WKH 6DOYDGRUDQ FRQJUHVV FRQYHQHG RQ 1RYHPEHU ZLWK 'HOJDGR UHSUHVHQWLQJ 6DQ 9LFHQWH DQG $UFH UHSUHVHQWn LQJ WKH FLW\ RI 6DQ 6DOYDGRU :KLOH WKH\ SUHVHUYHG WKHLU KRQRU WKH 6DOYDGRUDQV ZHUH QRW SUHSDUHG WR RIIHU IXUWKHU RSSRVLWLRQ WR WKH HPSLUH DQG DIWHU WZR GD\V RI GLVFXVVLRQ WKH GHOHJDWHV GHFODUHG IRU XQLRQ ZLWK 0H[LFR ,Q D VHFUHW OHWWHU ZULWWHQ RQ 1RYHPEHU 'HOJDGR LQIRUPHG )LOLVROD RI

PAGE 80

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n PLQHG QRW WR VDFULILFH WKHPVHOYHV WR 0H[LFR WKH PHPEHUV RI WKH FRQJUHVV HQJDJHG LQ D IUDQWLF VHDUFK IRU D GHXV H[ PDFKLQD 7KH GHVLUH WR SUHVHUYH VRPH UHPQDQW RI 6DOYDGRUDQ LGHQWLW\ XOWLPDWHO\ OHG WR WKH SDWKHWLF JHVWXUH RI GHFUHHLQJ DQQH[Dn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

PAGE 81

-DQXDU\ )LOLVROD UHFHLYHG D OHWWHU LQIRUPLQJ KLP WKDW KH ZDV WU\LQJ WKH SDWLHQFH RI WKH (PSHURU 7KH 0H[LFDQ JHQHUDO ZDV UHPLQGHG WKDW KLV UROH ZDV QRW WKDW RI D IULHQGO\ DUELWUDWRU EXW D VROGLHU ZKR JRHV RXW LQ WKH VHUYLFH RI KLV JRYHUQPHQW WR UHSUHVV DV KH PXVW D UHEHOOLRXV IDFWLRQ ZKLFK KDV GLVWXUn EHG SXEOLF RUGHU )LOLVROD ZDV FRPPDQGHG WR LQLWLDWH PLOLWDU\ DFWLRQ WR WDNH 6DQ 6DOYDGRU DW DOO FRVWV WUHDWLQJ WKRVH ZKR RSSRVH \RX DV UHEHOV DQG WUDLWRUV ,Q DFFRUGDQFH ZLWK WKLV RUGHU RQ )HEUXDU\ )LOLVROD OHG KLV WURRSV LQ DQ DWWDFN DJDLQVW WKH 6DOYDGRUDQ IRUFHV DVVHPEOHG RQ WKH SODLQV RI $QJHO )URP WKH VWDUW WKH 6DOYDGRUDQV ZHUH DW D GLVDGYDQWDJH DV $UFH KDG EHHQ VWUXFN E\ DQ LOOQHVV WKDW UHQGHUHG KLP XQDEOH WR OHDG KLV PHQ 6WLOO WKH 6DOYDGRUDQV ZHUH DEOH WR UHSXOVH VHYHUDO DVVDXOWV DQG KHOG WKHLU SRVLWLRQ IRU WZR KRXUV EHIRUH WKH\ ZHUH IRUFHG WR UHWLUH WR 0HMLFDQRV RQ WKH RXWVNLUWV RI 6DQ 6DOYDGRU 7KH LPSHULDO FROXPQ LPPHGLDWHO\ DGYDQFHG WR WKH VXEXUE ZKHUH WKH EDWWOH ZDV UHVXPHG $IWHU WKUHH KRXUV RI FRPEDW WKH 6DOYDGRUDQV ZHUH IRUFHG WR JLYH XS WKH ILJKW &DUU\LQJ WKHLU FRPPDQGHU RQ D OLWWHU WKH GHIHDWHG WURRSV ZLWKGUHZ WR D SRLQW EH\RQG 6DQ 6DOYDGRU DQG )LOLVROD HQWHUHG WKH FLW\ WKH IROORZLQJ PRUQLQJ $OWKRXJK 0H[LFDQ VROGLHUV EURNH LQWR $UFHnV KRPH WKHLU FRPPDQGHU JHQHUDOO\ NHSW D FORVH UHLQ RQ KLV WURRSV DQG WUHDWHG WKH 6DOYDGRUDQV ZLWK FRQVLGHUDWLRQ 2Q )HEUXDU\ )LOLVROD ZURWH D OHWWHU WR $UFH XUJLQJ KLV VXUUHQGHU EXW WKH 6DOYDGRUDQ DUP\ FRQWLQXHG WR URDP WKH FRXQWU\VLGH IRU RYHU D ZHHN 7KH 6DOYDGRUDQV

PAGE 82

ILQDOO\ FDSLWXODWHG LQ *XDOFLQFH RQ )HEUXDU\ $UFH ZDV JLYHQ D VDIHFRQGXFW SDVV DQG KH PDGH KLV ZD\ WR %HOLFH $UULYLQJ LQ :DOLV RQ 0DUFK $UFH ZURWH WR )LOLVROD WKDQNLQJ KLP IRU KLV JHQHURXV EHKDYLRU DQG FRPPHQGLQJ WKH SURWHFWLRQ RI KLV IDPLO\ WR WKH 0H[LFDQ JHQHUDO $UFH WKHQ MRLQHG -XDQ 0DQXHO 5RGU¯JXH] RQ D VKLS ERXQG IRU WKH 8QLWHG 6WDWHV ZKHUH WKH WZR H[LOHV ZRXOG DWWHPSW WR UHSUHVHQW WKH LQWHUHVWV RI WKHLU QRQH[LVWHQW QDWLRQ $V WKH VDLOV ZHUH VHW $UFH PD\ KDYH ZRQGHUHG ZKDW KDG EHHQ DFFRPSOLVKHG E\ WKH \HDUV RI VWUXJJOH

PAGE 83

127(6 5REHUWR 0ROLQD \ 0RUDOHV 0'RQ %HUQDUGR GH $UFH LQ *DUFLD $UFH , R V 3HGUR AUFH \ 5XELR %LRJUDI¯D GH GRQ 0DQXHO -RVH $UFH LQ *DUFLD $UFH , A,ELG -RUJH /DUGA \ /DULOQ (O *ULWR GH OD 0HUFHG GH QRYLHPEUH GH 6DQ 6DOYDGRUA f S L 0R OLQD \ 0RUDOHV 'SQ %HUQDUGR GH $UFH S 0DQXHO 9DOODGDUHV %LRJUDI¯D GHO *HQHUDO GSQ 0DQXHO -RVHA $UFH LQ *DUFLD $UFH , M/ /DUG \ /DULQ *ULWR SS %DUFµQ &DVWUR -RVH0DW¯DV 'HOJDGR S A0RQWXIDU \ &RURQDGR 0HPRULDV , A'HOJDGR LV XVXDOO\ UHIHUUHG WR DV $UFHnV XQFOH DQG LQ YLHZ RI WKH DJH GLIIHUHQFH WKLV WHUP SUREDEO\ EHVW GHVFULEHV WKH QDWXUH RI WKH UHODWLRQVKLS EHWZHHQ WKH WZR PHQ A5REHUWR 0HOLQD \ 0RUDOHV 3URFHU /LQDMH $UFH LQ 0LJXHO $QJHO *DUFLD HG 3URFHVRV SRU LQILGHQFLD FRQWUD ORV SURFHUHV 6DOYDGRUH³RV GH OD LQGHSHQGHQFLD GH &HQWURDPHULFD GHVGH KDVWD 6DQ 6DOYDGRU f S ,ž $1* $O OHJ 3DVHV GH W¯WXORV 0ROLQD \ 0RUDOHV 'RQ %HUQDUGR GH $UFH S 4 I I A A0ROLQD \ 0RUDOHV LELG %DURQ &DVWUR -RVH 0DW¯DV 'HOJDGR S O26DOD]DU +LVWRULD GH YHLQWL¼Q D³RV S /DUG\ /DULQ S $QWRQLR 9LOODFRUWD +LVWRULD GH OD &DSLWDQ¯D *HQHUDO GH *XDWHPDOD *XDWHPDOD f S 5REHUW 6 6PLWK ,QGLJR 3URGXFWLRQ DQG 7UDGH LQ &RORQLDO *XDWHPDOD +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ;;;,; 0D\ f S A:RRGZDUG (FRQRPLF DQG 6RFLDO 2ULJLQV S fµA+HQU\ 'XQQ *XDWLPDOD >VLF@ RU WKH 5HSXEOLF RI &HQWUDO $PHULFD LQ %HLQJ 6NHWFKHV DQG 0HPRUDQGXPV 0DGH 'XULQJ D 7ZHOYH0RQWKnV 5HVLGHQFH /RQGRQ f S )RU WKH \HDUV WKH IROORZLQJ SURGXFWLRQ ILJXUHV ZHUH JLYHQ

PAGE 84

0DUFK @ LQ )HUQ£QGH] 'RFXPHQWRV S ,ELG R fµnfµf«f¬/DUGH \ /DULQ *ULWR S ‘B$1* $OO OHJ H[S &RQWUD ' 0DQXHO -RVHA $UFH SRU LQILGHQFLD TXH OH UHVXOWHG HQ ODV VXEOHYDFLRQHV GH GH QRYLHPEUH GH \ GH HQHUR GH 7KLV H[SHGLHQWH FRQWDLQV WKH PDMRU SDUW RI WKH WHVWLPRQ\ FRQFHUQLQJ $UFHnV SDUWLFLSDWLRQ LQ WKH XSULVLQJV RI DSG ,W DQG UHODWHG H[SHGLHQWHV DUH UHSURGXFHG LQ *DUFLD 3URFHVRV ,ELG O,ELG ,ELG A,ELG &RQWUD ' 0DULDQR )DJRDJD SRU FLHUWDV -XQWDV \ H[SUHVLRQHV VRVSHFKRVDV GH LQILGHQFLD LQ *DUFLD 3URFHVRV

PAGE 85

S -XDQ 0LJXHO %XVWDPDQWH WKH WHQLHQWH OHWUDGR RI 1LFDUDJXD ZDV PDNLQJ D WULS WR *XDWHPDOD DQG SDVVHG WKURXJK 6DQ 6DOYDGRU DW WKH WLPH RI WKH XSULVLQJ %XVWDPDQWH ZKR ODWHU SURVHFXWHG WKH FDVH DJDLQVW $UFH ZDV WKUHDWHQHG ZLWK LPSULVRQPHQW E\ 0LJXHO 'HOJDGR I A$1* $OO OHJ H[S &RQWUD ' 0DQXHO -RVH $UFH ,ELG LELG $1* $OO OHJ H[e 'RQ 0DQXHO -RVHn $U]H UHR GH
PAGE 86

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« $UFH *DYLGLD +LVWRULD 0RGHUQD S +DULQJ 7KH 6SDQLVK (PSLUH S 7KLV DFWLRQ DSSHDUV WR UHIXWH WKH WKHVLV SUHVHQWHG LQ $OHMDQGUR ' 0DUURTX¯Q $SUHFLDFLµQ 6RFLR OµJ LFD SS 7DNLQJ FUHROH WHVWLPRQ\ DW IDFH YDOXH 0DUURTXLQ DUJXHV WKDW WKH 1RYHPEHU UHYROW ZDV D SRSWMODUO\ EDVHG LQGHSHQGHQFH PRYHPHQW ZKLFK ZDV VXEYHUWHG E\ WKH FUHROHV ZKR PDLQWDLQHG D KROGLQJ DFWLRQ XQWLO OHJLWLPDWH DXWKRULW\ FRXOG EH UHHVWDEn OLVKHG $1* $OO OHJ H[S &RQWUD ' 0DQXHO -RVHn $UFH *DYLGLD +LVWRULD 0RGHUQD S ,ELG S I 'HOJDGR 5RGULJXH] DQG &HOLV WR 0RUHORV 0DUFK LQ *DUFLD 'HOJDGR , 6A-RV %XVWDPDQWH \ *XHUUD (O &DSLWDQ *HQHUDO GH *XDWHPDOD D OD 5HJHQFLD GHO 5HLQR VREUH ODV LQVXUUHFLRQHV GH 6DQ 6DOYDGRU >0D\ @ LQ )HUQDQGH] 'RFXPHQWRV S

PAGE 87

,ELG S ,ELG -RVH 0DU¯D 3HLQDGR &RPXQLFDFLµQ GLULJLGD SRU HO ,QWHQGHQWH ' -RV«n0DU¯D 3HLQDGR DO &DSLW£Q *HQHUDO GHO 5HLQR G£QGROH FXHQWD GH OD LQVXUUHFFLµQ HIHFWXDGD HQ OD FLXGDG GH 6DQ 6DOYDGRU HO GH (QHUR GH >)HEUXDU\ @ LQ *DUFLD 'HOJDGR , Z A,EBLG S &RQWUD ' 0DULDQR )DJRDJD LQ *DUFLD 3URFHVRV S A3HLQDGR &RPXQLFDFLµQ DO &DSLW£Q *HQHUDO LQ *DUFLD 'HOJDGR , ,ELG -RVH $UFH $1* $OO OHJ H[S &RQWUD ' 0DQXHO r A3HLQDGR f¬n&RPXQLFDFLµQ DO &DSLW£Q *HQHUDO LQ *DUF¯D 'HOJDGR , ,ELG S ,ELG ,$1* $OO OHJ H[S &RQWUD ' 0DQXHO -RV« $UFH A,ELG %XVWDPDQWH \ *XHUUD (O &DSLW£Q *HQHUDO D OD 5HJHQFLD LQ *DUF¯D 'HOJDGR , $FFRUGLQJ WR VHYHUDO RI KLV ELRJUDSKHUV $UFH IRXJKW D UHDUJXDUG DFWLRQ ZKLOH KLV FRPUDGHV HVFDSHG EXW HYLGHQFH WR VXSSRUW WKLV VWRU\ ZDV QRW IRXQG $1* $OO OHJ H[e &RQWUD ' 0DQXHO -RVH$UFH $1* $OO OHJ HAJS A 'D )HOLSD $UDQ]DPHQGL 6UH TXH VH UHFLYD
PAGE 88

,ELG AA$1* $OO OHJ H[S ,QFLGHQWH GH OD FDXVD FRQWUD ' 0DQ¯ -RVH GH $UFHUHFXVDFLµQ \ DSDUWDPHQWR GLOLJHQFLDV GH HPEDUJR GH ELHQHV D TXH VH RSRQH VX KHUPD 'D 0DQXHOD $QWRQLD OH¯ ,ELG $1* $OO OHJ H[S ,QVWDQFLD GH 0DQXHOD $QWRQLD GH $UFH H[e 'RQ 0DQXHO -RV« H[S &RQWUD ' f¬ 0DQXHO H[e 'RQ 0DQXHO -RV«rr GH $U]H UHR GH
PAGE 89

$1* % OHJ H[S 3HGUR %DUULHUHWR *DELQR *DLQ]D 2FWREHU A( JHQLR GH OD OLEHUWDG 2FWREHU 'HOJDGR XQGRXEWHGO\ SOD\HG D ODUJH SDUW LQ GHWHUPLQLQJ WKH JRYHUQn PHQWnV UHVSRQVH WR %DUULHUHnV DFWLRQV A$1* % OHJ H[S 8QWLWOHG UHSRUW RQ WKH HVWDEOLVKPHQW RI WKHGLSXWDFLµQ LQ 6DQ 6DOYDGRU A( JHQLR GH OD OLEHUWDG 2FWREHU A$JXVW¯Q ,WXUELGH WR *DELQR *DLQ]D 2FWREHU LQ *DUF¯D 'HOJDGR , A( -HIH 3ROLWLFR GH *XDWHPDOD GRQ *DELQR *DLQ]D VH GLULJH D ORV $\XQWDPLHQWRV GHO DQWLJXR 5HLQR WUDVFULE LHQGROHV HO RILFLR GH ,WXUELGH HQ TXH VH LQYLWD D OD DQH[LµQ D 0HGLFR \ OHV SLGH TXH HQ FDELOGR DELHUWR UHVXHOYDQ LQ *DUFLD 'HOJDGR , A'LSXWDFLµQ RI 6DQ A6DOYDGRU WR *DELQR *DLQ]D 'HFHPEHU c LQ *DUFLD 'HOJDGR , MRVH 0DW¯DV 'HOJDGR WR *DELQR *DLQ]D 'HFHPEHU LQ *DUF¯D 'HOJDGR , 'LSXWDFLµQ RI 6DQ 6DOYDGRU WR WKH 'LSXWDFLRQHV RI /HRA DLG &RPD\DJXD 'HFHPEHU LQ *DUFLD 'HOJDGR , A0DUXUH %RVTXHMR , $FWD GHO $\XQWDPLHQWR \ OD 'LSXWDFLµQ 3URYLQFLDO GH 6DQ 6DOYDGRU HQ TXH OD 3URYLQFLD DVXPH VX VREHUDQ¯D QRPEUD ,QWHQGHQWH \ -HIH 3ROLWLFR DO GRFWRU GRQ -RVµ 0DW¯DV 'HOJDGR \ UHVHUYD DO &RQJUHVR UHVXHOYD OD XQLRQ DO ,PSHULR 0H[LFDQR LQ *DUF¯D 'HOJDGR ,, A0DULDQR $\FLQHQD WR $JXVW¯Q ,WXUELGH -DQXDU\ LQ *DUF¯D 'HOJDGR ,, A$1* % OHJ H[S -RVH 0DW¯DV 'HOJDGR WR *DELQR *DLQ]D -DQXDU\ 7KHUH ZDV OLWWOH OHJDO MXVWLILFDWLRQ IRU 'HOJDGRnV DUJXPHQW DV WKH DFW RI 6HSWHPEHU GLG QRW PHQWLRQ WKH LQGHSHQGHQFH RI 6DQ 6DOYDGRU DQG WKHUH ZDV QRWKLQJ LQ WKH *XDWHPDODQ GHFODUDWLRQ RI LQGHSHQGHQFH WKDW ZRXOG JLYH LW WKH FKDUDFWHU RI D FRQWUDFW EHWZHHQ WKH SURYLQFHV A0DUXUH %RVTXHMR , DQJ % OHJ H[S 8QWLWOHG SURFODPDWLRQ E\ $UFH GDWHG )HEUXDU\

PAGE 90

A$1* % OHJ H[S $FWD RI WKH FDELOGR RI 6DQWD $QD GDWHG )HEUXDU\ AA*DELQR *DLQ]D WR $JXVW¯Q ,WXUELGH 0DUFK LQ *DUFLD 'HOJDGR ,, 0DUXUH %RVTXHMR , 0RQWL¯IDU \ &RURQDGR 0HPRULDV , A2O*DELQR *DLQ]D WR $JXVW¯Q ,WXUELGH 0DUFK LQ *DUFLD 'HOJDGR ,, A$\XQWDPLHQWR RI 6DQ 6DOYDGRU WR *DELQR *DLQ]D 0DUFK LQ *DUFLD 'HOJDGR ,, ‘O26MRVHA 0DW¯DV 'HOJDGR WR 9LFHQWH )LOLVROD 0DUFK LQ *DUFLD 'HOJDGR fµA2A$FWD I WKH GLSXWDFLRnQ RI 6DQ 6DOYDGRU GDWHG 0DUFK LQ *DUF¯D 'HOJDGR ,, 7KLV DFWLRQ PD\ KDYH EHHQ D WDFWLFDO PRYH GHVLJQHG WR LQVXUH WKH SRSXODU VXSSRUW RI WKH JRYHUQPHQW $FWD GHO *YQR GH 6 6DOYDGRUf° >$SULO @ LQ *DUFLD 'HOJDGR ,, AA*DELQR *DLQ]D WR $JXVW¯Q ,WXUELGH 0D\ LQ *DUFLD 'HOJDGR ,,\ ,Q D OHWWHU ZULWWHQ WR ,WXUELGH RQ 0D\ )LOLVROD H[SUHVVHG WKH EHOLHI WKDW *DLQ]D KDG XOWHULRU PRWLYHV IRU WKH UHTXHVW WKDW D SDUW RI WKH 0H[LFDQ GLYLVLRQ EH SODFHG XQGHU $U]XnV FRPPDQG LeL &DSLW£Q *HQHUDO GH *XDWHPDOD %ULJDGLHU GRQ *DELQR *DLQ]D VH GLULJH D OD -XQWD GH *RELHUQR GH OD 3URYLQFLD GH 6DQ 6DOYDGRU GHVDSUREDQGR HO DUPLVWLFLR ILUPDGR FRQ HO &RPDQGDQWH *HQHUDO GH ODV WURFDV H[SHGLFLRQDULDV &RURQHO GRQ 0DQXHO GH $U]L¯f° LQ *DUFLD 'HOJDGR ,, 7KH 6DOYDGRUDQV KDG EHHQ DQ[LRXV WR VHFXUH WKH SDUWLn FLSDWLRQ RI 0ROLQD HW DO LQ RUGHU WR EXLOG D EDVH RI VXSSRUW IRU WKHLU FDXVH LQ *XDWHPDOD /HIWHUV RI *DELQR *DLQ]D WR 0DQXHO $U]X 0D\ LQ *DUFLD 'HOJDGR ,, AA/RV $\XGDQWHV GHO (VWDGR 0D\RU GHO -HIH GH OD &ROXPQD ,PSHULDO ([SHGLFLRQDULD VREUH 6DQ 6DOYDGRU GRQ 3HGUR *RQ]DOH] \ GRQ $QWRQLR GH $\FLQALD GDQ GHWDOOHV GHO DWDTXH D DTXHOOD FLXGDGf° LQ *DUFLD 'HOJDGR ,, fµM\A,ELG 0DQXHO $U]L¯ WR *DELQR *DLQ]D -XQH LQ *DUFLD 'HOJDGR ,, Afµ‘A9LFHM/WH )LOLVROD WR $JXVW¯Q ,WXUELGH $SULO LQ *DUFLD 'HOJDGR ,,

PAGE 91

YLFHQWH )LO[VROD WR 0DQXHO $U]X 0D\ LQ *DUFLD 'HOJDGR , 9LFHQWH )LOLVROD WR $JXVW¯Q ,WXUELGH 0D\ LQ *DUFLD 'HOJDGR ,, +A/HWWHUV RI WKH GLSXWDFLµQ RI 6DQ 6DOYDGRU WR I 9LFHQWH )LOLVROD -XQH DQG -XQH LQ *DUFLD 'HOJDGR ,, fµA‘A9LFHQWH )LOLVROD WR 6HFUHWDULR GH *XHUUD \ 0DULQD GHO ,PSHULR 0H[LFDQR 6HSWHPEHU O:)=a LQ *DUFLD 'HOJDGR , U V %DVHV GHO DUPLVWLFLR ILUPDGR SRU HO &DSLW£Q *HQHUDO GH *XDWHPDOD %ULJDGLHU GRQ 9LFHQWH )LOLVROD VXV FRPLVLRQDGRV ORV VH³RUHV &RURQHO GRQ )HOLSH &RGDOORV \ 7HQLHQWH &RURQHO GRQ -RVHI /XLV *RQ]DOH] 2MHGD \ ORV GH OD 3URYLQFLD GH 6DQ 6DOYDGRU GLVLGHQWH GHO ,PSHULR 0H[LFDQR &RURQHO GRQ $QWRQLR -RV«n &D³DV \ GRQ -XDQ )UDQFLVFR GH 6RVD LQ *DUFLD 'HOJDGR ,, 3U&ODPD GHO &DSLW£Q *HQHUDO -HIH 6XSHULRU GH *XDWHPDOD *HQHUDO GRQ 9LFHQWH )LOLVROD D ORV SXHEORV GH OD 3URYLQFLD GH 6DQ 6DOYDGRU LQ *DUFLD 'HOJDGR , ‘r-RVH 0DW¯DV 'HOJDGR WR 9LFHQWH )LOLVROD 1RYHPEHU LQ *DUF¯D 'HOJDGR , 0DUXUH %RVTXHMR , OA$FWD RI WKH FRQJUHVV RI 6DQ 6DOYDGRU GDWHG 'HFHPEHU LQ *DUFLD 'HOJDGR , fµAfµA6HFUHWDULR GH *XHUUHD \ 0DULQD GHO ,PSHULR 0H[LFDQR WR 9LFHQWH )LOLVROD LQ *DUFLD 'HOJDGR ,, ‘A0DUXUH %RVTXHMR , ‘rO0DQXHO -RVH $UFH WR 9LFHQWH )LOLVROD 0DUFK LQ )LOLVROD 0DQLIHVWR

PAGE 92

&+$37(5 ,,, 7+( &5($7,21 2) 7+( )('(5$/ 5(38%/,& :HOO LQ DGYDQFH RI $UFHnV GHSDUWXUH IRU WKH 8QLWHG 6WDWHV H[WHUQDO HYHQWV KDG RQFH DJDLQ GHWHUPLQHG &HQWUDO $PHULFDnV SROLWLFDO IXWXUH 7KH 6DOYDGRUDQ HIIRUWV WR UHVLVW LQFRUSRUDWLRQ LQ WKH 0H[LFDQ HPSLUH PD\ KDYH FDXVHG ,WXUELGH VRPH GLIILFXOWLHV EXW RI PXFK JUHDWHU FRQVHTXHQFH ZDV WKH IDFW WKDW 6DQWD $QQD KDG EHJXQ WR VWLU LQ 9HUDFUX] 1HZV RI WKH SURFODPDWLRQ RI WKH 3ODQ GH &DVD 0DWD UHDFKHG *XDWHPDOD MXVW SULRU WR )LOLVRODnV YLFWRU\ DW 0HMLFDQRV DQG VKRUWO\ WKHUHDIWHU WKH 0H[LFDQ FRPPDQGHU OHDUQHG RI WKH GHFLVLRQ RI 9LFWRULD %UDYR DQG *XHUUHUR WR PRYH LQ VXSSRUW RI 6DQWD $QQDnV SURQXQFLDPLHQWR :LWK WKH UHFHLSW RI WKLV LQIRUPDWLRQ )LOLVROD SODFHG VXSHUYLVLRQ RI 6DQ 6DOYDGRU LQ WKH KDQGV RI )HOLSH &RGDOORV DQG KXUULHGO\ UHWXUQHG WR WKH FDSLWDO )LOLVROD LQLWLDOO\ DFWHG ZLWK FRQVLGHUDEOH FDXWLRQ IROORZLQJ KLV DUULYDO LQ *XDWHPDOD &LW\ DQG KH LVVXHG D SURFODPDWLRQ ZKLFK XUJHG WKH FLWL]HQV WR UHPDLQ FDOP DQG UHIUDLQ IURP SUHFLSLWDWH DFWLRQ 7KH ODWWHU DGPRQLWLRQ GRXEWOHVVO\ UHIHUUHG WR WKH DJLWDWLRQ JHQHUDWHG E\ -RVHr %DUUXQGLD UHJDUGLQJ WKH FRQYRFDWLRQ RI D SURYLQFLDO DVVHPn EO\ :LWKLQ WKH VSDFH RI D IHZ ZHHNV KRZHYHU )LOLVROD FDPH WR UHFRJQL]H WKH JUDYH GRXEWV FRQFHUQLQJ WKH OHJLWLn PDF\ RI KLV DXWKRULW\ )DFHG ZLWK WKH FRQIXVLRQ RI HYHQWV

PAGE 93

LQ 0H[LFR KH GHPRQVWUDWHG D FRQVLGHUDEOH VHQVH RI MXVWLFH RU ODFN RI SHUVRQDO DPELWLRQ DQG GHIHUUHG WR %DUUXQGLDnV GHPDQGVA 2Q 0DUFK )LOLVROD LVVXHG D SURFODPDWLRQ ZKLFK FDOOHG IRU WKH HOHFWLRQ RI GHSXWLHV WR D SURYLQFLDO FRQJUHVV ZKLFK ZRXOG UHVROYH WKH TXHVWLRQ RI IXUWKHU DVVRFLDWLRQ ZLWK 0H[LFR 8QWLO WKH FRQJUHVV FRQYHQHG WKH JRYHUQPHQW DV WKHQ FRQVWLWXWHG ZRXOG FRQWLQXH WR DGPLQLVWHU WKH SURYLQFHV W )LOLVROD ZDV FDUHIXO WR SRLQW RXW LQ WKLV GHFUHH WKDW KH ZDV QRW FDOOLQJ WKH FRQJUHVV RQ KLV RZQ DXWKRULW\ EXW ZDV PHUHO\ LPSOHPHQWLQJ WKH SURYLVLRQ IRU D FRQJUHVV RI WKH SURYLQFHV fµ] FRQWDLQHG LQ WKH VHFRQG DUWLFOH RI WKH $FW RI ,QGHSHQGHQFH ,Q HIIHFW WKH &HQWUDO $PHULFDQV ZHUH EDFN ZKHUH WKH\ KDG EHHQ RYHU D \HDU EHIRUH 5HSUHVHQWDWLRQ LQ WKH FRQJUHVV ZDV WR EH GHWHUPLQHG E\ SRSXODWLRQ ZLWK RQH UHSUHVHQWDWLYH IRU HDFK LQKDEn LWDQWV 2Q WKLV EDVLV WKH MXQWD FRQVXOWLYD GUHZ XS DOORWn PHQWV ZKLFK SURYLGHG IRU D WRWDO RI GHSXWLHV ZLWK *XDWHPDOD FKRRVLQJ 6DQ 6DOYDGRU +RQGXUDV 1LFDUDJXD DQG &RVWD 5LFD $ SODQQLQJ FRPPLWWHH DSSRLQWHG E\ WKH MXQWD FRQVXOWLYD VHW -XQH IRU WKH RSHQn LQJ RI WKH FRQJUHVV EXW WKH GHSXWLHV GLG QRW DUULYH LQ QXPEHUV VXIILFLHQW WR IRUP D TXRUXP XQWLO -XQH 2Q WKH IROORZLQJ GD\ WZHQW\HLJKW GHOHJDWHV IURP *XDWHPDOD WZHOYH IURP 6DQ 6DOYDGRU DQG RQH IURP +RQGXUDV DVVHPEOHG DW WKH SDODFH RI WKH &DSWDLQ *HQHUDO 7KH\ ZHUH MRLQHG E\ )LOLVROD PHPEHUV RI WKH MXQWD FRQVXOWLYD WKH DXGLHQFLD DQG WKH D\XQWDPLHQWR DQG WRJHWKHU ZLWK RWKHU VHFXODU DQG

PAGE 94

UHOLJLRXV RIILFLDOV SURFHHGHG WR WKH FDWKHGUDO ZKHUH WKH DUFKELVKRS FHOHEUDWHG D SRQWLILFDO KLJK PDVV DQG WKH RDWK RI RIILFH ZDV DGPLQLVWHUHG 7KH GLJQLWDULHV WKHQ PDGH WKHLU ZD\ WR WKH XQLYHUVLW\ ZKHUH WKH FRQJUHVV ZDV WR KROG LWV VHVVLRQV )ROORZLQJ D VKRUW VSHHFK LQ ZKLFK )LOLVROD H[SUHVVHG KLV JRRG ZLVKHV WKH FRQJUHVV GHYRWHG WKH UHVW RI WKH GD\ WR LQWHUQDO RUJDQL]DWLRQ DQG WKH VHOHFWLRQ RI LWV ILUVW RIILFHUV -RVH0DW¯DV 'HOJDGR ZDV HOHFWHG SUHVLGHQW RI WKH ERG\ E\ WKLUW\VHYHQ YRWHV ZLWK 3HGUR 0ROLQD DQG )HUQDQGR $QWRQLR 'DYLOD HDFK UHFHLYLQJ WZR YRWHV 'DYLOD ZDV WKHQ FKRVHQ DV YLFH SUHVLGHQW LQ D UXQRII HOHFWLRQ ZLWK -RVH )UUKFLVFR %DUUXQGLD )ROORZLQJ WKH HOHFWLRQV 'HOJDGR DSSRLQWHG D FRPPLWWHH FRPSRVHG RI KLPVHOI )UDQFLVFR )ORUHV 3HGUR 0ROLQD )HOLSH 9HJD DQG -RVH 6LPHRQ &DQDV WR SUHSDUH UHFRPPHQGDWLRQV FRQFHUQLQJ WKH DUHDf¬V IXWXUH SROLWLFDO VWDWXV 7KH DVVHPEO\ WKHQ DGMRXUQHG XQWLO -XQH A 'HOJDGRn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n QDWLRQ 7KH XVH RI WKH SROO RI WKH WRZQ FRXQFLOV WR DXWKRUn L]H WKH GHFUHH RI DQQH[DWLRQ ZDV UHJDUGHG DV DQ LOOHJDO

PAGE 95

GHYLFH ZKLFK GHQLHG WKH -DQXDU\ SURFODPDWLRQ DQ\ ELQGLQJ TXDOLW\ 7XUQLQJ WR WKH IXWXUH WKH FRPPLWWHH H[SUHVVHG WKH IHDU WKDW ZLWK FRQWLQXHG XQLRQ &HQWUDO $PHULFD ZRXOG SUREDEO\ UHFHLYH WUHDWPHQW OLWWOH EHWWHU WKDQ WKDW DFFRUGHG WR D FRQTXHUHG SURYLQFH 3RLQWLQJ RXW WKH IDFW WKDW &HQWUDO $PHULFDQV FRXOG H[SHFW OLWWOH LQ WKH ZD\ RI PDWHULDO DVVLVn WDQFH WKH UHSRUW FODLPHG WKDW DLG ZDV QRW QHFHVVDU\ LQ DQ\ FDVH 0H[LFDQ DUPV ZHUH QRW QHHGHG IRU WKH GHIHQVH RI WKH WHUULWRU\ DQG WKH PDLQWHQDQFH RI D 0H[LFDQ JDUULVRQ ZRXOG RQO\ KDYH XQGHVLUDEOH FRQVHTXHQFHV VXFK DV DQ LQFUHDVH LQ SURVWLWXWLRQ :LWK WKH VWDWHPHQW WKDW WKH DUHD GLG LQ IDFW SRVVHVV WKH UHVRXUFHV QHFHVVDU\ IRU WKH HUHFWLRQ RI D VRYHUHLJQ VWDWH WKH FRPPLWWHH UHFRPPHQGHG WKDW DEVROXWH LQGHSHQGHQFH EH SURFODLPHGA :KLOH WKH FRPPLWWHHn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n WLYHV WKH FRQJUHVV UHSURFODLPHG WKH LQGHSHQGHQFH RI &HQWUDO $PHULFD RQ -XO\ 6WDWLQJ WKDW LQGHSHQGHQFH

PAGE 96

IURP 6SDLQ KDG EHHQ WKH QDWXUDO FRQVHTXHQFH RI SK\VLFDO VHSDUDWLRQ DQG WKH IDFW WKDW 6SDQLVK VRYHUHLJQW\ KDG SURYHG LQLPLFDO WR WKH EHVW LQWHUHVWV RI $PHULFDQV WKH DFW FDWHn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n DEO\ ZHOO GXULQJ WKHLU QLQHWHHQ PRQWKV RI VHUYLFH $SSDUn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

PAGE 97

FUHDWHG 7KLV DFW DOVR H[WHQGHG SHUVRQDO LPPXQLW\ WR OHJLVn ODWRUV UHFRJQL]HG WKH SXEOLF GHEW DQG FRQILUPHG WKH DXWKRULW\ RI DOO H[LVWLQJ FLYLO DQG UHOLJLRXV DXWKRULWLHV &DWKROLFLVP ZDV DFNQRZOHGJHG DV WKH QDWLRQDO UHOLJLRQ DQG SHQGLQJ WKH HQDFWPHQW RI WKH ODZV RI WKH QDWLRQ WKH &RQVWLn WXWLRQ RI DQG DOO ODZV RI 6SDLQ ZKLFK GLG QRW FRQWUDn YHQH WKH OLEHUWLHV RI WKH SHRSOH ZHUH WR UHPDLQ LQ HIIHFWnp :KLOH 3HGUR 0ROLQD DQG -XDQ 9LFHQWH 9LOODFRUWD YLJRURXVO\ RSSRVHG WKH HVWDEOLVKPHQW RI &DWKROLFLVP WKLV SURYLVLRQ DQG WKH LQWHULP UHWHQWLRQ RI 6SDQLVK ODZ LQGLFDWH WKDW WKH /LEHUDOV ZKR WKHQ FRQWUROOHG WKH DVVHPEO\ ZHUH QRW SRVVHVVHG E\ -DFRELQ VSLULWV+ :KHQ WKH $VDPEOHD WXUQHG WR WKH EXVLQHVV RI LPSOHn PHQWLQJ WKH SURYLVLRQ IRU DQ H[HFXWLYH EUDQFK RI WKH JRYHUQn PHQW LW HQWHUHG XSRQ LWV ILUVW FOHDUFXW SROLWLFDO EDWWOH 7KH &RQVHUYDWLYH PHPEHUV RI WKH DVVHPEO\ ZHUH DQ[LRXV WR KDYH WKH UHLQV RI WKH JRYHUQPHQW LQ D ILUP DQG IDPLOLDU KDQG DQG DWWHPSWHG WR KDYH WKH H[HFXWLYH SRZHU HQWUXVWHG WR 9LFHQWH )LOLVROD ZKR GLG QRW GHQ\ KLV DYDLODELOLW\ 2XWVLGH RI WKH KDOOV RI WKH DVVHPEO\ WKLV PRYH ZDV VWURQJO\ VXSn SRUWHG DQG SRVVLEO\ KDG EHHQ VXJJHVWHGf E\ WKH DULVWRn FUDWLF LPSHULDOLVWDV ZKR ZHUH QRZ WKLQNLQJ LQ WHUPV RI KDOI D ORDIA 7KH UHWHQWLRQ RI )LOLVROD LQ D SRVLWLRQ RI DXWKRULW\ ZDV WRWDOO\ DEKRUUHQW WR WKH /LEHUDOV 1RW RQO\ PLJKW KH DFW DV D FDWnV SDZ IRU WKH &RQVHUYDWLYHV EXW KH ZRXOG VHUYH DV D FRQVWDQW UHPLQGHU RI WKH KXPLOLDWLQJ DQQH[DWLRQ WR 0H[LFR
PAGE 98

WR VHFXUH RXWULJKW UHMHFWLRQ RI )LOLVROD IROORZHG D FLUFXLWRXV URXWH DQG GLVTXDOLILHG WKH 0H[LFDQ JHQHUDO IURP RIILFH WKURXJK WKH HQDFWPHQW RI D GHFUHH ZKLFK ZDV REYLRXVO\ GHVLJQHG WR DSSHDO WR QDWLRQDOLVWLF VHQWLPHQWV 2Q -XO\ WKH $VDPEOHD RUGHUHG WKDW H[HFXWLYH DXWKRULW\ FRXOG EH H[HUFLVHG RQO\ E\ QDWXUDO ERUQ FLWL]HQV ZKR KDG UHVLGHG LQ WKH WHUULWRU\ RI WKH UHSXEOLF IRU VHYHQ \HDUV 7KH IROORZLQJ GD\ WKH $VDPEOHD SURYLGHG IRU WKH FUHDWLRQ RI D WKUHHPDQ H[HFXWLYH ERDUG DQG DFNQRZOHGJHG $UFHf¬V SDVW VHUYLFHV WR WKH QDWLRQ E\ VHOHFWLQJ KLP DV WKH ILUVWQDPHG PHPEHU RI WKH ERG\ 7KH UHPDLQLQJ VHDWV RQ WKH 6XSUHPR 3RGHU (MHFXWLYR ZHUH DZDUGHG WR WKH /LEHUDOV 3HGUR 0ROLQD DQG -XDQ 9LFHQWH 9LOODFRUWD 7KH &RQVHUYDWLYHV ZHUH XQGRXEWHGO\ XQKDSS\ ZLWK WKH DSSRLQWPHQW RI WKH ILUHEUDQG 0ROLQD EXW WKH\ XVHG PRVW RI WKHLU HQHUJ\ WR RSSRVH WKH HOHFWLRQ RI 9LOODFRUWD :KLOH WKH\ DSSDUHQWO\ ZHUH SUHn SDUHG WR DFFHSW /LEHUDO FRQWURO RI WKH H[HFXWLYH WKH *XDWHPDODQ &RQVHUYDWLYHV GHILQLWHO\ IHDUHG WKH SURVSHFW RI 6DOYDGRUDQ GRPLQDQFH DQG DWWHPSWHG WR VHFXUH WKH WKLUG VHDW RQ WKH 63( IRU WKH +RQGXUDQ -RVH 'LRQLVLR +HUUHUD 7R VHUYH DV $UFHf¬V VXEVWLWXWH WKH DVVHPEO\ FKRVH $QWRQLR /DUUD]£EDO D PHPEHU RI WKH IDPLO\ ZKR KDG EHHQ WKH *XDWHPDODQ GHOHJDWH WR WKH &RUWHV RI &DGL] /DUUD]DEDO GHFOLQHG WKH KRQRU KRZHYHU DQG WKH SRVLWLRQ ZHQW WR WKH /LEHUDO $QWRQLR 5LYHUD &DEH]DV 'HVSLWH KLV H[FOXVLRQ IURP WKH JRYHUQPHQW )LOLVROD OLQJHUHG RQ LQ *XDWHPDOD 7KRXJK KH ODWHU ZURWH WKDW KLV

PAGE 99

LQWHQWLRQ ZDV WR SUHYHQW WKH RXWEUHDN RI DQDUFK\ )LOLVRODnV SXUSRVH LQ UHPDLQLQJ LV XQFHUWDLQA 3RVVLEO\ KH H[SHUn LHQFHG D FKDQJH RI KHDUW LQ UHJDUG WR KLV SROLWLFDO DPELn WLRQV 7KH *XDWHPDODQ DULVWRFUDWV ZHUH DQ[LRXV IRU )LOLVROD WR VWD\ RQ DQG FRQWULEXWHG WR KLV VXSSRUW EXW WKH RSSRVLWLRQ RI RWKHU VHFWRUV RI VRFLHW\ WR WKH FRQWLQXHG SUHVHQFH RI WKH 0H[LFDQ IRUFH ZDV XQPLVWDNDEOH )RU VRPH WLPH -RVHr )UDQFLVFR %DUUXQGLD KDG EHHQ LQWURGXFLQJ SHWLWLRQV FDOOLQJ IRU )LOLVRODf¬V ZLWKGUDZDO DQG WKHUH KDG EHHQ DQ LQFUHDVLQJ QXPEHU RI LQFLGHQWV LQYROYLQJ YHUEDO DQG SK\VLFDO FODVKHV EHWZHHQ WKH FLWL]HQV DQG 0H[LFDQ WURRSV 7KLV DQWDJRQLVP ZDV IXUWKHU GHPRQVWUDWHG E\ WKH UHIXVDO RI WKH GHSXWLHV IURP +RQGXUDV 1LFDUDJXD DQG &RVWD 5LFD WR DVVXPH WKHLU VHDWV LQ WKH $VDPEOHD VR ORQJ DV WKH 0H[LFDQ GLYLVLRQ I UHPDLQHG LQ WKH FRXQWU\ ,Q DQ DWWHPSW WR XVH )LOLVRODn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

