Papers relating to the foreign relations of the United States, 1930, Volume III

812.51/1606

The Ambassador in Mexico ( Morrow ) to the Secretary of State

Mexico , July 17, 1930.
[Received July 23.]

No. 2632

Sir: I have the honor to refer to the reported conversations which have been proceeding in New York during the last two weeks between Mr. Montes de Oca, the Mexican Minister of Finance, and representatives of the International Committee of Bankers on Mexico, in regard to a reorganization of the National Railways of Mexico and to the future course of the Mexican Government towards payments on that part of their bonded debt the holders of which have been represented by the International Committee since its formation in 1919.¹

As I was absent from Mexico for more than six months preceding Mr. Montes de Oca’s departure for New York, I was unable to discuss with him his proposed procedure at this conference.

On Friday, June 27th, I endeavored to arrange to make a courtesy call upon Mr. Montes de Oca at his hotel in New York, but did not succeed. On the afternoon of Saturday, June 28th, he called on me in Englewood. He was accompanied by Mr. Sanchez Mejorada² and several other members of his party. Our conversation was necessarily brief, and dealt more with general conditions in Mexico than the matter of the mission of the Mexican group to New York. As I parted with Mr. Montes de Oca, I remarked to him that he was, of course, keeping in mind that the Government of Mexico had other obligations than those that were represented by the Bondholders Committee. He stated that he was keeping this in mind.

During my absence, Captain McBride³ continued his study of the Mexican financial situation. As previously reported by the Embassy, Mr. Joseph E. Sterrett, of Price, Waterhouse & Company, visited Mexico City in the early part of June, in order to obtain the most recent information with reference to Mexican finances. During Mr. Sterrett’s visit, Captain McBride discussed informally with Mr. Sterrett the problem of Mexican finances as he saw it. After Mr. Sterrett’s return to New York, Captain McBride prepared a memorandum incorporating his personal views as expressed to Mr. Sterrett. He then sent a copy of this memorandum to Mr. Sterrett. He also informs me that he discussed the points covered in the memorandum with Mr. Montes de Oca shortly before his departure for New York. I enclose, for the Department’s information and files, a copy of Captain McBride’s letter to Mr. Sterrett and a copy of his memorandum.⁴

Last Thursday, July 10th, Mr. T. W. Lamont, the Chairman of the International Committee, called me on the telephone. I enclose a copy of my memorandum of this conversation. Later the same day, Captain McBride, pursuant to a request of mine, called Mr. Sterrett on the telephone. A memorandum covering this conversation is also enclosed.⁵

Referring to Captain McBride’s memorandum of June 21st, he informs me that in his conversation with both Mr. Montes de Oca and Mr. Sterrett in relation to the points covered in the memorandum, he has made it clear that he was expressing his personal opinion and not in any way representing either the views of the Embassy or those of the State Department. It is not at this time possible to comment in detail on the points covered in Captain McBride’s memorandum without entering into an exhaustive discussion of the entire Mexican financial situation. He tells me, however, that the main points which he has had in mind and has stressed in his various personal and unofficial conversations, have been:

(a) A frank recognition that it would be impossible for Mexico to pay all her creditors in full in accordance with the terms of her obligations;

(b) That an agreement with any single creditor, or class of creditors, can be practically effective only if considered as a part of a general program covering all creditors;

(c) That the Embassy has at all times avoided expressing any opinion as to the priorities of the various groups of claimants against Mexico;

(d) That in determining priorities, however, it should always be kept in mind that the debt of the Government of Mexico to other Governments, on account of settlement of claims espoused by those Governments on behalf of their citizens, should be ranked as debts of one sovereign government to another sovereign government. In this connection it will be noted that Belgium has already been paid and the memorandum contemplates that the German awards recently completed should be paid in full without delay as provided in the Mexican German Convention;

(e) That in the memorandum of June 21st which contemplates payments amounting to approximately fifty cents on the dollar to creditors as a whole, it is contemplated that payments to the other governments on account of claims espoused by them shall in effect be at the rate of one hundred cents on the dollar on the real value of these claims as estimated in the memorandum. The investigation made by this Embassy into previous claims settlements indicates that they averaged 10.65% of the gross nominal amount of such claims. The awards actually made by the German-Mexican Mixed Claims Commission, as previously reported, were only 7.95% of the gross amount of the claims originally advanced by German citizens. In the memorandum provision is proposed for payment by Mexico to the United States and other governments on the basis of 12½% of the gross nominal amount of the claims filed for submission to the Mixed Claims Commissions. This is of course a matter of adjustment with the Mexican Government which may decline to settle on any such basis, in which case the Department might not wish to make any adjustment but would allow the matter to proceed before the Commission with the result that no cash payments will be due from Mexico until all the cases are tried before the Mixed Claims Commission and the awards handed down, at which time the full amount of the awards is immediately due and payable in gold, minus the set off stipulated in the General Claims Convention.

