Millions for Defense

The new trade accord with Mexico which the State Department has been negotiating for months was all ready to be signed and sealed. Then Standard Oil heaved a derrick in the works. One hinge on which the agreement turned was that U.S. oil companies accept a settlement for their Mexican properties, which were expropriated in 1938. Standard Oil refused to settle (see p. 83).

Oil is a minor obstacle holding up the trade accord, which is designed to bring economic harmony between Mexico and the U.S., pave the way for a mutual-defense pact. In Washington last week suave, tall Eduardo Suarez, Mexico's Minister of Finance paid a series of polite calls, ending in the office of Treasury Secretary Henry Morgenthau. A few hours later, Mr. Morgenthau gave out the first official news of the impending agreement.

In return for Mexico's cooperation, the U.S. is prepared to offer three inducements: 1) a currency deal to stabilize the peso; 2) a loan to improve Mexico's railroads and highways; 3) increased purchases of Mexican silver.

The currency deal will be handled by the Treasury from its $2,000,000,000 stabilization fund. The Treasury will buy pesos at a fixed price (probably 4.85 to the dollar); the Bank of Mexico will stand ready to buy them back, thus pegging the peso at its present level. About $30,000,000 is reportedly involved in this deal. From this money the Mexican Government would expect to make a token payment to U.S. oil companies.

Also from this fund may come a final settlement of U.S. claims for land expropriated by Mexico since 1868. Of the $9,000,000 total of these claims, about $6,000,000 remains unpaid. Mexico plans to use the residue of the stabilization-fund advance for loans to industries (steel, rayon, tin plate) and for agricultural machinery.

Another $30,000,000 will go to Mexico in the form of a U.S. loan, through the Export-Import Bank. It will be earmarked by the Mexican Government for highway construction and for rehabilitation of the Mexican National Railway system. Still unfinished is the last 850 link (to the border of Guatemala) in Mexico's 1,700-mile stretch of the Pan-American Highway. For this and other road-building projects, the hard-pressed Mexican Government plans to spend altogether $60,000,000. For the railways, Mexico needs a total of $40,000,000. The U.S. considers both these programs important for hemisphere defense.

U.S. purchases of Mexican silver, under the Silver Purchase Act of 1934, jumped to $58,325,000 in 1935. Last year they dropped to $25,811,000. Silver is one of Mexico's chief exports. By agreeing to a long-range program of silver purchases, the U.S. will help to redress Mexico's unfavorable trade balance with the U.S.

This week, unless Standard Oil makes peace with Mexico, the State Department is expected to sign the trade agreement anyhow, let oil take care of itself.

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