PAGE 100

UHPRYH IURP RIILFH WKRVH LQGLYLGXDOV ZKRVH OR\DOW\ ZDV VXVn SHFW 7KH WULXPYLUV PDGH H[WHQVLYH XVH RI WKLV SRZHU DQG D QXPEHU RI RIILFLDOV ZHUH UHSODFHG E\ VXSSRUWHUV RI WKH QHZ UHJLPH 'XULQJ WKLV WLPH WKH $VDPEOHD FRQFHUQHG LWVHOI SULPDULO\ ZLWK WKH WUDSSLQJV RI LQGHSHQGHQFH $ IODJ DQG QDWLRQDO FRDW RI DUPV ZHUH GHVLJQHG DQG WKH SKUDVH 'LRV JXDUGH D 9G PXFKRV DQRV ZKLFK FORVHG RIILFLDO FRUUHVSRQn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n IURQWHG WKH JRYHUQPHQW $SDUW IURP PLOLWLD RUJDQL]DWLRQV &HQWUDO $PHULFDf¬V PLOLWDU\ IRUFH FRQVLVWHG RI D VLQJOH EDWWDOLRQ RI UHJXODUV JDUULVRQHG LQ *XDWHPDOD &LW\ :KLOH VSDUHG WKH ILQDQFLDO EXUGHQ RI D VL]HDEOH PLOLWDU\ HVWDEOLVKPHQW WKH JRYHUQn PHQW IDLOHG WR SURYLGH DGHTXDWH VXSSRUW IRU WKLV WRNHQ IRUFH DQG WKH WURRSVf¬ SD\ ZDV VHYHUDO PRQWKV LQ DUUHDUV 7KH GLVFRQWHQW FDXVHG E\ WKLV VLWXDWLRQ HQFRXUDJHG WKH VFKHPHV RI 6HUJHDQW 5DIDHO $UL]D \ 7RUUHV ZKR ZDV LQ D UHEHOOLRXV PRRG DV WKH 63( KDG UHMHFWHG KLP IRU SURPRWLRQ WR OLHXWHQDQW LQ SUHIHUHQFH IRU 0DQXHO =HOD\D ,Q WKH

PAGE 101

ODWWHU SDUW RI $XJXVW $UL]D EHJDQ WR VWLU XS GLVVHQWLRQ E\ HQFRXUDJLQJ WKH WURRSV WR JLYH YRLFH WR WKHLU JULHYDQFHV DQG E\ FULWLFL]LQJ WKH DELOLWLHV RI WKH EDWWDOLRQ FRPPDQGHU /RUHQ]R 5RPDQD $UL]DnV DFWLYLWLHV VRRQ FDPH WR WKH DWWHQWLRQ RI WKH JRYHUQPHQW EXW LW KHVLWDWHG WR UHSULPDQG WKH VHUJHDQW IRU IHDU WKDW VXFK DFWLRQ ZRXOG RQO\ JHQHUDWH JUHDWHU LOO ZLOO %HOLHYLQJ WKDW D JHVWXUH ZURXOG UHVWRUH RUGHU WKH $VDPEOHD FRPPLVVLRQHG ,JQDFLR /DUUD]DEDO WR LQYHVWLJDWH WKH PDWWHU $SSDUHQWO\ $UL]D ZDV QRW WRR VXUH RI KLV VXSSRUW ZLWKLQ WKH EDWWDOLRQ DV KH GHFLGHG WR PDNH KLV PRYH DV VRRQ DV KH OHDUQHG RI WKH DVVHPEO\nV DFWLRQ 6HSWHPEHU DQG KDG EHHQ GHVLJQDWHG DV KROLGD\V LQ FHOHEUDWLRQ RI WKH DQQLYHUVDU\ RI LQGHSHQGHQFH EXW WKH YROOH\V KHDUG RQ WKH PRUQLQJ RI WKH IRXUWHHQWK ZHUH QRW ILUHG WR DQQRXQFH WKH VWDUW RI IHVWLYLWLHV EXW WKH EHJLQn QLQJ RI WKH QDWLRQnV ILUVW PLOLWDU\ FRXS 2Q WKH HYHQLQJ RI 6HSWHPEHU $UL]D KDG IRUWLILHG KLV IROORZHUV ZLWK OLEHUDO DPRXQWV RI DJXDUGLHQWH DQG WKHQ Q L RUGHUHG WKDW 5RPDQD EH WDNHQ SULVRQHU )ROORZLQJ WKH IXVLOODGH ZKLFK DQQRXQFHG WKLV DFWLRQ WKH UHEHOV WRRN FRPPDQG RI WKH FHQWUDO SOD]D ZKLOH WKH $VDPEOHD FRQYHQHG LQ DQ RSHQ VHVVLRQ WR GHWHUPLQH D FRXUVH RI DFWLRQ $IWHU D QXPEHU RI GHSXWLHV KDG WDNHQ WXUQV GHQRXQFLQJ $UL]DnV EHKDYLRU )DWKHU $QWRQLR &RUUDO WKH FKDSODLQ RI WKH EDWWDOLRQ SURSRVHG WKDW WKH VROGLHUV EH RIIHUHG DQ DPQHVW\ DQG WKHLU EDFN SD\ $ GHOHJDWLRQ VHQW WR SUHVHQW WKLV RIIHU VKRUWO\ UHWXUQHG ZLWK WKH LQIRUPDWLRQ WKDW WKH

PAGE 102

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nV IROORZHUV GLG QRW DWWHPSW WR HQWHU WKH PHHWLQJ VHYHUDO RI WKH FLWL]HQV ZHUH NLOOHG DQG ORVLQJ WKHLU , HDUOLHU MUDYDGR WKH PDMRULW\ RI WKH GHSXWLHV PDGH XVH RI VXFK H[LWV DV ZHUH DYDLODEOH )DFHG ZLWK WKH IDFW WKDW WKH UHEHOV ZHUH LQ FRQWURO RI WKH FLW\ WKH 63( GHFLGHG WR VHHN DQ LPPHGLDWH UHVWRUDn WLRQ RI RUGHU WKURXJK FRQFLOLDWLRQ DQG DSSRLQWHG $UL]D FRPPDQGLQJ JHQHUDO RI WKH EDWWDOLRQ 7KH WULXPYLUDWH GLG QRW LQWHQG WR FRQFOXGH WKH PDWWHU ZLWK WKLV DFWLRQ KRZHYHU DV LW DOVR GLVSDWFKHG WR 6DQ 6DOYDGRU D UHTXHVW IRU PLOLn WDU\ DVVLVWDQFH 7KLV VWHS SURYHG WR EH XQQHFHVVDU\ DV LW UDSLGO\ EHFDPH FOHDU WKDW $UL]D ODFNHG WKH DELOLW\ WR IROORZ WKURXJK ZLWK KLV YLFWRU\ ,QVWHDG RI FRQVROLGDWLQJ KLV SRVLWLRQ ZLWKLQ WKH EDWWDOLRQ WKH QHZ FRPPDQGHU EHKDYHG DV LI KH KDV EHHQ GHIHDWHG LQIRUPLQJ WKH JRYHUQPHQW WKDW WKH WURRSV KDG IRUFHG KLP WR OHDG WKH XSULVLQJ DQG RIIHULQJ UHSHDWHG DVVXUDQFHV RI KLV OR\DOW\ &RQYLQFHG E\ WKHVH VLJQV RI ZHDNQHVV WKDW $UL]D ZDV D UDWKHU IOLPV\ PHQDFH WKH

PAGE 103

$VDPEOHD GLUHFWHG KLP WR ZLWKGUDZ WKH EDWWDOLRQ WR $QWLJXD $UL]D FRPSOLHG ZLWK WKLV RUGHU RQ 6HSWHPEHU EXW KLV SXVLOODQLPRXV EHKDYLRU DOLHQDWHG PDQ\ RI WKH YHWHUDQV LQ WKH EDWWDOLRQ 7KH SRVVLELOLW\ RI WKH EDWWDOLRQ SRVLQJ DQ\ IXUWKHU WKUHDW WR SHDFH ZDV HOLPLQDWHG E\ QXPHURXV GHVHUn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n YHQLHQW SUHWH[W IRU DFKLHYLQJ WKLV HQG &LUFXODWLQJ WKH FKDUJH WKDW WKH XSULVLQJ KDG EHHQ FDXVHG E\ WKH LQFRPSHWHQFH RI WKH 63( WKH &RQVHUYDWLYHV DUJXHG WKDW WKH WULXPYLUV VKRXOG EH UHSODFHG IRU WKH JRRG RI WKH QDWLRQ 2Q 2FWREHU -RVHn 7RULELR $UJXHOOR D GHSXW\ IURP 1LFDUDJXD DQG -RDTXLQ /LQGR UHSUHVHQWLQJ +RQGXUDV LQWURGXFHG D UHVROXWLRQ ZKLFK FDOOHG IRU D QHZ HOHFWLRQ RI PHPEHUV RI WKH H[HFXWLYH ERDUG RQ WKH JURXQGV WKDW WKHLU SURYLQFHV KDG QRW EHHQ UHSUHVHQWHG DW WKH WLPH WKH WULXPYLUDWH ZDV HVWDEOLVKHG 7KLV SURn SRVDO JDYH ULVH WR D KHDWHG GHEDWH ZKLFK ZDV LQ SURJUHVV ZKHQ WKH /LEHUDO SRVLWLRQ ZDV VXGGHQO\ VDSSHG DV WKH DVVHPEO\ ZDV SUHVHQWHG ZLWK WKH UHVLJQDWLRQV RI 0ROLQD

PAGE 104

5LYHUD DQG 9LOODFRUWD )ROORZLQJ D EULHI GLVFXVVLRQ WKH UHVLJQDWLRQV ZHUH DFFHSWHG DQG D QHZ HOHFWLRQ ZDV KHOG $UFH ZKRVH LPDJH UHPDLQHG XQWDUQLVKHG ZDV DJDLQ VHOHFWHG IRU PHPEHUVKLS LQ WKH H[HFXWLYH FRXQFLO 7KH VHFRQG SRVLn WLRQ ZHQW WR WKH &RQVHUYDWLYH 7RPDVr 2f¬+RUDQ DQG -RVHr &HFLOLR GHO 9DOOH ZDV HOHFWHG WR WKH WKLUG VHDW $V 9DOOH KDG QRW \HW UHWXUQHG IURP 0H[LFR ZKHUH KH KDG VHUYHG LQ WKH LPSHULDO FRQJUHVV KLV SODFH ZDV WDNHQ E\ -RVH 6DQWLDJR 0LOOD 7KH QHZ WULXPYLUDWH ZDV SURYLGHG ZLWK VRPH FRQWLQXLW\ DQG D ELSDUWLVDQ DSSHDUDQFH DV 9LOODFRUWD ZDV FKRVHQ WR VHUYH DV $UFHf¬V DOWHUQDWH 7KH UHSHUFXVVLRQV RI $UL]DnV UHYROW GLG QRW HQG ZLWK WKH HOHFWLRQ RI WKH VHFRQG WULXPYLUDWH 2Q UHFHLYLQJ WKH *XDWHPDODQ UHTXHVW IRU DVVLVWDQFH WKH JRYHUQPHQW RI 6DQ 6DOYDGRU KDG UDLVHG D UHOLHI IRUFH RI VHYHQ KXQGUHG DQG ILIW\ PHQ ZKLFK ZDV GLVSDWFKHG WR *XDWHPDOD XQGHU WKH FRPPDQG RI &RORQHO -RVHr 5LYDV 'XH WR WKH SRVVLELOLW\ WKDW WKH FHQWUDO JRYHUQPHQW PLJKW EH XQGHU $UL]Df¬V FRQWURO WKH 6DOYDGRUDQ RIILFLDOV LQVWUXFWHG 5LYDV WR LJQRUH DQ\ RUGHUV LVVXHG IURP *XDWHPDOD +H ZDV QRW WR UHWXUQ XQWLO KH KDG SHUVRQDOO\ HQWHUHG WKH FDSLWDO DQG PDGH FHUWDLQ WKDW RUGHU KDG EHHQ UHVWRUHG 7KH UHVLGHQWV RI *XDWHPDOD ZHUH FRQn VLGHUDEO\ DODUPHG E\ WKH DSSURDFK RI WKH 6DOYDGRUDQV DV LW ZDV IHDUHG WKDW WKH\ LQWHQGHG WR VHHN UHYHQJH IRU WKH LQYDVLRQV WKH\ KDG VXIIHUHG LQ WKH SDVW WZR \HDUV 7KLV FRQFHUQ ZDV SDUWLDOO\ UHVSRQVLEOH IRU WKH PRYH WR UHFRQn VWLWXWH WKH PHPEHUVKLS RI WKH 63( DV WKH &RQVHUYDWLYHV

PAGE 105

ZDQWHG WR EH FHUWDLQ WKDW WKH H[HFXWLYH SRZHU ZRXOG EH XVHG WR SUHYHQW WKH 6DOYDGRUDQ IRUFH IURP HQWHULQJ WKH FLW\A 2Q 2FWREHU WKH QHZ WULXPYLUDWH VHQW 5LYDV D QRWH LQIRUPn LQJ KLP WKDW DV RUGHU KDG EHHQ UHVWRUHG KLV DVVLVWDQFH ZRXOG QRW EH QHHGHG DQG WKH 6DOYDGRUDQV VKRXOG UHWXUQ WR WKHLU KRPHV 7KH JRYHUQPHQW DW WKH VDPH WLPH VRXJKW WR VWUHQJWKHQ LWV SRVLWLRQ E\ UHTXHVWLQJ WKDW WURRSV EH VHQW WR WKH FDSLWDO IURP WKH FRQVHUYDWLYH GLVWULFW RI 4XH]DOWHQDQJR ,Q DFFRUGDQFH ZLWK KLV RUGHUV 5LYDV GLVUHJDUGHG WKH 63(V OHWWHU DQG FRQWLQXHG ZLWK KLV PDUFK \HW KH WRRN WKH SUHFDXWLRQ RI VHQGLQJ WZR DJHQWV WR REVHUYH WKH VLWXDn WLRQ LQ WKH FDSLWDO 7KH &RQVHUYDWLYHV DWWHPSWHG WR FRQn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

PAGE 106

E\ )LOLVROD EH UHWXUQHG DQG WKDW DOO DFWV SDVVHG E\ WKH $VDPEOHD EHWZHHQ 6HSWHPEHU DQG 2FWREHU LQFOXGLQJ WKH " UHRUJDQL]DWLRQ RI WKH 63( EH UHVFLQGHG $OWKRXJK WKH JRYHUQPHQW UHMHFWHG WKHVH FODLPV 5LYDV GLG QRW UHVRUW WR IRUFH WR DFKLHYH KLV HQGV DQG DQ DWPRVSKHUH RI TXLHW WHQn VLRQ SUHYDLOHG IRU WKH QH[W IHZ GD\V 7KH VLWXDWLRQ EHFDPH PXFK PRUH VHULRXV RQ 2FWREHU KRZHYHU ZKHQ WURRSV VHQW IURP 4XH]DOWHQDQJR DUULYHG LQ WKH FLW\ 7KLV IRUFH LQFOXGHG D QXPEHU RI PHQ ZKR KDG SDUWLFLSDWHG LQ )LOLVRODrV LQYDVLRQ RI 6DQ 6DOYDGRU DQG OLQJHULQJ DQLPRVn LWLHV VSDUNHG VHYHUDO LVRODWHG FODVKHV ZLWK 6DOYDGRUDQ VROGLHUV 7KRXJK SHDFH ZDV PDLQWDLQHG LW DSSHDUHG WKDW WKH WZR JURXSV ZHUH DSSURDFKLQJ D ILQDO FRQIURQWDWLRQ DQG WKH IHDU RI D SRVVLEOH KRORFDXVW ZKLFK KDG DOUHDG\ FDXVHG D QXPEHU RI SHUVRQV WR DEDQGRQ WKH FLW\ OHG WKH JRYHUQn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

PAGE 107

KRVWLOH IRUFHV LQ WKH FDSLWDO GLG QRW WRWDOO\ SDUDO\]H WKH JRYHUQPHQW KRZHYHU DQG RQ 2FWREHU WKH $VDPEOHD ZDV SUHVHQWHG ZLWK WKH %DVHV IRU WKH SURSRVHG FRQVWLWXWLRQ 3UHSDUHG E\ D FRPPLWWHH RI IRXU /LEHUDOV WKLV GUDIW SURn YLGHG IRU WKH FUHDWLRQ RI D IHGHUDO UHSXEOLF ZKLFK ZDV WR EH QDPHG (VWDGRV )HGHUDOHV GHO &HQWUR GH $PHULFD &DWKROLn FLVP ZDV UHFRJQL]HG DV WKH QDWLRQDO UHOLJLRQ DQG WKH SXEOLF H[HUFLVH RI DQ\ RWKHU IDLWK ZDV IRUELGGHQ 7KH OHJLVODWLYH SRZHU ZDV FRQIHUUHG RQ D FRQJUHVV ZLWK D SRSXn ODUO\ HOHFWHG PHPEHUVKLS ZKLFK ZRXOG EH DSSRUWLRQHG RQ WKH EDVLV RI RQH UHSUHVHQWDWLYH IRU HYHU\ LQKDELWDQWV 7KH SRZHUV WR EH H[HUFLVHG E\ WKLV ERG\ LQFOXGHG WKH HQDFWn PHQW RI OHJLVODWLRQ ZKLFK FRQFHUQHG WKH VWDWHV DV D ZKROH GHFODUDWLRQV RI ZDU VXSHUYLVLRQ RI HGXFDWLRQ DQG UHJXODn WLRQ RI FRPPHUFH DQG WKH PRQH\ VXSSO\ :KLOH WKH FRQJUHVV ZDV QRW JLYHQ WKH SRZHU RI WD[DWLRQ LW ZRXOG EH DXWKRUL]HG WR PDNH OHYLHV RQ WKH VWDWHV IRU WKH VXSSRUW RI WKH IHGHUDO JRYHUQPHQW $V HQYLVLRQHG LQ WKH %DVHV HDFK VWDWH ZRXOG KDYH HTXDO UHSUHVHQWDWLRQ LQ D SRSXODUO\ HOHFWHG VHQDWH 7KLV ERG\ ZRXOG KDYH WKH SRZHU WR DSSURYH RU UHMHFW EXW QRW LQLWLDWH OHJLVODWLRQ ,Q DGGLWLRQ LW ZRXOG SURSRVH FDQGLn GDWHV IRU IHGHUDO RIILFHV DQG VHUYH DV DQ DGYLVRU\ FRXQFLO WR WKH SUHVLGHQW 7KH H[HFXWLYH SRZHU ZDV WR EH H[HUFLVHG E\ D SRSXODUO\ FKRVHQ SUHVLGHQW ZKRVH UHVSRQVLELOLWLHV ZRXOG EH OLPLWHG WR H[HFXWLRQ RI WKH ODZ QHJRWLDWLRQ RI WUHDWLHV FRPPDQG RI WKH DUPHG IRUFHV DQG DSSRLQWPHQW RI IHGHUDO RIILFLDOV -XGLFLDO DXWKRULW\ ZDV WR EH YHVWHG LQ

PAGE 108

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n FDWHV RI FHQWUDOLVP ZHUH QRW UHDG\ WR DFFHSW WKH IRUP RI JRYHUQPHQW SUHVHQWHG LQ WKH %DVHV ,Q RSSRVLQJ IHGHUDOLVP WKHVH &RQVHUYDWLYHV DUJXHG WKDW LW ZDV PXFK WRR VRSKLVWLn FDWHG IRU &HQWUDO $PHULFD DQG WKDW WKH PXOWLSOLFDWLRQ RI RIILFHV ZRXOG SODFH WKH FRVW RI VXFK D JRYHUQPHQW IDU DERYH DYDLODEOH UHYHQXH $ XQLWDU\ IRUP RI JRYHUQPHQW ZDV SUHIHUUHG DV LW ZRXOG FRXQWHUDFW WKH GLYLVLYH LQIOXHQFH RI JHRJUDSK\ ZKLOH IHGHUDOLVP ZRXOG RQO\ HQFRXUDJH WKH WHQn GHQF\ WRZDUGV ORFDOLVP ,Q UHSO\ WKH IHGHUDOLVWV WURWWHG RXW WKH VWDQGDUG DUJXPHQWV VXSSRUWLQJ WKHLU FDXVH $ IHGHUDO IRUP RI JRYHUQPHQW ZRXOG EHWWHU SURWHFW WKH OLEHUW\ RI WKH SHRSOH DV WKH GLVWULEXWLRQ RI SRZHU ZRXOG SUHYHQW WKH HVWDEOLVKPHQW RI D GLFWDWRUVKLS )HGHUDOLVP ZRXOG SURYH PRUH UHVSRQVLYH WR ORFDO QHHGV DQG ZRXOG LQFUHDVH SRSXODU LGHQWLILFDWLRQ ZLWK WKH JRYHUQPHQW DV LW ZRXOG SURYLGH

PAGE 109

JUHDWHU RSSRUWXQLWLHV IRU SROLWLFDO SDUWLFLSDWLRQ 7KH IHGHUDOLVWVf¬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n QHVV RI JRYHUQLQJ WKH QDWLRQ 0RVW RI WKH OHJLVODWLRQ HQDFWHG DW WKLV WLPH ZDV FRQFHUQHG PRUH ZLWK ORQJ UDQJH GHYHORSPHQW WKDQ ZLWK LPPHGLDWH QHHGV RU SUREOHPV 6XEn VWDQWLDO SURJUDPV WR LPSURYH OHYHOV RI HGXFDWLRQ RU FRPPXQLn FDWLRQ DPRQJ WKH SURYLQFHV ZHUH QRW FRQVLGHUHG IRU WKH VLPSOH UHDVRQ WKDW WKH JRYHUQPHQW GLG QRW KDYH WKH PRQH\ WR VSHQG ,Q IDFW SXEOLF UHYHQXHV ZHUH QRW VXIILFLHQW WR FRYHU WKH DUUHDUV LQ WKH VDODULHV RI FLYLO VHUYDQWV )RU WKHLU GD\ WR GD\ H[LVWHQFH IHGHUDO DXWKRULWLHV ZHUH ODUJHO\ GHSHQGHQW XSRQ WKH JHQHURVLW\ RI WKH SURYLQFH RI *XDWHPDOD ZKLFK UDLVHG IXQGV E\ LVVXLQJ ERQGV DQG DSSURSULDWLQJ

PAGE 110

UHYHQXHV RI WKH FRQVXODGR 7KH ILQDQFLDO FROODSVH RI WKH SURYLVLRQDO IHGHUDO JRYHUQPHQW LQ WKH ODWWHU SDUW RI ZDV SUHYHQWHG RQO\ E\ D *XDWHPDODQ VXEYHQWLRQ RI SHVRV 7KH IHGHUDWLRQn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

PAGE 111

IHGHUDO JRYHUQPHQW IRXU H[LVWLQJ VRXUFHV RI UHYHQXH WKH SRVWDO VHUYLFH PRQRSROLHV RQ JXQSRZGHU DQG WREDFFR DQG FXVWRPV GXWLHV :KLOH WKH SRVWDO VHUYLFH ZDV H[SHFWHG WR SURYLGH D VPDOO QHW LQFRPH LW SURYHG WR EH D OLDELOLW\ UDWKHU WKDQ DQ DVVHW DV RSHUDWLRQ RI WKH VHUYLFH UHTXLUHG DQ DQQXDO VXEVLG\ IURP WKH QDWLRQDO WUHDVXU\ 7KH PRQRSRO\ RQ WKH VDOH RI JXQSRZGHU KDG OLWWOH VLJQLILFDQFH ,Q WKH EHVW \HDUV LW SURYLGHG DQ LQFRPH RI RQO\ SHVRVA 7KH VDOH RI WREDFFR KRZHYHU FRQVWLWXWHG RQH RI WKH PDMRU VRXUFHV RI IHGHUDO UHYHQXH &RQWHPSRUDU\ RSLQLRQ KHOG WKDW WKH PRQRSRO\ FRXOG SURYLGH DQ LQFRPH RI SHVRV D \HDU DQG WKH IHGHUDO EXGJHW IRU SURMHFWHG SHVRV LQ UHYHQXH IURP WKH VDOH RI WREDFFR 7KHVH HVWLn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n RXV FRQWUROV XQDXWKRUL]HG KDUYHVWV UHDFKHG VXFK D YROXPH E\

PAGE 112

WKH HQG RI WKDW WKH IHGHUDWLRQ HVWDEOLVKHG D FRUSV RI LQVSHFWRUV WR GHVWUR\ LOOHJDO SODQWLQJV ,PSRUW GXWLHV IXUQLVKHG WKH JUHDWHVW DPRXQW RI QDWLRQDO UHYHQXH ,Q FXVWRPV FKDUJHV ZHUH UDLVHG SHU FHQW WR D PD[LPXP RI SHU FHQW RI YDOXH DQG SURn WHFWLRQLVW UHYLVLRQ WKH IROORZLQJ \HDU EURXJKW UDWHV RI SHU FHQW RQ JRRGV WKDW FRPSHWHG ZLWK GRPHVWLF SURGXFWV 7KHVH LQFUHDVHV DSSDUHQWO\ FDXVHG FXVWRPV UHFHLSWV WR H[FHHG WKH H[SHFWDWLRQV RI JRYHUQPHQW RIILFLDOV 7KH EXGJHW DQWLFLSDWHG WKDW GXW\ SD\PHQWV ZRXOG \LHOG SHVRV EXW LW LV WKRXJKW WKDW DFWXDO LQFRPH ZDV FRQVLGHUDEO\ JUHDWHU :KDWHYHU WKH DPRXQW RI UHYHQXH ODUJHU VXPV FRXOG KDYH EHHQ UHDOL]HG EXW IRU WKH IDFW WKDW WKH DGPLQLn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

PAGE 113

IXQGV WR FRYHU WKH GHILFLW RI SHVRVA 7KXV WKH VKRUWDJHV HQFRXQWHUHG GXULQJ WKH ILUVW \HDU RI WKH QDWLRQf¬V H[LVWHQFH HVWDEOLVKHG D FKDLQ RI GHEWV WKDW ZRXOG H[WHQG WKURXJKRXW WKH OLIH RI WKH IHGHUDWLRQ 7KH $VDPEOHD DOVR DWWHPSWHG WR SURYLGH WKH FHQWUDO JRYHUQPHQW ZLWK ZRUNLQJ FDSLWDO E\ DXWKRUL]LQJ WKH QHJRWLDn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n WLRQ DQG LQGXVWU\A 8QIRUWXQDWHO\ WKHVH ILQH SXUSRVHV FRXOG QRW EH SXUVXHG %DUFOD\ +HUULQJr 5LFKDUGVRQ DQG &RPSDQ\ ZDV DEOH WR VHOO ERQGV DPRXQWLQJ WR RQO\ SHVRV EHIRUH WKH ILUP ZHQW EDQNUXSW LQ 5HLG ,UYLQJ DQG &RPSDQ\ DVVXPHG WKH FRQWUDFW LQ 1RYHPEHU EXW VXUUHQGHUHG LW WZR \HDUV ODWHU DV WKHUH ZDV QR PDUNHW IRU IXUWKHU VDOHV %\ WKDW WLPH WKH &HQWUDO $PHULFDQ GHEW RQ WKH YHQWXUH WRWDOHG SHVRV ,Q UHWXUQ WKH IHGHUDO JRYHUQPHQW KDG REWDLQHG WKH XVH RI DSSUR[LPDWHO\ SHVRVA 7KH GHEW FRVW WKH QDWLRQ RQO\ LWV FUHGLW UDWLQJ DV LW ZDV QHYHU UHSDLG EXW WKH ORDQ GLG QRW FRQWULEXWH WR

PAGE 114

OHJLWLPDWH FKDQQHOVA $ZDUH WKDW WKH IRUHJRLQJ UHVRXUFHV ZRXOG QRW DGHn TXDWHO\ SURYLGH IRU WKH ILQDQFLDO QHHGV RI WKH IHGHUDO JRYHUQPHQW WKH $VDPEOHD GHFLGHG WKDW EXGJHW GHILFLWV VKRXOG EH FRYHUHG E\ WD[ TXRWDV DVVLJQHG WR WKH VWDWHV 6XFK DQ DOORFDWLRQ RI DVVHVVPHQWV RQ WKH VWDWHV ZDV XWLOL]HG WR EDODQFH WKH IHGHUDO EXGJHW RI (VWLPDWHG H[SHQVHV IRU WKDW \HDU DPRXQWHG WR SHVRV ZKLOH WKH H[SHFWHG LQFRPH IURP JXQSRZGHU WREDFFR DQG FXVWRPV FDPH WR SHVRV 7KH VKRUWDJH LQ DQWLFLSDWHG UHYHQXH ZDV PDGH XS E\ DVVLJQLQJ WKH IROORZLQJ TXRWDV WR WKH VWDWHV A SHVRV *XDWHPDOD (O 6DOYDGRU 1LFDUDJXD +RQGXUDV $VLGH IURP WKH DOOHJHG SRYHUW\ RI WKH VWDWH WKHUH LV QR H[SODQDWLRQ IRU WKH RPLVVLRQ RI &RVWD 5LFD ZKLFK ZDV LQFOXGHG LQ VXEVHTXHQW DVVHVVPHQWV 7KHUH LV HYLGHQFH ZKLFK LQGLFDWHV WKDW WKH TXRWDV ZHUH IXOILOOHG EXW LW LV FRPPRQO\ KHOG WKDW *XDWHPDOD SURYLGHG WKH EXON RI WKH IHGHUDWLRQnV PRQHWDU\ VXSSRUWA 7KLV ZDV VXUHO\ WKH FDVH LQ WKH ODWWHU SDUW RI WKH GHFDGH DV VHYHUDO VWDWHV GHFODUHG WKHPVHOYHV LQFDSDEOH RI PHHWLQJ DVVLJQHG TXRWDV (YHQ WKRXJK WKH UHYHQXH REWDLQHG IURP DOO VRXUFHV LQ H[FHHGHG WKH EXGJHW HVWLPDWHV WKH IHGHUDWLRQnV H[SHQGLWXUHV RXWVWULSSHG LWVrLQFRPH DQG WKH JRYHUQPHQW ZDV IRUFHG WR SURYLGH IRU LPPHGLDWH QHHGV WKURXJK WKH LVVXH RI SDSHU PRQH\ 7ZR \HDUV ODWHU WKH JRYHUQPHQW ZDV VWLOO VHHNLQJ

PAGE 115

HFRQRPLF JURZWK 'XH WR WKH FRQWLQXLQJ VKRUWDJH RI IHGHUDO IXQGV SURFHHGV IURP WKH ERQG VDOHV ZHUH XVHG WR SD\ IRU WKH VXSSRUW RI IRUHLJQ OHJDWLRQV RIILFLDO VDODULHV DQG RWKHU SUHVVLQJ REOLJDWLRQV &HQWUDO $PHULFDnV H[SHULPHQW ZLWK IRUHLJQ ORDQV DOVR KDG WKH XQIRUWXQDWH HIIHFW RI FRQWULEXWLQJ WR IULFWLRQ EHWZHHQ WKH VWDWHV DQG WKH FHQWUDO JRYHUQPHQW 'LVUHJDUGn LQJ D FODXVH LQ WKH %DUFOD\ FRQWUDFW ZKLFK JDYH WKDW ILUP D WZR \HDU RSWLRQ RQ DOO &HQWUDO $PHULFDQ ORDQV +RQGXUDV QHJRWLDWHG D ORDQ IRU SHVRV ZLWK /RQGRQ EDQNHU /RXLV %LUH LQ r 7KH IHGHUDO &RQJUHVV GHFOLQHG WR DFFHSW VWDWH FRPSHWLWLRQ LQ WKH /RQGRQ PRQH\ PDUNHW DQG TXHVWLRQHG WKH OHJDOLW\ RI WKH +RQGXUDQ WUDQVDFWLRQ FODLPn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
PAGE 116

,OO $V SUHYLRXVO\ PHQWLRQHG WKH $VDPEOHD LQ VRXJKW WR PRGHUQL]H WKH FRXQWU\ E\ PHDQV WKDW ZRXOG QRW UHTXLUH WKH H[SHQGLWXUH RI IXQGV $QWLFLSDWLQJ -XDQ %DXWLVWD $OEHUGLnV GLFWXP WKDW 7R JRYHUQ LV WR SRSXODWH WKH DVVHPEO\ DWWHPSWHG WR SURPRWH QDWLRQDO GHYHORSPHQW E\ HQFRXUDJLQJ LPPLJUDWLRQ 7KH GRRUV WR WKH FRXQWU\ ZHUH RSHQHG WR FLWLn ]HQV RI DOO QDWLRQV RQ 'HFHPEHU ZKHQ &HQWUDO $PHULFD ZDV GHFODUHG DQ DV\OXP IRU DOO IRUHLJQHUVA /HJLVn ODWLRQ SDVVHG RQ -DQXDU\ RIIHUHG JUHDWHU LQGXFHn PHQWV WR SURVSHFWLYH LPPLJUDQWV )RUHLJQHUV ZKR SRVVHVVHG D XVHIXO VNLOO RU SURIHVVLRQ ZHUH JUDQWHG WKH SULYLOHJHV DQG LPPXQLWLHV RI FLWL]HQV DQG ODUJH JUDQWV RI ODQG ZHUH RIIHUHG WR JURXSV ZLOOLQJ WR HVWDEOLVK QHZ IDUPLQJ FRPPXQLn WLHV &LWL]HQV DOVR FRXOG DFTXLUH SXEOLF ODQGV E\ PDLQn WDLQLQJ D KRPHVWHDG IRU D SHULRG RI VL[ \HDUVA 2QH UHIRUP WKDW UHTXLUHG SURYLVLRQ IRU SXEOLF H[SHQGLWXUHV DURVH IURP )DWKHU -RVH 6LPHRQ &DQDVr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

PAGE 117

HOLPLQDWLRQ RI LOOHJLWLPDF\ DV DQ LPSHGLPHQW WR VHFXULQJ JDLQIXO HPSOR\PHQW FUHDWLRQ RI WHDFKLQJ SRVLWLRQV IRU SHUn VRQV ZLOOLQJ WR ZRUN ZLWKRXW SD\ DQG GLVVHPLQDWLRQ RI NQRZOHGJH FRQFHUQLQJ WKH SURGXFWLRQ RI FRFKLQHDO 5HWXUQLQJ WR WKH VXEMHFW RI WKH SURSRVHG FRQVWLWXn WLRQ WKH $VDPEOHD JDYH WDFLW DIILUPDWLRQ WR WKH HVWDEn OLVKPHQW RI D IHGHUDO JRYHUQPHQW RQ 0D\ DV LW FDOOHG IRU WKH LQVWDOODWLRQ RI FRQVWLWXHQW DVVHPEOLHV LQ *XDWHPDOD +RQGXUDV 1LFDUDJXD DQG &RVWD 5LFD 7KH SURn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nQ LQ 0DUFK 7KH FRQVWLWXWLRQ RI WKH QHZ VWDWH RI (O 6DOYDGRU FORVHO\ IROORZHG WKH RXWOLQH SURYLGHG LQ WKH %DVHV DQG ZDV SURPXOn JDWHG RQ -XO\ ZHOO LQ DGYDQFH RI WKH HVWDEOLVKPHQW RI D QDWLRQDO JRYHUQPHQW :KLOH WKH DFWLRQ RI (O 6DOYDGRU JDYH WKH IHGHUDWLRQ

PAGE 118

GH IDFWR VWDWXV *XDWHPDODQ &RQVHUYDWLYHV FRQWLQXHG WR DUJXH LQ IDYRU RI D XQLWDU\ IRUP RI JRYHUQPHQW ZKHQ WKH $VDPEOHD UHVXPHG GLVFXVVLRQ RI WKH FRQVWLWXWLRQ RQ -XO\ $OO RI WKH ROG DUJXPHQWV ZHUH UHVWDWHG EXW SURYLQFLDO VHQWLPHQWV ZHUH VR JUHDW WKDW WKH FHQWUDOLVWV ZHUH IRUFHG WR DGPLW WKDW WKHUH ZDV QR FKDQFH IRU WKH DFFHSWDQFH RI WKHLU SURn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n WLRQV RQ WKH &RQVWLWXWLRQ ZLOO EH RIIHUHG LQ OLHX RI DQ H[WHQGHG GHVFULSWLRQ :KLOH WKH &RQVWLWXWLRQ SURYLGHG IRU PDQKRRG VXIIUDJH FRQVLGHUDEOH GLVWUXVW RI WKH PDVVHV ZDV UHIOHFWHG LQ WKH FXPEHUVRPH DQG OHQJWK\ SURFHVV RI HOHFWLRQV GUDZQ IURP WKH 6SDQLVK &RQVWLWXWLRQ RI 8QGHU WKLV V\VWHP FLWL]HQV HOHFWHG RQH GLVWULFW HOHFWRU IRU HYHU\ WZR KXQGUHG DQG ILIW\ YRWHUV 7KH GLVWULFW HOHFWRUV FKRVH RQH GHSDUWn PHQWDO HOHFWRU IRU HYHU\ WHQ RI WKHLU QXPEHU 7KH GHSDUWn PHQWDO HOHFWRUV WKHQ FDVW WKH YRWHV IRU IHGHUDO RIILFLDOV 7KLV V\VWHP QRW RQO\ VHSDUDWHG WKH SHRSOH IURP WKHLU

PAGE 119

UHSUHVHQWDWLYHV EXW DOVR RIIHUHG UHSHDWHG RSSRUWXQLWLHV IRU WKH PDQLSXODWLRQ RI HOHFWLRQV 7KHUH KDV EHHQ D FRQVLGHUDEOH DPRXQW RI GLVFXVVLRQ RQ WKH TXHVWLRQ RI ZKHWKHU WKH JRYHUQPHQW FUHDWHG LQ ZDV D IHGHUDWLRQ RU D FRQIHGHUDWLRQ ,Q WKH YLHZ RI WKLV ZULWHU WKHUH FDQ EH OLWWOH GRXEW WKDW D IHGHUDWLRQ ZDV LQWHQGHG 7KLV LV FOHDUO\ UHIOHFWHG LQ WKH GHFLVLRQ WR DGRSW WKH QDPH )HGHUDFLµ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nV SURYLVLRQV FRQFHUQLQJ WKH SUHVLGHQF\ UHIOHFWHG WKH W\SLFDO QLQHWHHQWK FHQWXU\ OLEHUDOLVW IHDU RI NLQJO\ SRZHUV

PAGE 120

0RUHRYHU &HQWUDO $PHULFDQV DSSDUHQWO\ EHOLHYHG WKDW H[HFXn WLYH DXWKRULW\ ZDV QRW UHDOO\ DQ HVVHQWLDO SDUW RI JRYHUQn PHQW 7KHUH GRHV QRW VHHP WR KDYH EHHQ DQ\ FRQFHUQ JHQHUn DWHG E\ WKH IDFW WKDW WKH ODZV ZKLFK SURYLGHG IRU WKH GLVVROXWLRQ RI WKH 63( DQG WKH HOHFWLRQ RI WKH 3UHVLGHQW ZRXOG OHDYH WKH QDWLRQ ZLWKRXW H[HFXWLYH OHDGHUVKLS IRU D SHULRG RI WZR PRQWKV &RQVHTXHQWO\ WKH &RQVWLWXWLRQ SURn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nV EDFNJURXQG LW LV QRW VXUSULVLQJ WKDW DIWHU KLV HOHFWLRQ WR WKH 3UHVLGHQF\ KH ORRNHG WR WKH PLOLWDU\ DV WKH PHDQV IRU HVWDEOLVKLQJ KLV DXWKRULW\

