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.

1941: Mexico

Relations with the United States.

Although Mexico was the only Latin American republic north of the Canal not to declare war on the Axis powers, following the sudden attack of Dec. 7 on Pearl Harbor, which precipitated the United States into the second World War, it has taken active measures to indicate its cooperation with the United States and to prove its pro-democratic stand in the present world division of political philosophies and forces. Mexico severed diplomatic relations with the three Axis states, thus closing the avenues of Axis propaganda provided hitherto by legations and consulates. The country's long and largely undefended coastline suggests certain strategic disadvantages to the United States in the event of Mexico's open belligerency. Mexican troops were sent, by agreement, across United States territory to guard the crucial region of Lower California, which, with its 700 miles of isolated and deserted coast, and one of the best naval anchorages in the world in Magdalena Bay, might easily be coveted by the Japanese for submarine or air bases, and ex-President Lazaro Cárdenas was made Commander-in-Chief of the Pacific Coast. Mexican soldiers were also sent to protect North American-operated mines producing essential defense materials. Japanese, German and Italian assets in Mexico were frozen. On Dec. 16 President Avila Camacho requested Congressional approval of measures to permit passage through Mexico, 'in cases of obvious urgency,' of military forces of other American republics, clearly meaning the United States. Finally, a joint Mexican-United States Defense Commission, similar to the Canadian-American commission, was created.

As early as April a convention was signed for the 'reciprocal transit of military aircraft,' the first step to implement the mutual-assistance pact concluded with the United States on March 15. The airfields, bases and ports of the Republic south of the Rio Grande are now, therefore, accessible to United States' ships and planes. In July the United States agreed to buy Mexico's entire exportable surplus of strategic minerals, and Mexico pledged itself to sell none outside the Western Hemisphere. In all these ways the understanding between the United States and Mexico to coordinate defense preparations, 'in principle,' has been implemented, and the statement of the Mexican Foreign Minister in January, that 'aggression against any Pan American country will be considered by Mexico as against Mexico herself' becomes more than phrase-making.

The immediate effect of the outbreak of war in the Pacific was the withdrawal of some $6,000,000 from Mexican banks on the part of Spanish and French residents, who own from 40 to 60 per cent of Mexico's total bank deposits. This was a severe shock to the Republic's financial system. The United States' priorities system created a precarious situation for Mexican industrialists, too, who are confronted with a shortage of chemicals, rayon, tinplate, steel-making alloys and machinery of all kinds. The allocation of tinplate by the United States Defense Board (see BOLIVIA) was the first step taken to face this effect of total war on Latin American economy. The seizure of Axis ships in Mexican ports, begun last April when Mexico requisitioned twelve German and Italian vessels, should be accelerated as the shipping shortage increases. The blacklisting by the United States of pro-Axis firms in July, which the German Government requested Mexico to protest, led the Mexican labor leader, Vicente Lombardo Toledano, to propose nationalization throughout Latin America of all such enterprises, in order to prevent their acquisition by North American business interests.

Internal Affairs.

The completion of the first year of the Avila Camacho administration indicated a rightist trend away from the Cárdenas policies, but no such immediate reversal of the program of the preceding régime as had been anticipated in many circles. The appointment of the President's brother, General Maximino Avila Camacho, as Minister of Communications, a step which the President himself opposed, suggests that a reactionary group, headed by former Presidents Emilio Portes Gil and Abelardo Rodríguez, may really be dictating the policies of the present administration. The land program announced at the close of 1940, providing for a parcelling of ejidal, or common, lands, was not extended to collectivized ejidal districts like La Laguna and the Yaqui Valley. Failure for two years to use the land deprives the ejidatario, or public landowner, of the right to it. Further attack on the hacienda system, through land distribution to the villages, which at the end of the Cárdenas régime totaled in the neighborhood of 40,000,000 acres, ceased. As for educational policy, Article 3 of the Constitution, providing for 'socialistic education,' remains unchanged but, among the administration bills presented to Congress when it convened Feb. 1, 1941, were several which drew the teeth of this provision. One would relegalize private and religious educational institutions, outlawed in Mexico since the Calles régime; another called for an educational program allowing for freedom of conscience. The bitter campaign of the Church, and of the Church-organized Padres de Familias, is reflected here, as is also the new President's own fervent religious faith, avowed in one of his first public statements.

Sinarquismo.

In his opening address to the Congress on Sept. 1, President Avila Camacho welcomed foreign capital and promised it fair treatment, though warning that this did not mean abandoning Mexico's social legislation. The repatriation of Mexican capital in the first four months of the present administration gave evidence of a confidence of business in the new régime. This slowed down substantially in the later months of 1941, although it was estimated that over $50,000,000 of liquid capital, mostly Mexican, moved from New York to Mexico during 1941. In this same speech the President condemned both Communism and Sinarquismo, a strongly clerical movement, as 'exotic and inappropriate.' The latter organization, which has been compared to the earlier Cristeros, is strongest in the rural districts, but is opposed by the left-wing peasant groups. Charges that it is associated with the Falange and the Nazis, and that it has tried to complicate United States-Mexican relations, though unsubstantiated, were responsible for the unfavorable action of the Chamber of Deputies, in October, on a project for the colonization by Sinarquistas of strategically located Lower California. This ban was lifted two weeks later by presidential decree on the ground that, as Mexican citizens, they had freedom of movement in Mexico.

Labor Relations.

In Avila Camacho's attitude towards labor can best be seen the middle-of-the-way quality of his rule in this first year. One of the first acts of the administration was to take the railways out of the hands of the Workers' Syndicate. Labor is still allowed three representatives on the managing committee of seven, but the leader of the Union of Railway Workers maintains that they are consistently ignored in policy-making. Although the Government did not crack down on labor as heavily as had been expected, the power of the strong labor leader, Lombardo Toledano, was sharply curtailed, and it was clearly intimated that the right to strike should not be exercised when the public interest is involved. In February the Government 'broke' a strike in a zinc-producing plant of the American Smelting and Refining Company. An impartial observer, however, called the present administration's attitude towards the majority of strikes as friendly, in general, as the Cárdenas attitude was during the latter part of the preceding régime. The request of President Avila Camacho that employees of the Federal school system form a union separate from the Mexican Federation of Labor must be chalked up, nevertheless, as a step to the right. The firing on representatives of the Union of Munition Workers, in September, when they were demonstrating before the President's official residence, was minimized by Lombardo Toledano.

