213. Letter From the Ambassador in Mexico (White) to the President
1
Mexico
City
,
August 29,
1955
.
Dear Mr. President: This letter is in response
to your request last month that I write to you regarding the situation
in Mexico.
I have delayed it for a few days after my return here to check up again
on the situation to be able to send you my considered opinion as of this
date. The fuller details and background of the situation as I see it are
contained in the annex to this letter which is an integral part
hereof.
Due to the circumstances elaborated in the attachment, the policy of
President Ruiz Cortines’
administration at the outset was not very friendly to the United States.
The dominant role was played by the group favoring nationalization of
industry and resources and hostile to the competition of foreign
enterprise. The steady deterioration of Mexico’s balance of payments
since 1951; the steady lowering of her gold and foreign exchange
reserves; the unusually large quantity of liquid funds in the hands of
the public; the unfavorable long-term outlook regarding “terms of
trade”; the run on the peso in April 1954; the deferring of new
investments by Mexican business men and industrialists through
uncertainty as to the economic policies of the new Government increased
the accumulation of idle bank deposits, and led to the devaluation of
the peso in April 1954.
The press attacks on the United States at the time of the expiration
January 15, 1954, of the bracero agreement2 and the
Mexican policy at the Inter-American Conference at Caracas3 in [Page 681] March of that year, supporting the communist
regime in Guatemala and hostile to the United States, together with the
devaluation of the peso, brought such an outcry from the stable elements
in Mexico, the banking groups, the Federated Chambers of Commerce, the
Federation of Industrial Chambers of Commerce and the capitalists and
fast-growing middle class groups that they caused the President to hold
a long series of conferences to re-examine the Government’s policy. At
that time he also initiated very informal and personal talks with me at
his residence in the evenings. As a result, President Ruiz Cortines ordered the Foreign
Office to reverse completely its policy towards Guatemala and,
furthermore, to adopt a policy of cooperation with the United States.
This latter has resulted in settling a number of run-of-the-mill
problems inherent in the relations between two countries, as well as a
beginning of a discussion for the settlement of the outstanding claims
of each country against the other. It also resulted in President
Ruiz Cortines forming a more
realistic view of the danger of communism not only in Guatemala but also
in Mexico and asking for close cooperation with the Embassy in taking
measures to combat communism here. This is a really big advance. It also
resulted in the President supporting private industry in many concrete
cases, the most important so far being the power industry and the
telephone company.
I am convinced that President Ruiz
Cortines wants to cooperate with us and he has told me so
in all sincerity. In many cases he cannot proceed too rapidly but must
prepare public opinion in advance. In this connection, however, he told
me, well over a year ago and repeated on several occasions, that if the
communists should force a showdown with us, Mexico would definitely be
on our side.
Apart from the usual grist of problems that go constantly through the
mill of diplomacy in relations between any two countries and which,
while sometimes intricate and even seemingly frustrating to handle, do
get solved in due course without fanfare or publicity, there are about a
handful of outstanding problems between the two countries.
Attempts on our part to conclude a bi-lateral air transport agreement
with Mexico have been made for the last ten years without success. The
fact that President Ruiz Cortines
has now taken an interest in the proposed agreement and has asked me to
take it up with him personally rather than with the Minister or others
in the Department of Communications, leads me to hope that dealt with on
this basis a solution satisfactory to both countries may [Page 682] be found. If not the procedures agreed on
in Washington to follow will cause the Mexicans to make clamorous
protest as in the case of sugar quotas, proposed increase in U.S.
tariffs on lead and zinc (the Simpson Bill4), and the lapse of the bracero agreement a
year and a half ago. That will be something we shall have to face and
live with while working the matter out.
There are other problems of American interests here, such as the very
burdensome taxation of the mining industry, tariffs, export and import
controls, quotas and prohibitions, etc. These are matters which can and
are being worked out reasonably well in the normal course without
causing friction or unpleasantness in the relations between the two
countries, although the individuals concerned are at times
understandably unhappy about them.
The only other problem, and the one in my opinion which is at the back of
allegations of unfriendly relations between the two countries is the
desire of PEMEX, the Mexican
Government’s petroleum monopoly, to get large, long-term loans, without
having to show a balance sheet and run an economic, profitable industry.
The deficit financing of PEMEX imposed
on the Mexican Treasury is wholly concealed from the public. As stated
in the attached memorandum, Señor Bermudez, the head of PEMEX, wanted to be the official party’s
candidate for President of Mexico in the elections of ’52 and he is very
much a candidate for the 1958 elections. He brought great pressure upon
President Truman and other high Government officials from 1948 to 1950,
through many individuals including chairmen and members of the Committee
of Interstate and Foreign Commerce of the House of Representatives (Mr.
