1942: Nicaragua

A comprehensive financial and economic agreement signed with the United States in the spring (1) allocates an Export-Import Bank loan of $500,000 to the National Bank of Nicaragua; (2) provides that the United States shall bear two-thirds of the cost of completing the Nicaraguan section of the Inter-American highway, as well as aid in building a road linking the Atlantic and Pacific coasts; (3) establishes high priority ratings for supplies and equipment needed by essential Nicaraguan industries; (4) guarantees the purchase over a five-year period by the United States Rubber Reserve Corporation of all Nicaragua's exportable rubber; and (5) offers Nicaragua the assistance of United States Department of Agriculture experts in rubber and abacá (hemp) cultivation. A supplementary convention, announced on Nov. 22, covers a link in the Inter-American highway, for which the United States will provide funds for hard-surfacing. This link is considered important in continental defense as well as an aid in quickening transportation between Nicaragua and the United States.

A cotton crop control measure was passed in August with a view not only to limiting planting to acreage sufficient for domestic and export needs, but also to diversifying the Republic's crops and lessening its heavy dependence on coffee, which is Nicaragua's second export. Because of the quota system, coffee prices are 40 per cent higher than two years ago. Gold is the chief export product, accounting for 60 per cent of the country's 1941 exports, which were the largest in value since 1926. The figure for gold exports in 1941 was $7,500,000 out of a total of $12,000,000; coffee followed with $2,500,000. Gold and coffee thus together account for about 90 per cent of the Republic's total exports. For the month of January 1942, gold exports reached $750,000, the largest monthly figure on record. The great increase which the war has brought about in Nicaraguan-United States trade is indicated by the fact that of the $12,000,000 export figure, the United States purchased $11,500,000 worth, or almost 96 per cent, whereas before the war broke out in Europe the United States took only 60 per cent, while Japan was Nicaragua's second largest purchaser. Merchandise from the United States now accounts for 95 per cent of all Nicaraguan imports.

In spite of heavy expenditures for highways and military purposes, the first six months of 1942 finished with a surplus of over 1,000,000 córdobas. All obligations due July 1 in New York and London were met; these consisted of interest on and amortization of bonds of 1909 and 1918 and frozen merchandise accounts due to North American and British exporters.

As a co-belligerent with the United States, Nicaragua has taken drastic measures against Axis nationals and assets within its territory. Following the sinking of the San Pablo in a Costa Rican port in July, all Axis nationals were ordered to remove from the coastal regions of the country.

1941: Nicaragua

The policy of complete cooperation with the United States which President Anastasio Somoza voiced during the year, notably in February when he invited the United States to establish air and naval bases on Nicaragua's Atlantic and Pacific coasts, was given tangible demonstration when the Republic declared war on the Axis powers in December. Lend-lease credits have been extended to Nicaragua for the purchase of defense materials. A huge prodemocracy demonstration was held Nov. 29, protesting the execution of hostages in occupied France.

Recognition of the strategic importance of the Pan American Highway has led the United States to adopt a new policy towards its construction. Instead of expecting the countries concerned to cover the entire construction costs, the United States now proposes, according to a bill signed by President Roosevelt on Dec. 26, to spend on its own account a sum not exceeding $20,000,000 for cooperation in its construction as far as Panama. The United States Government, thus, assumes up to two-thirds of the cost of some 1,500 miles of road still unfinished. Completion is expected in about five years. Through the Export-Import Bank it has already contributed largely to the financing of construction, especially in the Central American portion. It is estimated that approximately two-thirds of the total highway system to Buenos Aires, a distance of 11,000 miles, is passable. The biggest gap is between Mexico and Guatemala.

