THE INTERVENTION OF THE UNITED STATES IN NICARAGUA
The Revolution of 1909--Attitude of the United States--Victory of
the Conservatives--Financial and Political Difficulties Confronting
the New Government--The Dawson Agreement and the Loan Treaty--Reform
of the Currency, Establishment of the Customs Collectorship, and
Reorganization of the Foreign Debt by the American Bankers--The
Joint Claims Commission--Failure of the Loan Treaty--The Revolution
of 1912 and the Intervention of the United States--Support of the
Government Since 1912 by American Marines--New Loans and Purchase of
the Railroad and Bank Stock by the Bankers--The Election of 1916--The
Canal Treaty--Objections of Costa Rica and Salvador--Decision of the
Central American Court--Opposition to Our Policy in Nicaragua and
the Influence of Our Policy on Our Relations with the Other Central
American States.
In October, 1909, a band of Nicaraguan Conservatives started a
revolution at Bluefields. They won over Juan J. Estrada, the governor
of the province of which that city is the capital, by proclaiming him
provisional president, and thus secured control of most of the East
Coast of the Republic. Money and supplies were obtained from some of
the other Central American countries, and also from the foreign colony
on the Coast, whose interests had been injured by certain concessions
which President Zelaya had recently granted. This assistance, and the
protection afforded by the wild country which separated Bluefields
from the rest of the Republic, enabled the revolutionists to raise a
considerable army and to organize a _de facto_ government before the
constituted authorities were able to attack them.
The uprising was from the first regarded with sympathy throughout
Central America and in Washington, for Zelaya’s continual encouragement
of revolutions in other countries had made him obnoxious to all of his
neighbors, and had led to a general belief that his administration was
the principal obstacle to the establishment of peace in the Isthmus.
The relations between Nicaragua and the United States had been strained
for some time, because of the friction caused by Zelaya’s violations
of the Washington Conventions, and because there had been a number of
unpleasant diplomatic incidents, including the prolonged dispute over
the so-called Emery claim,[57] which had culminated in the withdrawal
of the American minister from Managua. Nevertheless, both the United
States and the other Central American countries remained at first
ostensibly neutral in the contest. In November, however, the execution
by Zelaya’s troops of two American soldiers of fortune, who held
commissions in the revolutionary army, caused President Taft to break
off diplomatic relations with the Liberal administration entirely, and
to give the revolution his open, if indirect, support.
The attitude of the American government was set forth in a note
addressed by Secretary of State Knox to the Nicaraguan Chargé
d’Affaires at Washington. “Since the Washington Conference of
1907,” it stated, “it is notorious that President Zelaya has almost
continuously kept Central America in tension and turmoil.” The Liberal
administration was described as “a regime which unfortunately has been
a blot upon the history of Nicaragua.” The murder of American citizens
was but the culmination of a series of outrages which had made friendly
relations between the two governments impossible. Moreover, the United
States was convinced “that the revolution represents the ideals and
the will of a majority of the Nicaraguan people more faithfully
than does the Government of President Zelaya.” The revolution, the
Secretary said, had already attained serious proportions on the East
Coast, and new uprisings were reported in the West. This tended to
produce “a condition of anarchy which leaves, at a given time, no
definite, responsible source to which the Government of the United
States could look for reparation for the killing of Messrs. Cannon and
Groce, or indeed, for the protection which must be assured American
citizens and American interests in Nicaragua. In these circumstances,
the President no longer feels for the Government of President Zelaya
that respect and confidence which would make it appropriate hereafter
to maintain with it regular diplomatic relations, implying the will
and the ability to respect and assure what is due from one state to
another.” Both factions were to be held responsible for the protection
of American life and property in the sections under their control. The
United States would wait, before demanding reparation for the murders,
until it saw whether or not the government which was in power after
the revolution was “entirely dissociated from the present intolerable
conditions.” Meanwhile it reserved the liberty to take such action as
it saw fit to preserve its interests, and the State Department would
continue to receive unofficially both the former Chargé d’Affaires and
the representative of the revolution.[58]
This note brought about Zelaya’s fall, for he realized that he could
not hope to maintain himself against the open opposition of the
United States. After vainly attempting to come to an understanding
with Secretary Knox, the Nicaraguan ruler yielded to the advice of
President Díaz of Mexico and to the pleas of his friends at home, and
resigned his position to Dr. José Madriz, one of the most distinguished
citizens of Leon. The Liberals had hoped to placate the United States
by making president a civilian of known ability and honesty, but their
expectations were disappointed, for President Taft refused to recognize
the new executive.[59] The revolutionists also declined his offer to
open peace negotiations.
For a time, nevertheless, it appeared probable that President Madriz
would be able to restore order. On February 22, 1910, a revolutionary
army which attempted to invade the lake region was defeated and almost
destroyed, and Estrada and the other leaders, with the remnants of
their troops, were forced to retire to Bluefields. The government
at once prepared to attack that city vigorously by land and by sea,
proclaiming a blockade of the port, and occupying the Bluff, where the
customs house was situated. The final reduction of the rebel army,
however, proved impossible. The officers of the American warships,
which had been sent to the port at the outbreak of the war, refused
to allow the blockading squadron to interfere with American ships or
ships carrying American goods, and denied the right of the Government
officials to collect customs duties at the Bluff, permitting Estrada to
establish a new customs house in the territory under his control. When
the Liberal commanders, thus prevented from cutting off the supplies or
the revenues of the insurgents, prepared to take the town by assault,
the American commander forbade them to attack it from the land side,
and threatened to sink the gunboats if they shelled the rebel trenches.
This action, taken on the ground that a bombardment or fighting in the
streets would destroy the property of Americans and other foreigners,
rendered certain the defeat of the Government army, which could not
long remain encamped far from its base of supplies in the hot and
unhealthful coast district outside of the city. Within a few weeks the
besiegers were forced to withdraw into the interior.
The Liberals in control at the capital, who had already lost the
sympathy of many of Zelaya’s former supporters by their wholesale
political arrests and their partisan policy, were completely
discredited by their failure to take Bluefields, and their government
collapsed entirely when Estrada again approached the interior with
a reinforced army. There were new outbreaks at several points in the
lake region which it was impossible to suppress. Madriz left Managua
on August 20, 1910, and the revolutionists entered the city on the
following day.
The revolutionary forces were composed mainly of adherents of the
wealthy Conservative families of Granada, but there were also many
Liberals, some of whom had been prominent leaders in the revolt, who
had joined the uprising either from personal hostility to Zelaya or
from the hope of gaining something for themselves. The new provisional
president, Juan J. Estrada, was a member of the artisan class of
Managua, who had been raised by Zelaya to the position of governor of
the East Coast province, and whose leadership had been accepted by the
Conservatives only because the success of their plot at the beginning
depended upon his betraying his patron and turning over to them the
garrison at Bluefields. Another Liberal, General José María Moncada,
who had for several years been an opponent of Zelaya, became minister
of _gobernación_ in the new government, and was one of the most trusted
advisors of the provisional president. The minister of war, General
Luís Mena, had formerly been a follower of the Chamorro family, but
his military exploits during the recent struggle and his influence
with the army had given him a prestige which threatened to eclipse
that of his former patrons, and had made him the most powerful figure
in the administration. None of these men were liked or trusted by the
old Granada aristocracy, who had hoped through the success of the
revolution to regain the power which they had enjoyed during the thirty
years before Zelaya became president. Even the _Granadinos_, however,
were not entirely united among themselves, for there was no little
jealousy between some of the great families. General Emiliano Chamorro,
who had for many years been the leader of Conservative revolts against
Zelaya, had a strong following among the members of his party in all
sections of the Republic, but he was opposed by a faction headed by
the Cuadra family, who subsequently became very powerful through their
alliance with President Adolfo Díaz. It is necessary to bear in mind
these rivalries between the different leaders and groups in the new
administration, in order to understand the political difficulties which
confronted it during the two years following its accession to power.
