Systems of business—Long credits—British and United States methods versus German—Making "good" stock losses—Question of exchange—Effect upon business—Drafts and speculators—Customary terms of payment—Central American banks as agents—Prominent Salvadorean Banks—The Press of the Republic—Prominent newspapers—Some of their contributors—Central American Press Conference.

The general idea prevails among both British and North American manufacturers, who have had little personal experience of the Latin-Americans, that extreme difficulties must inevitably be connected with all—or, at least, with most—transactions conducted in these countries, as far as payment for goods is concerned. I can but observe that the Latin-Americans as a race, if not more honest than Europeans or North Americans, are by no means any less so; and probably, if sufficiently reliable information were obtainable, it would be found that these former are, as a whole, quite as ready and able to meet their foreign obligations as any class of traders in either hemisphere.

As I have, however, pointed out in another chapter of this volume, it would be extremely unwise upon the part of any firm in Great Britain or in the United States to attempt to conduct their transactions by correspondence; an Agent is indispensable if difficulties in transportation and delivery through the Customs, as well as the collection of the account when due, are to be avoided.

In most of the Central American ports and cities, especially (in Salvador) at La Libertad, La UniÓn, El Triunfo, and Acajutla, the services of such Agents are obtainable. Moreover, some of the banks undertake to look after the interests of their correspondents who are recommended to them, and who are prepared to pay a fair price for the services rendered.

The usual method of conducting transactions of this kind is to draw upon the purchaser of goods for the amount of the invoice, and to negotiate the draft through some local bank, which will in the majority of cases collect the amount, provided the shipping documents be delivered in good order and are found to be free from consular or Customs-house objections. The banks, naturally, take no responsibility in the matter; and in any case the shipper should know something reliable about the firm and their financial status before entrusting them with the goods. Another mode is for the purchaser of the goods to arrange with his own bankers to open a credit with the shipping firm to be operated upon, against delivery of the documents to the bank indicated, or in such other form as may be agreed upon; while a third expedient—an unusual one, however, and not to be recommended—is to make a remittance to the buyer beforehand, either by means of a bank draft or cable transfer. The safest method to adopt is to draw bills on the importing firm at a usance,[4] agreed upon at the time that the order is taken, generally from 90 to 120 days' sight, and to pass the bill and documents through the bank for collection or sale. The draft is usually made payable in return remittance at 90 days' sight on London, Hamburg, or New York, but this is quite a matter of mutual arrangement between buyer and seller.

American as well as British export firms are, as a rule, disinclined to give credit, while the German, on the other hand, offers as much as his customer demands. Undoubtedly the latter loses a larger proportion of his book-debts by pursuing so generous a policy; but at the same time he multiplies the orders upon his books, and he has a clever and somewhat unscrupulous way of so manipulating the accounts of his honest customers as to make them directly or indirectly liquidate the debts of the dishonest ones. How this is done I do not know, but I know that it is done, for I have the assurance to that effect from more than one German trader who has thus balanced his ledger for several years, and always without suffering any bad consequences.

That the sanctimonious and strictly conscientious British tradesman is not altogether averse, upon occasions, to pursue similar methods was shown some few years ago, when a prominent West End saddler confessed to the fact that when he took stock and found a gentleman's £5 saddle was missing, and that he was unable to remember to whom it had been sold, he instructed his bookkeeper to charge up this item to each one of the firm's customers. "Some," he unctuously observed, "will, of course, deny that they have had such a saddle; to these you can write and express our profound apologies for the unintentional error, etc. Those who don't complain will probably be unable to remember what they had and what they did not have. Let them pay. Thus we shall get square."

And it is to be added that so careless or forgetful are the majority of the customers of a "high-class" firm in London, that 70 per cent. of those who were wrongly charged with the missing saddle paid the unjust bill without questioning it.

Adverting to the subject of granting long credit to Central American importers of foreign goods, it must be remembered that the majority of these latter are obliged to ask for this indulgence on account of the excessively large amounts which they are called upon to find in order to clear their consignments from the Customs; and also because the retail business which is carried on in these, as in practically all agricultural countries, is a long-credit one. Only the most liberal concessions of credit can secure any decisive advantage for any one of the numerous competitors in business. Additionally, it is not always possible for the importer to secure good drafts at low rates in the market. In some of the countries—and Salvador is not any exception—the market for drafts is completely dominated by speculators, evidence of which is to be found in the fact that heavy and unaccountable fluctuations present themselves at short intervals. The possibility of speculators thus controlling the market is increased by their finding in the banks—no matter how highly these may be ranked as honourably-conducted institutions—ready allies.

