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Your excellency adds that the terms of that convention, which has been published by various periodicals in North and South America, again compel your Government to enter a formal protest against the disregard of Colombia's aforesaid right of sovereignty and to reiterate the reservations made in several notes addressed to my Government by several of your predecessors in your Department, and your excellency concludes with a statement that the Minister of Colombia at Washington has also received instructions to formulate appropriate reservations at the Department of State of the United States of America,

In reply your excellency will permit me to say that inasmuch as the question involves a treaty, not yet perfected, between the Governments of Nicaragua and the United States, to the mutual advantage of both countries, which is kept secret for international reasons that concern the signatory nations only, I cannot enter into considerations of any kind bearing on any of the clauses contained in the said treaty.

But since your excellency, in referring to unofficial press reports on the subject, has taken occasion, in the notes I have the honor to answer, to make declarations about the right of sovereignty of Colombia over the mentioned islands, Great Corn and Little Corn, by turning to the protests of your excellency's predecessors in your Department without adducing further arguments in support of that alleged right, I deem it my duty to adopt and reproduce in this answer those presented in their time to the Chancellery of Colombia by the Ministers of Foreign Relations of Nicaragua— Doctor Adán Cárdenas, in 1880, Doctor Benjamín Guerra in 1890, and Don José Dolores Gámez in 1896-wherein absolute denial is made of any right that Colombia claims or may claim to the Mosquito territory; denial is even made of any possibility to question, with any semblance of justice, the plain and unexceptionable rights of Nicaragua to that territory, and the suggestion of arbitration offered by your excellency's Government is roundly rejected, for the reason that Nicaragua's rights are clear and do not admit discussion and therefore there is no territorial question whatsoever pending between the two nations.

[Here follows a long analysis of the legal history of the case.]

Therefore the dominion of Nicaragua, incontestable in every light over the Atlantic Coast belonging to her between the Republics of Honduras and Costa Rica and over the islands comprised therein, and the non-interrupted possession for four centuries of the said territory and islands, leads me to return to your excellency's Government, Mr. Minister, a definite and concrete answer to the particular point touched on by your excellency in the note of August 9 last, towit: that if Nicaragua did or should lease the Great Corn and Little Corn islands, she did or would do so by virtue of the dominion or sovereignty she holds over them-a dominion and sovereignty that Colombia lacks over Nicaraguan territory, but necessary to an objection to the acts above mentioned.

And I must add here, on the same ground, that in respect to the archipelago of the San Andrés, Vieja Provincia and Santa Catalina islands, and all other islands and keys adjacent to the Mosquito Coast, Nicaragua most solemnly denies any right of sovereignty

Colombia may allege thereto, whether it be attempted to base it on a royal order that was never carried out and was considered as nonexistent from the time it was issued, or on some unlawful possession that bears all the marks of actual forcement; and consequently reserves to herself the right to vindicate at any time her dominion and sovereignty over the said archipelago. I have [etc.]

DIEGO M. CHAMORRO.

FINANCIAL AFFAIRS _CONCLUSION OF A LOAN CONTRACT WITH

AMERICAN BANKERS; GOOD OFFICES OF THE UNITED STATESRELATION OF LOAN FUNDS TO THE MIXED COMMISSION'S AWARDS.

NOTE.—On November 4, 1912, Nicaragua entered into an agreement with the New York banking firms of Brown Brothers and Company and J. & W. Seligman & Company whereby the bankers released to Nicaragua $100,000 out of customs moneys received by them as per previous contracts; and set aside $100,000 received by them at the settlement with the Ethelburga Syndicate, to be paid to Nicaragua in such installments as might be agreed on”. This agreement was subject to the approval of the Nicaraguan Assembly before it could go into effect; the Assembly's approval had not been given at the time of the beginning of the following correspondence. The correspondence after November 4, 1912 shows nothing but routine affairs up to the following telegram of January 31, 1913.

File No. 817.51/522a.

The Acting Secretary of State to the American Minister.

[Telegram-Paraphrase.]

DEPARTMENT OF STATE,

Washington, January 31, 1913. The Department is informed that the President of Nicaragua wishes to know whether or not the bankers are prepared to accept immediate liquidation, thereby releasing all guaranties except the option on 51% of the railroad, which will not expire before March. President has received, it seems, an offer of financial backing, source not stated.

As to the request for immediate liquidation, you will informally Say to President Díaz that it is with great surprise that this Government learns of the proposition, since the financial condition of Nicaragua is quite clearly such as to make impossible the liquidation of its obligations incurred after long consultation with the United States-merely by applying the revenues to them. This

1 Continued from For. Rel. 1912, pp. 1071-1105. A résumé of Nicaragua's financial affairs from the signing of the convention of June 6, 1911, will be found. post, in the memorandum of May 22, 1913; a statement of Nicaragua's assets and liabilities, pre

ed July 15, 1913, follows; and the inclosure with the bankers' letter of November 24 shows the condition of the gold reserve at that time.

' For. Rel. 1912, p. 1105,

Government is therefore convinced that the proposed liquidation is possiblo only by assuming new obligations, which would probably be most onerous to Nicaragua.

In view of the interest, repeatedly evidenced, of this Government in the welfare of Nicaragua, and of the close relationship of the two countries—which would become even closer upon the conclusion of the proposed canal treaty-this Government could not favor any alteration in the present financial system of Nicaragua, a system that promises in a reasonable time to place the country in a stable financial condition hitherto unknown-unless this Gov. ernment had examined and approved such alteration.

