The Minister in Nicaragua (Eberhardt) to the Secretary of State
[Received January 7—1:35 p.m.]
9. Nicaraguan Congress is now considering law for bond issue to cover claims of present and recent revolutions as claims to be passed upon by Mixed Claims Commission consisting of one Liberal, one Conservative and the American High Commissioner Hill. To furnish additional funds for the service of the new bonds the proposed law provides a second customs surcharge of twelve and one-half percent and a coffee export tax. Under article IV, section 2, of the Financial Plan,32 these revenue increases must be approved by the High Commission consisting of Hill, Helton [Jenks?]33 and the Minister of Finance and the bankers Brown Brothers and Company and J. and W. Seligman and Company.
Hill and Ham34 believe that the increases should not be approved unless the entire proceeds are earmarked for the new bonds. Reasons: bonds unsecured by earmarked revenues would not have high market value; Government might not meet service regularly owing to extraordinary needs.
President Diaz and bank manager Rosenthal believe new increases should be turned into general revenues and left free for pledging a new loan if needed. They think the proposed bond loan would be amply secured by the general surplus, which they point out, judging from the receipts of the past 7 years, may be expected to be adequate [Page 422]to take care of a three to four million dollars bond issue in addition to certain existing fixed charges against the surplus as for the National Guard, paving, sanitation, etc. They believe that the borrowing power of the Government should not be weakened by assigning too large revenues for the proposed loan and leaving no special revenues free [for] a future loan. They argue that while the recipients of the bonds might desire to have the bonds over secured as recommended by Hill, the best interests of the Government should be considered first. The new bonds are not to be sold to obtain funds for productive purposes but are to be given in settlement of claims many of which will be excessive. However just claims may be, they can only be satisfied within the limits of the financial possibilities of the country and to sacrifice its best interests merely to make the bonds attractive for claimants would seem unnecessary and unwise. Rosenthal states that the bankers interested in the financial plan concur in these views and that Diaz has been so advised. If Jenks agrees with the bankers he and the Minister of Finance can out vote Hill.
It would appear to me that claimants receiving the new bonds would be amply secured if given a first lien on the surplus subject to the present prior emergency lien thereon of the customs bonds of 1918 which has never been invoked as the specially ear-marked revenues for that issue have always produced more than necessary allowing so far an average yearly amortization more than twice the required minimum. The approved claims will probably amount to some three million dollars, therefore to treat claimants as generously as the guaranteed customs bondholders of 1918 will necessitate such hypothecation of revenues as will make Government borrowing in the near future for constructive purposes for Atlantic Railway, et cetera almost impossible.
I have been consulted by members of the Government who wish to follow the Department’s indications and by the Americans interested here and have stated that I would submit the question to the Department and request instructions.
- For the loan agreements and financial plan of 1920, see The United States and Nicaragua, a Survey of the Relations from 1909 to 1932 (Washington: Government Printing Office, 1932), pp. 37 ff. For the loan agreements and financial plan of 1917, see ibid., pp. 33 ff., and Foreign Relations, 1917, pp. 1138–1141.↩
- Jeremiah Jenks, Umpire for the High Commission of Nicaragua.↩
- Clifford D. Ham, Collector General of Customs of Nicaragua.↩