The question of exchange in Salvador, and the baneful effect which it has, and for some years has had, upon commerce and trade, especially upon the profitable conduct of the Salvador Railway, is more fully dealt with in another part of this volume (see Chapter XV.). But a few observations concerning the character of the exchange business in Central American countries generally may not be out of place here.

In Honduras, exchange rates are often only nominal, because no regular commercial paper is to be found in the market. The large exports of minerals, bananas, and other produce, are covered, since the proprietors, who are mostly foreigners, need only the necessary amount for the wages of their labourers, and this is remitted to the country by means of drafts. The exporters, moreover, consider the premium on gold not only as profit earned upon their sales, but as representing an economy in their working expenses, since the export product and the wages for labour are paid for in silver, which naturally makes the first cost of the product much less. Drafts are in this way arbitrarily held back and kept out of the market, or prices are asked for them which are out of all proportion to the silver quotations of London and New York. So the importer in these silver standard countries, in some of which the exportation of the white metal is prohibited, finds himself compelled to wait for a favourable opportunity to buy drafts at a low rate in order to pay for his purchases in foreign countries.

The customary terms of payment for European houses are four to six months from the date of the invoice; in many cases shipments are made "to order," and the bill of lading is delivered to the purchaser when he accepts the seller's draft at his local bank, and in this way the customer is held to strict observance of the time when the bill falls due. In case of failure of the customer to meet his drafts when they mature, the matter is generally arranged by issuing drafts payable at sight after ninety days on London or Hamburg, with payment of interest for the time they are out. The operations of having drafts accepted and remitting the funds collected through them are carried out by the large banks or private banking firms located in these countries in consideration of a commission varying between ¹/₂ and 2 per cent.

Open credits (that is to say, running accounts which the customer can vary in amount to suit his needs, with payment of interest, of course) are no longer granted, except by a few firms to some of their oldest and best customers.

The intelligent and not over-cautious European exporter accepts without hesitation the usual six-months terms, because he has some knowledge of these countries and their people; and he often prefers such a settlement to cash in advance, since he likewise recognizes that he is binding the customer to do more business with his firm. On the other hand, one often hears commercial houses complain that when they decide to place a trial order with North American firms which are desirous of doing business with them, and have repeatedly and insistently solicited such orders, they are required to pay cash with the order. That nobody in Central America would accept such terms, or at least very seldom, the clever Yankee business man ought to be able to see, especially as the most notable traits of the Spanish-American character are extreme sensitiveness and the need of courteous treatment.

A cash discount of 3 to 4 per cent. is not much of an inducement in a country where the usual rates of interest are 18 to 40 per cent. Some of the banks of Central America, which secure but a small and unimportant share of the business going, and which pay less attention to the development of the country than to the needs of their own treasuries, often demand 1 to 1¹/₂ per cent. monthly, with security worth two or three times the sum loaned.

There are no established commercial agencies in Central America which furnish information, but reliable information uninfluenced by personal interests can sometimes be obtained from the principal banking firms—such, for instance, in Guatemala, as the International Bank, American Bank or Guatemala Bank, Clermont and Co., Schlubach, Dauch and Co.; in Salvador, from the Banco AgrÍcola, Occidental or National Bank, and Messrs. David Bloom and Co.; in Panama, Messrs. Ehrmann Brothers; in Honduras, from J. RÖssner and Co., P. Maier and Co., Francisco Siercke, and Juan Stradtmann; in Nicaragua, from the young and well-respected British Consul, Mr. Albert J. Martin; and in Costa Rica from the following banks: Anglo-Costa Rica, Commercial and Sasso and Pirie. These houses are better informed than anyone else about the amount of credit customers may deserve, because, knowing the promptness with which the various firms meet their outstanding drafts, they are in a position to form a reliable opinion of the solvency of prospective or actual customers.

The Banco AgrÍcola Comercial has a subscribed capital of $5,000,000, of which $1,000,000 is paid up. The Reserve Fund amounts to $100,000, and Eventualities Fund to $115,180. The Permanent Director is SeÑor Mauricio Duke, and the Consulting Directors SeÑores J. Mauricio Duke and Eugenio Aguila. There are two other Sub-Directors, SeÑores Rafael Guirola and Miguel Judice. SeÑor F. Drews is the General Manager.

