File No. 817.51/796
Brown Brothers & Co., and J. & W. Seligman & Co. to the Secretary of State
Dear Sir: We are in receipt of the following letter from Colonel Clifford D. Ham, Collector General of Customs of Nicaragua:
Washington, D. C., July 10, 1916.
Gentlemen: The Financial Agent of Nicaragua, Mr. P. R. Cuadra, has received the following cablegram (translated) from the Minister of Finance of Nicaragua, which he has communicated to me to transmit to you:
Urge the conclusion of an arrangement to dispose of the customs collections and to notify the Collector General of Customs.
It is understood from this that the Acting Collector General of Customs in charge has notified the Government that in accordance with the contract, he must send a payment of $31,500. from this month’s collections to apply on the Ethelburga bonds, and also make a payment on the National Bank loan, unless he receives notice from you to the contrary. Will you kindly communicate direct with Mr. Lindberg regarding the matter and notify the Financial Agent.
Sincerely yours,
Clifford D. Ham,
Collector General of Customs
The occasion for the above request is to be found in certain contracts or arrangements heretofore entered into by the Republic of Nicaragua with the Corporation of Foreign Bondholders, of London, the National Bank of Nicaragua, Inc., and the undersigned. Said contracts have all been filed with the Department of State; but, as a matter of convenience, we submit the following brief outline:
contracts and arrangements regarding the 1909 (ethelburga) bonds
By agreement dated May 25, 1912, with The Corporation of Foreign Bondholders, of London, the Republic of Nicaragua recognized the validity of these bonds and agreed that the customs revenues which had been pledged for their payment should be collected by a Collector General of Customs approved by the Secretary of State of the United States and appointed by the Republic. It was also provided that the Collector General of Customs should remit monthly to New York, or Europe, the amount required to meet the interest and sinking fund charges on the bonds, which amount was calculated at about $31,500 per month.
The above arrangement continued in force until the outbreak of the European war. The effect of that war upon the revenues of Nicaragua, however, led the Nicaraguan Government to request [Page 903] a temporary modification of the plan. The proposition made by the Republic was as follows:
The operation of the first paragraph of Section (2) of Article Fourth of the agreement of May 25, 1912, between the Republic and said corporation, shall be suspended for a period of four (4) months, to wit, from October 1, 1914, to February 1, 1915, and during such period of suspension the Collector General of Customs shall pay over to the Republic, freed from the lien created by said agreement of May 25, 1912, all moneys which would otherwise be applicable to the payment of interest and sinking fund upon the 1909 bonds of the Republic;
The interest and sinking fund payable January 1, 1915, upon said bonds shall be extended for one year, to January 1, 1916, and the interest coupon maturing January 1, 1915, shall bear interest at the rate of six per cent, per annum, and shall be paid on January 1, 1916, with said interest at six per cent, at the same time as the interest coupon maturing on said latter date;
Said paragraph of Section (2) of Article Fourth of said agreement shall again become operative on February 1, 1915, from which date the Collector General of Customs shall continue to deal with the customs collections as in said agreement provided;
The monthly remittances for the purpose of meeting the half-yearly payment of interest and sinking fund to become due on July 1, 1915, shall be made by the Collector General of Customs during the four (4) months from February 1, 1915, in the manner provided in said Section (2) of Article Fourth;
The amounts heretofore remitted by the Collector General of Customs to the bankers for the purpose of meeting the interest and sinking fund to become due on January 1, 1915, shall be held by the bankers and in due course remitted to the bank or banks in Europe charged with the service of the debt, so that said sums may be available for the purpose of making such payment on January 1, 1916; and the Collector General of Customs, during the ten (10) months beginning with the month of February, 1915, and concluding with the month of November, 1915, shall every month remit to the bankers in New York or to the bank or banks in Europe charged with the service of the debt, such further sums as may be necessary to complete the amount required to meet the payment thus to be made on January 1, 1916;
In case the Republic shall at any time before January 1, 1915, become entitled to receive from the United States the sum of three million dollars ($3,000,000) or any other sum, under the terms of the convention hereinafter mentioned between the Republic and the United States, the first paragraph of Section 2 of Article Fourth of the agreement of May 25, 1912, shall immediately again become operative, the Collector General of Customs shall resume his monthly remittances for the service of the loan, and the extension of one (1) year for the payment of the interest and sinking fund January 1, 1915, shall not become effective. In case the Republic shall become entitled to receive said sum from the United States at any time after January 1, 1915, and before January 1, 1916, the interest coupon above mentioned, due January 1, 1915, with interest thereon, and the sinking fund maturing on that date, shall, notwithstanding the extensions hereinbefore mentioned, immediately become due, and shall be paid out of the moneys which the Republic may thus be entitled to receive from the United States; and the Republic hereby authorizes and requests the Government of the United States, in the contingency above mentioned, to pay for account of the Republic to the bankers, out of such moneys, an amount sufficient to complete in the hands of the bankers the sum required for the purpose of paying said interest coupon, interest thereon and sinking fund; and to that end the Republic hereby assigns and transfers to the bankers the right to receive the moneys which the United States is thus authorized and requested to pay to them;
Except as thus specifically modified, the agreement of May 25, 1912, shall continue in full force and effect.
