THE CREDIT OF MEXICO AND OF THE MEXICANS
The Mexican government to-day is bankrupt, and Mexican business
is bankrupt. The most sanguine propagandists of the revolutionary
governments can offer nothing better than promises to offset the
obvious facts of Mexican finance. The government to-day owes nearly
a billion dollars--including unpaid interest on her debts for eleven
years. Commercial credit has reflected the ghastly vision of government
bankruptcy, because the ingrained principle of Mexican politics has
been the subservience of economic progress to political exigencies.
The history of Mexican revolutionary government has been marked by the
steady suction of business into the maelstrom of political horror. This
began in the earliest years of the rule of Carranza (1914-1920). For
five years Carranza carried on a deliberate campaign to destroy the
banks, as the representatives of the capitalists. He succeeded, despite
all the magnificent resiliency of business. He swamped the country with
paper currency; he withdrew the metallic reserves of the banks until
their bank notes reached almost the degradation of his own issues. He
made Mexico into a land of thieves, and gave their thievery the cloak
of government sanction--as of one thief underwriting the ventures of
another.
When her banks were gone, Mexico had nothing left but her mines and
her oil, for Mexico creates virtually no wealth. She manufactures
nothing and exports nothing save the ultimately exhaustible resources
of her soil. Mining flourished during the war, with allied governments
supporting the lead and silver markets, and oil has flowed on and
continues to flow, giving Mexico herself only the curse of incalculable
unearned wealth for the personal loot of her government officials.
Credit was Mexico’s great asset under Diaz--he spent years in
establishing it and upon it he built the nation. To-day in Mexico there
is no credit. There is gold in circulation and the sight of gold is
encouraging to the business man. But the gold in Mexico circulates
because there is no credit; no man trusts another and none trusts the
promises of the government. Mexico cannot to-day issue paper money, and
her heavily alloyed silver coin is on a par with her gold only because
an artificial scarcity is maintained in order to increase the value of
silver as the change needed in business.
Mexico is one of the great potential markets of the world. The American
manufacturer can justly look to it for an outlet for his wares. But
a market is useless until the buyer can pay for his goods. Mexico is
not yet a place to dispose of what we make until she can pay for what
she takes. The credit situation is the crux of Mexico, and the crux of
the credit situation is the political chauvinism which, eight years
ago, set out deliberately to destroy that credit, because credit was
capitalism and capitalism was unfriendly to the self-appointed leaders
of the proletariat and, more important still, was said to be the enemy
of that world radical movement to which the Mexican revolutionary
leaders look so smugly to save them from interference in their orgy of
loot and glory.
When Diaz left the presidency in 1911, there were $35,000,000 in the
national treasury, and Mexico’s credit was such that she could float
at par a national bond issue drawing 4¹⁄₂ per cent. To-day the unpaid
interest on her public obligations exceeds $150,000,000 and she cannot
at any price borrow a cent on any security less than the indorsement of
the government of the United States of America.
This is the way the situation is expressed in cold figures. But Mexico
is a land of infinite resource, both natural and diplomatic, and
nations in worse condition than this have been taken in hand by great
bankers and placed upon their financial feet. Any Mexican official can
explain Mexico’s condition convincingly--the long years of revolution,
the paralyzation of industry through destruction and through the prices
and want brought to all the world by the Great War. It is therefore of
no really deep significance, they say, that Mexico owes millions of
dollars, and that she is to-day suing for favor in the world’s money
markets. But there is a deep and fundamental cause which is back of
her financial bankruptcy, back even of its merely economic causes in
wrecked mines and abandoned factories, in ranches stripped of millions
of head of cattle which bandits have killed for their hides.
The real bankruptcy of Mexico goes deep down into the minds of
men, Mexicans and foreigners, government officials and rabid
interventionists alike. The bankruptcy of Mexico is a sickness born
of broken faith, a moral bankruptcy that is ugly with human greed and
hopeless with nervous fear.
The trouble with Mexico to-day is that Mexicans as well as foreigners
have ceased to believe in Mexico.
