817.516/369a

The Chief of the Division of the American Republics (Duggan) to the Minister in Nicaragua (Nicholson)

Dear Mr. Minister: I have asked that there be sent to you by air mail a set of the letters exchanged in Washington as a result of President Somoza’s visit. The exchange of letters covers what was agreed upon here with two exceptions.

In the first place, President Roosevelt, acting entirely on his own volition, agreed that if the survey of the canal route proved that a feasible shallow draft barge canal could be constructed, he would then proceed to negotiate a supplementary treaty with Nicaragua providing for the construction of the canal at the expense of this Government, the money so expended to be deducted from the payment to Nicaragua if, as, and when a deep-water interoceanic canal is constructed. The Nicaraguans naturally were overjoyed with the President’s intentions and act as though the barge canal was as good as already agreed upon. Personally I have a feeling that this barge canal will not be built in the immediate future, regardless of what the survey may show. There is very healthy skepticism in many political quarters here as to the utility of expending the necessary funds for a barge canal. A treaty possibly might not secure the necessary two-thirds vote.

With regard to the barge canal, the Nicaraguans were informed that if the survey shows it to be practicable and before any supplementary agreement is negotiated, this Government will have to be assured that any rights which Costa Rica has, have been adequately safeguarded. This naturally implies prior negotiations with the Costa Ricans. The Nicaraguans have vigorously protested against this and may continue to work on you trying to convince you that they can take care of the Costa Ricans. If they do, might I venture to suggest that you take a rather strong line with them and maintain the Department’s position that it cannot proceed with any arrangements until it knows for itself that the Costa Ricans are satisfied. I think that you will agree that it is obvious that we do not wish to get into a dispute [Page 736] with Costa Rica because of any construction works that may be undertaken in Nicaragua. We certainly cannot rely on the Nicaraguans to get together with the Costa Ricans. We will have to ascertain for ourselves that the Costa Ricans are agreeable to the construction of a barge canal and that whatever rights they have have been taken into account and satisfied.

In the second place, President Somoza objected strenuously to contracting the services of a financial expert at this time. This was originally laid down as a condition for the attainment of the Export-Import Bank credit. The President explained at considerable length that Nicaraguan public opinion had become antagonistic to foreign financial experts … The President stated that he would like to have a financial adviser and that he intended to request one he hoped within two or three months as soon as the aroused public opinion had calmed down, but that he could not do so at the moment.

The Export-Import Bank is now looking around for a capable man to serve as chief engineer. This chief engineer will really be the high mogul so far as the construction activities are concerned.

So far as I know, President Somoza and his troop left here satisfied with what they had obtained.

With kindest regards to Mrs. Nicholson and to you,

Yours very sincerely,

Laurence Duggan