August 31, 1945, Friday

I have been asked many times how the Japanese financed themselves during their regime.

They came here bringing with them Japanese military notes. It can be assumed for certain that those notes are not backed by reserves. There is nothing behind it except the backing of the Japanese government. As a matter of fact, they are not currency or money. They are in reality requisition slips. Instead of forcing the Filipinos to give them food, equipment and materials, they found this indirect and less painful way of attaining their wishes. At the beginning the circulation of the currency of the Commonwealth was allowed. Following the economic law that bad money drives away good money, the latter soon disappeared in the market. Later, the Japanese made the circulation of the currency of the Commonwealth illegal. Those caught exchanging military notes for Commonwealth notes were taken to Ft. Santiago and punished for committing a hostile act.

The Japanese government then established the Southern Development Bank. They did not use the two Japanese banks, the Yokohama Specie Bank and the Taiwan Bank, except that the Taiwan Bank was used to liquidate the American and other foreign banks. As a matter of fact, the Southern Development Bank was not a bank but acted as a branch here of the Japanese Government Treasury. It was given the sole power of note issue. All the military notes were distributed through it. I had numerous discussions with the Japanese as to the nature of these notes. They have always insisted that they were Southern Development Bank notes, whereas I always maintained that they were Japanese Government notes. I did not feel it proper for the Philippine Government to deal with a private bank.

The Japanese, unlike the Americans, practically made the countries occupied by them defray all the expenses of their Army. They did this by means of the issuance of military notes. I also have no doubt about this as I happened to see the Japanese Government budget. In the statement of income, there was included what was called Contribution of the Southern Islands. (I was not sure what they called it, but I am sure that there were billions — 17 billion as I remember — provided as income from the Southern Islands.) As there was no direct request for funds, necessarily they must come from the proceeds of the military notes. They cannot ask for direct contribution because nobody or very few would give. This was shown when subscriptions were opened for the Philippines to buy and donate an airplane to Japan. Very little was collected and the project was stopped. It would not have been possible to collect a sufficient amount to buy even a small airplane unless force was used, as was done in many cases. As a matter of fact, those military notes were no more, no less than requisition slips. The whole financing of the Japanese, including the expenses of the Army and Navy and what they called war development companies, was exclusively handled by the Southern Development Bank.

This bank made every effort to exercise all the powers of a Central Bank and of a clearinghouse. It insisted that all the other banks deposit their funds with it, especially the reserves of the banks. I opposed this very strongly. I was willing to stake even my life to uphold my view. All the bank managers naturally were afraid to have any sort of issue with the Japanese. I told them that they need not assume any responsibility. I gave them orders not to deposit with the Southern Development Bank without my express authority and order. At that time, there were already on deposit in the Southern Development Bank funds of the different banks amounting to about 1000,000,000 pesos. About three-fourth or four-fifth of the funds belonged to the Philippine National Bank.

It must be stated in this connection that at the beginning I had no supervision over the Philippine National Bank. Supervision was being exercised by Malacañan. The reason was that the P.N.B. was a government corporation and Malacañan was in charge of all national companies. Later, I found out that it was Executive Secretary Pedro Sabido who was handling P.N.B matters. Even after his appointment as Minister of the new Department of Economic Affairs, he attempted to continue exercising the powers; as a matter of fact, after his appointment, he became even more insistent. He contented that the supervision of the Philippine National Bank properly belonged to his department since the bank was a government corporation and his department was in charge of all government corporations. He further contended that the Department of Economic Affairs should control the Philippine National Bank to enable it to realize the purpose for which it was established and also to facilitate the financing of the national companies.

Finally, he contended that, under the law, the Secretary of Finance is already the head of the bank, and it is not proper nor advisable for the Secretary of Finance to be also the Supervisor; otherwise; the Secretary of Finance would be supervising himself. I refused to devote much time and words to the discussion which was academic. So far as I was concerned, the argument I emphasized was that I found it impossible to supervise the banking and financing business unless all the banks were under me. Supervision over the P.N.B. was especially necessary since at least 70% of banking transactions in Manila was handled by the Philippine National Bank. I concluded in a memorandum to Pres. Laurel that if he decided to deny my request, I would strongly recommend that the supervision over all banks be transferred to the Ministry of Economic Affairs. After due consideration, the President told me that he fully agreed with me and he would immediately issue an order accordingly.

