817.51/2024

Dr. W. W. Cumberland to the Secretary of State

Sir: In conformity with your instructions of November 29, 1927,65 there is submitted herewith a report on the economic and financial condition of Nicaragua, together with a draft of a financial plan which embodies recommendations for remedying the difficulties in present arrangements which have been detected.66

The financial condition of the Nicaraguan government is comparatively satisfactory. Revenues are adequate, the budget is balanced, the currency is stable, and the public debt is small. Only one pressing matter confronts the treasury, namely, payment of revolutionary claims. This can be effected in some three years from current revenues, unless funds for that purpose are obtained in connection with a general plan of refunding and financial reorganization.

Although present conditions are favorable, Nicaragua must be regarded as in a state of unstable economic equilibrium. This is caused by the fact that coffee constitutes an undue proportion of exports, with the result that either diminished volume or reduced price would seriously disturb both public and private finances.

Nicaragua is reasonably well endowed with natural resources, but those resources are difficult of development, due to deficient population, insufficient capital and inefficient leadership. No relief from these difficulties is in sight until security of life and property [Page 528] is assured and until the currency is protected from the constant threat of being manipulated for convenience of the treasury. Finally, certain revenues are ineffectively collected, and no adequate control is exercised over expenditures.

General financial reorganization is therefore desirable. It should include refunding the present debt, unification of revenue collections and control over expenditures. Debt charges should constitute a first lien against all revenues, and priority in unpledged funds should be assigned to adequate support of the newly created constabulary. Currency stability should be assured by sale of majority interest in the National Bank of Nicaragua to an American financial group of recognized strength and integrity.

Nicaragua is not at present in financial condition to undertake construction of a railroad to the Atlantic coast. If a refunding and improvement loan is floated, adequate funds would be available for the construction of a highway from Managua to the Atlantic coast, and this is recommended.

If, however, the foregoing plan of financial reorganization for Nicaragua is at present impracticable, three things should at least be done immediately:

1.
Majority interest in the National Bank should be sold;
2.
Sufficient financial support for the constabulary should be assured;
3.
Claims should be paid by assignment of specified revenues to that purpose.

If the United States should take an active interest in the finances and general administration of Nicaragua, the utmost care should be exercised in selecting American personnel for those purposes. At best the task will not be easy, and incompetent or unsympathetic American officers could well create more serious problems than those which they would be supposed to solve.

Very truly yours,

W. W. Cumberland
  1. Foreign Relations, 1927, vol. iii, p. 419.
  2. See W. W. Cumberland, Nicaragua: An Economic and Financial Survey Prepared, at the Request of Nicaragua, Under the Auspices of the Department of State (Washington, Government Printing Office, 1928).