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
[Attachment]
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:
-
a)
- 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.
-
b)
- 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:
-
a)
- 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.
-
b)
- 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.
-
c)
- 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.
-
d)
- 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.