Days and weeks passed, the order did not come. I found out that the Minister of Economic Affairs was very insistent. So the President decided to submit it to the Council of State composed of Chief Justice Ramon Avanceña as President, and Don Miguel Unson, Don Pedro Aunario, Don Rafael Corpus, Don Ramon Fernandez and Don Jose Paez. The Council considered the matter very thoroughly and even heard the arguments of Minister Sabido. The President, and this was confirmed later by Don Miguel Unson and Don Rafael Corpus, advised that the Council upon preposition of Don Miguel Unson, decided unanimously in my favor. He assured me that he would issue the order forthwith.

Days passed; weeks passed, no order came. I decided to prepare the order myself and give it personally to the President. It was not signed and issued. I prepared another and left it with the President. After a few days, I asked him about it. He was surprised that I had not received it yet. I prepared another and this time I did not leave Malacañan without the President’s signature.

After the President signed the order, I immediately called Mr. Carmona, President of the P.N.B.. I must first state that under the order, I had all the powers of the Board of Directors of the Bank. I asked him about the deposits. He told me that he had submitted the matter to Malacañan and that no objection had been expressed on the part of Malacañan to the existing arrangement. When I asked for a written authority, he advised that he had not received any and that his experience was that he got no action from Malacañan on matters taken up by him, or at least action was delayed for weeks and even months.

I asked him to explain how he happened to have such a large deposit in the Southern Development Bank. He answered that from the very beginning the military people as well as the Manager of the Southern Development Bank requested him and even ordered him to deposit all excess funds of P.N.B., or funds not needed for ordinary daily transactions, with the Southern Development Bank. Pressure was used so that he had to make some deposit, but he assured me that it was far from what he could have deposited.

The Japanese reorganized the clearing house. Under the new system, all clearing balances were kept by the Southern Development Bank. There was no liquidation and the funds could be withdrawn only when the corresponding bank needed funds. So the deposit of P.N.B. in the Southern Development Bank increased everyday. This was also true as regards the other banks, Bank of the Philippine Islands and Bank of Commerce. They were also being required to make deposits. They said that they had to conform unless they wished their banks closed and their officers accused of a hostile act. I ordered them not to deposit. When they expressed fear, I told them that they should tell the Japanese that, per my order, they had to secure my approval. I also told them to withdraw their balances in the clearing house from the Southern Development Bank.

Mr. Hariguti Takahashi and the Manager of the Southern Development Bank came to me to request me to authorize the deposits. I flatly refused. This is one of many similar incidents I had with the Japanese. One instance was when a large Japanese sugar concern wanted to acquire the Philippine Refining Co., which was owned by the government and practically had the monopoly of sugar refining in the Philippines. An official of the company was told that an unfavorable recommendation from him would be interpreted as a hostile act. I told him to tell the Japanese to talk to me. The Japanese never came to see me. Another instance was when the Japanese Army proposed that the Textile Department of the National Development Company be constituted into a separate company and recapitalized with equal participation of the Philippine and Japanese governments. The participation was later changed to 40% for the Japanese and 60% for the Filipinos. I was made to understand that the plan had already been agreed upon by somebody in Malacañan. I prepared a memorandum strongly opposing the plan. The reason I gave was that the National Development Company, as any other national companies, was formed not for profit but rather to carry out national economic policies. Another time was when Colonel Utsonomiya, later promoted to General, approached me to ask me to allow the importation of opium. I told him that the laws prohibited the importation of opium and penalized its sale. Twice the Colonel approached me. I maintained my position. When it came to protecting our people and their rights, I ignored consequences absolutely.

In connection with the banks, a Japanese officer came to see me. He said that it had been reported to them that in the Ministry of Finance, there was somebody who was anti-Japanese and always worked against them. I knew it was merely a ruse. I answered that I assume responsibility for anything done in the Ministry of Finance.

