213. Letter From the Ambassador in Mexico (White) to the President1

Dear Mr. President: This letter is in response to your request last month that I write to you regarding the situation in Mexico.

I have delayed it for a few days after my return here to check up again on the situation to be able to send you my considered opinion as of this date. The fuller details and background of the situation as I see it are contained in the annex to this letter which is an integral part hereof.

Due to the circumstances elaborated in the attachment, the policy of President Ruiz Cortines’ administration at the outset was not very friendly to the United States. The dominant role was played by the group favoring nationalization of industry and resources and hostile to the competition of foreign enterprise. The steady deterioration of Mexico’s balance of payments since 1951; the steady lowering of her gold and foreign exchange reserves; the unusually large quantity of liquid funds in the hands of the public; the unfavorable long-term outlook regarding “terms of trade”; the run on the peso in April 1954; the deferring of new investments by Mexican business men and industrialists through uncertainty as to the economic policies of the new Government increased the accumulation of idle bank deposits, and led to the devaluation of the peso in April 1954.

The press attacks on the United States at the time of the expiration January 15, 1954, of the bracero agreement2 and the Mexican policy at the Inter-American Conference at Caracas3 in [Page 681]March of that year, supporting the communist regime in Guatemala and hostile to the United States, together with the devaluation of the peso, brought such an outcry from the stable elements in Mexico, the banking groups, the Federated Chambers of Commerce, the Federation of Industrial Chambers of Commerce and the capitalists and fast-growing middle class groups that they caused the President to hold a long series of conferences to re-examine the Government’s policy. At that time he also initiated very informal and personal talks with me at his residence in the evenings. As a result, President Ruiz Cortines ordered the Foreign Office to reverse completely its policy towards Guatemala and, furthermore, to adopt a policy of cooperation with the United States. This latter has resulted in settling a number of run-of-the-mill problems inherent in the relations between two countries, as well as a beginning of a discussion for the settlement of the outstanding claims of each country against the other. It also resulted in President Ruiz Cortines forming a more realistic view of the danger of communism not only in Guatemala but also in Mexico and asking for close cooperation with the Embassy in taking measures to combat communism here. This is a really big advance. It also resulted in the President supporting private industry in many concrete cases, the most important so far being the power industry and the telephone company.

I am convinced that President Ruiz Cortines wants to cooperate with us and he has told me so in all sincerity. In many cases he cannot proceed too rapidly but must prepare public opinion in advance. In this connection, however, he told me, well over a year ago and repeated on several occasions, that if the communists should force a showdown with us, Mexico would definitely be on our side.

Apart from the usual grist of problems that go constantly through the mill of diplomacy in relations between any two countries and which, while sometimes intricate and even seemingly frustrating to handle, do get solved in due course without fanfare or publicity, there are about a handful of outstanding problems between the two countries.

Attempts on our part to conclude a bi-lateral air transport agreement with Mexico have been made for the last ten years without success. The fact that President Ruiz Cortines has now taken an interest in the proposed agreement and has asked me to take it up with him personally rather than with the Minister or others in the Department of Communications, leads me to hope that dealt with on this basis a solution satisfactory to both countries may [Page 682]be found. If not the procedures agreed on in Washington to follow will cause the Mexicans to make clamorous protest as in the case of sugar quotas, proposed increase in U.S. tariffs on lead and zinc (the Simpson Bill4), and the lapse of the bracero agreement a year and a half ago. That will be something we shall have to face and live with while working the matter out.

There are other problems of American interests here, such as the very burdensome taxation of the mining industry, tariffs, export and import controls, quotas and prohibitions, etc. These are matters which can and are being worked out reasonably well in the normal course without causing friction or unpleasantness in the relations between the two countries, although the individuals concerned are at times understandably unhappy about them.

The only other problem, and the one in my opinion which is at the back of allegations of unfriendly relations between the two countries is the desire of PEMEX, the Mexican Government’s petroleum monopoly, to get large, long-term loans, without having to show a balance sheet and run an economic, profitable industry. The deficit financing of PEMEX imposed on the Mexican Treasury is wholly concealed from the public. As stated in the attached memorandum, Señor Bermudez, the head of PEMEX, wanted to be the official party’s candidate for President of Mexico in the elections of ’52 and he is very much a candidate for the 1958 elections. He brought great pressure upon President Truman and other high Government officials from 1948 to 1950, through many individuals including chairmen and members of the Committee of Interstate and Foreign Commerce of the House of Representatives (Mr. Wolventon and subsequently Mr. Crosser), whom he invited to Mexico and entertained lavishly, to get a loan of $470 million, subsequently scaled down to $203 million. Our Government declined to give PEMEX the loan in accordance with its long and consistent policy not to give public loans for petroleum exploration and exploitation considering this a matter more appropriate for private enterprise.