The anti-labor tendencies of the present government have put the CTM (Confederation of Mexican Labor) in an embarrassing position, for it officially supported Avila Camacho in the presidential campaign. In February Vicente Lombardo Toledano's term as secretary-general of the CTM expired. He was succeeded by Fidel Velásquez. Lombardo has been concentrating on strengthening the CTAL (Confederation of Latin American Workers) which, at its Congress in the late fall, reelected him president. The CTAL and the dormant COPA (Pan American Federation of Labor) have been sparring for dominance in the inter-American labor world, just as CTM and CROM (Mexican Sectional Labor Federation) have within Mexico, although these two Mexican organizations signed a non-aggression pact this year, suggesting the possibility of a move for a united labor front to resist Avila Camacho's rightist moves. At its Congress the CTAL authorized Lombardo to travel through Latin America for organizational purposes. The CTAL is strongest in Mexico, Chile, Argentina, Cuba, and Colombia. The resolutions passed reflected Lombardo's orientation towards the democracies in the world conflict. Reduction of the working day, recognition in all Latin American countries of the right to strike, and the organization of peasants and industrial workers in a common front were the chief points of domestic program of the CTAL.

Tentative Agreements with United States.

The 'global settlement' with the United States, Nov. 19, 1941, has been called by Avila Camacho 'a touchstone to prove the genuineness of the Good Neighbor policy.' This agreement included: a loan of $40,000,000 to stabilize the Mexican peso at about the current rate; an undertaking by the United States Treasury to purchase monthly a fixed amount of Mexican silver at a fixed rate; an Export-Import Bank loan of $30,000,000 for road-building; a promise to schedule payments on $40,000,000 of North American agrarian and 'general' claims arising between 1927 and 1940; and an understanding, 'in principle,' to negotiate a reciprocal trade treaty. The major problem of the expropriated oil properties was virtually shelved. Provision was made for a token payment of $9,000,000 and the appointment by each government of an appraiser to determine final valuation and further compensation. In case of failure to agree, direct diplomatic negotiations will be resumed. If these fail, the token payment will be returned to Mexico. The oil company executives refused such a settlement, having already twice rejected similar proposals because they provided no inclusion in the appraisal of subsoil rights (90 per cent of their claimed valuation), and because they validated the original confiscation. The Mexican Foreign Minister, in defending the 'global agreement' before the Mexican Senate, declared that it paved the way for a 'just settlement' of the oil question, protected Mexico against inflation, and would lead to further agreements on national and continental defense. The pact showed how Mexican economic dependence on the United States, now complete with the entry of the United States into the War, could be turned to Mexico's diplomatic advantage, and is regarded as a triumph for the Cárdenista faction in the Government.

Great Britain and Mexico.

The British Government, on Oct. 21, in resuming diplomatic relations with Mexico, which were broken off in 1938 following the oil expropriation, made it clear that its position regarding the oil properties of its nationals remained unchanged. A settlement liquidating most of the claims of the Sinclair interests was completed in July, with the payment of $300,000 in cash to the Penn-Mex Fuel Company. Mexican oil production in 1941 declined and petroleum exports for the first ten months were 3,900,000 bbl. less than in the corresponding period of 1940. This decline is one reason for the country's adverse trade balance, amounting to about 150,000,000 pesos. A presidential decree of Dec. 30 encouraged private enterprise in the oil industry, chiefly in exploration, and permitted the importation of drilling equipment. It imposed a restriction of 30,000 hectares on the area any one company might explore, however, and specified the Government's right to expropriate at will.

Indian Problem.

The Inter-American Indian Convention was ratified by five countries (the United States, Mexico, Honduras, El Salvador, Ecuador), and an Inter-American Indian Institute may now be established. A skeleton organization has been functioning in Mexico for several months and has begun two publications: a monthly Boletín Indígenista and a quarterly América Indígena. Personalities and politics hampered it, however. Mexican students of the Indian problem are divided; one faction, led by Moïses Saenz, provisional director of the Institute, until his death in the fall, favored the absorption of the Indian into Mexican life; the other, led by Luis Chávez Orozco, opposed assimilation and favors advancing the Indian as a separate cultural entity. The successful functioning of the new Institute will depend on the reconciliation of such differences.

1940: Mexico

Political Affairs.

In spite of persistent rumors of imminent revolution, both during the bitter presidential campaign and in the months following the national elections, which took place July 7, the new Congress was installed in September and the President-elect, Gen. Avila Camacho, was inaugurated according to schedule Dec. 1. The sole opponent of significance in the presidential race was Gen. Juan Andreu Almazán, leader of the conservative forces. Gen. Camacho had the support of the PRM (Mexican Revolutionary Party), the CTM (Confederation of Mexican Labor), although there was dissidence in the ranks of the labor group, and the CNC (Confederation of Farm Workers). Following the election, which was attended with rioting, especially in Mexico City, resulting in the death of almost fifty people and the wounding of some 300 more, both sides claimed a victory, and Gen. Almazán, in defiance of the government, summoned a rump Congress which, on Sept. 3, declared him President-elect and issued a manifesto violently attacking the Cárdenas administration. Although there were a number of uprisings in several pro-Almazán states during September and October, resulting in clashes between Federal troops and the rebels, there was no organized challenge by force of arms. On Nov. 26 Gen. Almazán withdrew his claim, following the defeat of Wendell Willkie in the United States presidential election and the decision of the United States to send Vice-President-elect Henry A. Wallace to the inauguration ceremonies. Meanwhile the Mexican Congress had declared Avila Camacho President-elect by a 16-to-1 majority, the official returns giving him 2,476,641 votes, Almazán 151,101, and Rafael Sánchez Tapia 9,840. The total votes cast represent the highest ever recorded in a Mexican election.