The agreement by which the Liberals had turned over the government to
the revolutionary leaders had provided for a general amnesty, for a
free election to be held within one year, and for the recognition of
the debts contracted by both parties during the struggle. Little or
no attention was paid to the two former articles, but the debts of
both parties,--to members of the revolutionary forces,--were fully
recognized, and, in so far as the condition of the treasury permitted,
paid. Each person who had taken part in the revolt received fifty
hectares (about 123 acres) of the national lands, and vast sums were
awarded to prominent members of the Conservative party who had suffered
under the Zelaya regime from confiscation or forced loans, or even from
“moral” injuries, such as the death of a close relative. A large sum
which had been left in the treasury by Dr. Madriz was soon exhausted,
and new issues of unsecured paper money were resorted to. By April,
1911, the government admitted that the already depreciated currency
had been further inflated to the extent of 15,000,000 pesos, and in
the autumn of the same year 10,000,000 pesos more were secretly put
into circulation.[60] Some of this money was necessarily used to meet
the current expenses of the government, for the revenues had suffered
a serious decline since the revolution, but the greater part seems to
have gone to those in power and to their friends and relatives.
The emptiness of the treasury, accompanied by the inflation of the
currency to twice its former quantity, made worse the already desperate
economic situation of the country. The revolution had paralyzed
agriculture and commerce, not only by taking thousands of workers
away from their fields and shops, but also by the actual destruction
of cattle and crops, and by the complete disorganization of the
transportation system. The discontent caused by these conditions made
the position of the new government very precarious, for the Liberals,
who outnumbered the Conservatives in the country at large, had no
intention of accepting their defeat as final. They felt that they had
been beaten, not through the superior strength of their enemies, but by
the intervention of the United States; and they were encouraged to keep
up an active opposition to the government by the hope of returning to
power through the dissensions which soon appeared among the different
chiefs of the Conservative party. The opposition press, which for a
few months enjoyed and abused an unwonted liberty, kept party feeling
at the boiling point, and the bitterness between the two factions was
greatly intensified by a bloody clash between government troops and the
members of a peaceful Liberal parade at Leon in November, 1911. The
Conservative administration, bankrupt and divided within itself, seemed
for a time utterly unable to cope with the situation.
The Republic was saved from falling into a condition of complete
anarchy only by the assistance rendered to the new government by
the United States. In October, 1910, the State Department sent Mr.
Thomas C. Dawson to Managua to study the situation and to bring about
an understanding between the Conservative leaders. Through his good
offices, the so-called Dawson agreement was signed on November 5 by
the principal leaders of the revolution. This arrangement provided
for the continuance of Estrada at the head of the government, for the
appointment of a commission containing American members to pass on
all claims against the government arising out of the recent war and
out of the cancellation of concessions granted by Zelaya, and for the
negotiation of a loan treaty in the United States.[61] A constitutional
convention which met on December 31 elected Estrada provisional
president for two years, and Adolfo Díaz vice-president. The new
administration was at once officially recognized by the United States.
Estrada’s position was by no means an easy one. He could rely neither
upon the military power, which was entirely in the hands of General
Mena, nor upon the Constitutional Convention, which was composed
chiefly of followers of Emiliano Chamorro. The rival ambitions of
the different leaders soon broke down the political arrangements
established by the Dawson agreement. When the Convention framed a
constitution which would have made itself rather than the president
the actual authority in the state, Estrada dissolved it, thus breaking
with Chamorro, who left the country. Estrada later attempted to remove
from office and imprison General Mena, who had used his control of the
army to fill a new constituent assembly with his personal followers.
The military leaders remained loyal to their chief, and prepared to
secure his release by force. Only the intervention of the United States
minister averted fighting in the streets of Managua. Estrada and
Moncada, the minister of _gobernación_, resigned, and Díaz succeeded to
the presidency, with the consent of Mena. The minister of war was for
some months the real head of the government.
Meanwhile the plans for the financial reorganization of the Republic,
which had also been a part of the Dawson agreement, had assumed
definite form. Early in 1911, a study of the situation had been made
by a financial advisor appointed by Estrada at the suggestion of the
State Department. The pecuniary difficulties which confronted the new
government were growing very serious. Foreign creditors, supported by
their governments, were urgently demanding the payment of interest
on the bonded debt, and several claimants were seeking compensation
for concessions which the revolutionists had cancelled or violated.
The treasury was practically empty, and the repeated issues of paper
money which had been resorted to to provide funds had disorganized the
currency to such an extent that fluctuations in the rate of exchange
made foreign commerce almost impossible.[62]
On June 6, 1911, a treaty was signed with the United States, by which
that country agreed to assist Nicaragua in securing a loan from
American bankers for the consolidation of its internal and external
debt and for other purposes. The loan was to be secured by the customs
duties, which were to be collected, so long as the bonds remained
unpaid, by an official appointed by Nicaragua from a list presented
by the fiscal agent of the loan and approved by the President of the
United States.[63] The treaty was similar in every way to that signed
in January of the same year by the United States and Honduras, and,
like it, was never ratified by the United States Senate. On September
1, while it was still under consideration by the Senate, contracts
were signed by which Brown Brothers and Company and J. and W. Seligman
and Company, of New York, agreed to lend the Republic fifteen million
dollars when the treaty went into effect. The bankers were to purchase
the Republic’s bonds, bearing five per cent interest, at 90¹⁄₂ per cent
of their face value, and the money thus received was to be employed
for the reform of the currency, the construction of railroads from the
interior to Matagalpa and to the Atlantic Coast, and the refunding
of the external and the internal debts. As there was little hope of
immediate action on the loan treaty, for the United States Congress
had adjourned, the bankers agreed to purchase of the Republic six per
cent treasury bills to the amount of $1,500,000, in order to provide
funds for the most needed reform, an immediate reorganization of the
currency. These were guaranteed by the customs revenues, which were to
be administered until the notes were retired by a collector general
designated by the bankers. The Republic agreed that any dispute
relating to this contract should be referred to the Secretary of State
of the United States for final decision. The treasury bills were to be
retired at once if the fifteen-million-dollar bond issue took place.[64]
The product of this loan was spent by the bankers for the benefit of
the Republic. The reorganization of the monetary system was intrusted
to the National Bank of Nicaragua, an institution incorporated in the
United States with capital supplied from the loan. This was to be
managed by the bankers until such time as the treasury bills should
be paid. On March 20, 1912, a new currency law was passed by the
Nicaraguan Congress, putting into effect a plan which had been worked
out by two distinguished American financial experts, who had been sent
by the bankers to report on the situation.[65] A unit called _Córdoba_,
equal in value to one dollar United States currency, was instituted,
and the National Bank was authorized to issue paper and silver money
of the new denominations in such quantities as it might consider
expedient. This was to be exchanged for the old _billetes_ at a rate
to be fixed by agreement between the President of Nicaragua and the
bankers. The bank-notes which were to form the greater part of the new
circulating medium were to be kept at par by the sale of drafts against
a reserve fund maintained in New York by the Republic with its own
money, but managed by the National Bank. The latter was to have full
control of the currency reform as the agent of the Republic, and was to
have an exclusive right to issue paper money.