PEMEX did not become reconciled to this decision and its representatives and employees have been persistently and sedulously advocating such a loan. For the reasons given in the attachment I feel it would be most unwise for our Government to accede to this request which besides being unsound and contrary to our long established policy, would strengthen the advocates of nationalization [Page 683]and government control and be a blow to our supporters who favor private enterprise.

On Señor Bermudez’ recent trip to New York, his public relations representatives arranged a dinner for him with leaders of American finance and industry. He was chagrined that he was unable to convince them of the soundness of large, long-term, private loans to PEMEX. PEMEX is not likely to get very much more additional private financing, except certain short-term credits for specific objects, until PEMEX is run on a business-like basis.

PEMEX’ failure to get long-term loans from the United States has not caused unfriendliness in the relations of the Mexican people as a whole, or of the Mexican Government towards the United States. I understand President Ruiz Cortines recently told Señor Bermudez not to ask for any foreign loans for PEMEX and certainly the Mexican Treasury does not want any loans to PEMEX under the present inability of that organization to produce the funds necessary to service such a loan. The Minister of Finance, since my return here, has told me that he asked the President to restrict PEMEX and other semi-autonomous agencies such as the Federal Power Commission, the railroads, etc., from seeking loans independently of the Treasury or he could not be responsible for the Mexican national credit. President Ruiz Cortines has done so. He has set up a Committee on Investments and all Government agencies are now prohibited from contracting any foreign indebtedness exceeding $100,000 and requiring more than twelve months for repayment without the approval of that Government committee and the Nacional Financiera. The Minister further complained of the tactics of Bermudez both in 1948–1950 and now in attempting to by-pass the Mexican Treasury and Foreign Office and the American Treasury and Department of State and negotiate through personal friends and intermediaries. In other words, the failure of PEMEX to get a loan is not a problem in Mexico disruptive of our relations. On the contrary the attempt of Señor Bermudez to go out of channels to get a loan is contrary to the policy of President Ruiz Cortines and his Finance Minister. Those who are supporting Señor Bermudez for any of a variety of reasons will use every means at their command to obtain their ends, but I ask you to believe, Mr. President, that they are doing it from partisan, personal reasons, that they are not representing the true situation here and that one of their tactics is to stir up groundless anxiety that relations between the United States and Mexico are endangered by PEMEX not getting a loan. I have no hesitancy in asserting that such is not the case.

The attempt of Señor Bermudez to obtain loans against the policy of his Government is not the only case of this sort. The question arose of a visit of one of our aircraft carriers to Acapulco. [Page 684]Señor Bermudez without going through the Foreign Office, which knew nothing about it, got Ambassador Tello to tell the Department of State that President Ruiz Cortines would welcome such a visit. When I enquired of President Ruiz Cortines when he would like to have this ship come to Acapulco so he could visit it, I found it was not his idea at all. He told me very confidentially and personally he hoped the visit would not be made and, consequently, it was abandoned.

Relations between the United States and Mexico are better than they have been for some years and over the last fifteen or sixteen months have made gratifying advances. In making this statement I am merely making a factual description of the situation as it exists. I am not thereby advocating any negative outlook or suggesting nothing further is to be done by us and that we can sit back complacently. Far from it. There are always opportunities to improve the situation and we should and must avail ourselves of them all.

The Mexicans are a proud people and they cannot be pushed or rushed into anything. They resent anybody trying to outline a program or plan for them, or direct any of their activities. For example, in the field of technical cooperation, we should wait for the Mexican Government (not individuals or agencies) to ask for help in a given situation and meet their desires to the extent we properly can. Such requests should, as heretofore, be largely for technicians and advisers and may include some rather limited financing of dollar expenses. On the basis of cooperating with them at their request we can do much to improve relations and good will, but if we try to dominate and dictate the policies, or what they should do and how they should do it, we will at best accomplish nothing and can very well cause considerable resentment.