The Banco AgrÍcola Comercial, which was established in 1895, has gone through more than one critical financial and commercial period, but it has come out of the ordeal with considerable credit to itself. There can be no doubt that the bank has been a great assistance to agriculture and trade generally in the Republic, nor that it has not done at all badly for itself, which fact is seen from the last balance-sheets issued. In 1908, upon a total turnover of $14,500,000, the bank's profits were $145,634 (silver pÉsos). There was a dividend of 8 per cent. paid to the shareholders upon the paid-up capital of $1,000,000 (pÉsos) after all charges for administration had been met, and a substantial addition made to the Emergency Fund. In 1909 the total amount of business transacted figured at $16,200,000 (silver pÉsos).

The following summary of the bank's financial transactions and position over a period of three years will be of interest:

It will be observed that the last year's showing is less favourable to the bank, but this may be attributed to the heavy demands made upon its resources in financing the movement of the coffee crop. The metallic reserve for meeting outstanding obligations over the same period had been considerably weakened in consequence, as the subjoined table will prove:

METALLIC RESERVE.

(A denotes notes alone; B denotes notes, deposits and current accounts.)

This bank, like others in Salvador, does not disclose the character of its investments, and it is therefore impossible to pronounce any opinion of its actual financial status. It is always desirable to know something regarding the character of the paper which a bank has in hand, and it is precisely this knowledge which is withheld, and by many British companies also. The omission to provide it is in no way the fault of the bank, be it observed, but of the custom which controls its actions. In Costa Rica alone, among the Central American States, is the practice general among the banks to publish in the balance-sheets some particulars of the commercial paper carried, and this is taken into account like every other asset and inventoried. In Costa Rica, also, all the issuing banks have their books inspected once a month by Government officials, and a certificate of solvency is presented to and published by them.

The National Bank of Salvador (Banco Nacional) was founded in 1907 with a capital of $1,000,000 (silver pesos). Of this amount one-half has been paid up. The following statement of account for the first three years of its existence will be useful:

The balance-sheet shows the following accounts:

The metallic reserve account stood as follows:

The steady increase shown is somewhat remarkable, and the distribution of profits, considering the comparatively recent establishment of this bank, hardly less so. This distribution, after making all the necessary provisions, stood as follows:

For the first six months of 1909, the dividend declared and paid was 4 per cent. upon the amount of capital paid up = $500,000 (silver pesos). For the remaining half-year and for 1910, and the first half of 1911, increased distributions have been made, and the financial condition and prospects of the Banco Nacional are considered to be in a satisfactory state. SeÑor Guillermo Hemmeler is the Manager, and he has bought up the connection of the bank's customers consistently from the time that he first assumed control. The bank allows 3 per cent. interest upon current accounts, and it has the privilege of issuing its own notes.

El Banco SalvadoreÑo was established in 1885, and has a subscribed and paid-up capital of $3,000,000. The Reserve Fund amounts to $231,985.80 and the Dividend Equalization Fund to $20,000; the Eventualities Fund at present stands at $50,000. There are branches established at Santa Ana (the Manager being SeÑor Cuno G. Mathies) and at San Miguel (the Manager being SeÑor R. Schlensz). The General Manager in San Salvador is SeÑor Alberto W. Augspurg, who speaks English very well, and is invariably courteous and obliging to foreigners who seek his assistance or advice.

Banking business in Salvador always has been, and still is, carried on by a few private firms. The establishment conducted by Messrs. Blanco and Trigueros was founded as far back as 1835, with a capital estimated at $1,500,000. In 1893 the Bank of Nicaragua opened a branch office in the city of San Salvador, and for long did a good and steady business. Certain concessions and privileges were also granted to Messrs. Linares and Co., of Barcelona, Spain, enabling them to establish a national bank in San Salvador, with a capital of £1,000,000 sterling. A concession was also granted for the establishment of a purely Mortgage Bank, but up till now such an establishment has not been started.

