Chapter XI: The Intervention of the United States in Nicaragua (2)

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.