Papers Relating to the Foreign Relations of the United States, 1918

File No. 817.51/1094

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

No. 473

Managua , January 29, 1918 .

Sir: I have the honor to enclose herewith for the information of the Department a copy and translation of the bond law that was passed by the Nicaraguan Congress in extraordinary session, on December 14, 1917, and published in the Official Gazette, on December 20, 1917.

The Congress authorized the issue of four million cordobas at 5 per cent. The provisions of the law were enacted in accordance with the financial plan, and the bond service is to be supervised by the High Commission. The stipulated guarantees, embodied in the act pledging 12½ per cent of surcharge on the receipts of the customs revenues, half of the tax on capital and contingent sum to be applied after the public debt service is taken [care] of, should insure the payment of the interest and amortization of the bonds. However, the successful operation of this law will rest with the High Commission.

The Nicaraguan Government is very much interested in having published attractive bonds as cheaply as possible, and it has been suggested that it might be possible that the United States Government would consent to do this work, it being understood that this Government would pay a small amount over the actual cost of the printing.

I have [etc.]

Benjamin L. Jefferson

[Enclosure—Translation]

Bond law of December 14, 1917 ¹

DECREE NO. 25

The Senate and Chamber of Deputies of the Republic of Nicaragua decree:

Article 1. To authorize the Executive power to make the consolidation and payment of the public debt on the following bases:

(a) One part of this debt shall be paid in cash and the other in guaranteed customs bonds, which will be spoken of later. The distribution shall be made in conformity with the settlement made by the Public Credit Commission.

(b) The amount of bonds to be issued will be four million dollars, which shall bear interest at five per cent (5%) annually, which shall be payable semiannually. These bonds can not be applied to other purposes than the payment of the amounts recognized by the Public Credit Commission.

(c) If after the interest be paid from the revenues appropriated for the bond service there remains a surplus, it shall be applied to the amortization of the principal, in conformity with this law and the regulations which may be issued.

(d) For this bond service the following shall be appropriated: the 12½ per cent surcharge on the import duties of the customs of the Republic, and 50 per cent of the direct tax on capital. When the obligations in the financial plan have been met, so that the Government may freely dispose of the product of the capital tax, the total of this tax shall be applied to the customs bond service. If at any time there is wanting any amount to complete the sum of two hundred and forty thousand dollars ($240,000) annually for the payment of interest and the amortization, at least one per cent (1%) on the principal of the bonds, that amount which is lacking to complete said sum shall be taken from the 50 per cent residue of the surplus revenues, according to Article 8, paragraph (d), of the financial plan. The additional tax of 12½ per cent shall be collected by the Collector General of Customs and deposited in the National Bank of Nicaragua, Incorporated, to the order of the Minister of Finance, and by him to the order of the High Commission, to which the following article refers.

Art. 2. The bonds shall be called guaranteed customs bonds, shall have the form and values prescribed in the provisions of the law, and shall be paid by the National Bank of Nicaragua, Incorporated, on order of the International High Commission, which shall operate as fiscal agent of the Republic. No bond shall be valid without the registration and authentication of the High Commission.

Art. 3. The interest shall be paid to the bondholders semiannually, the first of March and the first of September each year, for the preceding half-year which terminates June 30 and December 31 respectively.

For the payment of interest and principal or redemption of the bonds, the funds appropriated for the debt service shall be deposited in the National Bank to the order of the High Commission.

Art. 4. The Republic reserves to itself the right at any time of adding other revenues or funds for the payment of the debt service or the rapid redemption of the bonds.

Also at any time and without invalidating the provisions in Article 1, paragraphs (c) and (d), and the Articles 5, 10 and 14 of the present law, the Government shall be able to purchase with part or the whole of the surplus of its receipts, or any other funds which may be at the disposal of the Republic, at least at par, the guaranteed customs bonds, before doing which it shall put notices in the papers, at least a month in advance, announcing that a certain sum will be applied to the purchase of the bonds, in order that those interested may send their offers to the High Commission; and it shall use the sum which the Government may have placed at its disposal, buying the bonds which may be offered at the lowest price.

