Mr. Baker to Mr. Gresham.
Managua, Nicaragua, October 11, 1894.
(Received November 3.)
Sir: The financial condition of Nicaragua has been, for some time past, a source of anxiety, as well as inconvenience, to the public officials of the State. It is understood that the country felt itself unable to pay the semiannual interest due on July 1 to its foreign bondholders, although the sum was not large, amounting to but £8,500 sterling. The Government treasury is empty, and money must be had to meet current obligations. The revenues from every source are already anticipated and mortgaged for some time to come. In this dilemma, the Government sought a home loan of $500,000 to tide over, but they had no security to offer, and their naked credit did not attract investors; especially in view of the fact that payment had been suspended upon the outstanding custom-house bonds, of which there are about $428,000 unliquidated.
These bonds were issued three years ago, in 1891, by the Sacasa administration, and were sold at 85 cents on the dollar. They bore 12 per cent interest per annum on their face value, and were received at par in payment for customs dues to the extent of 40 per cent of those dues; 40 per cent was paid in cash, and a premium of 20 per cent was [Page 449]credited to the importer as “benefits.” in other words, supposing I hold one of these bonds whose face value is $100. Upon this the accumulated interest is now $38; interest and principal $138. I go to the treasury to pay my import duties and present this bond. My rebate amounts to $27.60, being 20 per cent upon the principal and interest; then, with my credit of 40 per cent on the face value, I pay into the treasury but $32.40 in settling my $100 of dues, and receive a credit on my bond of $40, leaving it still worth, for revenue purposes, $98. In using this same bond in the next transaction, I am again entitled to my premium or rebate of 20 per cent.
The Government finding itself pressed for cash with which to pay their ordinary expenses, announced that, until the year 1896 at least, these bonds would no longer be received; that all dues to the Government must be paid in cash.
In addition, the Government announced that unless a loan could be negotiated they would be compelled to make an issue of paper money.
The two announcements created great consternation in commercial and financial circles. A meeting of the business men of the country was called at Managua for consultation. The conference was held on the 5th and 6th instant, and the situation was carefully gone over. The result was the Government agreed to take up the outstanding customs bonds, adding to their face all the benefits, privileges, and interests, for which a new bond would be issued. The face of the new bond will show a value of $2,056 for each $1 of the face of the old bond for which the Government received 85 cents. Under the agreement with the merchants these new bonds are to bear 6 per cent interest, and are to be received for customs dues to the extent of 30 per cent of such dues, 70 per cent being payable in cash. This conversion swells this class of indebtedness of the Government to about $877,000.
It was also agreed that the Government will issue $500,000 of paper money, which shall be received for all Government dues, a premium of $5 to be allowed on each $100 paid into the treasury in this currency. The Government further agrees to call this money in and cancel it at the rate of $25,000 per month, commencing January 1, 1896.
It is noted, however, that the Government has not agreed to limit the issue of paper money to $500,000; but it announces that, unless the loan of $500,000 can be negotiated, it will probably be forced to make a second issue of $500,000. As a matter of fact, it is ascertained that an edition of $1,000,000 has been printed and is only awaiting the signatures of the proper officers.
Bonds to the amount of $300,000, gold, were some time ago issued, pledging the export coffee tax for the next year in payment; and these bonds were recently negotiated in Belgium in exchange for rifles and other munitions of war. New fortifications are also to be erected in the vicinity of Managua.
The present export tax on coffee is 2 silver soles per 100 pounds. The next year’s crop is estimated at about 150,000 sacks of 100 pounds each. As silver is now at a heavy discount, it is understood among the merchants here that the present export coffee tax is to be increased to $2, gold, per 100 pounds, in order to meet the obligation above noticed. The Government has not, however, taken official action on this point.
Going back a couple of years, a year or so after the original issue of the custom-house bonds, the Government, finding the amount of cash which was coming into the public treasury small, conceived the idea of increasing it by making a large increase in the import duties. The [Page 450]increase resolved upon was 100 per cent. But this proved to be a great disappointment. It was another case of inordinate blind greed devouring the goose which had been giving up golden eggs. Importations fell off to nothing for many months, and have never recovered anything like their former volume. People have learned to do without many articles of import, but no home industry has been developed thereby except the manufacture of intoxicating liquors.
This measure has, therefore, proved to be neither a revenue measure nor one of protection to any valuable home industry, notwithstanding the very liberal “rebates” and “benefits” allowed to merchants. The merchants themselves are not altogether guiltless, for the reason that, in spite of the extremely liberal “drawbacks” allowed them at the custom-house by the Government, they immediately marked up their goods to “high-water mark” on the passage of the bill increasing tariff duties, and consequently their sales of imported goods have been much lighter than would otherwise have been the case.
I have, etc.,