Memorandum by the Director of the Office of Middle American Affairs (Mann) to the Under Secretary of State (Webb)


Subject: Meeting with the President with respect to the proposed Pemex loan.1

The attached memorandum for the President outlines for the President the general proposition you submitted to Mr. Murphy this week. It indicates the relationship of the proposed loan to the Mexican political situation; the economic objections to the loan; and presents in general terms the irrigation project alternative.

It is strongly recommended that the proposition put before the President does not include a proposal that Secretary Snyder2 inquire of President Alemàn whether he wishes an irrigation loan rather than a credit to Pemex. It is the Department’s judgment that the Mexican Government would undoubtedly ask for a large Pemex credit with the expectation that they would not use all of the petroleum credit and would be able also to get an irrigation loan.

With regard to the specific proposal that Secretary Snyder convey this Government’s decision to President Alemàn, if the President decides to send a personal emissary to Mexico, our latest thought is that George Elsey might be particularly qualified for such a mission because he is on the President’s personal staff. Also, it would seem more appropriate from the political standpoint that the emissary not be someone of Cabinet rank.

If the president is agreeable to the proposal set forth in the attached memorandum, it should be made clear that further consultation in the Government is necessary before this decision is conveyed to the Mexicans, specifically, approval by the Export Import Bank and the National Advisory Council of the initial irrigation loan application.3

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Memorandum for the President

Subject: Mexican Petroleum Loan4

The question of a government loan for Pemex has had a marked and adverse effect on United States relations with Mexico. While the matter should be one of economics it has become primarily a political issue.

The most important objective at the moment is to get a definitive United States decision and thereby remove this particular source of friction between our two countries.

President Alemán doubtless would be pleased if a petroleum loan were to be made, but the Department has no information that he attaches any greater importance to a petroleum loan than he does to pending loans for other types of projects. His personal political position is secure. The Government party has not lost an election since it came into power in 1917 and its control of the electoral processes is so complete as to make its continuance in power inevitable unless it should become weakened by internal dissension or overthrown by the army. Alemán’s personal political fortunes are not at stake since he is forbidden by the Mexican Constitution from succeeding himself.

Senator Bermudez is the Mexican official most interested in the loan. He aspires to be elected president in 1952 and believes that the granting of a petroleum loan will improve his chances. On the other hand, he has political rivals also within the Government party, including the Minister of Finance Beteta, who probably has a much better chance of becoming president and who might resent any action on our part which would build up Bermudez.

The economic considerations of the proposed loan are also of great importance. Since the nationalization of the petroleum industry in 1938 it has been necessary for the Mexican government to subsidize its operations. Even with the financial support of the government, Pemex during its twelve years of operation has not discovered any new oil fields of major importance. If in the future the industry is to supply, instead of using, scarce dollar exchange, it will be necessary for Pemex to embark on an adequate program for the exploration and development of new oil deposits in order to increase production and replace the old fields which are rapidly being depleted. Experience elsewhere (as in Venezuela and the Middle East) indicates that this is a job for private enterprise.

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It is therefore desirable for the Mexican government to arrive at some agreement with private foreign oil companies, fair alike to the Mexican government and the companies, which would make possible the investment of the large amount of capital rand technical skill required. Mexico could provide an opportunity for the small independent oil companies to go across the border and cooperate with Mexico in carrying out the necessary wildcatting and development. This Government was willing, as this was accomplished, to make loans for the construction of transportation, storage, and refining facilities.

It is believed that this was a sound position for two principal reasons:

Mexico already has such a large dollar debt that she would be unable to service further substantial dollar obligations. The financial experts in this Government view the approximately $400,000,000 debt of the Mexicans as close to the maximum dollar load that country can service out of present or prospective dollar earnings.
An unconditional petroleum loan would be interpreted in Mexico and throughout the world as United States government approval of a nationalistic approach to the problem of oil development. This interpretation would be in direct contrast to established United States foreign economic policy. This interpretation would weaken the position of the strategic Venezuelan oil industry, a source of supply which would be essential in time of war.

The latest Mexican proposal is that an Export-Import Bank credit of $150,000,000 be extended for distribution, storage, and refining facilities, $20,000,000 of which would be utilized immediately. The Mexican Ambassador has stated that his Government wishes to announce the granting of a large credit and small loan, and he clearly implied that Mexico does not attach great importance to the utilization of all the credit.

This proposal is subject to the following objections:

The large credit and small loan is not the solution to Mexico’s distribution and refining problems; nor would it bring about expanded exploration and development activities; nor would it materially improve their dollar position.
The Export-Import Bank is now considering an initial $30,000,000 loan for important irrigation projects which should have the effect of conserving dollar exchange by reducing imports of agricultural products. Also, the International Bank, as the result of recent studies, is considering the feasibility of additional loans for electrification as well as possible participation in the establishment of a Mexican industrial bank to promote economic development. With Mexico’s debt near the limit of its servicing capacity, a question of priorities arises. If Mexico were to use its remaining dollar credit for a petroleum loan, this would prejudice the irrigation and other loan applications to which the Mexican government attaches importance.
The Mexican proposal of a $20,000,000 loan and a large unused credit is a loan procedure at variance with the policies of the Export-Import [Page 953] Bank and the National Advisory Council. For instance, even if only $20,000,000 were actually used, it would be necessary for the Bank to earmark the entire amount of the credit committed with a consequent immobilization of capital needed by the Bank.
It would encourage a nationalistic approach to the problem of discovering and developing Latin American oil resources.

If you agree that it would not be wise to make a petroleum loan at this time, it would, however, be desirable for you to assure President Alemán of our continued friendly interest in the development of all phases of the Mexican economy. The financial and technical assistance which we are already lending Mexico, which exceeds that given any Latin American country, is the best proof of our good faith. You could explain to him the opinion that it would be more constructive for us to seek agreement on the Yaqui River and Rio Grande irrigation projects now under study by the Export-Import Bank and, to the extent which it is found to be feasible, on the development of a program with the International Bank.

  1. An unsigned marginal note on this memorandum reads: “Memo supposedly left at White House by Mr. Webb May 27th.”
  2. John W. Snyder, Secretary of the Treasury.
  3. In a memorandum to Mr. Webb of May 4, apparently intended to brief the Under Secretary for a discussion of the Pemex question with the President, Mr. Mann had stated in part:

    “1. The Department is opposed under present circumstances to making any loan to Mexico for any phase of its petroleum industry and this view is shared by the Export-Import Bank. However, if the President decides that a loan should be made, this Department will, of course, cooperate fully with the White House in every respect. It will, however, be necessary for the White House to issue direct instructions to the Export-Import Bank since the Export-Import Bank objects violently to any efforts on the part of the Department to influence its loan policy.

    2. The reason for the change in the Department’s position since last July is that today the great problem in the petroleum industry is the oversupply situation. Furthermore, Mexico has made no effort whatever to comply with our suggestions of last July as to further contracts for wildcatting.

    3. The other big factor in considering this problem is that Mexico has nearly reached the limit of its borrowing capacity.” (812.10/5–450)

  4. An undated copy of this memorandum found in Mr. Elsey’s papers bears the following unsigned, handwritten notation: “Pres. rejected this Sat. 27 May & told Webb he definitely wanted an oil loan.” (Harry S. Truman Library, Papers of George M. Elsey)