At the time of my several recent visits to Mexico, I did not go as a
stranger to the country. I had watched her develop during six years
prior to 1910, under the peace and prosperity of the Diaz régime.
Understanding something of the native psychology and much of that
of the foreigners, I was prepared to find that a good deal of the
seriousness of the situation was due to panicky fear and distrust one
of another. What I was not prepared for was a condition where every
incident, every situation, every tight-strung nerve of potential
strength or weakness led down pell-mell paths to a deep ravine of
utterly blasted faith not only in present conditions in Mexico, but in
the possibility of the country’s ever crawling back to her old serenity
and strength in any measurable time.
Mexico, as most Americans do not realize, considers herself to have
been at peace for the past five years, for the bandits were in the
hills and most “revolutionary” outbreaks were being successfully
nipped. Yet in the important city of Monterey, typical of the interior
of Mexico, the damage done “in the revolution” remains untouched. On
the main plaza the stones that are left of the beautiful old Casino,
burned by Carranza’s soldiers six years ago, have barely been moved
from the roadway. Smoke-stained shells of buildings rise here and
there, and in the suburbs bullet-ridden windows still remain in fine
private houses and factories. The once paved streets are full of
unexpected bumps, the roads leading to the smelters and out into the
country are cut deep with ruts and puddles and railway crossings are
all but impassable, even to skipping Fords. The street cars limp and
bump and leak, and the very civic improvements seem installed with a
fatalistic certainty that they will soon be destroyed.
There is industry and there is business in Monterey, each of a kind.
In the old days there were two great smelters, foreign owned, a steel
plant and a brewery, besides three railway shops and miscellaneous
other factories. Most of the miscellaneous factories closed long ago,
but the smelters and the steel plant kept going in good order--as long
as war prices sustained them. Now, one of the smelters has closed, for
London has ceased holding up the lead market, and the other (owned by
the American Smelting and Refining Company) continues only because it
uses the ore from its own mines. During the war the steel plant was
handled by the United States War Trade Board, the great organization
which harnessed our own industries to war needs, and 80 per cent of its
product was, by agreement, sold in the United States and in Cuba--at
war prices. When the war ended, the Monterey steel plant was forced to
curtail, and to-day the great blast furnace is cold and only a Mexican
government order for a few thousand tons of steel rails keeps the
rolling mill moving.
The railway shops are content with the most perfunctory of repairs,
and are more remarkable for the appalling array of rusted and rotted
engines (I have counted 150 engines out of commission in the Monterey
yards) and for the wrecks of burned freight cars which fill their
sidings than for any activity which inspires their machinery.
The few factories which operate are sustained, in their turn, by the
high prices which even the staples of existence command in Mexico.
Three small cotton goods factories, reopened five years ago, get
prices only a few cents below those paid for imported goods, to whose
cost in this country is added a heavy import duty. The brewery keeps
running, although it pays the government a tax of 100 per cent on its
product--estimated to be $1,000 in American gold per day.
Retail trade goes on, throughout Mexico, but the sales are greatly
curtailed and the prices are out of reach of the masses, being twice to
five times those of the last normal period, 1912. Stocks are hopelessly
depleted, for no merchant will keep a large supply of goods on hand,
for fear not alone of the long-promised drop in the world market, but
of what will happen in Mexico to-day or to-morrow or next week.
Moreover, all business is on an absolutely cash basis, and for “hard”
money--gold and silver--alone, whether the trade be wholesale or
retail. In Mexico to-day credit is practically unknown, either amongst
Mexicans or between Mexican houses and those with whom they deal
abroad. There is a stringency of currency, due to the destruction (for
various reasons soon to be noted) of all forms of paper money. Mexico
is spending literally her economic life blood, gold and silver, and her
great resources are wasting and rotting because there is no money with
which to develop them or to move them.