Señor Carrillo Flores, the Minister of Finance, sounded out the Export-Import Bank whether it would consider financing some private power companies in Mexico. Under authorization from the Bank and the Department I have informed him the Bank will gladly consider such a request. That is one concrete example of something we can do to be of service. There are others coming up all the time. The Boundary and Water Commission is a cooperative enterprise of great value to the two countries. The joint AFTOSA, or Foot and Mouth Commission, with many frustrations and difficulties to be sure, nevertheless succeeded in a period of under two years in eradicating a new outbreak of that dreadful disease that occurred here in May 1953. The American business men in Mexico are most cooperative and have the friendliest relations with the Mexicans. A group of them has formed a Committee Pro-Mexico which is doing much to stimulate the important tourist trade and to foster general good relations. They also participate in the American-Mexican business [Page 685]men’s committee sponsored by the U.S. Chamber of Commerce and by important Mexican business and financial groups. The Mexican Federation of Industrial Chambers of Commerce became very interested in a program of increasing productivity. With the aid of Point IV5 this is being carried out as a Mexican project. It has the enthusiastic support of the Mexicans and indications are that it will eventually be a very successful program.

In other words, we are not taking a negative attitude—we are doing things to be helpful to increase friendly relations and we shall continue to do so and to take advantage of any new opportunities that arise.

The Minister of Finance has just told me that it would be most helpful to him if it could be announced after the World Bank meeting at Istanbul, which both he and Secretary Humphrey will attend, that it was agreed in principle that the Stabilization Agreement for the peso will be renewed upon its expiration December thirty-first, the details thereof to be negotiated in November. Since our government departments concerned are agreed in principle that the Agreement be renewed I am recommending that such an announcement be made as Señor Carrillo Flores requests. Whether the amount of the fund be increased from seventy-five to one hundred million dollars and the agreement be tied in to the present exchange rate of the peso are matters that can be left to the good judgment of Secretary Humphrey.

Incidentally, Mr. Carrillo stated he was making this request because the Mexican public will not believe he is going all the way to Istanbul merely to attend the annual meeting of the Board of the World Bank on which he is the Mexican representative. The public will, he said, expect him to be negotiating on other matters and if no result is announced, will say his trip was a failure. This gives support to what I said to Messrs. Dulles, Hoover, and Holland in Washington regarding a suggested visit of President Ruiz Cortines to Washington that he will be expected to bring back from any such visit something for Mexico in the way of a loan or other benefit. If he does not, his prestige may be impaired and the visit result in more harm than good. I feel the suggestion that the invitation for the visit be put on a purely ceremonial basis might seem rather ungracious to President Ruiz Cortines and result in his not accepting it. That also would not be helpful. Even assuming that a tactful approach could be made to obviate any such feeling on President Ruiz Cortines’ part, it would not prevent the Mexican press and others from feeling and stating that something of benefit to Mexico [Page 686]must have been sought and not obtained and thus at best cause embarrassment to him. Furthermore, any such invitation to President Ruiz Cortines would have to be most carefully handled to insure that no slightest intimation regarding it should reach him before it is made to him or those with advance knowledge of it will exploit it to their benefit and seek to take credit for their personal advantage. Therefore, I recommend that while we keep the possibility of such an invitation in mind for serious consideration in case circumstances should be such that a visit could not be misconstrued, it now be kept in abeyance. Incidentally, the Mexican Congress, under the Mexican Constitution, would have to give President Ruiz Cortines permission to visit the United States as it did for his brief visit to American territory at the dedication of the Falcon Dam.

A positive action of benefit to our relations would be the prompt renewal by an exchange of notes of the bracero agreement that expires on December 31. This is mentioned more fully in the annex. The present agreement has been remarkably successful in the year and a half it has been in effect. To try to renegotiate it de novo would present many difficulties and possibly lead to a repetition of the unfortunate situation we had at the end of 1953 and the beginning of 1954. I, therefore, most earnestly recommend, now that our Congress has authorized the continuation of the agreement, that I be instructed to exchange notes with the Foreign Office to bring this about.

The most ticklish problem before us at present is the proposed bi-lateral air transport agreement and, as I said before, President Ruiz Cortines has asked me to take it up with him personally and he is fixing an appointment for me after he delivers his annual message to Congress on September 1st.

I feel, in the light of the above analysis, I am justified in sending you a confident report on relations between the two countries. If I felt otherwise I would be the first to bring it to your attention and to that of Secretary Dulles to try to remedy the situation.

With kindest regards and great respect, I am

Faithfully yours,

Francis White6
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[Annex]

Political Background

There is to all intents and purposes only one political party in Mexico. The three opposition parties that are permitted to have their names on the ballot carry very little influence and in the new Congress opening September 1 the opposition parties may have as few as 5 to 10 seats out of a total of 162. In the official party are represented all tendencies in the country from the conservative propertied classes, the banks, industry and commerce, through the left-wing doctrinaire element in favor of nationalization of resources and various important basic industries and government control and supervision, to the communist elements, on the extreme left. None of these divergent elements has the remotest immediate prospect of enough strength by itself to control the government, but all have been represented in it. Therefore, the usual clashes in economic policies inherent in all democratic countries take place in Mexico within the official party to a greater extent than between different political parties. This means that President Ruiz Cortines must try to maintain a balance between these often diametrically opposed interests within his own party in order to carry on the government business.