The Pan American Highway is very important to Nicaragua since the Republic's economic development is hampered by lack of adequate transportation facilities. Therefore, an additional $2,000,000 credit, made available by the Export-Import Bank in March for another road project, not the Pan American Highway, is also very welcome. Only preliminary work has been accomplished on the canalization of the San Juan River. Positive government measures to improve the national economy have taken the form of easy credits to new industries and agriculture, and the promotion of agricultural exports. The chief agricultural projects are the commercial development of rubber and chicle. The National Bank of Nicaragua has also extended credits for the tapping of wild rubber trees.

Gold exports to the United States and Canada in 1941, totaling over $7,000,000, showed an increase of 26 per cent over 1940. Since the rediscovery of gold in Nicaragua and the current gold boom, that commodity has surpassed coffee as the country's first export. Unfortunately for Nicaragua's foreign exchange only a percentage of gold exports returns to the Republic since the important mines are owned and operated by North American and Canadian capital. The general purchasing power of the country depends on coffee and bananas. The more than 30 per cent rise in Nicaraguan coffee prices, following the Inter-American Coffee Agreement (See BRAZIL for Nicaragua's quota), assures a higher export income than was expected in view of the small 1941 crop. The United States took 93 per cent of Nicaragua's exports this year and supplied 90 per cent of the Republic's imports. A budgetary surplus of 3,000,000 córdobas at the end of 1940, and a ten per cent reduction of the public debt during that year testify to Nicaragua's strong financial position when 1941 opened.

1940: Nicaragua

Nicaragua, like many of the American republics, has experienced something of an economic crisis, due to the loss of European markets and the low prices for coffee, which have dropped almost below the cost of production. The hostilities in Europe have deprived this republic of 40 per cent of its foreign markets. In 1939 the United States purchased 75 per cent of Nicaragua's exports ($6,500,000 worth), and supplied almost 70 per cent of Nicaraguan imports, a 35 per cent gain over 1938. Coffee shipments to the United States will now be put on a quota basis (195,000 bags), in accordance with the recent coffee convention (see EL SALVADOR). Gold exports in 1940, which have almost doubled since 1939, ranked above coffee in value, and the government's encouragement, through liberal mining concessions of foreign capital investment in the gold mining industry, should help to ease the foreign exchange stringency. The budget for 1939-40 estimated revenues and expenditures to balance at 20,281,000 córdobas, a substantially higher figure than the budgets of the two previous years.

President Anastasio Somoza has energetically pushed the project for canalizing the San Juan River, linking Lake Nicaragua and the Caribbean, to which Costa Rica finally agreed April 5. This barge canal would be used locally for moderate-draft shipping but could be expanded into a unit of the long-discussed Nicaraguan interoceanic canal. United States Army engineers have been making a field study to determine the feasibility and probable cost of the projected undertaking.

1939: Nicaragua

The Constituent Assembly by a vote of 46 to 7 re-elected President Anastasio Somoza for an 8-year term on March 21, thus prolonging another of the Central American constitutional dictatorships. Two days later the Assembly approved a new constitution.

A very marked strengthening of the relations, both economic and political, between the United States and Nicaragua found ample demonstration in the spring of 1939. When President Somoza visited Washington in May he was given a very elaborate official reception. This was followed by a five-point agreement between the two countries according to which: (1) the United States will send to Nicaragua a board of army engineers and a medical corps officer to study the practicability of a trans-Nicaraguan waterway connecting the east coast with the interior and with the Pacific. No mention was made of a Nicaraguan canal such as is covered by the Bryan-Chamorro Treaty, which is one of President Somoza's objectives but which is against most informed opinion among United States' experts because of its costliness and because of the diplomatic issues it raises with other Central American states (see COSTA RICA). (2) Nicaragua agreed to encourage the investment of North American capital and to provide adequate dollar exchange to holders of its customs bonds of 1918. (3) Through the Export-Import Bank the United States agreed to set up credits of as much as $2,000,000 for the purchase in the United States of machinery and equipment for highway construction and other productive projects. A revolving fund, of perhaps $500,000 is to be made available for bridging seasonal deficits and preventing exchange fluctuations. (4) An officer is to be named by the United States War Department to act as director of the military academy of the Nicaraguan National Guard and to study the establishment of a military aviation school. (5) The United States is to consider lending American agricultural experts to develop manila hemp and rubber production. This scientific fostering of commodities which are non-competitive with North American products is a distinct feature of our most recent policy towards Latin America.

