The Panama/Nicaragua Canal Debate in 1902

Construction work on the Gaillard Cut is shown...

Image via Wikipedia

The Panama canal almost ended up in Nicaragua…

Back in 1902, as the French were grinding down in their ill-fated Panama canal effort, powerful business forces here in the US were pushing our government to blast our own shipping shortcut– through Nicaragua. The French were anxious to cut their losses in Panama after years of struggle and tragedy far from home. They hoped to entice the adventurous US President Theodore Roosevelt into taking the disastrous headache off their hands. Their lobbyist, an agent of the French Panama Canal Company in Washington, was named Philippe Banua-Varilla. The initial price tag for the whole Panama bundle was reportedly $40 million. Unfortunately for the Panama crowd the US Congress was leaning strongly toward the Nicaraguan plan, in fact the House voted in favor of building the canal in Nicaragua. It seemed a virtual shoe-in that the Senate would follow suite. The French reduced the price out of desperation but prospects for success appeared dim.

Then, as fate would have it, a volcano exploded on the island of St Martinique killing 30,000 people! Immediately the question of volcanoes in the Nicaraguan canal zone surfaced in Washington but the Nicaraguans sternly denied the presence of any active volcanoes. Legend has it that Banua-Varilla was about to leave town empty-handed when at the last minute a colleague showed him a recent Nicaraguan postage stamp. Amazingly, in an episode of unbelievably bad timing for the Nicaraguans, the stamp displayed a picture of the Momotombo volcano spewing lava and smoke. Seizing the moment, on the eve of the vote in the US Senate, the French lobbyist reportedly scoured the various Washington DC area stamp sellers somehow acquiring enough copies to send one to each undecided senator. Accompanying the stamp was a note suggesting that the evidence proved that Nicaragua was no stranger to violent geological events and the Nicaraguans knew it. In an amazing Hail-Mary turn of events, even though the suspect volcano was 150km from the proposed canal, the stamp ploy was successful. The Senate voted for Panama– the Nicaraguan canal deal was dead. Just like that!


Earlier, when it looked like the canal would traverse Nicaragua, American officials and Nicaraguan President Jose Santos Zelaya enjoyed positive relations. After the deal fell through everything changed.  Zelaya’s hostility toward foreign interests operating in his country grew and he adopted the rhetoric of economic nationalism—this proved to be his undoing– eventually the American interests decided enough was enough. According to author Stephen Kinzer there was a period of growing tensions between the two countries. During his term President William Taft closely followed the increasingly nationalistic doings of Mr. Zelaya. When Zelaya threatened to cancel the lucrative La Luz mining concession, and seize the mines held by the influential Fletcher Brothers of Pennsylvania, Taft’s Secretary of State Philander Knox went on the offensive. Kinzer describes the connection:

“the Philadelphia-based La Luz and Los Angeles Mining Company … held a lucrative gold mining concession in eastern Nicaragua. Besides his professional relationship with La Luz, Knox was politically and socially close to the Fletcher family of Philadelphia, which owned it. The Fletchers protected their company in an unusually effective way. Gilmore Fletcher managed it. His brother, Henry Fletcher, worked at the State Department, holding a series of influential positions and ultimately rising to undersecretary. Both detested Zelaya, especially after he began threatening, in 1908, to cancel the La Luz concession. Encouraged by the Fletcher brothers, Knox looked eagerly for a way to force Zelaya from power.” (Kinzer – Overthrow p64)

Knox immediately commenced a sabre rattling campaign in the press. He seized on several minor incidents in Nicaragua, one in which an American tobacco merchant was briefly jailed, to paint the Nicaraguan regime as brutal and oppressive. He sent diplomats to Nicaragua whom he knew to be strongly anti-Zelaya, and passed their lurid reports to friends in the press. Soon American newspapers were screaming that Zelaya had imposed a “reign of terror” in Nicaragua and become “the menace of Central America.” As their sensationalist campaign reached a peak, President Taft gravely announced that the United States would no longer “tolerate and deal with such a medieval despot.”

The hand-writing was on the wall for Zelaya – in October 1909 an American proxy, General Juan Jose Estrada, declared himself president igniting revolution in the country. Taft ordered troops to next-door Panama to further intimidate the besieged Zelaya. Within two months he was forced to resign. Estrada later marched unopposed into Managua. The New York Times printed this when Estrada was sworn in: “On that day began the American rule of Nicaragua, political and economic.” The Fletcher Brothers continued to run the La Luz y Los Angeles mines for decades to follow.

The stamp episode and aftermath was a turning point in Nicaraguan history; it was the first confrontation in what has turned out to be a century of strained relations between Nicaragua and the US. Those tensions continue to this day. Nicaragua’s failed dreams of a canal linking its Atlantic and Pacific coasts turned out to be costly. Panama’s rewards for success appear to be considerable. Today, about 15,000 ships use the Panama canal each year, carrying 200m tons of cargo, earning the country about $800m annually.

Also of interest:

= Merchants, Mining, and Concessions on Nicaragua’s Mosquito Coast: Reassessing the American Presence, 1893-1912

=Time Magazine article on Fletcher Bros. during a mine uprising in the 1920s

=Henry P. Fletcher Bio

= William Walker Bio

= Lee Christmas Article

2 responses to “The Panama/Nicaragua Canal Debate in 1902

  1. Nice article, though you should correct one geography mistake:
    You say “Taft ordered troops to next-door Panama”, but Panama isn’t next to Nicaragua. The country of Costa Rica is between them.

  2. Nice article, though you should correct one geography mistake:
    You say “Taft ordered troops to next-door Panama”, but Panama isn’t next to Nicaragua. The country of Costa Rica is between them.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s