228. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Holland) to the Secretary of State1

SUBJECT

  • Mexican Aviation Agreement and Loans

Background

For a number of years we have been trying unsuccessfully to negotiate an aviation agreement with Mexico. Some time ago it was decided to hold up loans to Mexico until such an agreement is achieved. The loans of interest to Mexico now being held up under this policy are $26 million to the privately owned Fundidora de Fierro y Acero of Monterrey, $23.5 million to the Government operated National Railways of Mexico, and $23,659,000 to the Government owned steel mill Altos Hornos. For several weeks now the Mexicans have been asserting that the technical staff of the Export-Import Bank has told them the Bank is held up under instructions from the Department of State. Ambassador White and I have told the Mexicans that the loans are simply still under study. The Bank has been very eager to grant the Fundidora loan, but Mr. Waugh has said he is willing to hold up on Government to Government loans. In conference with Mr. Hoover he stated he had a basis for holding up Government to Government loans—there are matters that could be studied. He now takes the position if Government to Government loans are suspended he would want to tell the Mexicans that the Bank had been instructed to do so. On June 14, Ambassador White had a conference with the President of Mexico as reported in the attached memorandum2 (Tab A) in which the latter said he had been informed we were delaying loans to get an aviation agreement and he had given instructions to hold up action until he had determined whether he was being subjected to pressure from us. On June 18, Ambassador White had a conference with Mexican Minister of Finance Carrillo Flores in which the latter said he would take the aviation matter up with President Ruiz Cortines. On June 22, White had another conference with Carrillo (Tab B)3 in which the latter made the following points: 1. The Government is disposed to give us an aviation agreement eventually; 2. The Government wants some helpful gesture from us now; 3. He did not [Page 726]make a proposal to tie announcement of the aviation agreement and loans together, but said it would be a nice thing.

Pressure from United States suppliers for the Fundidora loan is getting strong and I feel that it should be granted. Yesterday I proposed to Waugh and four directors of the Bank that we instruct White to see Carrillo and tell him the following: (1) That we accept Carrillo’s assurances that they are not holding up the aviation agreement until they get loans. (2) That we are concerned, of course, by the President’s statement that he is holding up the aviation agreement. (3) That bearing in mind Carrillo’s statement it would be nice to make a joint declaration, we should all work hard to try to get one this week on aviation, Fundidora and National Railways loan. (4) That if the Mexicans refuse to do this we immediately grant the Fundidora loan as evidence we are not exerting pressure and then hold up government-to-government loans until we get an aviation agreement. Waugh rejected this proposal and said he would not agree to any move until he had seen you.

All the foregoing facts pose two problems: (1) the basic policy problem of whether Export-Import Bank loans shall or shall not be related to foreign policy objectives of the Government and (2) what we are going to do about the particular narrow problem of the Mexican aviation agreement.

On the broad policy question I feel that we must be prepared at times to relate Eximbank loans to objectives of U.S. foreign policy. However, this must be done most cautiously and on a case-by-case basis. It should not as a rule be done openly. That would give rise to accusations of dollar diplomacy. This will require judgment and caution in analyzing each particular case.

Recommendation

On the narrow problem of Mexican aviation we should either adopt the course recommended to Waugh or we should without discussion promptly grant the Fundidora loan and have White inform the Mexicans that this is evidence that we were not linking the aviation agreement and loans as the Mexicans have accused. He should at the same time urge immediate action on the aviation agreement, and we should hold up government-to-government loans until one is achieved.

  1. Source: Department of State, Holland Files: Lot 57 D 295, Mexico. Secret.
  2. Supra.
  3. No record of this meeting has been found in Department of State files.