Memorandum by the Assistant Secretaries of State for Economic Affairs (Thorp) and Inter-American Affairs (Miller) to the Secretary of State


ARA and E make the following comments on the issues raised in Mr. Gaston’s letter to you of November 21, 1949.

Our Government has consistently maintained a great interest in the economic development of Mexico and, as the list attached to this memorandum1 shows in some detail, we have recently given substantial and concrete evidence of this interest on numerous occasions. The financial assistance which our Government has given the Mexican Government exceeds that given to any other Latin American Government with the exception of Brazil.

In addition the United States has also tried to find some way for helping Mexico to develop its oil industry without sacrificing important United States interests. In searching for a formula, it has been necessary to recognize that:

United States Government loans for the financing of Mexican Government oil operations will encourage other Latin American Governments to eliminate or restrict the activities of private enterprise in the petroleum field to the prejudice of important United States interests; this would in turn impede rather than stimulate the development of oil reserves in other Latin American countries.
The exploration, development and production phases of the Mexican oil industry can best be conducted by private enterprise which alone has the risk capital, experience and technical knowledge required for successful operations; United States financing of Pemex production operations would therefore probably impede rather than stimulate the development of the Mexican oil industry.
Without an expansion in Mexican oil production, it is doubtful that any United States Government loan to Pemex, even for refining operations, can be justified economically.
A petroleum loan to the Mexican Government will invite loan applications from other Latin American countries which, like Mexico, lack the risk capital, technical knowledge and experience to conduct successful oil operations.

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The Department’s aide-mémoire of July 6, 1949 was designed to help Mexico develop its oil industry without undue prejudice to our interests. It was proposed in substance that the Mexican Government agree to create a climate favorable to the operation of private enterprise in the exploration, development and production fields; and that the United States would thereafter be prepared to lend financial assistance to the operations of the Mexican Government in the oil distribution and refining fields. An initial loan was to be considered as soon as the agreement of the Mexican Government was obtained and additional loans were to depend upon the extent to which the agreement had been put into practice.

This proposal was rejected by Mexico.

In a further effort to satisfy the desires of the Mexican Government, ARA and E proposed in their memoranda of November 9, 19492 that, in lieu of the firm agreement on basic oil policy envisaged in the aide-mémoire, we accept, for purposes of the initial loan application only, certain rather incomplete oral assurances of Mexican officials, plus their acquiescence to a public statement by the United States as to these assurances. It was our hope that, by this demonstration of good will on our part, the Mexican Government would be encouraged to take concrete steps to open the way for private enterprise in the exploration, development and production fields.

The Export-Import Bank has disagreed with the modified procedure recommended by the Department. The Bank can see no adequate basis in Mexican actions or statements for hope that Mexico will encourage the essential expansion of Mexican petroleum production through the increased participation of private enterprise. Therefore it states that it can have no economic justification for making a loan and points up the very real risks involved.

The procedure recommended in the Memorandum to the President is wise or unwise depending on whether it will encourage the Mexicans to open a wider door to private enterprise in petroleum. There is unfortunately no way of predicting with certainty whether our recommended procedure will have this desired effect.

The disadvantage of the procedure which has been recommended, if it is accepted by the President and by Mexico, is that we incur the risk that the Mexican Government will get a petroleum loan and fail to create a better climate for private enterprise. Should this occur, we would have dealt a severe blow to our foreign petroleum and economic development objectives.

The advantage of the procedure is that it may possibly lead to the desired actions on the part of the Mexican Government. This would [Page 698] in turn greatly benefit the Mexican economy as well as create good will for the United States.

Even if it is decided not to proceed at this time, the failure to make a loan will not seriously and permanently prejudice our relations with Mexico, particularly in view of the extensive aid we are giving Mexico in other fields.

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