225. Memorandum Prepared in the Office of Middle American Affairs1

SUBJECT

  • Department of State Policy on Export-Import Bank Loans to Mexico in Relation to Fundidora Loan Application

The Department of State has not been satisfied with the small degree of progress it has been possible to make in recent years toward the solution of a number of problems of great importance to the Unites States which needlessly complicate our relations with Mexico. For example, it has not been possible to negotiate aviation, broadcasting, or commercial agreements, or to settle long-outstanding claims. Mexico has failed to control communist subversive organizations effectively, and is definitely hostile to the United States position on territorial waters. Moreover, the policies and attitudes of the Mexican Government of various organizations, and of Mexican businessmen toward foreign investment in Mexico, particularly United States investment, has caused the Department considerable concern because of possible effect upon the confidence of United States investors in the future course of Mexico’s economy. Strong socialistic and nationalistic forces advocate greater Government regulation of business and more restrictions on foreign capital. The underlying attitude is that foreign investments should be limited to certain basic industries such as power or mining, where risks are great and profits small; that the manufacturing and commercial industries should be reserved for Mexican capital; and that, if foreign capital participates in those segments of the economy, it should be permitted to do so only as an adjunct to Mexican capital in enterprises predominantly controlled by Mexicans. While this type of propaganda has been carried on for a number of years by certain officials of the Government and groups they represent, the most immediately disturbing fact is that large numbers of businessmen who fear foreign competition, appear to have espoused the movement without examining the facts critically. Pamphlets on this subject recently published under [Page 719]the authority of the National University of Mexico are extremely leftist and in some cases appear to be Communist inspired. Mexican businessmen, without studying the matter, have taken up this cry probably from the short-sighted point of view of trying to avoid immediate competition, overlooking the fact that if American private enterprise in Mexico is throttled, private domestic enterprise will risk next coming under Government control and direction.

The official attitude of the Mexican Government favors private enterprise and foreign investment, and at the White Sulphur Springs meeting the President of Mexico said that an increase in foreign financial cooperation is essential to the continued economic development of Mexico. Nevertheless, he has been unwilling to take positive action to combat anti-foreign investment propaganda and to show foreign capital that it is welcome in Mexico.

The Department has considered what measures might be taken to elicit decisive action by the President of Mexico not only on outstanding government-to-government problems but also on those arising from the current attitude toward United States investments in Mexico. It has concluded that, in the Mexican situation, our lending policies could be utilized effectively in helping to attain over-all United States political and economic objectives in Mexico. To the end that Mexican authorities may be brought to the realization that a more cooperative attitude on their part towards problems of vital interest to the United States would bring about better results in relation to needed financing, the Department has asked the Export-Import Bank to defer for a time all decisions with regard to loans to Mexico of a substantive nature. Otherwise, little or no progress can be expected in the foreseeable future on matters which are of vital concern to us. Deferment of announcement of the proposed credit of $26 millions to Cia. Fundidora de Fierro y Acero de Monterrey appears to afford an excellent opportunity to help achieve our objectives in Mexico. The Department is aware that Fundidora is a wholly privately owned organization and that the proposed credit meets Bank requirements. Nevertheless, the Department feels that in deferring announcement of the credit its general policy will be furthered, and the Mexicans will be encouraged to reverse the trend of their thinking on foreign investments and help, rather than impede, them.

The President of the Export-Import Bank was informed of the Department’s views on the Mexican situation prior to his departure on a trip to Mexico in March. He indicated he would make no definite commitments until he returned to Washington. In his conversation with President Ruiz Cortines there was discussion of the date for dedicating a new installation at Fundidora (made possible largely by Eximbank funds) at which announcement would be made, [Page 720]in Mr. Waugh’s presence at the ceremonies, of the granting of the new $26 million loan. The Department feels that an announcement under such circumstances would give President Ruiz Cortines opportunity to take full credit for arranging the loan as a result of the White Sulphur Springs meeting, and that the loan announcement, supported by the visit of Mr. Waugh to Monterrey specifically for the ceremonies, would indicate that all is well in United States-Mexican relations, thus vitiating any beneficial effects which might result from delay in announcement of decision on pending loans.2

  1. Source: Department of State, Central Files, 812.10/5–856. Confidential. Transmitted to Secretary Humphrey under cover of a letter dated May 8 from Under Secretary Hoover which reads: “The other day in discussing the Fundidora loan with Herbert Prochnow, you requested a memorandum covering some of the points of the discussion. The attached memorandum has been prepared by the Bureau of Inter-American Affairs, which I trust may help clarify some of the problems we have in this situation. A copy of the memorandum is also being sent to Sam Waugh.” (Ibid.) A copy of the memorandum was transmitted to Waugh under cover of a note from Prochnow, May 8. (Ibid.)
  2. In a memorandum to Prochnow, June 6, Holland wrote:

    “I am informed that the Board of Directors of the Export-Import Bank, at their meeting on Thursday, June 7, will take up the application of the National Railways of Mexico for an interim credit of $23,260,000, the balance remaining from the $150,000,000 line of credit authorized August 31, 1950. The Staff Committee recommends not only that the interim credit be authorized, but that the Bank make a general commitment to Mexico to provide financial assistance for the completion of the rehabilitation program.

    ARA requests that you remind the Board of the existing policy with respect to loans to Mexico and ask that it defer consideration of this application for the present.” (Ibid., 812.10/6–656)