Wolventon and subsequently Mr.
Crosser), whom he invited to Mexico and
entertained lavishly, to get a loan of $470 million, subsequently scaled
down to $203 million. Our Government declined to give PEMEX the loan in accordance with its
long and consistent policy not to give public loans for petroleum
exploration and exploitation considering this a matter more appropriate
for private enterprise.
PEMEX did not become reconciled to this
decision and its representatives and employees have been persistently
and sedulously advocating such a loan. For the reasons given in the
attachment I feel it would be most unwise for our Government to accede
to this request which besides being unsound and contrary to our long
established policy, would strengthen the advocates of nationalization
[Page 683] and government control and
be a blow to our supporters who favor private enterprise.
On Señor Bermudez’ recent trip to New York, his public relations
representatives arranged a dinner for him with leaders of American
finance and industry. He was chagrined that he was unable to convince
them of the soundness of large, long-term, private loans to PEMEX. PEMEX is not likely to get very much more additional
private financing, except certain short-term credits for specific
objects, until PEMEX is run on a
business-like basis.
PEMEX’ failure to get long-term loans
from the United States has not caused unfriendliness in the relations of
the Mexican people as a whole, or of the Mexican Government towards the
United States. I understand President Ruiz
Cortines recently told Señor Bermudez not to ask for any
foreign loans for PEMEX and certainly
the Mexican Treasury does not want any loans to PEMEX under the present inability of that
organization to produce the funds necessary to service such a loan. The
Minister of Finance, since my return here, has told me that he asked the
President to restrict PEMEX and other
semi-autonomous agencies such as the Federal Power Commission, the
railroads, etc., from seeking loans independently of the Treasury or he
could not be responsible for the Mexican national credit. President
Ruiz Cortines has done so. He
has set up a Committee on Investments and all Government agencies are
now prohibited from contracting any foreign indebtedness exceeding
$100,000 and requiring more than twelve months for repayment without the
approval of that Government committee and the Nacional Financiera. The
Minister further complained of the tactics of Bermudez both in 1948–1950
and now in attempting to by-pass the Mexican Treasury and Foreign Office
and the American Treasury and Department of State and negotiate through
personal friends and intermediaries. In other words, the failure of
PEMEX to get a loan is not a
problem in Mexico disruptive of our relations. On the contrary the
attempt of Señor Bermudez to go out of channels to get a loan is
contrary to the policy of President Ruiz
Cortines and his Finance Minister. Those who are
supporting Señor Bermudez for any of a variety of reasons will use every
means at their command to obtain their ends, but I ask you to believe,
Mr. President, that they are doing it from partisan, personal reasons,
that they are not representing the true situation here and that one of
their tactics is to stir up groundless anxiety that relations between
the United States and Mexico are endangered by PEMEX not getting a loan. I have no hesitancy in asserting
that such is not the case.
The attempt of Señor Bermudez to obtain loans against the policy of his
Government is not the only case of this sort. The question arose of a
visit of one of our aircraft carriers to Acapulco. [Page 684] Señor Bermudez without going through the
Foreign Office, which knew nothing about it, got Ambassador Tello to tell the Department of State
that President Ruiz Cortines
would welcome such a visit. When I enquired of President Ruiz Cortines when he would like to
have this ship come to Acapulco so he could visit it, I found it was not
his idea at all. He told me very confidentially and personally he hoped
the visit would not be made and, consequently, it was abandoned.
Relations between the United States and Mexico are better than they have
been for some years and over the last fifteen or sixteen months have
made gratifying advances. In making this statement I am merely making a
factual description of the situation as it exists. I am not thereby
advocating any negative outlook or suggesting nothing further is to be
done by us and that we can sit back complacently. Far from it. There are
always opportunities to improve the situation and we should and must
avail ourselves of them all.
The Mexicans are a proud people and they cannot be pushed or rushed into
anything. They resent anybody trying to outline a program or plan for
them, or direct any of their activities. For example, in the field of
technical cooperation, we should wait for the Mexican Government (not
individuals or agencies) to ask for help in a given situation and meet
their desires to the extent we properly can. Such requests should, as
heretofore, be largely for technicians and advisers and may include some
rather limited financing of dollar expenses. On the basis of cooperating
with them at their request we can do much to improve relations and good
will, but if we try to dominate and dictate the policies, or what they
should do and how they should do it, we will at best accomplish nothing
and can very well cause considerable resentment.