Art. 5. The guaranteed customs bonds canceled, redeemed, or purchased by the Republic shall be canceled by the fiscal agent and shall not be reissued. However, the interest due on each bond, redeemed or purchased, shall Increase the debt-service fund in order that it may be applied to the payment of the interest and principal of the bonds issued and still in force.

Art. 6. The bonds may be transferred or mortgaged by order or indorsement through any means which the laws of the Republic may establish. Written advice of the transfers and mortgages shall be given to the agent for the purpose of registration.

Neither the Republic nor the fiscal agent shall incur any responsibility if, for the purpose of payment or any other purpose, they abide by the registry as to the ownership or existing liability.

Nothing of the foregoing in this article shall prevent them being indorsed to bearer; and in that case, once the corresponding advice has been received, no other shall be necessary for the successive transfers.

Art. 7. The Public Credit Commission will send the fiscal agent an account of the debts of the Republic, with a statement of what are to be paid in cash and what in bonds. The commission will give to the creditors a receipt or certificate which will have the form indicated in the provisions of this law and will state the amount which is to be paid in bonds. When these have been prepared they will be delivered to the fiscal agent in order that he may give them an exchange for the certificates or receipts issued by the Public Credit Commission. The bonds represented by receipts shall bear interest from January 1, 1918.

Art. 8. The principal and interest of the guaranteed customs bonds shall be paid in this capital. Also they may be paid in other places which the High Commission may designate, provided it does not increase the expense of the Republic, and the bondholder agrees to it.

Art. 9. The expenses for the issuance of the bonds, their inscription and registration, and other expenditures which may be incurred, in conformity with the present law, shall be paid from the debt-service fund.

The fiscal agent shall appoint the employees necessary for carrying on the work to which this law refers; and the amount of their salary, as that of the other employees, shall be determined by Congress and paid from the debt-service fund.

Art. 10. If any creditor of the State who has certificates or receipts to which Article 7 refers, issued by the Public Credit Commission, does not present them for exchange for guaranteed customs bonds, in accordance with the law, the bonds, to which the owners of the certificates or receipts not presented would have a right, shall remain on deposit with the fiscal agent, and any payment of interest or amortization in connection with such bonds shall also remain on deposit with the agent.

The holders of certificates or receipts mentioned in the former paragraph can at any time, before January 1, 1919, exchange their documents for guaranteed customs bonds, to which he shall have the right together with the accumulated interest and amortization of the principal. The holders who do not present their certificates or receipts within the time designated shall lose all right to exchange them for the guaranteed customs bonds, and the bonds which remain unexchanged, the time having expired of which mention has been made, shall be canceled by the fiscal agent, and all sums retained for those bonds shall be applied to the debt-service fund.

Any holder of public credit documents comprised in the plan of settlement who, accepting the decisions of the Public Credit Commission, shall present his documents in exchange for guaranteed customs bonds after January 1, 1918, shall be considered as having abandoned and renounced, in favor of the Republic, any interest whatsoever which may have accrued on the said documents.

Art. 11. The guaranteed customs bonds shall be exempt from all taxes and imposts now established or which may be established in the future in the Republic, including the direct tax on capital. Fiscal stamps or stamped paper shall not be necessary for any documents whatsoever necessary for the settlement of the public debt or required by the present law, or for those which the fiscal agent may require.

The fiscal agent shall not be responsible for the faults or bad conduct of any agent, attorney, bank or banker, named or selected by him in the discharge of his duties, if such agent, attorney, bank or banker shall be chosen with reasonable care; nor for any cause related to his charge, except through his premeditated bad conduct.

The fiscal agent shall have in addition to the rights, faculties, and duties conferred in other forms by this law the following rights, faculties, and duties:

(a) He shall receive from time to time all the sums which may be paid him in conformity with this law, and he shall use and apply them in the way authorized by the same.

(b) Subjecting himself to the terms of this law, he shall work according to written order of the Minister of Finance of the Republic; and said order, as has been expressed, shall serve as complete protection to the fiscal agent for acts which he may perform in accordance therewith.