PAGE 121

127(6 ‘A9LFHQWH )LOLVROD (O FLXGDGDQR *HQHUDO GH %ULJDGR 9LFHQWH )LOLVROD D -RV« )UDQFLVFR %DUUXQGLD HPLVDULR GH OD IDFFLµQ 6DQ 6DOYDGRUH³D HQ *XDWHPDOD HQ FRQWHVWDFLµQ GH VX OLEHOR GH GH DJRVWR GHO SUHVHQWH D³R R VHDQ DSXQWHV SDUD OD KLVWRULD GH OD OLEHUWDG GH DTXHOODV SURYLQFLDV LQ *DUF¯D 'HOJDGR ,, 0RQWXIDU \ &RURQDGR 0HPRULDV , A$OWKRXJK KLV DFWLRQV ZHUH VHYHUHO\ FULWLFL]HG E\ %DUUXQGLD DQG RWKHUV )LOLVROD SDVVHG XS D SHUIHFW RSSRUn WXQLW\ IRU VHOIDJJUDQGL]HPHQW )ROORZLQJ WKH IDOO RI ,WXUELGH KH FRPPDQGHG WKH RQO\ HIIHFWLYH PLOLWDU\ IRUFH LQ &HQWUDO $PHULFD DQG KDG WKH VXSSRUW RI *XDWHPDODQ FRQVHUYDn WLYHV ZKR XUJHG KLP WR UHWDLQ SROLWLFDO SRZHU -)LOLVRODf¬V SURFODPDWLRQ LV UHSURGXFHG LQ 0DUXUH %RVTXHM F M , 7DEOD SDUD IDFLOLWDU OD HOHFFLµQ GH GLSXWDGRV \ VXSOHQWHV SDUD HO &RQJUHVR GH ODV 3URYLQFLDV 8QLGDV GH *XDWHPDOD LQ *DUF¯D $UFH , 7KHUH ZHUH QR DFFXUDWH FHQVXV ILJXUHV DYDLODEOH ZKHQ WKH FRQJUHVV ZDV FDOOHG DQG WKH SRSXODWLRQ RI UHSUHVHQWHG E\ GHSXWLHV ZDV DQ DUELWUDU\ DSSUR[LPDWLRQ 7KH SRSXODWLRQ HVWLPDWHV IRU 6DQ 6DOYDGRU +RQGXUDV 1LFDUDJXD DQG &RVWD 5LFD ZHUH ODWHU UDLVHG LQ UHVSRQVH WR SUHVVXUH UHJDUGLQJ UHSUHVHQWDWLRQ LQ WKH IHGHUDO *RQJUHVV 7KH MXQWD FRQVXOWLYD DOVR SURYLGHG IRU WKH HOHFWLRQ RI VXSOHQWHV WRn WKH FRQVWLWXHQW DVVHPEO\ ZLWK *XDWHPDOD HOHFWLQJ 6DQ 6DOYDGRU +RQGXUDV 1LFDUDJXD DQG &RVWD 5LFD 7KH UHSUHVHQWDWLYHV HOHFWHG E\ VRPH GLVWULFWV QHYHU DWWHQGHG WKH DVVHPEO\ DQG VXSOHQWHV DSSDUHQWO\ VHUYHG DW ODUJH DV WKH IRXU GHOHJDWHV IURP &RVWD 5LFD UHJXODUO\ SDUWLFLSDWHG LQ WKH VHVVLRQV RI WKH DVVHPEO\ A)HGHUDFLRAQ GH &HQWURDPHULFD 3UR\HFWR GH FHUHPRQLDO SDUD OD LQVWDODFLµQ \ DSHUWXUD GHO FRQJUHVR n>*XDWHPDOD f A'LFWDPHQ TXH OD FRPLVLµQ QRPEUDGD SRU OD -XQWD 3UHSDUDWRULD KD SUHVHQWDGR DFHUFD GH OD LQGHSHQGHQFLD DEVROXWD LQ *DUFLD $UFH , Q M n3HGUR -RDTX¯Q &KDPRUUR +LVWRULD GH OD IHGHUDFLµQ GH OD $PµULFD &HQWUDO 0DGULG f SSa>

PAGE 122

2 'HFUHWR GH ,QGHSHQGHQFLD GH OD $VDPEOHD 1DFLRQDO &RQVWLWX\HQWH GH GH MXOLR GH LQ *DOODUGR /DV &RQVWLWXFLRQHV ,, ,Q $OEHUWR /XQD SXEOLVKHG DQ DUWLFOH ZKLFK DUJXHG WKDW WKH DFW RI 6HSWHPEHU RQO\ GHOD\HG D GHFLVLRQ RQ LQGHSHQGHQFH WKDW ZDV QRW UHDFKHG XQWLO 6LQFH WKDW WLPH D GHEDWH KDV VLPPHUHG RYHU WKH TXHVWLRQ RI WKH WUXH GDWH RI &HQWUDO $PHULFDQ LQGHSHQn GHQFH A0DUXUH %RVTXHMR , 0RQWXIDU \ &RURQDGR 0HPRULDV , A'HFUHWR GH OD $VDPEOHD 1DFLRQDO &RQVWLWX\HQWHA GH GH MXOLR GH GHFODU£QGRVH OHMLWLPDPHQWH FRQVWLWXLGD \ GLYLGLHQGR ORV SRGHUHV LQ *DOODUGR /DV &RQVWLWXFLRQHV ,, A0DUXUH %RVTXHMR , ,ELG 0LJXHO *DUF¯D *UDQDGRV 0HPRULDV GHO *HQHUDO 0LJXHO *DUFID *UDQDGRV YROV *XDWHPDODr f 7a nU 0DUXUH %RVTXHMR , ,W LV QRW FOHDU ZKHWKHU WKH /LEHUDOV XVHG WKLV GHYLFH EHFDXVH WKH\ ODFNHG WKH YRWHV LQ WKH DVVHPEO\ WR VHFXUH GLUHFW UHMHFWLRQ RI )LOLVROD RU VRXJKW WR XVH LW DV D PHDQV IRU SUHYHQWLQJ WKH DULVWRFUDWV IURP JLYLQJ WKHLU FDQGLGDWH DQ\ IXUWKHU HQFRXUn DJHPHQW ‘A'HFUHH RI WKH $VDPEOHD 1DFLRQDO &RQVWLWX\HQWH GDWHG -XO\ LQ *DUFLD $UFH , ‘A0RQWXIDU \ &RURQDGR 0HPRULDV , L ID 3 r)LOLVROD (O FLXGDGDQR *HQHUDO D -RVH )UDQFLVFR %DUUXQGLD LQ *DUFLD 'HOJDGR ,, nLELG SS -RVI )UDQFLVFR %DUUXQGLD (O 0DQLILHVWR GH 9LFHQWH )LOLVROD DJHQWH GH ,WXUELGH HQ *XDWHPDOD LQ *DUFLD 'HOJDGR ,, IW 0DUXUH %RVTAHMR , %DUUXQGLD (O 0DQLILHVWR GH )LOLVROD LQ *DUFLD 'HOJDGR ,, ‘A0DUXUH %RVTXHM R , f¯A0RQWL¯IDU \ &RURQDGR 0HPRULDV , 0DUXUH %RVTXHMR , =$QGUHV 7RZQVHQG (]FXUUD )XQGDFLµQ GH OD 5HS¼EOLFD *XDWHPDOD f S

PAGE 123

A0DUXUH %RVTXHMR , ,ELG SS A,ELG S 0RQWL¯IDU \ &RURQDGR 0HPRULDV , $UL]DnV VHFRQG LQ FRPPDQG 0DQXHO (VWUDGD ZDV OHVV IRUWXQDWH DV KH ZDV FDSWXUHG DQG KDQJHG IRU KLV SDUWLFLSDn WLRQ LQ WKH UHYROW r3DEOR $OYDUDGR WR *RELHUQR 6XSHULRU GH &RVWD 5LFD 1RYHPEHU LQ *DUF¯D $UFH A $FFRUGLQJ WR $OYDUDGR DOO RI WKH HOHYHQ GHSXWLHV IURP +RQGXUDV ZHUH &RQVHUYDWLYHV DQG WKH HLJKW PDQ GHOHJDWLRQ IURP 1LFDUDJXD ZDV HYHQO\ GLYLGHG EHWZHHQ WKH WZR SDUWLHV (O 6DOYDGRU SURYLGHG WKH EXON RI /LEHUDO VWUHQJWK DV DOO EXW IRXU RI WKH *XDWHPDODQ GHSXWLHV ZHUH VDLG WR EH &RQVHUYDWLYHV 0DUXUH %RVTXHMR , ,ELG ,Q RUGHU WR HOHFW 2f¬+RUDQ ZKR ZDV D 6SDQLDUG WKH DVVHPEO\ KDG WR UHSHDO WKH DFW RI -XO\ ZKLFK UHVWULFWHG PHPEHUVKLS LQ WKH 63( WR QDWLYH ERUQ FLWL]HQV T / $OYDUDGR WR *RELHUQR 6XSHULRU 1RYHPEHU P *DUF¯D $UFH , 0DUXUH %RVTXHM R , ,ELG S 0DUXUHrV FRQWHQWLRQ WKDW WKH /LEHUDOV LQWHQGHG WR XVH WKH 6DOYDGRUDQ IRUFH DV D PHDQV IRU UHJDLQLQJ SRZHU DSSHDUV WR EH FRQILUPHG E\ WKH GHPDQGV ZKLFK 5LYDV SUHVHQWHG WR WKH JRYHUQPHQW $OYDUDGR WR *RELHUQR 6XSHULRU 1RYHPEHU P *DUFLD $UFH , 7RZQVHQG (]FXUUD )XQGDFLµQ S 0DUXUH %RVTXHMR , A$OYDUDGR WR *RELHUQR 6XSHULRU 1RYHPEHU LQ *DUFLD $UFH , fµA,ELG 0DUXUH %RVTXHM R , 5LYDV GLG QRW UHWXUQ FRPSOHWHO\ HPSW\ KDQGHG DV KH VWRSSHG LQ 6RQVRQDWH ORQJ HQRXJK WR VHFXUH WKH GLVWULFWnV DQQH[DWLRQ WR 6DQ 6DOYDGRU A%DVHV GH OD &RQVWLWXFLµQ )HGHUDO LQ *DUFLD $UFH , $OYDUDGR WR *RELHUQR 6XSHULRU 1RYHPEHU LQ *DUFLD $UFH , ‘A%DVHV LQ *DUFLD $UFH ,

PAGE 124

‘A%XPJDUWQHU 9DOOH SS p6PLWK )LQDQFLQJ WKH &HQWUDO $PHULFDQ )HGHUDWLRQ S A)HGHUDFLµQ GH &HQWURDPHULFD 0HPRULD SUHVHQWDGD SRU HO VHFUHWDULR GH HVWDGR 7KRPSVRQ 1DUUDWLYH S A2UGHQDQ]D SDUD OD UHFDXGDFLµQ DGPLQLVWUDFLµQ GHO LPSXHVWR JHQHUDO >-DQXDU\ @ LQ *DUFLD $UFH , A)HGHUDFLµQ GH &HQWURDPHULFD 0HPRULD SUHVHQWDGD SRU HO VHFUHWDULR GH HVWDGR ,ELG ,ELG 7KH IHGHUDO JRYHUQPHQW DOVR UHFHLYHG D OLPLWHG DPRXQW RI LQFRPH IURP VXFK VRXUFHV DV WKH VDOH RI VWDPSHG SDSHU DQG RSHUDWLRQ RI WKH PLQW A&KDPRUUR +LVWRULD GH OD IHGHUDFLµQ S 0DUXUH %RVTXHMR , &KDPRUUR +LVWRULD GH OD IHGHUDFLµQ S A6PLWK )LQDQFLQJ WKH &HQWUDO $PHULFDQ )HGHUDWLRQ SS A,ELG %XPJDUWQHU 9DOOH S fµA'LUHFWRU *HQHUDO GH 7REDFR WR 6HFUHWDULR GHO (VWDGR 'HFHPEHU 6HFUHWDULR GHO (VWDGR WR 'LUHFWRU *HQHUDO GH 7REDFR -DQXDU\ 77@ LQ *DUFLD $UFH ,,, n F 6PLWK )LQDQFLQJ WKH &HQWUDO $PHULFDQ )HGHUDWLRQ SS 0DUXUH %RVTXHMR , A'HFUHH GDWHG -XQH LQ *DUFµD $UFH , A8QLWHG 6WDWHV 1DWLRQDO $UFKLYHV 'HSDUWPHQW RI 6WDWH 'HVSDWFKHV IURP 8QLWHG 6WDWHV &RQVXOV LQ *XDWHPDOD , +HUHDIWHU &RQVXODU 'HVSDWFKHVfA &KDUOHV 6DYDJH WR WKH 6HFUHWDU\ RI 6WDWH $XJXVW 'XQQ *XDW¯PDOD S AA0DUXUH %RVTXHM R , A7KRPSVRQ 1DUUDWLYH S F I fµAn&KDPRUUR +LVWRULD GH OD IHGHUDFLµQ S

PAGE 125

A$1* % OHJ H[S A 5HSRUW IURP WKH 0LQLVWHULR GH +DFLHQGD WR WKH MHIH SROLWLFR RI *XDWHPDOD GDWHG -DQXDU\ 0DUXUH %RV TXH Mn R , ,ELG S A6PLWK )LQDQFLQJ WKH &HQWUDOn$PHULFDQ )HGHUDWLRQ SS ,ELGm $UFH 0HPRULD SS AA0LQXWHV RI WKH 2FWREHU PHHWLQJ RI WKH $VDPEOHD &RQVWLW\HQWH GH +RQGXUDV LQ *DUFLD $UFH ,, A7KLV OHWWHU LV TXRWHG LQ &KDPRUUR +LVWRULD GH OD IHGHUDFLµQ SS A0DUXUH %RVTXHMR , I?I? I '2&KDPRUUR +LVWRULD GH OD IHGHUDFLµQ S I? n*DOODUGR /DV &RQVWLWXFLRQHV , 0DUXUH %RVTXHMR , A)HGHUDFLµQ GH &HQWURDPHULFD 0HPRULD SUHVHQWDGD SRU HO VHFUHWDULR GH HVWDGR *DOODUGR /DV &RQVWLWXFLRQHV ,, 07 0DUXUH %RVTXHMR , 0RQWXIDU \ &RURQDGR 0HPRULDV , $FWD RI WKH &RQJUHVR GHO HVWDGR GH 6DQ 6DOYDGRU GDWHG $SULO LQ *DUF¯D $UFHaM 7a $UFH FRQVLGHUHG IRU WKH SRVW RI MHIH SROLWLFR EXW KH ZDV QRW HOHFWHG EHFDXVH RI KLV PHPEHUVKLS LQ WKH 63( A%XPJDUWQHU 9DOOH S A &RPPHQWV RQ WKH &RQVWLWXWLRQ RI DUH EDVHG RQ WKH WH[W RI WKH GRFXPHQW FRQWDLQHG LQ *DOODUGR /DV &RQVWLn WXFLRQHV ,, )RU FULWLFDO H[DPLQDWLRQ RI WKH &RQVWLWXWLRQ VHH 0DUXUH %RVTXHM R , .DUQHV )DLOXUH RI 8QLRQ SS *DOODUGR /DV &RQVWLWXFLRQHV DQG +DUROG %RQG )LHOG 7KH &HQWUDO $PHULFDQ )HGHUDWLRQ $ 3ROLWLFDO 6WXG\ 3K' GLVVHUWDn WLRQ 8QLYHUVLW\ RI &KLFDJR f SS A5RGULJR )DFLµ 7UD\HFWRULD \ FULVLV GH OD )HGHUDFLµQ &HQWURDPHULFDQD 6DQ -RV« f S 7

PAGE 126

&+$37(5 ,9 7+( &217(67 )25 7+( 35(6,'(1&< )ROORZLQJ D WZR PRQWK YR\DJH $UFH DQG 5RGULJXH] DUULYHG LQ %RVWRQ LQ WKH ODWWHU SDUW RI 0D\ ,JQRUDQW RI WKH FKDQJHV WKDW KDG WDNHQ SODFH LQ &HQWUDO $PHULFD WKH 6DOYDGRUDQ HQYR\V LPPHGLDWHO\ GHSDUWHG IRU :DVKLQJWRQ 7KHLU PLVVLRQ ZDV GHOD\HG LQ 3KLODGHOSKLD KRZHYHU EHFDXVH RI D UHFXUUHQFH RI $UFHnV LOOQHVVr 'XULQJ WKHLU VWD\ LQ 3KLODn GHOSKLD WKH PLQLVWHUV OHDUQHG E\ ZD\ RI UHSRUWV ILOWHULQJ XS IURP 0H[LFR WKDW D VKLIW KDG RFFXUHG LQ WKH SROLWLFDO IRUWXQHV RI WKHLU KRPHODQG 7KH\ ILUVW UHFHLYHG QHZV RI ,WXUELGHnV GRZQIDOO DQG VRPHZKDW ODWHU KHDUG WKDW D FRQJUHVV KDG EHHQ FRQYHQHG LQ *XDWHPDOD &LW\
PAGE 127

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n WLRQ +LV UHDFWLRQ WR WKH %DVHV ZDV QRW ZKDW RQH PLJKW KDYH

PAGE 128

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nr 'XH WR KLV ODFN RI IDPLOLDULW\ ZLWK WKH ODQJXDJH DQG WKH IDFW WKDW KH ZDV EHGULGGHQ D JUHDW SDUW RI WKH WLPH LW VHHPV XQOLNHO\ WKDW $UFH FRXOG KDYH PDGH D YHU\ SHQHWUDWLQJ VWXG\ RI 8QLWHG 6WDWHV SROLWLFV ,Q DQ\ FDVH WKH IXWXUH 3UHVLGHQW RI WKH IHGHUDWLRQ KDG JRRG DQG FRPSHOOLQJ UHDVRQV WR IDYRU D VWURQJ QDWLRQDO JRYHUQPHQW 7KH HDVH ZLWK ZKLFK )LOLVROD ZDV DEOH WR RYHUUXQ 6DQ 6DOYDGRU PXVW KDYH UDLVHG GRXEWV FRQFHUQLQJ WKH GHVLUDELOLW\ RI ORFDO DXWRQRP\ 0RUHn RYHU WKHUH ZDV UHDVRQ WR EHOLHYH WKDW &HQWUDO $PHULFD IDFHG D WKUHDW IDU PRUH VHULRXV WKDQ WKDW ZKLFK KDG EHHQ SRVHG E\ ,WXUELGHnV LPSHULDO DUP\ $UFHf¬V JUDVS RI WKH ZRUNLQJV RI $PHULFDQ JRYHUQPHQW PD\ EH TXHVWLRQHG EXW LW LV FHUWDLQ WKDW KH ZDV DZDUH RI WKH VLWXDWLRQ LQ (XURSH WKDW ZRXOG OHDG WR WKH HQXQFLDWLRQ RI WKH 0RQURH 'RFWULQH VKRUWO\ DIWHU KLV

PAGE 129

GHSDUWXUH IURP WKH 8QLWHG 6WDWHV 'XULQJ WKH 6DOYDGRUDQ HQYR\Vf¬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
PAGE 130

WRJHWKHU ZLWK -RVH &HFLOLR GHO 9DOOH D IHOORZ PHPEHU RI WKH 63( ZHUH UHJDUGHG DV WKH OHDGLQJ FDQGLGDWHV 9DOOH ZDV XQGRXEWHGO\ RQH RI WKH PRVW LQWHOOLJHQW DQG OHDUQHG PHQ LQ &HQWUDO $PHULFD +LV HUXGLWLRQ DQG QDWLYH WDOHQWV FRPPDQGHG D FRQVLGHUDEOH DPRXQW RI UHVSHFW EXW LW ZDV QHYHU DV JUHDW DV KH IHOW KH GHVHUYHG :KLOH 9DOOHnV DUURJDQFH ZRQ KLP D QXPEHU RI HQHPLHV KH SRVVHVVHG D UHn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r %XVWDPDQWH \ *XHUUD DQG WKHUHE\ ZDV DEOH WR HYHQ WKH VFRUH ZLWK WKH IDPLO\ ,Q WKH HQVXLQJ \HDUV WKH FUHROH VDYDQW UHPDLQHG D VWHDGIDVW UR\DO VHUYDQW DFWLQJ DV %XVWDPDQWHnV SHUVRQDO DGYLVHU DQG SUHSDULQJ D QXPEHU RI WKH &DSWDLQ *HQHUDOnV UHSRUWV DQG GLVSDWFKHV 9DOOHnV SROLWLFDO EHKDYLRU DW WKH HQG RI WKH VHFRQG GHFDGH DSSHDUV WR KDYH EHHQ GLFWDWHG DV PXFK E\ FDXWLRQ DV FRQVHUYDn WLVP +LV OHDGHUVKLS RI WKH %DFRV PD\ KDYH EHHQ SDUWLDOO\ WKH SURGXFW RI DQWDJRQLVP WR WKH DULVWRFUDWLF &DFRV \HW LW LV FOHDU WKDW KH VHQVHG WKH DWWLWXGH RI KLV FRXQWU\PHQ DV KH ZDV HOHFWHG PD\RU RI *XDWHPDOD &LW\ LQ 'HFHPEHU 'HVSLWH

PAGE 131

KLV LQLWLDO UHOXFWDQFH 9DOOHnV DWWLWXGH FRQFHUQLQJ LQGHSHQn GHQFH FKDQJHG ZLWK WKH SDVVLQJ PRQWKV %\ 6HSWHPEHU KH KDG FRPH GRZQ RQ WKH ULJKW VLGH DQG ZDV JLYHQ WKH KRQRU RI GUDIWLQJ GLH $FW RI ,QGHSHQGHQFH +H WKHQ DVVXPHG D SURPLQHQW UROH LQ WKH SURYLVLRQDO JRYHUQPHQW VHUYLQJ *DLQ]D DV KH KDG VHUYHG %XVWDPDQWH 9DOOH UHIXVHG WR FRPPLW KLPVHOI RQ WKH LVVXH RI DQQH[DWLRQ WR 0H[LFR EXW WKUHH PRQWKV DIWHU WKH HYHQW KH ZDV HOHFWHG WR D VHDW LQ WKH 0H[LFDQ &RQJUHVV $IWHU D PRQWKnV VHUYLFH LQ WKH &RQJUHVV WKH &HQWUDO $PHULFDQ GHSXW\ ZDV DUUHVWHG DQG FRQILQHG LQ SULVRQ IRU VL[ PRQWKV +H ZDV UHOHDVHG LQ )HEUXDU\ DQG LQIRUPHG WKDW LW KDG DOO EHHQ D PLVWDNH DQG KH ZDV QRZ ,WXUELGHn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

PAGE 132

RI UHYHQXH 7KHUH LV OLWWOH OLNHOLKRRG WKDW $UFH DQG 9DOOH ZHUH SHUVRQDOO\ DFTXDLQWHG SULRU WR WKHLU SDUWLFLSDWLRQ LQ WKH 63( %RWK RI WKHP KDG OLYHG LQ *XDWHPDOD &LW\ LQ WKH HDUO\ SDUW RI WKH FHQWXU\ EXW LW LV GRXEWIXO WKDWWKH\ PHW VLQFH 9DOOH ZDV $UFHnV VHQLRU E\ WHQ \HDUV DQG ZDV D EXGGLQJ ODZ\HU ZKLOH KLV IXWXUH FROOHDJXH ZDV D VWXGHQW LQ VHFRQGDU\ VFKRRO :KDWHYHU WKHLU SUHYLRXV FRQWDFWV WKH WZR H[HFXWLYHV ZHUH VRRQ DW ORJJHUKHDGV ZLWK HDFK RWKHU 9DOOH KDG HVWDEn OLVKHG D FRPIRUWDEOH SRVLWLRQ RI DXWKRULW\ LQ WKH H[HFXWLYH FRXQFLO DQG FRXOG FRXQW RQ WKH UHJXODU VXSSRUW RI 7RPDV 2n+RUDQ WKH WKLUG PHPEHU RI WKH 63( A $UFH ZDV ORDWK WR DFFHSW 9DOOHn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

PAGE 133

RULJLQ LQ WKH SUHLQGHSHQGHQFH GLVWXUEDQFH RI 'HFHPEHU ZKHQ WKH FLWL]HQV RI /HRQ GHSRVHG WKH LQWHQGHQWH -RVH 6DOYDGRU /HRQHVH GLVFRQWHQW DSSDUHQWO\ IRFXVHG RQO\ RQ 6DOYDGRU IRU WKH GLVVLGHQWV ZHUH VDWLVILHG ZLWK WKH DSSRLQWn PHQW RI WKH DUFKFRQVHUYDWLYH %LVKRS 1LFRODV *DUFLD -HUH] DV WKH QHZ LQWHQGHQWH DQG WKH FUHDWLRQ RI D JRYHUQPHQW DGYLVRU\ MXQWD :KHQ DPQHVW\ ZDV JUDQWHG WR SDUWLFLSDQWV LQ WKH GLVWXUEDQFH WKH DIIDLU ZDV JHQHUDOO\ YLHZHG DV D PDWWHU EHVW IRUJRWWHQ
PAGE 134

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¯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nV DFWLRQ GLG QRW LQWLPLGDWH WKH OHDGHUV RI /HRQ ZKR VHFXUHG IURP WKH 1LFDUDJXDQ GLSXWDFLµQ DQ RUGHU GLUHFWLQJ WKH FLWL]HQU\ WR LJQRUH WKH *UDQDGDQ MXQWD $W WKH VDPH WLPH LQWHQGHQWH *RQ]£OH] 6DUDYLD DWWHPSWHG WR EORFN WKH OLQHV RI FRPPXQLFDWLRQ EHWZHHQ *UDQDGD DQG *XDWHPDOD *URZLQJ SUHVVXUH IURP 0H[LFR FDXVHG *DLQ]D WR LQIRUP WKH

PAGE 135

*UDQDGDQV LQ 'HFHPEHU RI WKH GLPLQLVKLQJ SURVSHFWV IRU ODVWLQJ LQGHSHQGHQFH DQG ZLWK WKH GHFUHH RI DQQH[DWLRQ 6DFDVD SDVVLYHO\ DFFHSWHG WKH VXSUHPDF\ RI /HRQ :KLOH SURYHG WR EH D SHDFHIXO \HDU IRU 1LFDUDJXD WKH LVVXH RI DQQH[DWLRQ FRQWLQXHG WR EH D VRXUFH RI GLVFRUG 6DFDVDnV VXEPLVVLRQ WR /HRQ KDG DOLHQDWHG *UDQDGDQ OLEHUDOV DQG WKH\ WUDQVIHUUHG WKHLU DOOHJLDQFH WR &OHWR 2UGRQH] D PHVWL]R GHPDJRJXH 2Q -DQXDU\ 2UGRQH] JDLQHG FRQWURO RI *UDQDGD E\ PHDQV RI D EDUUDFNV UHYROW ZKLFK IRUFHG 6DFDVD WR IOHH IURP WKH FLW\ 7KLV HYHQW OHG WR WKH UHQHZDO RI KRVWLOLWLHV ZLWK /HFIQ DV *RQ]DOH] 6DUDYLD OHG PHQ LQ DQ DVVDXOW RQ *UDQDGD LQ )HEUXDU\ 2UGµ³H] ZKR KDG SULRU PLOLWDU\ H[SHULHQFH ZDV DEOH WR UHSHO WKH LQYDGLQJ IRUFH $ VHFRQG DWWDFN RQ WKH OLEHUDO VWURQJKROG ZDV EHLQJ SUHSDUHG ZKHQ WKH FRQWHQGLQJ DUPLHV ZHUH LQIRUPHG RI )LOLVRODnV GHFLVLRQ WR FRQYHQH D SURYLQFLDO FRQJUHVV DQG WKH LQWHQGHQWH ZDV UHFDOOHG WR *XDWHPDOD 7KH UHVXPSWLRQ RI &HQWUDO $PHULFDnV LQGHSHQGHQW VWDWXV HOLPLQDWHG WKH LPPHGLDWH WKUHDW WR *UDQDGD EXW LW GLG QRW UHGXFH 1LFDUDJXDnV SRWHQWLDO IRU YLROHQFH $JUHHPHQW FRQFHUQLQJ WKH HVWDEOLVKPHQW RI D XQLILHG JRYHUQPHQW IRU WKH SURYLQFH FRXOG QRW EH VHFXUHG DQG WKH DUHD UHPDLQHG GLYLGHG LQWR WZR DUPHG FDPSV WKURXJKRXW ,Q /HRQ %LVKRS *DUFLD -HUH] ZRXOG QRW UHFRJQL]H DQ\ RXWVLGH DXWKRULW\ LQFOXGLQJ WKDW RI WKH QDWLRQDO JRYHUQPHQW LQ *XDWHPDOD :KLOH 2UGRQH] SOD\HG IDVW DQG IUHH LQ *UDQDGD ZLWK WKH SURSHUW\ RI H[LOHG FRQVHUYDWLYHV &ULV£QWR 6DFDVD DVVXPHG FRPPDQG RI WKH /HRQHVH IRUFHV DQG EHJDQ SUHSDUDWLRQV

PAGE 136

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n LRUDWH $ UHYROW LQ /HRQ RQ -XO\ EURXJKW DERXW D

PAGE 137

SHUPDQHQW FKDQJH LQ WKH FLW\nV SROLWLFDO FRPSOH[LRQ DQG VKLIWHG WKH FHQWHU RI FRQVHUYDWLYH VWUHQJWK WR 0DQDJXD 7KLV JHRJUDSKLF UHDOLJQPHQW OHG WR WKH RXWEUHDN RI WRWDO ZDU WKH IROORZLQJ PRQWK &ULVDQWR 6DFDVD OHG 0DQDJXDQ FRQVHUYDWLYHV LQ D WKUHH ZHHN FDPSDLJQ DJDLQVW *UDQDGD DQG /HRQHVH OLEHUDOV LQVWLWXWHG D VLHJH DJDLQVW 0DQDJXD 0HDQn ZKLOH (O 6DOYDGRU PRYHG WR SURYLGH WKH PHDQV E\ ZKLFK $UFHn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n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r 'HVSLWH

PAGE 138

WKH 0LQLVWHUf¬V UHTXHVW WKDW KH DWWHQG D VSHFLDO PHHWLQJ FDOOHG IRU WKDW HYHQLQJ $UFH UHPDLQHG ILUP LQ KLV UHVROYH DQG DV KH DQWLFLSDWHG WKH 63( LVVXHG DQ RUGHU ZKLFK GHQLHG (O 6DOYDGRU WKH ULJKW WR VHQG WURRSV LQWR 1LFDUDJXD Y $UFHnV SRVLWLRQ LQYROYHG PXFK PRUH WKDQ D VLPSOH ER\FRWW RI WKH 63( DV KH VHQW D OHWWHU RI UHVLJQDWLRQ WR WKH $VDPEOHD RQ WKH VDPH GD\ 2QH ZHHN ODWHU WKH DVVHPEO\ UHSOLHG WKDW LW FRXOG QRW DFFHSW KLV UHVLJQDWLRQ EHFDXVH WKH SXEOLF JRRG GHPDQGHG WKDW $UFH FRQWLQXH WR KROG RIILFH 'HWHUPLQHG WR HVFDSH IURP 9DOOHnV FRQWURO WKH UHOXFWDQW H[HFXWLYH UHVSRQGHG WKDW KLV PHPEHUVKLS LQ WKH 63( IRUFHG KLP WR DFFHSW GHFLVLRQV ZKLFK YLRODWHG KLV FRQVFLHQFH DQG DJDLQ UHTXHVWHG WKDW KH EH UHOLHYHG RI KLV GXWLHVAp 7KLV OHWWHU FRQYLQFHG WKH $VDPEOHD RI WKH VLQFHULW\ RI $UFHnV GHFLVLRQ DQG LW DQQRXQFHG WKH DFFHSWDQFH RI KLV UHVLJQDWLRQ RQ 6HSWHPEHU A $UFHnV GHSDUWXUH IRU 6DQ 6DOYDGRU PDUNHG D YLFWRU\ IRU 9DOOH EXW WKH VWUXJJOH ZDV IDU IURP RYHU 3URFHHGLQJ ZLWK KLV SODQV IRU WKH SDFLILFDWLRQ RI 1LFDUDJXD 9DOOH DSSRLQWHG 0DQXHO $U]X MHIH SROLWLFR RI WKH SURYLQFH DQG DGYLVHG WKH ROG ZDUULRU WR HPSOR\ SHUVXDVLRQ DQG FRQFLOLDWLRQ DV WKH FKLHI PHDQV IRU UHVWRULQJ RUGHU 2Q 6HSWHPEHU $U]X DGGUHVVHG D SURFODPDWLRQ WR WKH 1LFDUDJXDQ SHRSOH ZKLFK ZDV LQ NHHSLQJ ZLWK 9DOOHnV LQVWUXFWLRQV $U]LI DVVXUHG KLV UHDGHUV WKDW WKH VROH REMHFW RI KLV PLVVLRQ ZDV WR SURPRWH WKH ZHOO EHLQJ RI WKH SURYLQFH +H DUJXHG WKDW WKH TXDOLW\ RI JRYHUQPHQW ZDV IDU PRUH LPSRUWDQW WKDQ LWV ORFDWLRQ DQG SRLQWHG RXW WKDW QR RQH FRXOG KRSH IRU SURVSHULW\ DQG SURJUHVV

PAGE 139

XQWLO WKHUH ZDV SHDFH %\ WKLV WLPH WKH FRQVHUYDWLYHV XQGHU &ULVDQWR 6DFDVD KDG EHJXQ D VHLJH RI /HRQ WKDW ZRXOG ODVW XQWLO 'HFHPEHU DQG $U]XnV PHVVDJH ZHQW XQKHDUG 9DOOH GLG QRW LQWHQG WKDW $U]X VKRXOG EH WRWDOO\ ODFNLQJ LQ PLOLWDU\ VXSSRUW DQG KH VHFXUHG IURP KLV FRXVLQ 'LRQLVLR +HUUHUD WKH MHIH SROLWLFR RI +RQGXUDV D SURPLVH WR SURYLGH D IRUFH RI PHQ ,W LV GRXEWIXO WKDW $U]X H[SHFWHG WR UHFHLYH PXFK DVVLVWDQFH IURP +RQGXUDV 2Q 2FWREHU +HUUHUD VHQW D QRWH ZKLFK VWDWHG WKDW LW PLJKW QRW EH SRVVLEOH WR SURYLGH DUPV IRU WKH PHQ DVVLJQHG WR 9DOOHn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

PAGE 140

JRYHUQPHQW $UFH EHJDQ SUHSDUDWLRQV IRU WKH H[SHGLWLRQ WR 1LFDUDJXD LQ PLG1RYHPEHU 7KH PDUFK ZDV KHOG XS KRZHYHU E\ DQRWKHU RI $UFHn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n GHU WKDW ZDV TXDOLILHG E\ D WKRXVDQG LQWHUSUHWDWLRQV 7KH 0DQDJXDQ OHDGHUV XOWLPDWHO\ DJUHHG WR WXUQ RYHU WKHLU DUPV LQ UHWXUQ IRU WKH SURPLVH WKDW WURRSV IURP /HRA DQG *UDQDGD ZRXOG QRW EH SHUPLWWHG WR HQWHU WKH FLW\ $UFH GLG QRW IHHO WKDW WKLV ZDV DQ LPSRUWDQW FRQFHVVLRQ EXW KH

PAGE 141

SURPLVHG WR VKRRW DQ\RQH ZKR DWWHPSWHG WRUHVLVW KLV RUGHUV 7KH 1LFDUDJXDQ FLYLO ZDU ZDV EURXJKW WR D FORVH ZKHQ $UFH DVVXPHG FRPPDQG RI 0DQDJXD RQ -DQXDU\ 7KH 6DOYDGRUDQ OHDGHU UHPDLQHG LQ WKH DUHD IRU VHYHUDO ZHHNV 7KHQ DVVXUHG WKDW KLV WDVN ZDV FRPSOHWHG DQG FRQFHUQHG E\ D IXUWKHU GHFOLQH LQ KLV KHDOWK $UFH UHWXUQHG WR 6DQ 6DOYDGRUA 7KH YDOLGLW\ RI WKH FRQWHPSRUDU\ MXGJHPHQW WKDW $UFHnV 1LFDUDJXDQ YHQWXUH ZDV SROLWLFDOO\ PRWLYDWHG LV GLIILFXOW WR DVVHVV $UFH QHYHU GHQLHG WKH GHVLUH WR EH 3UHVLGHQW :KLOH LW DSSHDUV WKDW KH GLG QRW SRVVHVV D JUHDW GHDO RI SROLWLFDO DFXPHQ KH PXVW KDYH UHDOL]HG WKDW WKH IDLOXUH RI 9DOOHnV SODQ IRU SDFLILFDWLRQ RI WKH DUHD RIIHUHG DQ RSSRUWXQLW\ IURP ZKLFK PXFK FRXOG EH JDLQHG DQG QRWKLQJ ORVW $UFH ZDV DZDUH RI WKH IDFW WKDW KLV RSSRQHQW ZDV FRQFHUQHG ZLWK WKH SROLWLFDO FRQVHTXHQFHV RI WKH 1LFDUDJXDQ DIIDLU DQG WKH 6DOYDGRUDQ ODWHU FRPSODLQHG WKDW RQ KLV DUULYDO LQ WKH SURYLQFH KH IRXQG WKDW WKH ILUVW REVWDFOH WR WKH UHVWRUDWLRQ RI RUGHU FDPH IURP *XDWHPDODA
PAGE 142

FRQWURO RI WKH DUHD ,Q DQ\ FDVH $UFHn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

PAGE 143

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

PAGE 144

ZKR FDVW WKHLU YRWHV LQ WKH PDQQHU VKRZQ EHORZ 6WDWH 'HSXW\ 3ROLWLFDO 9RWH 'HYLDWLRQ 2ULHQWDWLRQ IURP 'LVWULFW 9RWH )UDQFLVFA &DUUDVFDO /LEHUDO $UFH 1R -RVH 0DULD &DVWLOOD &RQVHUYDWLYH 9DOOH
PAGE 145

GHSXWLHV IURP *XDWHPDOD ([SODQDWLRQV RI WKLV &RQVHUYDWLYH DERXWIDFH DUH XVXDOO\ EDVHG RQ WKH DFFRXQW LQ $UFHnV 0HPRULD RI DQ LQWHUYLHZ KH KDG ZLWK D UHSUHVHQWDWLYH RI WKH &RQVHUYDn WLYH IDFWLRQ SULRU WR WKH &RQJUHVVLRQDO HOHFWLRQ RQ $SULO $UFH UHODWHV WKDW KH ZDV DVNHG IRU KLV RSLQLRQ FRQFHUQLQJ WKH HUHFWLRQ RI D ELVKRSULF LQ (O 6DOYDGRU +H UHSOLHG WKDW KH IDYRUHG VXFK DFWLRQ EXW UHDOL]HG WKH LVVXH FRXOG RQO\ EH GHFLGHG E\ WKH IHGHUDO &RQJUHVV ,W LV NQRZQ WKDW *XDWHPDODQ &RQn VHUYDWLYHV ZHUH QRW LQ V\PSDWK\ ZLWK 'HOJDGRn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n WLYHV PXVW KDYH PDGH D SULRU UHMHFWLRQ RI 9DOOH $FFRUGLQJ WR FRQWHPSRUDU\ DFFRXQWV /LEHUDOV VXSSRUWHG $UFH LQ WKH SRSXODU HOHFWLRQV EHFDXVH RI KLV SDVW VDFULILFHV LQ WKH VWUXJJOHV DJDLQVW 6SDLQ DQG 0H[LFR 7KH &RQVHUYDWLYHV YRWHG IRU 9DOOH LQ UHFRJQLWLRQ RI KLV RXWVWDQGLQJ DELOLW\ DQG EHFDXVH WKH\ KDG QR RWKHU DYDLODEOH FDQGLGDWH :KLOH WKH\

PAGE 146

ORVW FRQWURO RI WKH VWDWH JRYHUQPHQW *XDWHPDODQ &RQVHUYDWLYHV IRXQG WKHPVHOYHV LQ WKH PDMRULW\ LQ WKH IHGHUDO &RQJUHVV )DPLOLDULW\ ZLWK 9DOOHf¬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n LQJ WKH UHVWRUDWLRQ RI RUGHU$UFHnV VWDWHPHQW WKDW WKH PRVW YLWDO LVVXH LQ (O 6DOYDGRU ZRXOG QRW EH DOORZHG WR LQIOXHQFH KLV DFWLRQV DV 3UHVLGHQW WRJHWKHU ZLWK KLV FRQFLOn LDWRU\ EHKDYLRU LQ 1LFDUDJXD VKRXOG KDYH EHHQ VXIILFLHQW WR FRQYLQFH *XDWHPDODQ &RQVHUYDWLYHV WKDW KH UDWKHU WKDQ 9DOOH SRVHG WKH OHVVHU WKUHDW WR WKHLU SRZHU LQ &RQJUHVV 7KXV &RQVHUYDWLYHV DQG /LEHUDOV MRLQHG KDQGV WR VHOHFW WKH ILUVW 3UHVLGHQW RI WKH )HGHUDWLRQ 8QIRUWXQDWHO\ IRU $UFH WKLV FRQVHQVXV GLG QRW H[WHQG EH\RQG KLV HOHFWLRQ

PAGE 147

127(6 A8QLWHG 6WDWHV 1DWLRQDO $UFKLYHV 'HSDUWPHQW RI 6WDWH 1RWHV IURP )RUHLJQ /HJDWLRQV &HQWUDO $PHULFD , +HUHDIWHU 1RWHVf 0DQXHO -RVH $UFH DQG -XDQ 0DQXHO 5RGULJXH] WR -RKQ 4XLQF\ $GDGPV 6HSWHPEHU ] )UDJPHQW RI D OHWWHU E\ $UFH GDWHG -XO\ LQ *DUFLD $UFH , r I A'HSDUWPHQW RI 6WDWH 1RWHV $UFH DQG 5RGULJXH] WR $GDPV 6HSWHPEHU A,ELG $UFH DQG 5RGULJXH] WR $GDPV 6HSWHPEHU U r -,ELG $UFH DQG 5RGULJXH] WR $GDPV 6HSWHPEHU A,ELG 9LFHQWH 5RFDIXHUWH WR -RKQ 4XLQF\ $GDPV 2FWREHU ‘A$UFH 0HPRULD S ,ELG $1* % OHJ H[e IRO 8QWLWOHG SDPSKOHW GDWHG $XJXVW fµr$1* % OHJ H[S IRO 5RGULJXH] WR WKH D\XQWDPLHQWR RI &DUWDJR $XJXVW A$UFH 0HPRULD S %XPJDUWQHU 9DOOH S ‘A3DEOR $OYDUDGR WR WKH 6HFUHWDULR GHO *RELHUQR GH &RVWD 5LFD 0D\ LQ *DUFLD $UFH n ‘A%XPJDUWQHU 9DOOH S II 7KLV VNHWFK RI 9DOOHnV FDUHHU LV EDVHG RQ %XPJDUWQHUnV ELRJUDSK\ ‘A0RQWL¯IDU \ &RURQDGR 0HPRULDV , ‘A0DQXHO -RVHA $UFH &DUWDV 6DQ 6DOYDGRU f S ,ELG ;0DUXUH %RVTXHMR , 0RQWXIDU \ &RURQDGR 0HPRULDV , %RWK ZULWHUV DJUHH WKDW WKH DFWLYLWLHV RI $UFH DQG 9DOOH LQ ZHUH JRYHUQHG E\ WKHLU SUHVLGHQWLDO DPELWLRQV

