210. Letter From the Assistant Secretary of State for Inter-American Affairs (Holland) to the Ambassador in Mexico (White)1

Dear Francis: I have read with much interest your memorandum of conversation on June 10 with Carrillo Flores.2

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If a representative has discussed with the Export-Import Bank the proposal to rehabilitate the Diesel locomotives, then our lines of communication are down, because I had affirmatively requested that we be informed of any overtures from the Mexicans on this subject at the Bank. I shall renew my inquiry.

Carrillo’s inquiry as to whether the Export-Import Bank would finance an irrigation project brings up a basic problem which has been troubling us at the Bank for some time. At the Rio Conference and over and over again on other occasions we have stated that the Export-Import Bank will attempt to satisfy all applications for sound economic development loans where capital is not logically forthcoming from private enterprise or from the International Bank. We have never in any of these statements set out as a requirement that the loan must be to finance the exportation of U.S. equipment. Despite this fact, representatives of the Bank from time to time advise applicants that loans will be made only for the purpose of financing U.S. exports. These conflicting statements understandably bewilder applicants at the Bank. This bewilderment is intensified by the fact that the Bank makes loans which do not relate to an exportation of U.S. equipment. I believe I am accurate in saying that it was the Export-Import Bank and not the IBRD which recently authorized a substantial loan for an irrigation project in northern Peru.3

I shall attempt to utilize the irrigation project proposal in Mexico to obtain a clear-cut decision on policy which will eliminate once and for all this needless confusion as to what the Bank will do and what it won’t do. However, aside from this policy decision, we have the question of whether it is in the interest of our Government at this time to extend further loans to Mexico. You will recall that we feel that the Mexicans should give some demonstration of their own adherence to sound policies before additional credits are forthcoming from this side.

Mr. Carrillo has had some heartening things to say to you regarding Mexico’s general attitude toward private enterprise.

First, he says that the contract for the sale of gas is held up only on the question of who should be the arbiter in case of a dispute. If it can be accomplished tactfully, I would get further information on this situation. Who is the American company with whom PEMEX is negotiating? Is there any reason why we should not verify from them whether this is, in fact, the only obstacle to signing a contract? I fear that such an investigation would reveal that there are additional obstacles, and that they are attributable to those in the [Page 674] Mexican Government who are determined to see that no contract for the sale of gas is executed.

On the same subject of exportation of dollar earning materials, it might be wise to raise with Mr. Carrillo Mexico’s short-sighted and nationalistic policy which prohibits the exportation of iron ore, a commodity of which they have huge excesses and for which there is an active demand in the United States. The Embassy’s recent despatch No. 18954 sets out rather clearly Mexico’s policy on this subject and enumerates instances in which iron ore could be sold but where existing policy obstructs the sale.

I am interested to see his statement that Olin–Mathieson is satisfied to take a minority position in the fertilizer plant. I shall attempt to determine here the real attitude of the company and shall report to you. If they are satisfied with a minority position, there is nothing we can do about it; however, I believe that it would be unfortunate if substantial American interests were to afford such encouragement to the Mexican Government to invade the field of private enterprise.

A few days ago I had a talk with Matson of American & Foreign Power. He confirmed Carrillo’s statements to you regarding the circumstances surrounding the vetoing of the power increase in the Tampico area.

At the bottom of page 5 you refer to an incident of hostility to American investment which had escaped your mind. You are in all probability referring to the decision of the Ministry of Economy to refuse to allow Mr. Murchison of Dallas and his associates to make a substantial investment in the construction of a gas transmission line from the Texas border through Monterrey and on to Torreón. A careful and well worked out proposal was submitted to the Mexican Government requesting authority to make such an investment. It was rejected by Loyo with the statement that it was the Government’s intention to retain for itself the industry of transmitting gas. I am attaching hereto a letter … to Gerald Mann reporting the incident.…

His comments on the taxation of the mining industry are interesting. In that connection, I would like to know whether you have had brought to your attention a letter drafted for Carrillo’s signature on this subject in August of 1953. I am attaching a copy of it, as well as a copy of a letter from Mendelsohn of Cananea Consolidated Copper Company, commenting on the Carrillo letter. You will observe that the original was never delivered. I think that it becomes rather important to determine, if possible, whether this [Page 675] letter does in fact reflect Carrillo’s convictions regarding the mining industry. If so, then no solution which would protect the Government’s need for revenues and at the same time afford some relief to the mining industry is going to be adopted.

The report of the generation of electrical power in the Chapala area is most interesting. I shall look forward with great interest to any further information that you may acquire about this.

I shall try to have another talk with Tello in the course of this week. However, I am dubious as to their usefulness for any purpose other than to let the Foreign Minister know of our concern. Tello’s response is always (and understandably so) that he will report to his Government. There the matter ends.

In a recent issue of Newsweek 5 there is an interesting article on the current trend in Mexico. I shall ask that a copy be attached to this letter.6

With best wishes and warmest regards, I am Sincerely,

Henry F. Holland 7

P.S. Since dictating the foregoing I have received a letter from Horace Braun on the problem of sale of Mexican gas. In it he quotes Mr. Bermúdez 8 on the reason why a contract has not been executed. The reason has no relation to that expressed by Carrillo Flores to you. Horace says:

“Briefly, he repeated that Mexico will not agree to any long-term contract for the export of its gas unless the contract contains the escalator clause permitting changes of price under agreed conditions, and also the most-favored-nation clause. Furthermore, these stipulations must not be subject to review, control or possible cancellation by any authority outside of Mexico.”

Since several representations have been made to Mr. Bermúdez demonstrating that this is not a valid objection, one is left with the fear that the sale is being blocked by sectors of the Government which oppose an exportation of natural gas.

  1. Source: Department of State, Central Files, 411.1241/6–1055. Confidential. In a memorandum to Holland dated June 24, Hughes stated that she forwarded Holland’s June 20 letter to White under cover of a letter of her own, dated June 24. (Ibid., 812.00/6–1055) None of the enclosures was found with the source text.
  2. Document 208.
  3. A handwritten marginal notation at this point in the source text reads: “Wrong—I find it was the IBRD.”
  4. Despatch 1895 from Mexico City, June 1. (Department of State, Central Files, 400.129/6–155)
  5. The handwritten notation “June 20” appears at this point in the source text.
  6. The following handwritten notation appears at this point in the source text: “Also an extreme and somewhat inaccurate article is in U.S. News & World Report for June 17.”
  7. Printed from a copy which bears this typed signature.
  8. Antonio Bermúdez, Director General of Petróleos Mexicanos (PEMEX).