File No. 818.00/410
Report from the Navy Department ( Office of Naval Intelligence) to the Secretary of State
Financial and Political Conditions in Costa Rica
This office has to-day received the following report:
In making any report on the abnormal political and financial situation prevailing in Costa Rica ever since Federico Tinoco established the present de facto Government by overthrowing the constitutional Government of Alfredo Gonzalez, on the 27th of January of last year, a brief summary of events seems to be indispensable.
It may be remembered that Federico Tinoco, then acting as Minister of War of the Gonzalez Government, taking as an excuse the alleged reelection pretensions of the then President, rose in arms against the Government and proclaimed himself military head of the country, solemnly promising the Costa Rican people to deliver the presidency of the Republic to the man whom they should freely and spontaneously designate at elections to be held on a future date. This solemn promise was made in a proclamation issued and signed by Tinoco on the date of the uprising, but few were the sensible Costa Ricans who ever gave faith to those words. One of the first steps taken by the Tinoco Government was to issue a decree summoning the people to hold elections for members to an assembly which was to frame out the new Constitution. The date fixed for these elections was the 2d of April. In the meantime Tinoco directed all his efforts towards gaining popularity among his countrymen, and in striving to do so, pretended to deal with members of the fallen Government with the utmost leniency. Alfredo Gonzalez, up to late, President of the Republic, and Manuel Castro Quesada, up to then envoy extraordinary and minister plenipotentiary to the United States, who, in order to avoid any possible violence, had taken refuge in the American Legation, were allowed to leave the country undisturbed; all members of the cabinet, authorities, and sympathizers of the old regime, were for the time allowed freely to go about their business, and citizens in general, for the first few days, were given absolute liberty.
This state of things did not last very long. Tinoco, convinced of his unpopularity and of the opposition his Government was to find on the part of the greater portion of the people who strongly disapproved and condemned his treacherous conduct towards the established Government, forbade the departure of the ex-President’s brothers and family, who on their way to the States were detained at the station of Peralta; partisans of the old régime were closely watched and followed by Government spies and anyone expressing himself against Tinoco was arrested and taken to the damp and dirty dungeons of the penitentiary. Henceforth Tinoco proclaimed himself candidate to the presidency of the Republic for the next term of office and at the same time issued an absurd and ridiculous decree summoning the people to simultaneously hold elections of the same date, for President of the Republic and for members of the Assembly which was to frame out the new Constitution. This illegal and arbitrary act of the new Government only served the purpose of diminishing the [Page 234] small prestige that the new régime might have among those who at the first outbreak had joined the revolt.
Tinoco dreaded a possible reaction and being short of arms and ammunition appealed for same to those Central American Governments which he knew might sympathize with the change effected in Costa Rica. Estrada Cabrera, who had always been on bad terms with the Gonzalez Government, was the first to respond to the call of Tinoco and a few days after sent Macario Sagastume in the capacity of confidential agent for the Government of Guatemala before the Government of Costa Rica. The exact mission that took Sagastume to Costa Rica still remains unknown, but it is a well-known fact among military men in that country that part of his mission was to offer Tinoco the support of Guatemala and also to deliver to him the arms and ammunition which Estrada Cabrera sent him on that occasion. As a proof of the foregoing it may be remarked that after the explosion which occurred in cuartel principal (main barracks), in San José de Costa Rica, on the 23d of October last, many were the cases of ammunition and arms taken out of the debris marked: G. de G. (Gobierno de Guatemala), which had been stored without even changing the stencil marks on the cases.
Sagastume had been for many years a stubborn enemy of Estrada Cabrera and a political exile from Guatemala. During this period he was in constant and direct communication with the most prominent of Cabrera’s enemies and lived in the various Central American Republics. During his stay in Nicaragua he became intimately acquainted with Colonel Higinio Aguilera, another of Cabrera’s most stubborn and dreaded enemies, and who to-day, having taken an active part in the revolt against Gonzalez, is in charge of the Cuartel de Artilleria (artillery barracks), in San José de Costa Rica, and is one of Tinoco’s main supports. Sagastume, after years of opposition to Cabrera’s Government, entered with him into friendly negotiations, returned to Guatemala, became one of his confidential men, and wrote a pamphlet addressed to all of Cabrera’s enemies in which he acknowledged his past mistakes and urged everyone of them to return and cooperate in the Government of Guatemala.