In the electoral campaign of 1952 that brought Señor Ruiz Cortines to the presidency, opposition elements carried on a very virulent and unfair attack on him personally charging he had cooperated with and aided the American naval forces that landed in Veracruz (his home state and residence) in 1914. Cartoons showing him collaborating with the American landing forces were widely distributed through the mails and by hand. One or two were even sent to me anonymously when my appointment as Ambassador to Mexico was announced nearly three months after President Ruiz Cortines had been inaugurated. This campaign had an influence on his outlook in the early stages of his administration. He felt under the necessity of disproving that he has pro-American and working for “Yankee” interests. This caused him to lean backwards in not supporting those who were openly friendly to the United States and undoubtedly influenced him in putting into his Cabinet some men who are known to be hostile to foreign interests in general, Americans and private enterprise in particular. There were bitter attacks on the United States in January and February, 1954. Without going into the details of that matter the attack had its origin in the Foreign Office and our point of view was not permitted to be published. All this despite the fact that the Minister of Foreign Affairs and his Under Secretary both admitted to a number of my Latin American [Page 688]colleagues they realized the United States was right. Then came the Caracas Conference and Mexico’s backing of the Communist government in Guatemala. Then the devaluation of the peso described below and very bitter attacks on the Mexican Government and its policy by all the banking, industrial and commercial elements in Mexico. This caused the President to stop and reconsider whether he had not gone too far in backing the leftist groups and that the true interests of Mexico were not being duly cared for. This concatenation of circumstances, I feel, made it somewhat easier for me at that time to persuade President Ruiz Cortines that the Arbenz government in Guatemala was a communist government and a threat to Mexico. Up to that time he had followed completely the line of Señor Padilla Nervo that there was no communism in Guatemala and no threat to Mexico or the rest of the hemisphere.

At my third conference with President Ruiz Cortines on this subject, he told me that he had instructed the Foreign Office to change its policy with respect to Guatemala.

President Ruiz Cortines

The President told me that he had received conflicting reports about President Ruiz Cortines, some advocating working with him and others maintaining that he is socialistic and that we should have nothing to do with him. I should like to repeat what I said at the time that I feel President Ruiz Cortines is definitely not socialistic and that we must work closely with him. He is our greatest hope because only he can change socialistic and hostile policies of Cabinet Ministers and he has done so. For the reasons given above, inherent in the political situation here, he cannot at this time, nor will any president in Mexico be able for some time, to throw his full support to one side or the other in the economic and political differences of viewpoint to the exclusion of the other. President Ruiz Cortines has a highly developed political instinct. This tempers what he might like to do by what he feels he can safely do. Señor Carrillo Flores told me that President Ruiz Cortines has sometimes twitted him on not being a politician when he has advocated certain lines of action.

President Ruiz Cortines stepped in to try to minimize the hostile campaign regarding the braceros. That was the first step he took on our behalf. The second was the change in Mexico’s Guatemalan policy. However, he still expressed the view that there was no danger of communism in Mexico.…

I have found President Ruiz Cortines very cooperative and helpful. He has his political problems and we could not expect him to act rapidly on many matters. He himself has told me that in many cases he has to prepare public opinion first and he has taken steps to that end. I feel he is completely sincere in his statements to [Page 689]me of his desire to work closely with the United States and to have good relations and also in his admiration of President Eisenhower. Not only has he expressed this to me personally, but various persons close to him in his Cabinet, or on his personal staff told me spontaneously of the great admiration which President Ruiz Cortines formed for the President at the Falcon meeting.

In addition to the matters mentioned above, President Ruiz Cortines came out squarely in support of private enterprise in the power industry in the matter of giving the private companies rates that will allow them to make a sufficient return on their investments to attract new capital for needed expansion. Hostile elements are constantly working to upset this and another phase of the matter will come to a show down in the near future. From what the Finance Minister has told me since my return to Mexico, this cannot be settled immediately because the question has become a political issue but he intimated President Ruiz Cortines will resolve it in favor of private enterprise next year. President Ruiz Cortines also supported the Texas Eastern gas contract with PEMEX and directed Secretary Loyo and Señor Sanchez Cuen to cease opposing it. At present the general trend appears somewhat more favorable for private enterprise but not necessarily for large scale foreign investments in private enterprise.

