Note XXXIII-65 — Chapter XXXIII · COMMERCE AND FINANCE. 1801-1887.

The history of these loans, as furnished in the reports of the Costa Rican treasury department, is the following: In 1871, Costa Rica contracted with Bischoffsheim and Goldsmidt for a loan of the nominal amount of £1,000,000, at 72 with 6 per cent interest, and 2 per cent for a sinking fund; however, per agreement of May 5, 1871, the rate was reduced to 56, and only yielded £560,000. Bischoffsheim and Goldsmidt retained £105,000, which reduced the proceeds to £455,000, and this sum was further diminished £42,000, leaving only £413,000, or somewhat less than 42 per cent. A new loan was negotiated in 1872, with Knowles and Foster of London, which appeared as for £2,400,000, but did not exceed £2,226,500, the difference not having been taken up. The negotiation was at 82, with interest at 7 per cent, and 1 per cent for a sinking fund. This loan actually yielded to Costa Rica £598,611 18s. 5d., which is explained thus: Knowles and Foster paid over to E. Erlanger and Co. of London in money £1,576,240 9s. 1d., the difference between this sum and that taken up being £650,259. Erlanger and Co. were the syndics of the loan under the 8th clause of the contract with Knowles and Foster, and had bound themselves to take up £800,000 of it. Under the 3d and 4th clauses, they were empowered to repurchase bonds for account of Costa Rica, though subject to the following conditions: 1st. That the repurchasing should be indispensable to secure the success of the loan; 2d. It was not to be done with the £800,000 Erlanger and Co. were bound for; and 3d. The operations were not to be effected but within 30 days of the issue. This condition was violated. Erlanger and Co. claimed to have repurchased with the money received by them bonds of both the 6 per cent and 7 per cent loans to the value of £1,426,500. The result of this transaction was that the loan, save the £800,000 taken up by Erlanger and Co., was exhausted; and yet it was said, in and out of Costa Rica, that her government had received $17,000,000. Encyclop. Brit. (Am. ed.), vi. 398. The whole yield of both loans was but £1,011,611 18s. 5d., or $5,058,060. Besides the £105,000 retained by Bischoffsheim and Goldsmidt, under the pretext of securing the interest of the 6 per cent loan, the government remitted for interest and sinking fund £135,000, which were taken from the very funds received, and reduced them to £876,611 18s. 5d. Moreover, under an agreement with Erlanger and Co., the government of Costa Rica was authorized to draw on them for £150,000. Its drafts were allowed to go to protest, and the amounts drawn for had to be replaced. The government felt that it had been victimized, and in order to protect the country's good name, after consultation with legal lights of London, established suits at law against the parties. The suit has cost a great deal of money; early in 1877 $373,380 had been paid for expense. Costa R., Mem. Sec. Hac., 1874-7. Should the decisions of the British courts be against Costa Rica, her financial situation should not be deemed very alarming, as is made apparent. The 7 per cent loan, reduced to Costa Rican money at 9 per cent, £2,226,500, nominal $12,134,425.

Bonds repurchased, £1,026,500 $5,594,425

Received from Erlanger and Co., and appearing among the liabilities, £598,611 18s. 5d. 3,262,435

Amount not appearing among the liabilities, £601,388 1s. 7d. 3,277,565

$12,134,425

Accepting the responsibility for the whole 7 per cent loan, it would amount to $12,134,425, deducting $3,262,435, and $5,594,425 for repurchased bonds, the total sum not included in the liability in 1876 would be reduced to $3,277,565, to which must be added $13,517, balance of the 6 per cent loan, making $3,291,082. Advantageous offers were received from Europe to extinguish the debt, which, if accepted, would reduce the nominal indebtedness of $11,990,000 to $2,398,000. This loan was negotiated for funds to build a railway. The road has cost $12,239,296, and its three sections are valued in 1883 at $6,600,000. Id., 1872-5, 1883, annexes 7 and 8.