In addressing the new Congress on Sept. 1 President Cárdenas gave it and Avila Camacho official recognition. The outgoing President took this occasion to review the achievements of his six-year administration, stressing the reduction of illiteracy, the redistribution of land to over a million peasants, and the completion of the legal process of expropriating foreign oil properties. The question now arises whether the revolutionary program will continue. Business interests, the upper middle class and Catholic groups (the Church took no official part in the campaign) supported the opposition candidacy, in part out of a belief that Gen. Almazán would turn back the course of the Revolution, come to terms with foreign capital and restore 'prosperity' to Mexico. No one believed that Gen. Camacho would extend the Revolution for, although he had CTM and Communist support, it was understood that he advocated a more conservative policy than President Cárdenas. During the campaign, for example, he assured the people that he would not allow socialist education to be rigidly enforced and that it would not interfere with religious teachings in the home. The first Cabinet appointments, which include followers of the conservative ex-President Emilio Portes Gil, and the initial acts of the Camacho administration, lend support to this suspected conservatism, which finds verbal expression in talk of 'consolidating' the Revolution, not extending it.

The new President's first important victory came with the passage of a bill, recommended by him, depriving the Railroad Workers' Syndicate of the management of the National Railways of Mexico, which had been entrusted to the workers in 1938. A decree in modification of the agrarian reform, granting the peon definite title to land given him, in contrast to communal ownership, carries the land reform back to the original intent of the 1917 Constitution, and provides further indication of the conservative tendency of the Camacho administration. This was one of Camacho's principal pre-election pledges. The farmer is free to work his land either communally or individually, depending on the nature of the crop and local conditions; hence the new reform will maintain the communal services of cultivation, storage and marketing, especially in one-crop districts which require large-scale development. Exploitation by hacendados or money-lenders is to be prevented by the prohibition on sale or mortgage of lands allotted, and by the financial features of the decree, which provide for the strengthening of the Banco Agrícola, which will undertake the financing of all farm activity in the face of gradual liquidation of the National Bank of Ejidal Credit. During the coming year 55,000,000 pesos will be spent on irrigation.

Although his inaugural address was favorably received by both leftist and rightist press, the rift between the increasingly strong conservative element among the President's followers and the left wing labor groups is widening. The rightist elements, victorious in the Congressional elections, want to outlaw and disband the Communist Party, the 'popular bloc' in the Senate, on Oct. 14, supporting a resolution to that effect. The organization of a National Committee to Fight Reaction by the CTM, 'to coordinate forces in defense of the revolutionary institutions of the nation,' widens the gap between the Left and the growing Right. Optimism in business and financial circles, attributable to the increasing conservatism of the government, is indicated by the rise in stock values and government securities in December.

Oil Question.

The new administration inherits a legacy of economic problems, some arising from the trade dislocation caused by the war in Europe, which impedes the marketing of petroleum and industrial metals; some stemming from the expropriation of foreign oil properties. Dispute over this last is still pending with the United States. The controversy entered a new phase with the reply on May 1 of the Mexican government to Secretary Hull's note of April 3, requesting arbitration of the claims for indemnity. The Mexican note, firmly but without hostility, maintained, as hitherto, that this was a domestic question and, hence, not arbitrable by international courts; that there was no denial of justice since it would compensate; and that the Mexican courts were still trying to appraise the value of the properties, although negotiations regarding some of the outstanding claims had been suspended, due to financial stringency caused by the boycott of Mexican oil by the foreign companies. The new element in the situation was injected by the statement that an agreement had just been concluded with the Sinclair interests for direct negotiations, the inference being that this might serve as a model on which the other companies might reach a settlement and, thus, break the deadlock. The Sinclair agreement, at least, broke the united front of the expropriated interests. It provided for cash payment for the Sinclair properties in three years (the sum of $8,500,000 has since been reported); in return, the Consolidated Oil Corporation will purchase specified amounts of petroleum on a long-term basis, and will transport and market the same. Three other big contracts for the sale of Mexican oil have since been reported, the third unconfirmed: one for 24,000,000 barrels, over a five-year period, with a subsidiary of Standard Oil of Indiana; one with the First National Company, a group of independents; and the last for 24,000,000 barrels of Poza Rica crude oil, to be delivered within four years, with the Cities Service Company. A Japanese oil concession to exploit 247,000 acres of Vera Cruz oil lands was cancelled in October, as 'an act of continental solidarity.' Early in the year a part of Mexico's unsalable petroleum was sold to Japan for cash at a price thirty cents below the world market price.

Valuation proceedings of a unilateral nature regarding the expropriated oil properties are pending in the Mexican courts. On Aug. 31 the Mexican government placed a value of about $35,400,000 on them, a figure called absurdly low by the oil companies, especially since deduction of workers' claims against the companies would result in an actual indemnity of only $11,000,000. The companies, still at outs with the Mexican government with regard to sub-soil rights, have put the valuation at around $400,000,000.

Reorganization of the petroleum industry has been one of the administration's most urgent domestic problems in the last year. Since both it and the National Railways were operating under a large deficit, in each case in the neighborhood of 22,000,000 pesos in 1939, the Cárdenas government proposed, and when both the oil and railway workers' unions refused, it ordered the adoption of reorganization plans which would cut excess personnel, impose salary reductions, reduce overtime pay, and lead to repayments to the national treasury. A provisional agreement was reached with the oil industry in August, largely following the Cárdenas plan. On Nov. 28 terms regarding dismissals and wage cuts were set by the Federal Conciliation and Arbitration Board, effective immediately, which were harsher than those in the original plan.

Silver Purchases.

Serious consequences to Mexico threatened when the United States Senate, May 9, voted the Townsend bill to halt foreign purchases of silver, since 1939 silver purchases gave the Mexican government revenue amounting to about $28,000,000. Since petroleum exports have fallen off so greatly, silver has become the mainstay of Mexico's economy, representing almost one-half the total exports to the United States in 1939. The United States purchases about 70 per cent of Mexico's exports, and in the first six months of the European War the value of shipments to the United States from south of the Rio Grande rose 30.5 per cent.

Financial Affairs.