To repeat, the only one who can overrule and has overruled actions of Cabinet officers unfriendly to the United States—as shown in the bracero matter, Guatemela, and the Caracas Conference—and those hostile to private and foreign interests, is the President. I feel it is clearly advantageous for us to continue to cooperate with him and to encourage him to share our point of view. I consider it most fortunate that he and I have established a relationship which permits this cooperation and feel we should do everything possible to strengthen that relationship. May I again emphasize here how much importance President Ruiz Cortines attaches to keeping this relationship unpublicized on account of the reaction it might have on him politically, should it be generally known.

At my last interview with President Ruiz Cortines before my recent trip home I told him that whenever I saw a cloud on the horizon that might grow into undesirable proportions I always wanted to try to take measures to meet the issue before it grew to unmanageable proportions. He said he agreed and asked what the problem was. I outlined to him very briefly the matter of the proposed bi-lateral air transport agreement and told him that I could foresee a difficult situation arising there if we did not compose it fairly rapidly. I told him my instructions to take the matter up had not yet come but that I had been told they would be coming shortly. [Page 690]President Ruiz Cortines asked me as soon as I get my instructions, which I have now received, to take the matter up with him personally rather than with the Minister of Communications, and that I shall do. I was somewhat concerned lest my instructions might limit me to getting the matter concluded in a relatively short period or else the Civil Aeronautics Board would issue a show cause order against Mexican air lines. As I explained to Secretary Dulles and Under Secretary Hoover, I would very much dislike to be put in such a position. My relations with President Ruiz Cortines are such that I cannot and should not deal with him on the basis of giving a time limit which would make him feel that he was discussing the matter with me under duress. I am happy that both Mr. Dulles and Mr. Hoover fully agreed with this point of view and I am being given more latitude in the matter.

Other Personalities

The most outstanding member of the Cabinet who has worked sedulously on behalf of private enterprise and proper cooperation with the United States is the Minister of Finance, Doctor Antonio Carrillo Flores. There have been times when he has had to fight almost single-handed for what he considers sound monetary and economic policies and against unsound policies which he considers will threaten the economic stability and the prosperity of Mexico. Such support as he has received in the Cabinet has been limited largely to Señor Angel Carvajal, Minister of the Interior, the ranking member of the Cabinet and a very close friend of President Ruiz Cortines. The Minister of Education, Señor José Angel Ceniceros, and the Minister of Public Health, Doctor Ignacio Morones Prieto, are men of sound ideas and friendly to private enterprise but do not carry any particular weight outside their own ministries. Mr. Ceniceros has been particularly active in his field in eliminating as many communists as possible from the teaching profession in general and from his ministry. Señor Rodrigo Gomez, Director General of the Bank of Mexico and Señor Martinez Ostos, the Sub-Director of Nacional Financiera, are also strong supporters of private enterprise and have been very friendly toward American interests in Mexico.

On the other side the outstanding anti-American and leftist is the Minister for Foreign Affairs, Señor Ruiz Padilla Nervo. He has in his ministry a number of officials with leftist sympathies and two or three who are alleged to be communists. Two have Russian wives.

The leader of the socialist group advocating nationalization of industry, keeping out foreign competition and generally thwarting private business and initiative, is the Minister of Commerce, Lic Gilberto Loyo.

[Page 691]

The Minister of Hydraulic Resources, Señor Eduardo Chavez, is also very definitely of the same view as Señor Loyo. The Minister of Communications and Public Works, Señor Carlos Lazo, has followed this same line apparently more from expediency than from conviction.

Of those occupying positions below Cabinet rank the head of the Federal Power Commission, Señor Ramirez Ulloa, is belligerently hostile to foreign private power companies in Mexico and in favor of government ownership and operation.

Señor Amorós, the head of the National Railways, is in favor of Government ownership and operation of the railways. However, he is striving to improve their operations. On taking charge of the railroads he was confronted with about 30,000 super-numerary employees and such lax management and operational control that some 40% of their diesel locomotives are in the shop unusable. The shops are not equipped to keep up with the current repairs to say nothing of this backlog of equipment worth many million dollars that is out of service for months on end. His principal difficulty is labor relations. He has succeeded in getting a new labor contract which permits not filling vacancies as they occur. If the Railroad Administration can hold the line on this it may reduce its excess labor in ten years or more to manageable proportions. This will require much political courage, however.

Señor Bermudez is head of the Mexican Government’s petroleum monopoly known as PEMEX. That industry also is not run on economic business lines. It is used to pay off political debts of the party by appointing needless employees to sinecures where they do no work but draw salaries. Furthermore, its petroleum products are not marketed economically but are sold at lower than market prices, by way of subventions to the National Railways in the case of fuel oil, and to taxi-cab drivers, trucking companies, and other privileged groups as regards gasoline. The result is that this industry which should be one of the Government’s greatest assets is at present a liability to the Treasury. Graft and corruption is also reliably reported by many as prevalent in that organization.

