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

812.51/1665

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

Mexico, December 2, 1930.
[Received December 8.]

No. 13

Sir: I have the honor to refer to Mr. Lane’s dispatch No. 3001 of November 25, 1930,²⁴ reporting such information as was available at that date in regard to ratification of the agreement of July 25, 1930 between the Mexican Government and the International Committee of Bankers.

It has since been learned that the Minister of Finance has sent a representative to New York to discuss with representatives of the International Committee the difficulties which have arisen in regard to the ratification of the agreement. Furthermore, Mr. Joseph E. Sterrett, representing the International Committee, arrived in Mexico City a few days ago. It is understood that Mr. Sterrett’s trip was undertaken at the suggestion of the Minister of Finance.

In conversation recently with a member of the Embassy staff, Mr. Montes de Oca stated that there are now two problems affecting the ratification of the agreement:

(a) The first difficulty is a political one due to a considerable amount of popular opposition to the ratification of the agreement on the ground that large sums of money should not be sent out of the country under existing conditions. This opposition has of course been strengthened by the prevailing economic depression. Mr. Montes de Oca says further that a part of the opposition is to any agreement with the International Committee of Bankers which is referred to as a representative of “Wall Street” and that he himself is attacked as “the tool of Wall Street.” (Note: this indicates a popular belief that the foreign bonded debt is predominantly held in the United States). Several proposals for dealing with the bonded debt by methods other than by means of an agreement with the International Committee have been made but the Government considers these as entirely impracticable. Mr. Montes de Oca stated that it is the Government’s view that it is desirable to deal with a committee representing all the bondholders, and that, in their opinion, the present International Committee of Bankers is a more responsible and representative committee than any other that could be formed. He also stated that the Mexican Government very much appreciated the sympathetic and helpful attitude of Mr. Lamont; that the Government on their part understood Mr. Lamont’s difficulties in dealing with the bondholders; and that it is convinced that the best results for Mexico are to be obtained by continuing to deal with Mr. Lamont on a basis of mutual understanding and of mutual concessions.

(b) The second difficulty arises from the continued drop in exchange and in the continued increasing discount on silver currency against gold. Mr. Montes de Oca stated that on the basis of the exchange and the silver discount as it existed last July, the 1931 payment of $12,500,000.00 called for by the agreement would have caused the Government a loss by exchange of only $600,000.00 or $700,000.00, but that with the present exchange and discount rates the loss to the Government would be about $2,500,000.00. (Note: all Mexican revenues are collected in silver currency so that in making dollar payments the Government suffers loss due both to low exchange and to discount on silver currency.)

Mr. Montes de Oca has proposed to Mr. Lamont two alternative methods for dealing with the ratification of the agreement:

(a) That the balance of $7,500,000.00 still due on account of 1931 payments under the agreement ($5,000,000.00 on account of 1931 payments was paid in August) should be made in the form of silver deposits at current rates of exchange to the credit of the Committee in any bank in Mexico City which might be elected by the Committee. Although these deposits would be made at current rates of exchange and would not therefore save the Government the loss due to these rates, it would obviate any further effect on exchange by the actual purchase of dollars on the open market (Note: Mr. Montes de Oca does not consider the gold reserves sufficient at the present time to make this payment by means of gold shipments). This alternative would have the added advantage of immobilizing, temporarily at least, a large quantity of silver currency. It is the Government’s belief that if sufficient silver currency is immobilized, thereby creating a temporary shortage of silver coin, the value of the silver currency as compared to gold can be improved.

(b) The second alternative proposal is that the agreement should be ratified, but with the proviso that it should not go into effect until January 1, 1932 instead of January 1, 1931.

Respectfully yours,

J. Reuben Clark, Jr.

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