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14. Bullet Diplomacy

Juan Estrada was forced to resign because he sought to prevent the adoption of a constitution protecting Nicaragua's independence. His successor, Adolfo Diaz, supported by the "moral force" of an American battle-ship, continued Estrada's policy. On January 12, 1912 the Nicaraguan Assembly managed to pass the constitution, one clause of which will serve to summarize the intensity of Nicaraguan opposition to foreign economic control. This clause read:

"No compacts or treaties shall be concluded which are contrary to the independence and integrity of the nation or which in any wise affect its sovereignty..... Congress alone may authorize loans and levy contract by indirect measures."

(Article 2. See U.S. For. Rel. 1912, p.997)

Secretary Knox ordered the American Charge d'Affairs to prevent the promulgation of the constitution until the arrival of a new American minister. Leading Nicaraguans protested against this interference. (See U.S. Foreign Relations 1912, pp. 994-996) The new American minister's first act was to study the proposed constitution and to notify Secretary Knox that paragraph 14 of Article 85 was one of the most objectionable provisions. (See U.S. For. Rel. 1912, p. 997) This section provided that "the public revenues or taxes shall not be

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alienated or leased out." (See U.S. For. Rel. 1912, p. 1003) The constitution was proclaimed on Jan. 12, 1912. Meantime the American bankers increased the national indignation by declaring that the $15,000,000 loan which they had made was insufficient, and obtaining a contract for a supplementary loan of $750,000 to organize the railways and national steamship lines as an American enterprise, giving themselves the option of buying them for two million dollars (See Pio Bolanos; p. 10). Another supplementary loan of $250,000 was made in June, and within a month the American representatives established the national bank called for by the agreement of the previous September, and took over the national railways and steamships.

On July 29 the liberal elements proclaimed a revolution and seized a large store of war materials and a part of the railways and steamers. At once over 2,000 United States marines poured into Nicaragua and began the "pacification" of the country. (U.S. For. Rel. 1912, p. 1032 ff, 1012) According to the report of the United States Secretary of the Navy for 1913, the following naval vessels with approximately 125 officers and 2,600 men participated in the subjugation of the revolution: California, Colorado, Cleveland, Annapolis,

["\\*\\*\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\

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Honduras on page 247-8 of Latin America, edited by G.H. Blakeslee).

15. Collecting on the Nicaragua Investment.

Having crushed the revolution, Brown Brothers and Company and J&W. Seligman and Company proceeded to sign a series of five contracts with the American-controlled Nicaraguan government, stipulating the following:

(1) The New York bankers were to make use of the options granted in the agreements of June 19 and October 1912, involving the railways and the steamships.

(2) The bankers were to buy 51% of the stock of the national railways and steamships for one million dollars each.

(3) The bankers were to lend $1,000,000 at six percent.

(4) The bankers were to lend $1,000,000 at six percent.

(5) The bankers were to invest $500,000 in the Pacific Coast Railroad of Nicaragua.

(6) The Nicaraguan government was to issue bonds to cover the loans advanced by the American bankers.

(7) The American bankers were to make use of the options granted in the agreements of June 19 and October 1912, involving the railways and the steamships.

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and these loans were to be secured
by a first mortgage on the customs
revenues, by a first mortgage on
Nicaragua's share of the Pacific
Coast Railroad and on Nicaragua's
share of the National Bank. Until
the bonds were paid off, Nicaragua's
share of the railroad and the bank
was to remain in the hands of the
bankers.

(7) The customs houses were to be con-
trolled by an agent of the United
States government.

(8) Nicaragua was to approve and ratify all former agreements with the New York bankers.

(9) Nicaragua was to pay all the expenses of the new transaction.
(For above see Pío Bolanos, pages 23-26, see also U.S. Foreign Relations, 1912, pages 1094-1101)

On the basis of these contracts,
Brown Brothers and J. & W. Seligman were
ready to advance two million dollars to
Nicaragua. But "on account of the un-
certainty of the foreign policy of the
United States, the lending bankers ....
declined to make further advances with a
governmental definition of a continuous
policy in the shape of a treaty". (State-
ment by Judge Arthur Thompson, member of
the Nicaraguan Mixed Claims Commission,
World's Work, Vol. 31, March, 1916, page
498.) (The title of Judge Thompson's

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article is "Renovating Nicaragua: how
our Benevolent Bayonets Went Into a
Central American Republic and Why They
Remained There."

