CHAPTER IV

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.