114. Letter From the Ambassador in Nicaragua (Whelan) to the Assistant Secretary of State for Inter-American Affairs (Rubottom)1

Dear Dick: During a conversation with President Luis a few days ago he told me that he had telephoned Ambassador Sevilla Sacasa in Washington and asked him to approach the Treasury Department for a stabilization loan in conjunction with the International Monetary Fund similar to the agreements made with Mexico and Peru.

In a subsequent conversation with Jorge Montealegre, I learned more details. Jorge says Nicaragua will ask for standby authority to draw its entire International Monetary Fund quota ($7.5 million), if necessary, and in addition will seek a stabilization loan from the United States Treasury of perhaps about $5 million, plus something like $3 million from private banks. The IMF drawing authority and the Treasury and private bank loans would all be parts of a single [Page 238] package. Nicaragua would not anticipate using by any means all of these funds, but would want them visibly available to maintain public confidence in the córdoba.

Luis said that he thought Nicaragua would need about US $7.5 million to offset that much anticipated decline in domestic activity during the remainder of the present fiscal year, especially if the drought continues and hurts the export sales of cotton and coffee. US $7.5 million is equivalent to slightly more than the 50 million córdobas of crop loans which Luis said are overdue at the banks and which will have to be extended, drought or no drought.

Many of these loans were extended in the past because of two bad crop years, added Luis, and these extensions caused a straining of Government finances. He suggested that if the Government had a backlog of US $7.5 million it could plan on four to five years to collect the back loans and not continue the severe strain on the rest of the country’s economy.

Although Luis did not state how he thought Nicaragua could earn additional money to pay back such amounts as are drawn, he undoubtedly expects it to come in part from a coffee development program he is planning to start. The purpose of the program is to increase coffee production from an average of one-half pound to one pound per tree per year by the 1960/61 crop and to earn about US $30 million more annually from coffee export sales. This coffee program may not work so completely as Luis expects, but if it is pursued vigorously it should have at least sufficient success to help assure repayment of the drawings.

Montealegre tells me that in addition to expecting good results from the coffee development program, the Nicaraguan Government hopes by good fiscal management to exercise other pressures toward bringing exports back into a favorable balance and building up dollar reserves for repayment of the drawings.

Since assuming the Presidency, Luis has shown sound ideas in managing Nicaraguan affairs and I feel sure he will do his utmost to see that the drawings are paid back by their due dates. I told him I would write you to ask that our Government give the most sympathetic consideration to his request. I am emphatically of the opinion that it is time we gave Nicaragua some new assistance, and this seems to be a sound and constructive opportunity. This country has been our staunchest friend in Latin America, and both Luis and his father have done a good job of keeping it economically sound and politically stable. As “reward” from us they have had next to no financial assistance beyond the old Rama Road commitment and standard loans, along with other countries, for building the Inter-American Highway. They have seen other Latin American countries, less friendly to us and less successful in staying out of economic and [Page 239] political crises, receive grant aid, Smathers loans,2 and P.L. 480 assistance, in addition to Export-Import Bank loans. Now, when they come to us with what looks like a business-like proposal for a loan at a time when they are in a jam, I think we should go all out for them. If you agree, please see to it that Ambassador Sevilla Sacasa gets solid backing from the Department.

Sincerely,

Thomas E. Whelan 3
  1. Source: Department of State, Rubottom Files: Lot 57 D 573, Nicaragua Finance Loans. Confidential; Official–Informal.
  2. Reference is to loans authorized under an amendment to the Mutual Security Act of 1956, named after Senator George A. Smathers (D–Fla.), providing for the use of a portion of the defense support funds authorized in the Act for health, education, and sanitation projects and for land resettlement programs in Latin America. For text of the Mutual Security Act of 1956, see 70 Stat. 555.
  3. Printed from a copy which bears this typed signature.