The dependence of foreign investment
on government assistance is clearly shown
in the cable of Feb. 2, 1913, which the
American Minister in Nicaragua sent to
Secretary of State Knox declaring that
Brown Brothers "will not advance another
dollar until they are certain that the
incoming administration will continue the
present policy. This is deeply disappoint-
ing to President Diaz, who desires to
reach a definite settlement of the finan-
cial question while the present Washington
administration is still in office, as it
thoroughly understands that question". To
which Secretary Knox replied that "there is
no foundation for the rumor that the in-
coming administration (that of Woodrow
Wilson) will change the present policy of
the United States toward Central America"
and instructed the American Minister to
confer with Mr. Bundy Cole, Manager of the

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syndicate, which never sends any adequate return for it either to the United States, which paid it out, or to Nicaragua, which is supposed to receive the benefit of it... When Knox deposed Zelaya, Nicaragua was solvent... the railways were owned by the Government, the customs were collected and disbursed by native officials, the Government administered by its own funds; the laws were framed and put through by citizens of that republic. But when the conquest was completed, Nicaragua was permanently in the hands of a receiver, was in debt in the neighborhood of $15,000,000; the railways were in the possession of American bankers; these same bankers collected and disbursed the customs, owned the National Bank, administered the public finance; legislation for the government of Nicaraguan citizens was framed in Wall Street, enacted at the direction of agents of Wall Street, and administered by Americans under the control of an American banking syndicate." (John Kenneth Turner, "Shall It Be Again?" page 353)

16. Imperial Justice

One clause in the Bryan-Chamorro treaty declared that nothing in it was intended to affect any existing rights of Costa Rica, Salvador, and Honduras. It will be remembered that in 1906 and 1907 the conflicting claims of several Central American republics to the territory comprised in the proposed Nicaraguan canal led to war, and subsequently to the establishment under the direction of the United States of the Central American Court of Justice. The court was hailed, at the time of its organization, as an inspiring example of international justice. The court was also invoked again and again by the Taft administration to settle Central American disputes. (See above, Taft's message page 48)

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During the negotiation of the Bryan-Chamorro pact Costa Rica and Salvador protested (See U.S. For. Rel. 1912, p. 1022 and 1025) The naval base on the Gulf of Fonseca caused particular alarm. (See protest of Salvador, U.S. For. Rel. 1913, p. 1027). When the treaty was ratified they appealed to the Central American Court of Justice, declaring that the treaty violated their rights. The Court ruled that Nicaragua should maintain the status quo existing prior to the signing of her treaty with the United States; but both Nicaragua and the United States refused to abide by the decision of the Court. Subsequently Nicaragua refused to re-join the Court, and in 1918 the Court was formally dissolved. Thus the United States destroyed its own creation to suit its purposes.

Four specific financial adventures in which the houses of Brown Brothers and J. A. W. Seligman profited through American armed intervention were the Emery claim, the Ethelburga debt, the so-called currency reform, and the taking over of the railways.

Before his forced resignation, President Zelaya had revoked a concession held by the George D. Emery Company, an American concern which was netting about $186,000 annually. The concession

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was revoked because the company had violated its
terms. The New York bankers bought the Emery
company's claim, which was based "not upon invest-
ment but upon the profits expected during a period
of years to come." Though the bankers paid less
than $100,000 for this claim they demanded $500,000
from the Nicaraguan government. With the assist-
ance of the Taft and Wilson administrations,
they obtained it. (Turner, "Shall It Be Again?"
p. 355)

Again, just before the expulsion of Zelaya
the Nicaraguan government had negotiated a loan
of $2,250,000 with an English group known as the
Ethelburga Syndicate. A refunding scheme was ar-
ranged which, had it been carried out, would have
raised Nicaragua's foreign debt to $6,472,689.
Nicaragua, however, never received this money.
(See U.S. For. Rel. 1913, p. 1043 for official
statement of Nicaragua debts) The American
bankers claimed that the Ethelburga bonds were
fraudulent, and as the English group was not willing
to contest the matter in court, a settlement was
arranged by which the New York bankers obtained
the Ethelburga bonds at twenty-five cents on the
dollar (charge made by Senator Smith of Michigan,
quoted in Nation, May 31, 1922, p. 647) The

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American bankers, who had bought these bonds for them-
selves, then proceeded to add them to Nicaragua's
public debt at par. With the approval of Washington
they paid interest to themselves on these bonds,
nominally amounting to $6,250,000, out of the customs
receipts of Nicaragua, collected by an agent of
the State Department. (Turner: "Shall It Be Again?"
p. 357)

Again, while the American monetary expert
was reforming the Nicaraguan currency, (See U.S.
For. Rel. 1913, p. 1062) the New York bankers bought
up in their private capacity large quantities of
paper currency at the prevailing market price of
fifteen and twenty to one. Then these same bankers,
as the fiscal agents of the Nicaraguan government put
through an arbitrary exchange rate of 12 1/2 to
one. (See above, p. 66. See also U.S. For. Rel.
1913, p. 1062) By selling at these figures they
cleaned up a profit of from 25% to 75%. In addition
while the currency was still being "reformed", the
bankers advanced an additional $500,000 to Nicaragua
to aid in the work. On this loan they collected
a profit of $60,000 above the interest. This ad-
ditional profit was based on the difference in the
value of Nicaraguan money "at the time they 'loaned