Those are simple conditions, patent to any observer who stays longer
than the few hours or a day allowed the busy junketer on his trip
through “prosperous Mexico.” Back of these conditions, however, are
facts which are as incontrovertible and menacing. The closing of
the smelters has back of it the conditions of mining, in a country
which for centuries has depended on its mines for its existence as an
economic entity. Even through the war, with war prices for metals, the
mines which were producing were only those with high grade ores, which
could bear the risks of banditry, the cost of ponderous freight rates,
or could maintain their private railway trains to transport ore which
the run-down government rolling stock could not handle. Moreover, even
war time prices did not make possible the proper development of the
properties, and when the bottom dropped out of the lead and copper
markets, many of the richest mines closed, because they had not been
able or had not dared do enough normal development to keep ahead of the
work on the rich veins.
Back of the hand-to-mouth operation of factories and wholesale and
retail stores is the situation with regard to currency and banking.
Money in Mexico is worth, at legal interest, 1 per cent per month (12
per cent per year) but if you have money, and will take a chance, you
can get 5 per cent a month and even more on as good security as the
country affords. So few are the men who believe enough in Mexico to
take the chance that there is not enough capital even to satisfy the
needs of speculators. And can legitimate business expand or even carry
its normal load when the money it ought to borrow, the money it has
already invested, is worth so much as that? The only form of business
which thrives in Mexico is speculation, and I think I am safe in saying
that virtually every sign of business activity which any visitor to
Mexico sees to-day is speculative at its source or dependent upon
speculation.
This speculation finds its chief manifestation in the marketing of
food--the distribution of the necessities of life is in Mexico, as
elsewhere, the source of sure profit. But in Mexico, so great is
the fear of men of what may happen, that the profits of speculation
transcend anything known to our busiest food profiteers. The farmers
will not take the chances (which include the uncertainties of costly
graft) incident to getting freight cars or pack animals as well as the
fear of bandits. This allows the speculators, in quick turnovers, to
make as much as 200 per cent on a car of corn in a fortnight, and this
condition has lasted for nearly eight years.
Another phase of speculative activity is in the importation of foreign
goods. The Mexican customs laws are complicated with elaborate
classifications, and at best it is something of a speculation
for a merchant to import goods in the days of sudden changes in
classifications and boosts of tariffs without notice. In addition,
however, many favored henchmen of government officials have been given
concessions to import all goods free, privileges which it is said they
sell to any one who will take the risk for a fixed charge of one-half
of the customs fee that would otherwise have been collected. Now and
then these favored persons take a flyer of their own and one of them
once sent in a carload of shoes, most of which were dumped in Monterey.
Having paid no duty, the shoes were sold at prices which demoralized
the local market, for the normal duty on a pair of shoes averages $1.50.
Other things “happen.” For instance, a favored group gets a trainload
of goods--say foodstuffs--at an entry port. Then the government
suddenly announces that, effective at once, the high duties on these
foodstuffs are to be removed. The goods of those “in the know” go
across duty free, and if other merchants telegraph orders to take
advantage of the open port, as like as not they find, when the goods
reach the border, that the high duties have been put back as suddenly
as they were removed.
Such things as these happened with great frequency in the days of
Carranza. Perhaps they are not happening now, for Mexico is on her good
behavior. But all this has occurred frequently enough to have shaken
the faith of simple men. The fear of what may happen to-morrow--things
of this sort or something else--stifles business, for business is a
timid spirit, and does not recover its confidence quickly.
I hold no brief against the present governments of Mexico. They have
been and still are revolutionary governments. They have a natural faith
in their own vital importance to Mexico, and consider that whatever it
may have cost the country to get such government is money well spent.
But for her own sake and for the sake of those of us who are sincerely
interested in knowing what troubles Mexico, it seems that we should
realize by this frank analysis the lack of faith which I describe.
The situation which I have just outlined is economic, but back of the
economic and basically more important is the financial situation. The
cause of the economic bankruptcy is to be found in the new conception
of the financial organization of Mexico which the Carranza officials
have pronounced, and upon which Mexico has been acting for the past
seven years.