Señor Carrillo Flores, the
Minister of Finance, sounded out the Export-Import Bank whether it would
consider financing some private power companies in Mexico. Under
authorization from the Bank and the Department I have informed him the
Bank will gladly consider such a request. That is one concrete example
of something we can do to be of service. There are others coming up all
the time. The Boundary and Water Commission is a cooperative enterprise
of great value to the two countries. The joint AFTOSA, or Foot and Mouth
Commission, with many frustrations and difficulties to be sure,
nevertheless succeeded in a period of under two years in eradicating a
new outbreak of that dreadful disease that occurred here in May 1953.
The American business men in Mexico are most cooperative and have the
friendliest relations with the Mexicans. A group of them has formed a
Committee Pro-Mexico which is doing much to stimulate the important
tourist trade and to foster general good relations. They also
participate in the American-Mexican business [Page 685] men’s committee sponsored by the U.S. Chamber of
Commerce and by important Mexican business and financial groups. The
Mexican Federation of Industrial Chambers of Commerce became very
interested in a program of increasing productivity. With the aid of
Point IV5 this is
being carried out as a Mexican project. It has the enthusiastic support
of the Mexicans and indications are that it will eventually be a very
successful program.
In other words, we are not taking a negative attitude—we are doing things
to be helpful to increase friendly relations and we shall continue to do
so and to take advantage of any new opportunities that arise.
The Minister of Finance has just told me that it would be most helpful to
him if it could be announced after the World Bank meeting at Istanbul,
which both he and Secretary Humphrey will attend, that it was agreed in principle
that the Stabilization Agreement for the peso will be renewed upon its
expiration December thirty-first, the details thereof to be negotiated
in November. Since our government departments concerned are agreed in
principle that the Agreement be renewed I am recommending that such an
announcement be made as Señor Carrillo
Flores requests. Whether the amount of the fund be
increased from seventy-five to one hundred million dollars and the
agreement be tied in to the present exchange rate of the peso are
matters that can be left to the good judgment of Secretary Humphrey.
Incidentally, Mr. Carrillo stated he was making this
request because the Mexican public will not believe he is going all the
way to Istanbul merely to attend the annual meeting of the Board of the
World Bank on which he is the Mexican representative. The public will,
he said, expect him to be negotiating on other matters and if no result
is announced, will say his trip was a failure. This gives support to
what I said to Messrs. Dulles, Hoover, and Holland in Washington regarding a suggested visit of
President Ruiz Cortines to
Washington that he will be expected to bring back from any such visit
something for Mexico in the way of a loan or other benefit. If he does
not, his prestige may be impaired and the visit result in more harm than
good. I feel the suggestion that the invitation for the visit be put on
a purely ceremonial basis might seem rather ungracious to President
Ruiz Cortines and result in
his not accepting it. That also would not be helpful. Even assuming that
a tactful approach could be made to obviate any such feeling on
President Ruiz Cortines’ part, it
would not prevent the Mexican press and others from feeling and stating
that something of benefit to Mexico [Page 686] must have been sought and not obtained and thus at
best cause embarrassment to him. Furthermore, any such invitation to
President Ruiz Cortines would
have to be most carefully handled to insure that no slightest intimation
regarding it should reach him before it is made to him or those with
advance knowledge of it will exploit it to their benefit and seek to
take credit for their personal advantage. Therefore, I recommend that
while we keep the possibility of such an invitation in mind for serious
consideration in case circumstances should be such that a visit could
not be misconstrued, it now be kept in abeyance. Incidentally, the
Mexican Congress, under the Mexican Constitution, would have to give
President Ruiz Cortines
permission to visit the United States as it did for his brief visit to
American territory at the dedication of the Falcon Dam.
A positive action of benefit to our relations would be the prompt renewal
by an exchange of notes of the bracero agreement that expires on
December 31. This is mentioned more fully in the annex. The present
agreement has been remarkably successful in the year and a half it has
been in effect. To try to renegotiate it de novo would present many
difficulties and possibly lead to a repetition of the unfortunate
situation we had at the end of 1953 and the beginning of 1954. I,
therefore, most earnestly recommend, now that our Congress has
authorized the continuation of the agreement, that I be instructed to
exchange notes with the Foreign Office to bring this about.
The most ticklish problem before us at present is the proposed bi-lateral
air transport agreement and, as I said before, President Ruiz Cortines has asked me to take it
up with him personally and he is fixing an appointment for me after he
delivers his annual message to Congress on September 1st.
I feel, in the light of the above analysis, I am justified in sending you
a confident report on relations between the two countries. If I felt
otherwise I would be the first to bring it to your attention and to that
of Secretary Dulles to try to remedy the
situation.