The cut in the price of silver was one factor in the drastic decline of the peso, which the Bank of Mexico early in the year pegged at 6.00 per United States dollar. The cheap peso had been somewhat of a boon, however, in stimulating tourist trade, now estimated at about $160,000,000 a year, which is an important source of foreign exchange. Hence, to prevent a rise in the peso, the Bank of Mexico is now buying dollars in large amounts, whereas a few months ago it sold dollars to bolster exchange. The national budget for 1940 was estimated at 448,769,000 pesos, which is about 3,000,000 pesos larger than the original budget for 1939. Mexico has not shared yet in Export-Import Bank loans, although Mexican circles have expressed a wish for a $50,000,000 national defense loan. The seventh annual installment of $500,000, under the special claims convention of April 24, 1934, was paid Dec. 31, this convention providing for en bloc settlement of claims on account of damages suffered by North Americans in the Mexican Revolution.

Inter-American Indian Congress.

The first Inter-American Indian Congress met at Pátzcuaro, April 14-24, with representatives from the United States and from those American republics with large Indian populations, to exchange information and ideas relative to the basic problem of adjusting these indigenous peoples to conditions of temporary life. Its principal achievement was the establishment of a permanent Institute for Indian Affairs, with its seat in Mexico and Dr. Moíses Sáenz as provisional director. The most important resolution adopted, proposed by the CTM leader, Lombardo Toledano, concerned the division of large landed estates. It was also proposed to make credits and technical assistance accessible to the Indians. Other topics considered dealt with Indian education, emphasis being laid on instruction in the native languages on the lines of Mexico's experiments with the Otomí and Tarascan idioms, and with nutritional and health problems, irrigation and similar matters important in improving the conditions of the 30,000,000 Indians of the Americas.

Foreign Relations.

Although the Cárdenas government was inclined to minimize the Nazi activities, which were reported to be alarmingly increasing in the spring, it took active steps to curb them. The Attorney-General has undertaken an extensive investigation of the alleged propaganda activities, which emanate from the German Legation and the semi-official news agencies, as throughout Latin America, and are said to be paid for by a forced levy on the German colony in Mexico. In June the Minister of the Interior requested the cooperation of the Mexican press in suppressing material favorable to the totalitarian powers. A closer check on aliens has been instituted in the face of the great increase in the number of German 'tourists' and salesmen, and counter-espionage services are planned by the Army. Immigration has been severely restricted since the first of the year. The German press attaché, Herr Arthur Dietrich, in June was declared persona non grata and his recall requested. Finally, the government has suspended the Nazi magazine, Timon, and the German propaganda sheet, El Diario Alemán, is under investigation. The Falange Española, an organization to reconquer Spain's 'spiritual empire' in Latin America, has been officially outlawed. Spanish Republican refugees still in France will be permitted by the new administration to settle in Mexico, as heretofore agreed, provided they are of 'desirable character.' The CTM, at a mass meeting in November, defended Communism but, at the same time, came out for the democracies without reservations. Its organ, El Popular, has shifted its position to a pro-United States, anti-Nazi one. Communists in Mexico, on the other hand, as throughout Latin America, have been inclined to transfer the old charge of 'Yankee imperialism' to the United States' present foreign policies regarding continental solidarity and hemisphere defense, and to dispense with the European War as another 'imperialist' war.

Defense Activities.

On June 18 the Mexican Cabinet approved a law providing for compulsory military training for a one-year period. Early application of the law was announced by President Cárdenas in October. Rumors of an impending agreement for hemisphere defense, such as the United States signed with Canada, have not been substantiated. The foreign policy of the Cárdenas government has been unequivocally pro-democracy in the European struggle against totalitarianism, and in favor of cooperation with the United States in defense of the Western Hemisphere, although President Cárdenas is said to have rejected the first United States proposals for such defense.

See also ARCHAEOLOGY; JAPAN, and RAILROADS.

1939: Mexico

Presidential Campaign.

The campaign for the presidential elections scheduled for July 1940 has been under way since early in the year. General Manuel Avila Camacho, former Secretary of National Defense, was unanimously nominated candidate of the Party of the Mexican Revolution (the PRM, formerly the National Revolutionary Party) in November, but his endorsement by the Confederation of Mexican Workers (CTM) in February, and his support by the powerful labor leader, Vicente Toledano, made this a long expected move. The leading opponent, General Juan Andreu Almazán, who heads a coalition of conservatives, has the support of the conservative Mexican Regional Confederation of Labor (CROM), the rival but relatively weak labor organization. Both Almazán and Camacho are, politically, to the right of President Cárdenas, and the platforms of the two candidates are not very different. General Francisco J. Mújica, a more enthusiastic supporter of Cárdenas even than Camacho, and a radical who played a leading role at the Querétaro Constitutional Convention of 1917, withdrew his candidacy under pressure from Toledano. Other aspirants for the presidency are General Sánzhez Tapia, a personal friend of Cárdenas, who is running independently, and Enrique Flores Magón, a pioneer of the Mexican Revolution, who is making a bid for support against 'the dictatorship that the official parties are trying to impose on the Mexican people.' It is clear that the 1940 election will not be a one-party affair, as recent Mexican elections have been. It is also clear that the campaign centers on personalities, not issues. Active campaigning grew intense during the summer, leading to serious clashes between the rival groups, but following the PRM convention in November, it subsided.

The platform adopted at this convention, by a full vote of about 2,700,000, was moderate in tone. The preamble declared the object of the party to be to attain 'a regime of integral democracy' and to make secure Mexico's economic independence as the only possible foundation for political independence. To this end it proposed that the oil industry be 'totally and definitively' nationalized and that land be further partitioned among the peasants — thus registering an intent to carry out the Cárdenas program. On the other hand, 'due respect to the incentives of private benefit' was promised, and the rights of labor were guaranteed without 'private business finding in them any hampering or hostility.' A second six-year program was drawn up covering woman's suffrage, compulsory military service, agricultural reform, increased irrigation, and 'effective incorporation of Indians into the national community.'

Oil Controversy.