Meanwhile it had been found that additional funds would be necessary
if the currency reform were to be carried out, because the secret
issues of paper money made during the autumn of 1911, even after the
signature of the treasury bills agreement, had greatly increased the
probable expense of the reform. The bankers therefore agreed to open a
credit of $500,000 to provide the reserve fund contemplated in the plan
of reorganization, and agreed also to lend the Republic an additional
$255,000 in small monthly amounts for current expenses. Both of these
advances were to bear interest at the rate of six per cent, and were
to be repaid when Nicaragua received the money which was due to it, as
will be explained below, from the Ethelburga Syndicate. Payment was due
on October 15, 1912, but the bankers agreed to grant an extension of
time both for these loans and for the treasury bills, if the Republic
were then unable to pay them. In return, the Republic agreed to cut
down its budget and to raise the customs duties by collecting them at
a new rate of exchange. At the same time, it granted the bankers an
option on fifty-one per cent of the stock in the National Railway, the
management of which was to be turned over to a corporation formed in
the United States. This company was to be entirely controlled by the
bankers until they had received all money due them from the Republic.
As soon as the plan for the currency reform was completed the
government began to purchase and destroy the old paper money, in order
to reduce the rate of exchange, for the expert commission had decided
that a conversion at the prevailing rate of twenty to one would work
a serious injustice to some classes in the community in view of the
rapidity with which the rate had risen during the past twelve months.
This proceeding, although justifiable from a broad social point of
view, involved a heavy expense to the government, and at the same
time proved extremely profitable to those who had shared in the
distributions of paper money which had taken place since the victory
of the revolution. The National Bank was established in the summer
of 1912, and early in 1913 the new money was in circulation. The old
_billetes_ were gradually retired, being exchanged at a fixed rate of
12¹⁄₂ to one. In November, 1915, they ceased to be legal tender.
Meanwhile the Customs Collectorship had been installed in December,
1911, under the direction of Colonel Clifford D. Ham. This gentleman
has administered the service ever since, in accordance with the terms
of the treasury bills contract and of the later agreement with the
holders of the Republic’s foreign debt. The Collector General, in
his own words, has regarded himself not so much as an employee of
the Nicaraguan Government as a “trustee, with obligations to four
parties--the Republic of Nicaragua, the Secretary of State of the
United States, certain citizens of the United States, and certain
citizens of England.”[66] In accordance with this view, he has
declined to recognize the right of the Tribunal of Accounts and other
governmental agencies to exercise any authority over him, and he has
been in the main supported in this position by the higher Nicaraguan
officials. By the terms of its arrangements with the bankers, the
Republic is debarred from reducing its tariff without the latters’
consent, or from taking any other action which might lessen the value
of the guarantee afforded by the customs revenues. The collectorship,
and the readjustment of the foreign debt which its establishment made
possible, may perhaps be said to be the one conspicuously successful
feature of the American bankers’ operations in Nicaragua. The Collector
General, who has entire power to appoint and remove his subordinates,
has reorganized and reformed the service, and has succeeded in
eliminating most of the corruption and inefficiency which had prevailed
under native administration. Foreign importers and customs agencies
who had enjoyed special privileges or improper exemptions have in
some cases opposed the new regime very bitterly, but the majority of
the business men of the country have had good reason to welcome the
substitution of a fair system for one which exposed them to continual
extortion and fraud. The amount of revenue secured, in proportion to
the imports, has been greatly increased, although the paralyzation
of trade during the war of 1912 and the commercial stagnation which
has prevailed since the beginning of the European war have prevented
the receipts from reaching an amount much greater than that secured
in the days of Zelaya. Nevertheless, the collections during 1913,
the only year since the establishment of the new system in which
normal conditions prevailed, were the largest in the history of the
Republic.[67]
Negotiations with the holders of the Republic’s foreign debt were
completed in the first months of 1912, when an arrangement highly
beneficial to both parties was brought about by the American bankers,
acting on behalf of the Nicaraguan Government. Zelaya had refunded the
then existing foreign debt in 1909, by placing bonds to the amount of
£1,250,000 at seventy-five per cent of their face value, bearing six
per cent interest, with the Ethelburga Syndicate in London. As the
service of this loan had been suspended after the revolution, and the
British Government had already intervened diplomatically on behalf
of the bondholders, the need for a readjustment had been pressing. A
contract was signed on May 25, 1912, between the American bankers and
the Corporation of Foreign Bondholders, by which the latter agreed to
a reduction of the interest on the loan to five per cent, on condition
that the interest and amortization charges be made a first lien on
the customs receipts of the Republic, and that those receipts should
continue to be collected under the control of the bankers. This
agreement not only effected a saving in money and an improvement in the
credit of the Republic, but it also secured for the government the use
of a sum of £371,000, representing part of the proceeds of the sale of
the 1909 bonds, which had been held in London when the service of the
loan had been suspended. About one-third of this money was used for the
payment of interest already due, but the remainder was available, in
accordance with an agreement made on the same date between the American
bankers and the Republic, for the fortification of the currency reform
and the repayment of a part of the obligations of the government to the
bankers.
The Claims Commission provided for by the Dawson agreement began its
sessions on May 1, 1911. It was authorized by legislative decree to
adjudicate without further appeal all unliquidated claims against the
government, including especially those arising from the late war and
from the cancellation of concessions and other contracts made by former
administrations. Of the three commissioners, one was a Nicaraguan
citizen appointed by the Nicaraguan Government and the other two
were Americans, one named by the Republic on the recommendation of
the United States and the other designated by the State Department.
The commission continued its labors until late in 1914, and passed
on 7,908 claims for a total of $13,808,161 gold. Its awards amounted
to $1,840,432.31, about two-thirds of which was for small claims
presented by natives. The American holders of concessions, who demanded
$7,576,564.13, received only $538,749.71. The original intention had
been to provide for the payment of these awards with the money received
from the proposed fifteen-million-dollar bond issue. It was impossible
after the failure of the loan treaty for the government to do this,
but a sum of $158,548 was nevertheless provided from the customs
receipts for the payment of 4,116 of the smallest claims, which were
mainly for losses of livestock and similar property by poor persons
during the civil wars of 1909-10 and 1912.[68] Even though the plan
for the refunding of the internal debt could not be carried out, it
was a decided advantage both for the government and for the holders of
the claims to have them passed on by an impartial tribunal, in order
that the former might know definitely how much it owed, and that the
latter might secure the recognition of their claims as acknowledged
obligations of the treasury.