The above proposition was submitted to the Corporation of Foreign Bondholders, of London, and in answer that corporation [Page 904] stated that in view of the exceptional circumstances it could not reasonably object to the Republic’s proposal. The arrangement was submitted to the Secretary of State of the United States, who formally approved it on October 13, 1914, by letter hereinafter quoted; and, on December 2, 1914, the arrangement—with slight modifications—was continued in effect until July 1, 1915; and, on July 16, 1915, it was again—with slight modifications—renewed until July 1, 1916.
All of these extensions having now terminated, it once more becomes the duty of the Collector General of Customs to make monthly remittances for the service of the debt unless some new arrangement can be made with The Corporation of Foreign Bondholders, of London.
contracts regarding the national, bank of nicaragua, inc.
On December 2, 1914, the bank agreed to extend for four months various loans theretofore made by it to the Republic, which loans were secured by liens upon the customs duties and covered by drafts or orders in favor of the bank theretofore issued by the Minister of Finance of the Republic on the Collector General of Customs and by him accepted. On February 11, 1915, the above loans were further extended for a period of five months.
On July 16, 1915, the bank granted a further extension, of six months and, as one of the considerations for such extension, the Republic and the bank agreed as follows:
In case the Convention entered into on August 5, 1914, between the United States of America and the Republic of Nicaragua shall be ratified by the Senate of the United States and by the Republic, and the Republic shall under the terms of said convention be or become entitled to receive from the United States at any time the sum of Three Million Dollars ($3,000,000) mentioned in said convention, or any other sum, then and in that event, whether the extensions hereinbefore granted shall then have expired or not, the loans hereinbefore mentioned, if still unpaid, with interest thereon as herein provided, shall be immediately paid out of the moneys which the Republic may thus be entitled to receive; and the Republic hereby authorizes and requests the Government of the United States in the contingency above mentioned, to pay for account of the Republic, out of such moneys, to the bank, an amount sufficient to pay the said loans and interest; and to that end the Republic hereby assigns and transfers to the bank the right to receive the moneys which the United States is thus authorized and requested to pay to it.
On January 5, 1916, the bank granted a further extension of six months.
All of the above extensions have now expired and unless some new arrangement be made with the bank it will become the duty of the Collector of Customs to pay the drafts above mentioned.
contracts and agreements regarding loans made by messrs brown brothers & company and j. & w. seligman & company
Under date of October 1, 1913, the Republic of Nicaragua issued, and the undersigned purchased, Treasury Bills representing an aggregate principal amount of $1,060,000. These bills matured on October 1, 1914. In view of the European war and of the effects which that war had upon the finances of Nicaragua, the undersigned, on December 2, 1914, extended the bills to February 1, 1915, [Page 905] and waived their claim to the customs to be collected during such extension. As part of the contract then made, the following agreements were entered into:
- Section 5. In case the convention above mentioned between the United States and the Republic shall be ratified by the Senate of the United States and by the Republic, and ratifications exchanged at any time prior to February 1, 1915, said Treasury Bills shall thereupon become due and payable, with interest at six per cent (6%) per annum from October 1, 1914, notwithstanding the extensions hereinbefore granted.
