Harry S. Truman Library, Papers of Charles S. Murphy1

Memorandum by the Secretary of State to the President

confidential

Subject: Mexican Oil Loan2

On December 19, 1944, President Roosevelt affirmed3 that there should be no United States Government loans for the commercial development of the Mexican petroleum industry. On October 13, 1945, you reaffirmed4 this policy.

In the beginning of 1949 the Mexican Government informally indicated its desire for a large loan to finance Mexican Government oil operations. This informal request was carefully considered not only from the standpoint of finding some way to help the Mexicans develop their oil industry but with a view to the broader question of obtaining acceptance of the philosophy so essential to the success of the Point Four Program.

The Department’s aide-mémoire of July 6, 19495 was the product of comprehensive discussions of this problem with the Export-Import Bank and other Government agencies. It proposed that the United States make a loan to Pemex for distribution and refining facilities when Mexico agreed to take steps to insure an increase in oil production through increased participation by private companies in exploration, development and oil production.

[Page 938]

When the Mexican Government rejected the formula set out in the aide-mémoire, the Department proposed to the Export-Import Bank that additional concessions be made to the Mexicans in the hope of ultimately obtaining a more favorable climate for the private exploration and development of Mexican oil reserves. The Bank opposed any recession from the policy set out in the aide-mémoire.

Since then it has become increasingly evident that the position taken in the aide-mémoire is the correct one.

The Mexican Government hopes to obtain a large, unconditional petroleum loan, perhaps by direct negotiation with individual members of Congress. However, United States Government financing of exploration, development and production operations by the Mexican Government probably would be interpreted in other Latin American countries as United States approval in principle of state operation of the oil industry; this in turn would strengthen extremist elements in Latin America which advocate the application of nationalization and other restrictive measures to foreign industries. (Mexican officials in Washington have asserted that such a loan would “consecrate” the principle of expropriation and the Mexican Ambassador in Caracas recently urged Venezuelan officials to nationalize the one billion dollar Venezuelan oil industry.) It is therefore probable that such a loan would weaken the position of American investments abroad, hinder the accomplishment of the Point Four Program, invite similar oil loan applications from other Latin American Governments and impede oil development in Latin America.

Such a loan might also lead Mexico to conclude there is no need to make the changes in Mexican oil policy which are necessary to an early realization of Mexican hopes of substantially increasing its oil production and to Mexico’s ability to compete with rising production in Canada, Venezuela and the Near East; Pemex, a Government monopoly plagued with domestic political pressures, cannot be expected to conduct oil operations at this time on the scale needed by the Mexican economy.

Furthermore, we now have evidence that the Mexican Government has already financed its most urgent oil projects; the dollar position of the Mexican Government has improved as a result of the peso stabilization and other loans; and exploratory activities being carried out by private companies have initially met with encouraging results.

The Department therefore suggests that the United States Government take no further initiative at this time in negotiating a petroleum loan with Mexico. It is hoped, however, that the Mexicans will take action which will make it possible for us to resume negotiations at some later time. Meanwhile the Department will continue to encourage [Page 939] the negotiation of contracts between the Mexican Government and private operators.

The Department continues, however, to be aware of Mexico’s need for financial and technical assistance. In addition to the approximately 200 million dollar credit and the large amount of technical assistance already given to Mexico by this Government, the Department will continue to support meritorious Mexican loan applications. The Mexicans have already indicated their intention of applying for large additional loans in other fields.6

Dean Acheson
  1. Mr. Murphy was an Administrative Assistant to the President.
  2. Excepting the date, the text of this memorandum is identical to that of the attachment mentioned in the document supra.

    A handwritten note on the top of the first page reads:

    “Murphy:

    This needs very careful consideration. Standard of New Jersey and the Texas and also the Gulf have a finger in what has happened. I want a loan granted to Mexico for refinery and pipeline development. I want private arrangements made with our wildcat drillers for the proper extension of drilling. Something is slowing the program. Get me all the facts. Watch the successors of Teapot Dome and see if we can’t help Mexico and the Mexican People. H[arry] S. T[ruman]”

  3. See the memorandum by George S. Messersmith, Ambassador to Mexico, of a conversation held with President Roosevelt on that day, Foreign Relations, 1944, vol. vii, p. 1356.
  4. See footnote 70 to the instruction to Ambassador Messersmith dated November 8, 1945, ibid., 1945, vol. ix, p. 1161.
  5. Text is printed ibid., 1949, vol. ii, p. 675.
  6. In his memorandum of a conversation held in Washington February 14 with President Truman, Walter J. Donnelly, Ambassador of the United States to Venezuela, stated in part:

    “The President touched on the proposed loan to the Pemex and said that he was definitely in favor of granting the loan. I asked him the purpose of the loan, and he said it would not be for production but for the construction of refineries and transportation of petroleum. He said that private capital was available for the production of petroleum.” (831.2553/2–1450)

    In a memorandum of a conversation held February 24 between himself, Thomas Mann (Director of the Office of Middle American Affairs), Charles S. Murphy, and George M. Elsey (both Administrative Assistants to President Truman), Robert H. S. Eakens, Chief of the Petroleum Policy Staff, said in part it was a conclusion of the participants that the President desired to see an oil loan made to Mexico for refining and distribution facilities but at the same time wished to see Mexico opened up for wildcatting. Mr. Murphy was described as generally approving, under the circumstances, the line taken by the Department but as being interested in trying to find some way to make its position more acceptable to the Mexicans. (812.2553/2–2450)