PAGE 148

-2 /20RQWXIDU \ &RURQDGR 0HPRULDV , OA0DUXUH %RVTXHMR , A( JHQLR GH OD OLEHUWDG 2FWREHU r,ELG 2FWREHU 0DUXUH %RVTXHMR , ,ELG S ,ELG $UFH 0HPRULD S A$1* % OHJ H[S &RPLVLµQ GH JXHUUD I n0DUXUH %RVTXHMR , 0RQWXIDU \ &RURQDGR 0HPRULDV , p$UFH &DUWDV S A$1* % OHJ H[S &RPLVLµQ fµA$UFH &DUWDV S GH JXHUUD $UFH ‘A$VDPEOHD WR $UFH 6HSWHPEHU LQ , *DUFLD $UFH fµ2 0DQLILHVWR GH &RURQHO 'RQ 0DQXHO $U]X , LQ *DUFLD ' LRQLVLR +HUUHUD WR 0DQXHO $U]X 2FWREHU LQ *DUFLD $UFH , 0DQXHO -RVH $UFH WR 0DQXHO $U]X 1RYHPEHU LQ *DUFLD $UFH , r U I -'$UFH WR $U]X 'HFHPEHU LQ *DUFLD $UFH , A$UFH 0HPRULD SS ‘A$U]Xr WR $UFH -DQXDU\ LQ *DUFLD $UFH p$UFH WR $U]X -DQXDU\ \ LQ *DUFLD $UFH A$UFH WR $U]LI )HEUXDU\ LQ *DUFLD $UFH , p$UFH 0HPRULD S

PAGE 149

A$1* % OHJ H[S &RPLVLµQ GH JXHUUD 'UDIW RI D OHWWHU E\ $U]X LQ *DUFLD $UFH , A,Q WKLV FDVH WKH DXWKRUnV JXHVV LV WKDW WKH &RQVHUn YDWLYHV SUHGLOLFWLRQ IRU FHQWUDOLVP FDXVHG WKHP WR IRFXV WKHLU DWWHQWLRQ RQ WKH IHGHUDO UDWKHU WKDQ VWDWH HOHFWLRQV $1* % OHJ H[S (VWDGR TXH PDQLILHVWD HO HVFUXWLQR GH YRWRV SRSXODUHV ,ELG 0DUXUH %RVTXHMR , 0RQWXIDU \ &RURQDGR 0HPRULDV , $UFH 0HPRULD S 0DUXUH %RVTXHMR , 0RQWXIDU \ &RURQDGR 0HPRULDV ,

PAGE 150

&+$37(5 9 $5&(n6 35(6,'(1&< $1' 7+( ',65837,21 2) 7+( )('(5$7,21 :KHQ $UFH WRRN WKH RDWK RI RIILFH DV 3UHVLGHQW RQ $SULO KH H[SUHVVHG WKH KRSH WKDW &HQWUDO $PHULFDQV ZRXOG SXW ROG HQPLWLHV EHKLQG WKHPA %XW JLYHQ WKH FLUFXPn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

PAGE 151

9DOOH GLG QRW ODFN IRU VXSSRUWHUV LQ WKH UDQNV RI &HQWUDO $PHULFDQ SDPSKOHWHHUV DQG MRXUQDOLVWV :KLOH WKH YLHZV RI WKH FRQVHUYDWLYH HVWDEOLVKPHQW KDG EHHQ DLUHG IURP WKH EHJLQQLQJ RI WKH \HDU LQ (O LQGLFDGRU ZKLFK ZDV HGLWHG E\ -RVHr )UDQFLVFR &RUGRYD 0DQXHO 0RQWXIDU \ &RURQDGR -RVHr )UDQFLVFR 6RVD DQG -RVHr 0DULD &DVWLOOD WKHUH ZDV QR RSSRVLWLRQ SUHVV XQWLO WKH DSSHDUDQFH RI (O OLEHUDO DQG (O GRQ 0HOLWRQ LQ WKH VSULQJ RI +HDSLQJ VFRUQ DQG ULGLFXOH RQ DQ\WKLQJ DVVRFLDWHG ZLWK WKH *XDWHPDODQ DULVWRFUDF\ WKHVH SDSHUV GLG QRW KHVLWDWH WR FULWLFL]H $UFHnV HOHFWLRQ DQG VXEVHTXHQW DGPLQLVWUDWLRQ 7R $UFHnV FUHGLW KH GLG QRW DOORZ WKHVH DWWDFNV WR JRDG KLP LQWR LJQRULQJ WKH &RQVWLWXWLRQnV JXDUDQWLHV UHJDUGLQJ IUHHGRP RI VSHHFKA 'HVSLWH 9DOOHnV GHQXQFLDWLRQV DQG WKH EDUEV RI WKH OLEHUDO SUHVV WKH 3UHVLGHQW ZDV DEOH WR PDLQWDLQ IDLUO\ DPLFDEOH UHODWLRQV ZLWK &HQWUDO $PHULFDQ /LEHUDOV GXULQJ WKH UHPDLQGHU RI KLV ILUVW \HDU LQ RIILFHA ,W VRRQ EHFDPH FOHDU KRZHYHU WKDW ZKLOH WKH /LEHUDOV GLG QRW LPPHGLDWHO\ LQWHQG WR RSSRVH $UFH WKH\ ZHUH QRW LQFOLQHG WR VXSSRUW KLP $ QXPEHU RI DXWKRUV FRQWHQG WKDW WKH GLIILFXOWLHV H[SHULHQFHG LQ WKH HDUO\ \HDUV RI WKH IHGHUDWLRQ JUHZ RXW RI WKH IDFW WKDW $UFH GHVHUWHG KLV /LEHUDO FROOHDJXHVA
PAGE 152

H[HFXWLYH DQG WKH SRVLWLRQ ZHQW WR 0DULDQR %HOWUDQHQD D &RQVHUYDWLYH LQ D VLPLODU IDVKLRQ 3HGUR 0ROLQD UHMHFWHG KLV DSSRLQWPHQW DV )RUHLJQ 6HFUHWDU\ DQG 0DULDQR *DOYH] GHFOLQHG WR VHUYH DV 6HFUHWDU\ RI WKH 7UHDVXU\ ([SODQDWLRQV IRU WKLV DGPLQLVWUDWLYH UHOXFWDQFH RQ WKH SDUW RI WKH /LEHUDOV KDYH EHHQ DQG ZLOO SUREDEO\ FRQWLQXH WR EH QRWKLQJ PRUH WKDQ JXHVVHVA %DUUXQGLDf¬V EHKDYLRU PLJKW EH DFFRXQWHG IRU E\ WKH IDFW WKDW KH KHOG D VHDW LQ WKH IHGHUDO 6HQDWH ZKLFK KDG IDU PRUH DXWKRULW\ WKDQ HLWKHU H[HFXWLYH RIILFH %H\RQG WKLV REVHUYDWLRQ RQH FDQ RQO\ VSHFXODWH WKDW WKH /LEHUDOVn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«n)UDQFLVFR %DUUXQGLD ZDV DQ DUGHQW /LEHUDO DQG VRPH REVHUYHUV IHOW WKDW KLV DWWLWXGH FRQFHUQLQJ IHGHUDO

PAGE 153

DXWKRULW\ ZDV QRW ZKDW PLJKW EH ZLVKHG IRU WKH WUDQTXLOLW\ RI WKH UHSXEOLF -XQH KDG EHHQ GHVLJQDWHG DV D QDWLRQDO KROLGD\ LQ FRPPHPRUDWLRQ RI WKH $VDPEOHDnV RSHQLQJ VHVVLRQ LQ $OWKRXJK WKH VWDWH JRYHUQPHQW ZDV ORFDWHG LQ $QWLJXD VWDWH RIILFLDOV UHVLGLQJ LQ *XDWHPDOD &LW\ ZHUH H[SHFWHG WR MRLQ ZLWK IHGHUDO RIILFHUV LQ DWWHQGDQFH DW WKH FDSLWDOnV DQQLYHUVDU\ FHUHPRQLHV *UHJRULR 6DOD]DU WKH DGPLQLVWUDWRU RI WKH GLVWULFW RI *XDWHPDOD &LW\ GHFOLQHG WR DWWHQG KRZHYHU RQ WKH JURXQGV WKDW WKH SODFHV RI KRQRU DW WKH HYHQW ZHUH UHVHUYHG IRU IHGHUDO DXWKRULWLHV+ 6DOD]DUn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n PHQW %DUUXQGLD VHFXUHG RIILFH VSDFH E\ FRQILVFDWLQJ WKH

PAGE 154

KRPHV RI )UDQFLVFR $JXLUUH DQG -XDQ 0LJXHO %XVWDPDQWHr 7KHVH LQGLYLGXDOV DSSHDOHG WR WKH IHGHUDO &RQJUHVV IRU UHGUHVV RQ WKH JURXQGV RI $UWLFOH RI WKH &RQVWLWXWLRQ ZKLFK SURn KLELWHG JRYHUQPHQW VHL]XUH RI SULYDWH SURSHUW\ H[FHSW LQ FDVHV RI H[WUHPH HPHUJHQF\ DQG WKHQ ZLWK SULRU LQGHPQLILFDn WLRQ 7KH &RQJUHVV LVVXHG DQ RUGHU ZKLFK GHFODUHG %DUUXQGLDn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n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

PAGE 155

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nV DFWLRQ LQ WKLV SDUWLFXODU VLWXDWLRQ FRQWLQXHV WR HOLFLW VHFRQGJXHVVHV LQ WKH &KDPEHUODLQnV WLPLGLW\ HQFRXUDJHG :RUOG :DU ,, RU 5RRVHYHOWnV ULJLGLW\ OHG WR 3HDUO +DUERU FDWHJRU\ $UFHn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nV IRUHLJQ DIIDLUV ILQDQFLDO SUREOHPV DQG PLOLWDU\ HVWDEOLVKn PHQW 7KHUH ZDV D FRQVLGHUDEOH DPRXQW RI DFWLYLW\ LQ WKH DUHD RI IRUHLJQ UHODWLRQV 'XULQJ WKH \HDU WKH JRYHUQPHQW

PAGE 156

ZDV RIILFLDOO\ UHFRJQL]HG E\ WKH 1HWKHUODQGV ZKLFK GLVSDWFKHG D FKDUJH Gn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³DV WKH &HQWUDO $PHULFDQ PLQLVWHU LQ :DVKLQJWRQ RQ 'HFHPEHU DQG ZDV UDWLILHG E\ WKH 6HQDWH RQ -XO\ :KLOH WKLV WUHDW\ GHFODUHG WKH PXWXDO IULHQGVKLS RI WKH FRQWUDFWLQJ SDUWLHV LWV SURYLVLRQV FRQFHUQHG FRPPHUFLDO DIIDLUVJUDQWLQJ ULJKWV RI QDYLJDWLRQ DQG PRVW IDYRUHG QDWLRQ VWDWXV WR WKH VLJQDWRULHV 7KH RQO\ GLIILFXOWLHV H[SHULHQFHG ZLWK RWKHU QDWLRQV GXULQJ $UFHnV ILUVW \HDU LQ RIILFH LQYROYHG 0H[LFR DQG

PAGE 157

*UHDW %ULWDLQ 7KH DQQH[DWLRQ RI &KLDSDV WR 0H[LFR KDG OHG WR D GLVSXWH RYHU WKH ERXQGDU\ EHWZHHQ &HQWUDO $PHULFD DQG LWV QRUWKHUQ QHLJKERU :KLOH WKH SUREOHP ZDV QRW UHVROYHG XQWLO PXFK ODWHU LQ WKH FHQWXU\ WKH WZR QDWLRQV KHOG GLVFXVVLRQV WKURXJKRXW LQ DQ HIIRUW WR VHWWOH WKH LVVXH $ PLQRU FRQIOLFW ZLWK *UHDW %ULWDLQ GHYHORSHG LQ 0D\ ZKHQ 1HJUR VODYHV HVFDSHG IURP :DOLV %HOL]Hf WR &HQWUDO $PHULFD 8QGHU WKH WHUPV RI WKH &RQVWLWXWLRQ WKH VODYHV ZHUH QRZ IUHH PHQ EXW *HQHUDO &RGG WKH 6XSHULQWHQGHQW RI %HOL]H GHPDQGHG WKDW WKH IXJLWLYHV EH UHWXUQHG $UFH VXEPLWWHG WKH TXHVWLRQ WR WKH &RQJUHVV ZKLFK GLUHFWHG KLP WR FRPSO\ ZLWK WKH 6XSHULQWHQGHQWnV UHTXHVW 7KH 6HQDWH KRZHYHU UHIXVHG WR VDQFWLRQ WKH &RQJUHVVLRQDO RUGHU $ /LEHUDO SURSRVDO IRU WKH SD\PHQW RI FRPSHQVDWLRQ WR WKH IRUPHU RZQHUV PDGH QR KHDGZD\ LQ WKH IHGHUDO OHJLVODWXUH DQG WKH PDWWHU UHPDLQHG XQGHFLGHG IRU VRPH WLPH %ULWLVK SUHVVXUH XOWLPDWHO\ IRUFHG WKH UHWXUQ RI WKH VODYHV EXW WKH FRQWURn YHUV\ JDYH ELUWK WR DQWLSDWKLHV ZKLFK KDYH QRW \HW GLVDSSHDUHG $UFHn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

PAGE 158

DUHD ZHUH HTXDOO\ XQSURGXFWLYH 2Q -XO\ $UFH VLJQHG D GHFUHH JUDQWLQJ ULJKWV WR H[SORLW WKH LURQ GHSRVLWV ORFDWHG LQ +RQGXUDV WR WKH &RPSD³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n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

PAGE 159

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f¬V PRWWR /LYH IUHH RU GLHA :KLOH WKH (XURSHDQ LQYDVLRQ IDLOHG WR PDWHULDOL]H $UFHnV IHDUV ZHUH JLYHQ VRPH VXEVWDQFH RQ -DQXDU\ ZKHQ -RVHr =DPRUD D SHQLQVXODU IURP &RORPELD OHG D VPDOO EDQG RI PDOFRQWHQWV LQ DQ DERUWLYH DWWDFN RQ $OHMXHOD &RVWD 5LFD =DPRUD WHVWLILHG DIWHU KLV FDSWXUH WKDW KH KDG DFWHG DV D YDVVDO RI WKH .LQJ RI 6SDLQ ZKR KDG JLYHQ KLP D VSHFLDO FRPPLVVLRQ WR UDLVH UHYROXWLRQV LQ WKH $PHULFDV =DPRUDnV WHVWLPRQ\ GRXEWOHVVO\ FRQYLQFHG $UFH WKDW KLV HVWLPDWH RI (XURSHDQ LQWHQWLRQV ZDV VRXQG EXW LW DSSHDUV WR KDYH KDG OLWWOH HIIHFW RQ WKH RSLQLRQV RI KLV /LEHUDO DQWDJRQLVWV ZKR EHOLHYHG WKDW WKH DODUPV VRXQGHG DJDLQVW WKH +RO\ $OOLDQFH ZHUH PHUHO\ D GHYLFH WR LQFUHDVH WKH SRZHU RI WKH 3UHVLGHQWA +HQFH WKH /LEHUDOV UHJXODUO\ RSSRVHG DOO RI WKH PHDVXUHV WKDW ZHUH SURSRVHG WR VWUHQJWKHQ WKH QDWLRQf¬V DUPHG IRUFHV $UFH IRXQG WKDW KLV UHFRPPHQGDWLRQV ZHUH HLWKHU UHMHFWHG RU EHFDPH D FDXVH IRU FRQVLGHUDEOH HPEDUUDVVn PHQW DQG WKH LVVXH RI KLV DXWKRULW\ LQ PLOLWDU\ PDWWHUV ZDV

PAGE 160

XOWLPDWHO\ UHVSRQVLEOH IRU KLV FODVK ZLWK /LEHUDO OHDGHUV 7KH 3UHVLGHQWnV HIIRUWV WR GHYHORS D UHVSHFWDEOH ILJKWLQJ IRUFH LQFOXGHG WKH GUDIWLQJ RI DUWLFOHV RI ZDU DQG D WDEOH RI RUJDQL]DWLRQ ZKLFK ZHUH VXEPLWWHG WR &RQJUHVV LQ 6HSWHPEHU 7KHVH GRFXPHQWV ZHUH DSSURYHG E\ WKH &RQVHUYDWLYH GRPLQDWHG OHJLVODWXUH RQ 'HFHPEHU EXW WKH\ IDLOHG WR UHFHLYH WKH VDQFWLRQ RI WKH 6HQDWHA :KHQ &RQJUHVV UHn VXPHG GLVFXVVLRQ RI WKHVH PDWWHUV LQ WKH /LEHUDOV QRZ LQ WKH PDMRULW\ SURGXFHG WKHLU RZQ SODQ IRU PLOLWDU\ RUJDQL]DWLRQ DQG YLOLILHG $UFHn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nV GHIHQVH SURJUDP LQ VXUHO\ FRQWULEXWHG WR KLV JURZLQJ UDSSRUW ZLWK *XDWHPDODQ &RQVHUYDWLYHV
PAGE 161

DORRI IURP WKH SROLWLFDO EDWWOHV WKDW UDJHG LQ WKH ILUVW VHVVLRQ RI WKH &RQJUHVV 3DEOR $OYDUDGR FRPSODLQHG WKDW KH ZDV GHQLHG WKH IORRU E\ WKH &RQVHUYDWLYHV ZKR LQVXOWHG HPEDUUDVVHG DQG WHUURUL]HG KLP 7KH &RVWD 5LFDQ GHSXW\ DOVR DVVHUWHG WKDW 0LIn KH ZDQWHG WR FRXQW WKH ZD\V DQG PHDQV WKH\ KDYH DWWHPSWHG WR LQWURGXFH GLVFRUG EHWZHHQ )HGHUDO DXWKRULWn LHV DQG WKH VWDWHV KH FRXOG QRW ILQLVK LQ D GD\ 7KDW $UFH ZDV QRW GUDZQ LQWR WKHVH GLVSXWHV ZDV SUREDEO\ GXH LQ SDUW WR WKH IDFW WKDW SRRU KHDOWK IRUFHG KLP WR UHOLQTXLVK KLV RIILFH WR 9LFH 3UHVLGHQW 0DULDQR %HOWUDQHQD GXULQJ WKH PRQWKV RI 2FWREHU DQG 1RYHPEHU 0RUH VLJQLILFDQWO\ WKH WURXEOHG H[HFXWLYH IHOW WKDW KH VKRXOG DYRLG LQYROYHPHQW LQ SROLWLFDO ZUDQJOHV +LV HIIRUWV ZRXOG RQO\ VXFFHHG LQ FDUU\n LQJ KLP IURP WKH /LEHUDO WR &RQVHUYDWLYH FDPS EXW XQWLO 0DUFK $UFH SXUVXHG WKH LOOXVLRQ WKDW DQ DWWLWXGH RI QHXWUDOLW\ ZRXOG HQDEOH KLP WR UHFRQFLOH WKH GLIIHUHQFHV EHWZHHQ WKH WZR SDUWLHVA $V LI ZRUGV FRXOG KHDO WKH EUHDFK EHWZHHQ WKH IDFWLRQV WKH 3UHVLGHQW YRLFHG DQ DSSHDO IRU D VSLULW RI XQLW\ DQG FRRSHUDWLRQ ZKHQ KH SURFODLPHG WKH UDWLILFDWLRQ RI WKH &RQVWLWXWLRQ LQ 6HSWHPEHU 5HFRJn QL]LQJ WKH PRVW VHULRXV GDQJHU FRQIURQWLQJ WKH IHGHUDWLRQ $UFH VWUHVVHG WKH IDFW WKDW WKH VXFFHVV RI WKH IHGHUDO H[SHULPHQW ZRXOG GHSHQG XSRQ WKH VWDWHVn ZLOOLQJQHVV WR SURYLGH VXSSRUW IRU WKH FHQWUDO JRYHUQPHQW DQG UHFRQFLOH WKHLU GHVLUHV IRU DXWRQRP\ ZLWK WKH QHHG IRU XQLW\A +H SURYLGHG D PRUH FRQFUHWH GHPRQVWUDWLRQ RI KLV FRQYLFWLRQV ZKHQ &RQJUHVVLRQDO HOHFWLRQV ZHUH KHOG LQ 'HFHPEHU

PAGE 162

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nV IHDU RI DQ DSSURDFKLQJ FODVK EHWZHHQ WKH H[HFXWLYH DQG OHJLVODWLYH EUDQFKHV RI WKH JRYHUQPHQW ,Q D UDWKHU SDWKHWLF PDQQHU $UFH DWWHPSWHG WR IRUHVWDOO WKH FRPLQJ FRQIOLFW E\ PHDQV RI D OHQJWK\ DSSHDO WR SDWULRWLVPZDYLQJ WKH EORRG\ VKLUW RI UHVLVWDQFH WR 6SDLQ +H WKHQ UHYLHZHG KLV DFFRPSOLVKPHQWV LQ WKH DUHD RI IRUHLJQ DIIDLUV DQG SURSRVHG WKDW DQ HPEDUJR EH SODFHG RQ WUDGH ZLWK 6SDLQ DQG WKDW DGGLWLRQDO IXQGV EH DOORFDWHG WR FRPEDW VPXJJOLQJ %HIRUH WXUQLQJ WR GRPHVWLF LVVXHV WKH

PAGE 163

FKLHI H[HFXWLYH SDXVHG WR VWUHVV WKH QHHG IRU D SDWULRWLF VHQVH RI XQLW\ DQG LQ D EULHI SDVVDJH WKDW VXJJHVWV WKH IDFXOW\ RI SUHVFLHQFH KH UHPLQGHG WKH GHSXWLHV WKDW WKHUH ZHUH FOHDUO\ GHILQHG ERXQGDULHV ZKLFK VHSDUDWHG WKH SRZHUV RI WKH VHYHUDO EUDQFKHV RI WKH IHGHUDO JRYHUQPHQW $UFH WKHQ SRLQWHG WR WKH EHQHILWV WKDW ZHUH H[SHFWHG WR DFFUXH IURP WKH GHYHORSPHQW RI WKH PLQLQJ LQGXVWU\ DQG WKH FRQVWUXFn WLRQ RI WKH 1LFDUDJXDQ FDQDO +H SODFHG JUHDWHVW HPSKDVLV KRZHYHU RQ WKH PLOLWDU\ QHHGV RI WKH QDWLRQ :LWK D EULHI UHYLHZ RI KLV HIIRUWV LQ WKLV DUHD WKH 3UHVLGHQW FDOOHG DWWHQWLRQ WR WKH ODFN RI DQ DGHTXDWH VWDQGLQJ DUP\ DQG DVVHUWHG nWKDW WKH QDWLRQ ZRXOG QHYHU H[SHULHQFH WKH GHJUHH RI VHFXULW\ LW RXJKW WR HQMR\ XQWLO WKH REVWDFOHV ZKLFK SUHn YHQWHG WKH FUHDWLRQ RI VXFK D IRUFH ZHUH UHPRYHGA $Q\ LOOXVLRQV WKDW $UFH PD\ KDYH KDG FRQFHUQLQJ WKH HIIHFW RI KLV VSHHFK ZHUH TXLFNO\ VKDWWHUHG +H IRXQG KLPn VHOI FRQIURQWHG E\ D &RQJUHVV ZKLFK LQ WKH ZRUGV RI WKH GHSXWLHV IURP (O 6DOYDGRU GHYRWHG LWVHOI WR LQWHUURJDWLQJ WKH 3UHVLGHQW HQDFWHG QXPHURXV ODZV WKDW KDG QRWKLQJ WR GR ZLWK WKH SXUSRVHV RI WKH OHJLVODWXUH DQG DWWHPSWHG WR UHVWULFW H[HFXWLYH SRZHU ZLWK UHVROXWLRQV QRW FRQIRUPLQJ WR WKH &RQVWLWXWLRQ $V QRWHG DERYH $UFHf¬V GLIILFXOWLHV ZLWK WKH /LEHUDO &RQJUHVV FHQWHUHG RQ KLV DXWKRULW\ LQ PLOLWDU\ DIIDLUV DQG WKLV FRQIOLFW DURVH IURP WKH DFWLYLWLHV RI 1LFRODV 5DRXO 7KLV LQGLYLGXDO KDG VHUYHG DV DQ RIILFHU LQ 1DSROHRQf¬V DUP\ DQG ODWHU HPLJUDWHG WR &RORPELD DW WKH WLPH WKDW 3HGUR 0ROLQD ZDV UHSUHVHQWLQJ

PAGE 164

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n WLRQ RI D SDPSKOHW E\ -RVHr $QWRQLR $OYDUDGR ZKLFK FULWLFL]HG $UFHnV HOHFWLRQ WKH )UHQFK PHUFHQDU\ RIIHUHG WR SODFH D FURZQ RI OHDG RQ WKH KHDG RI WKH DXWKRUA 7KLV V\PSDWKHWLF DWWLWXGH VRRQ FKDQJHG 5DRXOnV SROLWLFDO RSLQLRQV EURXJKW KLP LQWR WKH FLUFOH RI *XDWHPDODQ /LEHUDOV DQG KH URGH WKH ULVLQJ WLGH RI GLVFRQWHQW WR D SRVLWLRQ RI RXWULJKW RSSRVLWLRQ WR WKH 3UHVLGHQW %\ &RQVHUYDWLYHV ZKR QRZ KDG $UFHnV HDU ZHUH ZKLVSHULQJ WKDW WKH /LEHUDOV SODQQHG WR XVH 5DRXO DV WKH PHDQV IRU HLWKHU UHPRYLQJ WKH 3UHVLGHQW IURP RIILFH RU GHVWUR\LQJ KLV DXWKRULW\ LQ PLOLWDU\ PDWWHUV 7KHVH UXPRUV DSSHDUHG WR EH FRQILUPHG ZKHQ WKH /LEHUDOV FDOOHG RQ 5DRXO WR DGYLVH WKH &RQJUHVVn FRPLVLµQ GH JXHUUD :LWK 5DRXOnV DVVLVWDQFH WKH FRPLVLµQ GUDIWHG D PLOLWDU\ FRGH WKDW ZRXOG KDYH PDGH D GHDG OHWWHU RI WKH FODXVH LQ WKH &RQVWLWXWLRQ ZKLFK SODFHG FRPPDQG RI WKH DUPHG IRUFHV LQ WKH KDQGV RI WKH 3UHVLGHQW 7KH SURSRVHG WDEOH RI RUJDQL]DWLRQ DOORFDWHG DOO FRPEDW XQLWV WR VWDWH PLOLWLDV ZKHUH WKH\ ZRXOG EH XQGHU WKH

PAGE 165

FRQWURO RI WKH MHIHV DQG OLPLWHG WKH IHGHUDO JRYHUQPHQW WR WKH PDLQWHQDQFH RI D JHQHUDO VWDIIA :KLOHWKLV SODQ ZDV QRW SXW LQWR HIIHFW 5DRXOf¬V FRQQHFWLRQ ZLWK WKH SURSRVDO FDXVHG $UFH WR UHDOL]H WKH GHVLUDELOLW\ RI UHVWULFWLQJ WKH DFWLYLWLHV RI WKH OLEHUDO ZDUULRU 7KH 3UHVLGHQWf¬V UHDOL]DWLRQ EHFDPH D PDWWHU RI FRQn YLFWLRQ DV D UHVXOW RI DQ DIIDLU LQYROYLQJ WKH VRQ RI 3HGUR 0ROLQD $ OLHXWHQDQW LQ WKH LQIDQWU\ \RXQJ 0ROLQD KDG EHHQ RUGHUHG WR &RVWD 5LFD WR HVFRUW VRPH UHFUXLWV EDFN WR WKH FDSLWDO 0ROLQD ZDV QRW DQ[LRXV WR PDNH WKH WULS DQG DSSHDOHG WR 5DRXO IRU DVVLVWDQFH 5HPHPEHULQJ KLV IULHQGVKLS ZLWK WKH ER\f¬V IDWKHU 5DRXO FDQFHOOHG WKH RUGHU DQG WUDQVIHUUHG 0ROLQD WR WKH DUWLOOHU\ 6LQFH $UFH KDG DSSURYHG WKH RUGHUV IRU 0ROLQDnV MRXUQH\ WR &RVWD 5LFD KH EHOLHYHG WKDW 5DRXOnV DFWLRQ GHPRQVWUDWHG RSHQ FRQWHPSW IRU WKH 3UHVLGHQWnV DXWKRULW\ 7KH DQJHUHG H[HFXWLYH UHYRNHG 0ROLQDnV WUDQVIHU RUGHUHG WKH OLHXWHQDQW WR SURFHHG WR &RVWD 5LFD DQG UHTXLUHG WKH )UHQFKPDQ WR RIIHU DQ H[SODQDWLRQ IRU KLV EHKDYLRU :KHQ LQ UHVSRQVH WR WKLV GHPDQG 5DRXO JUXPEOHG WR KLV FROOHDJXHV RQ WKH MXQWD GH JXHUUD WKDW KH ZDV RSSRVHG WR WKH RUGHUV RI D W\UDQQLFDO 3UHVLGHQW KH GHWHUPLQHG QRW RQO\ KLV RZQ IDWH EXW WKDW RI WKH QDWLRQ DV ZHOOA $UFH OHDUQHG RI 5DRXOnV VWDWHPHQW LQ ODWH 0DUFK DQG LPPHGLDWHO\ WRRN DGYDQWDJH RI WKH IDFW WKDW KLV SRZHU DV 3UHVLGHQW SHUPLWWHG KLP WR HOLPLQDWH WKLV SDUWLFXODU VRXUFH RI GLIILFXOW\ 2Q 0DUFK 5DRXO ZDV RUGHUHG WR PDNH D WKRURXJK UHFRQQDLVVDQFH RI WKH UHJLRQ DURXQG /DNH ,]DEDO

PAGE 166

$V $UFHnV RUGHU GLUHFWHG WKH DUWLOOHU\ RIILFHU WR UHPDLQ LQ WKH DUHD XQWLO KH UHFHLYHG IXUWKHU LQVWUXFWLRQV WKHUH FDQ EH QR GRXEW WKDW WKH DVVLJQPHQW DPRXQWHG WR D VHQWHQFH RI H[LOH 3RVVLEO\ WKH 3UHVLGHQW KRSHG WKDW WKH FRPELQDWLRQ RI KHDW KXPLGLW\ DQG YHUPLQ ZRXOG SXW D SHUPDQHQW HQG WR KLV WURXEOHV ZLWK 5DRXO ,W LV KLJKO\ LPSUREDEOH WKDW DQ\n RQH DFFHSWHG $UFHnV DVVHUWLRQ WKDW WKH WDVN ZDV HVVHQWLDO WR WKH VHFXULW\ RI WKH QDWLRQ 5DRXOnV IULHQGV LQ &RQJUHVV KDG QR LOOXVLRQV DERXW $UFHnV LQWHQWLRQV DQG RQ 0DUFK WKH\ LVVXHG D GHFUHH ZKLFK FRXQWHUPDQGHG WKH 3UHVLGHQWnV RUGHU RQ WKH JURXQGV WKDW 5DR¾OnV VHUYLFHV WR WKH FRPLVLµ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nV SODQ IRU DGGLQJ PHQ WR WKH IHGHUDO DUP\ DQG LW DFFHSWHG KLV LQYLWDWLRQ WR DSSRLQW FRPPLVVLRQHUV ZKR ZRXOG EH UHVSRQn VLEOH IRU VHFXULQJ DQ DGHTXDWH QXPEHU RI UHFUXLWV LQ HDFK RI

PAGE 167

WKH VWDWHV :KDWHYHU VHQVH RI YLFWRU\ WKH H[HFXWLYH PD\ KDYH REWDLQHG IURP WKLV DFWLRQ ZDV GDVKHG LQ PLG0D\ ZKHQ KH OHDUQHG WKDW WKH &RQJUHVV KDG DSSRLQWHG 5DRXO DV WKH FRPPLVn VLRQHU LQ FKDUJH RI UHFUXLWLQJ LQ *XDWHPDOD $UFH UHVSRQGHG WR WKLV QHZV ZLWK D VSOXWWHULQJ QRWH WR &RQJUHVV ZKLFK FODLPHG WKDW WKH DSSRLQWPHQW FRQVWLWXWHG DQRWKHULQIULQJHPHQW RI KLV DXWKRULW\ DQG DVVHUWHG WKDW D IRUHLJQHU FRXOG QRW DGHTXDWHO\ SHUIRUP WKH GXWLHV RI D UHFUXLWLQJ RIILFHU 6LQFH WKH DSSRLQWPHQW ZDV PDGH LQ D PDQQHU WKDW GLG QRW UHTXLUH WKH VDQFWLRQ RI WKH 6HQDWH WKH OHJLVODWXUH PHUHO\ UHSOLHG WKDW $UFH VKRXOG H[HFXWH WKH FRPPLVVLRQ +DYLQJ QR RWKHU DOWHUQDWLYH XQGHU WKH &RQVWLWXWLRQ WKH 3UHVLGHQW UHVRUWHG WR WUDGLWLRQ DQG REH\HG EXW GLG QRW FRPSO\ ZLWK WKH GLUHFWLYH :KHQ WKH &RQJUHVV UHFHLYHG ZRUG RI WKLV GHYLRXV WDFWLF LW GHFLGHG WKDW LI KDUDVVPHQW FRXOG QRW IRUFH WKH 3UHVLGHQW LQWR OLQH LW ZDV QHFHVVDU\ WR ODXQFK D GLUHFW DWWDFN $W WKLV WLPH WKH OHJLVODWXUH ZDV FRPSRVHG RI GHSXWLHV IURP *XDWHPDOD 6DOYDGRUDQ GHSXWLHV DQG GHSXWLHV IURP WKH RWKHU VWDWHV DQG DSSUR[LPDWHO\ WKUHHIRXUWKV RI WKHVH UHSUHVHQWDWLYHV ZHUH RSSRVHG WR $UFHA &RQVHTXHQWO\ $UFHnV DFWLYLWLHV KDG EHHQ XQGHU FRQVWDQW UHYLHZ VLQFH WKH RSHQLQJ RI &RQJUHVV EXW LW ZDV QRZ GHWHUPLQHG WKDW KLV EHKDYLRU PDGH KLP VXEMHFW WR LPSHDFKPHQW 7KH SURSRVHG FKDUJHV ZHUH PDLQO\ FRQFHUQHG ZLWK $UFHnV PDQDJHPHQW RI SXEOLF IXQGV DQG WKH IDFW WKDW KH KDG IDLOHG WR SUHVHQW WKH EXGJHW IRU WKH FRPLQJ ILVFDO \HDU 7KHUH ZDV OLWWOH VXEVWDQFH WR WKHVH DOOHJDWLRQV DV WKH VXSSRVHGO\ PLVVLQJ IXQGV IURP WKH %DUFOD\

PAGE 168

ORDQ VLPSO\ KDG QHYHU EHHQ UHFHLYHG DQG WKH YDULRXV GHSDUWn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n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

PAGE 169

WKDW WKHUH ZRXOG EH QR DFWLRQ WDNHQ RQ WKH LVVXH RI LPSHDFKn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f¬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

PAGE 170

SRODUL]DWLRQ EHWZHHQ SROLWLFDO SRVLWLRQV LQ *XDWHPDOD 7KH /LEHUDO VWDWH JRYHUQPHQW HQJDJHG LQ DQ RUJ\ RI DQWLFOHULFDO OHJLVODWLRQ 7KH WLWKH ZDV UHGXFHG E\ RQHKDOI DQG PHPEHUV RI UHJXODU FOHUJ\ ZHUH IRUELGGHQ WR FRUUHVSRQG ZLWK VXSHULRUV LQ 6SDLQ 7KH 2UGHU RI &DUPHOLWHV ZDV DEROLVKHG DQG DOO PRQDVWHULHV ZHUH IRUELGGHQ WR DFFHSW QRYLFHV ZKR KDG QRW DWWDLQHG WKH DJH RI WZHQW\WKUHH :KDWHYHU $UFHn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nV VLWXDWLRQ ZDV WKH SURGXFW RI D QDWXUDO DOOLDQFH DQG WKH DWWDLQPHQW RI &RQVHUYDWLYH REMHFWLYHV ZDV VLPSO\ D E\SURGXFW RI KLV HIIRUWV WR IXOILOO KLV REOLJDWLRQV DV 3UHVLGHQW RI WKH QDWLRQ $W WKH FORVH RI WKH VXPPHU LQ WKH *XDWHPDODQ JRYHUQPHQW OHG E\ -XDQ %DUUXQGLD SRVHG DV JUHDW D WKUHDW WR WKH SULQFLSOH RI IHGHUDWLRQ DV LW GLG WR WKH LGHDOV RI &RQVHUYDWLYHV %DUUXQGLDnV RSSRVLWLRQ WR WKH IHGHUDO H[HFXWLYH ZDV REYLRXV WR DQ\RQH ZKR FDUHG WR WDNH QRWLFH +LV DWWLWXGH ZDV SUREDEO\ GHWHUPLQHG E\ ERWK VKHHU SROLWLFDO ULYDOU\ DQG D VWURQJ DWWDFKPHQW WR VWDWH DXWRQRP\ :KDWHYHU WKH GULYLQJ

PAGE 171

IRUFHV KH DGRSWHG SROLFLHV ZKLFK LI DOORZHG WR VWDQG ZRXOG KDYH WUDQVIRUPHG WKH IHGHUDO JRYHUQPHQW LQWR D P\WK 7KH MHIH RI *XDWHPDOD ZDV FOHDUO\ GHWHUPLQHG WR DVVXPH WKH UROH RI 5DRXOnV SURWHFWRU DQG LQ RUGHU WR LPSOHPHQW WKLV DLP KH VHFXUHG IURP WKH VWDWH DVVHPEO\ RQ $XJXVW VHYHUDO GHFUHHV ZKLFK ZHQW IDU EH\RQG WKH ERXQGV RI WKH &RQVWLWXWLRQ %DUUXQGLD ZDV HPSRZHUHG WR ZLWKGUDZ UHFRJQLWLRQ RI WKH 3UHVLGHQW XQOHVV KH GHOLYHUHG 5DRXOnV DSSRLQWPHQW WR WKH SRVW RI UHFUXLWLQJ FRPPLVVLRQHU UDLVH DQ DUP\ DQG PDQXIDFWXUH DUPV DQG UHVHUYH WKH SURFHHGV RI WKH WREDFFR PRQRSRO\ IRU WKH SXUSRVHV RI WKH VWDWH %DUUXQGLD ZDV DOVR DXWKRUL]HG WR LQWHUFHSW WKH IHGHUDO IRUFH WKDW KDG EHHQ VHQW RXW WR HIIHFW 5DRXOnV DUUHVW RQ WKH JURXQGV WKDW DJHQWV RI WKH IHGHUDWLRQ FRXOG QRW DFW LQ WKH VWDWH XQOHVV WKH\ KDG WKH SHUPLVVLRQ RI WKH MHIH 7KHUHXSRQ %DUUXQGLD GLVSDWFKHG RQ $XJXVW PHQ XQGHU &D\HWDQR GH OD &HUGD ZLWK RUGHUV WR DUUHVW -RVHr 0DULD (VSLQµOD WKH OHDGHU RI WKH PDQ IHGHUDO FRQWLQJHQW :KHQ WKH VWDWH DQG QDWLRQDO WURRSV HQFRXQWHUHG HDFK RWKHU QHDU WKH $FDVDJXDVWODQ 5LYHU DW WKH EHJLQQLQJ RI 6HSWHPEHU WKH\ GHPRQVWUDWHG VRPHZKDW EHWWHU ZLVGRP WKDQ WKDW H[KLELWHG E\ WKHLU UHVSHFWLYH FRPPDQGHUVLQFKLHI DQG GHFLGHG WKDW DQ DUPLVWLFH ZDV SUHIHUDEOH WR DFWLRQ WKDW PLJKW LQLWLDWH D FLYLO ZDU 0HDQZKLOH $UFH ZDV DWWHPSWLQJ WR FRXQWHU WKH DFWLRQV RI WKH *XDWHPDODQ JRYHUQPHQW +H LQIRUPHG WKH VWDWH OHJLVn ODWXUH WKDW LQFRPH IURP WKH WREDFFR PRQRSRO\ ZDV UHVHUYHG IRU WKH VXSSRUW RI WKH IHGHUDO JRYHUQPHQW DQG FRXOG QRW EH

PAGE 172

DSSURSULDWHG E\ WKH VWDWHV 7KH *XDWHPDODQ UHSO\ WR WKH 3UHVLGHQWn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n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n VHUYDWLYH 6HQDWRU IURP +RQGXUDV WR UHWDLQ KLV VHDW DIWHU WKH H[SLUDWLRQ RI KLV WHUP RI RIILFH 7KLV DFWLRQ OHG WR DGMRXUQPHQW RQ 6HSWHPEHU DQG WKH 6HQDWH GLG QRW PHHW DJDLQ WKHUHDIWHUr

PAGE 173

7KXV $UFH ZDV OHIW WR EHDU VROH UHVSRQVLELOLW\ IRU WKH IHGHUDO JRYHUQPHQW DQG ZKDWHYHU WKH LQIRUPDWLRQ VXSSOLHG E\ &RQVHUYDWLYH DGYLVHUV WKH DFWLYLWLHV RI WKH *XDWHPDODQ VWDWH JRYHUQPHQW LQ WKH ODWWHU SDUW RI $XJXVW KDG FRQYLQFHG KLP WKDW WKH FRQWLQXHG H[LVWHQFH RI WKH IHGHUDWLRQ ZDV LQ GDQJHU ,Q WKLV IUDPH RI PLQG KH UHFHLYHG RQ 6HSWHPEHU D OHWWHU ZKLFK LQIRUPHG KLP WKDW VWDWH WURRSV KDG EHHQ VHQW LQ SXUVXLW RI (VSLQµOD DV SDUW RI D /LEHUDO SODQ WR GHVWUR\ WKH IHGHUDO DUP\ DQG GHSRVH WKH 3UHVLGHQW 7KLV DOOHJDWLRQ DSSHDUHG WR EH FRQILUPHG VHYHUDO KRXUV ODWHU ZKHQ $UFH ZDV JLYHQ D UHSRUW RI WKH FRQIURQWDWLRQ EHWZHHQ (VSLQµ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