Upon Sagastume’s late arrival in Costa Rica he held long conferences with Colonel Aguilera (who in Costa Rica has been promoted to major general), and it seems that on that occasion Sagastume succeeded in patching up difficulties between Aguilera and Estrada Cabrera with the result that General Aguilera, commander of the artillery barracks in San José de Costa Rica and one of Tinoco’s right-hand men, is at the same time the reconciled enemy of Estrada Cabrera and one of his most assiduous correspondents and admirers.
Upon Sagastume’s departure from Costa Rica he was furnished a special train and a bodyguard which under command of Aguilera came to leave him as far as the port of Puntarenas.
Tinoco being assured of Cabrera’s support and good will, openly enforced his candidacy to the presidency of the Republic, and in striving to demonstrate to the people his popularity ordered a grand demonstration of his partisans to be held in San José on the 19th of March. For this demonstration special trains were ordered and people were forcibly driven by the authorities from the most out of the way places. Anyone refusing to take part in this demonstration was to be considered as an enemy of Tinoco and was to be dealt with accordingly. People did not oppose and about twenty thousand men, in profound silence and as if attending a funeral procession, marched in protest through the streets of San José. The failure of this scheme to work and the attitude observed by everyone only served the purpose of irritating Tinoco and his people, who openly stated that they would allow no opposing candidate to share in the elections.
Election day was a dull one throughout the country and although the Government had automobiles, carriages, and all kinds of vehicles to convey the voters to the polls, everyone seemed to abstain from voting, excepting the authorities, Government employees, soldiers, and policemen.
Throughout the day these people voted and voted in the different districts with the result that by evening Tinoco and the men designated by him to constitute the Assembly, had been unanimously elected and had more votes than the total number of voters in Costa Rica.
The men chosen by Tinoco to form the National Assembly convoked to frame out the new Constitution were, in their majority, of no political or social significance, and amongst them several were boys who scarcely had age to hold a professional title.
[Page 235]The inaugural session of the Assembly was held on the first of May, and without the Constitution being promulgated Tinoco was inaugurated as President of the Republic. The Assembly then gave itself up to the task of studying the draft of the new Constitution which had been drawn up by all the living ex-Presidents, with the exception of Ricardo Jimenez, who roundly refused Tinoco to cooperate at all in his combinations. The Assembly introduced in the Constitution all the changes suggested by Tinoco, among them the most important one being the extension of the presidential term of office from four to six years. Tinoco pretended to refuse the extension of his term, but, being urged by his friends, gladly consented.
The Assembly, not satisfied with the various arbitrary measures adopted, finally ended by declaring that its members were to constitute the permanent Senate and Congress of the Republic and that their term of office was also to last six years. From the date of Tinoco’s treacherous uprising, he started to float interior loans which were met with more or less reluctance by the banks and capitalists, who, however, in their endeavor to avoid trouble, finally furnished some money. In order to meet the vast expense brought about by the revolt, by the elections, and by the constant donations made to all of Tinoco’s confidential men, the Government had no other recourse than to make use of the drafts which Gonzalez had accumulated for the settlement of the “revolving credit,” that is to say, a credit which Gonzalez’s Government had obtained in the States and which was destined to keep the rate of foreign exchange at a low figure.
When the date arrived for the settlement of this credit, the Government, in order to meet its obligations, seized the gold reserves of the International Bank and duly made the settlement, but this only caused the rate of exchange to rise from 250 to 325 per cent.
The results of the rise of exchange were soon felt with the scarcity throughout the country of the silver fractional currency which was shipped out of the country as fast as it could go. Merchants, banks, and other private enterprises, in order to have change for their pay rolls and other various transactions, soon started to pay a premium on silver, with the result that in a few days not a single silver coin circulated throughout Costa Rica. Business remained at a standstill. No small transactions could be effected. In every store and in every business place signs could be seen saying: “Bring change; if not, we can not sell you anything.” The Government, in order to improve conditions, ordered the Bank of Costa Rica to change the one-and two-colon Government bills for silver, but this action did not improve things and soon it was realized that the whole stock of silver deposited in the bank, upon the issuance of those bills, would also leave the country. The Government then ordered the old Costa Rica to be put in operation, and obtained authorization from Congress to issue silver currency of 500 fine instead of 900, which was the standard of the Costa Rican silver coin. Every effort was made to purchase old silver, tableware, articles of silver, and foreign and domestic coins in order to keep the mint supplied with metal, but the scheme turned out to be a total failure. Not one would supply silver to the mint even if they had it.