With kindest regards and great respect, I am
Faithfully yours,
[Page 687]
[Annex]
Political Background
There is to all intents and purposes only one political party in
Mexico. The three opposition parties that are permitted to have
their names on the ballot carry very little influence and in the new
Congress opening September 1 the opposition parties may have as few
as 5 to 10 seats out of a total of 162. In the official party are
represented all tendencies in the country from the conservative
propertied classes, the banks, industry and commerce, through the
left-wing doctrinaire element in favor of nationalization of
resources and various important basic industries and government
control and supervision, to the communist elements, on the extreme
left. None of these divergent elements has the remotest immediate
prospect of enough strength by itself to control the government, but
all have been represented in it. Therefore, the usual clashes in
economic policies inherent in all democratic countries take place in
Mexico within the official party to a greater extent than between
different political parties. This means that President Ruiz Cortines must try to maintain
a balance between these often diametrically opposed interests within
his own party in order to carry on the government business.
In the electoral campaign of 1952 that brought Señor Ruiz Cortines to the presidency,
opposition elements carried on a very virulent and unfair attack on
him personally charging he had cooperated with and aided the
American naval forces that landed in Veracruz (his home state and
residence) in 1914. Cartoons showing him collaborating with the
American landing forces were widely distributed through the mails
and by hand. One or two were even sent to me anonymously when my
appointment as Ambassador to Mexico was announced nearly three
months after President Ruiz
Cortines had been inaugurated. This campaign had an
influence on his outlook in the early stages of his administration.
He felt under the necessity of disproving that he has pro-American
and working for “Yankee” interests. This caused him to lean
backwards in not supporting those who were openly friendly to the
United States and undoubtedly influenced him in putting into his
Cabinet some men who are known to be hostile to foreign interests in
general, Americans and private enterprise in particular. There were
bitter attacks on the United States in January and February, 1954.
Without going into the details of that matter the attack had its
origin in the Foreign Office and our point of view was not permitted
to be published. All this despite the fact that the Minister of
Foreign Affairs and his Under Secretary both admitted to a number of
my Latin American [Page 688]
colleagues they realized the United States was right. Then came the
Caracas Conference and Mexico’s backing of the Communist government
in Guatemala. Then the devaluation of the peso described below and
very bitter attacks on the Mexican Government and its policy by all
the banking, industrial and commercial elements in Mexico. This
caused the President to stop and reconsider whether he had not gone
too far in backing the leftist groups and that the true interests of
Mexico were not being duly cared for. This concatenation of
circumstances, I feel, made it somewhat easier for me at that time
to persuade President Ruiz
Cortines that the Arbenz government in Guatemala was
a communist government and a threat to Mexico. Up to that time he
had followed completely the line of Señor Padilla Nervo that there
was no communism in Guatemala and no threat to Mexico or the rest of
the hemisphere.
At my third conference with President Ruiz Cortines on this subject, he told me that he
had instructed the Foreign Office to change its policy with respect
to Guatemala.
President Ruiz
Cortines
The President told me that he had received conflicting reports about
President Ruiz Cortines, some
advocating working with him and others maintaining that he is
socialistic and that we should have nothing to do with him. I should
like to repeat what I said at the time that I feel President
Ruiz Cortines is
definitely not socialistic and that we must work closely with him.
He is our greatest hope because only he can change socialistic and
hostile policies of Cabinet Ministers and he has done so. For the
reasons given above, inherent in the political situation here, he
cannot at this time, nor will any president in Mexico be able for
some time, to throw his full support to one side or the other in the
economic and political differences of viewpoint to the exclusion of
the other. President Ruiz
Cortines has a highly developed political instinct.
This tempers what he might like to do by what he feels he can safely
do. Señor Carrillo Flores
told me that President Ruiz
Cortines has sometimes twitted him on not being a
politician when he has advocated certain lines of action.
President Ruiz Cortines
stepped in to try to minimize the hostile campaign regarding the
braceros. That was the first step he took on our behalf. The second
was the change in Mexico’s Guatemalan policy. However, he still
expressed the view that there was no danger of communism in
Mexico.…
I have found President Ruiz
Cortines very cooperative and helpful. He has his
political problems and we could not expect him to act rapidly on
many matters. He himself has told me that in many cases he has to
prepare public opinion first and he has taken steps to that end. I
feel he is completely sincere in his statements to [Page 689] me of his desire to work closely with
the United States and to have good relations and also in his
admiration of President Eisenhower. Not only
has he expressed this to me personally, but various persons close to
him in his Cabinet, or on his personal staff told me spontaneously
of the great admiration which President Ruiz Cortines formed for the President at the Falcon
meeting.