The House of David Bloom and Co., with branches at New York and San Francisco, is composed of Messrs. David and Benjamin Bloom, and who are the principal private bankers of the Government. Subject to the criticism which this position involves, mainly upon the part of those, perhaps, who are not as well endowed as are Messrs. Bloom and Co. with moral courage and confidence in the peaceful continuity of government in Salvador, this firm enjoys an excellent reputation for fair dealing, and is well regarded throughout the country.

The Press of the Republic is well represented by some five or six daily newspapers, several weekly publications, and a number of monthly reviews. There are entirely free press laws existing, and on the whole there is no abuse of the privileges accorded for expressing public opinion. El Diario del Salvador was founded in July of 1894 by SeÑor R. Mayorga Rivas, and is to-day conducted by the same talented journalist and cultured writer. The General Manager is SeÑor J. M. Lacayo TÉllez. Among its regular contributors are SeÑores J. Dols CorpeÑo, a young but vigorous writer; Armando Rodriguez Portillo, who is but thirty years of age; and other distinguished littÉrateurs of Salvador. El Diario Latino, of which SeÑor Miguel Pinto is the Director and Proprietor, and SeÑor Juan RamÓn Uriarte is the Editor, has a large and influential circulation, which is by no means confined to the Republic itself. El Heraldo del Salvador, which is the recognized organ of the Church, is edited by the Rev. Dr. Eduardo Martinez Balsalobre. It is, as may be assumed, a high-class publication, and publishes occasionally some powerful literary contributions from the pens of some of the most talented writers. El Diario Oficial is the property and exponent of the Government, but scarcely takes rank as a newspaper, being in all respects similar to our London Gazette, with the exception that it prints daily a good service of cables.

Among the many weekly publications of note may be cited La Riqueza and La Vida y Verdad; La Semana Mercantil, which is the organ of the Society known as "Orden y Prosperidad"; El Franciscano, a Catholic paper conducted by a Franciscan Brother; Repertorio del Diario del Salvador, a well-illustrated review of literary, commercial, and social matters, and edited by a gentleman bearing the very English name of Samuel C. Dawson. This publication is, as its title may suggest, closely allied with the great daily paper El Diario del Salvador. Other publications are—La RazÓn CatÓlica, a monthly Church organ; El Comercio del Salvador, also a monthly illustrated dealing with politics, sociology, and a variety of other subjects; En Serio y en Broma, a humorous monthly review; as well as a large number of technical prints, weekly and monthly, such as—Anales del Museo Nacional, Archivos del Hospital Rosales, Vida Intelectual, Revista Judicial, BoletÍn de Agricultura, Revista Cientifico-Militar, Libro Rosado do El Salvador, BoletÍn Municipal, BoletÍn del Consejo Superior de Salubridad, La Voz del ObrÉro, BoletÍn MasÓnico, La Buena Prensa, La LuciÉrnaga, and Juan de Arco.

Each of the Departments has likewise one or more daily or weekly papers, many carrying great influence among the better-class Salvadoreans, who are both diligent readers and intelligent critics. In Santa Ana there are El DemÓcrata, which was founded in 1900, and a weekly known as El Santaneco. In Chalchuapa there are two weeklies, La Vanguardia and El Patriota; in AchuachapÁn there is one weekly, La Nueva Era; in Sonsonate, La Prensa, also a weekly; in Santa Tecla, Don Bosco, a weekly which is the organ of the Instituto Salesiano; in Cojutepeque there are two periodicals, one weekly and one monthly, respectively known as El Imparcial and El Cuscatleco; in Suchitoto, a monthly review, La Mujer (The Woman), holds the field; in Santiago de Maria, El Anunciador; and in San Miguel, El Eco de Oriente. A fair share of local advertising is accorded to all of these publications, but, of a necessity, in the majority of cases the circulation is small.

There was recently formed a Central American Press Association, composed of the representatives of the principal newspapers published in the five Republics of Salvador, Guatemala, Costa Rica, Nicaragua, and Honduras. Already the news published in each State concerning the sister-Republics is full; but the new association, working by means of a mutual exchange of information fit for publication, will result in a considerably improved service being maintained. The papers which have taken the initiative in this important Association are—Diario del Salvador (El Salvador), Diario de Centro AmÉrica (Guatemala), Diario de Nicaragua (Nicaragua), and La RepÚblica (Costa Rica). Towards the end of this year (1911) a Conference of Press Representatives is to be held in San Salvador, which is expected to be attended with considerable success, and even far-reaching consequences.