The contest between Bolivia, Chile, and Peru has passed from the stage of strategic hostilities to that of negotiation, in which the counsels of this Government have been exercised.  The demands of Chile for absolute cession of territory have been maintained and accepted by the party of General Iglesias to the extent of concluding a treaty of peace with the Government of Chile in general conformity with the terms of the protocol signed in May last between the Chilean commander and General Iglesias.  As a result of the conclusion of this treaty General Iglesias has been formally recognized by Chile as President of Peru and his government installed at Lima, which has been evacuated by the Chileans.  A call has been issued by General Iglesias for a representative assembly, to be elected on the 13th of January, and to meet at Lima on the 1st of March next.  Meanwhile the provisional government of General Iglesias has applied for recognition to the principal powers of America and Europe.  When the will of the Peruvian people shall be manifested, I shall not hesitate to recognize the government approved by them.

Diplomatic and naval representatives of this Government attended at Caracas the centennial celebration of the birth of the illustrious Bolivar.  At the same time the inauguration of the statue of Washington in the Venezuelan capital testified to the veneration in which his memory is there held.

Congress at its last session authorized the Executive to propose to Venezuela a reopening of the awards of the mixed commission of Caracas.  The departure from this country of the Venezuelan minister has delayed the opening of negotiations for reviving the commission.  This Government holds that until the establishment of a treaty upon this subject the Venezuelan Government must continue to make the payments provided for in the convention of 1866.

There is ground for, believing that the dispute growing out of the unpaid obligations due from Venezuela to France will be satisfactorily adjusted.  The French cabinet has proposed a basis of settlement which meets my approval, but as it involves a recasting of the annual quotas of the foreign debt it has been deemed advisable to submit the proposal to the judgment of the cabinets of Berlin, Copenhagen, The Hague, London, and Madrid.

At the recent coronation of His Majesty King Kalakaua this Government was represented both diplomatically and by the formal visit of a vessel of war.

The question of terminating or modifying the existing reciprocity treaty with Hawaii is now before Congress.  I am convinced that the charges of abuses and frauds under that treaty have been exaggerated, and I renew the suggestion of last year’s message that the treaty be modified wherever its provisions have proved onerous to legitimate trade between the two countries.  I am not disposed to favor the entire cessation of the treaty relations which have fostered good will between the countries and contributed toward the equality of Hawaii in the family of nations.