The oil controversy growing out of the expropriation decree of March 18, 1938, dragged through a series of fruitless attempts at negotiation by diplomats, government officials and representatives of the oil companies. In March conversations between President Cárdenas and Donald R. Richberg, former counsel of the National Recovery Administration, representing the companies, ended in a deadlock. Early in the summer a tentative agreement was reached providing for the development of the oil properties, under a long-term contract, by a Mexican corporation to be established by each group of foreign investors, the majority of the directors to be Mexican, and assuring revenues for the Mexican Government through a fixed percentage of the petroleum produced. But this proposal came to naught. In August the controversy reached a new phase when Under-Secretary of State, Sumner Welles, took the first official step towards intervention in urging both sides to accept as basis for further discussion a recent proposal, which he revealed had originated with the State Department, to place the properties under the temporary administration of a board of nine directors, three to represent the Mexican Government, three the companies, and three to be 'neutral' (i.e., not Mexican, North American, British or Dutch), chosen from a panel agreed upon by the United States and Mexican Governments. This plan was rejected flatly by the companies, which 'intransigent' attitude led the Mexican Ambassador to declare that negotiations had broken down.

On Dec. 2 the Mexican Supreme Court, which has been completely reconstituted during the Cárdenas administration, rendered a unanimous opinion sustaining the constitutionality of the expropriation decree. The decision ruled that the companies had no legal claim to compensation for unextracted petroleum (the subsoil, in other words), but only for capital legitimately invested in the exploitation of oil lands. The Court decided, too, that payment of compensation might be deferred for ten years. After the verdict the Court unanimously refused to allow the companies an appeal. The battle between the companies and the Mexican Government now enters a distinctly new phase, since all recourse to Mexican law is exhausted. The United States Department of State has maintained a position of unwillingness to intervene as long as legal recourse remained. On Dec. 4 Secretary Hull stated that the Department would hold a conference of representatives of the oil companies. It seems certain that whatever action may be taken will not be hasty and will be within the framework of the Good Neighbor policy.

In a review of the negotiations Mr. Richberg hinted that arbitration of the issues might be the next step. That the Mexican Government is unwilling to yield on any vital point in the dispute is clear from the President's opening address to Congress in September, when he said, 'the government, in the performance of its firm intention, has from the beginning reserved 20 per cent of the value of petroleum products exported towards payment of the indemnification.' As the decision of the Supreme Court suggests, there remains a wide difference of opinion between the companies and the Mexican Government as to what constitutes indemnification. The oil issue is, of course, an internal political issue of major importance. (See also UNITED STATES: Foreign Relations.)

Economic Problems Arising from the Oil Expropriation.

The State Petroleum Board, a state monopoly which now operates and distributes the products of the expropriated oil companies, is faced with serious problems of marketing and storage. The boycott instituted by the former North American and British owners forced Mexico to turn to Italy and Germany for an outlet. Three barter deals with the former country provided for the exchange of rayon yarn and three tankers for petroleum, and deliveries in 1939 have accounted, on an average, for 400,000 barrels monthly out of a total production of approximately 4,500,000 barrels. The loss of the German petroleum market since the outbreak of war in Europe has been a serious economic blow, since oil exports to the Reich amounted to almost one-half of the total shipments abroad. Moreover, Germany had been importing Mexican oil faster than she had been exporting manufactured goods in payment, so that up to the imposition of the British blockade, the Reich stood $5,000,000 in Mexico's debt. The decline in oil exports since September is causing unsold petroleum to pile up at a rate of over 1,000,000 barrels a month, creating another serious problem, since storage capacity is limited to 3,000,000 barrels. A deal reported with Brazil, by which that country would buy about 5,500,000 barrels annually, or over one-third of the amount exported in 1938, and rumors, in November, of a contract with one or more North American firms for the disposal of the exportable surplus, may if these reports materialize, do something to ease this situation. The shift in management after expropriation, entailing a probable loss in efficiency, and the contraction of the export market for Mexican petroleum have caused a notable decline in output and a serious loss in revenue to the Mexican Government. Mexican crude oil production dropped 18 per cent in 1938. In January 1939 the number of producing wells was less by 300 than in the previous January, and output for the month was 32 per cent lower than in January 1938. New drilling has practically ceased. Shipments abroad declined 41 per cent in volume in 1938; in value, petroleum exports dropped from 18 per cent to 9½ per cent of total exports. A liquidation of the controversy on a basis which oil companies might consider equitable would unquestionably reopen British and North American markets now closed to Mexican oil. On the other hand, the underlying philosophy of the Cárdenas régime and the immediate internal political situation are both inextricably bound up with this issue. This is, probably, the most serious dilemma confronting President Lázaro Cárdenas.

Relations with United States.

Silver continues to be of primary importance to Mexico's national economy, since in 1938 it comprised 20.4 per cent of the total value of Mexican exports and since, by export and production taxes, it accounts for over one-half of the country's total revenues. The ban on further foreign silver purchases voted by the United States Senate in June would have had very severe political and economic repercussions in Mexico. In fact, the threat of losing the United States market for Mexican silver, which takes 98.5 per cent of the value exported, caused an alarming currency depreciation in the summer, the peso falling to a record low of 16.38 in United States currency. The removal of the scare, when President Roosevelt succeeded in persuading Congress in special session to reconsider this measure, and the European war, which stimulated silver hoarding in Europe, caused the price of silver to rally and the peso to rise somewhat. Although the United States will continue to buy Mexican silver in the open market, the Treasury in the summer reduced the price from 43 to 35 cents an ounce. On the basis of an exportation last year of 81,000 ounces, the loss to the silver industry on this drop in price amounts to about $6,500,000. On Aug. 16 the Mexican Government abolished the 12 per cent export duty on this metal, representing a relief of $1,700,000 and a net loss of income for the industry, therefore, of almost $5,000,000. The same decree revised the export duties on gold, copper and zinc, reducing the arbitrary official valuation according to which the tax is levied. The tax on lead ore was repealed. (See also INTERNATIONAL BANKING AND FINANCE; WORLD ECONOMICS.)

These changes are of interest to the United States since it is from the revenue from this export tax that in 1939 payments began on agricultural properties of North Americans expropriated since 1927. A joint claims commission to evaluate the agrarian claims, according to the land settlement of last year, was in conference in Washington from May to November. A determination to continue the program of land distribution, according to which 37,000,000 acres have been partitioned under President Cárdenas in partial fulfillment of the promise to provide each peasant throughout the country with twenty hectares, may be found in the expropriation last February of over 50,000 acres of American-owned sugar lands in Sinaloa, properties of the United Sugar Company or its subsidiaries, one of the largest growers of cane in Mexico.

Excavations in Mexico.

See ARCHAEOLOGY.