The credits extended by the Export-Import Bank are in line with the United States Government's moves to check European totalitarian influence and economic penetration in Latin America and are an important part of the Western Hemisphere solidarity plan. Although guaranteed by the Export-Import Bank, the entire sum was supplied by the Bank of Manhattan Company, a sign that North American private interests are becoming active again in the development of inter-American commercial and financial relations. The Nicaraguan Congress authorized the acceptance of the loan on Nov. 6.

Gold mining has experienced a boom, the year's output, valued at $3,500,000, being the largest in the history of the Republic. The exports of this metal exceeded by $1,000,000 the value of even the coffee-crop yield. In December the first textile mill which is to use Nicaraguan cotton was opened. President Somoza welcomes and will protect foreign capital. In 1938 the United States was the largest exporter to Nicaragua, with 60 per cent of Nicaragua's imports coming from this country, 10 per cent from Germany, and 8 per cent from Great Britain. Moreover, the United States was Nicaragua's best customer, taking 67 per cent of her exports.

Complete nationalization of the Bank of Nicaragua was ordered on Oct. 27. New York bankers, who owned 51 per cent of the stock when the Bank was incorporated in 1912, sold their shares to Nicaragua. The country still has a North American as collector of general customs, and Nicaragua maintains full service on its internal and external bonds.

1938: Nicaragua

A Constitutional Assembly opened Dec. 15, the election of the delegates having been held on Nov. 6. The Constitutional changes considered included the right of the President to succeed himself and the extension of his term from four to six years (see EL SALVADOR for this method of setting up 'constitutional' dictatorships). According to the opening presidential address, adequate protection of labor and capital, based on the principles of social justice, will receive consideration. President Somoza has denied any Fascistic tendencies on the part of his Government. A law passed Jan. 25 forbids the dissemination of any foreign political philosophy, under penalty of deportation.

The salaries of all government employees were doubled in January to meet the high cost of living, caused by the heavy depreciation of the córdoba and the subsequent profiteering of merchants, who had increased prices over 100 per cent. A law passed Jan. 22, in an effort to lower food and clothing costs, limited mercantile profits to 20 per cent; to the same end, a project for cooperative stores has been proposed by the President. By the end of the year the financial situation was greatly improved and the currency stabilized. The new Brazilian coffee policy affected the coffee industry so severely that a new law regulating foreign exchange transactions was enacted late in December, 1937. On March 15, a new customs rate of exchange of two paper córdobas for $1.00 for all import duties was made effective. The reciprocal trade agreement with the United States continued in effect. In 1937 the United States handled 54 per cent of Nicaragua's import trade. The barter system, however, has more than doubled German sales in Nicaragua in the last three years and imports from Japan have increased 500 per cent. A commercial pact with France was approved May 19, guaranteeing a coffee quota for Nicaragua and reducing tariffs on French wines and liquors. The budget for 1937-38, which anticipated a deficit of 754,000 córdobas (estimates revenues, 5,586,000 córdobas; expenditures, 6,340,000 córdobas) showed a surplus at the close of the year, which will be applied to the construction of public buildings and highways.

The military and naval importance of a second interoceanic canal was stressed in the revival of the question of the construction of a Nicaraguan canal by Representative Vinson, author of the United States naval expansion bills of 1934 and 1938. The increase in effectiveness of weapons of attack, particularly from the air, and the reduction in the danger from sabotage in the case of a second canal, were offered in support of the contention that a canal through Nicaragua would be a justifiable and vital defense measure. It has not yet received the approval of the United States War Department. (For boundary dispute, see HONDURAS.)