In addition to the matters mentioned above, President Ruiz Cortines came out squarely in
support of private enterprise in the power industry in the matter of
giving the private companies rates that will allow them to make a
sufficient return on their investments to attract new capital for
needed expansion. Hostile elements are constantly working to upset
this and another phase of the matter will come to a show down in the
near future. From what the Finance Minister has told me since my
return to Mexico, this cannot be settled immediately because the
question has become a political issue but he intimated President
Ruiz Cortines will
resolve it in favor of private enterprise next year. President
Ruiz Cortines also
supported the Texas Eastern gas contract with PEMEX and directed Secretary Loyo and
Señor Sanchez Cuen to cease opposing it. At present the general
trend appears somewhat more favorable for private enterprise but not
necessarily for large scale foreign investments in private
enterprise.
To repeat, the only one who can overrule and has overruled actions of
Cabinet officers unfriendly to the United States—as shown in the
bracero matter, Guatemela, and the Caracas Conference—and those
hostile to private and foreign interests, is the President. I feel
it is clearly advantageous for us to continue to cooperate with him
and to encourage him to share our point of view. I consider it most
fortunate that he and I have established a relationship which
permits this cooperation and feel we should do everything possible
to strengthen that relationship. May I again emphasize here how much
importance President Ruiz
Cortines attaches to keeping this relationship
unpublicized on account of the reaction it might have on him
politically, should it be generally known.
At my last interview with President Ruiz
Cortines before my recent trip home I told him that
whenever I saw a cloud on the horizon that might grow into
undesirable proportions I always wanted to try to take measures to
meet the issue before it grew to unmanageable proportions. He said
he agreed and asked what the problem was. I outlined to him very
briefly the matter of the proposed bi-lateral air transport
agreement and told him that I could foresee a difficult situation
arising there if we did not compose it fairly rapidly. I told him my
instructions to take the matter up had not yet come but that I had
been told they would be coming shortly. [Page 690] President Ruiz
Cortines asked me as soon as I get my instructions,
which I have now received, to take the matter up with him personally
rather than with the Minister of Communications, and that I shall
do. I was somewhat concerned lest my instructions might limit me to
getting the matter concluded in a relatively short period or else
the Civil Aeronautics Board would issue a show cause order against
Mexican air lines. As I explained to Secretary
Dulles and Under Secretary Hoover, I would very much dislike
to be put in such a position. My relations with President Ruiz Cortines are such that I
cannot and should not deal with him on the basis of giving a time
limit which would make him feel that he was discussing the matter
with me under duress. I am happy that both Mr.
Dulles and Mr. Hoover fully agreed with this point of view and I am
being given more latitude in the matter.
Other Personalities
The most outstanding member of the Cabinet who has worked sedulously
on behalf of private enterprise and proper cooperation with the
United States is the Minister of Finance, Doctor Antonio Carrillo Flores. There have
been times when he has had to fight almost single-handed for what he
considers sound monetary and economic policies and against unsound
policies which he considers will threaten the economic stability and
the prosperity of Mexico. Such support as he has received in the
Cabinet has been limited largely to Señor Angel Carvajal, Minister
of the Interior, the ranking member of the Cabinet and a very close
friend of President Ruiz
Cortines. The Minister of Education, Señor José Angel
Ceniceros, and the Minister of Public Health, Doctor Ignacio Morones
Prieto, are men of sound ideas and friendly to private enterprise
but do not carry any particular weight outside their own ministries.
Mr. Ceniceros has been particularly active in
his field in eliminating as many communists as possible from the
teaching profession in general and from his ministry. Señor Rodrigo
Gomez, Director General of the Bank of Mexico and Señor Martinez
Ostos, the Sub-Director of Nacional Financiera, are also strong
supporters of private enterprise and have been very friendly toward
American interests in Mexico.
On the other side the outstanding anti-American and leftist is the
Minister for Foreign Affairs, Señor Ruiz Padilla Nervo. He has in
his ministry a number of officials with leftist sympathies and two
or three who are alleged to be communists. Two have Russian
wives.
The leader of the socialist group advocating nationalization of
industry, keeping out foreign competition and generally thwarting
private business and initiative, is the Minister of Commerce, Lic
Gilberto Loyo.
[Page 691]
The Minister of Hydraulic Resources, Señor Eduardo
Chavez, is also very definitely of the same view as
Señor Loyo. The Minister of Communications and
Public Works, Señor Carlos Lazo, has followed
this same line apparently more from expediency than from
conviction.