PAGE 174

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

PAGE 175

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nV DUUHVW YLFHMHIH &LULOR )ORUHV DVVXPHG OHDGHUVKLS RI WKH *XDWHPDODQ JRYHUQPHQW DQG $UFH ZDV VRRQ GLVDEXVHG RI DQ\ EHOLHI WKDW WKH IRUPHU MHIH KDG EHHQ WKH PDLQ VRXUFH RI RSSRVLWLRQ +H ZDV SUHVHQWHG ZLWK D PHPRUDQGXP IURP WKH 6WDWH $VVHPEO\ ZKLFK GHQLHG WKH OHJLWLn PDF\ RI KLV DFWLRQV DQG FRPSDUHG KLP ZLWK 1DSROHRQ )HUGLQDQG 9,, ,WXUELGH DQG )LOLVROD 7KHVH VWDWHPHQWV GLG QRW PHDQ KRZHYHU WKDW WKH VWDWH JRYHUQPHQW LQWHQGHG WR HQJDJH LQ D GLUHFW FRQIURQWDWLRQ ZLWK WKH 3UHVLGHQW $W WKH WLPH %DUUXQGLD ZDV WDNHQ LQWR FXVWRG\ *XDWHPDODQ DUPDPHQWV ZHUH LPSRXQGHG DQG $UFHf¬V VXEVHTXHQW RIIHU WR SURYLGH IHGHUDO SURWHFWLRQ IRU VWDWH RIILFLDOV VRXQGHG WKUHDWHQLQJ

PAGE 176

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f¬V H[SHULPHQW ZLWK IHGHUDOLVP 7KH &RQJUHVV KDG QRW SURYLGHG IXQGV IRU WKH RSHUDWLRQ RI WKH JRYHUQPHQW ZKHQ LW DGMRXUQHG RQ -XQH ,Q RUGHU WR UHPHG\ WKLV VLWXDWLRQ $UFH REWDLQHG DQ RUGHU IURP WKH 6HQDWH ZKLFK FDOOHG IRU D VSHFLDO VHVVLRQ RI WKH &RQJUHVV WR FRQYHQH RQ 2FWREHU +RZHYHU WKH QXPEHU RI GHSXWLHV ZKR ZHUH SUHVHQW RQ WKH DSSRLQWHG GD\ ZDV LQVXIILFLHQW WR IRUP D TXRUXP )RU WKH PRVW SDUW WKH PLVVLQJ GHSXWLHV ZHUH WKRVH ZKR KDG ZLWKGUDZQ IURP WKH OHJLVn ODWXUH RQ -XQH DQG WKHLU FRQWLQXHG DEVWHQWLRQ QRZ IRUFHG WKH FDQFHOODWLRQ RI WKH VSHFLDO VHVVLRQ :KLOH $UFH KLPVHOI ZDV UHVSRQVLEOH IRU WKH FRQYRFDWLRQ RI WKH VHVVLRQ LW LV WKRXJKW WKDW WKH GHSXWLHV ZKR ER\FRWWHG WKH PHHWLQJ DFWHG WR

PAGE 177

SUHYHQW WKH /LEHUDOV IURP SXQLVKLQJ WKH 3UHVLGHQW IRU WKH VWHSV KH KDG WDNHQ DJDLQVW WKH *XDWHPDODQ JRYHUQPHQW ,Q DGGLWLRQ WKH 6DOYDGRUDQ GHSXWLHV KDG EHHQ LQVWUXFWHG WKDW WKH\ VKRXOG DWWHQG WKH VHVVLRQ RQO\ LQ RUGHU WR VHFXUH WKH ]r Q UHPRYDO RI WKH VHDW RI WKH JRYHUQPHQW IURP *XDWHPDODn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n PHQW KDG SURGXFHG D FRQVWLWXWLRQDO FULVLV WKDW WKUHDWHQHG WKH H[LVWHQFH RI WKH IHGHUDWLRQ $V WKH SUHVHQW &RQJUHVV KDG EHHQ UHGXFHG WR LPSRWHQFH E\ IDFWLRQDO VWULIH WKH FRQn YRFDWLRQ RI D VSHFLDO OHJLVODWXUH ZDV VDLG WR SURYLGH WKH RQO\ PHDQV IRU UHVWRULQJ FRQVWLWXWLRQDO RUGHUA 7KH VWDWHV GLG QRW UHDFW XQIDYRUDEO\ WR $UFHnV SURSRn VDO DQG &RVWD 5LFD DQG 1LFDUDJXD VKRUWO\ RUGHUHG HOHFWLRQV IRU WKH SXUSRVH RI FKRRVLQJ GHSXWLHV WR WKH QHZ &RQJUHVV 2Q 2FUREHU 0DULDQR 3UDGR WKH YLFHMHIH RI (O 6DOYDGRU

PAGE 178

VLJQHG DQ RUGHU ZKLFK SURYLGHG IRU 6DOYDGRUDQ SDUWLFLSDWLRQ ZLWK WKH FRQGLWLRQV WKDW WKH &RQJUHVV VKRXOG QRW DWWHPSW WR UHYLVH WKH &RQVWLWXWLRQ DQG WKDW LQ DGGLWLRQ WR D QXPHULFDO PDMRULW\ DSSURYDO E\ WKH GHSXWLHV UHSUHVHQWLQJ D PDMRULW\ RI WKH VWDWHV ZRXOG EH UHTXLUHG IRU WKH SDVVDJH RI UHVROXn WLRQV 3UDGRnV GHFUHH DOVR SURSRVHG WKDW WKH 3UHVLGHQW RUGHU HOHFWLRQV IRU WKH IRUPDWLRQ RI D QHZ JRYHUQPHQW LQ WKH VWDWH RI *XDWHPDOD'HVSLWH $UFHnV PHVVDJH DQG WKH DFWLRQV RI WKH VWDWHV *XDWHPDODQ /LEHUDOV UDLVHG D QXPEHU RI REMHFWLRQV WR WKH GHFUHH LVVXHG RQ 2FWREHU ,Q D PHHWLQJ RI WKH FRPn PLWWHH ZKLFK KDG EHHQ DSSRLQWHG WR SODQ DUUDQJHPHQWV IRU WKH VSHFLDO VHVVLRQ RI WKH UHJXODU &RQJUHVV $UFHnV *XDWHPDODQ RSSRQHQWV FKDUJHG WKDW WKHUH ZHUH VLQLVWHU PRWLYHV EHKLQG KLV DFWLRQ 7KH GHFLVLRQ WR PRYH WKH VLWH RI WKH &RQJUHVV WR (O 6DOYDGRU ZDV VDLG WR EH WKH UHVXOW RI WKH 3UHVLGHQWnV GHVLUH WR DYRLG WKH SRVVLELOLW\ RI LPSHDFKPHQW 7KLV DVVHUn WLRQ LJQRUHG WKH IDFW WKDW WKH UHORFDWLRQ RI WKH JRYHUQPHQW ZDV LQ DFFRUG ZLWK WKH H[SUHVVHG ZLVKHV RI WKH RWKHU VWDWHV )XUWKHUPRUH LI $UFH KDG EHHQ SULPDULO\ FRQFHUQHG ZLWK WKH SURVSHFWV IRU KLV UHPRYDO IURP RIILFH LW VHHPV WKDW KH ZRXOG KDYH DWWHPSWHG WR PDQDJH WKH JRYHUQPHQW ZLWKRXW &RQJUHVVLRQDO DVVLVWDQFH 7KH /LEHUDOV DOVR UDLVHG WKH VSHFWUH RI FHQWUDOn LVP DQG FKDUJHG WKDW WKH HQWLUH SURMHFW ZDV GHVLJQHG WR EULQJ DERXW WKH FUHDWLRQ RI D XQLWDU\ VWDWH 7KLV FKDUJH ZDV WRWDOO\ XQIRXQGHG 7KHUH ZDV QRWKLQJ LQ WKH 3UHVLGHQWLDO GHFUHH WKDW JDYH WKH VOLJKWHVW KLQW RI VXFK DQ REMHFWLYH DQG LI FHQWUDOL]DWLRQ ZDV ZDQWHG (O 6DOYDGRU ZDV WKH OHDVW

PAGE 179

OLNHO\ SODFH LQ ZKLFK WR REWDLQ LW :KLOH $UFH PD\ KDYH KDG WKH EHVW RI PRWLYHV WKHUH FDQ EH QR GRXEW FRQFHUQLQJ YDOLGLW\ RI WKH SRVLWLRQ WDNHQ E\ WKH /LEHUDO PDMRULW\ LQ WKH 6XSHULRU &RXUW RI *XDWHPDOD 2Q 2FWREHU WKH *XDWHn PDODQ MXVWLFHV LVVXHG DQ RSLQLRQ ZKLFK GHQLHG WKH FRQVWLWX WLRQDOLW\ RI WKH 3UHVLGHQWLDO GHFUHH ,Q IDFW WKH 3UHVLn GHQW KDG QR PRUH DXWKRULW\ WR RUGHU WKH FUHDWLRQ RI D VSHFLDO &RQJUHVV WKDQ GLG DQ\ RWKHU FLWL]HQ $UFH XVXDOO\ GHPRQn VWUDWHG D NHHQ VHQVH RI WKH OLPLWDWLRQV RQ KLV SRZHUV EXW LQ WKLV LQVWDQFH KLV DFWLRQV ZHUH JRYHUQHG E\ H[SHGLHQF\ UDWKHU WKDQ OHJLWLPDF\ 7KH 3UHVLGHQW DFWHG LQ D VLPLODU IDVKLRQ DW WKH HQG RI 2FWREHU ZKHQ KH FDOOHG IRU HOHFWLRQV WR ILOO DOO RIILFHV LQ WKH *XDWHPDODQ JRYHUQPHQW +HUH DJDLQ WKH SURSHU DXWKRUn LW\ ZDV ODFNLQJ EXW $UFH EHOLHYHG WKDW WKH FROODSVH RI WKH /LEHUDO DGPLQLVWUDWLRQ MXVWLILHG KLV GHFLVLRQ $V D UHVXOW RI WKH HOHFWLRQV KHOG LQ 1RYHPEHU &RQVHUYDWLYHV REWDLQHG FRQWURO RI WKH VWDWH JRYHUQPHQW DQG $UFHnV QDPH EHFDPH OLQNHG ZLWK D UHDFWLRQDU\ UHJLPH ZKLFK UHSUHVVHG WKH IUHHn GRPV RI VSHHFK DQG SUHVV OLPLWHG WKH IUHH PRYHPHQW RI FLWLn ]HQV DEULGJHG WKH ULJKW WR EHDU DUPV UHVWULFWHG IUHHGRP RI DVVRFLDWLRQ LQFUHDVHG WKH VHYHULW\ RI SXQLVKPHQWV IRU FULPHV DQG IRUFHG LWV RSSRQHQWV LQWR H[LOH ,W VKRXOG EH SRLQWHG RXW KRZHYHU WKDW $UFH ZDV QRW SHUVRQDOO\ LQYROYHG ZLWK WKH &RQVHUYDWLYHVn OLQH RI FRQGXFW 0RUHRYHU WKHVH SROLFLHV KDG QR FRXQWHUSDUW LQ KLV DGPLQLVWUDWLRQ RI IHGHUDWLRQ 7KH IDFW WKDW *XDWHPDOD SURYLGHG WKH VROH VRXUFH RI VXSSRUW IRU

PAGE 180

WKH IHGHUDO JRYHUQPHQW IRUFHG WKH 3UHVLGHQW WR FRRSHUDWH FORVHO\ ZLWK &RQVHUYDWLYH DXWKRULWLHV EXW WKHUH ZDV D FRQn VLGHUDEOH DPRXQW RI GLVWUXVW EHWZHHQ WKH WZR SDUWLHV ,Q WKH IROORZLQJ \HDU $UFH EURNH ZLWK WKH VWDWH JRYHUQPHQW DQG YLQGLFDWHG WKH MXGJHPHQW RI REVHUYHUV ZKR EHOLHYHG WKDW KLV DVVRFLDWLRQ ZLWK WKH &RQVHUYDWLYHV DPRXQWHG WR QRWKLQJ PRUH WKDQ D PDUULDJH RI FRQYHQLHQFH 6WLOO KH ZDV LQGLUHFWO\ UHVSRQVLEOH IRU WKH HVWDEOLVKPHQW RI WKH &RQVHUYDWLYH JRYHUQn PHQW DQG WKLV HYHQW FDXVHG $UFH WR ORVH WKH NH\ WR KLV VWUHQJWKWKH VXSSRUW RI (O 6DOYDGRU 8QWLO 'HFHPEHU $UFHnV SROLFLHV ZHUH VXSSRUWHG DQG LQ VRPH FDVHV DQWLFLSDWHGE\ WKH 6DOYDGRUDQ JRYHUQn PHQW $IWHU WKDW WLPH KLV UHODWLRQVKLS ZLWK OHDGHUV LQ WKH VWDWH GHWHULRUDWHG VR IDU DV WR SURGXFH RSHQ FRQIOLFW 7KHUH ZHUH D QXPEHU RI IDFWRUV UHVSRQVLEOH IRU WKLV WUDQVIRUPDWLRQ 7KH ORVV RI WKH VXSSRUW RI )DWKHU 'HOJDGR SUREDEO\ FRQVWLn WXWHG WKH 3UHVLGHQWnV JUHDWHVW SHUVRQDO FRQFHUQ 7KH VSOLW EHWZHHQ WKH WZR PHQ GLG QRW DULVH GLUHFWO\ IURP WKH LVVXH RI WKH 6DOYDGRUDQ ELVKRSULF DV $UFH KDG OR\DOO\ VXVWDLQHG KLV FRXVLQnV LQWHUHVWV LQ WKDW PDWWHU %XW RQ 'HFHPEHU $UFH FRPPLWWHG WKH HUURU RI VDQFWLRQLQJ WKH SXEOLFDWLRQ RI $UFKELVKRS &DVDXVn SDVWRUDO OHWWHU ZKLFK H[FOXGHG (O 6DOYDGRU IURP WKH FHOHEUDWLRQ RI WKH +RO\
PAGE 181

7KH 3UHVLGHQWf¬V GLIILFXOWLHV ZLWK KLV QDWLYH VWDWH DOVR DURVH IURP WKH 6DOYDGRUDQ SUDFWLFH RI VXSSRUWLQJ WKH ZHDNHU SDUW\ LQ *XDWHPDODQ SROLWLFV 7KLV SROLF\ FDXVHG 6DOn YDGRUDQ RSSRVLWLRQ WR IRFXV RQ WKH &RQVHUYDWLYHV DIWHU WKH 1RYHPEHU HOHFWLRQV DQG E\ ZD\ RI DVVRFLDWLRQ WKLV VKLIW FDXJKW $UFH DV ZHOO 7KH UHSUHVVLYH PHDVXUHV RI WKH &RQVHUn YDWLYH JRYHUQPHQW JHQHUDWHG IXUWKHU DQWDJRQLVP ZKLFK ZDV UHLQIRUFHG E\ WKH DFWLYLWLHV RI H[LOHG /LEHUDOV ,QGLYLGXDOV VXFK DV 3HGUR 0ROLQD ZKR KDG UHFHQWO\ UHWXUQHG IURP WKH 3DQn DPD &RQJUHVV WRRN DGYDQWDJH RI HYHU\ RSSRUWXQLW\ WR UDLVH 6DOYDGRUDQ SDVVLRQV WR D OHYHO WKDW PLJKW OHDG WR DFWLRQ ZKLFK ZRXOG UHVWRUH WKH /LEHUDOV WR SRZHU LQ *XDWHPDOD )LQDOO\ $UFHnV ROG IULHQG -XDQ 9LFHQWH 9LOODFRUWD KDG UHWLUHG IURP WKH SRVW RI MHIH RI (O 6DOYDGRU LQ 2FWREHU DQG 0DULDQR 3UDGR KDG DVVXPHG VXSHUYLVLRQ RI WKH VWDWH JRYHUQPHQW 3UDGR LQLWLDOO\ PDLQWDLQHG 9LOODFRUWDnV SROLF\ RI VXSSRUWLQJ WKH 3UHVLGHQW RI WKH IHGHUDWLRQ EXW KH VRRQ GHPRQVWUDWHG WKDW KH ZDV ZLOOLQJ WR KHDU RSSRVLWLRQ DUJXn PHQWV ,W DSSHDUV WKDW WKH DFWLQJ MHIH DFFHSWHG WKH DOOHJDn WLRQV RI /LEHUDO UHIXJHHV DW IDFH YDOXH DQG FDPH WR EHOLHYH WKDW KH KDG D PLVVLRQ WR SURWHFW WKH IHGHUDWLRQ IURP WKH HYLO GHVLJQV RI $UFH DQG WKH *XDWHPDODQ &RQVHUYDWLYHV &RQYLQFHG WKDW WKH 3UHVLGHQW KDG FDOOHG IRU D QHZ &RQJUHVV LQ RUGHU WR VHFXUH WKH FUHDWLRQ RI D XQLWDU\ VWDWH 3UDGR LVVXHG D FRQWUDU\ GHFUHH RQ 'HFHPEHU ZKLFK LQYLWHG WKH JRYHUQPHQWV RI 1LFDUDJXD +RQGXUDV DQG &RVWD 5LFD WR VHQG WKHLU UHJXODU &RQJUHVVLRQDO GHOHJDWLRQV WR D VSHFLDO

PAGE 182

VHVVLRQ RI WKH IHGHUDO OHJLVODWXUH ZKLFK ZRXOG PHHW DW $KXDn FKDSDQ *XDWHPDOD ZDV H[FOXGHG IURP WKH LQYLWDWLRQ RQ WKH JURXQGV WKDW WKH VWDWH GLG QRW KDYH D OHJLWLPDWHO\ FRQVWLWXWHG JRYHUQPHQW 'HSXWLHV DWWHQGLQJ WKH $KXDFKDSDQ &RQJUHVV ZHUH H[SHFWHG WR DVVXPH UHVSRQVLELOLW\ IRU VHFXULQJ WKH UHHVWDEn OLVKPHQW RI FRQVWLWXWLRQDO RUGHU DQG UHDFKLQJ D GHFLVLRQ LQ UHJDUG WR WKH IXWXUH VHDW RI WKH IHGHUDO JRYHUQPHQW :KLOH /LEHUDOV DSSODXGHG 3UDGRnV DFWLRQ WKH\ LJQRUHG WKH IDFW WKDW KLV GHFUHH FDUULHG HYHQ OHVV DXWKRULW\ WKDQ WKDW ZKLFK $UFH KDG LVVXHG WZR PRQWKV HDUOLHU 7KH 3UHVLGHQW QRWHG WKLV LQFRQVLVWHQF\ EXW KH PDGH QR HIIRUW WR LQWHUIHUH ZLWK WKH SODQV IRU WKH 6DOYDGRUDQ &RQJUHVV %\ WKH HQG RI WKH PRQWK +RQGXUDV DQG 1LFDUDJXD KDG UHVSRQGHG IDYRUDEO\ WR 3UDGRnV SURSRVDO DQG WKH 6DOYDGRUDQ MHIH JDUULVRQHG WURRSV LQ WKH DUHD DURXQG $KXDFKDSDQ IRU WKH RVWHQVLEOH SXUSRVH RI SURYLGLQJ SURWHFWLRQ IURP WKH SRVVLELOLW\ RI *XDWHPDODQ LQWHUn YHQWLRQ $V PLJKW KDYH EHHQ H[SHFWHG WKLV DFWLRQ FDXVHG FRQVLGHUDEOH DODUP LQ *XDWHPDOD $UFH UHVSRQGHG E\ GLVSDWFKn LQJ VHYHUDO KXQGUHG IHGHUDO VROGLHUV WR SURWHFW WKH *XDWHn PDODQ ERUGHU DQG WKH HDUO\ PRQWKV RI ZLWQHVVHG WKH HVFDODWLRQ RI KRVWLOH DWWLWXGHV EHWZHHQ WKH WZR VWDWHV :KLOH FRQIURQWLQJ WKH SUREOHP SRVHG E\ (O 6DOYDGRU WKH 3UHVLGHQW DOVR EHFDPH HQPHVKHG LQ GLIILFXOWLHV ZLWK +RQn GXUDV 7KH ODWWHU VWDWH KDG EHHQ WKH VFHQH RI WXUPRLO VLQFH DV D FRQVHTXHQFH RI /LEHUDO MHIH 'LRQLVLR +HUUHUDnV FRQIOLFWV ZLWK WKH VWDWH $VVHPEO\ DQG %LVKRS 1LFRODV ,ULDV 7KH $VVHPEO\ KDG DWWHPSWHG WR WHUPLQDWH WKH MHIH rV WHUP RI

PAGE 183

RIILFH DIWHU WKH SURPXOJDWLRQ RI WKH VWDWH FRQVWLWXWLRQ DQG ,ULDVn HIIRUWV WR UHVLVW +HUUHUDnV DQWLFOHULFDO WHQGHQFLHV KDG UHVXOWHG LQ WKH LVVXDQFH RI UHFLSURFDO RUGHUV IRU WKH DUUHVW RI WKH %LVKRS DQG WKH H[FRPPXQLFDWLRQ RI WKH MHIH 7KHVH GLVSXWHV EURXJKW WKH VWDWH WR WKH YHUJH RI RSHQ ZDU E\ WKH HQG RI WKH \HDU DQG FDXVHG $UFH WR VHQG D IHGHUDO IRUFH WR DVVXPH FRQWURO RI WREDFFR ZDUHKRXVHV LQ WKH GHSDUWPHQW RI *UDFLDV ZKLFK KDG ZLWKGUDZQ LWV UHFRJQLWLRQ RI +HUUHUDnV DXWKRULW\A ,QIOXHQFHG E\ WKH /LEHUDOV FRQWHQWLRQ WKDW $UFH LQWHQGHG WR GHSRVH WKH +RQGXUDQ M HIH DQG IUXVWUDWHG E\ WKH IDFW WKDW WKH $KXDFKDSDQ &RQJUHVV KDG IDLOHG WR DFKLHYH D TXRUXP 3UDGR GHFLGHG WR SXW DQ HQG WR KLV GLIIHUHQFHV ZLWK WKH IHGHUDO JRYHUQPHQW ,Q WKH VHFRQG ZHHN RI 0DUFK WKH 6DOYDGRUDQ DUP\ FURVVHG WKH *XDWHPDODQ ERUGHU DQG ODXQFKHG D FLYLO ZDU WKDW ZRXOG ZUDFN WKH IHGHUDWLRQ IRU WKH QH[W WZR \HDUV $UFH UHVSRQGHG WR WKLV DFWLRQ E\ UHOLQTXLVKn LQJ KLV SRVW DQG DVVXPLQJ SHUVRQDO FRPPDQG RI WKH IHGHUDO DUP\ RQ 0DUFK $OWKRXJK KH ZRXOG UHWXUQ LQ 2FWRn EHU WR KROG RIILFH IRU IRXU PRUH PRQWKV $UFHnV VHUYLFH DV 3UHVLGHQW RI WKH IHGHUDWLRQ KDGIRU DOO SUDFWLFDO SXUSRVHV FRPH WR DQ HQG DQG KH KDG QR IXUWKHU RSSRUWXQLW\ WR LPSURYH KLV UHFRUG LQ WKH H\HV RI KLVWRULDQV ,W LV FOHDU WKDW $UFH ZDV JXLOW\ RI HUURUV ZKLFK FRQn WULEXWHG WR WKH HDUO\ GLVUXSWLRQ RI WKH IHGHUDWLRQ
PAGE 184

WKH HQG RI WKH FLYLO ZDU LQ )UDQFLVFR 0RUD]DQ ZDV DEOH WR KROG WKH IHGHUDO JRYHUQPHQW WRJHWKHU IRU QHDUO\ D GHFDGH EXW LW DSSHDUV WKDW WKH IHGHUDWLRQ ZDV OLWWOH PRUH WKDQ D IDFDGH 0RUD]DQf¬V XOWLPDWH IDWH KDG EHHQ IRUHWROG E\ $UFHnV H[SHULHQFHV DQG LQ ERWK FDVHV WKH ODFN RI VXFFHVV VKRXOG EH DWWULEXWHG PRUH WR WKH WLPHV WKDQ WR WKH PDQ 2U DV H[SUHVVHG E\ 5REHUW 6 6PLWK IHGHUDO JRYHUQPHQW KDV IDLOHG EHFDXVH WRR PDQ\ SHRSOH GLG QRW ZDQW LW WR VXFFHHG

PAGE 185

127(6 fµL \ A A0DQXHO -RV« $UFH 'LVFXUVR TXH SURQXQFLR HO 3UHVLGHQWH GH OD 5HS¼EOLFD HQ HO &RQJUHVR LQ *DUFLD $UFH , MRV &HFLOLR GHO 9DOOH 0DQLILHVWR D OD QDFLRrQ *XDWHPDODQD LQ *DUFLD $UFH , r M I fµf¬)HGHUDFLµQ GH &HQWURDPHULFD &RQGXFWD SXUD \ DUHJODGD GHO FRQJUHVR JHQHUDO GH OD UHS¼EOLFD HQ OD HOHFFLµQ GH ODV VXSUHPDV DXWRULGDGHV IHGHUDOHV *XDWHPDOD f 'LFWDPHAQ TXH nGLRr DO &RQJUHVR IHGHUDO GH &HQWUR$PHULFD XQD FRPLVLµQ GH VX VHQR QRPEUDGD HVSHFLDOPHQWH SDUD H[DPLQDU HO LPSUHVR TXH GLRA DO SXEOLFR HO FLXGDGDQR -RV«r $QWRQLR $OYDUDGR EDMR HO WLWXOR GH 1XOLGDG GH OD SULPHUD HOHFFLµQ GH SUHVLGHQWH GH OD UHS¼EOLFD \ PHGLR OHJDO \ SDFLILFR GH UHVWDEODFHU HO RUGHQ FRQVWLWXFLRQDO *XDWHPDOD f A0DUXUH %RVTXHMR , $UFH 0HPRULD SS A7KRPSVRQ 1DUUDWLYH SS 'XQQ *XDWLPDOD S A5DPGQ $ 6DOD]DU 0DQXHO -RV $UFH *XDWHPDOD f S /RUHQ]R 0RQWXIDU 5HVHQD KLVWµULFD GH &HQWUR $PHULFD YROV *XDWHPDOD f , 0DU\ 3 +ROOHUDQ &KXUFK DQG 6WDWH LQ *XDWHPDOD 1HZ
PAGE 186

,ELG LA$UFH 0HPRULD S 0DUXUH %RVTXHMR , 7KH DXWKRU ZDV QRW DEOH WS GHWHUPLQH ZKHWKHU WKH -XDQ 0LJXHO %XVWDPDQWH LQYROYHG LQ WKLV LQFLGHQW ZDV WKH VDPH LQGLYLGXDO ZKR VHUYHG DV WKH MXGJH LQ WKH SURFHHGLQJV DJDLQVW $UFH LQ $UFH ,ELG OA,ELG 0DUXUH %RVTXHMR , ,Q YLHZ RI 0DUXUHnV VWDWHPHQW WKDW -XDQ %DUUXQGLD GLG QRW NQRZ KRZ WR FRPELQH SUXGHQFH ZLWK KLV OLEHUDOLVP DQG ZDV LQDFFHVVLEOH WR SHUVRQV QRW RI KLV SDUW\ $UFHnV DFFRXQW RI WKLV DIIDLU LV SUREDEO\ DFFXUDWH n0RQWXIDU \ &RURQDGR 0HPRULDV , OA$1* % OHJ H[S &RPLVLµQ GH SXQWRV FRQVWLWXFLRQDOHV ‘A5HIHUHQFH WR WKHVH DVVHUWLRQV ZDV QRW PDGH LQ RUGHU WR GHPRQVWUDWH WKDW WKH FLUFXPVWDQFHV ZKLFK JDYH ULVH WR WKH VWDWHPHQWV DUH FRPSDUDEOH WR WKH VLWXDWLRQ LQ *XDWHPDOD LQ EXW WR VXJJHVW WKDW VXFK VSHFXODWLRQ PD\ ORVH VLJKW RI UHDO LVVXHV A)HGHUDFLµQ H &HQWURDP«ULFD 6HFUHWDULR GH (VWDGR \ GHO 'HVSDFKR (VSRVLFLRQ SUHVHQWDGD DO &RQJUHVR )HGHUDO DO FRPHQ]DU OD VHVLµQ RUGLQDULD GHO DQR GH *XDWHPDODA f 0DQXHO -RVM$UFH 0HQVDMH GHO & 0DQXHO -RV«$UFH 3UHVLGHQWH GH OD 5HS¼EOLFD GH &HQWUR$PHAULFD DO &RQJUHVR )HGHUDO SURQXQFLDGD HQ HO DFWR GH DEULU ODV VHVLRQHV GH VX VHJXQGD OHJLVODWXUD FRQVWLWXFLRQDO HO GH PDU]R GH *XDWHPDOD f A)HGHUDFLµQ GH &HQWURDPHULFD &RQYHQFLµQ GH XQLRQ OLJD \ FRQIHGHUDFLµQ SHUSHWXD HQWUH ¯Da5HSLEOLFD )HGHUDO -H &HQWUR$PHnULFD \ OD 5HS¼EOLFD GH &RORPELD *XDWHPDOD f )HGHUDFLRQ GH &HQWURDP«ULFD &RQYHQFLµQ JHQHUDO GH SD] DPLVWDG FRPHUFLR \ QDYLJDFLRQ HQWUH OD )HGHUDFLµQ GH &HQWUR$P«ULFD Y ORV (VWDGR 8QLGRV GH $P«ULFD *XDWHPDOD f f« A)HGHUDFLµQ GH &HQWURDPHULFD (VSRVLFLRQ GHO D³R GH 7KRPSVRQ 1DUUDWLYH S r0DUXUH %RVTXHMR ,

PAGE 187

"$UFH 0HQVDMH HO GH PDU]R GH A*DFHWD GHO *RELHUQR 6XSUHPR GH *XDWHPDOD $XJXVW )HGHUDFLµQ GH &HQWURDPHULFD (VSRV7FLRQ GHO DQR GH A)HGHUDFLµQ GH &HQWURDPHULFD 6HFUHWDULR GH (VWDGR \ GHO 'HVSDFKR ,QIRUPH TXH SUHVHQWRn DO &RQJUHVR )HGHUDO HO VHFUHWDULR GH HVWDGR \ GHO GHVSDFKR GH KDFLHQGD DO GDU FXHQWD GH QHJRFLR 5HODWLYR D OD DSHUWXUD GHO FDQDO GH 1LFDUDJXD HQ OD VHVLGQ SXEOLFD RUGLQDULD GHO VDEDGR GH MXOLR GH *XDWHPDOD U7 Gf A)HGHUDFLµQ GH &HQWURDPHULFD 0HPRULD SUHVHQWDGD SRU HO VHFUHWDULR GH HVWDGR A0DQXHO -RVH$UFH (O 3UHVLGHQWH GH OD 5HS¼EOLFD D ORV &HQWUR$PHULFDQRV *XDWHPDOD f 0DUXUH %RVTXHMR , A3DEOR $OYDUDGR WR -XDQ 0RUD 2FWREHU LQ *DUFLD $UFH ,, ‘A$UFH 0HPRULD SSY 0LQXWHV RI WKH 6HQDWH 'HFHPEHU LQ *DUFLD $UFH ,,, ‘A$UFH 0HPRULD S A0LQXWHV RI WKH 6HQDWH 'HFHPEHU LQ *DUFLD $UFH ,,, A3DEOR $OYDUDGR WR -RVHA0DULD 3HUDOWD -AXO\ $OYDUDGR WR -XDQ 0RUD 2FWREHU LQ *DUFLD $UFH ,, SS 0DUXUH %RVTXHMR , A0DQXHO -RVH$UFH 0DQLILHVWR GHO 3UHVLGHQWH GH OD 5HS¼EOLFD D ORV &HQWUR$PHULFDQRV *XDWHPDOD f ,$UFH 0HPRULD S 0DUXUH %RVTXHMR , 0DUXUH VWDWHV WKDW WKH /LEHUDO JRYHUQPHQW RI *XDWHPDOD SUHFLSLWDWHO\ DQQXOHG VRPH ODZV UDQ URXJKVKRG RYHU RWKHUV WKH\ KDG DXWKRUHG DQG VSDUHG QRWKLQJ LQ RUGHU WR WULXPSK LQ WKH HOHFWLRQV A$UFH 0HQVDMH HO GH PDU]R GH /RV UHSUHVHQWHV GHO (VWDGR GHO 6DOYDGRU HQ HO &RQJUHVR )HGHUDO GH &HQWUR $PHULFD D ORV SXHEORV TXH ORV FRQVWLWX\HURQ LQ *DUFLD $UFH ,,,

PAGE 188

)RU D GHWDLOHG GLVFXVVLRQ RI 5DRXOf¬V DFWLYLWLHV LQ &HQWUDO $PHULFD VHH $GDP 0DWWKLDV 6]DVGL 7KH &DUHHU RI 1LFKRODV 5DRXO LQ &HQWUDO $PHULFD 0 $ WKHVLV 7XODQH 8QLYHUVLW\ f 4XRWHG LQ 0DQXHO 9DOODGDUHV %LRJUDI¯D GHO *HQHUDO GRQ 0DQXHO -RVH $UFH LQ *DUFLD $UFH , A0DUXUH %RVTXHMR , 0RQWLIIDU \ &RURQDGR 0HPRULDV , +$UFH 0HPRULD 'LFWDPHQ GH OD FRPLVLµQ HVSHFLDO QRPEUDGD SRU OD $VDPEOHD /HJLVODWLYD GHO (VWDGR GHO 6DOYDGRU SDUD H[DPLQDU ORV GRFXPHQWRV UHPLWLGRV SRU HO 6XSUHPR *RELHUQR GH OD )HGHUDFLµQ DO GHO (VWDGR UHODWLYRV WRGFAV D OD SRVLFLµQ SHOLJURVD GH OD 5HS¼EOLFD LQ *DUFLD $UFH ,,, ,ELG p$UFH 0HPRULD SS 8QLWHG 6WDWHV 1DWLRQDO $UFKLYHV 'HSDUWPHQW RI 6WDWH 'HVSDWFKHV IURP 8QLWHG 6WDWHV 0LQLVWHUV WR &HQWUDO $PHULFD , +HUHDIWHU 'LSORPDWLF 'HVSDWFKHVf :LOOLDPV WR +HQU\ &OD\ 1RYHPEHU 0DUXUH %RVTXHMR , A$UFH 0HPRULD S U I 'LFWDPHQ GH OD FRPLVLµQ HVSHFLDO LQ *DUFLD $UFH ,,, A$ FRS\ RI WKLV OHWWHU LV UHSURGXFHG LQ $UFH 0HPRULD SS 0DUXUH %RVTXHM R , +ROOHUDQ &KXUFK DQG 6WDWH S A'HSDUWPHQW RI 6WDWH 'LSORPDWLF 'HVSDWFKHV :LOOLDPV WR +HQU\ &OD\ 1RYHPEHU 'XQQ *XDWLPDOD S 0DUXUH %RVTXHM R , 3ULRU WR WKLV HQFRXQWHU 5DRXO KDG EHHQ VHQW E\ VKLS WR WKH IRUWUHVV DW 2PRD +H ZDV KHOG WKHUH IRU VHYHUDO PRQWKV DQG WKHQ ZDV SHUPLWWHG WR WDNH XS UHVLGHQFH LQ (O 6DOYDGRU U R -2$UFH 0HPRULD S p'LFWDPHQ GH OD FRPLVLFIQ HVSHFLDO LQ *DUF¯D $UFH ,,,

PAGE 189

A0DUXUH %RVTXHMR , A$UFH 0HPRULD SS A,ELG SS 0DUXUH %RVTXHMR , A*DOODUGR /DV &RQVWLWXFLRQHV ,, A&LUFXODU D LRV MHeHV GH ORV (VWDGRV LQ *DUFLD $UFH ,,, bRQWXIDU \ &RURQDGR 0HPRULDV , A0DUXUH %RVTXHMR , A$UFH 0HPRULD S $1* % OHe H[e eRO 3UHVLn GHQWLDO GHFUHH GDWHG 2FWREHU A0DQXHO -RVH$UFH 0DQLILHVWR GHO JRELHUQR D ORV SXHEORV GH &HQWUR$PHULFD *XDWHPDOD f 7 X7KLV GHFUHH LV UHSURGXFHG LQ 0DUXUH %RVTXHMR ,, $6HVLRQ GH OD -XQWD SUHSDUDWRULD DO &RQJUHVR IHGn HUDO GH RFWXEUH GH LQ 0DUXUH %RVTXHMR ,, $1* % OHJ H[e IRO f¬A$FXHUGR TXH QR UHFRQRFHU IDFXOWDG HQ HO 3UHVLGHQWH GH OD 5HS¼EOLFD SRU OD FRQYRFDFLµQ TXH KD KHFKR GH XQ FRQJUHVR H[WUDRUGLQDULR $UFH 0HPRULD SS ,ELG S 'HSDUWPHQW RI 6WDWH &RQVXODU 'HVSDWFKHV &KDUOHV 6DYDJH WR +HQU\ &OD\ 0DUFK 'XQQ *XDWLPDOD S 0DUXUH %RVTXHMR ,, A$UFH 0HPRULD SS 0DUXUH %RVTXHM R ,, 0RQWXIDU \ &RURQDGR 0HPRULDV , 7KH IRUHn JRLQJ DXWKRULWLHV UHFRJQL]HG WKH VHYHUDO FDXVHV IRU WKH FKDQJH LQ 6DOYDGRUDQ DWWLWXGHV DQG WKH DFFRXQW JLYHQ KHUH GRHV QRW DOWHU HDUOLHU LQWHUSUHWDWLRQV 5DPRQ &DVDXV \ 7RUUHV WR /HR ;,, 0DUFK LQ *DUFLD 'HOJDGR ,, A7KLV GHFUHH LV UHSURGXFHG LQ 0DUXUH %RVTXHMR ,,

PAGE 190

A$UFH 0HPRULD S 0DUXUH %RVTXHMR ,, A$UFH 0HPRULD SS 0DUXUH %RVTXHMR ,, 0RQWXIDU \ &RURQDGR 0HPRULDV , A$1* % OHJ H[S ([HFXWLYH RUGHU DQQRXQFLQJ $UFHnV DVVXPSWLRQ RI FRPPDQG RI WKH IHGn HUDO DUP\ GDWHG 0DUFK 6A6PLWK )LQDQFLQJ WKH &HQWUDO $PHULFDQ )HGHUDWLRQ S

PAGE 191

&+$37(5 9, &21&/86,21 7KHUH FDQ EH QR GRXEW WKDW $UFH ZDV D /LEHUDO LQ JRRG VWDQGLQJ DW WKH WLPH RI KLV HOHFWLRQ LQ ,W LV HTXDOO\ FOHDU WKDW KH ZDV DOLJQHG ZLWK WKH &RQVHUYDWLYHV E\ WKH HQG RI KLV ILUVW \HDU LQ RIILFH
PAGE 192

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nV HDUO\ FRQVLVWHQW GHYRWLRQ WR WKH FDXVH RI 6DOYDGRUDQ DXWRQn RP\ LQGLFDWHV FRQVLGHUDEO\ JUHDWHU VWUHQJWK RI FKDUDFWHU )XUWKHUPRUH WKH UHVROXWLRQ SDVVHG E\ WKH &RQJUHVV RQ -XO\ GHPRQVWUDWHG WKDW WKH &RQVHUYDWLYHV KDG QRW WUDGHG WKHLU HOHFWRUDO VXSSRUW IRU WKH RSSRUWXQLW\ WR GHQ\ D ELVKn RSULF WR (O 6DOYDGRU 7KH SRVLWLRQ WDNHQ E\ WKH &RQVHUYDn WLYHV LQ WKH &RQJUHVVLRQDO HOHFWLRQ ZDV ODUJHO\ GHWHUPLQHG E\ WKHLU GHFLVLRQ WR UHMHFW $UFHnV RSSRQHQW 6KRUWO\ DIWHU KH DVVXPHG RIILFH WKHUH ZDV D GLVFHUQn LEOH EUHDN EHWZHHQ WKH 3UHVLGHQW DQG WKH /LEHUDOV %XW WKH DVVHUWLRQ WKDW $UFH GHVHUWHG KLV IRUPHU FROOHDJXHV FDQ RQO\ EH YLHZHG DV DQ RYHUVLPSOLILFDWLRQ $YDLODEOH HYLGHQFH VXJn JHVWV WKDW DQ\ DFW RI GHVHUWLRQ VKRXOG EH DWWULEXWHG WR WKH SDUW\ UDWKHU WKDQ WR WKH PDQ ,I WKH /LEHUDOV HYLQFHG OLWWOH LQWHUHVW LQ FRRSHUDWLQJ ZLWK WKH IHGHUDO H[HFXWLYH $UFH FRXOG KDYH KDG QR RWKHU FKRLFH WKDQ WR ORRN WR WKH &RQVHUYDn WLYHV IRU VXSSRUW 0RUH WR WKH SRLQW WKH DOOLDQFH ZLWK WKH &RQVHUYDWLYHV ZDV DQ LQHYLWDEOH GHYHORSPHQW GXH WR WKH IDFW