Mr. Carmona wisely did his best to attain our purpose without unnecessary exposition. Carmona was so capable and prudent that he was able to withdraw a very good portion of the deposit and to maintain the deposit at a very low level.

My views and actions were fully reported to the President and he approved.

I had many other incidents. During a bombing raid, a boat loaded with military notes was blown up and all along Malate and Ermita, it rained notes. They were picked up by the people and spent. The Japanese who had the serial numbers of the notes prohibited the circulation. I protested on the grounds that the notes were already in the hands of innocent persons. For instance, there was Mrs. Mariquita de Ocampo who sold her furniture for 7,000 pesos as she needed the money. Afterwards, nobody would accept her money. What fault had she committed? Finally, the notes were accepted.

The Japanese wanted the administration to be self-supporting. They themselves prepared and imposed the approval of tax laws. From the beginning, my plan was not to change our tax laws; not to burden the people with more taxes than what they had to pay before the war. But how do we finance the government? Of course I had to make it look like I was trying to increase the income by means of assistance of our people. So I did not object to the increase in the income tax law, although I insisted that low incomes not be taxed and larger incomes not be taxed as heavily as in other counties. This is also the reason why I sold an amount of bonds instead from where I proposed to get the money.

Even during the time of the Commission, we borrowed money from the Army, It reached the amount of ₱23,000,000. During the Republic, I secured a credit of over ₱100,000,000 from the Bank of Japan, about ₱50,000,000 of which I got through the Southern Development Bank. When I submitted it to the Cabinet, there was some opposition. I did not argue, but after the meeting I explained to Minister Osias who was the one strongly opposed that my purpose was to charge to the Japanese as much of our expenses as possible. The Japanese Army after the establishment of the Philippine Republic tried to collect our previous indebtedness of ₱23,000,000. I declined on the ground that the Executive Commission was a mere instrumentality of the Japanese Administration. The amount was never paid.

Returning to inflation, I could do nothing as the Japanese did not want to give any power which would enable me to do something. I thought and thought about what to do until I came up with the idea of establishing a Central Bank if I could get the Japanese to approve my conditions. Some of them were: (1) That the Central Bank shall have the sole power of issue of notes. With this I meant to curb the unbridled issue of notes by the Japanese and the unlimited grant of credits to Japanese companies. (2) That the Ministry of Finance shall have jurisdiction and power of supervision over the Japanese banks. I demanded this most important power to control large credits given by the Japanese banks to Japanese companies and nationals. (3) That the Central Bank shall be the depository of the reserves of the other banks. And (4) That the Central Bank shall handle the clearing house balances.

The Japanese were opposed to my plan at the beginning, but in view of the fact that we were a Republic and they therefore could not openly deprive us of the right to exercise powers belonging to all independent states, they changed their tactics. They instead did their best to delay the establishment of the bank. They put up all kinds of objections and suggested many modifications. They wished preferential treatment or at least equal treatment for Japanese banks. I could not of course accept this. Mr. Haraguti, while I was speaking before the National Assembly about the establishment of a Central Bank, sent me a memorandum. I got the impression that he was opposed to it or wanted to delay it. I immediately suspended the proceedings and charged that Mr. Haraguti was out of line. He immediately saw me and tried to explain that such was not his intention. I know English well, I believe, and I had no doubt that my interpretation was correct.

The bill was approved by the Assembly but upon the request of Speaker Aquino a provision was inserted to it so that the establishment of a Central Bank would depend upon the promulgation order by the President. Aquino at the beginning was strongly opposed to the bank; later, he withdrew his objection but was evidently not interested in its establishment. However, the Japanese had not given up. We had no facilities here for the printing of notes and this had to be done in Japan. We prepared the necessary designs. We were told that all the printing presses were busy printing notes for other countries and that they could not begin making delivery until May, I believe of 1945. I went to Japan where I made every effort to expedite it but in vain. I was told that the delivery had to be periodic and the amounts for each period could not be very much. The matter remained in that state until hostilities in the Philippines began.