These measures had been carried out by the State Department, and by
the bankers at the request and with the co-operation of the State
Department, in anticipation of the ratification of the loan treaty by
the United States Senate. Their effect was practically to put into
operation the most important features of that agreement,--the customs
collectorship, the adjustment of the external debt, and the reform
of the currency,--despite the opposition to the State Department’s
policy which defeated the treaty in the Senate. The rejection of the
treaty, however, made it impossible to secure money for the complete
execution of the reforms which had been inaugurated by the Treasury
Bills Agreement, for the bankers were naturally unwilling to make the
large loan which had been planned for without an adequate guarantee
of the protection of their government. Their situation and that of
the Republic was thus made very difficult. The foreign debt remained
in English and French hands; the creditors of the government at home
remained unpaid; the projected railroads could not be built; and the
general improvement in the condition of business and agriculture, which
had been expected to result from the solution of the government’s
financial difficulties and the payment of its obligations to planters,
merchants, and officials, did not take place. The poor credit of the
Republic made it impossible for it to secure additional loans from the
bankers except on onerous terms, while its pressing necessities forced
it to embark on a hand-to-mouth policy of mortgaging or selling all of
its available resources in order to secure funds. The bankers, on the
other hand, had been drawn into a business which promised little profit
or credit to themselves, but from which they could not well withdraw.
Instead of underwriting a large bond issue, and aiding in an ambitious
project for the economic regeneration of Nicaragua, as they had
expected to when they first entered into the contracts of September,
1911, they have become involved deeper and deeper in the financial
support of a virtually bankrupt government.
While these financial operations were being carried out, the political
situation had become more threatening than ever. General Mena had
caused the Assembly to elect him President of the Republic, in
October, 1911, for the term beginning January 1, 1913, notwithstanding
the protests of the United States Minister and of the Granada
Conservatives, who asserted that this action was a violation of the
Dawson agreement. The strength of the opposition to this proceeding
encouraged President Díaz to attempt to throw off the control of the
minister of war. On July 29, 1912, he summarily removed the latter from
office, and appointed Emiliano Chamorro general-in-chief of the army.
Mena fled to Masaya, with a large part of the troops and of the city
police of the capital. Most of the national stores of artillery and
ammunition had been gathered in Masaya and in Granada, where Mena’s son
was in command of the barracks. The revolutionists were reinforced by
a large number of Liberals, for Benjamín Zeledón, formerly minister of
war under Zelaya, assumed the leadership of one of their armies, and
the people of Leon revolted and seized control of that city and of the
neighboring provinces. Mena’s distrust of his old enemies, however, and
his refusal to send arms and ammunition to the Leon leaders, prevented
effective co-operation between the two factions, and probably saved the
government from defeat.
As it was, the government could not expect to hold out long, with
little ammunition and few troops, while the rebels controlled
practically all the approaches to the capital. The United States,
however, could hardly permit the overthrow of the Conservative
authorities. Mena, who had fallen seriously ill, had been forced to
let the leadership of the revolution pass almost completely into the
hands of Zeledón and the Leon chiefs. If Zelaya’s followers regained
control of the government, all of the efforts of the State Department
to place Nicaragua on her feet politically and financially would have
been useless, and the interests of the New York bankers, who had
undertaken their operations in the country at the express request
of the United States Government, would be seriously imperiled. The
American Minister, therefore, demanded that President Díaz guarantee
effective protection to the life and property of foreigners in the
Republic. The latter replied that he was unable to do so, but asked
the United States to assume this responsibility itself. In compliance
with this request, American marines landed at Corinto, and assumed
control of the National Railway, which ran from that port through
Leon, Managua, and Masaya to Granada. This, as we have seen, was the
property of the government, but was held and operated by the bankers as
a partial guarantee of their loans. By September 8, traffic had been
resumed between Corinto and Granada, although the rebels still held
all of the more important cities along the route with the exception
of Managua. On September 18, the United States Minister, Mr. Weitzel,
made public an official declaration that the United States intended to
keep open the routes of communication in the Republic and to protect
American life and property. His government, he said, had been opposed
to Zelaya not only as a person but as a system, and it would exert
its influence, at the request of President Díaz, to prevent a return
to that system and to uphold the lawful authority. This pronouncement
disheartened the revolutionists and caused many to withdraw from the
uprising. On September 25, General Mena surrendered at Granada to
Admiral Sutherland, the commander of the American forces, and the
rebels were confined to their positions at Masaya and Leon. A few days
later, Admiral Sutherland ordered Zeledón to evacuate the Barranca
Fort, overlooking Masaya, on the ground that his position threatened
the railway. When the Liberal leader refused, American troops stormed
and took the position. The war soon afterwards came to an end with the
surrender of Leon to another American officer. Seven American marines
and bluejackets had lost their lives.[69]
After the revolution, it was necessary to decide upon the election of a
president for the term 1913-1917. The greater part of the Conservative
party supported the candidacy of General Chamorro, but Díaz, who
controlled the machinery of the administration, desired to succeed
himself in power. An agreement was effected through the intervention of
Mr. Weitzel, who insisted that the _Chamorristas_ accept Díaz, while
Chamorro was given the position of minister at Washington. At the
election, which was held while a large part of the American marines
were still in the country, the three or four thousand voters who were
allowed to participate unanimously approved the official ticket, which
was the only one in the field.
Since 1912, the Government of Nicaragua has practically been maintained
in office by the support of the United States, for a legation guard
of one hundred marines is kept in one of the forts at Managua and a
warship is stationed at Corinto as reminders that the United States
will not permit another uprising against the constituted authorities.
One hundred well-trained and well-equipped soldiers are in themselves
no inconsiderable force in a country like Nicaragua, and their
influence is increased by the recollection of the events of 1912.
Without their moral backing, the administration could hardly have
remained in power. Although President Díaz dealt with his opponents
more justly and humanely than has been customary in Nicaragua, and
showed great liberality in his attitude towards the expression of
political opinion in the press and in private conversation, his
administration did not have the whole-hearted adherence of any of the
larger political groups, and was for this reason decidedly unpopular.
Not only the Liberals and the friends of General Mena, but even most
of the Conservatives, were dissatisfied. General Chamorro himself
co-operated loyally with the president, but he was unable to prevent
many of his followers from conspiring to place their own faction in
power. There were, therefore, continual intrigues and frequent petty
revolts, which lessened the government’s prestige and exhausted its
energy and resources. The outbreak of another civil war was prevented,
apparently, only by the determined attitude of the United States.
Two of the causes which contributed most to the weakness of the Díaz
government were its inability to meet its current expenses and the
increasing unpopularity of its relations with the New York bankers.
At the time of Mena’s revolt, the difficulties confronting the
treasury had seemed in a fair way to solution, but the expense and
the loss of revenue due to the war made matters worse than ever. The
government was forced to ask further advances from the bankers, and
to turn over to them, as security, and in the hope of improving its
financial situation thereby, the collection of all of its internal
revenues.[70] These were administered by the National Bank for a year,
after which the arrangement was abandoned as unsatisfactory, because
of the difficulties encountered by the American administrators in
obtaining the enforcement of the fiscal laws and the prevention of the
clandestine manufacture of _aguardiente_. It was reported in October,
1916, however, that the internal revenues had again been taken over by
the bankers.
