812.24/2–1048

The Secretary of State to the Embassy in Mexico

confidential
No. 330

Sir: Reference is made to the Department’s instruction No. 1585 of November 19, 1947 and the Embassy’s despatches No. 5225 of December 18, 1947, No. 5258 of December 23, 1947, No. 6 of January 2, 1948 [Page 630] and No. 287 of February 10, 19481 relating to negotiations toward a settlement of the Mexican Government’s lend-lease accounts and the subject of this Government’s buildings program.

With reference to the second paragraph of your despatch No. 5225, the impediments interposed by the Foreign Minister are seriously regretted by the Department. As you are aware, the Department has desired the earliest possible arrangement providing for the settlement of and payments against this lend-lease indebtedness in order that active progress might accelerate the buildings program.

Due to the unforeseen delay in reaching terms with the Mexican Government it is now necessary to withdraw the formal settlement proposal which was submitted to the Embassy as an attachment to the Department’s instruction No. 1585. In its place there is transmitted herewith a new, or revised version of the first proposal in which, it will be noted, there have been made a number of changes, principally those which involve the provision of funds for the Embassy’s operating expenses (paragraph A (2)), the method of applying a rate of exchange (paragraph A(3)) and a newly arranged schedule of payments (paragraph B).

It will be noted that the new schedule of payments begins with a payment of $1,500,000 due February 15, 1949 and that subsequent payments, at three months’ intervals, continue to August 15, 1951 when a final installment of $1,000,000 will be payable. According to the latest note sent to the Mexican Embassy in Washington2 the aggregate repayment responsibility of the Mexican Government for defense aid supplied through May 31, 1948 is $12,072,689.33. For the purpose of expediting a settlement arrangement the Department is agreeable to the adoption of a round figure of $12,000,000 as indicated in the last portion of paragraph B of the proposed note to the Mexican Government.

In the event that there is objection on the part of the Mexican Government to the exchange rate provision (paragraph A (3)) the Department will give further consideration to any counter proposal by the Mexican Government which is recommended by you. You will wish to keep in mind that the basic approach of this Government is to avoid the acceptance of the official rate as the sole effective exchange rate for the settlement of this indebtedness.

It is hoped, therefore, that at the first opportunity, you will resume and continue conversations with officials of the Foreign Ministry with the view of reaching an understanding pursuant to the terms of the [Page 631] revised proposal. In your conversations with the Mexican officials it may be stressed that it is the strong feeling of this Government that there should not be any further slowing up in the schedule of payments as now proposed; on the contrary, you may state that, since it is assumed that Mexico will no doubt wish to pay its lend-lease obligations, as others of the American republics have done, it is hoped these amounts of periodic payments may be increased because of the urgent concern of the Department for providing, as soon as possible, adequate housing facilities for Embassy requirements. As you understand, the program which the Department has in mind at this time includes the acquisition of sites and the construction of buildings in several important Mexican cities in addition to the work to be undertaken in the Capital, itself. This part of the buildings program should be the subject of a portion of your conversations with the Foreign Minister in order that further undesirable delays may be obviated.

. . . . . . . . . . . . . .

The Department concurs with the viewpoint expressed to the Foreign Minister as reported in the Embassy’s despatch No. 6, second paragraph. With reference to the suggestion that the Mexican Government might desire to return certain lend-lease materials, it should be noted that, in accordance with the terms of the lend-lease agreement signed with Mexico, the privilege of returning lend-lease materials is dependent upon a determination by the President of the United States that such materials are “useful in the defense of the United States of America”. The validity of such an assumption would be highly questionable in this instance. Therefore, the return of lend-lease materials by the Government of Mexico at this or any later time would not appear to be warranted and the Department is not disposed to consider any proposal for such returns.

. . . . . . . . . . . . . .

While desiring that you make the strongest possible effort to secure from the Government of Mexico its unequivocal acceptance of a lend-lease settlement arrangement in the form of this amended proposal, the Department is not unmindful of the seemingly deliberate tactics of procrastination which have characterized the official Mexican attitude in the matter of lend-lease payments. In the event that this impeding attitude continues to be maintained by the Mexican officials in spite of your renewed conversations you are authorized to suggest, at your discretion, that, in order that it may be submitted to your Government for appropriate consideration, the Mexican Government should hand to you an official statement indicating its acceptance in principle of the proposed settlement plan and further stating its readiness to [Page 632] render such a settlement effective through the providing of budgetary funds not later than at the next assembly of the Mexican Congress.

The Department desires to be kept currently informed concerning developments in this matter.