Another reason why I wanted the Central Bank was that I did not want to have a shortage of notes. We had a terrible crisis about the first months of 1944 because the ships used for transporting the notes were probably sunk or blown. The Japanese banks had no more available notes and the Southern Development Bank had only about ₱10,000,000 in notes of 10, 20 and 50 centavos. The Japanese banks suspended payment, and there was a run in all the banks as the public feared that the banks had no more funds. The Japanese banks, including the Southern Development Bank, wanted to get the notes of the Filipino banks. I refused to authorize the Filipino banks to loan their funds to the Japanese banks. I also instructed the Manager of the Philippine National Bank to withdraw a part of its deposit from the Southern Development Bank. We were all very much worried. Stoppage of payment of banks would paralyze business. All demands for withdrawal in Filipino banks were met. The Philippine National Bank, however, had to offer notes in small denominations. Generally, those wishing to withdraw big amounts desisted as the package of the money would be quite bulky. After a few days, shipment of notes came and the crisis passed. Because of this, I inquired about machines and materials in the Philippines that could be used in case of shortage of notes. We could print here but in limited quantities.

* * * * *

We heard on the radio that Truman had said that the Philippines might have her independence in 4 or 5 months. This means that we may have our independence by next January. I welcome it; I want to have it right now. We would have been spared the loss of billions of pesos and thousands of lives if only people ceased to be mentors of other people.

This means the election will have to be held soon. We may not even be able to take part in the elections. Until we are cleared, we cannot be of much service.

According to the radio, Ambassador Vargas was found in Tokyo and he is a very worried man. He was generally criticized for having been very weak with the Japanese. We were aware of it and we thought him a useless man and an incapable executive. But after we reflected, it may well be that under the circumstances, he did what would be of the greatest benefit to the people. Supposing that instead of getting the confidence of the known murderers, the Japanese, he had fought and defied them. He becomes a hero. But he sacrificed his country for w would have meant direct or almost direct rule by the Japanese. Instead of 200,000 dead, we probably would have had to mourn the loss of millions of our countrymen. Vargas has done much for our country.

December 1, 1936

Glad November is over–somehow or other this is nearly always a worrisome month;–this year it was even worse than usual both because of Doria’s illness, and by reason of the lack of discretion, not to say greediness of some of ay associates in business.

At Malacañan at 9:30. Quezon was in the barber chair, just finishing an interview with Cuenco, former Assemblyman from Cebu whom he introduced to me as the new Secretary of Public Works and Communications. Three days ago, Cuenco had been announced as the new Mayor of Cebu, but it appears that Osmeña as the Boss of Cebu was obliged to offer some opposition, to the appointment of one of the opposing party. Vargas was present with Quezon and handed him Cuenco’s appointment as a Cabinet member, explaining that Osmeña had intimated his acquiescence in that rather than having to consent to Cuenco’s being Mayor of his city–never believing Quezon would agree. It looks as if Osmeña had been out-jockeyed!! The President told Vargas to get this appointment right into Cuenco’s hands, so that nothing could happen to interrupt it. When, a half hour later I reported this appointment to Claro Recto and Rafael Corpus, they both said: “This will break up the coalition!” but when I replied that Osmeña had already agreed, Corpus remarked “That’s the trouble–Osmeña is too easy.”

I then reported to the President my recent conversation with Foulds, British Consul General, in which I gained the information that the heads of foreign states such as Kings and President were not invited to the Coronation. To this Quezon made no comment:–he had probably learned this himself from Foulds, but he was obviously disappointed. My last point for Quezon that morning was a report of a conversation with Tommy Wolff last Friday night in which he stated that by accepting Filipino citizenship I had “not a friend left”–“except you, Tommy” I interrupted, at which he began to stammer. Quezon told me “not to let these fellows get under my skin.” I went on to say that Wolff was getting in the frame of mind of the late Paul Reinsch, American Minister of China, who had come to believe that the inhabitants of the country wished him harm (and went mad). Quezon at once said that Wolff’s mind was weakening from too much conviviality. He then observed that he “could not stand seeing any of his friends under the influence of liquor.”