PEMEX does not publish a balance sheet or disclose its true financial position, but I know from the Minister of Finance that the Mexican treasury has to make up PEMEX’s deficits. This deficit financing is completely concealed from the public.

Señor Bermudez is a man of great personal charm and ambition. He hoped that he would be nominated the official party’s candidate for the presidency in 1952 and was chagrined when this did not occur. He still hopes to get the nomination in 1958. From 1948 to 1950 he was very active in trying to get a loan from the United States Government for PEMEX and it was stated that he felt that [Page 692]getting such a loan would so increase his prestige that his chances for the presidential nomination would correspondingly be advanced. Despite the greatest efforts to get such a loan he did not succeed, but in 1950 the Export-Import Bank did open a line of credit for the Mexican Government for $150,000,000. It was said at the time that while none of these dollars could be used for PEMEX the loan would, nevertheless, free pesos which the Government would otherwise be obligated to use elsewhere and hence, make pesos available for PEMEX if the Government so desired. Señor Bermudez maintains that he never got any of these more or less counterpart pesos for PEMEX and is all the more irked for that reason.

Some months ago he openly stated to a number of people that he was about to get a loan of three hundred to four hundred million dollars from the United States. He visited New York where public relations representatives of his gave a large dinner in his honor. Many of the most important business and banking interests were represented. One who was present told me that Señor Bermudez put on an excellent show and he described him as being an excellent actor. However, he seems to have failed to convince these American business leaders of the soundness of his project and, except for certain short-term credits, PEMEX was unable to get the additional funds desired from private sources. Señor Bermudez and his representatives have alleged that with from three to four hundred million dollars PEMEX could be made a paying organization. The cold facts are that until the Government lets PEMEX put itself on a businesslike basis any additional funds granted to it would be more money down the drain and any seeming prosperity caused by this shot in the arm would be short-lived indeed and then not only PEMEX but the Mexican Government would be in a vastly inferior economic position. PEMEX, until taken out of politics and ably and economically managed, will not of itself generate the funds with which to service such a loan. The loan would then have to be serviced, as are PEMEX’s present deficits, from the National Treasury. The borrowing capacity of the Mexican Government for productive loans for other development projects would be reduced by the amount of the loan to PEMEX which would then have to be serviced by the Federal Government. The Government would be saddled with the service of an additional debt for which it received no practical, productive benefits and this would seriously effect the Treasury position and the stability of the peso. This is the position taken by the Mexican Treasury Department.

The man in the Government most anxious to have PEMEX a going concern is the Minister of Finance who wishes the Treasury relieved of this present burden. While he has discussed the matter with me on his own initiative on several occasions, he has never [Page 693]advocated a loan for PEMEX as a way out as he knows what, under present conditions, the result would be to the Treasury’s position.

To sum the matter up, graft and corruption in PEMEX are well known. PEMEX would like to get money from us but that is all; its head and some of its directors are not known for their friendly feelings to the United States.

Résumé of Economic Situation

During Ruiz Cortines Administration

When the Ruiz Cortines Administration took over the reins of government in December 1952 it inherited from the previous administration a virtually empty Treasury, several large uncompleted public works projects, and many contracts for new public works, a number of which were open to question. The Government had no alternative but to curtail or stop unnecessary or uneconomic public works projects. Since Government spending in Mexico normally forms a large proportion of total national expenditures, the impact of this policy on the economy of the country was serious. In addition such factors as the severe drought affecting much of the Northern farm area, the lower prices for minerals and farm products, and the closing of the U.S. border to the exports of Mexican cattle because of foot and mouth disease, all resulted in a decline in business activity which caused a business depression of relatively serious proportions by mid 1953. Although there was a slight revival in business during the last quarter of 1953 due to holiday spending and increased government expenditures, this did not dispel the atmosphere of doubt and concern that existed among business men, due in part to uncertainty regarding the Government’s attitude towards private enterprise. Consequently, private expenditures were curtailed and bank deposits increased.

