812.77/1193: Telegram
The Chargé in Mexico (Boal) to the Secretary of State
[Received 10 p.m.]
164. My 161 of June 23 midnight. Indications which I have obtained this morning from Government sources are that the Government’s decision to use the new expropriation law in order legally to take over the National Railways system was arrived at because of the operating conditions of that system which were highly unsatisfactory to the Government. It was felt that not only was the system being operated under conditions which could not but cause great inefficiency but that as a financial venture it was going more and more into the red becoming practically bankrupt. Under these circumstances it was felt logical to apply the expropriation law on the basis outlined to the [Page 684] Ambassador by President Cardenas. (See enclosure to despatch 4171 of December 16, 193677).
The reason for the surprise character of the decree seems to be that the Government was fearful that if any advance notice were given to the National Railways’ workers their powerful syndicate of over 80,000 members would attempt to block any such move until they had negotiated their terms of employment with the Government particularly such points as their right to strike. It is felt that while certain concessions will have to be made to them the Government is in a better position to negotiate with them after the fait accompli.
This morning I had a very informal conversation with Beteta78 who is a member of the Board of Directors of the National Railways. Beteta said he had his first inkling of the decision to expropriate yesterday evening upon General Hay’s79 return from the Cabinet meeting. He said that the Foreign Minister had been in no way consulted on the subject; that he was lunching today with Licenciado Suarez80 and would probably see the President very soon. He thought he would then be in a position to give me an estimate of the legal and financial position of the American creditors and stockholders of the railways as a result of the expropriation. It was his own personal opinion that the legal claim of creditors against the Government would be unimpaired by this action but he emphasized that this was a personal view and might turn out to be erroneous.
General Mugica81 this morning informed Lockett82 that the new status of the National Railways would make for much greater simplification and efficiency in their operation which would be conducted by a commission composed of representatives of the Department of Labor, Communications and Hacienda and the Railways Administration. The Minister stated that while the railways would be taken over under the terms of the expropriation law it was his personal opinion that the stockholders if not the bondholders would be better off than under present conditions.
It was also indicated that within 3 months there was a possibility of a further expropriation of a public utility (this is believed to be the telephone companies) and that ultimately the Government might have in mind acquisition by expropriation or otherwise of the radio stations in the country and the Oriente Railway.
Please repeat pertinent portions to Commerce.