Papers relating to the foreign relations of the United States, 1930, Volume III

812.51/1616: Telegram

The Ambassador in Mexico (Morrow) to the Secretary of State

Mexico, August 21, 1930—4 p.m.
[Received August 22—1:12 a.m.]

187. Referring to Mr. Cotton’s letter of July 29th¹⁵ and his letter of August 4th enclosing memorandum of August 3rd, I submit following answers to points I to V, page 2, of memorandum:

1. Custom revenues in 1929 were 29 percent of total revenues but due to changes in laws affecting administration and collection of revenue the estimates of revenue for 1930 shows custom revenues as 41 percent of total revenues. Of bonds outstanding about $129,000,000 are classed as customs bonds and about $147,000,000 are not so classed. New agreement purports to grant a prior lien on the customs revenues in favor of the entire issue of new refunding bonds of a principal amount of about $267,000,000.

2. Although I lack specific information on three small state issues I understand that all the subsidiary and state issues included in the agreement were either guaranteed by the Mexican Federal Government or were assumed by it prior to recent agreement.

3. For the first four months of 1930 actual revenues were slightly in excess of estimates. Returns for May, June and July are not yet available to me.

4. This goes to the heart of the subject. Whether or not the scale of payments under the new agreement is fair not only to other creditors but to the bondholders themselves depends on the budgetary provision which is to be made for all forms of debt, particularly during the next few years. The assertion of priority for the potential debt to the United States Government is, as you say, a question for the State Department to decide.

5. I agree; but I am not inclined to believe that the provisions for future financing are of much practical importance to us except on the supposition that the Mexican Government might desire to issue such additional customs bonds to the United States and other foreign governments in payment of the awards of Mixed Claims Commissions which may not be completed prior to 1934.

In reply to the last paragraph of the memorandum of August 3 I think the following points should be considered in regard to the new agreement:

• First, is it a wise agreement for Mexico and for its creditors in general?
• Second, if not, does any obligation rest upon the State Department to do anything about the matter?
• Third, what possible action might the State Department take?

• First, if ratified independently of a general project with budgetary provision therefor I consider the agreement unwise both for Mexico and for its creditors including the bondholders represented by the International Committee.
• Second, even though the agreement be unwise I think the State Department should take no steps with reference thereto except so far as necessary to protect American interests for which the State Department is under a responsibility. In personal talks with the President and Mr. Estrada I have suggested that the Government should formulate their general project before ratifying the agreement.
• Third, as reported in my telegram 160 of July 28th President Ortiz Rubio [said?] to me that he would not submit the new agreement to Congress except as part of a project which would comprise the debt as a whole. We should frankly recognize however that any plan may have to be made hastily at the last moment. Meanwhile the International Committee in New York and other interested parties, also Mr. Montes de Oca, may try to get the agreement carried out or ratified without reference to other obligations of the Government. I comment on this contingency as follows:

  (a) The preliminary ten million pesos payment is to be made without delaying for ratification. I should be inclined to lodge no objection to this payment for the reason among others that I apprehend it would not prevent the payment and would only irritate. Furthermore we have heretofore done nothing to prevent Mexico paying money to her creditors even though in many instances it seemed to us to be illogically or inequitably paid. We have felt that it was too great a responsibility to advise them not to pay creditors because if the money were not paid to any given creditor it might well be spent on something that all of the creditors would later assert was a waste. What we have used our influence against is new promises rather than actual payments. I express the foregoing opinion in spite of the fact that we have been told by a representative of an oil company that in order to facilitate the first payment to the committee on account of the new agreement, the Government has asked the principal oil companies to pay the next five months’ taxes in advance by means of deposit of $3,000,000 with the Mexican Consul General in New York. The companies have agreed to do so. The reason given by the Government for this request is that it will avoid the pressure on the foreign exchange rate which might be caused by the transfer of Government funds now on hand here.

  (b) There will be two classes of objectors:

  • First, the various holders of liquidated claims will do their best to get their existing contracts performed, some of them claim priority to the International Committee, some claim equality. The gross amount of these claims actually overdue and due in 1932 is of course greatly in excess of any sum that can be put into the budget.
  • Second, the governments whose claims are as yet only in part liquidated will have to determine what their position is to be. As their debts are not yet due Mexico may claim that it is not a matter about which she should concern herself at the present. [Paraphrase.] The best attitude perhaps for the Department to take would be to give notice to the Mexican Government, at a time which may be proper, that our Government reserves its right to take the stand that the new agreement with the International Committee is not good against our Government claims, in particular that stipulation of the agreement which increases the number of bonds for the service of which customs revenues are allocated.
  • I do not think it is necessary for the Department to take any action until the matter has proceeded further. [End paraphrase.]

Morrow

15. Not found in Department files.