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Dollar Diplomacy Reduction Readings: Read the following summary of Dollar Diplomacy in
Nicaragua and take notes on your reduction organizer.
Honduras
The quintessential "banana republic" Honduras became a foreign enclave as a result of AngloAmerican control over it's railroads, mining industry and banana production in the 1800's. U.S. banana
companies were to dominate the country for many years. After the turn of the century, The United
Fruit Company and the Standard Fruit and Steamship Company expanded their control over the rich
alluvial plains of Honduras' Atlantic coast. By 1929, the United Fruit Company owned or controlled
650,000 acres of the best arable land, along with railroads and ports. The banana operations were run
like private cheifdoms, in which the companies kept order and crushed labor organizing with their own
security forces or by calling in U.S. troops.
Bananas came to represent some 88% of Honduran exports, focusing on the economic activity of the
country almost wholly in the Atlantic coast region. Honduras is the only Central American country
whose economic center is not the capital (Tegucigalpa) but a town near the Caribbean coast ( San
Pedro Sula ). A second result was that the population of the coastal regions became predominately
West Indian, since the U.S. companies preferred to hire English speaking laborers. In addition to those
recruited from the Caribbean islands, there was a Garifuna ( Black Caribbean ) population
concentrated on the Bay Islands off the coast and in the town of Trujillo, where the government
granted them 7,000 hectares of land in 1901.
Honduras was distinguished from it's neighbors by the totality of the banana companies' control. In
contrast to El Salvedor, Costa Rica, and Guatemala, no native groups or companies rose to make
fortunes in coffee exports. Instead, the U.S. companies controlled the government, financing political
parties which conspired against each other. The U.S. also began training a Honduran army and air
force which were commanded by the U.S. officers and used primarily to protect the interests of the
banana companies.
The banana companies cultivated only about one-third of their lands, meaning that much of the best
land lay idle. In addition, corrupt officials frequently would appropriate large tracts of land, either
keeping it for themselves or selling it to foreign companies. One example occurred in Trujillo, where a
local military commander, Col. Gustavo Alvarez, expropriated 2,000 hectares of land belonging to the
Garifuna and distributed them amongst wealthy landowners over the Garifunas' protests.
Nicaragua
Nicaragua proved the classic case of dollar diplomacy in the Caribbean. While the American economic
interest in Nicaragua was small, the country had been an alternate route for the trans-Isthmian canal.
The United States was sensitive to activities in Nicaragua. The longtime dictator José Santos Zelaya
had never been popular in Washington and was seen as the cause of much instability in Central
America, the result of his efforts to dominate the area. When Knox took control of the Department of
State, he ordered withdrawal of the chargé d'affaires from Nicaragua, began to press private business
claims against the Zelaya government, and sought, albeit unsuccessfully, to discourage a FrancoBritish consortium from making a loan. In cooperation with Mexico, the United States also sent
warships to stop Zelaya from filibustering in Central America.
In October 1909 the situation became complex with the outbreak of civil war in Nicaragua. Insurgency
centered on the eastern coast in Bluefields, a city dominated by foreign businessmen and planters.
These foreigners and conservative politicians in Nicaragua followed the lead of General Juan J.
Estrada. Foreign money, some of it American, bankrolled the revolutionaries. While declaring itself
neutral, there was little question as to which side the U.S. government supported. Formal neutrality
disappeared when Zelaya executed two Americans captured while fighting with the rebels. The United
States broke off relations, asserting that the revolutionaries represented "the ideals and the will of a
majority of the Nicaraguan people more faithfully than does the Government of President Zelaya."
Washington made known that Zelaya's resignation in late 1909 was not enough. The United States
expected fiscal reform in Nicaragua, and refused to recognize the new government until it had agreed
to American control of the customhouses and to the refunding of the debt owed to British bankers by
means of a loan from American financiers. Dawson went to Nicaragua to negotiate the terms of
recognition.
This did not end the difficulties, for the American demands were unpopular. The United States went
ahead with its financial program, even though the Senate delayed action on the treaty (known as the
Knox-Castrillo Convention) worked out between Washington and Managua in June 1911, which called
for refunding of Nicaragua's internal and external debts and administration of the customs by a
collector approved by American officials. While the Senate debated, bankers went ahead with the
rehabilitation of Nicaraguan finances, making a loan with the national railroad and the national bank as
collateral. American citizens also began to collect Nicaraguan customs and to serve on a mixed claims
commission, all in anticipation of Senate action. Much to the distress of Taft and Knox, the treaty died
in a Senate committee in May 1912, along with a similar treaty with Honduras.
Another revolution broke out in Nicaragua in July 1912, and this also brought American intervention.
Approximately 2,700 marines landed to protect U.S. citizens and property and to suppress the
revolution, which was over by early October. Although the majority of the marines was soon
withdrawn, a legation guard remained as a symbol of intervention until 1925.
The Taft-Knox policy toward Nicaragua, and for that matter toward the rest of Central America, was
unquestionably offensive to Latin Americans. Even a goodwill visit through the Caribbean by Knox
could not overcome suspicions. Knox said the United States did not covet an inch of Latin territory,
but such utterances were not accepted south of the Rio Grande.
Haiti. Under the pretext of helping to restore democracy and promote economic growth in the poorest
nation of the western hemisphere, U.S. Marines were deployed to Haiti in 1915. The proximate cause
of U.S. intervention was a revolt in the capital city of Port-au-Prince. On 28 July 1915 Haitians rose up
against and killed the repressive dictator Gen. Vilbrun Guillaume Sam, who had recently executed 167
political prisoners. That same day U.S. Marines occupied the island. Within two months the United
States had installed a puppet government under President Sudre Dartiguenave. In mid September
Dartiguenave signed a treaty with the United States, placing Haiti's finances, police force, and public
works under the control of Americans appointed by President Wilson. In part these measures were
taken to secure the assets of the National City Bank of New York in Haiti. Civil liberties were curtailed
during the U.S. occupation, which continued until 1934; and--though sanitation was improved, the
currency stabilized, and new roads built--only a small portion of the $16 million loan promised by
National City Bank was ever delivered to the government.
Summary Created from:
"America and World Affairs: Dollar Diplomacy (1910s)." American Decades CD-ROM. Gale Research,
1998. Reproduced in History Resource Center. Farmington Hills, MI: Gale.
http://galenet.galegroup.com/servlet/HistRC/
"Dollar Diplomacy." Encyclopedia of American Foreign Policy. 3 vols. 2nd ed. Charles Scribner's Sons,
2002. Reproduced in History Resource Center. Farmington Hills, MI: Gale.
http://galenet.galegroup.com/servlet/HistRC/