File No. 817.51/571.
The Minister of the Treasury of Nicaragua on an official visit to Washington, to the Secretary of State.
Mr. Secretary: In order that you may have a clear idea of the economic situation of Nicaragua, which has caused the need of a loan, of which we have already spoken on various occasions, I take liberty of laying before you certain antecedents and data, which justify our urgent request.
An unfortunate administration, which we would like to blot out from our history, left the country oppressed with an enormous internal and external debt, mostly created without any administrative vigilance, the country’s resources and productive sources of wealth having been exhausted. The present administration of our country, seeking the natural remedy for this situation, thought of a foreign loan and an appeal to American capital, because the Government of the United States had offered, in the form of a treaty, to aid in its attainment.
When the Castrillo-Knox Convention was concluded,1 Messrs. Brown Brothers and Company, and J. and W. Seligman and Company, bankers of New York, promised to give us up to fifteen million dollars, if the Senate of the United States ratified that convention. In the meanwhile they advanced, under various contracts which we successively concluded, about three million dollars. But as they gave it to us on very short terms, and demanded from us in return all our revenues as a guaranty, this loan has, in a way, made our situation more unfortunate and precarious; because, to pay off such a sum in such a short time (we now owe only $700,000), we have not been able to pay debts that should have been paid; our administrative service is in a bad condition; and we have a great number of employees who are with unpaid salary; so that if we do not hasten to meet this need, public tranquility may be placed in danger.
To justify this statement I must state to your excellency that the large loan of fifteen millions forced us to create new offices, maintaining an office for the collection of the customs receipts, which increased the expenses of such collection by an enormous sum in American gold. This extraordinary expense, which could only be borne if the loan of fifteen millions had been obtained, has nevertheless weighed heavily on our scanty present revenue since the day when the negotiations were initialed with the bankers of New York. The increase of customs receipts should not be attributed to the management of the General Collector of Customs, whom I value and give his due; but rather to the increased commerce which is growing up in our country under the shadow of a good Government, in view of a stable peace and in the hope of a large loan.
[Page 1048]We were obliged to found a National Bank for the loan contracts, with a capital up to five millions, which was to begin with about a hundred thousand dollars pending negotiation of the large loan, Nicaragua spent a large sum in founding it; and, although it seems hardly believable, in this bank of only a hundred thousand dollars there is spent annually in salaries more than forty thousand dollars, thus rendering its use and advantages nugatory. The Bank has been administered and managed by the bankers since it was founded.
Counting on the loan of fifteen millions, we agreed to change our monetary circulating medium. For this purpose we retired an enormous amount of national paper money from circulation; and, as we have not been able to replace it with a similar metallic one, a commercial crisis has arisen such as the history of our country has never seen. We fear the ruin of all the business of the principal cities.
In this abnormal situation, it can almost be said that we have rebuilt a railroad with our own resources; that is to say, however that we have intensified the crisis by retiring from circulation the capital employed in these improvements, and we have done this at a very unpropitious time.
I state this because it is also a result of the contracts with the bankers, contracts in whose terms may be observed the different intention which the Nicaraguan Government had in concluding them, since they gave the bankers the right to buy fifty-one per cent of the railroad’s bonds, at a fair price, obliging them to lend to the [railroad] company while exercising this option five hundred thousand dollars to make the aforesaid improvements.
Counting on the loan, we created, in agreement with the American Government, a Claims Commission, composed of two Americans and a Nicaraguan, in order that claims pending against the Government of Nicaragua should be heard and settled therein. This Commission has been a great expense to us without any benefit to the country, since as it cannot pay its awards the lack of money makes its establishment a mockery.
It will not escape your excellency’s observation that a short-time loan, or, to state it more clearly, one whose cancellation and interest bear directly on the revenues of the country, will not remedy our situation. All nations have their times of crisis; all owe money; all have recourse to loans; but all arrange their debts to be paid over such a long period of years that their gradual cancellation does not disturb the public administration or the development of the country.
That is what we want: a loan of suitable and sufficient size for a long term, so that we should have to pay each year only the interest and so much per cent amortization, to an amount within the limits of our budget. In short, Mr. Secretary, what Nicaragua needs is money on a long term.
As regards the character of the bankers, we have preferences for none. We prefer the one who will give us the necessary money on the conditions mentioned above. Our desire is that the natural and legitimate profit of the bankers be rendered consistent with the best terms for the country. Another thing that should be understood is that the bankers with whom we negotiate should not go outside of their purely financial sphere; because the present Government of Nicaragua well understands what the real interests of the country are, [Page 1049] and what are its obligations in the free exercise of its administrative function.
As regards the data of our debt, I refer you to the report which we personally put into your hands,1 and to another which is in the possession of the Chief of the Latin American Division of the State Department, and which is the same as the undersigned Minister of the Treasury furnished the American Minister in Managua, in reply to his request. From these figures your excellency will see that—aside from the six millions more or less which the Republic owes the Ethelburga Syndicate, a loan which has not matured and which is arranged at 5% interest—a loan of four million dollars would fill our urgent necessities, placing our country on a solid economic basis.
Your cordial interest in my county, for which we Nicaraguans can never be grateful enough, has allowed this matter to be in your hands; and we appeal to your excellency to find some way whereby the different bankers who have made proposals, may in the shortest possible time arrange them in conformity with the outline stated above, which harmonizes with the interests of our country.
I have the honor to append to this note some suggestions for remedies for the evils mentioned.
I am [etc.]
- June 6, 1911; see For. Rel. 1912, p. 1074.↩
- See ante, July 15 memorandum.↩