Let us look for a moment at the financial side of the foreign
investments in Mexico, for recent activities on the part of the
government seem to admit that Mexico recognizes that an important
factor in the present national bankruptcy is the loss of foreign
capital. This damming up of the flow of foreign investments has been
the result of two distinct situations. First is the outrages, the
wanton destruction of foreign property and foreign lives by bandits and
revolutionaries. The other is the enactment and partial enforcement of
drastic anti-foreign laws.
One of the strongest pillars of the material prosperity of the Diaz
time was foreign investments. The bonanza mines had to become paying
low-grade business propositions in order to preserve mining as a
national asset. The barren agricultural lands had to be irrigated,
with water that fell in mountains hundreds of miles away. More than
that, Mexico had to begin to build an industrial machine of railroads
and factories which would create new national wealth--the economists
of even a generation ago realized that no land, however rich, could
prosper from her natural resources alone. These were the axiomatic
bases of the economic need of foreign money.
The financial need for foreign capital was yet more pressing. At
the beginning of the Diaz rule, the trade balance against Mexico
was apparently insurmountable, and although year by year it was cut
down through the economic development of the country, each year the
trade balance has to be evened up. This was the function of foreign
investments, and this was the financial reason for its continued
encouragement under Diaz. To the last year of his reign, this inflow
of foreign money kept coming evenly, in tens and twenties of millions
annually. As it came in, balancing the outgo of interest on the
national debt and on private loans, it became itself a producer of
Mexican wealth, so that in time it would have eliminated the necessity
of further forced-draft encouragement for outside investment.
That time had not come in 1911, however, when Diaz left Mexico. But the
net result of the stoppage of foreign investment in the revolutionary
period which followed is to be found to-day in that unpaid interest of
nearly $200,000,000 on government securities alone.
This is no apology for the mistakes of the Diaz régime. The great men
of that day built a vast commercial enterprise, the Business of Being
the Republic of Mexico, but like many commercial enterprises of the
period before the Great War, it had left out the human equation. It was
this failure which wrecked the Diaz government in the end, and made
such purely paternalistic régimes virtually impossible in Mexico again.
To-day the rulers of Mexico, awake at last to the need for the foreign
money which their revolutionary predecessors shut out so stubbornly
under the “Mexico for the Mexicans” policy and the socialistic
constitution, have been carrying on an active campaign of publicity and
official conciliation. The junkets of Chambers of Commerce from all
over the United States are part of the big plan. Yet in the hearts of
the people, of this country and of Europe, who hold the purse strings,
be they bankers or enthusiastic investors of little capital, there
lingers and will linger many doubts. It seems likely to be a long day
before the foreign investor finds any new faith in Mexico.
But what of Mexico herself? Where lie the financial roots of her lost
faith in Mexico’s own future? After the economic conditions noted
above, they lie in the Mexican currency situation.
To-day Mexico has no currency but gold, silver, nickel and copper
coins. There are no bank bills, there is no bankable paper, there are
no promissory notes, no checks, no credit. Seven years ago there was no
metallic currency whatever, only banknotes, depreciated till a peso
(normally worth fifty cents) would hardly pay carfare. During that
time the banking business was all but wiped out, and bankable paper
disappeared.
Yet back of that period, in turn, was the time of Diaz, when paper
money was as good as gold, and the ordinary processes of exchange
went on as in any civilized country. Diaz had found, when he came to
power, a condition similar to that which exists to-day, with only
metallic currency in circulation. He brought in a new financial régime,
establishing sound banks, which under government control issued paper
money. In 1910, the circulating medium of the country was $150,000,000,
of which $65,000,000 was banknotes, accepted on an absolute parity
with the $85,000,000 of gold and silver. This money was, as noted,
supplemented by active bankable paper circulating freely in business.
To-day, by contrast, the government admits that there is less than
$50,000,000 (I personally think it is very much less) of gold and
silver money in the country--to transact the business (on a cash basis)
of nearly 15,000,000 people!
The loss of $100,000,000 of the circulating medium of the country (to
make no estimate of the loss and inconvenience due to the destruction
of credit) is the work of the revolutions of the past eleven years.
It was Carranza who started the paper money orgy. In the course
of three years he issued probably 2,000,000,000 pesos of paper
currency--the exact records, if kept, have never been made public.
