Venezuela Debt Crisis

The Venezuela debt crisis began in 1901 when Cipriano Castro, Venezuela’s president, defaulted on millions of dollars in bonds owed to European nations.  The creditors, especially Germany, Italy, and Great Britain, threatened military intervention if the debts were not repaid.  President Castro, who refused to engage in settlement talks, did little to resolve the escalating crisis.

Initially, President Theodore Roosevelt believed that that the European nations were justified in intervening in Venezuela in order to protect their citizens and property.  In fact, Hermann Speck von Stenberg, a German diplomat and personal friend of the president, wrote the president to explain Germany’s intention to collect its debt.  TR’s response in July 1901 approved of Germany’s plans. He also warned the Germans not to annex any territory.

Later, Castro ignored a final ultimatum demanding payment of the debt. In response, German, British, and Italian forces seized several Venezuelan vessels, bombarded coastal forts, and established a naval blockade of the country in December 1902.  President Roosevelt became leery of continued European intervention in the region. He responded to the crisis by pressuring all parties to reach a settlement.

By January 1903, the boycott had devastated Venezuela’s economy.  A desperate Castro asked President Roosevelt to negotiate a settlement.  Not surprisingly, Roosevelt jumped at the opportunity to restore order in the western hemisphere.  The British were eager to get out of Venezuela and endorsed the proposal.  The crisis abated in February 1903 when Venezuelan leaders agreed to reserve 30% of the country’s custom duties until all of the debt claims had been settled.  Theodore Roosevelt did not wish to see European intervention in the western hemisphere again so he announced the Roosevelt Corollary to the Monroe Doctrine in 1904.