Papers Relating to the Foreign Relations of the United States, 1918
File No. 417.00/242
The Commissioner on Public Credit ( Lindberg ) to the Secretary of State
Sir: I have the honor to submit herewith a copy of a joint report presented by the Commission on Public Credit to the Minister of Foreign Affairs, under date of November 20, 1917, to be included in his annual report.
The Exhibit “B” referred to is omitted as it corresponds to Exhibit “A” in my interim report No. 1 sent to the Department under date of June 18, 1917. The list of fundamental principles, herewith annexed, is an amplification of the subject matter under “Problems and Purpose of the Commission,” pages 2–3, paragraphs 1–11, in interim report No. 1.
I could never persuade the Minister of Finance to officially sign these for the records of the commission (prepared August 16, 1917) as he did not agree, until very recently, to the elimination of all accrued and unpaid interest on every class of obligation. As this was the foundation stone of my work, all the other awards on many classes of claims hinged directly on its uniform application.
Very respectfully,
Commissioner
Fundamental principles enunciated as the bases of awards of the Commission
The following fundamental principles are hereby promulgated and enunciated as the bases of judgment of the Commission in the making of awards.
The awards of the commission are made on the following bases:
- (1)
- Law and equity.
- (2)
- Financial condition of the Government.
- (3)
- Presentation of facts.
- (4)
- Equal treatment of foreigners and Nicaraguans.
- (5)
- Friendly agreements with creditors wherever possible. Holders of good credits will be urged to make concessions to the Government; holders of doubtful and excessive or exaggerated credits will have their claims scaled by the commission.
- (6)
- Foreigners cannot appeal to diplomatic channels in the settlement of their debts, demands or claims, unless there is denial of justice, as provided by Articles 13, 14 and 15 of Chapter VI of the Constitution of Nicaragua.
- (7)
- No part of the true, legitimate and acknowledged debt
of the Republic will be repudiated. Holders of credits
who are not satisfied with the awards of the commission
may accept or decline the award as they see fit.
However, in this connection the two following points are
emphasized:
- (a)
- The rulings of the commission will undoubtedly serve as precedent for future action on or consideration of any outstanding debt, and
- (b)
- The statute of limitations can be applied to public debt obligations as well as to private obligations.
- (8)
- A negotiable document of public credit does not gather
additional value or strength through the transfer of
title; that is, by sale, assignment, pledge, gift or
devise. There are two exceptions to this rule of which
the commission may take cognizance, if the circumstances
of the case and financial condition of the Public
Treasury so permit:
- (a)
- In case of the innocent purchaser of Government documents for value.
- (b)
- In cases of involuntary bankruptcy where less than 50 per cent is paid on the proven claims of general or unsecured creditors.
- (9)
- The maximum interest rate on any class of debt, demand, or claim, in case any interest be allowed, shall not exceed six (6%) per cent per annum, simple interest.
- (10)
- That no capitalization of interest, at any rate, will be recognized. To eliminate entirely or reduce materially the accrued and unpaid interest on all obligations.
- (11)
- That no interest will be allowed on merchandise accounts, war claims of any kind, claims arising from the cancelation of concessions, or any similar claims which at present do not include the obligation to pay interest.
- (12)
- 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.
- (13)
- Certain credits will be preferred, but only in the proportion of cash and bonds. No claims except death claims (violent deaths) will be paid wholly in cash. Otherwise all claims will be settled at the same time, with the possible exception that amounts less than $200 may be handled in a special way, depending on the lowest denomination of the refunding bond to be issued in part settlement of the internal debt.
- (14)
- Cognizance will also be taken of payments on account in awards pertaining especially to war claims and war exactions.
- (15)
- Judgments of the Mixed Claims Commission in the hands of the original claimants or direct heirs, will not be scaled except by voluntary and friendly agreements with the original claimants.
- (16)
- Speculators in Government documents will be forced to accept the purchase price of their certificates of indebtedness.
- (17)
- Budget obligations such as salary and wage rolls, if incurred and payable between September 1 and December 31, 1916, will not be scaled, if in the hands of original holders, unless by voluntary agreements.
- (18)
- 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, will be canceled. The commission will 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.
- (19)
- To follow the principle of set-off when a creditor is also a debtor of the Government.
- (20)
- 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, eliminating heavy profits in exchange, the Government as a rule being the sufferer in exchange transactions.
The Commission on Public Credit to the Nicaraguan Minister of Foreign Affairs ( Urtecho )
Sir: In accordance with your verbal request the Commission of Public Credit has the honor to present herewith a preliminary report of its activities to date. As the commission is still in session no detailed schedules of figures are presented.
Origin of the Commission
Although the idea of the consolidation or refunding of the debt is not new, the project of the creation of a commission for this purpose received encouragement and impetus from the President in his inaugural message.
Another matter of vital importance is the economic, with especial reference to the public debt.