Of those occupying positions below Cabinet rank the head of the
Federal Power Commission, Señor Ramirez Ulloa, is belligerently
hostile to foreign private power companies in Mexico and in favor of
government ownership and operation.
Señor Amorós, the head of the National Railways, is in favor of
Government ownership and operation of the railways. However, he is
striving to improve their operations. On taking charge of the
railroads he was confronted with about 30,000 super-numerary
employees and such lax management and operational control that some
40% of their diesel locomotives are in the shop unusable. The shops
are not equipped to keep up with the current repairs to say nothing
of this backlog of equipment worth many million dollars that is out
of service for months on end. His principal difficulty is labor
relations. He has succeeded in getting a new labor contract which
permits not filling vacancies as they occur. If the Railroad
Administration can hold the line on this it may reduce its excess
labor in ten years or more to manageable proportions. This will
require much political courage, however.
Señor Bermudez is head of the Mexican Government’s petroleum monopoly
known as PEMEX. That industry also
is not run on economic business lines. It is used to pay off
political debts of the party by appointing needless employees to
sinecures where they do no work but draw salaries. Furthermore, its
petroleum products are not marketed economically but are sold at
lower than market prices, by way of subventions to the National
Railways in the case of fuel oil, and to taxi-cab drivers, trucking
companies, and other privileged groups as regards gasoline. The
result is that this industry which should be one of the Government’s
greatest assets is at present a liability to the Treasury. Graft and
corruption is also reliably reported by many as prevalent in that
organization.
PEMEX does not publish a balance
sheet or disclose its true financial position, but I know from the
Minister of Finance that the Mexican treasury has to make up PEMEX’s deficits. This deficit
financing is completely concealed from the public.
Señor Bermudez is a man of great personal charm and ambition. He
hoped that he would be nominated the official party’s candidate for
the presidency in 1952 and was chagrined when this did not occur. He
still hopes to get the nomination in 1958. From 1948 to 1950 he was
very active in trying to get a loan from the United States
Government for PEMEX and it was
stated that he felt that [Page 692]
getting such a loan would so increase his prestige that his chances
for the presidential nomination would correspondingly be advanced.
Despite the greatest efforts to get such a loan he did not succeed,
but in 1950 the Export-Import Bank did open a line of credit for the
Mexican Government for $150,000,000. It was said at the time that
while none of these dollars could be used for PEMEX the loan would, nevertheless,
free pesos which the Government would otherwise be obligated to use
elsewhere and hence, make pesos available for PEMEX if the Government so desired.
Señor Bermudez maintains that he never got any of these more or less
counterpart pesos for PEMEX and is
all the more irked for that reason.
Some months ago he openly stated to a number of people that he was
about to get a loan of three hundred to four hundred million dollars
from the United States. He visited New York where public relations
representatives of his gave a large dinner in his honor. Many of the
most important business and banking interests were represented. One
who was present told me that Señor Bermudez put on an excellent show
and he described him as being an excellent actor. However, he seems
to have failed to convince these American business leaders of the
soundness of his project and, except for certain short-term credits,
PEMEX was unable to get the
additional funds desired from private sources. Señor Bermudez and
his representatives have alleged that with from three to four
hundred million dollars PEMEX
could be made a paying organization. The cold facts are that until
the Government lets PEMEX put
itself on a businesslike basis any additional funds granted to it
would be more money down the drain and any seeming prosperity caused
by this shot in the arm would be short-lived indeed and then not
only PEMEX but the Mexican
Government would be in a vastly inferior economic position. PEMEX, until taken out of politics
and ably and economically managed, will not of itself generate the
funds with which to service such a loan. The loan would then have to
be serviced, as are PEMEX’s
present deficits, from the National Treasury. The borrowing capacity
of the Mexican Government for productive loans for other development
projects would be reduced by the amount of the loan to PEMEX which would then have to be
serviced by the Federal Government. The Government would be saddled
with the service of an additional debt for which it received no
practical, productive benefits and this would seriously effect the
Treasury position and the stability of the peso. This is the
position taken by the Mexican Treasury Department.
The man in the Government most anxious to have PEMEX a going concern is the Minister
of Finance who wishes the Treasury relieved of this present burden.
While he has discussed the matter with me on his own initiative on
several occasions, he has never [Page 693] advocated a loan for PEMEX as a way out as he knows what, under present
conditions, the result would be to the Treasury’s position.
To sum the matter up, graft and corruption in PEMEX are well known. PEMEX would like to get money from us
but that is all; its head and some of its directors are not known
for their friendly feelings to the United States.