Through this means he destroyed the confidence of the public in paper
money, and ultimately, when he came to full power, wiped out of
existence the whole system of Banks of Issue established by Diaz.
The first of the Carranza paper money was issued in Chihuahua, and was
accepted at its face value. Diaz had taught the people, down to the
humblest peon, to accept paper money, and the bayonets of the Carranza
troops convinced any who doubted the quality of the new issue. It was a
good scheme for financing a revolution--till Villa drove Carranza out
of Chihuahua and declared Carranza money worthless and its possession
a political crime. Now Villa money was issued, and was forced upon the
people at the points of new bayonets, and as the various chieftains
chased each other over the country the money of the towns fluctuated
with the identity of the conqueror. Metallic currency disappeared
completely and the value of paper money fell by jolts to a few centavos
on the peso.
These were the days when men who were paid in American money lived like
kings. House rent was fifty cents a month; light, gas and water cost
a dime. You could travel hundreds of miles in a Pullman for a dollar,
and settle all your old debts for two per cent of the original figure.
Food prices went up, of course, and the natives, mostly paid in the
depreciated paper, suffered terribly. Starvation followed in waves, and
the mortality in the cities was appalling.
The value of paper money fluctuated over night, and after closing hours
each day, there was a scampering of merchants to sell the currency
taken in during the day. They bought New York drafts, worn American
bills, diamonds, carriages and real estate, at prices whose rise could
not possibly keep up with the fall in the value of paper money.
Early in the excitement Carranza had begun to repudiate his various
issues of currency. The reason given was a real one--that they were
being counterfeited everywhere, a process simple enough, for the
original issues were themselves crudely printed on ordinary paper. At
first the Carrancistas had attempted to keep up with the avalanche of
counterfeits by requiring that all paper money on hand in banks, stores
and private tills be submitted regularly for inspection. Not even the
government “experts” could tell the bad from the good, however, and
they ended by declaring all of the money submitted by their political
friends to be all right, and confiscating, as counterfeit, a large
and fixed percentage of that owned by men of doubtful “loyalty.”
The process did not tend to increase the public confidence in the
administration.
The final issues of Carranza revolutionary paper money came from
Vera Cruz in 1915. This money alone was recognized as a part of the
Carranza government obligation, and $8,000,000 was set aside in the
Carranza financial plans for its redemption. This last paper money,
issued after Carranza was recognized by the United States, consisted
of engraved notes, known as “infalsificables” or “uncounterfeitables.”
These were issued at 10 centavos on the peso, and the government was
pledged to “redeem” them. This is being done, but not by anything
so simple as paying honest money for them (which would put them,
perhaps, into general circulation). Instead, all who pay direct taxes
are required to return a surtax of the face value of their taxes in
these “infalsificables.” A friend of Carranza wrote that “this was a
beautifully simple and ingenious scheme.” It is that still, for those
favored ones who control the remaining supply of the notes and sell
them at advanced prices to the taxpayers who have to have them--mostly
the big foreign mining and oil companies.
The story of the paper money days in Mexico, and the fact that of the
billions issued but $8,000,000 is recognized as a just debt, may
stir the indignation, and it certainly clarifies our understanding of
Mexico’s lost faith in her rulers. But in point of actual fact, the
destruction of the banking and credit system of the country, which was
a corollary of the paper money orgy, was far more terrible and cast an
even more lasting blight on the standing of the government.
Early in his revolutionary career Carranza was at odds with the
banks. He considered it an unfriendly act, one “taking advantage of
the unlettered,” for the banks to use their knowledge of financial
conditions to profit from the fluctuations of his paper currency.
He also found the banks “reactionary” in their refusal to use their
standing to assist him in making his money popular, and he charged
openly that the banks had “combined to discredit the government.” On
his entry into Mexico City he endeavored to coerce banking officials
personally, and jail was sometimes the boarding place of bank managers
and bank presidents, when they refused to unlock the vaults to
government “inspection.”
The wrecking of the banking system extended over more than a year.