PAGE 193

WKH 3UHVLGHQW ZDV VHHNLQJ WR SODFH WKH IHGHUDWLRQ RQ D VRXQG IRRWLQJ ZKLOH WKH /LEHUDOV ZHUH DWWHPSWLQJ WR H[SDQG WKH SRZHU RI WKH VWDWHV DW WKH H[SHQVH RI WKH IHGHUDO JRYHUQPHQW 3HUKDSV WKH FKDUDFWHU RI WKH VSOLW ZLWK WKH /LEHUDOV PD\ KDYH EHHQ EHVW H[SUHVVHG LQ WKH FRQWHPSRUDU\ REVHUYDWLRQ WKDW WKH 3UHVLGHQW ZDV FRQVLGHUHG DW WKH WLPH RI KLV HOHFn WLRQ WR EH RI WKH /LEHUDO SDUW\ %XW VXEVHTXHQW HYHQWV WKUHZ KLP LQWR WKH DUPV RI WKH RWKHU SDUW\,WDOLFV PLQHf 7KH SROLFLHV ZKLFK $UFH SXUVXHG LQ UHJDUG WR WKH /LEn HUDO JRYHUQPHQW RI *XDWHPDOD GR QRW QHFHVVDULO\ LQGLFDWH WKDW KH ZDV DFWLQJ DV D WRRO RI WKH &RQVHUYDWLYHV ,I LW PD\ EH DVVXPHG WKDW $UFH GLG QRW DFFHSW WKH 3UHVLGHQF\ LQ RUGHU WR SUHVLGH RYHU WKH GLVVROXWLRQ RI WKH IHGHUDWLRQ WKHUH LV QR QHHG WR SRVLW &RQVHUYDWLYH FRQWURO LQ RUGHU WR H[SODLQ KLV UHVSRQVHV WR WKH DFWLRQV RI -XDQ %DUUXQGLD DQG WKH VWDWH JRYHUQPHQW 1RU LV WKHUH DGHTXDWH MXVWLILFDWLRQ IRU DOOHJDn WLRQ WKDW WKH 3UHVLGHQW UDQ URXJKVKRG RYHU WKH VWDWH LQ RUGHU WR FRQFHQWUDWH SRZHU LQ KLV RZQ KDQGV 7KH GHFLVLRQV ZKLFK $UFH PDGH LQ WKH IDOO RI OHIW VRPHWKLQJ WR EH GHVLUHG EXW KLV EHKDYLRU VHHPV WR KDYH EHHQ WKH SURGXFW RI GHVSHUDn WLRQ UDWKHU WKDQ DPELWLRQ $ SRWHQWLDO W\UDQW SRVVHVVLQJ $UFHnV ORZ OHYHO RI FXQQLQJ ZRXOG QHYHU KDYH LVVXHG WKH SOHD IRU DVVLVWDQFH FRQWDLQHG LQ WKH PHVVDJH VHQW WR WKH MHIHV RI WKH VWDWHV RQ 6HSWHPEHU $UFHnV DFWLRQV XQGRXEWHGO\ FRQWULEXWHG WR WKH FRPLQJ RI WKH FLYLO ZDU EXW WKH FKDUJH WKDW KH FDXVHG WKH ZDU E\ KLV DWWHPSW WR HUHFW D XQLWDU\ JRYHUQPHQW LV FXW IURP ZKROH FORWK :KLOH WKH 3UHVLGHQW PD\

PAGE 194

EH IDXOWHG IRU KLV ZLOOLQJQHVV WR VXEPLW WKH GLVSXWH WR D GHFLVLRQ E\ DUPV WKH FRQIOLFW ZDV SULPDULO\ GXH WR WKH SDUn WLVDQ VWUXJJOHV EHWZHHQ *XDWHPDODQ /LEHUDOV DQG &RQVHUYDn WLYHV 7KH GLVWLQFW GLIIHUHQFHV EHWZHHQ WKH \RXQJ 6DOYDGRUDQ SDWULRW DQG WKH 3UHVLGHQW RI WKH IHGHUDWLRQ FDQQRW EH VDWLVn IDFWRULO\ H[SODLQHG LQ WHUPV RI OXVW IRU SRZHU RU ODFN RI ZLOO *UDQWLQJ FUHGHQFH WR $UFHnV H[SODQDWLRQ IRU KLV GHVLUH WR VWUHQJWKHQ WKH IHGHUDO DUP\ LW DSSHDUV WKDW KLV H[HFXWLYH SURJUDP FDQ EH EHVW XQGHUVWRRG DV WKH SURGXFW RI DQ H[SDQVLRQ LQ KLV SROLWLFDO KRUL]RQV 6DQ 6DOYDGRUnV LQDELOLW\ WR ZLWKn VWDQG WKH SRZHU RI WKH 0H[LFDQ HPSLUH FRQYLQFHG WKH IXWXUH 3UHVLGHQW WKDW QDWLRQDO H[LVWHQFH ZRXOG UHTXLUH D KLJK GHJUHH RI PXWXDO WUXVW DQG FRRSHUDWLRQ DPRQJ WKH VWDWHV ,Q RWKHU ZRUGV E\ WKH WLPH KH UHWXUQHG IURP H[LOH LQ WKH 8QLWHG 6WDWHV $UFH KDG EHFRPH D &HQWUDO $PHULFDQ +LV IDLOXUH DV 3UHVLGHQW UHVXOWHG IURP WKH IDFW WKDW KH ZDV VXUURXQGHG E\ *XDWHPDODQV 6DOYDGRUDQV +RQGXUDQV 1LFDUDJXDQV DQG &RVWD 5LFDQV

PAGE 195

127(6 L0DUXUH %RVTXHMR , A0RQWXIDU 5HVH³D KLVWµULFD , A'HSDUWPHQW Re 6WDWH 'LSORPDWLF 'HVSDWFKHV :LOOLDPV WR +HQU\ &OD\ 1RYHPEHU

PAGE 196

%,%/,2*5$3+< 3ULPDU\ 6RXUFHV 0DQXVFULSWV $UFKLYR 1DFLRQDO GH *XDWHPDOD 6LQFH D QXPEHU RI WKH PDQXVFULSWV FRQVXOWHG LQ WKH $UFKLYR ZHUH XQWLWOHG WKHVH GRFXPHQWV KDYH EHHQ DUUDQJHG DFFRUGLQJ WR WKHLU DUFKLYDO FODVVLILFDWLRQ QXPEHUV 7KH OHWWHUV DQG ILJXUHV DUH SUHVHQWHG LQ WKH RUGHU RI VHFFLµQ OHJDMR H[SHGLHQWH DQG LQ VRPH FDVHV IROLR $OO 9DULDV VROLFLWXGHV GH SDUWH GH 'RQ 0DQXHO -RVHr $UFH HQ UHVXHOWDV GH VX DUUHVWR $OO &RQWUD ' 0DQXHO -RV«n $UFH SRU LQILGHQFLD TXH OH UHVXOWR HQ ODV VXEOHYDFLRQHV GH GH QRYLHPEUH GH \ GH HQHUR GH $OO 4XHMD GH 'RQ 0DQXHO -RV«r GH $U]H SRU ORV DJUDYLRV TXH OH KD LQIHULGR HO ,QWHQGHQWH
PAGE 197

$OO &RQWUD ' 0DQXHO -RV«nf¬ GH $UFH SRU LQILn GHQWH $O OHJDMRf 3DVHV GH W¯WXORV % 8QWLWOHG UHSRUW RI WKH GLSXWDFLµQ RQ WKH HOHFWLRQ RI % 2ILFLR GHO &DSLW£Q *HQHUDO -RVHA GH %XVWDn PDQWH GLULJLGR D OD $XGLHQFLD 1RYHPEHU f % 6REUH ODV FRQPRFLRQHV GH OD FLXGDG GH 6DQ 6DOYDGRU % 7HVWLPRQLR GH ORV SHGLPHQWRV GHO 6H³RU )LVFDO GHO &ULPHQ \ PLQXWD GHO 5HDO $FXHUGR HQ ODV FDXVDV GH LQILGHQFLD GH OD FLXGDG GH 6DQ 6DOYDGRU % 0DQXHO -RV« $UFH WR &DUORV 8UUXWLD $SULO % $\XQWDPLHQWR RI 6DQ 6DOYDGRU WR WKH D\XQWDn PLHQWR RI *XDWHPDOD 'HFHPEHU % 8QWLWOHG UHSRUW RQ QHJRWLDWLRQV FRQGXFWHG EHWZHHQ 6DQ 6DOYDGRU DQG 6DQ 9LFHQWH GDWHG 1RYHPEHU % -RVHr 0DU¯D 3HLQDGR DQG -RV $\FLQHQD WR WKH D\XQWDPLHQWR RI *XDWHPDOD )HEUXDU\ % -RVH 0DU¯D 3HLQDGR DQG -RVHr $\FLQHQD WR WKH D\XQWDPLHQWR RI *XDWHPDOD )HEUXDU\ % 0DQXHO -RVHr $UFH WR WKH MXQWD SURYLVLRQDO FRQVXOWLYD 2FWREHU % 8QWLWOHG SURFODPDWLRQ E\ 0DQXHO -RVHr $UFH GDWHG )HEUXDU\ % -RVHf¬ 5RVVL WR *DELQR *DLQ]D 2FWREHU % &XDGHUQR TXH FRPSUHQGH OD VROLFLWXG GH IRUPDFLµQ GH OD MXQWD JREHUQDWLYD VXEDOWHUQD 1RYHPEHU f % 6SHHFK GHOLYHUHG E\ 0DQXHO -RV«r$UFH EHIRUH WKH FDELOGR DELHUWR RI 6DQ 6DOYDGRU RQ 1RYHPn EHU % $\XQWDPLHQWR RI 6DQ 9LFHQWH WR *DELQR *DLQ]D 2FWREHU

PAGE 198

% 3HGUR %DUULHUH WR *DELQR *DLQ]D 2FWREHU % 8QWLWOHG UHSRUW RQ WKH HVWDEOLVKPHQW RI WKH GLSXWDFLµQ LQ 6DQ 6DOYDGRU GDWHG 1RYHPEHU % -RVHr'HOJDGR WR *DELQR *DLQ]D -DQXDU\ % 6REUH HO HVWDGR GH KRVWLOLGDG GH TXH VH KDOOHQ DPHQD]DGRV ORV SXHEORV GH 6W $QD 4XH]DOWH SHTXH \ HO PLVPR 6RQVRQDWH SRU OD FLXGDG GH 6DQ 6DOYDn GRU )HEUXDU\ f % $FWD RI WKH FDELOGR RI 6DQWD $QD GDWHG )HEUXDU\ % (VWDGR TXH PDQLILHVWD HO HVFUXWLQR GH YRWRV SRSXODUHV $SULO f % &RPLVLµQ GH JXHUUD f O % $FXHUGR TXH QR UHFRQRFHU IDFXOWDG HQ HO 3UHVLGHQWH GH OD 5HS¼EOLFD SRU OD FRQYRFDFLµQ TXH KD KHFKR GH XQ &RQJUHVR H[WUDRUGLQDULR 2FWREHU f % 3UHVLGHQWLDO GHFUHH GDWHG 2FWREHU % &RPLVLµQ GH SXQWRV FRQVWLWXFLRQDOHV -XO\ f % 8QWLWOHG SDPSKOHW E\ -XDQ 0DQXHO 5RGULJXH] GDWHG $XJXVW % -XDQ 0DQXHO 5RGULJXH] WR WKH D\XQWDn PLHQWR RI &DUWDJR $XJXVW % 6REUH ODV PHGLGDV TXH HO JRELHUQR GHEH DGRSWDU HQ OD H[FLWDFLµQ TXH OH KD KHFKR HO HVWDGR GH 6DQ 6DOYDGRU D WRPD SDUWH HQ OD SDFLILFDn FLµQ GH 1LFDUDJXD -DQXDU\ f % 5HSRUW IURP WKH 0LQLVWHULR GH +DFLHQGD WR WKH MHIH SROLWLFR RI *XDWHPDOD GDWHG -DQXDU\ a %f« ([HFXWLYH RUGHU DQQRXQFLQJ $UFHf¬V DVVXPSWLRQ RI FRPPDQG RI WKH IHGHUDO DUP\ GDWHG 0DUFK

PAGE 199

8QLWHG 6WDWHV /LEUDU\ RI &RQJUHVV 0ROLQD 3DSHUV 8QLWHG 6WDWHV 1DWLRQDO $UFKLYHV 'HSDUWPHQW RI 6WDWH 'HVSDWFKHV IURP 8QLWHG 6WDWHV &RQVXOV LQ *XDWHPDOD 9RO , 'HVSDWFKHV IURP 8QLWHG 6WDWHV 0LQLVWHUV WR &HQWUDO $PHULFD 9RO + 1RWHV IURP )RUHLJQ /HJDWLRQV &HQWUDO $PHULFD 76: 3XEOLVKHG 'RFXPHQWV $UFH 0DQXHO -RVHA &DUWDV 6DQ 6DOYDGRU 0DQLILHVWR GHO JRELHUQR D ORV SXHEORV GH &HQWUR $PHULFD *XDWHPDOD 0DQLILHVWR GHO 3UHVLGHQWH GH OD 5HS¼EOLFD D ORV &HQWUR$PHULFDQRV *XDWHPDOD 0HQVDMH GHO & 0DQXHO -RVHA$UFH 3UHVLGHQWH GH OD 5HS¼EOLFD GH &HQWUR$PHrULFD DO &RQJUHVR )HGHUDO SURQXQFLDGD HQ HO DFWR GH DEULU ODV VHVLRQHV GH VX VHJXQGD OHJLVODWXUD FRQVWLWXFLRQDO HO GH PDU]R GH *XDWHPDOD (O 3UHVLGHQWH GH OD 5HS¼EOLFD D ORV &HQWUR $PHULFDQRV *XDWHPDOD )HGHUDFLµQ GH &HQWURDPHULFD &RQYHQFLµQ JHQHUDO GH SD]A DPLVWDG FRPHUFLR \ QDYLJDFLGQ HQWUH OD )HGHUDFLµQ GH &HQWUR$PHULFD \ ORV (VWDGRV 8QLGRV GH $PHULFD *XDn WHPDOD 7 &RQYHQFLµQ GH XQLRQ OLJD \ FRQIHGHUDFLµQ SHUn SHWXD HMLWUH OD 5HS¼EOLFD )HGHUDO GH &HQWUR$PHULFD \ OD 5HS¼EOLFD GH &RORPELD *XDWHPDOD 3UR\HFWR GH FHUHPRQLDO SDUD OD LQVWDODFLµQ \ DSHUWXUD GHO FRQJUHVR *XDWHPDOD &RQJUHVR &RQGXFWD SXUD \ DUHJODGD GHO FRQJUHVR JHQHUDO GH OD UHS¼EOLFD HQ OD HOHFFLµQ GH ODV VXSUHPDV DXWRULGDGHV IHGHUDOHV *XDWHPDOD

PAGE 200

'LFWDPHQ TXH GLW DO &RQJUHVR IHGHUDO GH &HQWUR $PWIULFD XQDARPLVLRnQ GH VXaVHQR QRPEUDGD HVSHFLDOn PHQWH SDUD H[DPLQDU HO LPSUHVR TXH GLaDO SLIEOLFR HO FLXGDGDQR -RV«rr $QWRQLR $OYDUDGR EDMR HO WLWXOR GH 1XOLGDG GH OD SULPHUD HOHFFLµQ GH SUHVLGHQWHGH  UHS¼EOLFD \ PHGLR OHJDO \ SDFLILFR GH UHVWDEODFHU HO RUGHQ FRQVWLWXFLRQDO *XDWHPDOD 6HFUHWDULR GH (VWDGR \ GHO 'HVSDFKR (VSRVLFLRQ SUHVHQWDGD DO &RQJUHVR )HGHUDO DO FRPHQ]DU ODaaVHVLRrQ RUGLQDULD GH DQR GHOa7 *XDWHPDOD ,QIRUPH TXH SUHVHQWRA DO &RQJUHVR )HGHUDO HO VHFUHWDUORnnGH HVWDGR \ GHO GHVSDFKR GH KDFLHQGD DO GDU FXHQWD GH QHJRFLR UHODWLYR D OD DSHUWXUD GHO FDQD@7aGH 1LFDUDJXD HQ OD VHVLµQ SX¾OLFD RUGLQDULD GHO VDEDGR GH MXOLR GH a,a *XDWHPDOD Q GL 0HPRULD SUHVHQWDGD DO &RQJUHVR JHQHUDO GH ORV HVWDGRV IHGHUDGRV GH &HQWUR $PHULFD SRU HO VHFUHWDULR GH HVWDGR HQFDUJDGR GH GHVSDFKR XQLYHUVDO DO FRPH³7 ]DU ODV VHVLRQHV GHO DILU} GH *XDWHPDOD (O 6DOYDGRU %LEOLRWHFD 1DFLRQDO 'RFXPHQWRV \ GDWRV KLVn WµULFRV \ HVWDG¯VWLFRV GH OD 5HS¼EOLFD GLa(O 6DOYDGRU 6DQ 6DOYDGRU )HUQDQGH] /HRrQ HG 'RFXPHQWRV UHODWLYRV D ORV PRYLPLHQWRV GH LQGHSHQGHQFLD HQ HO UHLQR GH *XDWHPDOD 6DQ 6DO YDGRU )LOLVROD 9LFHQWH 0DQLILHVWR GHO JHQHUDO )LOLVROD VREUH VX H[SHGLFLµQ D *XDWHPDOD 3XHEOD *DOODUGR 0LJXHO $QJHO HG &XDWUR FRQVWLWXFLRQHV IHGHUDOHV GH &HQWUR $P«ULFD \ ODV FRQVWLWXFLRQHV SRO¯WLFDV GH (O 6DOYDGRU 6DQ 6DOYDGRU *DUF¯D 0LJXHO $QJHO HG (O 'RFWRU -RV«n0DW¯DV 'HOJDGR KRPHQDMH HQ HO SULPHU FHQWHQDULR GH VX PXHUWH GRFXPHQWRV SDUD HO HVWXGLR GH VX YLGD \ GH VX REUD YROV 6DQ 6DOYDGRU 0DQXHO -RV« $UFH KRPHQDMH HQ HO SULPHU FHQWHQD QR GH VX IDOOHFLPLHQWR UHFRSLODFL"QaaGH GRFXPHQWRV SDUD HO HVWXGLR GH VX YLGD \ VX REUD YROV 6DQ 6DOYDGRU 3URFHVRV SRU LQILGHQFLD FRQWUD ORVA SURFHUHV 6DOYDGRUH5f«RVaaGH OD LQGHSHQGHQFLD GHn7nHQWURDPGULFD GHVGH KDVWD 6DQ 6DOYDGRUf°

PAGE 201

*XDWHPDOD $\XQWDPLHQWR GH OD &LXGDG ,QVWUXFFLRQHV SDUD OD FRQVWLWXFLµQ IXQGDPHQWDO GH OD PRQDUTX¯D HVSD³ROD \ VX JRELHUQR GH TXH KD GH WUDWDUVH HQ ODV SUµ[LPDV FRUWHV JHQHUDOHV aG£f« OD QDFGRLU *XDWHPDOD L\ *XWLHUUH] \ 8OORD $QWRQLR (VWDGR JHQHUDO GH OD SURYLQFLD GH 6DQ 6DOYDGRU 5H\QR GH *XDWHPDOD $QR GH f 6DQ 6DOYDGRU 0DQQLQJ :LOOLDP 5 HG 'LSORPDWLF &RUUHVSRQGHQFH &RQFHUQn LQJ WKH ,QGHSHQGHQFH RI WKH /DWLQ $PHULFDQ 1DWLRQV YROV 1HZ
PAGE 202

n *DUF¯D *UDQDGRV 0LJXHO 0HPRULDV GHO *HQHUDO 0LJXHO *DUF¯D *UDQDGRV YROV *XDWHPDOD (O JHQLR GH OD OLEHUWDG $XJXVW'HFHPEHU 0DUXUH $OHMDQGUR %RVTXHMR KLVWµULFR GH ODV UHYROXFLRQHV GH &HQWUR $PHULFD GHVGH KDVWD YROV *XDWHPDOD ,f° (IHP«ULGHV GH ORV KHFKRV QRWDEOHV DFDHFLGRV HQ OD UHS¼EOLFD GHVGH HQ D³R GH KDVWD HO GH *XDWHPDOD 0ROLQD 3HGUR (VFULWRV GHO GRFWRU 3HGUR 0ROLQD YROV *XDWHPDOD 0RQWJRPHU\ * : 1DUUDWLYH RI D -RXUQH\ WR *XDWHPDOD LQ &HQWUDO $PHULFD 1HZ
PAGE 203

(O 'U 0DULDQR *DOYH] \ VX «SRFD *XDWHPDOD %XPJDUWQHU /RXLV ( -RVHA GHO 9DOOH RI &HQWUDO $PHULFD 'XUKDP %XVWDPDQWH *UHJRULR +LVWRULD PLOLWDU GH (O 6DOYDGRU 6DQ 6DOYDGRU &HYDOORV -RV«rn $QWRQLR 5HFXHUGRV 6DOYDGRUH³RV YROV 6DQ 6DOYDGRU &KDPEHUODLQ 5REHUW 6 )UDQFLVFR 0RUD]DQ &KDPSLRQ RI &HQWUDO $PHULFDQ )HGHUDWLRQ &RUDO *DEOHV &KDPRUUR 3HGUR -RDTXLQ +LVWRULD GH OD IHGHUDFLµQ GH OD $PHULFD &HQWUDO a 0DGULG &KDYH] 2UR]FR /XLV 0RUD]£Q KHURH FRQWLQHQWDO 7HJXFLn JDOSD &KLQFKLOOD $JXLODU (UQHVWR (O D\XQWDPLHQWR FRORQLDO GH OD FLXGDG GH *XDWHPDOD *XDWHPDOD &LG )HUQ£QGH] (QULTXH 'RQ *DELQR *DLQ]D \ RWURV HVWXGLRV *XDWHPDOD \ &RQWUHUDV 'DQLHO 8QD UHEHOLµQ LQG¯JHQD HQ HO SDUWLGR GH 7RWRQLFDS£Q HQ HO ,QGLR \ OD ,QGHSHQGHQFLD *XDWHPDOD 'XUDQ 0LJXHO $QJHO $XVHQFLD \ SUHVHQFLD GH -RV« 0DW¯DV 'HOJDGR HQ HO SURFHVR HPDQFLSDGRU 6DQ 6DOYDGRU (O 6DOYDGRU &RPLW« 3UR&HQWHQDULR -RV 0DW¯DV 'HOJDGR -RVGn0DW¯DV 'HOJDGR SDGUH GH OD SDWULD 6DQ 6DOYDGRU )DFLµ 5RGULJR 7UD\HFWRULD \ FULVLV GH OD )HGHUDFLµQ &HQn WURDPHULFDQD 6DQ -RV« )HUQ£QGH] *XDUGLD 5LFDUGR /D ,QGHSHQGHQFLD \ RWURV HSL VRGRV 6DQ -RV« *DOODUGR 5LFDUGR /DV &RQVWLWXFLRQHV GH OD 5HS¼EOLFD )HGn HUDO GH &HQWURƒPHIULFD YROV 0DGULG *DYLGLD )UDQFLVFR +LVWRULD PRGHUQD GH (O 6DOYDGRU 6DQ 6DOYDGRU +DULQJ &ODUHQFH + 7KH 6SDQLVK (PSLUH LQ $PHULFD 1HZ
PAGE 204

+HUUDUWH $OEHUWR /D 8QLGQ GH &HQWURDPHULFD *XDWHPDOD +ROOHUDQ 0DU\ 3 &KXUFK DQG 6WDWH LQ *XDWHPDOD 1HZ
PAGE 205

5REHUWVRQ :LOOLDP 6SHQFH ,WXUELGH RI 0H[LFR 'XUKDP 5RGULJXH] 0DULR &HQWUDO $PHULFD (QJOHZRRG &OLIIV 1 M $ 3DOPHUVWRQLDQ 'LSORPDW LQ &HQWUDO $PHULFD )UHGHULFN &KDWILHOG (VT 7XFVRQ 5XELR 0HOKDGR $GROIR 0DQXHO -RVHn$UFH IXQGDGRU GHO (MHUn FLWR 6DOYDGRUH³R 6DQ 6DOYDGRU 6DOD]DU 5DPµQ $ +LVWRULD GH YHLQWLX¯L D³RV OD LQGHSHQn GHQFLD GH *XDWHPDOD *XDWHPDOD 7 0DQXHO -RVH[$UFH *XDWHPDOD 0DULDQR GH $\FLQHQD *XDWHPDOD 6DPD\RD *XHYDUD +HFWRU +XPEHUWR ,PSODQWDFLRnQ GHO U«JLPHQ GH LQWHQGHQFLDV HQ HO 5HLQR GH *XDWHPDOD *XDWHPDOD 6RORnU]DQR )HUQDQGH] 9DOHQW¯Q (YROXFLµQ HFRQµPLFD GH *XDWHPDOD *XDWHPDOD 7RZQVHQG (]FXUUD $QGU«V )XQGDFLµQ GH OD 5HS¼EOLFD *XDn WHPDOD 8UWHFKR -RVHA 5HIOH[LRQHV VREUH OD KLVWRULD GH 1LFDUDJXD OD JXHUUD FLYLO GH /HµQ 9DOGHV 2OLYD $UWXUR &DPLQRV \ OXFKDV SRU OD LQGHSHQGHQFLD *XDWHPDOD 9DOHQ]XHOD *LOEHUWR %LEOLRJUDI¯D JXDWHPDOWHFD \ FDWDORJR JHQHUDO GH OLEURV IROIHWRV SHULµGLFRV UHYLVWDV HWF YROV *XDWHPDOD *XDWHPDOD \ VXV JREHUQDQWHV UHFRSLODFLRnQ7 *XDWHPDOD 9HOD 'DYLG %DUUXQGLD DQWH HO HVSHMR GH VX WLHPSR YROV *XDWHPDOD f¬ a 9HODVTXH] 5RODQGR &DU£FWHU ILVRQRP¯D \ DFFLRQHV GH GRQ 0DQXHO -RVH[ $UFH 6DQ 6DOYDGRU 9LOODFRUWD $QWRQLR +LVWRULD GH OD &DSLWDQ¯D *HQHUDO GH *XDWHPDOD *XDWHPDOD :RRGZDUG 5DOSK /HH -U &ODVV 3ULYLOHJH DQG (FRQRPLF 'HYHORSPHQW 7KH &RQVXODGR GH &RPHUFLR RI *XDWHPDOD &KDSHO +LOO

PAGE 206

=DPRUD &DVWHOODQRV 3HGUR (O JULWR GH LQGHSHQGHQFLD *XDWHPDOD $UWLFOHV %XPJDUWQHU /RXLV ( 7KH 0\WK RI &HQWUDO $PHULFDQ ,QGHSHQn GHQFH %XFNQHOO 5HYLHZ ;,9 0DUFK f 'RZQH\ 7KRPDV (GZDUG &HQWUDO $PHULFD XQGHU 0H[LFR *UHDWHU $PHULFD %HUNHOH\ f SS )OR\G 7UR\ 6 7KH *XDWHPDODQ 0HUFKDQWV WKH *RYHUQPHQW DQG WKH 3URYLQFLDQRV +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ;/, )HEUXDU\ f .DUQHV 7KRPDV / 7KH 2ULJLQV RI &RVWD 5LFDQ )HGHUDOLVP 7KH $PHULFDV ;9 -DQXDU\ f .HQ\RQ *RUGRQ *DELQR *DLQ]D DQG &HQWUDO $PHULFDf¬V ,QGHn SHQGHQFH IURP 6SDLQ 7KH $PHULFDV ;,,, -DQXDU\ f 0H[LFDQ ,QIOXHQFH LQ &HQWUDO $PHULFD +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ;/, 0D\ f 0RUHQR /DXGHOLQR ,QGHSHQGHQFLD GH OD &DSLWDQ¯D *HQHUDO GH *XDWHPDOD $QDOHV GH OD 6RFLHGDG GH *HRJUDI¯D H +LVWRULD 9, 6HSWHPEHU f 3DUNHU )UDQNOLQ ' -RV« &HFLOLR GHO 9DOOH 6FKRODU DQG 3DWULRW +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ;;;,, 1RYHPEHU f 6PLWK 5REHUW 6 )LQDQFLQJ WKH &HQWUDO $PHULFDQ )HGHUDWLRQ +LVSDQLF $PHULFDQ +LVWRULDO 5HYLHZ ;/,,, 1RYHPEHU f ,QGLJR 3URGXFWLRQ DQG 7UDGH LQ &RORQLDO *XDWHn PDOD +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ;;;,; 0D\ f 2ULJLQV RI WKH &RQVXODGR RI *XDWHPDOD +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ;;9, 0D\ f 6WDQJHU )UDQFLV 0HUULPDQ 1DWLRQDO 2ULJLQV LQ &HQWUDO $PHULFD +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ;,, )HEUXDU\n f

PAGE 207

:LOOLDPV 0DU\ :LOKH,QOLQH 7KH (FFOHVLDVWLFDO 3ROLF\ RI )UDQFLVFR 0RUD]DQ DQG RWKHU &HQWUDO $PHULFDQ /LEn HUDOV +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ,,, 0D\ f :RRGZDUG 5DOSK /HH -U (FRQRPLF DQG 6RFLDO 2ULJLQV RI WKH *XDWHPDODQ 3ROLWLFDO 3DUWLHV f +LVSDQLF $PHULFDQ +LVWRULFDO 5HYLHZ ;/9 1RYHPEHU f a 8QSXEOLVKHG 0DWHULDOV %HOWUDQHQD 9DOODGDUHV /XLV $WWHPSWV WR )RUP D 8QLRQ RI &HQWUDO $PHULFD 3K' GLVVHUWDWLRQ 8QLYHUVLW\ RI 1RWUH 'DPH )LHOG +DUROG %RQG 7KH &HQWUDO $PHULFDQ )HGHUDWLRQ $ 3ROLWLFDO 6WXG\ 3K' GLVVHUWDWLRQ 8QLYHUVLW\ RI &KLFDJR 3DUNHU )UDQNOLQ ' 7KH +LVWRULHV DQG +LVWRULDQV RI &HQn WUDO $PHULFD 3K' GLVVHUWDWLRQ 8QLYHUVLW\ RI ,OOLQRLV 5DVWHWWHU 5LFKDUG : &HQWUDO $PHULFDQ 8QLRQLVP 0 $ WKHVLV *HRUJHWRZQ 8QLYHUVLW\ 6WUREHFN 6XVDQ (PLO\ 7KH 3ROLWLFDO $FWLYLWLHV RI 6RPH 0HPEHUV RI WKH $ULVWRFUDWLF )DPLOLHV RI *XDWHPDOD 0 $ WKHVLV 7XODQH 8QLYHUVLW\ 6]DVGL $GDP 0DWWKLDV 7KH &DUHHU RI 1LFKRODV 5DRXO LQ &HQWUDO $PHULFD 0 $ WKHVLV 7XODQH 8QLYHUVLW\

PAGE 208

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nV /DWLQ $PHULFDQ 6WXGLHV SURJUDP 6LQFH WKDW WLPH KH KDV EHHQ HPSOR\HG DV DQ $VVLVWDQW 3URIHVVRU LQ WKH 'HSDUWPHQW RI +LVWRU\ DW 6DQ 'LHJR 6WDWH &ROOHJH +H LV D PHPEHU RI 3KL $OSKD 7KHWD WKH $PHULFDQ +LVWRULFDO $VVRFLDn WLRQ WKH &RQIHUHQFH RI /DWLQ $PHULFDQ +LVWRULDQV DQG WKH /DWLQ $PHULFDQ 6WXGLHV $VVRFLDWLRQ

PAGE 209

7KLV GLVVHUWDWLRQ ZDV SUHSDUHG XQGHU WKH GLUHFWLRQ RI WKH FKDLUPDQ RI WKH FDQGLGDWHnV VXSHUYLVRU\ FRPPLWWHH DQG KDV EHHQ DSSURYHG E\ DOO PHPEHUV RI WKDW FRPPLWWHH ,W ZDV VXEPLWWHG WR WKH 'HDQ RI WKH &ROOHJH RI $UWV DQG 6FLHQFHV DQG WR WKH *UDGXDWH &RXQFLO DQG ZDV DSSURYHG DV SDUWLDO IXOILOOPHQW RI WKH UHTXLUHPHQWV IRU WKH GHJUHH RI 'RFWRU RI 3KLORVRSK\ $XJXVW 'HDQ &R DQG 6FLHQFHV 'HDQ *UDGXDWH6FKRRO 6XSHUYLVRU\ &RPPLWWHH


33
considered the culmination of Arce's political career
occurred in 1799 when he was selected to be alcalde primero.
In that year, Luis de Arquedos declined to accept his appoint
ment as intendente of the province, and so the authority of
that office devolved upon Bernardo Arce.^ Thus, the name
of Arce commanded a degree of respect which would accord
Manuel Jos a place of prominence in whatever endeavors he
elected to pursue.
Inasmuch as the Arce family can be considered a part
of the local establishment, the question of its motivation
for participating in the revolt of 1811 arises. The intendente
Antonio Gutierrez y Ulioa, a peninsular appointed in 1804,
was noted for his deprecative behavior in dealing with the
creoles.10 It may be argued then, that the Arces were
simply seeking to regain the authority they had once tasted.
It also may be supposed that Manuel and his father shared
the frustration of cousin Jos Matas Delgado concerning
the attempt to erect a bishopric in the province. To this
writer, it appears that their discontent may very well have
had economic origins, as El Salvador had experienced a
marked decline in its indigo-based economy by the end of
the first decade of the nineteenth century.
This deterioration was partly the product of natural
causes. In several years the size of the harvest was
severly reduced by locust plagues. The introduction of
indigo into Venezuela in 1777 prevented compensation for
crop shortages by means of price increases, as Venezuelan


PREFACE
In several respects, the following study may be viewed
as the product of paths not followed. Its objective is far
different from that which the author originally envisioned,
and the goal was not clearly determined until a number of
alternate courses had been charted and rejected. As is often
the case, attraction to a particular area arose from papers
prepared for seminars; and, in this instance, led to an
interest in the history of Central America during the early
nineteenth century. Casting about for a suitable dissertation
topic, the writer was attracted to the idea of examining the
role played by Francisco Morazan in the struggle to weld the
five states into a single nation. Yet, the desire to continue
with a study of Morazan ultimately declined. This loss of
interest was partially due to the fact that Latin American
writers have told the better part of what can be said about
the Central American hero. The real cause for the shift in
direction, however, was a growing curiosity about Morazans
early opponent, Manuel Jose* Arce.
In the development of Central American historiography,
Arce has been depicted as a far less attractive figure than
the tragic Morazan. Although he served as the first President
of the Central American federation, Arce has been assigned
the role of a minor character, and he is often dismissed as
iii


98
Asamblea directed him to withdraw the battalion to Antigua.
Ariza complied with this order on September 25, but his
pusillanimous behavior alienated many of the veterans in the
battalion. The possibility of the battalion posing any
further threat to peace was eliminated by numerous deser
tions, and on learning of the movement of troops from San
Salvador, Ariza himself fled to Mexico.25
While the Ariza rebellion was in itself of little
importance, the uprising did have significant consequences.
By September, the political complexion of the Asamblea had
changed as the Guatemalan Conservatives had been joined by
a dozen Conservative deputies from Honduras and Nicaragua.2^
The Conservatives now held a majority in the assembly, and
anxious to extend their control to the executive branch of
the government, they found that the revolt provided a con
venient pretext for achieving this end. Circulating the
charge that the uprising had been caused by the incompetence
of the SPE, the Conservatives argued that the triumvirs
should be replaced for the good of the nation. On October 4,
Jose' Toribio Arguello, a deputy from Nicaragua, and Joaquin
Lindo, representing Honduras, introduced a resolution which
called for a new election of members of the executive board
on the grounds that their provinces had not been represented
at the time the triumvirate was established.27 This pro
posal gave rise to a heated debate which was in progress
when the Liberal position was suddenly sapped as the
assembly was presented with the resignations of Molina,


TABLE OF CONTENTS
Chapter
I. INTRODUCTION 1
II.ARCE AND THE PURSUIT OF CENTRAL AMERICAN
INDEPENDENCE 29
III. THE CREATION OF THE FEDERAL REPUBLIC 87
IV. THE CONTEST FOR THE PRESIDENCY 121
V. ARCE'S PRESIDENCY AND THE DISRUPTION OF
THE FEDERATION 145
VI. CONCLUSION 186
BIBLIOGRAPHY 191


122
continue with their mission, the Salvadoran ministers
decided that they should at least pay their respects to the
United States government before returning to their country.
On September 9, the envoys informed Secretary of State John
Quincy Adams of their arrival in Washington and asked that
they be granted the courtesy of an audience.^ Two days
later, they presented Adams with a copy of the Salvadoran
act of annexation to the United States together with a note
which reviewed the circumstances that led to the Salvadoran
action. Although they admitted the inability of San Salvador
to stand up to the forces of the Mexican empire, the ministers
displayed a fair amount of chauvinism in their assertion
that the example of Salvadoran resistance had inspired the
Mexicans to overthrow Iturbide. Inasmuch as the resumption
of independence might mean that the province would wish to
reconsider its action, the envoys stated they felt that they
should not proceed with negotiations and intended to return
to San Salvador for further instructions.4 in their eager-
/
ness to return to Central America, Arce and Rodriguez
decided not to wait for a reply from Adams and advised the
Secretary of State that Vicente Rocafuerte would henceforth
act on behalf of San Salvador.^ On October 16, Rocafuerte
confirmed his acceptance of the position of acting minister
and informed Adams that the Salvadorans had departed for
Central America by way of Mexico.^
Following his arrival in Mexico City, Arce obtained a
copy of the proposed draft of the Central American constitu
tion. His reaction to the Bases was not what one might have


112
elimination of illegitimacy as an impediment to securing
gainful employment, creation of teaching positions for per
sons willing to work without pay, and dissemination of
knowledge concerning the production of cochineal.69
Returning to the subject of the proposed constitu
tion, the Asamblea gave tacit affirmation to the estab
lishment of a federal government on May 5, 1824 as it
called for the installation of constituent assemblies in
Guatemala, Honduras, Nicaragua, and Costa Rica. The pro
vince of San Salvador was not included in this degree as
the ever eager Salvadorans had convened an assembly on
their own authority on March 14. It may be that the
Salvadorans seized the initiative in an effort to force the
creation of a federation. In any case, the action had the
blessing of Central American Liberals inasmuch as Pedro
Molina attended the opening session of the assembly. The
Salvadoran legislative body assumed complete control over
the internal affairs of the province, and on April 21

appointed Juan Manuel Rodriguez, who had recently returned
from the United States, jefe politico.The assembly also
authorized the creation of a bishopric, reaffirming the
action taken by the Salvadoran diputacio'n in March 1822.
The constitution of the new state of El Salvador closely
followed the outline provided in the Bases and was promul
gated on July 4, 1824, well in advance of the establishment
of a national government.
While the action of El Salvador gave the federation


2
have sought to account for Central America's failure to
achieve political unification. While these efforts have
produced a variety of explanations of differing merit,
they have pointed to certain factors which ought to be
considered as impediments to successful union.
At the time they achieved their independence, the
provinces of Central America appeared as possibly better
prospects for federation than the colonies which formed the
United States of America. The suitability of this form of
government, however, may have been more apparent than real.
This is particularly true in respect to the supposed co
hesiveness of the colonial regime. While the Captaincy
General was one of the smaller political subdivisions of the
empire, it was by no means thoroughly integrated. Geography
had dictated otherwise. The most attractive areas for
habitation are so located that the settlement process in
Central America led to the familiar pattern of population
clusters. Communities were generally established in temper
ate upland valleys that were separated from one another by
difficult though not impassable terrain. During the colonial
period this physical isolation was further compounded by the
lack of an adequate system of transportation and communica
tion. In terms of time, Guatemala was closer to Mexico City
2
than it was to Cartago. These conditions gave rise to a
high degree of localism not only between the provinces but
within them as well.
It has also been pointed out that the Captaincy


109
funds to cover the 1825 deficit of 70,000 pesos.^ Thus,
the shortages encountered during the first year of the
nations existence established a chain of debts that would
extend throughout the life of the federation.
The Asamblea also attempted to provide the central
government with working capital by authorizing the negotia
tion of a foreign loan which was arranged with the London
banking house of Barclay, Herring, Richardson, and Company
on December 16, 1824. Under the terms of the contract, the
bankers agreed to sell 7,142,857 pesos worth of bonds
secured by income from customs duties and the tobacco
monopoly. Sizeable allowances for discounts, commissions
and expenses meant that the government could expect to
receive 5,000,000 pesos from the sale of the bonds. The
loan was intended to be used for the construction of coastal
defenses, purchase of machinery, and development of educa
tion and industry.^ Unfortunately, these fine purposes
could not be pursued. Barclay, Herring* Richardson, and
Company was able to sell bonds amounting to only 556,500
pesos before the firm went bankrupt in 1826. Reid, Irving
and Company assumed the contract in November, 1826 but
surrendered it two years later as there was no market for
further sales. By that time, the Central American debt on
the venture totaled 816,500 pesos. In return, the federal
government had obtained the use of approximately 375,000
pesos.^ The debt cost the nation only its credit rating
as it was never repaid, but the loan did not contribute to


18
believed that the established order of position and prestige
could be best preserved through union with Mexico. This is
not to say, however, that self-interest was the sole motiva
tion of Iturbides Central American friends. Many shared
the conviction of such liberals as Mariano Galvez and Cirilo
Flores who believed that Central America was totally unpre
pared for independent existence.^
Opposition to annexation was centered in the Tertulia
Patritica whose members regarded the aspirations of the
imperialistas as little better than treasonous. In an address
delivered before the Tertulia on November 10, 1821, Jos^
Francisco Cordova acknowledged the perfidy of the aristocrats
and denounced the Plan of Iguala as a:
pretext of the ambitious and enemies of inde
pendence for resisting our absolute liberty,
and has been the means which they have adopted
as the last recourse for managing, misleading
and corrupting the intentions of the people.^7
The expression of such sentiments led to abuse and bloodshed,
but the Guatemalan liberals had some consolation in the fact
that they were not alone in their resistance to annexation.
Costa Rica remained aloof, and Granada and Tegucigalpa ac
tively opposed union with Mexico. The bond with Salvadorans
born of the uprisings of 1811 and 1814, was reconfirmed by
the armed opposition to Iturbide offered by the Salvadoran
army. Yet the weight of public opinion supported the
imperialistas, as a canvass of provincial ayuntamientos
revealed that a sizeable majority .favored annexation.^ The
Act of Union was proclaimed on January 5, 1822, and for the


113
de facto status, Guatemalan Conservatives continued to argue
in favor of a unitary form of government when the Asamblea
resumed discussion of the constitution on July 5. All of
the old arguments were restated, but provincial sentiments
were so great that the centralists were forced to admit
that there was no chance for the acceptance of their pro
gram. A contemporary estimate held that if submitted to a
popular referendum, a unitary government would not receive
five votes out of one hundred.The assembly spent several
more months hammering out constitutional details. The final
draft was accepted and signed by sixty-four deputies on
November 22, 1824.
As a number of scholars have written commentaries on
the Constitution of 1824, and the document consisted of
little more than a slightly modified and highly detailed
version of the previously discussed Bases, a few observa
tions on the Constitution will be offered in lieu of an
extended description.
While the Constitution provided for manhood suffrage
considerable distrust of the masses was reflected in the
cumbersome and lengthy process of elections drawn from
the Spanish Constitution of 1812. Under this system,
citizens elected one district elector for every two hundred
and fifty voters. The district electors chose one depart
mental elector for every ten of their number. The depart
mental electors then cast the votes for federal officials.
This system not only separated the people from their