I am setting out the foregoing facts in some detail because the Embassy has tried to keep in mind at all times the State Department’s instruction No. 578 of March 27, 1929,⁶ and the conversations between the Embassy and the State Department, held both before and after that instruction.

The Department will recall that under the Agreements of 1922⁷ and 1925 between the Mexican Government and the International Committee the amounts payable to the bondholders during 1928, 1929, 1930 and 1931, would have been approximately 240,000,000 pesos; under the proposals as discussed in New York in December 1927 and January 1928, between Messrs. de la Fuente and Díaz Barrosso, representing the Mexican Treasury, and representatives of the International Committee (see Embassy’s despatch No. 232, of January 7, 1928⁸), the amount payable would have been at the rate of 37,500,000 pesos in 1928, 1929, 1930 and 1931, or a total of 150,000,000 pesos; in the memorandum of an agreement which was initialed in October 1928 by Mr. Montes de Oca for Mexico and Mr. Arthur Anderson for the International Committee (see Embassy’s despatch No. 1635, of May 20, 1929⁸), the amount payable would have been 11,200,000 pesos in 1929, 26,900,000 pesos in 1930, and 32,800,000 pesos in 1931, or a total of 70,900,000 pesos. Captain McBride’s memorandum of June 21, proposes a total payment of 20,000,000 pesos in 1930 and 1931. The memorandum of my telephone conversation with Mr. Lamont shows that Mr. Montes de Oca has offered to pay 25,000,000 pesos in the same two years. Nothing was paid on the bonded debt in 1928 and 1929.

I have [etc.]

Dwight W. Morrow

[Enclosure]

Memorandum by the Ambassador in Mexico (Morrow) of a Telephone Conversation With the Chairman of the International Committee of Bankers on Mexico (Lamont)

Mexico , July 10, 1930.

Mr. Lamont called me up this morning at about 9:30 Mexican time, and told me that they had been carrying on conversations with Mr. Montes de Oca on the basis of Captain McBride’s memorandum of June 21, 1930. Mr. Montes de Oca had stated that he could pay 25,000,000 pesos to the International Committee between now and January 1, 1932, so much of this sum of money as necessary to be used in retiring the overdue interest; that, so far as the Mexican Government was concerned, the overdue interest was to be cancelled; that in 1932 Mexico would pay to the International Bondholders Committee 25,000,000 pesos; that this would be increased by 1,000,000 pesos each year, reaching 30,000,000 pesos in 1937. Mr. Lamont stated that while they thought this was too low, the Committee was disposed not to press for a larger amount.

Mr. Lamont further stated that they had not got very far in the Railroad negotiations; that at the outset of the conference Mr. Montes de Oca had shown a disposition to deal with the Railroad situation first, but that later he had been rather pressing for an adjustment first of the Government debt; that Mr. Lamont was not personally carrying on the Railroad conversations, and was, therefore, not so familiar with the details of the Railroad discussions as he was with the Government debt conversations, but that he understood that they were getting somewhere in these Railroad conversations. I asked Mr. Lamont if the Railroad conversations involved any definite sum to be paid to the Railroads between now and January 1, 1932. He said as to this he did not know.

I said to Mr. Lamont that I had not yet read Captain McBride’s memorandum but that he had told me of its general tenor. I then said that I thought the amounts suggested by Mr. Montes de Oca to be paid on Government debt were within the capacity of the Government; but that I doubted the effectiveness of any agreement unless Mr. Montes de Oca would cut down his other debt along some such line as had been suggested in Captain McBride’s memorandum; and that if the International Committee simply made an agreement with Mr. Montes de Oca by which the Committee cut down their debt, without some definite commitment as to cutting down the other debt, the probability would be that Mexico would default on the new agreement, as it had on the old. I said that the announcement of a settlement of the debt with the International Committee would, in my opinion, stiffen up all the other creditors, who would probably assume that they were now going to be paid in full. I mentioned specifically the agrarian bonds, and asked if Mr. Montes de Oca was making any commitment with reference to these.

I told Mr. Lamont that I would talk at once with Captain McBride and Captain McBride might call up Mr. Munroe or Mr. Sterrett a little later in the day. Mr. Lamont said that Mr. Sterrett had been sitting in on all the conversations.

D[wight] W. M[orrow]

1. See Foreign Relations, 1919, vol. ii, pp. 644 ff.
2. Director General of the National Railways of Mexico.
3. Capt. Lewis B. McBride, American Naval Attaché.
4. Neither printed.
5. Not printed; this memorandum was undated, but it was transmitted by Captain McBride to Mr. Joseph E. Sterrett in a covering letter dated June 21, 1930.
6. Foreign Relations, 1929, vol. iii, p. 461.
7. See ibid., 1922, vol. ii, pp. 685 ff.
8. Not printed.
8. Not printed.