Huerta, who preceded Carranza in the presidency, took the first forced
loans of $5,000,000 from the banks, allowing them to issue new paper
currency to cover this coin taken out. Carranza, on gaining control of
Mexico City, found the forced loan idea convenient, for he was in sore
financial straits. As one chronicler has it, “Money had to be found....
The money in the banks was the only money available, and it was taken
as the only way out of a very difficult situation.”[5] In its statement
of debts, however, the Carranza government recognized these forced
loans to a total of $20,000,000, none of which has been paid in six
years.
The Carranza “loans” from the banks inevitably shook their credit and
with it the credit of every business man and business organization,
and inevitably the credit of the Mexican government itself. Banknotes
dropped in value and although they never reached the low mark touched
by government paper, their fall to 75, to 50 and finally 30 per cent of
their face value reduced in like manner the value of all bank deposits,
and finally brought banking transactions to a stand-still. The process
of final destruction of the banks began with the edict of September 26,
1915, abolishing out of hand the Huerta concession which had allowed
some of the banks to issue additional paper currency to cover the
Huerta “loans.” The banks were required to bring their reserves up to
the old basis in forty-five days, and despite the blow to their credit,
this was accomplished. On November 10, however, another Carranza edict
reduced the recognized bank reserves by requiring that silver coins be
estimated at their bullion, instead of their face value. This storm was
weathered, in its turn, and nothing further was done for nearly a year,
although during that time the breach between Carranza and the banks was
continually widening.
An edict of September 15, 1916, required that the banks should have
in their vaults within sixty days enough gold and silver to redeem at
par every banknote which they had in circulation, currency which had
been issued under concessions allowing a banknote circulation twice
the total of the bank reserves in metal and bankable paper. The decree
also prohibited the banks from doing business with the public until
the conditions set down were fulfilled. In other words, liquidation
of notes and deposits was stopped, and the life blood of banking, the
active turning over of funds in the course of business, was cut off.
Finally, on December 14, 1916, the _coup de grace_ was given, and the
banks were officially closed to all business excepting the collection
of bills receivable in the depreciated currency of the banks themselves.
Thus by a series of cumulative blows the whole Mexican national banking
system which had been built up under Diaz was destroyed utterly. At
the time the final blow was given, banknotes were accepted at about 30
per cent of their face value, and had apparently reached stability.
Bankers assure me that had they been allowed to operate, even under
the conditions then prevailing, they could eventually have pulled
themselves and much of the business of the country out of the hole. It
is also interesting to remember that the franchises of the Banks of
Issue were to expire in 1922, time sufficient, under careful government
leadership, for them to wind up their affairs and furnish a solid
financial basis for the erection of some new form of national currency.
The Mexican governments, one after the other, have lent what prestige
they had to a proposed and elaborate new banking law, based on a
“Sole Bank of Issue.” From Carranza’s time the men in charge of the
government finances apparently believed that this system could be
established on the wrecks of the ruined Banks of Issue. Up to the
present this has not yet been attempted, for Mexico was and is in no
mood to receive any form of paper currency or government banking,
however it may be guaranteed.
It was inevitable, after the banks were closed, that the country should
go back to a metallic basis. This was made more difficult, however, by
the government’s decree, recently reiterated in the summer of 1921,
making illegal the circulation of American silver and banknotes. This
plan, although it brought out the Mexican gold and silver which had
been hoarded, inevitably cut down the circulating medium of the country
to absolutely inadequate proportions, even though American money could
easily have been obtained to provide enough currency to tide over the
crisis.
There were many difficulties connected with the establishment of gold
and silver again, but most of them had to do with the scarcity of
these mediums. There was a further complication for which no one was
responsible. This was the phenomenal rise in the price of silver during
the Great War. This early became a crisis, for first the silver pesos
became more valuable as bullion than the fifty cents (American money)
at which they had been fixed in the time of Diaz, and soon even the
subsidiary coins, of a lower silver content, became worth more than
their legal value in gold. The export of silver coins had to be stopped
by government order, and under the guidance of American monetary
experts the recoinage of silver in smaller pieces was begun. To-day
this money is in general circulation, accepted at face value for the
simple and deliberately created reason that it is issued only as the
crying demands of business for change force it out. The new pesos are
about half the bullion value of the old, and the subsidiary coins are
even less valuable in proportion.
