817.00/4910
The Nicaraguan Minister of Finance (Guzman) to the Personal Representative of the President of the
United States (Stimson)19
[Translation]
Esteemed Sir: My Government has deemed it
necessary and desirable to submit for the consideration of the President
of the United States a request for his good offices and aid in the
establishment of a new system of free and just elections on which it is
hoped will rest political stability in Nicaragua.20
However, such a reform alone would not be sufficient for the development
of an economically sound Government. It is known that in
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modern times political stability rests on
economic stability and it is in order to obtain this latter that my
country is in particular need of the friendly assistance of the American
Government.
The losses and destruction of a long civil war have shaken its resources
and furthermore, even before, the fiscal methods of our Government
required a revision making them more stable and efficient.
I believe, and the majority of serious and thoughtful citizens share this
belief, that for these reforms the aid of Americans who have acquired
the necessary experience in the midst of greater economic activity would
be of great utility. We have already on another occasion obtained such
aid, maintained for some years in the collection of our customs duties
and in the formulation of a portion of our budget by virtue of a
Financial Plan.21 At this time, it
would be very useful to extend the system to other fiscal activities of
the Government in order that its introduction in our country may enable
us to train our administrative personnel in the ideas of thrift and
prudence.
As the basic point of such reforms we must make use of our credit abroad
or rather in the United States for the purpose of procuring a loan for
works of constructive progress and to revive the country from the
exhaustion in which the losses of the present war have left private
activities. We realize that it is not possible to obtain this credit
without reforming our system and it is very possible that our Congress
would give the reforms its full approval if they reached it in the form
of conditions for the credit operation destined to provide the Republic
with such means of rehabilitation and progress.
I have the honor to submit herewith a memorandum which establishes our
primary needs and their possible remedies.
With assurances [etc.]
[Enclosure—Translation]
Memorandum Submitted by Nicaraguan Government as
to Present Evils in Fiscal Methods of Legislation and
Administration and as to Suggested Lines of Reform in Which
American Assistance Is Desired22
I
Preliminary Study on Behalf of the
President of the United States
This memorandum is not intended to be exclusive but merely
suggestive; nor does it attempt to go into details. It is assumed
that
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the President of the
United States may desire to avail himself of expert advice in his
examination and study of these problems. The Nicaraguan Government
is entirely willing that he should do so and stands ready to pay the
reasonable expenses of such examination.
II
Evils of Present Fiscal
Administration
The following are some of the principal evils which are shown by
experience to exist in the present fiscal methods of the Nicaraguan
Government:
- (1)
- Taxation. The collection of
internal revenue taxes is defective owing to the lack of
complete information as to the true capital of each taxpayer
and also owing to the slight attention which some of the
officials charged therewith have given to the discharge of
their duties.
- (2)
- Imperfect Formulation of the
Budget. Under the present Financial Plan, not only is
the total amount of the budget limited but the High
Commission was given power to control the expenditure of a
portion of the budget and thus indirectly to control the
formulation of that portion of the budget. This was done
with the hope and expectation that this partial control
would exercise a salutary influence over the remainder of
the budget. This hope has not been realized. The items of
our present budgets in the unsupervised portions are neither
wise, progressive, nor economical.
- (3)
- Imperfect Control of Expenditures under
the Budget. There is at present no sufficient
system of pre-audit by which the expenditure of government
money can be confined to the lawful objects in the budget
for which it has been appropriated. It has become a common
evil for the Executive to switch expenditure from the
purpose authorized to another purpose owing to the abnormal
circumstances of the present war.
- (4)
- Imperfect Methods of Accounting and
Post-Audit. Nicaragua labors under an antiquated
and complicated system of accounts. It sorely needs the
institution of a modern, simple system with the possibility
of daily check. At present, owing to the absence of such
system and the power of check, there are not only great
shortages in the collection of taxes from the amounts
assessed but there are also great shortages between the
amounts actually collected and the amounts finally deposited
in the Treasury. There are also great delays under the
present system. All of these evils could be reduced by the
institution of a modern system of accounts with rigid
post-audit.
- (5)
- Power of Congress to Increase Items in
the Budget. Although under the present Financial
Plan the total amount of the
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budget is limited, Congress has the
power to switch and increase the items thereof and practices
this power with results by no means favorable. Strong items
are eliminated in favor of the increase or addition of items
not authorized in the original budget.
III
Suggested Remedies
- (1)
- The present American control over the collection of customs
should be extended to the collection of the internal revenue
taxes. The assessment of the capital tax should be controlled or
reviewed by a non-partisan Board, composed of one Conservative,
one Liberal, and an American Chairman.
- (2)
- The entire budget should be formulated by a Board of Estimate
containing a majority of American members. It is suggested that
this Board might consist of the Finance Minister, the resident
American member of the High Commission, and the American
Comptroller, hereafter mentioned. This Board should have the
power to formulate and present to Congress the entire budget,
carefully itemized with reference to the objects for which
appropriations are proposed.
- (3)
- For the purpose of supervising the expenditure of funds
authorized under the budget, there should be instituted the
system employed in many American States and cities of a
Comptroller who should have the power to examine and check all
proposed expenditures with a view to ascertaining whether they
come properly within the authorized items of the budget and the
counter-signature of whose office would be necessary to such
expenditures. This Comptroller should be a person recommended by
the President of the United States. The present power of the
Executive to switch items in the budget should be forbidden and
subjected to check by the Comptroller.
- (4)
- The Comptroller should be given the power by law to establish
a new and modern system of accounts throughout the Government
containing a modern and effective system of post-audit (or
rather check) by the Comptroller’s office.
- (5)
- The President of the Republic of Nicaragua shall diligently
endeavor to obtain from Congress the approval of the budget
formulated as above indicated.
IV
Claims Commission to Adjust Claims
for Losses Incurred During the Recent War
In order that the losses of the recent war may be speedily adjusted
upon a fair and non-partisan basis, the Nicaraguan Government
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favors the prompt creation
of a Claims Commission for that purpose consisting of three members,
one Liberal, one Conservative, and one American, all nominated by
the President of the United States and appointed by the President of
Nicaragua. The American member shall be the Chairman of the
Commission and his vote shall be necessary to every action and
resolution thereof.
V
Loan Expenditure
Commission
When the credit of Nicaragua has been restored by the establishment
of peace under a stable and constructive program of electoral and
fiscal reform, it will undoubtedly be desirable and probably
necessary to borrow money on the issue of her bonds to be devoted to
the payment of war claims as well as to long needed economic
development such as the construction of a transcontinental railway,
the improvement of her highways, or other enterprises. As to this,
it is only necessary to say now that, if that time comes within the
life of the present administration, it will favor the following
limitations upon its power in the expenditure of the proceeds of
such bonds:
- (1)
- In view of the speedy approach of a free and fair election
in October 1928, it will favor the postponement of the use
of a definite proportion of the proceeds of said
bonds—certainly not less than one-half thereof—to be
disposed of only after the inauguration of the
administration elected at such election of 1928.
- (2)
- It will further favor the creation of a nonpartisan Loan
Expenditure Commission consisting of one Liberal, one
Conservative, and one American member, to which Commission
shall be entrusted the duty of determining the purposes
towards which all of the proceeds of said bonds shall be
devoted. All of the members shall be nominated by the
President of the United States and appointed by the
President of Nicaragua. The American member shall be the
Chairman of the Commission and his vote shall be necessary
to every action and resolution thereof. The War Claims
Commission proposed under Paragraph [Section] IV above could also serve as such a Loan
Expenditure Commission.
