817.516/225a: Telegram

The Secretary of State to the Chargé in Nicaragua (Hanna)

173. The new bankers have submitted a proposal for a preliminary agreement covering the management of the bank. Sacasa has sent this proposal by air mail, which should reach Managua tomorrow. The text is as follows:

“Preliminary Agreement between the Republic of Nicaragua (hereinafter called the Republic) and Otis and Company, The Equitable Trust Company of New York and Whitney National Bank of New Orleans (hereinafter called the bankers).

The Bankers agree to accept appointment as the Fiscal Agents of the Republic on the following terms and conditions:

The Bankers will familiarize themselves with the financial problems of the Republic in order that they may be able to give the benefit of their judgment on any specific question of financial policy which the Republic may refer for their consideration. The Bankers on their part may also submit their recommendations to the Republic whenever they deem it to be in the interest of the Republic to do so. The [Page 664] Bankers may retain experts and consultants in connection with any studies or investigation which they may make respecting the financial problems of the Republic. The Republic will facilitate such investigations, cooperate fully with the bankers and their representatives, and make available such information, records and reports as may reasonably be requested. The Republic will keep the Bankers fully informed as to all matters of public finance.
The nominee of the Bankers will take over and conduct the management of the National Bank of Nicaragua (hereinafter called the Bank) on the condition that the Republic shall make arrangements acceptable to the Bankers to insure the continuity of policy of the Bank under such management. Whitney National Bank of New Orleans will designate the person who will act as Manager of the Bank and supervise its operations. The Republic will forthwith furnish the Bankers with an audit of the Bank satisfactory to them and by accountants whom they approve. The Republic agrees that, prior to the time such Manager takes over the management of the Bank, it will not make or permit any change in the condition of the Bank as represented by such audit, except such changes as occur in the regular and normal course of business.
The Republic agrees that the matter of handling the funds of the Bank shall be left entirely to the Management of the Bank and further agrees that all funds of the Republic and of the Bank maintained in the United States shall be deposited with the Bankers or as the Bankers may direct. The terms of such deposits shall be subject to mutual agreement.
In case the Republic shall contemplate any external financing it will first negotiate solely with the Bankers. If the terms of the Bankers are not acceptable, it is understood that the Republic may then negotiate with others, but in this event the Bankers shall have the right to take over the financing in question at the price and on the terms offered by any other responsible banking house.
The Bankers assume no obligation with respect to any financial agreements or plans which the Republic has heretofore entered into and no duties, obligations or responsibilities of any nature are to be implied from this agreement except as herein specifically set forth. Further, it is clearly understood that this agreement does not create any trust or obligation in favor of, or confer any privileges or benefit on, any bondholder or creditor of the Republic.
The Republic represents that it is not a party to any agreement which in any respects is inconsistent with the terms of this agreement.
Having in mind the very proper desire of the Republic to keep its expenses at the lowest possible point, the Bankers renounce any claim for compensation for their services as Fiscal Agents. From time to time, if specific services are rendered, arrangements will be made by mutual agreement for compensation for such services. The Republic will reimburse the Bankers for all their expenses in connection with this agreement, and will defray the compensation and expenses of such experts, auditors or other consultants as the Bankers may retain, and the fees and expenses of counsel to the Bankers in connection with the preparation and execution of this agreement.
The Bankers reserve the right to resign at any time on thirty days notice to the Republic, delivered at the Legation of the Republic in Washington, D. C, or cabled to the Minister of Finance at Managua, Nicaragua.
This agreement has been submitted to the Secretary of State of the United States who has assured the parties that he perceives no objection thereto. It is understood that the agreement shall not enter into effect until it has been approved by the Executive and the Congress of the Republic.”

The draft was accompanied by the following statement:

“Prior to entering into the annexed agreement the Republic through its duly authorized representative shall address a communication to the Bankers requesting them to act as Fiscal Agents and outlining in terms satisfactory to the Bankers the program of the Republic with respect to financial and economic matters. Appropriate reference may be made to this letter in the agreement.”

You may discuss this matter with the President and furnish him with the text if he has not received it from other sources. You may say that this preliminary agreement is believed to offer a practicable solution for the problem of providing a temporary management for the bank pending the working out of a more comprehensive plan which will require time. Please inform the Department by cable of any views which the President may express regarding the draft agreement.