Shortly after the beginning of 1954 a modest flight of capital started, but it reached such serious proportions during the first half of April that the Government feared that its “free” gold and foreign exchange reserves would soon be exhausted if the capital flight continued (at mid April total gold and foreign exchange reserves totaled only $201 million of which about $150 million was needed to meet the legal reserve requirements for currency and bills in circulation). Rather than exhaust existing foreign exchange reserves and then have to call on the U.S. Stabilization Fund and the International Monetary Fund for backing the peso when ultimate devaluation might be inevitable, the decision was made to devalue the peso as of April 19, 1954. The primary considerations which led to this decision were: the steady deterioration in Mexico’s balance of payments since 1951, the steady lowering of her gold and foreign exchange reserves, the unusually large quantity of liquid funds in the hands of the [Page 694]public, the unfavorable long term outlook as regards the terms of trade, the “run” on the peso in early April 1954 which threatened to exhaust Mexico’s “free” reserves of about $50 million, and the anticipated budget deficit of some $70 to $90 million. The abrupt action of the Government in devaluing the peso was such a shock to the country that the devaluation, instead of terminating the capital flight, resulted in an unprecedented flight from the peso, and the gold and foreign exchange reserves hit a new low of $105 million in July 1954.

Mexico, however, is noted for the resiliency with which it responds to economic crises and the one in 1954 was no exception. Following a few months of confusion and uncertainty business adjusted to the new parity rate. An excellent agricultural season late in 1954, and a more friendly government attitude towards business, helped to revive business activity. By the end of 1954 commerce, industry and agriculture had improved markedly. The mining industry, however, remained somewhat static. This improvement carried over into 1955, and a record tourist season, plus an inflow of capital, resulted in an increase, rather than the usual seasonal decrease, in the gold and foreign exchange reserves of the country which as of late August have increased to slightly over 300 million dollars compared to the low point in July 1954 ($105 million). The outlook for commerce, industry and agriculture for the remainder of the year is bright, tourism is expected to continue at a high level, and labor is relatively stable.

Only in those industries where Government control or policies inhibit growth is difficulty being experienced. These include the mining industry where excessive taxation is a factor; the nationalized petroleum industry, due to the fact that PEMEX’s prices have not been increased sufficiently to offset losses due to devaluation, to continued subsidies to other government entities and to management and labor problems; the national railways, due to low rates, management and labor problems; and the electric power industry, due to previously existing low rates.

The Bracero Agreement

The Bracero Agreement expires the 31st of December of this year. The agreement that was finally concluded on March 10, 1954, with one or two amendments by subsequent exchanges of notes, has proved eminently satisfactory. There are always certain modifications that can be made or discussed but that can be done within the framework of the present agreement, or any extension of it. The Congress has authorized the extension of the agreement for an additional three and a half years and I feel very definitely that our best interests indicate we should very promptly, by exchange of [Page 695]notes, extend the present agreement and not try to renegotiate a whole new agreement merely to get in one or two points that might be considered an improvement. If there is anything we definitely feel we need, that particular point can be negotiated with the Mexicans, but to throw the whole thing open to new negotiations now, including many points which it took us so long and with so much chagrin to achieve a year and a half ago, would, I think, be most undesirable.

I understand there are some differences of view between the Department of Labor and the Immigration Service on matters connected with the agreement. Those are domestic matters which should be settled in Washington and not in negotiations with the Mexicans.

I repeat that it seems to me wisdom counsels our extending the agreement as it is as quickly as possible and then taking up any specific points for amendment as they arise, or as the Labor Department and the Immigration Service arrive at an accord among themselves as to what they feel the objective should be on a given point.

The Communist Situation

The orthodox Communist Party of Mexico is numerically weak, having an estimated 5,000 active members and, not having qualified for registration cannot legally run candidates in elections. The Popular Party, led by the avowed Marxist Vicente Lombardo Toledano, while denying it is Communist, serves the interests of international Communism in Mexico. It has an estimated 100,000 members including the newly-enfranchised women, is an officially registered political party, and has a miniscule representation in the National Chamber of Deputies. Thus in a country of almost 30,000,000 inhabitants, Communist political strength on the face of it appears numerically negligible, a point constantly being stressed by Government officials, the press, and others. On September 1, 1954, in his annual Report to the Nation, President Ruiz Cortines went on record that Mexico rejected international Communism, and during the past year the authorities have been quick to suppress Communist-inspired attempts at public disorder in the Capital and elsewhere, thus providing the background for official spokesmen to announce the country is anti-Communist. A favorite cliché here is: “A country so strongly Catholic as Mexico could never go Communist.”