Résumé of Economic Situation
During Ruiz
Cortines Administration
When the Ruiz Cortines
Administration took over the reins of government in December 1952 it
inherited from the previous administration a virtually empty
Treasury, several large uncompleted public works projects, and many
contracts for new public works, a number of which were open to
question. The Government had no alternative but to curtail or stop
unnecessary or uneconomic public works projects. Since Government
spending in Mexico normally forms a large proportion of total
national expenditures, the impact of this policy on the economy of
the country was serious. In addition such factors as the severe
drought affecting much of the Northern farm area, the lower prices
for minerals and farm products, and the closing of the U.S. border
to the exports of Mexican cattle because of foot and mouth disease,
all resulted in a decline in business activity which caused a
business depression of relatively serious proportions by mid 1953.
Although there was a slight revival in business during the last
quarter of 1953 due to holiday spending and increased government
expenditures, this did not dispel the atmosphere of doubt and
concern that existed among business men, due in part to uncertainty
regarding the Government’s attitude towards private enterprise.
Consequently, private expenditures were curtailed and bank deposits
increased.
Shortly after the beginning of 1954 a modest flight of capital
started, but it reached such serious proportions during the first
half of April that the Government feared that its “free” gold and
foreign exchange reserves would soon be exhausted if the capital
flight continued (at mid April total gold and foreign exchange
reserves totaled only $201 million of which about $150 million was
needed to meet the legal reserve requirements for currency and bills
in circulation). Rather than exhaust existing foreign exchange
reserves and then have to call on the U.S. Stabilization Fund and
the International Monetary Fund for backing the peso when ultimate
devaluation might be inevitable, the decision was made to devalue
the peso as of April 19, 1954. The primary considerations which led
to this decision were: the steady deterioration in Mexico’s balance
of payments since 1951, the steady lowering of her gold and foreign
exchange reserves, the unusually large quantity of liquid funds in
the hands of the [Page 694] public,
the unfavorable long term outlook as regards the terms of trade, the
“run” on the peso in early April 1954 which threatened to exhaust
Mexico’s “free” reserves of about $50 million, and the anticipated
budget deficit of some $70 to $90 million. The abrupt action of the
Government in devaluing the peso was such a shock to the country
that the devaluation, instead of terminating the capital flight,
resulted in an unprecedented flight from the peso, and the gold and
foreign exchange reserves hit a new low of $105 million in July
1954.
Mexico, however, is noted for the resiliency with which it responds
to economic crises and the one in 1954 was no exception. Following a
few months of confusion and uncertainty business adjusted to the new
parity rate. An excellent agricultural season late in 1954, and a
more friendly government attitude towards business, helped to revive
business activity. By the end of 1954 commerce, industry and
agriculture had improved markedly. The mining industry, however,
remained somewhat static. This improvement carried over into 1955,
and a record tourist season, plus an inflow of capital, resulted in
an increase, rather than the usual seasonal decrease, in the gold
and foreign exchange reserves of the country which as of late August
have increased to slightly over 300 million dollars compared to the
low point in July 1954 ($105 million). The outlook for commerce,
industry and agriculture for the remainder of the year is bright,
tourism is expected to continue at a high level, and labor is
relatively stable.
Only in those industries where Government control or policies inhibit
growth is difficulty being experienced. These include the mining
industry where excessive taxation is a factor; the nationalized
petroleum industry, due to the fact that PEMEX’s prices have not been increased sufficiently to
offset losses due to devaluation, to continued subsidies to other
government entities and to management and labor problems; the
national railways, due to low rates, management and labor problems;
and the electric power industry, due to previously existing low
rates.
The Bracero Agreement
The Bracero Agreement expires the 31st of December of this year. The
agreement that was finally concluded on March 10, 1954, with one or
two amendments by subsequent exchanges of notes, has proved
eminently satisfactory. There are always certain modifications that
can be made or discussed but that can be done within the framework
of the present agreement, or any extension of it. The Congress has
authorized the extension of the agreement for an additional three
and a half years and I feel very definitely that our best interests
indicate we should very promptly, by exchange of [Page 695] notes, extend the present agreement
and not try to renegotiate a whole new agreement merely to get in
one or two points that might be considered an improvement. If there
is anything we definitely feel we need, that particular point can be
negotiated with the Mexicans, but to throw the whole thing open to
new negotiations now, including many points which it took us so long
and with so much chagrin to achieve a year and a half ago, would, I
think, be most undesirable.
I understand there are some differences of view between the
Department of Labor and the Immigration Service on matters connected
with the agreement. Those are domestic matters which should be
settled in Washington and not in negotiations with the Mexicans.