- Section 6. If, under the terms of the convention above mentioned the Republic shall be or become entitled to receive from the United States at any time the sum of three million dollars ($3,000,000) mentioned in said convention, or any other sum, and shall not elect to exercise the option granted in Article Second hereof for the purchase of 51% of the shares of Ferrocarril del Pacifico de Nicaragua, then and in that case all Treasury Bills which may then be outstanding, together with interest thereon, and any sums due to the bankers for account of expenses, shall be immediately paid out of the moneys which the Republic may thus be entitled to receive; and the Republic hereby authorizes and requests the Government of the United States, in the contingency above mentioned, to pay for account of the Republic, out of such moneys, to the bankers an amount sufficient to pay the principal and interest of such outstanding unpaid Treasury Bills and the amount of such expenses; and to that end the Republic hereby assigns and transfers to the bankers the right to receive the moneys which the United States is thus authorized and requested to pay to them.
The option above referred to expired long since and has, therefore, no bearing on the present situation.
The agreement of December 2, 1914, which contained the above provisions and which also had incorporated into it the arrangement with The Corporation of Foreign Bondholders, of London, was negotiated largely through the good offices of Secretary of State Bryan, was submitted to and discussed with him in a letter dated October 13, 1914, of which the following is a copy:
Department of State,
Washington, October 13, 1914.
The Secretary of State to Brown Brothers & Co. and J. & W. Seligman and Co.
Gentlemen: I have examined the draft of the proposed agreement between The Bankers and the Government of Nicaragua, as modified or amended to meet certain suggestions made by me, and, as the agreement appears not to contravene any provision of the Convention entered into between the Governments of Nicaragua and the United States on the sixth day of June, 1911, I have concluded that, considering all the circumstances of the situation and particularly the present financial needs of the Government of Nicaragua, the agreement should meet with acquiescence on the part of the Department, and I, accordingly, advise you of my approval of it
I am [etc.]
W. J. Bryan
On February 11, 1915, the Treasury Bills were again extended to July 1, 1915, the Republic at that time reaffirming the provisions contained in the December 2, 1914, contract approved by Secretary Bryan regarding the payment to be made out of the $3,000,000. mentioned in the Convention of August 5, 1914. Similar extensions and ratifications were executed on July 16, 1915, and on January 5, 1916, the final extension having expired on July 1st of this year.
The Convention of August 5, 1914, between the United States and Nicaragua, having now been ratified and ratifications having been exchanged, the only thing which remains to be done is for Congress to appropriate the $3,000,000. which Nicaragua is to receive. We assume that this appropriation will be made in the near [Page 906] future and do not doubt that, in accordance with the contracts above mentioned and the formal approval of certain of those contracts, above mentioned by Secretary of State Bryan, the United States will at once pay the amounts respectively due to The Corporation of Foreign Bondholders, of London, to the National Bank of Nicaragua, Inc., and to the undersigned.
As bankers and friends of Nicaragua we have always heretofore been ready to lend our assistance and good offices to obtain from the Corporation of Foreign Bondholders, of London, reasonable arrangements for the postponement of payments out of customs revenues, and we are prepared to do the same thing again.
We do not for one moment doubt that the approval given by your predecessor to the agreement of December 2, 1914, will be recognized and made effective by the Department, and we should not consider it necessary to even refer to the subject at this time were it not for a certain misapprehension which has apparently existed in the minds of some of the Department officials with reference to the letter of Secretary Bryan above quoted. Apparently that letter had not been brought to the attention of the officials referred to until very recently and hence, they were not sufficiently advised as to the existing situation. Now that the matter has been made clear we shall be glad to approach The Corporation of Foreign Bondholders, of London, on behalf of Nicaragua, with a view of obtaining some further temporary extension of our own Treasury Bills and of the bank loans, pending the payment of the treaty money; before proceeding with such negotiations, we shall be glad to have from you a confirmation of our understanding as to the payments which are to be made out of the $3,000,000. which Nicaragua is to receive under the convention.
Very respectfully yours,
J. W. Seligman & Co.