As there was no improvement in the financial condition of the Republic,
contracts providing for further assistance by the bankers were signed
on October 8, 1913. The latter agreed to purchase another issue of
treasury bills to the amount of one million dollars, bearing interest
at six per cent, and at the same time bought fifty-one per cent of the
stock of the National Railway for one million dollars, thus becoming
the owners of property which they had in fact held and operated for
more than a year. The Republic agreed to employ a part of the two
million dollars thus received in the payment of all its outstanding
obligations to the bankers and to the National Bank, including the sums
still due on the 1911 treasury bills and the supplementary loans, and
in the addition of $350,000 to the currency reserve. At the same time
it was to subscribe $47,000, while the bankers subscribed $153,000,
for an increase in the capital of the National Bank, which was to be
raised from $100,000 to $300,000. The remainder of the money, amounting
approximately to three quarters of a million dollars, went to the
Republic for its current expenses. Since the bankers acquired fifty-one
per cent of the stock of the National Bank as well as of the Railway
by these contracts, it was arranged that they should name six, the
Nicaraguan Minister of Finance two, and the United States Secretary of
State one, of the directors of both corporations.
Before these new treasury bills fell due, the outbreak of the European
war put an end to all hope for the immediate financial rehabilitation
of the Republic. The economic situation of the country at large was
already very bad before this final disaster occurred. The exhaustion
and demoralization which had resulted from two unusually destructive
civil wars, combined with the reduction of military forces in the
rural districts from motives of economy, had led to a great increase
in highway robbery and crime, which caused general unrest and
discouraged internal commerce. Matters were made worse by the continual
political agitation. The crops, moreover, had been severely damaged by
droughts and by a plague of grasshoppers, and in many districts the
agricultural population had been reduced to a pitiable state of want.
The merchants in the cities had suffered great losses from the failure
of the Government to pay for large amounts of supplies purchased or
requisitioned by it, and from the inability of the treasury to meet the
salaries of the public employees, who made up a large part of the city
population. When the outbreak of the war cut off the European credits
upon which both the coffee growers and the merchants had depended,
foreign and domestic commerce came almost to a standstill. The income
of the national treasury was greatly reduced, for the receipts from the
customs duties declined from $1,730,603.22 in 1913 to $1,237,593.33 in
1914 and $789,716.76 in 1915, and the other revenues decreased at the
same time to an alarming extent. It was manifestly impossible for the
government to meet even the most necessary of its current expenses,
if it had to discharge its obligations to foreign creditors at the
same time, and it would have faced absolute bankruptcy had not the
bankers again come to its assistance. The payment of interest on the
treasury bills was suspended, by contracts made in October, 1914, and
the bankers used their good offices to secure a similar suspension of
charges on the English debt, in order that the Republic might use all
of the reduced customs revenue for its own needs. These arrangements
have since been renewed from time to time for short periods, always
on condition that the Republic should so far as possible resume the
service of the loans if it should receive the three million dollars due
to it in accordance with the canal treaty with the United States.
The conditions created by the war put a severe strain upon the new
currency system. The replenishment of the reserve fund became well-nigh
impossible just at the time when the disorganization of international
credit, which forced exchange upon European centers to an unprecedented
figure throughout the Western Hemisphere, caused an abnormal drain upon
it. The National Bank, therefore, was forced to suspend the sale of the
drafts by which the par value of its notes had been maintained. At the
same time there was a strong popular demand for new issues of money
to supply funds for the government and to finance the coffee growers,
who were unable to secure the usual advances from abroad for moving
their crop. As a result of this, a contract was signed on December
2, 1914, by which a new issue of 1,500,000 Córdobas was provided
for,--C1,000,000 to be used for making loans to agriculturalists and
exporters, and C500,000, which was to be guaranteed by the proceeds of
a new capital tax collected by the National Bank, for the payment of
salaries and other obligations of the government. At the same time,
the Bank was authorized to pay its depositors with additional notes,
secured by mortgages and other securities. All of these issues were to
be retired as rapidly as the loans were repaid and the profits of the
capital tax were received. The interest upon the loans to planters and
merchants, which was to be at the rate of twelve per cent, was divided
between the government and the Bank,--an arrangement highly profitable
to the latter, considering that the notes were exclusively obligations
of the Republic. So long as these issues were still in circulation,
the Bank was not to sell drafts against the reserve fund, and the
government was to be relieved of its obligation to maintain that fund
at the amount required by previous contracts. The new issues of paper
and the suspension of the sale of exchange constituted of course a
temporary abandonment of the gold standard. The premium on New York
drafts rose to thirty per cent during the first months of 1915, but in
May of that year it was greatly reduced by the operations of an English
bank in Managua. Some months later, the National Bank itself resumed
the sale of drafts with its own funds, thus raising its notes again to
their par value.
Early in 1916, all parties in the Republic turned their attention
to the coming presidential election. In the campaign which preceded
this, the various political groups enjoyed a very unusual amount of
freedom in carrying on their propaganda, and each one founded clubs
and published numerous newspapers to support its candidate. The
chief factions which took part in the campaign were: the government
party, which had few friends outside of official circles; the old
Conservatives, with their chief strength in Granada, who were in the
main enthusiastic followers of Emiliano Chamorro; and the Liberals,
who, though by no means entirely at harmony among themselves, were
nevertheless united in their determination to regain control of the
government. There were also one or two lesser groups, which had hopes
of coming into power as the result of a compromise between the more
extreme parties. The Liberals, with the support of the great city of
Leon, and with a strong following in each of the other important cities
except Granada, were probably more numerous than all of their opponents
together. It was clear from the beginning, however, that the outcome
of the election would depend not so much upon the will of the majority
as upon the attitude assumed by the United States. The administration,
which had made Dr. Carlos Cuadra Pasos the official candidate,
obviously intended to perpetuate its own regime, relying on the support
of the American marines to prevent armed opposition to its plans. The
Chamorristas, on their side, believed that the United States would
insist that the Government accept their candidate, who had won general
respect during his service as minister at Washington. The security of
American interests in Nicaragua was in very large measure dependent
upon the continuance in power of the Conservative party, of which
Chamorro was undoubtedly the most popular leader; and the latter had
strong additional claims to consideration because of his loyal support
of the constituted authorities, after the disappointment which he had
suffered in 1913, and despite the discontent of his own followers with
the Díaz administration.
The Liberals, on the other hand, believed that any fair solution of the
situation would restore them to power. They unquestionably constituted
a majority of the people of the Republic, and they were on the whole
more united than their Conservative opponents. For several years they
had been endeavoring to secure the withdrawal of the marines from
Nicaragua, believing that they would easily obtain control of the
government as soon as the existing administration should be deprived of
foreign support; and they had been carrying on an extensive campaign
in Central America and in political circles in Washington with a view
to arousing sentiment against the intervention of the United States
in the internal affairs of Nicaragua. Their leaders desired first of
all to secure the withdrawal of the American marines, but many were
willing, if this proved unobtainable, to accept American supervision
of the presidential election, which would have reduced somewhat the
possibility of the exercise of pressure and the employment of fraud
by the government. Whatever chance the Liberals might once have had
to secure the recognition of their right to participate on equal
terms in the election, however, was forfeited when they nominated as
their candidate for president Dr. Julián Irías, Zelaya’s most trusted
minister, who had been closely associated with the dictator in all of
the acts which had aroused the hostility of the United States between
1906 and 1909. Although Irías was one of the ablest and most popular
leaders of the Liberal party, it was hardly possible that a man whose
election would mean a restoration of the old regime should become
president of Nicaragua with the consent and assistance of the United
States.
