810.154/3326

The Ambassador in Nicaragua ( Stewart ) to the Secretary of State

No. 2314

Sir: I have the honor to refer to the Department’s instruction no. 1143, dated March 16, 1944, concerning highway construction in Nicaragua, as well as to a memorandum on this subject dated June 5, 1944, [Page 196] prepared by Mr. Philip W. Bonsal of the Department22 and forwarded by him from Tegucigalpa, Honduras.

The Embassy desires to submit the following comments on highway construction, which it hopes will be of use to the Department in its further consideration of this subject:

1. From the Department’s instruction under reference, it is noted that the Public Roads Administration has informed the Department that the Nicaraguan authorities wish to concentrate construction activities for the immediate future on the Sébaco–Jinotega section of the Inter-American Highway and to defer operations on the unfinished portions of the Inter-American Highway north of Condega and on the Rama Road.

The Nicaraguan authorities are presently employing approximately one half of their road-building equipment (not counting that employed in maintenance and other projects) on the Sébaco-Matagalpa section of the Inter-American Highway. Another half, approximately, is being used on the Rama Road. To work on that section of the Inter-American Highway between Condega and the Honduran border at present would mean diverting equipment from the two major projects being pursued. Moreover, the local representative of the Public Roads Administration and of the Nicaraguan Highway Department23 are both of the opinion that to work on the Condega-Honduran border section now would mean an excessively long haul of materials from base, excessive wear on rubber, which is in short supply, and also an excessive consumption of gasoline, which is likewise in short supply.

It is understood, moreover, that the connecting stretch in Honduras will not be in shape for the next two years.

2. The Department points out in its instruction under reference that the cost of completing the Inter-American Highway via Matagalpa, Jinotega, and Condega will exceed considerably the cost via Sébaco and Estelí. It is believed that this is understood by the Nicaraguan Government. Until, however, some fairly accurate estimate of that cost is available, it will hardly be useful to discuss with the Nicaraguan Government what their share of the extra cost will be or to imply that the Nicaraguan Government may not have the funds with which to meet its share. The Embassy has no information as to whether the Nicaraguan Government intends to seek an additional credit from the Export-Import Bank to meet these extra costs or whether it has funds available. It is believed, after studying the status of the Nicaraguan Government’s finances, that funds may be available without further borrowing, if the Government desires to utilize them. In any event, the status of Nicaragua’s public debt is such as presumably to justify an additional credit, if it is sought.

3. The Department alludes to the confusion which exists in the bookkeeping of the Nicaraguan Highway Department and to the fact [Page 197] that an auditor of the Public Roads Administration is currently in Managua to audit expenditures.

There can be no question that confusion does exist and that the bookkeeping system employed by the Nicaraguan Highway Department has not been adequate. Mr. Meadows, the PRA auditor, informs the Embassy that he has thus far been devoting his time to installing a new system beginning as of January 1, 1944—a process which will take at least two more months. He feels that a final audit from January 1, 1942, will not be completed until, perhaps, the end of this year.

The Embassy has no facility for fixing any blame that may attach to the unsatisfactory manner in which the accounts have been kept by the Nicaraguan Highway Department. By the agreement signed June 18, 1942,24 which was retroactive to December 1941, PRA undertook to furnish a resident manager and an auditor. Mr. Adams, the resident manager, arrived in Managua in July 1942. During the early period of the agreement, traveling auditors came to Managua for two weeks at a time. One auditor stayed only three day and left the job. Another came in April 1943 and stayed two months. An auditor has been here continuously since April 1943, when, for the first time, “Project Ledgers” were started. Mr. Meadows, the present auditor, arrived in Managua in September 1943. As of interest in understanding the auditing problem, there are enclosed, for the confidential information of the Department, memoranda dated March 9, 1944, and June 5, 1944, respectively.25 Likewise, it may be added that Mr. Meadows has expressed the very tentative opinion that in due course the whole matter can be ironed out quite satisfactorily. This, apparently, was also the opinion of Mr. Jimenez, the Export-Import auditor who completed an audit to June 30, 1943. (It is understood, confidentially, that this audit was never released, in as much as it contained statements which did not meet with the approval of PRA.) The turnover of auditors in the earlier periods, which was said to be due to the manpower shortage, has tended to enhance existing confusion.

4. The Department will recall that during the dry season it has been quite feasible to traverse all the northern section of the Inter-American Highway in Nicaragua to the Honduran border going via Sébaco, Estelí, Condega, etc. In fact, a station wagon transport system was inaugurated between San Salvador and Managua during the dry season. The Nicaraguan Highway Department has already received information that some washouts have occurred this rainy season between Condega and the Honduran border. This was expected. But transit through Honduras is subject to similar difficulties in the wet season, and no through traffic could be expected in any event.

5. In spite of the standing agreement between Nicaragua and ourselves, the Embassy is reluctant to see the immense amount of work done by the Army between Sébaco and Condega go unused. This stretch, which no longer forms the route of the Inter-American Highway, remains the shortest route, by about 50 kilometers, between Sébaco and Estelí, and it is all but finished. It was unfortunate that [Page 198] it could not have been completed by the Army before its work on Nicaraguan highways was suspended. The Nicaraguan Highway Department states that President Somoza is not averse to doing some maintenance work on this stretch, but it seems evident that Nicaragua will spend no funds to complete that road now that we have agreed to go through Matagalpa and Jinotega.

In discussing this matter while Mr. Bonsal was in Managua, the suggestion was advanced that the Sébaco–Matagalpa–Jinotega section might be considered as a spur—and a useful spur—to the Inter-American Highway but that perhaps it would be unnecessary to construct the Jinotega–Condega section. The Embassy understands that it will take three years to complete the whole Sébaco–Condega section via Matagalpa and Jinotega. It would be eminently desirable to utilize the Sébaco–Estelí–Condega sections as the Inter-American Highway. Naturally this will require negotiation with the Nicaraguans, who will naturally be reluctant to have the main road pass by this route. Property values on the other route, where there is much good agricultural land, would not be enhanced to the same extent if the Sébaco–Jinotega section became merely a spur.

Before any negotiations can be undertaken with the Nicaraguan Government, it would seem that the Embassy should be provided with fairly accurate figures of costs of the several alternatives. Mr. Jones, of the Nicaraguan Highway Department, expects to send out a survey party over the Jinotega–Condega section at an early date which, basing costs on recent experience which is assumed to be the apex of the rising cost curve, should give a relatively good estimate of that work. With figures in hand, it is possible that some agreement might be reached to use the Sébaco–Estelí–Condega stretch while, at the same time, giving Matagalpa and Jinotega good access roads.

6. Attention is invited to the intention of the PRA and the Nicaraguan Highway Department not to have the Sébaco–Matagalpa–Jinotega–Condega section pass through Estelí, but rather to go more or less directly from Jinotega to Condega.

In view of the foregoing, it would be appreciated if the Department would review its instruction no. 1143, dated March 16, 1944, and determine whether the representations to the Nicaraguan Government requested therein should now be made. The Embassy is inclined to the view that representations should await, in the case of the bookkeeping tangle, the result of the audit and, in the case of the Inter-American Highway in its northern section in Nicaragua, more accurate estimates of costs of the several alternatives.

Respectfully yours,

James B. Stewart
  1. Memorandum not found in Department files; Mr. Bonsal, Deputy Director of the Office of American Republic Affairs, was currently on tour of diplomatic missions in several Central and South American Republics.
  2. Edward W. James and Thomas A. Jones, respectively.
  3. Not printed.
  4. Neither printed.