817.51/1968a: Telegram
The Secretary of State to the Minister in Nicaragua (Eberhardt)
150. Bankers have submitted Department another draft of Financial Plan. The main objection to it is that it merely provides for a loan of $3,500,000, principal amount to be used mainly for railroad construction and $500,000 for the payment of small claims. The following may also be included: $65,000 to Salvador, $300,000 for purchase of Corinto Wharf if recommended by the Commissioner of Public Works, $7526.04 for redemption of outstanding balance of the emergency issue of bank notes, $7,500 for expenses of special session of legislative body (this will be taken out if Department [Page 551] desires), and $50,000 for paving of Managua until Commissioner of Public Works can make an examination. Additional series of bonds may be issued from time to time when revenues of the Government are sufficient on a basis of three and one-half times coverage over 3 year period. Bankers state they can not make a definite obligation to take bonds at a later time with conditions which they can not foresee but will put in following stipulation:
“The Republic intends to create and to market from time to time, and in accordance with the conditions of this Article 2, additional series of bonds of the national loan, with the special purpose of completing the construction of the railway to the Atlantic Coast. The Fiscal Agents agree to use their best endeavors to assist the Republic in the accomplishment of its aims through the issuance of such series.”
The bankers state that the borrowing capacity of Nicaragua at present, should the guaranteed customs bonds and the sterling bonds be called for redemption would permit them at six and one-half per cent and 90 to sell $11,696,400 of bonds which after deducting $1,405,026 for miscellaneous purposes would leave $10,291,374 for the railroad. They add that should Nicaragua’s credit go up and the guaranteed customers [customs] bonds and sterling bonds not be redeemed until it is absolutely necessary to do so this amount will be very much increased. There is, of course, no direct commitment for further series but merely the statement quoted above. As regards claims it is provided that in addition to the $500,000 for small claims the proceeds of the sale of 51 per cent of the stock of the national bank if sold to the Fiscal Agents within 6 months of the date upon which the plan becomes effective, shall be applied to the payment of small claims. It is further provided as a priority in the application of the revenues that the Collector General shall set aside 5 per cent of all the revenues and receipts of the Republic collected and administered by him in a special fund to be known as the Republic of Nicaragua Claims Certificates Fund to be administered by the High Commission and to be used for the purchase and retirement of the Republic of Nicaragua Claims Certificates. These claims certificates will be non-interest bearing, non-assignable, non-maturing certificates of indebtedness of the Republic and will be given to all claimants after their claims have been adjudicated, after the payment of the small claims from the two funds above mentioned.
Please cable as promptly as possible the views of yourself, General McCoy and Munro regarding this matter and whether you think that a plan which provides for claims in this manner and which does not involve a definite commitment on the part of the bankers for more than $3,500,000 would be acceptable to all parties in Nicaragua.
[Page 552]The following will be inserted in the plan regarding the Mortgage Department:
“It is the intention of the Fiscal Agents to work out a plan for the establishment of a Mortgage Department in the national bank, provided that the establishment of such a Department can be satisfactorily arranged, based on the experience of similar institutions in other countries and on the feasibility of establishing such a Department in Nicaragua and on the enactment of special legislation, if and as needed, for such purpose.”