File No. 817.51/542½.

Memorandum of the Latin-American Division of the Department of State for the information of the Secretary.


nicaraguan finances and the mixed claims commission.

The loan convention between the United States and Nicaragua was signed June 6, 1911,1 under which Nicaragua agreed:

to enter into a contract for the refunding of its internal and external debt;

the adjustment and settlement of claims;

the placing of its finances upon a sound basis;

currency reform;

and the future development of the resources of the country.

Various stipulations regarding supervision were included:

the loan was to be secured by the Customs of Nicaragua, the customs to be collected by a person chosen by Nicaragua from a list of names approved by the President of the United States;

Nicaragua agreed to protect the Collector in the exercise of his functions;

and the Government of the United States agreed, should the circumstances require, to exercise such protection as it might find requisite.

This convention was approved by the Nicaraguan Assembly, but it has not yet been reported out by the Committee on Foreign Relations of the U. S. Senate.

In the hope that this convention would become effective Nicaragua entered into a contract with Messers. Brown Brothers and J. and W. Seligman for a loan of $15,000,000, this contract being dependent upon the ratification of the convention.

Nicaragua also arranged with the United States for the formation of a tribunal2 for the settlement of all liquidated and unliquidated claims arising from the beginning of the régime of President Zelaya until the commission closes its work. Nicaragua appointed one of the three commissioners, a Nicaraguan. The other two, Judge Otto Schoenrich, of Porto Rico, as umpire, and Judge Arthur Thompson, of Washington, D. C., were recommended by the Secretary of State and appointed by the Government of Nicaragua. The Claims Commission began its sessions March 26, 1912. During the time that the commission has been functioning, of the six thousand claims laid before it, three thousand have been acted upon and awards made. There has been no dissenting opinion in any case. Three thousand claims remain and among them are some of the most important and largest. The three thousand claims already dealt with aggregate over $600,000 gold. The awards amounted to about $250,000 gold.

Owing to the fact that the loan convention has not been ratified by the U. S. Senate, however, Nicaragua has had no money with which to pay the awards of this commission. The salaries of the commissioners, however, have been paid and provision has been [Page 1041] made for them until June 30th of this year through an arrangement entered into between the Nicaraguan Government and the American bankers.

While for the large loan the bankers were unwilling to act without the convention, they made a small loan to Nicaragua of $1,500,000 for the establishment of the National Bank of Nicaragua; the reform of the currency; and the establishment of the Claims Commission. They have from time to time also made further advances. They have also entered into an arrangement with the holders of part of the bonded debt of Nicaragua, known as the Ethelburga loan. Under this small loan Colonel Clifford D. Hamm, an American, was appointed Collector of the Customs. Under his administration the customs receipts have been showing a marked and steady increase, except for a period of two or three months during the revolution of last summer. The bank has been established at Managua, with one or two branches, and, the Department has been informed, has been doing very good work, making loans to needy borrowers at a reasonable rate of interest, whereas before they were the victims of userers. The currency has been reformed and Nicaragua is now on the gold basis; although at one time not far back exchange was at the rate of 22.50, the conversion was made amid perfect order at the rate of 12.50.

Under their private arrangement with Nicaragua the bankers have also been operating the railroad, and they have an option to buy 51% of the stock of the railroad, paying to the Government of Nicaragua $1,000,000 therefor. It is understood that the railroad has shown satisfactory earning power since it came under American management, and that there is a possibility that the bankers may exercise their option which would give Nicaragua very much needed cash. Nicaragua, however, has so little ready money at present that the Government feels it imperative to have a new loan, and if the loan convention cannot be ratified, or if the Department of State will not promise a certain measure of protection and support to the American bankers, it seems probable that their arrangement with Nicaragua will come to an end on the first of July, Much of the good that has already been accomplished will be lost and Nicaragua will probably look to Europe for a new loan.

If, however, it should prove impossible to have the loan convention ratified and if the Department should not be willing to assume towards this matter a clearly defined attitude similar to the one adopted by the last administration, it might be possible to have the Senate pass the canal convention recently negotiated with Nicaragua and approved by the Nicaraguan Assembly, by which the United States would pay Nicaragua $3,000,000 for the option to construct an interoceanic canal by the Nicaraguan route, for the lease of the Corn islands on the Atlantic side, and for the right to establish a coaling station in Fonseca Bay, the most strategic point on the Pacific coast of Central America. If Nicaragua could obtain this $3,000,000 it could undertake important public works and might perhaps be freed of the necessity of making a new loan for any large amount.

To return to the Mixed Claims Commission, it would seem wiser from the point of view of expediency and in the interest of peaceful conditions in Central America, especially in Nicaragua, to have the [Page 1042] commission continue and to enable Nicaragua to come to some sort of understanding with the bankers whereby she could get the funds she needs. If the funds can be obtained Nicaragua can at once settle the claims which have been adjudicated and thus reestablish her credit, and by giving tangible evidence of her intention to settle all claims, bring the British, French and Germans, and nationals of other countries who have claims against Nicaragua, into a better frame of mind. This would relieve both Nicaragua and this Government of the pressure which is being brought to bear by the chancelleries of the various countries to have claims of their nationals settled.

For some time past the Department has been taking the position vis-à-vis European Governments that it would be better for them to submit their claims to the American-Nicaraguan Claims Commission than to subject themselves to the probably unsatisfactory handling of their claims by an all-Nicaraguan commission. This is an acquiescence in the paramount influence and importance of the United States Government in Central America which, in the present state of affairs, the European Governments seem unwilling to give. At present their desire seems to be that the claims of their nationals shall be passed upon by mixed commissions composed of Nicaraguans and people of their own nationalities; that is, French claims to be passed upon by a commission composed of Frenchmen and Nicaraguans, British claims by British and Nicaraguans, etc.

As is indicated above, the European nations could probably be induced to forsake their pretentions with regard to a special claims commission if Nicaragua could get money from the bankers and go ahead with the payment of claims which have already been adjudicated by the American-Nicaraguan commission.

What Nicaragua needs and wants is peace. It seems doubtful whether she can secure it without some support and cooperation on the part of the United States. She can certainly not secure it unless she can obtain the funds necessary to pay the awards of the Claims Commission, to refund all of her old foreign and internal debts, to pay the salaries of Government employees which are now in arrears, and to undertake much needed work in developing the resources of the country.

Perhaps the most marked instance of the so-called dollar diplomacy of the past administration was to secure these results to Nicaragua by means of the loan convention. The time has now arrived for the present administration to define its attitude towards that loan convention and towards the Nicaraguan questions in general.

I have tried to point out the alternative means by which Nicaragua might secure funds should the attitude of administration, when defined, be adverse to the loan convention.

  1. The text of this convention is printed in For. Rel. 1912, pp. 10741075.
  2. Indifferently referred to as “tribunal” or “mixed commission” or “claims commission.”