The Chargé in Mexico (Hanna) to the Secretary of State

No. 3117

Sir: Supplementing my telegrams No. 110 of April 16, 10 A.M., and No. 133 of April 24, 11 A.M.,52 in reply to the Department’s telegram No. 97 of March 30, 4 P.M., in regard to the report that the Mexican Government intends to resume payments on its foreign debt, I have the honor to report that, in the personal note referred to from Mr. Luis Cabrera, Secretary of Hacienda, he informed me that the Mexican Government had been considering the question of applying a portion of its budget “to arrangements to be made with its creditors” but that, in view of the political events developed in the last few days that matter has been left in abeyance for the time being.

In this connection it would appear that the revenues of the Mexican Government probably have already decreased as a consequence of the Obregón uprising, while the extraordinary expenditures have materially increased. No revenues are reaching the Federal treasury from Sonora, as well as from large portions of Sinaloa, Guerrero, Michoacan and perhaps other regions occupied in force by Obregón armed forces. Many branches of business have already received a serious check and the Commercial Attaché informs me that merchants and others anticipate a material reduction in imports which will further reduce the Federal revenues. The same may be true of revenues from exports. Lessened activity in all lines of domestic industry may be expected to diminish the receipts from the stamp tax which is an important source of Federal income.

On the other hand, I am informed that the expenditures for all military purposes have greatly increased, as might be expected. Retired officers in large numbers have been recalled to active service and there appears to be great activity in the recruiting service, although this may not do much more than replace the troops who desert to Obregón. The ammunition and arms factories are working at much greater capacity than formerly, and I am informed that the government controlled railroads are being used almost exclusively for the transportation of troops and military supplies, thus [Page 228] converting them into a drain on the treasury instead of a source of revenue, which they formerly were. In addition, the opportunities for irregular practices in the handling and expenditure of public funds have greatly increased. So that, considering the fact that Mexican revenues only recently had begun slightly to exceed expenditures, there appears to be much reason for the assertion that the Mexican Government soon may be under a serious financial strain.

The opinion here appears to be fairly universal that the Government could not meet such a contingency by an issue of paper money. One American banker has expressed to me his fear that Mr. Luis Cabrera, Secretary of Hacienda, author of the statement that, forced by necessity, the Government was compelled to take money wherever it could be found, might go so far in his application of that doctrine as to demand or even take the deposits of the local foreign banks. Another banker, however, is of the opinion that the danger involved in such action is out of proportion to the funds which could be secured, in view of the fact that the total of the funds in all such banks probably does not exceed twenty million pesos, of which perhaps only three or four million are in American banks.

I am reliably informed that the Government is concentrating all its financial resources in this city, and is bringing here all the deposits of the branches of the Monetary Commission which will total approximately seven million pesos, and that from this and other sources it will be able to get together a fund of about fifteen million pesos to draw upon until means of increasing the revenues have been decided upon. A very direct method for so doing, and the one suggested by Mexican precedents, is for the government to take over important privately owned properties and to increase the taxes on others. Mr. Cummins, of the British Legation, has informed me that the street railways of this city are now being threatened with a new tax which will amount to about three quarters of a million pesos per year. On the other hand, the manager of one of the largest mining industries in Mexico says he has no fear of the Government taking over the gold and silver mines because of the difficulty it would have to secure cyanide, without which the mines cannot be worked.

I have [etc.]

Matthew E. Hanna
  1. Latter not printed.