1938: Mexico

Oil Expropriation.

Acute developments in the year 1938 in the land and oil situations were the logical outcome of the 1910 Revolution, which marked the break with the Mexico of Porfirio Diaz and the fulfillment of the much disputed Articles XXVII and CXXIII of the Constitution of 1917. The struggle to rid Mexico of foreign capital exploitation and to recover the country's land and petroleum resources culminated in the oil expropriation decree of March 18, 1938 and the subsequent diplomatic exchanges with the United States over what Secretary Hull termed the 'unadulterated confiscation' of American land holdings. It was in regard to the agrarian controversy that the United States chose to present a show-down, although the investment involved was considerably smaller and the interests concerned far more obscure than in the case of the oil dispute. Possibly for this very reason the problem of land expropriation was first brought to issue, for charges of imperialism and the domination of monopoly and capitalism would less surely follow in the wake of a protective policy regarding relatively small, individual landholdings. At the same time, from this diplomatic tussle might emerge a precedent applicable to the oil situation. On the other hand, the United States State Department has maintained that it could not take any steps with respect to American oil properties until legal recourse within Mexico had been exhausted. This point was reached on Oct. 8 when the Mexican Supreme Court, on a technicality, rejected the petition of the United States and British oil companies for an amparo or injunction against expropriation. Any diplomatic action of the United States is apt to involve a severe test of the Good Neighbor policy.

Regarding the situation in Europe, diplomatic relations between Mexico and Great Britain were suspended in May, following an exchange of notes, in which the British demanded restoration of the properties of El Aguila, producer of about 60 per cent of Mexico's current oil output, and characterized the expropriation as 'essentially arbitrary in character.' The Netherlands, in October, after a series of notes on the oil seizures, demanded either prompt and effective compensation for the Royal Dutch Shell properties or their return. The demand was based upon Mexico's failure to acknowledge a fundamental rule in the case of expropriation of private property, viz., that the properties be exactly defined and that just and prompt indemnity be immediately and effectively guaranteed.

The efforts of Chile, Mexico and Argentina to get a ruling adopted by the Eighth Pan American Conference at Lima, denying diplomatic protection to foreign investors, were defeated when it was decided to refer the question back to the committee of experts on international law for report to the next conference to be held in 1943. (See PERU.)

The Mexican proposal for the waiving of diplomatic protection by foreigners would have meant recognition of the Calvo Doctrine, which has always been opposed by the United States on the ground that the right of diplomatic intervention resides in the State and not in its citizens, and cannot be signed away by any such waiver. Chile's project provided that foreign interests in a country should have no recourse that was not available to nationals of that country (i.e., civil action before the local courts). Argentina presented to the Conference a draft convention by which the American republics would pledge themselves, without reservation, not to use armed force or diplomatic intervention either for collecting public or contractual debts or for supporting pecuniary claims of their nationals. By the decision to sidestep debate on this highly controversial question, which Mexico's oil and land expropriation policies have brought to focus, all attempt to implement the Good Neighbor policy in its most significant aspect, or to make it a matter of international law, was temporarily abandoned.

Expropriation of Land.

Prosecution of the agrarian reform program, fundamental to Mexico's social revolution and involving extensive seizure of American-owned properties, led to a series of diplomatic notes, beginning in March, which indicated the course the United States might be expected to follow in the future with respect to expropriation of the foreign holdings of its nationals. In its note of July 21, the State Department admitted Mexico's right to seize property for purposes of social betterment, provided that prompt and adequate compensation was made. Otherwise, it contended, expropriation was confiscation and was contrary to international law and to the Good Neighbor policy. It proposed arbitration of the issues raised by an inter-American agency, under the Inter-American Arbitration Treaty of 1929, thus indicating a desire to employ legal means rather than diplomatic or economic pressure to defend the rights of its citizens abroad. The note revealed that between 1915, when land seizures began, and 1927, some 161 'moderate-sized' American properties had been expropriated, without adjustment or payment of a single claim, and that since 1927 additional landholdings of medium size, valued by the American owners at $10,132,388, had been confiscated.

Settlement of the Land Controversy.

On Aug. 3 the Mexican Government denied any international obligation to compensate for the seized properties, and refused to arbitrate or to admit the principle that prompt payment should be made, maintaining that the amount and methods of payment were matters within its own discretion, to be determined solely by Mexico's domestic law. Its counter-proposal of direct negotiations proved unacceptable to the United States which, on Aug, 22, in an answering note, regretted Mexico's denial of its international obligation and proposed two alternative solutions; (1) outright arbitration; (2) submission of claims to a commissioner appointed by each government, with an arbitrator selected in accordance with the Gondra Treaty of 1923 to settle points of disagreement. In the latter case it was proposed that Mexico should put aside monthly sums in escrow, for the satisfaction of claims, pending adjudication, and that further land seizures should cease. The Mexican Government's reply of Sept. 2, which was anticipated by President Cárdenas the day before in his opening address to the Congress, denied the legal arguments of Secretary Hull's note, invoking the Calvo Doctrine approved by the Pan-American Conference of 1902, and rejected the accompanying provisos to the second alternative proposal. Matters remained thus deadlocked until November, when an exchange of notes was made public, which marked the settlement of the agrarian controversy. Under the terms of this agreement, contained in Secretary Hull's note of Nov. 9 and the Mexican Government's reply of Nov. 12, Mexico will pay the United States $1,000,000 (United States currency) in May 1939, and at least as much each year until the obligation is discharged. Valuation of the land expropriated since 1927 is to be determined by a commission, as proposed in the Hull note of Aug. 22. This face-saving settlement provides for compensation, although delayed, but expressly denies the establishment of a precedent. This last would seem a vain stipulation, in view of the still unsettled problem of the expropriated oil properties. Nevertheless, the agreement was hailed in the Mexican press as a diplomatic victory for Mexico. The tone of the correspondence was conciliatory throughout, but the real feeling of the Mexican administration towards the attitude of the United States may be sensed from President Cárdenas' criticism at the opening of the International Congress against War and Fascism in Mexico City Sept. 10, when he recommended a 'holy war' against the 'theory of blind imperialism.'

Distribution of Seized Land; Agrarian Expenditures.

