1942: Mexico

Declaration of War.

Mexico's belligerency was established by a declaration of war on Germany and its Axis partners, May 30, following the sinking of two Mexican tankers off the Florida coast and Germany's rejection of Mexico's subsequent protest. Even prior to this step, however, cooperation with the United States, both military and economic, had been very close. The strong economic ties, of which the comprehensive agreement of November 1941 is indicative, result from the loss of overseas trade and the urgent need of the United States for Mexico's strategic minerals. So pressing and real are these problems that they serve to minimize, in some quarters at least, Mexico's long-standing fear and suspicion of its powerful neighbor. Moreover, the left-wing labor group (the CTM), a powerful political organization, has been strong in its support of the United Nations' cause since the Nazi attack on the Soviet Union. Extreme conservative elements, the suspect Sinarquistas and other quasi-fascist organizations, and the isolationist agricultural population, opposed a shift in the Republic's non-belligerent position, and the lack of enthusiasm at the mass meeting arranged by the official Party of the Mexican Revolution on May 24 suggests a lack of unanimous support of the Government's war moves. However, the Avila Camacho administration has made a direct bid for the submergence of political differences since the declaration of war, with the result that many opposing groups have fallen in line. The Catholic Church has supported this effort, and even the Sinarquistas have rendered lip service, at least, to national unity. The appearance of six ex-Presidents of the Republic on one platform along with President Avila Camacho, at the time of the Independence Day celebrations in September, was outward manifestation of a war-time political truce. Popular support of Mexico's war measures will be more widespread as a result of the appointment of ex-President Lázaro Cárdenas as Minister of National Defense.

Military Cooperation with the United States.

Military cooperation with the United States, signalized by the announcement of a Joint Mexican-American Defense Commission on Jan. 12, enables United States troops to cross Mexican territory and United States planes to fly over Mexico and halt at Mexican airports, a privilege of extreme importance which makes it possible to ferry United States aircraft to the Panama Canal. United States warships are also permitted to use Mexican bases and territorial waters. The 1941 agreement regarding the reciprocal use of air bases has been enlarged. Land and sea defense of Mexico's Pacific Coast is being jointly undertaken by the two countries. Compulsory military service was decreed on Aug. 18. By lend-lease agreement Mexico will acquire war matériel in the United States. In September, the Mexican Congress appropriated 7,000,000 pesos for the purchase of 150 'mosquito' torpedo boats. The Export-Import Bank has authorized a more rapid use of the $30,000,000 credit allocated to Mexico in 1941 for the construction of highways in order to expedite the completion of the Inter-American highway to the Guatemalan border.

Economic Relations with the United States.

Mexico's contribution to the United Nations' war efforts, which financial relations with the United States during 1942 have greatly facilitated, continues to be chiefly economic, however. A series of agreements announced Apr. 7 will make possible the establishment of certain basic industries and the construction of a high octane gasoline plant; provide for a survey of Mexico's railway needs and shipbuilding possibilities; and set up a procedure for priorities and allocations. The specific basic industry aided is a 50,000,000 peso steel and tin-plate rolling mill, to be erected at Monclava by the American Rolling Mill Company, for which a loan of $6,000,000 has been granted by the Export-Import Bank. This enterprise, with Mexico's existing facilities, will fill all domestic needs for metal sheeting. Private as well as public United States capital is beginning to flow once more into Mexico, and almost $100,000,000 is being invested to stimulate the output of such strategic materials as mercury, graphite, antimony (of which Mexico is the United States' chief source), and of tungsten, vanadium, zinc, lead, and copper.

The Mexican Government has announced liberal treatment regarding taxes, transportation charges, and labor policies so far as the mining industry is concerned. In return, the United States Metals Reserve Company will buy copper, lead, and zinc at prices designed to stimulate production. Negotiations are in progress, also, for a rubber agreement under which Mexico's entire guayule production, about 9,000 tons a year, would be placed at the disposal of the United States, which, on its part, would lend Mexico rubber experts and the sum of $890,000 for the immediate establishment of five experimental rubber plantations. Mexico has sought to secure high priorities on three types of machinery much needed in that country: (1) machinery for a $6,000,000 artificial silk plant under construction in cooperation with the Celanese Corporation of America; (2) road-building equipment; (3) rolling-stock for the Mexican railway system.

A United States-Mexican pact was signed on Nov. 18 for the joint rehabilitation of some of the key lines of the Mexican National Railways, and a technical mission has been sent from the United States to help carry out the program. The carrying capacity of the Mexican railway network, now overloaded because of heavy shipments of essential raw materials to the United States and the increased freight handling due to the submarine menace, will thus be stepped up. A final measure of economic cooperation to be noted is the plan adopted in August for systematic migration of temporary Mexican labor to the United States. The agreement provides a minimum wage of 30 cents an hour and transportation and repatriation costs. It also specifies conditions of work and immunity from military service. This constitutes an experiment in planned seasonal migration and offers a precedent in international labor exchange. The Mexican Government is studying a plan for supplying these landless migratory workers with land on their return, provided they invest part of their earnings in agricultural implements, to be purchased in the United States. In all these ways, under the stimulus of war, Mexico's industrial life is being tied in more and more closely with that of the United States.

