File No. 817.51/384.
The American Minister to the Secretary of State.
Managua, February 14, 1912.
Sir: I have the honor to report that the Department’s informal course in the matter of expediting the installation of the currency and banking plan of Nicaragua, referred to in my telegram of February 4, has had a most beneficial effect on the economic situation in Nicaragua and has likewise served indirectly to tranquilize and strengthen the political condition.
When President Díaz requested my good offices in bringing the seriousness of the matter to the attention of the New York bankers concerned, I informed him that the Legation did not wish to take any official part in the business negotiations between the Nicaraguan Government and Brown Brothers et al. I had in mind the advisability not only of refraining from any action until absolutely necessary, but also of not seeming to encourage the Nicaraguan Administration in the idea that it might be as improvident as it chose and then could call on the Legation to extricate it from its difficulties. I was convinced, however, in this particular case that the situation was critical and only prompt action would save it, as there was a sort of impasse between the Government and the currency experts, the latter being unwilling to risk their reputation on a plan of monetary reform which might fail by reason of the country’s bankruptcy, and the former insisting that the announcement of a currency plan was necessary to prevent bankruptcy.
[Page 1095]After Brown Brothers had submitted the conditions of an additional loan, as mentioned in your telegram of February 8, President Díaz and the Minister of Finance again requested my opinion in the matter submitting a counter offer stating that the Government needed cash to pay its most pressing obligations and that the proposal for the option to purchase the Pacific railroad would meet with opposition and might be rejected by the Assembly for political or other reasons.
With reference to the Railroad they were prepared to give an option for the purchase of 51 per cent, retaining the balance, and this seemed to me to be a satisfactory compromise, and possibly of even greater advantage to the bankers than the original proposition because it would ensure friendly action in the future by the Government in the matter of the railroad.
In regard to the increase of monthly allowance from the customs I intimated that a request therefor would come with better grace if accompanied by the suggestion that authority would be given for the payment of the expenses of the Claims Commission and the salaries of the excise commissioner and the police inspector from said allowance directly by the Collector General of Customs without going through the Minister of Finance. This idea was accepted and the counter proposal was sent to the bankers’ representatives, who in turn transmitted it to their principals.
Yesterday afternoon the experts, Messrs. Harrison and Conant, informed me that they had received a reply from Brown Brothers and they believed an agreement satisfactory to both sides would be reached, provided that the Nicaraguan Administration could secure the necessary legislation from the National Assembly including a provision in the law to be enacted that all remaining claims and the so-called “vales” issued by the Minister of Finance shall be adjudicated by the Claims Commission. This condition seems not only reasonable but absolutely necessary if the Commission plan is to work out successfully.
In regard to the new tentative agreement there is one point in particular to which I respectfully call the Department’s attention. It will be noted that in the proposal providing that the bankers shall have an option to purchase the Pacific railroad it is also stated that the lake steamers owned and operated by the Nicaraguan Government shall be included. Both the currency experts interpret this clause to mean that Brown Brothers will on the exercise of the option acquire a franchise to navigate the lakes and San Juan River, and Mr. Harrison, the English expert, has therefore recommended to Brown Brothers that they should forego their concession for a railroad from the Atlantic to Lake Nicaragua and instead thereof canalize the San Juan and Tipitapa Rivers thus making an all-water route from Greytown to Managua to be operated in combination with the existing Pacific railroad thereby affording transcontinental transportation.
It seems to me very doubtful if the sale of the whole or a half interest in the lake steamers carries more than a transfer of title of the physical property, but whether so or not, the Department may wish to give the matter careful study and especially consider the effect of the transaction on any treaty which the Government of the [Page 1096] United States might wish in the future to negotiate with Nicaragua relative to canal route across this Republic.
I have [etc.]