The land agreement has since been ratified by the Mexican Senate, and the commissioners have been appointed, both the American, Lawrence M. Lawson, and the Mexican, Gustavo P. Serrano, being members of the International Boundary Commission. The annual land indemnities are expected to be paid from the proceeds of the new export tax on minerals, which, it is estimated, will yield a minimum of $6,000,000 a year. Meanwhile, the expropriation of American-owned properties continues. Shortly before the conclusion of the agreement, President Cárdenas promised to postpone seizure of further properties pending negotiations, this order applying especially to the large holdings of the United States Sugar Company in Sinaloa. Division of some 40,000 acres of these, however, was reported Dec. 8. Other recent land seizures of note were the 4,000-acre holdings of the Hon. William Lemke, member of the House of Representatives, and the 17,980 acres belonging to William Randolph Hearst. Distribution of these, and of smaller Mexican holdings, is made to communal farmers in accordance with the policy of restoring the ejidos. The extent of the land distribution program may be inferred from the report contained in the President's message to the Congress of Sept. 1, 1937. A total of 44,267,921 acres has been distributed among 1,324,759 farmers, 24,127,190 acres having been apportioned during the thirty-three months of the Cárdenas administration. Agrarian reform, calling for large financial outlay for irrigation and other agricultural projects, represented a very substantial item in the budget of expenditures for the fiscal year 1938; 47,640,000 out of total of 431,109,870 pesos being earmarked for agriculture and the agrarian department. At present, it is estimated that, through the ejidos, 1,700,000 peasants have 17 per cent of the cultivable land in Mexico.

Financial Aspects of Oil Expropriation.

The draining of the public treasury for agrarian reform and associated public works made unpropitious the expropriation of the oil properties, necessarily entailing severe revenue losses. The decree of expropriation affected seventeen foreign-owned petroleum corporations, principally the large British-Dutch Mexican Eagle Company (El Aguila, controlled by the Royal Dutch Shell interests), the Standard Oil Company of New Jersey's subsidiary, Huasteca, and the Sinclair oil interests. The total valuation of the British and American properties was estimated at from $350,000,000 to $450,000,000, of which approximately two fifths was American. Expropriation followed the failure of the oil companies to meet the Federal labor Board's award in the wage dispute which has been going on since 1936. The award recommended increases in wages and welfare benefits totalling 26,000,000 pesos, or $7,200,000 at the pegged rate of exchange, thus scaling the workers' demands down from their 65,000,000 pesos but exceeding the net increase of 20,000,000 pesos over 1936 levels previously offered by the oil companies. That it was not the wage increases so much as Labor's demands regarding personnel and management that was the real-stumbling-block to agreement is indicated by their acceptance later of the full 26,000,000. Following the formal refusal of the companies to comply with the labor clauses, on March 18 the labor contract between the companies and the union was ended and work in the oil fields was ordered suspended immediately. The expropriation decree which followed was based on the Expropriation Law of November 1936, which authorized seizure of private property on the broad ground of 'public and social welfare.' The companies were to receive payment within ten years from a certain percentage of the petroleum and by-products extracted from the expropriated wells, the indemnity to be calculated on the basis of the taxable value of the properties. The Mexican Government has estimated total investments in the oil industry at approximately $100,000,000 in United States currency. Yearly (principal) payments on the oil debt would amount, therefore, according to this estimate and arrangement, to $10,000,000, which is equivalent to at least one-tenth of the national budget.

Problems of Production and Marketing.

Moreover, two difficult problems here confront the Mexican Government: those of production and marketing. The oil industry is now being operated by the National Petroleum Board with reasonable efficiency although properly trained native technicians and executives are few in number. Yet output has declined considerably; reports for June being at about 65 per cent of the pre-expropriation output. But even if the 1934-37 production level could be maintained, there seems little possibility of securing the yearly payments on the oil debt from petroleum exports, for British and American markets, with one slight exception, are closed to Mexican oil by boycott measures of the ousted companies. Moreover, marketing presents a serious problem of transportation, since tankage is largely controlled by subsidiaries of the petroleum corporations. A limited amount of oil has begun to move, however, mostly in Japanese tankers and to the trade-barter countries of Europe. The earlier barter agreements negotiated with Germany, Italy and Sweden provided a price well under the world market level and 60-per cent payment in credits for machinery, rayon yarn, newsprint, electrical equipment, and other products. On Dec. 8 a contract was reported signed with W. R. Davis, an international oil broker with a refinery in Hamburg, for $17,000,000 of oil to be bartered during 1939 for German merchandise and machinery. Part-cash arrangements have also been made with the German navy for Mexican gas oil in 1939. By an agreement with Uruguay, Mexico is to supply the National Petroleum Board's entire requirements for crude oil for the next year, receiving 30 per cent of the price in Uruguayan products.

These barter agreements suggest the adverse effect on United States-Mexican trade relations produced by expropriation. American business interests finding their sales to Mexico curtailed because of them. Moreover, to ease the foreign-exchange situation and to adjust the trade balance, which had been upset by heavy food imports due to crop failures in 1937, prohibitive increases in tariff levels, amounting to from 100 to 200 per cent on major imports from the United States, were temporarily imposed in January. Although seven months later the earlier rates were restored, the tariff change and stringent terms of American exporters regarding cash payment caused a sharp decline in Mexican purchases from the United States. For all these reasons American exports to Mexico in July 1938 had fallen to $3,000,000, compared with a total of $10,000,000 in the corresponding month in 1937, and United States trade with its southern neighbor has dropped to less than one-third of its former level.

Foreign Trade.