The United States could not well escape the responsibility for deciding
which of the three candidates should become president for the ensuing
term. A policy of non-intervention except to prevent disorder would
have meant the election of Dr. Cuadra, against the wishes of the great
majority of both parties. A supervised election, on the other hand,
supposing that it could have been conducted with any fairness, which
seemed unlikely, would probably have placed in office a president
whose avowed object was to expel the American bankers from the
Republic and to terminate American influence in the government. It was
almost inevitable under such circumstances that the Conservative party
should receive the open support of the American minister. By the time
of the election, it was evident that General Chamorro was to be the
next president. Dr. Irías had been prevented from entering Nicaragua
when he came home to conduct his campaign in August, and the Liberals
had been warned that no candidate who had been associated with the
Zelaya regime would be recognized by the United States if elected.
Somewhat later Dr. Cuadra withdrew his candidacy. The election was held
in October, and the new president, General Chamorro, was inaugurated in
January, 1917.
After the attempt to secure the ratification of the loan treaty had
been finally abandoned, the hopes of the Nicaraguan Government for the
eventual solution of its financial problems were centered upon a new
agreement signed in February, 1913, which provided for the payment by
the United States to Nicaragua of three million dollars in return for
an exclusive right to construct a transisthmian canal through the San
Juan River and the Great Lake and for the privilege of establishing a
naval base in her territory on the Gulf of Fonseca. After Mr. Bryan
assumed office as Secretary of State, this treaty was modified by the
addition of an article by which Nicaragua agreed not to declare war
without the consent of the United States, or to enter into treaties
with foreign governments affecting her independence or territorial
integrity, or to contract public debts beyond her ability to pay, and
by which she recognized the right of the United States to intervene
in her affairs when necessary to preserve her independence or to
protect life and property in her domain. This so-called protectorate
plan failed of ratification in the United States Senate, and a new
treaty, without it, was signed on August 5, 1914. Despite the strong
opposition which this also encountered in the Senate, it was finally
ratified with some amendments, and was proclaimed on June 24, 1916. The
principal provisions of the treaty as ratified were as follows:
I. “The Government of Nicaragua grants in perpetuity to the Government
of the United States, forever free from all taxation or other public
charge, the exclusive proprietary rights necessary and convenient for
the construction, operation, and maintenance of an interoceanic canal
by way of the San Juan River and the Great Lake of Nicaragua, or by way
of any route over Nicaraguan territory....
II. “... The Government of Nicaragua hereby leases for a term of
ninety-nine years to the Government of the United States the islands in
the Caribbean Sea known as Great Corn Island and Little Corn Island;
and the Government of Nicaragua further grants to the Government of
the United States for a like period of ninety-nine years the right
to establish, operate and maintain a naval base at such place on the
territory of Nicaragua bordering upon the Gulf of Fonseca as the
Government of the United States may select....
III. “In consideration of the foregoing stipulations and for the
purposes contemplated by this Convention and for the purpose of
reducing the present indebtedness of Nicaragua, the Government of
the United States shall ... pay for the benefit of the Republic of
Nicaragua the sum of three million dollars ... to be applied by
Nicaragua upon its indebtedness or other public purposes for the
advancement of the welfare of Nicaragua in a manner to be determined by
the two high contracting parties....”
Even before this treaty had been made public, unofficial reports
revealing its provisions had led Costa Rica and Salvador to protest
vigorously to the United States and to Nicaragua against what each
considered to be a grave infringement of its own rights. Their
opposition had led the United States Senate to add to the treaty a
proviso declaring that nothing in the Convention was intended to affect
any existing right of Costa Rica, Salvador, or Honduras. This, however,
did little to conciliate those states, and the efforts of the State
Department to secure their approval of the new condition of affairs
created by the treaty by an offer to make similar agreements with
them, to safeguard their rights and to indemnify them with pecuniary
compensations, proved unavailing. After the treaty had been proclaimed,
Costa Rica and Salvador took their protests to the Central American
Court of Justice, requesting that tribunal to enjoin Nicaragua from
carrying out its provisions. The Court decided to take cognizance of
the matter, despite Nicaragua’s refusal to be a party to any action
before it.[71]
Costa Rica’s case was a simple one, based upon treaty provisions. By
the boundary treaty between her and Nicaragua, signed in 1858, she had
been given perpetual rights of free navigation in the lower part of the
San Juan River, and the Nicaraguan Government had agreed to consult
her before it entered into any contract for the construction of an
interoceanic canal. There had been some dispute about the terms of this
treaty, which had led in 1888 to the submission of the questions at
issue to the arbitration of President Cleveland. The latter had held
the treaty valid, and had expressly declared in his award that: “The
Republic of Nicaragua remains bound not to make any grants for canal
purposes across her territory without first asking the opinion of the
Republic of Costa Rica.” Costa Rica asserted that the construction
of the proposed canal would interfere with her navigation of the San
Juan River, thus infringing her rights under the convention of 1858
and also under those provisions of the Washington Conventions of 1907
which granted to each Central American Republic the free navigation
of the waters of the others; that it would injuriously affect her own
territory on the banks of the San Juan; and finally that the Canal
Treaty had been signed and ratified before she had even been informed
of its provisions, and without her assent being asked at any stage of
the proceedings. Nicaragua refused to answer the complaint of Costa
Rica, and declared that she would neither recognize the competence
of the Court to assume jurisdiction in the matter nor abide by its
decision when rendered. She denied that the treaty was either a
concession for the construction of a canal, or an agreement for the
sale of the San Juan River, saying that it was only an option granting
to the United States the privilege of building a canal, under an
additional contract, at some future time.
Salvador’s case was based upon broader political grounds, and her
protests were directed chiefly against the establishment of the naval
base in the Gulf of Fonseca, in close proximity to one of her most
important ports. “It must be patent to every one,” her complaint
stated, “that the establishment, by a powerful state, of a naval
base in the immediate vicinity of the Republic of El Salvador would
constitute a serious menace--not merely imaginary, but real and
apparent--to the freedom of life and the autonomy of that Republic. And
that positive menace would exist, not solely by reason of the influence
that the United States, as an essential to the adequate development
of the ends determined upon for the efficiency and security of the
proposed naval base, would naturally need to exercise and enjoy at all
times in connection with incidents of the highest importance in the
national life of the small neighboring states, but would be also, and
especially, vital because in the future, in any armed conflict that
might arise between the United States and one or more military powers,
the territories bounded by the Gulf of Fonseca would be converted,
to an extent incalculable in view of the offensive power and range
of modern armaments, into belligerent camps wherein would be decided
the fate of the proposed naval establishment--a decision that would
inevitably involve the sacrifice of the independence and sovereignty
of the weaker Central American States, as has been the case with the
smaller nations in the present European struggle under conditions more
or less similar.”