(c) The fiscal agent shall be responsible only for the funds which may be received by him in cash in the city of Managua from the Republic or for its account.

(d) All the representations and provisions contained in this law and in the bonds are made by and in the name of the Republic, and the fiscal agent shall not be responsible in any form whatsoever for the same, nor for any statement contained in them, nor for any act or thing done by him for the reason of any representation whatsoever made by the Republic or by any of its agents or representatives. The fiscal agent shall be protected, if he acts by virtue of whatsoever advice, petition, acquiescence, certificate, bond or any other paper or document which he believes genuine and to be signed by the person or persons in whose name it appears to be signed. He may consult attorneys resident in Nicaragua, and the fiscal agent shall not incur any responsibility through any act which he executes or permits in accordance with the opinion of such attorneys. The fiscal agent shall not incur any responsibility with regard to the validity of the foregoing of said bonds, nor with respect to the authenticity, validity or value of any credit documents whatsoever authorized by the Ministry of Finance or the Public Credit Commission and deposited in his possession, nor shall he incur any responsibility, excepting as it is expressly provided herein, regarding the disposition of said bonds or the application of the product of the same. The fiscal agent shall not incur responsibility if the Republic or any person or persons mentioned herein do not fulfil or comply with any stipulations, agreements, or dispositions of this law.

Nothing herein contained shall be deemed or construed as creating any obligation, or as conferring any privilege or benefit in favor of any of the holders or owners of any obligations or other evidences of indebtedness of the Republic now outstanding, or any creditor or concessionaire of the Republic, or any person or corporation claiming to be such creditor or concessionaire.

The fiscal agent may, when he deems it proper, dictate the measures which will tend to protect the rights of the bondholders to which this law refers.

Art. 12. The High Commission referred to in this law shall be the same as that established by Article 7 of the financial plan, which was approved November 14 last, the High Commission which shall perform the function of fiscal agent created herein.

Art. 13. The High Commission or fiscal agent, once it has received from the Public Credit Commission the report prescribed in Article 7 of this law, shall issue checks or drafts in favor of the creditors of State for that part which has to be paid in cash, and shall deliver to them bonds in exchange for the certificates or receipts which the article mentioned indicates. Moreover the High Commission shall have the other powers which are granted to it in the provisions of this law.

Art. 14. The payment of the fund of amortization on the principal of the guaranteed customs funds, provided in Article 1, shall be made in the following manner: The number of the bonds corresponding to the sum which constitutes the debt-service fund to be disposed on the dates given in Article 3 for the purchase or redemption of the bonds shall be determined by drawing lots within the month following the first of January and the first of July of each year. All the drawings shall be made by the fiscal agent in the presence of the treasurer general of the Republic and of the president of the tribunal of accounts or of representatives appointed by them, and of one witness of good standing whom the fiscal agent shall select. The numbers of the guaranteed customs bonds selected in the drawing shall be published in La Gaceta and the interest on any bonds, so selected in the drawing for their purchase or redemption, shall cease to be paid on such bonds from the respective dates of January 1 and July 1, on whichever date the drawing may have been made. Within the month following the date on which the drawing had been made, the fiscal agent shall place to the order of the owners inscribed on the bonds, which may have been selected in the drawing, the amount of the principal of said bonds.

Art. 15. The Executive Power is authorized to prescribe the regulations which he may judge necessary to carry this law into effect.

Art. 16. The law of November 11, 1913, and all the other laws and decrees which are contrary to the provisions of this law are hereby repealed, and this law shall become effective upon its publication.

Done in the Hall of Sessions of the Senate Chamber, Managua , December 7, 1917.

—Vicente Román, S. P.—Sebastián Uriza, S. S.—M. Caldera Miranda, S. S.
To the Executive Power, Chamber of Deputies, Managua, December 10, 1917.—Ramón Castillo, C., D. P., Gabriel Rivas H, D. S.—Fernando Ig. Martínez, D. S.
Therefore, let it be executed.—President’s House, Managua, December 14, 1917.—Emiliano Chamorro.—The Minister of Finance.—Octaviano César.

1. La Gaceta, December 20, 1917.