Oil Properties.

On Apr. 18 the experts appointed according to the agreement of November 1941 arrived at a compromise price of $23,995,991 for the expropriated North American oil properties. The two principal claimants, the Standard Oil Company of New Jersey and the Standard Oil Company of California, would obtain $18,391,641 and $3,589,158 respectively; the other three groups, the remainder. The figure fixed is about 1/6 to 1/8 the sum claimed by the companies but is considerably more than the Cárdenas Government was prepared to offer. The companies were left to decide whether they would accept the compensation fixed. Ambiguity regarding certain claims against them which are to be deducted from the compensation and the absence of a specific acknowledgement of subsoil rights have caused the companies some misgivings as to the settlement; at the close of the year they still continued to disregard the offer. A separate agreement with the Cities Service Oil Company was disclosed Apr. 28, calling for payment of about $1,000,000 in cash for properties originally valued at $4,000,000 to $5,000,000. On Dec. 31, 1941, Mexico had paid all but $1,902,414 on an $8,500,000 settlement with the Consolidated Oil Corporation concluded in 1940. No negotiations have been undertaken for settlement of the considerably more valuable British oil holdings. A treaty providing for the payment by Mexico of $40,000,000 on agrarian and other claims (part of the general settlement of November 1941), was unanimously ratified by the United States Senate on Jan. 29. Of this amount $3,000,000 has already been remitted.

In September a commission of North American oil experts completed an exhaustive survey of Mexican oil fields and plants to determine equipment needed to rehabilitate the industry. It has been estimated that petroleum production has fallen off at least 20 per cent since expropriation. Application for the purchase of $1,200,000 worth of badly needed equipment has been made by the Compañía de Petroleos Mexicanos, the Mexican Government monopoly, and another $1,000,000 worth of materials and machinery has been requested for new production. The Mexican Government will finance rehabilitation if the United States will supply the necessary materials.

Trade Agreements with the United States.

Formal announcement of intention to negotiate a trade agreement was made by the Mexican and United States Governments on Apr. 4. Heavy United States' purchases of raw materials have given to Mexico, as to many Latin American countries, a favorable export balance, the Mexican trade gain over the previous year amounting to $34,000,000. These growing trade balances mean the accumulation of dollar reserves and latent purchasing power with which to ease the post-war transition. The threat of inflation, though real, is reduced by the inability to secure imports from the United States. As a result, the Bank of Mexico has the largest amount of foreign exchange in its history and has been able to set aside funds for payments on the external debt, which went into default in 1914 and on which the last payments were made in 1927. By a new agreement reached with the International Committee of Bankers on Nov. 5, and unanimously approved by the Chamber of Deputies in December, service will be resumed 'on a modified and reduced' basis. This debt now amounts to about $236,000,000, exclusive of the Railways external debt of approximately the same amount.

Silver Bullion.

Under an agreement signed Aug. 3 between the United States State Department, the Office of Price Administration, and the Mexican Government, the price of imported silver bullion was jumped from 35.375 cents to 45 cents an ounce, with a view to stimulating production. The Mexican Government is to collect a 7 cent special emergency tax for every ounce exported. Under the November 1941 general agreement the United States Treasury agreed to purchase up to 6,000,000 ounces of silver a month from Mexico, which amount, it was calculated, would furnish the Mexican Treasury over $2,000,000 a month of dollar exchange. Thus Mexico, as producer of one-third the world's output of silver, continues to be a beneficiary of the much-questioned silver purchase program of the United States.

Internal Affairs.

The budget for 1943 is a record one; Government expenditures are estimated at about 630,000,000 pesos, revenues at 707,000,000 pesos. The balance is to be applied to public works, hitherto financed with bond issues. Of the 1942 budget of 554,747,300 pesos, which represented a 20 per cent increase over 1941, 120,000,000 pesos were earmarked for the army, 25,500,000 for the navy, 60,700,000 for highway construction and 70,000,000 for servicing the internal public debt. The expenditures did not include indemnification of the oil companies nor other recent Mexican-United States settlements. Increased taxes on the income from mining operations, unearned and professional incomes, and business profits over 100,000 pesos were proposed.

On Aug. 13 Mexico agreed to prohibit the circulation of all paper currency except $2 bills, in an attempt to stop the use of that country as a clearinghouse for United States currency confiscated by the Axis in Europe and sold back to the United States. Axis elements in Mexico are believed to be holding over $20,000,000 in United States cash. A move to reinterest private North American capital in Mexico is seen in the invitation by the Mexican Government that it join with Mexican capital in purchasing Axis businesses seized by the Government, which include the Casa Bayer (leading drug firm), Banco Germánico, German and Japanese department stores and coffee plantations. This kind of direct partnership of foreign capital with local interests is considered a good guarantee of security; it removes the objectionable features of absentee-ownership, and also lessens the threat of discriminatory legislation.