Furthermore, Salvador asserted that the treaty violated her proprietary
rights in the Gulf of Fonseca. As successors of the Central American
Federation, she said, Salvador, Honduras, and Nicaragua exercised a
joint ownership over the Gulf, which clearly gave her the right to
object to the use of its waters for military purposes by a foreign
power. Her contention was somewhat weakened by the fact that the
three republics in question had divided all of the islands of the
Gulf between them, and that each in practice exercised jurisdiction
over a portion of it; but it was nevertheless impossible to show that
any treaty to which Salvador had been a party had ever put an end to
the community which the three adjacent republics had inherited from
Spain and the Central American Federation. Salvador also asserted
that the treaty was prejudicial to the general interests of Central
America, which despite temporary political separation was nevertheless
a definite political entity of which each of the states was still a
part. The alienation of Central American territory by one country was
a violation of the rights of the others. Such alienation was at the
same time, by a rather far-fetched interpretation, claimed to be a
violation of the article in the Washington Peace Treaty of 1907 which
declared any alteration in the constitutional order of one of the
states a menace to the welfare of all. Finally, it was maintained that
the treaty could not legally have been concluded under the Nicaraguan
constitution, and was therefore void.
The Court handed down its decision in the case of Costa Rica on
September 30, 1916. It declared that Nicaragua had violated Costa
Rica’s rights by making the treaty, but it declined to declare the
treaty void, as it had no jurisdiction over the United States. On March
2, 1917, it handed down a similar decision in the case of Salvador.
Its action has been disregarded by Nicaragua, and by the United
States. The decision has undoubtedly created an extremely embarrassing
situation. There can be no doubt that the Court had jurisdiction over
the question at issue, under the terms of the Washington conventions,
or that the other Central American countries, and particularly Costa
Rica, had strong cases against the convention, based not only upon
international law and treaty provisions, but also upon the necessity
for protecting their vital national interests. If the treaty is still
put into effect, after what has happened, both the Court of Justice and
the Washington Conventions will have ceased to be of practical value,
and our government will be committed to a policy which involves the
entire disregard of what the Central American republics consider to be
their rights. It may well be doubted whether even the great military
value of the proposed naval base, or the theoretical value of an option
on another canal route, are worth the permanent alienation of Central
American public opinion and the abandonment of the considerations of
justice and good will which have hitherto governed our relations with
the five republics.
The policy pursued by the United States Government in Nicaragua
since 1912 has caused bitter resentment throughout Central America.
The Nicaraguan Liberals and most thinking people in other parts of
the Isthmus feel that the intervention of American marines in the
revolution of 1912 and the subsequent maintenance of the administration
by armed force have reduced Nicaragua to the position of a subject
country and have gravely jeopardized the independence of the other
republics. The Díaz government has been regarded as a mere creature of
the State Department, and it is denied that the agreements made by it
are in any sense acts of the Nicaraguan nation. Both the contracts with
the American bankers and the canal convention are regarded as evidences
of an intention in the State Department to exploit the present
situation for the benefit of American capitalists and for the promotion
of an aggressive policy of political expansion. It is perhaps rather
difficult for Americans, who realize how far any purpose of territorial
expansion is from the minds of those who control our foreign policy,
to comprehend the feeling of suspicion and fear which recent events
have aroused among the more intelligent and patriotic classes in
Central America. That feeling is nevertheless in large measure
justified. No country can be said to enjoy independence when it is
constantly in danger, as the events of the last five years have shown
all the Central American republics to be, of arbitrary and sometimes
undiscriminating intervention by an outside power in their political
and financial affairs. Although the United States has been actuated
in the policy which it has pursued solely by a desire to promote the
peace and prosperity of the Central American countries, neither the
necessity for the action which it has taken nor the purity of its
motives has been fully appreciated in the Isthmus. The result has been
a misunderstanding and a sentiment of hostility which threaten, unless
steps can be taken to regain their confidence, to make the people of
the five republics regard their North American neighbor as their most
dangerous enemy.
It will be difficult to convince the Central Americans of the sincerity
of our good will or the disinterestedness of our intentions so long
as we continue to uphold a minority administration in Nicaragua by
force of arms. The maintenance of the established authority has thus
far been unavoidable because the only alternative was the abandonment
of Nicaragua to a renewal of the civil wars which reduced her to so
pitiable a condition before 1912. Peace was the first and absolute
necessity if the country were to be saved from utter ruin. But it is
unthinkable that the United States, in the name of constitutional
government, should permanently identify itself with any one faction
or that it should continue indefinitely to use its power to exclude
from all share in the administration the party to which a majority of
the people of the Republic profess allegiance. Ultimately, an attempt
must be made, either to hold a fair election or to effect an agreement
between the various parties by which a president accepted by all can be
placed in office.
Any adjustment of the political situation must necessarily involve
measures to protect the interests of the American bankers, who have
invested about two million dollars in their efforts to preserve
Nicaragua from bankruptcy and to improve her economic condition. Brown
Brothers and Company and J. and W. Seligman and Company entered upon
their dealings with Nicaragua at the explicit request of the State
Department, and it would be impossible to expose them to the partial
or total loss of their investments by withdrawing the support of the
government. The first thought of a Liberal administration would be to
undo so far as it could the situation created by the loan contracts.
Actual confiscation of property would of course be impossible, but
both the bankers and the holders of the English bonds, which are now
secured by the American collection of the customs duties, might suffer
serious losses at the hands of an unfriendly president. For this
reason, an agreement in regard to the future status of the bankers, or
an adjustment of the debts due to them from the Republic, would be an
essential part of any arrangement which aimed to terminate the American
intervention.
The motives and methods of the bankers, like those of the State
Department, have been severely impugned by the Nicaraguan Liberals and
by the leaders of public opinion in other parts of Central America.
One constantly hears charges that they are co-operating with a corrupt
and subservient administration to defraud the people, and that they
have taken advantage of the needs of the government and the greed of
the officials to secure control of all of the more valuable national
property. Those who make these accusations point to the fact that
the Republic has become heavily indebted to the New York firms, and
that the National Railway, the National Bank, the customs houses, and
the collection of the internal revenues have at the same time passed
into their hands, while the government apparently has nothing to show
in return. The more serious of these charges spring entirely from
ignorance or from partisan political motives. The Liberals are ready
to use any means and to make any statement likely to discredit the
Conservative administration or to arouse public sentiment in Nicaragua
or in the United States against the policy which has enabled their
rivals to remain in power; and the patriotic fervor of their efforts
to free their country from alien domination receives at least a part
of its force from the fact that they hope thereby to gain control of
the government for themselves. Few of them, moreover, have taken the
trouble to investigate the financial operations of the bankers in
order to substantiate the accusations which they make. The writer was
unable, during a stay of six months in Nicaragua, to find one prominent
Liberal who had even read the loan contracts. For this, and for the
statement frequently put forth that the Government and the bankers
have carried on their operations in secret and in an underhand manner,
there is no excuse, for every one of the more important contracts has
been published in the reports of the Minister of Finance, which are
easily accessible to the public. It must be remembered, however, that
there are very few persons in Nicaragua who are fitted by training or
experience to form an intelligent opinion from the perusal of these
documents.