Yet from 60 to 75 per cent of Mexico's entire foreign trade is with the United States, and even if the totalitarian countries of Europe took all of Mexico's oil, this fact would not be materially altered, since Mexico relies on the United States as an outlet for its precious metals, and to secure dollar exchange to cover its imports. In 1937 the net export of Mexican gold and silver to the United States totalled $38,500,000 and $30,200,000 respectively. Silver is the basis of Mexico's prosperity, and the United States is the sole purchaser of Mexican silver. Thus, when the United States Treasury discontinued its silver-purchase agreement of December 1937, directly following the oil expropriation decree, the world silver price dropped and the Mexican peso collapsed from 3.60 to the dollar, at which it had been pegged since 1934, to as low as 5.50, or about 22 per cent of its 1929 value. It now stands at about 20 cents. For a while the United States purchased Mexican silver in the world market, via London, but it has now resumed direct purchases from Mexican silver companies. The monthly purchase arrangement has not been resumed, however, so that an assured market for a specific amount of newly-mined silver is gone. Yet the United States Department of Commerce reported increased gold and silver purchases from Mexico in the first eight months of 1938 compared with 1937, a jump from $48,000,000 to $70,000,000. In addition, the New York Federal Reserve Bank, in January 1938, agreed to take 35,000,000 ounces of silver accumulated by the Bank of Mexico, the gold received for this purchase to strengthen the Mexican Bank's reserves. The metallic reserves of the Bank of Mexico dropped between August 1937 and June 1938 from 194,000,000 to 85,000,000 pesos, or 15,000,000 pesos below the legal limit. The Government is now issuing fiat money in increasing amounts, through the government land banks, to finance the wheat and cotton crops and to loosen credit restrictions. The Administration's attempts to Mexicanize industry have caused the withdrawal of foreign companies' cash balances from Mexico, thus reducing tax receipts, lowering funds for the agrarian program and almost freezing commercial credit.

Economic Situation.

The major depression, of which the drop in the peso is indicative, is only in part attributable to the expropriation of the oil properties. Foreign exchange has been adversely affected, of course, by the curtailment of oil shipments, which have hitherto constituted 11 per cent of Mexican exports, and the Treasury is suffering severe revenue losses from the taxes on the oil companies, until now the third largest source of revenue. The crop failure in the autumn of 1937, which meant heavy imports of foodstuffs, and the large expenditures on the elaborate public works program and agrarian reforms had already created crisis conditions. The confiscation of agrarian holdings had further reduced revenues, since the liquidated hacendados no longer paid taxes on their estates.

The 12-per cent ad valorem tax on exports, effective Aug. 10, is expected to furnish considerable additional revenue, but this levy will chiefly affect the mining industry, which represents over three-fourths of Mexico's export trade and is already sore pressed by increased freight rates on the National Railways and by Labor's growing demands. The fact that this industry is 75 per cent American-owned lends weight to the suspicion frequently voiced by mining operatives that it will be the next point of attack in the program to Mexicanize industry. The effect of a fifty-per cent reduction in the tax on silver exports, by appraising the value of the exports at one-half the world market price, is offset somewhat by Labor's drive against the United States Smelting Company, largest single silver-producing unit in Mexico. These direct challenges to foreign capital must be expected to cause considerable economic dislocation, even in as relatively unindustrialized a country as Mexico. In the last year a sharp rise in domestic prices has occurred, real wages have decreased, and there is unemployment following the suspension of a large part of the public works program. (See also INTERNATIONAL BANKING.)

Public support of the Cárdenas policies has not shown any signs of serious weakening, however, in spite of at least temporary losses to oil workers in wages and welfare benefits and the economic sacrifices exacted from the general public. Demonstrations in favor of the petroleum policy were held on March 23 throughout the country, at the call of the Confederation of Mexican Workers (CTM). In response to a popular appeal for a 'national cooperation' fund, labor unions voted one day's pay per month, women offered their jewels and silverware, and even the Church leaders ordered collections in the churches and urged gifts by Catholics. The most serious anti-Cárdenas element in the country, led by General Saturnino Cedillo, which had long been threatening revolt, subsided after an abortive rebellion in May was promptly put down. In November, General Cedillo was indicted in Texas, charged with conspiracy and violation of the Neutrality Act of 1937. In the spring a new official party was formed, to succeed the Partido Nacional Revolucionario (PNR). The leader of this Party of the Mexican Revolution is General Avila Camacho, Secretary of Defense, who, it is rumored, will be the candidate of the army in the next presidential campaign. In February President Cárdenas announced that he would not be a candidate for reelection when his term expires in 1940.

Labor Situation.

The CTM continues to be the dominant labor organization in Mexico, under the vigorous leadership of Vicente Lombardo Toledano, while the CROM, led by Luis Morones has declined in power. At a meeting in Mexico City of a Latin American Labor Congress, held in September under the auspices of the CTM, a permanent Latin American Labor Confederation was established to replace the defunct Pan-American Federation of Labor which had ceased to be active since the death of Samuel Gompers. The Congress was attended by John L. Lewis, chairman of the C.I.O., and by the French labor leader, Leon Jouhaux, but was denounced by William Green of the A.F. of L. The labor truce following the expropriation of the oil properties was short-lived. In May a strike occurred in the Ford Motor Company for a collective labor contract, the first strike permitted by the Mexican Government since March. In June a general strike was called in the State of Puebla, in sympathy with the textile workers' strike. Strikes in the electrical and mining fields, postponed because of the oil situation, broke out in November. A number of mining properties were reported taken over in July for operation by the workers, but not expropriated, and a drive of Labor to take over the large Real del Monte mine of the United States Smelting Company has been rumored. A law granting public servants the right to strike was promulgated Dec. 5, although the Chamber of Deputies had earlier defeated this administration measure by an overwhelming majority. The army is not included among the Government employees who are privileged to strike 'when the general policy of the State is against the fundamental rights that this law concedes to State workers.'

Religious Affairs.

Church-State relations have improved considerably since Archbishop Luis M. Martínez, a close friend of President Cárdenas, was made head of the Mexican Church a year ago. In Chihuahua and Campeche, where church persecution had been general, there have been great gains in religious freedom, and an oppressive situation still prevails only in Tabasco and Chiapas. In the former State, public services are not yet permitted but the authorities are not interfering with masses or religious celebrations in private homes. Just as the killing of a Catholic woman at the time of a police raid of a service in Orizaba led to the removal of religious bars in parts of the State of Vera Cruz, several Catholic casualties in a clash with the police in Tabasco over the rebuilding of a church on the site of a razed one led the Federal Government to take cognizance of the situation there. The Cárdenas government has not been willing to take the initiative in removing State restrictions, but has ordered an end of church persecution and has gradually modified the execution of the anti-church laws. On June 19 a tacit accord is said to have been reached between State and Church officials for the amicable discussion of all difficulties.