File No. 817.51/978

The Minister in Nicaragua ( Jefferson) to the Secretary of State

No. 383

Sir: For the information of the Department I have the honor to transmit herewith the first interim report of the Commission on Public Credit, as prepared by Mr. A. F. Lindberg, Commissioner. That the Department may be kept fully advised as to the work accomplished by the commission I have requested Mr. Lindberg to prepare from time to time such reports.

I have [etc.]

Benjamin L. Jefferson

The Commissioner on Public Credit ( Lindberg) to the Secretary of State

Sir: I have the honor to present herewith a brief review of the work accomplished by the Commission on Public Credit in the first three months of its existence.

Number of claims received

To date 1,440 claims have been presented, including those of Nicaraguans and foreigners. The list of creditors is approximately 4,500. The time limit for presentation of claims on the west coast of Nicaragua expires July 30 next; for the east coast August 30 next; and for claims of creditors residing outside of Nicaragua an extension beyond three months is within the discretion of the commission. The total of these claims aggregates $7,500,000.

Registration of claims

The claims are being currently registered, first, as presented by the creditor, showing principal, accrued interest to December 31, 1916, and total; second, the claims will be classified by the commission under various headings showing their origin; third, the amount of the award will be shown, payment data, and data of the allotment in bonds.

Friendly agreements with creditors

It was decided that as far as possible, consistent with the character or origin of the claim and the economic situation of the Government, friendly agreements with creditors, rather than arbitrary rulings without hearings, should be the policy of the commission. I feel safe in asserting that $1,000,000 has been lopped off the debt total by voluntary concessions made by Nicaraguan and foreign creditors. This fact alone demonstrates that the commission is a success, as well as the feeling among foreigners and natives that the commission would give them fair and equitable treatment. A partial list of these reductions, by names and amounts, is included in Exhibit “A”, herewith submitted.2

Cash available for debt purposes

The commission has been unable to make final awards on cash loans to the Government or make any definite promises, through uncertainty as to the amount available of the Canal treaty funds. From the start negotiations were at once begun with creditors whose documents represented actual cash loans to the Government, as well as with the holders of obligations in amounts of [Page 824]$100,000 and over. It was the belief of the commission that a voluntary reduction on the part of these cash creditors either in the accrued and unpaid interest charges or in the interest rate, would serve as a lever to secure larger concessions from the holders of less preferred credits. The commission has definitely pledged itself that in the event of there being $2,000,000 cash available, at least 50 per cent of the principal of these loans would be paid the holders in cash.

Origin of the debt

While a fair idea was had of the origin of the debt, acquired in the preparation of the statement sent to the Department under date of August 24, 1916,1 this statement was merely a classification and listing of the data as disclosed by the records of the Government, or from information given to me in my capacity as an official of the customs service. I had then no authority to examine books, records and accounts, to call on witnesses, to ask for testimony and proof, etc., as is now within the scope and authority of the commission. The underlying value of the debt, represented by cash loans to the Government and merchandise claims (principal value only) excluding interest, is approximately $2,000,000. Considerable time has been spent in analysis in order to arrive at this figure. The balance of the debt, approximately $9,000,000, may be classed under war claims, arising from direct and indirect losses from civil war and military operations, cancelation of concessions and arbitrary acts of constituted governments.

Problems and purpose of the commission

The following are in a general way the fundamental principles to be followed by the commission in the making of awards:

To eliminate entirely or reduce materially the accrued and unpaid interest on all classes of obligations, as well as reduce the rate of interest.
To reduce exaggerated and excessive war claims to an amount consistent with the present financial situation of the Government, and a conservative estimate of the future financial resources of the Government; and to reconcile the interests of both Nicaraguans and foreigners in this class of claims.
To force speculators in Government documents to accept the purchase price, if possible, of their certificates of indebtedness.
That in the exchange of non-interest bearing documents for interest bearing bonds, the commission will make substantial reductions, based on future interest payments for account of such refunded obligations.
To eliminate some of the excessive profits charged in merchandise bills and accounts, the vendors having taken advantage of the necessities of the Government.
To cancel all obligations where creditors have not complied with laws and fiscal regulations in order to secure the Government’s acknowledgment of their indebtedness, or whose claims are outlawed by the statute of limitations. In this connection, the commission will also take into consideration the fact that creditors shall not lose their rights through ignorance, carelessness or malice on the part of Government officials, nor where the creditor was justified in believing in the right and authority of the Government official to bind the Government in a contractual obligation.
To follow the principle of set-off when a creditor is also a debtor of the Government.
That pensions and allowances, subventions to foster and further religion, education, charity and public improvements, be scaled according to the tenor of No. 2.
That old customs bonds of the Zelaya and Madriz régimes still in circulation, as well as those refunded in 1913, be valued on the basis of rate of issue, premium paid or discount taken, rate of exchange current at time of issue, as well as proof that value was actually paid to the Government in exchange for these bonds.
That the internal revenue bonds of 1913 be valued on the basis of the character of the documents exchanged, as well as on the basis [of whether] the subscriber did or did not comply with the law in receiving these bonds.
That all transactions affecting cash loans to the Government, as well as transactions in terms of foreign moneys, be valued with due consideration of the official rate of exchange as well as the market rate of exchange, eliminating heavy profits in exchange, the Government as a rule being the sufferer in exchange transactions.

Interest on Canal treaty funds

I venture to make the query if in some way it could not be arranged to pay a small rate of interest on the unexpended balance of the Canal treaty funds, by depositing it in trust or escrow in some bank or trust company, until the work of the commission is concluded? If this could be done under the fiscal regulations of the Treasury Department and the decision of the Comptroller of the Treasury, it would be very well received by the Government of Nicaragua, and would contribute indirectly towards the maintenance of the commission.

Changes in personnel

Mr. James H. Paxton, appointed arbitrator of the commission in case of dispute, has resigned and left Nicaragua. Mr. Martin Benard, president of the commission and Minister of Finance, resigned the early part of June, which I deeply regret. On account of the resignation of Mr. Benard I have individually signed this report.

It is my intention to present a full and complete confidential report of the work done by the commission, as soon as possible after September 14, 1917, aside from any official report which may be rendered by the commission.

Very respectfully,

A. F. Lindberg

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