Memorandum by the Assistant Secretary of State for Economic Affairs (Thorp) to the Under Secretary of State (Webb)

The arguments in favor of making a loan to Pemex as desired by Senator Bermudez involve, of course, the general problem of goodwill as between the United States and Mexico. More specifically, the great urge for the expansion of the Mexican oil industry developed during the period of oil shortage some months ago. It is still true that from the point of view of national security, it is desirable to develop Mexican oil although it is obvious any steps which are taken must not jeopardize the operations of private companies in Venezuela and their [Page 674] possible development in other Latin American countries, such as Brazil. On the economic side, it can be argued that the Mexican balance of payments is in bad shape and that their situation can be improved substantially merely by their meeting their own requirements for petroleum products.

On the other side, there is the general ideological argument of the extent to which United States Government funds should be used to support government enterprises in fields where private operations which reached a high level of efficiency and where private capital would be available under appropriate circumstances. A specific fear is that U.S. support for Pemex would encourage the use of government ownership in other areas in Latin America and might even encourage a country like Venezuela to indulge in expropriation. On Friday1 an interdepartmental meeting at the working level, with final positions reserved for several agencies, appeared to reach the general conclusion that there should not be any loan on an unconditional basis in view of the possible danger to oil operations in other countries. However, it was the general sense of the meeting that it might be possible to work out a solution whereby certain facilities would be financed in connection with transportation or refining, providing the Mexican Government would undertake to establish on a clear legal basis that the development and exploration work would be done by private enterprise. It was the initial judgement of the group that such an arrangement would not jeopardize the operations of the private companies in other areas.

It would be noted that the above approach is directly contrary to that advanced by Mr. Grosser2 who feels that exploration and development should be in government hands and that the later steps of transportation, refining and distribution might be more appropriately done by private enterprise.

  1. May 20, 1949.
  2. Representative Robert Crosser, Chairman of the House Committee on Interstate and Foreign Commerce.