I told Quezon about the troubles caused to newly forming mining companies by the excessive zeal of the promoters–that I had joined the Central Exchange under the urging of Speaker Montilla believing he was back of it–that I never heard of Prats until then–that I had induced Don Ramon Fernandez to join with me and we had gone to work to secure a Produce Exchange as something of real value for the future, and thanks to Quezon’s assistance had obtained it. Shortly after this conversation Corpus reported to me that the President had vetoed the bill on exempting Produce Exchanges from more than one sales tax–thus making them impossible except when run by the government. (This I doubt).

May 27, 1936

Luncheon alone with Quezon at Malacañan. He appeared in very good spirits; is swimming daily in his tank, and played golf at Wak-Wak at 5 o’c. this morning. Spoke with pleasure of my appearance of good health and asked me to go with him on the Negros trip to the Southern Islands June 3-15, with the members of the Assembly. I accepted. He spoke also of the speed with which he had acted at once on Miguel Unson’s recommendation for the creation of a budget commission and had appointed Marabut at the head. I said the Governor of Leyte would think this was the result of his public complaint when we were in Catbalogan in April because no Leyte men were high in government office–a complaint which the President had denounced blisteringly before the crowd (advocating a national, not a local outlook). Quezon said this was so, and as he had so many sound reasons for doing so, he would suspend that Governor for one month, to avoid his increasing his undesirable influence over his province thru the appointment of his friend Marabut.

I spoke to the President of the good time we had had at the dance at Masbate–he invited me to a small dance at Malacañan Friday night–said he had sent for Corpus from Masbate to come to Manila on government business, but the latter had not had the sense to bring those charmers with him!

I asked him (for Unson) what his attitude would be on the question of the transfer of the Provincial Treasurers from the Department of the Interior to the Department of Finance (Quirino?). He said that was a subject as to which as much might be said on one side as the other–that he would accept the recommendation of the Survey Board. (Later I told this to Unson, thinking he would act at once as I advised, but Unson began to deliberate!) I enquired of Quezon about the repeated kicks emanating from the United States Congress towards the Philippines nowadays, and whether they could not later be reasonably straightened out. He seemed doubtful, but evidently is not ready to talk about it. (Nazario tells me that at the last press conference he said it was “up to the American businessmen,” and hinted at reprisals by the Filipinos.) I told him the simile of American psychology–when a son grows up the father does nothing more for him; Quezon liked that. I said that some Americans appeared to be peevish now because after all that had been done for them the Filipinos had insisted on separation. He replied: “Well! then why did they give us independence?”

I called Quezon’s attention to the controversy over appropriations for the Department of Labour between Secretary Torres and Miguel Unson, in which Torres called Unson “not interested in the poor man”–Quezon at once said Unson was extremely interested in the welfare of the poor. He added that he had one Cabinet minister who was “useless” and “worthless,” namely Torres; that he had nearly fired Torres several months ago; that Torres kept calling up (3 times) in a recent Cabinet meeting the proposal to build four story concrete tenement houses for labourers. Quezon finally snubbed him, and explained that tenements to house 100 families would only make the other 900 families wild; that a four story building was “too much work” for a labourer to climb; that concrete as a material in this climate was too hot–“why not leave them in their nipa houses?”

An article in the Bulletin, May 29, described a quarrel between officials of the Department of Labour and some labour leaders as to which group should get the credit for the “higher wage” movement. Apparently, government officials claim the labour leaders are “trying to steal the show.” “There is no reason for this sudden antagonism” a high labour official stated, “as in the past we have always sided with the labour element.” This displays an utter lack of public responsibility, similar to the debates in the Municipal Council of Manila over the cochero registration ordinance–these speeches are only cadging for the cochero vote.

Quezon spoke highly of Sandiko–as did I–I told him Sandiko wishes to go to America to study the labour question there. He was interested.

A. D. Williams was brought in by Vargas, to receive instructions about air-conditioning the President’s room at Malacañan Palace. Was asked to have the work finished in two weeks–Quezon adding: “I don’t want to do it for my successor.”