After an exhaustive and well considered study, and looking towards the settlement of a question which affects so profoundly the Republic, I have had in mind the idea of creating a commission, organized in such form as Congress may deem proper, which commission will make a careful examination into the circumstances relative to claims presented against the Government.
The work of this commission, in case the idea be accepted, should be finished before the high contracting parties, under the canal treaty, come to an agreement as to the disposition of the money available from these funds.
It is my desire to formulate a plan which will be mutually advantageous to all interested, and also to obtain a solid foundation on which to liquidate the entire debt of the country, and thus put the Government on a solid economic footing.
- January 23, 1917. A bill was presented to Congress in session.
- February 14, 1917. Enacted into law.
- March 14, 1917. The commission was installed.
- March 22, 1917. The first printed circular to creditors was distributed.
- April 27, 1917. Regulations approved.
- May 28, 1917. Second circular to creditors.
- June 11, 1917. The existence of the commission was extended to September 14.
- September 12, 1917. The existence of the commission was further extended to December 31, 1917 or such time as might be necessary.
Copies of the laws, decrees, and circulars are shown in the appendix.1
Organization
Mr. Martin Benard, Minister of Finance, was chosen as president of the commission and Mr. A. F. Lindberg, Deputy Collector General and Auditor of the Customs Service, was appointed as the other commissioner in accord with the Department of State of the United States, and Mr. Alberto Zelaya, Secretary. …
The staff of the commission consisted at the time of installation of one clerk, one typewriter operator and an office boy, later increased by four bookkeepers as the claims began to accumulate.
Procedure, Registration and Classification
The number of claims presented to this date is 3,069. Amount claimed as principal is $11,093,148.17. Accrued interest to December 31, 1916, is $1,559,297.65. Total amount claimed, including principal and interest at December 31, 1916, is $12,652,445.82. Included in this total are duplicate claims to the amount of $461,690.15. The number of claimants is naturally greater, as many claims are presented by one person as agent or with power of attorney. Probably 5,000 claimants are represented in these claims. As soon as a claim or statement of credit is received it is dated, given a claim number, and a postal card advice is sent to the creditor advising him of the receipt of the claim and giving him the claim number. He is also given a signature card to [Page 835] fill out which will facilitate the payment to the proper person and is a protection both to the Government and to the creditor.
The claim is then examined to see if all the data required by the circulars is included. If not, the claimant is written to for the necessary information. Copies of the above forms are shown in the appendix.1
The claim was then registered, first as to principal, interest and total, to develop general totals and especially to know the amount of accrued interest claimed, which was appalling.
As-soon as the staff was increased the classification of the claim was made (see No. 9 in appendix1). This is one of the important phases of the work, and serves as a basis for administrative judgment by the commission. After the classification, the issuance of notes, certifications, etc., is verified with the stubs, as to number, date, amount, and name of payee. The awards of the Mixed Claims Commission were also verified with the original records.
Publicity
Another important feature of the work of the commission was to give publicity to all creditors, foreign and native, of the circulars of the commission. In addition to publication in the Official Gazette, in the newspapers, and sending batches of circulars to administrative officials for distribution and posting, circulars were mailed direct to foreign correspondents, and to each individual creditor, excepting holders of Mixed Claims judgments.
The object of this was to get the listing and closest registration possible of the debt, and to reduce clerical labor and correspondence.
Due to the three years’ existence of the Mixed Claims Commission it was thought that a public announcement of the requirements of the commission would be sufficient. However, it was found in a final revision that Mixed Claims judgments of 1,354 persons and amounting to $280,479.94 had not been presented. Circulars have therefore been sent to the address of each and every one who had not sent in his claim.
Special effort was also made to secure the presentation of all unpaid budgetary obligations and a circular was sent to all governors and treasurers to notify creditors and to post the notice.
Governors, Treasurers and Subtreasurers:
For information of the public, I take pleasure in transmitting the following ruling of the Commission on Public Credit.
budget obligations
The data of all budget obligations incurred and payable prior to December 31, 1916, should be sent to the Commission on Public Credit. This cancels the exception which was made in the first circular to creditors of March 22 in the last paragraph before the note. Acknowledge receipt.2
No attempt to advertise in foreign newspapers was made, principally because the budget allowance for the commission was limited and reliance was placed on foreign and Nicaraguan consuls to advise foreigners as well as banks and agents residing in Nicaragua.
Credit is due the local press without exception, not only for publishing the printed matter of the commission without charge, but also for supporting the work of the commission.
General Principles of the Commission
In view of the necessities of the situation every creditor was impressed with the idea that if his credit was a good one, for cash loaned, for merchandise sold or services rendered, that the commission would ask him to voluntarily rebate; if his credit was not of this kind the revision would be done by the commission. The response made was extremely gratifying as practically all creditors in large sums offered some concessions, either in reduction of principal, waiving of interest or reduction in interest. A list of these creditors is given in Exhibit “B.”1 From this point of view alone the commission has accomplished its object and saved for the Republic hundreds of thousands of dollars. Friendly agreements with creditors have been sought for as far as possible, but without losing sight of the fact that the debt as revised should not exceed [Page 836] a certain limit. At this writing the commission hopes that the debt can be consolidated and refunded on a basis of not more than $5,500,000 or approximately $1,500,000 in cash and an authorization for $4,000,000 worth of bonds.