164
that there would be no action taken on the issue of impeach
ment. This "shadow" Congress remained in session until the
end of the month, but it was unable to accomplish anything
of substance. In retrospect it appears that the activities
of the Guatemalan Liberals only served to provide Arce with
greater freedom of action.
Although the threat from Congress had been removed,
the affairs of Nicolas Raoul continued to plague the President
and led to another clash with Juan Barrundia at the end of
the summer. Raoul spent approximately a month and a half at
his assigned location; then, determined to escape from the
swamps and mosquitos, he left the coast and made his way to
Gualan in the middle of May, 1825. Following his return to
a comparatively civilized area, Raoul sent Arce a series of
bitter, insulting letters in which he complained of the
treatment he had received and demanded that he be released
from service. Raouls invective did not accomplish his
purposes. The officer had disobeyed his orders when he left
Izabal, and Arce was determined that the man should be
punished. On July 10, Raoul dispatched a letter which
indicated that he was aware of the error he had made. He
addressed the President in respectful terms and begged that
he be forgiven for his earlier letters which were said to be
the product of a fever that he had contracted while on the
coast.54 But now it was too late; the order for his arrest
had already been signed.
The summer of 1826 witnessed an increasing degree of


155
ultimately responsible for his clash with Liberal leaders.
The President's efforts to develop a respectable fighting
force included the drafting of articles of war and a table
of organization which were submitted to Congress in September,
1825. These documents were approved by the Conservative
dominated legislature on December 2, 1825, but they failed
to receive the sanction of the Senate.^5 When Congress re
sumed discussion of these matters in 1826, the Liberals -
now in the majority produced their own plan for military
organization and vilified Arce's articles of war on the
grounds that they had been lifted from the military code of
Spain.^ The acquisition of materiel proved to be less
difficult, and, although the equipment was later criticized
on the grounds that it was defective and too costly, Arce
secured the purchase of 15,000 rifles and 2 coast guard
cutters. He was not able, however, to obtain any significant
increase in the size of the standing army. In 1825, Congress
authorized the creation of a 10,000 man corps, but this plan
could not be implemented since it depended upon revenue from
the Barclay loan and was not granted Senatorial approval.^7
While a compromise which called for the enlistment of 4,000
men was reached in the following year, this agreement only
led to conflict between the President and Congress over the
issue of who would control the expanded force.
The setbacks which Liberals handed Arce's defense
program in 1825 surely contributed to his growing rapport
with Guatemalan Conservatives. Yet he appears to have remained


187
The assertion that Arce sold out to the Conservatives
in order to win the Presidency ignores the fact that he was
equally indebted to the Liberals for his election. Some
writers have used the existence of a Conservative majority
in the 1825 Congress to charge Arce with sheer opportunism,
stating that his ambition simply caused him to cast his lot
with the stronger faction. While it is very tidy, such an
explanation is extremely superficial as it assumes that the
man was led by no principle other than expediency. Arce's
early, consistent devotion to the cause of Salvadoran auton
omy indicates considerably greater strength of character.
Furthermore, the resolution passed by the Congress on July
18, 1825, demonstrated that the Conservatives had not traded
their electoral support for the opportunity to deny a bish
opric to El Salvador. The position taken by the Conserva
tives in the Congressional election was largely determined
by their decision to reject Arce's opponent.
Shortly after he assumed office, there was a discern
ible break between the President and the Liberals. But the
assertion that Arce deserted his former colleagues can only
be viewed as an oversimplification. Available evidence sug
gests that any act of desertion should be attributed to the
party rather than to the man. If the Liberals evinced little
interest in cooperating with the federal executive, Arce
could have had no other choice than to look to the Conserva
tives for support. More to the point, the alliance with the
Conservatives was an inevitable development due to the fact


14
attempted to catechize the citizenry in its rights under the
restored constitution. The concern with liberalization of
trade became evident in the seventh number of the paper which
introduced a dialogue on the subject conducted by "the true
33
patriot" and "the liberal Spaniard."
The immediate political objective of El editor centered
on the elections being held for seats on the ayuntamientos
and the diputacin provincial. The adherents of the tertulia,
popularly known as Cacos (thieves), presented a slate of can
didates which was opposed by a conservatively oriented faction
34
which Molina tagged with names Bacos (drunks) and Serviles.
(Of the two, the latter name proved more durable as it was
applied to conservatives after the formation of the federation.
The genuine liberals among the Cacos came to be known as
Fiebres.) The Bacos were led by Jose^ Cecilio del Valle, and
their views were carried in the newspaper El amigo de la
patria. Apart from attacks on the aristocracy, El amigo pur
sued a moderate course advocating adherence to the Constitu
tion of 1812, respect for property rights and cautious reforms
which would contribute to the development of the colony.
Support for the Bacos came from the peninsulares, creoles
excluded from the family, and artisans and merchants who,
having suffered from the contraband trade carried on with the
35
British at Walis, opposed free trade.
The elections of 1820, conducted throughout the fall,
were subject to charges and counter-charges, intrigues and
3 6
coercion. Despite Molina's editorial campaign and the


54
Arce was placed under arrest, and for the next five years
the glacial movement of Spanish justice would be the dominant
factor in his life. Arce was not informed of the charges
against him nor was he allowed to contact his family through
out the summer of 1814. During these months his wife directed
several petitions to the audiencia pleading that she be
allowed to contact her husband and that the cause of his
arrest be made known.64 Arce was permitted to communicate
with his family, but the request for an indictment was
futile. By October, while demanding that his case be brought
to a speedy conclusion, Arce was still complaining that
charges against him had not been filed. One wonders what
Arce's reaction would have been had he known that his trial
would drag on for nearly two more years. He filed protests
that Juan Miguel Bustamante, the judge assigned to his case,
was prejudiced against him, and in February, 1815 he admon
ished his tormentors not to behave in such a manner that it
would be said in the future, "que los satrapes de las
provincias distante eran mas que Reyes."65 All that he
received for his troubles was further interrogation from
Bustamante.
Arce was by no means a docile prisoner. In addition
to demands for his legal rights, he filed numerous complaints
concerning prison conditions. He believed that his cell was
too small and that he was denied adequate contact with his
family.66 He was harassed by the jailers and forced to
remain in his cell when the prison was shaken by an earthquake


46
it is easy to dismiss the revolt as being devoid of content.
Yet to this writer it appears that the uprising was the
beginning of a genuine independence movement that was aborted
after its leaders made a realistic appraisal of the uneven
odds they faced. If the resources of San Salvador had been
sufficient to have encouraged resistance to the colonial
authorities, Central Americans might have had the fight for
freedom they now long to remember.
Following the restoration of colonial authority, San
Salvador assumed an air of tranquility. In March, 1812
Aycinena left the province to accept an appointment to the
Council of the Indies, and the office of intendente was
transferred to Jose^ Mara Peinado who had authored the
Instrucciones given to the delegate to the Cortes of Cadiz,
Arce retired to the hacienda San Lucas and apparently spent
the better part of the year there.^ Following the
promulgation of the Constitution of 1812 in San Salvador on
November 8, 1812, Arce was selected to represent the province
in the Spanish Cortes. He declined this honor, however, and
was subsequently elected to the constitutional ayuntamiento
of San Salvador.47 Showing a similar disinterest in
journeying to Spain, Jos/ Matas Delgado accepted a post on
the newly created diputacin provincial in preference to a
seat in the Cortes.
Peinado, a creole and a liberal, attempted to govern
the province in a fair and understanding fashion, but buoyed
by the atmosphere of political change, the Salvadorans


This dissertation was prepared under the direction
of the chairman of the candidate's supervisory committee and
has been approved by all members of that committee. It was
submitted to the Dean of the College of Arts and Sciences
and to the Graduate Council, and was approved as partial
fulfillment of the requirements for the degree of Doctor of
Philosophy.
August, 1969
Dean, Co
and Sciences
Dean, GraduateSchool
Supervisory Committee:


67
Padilla who had been actively promoting defection in other
areas of the province. Claiming that the communities of the
province did not enjoy the right of independent action, Arce
moved on Santa Ana as the end of the month approached. When
he learned of Arce's action, Padilla demonstrated that he
lacked the courage of his convictions by withdrawing his
troops to the district of Sonsonate which was then under the
jurisdiction of Guatemala. Santa Ana was taken without a
shot being fired, and Arce had little difficulty in securing
99
a declaration of the town's allegiance to San Salvador.
With the intention of consolidating his position, Arce then
pursued Padilla into Sonsonate. The Salvadorans occupied
the town of Ahuachapn, and encountering Padilla on March
11, they completely routed his force in a battle near El
Espinal.I Following this victory, Arce returned to San
Salvador which now exercised uncontested authority in the
province.
The move into Sonsonate had been a tactical error,
however, as it provided Gainza with grounds for launching an
attack against San Salvador. On March 18, he ordered Colonel
Manuel Arzu to occupy the provincial capital. At the same
time, he informed Iturbide that the situation was well in
hand and Mexican assistance would not be necessary. Had
he been able to anticipate the behavior of his colonel and
the Salvadorans, Gainza would have been much less optimistic.
The Salvadorans were not at all eager for a military confron
tation with Guatemala, and on learning of the preparations


127
of revenue.
There is little likelihood that Arce and Valle were
personally acquainted prior to their participation in the
SPE. Both of them had lived in Guatemala City in the early
part of the century, but it is doubtful that.they met since
Valle was Arce's senior by ten years and was a budding
lawyer while his future colleague was a student in secondary
school. Whatever their previous contacts, the two executives
were soon at loggerheads with each other. Valle had estab
lished a comfortable position of authority in the executive
council and could count on the regular support of Tomas
O'Horan, the third member of the SPE. ^ Arce was loath to
accept Valle's leadership and refused to become "a blind
subscriber to his views,"15 Valle probably regarded the
Salvadoran triumvir as an ambitious lout who refused to
listen to reason. Arce later wrote that his opponent was a
man who possessed "the art of exasperating" and would not
"tolerate different opinions."1^ This discord was not
caused by mere personality conflicts but by the fact that
each man wanted very much to be President.1? The open
break which developed in the SPE during the summer of 1824
involved a continuing debate over the proper policy to adopt
in dealing with the problem of Nicaragua. That state had
declined to a condition of unrelieved chaos as the result of
a succession of civil wars which can be traced here in only
a summary fashion.
The internecine struggles of Nicaragua had their


99
Rivera and Villacorta. Following a brief discussion, the
resignations were accepted and a new election was held.
Arce, whose image remained untarnished, was again selected
for membership in the executive council. The second posi
tion went to the Conservative Tomas* OHoran, and Jose*
Cecilio del Valle was elected to the third seat. As
Valle had not yet returned from Mexico where he had served
in the imperial congress, his place was taken by Jose
Santiago Milla. The new triumvirate was provided with some
continuity and a bipartisan appearance as Villacorta was
chosen to serve as Arces alternate.
The repercussions of Ariza's revolt did not end with
the election of the second triumvirate. On receiving the
Guatemalan request for assistance, the government of San
Salvador had raised a relief force of seven hundred and
fifty men which was dispatched to Guatemala under the
command of Colonel Jose* Rivas. Due to the possibility that
the central government might be under Arizas control, the
Salvadoran officials instructed Rivas to ignore any orders
issued from Guatemala. He was not to return until he had
personally entered the capital and made certain that order
had been restored. The residents of Guatemala were con
siderably alarmed by the approach of the Salvadorans as it
was feared that they intended to seek revenge for the
invasions they had suffered in the past two years. This
concern was partially responsible for the move to recon
stitute the membership of the SPE, as the Conservatives


42
While the rebels were able to maintain their position
in the face of opposition within the province, this lack of
unity meant that they could not successfully resist the
authority of the Captain General. With the arrival of the
teniente letrado of Nicaragua, Captain General Bustamante
was apprised of the true character of the situation in San
Salvador, and on November 15, he appointed Juan Jose/ Aycinena
to the post of intendente and directed him to restore order
to the province.38 Aycinena was joined by Jose/ Maria Peinado
who was commissioned by the ayuntamiento of Guatemala to
assist in the pacification effort. Whatever may have been
the Captain Generals thoughts on the proper method for
dealing with the insurgents, he acceded to the ayuntamiento1s
wish to handle the Salvadorans gently. Although Aycinena
was provided with a sizeable militia force, the commissioners
were instructed to pursue a policy of suasion and grant
amnesty to those who had participated in the revolt.39
Faced with a choice between futile warfare and honorable
defeat, the creoles turned their backs on the dream of self-
government. At least they could claim a victory of sorts
as the Spanish intendente was replaced by a native son of
Central America. When Aycinena and Peinado entered San
Salvador on December 3, they found the streets lined with
citizens who greeted them as liberators rather than con
querors. A Te Deum was sung, and two days later the
ayuntamiento wrote a letter to its sister body in Guatemala
expressing gratitude for the "swift measures" taken to


195
. Dictamen que dit/ al Congreso federal de Centro-
Amtfrica una^omisio'n de su~seno, nombrada especial
mente para "examinar el impreso que di(/~al pifb.lico
el ciudadano Jos** Antonio Alvarado bajo el titulo
de "Nulidad de la primera eleccin de presidentede
1 repblica y medio legal y pacifico de restablacer
el orden constitucional." Guatemala, 1825.
. Secretario de Estado y del Despacho. Esposicion
presentada al Congreso Federal al comenzar la~~sesio*n
ordinaria de ano del~T826. Guatemala, 1826.
. Informe que presento^ al Congreso Federal el
secretarlo''de estado y del despacho de hacienda, al
dar cuenta de negocio relativo a la apertura del
cana]T~de Nicaragua: en la sesin pulica ordinaria
del sabado, 24 de julio de ~I830~ Guatemala, n. di
Memoria presentada al Congreso general de los
estados federados de Centro America por el secretario
de estado, encargado de despacho universal, al comeT
zar las sesiones del afir de 1825. Guatemala, 1825 .
El Salvador, Biblioteca Nacional. Documentos y datos his
tricos y estadsticos de la Repblica di~El Salvador.
San Salvador, 1926.
Fernandez, Leo*n, ed. Documentos relativos a los movimientos
de independencia en el reino de Guatemala. San Sal-
vador, 1929.
Filisola, Vicente. Manifiesto del general Filisola sobre su
expedicin a Guatemala. Puebla, 1824.
Gallardo, Miguel Angel, ed. Cuatro constituciones federales
de Centro Amrica y las constituciones polticas de
El Salvador. San Salvador, 1945.
Garca, Miguel Angel, ed. El Doctor Jos'Matas Delgado;
homenaje en el primer centenario de su muerte, 1852-
1932; documentos para el estudio de su vida y de su
obra. 2 vols. San Salvador, 1933-1939.
. Manuel Jos Arce; homenaje en el primer centena-
no de su fallecimiento; recopilaci(?n~~de documentos
para el estudio de su vida y su obra. 3 vols. San
Salvador, 1944-1945.
. Procesos por infidencia contra los^ proceres
SalvadoreRos~~de la independencia de'T'entroamdrica,
desde 1811 hasta 1818. San Salvador, 1940.


30.
of medicine. The illness of his father, however, obliged
Arce to return to El Salvador to assist with the operation
of the family estates.^ In December, 1808,he married his
cousin Felipa Aranzamendi, and in the ensuing years this
union produced six children.
This cursory review presents only a skeletal outline
of Arce's first twenty-one years, yet it contains nearly all
of the substantive statements that can be made in regard to
his personal life during this formative period. This paucity
of information requires that any attempt to explain the
political behavior of the young Salvadoran be based on
circumstantial evidence. Nevertheless, it is not impossible
to account for Arces involvement in Central Americas first,
open confrontation with the colonial establishment. Basically,
there are three factors which explain his appearance at the
forefront of the uprising of 1811. These include Arces
familial ties, his father's service in public office and the
financial situation of his family.
In the first decades of the nineteenth century, the
political leaders of El Salvador were largely drawn from a
kinship elite similar to the aristocracy of Guatemala.
Bound together through the marriages of the seven daughters
of Diego de Leon, this extended family included the surnames:
Aguilar, Aranzamendi, Arce, Delgado, Fagoaga, Lara, Morales,
t 4
and Rodriguez. In addition to exercising political leader
ship, the family had a further resemblance to the Guatemalan
aristocracy in that its members adopted a position of


95
remove from office those individuals whose loyalty was sus
pect. The triumvirs made extensive use of this power and a
number of officials were replaced by supporters of the new
regime. During this time the Asamblea concerned itself
primarily with the trappings of independence. A flag and
national coat of arms were designed, and the phrase "Dios
guarde a Vd. muchos anos" which closed official correspon
dence was replaced with "Dios, Union y Libertad." The use
of costumes which denoted rank was forbidden as was the
use of all terms of address other than "ciudadano." The
nation would have been better served if the government had
addressed itself to the resolution of more serious problems.
The most immediate of these included the need for providing
adequate revenue and assuring the loyalty of the military.
The lack of attention given these matters was directly
responsible for the serious difficulties which soon con
fronted the government.
Apart from militia organizations, Central Americas
military force consisted of a single battalion of regulars
garrisoned in Guatemala City. While spared the financial
burden of a sizeable military establishment, the govern
ment failed to provide adequate support for this token
force, and the troops pay was several months in arrears.
The discontent caused by this situation encouraged the
schemes of Sergeant Rafael Ariza y Torres who was in a
rebellious mood as the SPE had rejected him for promotion
to lieutenant in preference for Manuel Zelaya. In the


138
Congress. The decree which provided for the election of
federal officials established electoral districts which had
a total of eighty-two votes. On April 20, 1825, when Congress
was to certify the results of the presidential election, the
deputies voted to set aside the votes cast by the district
of Peten, which had submitted two sets of returns, and the
districts of Cojutepeque and Matagalpa which had returned
their ballots after the official deadline.^ As expected,
Arce and Valle received the bulk of the votes which were
distributed as follows:45
Valle Arce
Guatemala 23 10
El Salvador 4 13
Honduras 10 0
Nicaragua 0 11
Costa Rica 4 0_
Total 41 34
In addition, Guatemala gave two votes to Alejandro Cabeza de
Vaca, and Jose7 Maria Castilla and Santiago Milla received one
vote each from Honduras. All together, a total of seventy-
nine votes were counted, and on the basis of this number,
Valle should have been declared the winner. The members of
the Congress, however, demonstrated their determination to
decide the election by ruling that a majority of the eighty-
two possible votes was required for election. As Valle fell
one vote short of the requisite number, the choice of a
President became the responsibility of the members of Congress


182.
2?Arce, Mensaje el 1 de marzo de 1826.
^Gaceta del Gobierno Supremo de Guatemala, August 1,
1825.
Federacin de Centroamerica, EsposTcion del ano de
1826.
^Federacin de Centroamerica, Secretario de Estado y
del Despacho, Informe que presento1' al Congreso Federal el
secretario de estado y del despacho de hacienda, al dar cuenta
de negocio Relativo a la apertura del canal de Nicaragua: en
la sesidn publica ordinaria del sabado, 24 de julio de 1830
(Guatemala, rT. d.) .
^Federacin de Centroamerica, Memoria presentada por
el secretario de estado.
^Manuel Jose/Arce, El Presidente de la Repblica a
los Centro-Americanos (Guatemala, 1825).
33Marure, Bosquejo, I, 262-263.
, ^Pablo Alvarado to Juan Mora, October 7 1825 in
Garcia, Arce, II, 57-59.
^Arce, Memoria, ppv 38-39 ; Minutes of the Senate,
December 21, 1825, in Garcia, Arce, III, 155.
^Arce, Memoria, p. 39.
4 ^Minutes of the Senate, December 21, 1825, in
Garcia, Arce, III, 155.
3^Pablo Alvarado to Jose^Maria Peralta, J^uly 7 1827;
Alvarado to Juan Mora, October 7, 1825, in Garcia Arce, II,
pp. 3-4, 57-59.
39Marure, Bosquejo, I, 247.
^Manuel Jose/Arce, Manifiesto del Presidente de la
Repblica a los Centro-Americanos (Guatemala, 1825).
4 I-Arce, Memoria, p. 47; Marure, Bosquejo, I, 253.
Marure states that the Liberal government of Guatemala
"precipitately annuled some laws, ran roughshod over others
they had authored, and spared nothing in order to triumph in
the elections."
^Arce, Mensaje el 1 de marzo de 1826.
43"Los representes del Estado del Salvador en ,el
Congreso Federal de Centro America a los pueblos que los
constituyeron," in Garcia, Arce, III, 526.


71
provinces. Until these terms were accepted, Arzii was to
give no thought to the suspension of hostilities.108
As might be expected, the Salvadoran government
rejected Gainza's terms, and on May 27 the reluctant Arzu
began to move against the city. Hoping to take Arce by
surprise, Arzva elected to approach the city by way of a
little used route which crossed the slopes of the volcano
lying to the west; and after considerable difficulty, reached
the outskirts of San Salvador on the second of June. Arzia's
stealth proved to have been a wasted effort as Arce had
decided not to engage in open combat and had withdrawn to
the city. Leading his 1,000 man force into San Salvador on
the following morning, Arzu found that he also had been denied
the opportunity for a frontal assault as the Salvadoran
commander had stationed his men at doorways and windows,
behind walls, and on rooftops.10^ Once engaged, Arzu main
tained the battle for nearly eight hours, but he was not
prepared to cope with the type of defense presented by the
Salvadorans. The Guatemalan force was broken into a number
of isolated units, many of which demonstrated greater
interest in looting than fighting. Informed of numerous
desertions,. Arzii began a withdrawal at three o'clock in the
afternoon. The Salvadorans pursued the invading force as it
left the city, and the retreat gradually became a rout.
Losing its armaments on the way, the Guatemalan column
suffered continued harassment until it reached a point some
fifteen leagues from San Salvador three days later.110


157
According to Article 59 of the Constitution, one-half of the
deputies were to be selected by lot to stand for re-election
at the end of the first session of the legislature. As a
result of a drawing held in October, most of the seats placed
in contention were held by Conservatives, and growing support
for their opponents suggested the likelihood of a Liberal
majority in the next Congress. Arce was by now aware of the
fact that his relations with a Liberal legislature would be
something less than cordial, but he refrained from exerting
his influence at the polls and the Liberals carried the
elections.
Between the sessions of Congress, Arce attended to
routine administrative duties; prepared his proposal for the
addition of 4,000 men to the armed forces; and, with possible
second thoughts about his decision concerning the elections,
puzzled over the message he would deliver when the legislature
reconvened. When the deputies assembled for the opening
meeting of Congress on March 1, 1826, they heard an address
that clearly reflected the President's fear of an approaching
clash between the executive and legislative branches of the
government. In a rather pathetic manner, Arce attempted to
forestall the coming conflict by means of a lengthy appeal
to patriotism-waving the "bloody shirt" of resistance to
Spain. He then reviewed his accomplishments in the area of
foreign affairs and proposed that an embargo be placed on
trade with Spain and that additional funds be allocated to
combat smuggling. Before turning to domestic issues, the


102
hostile forces in the capital did not totally paralyze the
government, however, and on October 25, the Asamblea was
presented with the Bases for the proposed constitution.
Prepared by a committee of four Liberals, this draft pro
vided for the creation of a federal republic which was to
be named Estados Federales del Centro de America. Catholi
cism was recognized as the national religion, and the
public exercise of any other faith was forbidden. The
legislative power was conferred on a congress with a popu
larly elected membership which would be apportioned on the
basis of one representative for every 30,000 inhabitants.
The powers to be exercised by this body included the enact
ment of legislation which concerned the states as a whole,
declarations of war, supervision of education, and regula
tion of commerce and the money supply. While the congress
was not given the power of taxation, it would be authorized
to make levies on the states for the support of the federal
government. As envisioned in the Bases, each state would
have equal representation in a popularly elected senate.
This body would have the power to approve or reject but not
initiate legislation. In addition, it would propose candi
dates for federal offices and serve as an advisory council
to the president. The executive power was to be exercised
by a popularly chosen president whose responsibilities
would be limited to: execution of the law, negotiation of
treaties, command of the armed forces, and appointment of
federal officials. Judicial authority was to be vested in


75
the decision which was said to demonstrate the fact that the
congress had never had any purpose other than that of issuing
a decree of annexation. It is clear, however, that the
Salvadorans intended to preserve a degree of autonomy as
they tied to annexation conditions which called for the
establishment of a bishopric, complete independence from
Guatemala, maintenance of a Salvadoran military force, and
retention of all Salvadoran officials.
This attempt to secure the accomodation of both
Mexican and Salvadoran ambitions did not succeed. On
November 17, Filisola rejected the annexation decree and
informed the Salvadorans that they had no option other
than unconditional adherence to the empire. Fearing that
they could not survive as an independent nation but deter
mined not to sacrifice themselves to Mexico, the members of
the congress engaged in a frantic search for a deus ex machina.
The desire to preserve some remnant of Salvadoran identity
ultimately led to the pathetic gesture of decreeing annexa
tion to the United States on November 22, 1822. This
action made little impression on Filisola who moved into the
province and on December 11, established his headquarters at
the Mapilapa hacienda some four leagues from the city of San
Salvador. Once in the field, Filisola proved to be as
reluctant to engage in hostilities as Arzu had been.
Possibly he believed that the Salvadorans could be subdued
by intimidation. In any case, the next fifty-eight days saw
nothing but minor skirmishes and the exchange of declarations
and counter-declarations. Finally, in the latter part of


81
to bet on the stronger side. The towns were rewarded for
their loyalty as San Miguel was given the title Muy Noble y
Leal, the villa of San Vicente was promoted to the status of
ciudad, and the pueblo of Santa Ana was raised to the rank
of villa.
"^ANG, B2.9 leg. 38, exp. 860. Untitled report on
the negotiations conducted between San Salvador and San
Vicente.
37Ibid.
3^ANG, B2.1, leg, 22, exp. 669, "Oficio del Capitan
General Jos^ de Bustamante dirigido a la Audiencia,"
November 16, 1811.
39
Bustamante y Guerra, "Informe al Consejo de Regencia,"
in Fernandez, Documentos, pp. 57-58.
48ANG, B2.9 leg. 38. exp. 840. Ayuntamiento of San
Salvador to the ayuntamiento of Guatemala, December 5, 1811.
41
Bustamante y Guerra, "Informe al Consejo de Regencia,"
in Fernandez, Documentos. pp. 53-54.
^ANG, Al.l, leg. 6924, exp. 57003, "Contra D. Manuel
Jos Arce."
43Gavidia, Historia Moderna, p. 235.
44Haring, The Spanish Empire, p. 161.
43This action appears to refute the thesis presented
in Alejandro D. Marroqun, Apreciacin Socio lg ica, pp. 60-
71. Taking creole testimony at face value, Marroquin argues
that the November revolt was a poptjlarly based independence
movement which was subverted by the creoles who maintained a
holding action until legitimate authority could be reestab
lished.
46
ANG, Al.l, leg, 6924, exp. 57003. "Contra D. Manuel
Jose' Arce."
4 7
Gavidia, Historia Moderna, p. 291.
48Ibid., p. 278.
49 f
Delgado, Rodriguez and Celis to Morelos, March 1,
1813, in Garcia, Delgado, I, 507.
S^Jos/ Bustamante y Guerra, "El Capitan General de
Guatemala a la Regencia del Reino sobre las insurreciones
de San Salvador" [May 18, 1814], in Fernandez, Documentos,
p. 71.


16
clearly marked; but the Cacos took no chances, and on the
evening of September 14, the city of Guatemala was treated to
the sight of the aristocratic Mariano Aycinena and the ille
gitimate Pedro Molina tramping the streets to round up
supporters to attend the meeting of the cabildo abierto which
would consider the question of independence on the following
40
day. The support appeared,and independence was declared,
though the convergence of Caco and Baco views probably
rendered the efforts of Aycinena and Molina unnecessary. The
degree of accord between these two factions was demonstrated
41
on November 17 when freedom of trade was declared.
The declaration of independence on September 15 was a
tentative step at best. The break with Spain was made, but
the Act of Independence stated that this was done in order
to evade the "frightening consequences" of a declaration of
independence by the masses. Though this hedging may have
been a device to win over uncommitted creoles and peninsulars,
a decision on absolute independence was referred to a general
42
congress which would meet in March, 1822. Just as the with
drawal of allegiance from Ferdinand VII was not irrevocable,
there was little significant change in the government of the
new nation. Gainza continued to exercise executive authority,
and other public officials retained their positions.
The establishment of independence immediately led to
the restructuring of political alliances. The Act of Inde
pendence provided for the addition of five members to the
disputacin provincial which would then assume legislative


27-
4^-Alej andr Marure, Efemrides de los hechos notables
acaecidos en la repblica desde el ano de 1821 hasta el de'
1842 (Guatemala, 1844), p. 3; Valentn Soldrzano Fernndez,
Evolucio'n econmica de Guatemala (Guatemala, 1963), p. 266.
42
"Acta de Independencia de 15 de Septiembre de 1821,"
reproduced in Gallardo, Las Constituciones, II, 661-665.
43
El genio de la libertad, October 1, 1821. El editor
constitucional was rechristened El genio de la libertad on
August 27, 1821.
44
Ibid., October 4, 1821.
45
Copies of these letters are contained in Miguel
Angel Garcia, ed. El Doctor Josef Mat-ias Delgado; homenaje
en el primer centenario de su muerte, 1832-1932; documentos
para el estudio de su vida y de su obra, 2 vols. (San
Salvador, 1933-1939), II, 490-516.
^Antonio Batres Jauregui, El Dr. Mariano Galvez*y su
poca (Guatemala, 1957), p. 54.
47
El genio de la libertad, November 19, 1821.
48
Marure, Bosquejo, I, 82.
49
Ibid., p. 122. The decision by some imperialistas
to boycott the elections for the constituent assembly had
considerable significance as it meant that extreme conserva
tives had little voice in the assembly.
^Ib_id. It should be noted that the composition of
these parties was not so clear-cut as is indicated here.
Representatives of the earlier factions were to be found in
both camps.
^F. D. L., Apuntamientos para la historia de la
revolucin en Centro America (San Cristobal de Chiapas,
1829) quoted in Pedro Joaquin Chamorro, Historia de la
federacin de la America Central, 1823-1840 (Madrid, 19*51) ,
p. 47.
52
Marure, Bosquejo, I, 1,35. Copies of these acts are
contained in Miguel Angel Garcia, ed., Manuel Jos* Arce;
homenaje en el primer centenario de su fallecimiento; re
copilacin de documentos para el estudio de su vida y su
obra, 3 vols. (San Salvador, 1944-1945) I, 276-277,
284-285.
53
Pablo Alvarado to Gobierno Superior de Costa Rica,
November 3, 1823 in Garcia, Arce, I, 291.


135
^Arce, Memoria, p. 122; Marure, Bosquejo, II, 427.
^Arce, Memoria, pp. 127-129; Marure, Bosquejo, II,
444-449; Montufar y Coronado, Memorias, I, 124.
^ANG, B118.9, leg. 2430, exp. 50853. Executive
order announcing Arce's assumption of command of the fed
eral army dated March 16, 1827.
S^Smith, "Financing the Central American Federation,"
p. 510.


97-
mutineers had insisted that Ariza be appointed commander of
22
the battalion. Though Ariza had sent his sword to the
Asamblea as proof of his loyalty to the government, the
deputies vigorously opposed the demand for confirmation of
his authority. Many of the citizens gathered in the
galleries were armed, and the patriotic oratory inspired
them to follow Jose Barrundia in an assult against the
battalion. Outmanned and outgunned, the citizen army was
forced to fall bach to the assembly building. While
Ariza's followers did not attempt to enter the meeting,
several of the citizens were killed; and losing their
I.
earlier jravado, the majority of the deputies made use of
23
such exits as were available.
Faced with the fact that the rebels were in control
of the city, the SPE decided to seek an immediate restora
tion of order through conciliation and appointed Ariza
commanding general of the battalion. The triumvirate did
not intend to conclude the matter with this action, however,
as it also dispatched to San Salvador a request for mili
tary assistance. This step proved to be unnecessary as it
rapidly became clear that Ariza lacked the ability to
follow through with his victory. Instead of consolidating
his position within the battalion, the new commander behaved
as if he has been defeated, informing the government that
the troops had forced him to lead the uprising and offering
24
repeated assurances of his loyalty. Convinced by these
signs of weakness that Ariza was a rather flimsy menace, the


65,
union with Mexico but expressed the now forlorn hope that
the provincial congress would be convened to consider the
matter. It was further declared that the province acceded
to sovereign status inasmuch as the decree of annexation had
brought about the demise of the central government. Pending
the fulfillment of the terms of the September 15 Act of
Independence, the diputacin would serve as the provisional
government of the province.^4
The news of San Salvador's independent action soon
reached Guatemala, and sycophant Mariano Aycinena immediately
informed Iturbide of the Salvadoran perfidy. Urging the
dispatch 'of a Mexican expeditionary force, Aycinena attempted
to impress his new master with the gravity of the situation
by reporting the rumor that Lord Cochrane had provided the
Salvadorans with five hundred rifles.^5 Gabino Gainza,
however, was anxious to prove that there was no need for
Mexican intervention. The security of his position in the
empire depended on the demonstration of his ability to
maintain a condition of tranquil obedience to Iturbide.
Gainza's first response to the Salvadoran threat resembled
the approach he had adopted in dealing with Len and Comayagua
the previous year. He informed the Salvadorans that there
was no legal justification for their action which was
insubordinate if not treasonous. In a reply drafted on
January 29, Delgado argued that San Salvador had become a
sovereign entity at the time of independence. Obedience to
the central government during the preceeding months had been


161
As Arce's order directed the artillery officer to remain in
the area until he received further instructions, there can
be no doubt that the assignment amounted to a sentence of
exile. Possibly, the President hoped that the combination
of heat, humidity and vermin would put a permanent end to
his troubles with Raoul. It is highly improbable that any
one accepted Arce's assertion that the task was essential to
the security of the nation. Raoul's friends in Congress had
no illusions about Arce's intentions; and, on March 30,
they issued a decree which countermanded the President's
order on the grounds that Raol's services to the comisin de
guerra required him to remain in the capital. Arce refused
to accept the decree, stating that it had not been sanctioned
by the Senate and that it intruded on the exercise of his
constitutional powers. Unwilling to admit defeat, the
Congress submitted the decree to the Senate, but this body
recognized the validity of the constitutional issue raised
by Arce and withheld its sanction. Raoul was left with no
choice other than resignation; and, as a good soldier, he
departed for Izabal.^8
While the first round in this conflict went to the
President, the Congress was not inclined to give up easily,
and it developed a stratagem which might have made the
President a party to his own defeat. During a month of
apparent cooperation, the legislature approved Arce's plan
for adding 4,000 men to the federal army, and it accepted
his invitation to appoint commissioners who would be respon
sible for securing an adequate number of recruits in each of


114
representatives, but also offered repeated opportunities for
the manipulation of elections.
There has been a considerable amount of discussion on
the question of whether the government created in 1824 was
a federation or a confederation. In the view of this writer
there can be little doubt that a federation was intended.
This is clearly reflected in the decision to adopt the name
/ /
Federacin de Centroamerica in place of the Provincias
Unidas mentioned in the 1823 Act of Independence. More
importantly, the powers granted to the federal Congress were
just as broad and sweeping as those provided in the United
States Constitution. Although the states were guaranteed
complete freedom in the administration of their internal
affairs, the federal government was empowered to collect
taxes, enact a uniform code of laws, regulate foreign and
domestic commerce, conduct the foreign affairs of the nation,
provide for national defense, and protect the liberties of
the people. It appears that subsequent confusion regarding
the nature of the national government is due to the fact
that while the Constitution provided for a federation, the
states behaved as if they were members of a confederation.
In large part, the dichotomy between theory and
practice was due to the failure of the framers of the
Constitution to provide a positive means by which federal
legislative powers could be enforced. The Constitution's
provisions concerning the presidency reflected the typical,
nineteenth century liberalist fear of kingly powers.


NOTES
<
Roberto Molina y Morales, MDon Bernardo de Arce," in
Garcia, Arce, I, 4.
o / s
Pedro ^rce y Rubio, "Biografa de don Manuel Jose
Arce," in Garcia, Arce, I, 82.
^Ibid. ; Jorge Lard^ y Lariln, El Grito de la Merced;
5 de noviembre de 1811 (San Salvador"^ 1960) p. 5"3i
4Mo lina y Morales, "Dpn Bernardo de Arce," p. 8;
Manuel Valladares, "Biografa del General dpn Manuel Jose^
Arce," in Garcia, Arce, I, jL5; Lard y Larin, Grito, pp. 50-
55; Barcn Castro, Jose/Matas Delgado, p. 25.
^Montufar y Coronado, Memorias, I, 93.
^Delgado is usually referred to as Arce's uncle, and
in view of the age difference, this term probably best
describes the nature of the relationship between the two men.
^Roberto Melina y Morales, "Procer Linaje: Arce" in
Miguel Angel Garcia, ed., Procesos por infidencia contra los
proceres Salvadoreos de la independencia de Centroamerica,
desde 1811 hasta 1818 (San Salvador, 1940) p. I5
8ANG, Al.40, leg. 1763; Pases de ttulos; Molina y
Morales, "Don Bernardo de Arce," p. 5.
Q f f ^
^Molina y Morales, ibid.; Baron Castro, Jose Matas
Delgado, p. 61.
/ lOSalazar, Historia de veintin aos, p. 152; Lard/y,
Larin, p. 39; J. Antonio Villacorta, Historia de la Capitana
General de Guatemala (Guatemala, 1942) p. 472.
44Robert S. Smith, "Indigo Production and Trade in
Colonial Guatemala," Hispanic American Historical Review,
XXXIX (May, 1959) p. 183.
^Woodward, "Economic and Social Origins," p. 551.
^Henry Dunn, Guatimala [sic], or the Republic of
Central America, in- 1827-8 ; Being Sketches and Memorandums
Made During a Twelve-Month's Residence (London, 1829), p. 212.
For the years 1791-1818, the following production figures
were given:


136
promised to shoot anyone who attempted to-resist his orders.-
The Nicaraguan civil war was brought to a close when Arce
assumed command of Managua on January 22, 1825. The
Salvadoran leader remained in the area for several weeks.
Then, assured that his task was completed and concerned by a
further decline in his health, Arce returned to San Salvador.^
The validity of the contemporary judgement that Arce's
Nicaraguan venture was politically motivated is difficult to
assess. Arce never denied the desire to be President. While
it appears that he did not possess a great deal of political
acumen, he must have realized that the failure of Valle's
plan for pacification of the area offered an opportunity from
which much could be gained and nothing lost. Arce was aware
of the fact that his opponent was concerned with the political
consequences of the Nicaraguan affair, and the Salvadoran
later complained that, on his arrival in the province, he
found that the "first obstacle" to the restoration of order
came "from Guatemala."^ Yet there is reason to believe that
Arce's behavior was governed by conviction rather than self-
interest. Although he had been appointed to command the
"Legion of Liberty," he apparently did not intend to lead the
expedition planned for the summer of 1824. In order to assume
command of the Legion, he was required to resign from the SPE,
and he had not taken this step by August 7 when the force was
ready to depart.^ Furthermore, Arce's offer to place command
of the Salvadoran force in the hands of Arztf and his decision
to return to San Salvador shortly after the establishment of
peace suggests the absence of any desire to exercise political


BIOGRAPHICAL SKETCH
Philip Frederick Flemion was born on July 5, 1935 in
Findlay, Ohio. He graduated from Findlay Senior High School
in June, 1953. He attended Cornell University for two years
and subsequently enrolled at Ohio State University where he
received a Bachelor of Arts degree in 1957, and a Master of
Arts degree in 1958. He served as an instructor in history
at Findlay Senior High School for one year, and in 1960, he
enrolled in the Graduate School of the University of Florida.
From 1962 to 1965, he held the post of Assistant Director of
the University's Latin American Studies program. Since that
time, he has been employed as an Assistant Professor in the
Department of History at San Diego State College. He is a
member of Phi Alpha Theta, the American Historical Associa
tion, the Conference of Latin American Historians, and the
Latin American Studies Association.