In the meantime, to facilitate transactions most merchants issued paper coupons which they used in giving change to their customers. These coupons were of a limited and altogether voluntary circulation. Conditions did not improve, but on the contrary became more and more complicated; merchants of no financial responsibility or commercial standing took advantage and started to issue thousands and thousands of colones’ worth of these coupons which were of doubtful redemption. The Government, foreseeing the results, issued a decree prohibiting such coupons to be issued and in turn authorized the municipalities and provincial governors to issue such coupons under the strict understanding that the amounts received in exchange should be deposited in some bank and kept ready for the redemption of the coupons in circulation. All the municipalities; excepting that of San José, promptly proceeded to issue coupons for the value of 5, 10, 25 and 50 cents, but to defray the alleged cost of printing charged an absurd discount of 10 per cent on all amounts changed. These coupons only circulated in the municipal circumscription of the place at which they were issued, and therefore people going from one place to another had on many occasions to sacrifice their coupons in changing them back to bank notes or to what may be termed national currency. It was not long before members of the municipal councils and authorities [Page 236] started to engage in this exchange business; all the old and torn coupons received at the municipal offices in payment for taxes, fines, etc., were continued to be changed over to the public with the customary discount or 10 per cent for printing expenses, and in this way a coupon that had gone through the municipal dependencies ten times in succession had amply paid its face value, and its original reserve could therefore be withdrawn without any risk from the fund deposited in the bank. Another scheme worked on the public was to issue an order to change all coupons before a certain date, claiming that those in circulation were torn and dirty. All coupons would be accordingly changed for bank notes; the few left in circulation would be gathered up through stores and large business enterprises. In a few days the same municipality would order a new issue of coupons and upon giving the same, would again charge 10 per cent discount for the cost of printing.
This state of affairs has lasted for many months and these same schemes have been worked on the people with the approval and consent of the Tinoco Government.
As a result of the redemption of the one-and two-colon bills, by the Bank of Costa Rica, and as the result of public disconfidence which caused the people to hide these bills which were known to be redeemable for silver, the one-and two-colon bills ran scarce and the Government had no other course left than to issue a large amount of these bills without any silver backing at all. This procedure caused bills to be graded by the public in two distinct denominations: the old bill, that is to say, the one that has stock in the Bank of Costa Rica, and the new one, issued by Tinoco, which has none. The former reads: “The National Treasury will pay bearer so much in 25 or 50 cent silver pieces” and the latter reads: “The National Treasury will pay bearer in coined silver (of no denomination) so much.” This explanation seems necessary in order to explain some further schemes worked on the Costa Rican people by the whole Tinoco outfit.
The issue by the Tinoco Government of this paper money with no silver backing at all only resulted in the rise of the rate of foreign exchange which now reached over 400 per cent.
In the meantime, all of Tinoco’s friends, and amongst them … were personally and through recognized agents actively buying up the “old bills” and secretly changing them for silver from the stock held by the Bank of Costa Rica. This silver in its turn was shipped out of the country and drafts brought back in exchange which at the rate of 400 per cent left them quite a considerable margin of profit.
Tinoco, taking as an excuse the scarcity of small currency and the scarcity of silver in the country to fill the demands of the mint, obtained an authorization from Congress to coin copper currency which was to be put in circulation at the earliest opportunity. Arrangements were made, and the mint started to coin copper at its full capacity. Notice was served to the public that the new coins would be put in circulation, but warned everyone that the mint would only give out small currency in exchange for “old bills,” that is to say, that the Government would only change copper for bills with a silver backing and not in exchange for Tinoco’s paper money. This scheme of course further enabled Tinoco’s friends to continue to withdraw the stock of silver in the Bank of Costa Rica.
The output of the mint is very limited, but sufficient to somewhat satisfy the greed of Tinoco’s most intimate and reliable friends.
The circulation of copper currency has not alleviated the situation in the least and only caused foreign exchange to jump to 500 per cent.
In the midst of all these difficulties and complications, brought about by the most outrageous misgovernment, public employees and authorities have remained unpaid or have been only partly paid, while accounts against the administration have been absolutely ignored. In recognition for all these obligations the Government only issues a giro which is something on the lines of an I. O. U. and these giros can only be sold at a discount ranging from 40 to 60 per cent. The principal people engaged also in the purchase of these giros or Government obligations, are, strange to say, … and Tinoco’s most intimate friends.
Another concern actively engaged in the purchase of these Government obligations is La Sociedad Editora Nacional, a printing and newspaper enterprise whose shares are chiefly owned by the Minister of Finance and his brother-in-law, who is the general manager of the concern.