However, the Communists and their allies in Mexico have considerably more influence than their numerical weakness indicates, as the liberal tradition of the Mexican Revolution has permitted many kinds of political radicalism to flourish over the years. President Ruiz Cortines is believed to have become aware of a potential internal Communist threat to Mexico at the time the Arbenz regime in Guatemala was unmasked and overthrown last year. The liberal [Page 696]tradition alluded to above has produced in Government officials a complacency and laissez-faire attitude toward Communism which is at times exasperating and even alarming. Mexican citizens are freely granted passports to travel to various Communist gatherings behind the Iron Curtain (Lombardo Toledano travels on a diplomatic passport), and Communist influence is appreciable among educational workers and in certain sectors of the labor movement, particularly among electrical and railroad workers. The Soviet Union is represented here by an Embassy, and Poland and Czechoslovakia by Legations (Argentina and Uruguay are the only other Latin American countries where Soviet diplomatic missions exist). The Soviet Embassy has a staff of at least sixty working persons including more Armed Services Attachés than our own Embassy. These Russians are believed to be engaged chiefly in intelligence work and are very active in so-called cultural activities and have established several Russian-Mexican “Cultural Exchange Institutes” in the Capital and in provincial centers. A number of prominent Mexican artists and cultural figures are Communist Party members. Thus the Communists and Popular Party members and sympathizers, though relatively few in number, are able to exercise, through their connections and on account of the lack of awareness by Mexican officials of the Communist danger, greater influence than their strength would warrant.

With virtually complete freedom of the press the Communists are able to make themselves heard. The Mexican Communist Party publishes a weekly newspaper (efforts to raise funds to make it a daily have consistently failed) and the Popular Party publishes a daily. Through these and other outlets, including paid space taken from time to time in the regular newspapers of large circulation, they keep up a steady and skillfully directed campaign against the United States, most frequently utilizing causes which find a responsive chord among many Mexicans irrespective of political outlook. These taboos include, but are not limited to: the possibility of betrayal of the national patrimony—notably petroleum and, more recently, supposed uranium deposits—to foreign interests; the invasion of Mexican markets by United States firms, especially chain stores; the bracero question; the electric power question; land reform and the division of the remaining large tracts, some of which are owned by United States interests; the foreign mining companies; military cooperation for continental defense; and the general question of the economic “invasion” of Mexico. All these matters are approached by many Mexicans with an emotional rather than realistic outlook. Consequently, through playing upon issues which put the Government on the defensive the Communists are able to create, [Page 697]and keep alive, a certain atmosphere or impression that relations between the United States and Mexico are strained.

President Ruiz Cortines, since my talks with him and especially since the irrefutable evidence of the Guatemalan case, has a greater realization of the dangers. However, he like many others, is likely to assume an attitude of complacency dismissing, or at least minimizing, the issue as a relatively unimportant manifestation of a local condition rather than an international conspiracy implanted and directed from abroad. Nevertheless, despite the outlook on my arrival here which was far from reassuring, there are definitely hopeful signs and I propose to continue at each suitable opportunity to encourage President Ruiz Cortines to take measures against Communism which will more clearly define the Government’s position.

  1. Source: Department of State, Holland Files: Lot 57 D 295, Mexico. Secret. Under cover of a letter dated August 29, Ambassador White transmitted a copy of this letter to Secretary Dulles. Another copy was transmitted to Assistant Secretary Holland, under cover of a letter from White dated August 30. A memorandum of conversation by Dulles dated June 21 records the President as stating in part that he “felt that with our long frontier with Mexico there was great need of better relations. He feared that we might be pressing too hard for a kind of government we wanted which was not necessarily what the Mexicans wanted. He said he would like to talk to Francis White if he was back in the country and spend some time with him reviewing the situation. I said we would arrange this.” (Eisenhower Library, Dulles Papers, Meetings with the President) Copies of this memorandum were forwarded to Under Secretary Hoover and Assistant Secretary Holland.
  2. Documentation on the termination of the bracero agreement is printed in Foreign Relations, 1952–1954, vol. iv, pp. 1353 ff.
  3. Reference is to Mexico’s abstention during voting on Resolution XCIII, “Declaration of Solidarity for the Preservation of the Political Integrity of the American States Against the Intervention of International Communism,” approved on March 28, 1954, at the Tenth Inter-American Conference which met at Caracas, March 1–28, 1954. For text, see Tenth Inter-American Conference: Report of the Delegation of the United States of America with Related Documents (Department of State Publication 5692, Washington, 1955), pp. 156–158. For pertinent documentation regarding the resolution, see Foreign Relations, 1952–1954, vol. iv, pp. 264 ff.
  4. Reference is to a bill introduced in the House of Representatives in 1954 by Congressman Richard M. Simpson (R.–Pa.) which would have imposed quotas or import taxes on lead, zinc, and petroleum imports. A vote in the House defeated this proposal which was opposed by the administration.
  5. Reference is to the fourth point of a plan of action outlined by President Harry S. Truman in his inaugural address in Washington on January 20, 1949.
  6. Printed from a copy which bears this typed signature.