Very truly yours,

For the Secretary of State:
Garrison Norton
[Enclosure]

Proposed Note To Be Presented by U.S. Ambassador, Mexico, to the Mexican Foreign Minister

Excellency: In the course of conversations held during the late months of 1947 concurrence was given to a revision of the terms of payment set forth in the last sentence of numbered paragraph 2 of the exchange of notes signed March 18, 1943, and accompanying the Lend-Lease Agreement signed the same date, between the Government of the United Mexican States and the Government of the United States of America, in the following form:

A. The obligation of the United Mexican States may be discharged by payment of the amount due in United States dollars, or, with the approval of the Government of the United States, by any or all of the following means;

(1)
When the Government of the United States wishes to acquire any property, real or personal, tangible or intangible, or to improve any property in which it has an interest, located in the Republic of Mexico or in territory under the jurisdiction of the Government of Mexico, at the expense of the Government of Mexico, the Government of the United States will request at any time or times and the Government of Mexico agrees at any such time or times to enter into negotiations with the Government of the United States, and to use its best efforts, consistent with its public policy, to consummate without any undue delay appropriate contracts by mutual agreement wherein the Government of Mexico will furnish to the Government of the United States, or corporation designated by the Government of the United States, the properties or improvements it desires or which its representatives have selected. Representatives of the Government of the United States may, at their discretion, conduct discussions directly with owners or with contractors for improvements as to fair terms and price prior to the acquisition of such property or improvements by the Government of Mexico for delivery to the Government of the United States. When performance of any such contract is made by the Government of Mexico, the Government of the United States shall credit the Government of Mexico with the United States dollar equivalent of the fair value received at an exchange rate as provided in paragraph A (3), such credit being applied first to past due interest, if any, and then to interest [Page 633] and principal currently due and finally to the payment of all remaining unpaid installments of principal in the order of their maturity.
(2)
In the event the Government of the United States wishes to receive local currency of the Government of Mexico for the payment of any or all expenditures in Mexico of the Government of the United States and its agencies, the Government of the United States may request at any time or times, and the Government of Mexico agrees to furnish at such time or times, Mexican currency at an exchange rate as provided in the following paragraph—A (3)—, in any amount not in excess of the net outstanding balance of principal (whether or not then due in United States dollars) plus interest (then due in United States dollars) payable under the terms of this settlement arrangement.
In the event that local currency is received by the Government of the United States under the terms of this settlement arrangement, the United States dollar equivalent of the amount received shall be credited first to past due interest, if any, and then to interest and principal currently due, and finally, to the payment of all remaining unpaid installments of principal in the order of their maturity.
(3)
The rate of exchange for each transaction under this settlement arrangement for which a rate of exchange is required shall be that rate most favorable to the United States which, at the time of such transaction, is available to any party; provided such rate is not unlawful and, if both countries have agreed par values with the International Monetary Fund, is not prohibited by the Articles of Agreement of such Fund.

B. The Government of the United Mexican States will liquidate the obligation incurred under the terms of the Lend-Lease Agreement of March 18, 1943, in accordance with the following payment schedule:

Due Date On or Before United States Dollars or Mexican Pesos Equivalent
February 15, 1949 $1,500,000.00
May 15, 1949 1,500,000.00
August 15, 1949 1,000,000.00
November 15, 1949 1,000,000.00
February 15, 1950 1,000,000.00
May 15, 1950 1,000,000.00
August 15, 1950 1,000,000.00
November 15. 1950 1,000,000.00
February 15, 1951 1,000,000.00
May 15. 1951 1,000,000.00
August 15, 1951 1,000,000.00

The total amount due, and to be paid under this settlement arrangement shall be twelve million United States dollars ($12,000,000.00). It is understood and agreed that this amount relates only to charges arising out of defense aid transferred, or otherwise supplied under the specific terms of the Lend-Lease Agreement of March 18, 1943 and that it does not include charges against such other accounts as [Page 634] those relating to vessels leased under Charter Party Agreements, nor to cash repayment obligations and other similar accounts; such accounts, where they may exist, are subject to treatment separately and apart from this lend-lease settlement arrangement.

C. Interest shall be paid by the Government of Mexico to the Government of the United States at a fixed rate of 2 and ⅜ percent per annum on any installment payment not made on the due date as scheduled in paragraph B, above, and shall begin from such due date and continue until date of payment.

D. The Government of Mexico will be free to make advance payments in United States dollars, or, subject to the concurrence of the Government of the United States, by any of those other means specified in paragraph A above, of any or all of the several payments provided for in paragraph B above.

E. Upon the receipt, by the Government of the United States, of the final payment due under this settlement arrangement and conditional only upon the satisfactory fulfillment of the terms and conditions made a part hereof, the Lend-Lease Agreement of March 18, 1943 shall, by virtue of such settlement, become terminated by the mutual consent of the two signatory Governments as provided for in Article VII of the Agreement, provided, however, that nothing in this settlement arrangement shall, at any time, either waive or modify the force of the provisions of Article IV and Article V of the Lend-Lease Agreement.

If this arrangement is in accordance with Your Excellency’s understanding of the substance of the conversation already held, it would be appreciated if Your Excellency would so indicate in writing.

Accept, Excellency, the renewed assurances of my highest consideration.

[
Ambassador
]3
  1. For instruction 1585 and despatch 5225, see Foreign Relations, 1947, vol. viii, pp. 748 and 750, respectively. Despatches 5258, December 23, 1947 and 287, February 10, 1948, are not printed.
  2. Note of June 25, 1948, not printed.
  3. Brackets appear in the source text.