We talked of Geo. White’s visit and of our old friends in Congress–Quezon said he had liked the Ohio delegation of that day, except R. J. Buckeley who had voted against independence for the Philippines offered in the Clarke Amendment (1916).

Quezon agreed with me about the type required for “Public Defender.”

February 3, 1936

Dinner at Malacañan for Cabinet–Doria wore her new black dress which was a great success, and Quezon asked her chaffingly if she was in mourning for King George? Corpus, President of the Philippine National Bank, sat on one side of me, and spoke con amore of how I supported him as Director of the Bureau of Lands against American attacks. He said Secretary Denison only supported him when, as Governor General, I ordered it. I urged Corpus to write his memoirs–he said he had been a newspaper reporter for five years before I appointed him as Director of Lands, but that his own style was only anecdotal.

Talked with Under-Secretary Albert, who remembers not only the Philippine Revolution against Spain, but later on an interview he had with President Wilson; he came back here sharing a cabin with Quezon when I arrived in the Manchuria in Oct. 1913. He said that Quezon was much excited when he secured my appointment as Governor General through Secretary of State William Jennings Bryan in 1913–he then said: “now we are sure to get independence.” Albert gave Doria some complimentary accounts of me as a public speaker.

After dinner, I talked for a half hour with the President. He told me of his difficulties in appointing Judges, and said that Osmena had urged on him the nomination of Rafael Palma to the Supreme Court. That he (Quezon) had wanted to appoint him, and had consulted Chief Justice Avanceña and other Justices–that they had been rather non-committal, but when Quezon returned from Baguio, and asked them again about Palma, the Supreme Court Justices had meanwhile heard Don Rafael Palma argue a case before them and were now certain that he was not qualified to be a Justice. Quezon said that Osmeña had asked for an appointment with him every day for a week, and that he had given every excuse, especially that he was tired, until it was too late for Osmeña to interfere again. Osmeña then told Quezon that they were better able to select the judges than was the bench. I called his attention to how Osmeña had nearly wrecked by administration by his insistent recommendation of Venancio Concepcion as President of the Philippine National Bank. We agreed that Osmeña was a bad judge of men. I called his attention to the efforts I made for five years to induce him (Quezon) to break with Osmeña. He replied: “It took me twenty years.”

Osmeña had also persistently tried to get an appointment with Quezon to argue in favour of Aldanese. Quezon and I agreed that the Collector of Customs was personally straight, but Quezon said he had been put in an awkward position by Governor Wood. I complained that the Philippine Government was full of graft, and asked whether it was not because Governor Murphy has had his head in the clouds. Quezon said, “no, you must not think that of Murphy”–that the original fault was with Governor General Wood–that corruption was rife under him. That his successor, [sic] Governor General Davis had announced in a speech in Honolulu that he was going out to the Philippines to clean up graft in this country. That while Davis was here, he never knew anything at all about the country.

The announcement of the Government’s decision to cancel the lease of the arrastre to Simme & Gilke had subjected Quezon to a perfect bombardment of letters of protest from Americans. They state that the lease of the arrastre to the Manila Terminal Co. under Governor Wood had greatly improved the freight service at the Manila docks. Quezon said that perhaps it had not been done any too well before but that he was going to turn it over to the Manila Railroad Co. and have Paez manage it; that the Manila Terminal Co. had been making 500,000 pesos a year out of it. That they had offered Aldanese a large salary for extra service with the Manila Terminal Co.; that Governor Wood had permitted him to accept; [that it was “unethical” for the Collector of Customs to have another salary from a business firm.] This practice had been stopped November 15 under the new constitution.

Quezon next talked about the (Baguio) Constabulary Academy case, where he had just dismissed eight of the cadets, including his own nephew, for hazing and had transferred Colonel Johnson, the Commandant. The cadets whom he had examined personally concerning this case, had replied that they thought the regulation against hazing was a dead letter. I told him how President Thomas Jefferson in the last year of his life had ridden down from Monticello to the new University of Virginia and had dismissed his own two nephews (my great uncle Cary and his cousin Carr) for a student prank. He said he wished he had known of this, for he would have cited it as a precedent in this Constabulary case.

