The Chief of the Division of Mexican Affairs, Department of State ( Hanna ) to the Secretary of State

Dear Mr. Secretary: Mr. H. N. Branch, a local representative of the Mexican Petroleum Company, who telephoned last Saturday and requested to see you, desires a conference with you at the request of the Petroleum Committee which is negotiating at the present time with Mr. de la Huerta, to consult you in connection with Mr. de la Huerta’s desire that the petroleum companies loan Mexico $25,000,000 in the nature of an advance on petroleum taxes to be redeemed within at least five years.

Mr. de la Huerta made this proposal in a letter to the Committee dated July 6, in which he promised to submit for General Obregon’s approval the Committee’s proposal to amend the Decree of June 7, 1921, so as to continue from January 31 of this year the understanding agreed upon on September 3, 1921, that the petroleum companies should pay but 40% of the taxes fixed by that decree. Mr. de la Huerta then adds in his letter:

“but, at the same time, and in accordance with my conversation with you, it is necessary, if this substitution for the agreement of September 3 be made, that the sum of $25,000,000. be advanced to the Mexican government to the account of the production taxes, which will be redeemed by monthly deductions of 20% of those taxes in the future, in the understanding that the Mexican government will guarantee a minimum annual amortisation of 10,000,000 pesos.”

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Mr. Branch made it clear to me this morning that the Petroleum Committee is giving this proposition favorable consideration. The Committee apparently has no great fear that General Obregon would refuse to continue the 40% tax arrangement, although he might use this to annoy the petroleum companies. Mr. Branch made it clear that the real advantage which the companies would expect to secure in return for such a loan would be some arrangement such as the proposed Petroleum Development Company, under which they could continue petroleum development in Mexico. Mr. Branch emphasized the importance of this to the continued operation and prosperity of the companies, and the bearing it has on Mexican revenues and, incidentally, the bankers’ agreement. He added that Mexico is in serious financial straits and that he did not believe that the present regime could continue long without such financial assistance.

Mr. de la Huerta asked for a loan of $50,000,000 from the petroleum companies at his first meeting with the Petroleum Committee on June 19 last. At that time the Committee refused to consider the matter at all. Mr. Branch stated that, if they should make such a loan, it probably would not exceed $10,000,000.

Mr. de la Huerta is still in New York awaiting the Committee’s answer to his proposal and is to meet the Committee at 12 o’clock today. Mr. Branch made it clear that the Committee will take no action until it hears from him as to your views, and he emphasized his assurances that the Committee desires to work in harmony with the wishes of the Department in this matter.

M[atthew] E. H[anna]