contract, and aid in enforcing its execution." The bankers and Nicaragua were to submit disputes to arbitration by the Secretary of State of the United States. Secretary Knox ordered the American chargé d'affaires to keep the Nicaraguan legislature in session until the loan agreement of September I was approved.

Correspondence between American agents in Nicaragua and the State Department at Washington continued to show that the United States was prepared to force political and financial control upon the little republic in the face of almost nationwide opposition. On July 12 the American chargé d'affaires notified Secretary Knox that "opinion generally expressed is that the United States Government has repudiated its policy of protecting Nicaragua against foreigners holding rights in ruinous concessions or contracts. . . . I strongly urge that no further action be taken until the assembly approves the loan contract." A month later he cabled that the "opposition to these loan contracts and concessions is becoming more determined." 1

The State Department replied on September 30: "You are instructed that of the Nicaraguan matters under consideration by the Department, the ratification of the pending loan contract and the amendment of the decree establishing a claims commission are of the first importance and should be disposed of before attention is directed to other subjects." On October 5 the State Department again instructed Gunther that "attention should be steadily directed to the loan and the claims commission matters; they are of the first importance and should be disposed of before consideration of political subjects, which should not be discussed unnecessarily." The Nicaraguan assembly approved the loan contracts on October 9.2

Under this agreement Secretary of State Knox appointed Colonel Clifford D. Ham as customs collector of Nicaragua. Colonel Ham was recommended by Brown Brothers and Com

1 U. S. Sen. For. Rel. Com., “Convention Between the U. S. and Nicaragua," Part VI, p. 636, 639.

2 Ibid., pp. 667-70.

pany and J. and W. Seligman and Company as a person "worthy of our confidence."1 From December 11 on, Colonel Ham collected the entire customs duties of Nicaragua. In December there also arrived in Managua Mr. Charles A. Connant of New York and Mr. Francis C. Harrison, formerly of the British Civil Service in India, to act as monetary experts for the bankers.

14. A Network of Loans

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 battleship, continued Estrada's policy. While the loan contracts were being forced on Nicaragua, the assembly completed a new constitution. Chargé d'Affaires Gunther notified the State Department that this constitution provided that all government employees must be Nicaraguans except those on the Claims Commission, and that after adoption the constitution could be amended only by approval of two successive congresses. Gunther asked that the signing of the constitution be postponed: he had "in mind the customs authorities who are not Nicaraguans," but Americans. President Diaz and General Mena, who controlled the assembly, promised that the constitution would not be promulgated until January 31. Secretary Knox insisted that the promulgation of the constitution be postponed until the arrival of the new American minister, Mr. Weizel, on about January 18.2

The Nicaraguan assembly resented American interference. On January 12 it ordered the promulgation of the new constitution in a decree declaring that the "interposition of the Chargé d'Affaires of the United States carries with it, in effect, an insult to the national autonomy and the honor of the assembly." 3

The new American minister's first act on arriving in Nic

aragua was to study the new constitution and to notify the State Department of the provisions which he considered objectionable. He called the Department's attention to Article 2, which provided that "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." Article 55 provided that "Congress alone may authorize loans and levy contract by indirect measures." 1 The constitution also provided that foreigners must present their claims against the government in the same ways as Nicaraguans, and prohibited monopolies for the benefit of private individuals.

Minister Weizel called the State Department's attention to paragraph 14 of Article 85 as "most susceptible of adverse criticism." This section vested in the assembly the power to alienate or lease national property and to authorize the executive to do so "on conditions suitable to the Republic." It added that "the public revenues or taxes shall not be alienated or leased out." 2

The constitution was promulgated with these clauses in it but the American bankers disregarded them in subsequent contracts and agreements. On March 26, 1912, they entered into an agreement with Nicaragua for a supplementary loan. Part of this loan-$500,000-was to be used by the monetary experts in stabilizing the exchange; the rest-$225,000-was to be used by the Nicaraguan Government for current expenses. The loan was for six months at six per cent, with an additional bankers' commission of one per cent. It was to be secured by the customs revenues, second only to the 1911 loan; by a lien on all government railway and steamship lines; and by the claims of Nicaragua against the Ethelburga syndicate of London. Proceeds of any sale of railways or steamships or any agreement with the Ethelburga syndicate were to be used for the repayment of the loans under this agreement. Anything left over was to be used for repaying the 1911 loan. This agreement also provided that Nicaragua should transfer all its 1 U. S. "Foreign Relations," p. 997.