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themselves the money and the time they 'repaid'
it." (Turner: "Shall It Be Again?" p. 358)

The Bankers were able to do this because of the
organisation of the National Bank of Nicaragua,
which they control. This bank, they declared on
November 20, 1913 (See U.S. For. Rel. 1913, p.
1065) was "organized for the twofold purpose of
acting as Fiscal Agent of the Government and of
doing a strictly commercial business. It operates
in two departments: The Issue Department, which
has charge of the issue of the new currency on
behalf of the Government, and the Banking De-
partment, which is charged with the ordinary
commercial business of the Bank. The two depart-
ments are entirely distinct." However, though
the two departments were distinct technically,
Brown Brothers and J.W. Seligman who owned 51%
of the bank's stock, at the same time issued the
new currency" and carried on a "strictly commercial
business".

During Zelaya's administration the national
railway had been a paying investment to the extent
that the government refused an offer of $6,000,000
for it. Under the contracts drawn up after
American military intervention the New York bankers
took over the railway for $1,000,000. (See U.S.

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For. Rel. 1913, p. 1053 for proposition as submitted
by Brown Bros. & J. & W. Seligman to State Department.
See next page for text to go into appendix. )
"Again Nicaragua did not receive a cent. The
syndicate simply made a payment to one of its New
York banks, announcing that the money would be
held against the 'debts' which it was rolling up
against Nicaragua." (Turner: "Shall It Be Again?"p. 358)

The sale of the railway on these terms served
to increase national resentment, which had been
roused continually since American interference in
1909 and the stationing of a force of marines in
1912; and once more the people of Nicaragua resorted
to revolution against the America-controlled govern-
ment at Managua. In May 1922 the revolutionaries
seized the fort overlooking the capital. Immediately
the commander of the United States marines informed
the revolutionists that he would use his artillery
on them if they persisted (Nation, June 7, 1922,
p. 667)

Today the houses of Brown Brothers and
J.W. Seligman "are practically the owners of the
revenues and properties of the Republic of Nicaragua".
(Pio Bolanos, p. 5) The State Department has es-
tablished what amounts to a protectorate through

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armed intervention. Customs are collected by an appointee of Washington; and a marine guard watches over American interests there. The Government rests on the bayonets of these marines; it is a Conservative government, the majority of Nicaraguans are Liberals, as was stated in the official Department documents quoted above. If the Liberals should control the government, they would probably undo all that the Conservatives have done under the direction of the United States.

According to the announced plans of the United States Government, the American guard of marines will be withdrawn from Nicaragua after a new administration, elected in October 1924, will take office in January 1925. The election will be supervised by the United States. An official statement issued by the State Department on February 7, 1924, shows that in addition to the power which the United States already exercises in Nicaragua, it is planned to introduce a constabulary somewhat after the Haitian plan, and after the general policy followed by modern empires in their protectorates.

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"On October 8 last the Department instructed the American Legation at Managua to inform the Nicaraguan Government that the Legation Guard of 100 Marines which has been maintained in Managua since 1912 would be withdrawn after the inauguration of the new administration to be elected in October and to take office in January, 1925. Recognizing that the withdrawal of the Marines might possibly encourage disaffected elements to create political disturbances, this Government suggested that the Nicaraguan Government might wish to organize an efficient constabulary which would assure the maintenance of order. It offered to assist in the organization of such a force by suggesting the names of qualified instructors who could be employed by the Nicaraguan Government.

"The note delivered to the Nicaraguan Government expressed the hope that the elections next October would be held under such conditions that the President elected would clearly have the support of a majority of the people and thus be in a position to maintain order without outside aid. The Nicaraguan Government has already adopted an electoral law drafted by Dr. H.W. Dodds, Secretary of the National Municipal League, who was employed at the suggestion of the United States for this purpose. In order to assure the proper working of this law, the Legation was instructed to suggest that Dr. Dodds, with such assistants as might seem necessary for putting the law into operation,

"The Nicaraguan Government, replying under date of December 13, accepted in principle the idea of establishing an efficient constabulary. Since the Government does not feel, however, that its present financial condition permits it to undertake the immense organization of this force, an arrangement is being worked out by which a few Nicaraguan army officers will receive training from officers of the Legation Guard, so that they will be better qualified to participate subsequently in the organization of the constabulary.

"The Nicaraguan Government has arranged to have Dr. Dodds visit Nicaragua during the period of