817.51/9–2244
The Ambassador in Nicaragua (Stewart) to the Secretary of State
[Received September 30.]
Sir: I have the honor to refer to the Department’s instruction no. 1319 [1316], dated August 12, 1944, regarding the possibility of terminating the official connection of the United States with the Collectorship General of Customs in Nicaragua, as well as the Department’s telegram no. 388, dated September 16, 7 p.m., 1944,61 requesting the expediting of a reply thereto.
Immediately following the receipt of the Department’s instruction under reference, Mr. Roland H. Brownlee, Junior Economic Analyst assigned to this Embassy, was requested to prepare a study setting forth the origins of the Collectorship General, its present status, the status of the Nicaraguan public debt which bears a relationship thereto, and the resources which the Nicaraguan Government has presently available to liquidate the debt on which the Collectorship General is predicated. This study, which was terminated on September 6, 1944, was held for the perusal of an officer of the Embassy who was then on leave of absence and who has now returned to duty. A copy of Mr. Brownlee’s study is annexed.61
In summary, it appears that the appointment of an American Collector General of Customs was first visualized in the Knox–Castrillo Convention of 1911,62 in which Nicaragua obligated itself to seek a loan subject to the approval of the United States having as its security the customs receipts collected by a Collector General of Customs who [Page 1420] was to be approved and protected by the United States. The American Senate did not consent to the ratification of this Convention, and it has never been ratified.
Prior to the Senate’s rejection of the Knox–Castrillo Convention, but in anticipation of its ratification, the Nicaraguan Government issued $1,500,000 in Treasury Certificates which were sold to New York bankers.64 The terms of the sale of these Certificates provided that they should be serviced from the proceeds of customs receipts collected by a Collector General of Customs under the identical conditions provided for in the Convention, except that their servicing was to be a second lien on the customs receipts following the servicing of the so-called Ethelburga Loan, which had been concluded in 1909.
The Ethelburga Loan, contracted for in England, was on the basis of the issuance of £1,250,000 gold bonds by the Nicaraguan Government, to bear interest at 6%. In 1912, however, following an agreement between the Nicaraguan Government and the Corporation of Foreign Bondholders,65 the interest rate was reduced from 6% to 5% on condition that no default in interest or amortization payments occurred and, provided further, that the customs should continue in the charge of a Collector General approved by the Secretary of State of the United States. As from the time of this agreement, it appears that the syndicate which had underwritten the Ethelburga Loan vanished from the picture, and the interests of the bondholders have since been represented exclusively by the Corporation of Foreign Bondholders.
It would appear that the original appointment of a Collector General of Customs took place upon the nomination of the New York bankers who purchased the Treasury Certificates in 1911. The Secretary of State approved the nomination in the following terms:
“… my approval of the person selected for the post of Collector-General of Customs of Nicaragua must not in any wise be understood as indicating that the Government of the United States will lend any other or further good offices in the protection of the American citizens parties to this contract than it would accord to any legitimate American enterprise abroad, nor that this approval places the bankers in any better position in regard to seeking this protection than if I took no part whatever in the approval of a Collector-General of Customs.”66
The President of Nicaragua67 then appointed the nominee of the bankers to office.68 This would appear to have been a contract between [Page 1421] the bankers and the Nicaraguan Government which was approved by the Secretary of State within the limits of the Secretary’s qualifying statement. This contract may be presumed to have come to an end when the Treasury Certificates were liquidated, as they were a few years later.
Thereafter, the continuance of the Collectorship was one of the two conditions which formed the basis of the 1912 agreement between the Ethelburga bondholders represented by the Corporation of Foreign Bondholders and the Nicaraguan Government providing for the reduction in the interest rate of from 6% to 5%. The other was that there should be no default in interest or amortization payments. The Embassy has discovered no instance in which the United States made a commitment to the bondholders themselves to continue the collection of Nicaraguan customs by a Collector General approved by the Secretary of State.
Since Mr. Ham, the first Collector General, continued in office until June 1928—long after the liquidation of the Treasury Certificates of 1911—it would seem that he remained in office during this period with at least the tacit approval of the United States. Upon his resignation, Mr. Irving A. Lindberg was appointed, but the records available in Managua (except possibly those of the Collectorship General itself, which for obvious reasons have not been consulted) do not indicate by whom he was nominated nor whether his nomination was approved by the Secretary of State with the previous qualifications, with others, or without any. Obviously, the bankers who nominated Mr. Ham were no longer in the picture, because the Treasury Certificates purchased by the bankers in 1911 and 1913 had long since been liquidated. It seems doubtful whether the nomination would have been made by the British Corporation of Foreign Bondholders. Possibly the fact that Mr. Lindberg had functioned as the deputy to Mr. Ham since 1912 was deemed automatically to have effected his nomination.69
So far as concerns the present status of the so-called Ethelburga Loan—the only outstanding debt on which the Collectorship General appears to be predicated—there remained outstanding on December 31, 1943, only £387,840 ($1,887,423), about one-third of the original issue. On this sum interest at the rate of 4% is being paid as a result of a further agreement with the Corporation of Foreign Bondholders in June, 1937. The debt service is approximately $126,000 per annum, a sum calculated to liquidate the loan in January, 1957—or thirteen years hence—when the last bonds fall due.
