File No. 817.51/605.
Statement of the features of the loan contracts of October 8, 1913, prepared by the bankers and given to the press October 20 with the assent of the Secretary of State.
Brown Brothers & Co. and J. & W. Seligman & Co. have purchased from the Republic of Nicaragua 51% of the stock of the Pacific Railways of Nicaragua (incorporated under the laws of Maine) and of the stock of the National Bank of Nicaragua (incorporated under the laws of Connecticut). This purchase was made under a contract executed in 1911 and at that time approved by the U. S. Government. The remaining 49% continues to be owned by the Government of Nicaragua. The bankers have also discounted at par $1,060,000 one-year Treasury bills of the Republic of Nicaragua dated October 1, 1913, and maturing October 1, 1914, drawing six per cent.
The Treasury bills are secured by lien on the customs, subject only, first, to the existing lien amounting to about $375,000 per annum in favor of the English bonds of 1909, and second, to the lien on the fourth of the customs in favor of the currency fund referred to below. Customs revenues for the year ending August 31, 1913, amounted to approximately $1,683,000 (U. S. gold). The Customs administration is conducted by an American Collector General recommended by us.
The Pacific Railways of Nicaragua is the only railroad in the Republic and extends for 163 miles from the port of Corinto on the Pacific Coast to Managua, the capital, and Granada on Lake Nicarauga, [Page 1062] with branches. The capital stock outstanding is $3,300,000. For more than a year the railroad has been operated by the J. G. White Management Corporation, who will continue in charge. Two members of the Board of Directors are to be nominated by the Minister of Finance of Nicaragua, and the Secretary of State of the United States has the privilege of appointing one. The latter will also act as Railroad Examiner, making confidential reports to the Governments of the United States and of Nicaragua.
The Bank has been in operation for over a year. Its capital has just been increased from $100,000 to $300,000. Its head office is at Managua, with branches at Bluefielcls and Granada and an agency at Leon. The Bank is the depository of the Government and its issue department issues bank-notes on behalf of the Government. Two of the members of the Board are to be nominated by the Minister of Finance of the Republic and the Secretary of State of the United States has the privilege of appointing one.
There is an exchange fund to maintain the gold standard and in order to insure the permanent maintenance of this fund it is provided that whenever it is depleted below a certain point, one-fourth of the customs revenues is to be applied to it month by month until it is again replenished. Each time this process becomes effective it will by so much permanently strengthen the fund.
During the years of political unsettlement recently past, the commerce of Nicaragua suffered from successive inflations of paper currency. A plan of monetary reform which was recommended by F. C. Harrison of London and Charles A. Conant of New York has been placed in operation, the necessary funds being derived through various loans made since 1911 by Brown Brothers & Co., and J. & W. Seligman & Co. The plan provided first of all for the gradual retirement and incineration of all the previous issues of paper money, and during the last two years a total of 37,300,000 pesos of paper money, out of an estimated aggregate of 48,000,000 pesos originally outstanding, has been bought up by the Government (or exchanged for córclobas) and incinerated.
The present currency is on a gold basis. Bank notes are in córdobas (the new standard of value, equivalent to the United States gold dollar) and such of the paper pesos (the former standard) as are still in circulation are received as the equivalent of 8$ in gold, or at the rate of 12½ pesos to the córdoba, and fractional currency in silver, nickel and copper is also in circulation. The exchange rate has been maintained at the present level since January, 1913.
The financial position of Nicaragua has been fundamentally improved. Efficient collection of customs during the past two years by Colonel Clifford D. Hamm, formerly of the Philippine Revenue Service, has, without change in rates of duty, more than doubled the receipts. The physical condition of the railroad has been entirely changed. In addition, deficits have given place to dividends. With the credit facilities afforded by the National Bank, and with the currency, which underlies credit, established on a firm basis, the most serious evils in the finances, both of the Government and of the country, have been remedied. Nicaragua is now in a position to realize the progress in national welfare which has been the aim of the administration of President Diaz. In the meantime the Government [Page 1063] has practically the entire use of all revenues, both internal and customs, for its current needs, excepting only the $375,000, annual requirements to meet the charges on the English bonds of 1909.
Proceeds arising from the sale of the Railroad and Bank stock and the Treasury bills have been applied to strengthening of the currency fund and to the payment of existing advances by the National Bank of Nicaragua, Incorporated, and by the bankers. The balance will, it is understood go to make payments on account to sundry creditors. Should the United States Senate at its regular session this winter ratify the pending treaty with Nicaragua, providing for the establishment of a naval station on the Gulf of Fonseca and granting a perpetual right to build the Nicaragua Canal, the proposed payment to Nicaragua of $3,000,000, provided in the treaty as compensation, would put that Government in a position where it could liquidate the greater part of the local debt and claims accumulated during former periods of political disturbance. The only foreign debt of the Government of Nicaragua, except the $1,060,000 Treasury bills now issued, is the English bonds of 1909 amounting to £1,200,240, and paying interest at 5% and amortized by a cumulative sinking fund of 1% per annum, calculated to retire the issue on or before maturity.