2 Ibid., p. 997, 1003.

railway and steamship lines to a corporation to be organized in the United States and to be tax free. The bankers were to have a one-year option to buy 51 per cent of the capital stock of this new corporation for $1,000,000. If the bankers exercised this option they were to lend the company $500,000 for extensions and improvements. The bankers were also to have an option on the other 49 per cent; Nicaragua could not sell its share to anyone except the bankers until all the loans were paid up. Pending repayment the American bankers were to manage and control the railways and steamship lines exclusively and to choose the board of directors.1 These loan negotiations were carried on jointly by the State Department and the bankers.2

By

Two months after this agreement was signed the American bankers signed an agreement with the Ethelburga syndicate of London. The Ethelburga bonds represented a loan contracted by the Zelaya government in 1909 for 1,250,000 pounds. the agreement signed on May 25, 1912, the London balance, after interest and sinking fund had been paid off on the bonds, was transferred to the American bankers for account of Nicaragua. This balance amounted to about $1,195,000. The May 25 agreement was negotiated by the bankers in the name of Nicaragua. Under its terms the republic was to recognize the right of the American bankers and the London interests to "apply to the United States for protection against violation of the provisions of this agreement and for aid in the enforcement thereof." Among the provisions was that the bonds were to be secured by the Nicaraguan customs to be collected by Ameri

The American bankers communicated with the State

Department throughout the negotiations.3

On the same day that this agreement was signed with the Ethelburga bondholders the American bankers signed another agreement with Nicaragua supplementing the loan agreement of March 26. The March 26 loan was secured, in part, by the 1 U. S. Sen. For. Rel. Com., "Convention Between U. S. and Nicaragua," Part VI, pp. 210-16.

2 U. S. "Foreign Relations," 1912, pp. 1093-1100.

3 Ibid., pp. 1081-2, 1100–1. U. S. Sen. For. Rel. Com., supra, Part VI, pp. 234-5; 239-49.

Ethelburga bonds. The supplementary agreement of May 25 provided that after interest and sinking funds on the bonds had been paid the balance should be used to repay loans made by the American bankers to Nicaragua.1

15. Bullet Diplomacy

Meantime the unpopularity of President Diaz increased. He was able to stay in power only because of American support. His opponents in the legislature were calling for an election. The American minister, with the approval of the State Department, informed them that before settling the political affairs of Nicaragua they should establish the proposed national bank and place the republic on a sound financial basis.

The Liberals refused to wait. On July 29 they proclaimed a revolution, seizing a large store of war materials, a part of the railway and steamers, and several customs houses. The American manager of the Bank of Nicaragua, Mr. Bundy Cole, wired to James Brown of Brown Brothers and Company, in New York, for protection. Brown Brothers and Company replied that the State Department advised them that Major Butler would arrive from Panama with American marines. On August 15 Major Butler landed with 412 marines, half of whom were quartered at the bank. On September 4, 1912, the State Department notified the American minister at Managua that "the American bankers who have made investments in relation to railroads and steamships in Nicaragua, in connection with a plan for the relief of the financial distress of that country, have applied for protection." The American marines at once took drastic action against the revolutionists. 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, Tacoma, Glacier,

1 U. S. Sen. For. Rel. Com., supra, Part IX, pp. 400-1.

2 Ibid., Part XIII, pp. 504-10.

8 U. S. "Foreign Relations," 1912, p. 1043.