Needless to say, this change in the size of the silver coins had an
unfavorable effect on the public mind, already on edge over the various
financial coups of the Carranza government. This was aggravated by a
destructive form of favoritism by which a few men were allowed, under
Carranza, to buy up and export the old silver coins, a form of graft
which amazes and disgusts the observer and also, be it noted, made the
money shortage greater and less easy to endure.
The ruin of the economic structure of Mexico lies bare for any one
to see, and beneath it is the rotted structure of the old financial
system. The closing of the banks, the destruction of credit, the
shutting off of the relief which might have been given by the use of
American currency, seem at the root of most of the ills which then
beset Mexico, because they are at the root of the lack of faith of the
people and their fear of the caprices of the morrow. For instance,
to-day in Monterey, the great industrial center of northern Mexico,
there are no banks save two private houses where money can be left on
deposit, and a few exchange offices. Where, in 1910, the four Banks
of Issue had more than $10,000,000 out in industrial, mining and
farm loans, there is hardly as much as $250,000 loaned to-day, and
that is by American banks on the border. The safe commercial paper
which circulates in Northern Mexico is checks on American banks. The
drafts of strong mining and oil companies form the chief basis of
money transfer, and are shipped from place to place all over Mexico.
Optimists call this a peaceful penetration of American credit into
Mexico, and so it is, but all that can be done from outside of Mexico
is but a drop in the bucket compared with her financial needs. Credit
within and without must be established, and that is a problem which
rests with Mexico alone.
To understand at all the mountain of distrust which looms before her,
it is necessary to set down, briefly, the condition of the Mexican
foreign debt.
The external government debt is $173,000,000, and on this interest
has been defaulted for more than eight years, a total of $50,000,000
remaining unpaid. The internal national debt is $67,000,000 and the
defaulted interest $20,000,000. State and other debts (save railroads),
which have been guaranteed by the government are $33,000,000 and
$10,000,000 in interest.
The bonds of the National Railways of Mexico, guaranteed by the Mexican
government, total $239,000,000, the interest defaulted being about
$75,000,000.
With other items, and counting alone the debts guaranteed by the credit
of the government, these obligations total $603,000,000, and the unpaid
interest thereon is over $155,000,000. Unguaranteed state and city bond
issues, the $20,000,000 recognized as due the banks for “loans,” and
$8,000,000 with which to redeem outstanding fiat currency bring the
total up to a principal of $779,120,915. Nearly eight hundred million
dollars, and defaulted interest to nearly two hundred million!
From time to time, and government after government, treasury officials
have come to New York to arrange for the refunding of this debt. The
plan is usually for New York bankers to loan Mexico $300,000,000,
refund the whole debt, eliminating some items (notably by a reduction
of the bond issue of the railroads) and take as security the Mexican
government’s pledge of a portion of the customs duties.
The answer to this proposition has been astonishingly to the point.
No Mexican guarantee of customs receipts has interested the bankers
unless it was backed by the United States government, presumably with
a collection agency of American marines, as in Haiti and Honduras
to-day. The most interesting development in answer to the Mexican
suggestions of refunding was the appointment of one of the most
impressive international banking committees ever created some three
years ago. This was headed by J. Pierpont Morgan and announced that its
purpose was “the protecting of the holders of securities of the Mexican
republic and of the various railway systems of Mexico and generally
of such other enterprises as have their field of action in Mexico.”
It would seem that the probity of the Mexican government, both as to
its debts and as to its willingness to repay the losses of foreign
investors was slightly under suspicion in the financial circles of the
world, a suspicion which is shared by no other Latin-American country
save those in actual and admitted bankruptcy.
FOOTNOTES:
[5] E. D. Trowbridge. _Mexico Today and Tomorrow_, p. 198.