The bankers’ investments in Nicaragua so far have been as follows:
1913 Treasury Bills $1,000,000
51% of the stock in the National Railway 1,000,000
51% of the stock in the National Bank 153,000
----------
Total (exclusive of accrued interest) $2,153,000
Earlier loans were, as we have seen, repaid or refunded with the 1913
treasury bills. These bear interest at the rate of six per cent, which
is certainly not excessive if we consider the desperate condition of
the Republic’s credit. The par value of the bankers’ holdings in the
capital stock of the railway is $1,683,000. Since the total net profits
of the line were $244,706.62 Cordobas in 1913-14, and $251,320.56 in
1914-15,[72] it is evident that it will be a valuable property under
foreign management and protection, although the return thus far has
not been great considering the dangers attending investments in such
enterprises in countries where revolutions, with their consequent
destruction of material and paralyzation of traffic, are of frequent
occurrence. It should be remembered, moreover, that the Government
still owns forty-nine per cent of the stock and thus receives nearly
half of the profits, so that it is a direct beneficiary from the
improvement in the property and the increase in the profits which
resulted from the reorganization. The Republic shares similarly in
any profits which may be made by the National Bank. This institution,
founded primarily for the purposes of the currency reform, has
apparently not made large profits up to the present time, because of
its small capital, its not very efficient management, and the heavy
expenses involved in maintaining three separate branches besides
the central office. It has received small sums for its services in
connection with the currency reform, and it has in addition loaned
considerable amounts to the government and to private individuals,
charging both twelve per cent interest, which is rather less than the
prevailing rate in Nicaragua. The wisdom, and perhaps the propriety, of
some of its operations have been open to criticism, but its services
in connection with the currency reform and its extension of credit to
the government when the latter has been in difficulties have certainly
justified its institution.
The charge that the United States Government has been guided in its
financial policy in Nicaragua by a deliberate intention to exploit
the people of that country for the benefit of American capitalists is
of course simply ridiculous. Equally so is the idea that two great
financial institutions of the standing of Brown Brothers and Seligman
and Company would compromise their reputation and devote their time
and energy in schemes for defrauding Nicaragua of a few thousands of
dollars a year. The bankers have necessarily sought to protect their
own interests, and in order to do so have imposed rather onerous
conditions upon the Republic; but it must be remembered that they have
been dealing with a practically bankrupt country, which is at the
present time unable to meet any of its foreign obligations, and that
their investments are rendered doubly insecure by the bad economic
situation and by the uncertainty of political conditions. The sums
involved and the possibilities of illegitimate profits may well seem
immense to citizens of a country whose total annual budget is only
two or three million dollars; but no one who sees the matter in its
true proportions can well believe that the bankers have been enriching
themselves very rapidly at the expense of Nicaragua.
On the other hand, it must be admitted that the loan contracts have
contained much that is objectionable from the point of view of the
patriotic Nicaraguan citizen. The situation which they have created
cannot but be humiliating to a people which values its national
independence. The collection of the public revenues by foreigners, and
the sale of the most valuable national property, however necessary for
the good of the country, has naturally been exceedingly distasteful to
public opinion. Moreover there has been a suspicion, apparently too
well founded, that some of the money received from the bankers has
benefited certain high officials rather than the nation as a whole, and
there is no doubt at all that large profits were made by members of the
party in power as the result of the currency reform. The men sent from
the United States to take charge of the various interests acquired by
the bankers have not always shown tact or ability, and some of them,
for this reason or from causes lying entirely beyond their control,
have become very unpopular. The raising of rates by the railway, and
the refusal to grant free passes to all persons of social or political
prominence, have caused much dissatisfaction; and the National Bank
has been severely criticised for its failure to make loans to everyone
who was in need of money. The currency reform was bitterly opposed at
first because of the inconvenience which the conversion caused and
the apparent shortage of money which resulted, and it was generally
regarded as a failure when the bank-notes fell below par at the
outbreak of the European war. It has since become more popular. The
financial reforms as a whole, however beneficial in the long run,
have involved expenses which the nation could ill afford. The expert
commission which worked out the currency reform, the mixed claims
commission, the officials of the customs service, and other Americans
who have been appointed to official or semi-official positions since
1912 have received remunerations which have seemed inordinately
large as compared with the incomes of the native officials; and the
publication of their salaries and their expense accounts has given rise
to many charges of extravagance.
It is easy to point out how insignificant these grievances are as
compared with the benefits conferred by the adjustment of and the
reduction of charges on the foreign debt, the immense improvement
in the operation of the railway and in the customs service, and the
establishment of a currency system on a stable basis in place of
the depreciated, fluctuating paper of former times. It is also easy
to prove that the vast majority of the people have been inestimably
better off through the maintenance of order, which has been entirely
due to the military and financial support of the government by the
United States, than they would have been if the bloody party strife
and the wars with Central American neighbors which marked the last
years of the Liberal regime had been allowed to continue. But this
does not alter the fact that the situation which exists in Nicaragua
today is inherently and fundamentally wrong, and that it cannot form a
basis for a permanent settlement satisfactory either to that country
or to the United States. Our government cannot continue to uphold by
force a minority administration and to support that administration
in a financial policy which is opposed by the great majority of the
Nicaraguan people, if it wishes to eradicate the suspicion in Central
America, and in fact throughout Latin America, that its ultimate
intention is to deprive Nicaragua, and eventually her neighbors, of
their position as independent nations.
FOOTNOTES:
[57] See U. S. Foreign Relations, 1909, under Nicaragua.
[58] For the text of the note, see U. S. Foreign Relations, 1910, p.
455.
[59] The events leading up to Zelaya’s fall are discussed in U. S.
Foreign Relations, 1909, President Taft’s message to Congress on
Foreign Relations, December, 1909, and Zelaya’s book, “_La Revolución
de Nicaragua y Los Estados Unidos_.”
[60] See Messrs. Harrison and Conant’s Report Presenting a Plan of
Monetary Reform for Nicaragua, pp. 10, 11.
[61] See U. S. Foreign Relations, 1910, pp. 764-6.
[62] The rate of exchange rose from 913% in December, 1909, to 2,000%
at the end of 1911. See the Report of Messrs. Conant and Harrison, p.
15.
[63] The text of the treaty is printed in the American Journal of
International Law, 1911, Supplement, p. 291.
[64] These and the later contracts between the bankers and the
Nicaraguan Government have been published in the annual reports of the
ministry of _Hacienda y Crédito Público_.
[65] Their report was the above cited Report Presenting a Plan of
Monetary Reform for Nicaragua. The Monetary Law is printed in the
report, p. 71.
[66] See his official report, December, 1914, p. 12.
[67] The following table, compiled from the Reports of the Collector
General for 1911-13 and 1915, shows the total receipts, reduced to
American gold, for the years 1904-15:
1904 $ 910,627.27
1905 1,282,246.86
1906 1,595,219.53
1907 1,246,844.85
1908 1,027,437.16
1909 976,554.15
1910 854,547.29
1911 1,138,428.89
1912 1,265,615.12
1913 1,729,008.34
1914 1,234,633.54
1915 787,767.11
[68] For the work of the Commission, see the article by Mr. Schoenrich,
one of its members, in the American Journal of International Law, Vol.
9, p. 958.
[69] Report of the Navy Department, 1912, p. 13.
[70] See the contracts of Oct. 31, 1912, _Memoria de Hacienda_, 1912-13.
[71] Costa Rica protested to the United States on April 17, 1913,
and to Nicaragua on April 27, 1913. Salvador protested to the United
States on October 21, 1913, and to Nicaragua on April 14, 1916. The
notes exchanged in regard to the treaty are published in Costa Rica,
_Memoria de Relaciones Exteriores_, 1913, 1914, etc., and in Salvador,
_Libro Rosado_ for the same years. The documents accompanying the cases
presented before the Central American Court have been published in
English by the legations of the two countries at Washington.
[72] Nicaragua, _Memoria de Hacienda_, 1915, p. 750.