December 25, 1935

Talk with Rafael Corpus, former director of Agriculture and new President of the Philippine National Bank. He told how Wood had tried to liquidate the bank; how eventually all the money supposed by Wood to be lost in sugar mills had been made good –even Philippine Vegetable Oil paid back 50%. Said he discovered more and more how the economic basis for the country was laid during my administration.

Sugar– said it was O.K. for seven years.

Hemp– said Sumatra’s attempt to rival the Philippines had failed.

Rice– said next year would be worse than this; that the floods in Pangasinan etc., had ruined the crop; that sugar had absorbed much of the rice land.

Iron– said Economic Council must establish a steel industry here –Japan was now taking 300,000 tons of iron ore yearly from Paracale in the Philippines– that our coal in Mindanao was just right for iron, but was too hard for ships. We had all the materials at hand, and even if it would compete with the United States we must insist on it. It was also a matter of national defense. We need a mineral survey, particularly of the vast and untouched iron fields of Surigao, reserved for the government.

Government of Quezon– said it had taken well so far.

Roy Howard article– said the fear of Japan was very real and the commercial classes would like an anchor –either the United States or England. Said fear of Japan did not penetrate to the common people in the provinces.

Sakdal & Communism– a very real problem –said some Filipinos had gone to the International in Russia and had come back with money. General Valdes told him one of these leaders had 50,000 pesos. Valdes confirmed this to Corpus.

Japanese– said they were very bold; that they were watching the development of the Davao matter; that they had been allowed by connivance or by supineness of Filipino officials to get these lands illegally and should not be blamed. Corpus says it was the Filipinos’ own fault.

Christmas dinner (lunch) with the Headquarters Commander of the 31st Infantry, the only regiment of American soldiers left in the Philippines. Excellent home food and a far better entertainment than last Christmas at Luxor in Egypt. Captain & Mrs. Lussier and Captain & Mrs. Howell.

Dinner with Mr. & Mrs. Samuel Gaches. Talk with old Colonel J.N. Wolfson who told me that McKinley’s secret instructions to Taft when he sent him out here to the Philippines as the first Civil Governor were to prepare the Filipinos as rapidly as possible for self-government –hence the “little brown brother” (and Taft’s fight for power against the United States army). Colonel Wolfson also told me of being retained recently (he is over 80 years of age) by 81 inhabitants from Tarlac who had been ousted from their lands by a local cacique under claim of a prior Spanish title, even tho some of them had Torrens titles. The judge of first instance in Tarlac had decided in favor of the cacique —Wolfson got this reversed in the Philippine Supreme Court.

December 2, 1935

An hour and a half with Foley (New York manager of the Philippine National Bank) over the Manila RR. bond purchase –his ideas and mine are very similar but he looks on it chiefly from the point of view of a banker, while I can, perhaps, see better the government policies involved. He predicts a change in the management of Philippine National Bank here and says Miguel Cuaderno, and perhaps Corpus, must go.

Foley advocates the issue of 5 million pesos of Philippine Commonwealth 5% bonds, to establish the government’s credit; says the whole issue can be supported by the Philippine National Bank in New York. Would like to go home via Europe and feel out the situation in Switzerland, France and England on this bond issue, and says also that while in London he can drop a few hints to Scott and Priestley that they should make a better offer on Manila RR. bonds.

One hour with A. Roces, Sr. in Vanguardia offices; he seemed glad to have me act as intermediary between him and Quezon. Appeared surprised when I showed him the two offending articles; said he had not seen them, and would correct the misstatement; he is about to become “dictator” of all his editorial policies –re-news his intention “without reservation” to support Quezon. Dis-approved of Quezon’s visit to the bandit country but had not commented on it. He was very cordial and friendly, and expressed pleasure at my appointment as adviser –but said it should not have been confined to communications, but have been general. Said he would make an appointment for me to talk with Manuel Roxas tomorrow.