812.51/11–2849

The Chairman of the Export-Import Bank of Washington ( Gaston ) to the Secretary of State

secret

My Dear Mr. Secretary: On November 14 the Department of State gave me a copy of a memorandum which the Department proposes to send to the President recommending that he approve certain instructions to Ambassador Thurston regarding negotiation of a loan by the Bank to Mexico for oil processing and distribution facilities. A discussion of the problem involved was attached to the memorandum. The Department has asked for the concurrence of the Bank in the recommendations to the President.1

[Page 694]

Since essentially the decision which is now being made is a decision as to whether the Bank shall make a loan to Pemex, the Board of Directors of the Bank has given the matter most serious although perforce hurried consideration.

Upon the basis of the information available to us, we are of the opinion that it would be unwise to instruct Ambassador Thurston to explore with the Mexican authorities the possibility of resuming loan discussions on the basis proposed in the memorandum to the President. The reasons contributing to this opinion are:

1.
The Bank, together with the rest of the United States Government, has a keen and sympathetic interest in the economic progress of Mexico and is fully aware of the contribution that an accelerated development of the Mexican petroleum industry could make to the prosperity and welfare of the Mexican people. The Bank has extended substantial credits, aggregating more than $150 million, to Mexico to further its economic progress and expects to extend further credits from time to time for this purpose. Consequently, we have viewed the question of a loan to Pemex entirely in terms of the positive or negative contribution which it might make to the economic welfare of Mexico.
2.
The primary objective of the Bank in this matter is the expansion of exploration for and production of petroleum in Mexico. We believe that, in view of the magnitude of the expenditures and risks involved, and the technical knowledge and experience required, there will be no substantial increase of petroleum production in Mexico if exploration and production are left chiefly to agencies of the Mexican Government. Consequently, we doubt that loans to Pemex for petroleum processing and distribution facilities will make a significant contribution to the development of the Mexican oil industry and economic progress of Mexico unless at the same time effective steps are taken by Mexico for the expansion of exploration and production.
3.
We concurred in the aide-mémoire of July 6, 1949, addressed to the Mexican Government, believing that it outlined a course of action clearly directed toward expansion and development of the Mexican petroleum industry. This course of action promised to be effective since it was predicated on the thesis that the most rapid and successful means of expanding exploration and production of petroleum in Mexico was a substantial participation in those activities by private companies on a competitive basis and under arrangements which were satisfactory both to Mexico and the private investors involved.
4.
We do not agree that, as is stated at least by implication in the proposed memorandum to the President, the events and conversations since the delivery of the aide-mémoire of July 6 offer real evidence of an intention on the part of the Mexican Government to take effective steps toward the expansion of petroleum production in Mexico. On the contrary, the Board of Directors, accepting the statements of the Mexican officials at their full face value and ascribing to them all good faith, interprets the record as a statement on the part of Mexico that it does not propose to take those steps which the United States Government has believed are necessary to bring about a successful [Page 695] development of the petroleum industry in Mexico. In any event, the facts afford no evidence that the steps being taken by Mexico will be effective in bringing about this result.
5.
We are of the opinion that the course of action suggested in the proposed memorandum to the President will have adverse repercussions in those other countries, particularly in Latin America, in which United States private petroleum interests are operating or have the opportunity to operate. We seriously doubt that it will be interpreted to mean that private capital will be permitted to participate on reasonable terms in the development of Mexico’s oil resources. It seems quite probable that the other Latin American governments will be thereby encouraged to restrict or to eliminate the present and potential operations of United States private oil companies in their countries. The unfortunate consequence of such action might be the decline of production in those countries in which private interests are now operating and failure to develop any substantial production in countries where there are oil resources as yet undeveloped. This would be to the disadvantage of the United States and even more to the disadvantage of the other countries. Further than that it might have the consequence that it would discourage the investment of United States private capital abroad, not only in petroleum development but in other fields as well, at the very moment when more than ever before such investment is desired by the governments of the United States and other countries.
6.
We believe it inevitable that a loan to Mexico under existing circumstances will result in applications from other Latin American countries, which have not permitted oil development by private capital, for loans to finance oil refineries, pipelines and similar installations. During the past several years the Bank has denied such loans to several of these countries in accordance with a uniform established policy which was understood by those governments. It will be very difficult for the United States Government to refuse such loans to other countries if we should grant a loan to Mexico upon the basis proposed. We have been impressed by the dispatches and reports from the United States embassies in those countries which indicate that a petroleum credit to Mexico will be interpreted as establishing a troublesome precedent with respect to other countries.

In stating our belief that it would be inadvisable to instruct Ambassador Thurston to explore with the Mexican authorities the possibility of resuming loan discussions on the basis proposed in the memorandum to the President, we wish to make it clear that we are not advocating an arbitrary and high-handed position by the United States. We believe that it would be appropriate and feasible for Ambassador Thurston to tell the Mexican Government that the United States does not agree that it can be said that the views of the two governments have been reconciled; that the United States Government is convinced that there is no sound economic basis for credits from the Export-Import Bank for refining and distribution facilities until it is evident that the steps being taken and those proposed to be taken [Page 696] by the Mexican Government to increase oil production are, or at least promise to be, effective.

We urge, Mr. Secretary, that the entire problem be reviewed in the light of the foregoing considerations.

Sincerely yours,

Herbert E. Gaston
  1. The proposed memorandum to President Truman, dated November 9, is not printed; it was not sent forward by the Department of State to the White House (812.51/11–849). The substance of the memorandum was sent to Assistant Secretary Miller, then visiting Costa Rica, in Department telegram 195, November 9, to San José, which read in part as follows:

    “Essence recommendation is Thurston should orally explore with Mex possibility resuming negots fol basis: In lieu of agreement on basic policy we accept recent statements Mex officials plus Mex agreement our issuing statement saying we understand Mex Govt intends facilitate expansion production through increased participation private enterprise. This applies initial loan application construction, distribution and refinery facilities only. Amer claims completely disassociated. Every effort was made obtain agreement within Dept to new position which would make greatest possible concessions to Mex consistent with Depts obligations foster and protect legitimate US interests throughout Latin Amer.” (111.12 Miller, Edward G., Jr./11–949)