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José Santos Zelaya came to power in 1893 with the Liberal revolt
through out the Conservatives who had ruled between 1863 and 1893. Zelaya was a brutal
dictator who not only persecuted Conservatives but also abandoned Liberalism. He got
personally rich from graft and corruption but he also helped his country make material
gains. He was trying to dominate Central America; Mexico and the United States had created
the Central American Court in 1908 largely to discourage him from bullying his neighbors.
He wanted a unified Central American nation, with himself as head, of course. He had been
hostile to US private capital in Nicaragua, understanding that it would likely bring the
might of the US against Nicaragua. He wanted to cancel the US-Nicaragua concession,
which was mining property owned by U. S. Steel, for whom Secretary of State Philander C.
Knox, had been the corporate lawyer becoming Secretary of State.
In October, 1909 , there was an anti-Zelaya rebellion in Bluefields, a foreign and Conservative stronghold. The rebels supported the local governor, Juan Estrada. The rebellion "at least" had the sympathy of the US mining company and probably its connivance. When the Zelaya forces caught and executed two US citizens (professional dynamiters who worked for the company) for being in the rebellion, Taft broke relations with Zelaya and sent Marines to Bluefields. Zelaya was forced out and, in August, 1910, Estrada became the provisional president.
The collapse of Zelaya produced financial chaos. Estrada was secretly printing paper money while fending off the country's European creditors. The Conservatives appealed to Washington for help. In November, special envoy Thomas Dawson organized the Conservative government and dictated the Dawson Agreement (US Nicaragua claims commission; promised loan treaty))
In May,1911, there was another revolt and Adolfo Díaz, a former company employee, came to power. He placed the country under US protection. On June 6th, he signed the Knox-Castrillo Convention of 1911 which gave the US the right to intervene in Nicaragua to maintain order and protect American interests; gave loans of $15 million to Nicaragua to refinance the national debt through US private banks; and gave the US government control of the customs house to insure payments. Knox persuaded some New York bankers to lend money to the Nicaraguan government, in return for which they were given control of the National Bank of Nicaragua and of the government-owned railway. Americans prepared to take over the customs house. The US Senate rejected the Knox-Castrillo Convention. Nicaraguan Liberals revolted and U.S. Marines were sent "to protect American interests." They remain until 1933 although sometimes no more than a token force of one hundred. Nicaraguans understood that more would be dispatched immediately if necessary.
US involvement in the country was more than a few Marines. In 1914, the two countries signed the Bryan-Chamorro Treaty (ratified by the US Senate in 1916) which gave the US the right to build a canal across Nicaragua in exchange for $3 million. US officials decided how the money was spent. Most went to payments on loans from foreigners. The Treaty gave the US the exclusive right to use of the San Juan River but Costa Rica protested because the river formed one of its national boundaries and it was illegal for the United States and Nicaragua to take Costa Rican territory without its permission. El Salvador objected to the treaty's stipulation that the US could build military bases so close to El Salvador that it threatened that country. The two appealed to the Central American Court and won. The US ignored the ruling and proceeded to emasculate the Court. When the US pulled its Marines out in 1925 (the bankers had been repaid), the Liberals rose in revolt. The US had the Conservative Adolfo Díaz put back in power but the Liberals declared Juan B. Sacasa as president. Mexico backed Sacasa. Díaz' and Sacasa's forces fought until, in 1927, the US again landed marines and brought supplies to prop up Díaz. Henry L. Stimson was sent to straighten Nicaragua out. He got a cease fire. The United States had the army abolished and replaced by the Guardia Nacional under the leadership of the US-educated and -trained Anastatio Somoza. Stimson had fair elections held and the Liberal José María Moncada was elected. Agustino Sandino refused to accept the US role in Nicaragua and rebelled. After the Marines left in 1933, he agreed to lay down his arms and negotiate. He was murdered by Somoza's Guardia in 1934.
Nicaragua had become a puppet state of the United States.