File No. 817.51/376.

The Acting Secretary of State to the American Minister.

Sir: I enclose herewith for your information a copy of a joint letter of Messrs. Brown Brothers and Company and Messrs. J. and W. Seligman and Company, transmitting correspondence with Messrs. F. C. Harrison and Charles A. Conant, in regard to a proposed loan to Nicaragua by the Brown and Seligman companies, and the railway and canal projects which are being considered in connection therewith.

I am [etc.]

Huntington Wilson.
[Inclosure.]

Brown Brothers and Company and J. and W. Seligman and Company to the Secretary of State.

Sir: We beg to refer to our letter of November 2, 1911, informing you of our temporary loan of $1,500,000 to the Republic of Nicaragua. The purpose of that loan was to enable the Government to withdraw from circulation its depreciated paper currency, to substitute therefor a stable currency and to establish a government bank. We were assured, at the time, that the paper currency [Page 1097] outstanding represented a total of 32,000,000 “pesos,” and the amount of the temporary loan was made upon that basis.

In accordance with the loan contract, a copy of which accompanied our letter to you of November 2nd, Messrs. F. C. Harrison and Charles A. Conant, currency experts, went to Nicaragua to study currency conditions and to prepare a plan for introducing and maintaining a stable currency system. Upon their arrival in Managua, Messrs. Harrison and Conant ascertained that, since the visit to that country of Mr. Ernest H. Wands in March of 1911, the Government had issued additional currency amounting to 16,000,000 pesos and that the outstanding circulation, instead of being 32,000,000 pesos as we supposed, was in reality 48,000,000 pesos. It soon became apparent that the $1,500,000 which Nicaragua had borrowed from us would be insufficient to meet the situation. Messrs. Harrison and Conant also reported to us that the Government was in immediate need of funds for its current expenses. We thus found ourselves face to face with a situation which had been forced upon us, and much against our will we took up negotiations with the Government for the purpose of helping it out of its embarrassments. As a result of such negotiations, we have offered to make further temporary loans not exceeding $755,000, to be secured by certain revenues and properties of the Government. In consideration of the loans thus to be made, the Government has offered us an option for the purchase of a 51 per cent interest in its railway and steamship lines; these lines it proposes to transfer to an American railway corporation which shall receive a concession substantially similar to the railway concession “Schedule D,” annexed to the “Treasury Bills Agreement” of September 1, 1911, a copy of which is on file in the Department.

No agreement has as yet been signed for the new loans, but the terms upon which these are to be made are fully set forth in a proposed Act of the Nicaraguan Constitutional Assembly, a copy if which is embodied in a cablegram to Messrs, Harrison and Conant dated February 16th last. We enclose, for your information, copy of transition of that cablegram1 into English.

As further bearing upon the subject, we also enclose copy of the translation of another cablegram to Messrs. Harrison and Conant, dated February 20th.

One feature of the proposed concession is in the improvement of the San Juan River and in the construction of small canals suitable for barges to connect the two Great Lakes of Nicaragua with each other and also to connect the San Juan river with the Atlantic ocean. The suggestion as to these provisions emanated from the Government of Nicaragua, and the purpose of such provisions is thus explained by Messrs. Harrison and Conant, who in a cablegram addressed to us say substantially as follows:

“Your railway (referring to the railway which it is suggested we shall help the Government to build and which it is intended shall connect Lake Nicaragua with Rama, near the Atlantic Coast) ends either on the Great Lake or at Managua. In the first case you are at the mercy of a lake system; in the second case you are entangled in through rates. If you can control the present railways and steamers you can command the Pacific and Atlantic traffic, and until the Panama Canal is opened up you will be placed in a strong position for Pacific, Honduras and Salvador business and can probably retain the traffic once gained. The engineer who managed the lake steamers for years was with both Canal Commission surveys and has estimated that the cost of connecting the lake and the river San Juan fit for seagoing barges of five-foot draft will be somewhere between two and three million dollars. If this estimate should be corroborated by a competent engineer, the highest cost would presumably be less than the Rama route.”

We do not know whether the above views are sound, and we have as yet formed no opinion as to the value or desirability of such a system as is suggested. As, however, our acceptance of the security and of the option in no way commits us to take action in the premises, we have seen no objection to the inclusion in the concession of the special features referred to.

Very respectfully yours,

Brown Brothers and Company.
J. and W. Seligman and Company.
  1. Not printed.