[Page 237]Some time ago, Upon the occasion of the funeral of Mr. José Joaquin Rodriguez, ex-President of the Republic, and to which the military band was to attend, the musicians decided to strike and refused to go, claiming that they had remained unpaid for three months, that they had wives and children to support and that they could not work for nothing. The military authorities forcibly made them attend, and upon their return from the cemetery, 26 of the leading musicians were thrown into the dirty, damp dungeons of the penitentiary, while Julio Cantillano, head flutist, and two others were unmercifully placed in the stocks (ceop) over night. This arbitrary procedure on the part of the Tinoco people gave rise to a general protest which forced Congress to take the matter up, and after mature deliberation and constant urging, the men were released under the condition that they should continue at their posts. Some of them accepted while others refused and finally all were let out, only to be constantly molested and watched by Government spies.
In view of the attitude adopted on this occasion by the members of the military band and of the sympathy shown them by most of the public employees of the Tinoco Government, the cabinet members at a special meeting issued a circular addressed to all, stating that in view of circumstances any employee of the Government not satisfied with their salaries or with the way in which the Government paid, was welcome to file his resignation.
In view of the terrible and critical financial situation prevailing in Costa Rica, no one could retire, but the result is that these unpaid employees do not punctually or duly attend to their duties, with considerable detriment to the transaction of public or judicial affairs.
Ever since Tinoco rose in arms against the constitutional Government of Gonzalez, anyone could easily foresee that his policy was going to be one of imposition and violence. One of the main factors in his success in proclaiming himself in the cuartel principal, adjacent to the penitentiary, were the convicts and criminals who at that moment were supplied with arms, and it was expected that, in recognition for their valuable services at that critical moment, they would have to be let out. So it happened, but Tinoco was not satisfied at that, and many of these disreputable characters were given commissions in the Army, while others form the mass of the secret service or spy system which for the first time has been established in Costa Rica.
While all this was happening, inside the frontiers of that country, Tinoco’s foreign affairs seemed to get more and more complicated. Although he had strained all efforts to obtain recognition from the United States Government and had sent Ricardo Fernandez Guardia as his confidential agent to Washington, it seemed as if all his hopes had to be given up and privately he started making insinuations as to severing diplomatic relations with the German Government, hoping, as on several occasions he manifested to his friends that “this might bring about the solution of the problem.” Just about this time Tinoco issued a proclamation in which he stated that he had reliable information to the effect that within the territory of the Republic several parties were committing acts in violation of Costa Rica’s neutrality with respect to the European war and which highly endangered the peace, integrity, and autonomy of the country. The following day Juan Kumpel, a German subject, a friend of the Gonzalez Government and a stubborn enemy of Tinoco, was thrown into jail accused of being a German spy. Immediately two or three wireless installations, which students had set up in their homes for experimental work, were dismantled; enemies of the Government were accused of being in correspondence and acting in connection with German capital to start a revolution in the country so as to overthrow Tinoco, who henceforth has appeared and pretended to be one of the Germans’ worst enemies, and lastly a fantastic newspaper story was made up about a supposed German firm dealing in timber which had a base on the Atlantic coast, where gasoline, material, and ammunition were being stored in preparation to a supposed attack on the Panama Canal.
The details of all this story were transmitted in a lengthy cable to the Associated Press by Modesto Martinez, its representative in Costa Rica, and one of Tinoco’s most intimate friends. After this, nothing has been heard about the supposed German revolution, the base or the confiscation of any war material. This story seeming not to cause the desired effect, Tinoco further went on to request Congress to invest him with extraordinary powers and authorize him to adopt such measures in relation to the European conflict as [Page 238] might be in accordance with the general feeling of the Costa Rican people. The result was the severing of diplomatic relations with Germany on the 21st of September last. Tinoco and his friends upon doing this, thought that they had reached the goal of recognition from the Government of the United States and the Allied nations, but time elapsed and brought upon them a sorrowful disappointment. The so much desired recognition has never come, and to-day Tinoco’s Government, although apparently siding with’ the Allied nations, is at heart one of their deadliest enemies.
Whenever anyone protests against the illegal acts of the Government he is accused of being a German spy or of being connected in some way or another with the Germans and is immediately closely watched, thrown into jail, or punished in some other way.
In the meantime, the real and genuine German spies and all those sympathizing with the German cause go about unmolested and have every protection, even if with the utmost publicity they do their work.
As a proof of the foregoing, reference may be made to a daily newspaper called La Nueva Era, which was openly pro-German and whose editor, Luis Cartin, was thrown into jail and the newspaper suppressed not until the month of December last, after some strong articles against the Tinoco administration had been published. The excuse, of course, given was that the newspaper was pro-German, although it had been working in favor of the German cause ever since the war broke out.