Wilson.

File No. 817.51/523.
The American Minister to the Secretary of State. -
[Telegram--Paraphrase.]

AMERICAN LEGATION,

Managua, February 2, 1913.. Your January 31. President Díaz appreciates the fair dealing of Brown Brothers and the benefits thus far derived from their methods although they may have seemed to him ultra-conservative at times; and he would like to continue dealing with them. But they will not advance another dollar nor entertain a new proposition until they are certain that the incoming administration at Washington will continue the present policy. This is deeply disappointing to President Díaz, who desires to reach a definite settlement of the financial question while the present Washington administration is still in office, as it thoroughly understands that question. Nevertheless President Díaz assures me he will not enter into a final loan contract without previous consultation with the Department.

Interests inimical to the United States have industriously circulated the rumor that after March 4 the restraining influence of the United States in Central America will be withdrawn. If so, the indications are that Salvador, by its intrigues against Guatemala and Honduras, will provoke a war into which Nicaragua may be unwillingly drawn., Therefore Nicaragua is compelled, as a precaution, to adopt strong defensive measures. But there are no funds for this purpose, and the conditions are such that, I am informed, President Díaz had personally advanced $100,000 gold to purchase military supplies and to meet interest on the tobacco and liquor loan. He desires to maintain peace particularly in order that the coffee crop may be gathered and shipped--a crop worth $5,000,000 gold.

The existing financial system tends to reduce extravagance and dishonesty to the minimum, as the Fiscal Agent passes on all disbursements and publishes monthly a full account of them. In a separate telegram the Legation will venture to suggest for tho Department's consideration the outline of a plan based on this system.

WEITZEL.

File No. 817.51/523.

The Secretary of State to the American Jinister.

[Telegram-Paraphrase.]

DEPARTMENT OF STATE,

Washington, February 4, 1913. Your February 2. The bankers have telegraphed to their Nicaraguan representative, Mr. Bundy Cole, with whom you will confer. You may inform the President of Nicaragua that, as far as this Department is aware, there is no foundation for the rumor that the incoming administration will change the present policy of the United States toward Central America. Brown Brothers inform the Department that unless the agreement of November 4, 1912—carrying the additional option on the remaining 49% of stock of the railroad and the National Bank-be approved by the Assembly, their exercise of the existing option on the remaining stock would result mainly in discharging Nicaragua's debt to the bankers and would not make any large amount immediately available to Nicaragua. Although not promising to exercise these options, the bankers give the Department to understand that they wish to continue in Nicaragua and are actively investigating the desirability of purchasing the railway.

Knox.

File No. 817.51/524.

The American Minister to the Secretary of State.

[Telegram--Paraphrase.]

AMERICAN LEGATION,

Managua, February 4, 1913. My February 2. It is proposed that Brown Brothers immediately exercise their option by purchasing the entire railroad for $2,000,000 and also advance a loan of $2,500,000, for 10 years at 6%, guaranteed by the customs revenue; proceeds to be disbursed as at present (under supervision of the National Bank); the Bank to investigate all “ gold debts," and the Mixed Commission to pass on all claims; debts and claims less than 3,000 pesos (Nicaragua currency) to be paid in cash, and larger items half cash and half in “income bonds” (6%, no fixed date of maturity); interest, and sinking-fund charges on Ethelburga settlement and on the new loan, would amount to about $70,000 per month-about half the customs receipts—leaving Nicaragua an equal sum for current expenses; internal revenue to be collected and applied as at present by the National Bank, which might also be made Collector General of Customs for the sake of economy and efficiency.

The most important advantage of this plan is that it would immediately establish the security and authority of the Mixed Commission and win the confidence of the people by payment of the thousands of small awards now ready for publication. The strengthening of the Foreign Claims Tribunal would relieve the Government of the undue pressure now being brought against it, especially by Germany, Great Britain and Italy; apparently working in concert.

1 Manager of the National Bank of Nicaragua.

President Díaz and his Financial Adviser approve the proposed new loan.

WEITZEL.

File No. 817.51/525.

The American Minister to the Secretary of State.

(Telegram--Paraphrase.)

AMERICAN LEGATION,

Managua, February 9, 1913. Your February 4. As far as current expenses are concerned, President Díaz approves the bankers' proposal but he thinks they do not appreciate the need for prompt relief from the most pressing obligations, nor the strength of the influence brought to bear on the Assembly to oppose any plan not making funds immediately available.

Another plan has been proposed to the bankers, as follows: immediate purchase of the entire railroad for $2,000,000; after partial liquidation of the debt to the bankers, the balance to go toward satisfying the most of the Government's creditors and perhaps toward partial payment of Mixed Commission awards (less than 2,000 pesos). This may prove more acceptable to the bankers than the plan set forth in my February 4.

Due to the present economical management, the net earnings of the railroad for January were more than $10,000 gold, breaking all records.

WEITZEL.

File No. 817.51/525.
The Secretary of State to the American Minister.

[Telegram-Paraphrase.)

DEPARTMENT OF STATE,

Washington, February 11, 1913. Your February 4 and February 9. The bankers are giving earnest consideration to the latter plan.

Knox,

File No. 817.51/530.

The American Minister to the Secretary of State.

[Telegram-Paraphrase. )

AMERICAN LEGATION,

Managua, February 20, 1913. An English syndicate has offered to arrange a large loan at once. American bankers do not appreciate urgency of the situation.

WEITZEL,

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