I repeat that it seems to me wisdom counsels our extending the
agreement as it is as quickly as possible and then taking up any
specific points for amendment as they arise, or as the Labor
Department and the Immigration Service arrive at an accord among
themselves as to what they feel the objective should be on a given
point.
The Communist Situation
The orthodox Communist Party of Mexico is numerically weak, having an
estimated 5,000 active members and, not having qualified for
registration cannot legally run candidates in elections. The Popular
Party, led by the avowed Marxist Vicente Lombardo Toledano, while
denying it is Communist, serves the interests of international
Communism in Mexico. It has an estimated 100,000 members including
the newly-enfranchised women, is an officially registered political
party, and has a miniscule representation in the National Chamber of
Deputies. Thus in a country of almost 30,000,000 inhabitants,
Communist political strength on the face of it appears numerically
negligible, a point constantly being stressed by Government
officials, the press, and others. On September 1, 1954, in his
annual Report to the Nation, President Ruiz Cortines went on record that Mexico rejected
international Communism, and during the past year the authorities
have been quick to suppress Communist-inspired attempts at public
disorder in the Capital and elsewhere, thus providing the background
for official spokesmen to announce the country is anti-Communist. A
favorite cliché here is: “A country so strongly Catholic as Mexico
could never go Communist.”
However, the Communists and their allies in Mexico have considerably
more influence than their numerical weakness indicates, as the
liberal tradition of the Mexican Revolution has permitted many kinds
of political radicalism to flourish over the years. President
Ruiz Cortines is believed
to have become aware of a potential internal Communist threat to
Mexico at the time the Arbenz regime in Guatemala was unmasked and
overthrown last year. The liberal [Page 696] tradition alluded to above has produced in
Government officials a complacency and laissez-faire attitude toward
Communism which is at times exasperating and even alarming. Mexican
citizens are freely granted passports to travel to various Communist
gatherings behind the Iron Curtain (Lombardo Toledano travels on a
diplomatic passport), and Communist influence is appreciable among
educational workers and in certain sectors of the labor movement,
particularly among electrical and railroad workers. The Soviet Union
is represented here by an Embassy, and Poland and Czechoslovakia by
Legations (Argentina and Uruguay are the only other Latin American
countries where Soviet diplomatic missions exist). The Soviet
Embassy has a staff of at least sixty working persons including more
Armed Services Attachés than our own Embassy. These Russians are
believed to be engaged chiefly in intelligence work and are very
active in so-called cultural activities and have established several
Russian-Mexican “Cultural Exchange Institutes” in the Capital and in
provincial centers. A number of prominent Mexican artists and
cultural figures are Communist Party members. Thus the Communists
and Popular Party members and sympathizers, though relatively few in
number, are able to exercise, through their connections and on
account of the lack of awareness by Mexican officials of the
Communist danger, greater influence than their strength would
warrant.
With virtually complete freedom of the press the Communists are able
to make themselves heard. The Mexican Communist Party publishes a
weekly newspaper (efforts to raise funds to make it a daily have
consistently failed) and the Popular Party publishes a daily.
Through these and other outlets, including paid space taken from
time to time in the regular newspapers of large circulation, they
keep up a steady and skillfully directed campaign against the United
States, most frequently utilizing causes which find a responsive
chord among many Mexicans irrespective of political outlook. These
taboos include, but are not limited to: the possibility of betrayal
of the national patrimony—notably petroleum and, more recently,
supposed uranium deposits—to foreign interests; the invasion of
Mexican markets by United States firms, especially chain stores; the
bracero question; the electric power question; land reform and the
division of the remaining large tracts, some of which are owned by
United States interests; the foreign mining companies; military
cooperation for continental defense; and the general question of the
economic “invasion” of Mexico. All these matters are approached by
many Mexicans with an emotional rather than realistic outlook.
Consequently, through playing upon issues which put the Government
on the defensive the Communists are able to create, [Page 697] and keep alive, a certain atmosphere
or impression that relations between the United States and Mexico
are strained.
President Ruiz Cortines, since
my talks with him and especially since the irrefutable evidence of
the Guatemalan case, has a greater realization of the dangers.
However, he like many others, is likely to assume an attitude of
complacency dismissing, or at least minimizing, the issue as a
relatively unimportant manifestation of a local condition rather
than an international conspiracy implanted and directed from abroad.
Nevertheless, despite the outlook on my arrival here which was far
from reassuring, there are definitely hopeful signs and I propose to
continue at each suitable opportunity to encourage President
Ruiz Cortines to take
measures against Communism which will more clearly define the
Government’s position.