132
permanent change in the city's political complexion and
shifted the center of conservative strength to Managua.
This geographic realignment led to the outbreak of total
war the following month. Crisanto Sacasa led Managuan
conservatives in a three week campaign against Granada, and
Leonese liberals instituted a siege against Managua. Mean
while, El Salvador moved to provide the means by which
Arce's program for pacification might be implemented. The
state raised a 500 man "Legion of Liberty" and appointed
Arce commander of the force.. ^6
The Salvadoran action brought the conflict in the.SPE
to a climax. On August 7, the state informed the triumvirate
that the Legion would move to restore order in Nicaragua as
soon as it received the authorization of the SPE. According
to contemporary chroniclers, Valle was determined to prevent
the departure of the Salvadoran expedition because of his
fear that its success might insure Arce's election as
President.^ It must also be pointed out that Arce may have
had a similar idea in mind when he originally suggested the
venture. In any case, he realized that he would be outvoted
when the issue was raised and decided that his time might be
better spent on other pursuits. On the morning of August 13,
the day set for a vote concerning the Salvadoran proposal,
the Minister of State received a note in which Arce indicated
that he would not attend the meeting of the SPE as he wished
to "avoid the compromises that always surround me when
measures relating to San Salvador are considered." Despite


50
the people. Continuing with his pacification program,
Peinado summoned the members of the ayuntamiento to his home
on January 16, entertained them with a play, and then lectured
them on their behavior and responsibilities. It appears that
his guests may have been more impressed by the dramatic
presentation which bore the suggestive title Mas vale tarde
que nunca.^ Two days later the Captain General informed
the ayuntamiento that the disposition of armaments was none
of their concern, and more importantly, he directed JoseS
Rossi, the comandante general, to increase the number of
night patrols and to keep all suspicious activities under
close surveillance. It was Rossi's compliance with this
order that led to the uprising of 1814.
On the twenty-second of January, Rossi reported to
the intendente that a group of men had been seen leaving the
home of Pablo Castillo, the alcalde segundo, at one o'clock
in the morning. Suggesting that a conspiracy was afoot,
Rossi urged the intendente to take strong countermeasures.
It was learned from informers that the alcaldes of the
Remedios and Candelaria barrios had attended the meeting at
Castillo's home, and Peinado had these men arrested on
January 23.^ This firm action only served to provoke the
very thing that Peinado was seeking to avoid. News of the
arrests spread quickly, and by ten o'clock on the morning
of the twenty-fourth, the situation in San Salvador was
such that Peinado doubled the guard at all public buildings
and ordered that each man be given all the cartridges he


79
Year
Pounds of Indigo
Year
Pounds of Indigo
1791
1,015,200
1804
732,570 .
1792
1,139,250
1810
740,820
1793
1,149,800
1811
536,475
1794
789,950
1812
450,425
1795
852,100
1813
257,300
1796
865,100
1814
422,507
1797
763,425
1815
412,781
1798
749,775
1816
376,800
1799
625,612
1817
332,200
1800
802,350
1818
332,200
^ANG, Al.l, leg. 6926, exp. 57032, "Instancia de
Manuela Antonia de Arce, sobre desembargo de bienes suyos y
hermanos, por hallarse pr^, indivisos los embargados a D. /
Manuel Jos"; Vicente Filisola, Manifesto del general Filisola
sobre su expedicin a Guatemala (Puebla, 1824)7
*J r j
Salazar, Historia de veintin aos, pp. 123, 133;
Villacorta, Historia de la Capitana' General, p. 465; Laudelino
Moreno, I n dp end en c i a d e" 1 a Cap'yt ana Gener a 1 de Guatemala,"
Anales de la Sociedad de Geografa e Historia, VI (September,
1929), p. ITT The first person to be investigated by the
tribunal de fidelidad was Jos^ Francisco Cordova. Co'rdova
and Jos^ Mara Castilla perfectly exemplify the manner in
which Central Americans shifted from one political faction
to another. Both Spaniards, they supported independence,
opposed annexation to Mexico, favored a unitary form of
government,and ended up as staunch conservatives.
iDJose Bustamante y Guerra, "Informe del Capitan
General de Guatemala al Consejo de Regencia" [March 3, 1813],
in Fernndez, Documentos, p. 55.
17Ibid.
1 o / /
'Larde y Larin, Grito, p. 64.
1_9ANG, Al.l, leg. 6924, exp. 57003, "Contra D. Manuel
Jose^ Arce por infidencia que le resulted en las sublevaciones
de 5 de noviembre de 1811 y 24 de enero de 1814." This
expediente contains the major part of the testimony concerning
Arce's participation in the uprisings of 1811 apd 1814. It
and related expedientes are reproduced in Garcia, Procesos.
20Ibid.
2lIbid,
22Ibid.
2^Ibid.; "Contra D. Mariano Fagoaga por ciertas Juntas
y expresiones sospechosas de infidencia," in Garcia, Procesos,


47;
proved to be more than he could handle. With the passing
months of 1813, the colonial regime was increasingly sub
jected to verbal attacks, anonymous broadsides, and threatening
graffiti. Both political inclinations and festering enmities
were exposed in the little rhyme:
Cuidadanos del Tambor
Decid de muy buen gaa
Que viva el padre Morelos
Y mueran los de Santa Ana.48
It is not clear whether the liberal reforms of 1812 incited
the Salvadoran liberals to move further to the left or
merely provided a favorable climate for the growth'of pre-
j
existent ^radicalism. In any case, the leading forces of
Salvadoran politics demonstrated the underlying sincerity of
the 1811 movement as they refused to be pacified by the
rights granted under the Constitution of 1812. Reconvening
the secret juntas formed in 1810, the creoles began to
discuss plans and ideas which the Captain General would have
considered extremely alarming. The direction of creole
ambitions was made clear by Miguel Delgado, Juan Manuel
Rodriguez, and Santiago Jose* Celis, (all friends of Arce,
though probably ahead of him in their thinking) on March 1,
1813, when they wrote to Jose Maria Morelos:
For some time we, the undersigned residents of
this city, have been considering a means for
communicating with you, none being free of risk, we
are employing the most daring and sending this by
courier. We are begging for arrest, but as our
ideas are in close conformity with yours. . inform
us of the present state of your important activities
and of succeeding events as they occur. We await
this kindness protesting that our adherence to your
person is identical to that which we have for your
interesting and just cause, assuring you that we


73
that he was only interested in a peaceful settlement of
differences and suggested that commissioners be sent to
negotiate an armistice.
The better part of the summer was spent in the ex
change of correspondence, but on August 20, Antonio Jos^
Canas aid Juan Francisco de Sosa finally arrived in Guatemala
to represent San Salvador in the armistice negotiations.
After the discussions began, Filxsola's belief that the
Salvadoran plan to convene a provincial congress for the
purpose of declaring annexation represented a punctilious
concern for prestige and independent action gradually faded.
Salvadoran pressure for recognition of such a congress in
/
the armistice terms caused Filisola to view the plan as a
strategem for securing tacit authorization for a declaration
of absolute independence. While he believed that the
Salvadorans lacked the resources necessary to maintain
independent existence, Filisola became convinced that they
would make the attempt if given the opportunity. Fearing
that an example set by San Salvador might have disruptive
tendencies in other areas of the empire, Filisola refused to
include any mention of a congress in the armistice agreement
The terms of the armistice which was signed on September 10
provided that San Salvador would send representatives to
Mexico to negotiate the territorial status of the province.
While these negotiations were under way, the Salvadoran
government would exercise provisional authority over those
areas of the province which had not declared for annexation.
114


41
was seconded by the communities of Metapan, Zacatecoluc,
Chalatenango, and Usulutfn where the cry of, "death to the
chapetones," was heard in the streets.^3 Of much greater
significance in determining the outcome of the Salvadoran
revolt was the reaction of San Miguel, Santa Ana and San
Vicente. If the creole government of San Salvador was to
have the least chance of coming to terms with the colonial
authorities, it had to have the solid support of the entire
province, but the above named towns refused to sanction the
transfer of power. San Miguel directed the town executioner
to burn the Salvadoran manifesto in the central plaza, while
the community of Santa Ana forwarded the correspondence it
received to the audiencia along with the declaration that it
considered the action of San Salvador to be "sacrilegious,
subversive and seditious,"34 Deciding to take more vigorous
action, Jose7 Santin del Castillo, the alcalde primero of
San Vicente, gathered a force of one hundred and fifty men
for the purpose of restoring the legitimate government.35
In response to this action, the ayuntamiento of San Salvador
commissioned Manuel Jose7 Arce to ascertain the intentions of
alcalde Santin del Castillo.36 The nature of the inquiry
made by Arce is not known, but it had the effect of eliminating
the threat posed by San Vicente. The ayuntamiento of San
Salvador was informed that the San Vicentians had never
thought of mounting an invasion and had marshaled its troops
in the belief that San Salvador might request assistance for
repressing a popular uprising.37


199
Herrarte, Alberto. La Unidn de Centroamerica. Guatemala,
1955.
Holleran, Mary P. Church and State in Guatemala. New York,
1949.
Karnes, Thomas L. The Failure of Union: Central America,
1824-1960. Chapel Hill, 1961.
Lanning, John Tate. The Eighteenth-Century Enlightenment
in the University of San Carlos de Guatemala. Ithaca,
1956.
The University in the Kingdom of Guatemala.
Ithaca, 1955.
Larde^ y Larin, Jorge. El Salvador, historia de sus pueblos,
villas y ciudades^ San Salvador, 1957.
. El Grito de la Merced; 5 de noviembre de 1811.
San Salvador, 1960.
. Guia histrica de El Salvador. San Salvador,
I3T8.
. Josz Simeon Caas. San Salvador, 1956.
Leyton Rodrguez, Rueben. Doctor Pedro Molina; o, Centro
America y su procer. Guatemala, 1958.
Marroqun, Alejandro D. Apreciacin Sociolo'gica de la Inde
pendencia Salvadorea. San Salvador, 1964.
Melndez Chaverri, Carlos. El presbtero y doctor don Jos4
Matas Delgado en la forja de la nacionalidad Centro
americana; ensayo histdrico. San Salvador, 1962.
Montes, Arturo Humberto. Morazan y la federacio'n centro
americana. Mexico, 1958.
Montufar, Lorenzo. Resea histrica de Centro America. 7
vols. Guatemala, 1878-1888.
Navarrete, Sarbelio. La verdadera fecha de nuestra indepen
dencia. San Salvador, 1930.
Parker, Franklin D. The Central American Republics. New
York, 1966.
. Jos* Cecilio del Valle and the Establishment of
the Central American Confederation! Tegucigalpa, 1954


108
legitimate channels.^
Aware that the foregoing resources would not ade
quately provide for the financial needs of the federal
government, the Asamblea decided that budget deficits should
be covered by tax quotas assigned to the states. Such an
allocation of assessments on the states was utilized to
balance the federal budget of 1825. Estimated expenses for
that year amounted to 652,608 pesos, while the expected
income from gunpowder, tobacco and customs came to 471,359
pesos. The shortage in anticipated revenue was made up by
assigning the following quotas to the states. ^
123,605 pesos
70,013
47,372 "
31,580
Guatemala
El Salvador
Nicaragua
Honduras
Aside from the alleged poverty of the state, there is no
explanation for the omission of Costa Rica which was
included in subsequent assessments. There is evidence which
indicates that the 1825 quotas were fulfilled, but it is
commonly held that Guatemala provided the bulk of the
federation's monetary support.^ This was surely the case
in the latter part of the decade as several states declared
themselves incapable of meeting assigned quotas. Even
though the revenue obtained from all sources in 1825
exceeded the budget estimates, the federation's expenditures
outstripped its*income; and the government was forced to
provide for immediate needs through the issue of paper
57
money. Two years later, the government was still seeking


201
Zamora Castellanos, Pedro. El grito de independencia.
Guatemala, 1935.
Articles
Bumgartner, Louis E. "The Myth of Central American Indepen
dence," Bucknell Review, XIV (March, 1966), 95-102.
Downey, Thomas Edward. "Central America under Mexico, 1821-
1823," Greater America (Berkeley, 1945), pp. 361-377.
Floyd, Troy S. "The Guatemalan Merchants, the Government
and the Provincianos, 1750-1800," Hispanic American
Historical Review, XLI (February, 1961), 90-110.
Karnes, Thomas L. "The Origins of Costa Rican Federalism,"
The Americas, XV (January, 1951), 249-269.
Kenyon, Gordon. "Gabino Gainza and Central Americas Inde
pendence from Spain," The Americas, XIII (January,
1857), 241-254.
. "Mexican Influence in Central America," Hispanic
American Historical Review, XLI (May, 1961), 175-205.
Moreno, Laudelino. "Independencia de la Capitana General
de Guatemala," Anales de la Sociedad de Geografa e
Historia, VI (September, 1929), 3-32.
Parker, Franklin D. "Jos Cecilio del Valle: Scholar and
Patriot," Hispanic American Historical Review, XXXII
(November, 1952), 516-539.
Smith, Robert S. "Financing the Central American Federation,
1821-1838," Hispanic American Historial Review,
XLIII (November, 1963), 483-510.
. "Indigo Production and Trade in Colonial Guate
mala," Hispanic American Historical Review, XXXIX
(May, 1959), 181-211.
. "Origins of the Consulado of Guatemala,"
Hispanic American Historical Review, XXVI (May, 1946),
150-161.
Stanger, Francis Merriman. "National Origins in Central
America," Hispanic American Historical Review, XII
(February,' 1932) 18-4 5 .


11
Muoz, Najera, Palomo, Pavn, Pinol, Saravia, and Urruela
families.24 The economic power of this elite led to such a
degree of social prestige and political preference that by
the 1800s its members were referred to simply as "the
family." In 1820 Jose del Valle published in his Amigo de
la patria a list of fifty-nine members of the family who
held public offices that yielded 89,000 pesos in annual
salaries. 25 As Captain General Bustamante had reported in
his Informe of 1812 that the total salaries paid to creoles
amounted to 162,430 pesos, it appears that the family had
cornered most of the positions worth having.26
To be sure, those creoles not incorporated in this
extended family resented its social prominence, and its
political power did not go unopposed.27 in fact, the ap
pearance of the first political parties was partly a product
of the family's existence. To a degree, the political
polarization aroused by the Guatemalan aristocracy was aused
by its social pretentions, but economics provided a more
substantial foundation for conflict between the family and
its opponents.
Due to increasing competition and natural disasters,
the decade before 1800 marked the beginning of a steady
decline in the indigo trade. Faced with a concomitant drop
in income, the merchants of the Aycinena family became favor
ably disposed towards further modifications in Spains mer
cantile policies which would provide expanded opportunities
for overseas trade.28 Although the Aycinenas dominated the


88
in Mexico, he demonstrated a considerable sense of justice
or lack of personal ambition and deferred to Barrundia's
demands.^ On March 29, Filisola issued a proclamation which
called for the election of deputies to a provincial congress
which would resolve the question of further association with
Mexico. Until the congress convened, the government as then
constituted would continue to administer the provinces.
t
Filisola was careful to point out in this decree that he was
not calling the congress on his own authority but was merely
implementing the provision for a congress of the provinces
z
contained in the second article of the Act of Independence.
In effect, the Central Americans were back where they had
been over a year before.
Representation in the congress was to be determined
by population with one representative for each 15,000 inhab
itants. On this basis, the junta consultiva drew up allot
ments which provided for a total of 76 deputies with
Guatemala choosing 36; San Salvador, 16; Honduras, 10;
Nicaragua, 11; and Costa Rica, 3.4 A planning committee
appointed by the junta consultiva set June 1 for the open
ing of the congress, but the deputies did not arrive in
numbers sufficient to form a quorum until June 23. On the
following day, twenty-eight delegates from Guatemala, twelve
from San Salvador and one from Honduras assembled at the
palace of the Captain General. They were joined by
Filisola, members of the junta consultiva, the audiencia
and the ayuntamiento and, together with other secular and


40
brief account of the uprising and attempted to justify their
actions.This document along with an invitation to send a
delegate to a proposed provincial congress was sent to all
the towns in the province and possibly to other provinces as
well.^9
Manuel Jose^ Arce had a hand in this propaganda
campaign as on November 8 he spent the day at his father's
house dictating letters to the scribes Bonifacio Paniagua
and Joaquin Chavez. The evidence indicates, however, that
Arce had no personal responsibility for the substantive
content of these letters. Bernardo Arce's house apparently
served as a kind of headquarters for the creoles as there
were others there on the same day dictating similar letters.21
In addition to assisting with such details, Arce, retaining
his title of "deputy of the people" served as a liason
officer between the people and the government. He also had
the responsibility of maintaining order in the city, and was
given one hundred pesos from the public treasury to cover
the costs of police patrols.22
The Salvadoran insurgents were not at all unique in
their dissatisfaction with peninsular dominance. In
Nicaragua the citizens of Leon deposed the intendente Jose^
Salvador on December 13. Nine days later Spanish officials
in Granada were forced to resign their posts. While these
actions further disturbed the structure of colonial govern
ment, they came too late to provide support for the Salvadoran
venture. Within the province of San Salvador, the revolt


4
is evidence that the provincial creoles experienced greater
control over local affairs than was normally afforded through
the cabildos. In 1799 Luis de Arquedos y Brugueiros was
appointed intendente of San Salvador. Because of illness
he failed to assume his office. From time to time the post
was filled by interim appointees, but the management of
provincial affairs was left largely in the hands of creole
leaders until the appointment of Antonio Gutierrez y Ulloa
as intendente in 1804.^ It would appear that the degree of
authority which Guatemala exercised over provincial affairs
was not so great as to stifle the provincianos' conviction
that, by right, they were the masters of their own destinies.
There can be little disagreement concerning the depth
of provincial dissatisfaction caused by the concentration of
economic power in Guatemala. Guatemala City served as the
entrepot for all legitimate trade between the provinces and
Spain, and it was also the chief market for domestic trade.
In part, the dominance of the Guatemalan merchants was based
on control of transportation. Both Guatemala and Honduras
possess natural harbor facilities, and during the sixteenth
century the Honduran port of Trujillo served as the principal
roadstead for ships of the flota destined for Central America
Considerations of defense, however, caused the primary
shipping point to be relocated in 1605 at Santo Tomas de
Castilla, which is in the vicinity of present-day Puerto
7
Barrios. This advantage the value of which was later
demonstrated in the form of Guatemalan opposition to efforts


CHAPTER II
ARCE AND THE PURSUIT OF CENTRAL AMERICAN INDEPENDENCE
To the misfortune of his would-be biographers, Manuel
Jose* Arce was not the sort of individual who bequeaths much
of his personal life to history. Private letters are few.
If he kept a diary (which seems unlikely), it has yet to be
found, and his memoirs deal only with his public life. There
is adequate material for the reconstruction of Arces
political career, but apart from extrapolations, the man
himself remains hidden in the past.
The details of Arces early life are particularly
scanty. It is known that he was born of a prominent San
Salvadoran family on January 1, 1787. In addition to their
first-born son, Arce's parents, Bernardo Jose and Manuela
Antonia, had six other children. Three of these offspring
died during childhood, and Toms, a brother born eleven
months after Manuel Jose, lived the half-life of the mentally
retarded.^ As were most of the more substantial Salvadorans,
Bernardo Arce was an indigo grower, and the income from his
haciendas was sufficient to allow his eldest son to go to
Guatemala in 1801 to attend the Colegio de San Borja.^
His biographers assure us that Manuel Jos* was an excellent
student. Whatever his scholastic abilities, Arce received
his bachillerato and possibly intended to pursue the study
29


131
?
for a campaign against his former compatriots.
Fearing that the instability of Nicaragua posed a
threat to all of Central America, the Asamblea sent two
deputies to the area in an effort to mediate the differences
between the two factions. Nothing was accomplished apart
from the fact that the Bishop of Leon finally acknowledged
the authority of the national government on December 10,1823.
The SPE then appointed Jose Justo Milla to the post of
intendente and instructed him to restore order in the province.
After establishing his headquarters at Leon in January, 1824,
Milla made a tour of the principal communities of the
province which enabled him to secure agreement to the erection
of a provincial government in Managua. The situation seemed
to be well in hand when Milla personally reported his success
to the SPE, yet the compromise collapsed after he returned
to Leon and was deposed by a popular uprising on May 4,
1824.24
When Arce assumed his duties on the SPE, the strife
in Nicaragua which would soon develop into full-scale
civil war appeared to be a permanent institution. Obliged
to insure peace in the area, the executive board was unable
to agree on an appropriate course of action. Valle favored
a cautious approach and proposed that Manuel Arzu be sent to
mediate the differences between the Nicaraguan facations.
The Salvadoran triumvir, on the other hand, argued that only
police action could bring an end to the chaos. While the
SPE debated, the situation in Nicaragua continued to deter
iorate. A revolt in Leon on July 22 brought about a


143
-JO /
-LOMontufar y Coronado, Memorias, I, 63.
l^Marure, Bosquejo, I, 53.
2^E1 genio de la libertad, October 22, 1821.
2-*-Ibid., October 29, 1821.
22Marure, Bosquejo, I, 75.
23Ibid., p. 153.
24Ibid.
23Arce, Memoria, p. 23.
2^ANG, B6.9, leg. 99, exp. 2753, "Comisin de guerra."
71 f
'Marure, Bosquejo, I, 184; Montufar y Coronado,
Memorias, I, 91.
2Arce, Cartas, p. 1,
2^ANG, B6.9, leg. 99, exp. 2753, "Comisin
^Arce, Cartas, p. 4.
de
guerra.
Arce,
^Asamblea to Arce, September 4, 1824, in
I, 438.
/
Garcia,
Arce,
7O /
"Manifiesto de Coronel Don Manuel Arzu,"
I, 445-450.
in
/
Garcia,
, 33D ionisio Herrera to Manuel Arzu, October 2, 1824, in
Garcia, Arce, I, 460.
34Manuel Jose/ Arce to Manuel Arzu, November 8, 1824,
in Garcia, Arce, I, 458.
*7 r / f
JDArce to Arzu, December 21, 1824, in Garcia, Arce,
I, 458-459.
^Arce, Memoria, pp. 25-26.
512.
^Arzu* to
Arce,
January
13,
1825 ,
/
in Garcia,
Arce
508.
3Arce to
Arzu,
January
20,
1825 ,
y
in Garcia,
Arce
3^Arce to Arzif, February 10, 1825, in Garcia, Arce,
I, 508.
4Arce, Memoria, p. 25.


129
rebels. These proceedings lasted for two years and culminated
19
in the issuance of 16 death sentences and 142 prison sentences.
To be sure, Granadan creoles felt that they had been betrayed
by their Leonese countrymen, and henceforth, the relationship
between the two cities had the character of a vendetta.
Nicaragua remained fairly tranquil for the balance of
the decade, but the coming of independence reopened the
festering wounds of discord. In 1821, the city of Leon was
controlled by the intendente Miguel Gonzalez Saravia and
Bishop Garcia Jerez. Both men were peninsulares and their
political attitudes were such that they heard a siren song
in the pronouncments of Agustn Iturbide. Hence, the Leonese
response to the Act of Independence of September 15 consisted
of a declaration of independence from Spain and Guatemala on
September 28 and a proclamation of adhesion to the Plan of
Iguala thirteen days later.^0 In the interim, liberally
oriented Granadans under the leadership of Crisanto Sacasa
swore loyalty to the independent government of Guatemala.
Jefe politico Gabino Gainza denied the legitimacy of the
Leo4!! declaration and appointed Sacasa Commanding General of
Nicaragua with orders to establish a governing junta in
Granada.21 Gainza's action did not intimidate the leaders
of Leon who secured from the Nicaraguan diputacin an order
directing the citizenry to ignore the Granadan junta. At
the same time, intendente Gonzlez Saravia attempted to
2 2
block the lines of communication between Granada and Guatemala.
Growing pressure from Mexico caused Gainza to inform the


117.-
O .
"Decreto de Independencia de la Asamblea Nacional
Constituyente, de 1 de julio de 1823," in Gallardo, Las
Constituciones, II, 667-672. In 1920 Alberto Luna published
an article which argued that the act of September 15, 1821
only delayed a decision on independence that was not reached
until 1823. Since that time a debate has simmered over the
question of the "true" date of Central American indepen
dence.
^Marure, Bosquejo, I, 121-122; Montufar y Coronado,
Memorias, I, 81.
^"Decreto de la Asamblea Nacional Constituyente^ de
2 de julio de 1823, declarndose lejitimamente constituida
y dividiendo los poderes," in Gallardo, Las Constituciones,
II, 677-678.
-^Marure, Bosquejo, I, 125.
Ibid.; Miguel Garca Granados, Memorias del General
Miguel Garcfa Granados, 4 vols. (Guatemala*, 1952), T~, 60-61."
1 ',r
-Marure, Bosquejo, I, 125-126. It is not clear
whether the Liberals used this device because they lacked
the votes in the assembly to secure direct rejection of
Filisola or sought to use it as a means for preventing the
aristocrats from giving their candidate any further encour
agement .
^Decree of the Asamblea Nacional Constituyente dated
July 9, 1823, in Garcia, Arce, I, 272-273.
^Montufar y Coronado, Memorias, I, 82.
-i fa / P
Filisola, "El ciudadano General a Jose Francisco
Barrundia," in Garcia, Delgado, II, 10-11.
1 7
'ibid., pp. 13-14; Jos Manifiesto de Vicente Filisola, agente de Iturbide en
Guatemala," in Garcia, Delgado, II, 69-70.
1 ft
/ Marure, Bosq^ejo. I, 126; Barrundia, "El Manifiesto
de Filisola," in Garcia, Delgado, II, 69.
^Marure, Bosquej o, I, 131-132.
^Montifar y Coronado, Memorias, I, 84.
21
Marure, Bosquejo, I, 137.
4Z,Andres Townsend Ezcurra, Fundacin de la Repblica
(Guatemala, 1958), p. 215.


38
the night with his cousin Jose" Matas Delgado "in order to
protect him."22
The turmoil continued the next day, and by noon it
was clear that a plan of action had been established.
Approximately four hundred men again appeared before the
home of Gutierrez y Ulloa. Manuel Jose' Arce, with the title
of "deputy of the people" acted as spokesman for the group
and directed the intendente to sound the bell which would
summon a meeting of the ayuntamiento. Gutie'rrez y Ulloa
complied with this command and then was escorted to the
town hall where an even larger crowd was assembled. After
the meeting was brought to order, Gutierrez y Ulloa was
deposed and the arrest of all Spanish officials was ordered.^
A creole government was then established. Bernardo Arce
was named alcalde primero, but he declined to accept the
post which then went to Leandro Fagoaga. Jose/ Maria Villasenor
was chosen as alcalde segundo, and Jos Mariano Batres was
given the office of intendente. The ayuntamiento was also
reorganized with Bernardo Arce, Juan Delgado, Tomas Carillo,
Domingo Durn, Manuel Morales, Miguel Rivera, Fernando Silva,
/
Francisco Valiosa as members and Juan Manuel Rodriguez as
secretary. Jos Aguilar replaced Jos Rossi as comandante
general de las armas.^
While the meeting was in session, Manuel Jos Arce,
in a burst of youthful exuberance, climbed on a chair by
the door of the building and proclaimed, "there is no King !"25
Arce told the assembled throng that it need no longer take


63
Gainza was also reminded of his earlier statement that a
decision concerning annexation was beyond the faculties of
any existing agency.^ Having determined that Gainza's
proposal for deciding the question of annexation was illegal,
the Salvadorans might have refrained from further action;
but form was observed, and a cabildo abierto was held on the
eighteenth of December. At this meeting the citizens opted
to have the ayuntamiento and diputacin make the decision
for them. In a closed session the members of these bodies
maintained the position originally taken by the diputacin,
and refusing to either advocate or reject union with Mexico,
dictated the reply that the issue of annexation could only
Q 1
be resolved by the provincial congress.
Sensing the determination of the Iturbide's friends
to have their way in the matter, and realizing that they
could not stand alone, the Salvadorans initiated a rather
naive attempt to form a union which could successfully
resist annexation. Possibly hoping that the previously
announced support for the Plan of Iguala was based more on
antipathy to Guatemala than friendship for Mexico, the
Salvadoran diputacin wrote to the diputaciones of Comayagua
and Len on December 25 and proposed the formation of a
confederation by the three provinces.^ Stating that Gainza's
actions had led to numerous disorders in Central America,
the Salvadorans suggested that the issue of annexation might
give rise to internecine warfare. This possibility could be
avoided by a union of the provinces which, with the exclusion


43
restore lawful authority.40
There has been some debate as to the status which
should be assigned to the 1811 revolt. A number of Central
American writers have taken the position that the uprising
marked the beginning of Central Americas struggle for
independence. The product of a nationalistic desire to
share in the glory of the bygone battles for freedom, this
concept is held together by rather slender threads and seems
closer to myth than reality. As a coherent, vital movement,
a "struggle" for independence in Central America never took
place. Authors who have taken a more critical view of the
uprising regard it as little more than a manifestation of
the creoles' envy and resentment of the peninsulares.
Certainly the slogan, "down with bad government; long live
Ferdinand VII," expresses the character of the revolt, and
the ready acceptance of amnesty suggests that the creoles
objective was simply that of cutting the peninsulares down
to size. Captain General Bustamante held this belief in
1813 when he wrote:
desire for office and commercial cupidity have been
in former times and will be in the future the only
cause of disturbances in America. They [the creoles]
exaggerate rigidities in the law, they extoll the
rights of the people, they speak with horror of
despotism, they affect tender sentiments for the
unfortunate, etc., but there are no causes other
than those indicated.41
Despite this evidence, there is reason to believe that
the 1811 revolt was a definite, albeit faltering step in
the direction of independence. The officials who directed
the treason hearings begun in 1814 did not share the earlier


124
departure from the United States. During the Salvadoran
envoys stay in Philadelphia, Rodriguez had written a short
pamphlet in which he stated his support for:
the separation of San Salvador from the city of
Guatemala because this separation was most urgent.
Guatemala had submitted itself to a yoke of infamous
despotism, and neither honor nor patriotism could
allow such an outrageous humiliation. The heroic
province of San Salvador sustained this separation from
Guatemala by force of arms . but at the same time
we invited the surrounding provinces to [join] a
union to defend the sacred cause of independence and
liberty. Yes, Americans, you can be secure if you
bind yourselves in an inseparable union. Union,
union is the marvelous secret, the irresistible
force, the magic wand with which you can smash the
enemy.9
Rodriguez made it clear in subsequent letter to the ayuntamiento
of Cartago that by the "enemy" he meant the Holy Alliance.
Arces later statements demonstrate that he too was convinced
of the possibility of a European attempt to regain the
Spanish empire. Central Americas ability to withstand such
an effort would require the highest degree of unity and
cooperation.
Arce arrived in Guatemala at the end of February, 1824
and took the oath of office as a member of the Supremo Poder
Ejecutivo on March 15. He did not immediately assume an
active role in the government as he was granted- a months
leave to visit his family. Arces participation in the
activities of the SPE was further delayed by an attack of
rheumatism, and he was unable to return from San Salvador
until May 24.^ Even though the Constitution would not be
promulgated for several months, Central Americans were
already looking forward to presidential elections, and Arce


110
economic growth. Due to the continuing shortage of federal
funds, proceeds from the bond sales were used to pay for the
support of foreign legations, official salaries, and other
pressing obligations.
Central America's experiment with foreign loans also
had the unfortunate effect of contributing to friction
between the states and the central government. Disregard
ing a clause in the Barclay contract which gave that firm
a two year option on all Central American loans, Honduras
negotiated a loan for 1,500,000 pesos with London banker
Louis Bire in 1825. The federal Congress declined to
accept state competition in the London money market and
questioned the legality of the Honduran transaction, claim
ing for itself sole authority to contract foreign debts.
Honduras responded to Congressional probing in a fiery
letter written by Secretary General Francisco Morazan on
October 24, 1825. Apparently, Morazan had not yet developed
a strong attachment to the federation as he wrote that
Honduras was "a free, independent and sovereign state,"
which could contract a loan without being required "to ask
64
permission from anyone." This controversy was ultimately
rendered pointless by the fact that tight money made it
impossible to float the Honduran loan. Yet the conflict was
significant in that it pointed out two of the federation's
greatest problems: the desperate need for funds and the
ill-defined relationship between the federal and state
governments.


a petty man whose accomplishments were inadequate for the
demands of his office. Despite the lack of heroic appeal,
certain enigmatic aspects .of Arce's career could not be
ignored. With further study, it became clear that while the
standard accounts were critical, the nature of the criticism
varied. Some authors thought that Arce was ruthless and
vindictive; others found that he was indecisive and timid.
More importantly, none of these authorities offered a satis
factory explanation for the fact that Arce appears to have
reversed his political position when he assumed the office
of President. Arce was identified in the pre-national period
as a liberal leader who was committed to Salvadoran autonomy.
After his inauguration, he was seen as a conservative
sycophant who caused a civil war in 1827 by his attempt to
establish a unitary state.
The present study constitutes an effort to resolve
the incongruities in Arce's career. Hopefully, the pursuit
of this objective will provide an explanation for whatever
shifts occurred in Arce's political position. The work is
not intended to serve as a complete biographical account.
Instead its scope is limited to an attempt to define the
nature of Central American political dynamics and Arce's
relationship to these forces during the period 1811 to 1827.
The author would like to thank his Chairman, Dr. Lyle
N. McAlister, for his guidance and assistance in the
preparation of this study.
IV


68
fox Arzu's campaign, the ayuntamiento sent Gainza a proposal
for the peaceful settlement of their differences. The letter
restated the legality of Salvadoran independence which had
not been proclaimed in a spirit of hostility to Guatemala.
It was asserted that the incursion into Sonsonate had been
made at the request of officials of the district, and the
encounter at El Espinal was the consequence of an attack by
Padilla. In conclusion the ayuntamiento offered to send
representatives to Guatemala to discuss the means of pre
venting further disputes between the two states.
While the ayuntamiento was drafting its letter to
Gainza, Delgado dispatched a note to General Vicente Filxsola
/
Leading a division of six hundred men, Filisola had arrived
in Chiapas at the end of February, and on March 19 he had
informed the Salvadorans that they could consider themselves
under the protection of the Mexican empire. Delgado told
the General that his letter had been received with great
joy in San Salvador and hinted that the province would
attach itself to the empire. There would be no need for
military action as a congress would meet in San Salvador on
May 1 to decide the question of annexation.103 At the same
time, the diputacio'n, which now included Delgado, Arce,
Rodriguez, Leandro Fagoaga, Mariano Fagoaga, Domingo Lara,
Antonio Jose7 Caas, and Juan de Dios Mayorga, demonstrated
its independence by decreeing the erection of a bishopric
and named Delgado bishop of the province.
All of this activity had little effect on Gainza who


8
than thirty per cent of the population possessed any political
opinions.15 Given the large proportion of indigenous peoples,
16
this estimate must be considered overly optimistic. The
worth of the second criticism is difficult to assess. In any
case, it appears that a primary consequence of the federal
experiment was the proliferation of local empire builders.
Of the major obstacles to successful federation, there
remain to be noted Central Americas chronic fiscal diffi
culties. The area had been incapable of producing adequate
public revenue during the colonial era, and the Captaincy
General received an annual subsidy from New Spain in amounts
i 17
ranging between 100,000 and 200,000 pesos. This support
\^as drastically curtailed after 1810, and when the nation
declared its independence, the public debt amounted to
3,138,451 pesos. This deficit increased over the next three
years as the flush of freedom led the Central Americans to
either suppress or substantially reduce the taxes which
Spain had imposed. When the federal government began oper
ation in 1825, it was faced with a debt that had grown to
1Q
3,583,575 pesos.
Responsibility for the federations money problems
cannot be placed on the Constitution which gave the central
government adequate power to raise revenue. The Congress was
authorized to raise funds by means of duties on foreign trade,
internal taxes, and foreign and domestic loans. The federal
government also retained the exercise of certain monopolies,
the most important of which was the production and sale of


5
by the Crown to open additional ports was reinforced as
Guatemalan merchants established close commercial and, in
some cases, familial relationships with the trading houses
of Seville.
Between the seventeenth and nineteenth centuries,
indigo provided the chief source of provincial income.
Throughout this period and in the face of royal attempts to
assist the producers through price fixing, the Guatemalan
merchant oligopoly was able to set the going price for
indigo.8 The indigo growers found all phases of their in
dustry controlled by the merchant princes. The Guatemalan
trading houses were the chief, if not only, source of com
mercial credit, and over the years, a kind of crop-lien
system evolved.9 This form of financing apparently extended
also to the production of goods for domestic consumption,
which were equally subject to mercantile price control. Thus,
provincial ranchers were legally restrained from seeking al
ternatives to the Guatemalan cattle market.^9 The resentment
engendered by this economic domination was clearly indicated
in the provincial complaint that Guatemalan merchants "dress
us at prices that keep us more nude than clothed.Such
antagonism unquestionably dimmed the prospects for post
independence cooperation between Guatemala and the provinces.
It is generally agreed that religion served as a divi
sive rather than unifying force in Central America. For the
period under consideration, this disruptive tendency arose
primarily from the episcopal pretensions of El Salvador. In


134
until there was peace.32 By this time, the conservatives
under Crisanto Sacasa had begun a seige of Leon that would
last until December, and Arzu's message went unheard. Valle
did not intend that Arzu should be totally lacking in military
support, and he secured from his cousin Dionisio Herrera, the
jefe politico of Honduras, a promise to provide a force of
500 men. It is doubtful that Arzu expected to receive much
assistance from Honduras. On October 2, Herrera sent a note
which stated that it might not be possible to provide arms
for the men assigned to Valle's agent. Moreover, the
Honduran troops would be stationed at Choluteca which was
ninetyniles from the scene of action at Leon.33
Arzu arrived at the Nicaraguan town of Viejo on
October 10 and proclaimed his authority as jefe politico.
He then made his way to Leon where he initiated negotiations
with Sacasa and the besieged liberals in the city. These
talks led to an agreement for the withdrawal of troops by
both sides. On October 24, however, the conservatives broke
the armistice, and caused Arzu to enter the city where he
assumed command of the liberal forces. Arzu may have wished
that another man had dominated the SPE when he received a
letter from Arce which contained the advice that Sacasa
could not be trusted and an offer of Salvadoran assistance. 34-
Viewing the superiority of the conservative forces, Arzu
must have felt obliged to accept the offer of the Salvadoran
leader.
Acting under secret orders issued by the Salvadoran


174
likely place in which to obtain it. While Arce may have had
the best of motives, there can be no doubt concerning
validity of the position taken by the Liberal majority in
the Superior Court of Guatemala. On October 13, the Guate
malan justices issued an opinion which denied the constitu-
72
tionality of the Presidential decree. In fact, the Presi
dent had no more authority to order the creation of a special
Congress than did any other citizen. Arce usually demon
strated a keen sense of the limitations on his powers, but,
in this instance, his actions were governed by expediency
73
rather than legitimacy.
The President acted in a similar fashion at the end
of October when he called for elections to fill all offices
in the Guatemalan government. Here again, the proper author
ity was lacking, but Arce believed that the collapse of the
Liberal administration justified his decision. As a result
of the elections held in November, Conservatives obtained
control of the state government; and Arce's name became
linked with a reactionary regime which repressed the free
doms of speech and press, limited the free movement of citi
zens, abridged the right to bear arms, restricted freedom of
association, increased the severity of punishments for crimes,
and forced its opponents into exile. It should be pointed
out, however, that Arce was not personally involved with the
Conservatives' line of conduct. Moreover, these policies
had no counterpart in his administration of federation. The
fact that Guatemala provided the sole source of support for


62
the dissident provinces and fickle Guatemalan aristocrats
weakened considerably after Jose Onate arrived on November
27 bearing a note from the Mexican Liberator. Iturbide's
letter pointed out the political and economic advantages
that would arise from the union of the two areas and sug
gested that the creation of separate nations would threaten
the security of all concerned. This veiled threat was made
more explicit in the concluding paragraph which informed
Gainza that a Mexican division under the command of Vicente
Filisola was on its way to "protect the salutary endeavors
O O
of the patriots of your country." Fearing that Iturbide
intended to take direct action, Gainza and the junta consultiva
decided not to wait on a decision by the impending congress
and referred the matter to the town councils of the provinces.
On November 30, Gainza sent the various municipal bodies
copies of Iturbide's letter and instructed them to ascertain
local preferences regarding annexation by means of cabildos
abiertos. The decisions reached in these meetings were to
89
be reported to the capital by the end of December.
The issue of annexation was raised in a meeting of
the Salvadoran diputacin on December 12. Ill disposed to
trade their independence for the benefits of union with
Mexico, the creoles immediately decided to oppose the policy
being pursued by Gainza. Two days later the diputacin
informed the jefe politico superior that, though the
diputacin had not been included in the circularization of
Iturbide's letter, it was aware of Gainza's order and viewed
the directive as a repudiation of the Act of Independence.


Ill
As previously mentioned, the Asamblea in 1824 sought
to modernize the country by means that would not require the
expenditure of funds. Anticipating Juan Bautista Alberdi's
dictum that "To govern is to populate," the assembly
attempted to promote national development by encouraging
immigration. The doors to the country were opened to citi
zens of all nations on December 31, 1823 when Central
America was declared an asylum for all foreigners.^ Legis
lation passed on January 22, 1824 offered greater induce
ments to prospective immigrants. Foreigners who possessed
a useful skill or profession were granted the privileges and
immunities of citizens, and large grants of land were
offered to groups willing to establish new farming communi
ties. Citizens also could acquire public lands by main
taining a homestead for a period of six years.^ One reform
that required provision for public expenditures arose from
Father Jose7 Simeon Canas* plea for the abolition of slavery.
A decree enacted on April 17, 1824 gave slaves their freedom
and offered compensation to former owners. Emancipation did
not involve any dramatic changes in Central America. The
institution of slavery had little economic importance as it
is estimated that there were not more than one thousand
slaves in the nation and that the majority of these were
6 7
domestic servants. It appears that the abolition of
slavery did not create any hardships for slave owners as
none of these individuals filed a claim for compensation.^
Other advances initiated by the Asamblea included:


22
have been in the nature of a conditioned reflex to anything
associated with liberalism. The record of the constituent
assembly indicates that the Liberal-Conservative conflict,
which continued throughout the life of the federation was
based not so much on irreconcilable differences as it was on
personal enmities and simple struggles for power.
A final comment on the politics of the federation con
cerns the geographic orientation of political alignments.
After the outbreak of civil war in 1827, Guatemala was domi
nated by Conservatives who were opposed by Liberals residing
in the other states of the federation. Reality is often
blurred by the assumption that a similar distribution of
political views prevailed since independence. The tendency
toward this misconception undoubtedly has its roots in the
stance taken by political parties in respect to the issue of
federalism. It is generally understood that support for
federation was the hallmark of Liberals and provincianos.
Opposition to this form of government is seen as a character
istic of Conservatives and Guatemalans. Understandably, there
is a strong inclination to merge the elements of these two
propositions. The ease with which this may be done encour
ages such statements as: "there was a marked cleavage be
tween Guatemalan conservatives who advocated centralism and
the liberal elements from the other provinces who favored a
55 '
federation."
While the sense of this observation is not improper,
it has the effect of reinforcing the idea that Guatemalans


125
together with Jose Cecilio del Valle, a fellow member of the
SPE, were regarded as the leading candidates.
Valle was undoubtedly one of the most intelligent and
learned men in Central America. His erudition and native
talents commanded a considerable amount of respect, but it
was never as great as he felt he deserved. While Valle's
arrogance won him a number of enemies, he possessed a re
markable ability for landing on his feet, no matter what
the shift in fortune. As an eager, young provinciano from
Honduras, Valle began a career in law in Guatemala City
during the early years of the nineteenth century. He was
able to secure some minor government appointments, but he
found his ambitions frustrated by the closed society of
Guatemalan aristocrats.13 Displaying little sympathy for
the sentiments that produced the provincial disturbances of
1811, Valle established himself in a position of confidence
with Captain General Jose* Bustamante y Guerra and, thereby,
was able to even the score with "the family." In the ensuing
years, the creole savant remained a "steadfast royal servant,"
acting as Bustamante's personal adviser and preparing a
number of the Captain General's reports and dispatches.
Valle's political behavior at the end of the second decade
appears to have been dictated as much by caution as conserva
tism. His leadership of the Bacos may have been partially
the product of antagonism to the aristocratic Cacos, yet it
is clear that he sensed the attitude of his countrymen as he
was elected mayor of Guatemala City in December, 1820. Despite