No advantage has been taken of legal technicalities to refuse to receive or register a claim, through lack of presentation within the time limit prescribed by the commission. An extension of 14 days, to August 14, for claims from the interior and west coast was given. Since that date about 500 claims have been received, registered, classified and awards made.
No creditor has been refused a hearing, although it can be readily understood that with the large number of creditors living abroad or in towns in Nicaragua remote from the capital it would be impossible for every creditor to appear personally or even in the person of an agent or attorney.
Claims of Foreigners
Numerous conferences and interviews have been held with Honorable B. L. Jefferson, American Minister to Nicaragua, Honorable Charles Alban Young, British Minister to Central America, Baron d’Avril, French Minister to Central America, Dr. David Campari, Italian Consul General to Nicaragua, and Mr. Vicente Rodriguez, Spanish Consul General to Nicaragua. All of these gentlemen have ably and always in a friendly way advocated the interests of their nationals, at the same time recognizing the necessities of the situation.
Several meetings with creditors have been held both in Managua and Granada, when the general situation as well as certain classes of credits were discussed.
German Claims
The commission as yet has come to no decision with reference to claims of German subjects due to the status of affairs between Nicaragua and Germany. As far as is known all German subjects have presented a statement of their credits, but each and every one, as well as the Swiss, have protested against Articles 2 and 3 of the law creating the commission.1 In the settlement of foreign claims, particularly war claims, the commission has always borne in mind treaty rights and obligations between Nicaragua and foreign countries. …
General Considerations about the Debt Consolidation
As to the advantages of consolidating the internal debt, the commission has faith and enthusiasm in the results of its work. For Nicaragua a floating debt of this size, divided approximately 57 per cent held by natives and 43 per cent held by foreigners, not only has its serious economic effects and possibility of international complications, but is a political menace. Its settlement will stabilize business transactions, help Nicaragua’s credit at home and abroad, put the creditors in a stronger position as bondholders than as document holders, and every bondholder will have more of an interest in the financial affairs of the Government. The creditor who receives his interest or amortization promptly is going to pay his taxes and other Government charges with less resistance or disinclination.
There has been some discussion on the part of creditors that Nicaragua is repudiating its debt. One of the fundamental principles enunciated by the commission is the following:
No part of the true, legitimate and acknowledged debt of the Republic will be repudiated.
For those who have this idea in mind the following considerations should be borne in mind:
- (1)
- That the will of the majority will govern;
- (2)
- That many credits which bear no interest, are of comparatively recent origin and have no special security, are now converted into interestbearing bonds, and with special security; also that an excessive issue of bonds will affect their value;
- (3)
- That Congress which approved payments considered as acts of grace can also repeal them;
- (4)
- That Congress, in order to provide funds for the settlement of the debt as desired by claimants, could impose additional direct taxation which might prove more costly to the claimant than his acceptance of a scaling in his credit.
A great deal might be written as to the general origin of the debt, and surrounding incidents. However, the commission is confronted with an existing situation, and its object is not to locate responsibility as to why, when and how the debt has been incurred, but to revise and consolidate it. A large debt was inherited from the Zelaya régime, increased during the Conservative régime by the issue of several millions of national bills and by the Mena revolution, and all this, together with a budget deficit of $400,000, was inherited by the present administration.
An economical administration with reference to expenses and a careful collection of all Government revenues will preserve the equilibrium of the budget, and the natural resources of the country and its recuperative powers will have its effect on Government revenues so that the internal debt can be amortized rapidly. The effect of the distribution of $1,500,000 will no doubt be very beneficial in every way to creditors as well as its complementary effect on Government revenues.
The commission wishes to acknowledge the cordial support received by the First Magistrate of the Nation and his Cabinet, and ex-President Diaz.
Particular mention is made of the cooperation of Mr. Camilo Barcenas, Treasurer General, as well as Mr. F. E. Martinez, President of the Tribunal of Accounts. Legal opinions which the commission wishes to acknowledge with thanks have been received from Dr. Manuel Pasos, Judge of the Supreme Court, Dr. Carlos Cuadra Pasos, formerly member of the Mixed Claims Commission, and Dr. Maximo H. Zepeda, Member of the House of Deputies.
The Ministry of Foreign Affairs has acted as the means of communication of and for the distribution of the printed matter of the commission to foreign ministers and consuls in Nicaragua, as well as to Nicaraguan ministers and consuls in foreign countries.
The commission has the honor to remain with assurances of its esteem and consideration,
Respectfully
President
Commissioner