233. Memorandum From the Officer in Charge of Mexican Affairs (Hughes) to the Assistant Secretary of State for Inter-American Affairs (Holland)1

SUBJECT

  • Mr. Waugh’s attitude towards Policy on Loans to Mexico—Proposed
  • National Railways Credit.

Problem

1.
The Mexicans are increasing pressure on the Eximbank for action on the $23.26 million National Railways credit. Mr. Waugh, at the August 2 Board Meeting, indicated extreme irritation over what he termed the Department’s blocking of the loan, and implied he would resort to drastic action, as he had done when he went directly to the Secretary and Mr. Hoover in the case of the Fundidora loan, if the railroad loan matter is not resolved in the near future.
2.
Ambassador White has made two strong recommendations relating to the subject of this memorandum with a view to assuring that the existing policy on loans to Mexico shall be held firmly for the present, and that the railroad loan, when made, shall be subject to stronger conditions that those now contemplated by the Bank.
[Page 734]

Discussion

The Embassy does not agree that the conditions the Bank is prepared to impose in the railroad loan contract go far enough in obtaining positive assurance that the credit will contribute fully to the overall improvement in the management and operation of the railroad, and enable it to service the loan without continued dependence upon hidden subsidies from the Federal Treasury. Not to impose broader conditions would tend to perpetuate a situation which has resulted in the railroad’s obtaining no more than 40 percent of the value of past Eximbank loans totaling more than $100 millions.2

The Ambassador reports that both President Ruiz Cortines and Finance Minister Carrillo Flores have expressed satisfaction with respect to the conditions imposed by the World Bank in the case of the $61 million loan to the Pacific Railway. The latter has indicated forthrightly his interest in the imposition of similar conditions for the National Railways, due account having been taken, apparently, of the political feasibility of that course of action.3

At the instance of the Finance Minister, Ambassador White has suggested (Tab A and Tab B, as marked4) that the Bank prepare a letter to Sr. Amorós, subject to prior clearance by the Department and the Embassy and to be forwarded when related developments warrant, setting forth conditions for the projected National Railways loan which will parallel those imposed by the World Bank on the Pacific Railways. Mr. White earnestly requests advice from the Department with regard to this suggestion.

Recommendation

That you, with Mr. Prochnow, seek an early opportunity to obtain (1) Mr. Waugh’s continued cooperation in maintaining the existing loan policy for Mexico and (2) his favorable consideration of Ambassador White’s proposal regarding conditions to be imposed on the railroad credit when it is extended, including the letter to the Director General of the National Railways, Sr. Amorós. Care must [Page 735]be taken that Mr. Waugh will not take advantage of such a request in his desire to make the loan immediately.

Other Attachments5

1.
Letter, July 23, Mr. White to Mr. Holland (original) Tab C.
2.
Letter, August 2, Mr. White to Mr. Rubottom (flimsie) Tab D.
  1. Source: Department of State, Central Files, 912.712/6–2556. Secret. Drafted by McGrory.
  2. The Embassy transmitted these views in detail in despatch 77 from Mexico City, July 24. (Ibid., 912.712/7–2456)
  3. In telegram 398 to Mexico City, August 28, 1956, the Department noted that it had reviewed with Waugh the Embassy’s suggestion that the conditions imposed on Mexico for the Pacific Railroad loan also be applied to the proposed loan for the National Railways. The telegram reads in part: “Bank Board Directors holds firmly position it definitely committed make loan at appropriate time.” (Ibid., 912.712/6–2556)
  4. Neither printed. A handwritten note on the source text indicates that the attachments were telegram 1987 from Mexico City, June 22 (ibid., 611.1294/6–2256), and telegram 1996 from Mexico City, June 25 (ibid., 912.712/6–2556).
  5. Neither printed.