It will be observed from Mr. Brownlee’s study of the present condition of Nicaraguan finances that the total debt of the country as of [Page 1422] December 31, 1943, was $5,669,791, of which $3,428,000, the largest single item, was owed to the Export-Import Bank. The servicing of this latter debt has been well-maintained, as have all of Nicaragua’s debt services in recent years. The excellent condition of Nicaragua’s finances is attested not only by the fact that the Guaranteed Customs Bonds of 191870 and the Frozen Commercial Debt of 1939 [1938]71 were paid up in full 10 and three years in advance of their respective due dates,72 but also by the very substantial proportions of the Exchange Stabilization Fund currently maintained in New York by the National Bank of Nicaragua. This latter fund has been increased from about $4,700,000 at the end of 1942 to more than $9,500,000 on July 31, 1944.
In approaching the Nicaraguan Government with a view to the termination of our connection with the Collectorship General, the Embassy believes that it could be explained that the United States, in line with the policy it has adopted in liquidating special relationships in Cuba, the Dominican Republic, and Haiti, desires to liquidate as soon as possible all other vestiges of special responsibilities it has assumed in the other American republics, including the responsibility we have in a certain measure for the Collectorship General in Nicaragua. In view of the presently advantageous situation of Nicaraguan finances, the query arises whether the Nicaraguan Government would be prepared within a relatively short period to call the outstanding Ethelburga bonds with a view to their cancellation well in advance of 1957. This would create a situation in which our responsibility in the Collectorship General would automatically be terminated.
Failing interest of the Nicaraguan Government in the early cancellation of the Ethelburga bonds, we could then inform the Corporation of Foreign Bondholders and the Nicaraguan Government that it has for some time been the policy of the United States to liquidate special relationships in the other American republics which originally were designed, in part, to give protection to American investors; that such relationships have now been liquidated with respect to Cuba, the Dominican Republic, and Haiti; that we would not now desire to continue our special relationship to the Collectorship General in Nicaragua, even though the outstanding Ethelburga bonds were held by American citizens; and that there would seem to be still less reason for maintaining this relationship in as much as the remaining bonds are reported to be held outside the United States. The United States Government has therefore reached a determination, whenever the appointment [Page 1423] of a new Collector General should again be required, to withhold from the appointment the approval of the Secretary of State. The Embassy favors this suggested procedure over others.
The Nicaraguan Government should, perhaps, be informed simultaneously that the United States entertains no objection to its employment of American citizens to collect the customs or for any other worthy purpose. If for any reason, as a result of putting into effect the measures referred to above, American citizens should lose their positions after many years of service, it would be hoped that they would receive such pensions or other compensation in a measure to which their services might entitle them.
Should the Nicaraguan Government assert that, after calling the outstanding Ethelburga bonds, its reserves would be reduced to a point imperiling the fulfillment of the road building program73 and that an additional credit from the Export-Import Bank would be necessary for that purpose, it is believed that the improved credit position which would result and Nicaragua’s present healthy financial situation might perhaps warrant the consideration of such an additional credit, if desired.
With respect to the High Commission,74 attention is invited to the report rendered to the Secretary of State on June 30, 1944, by Colonel Lindberg,75 on page 7 of which it is stated that, “Practically, the work of the Commission will terminate on June 30, 1944.”
Respectfully yours,
- Not printed.↩
- Not printed.↩
- For text of loan convention, see Foreign Relations, 1912, p. 1074.↩
- See Foreign Relations, 1912, pp. 1078 ff.↩
- Referred to more accurately as the British Council of Foreign Bondholders, or the Council of Foreign Bondholders of London.↩
- Quotation from a letter of November 11, 1911, from Secretary Knox to the New York bankers, Brown Brothers and Company and J. and W. Seligman and Company; Foreign Relations, 1912, p. 1079.↩
- Adolfo Díaz.↩
- Col. Clifford D. Ham.↩
- According to a memorandum of October 7, 1943, by John Cabot (not printed) Irving Lindberg was also approved by the Secretary.↩
- The Guaranteed Customs Bonds of 1918 were issued in the amount of $3,744,150 at 5% interest and guaranteed by a 12½% customs surcharge on import duties; see Foreign Relations, 1918, pp. 828–831.↩
- Reference is presumably to an agreement of September 13, 1938, between the Government of Nicaragua and the National Foreign Trade Council of New York, which provided for the liquidation of the frozen commercial debt.↩
- Both debts were retired in 1943.↩
- For correspondence concerning construction on the Pioneer and Inter-American Highways in Nicaragua, see pp. 187 ff.↩
- The High Commission, still nominally in existence at the time of this despatch, was established by the Financial Plan of 1917, sometimes called the “Plan Lansing.” For correspondence concerning the Commission, see Foreign Relations, 1917, pp. 1123–1141. Describing the Commission in his memorandum of October 7, 1943, John Cabot wrote: “The Nicaraguan member is the Minister of Finance, the American member is Colonel Lindberg; I understand that it has not been necessary in recent years for the Secretary of State to appoint an arbiter, as provided by the Plan. The High Commission originally had certain duties in connection with the Nicaraguan budget, and the service on loans, but so far as I can make out the last of these duties lapsed with the repayment of the Customs bonds of 1918.” (817.51/8–1244)↩
- Report in Spanish, dated June 15, 1944, addressed to President Anastasio Somoza of Nicaragua, copy of which was transmitted to the Department by Colonel Lindberg under covering letter of June 30, 1944; not printed.↩