After the First World War, the United States definitively replaced Great Britain as the major economic power throughout Latin America. As in the rest of Latin America, the United States increased its dominance over Mexico’s foreign trade. By 1922, the United States was selling ten times as much to Mexico as Great Britain and buying four times as much from Mexico as Great Britain.12
The United States also replaced Great Britain as the main source of foreign investment. In 1913, the United States and Great Britain were virtually tied with $800 million each in direct investment in Mexico. By 1926, British investment had risen to $1 billion, while U. S. investment had increased to $1.5 billion. In 1928, U. S. investments in the oil industry totaled $408 million, followed by $391 million in mining and smelting, and $300 million in railroads. As these figures indicate, U. S. investment was still overwhelmingly involved in producing raw materials and shipping them out of the country, not in producing for the Mexican market.13
The May 1920 coup that deposed Carranza defused the mounting tension caused by the clash between Carranza’s nationalism and U. S. unwillingness to change its ways of doing business.
In response to the coup, the United States suspended diplomatic relations with De la Huerta’s interim government, claiming that it had been formed unconstitutionally. This allowed the reestablishment of diplomatic relations to be used as a bargaining chip to gain concessions from Mexico.14
When he took office in December 1920, Obregon sought to normalize relations with the United States. However, before extending recognition, U. S. President Warren Harding, who took office only three months after Obregon, demanded guarantees for foreign property rights—in effect, the abandonment of Article 27. Charles Evans Hughes, Harding’s Secretary of State, declared that to gain recognition Mexico had to promise not to “cancel, destroy or impair any right, title, or interest in any property” held by Americans in Mexico. The U. S.’s refusal to recognize Obregon stood in sharp contrast to its quickly recognizing the Orellana government in Guatemala after it came to power in a 1921 coup.15
Obregon faced a formidable array of forces demanding that he abandon nationalistic investment rules. Harding was much more responsive to oil interests than his predecessor. The U. S. president’s attempt to maintain control over Mexican oil reflected early 1920s predictions that foresaw the exhaustion of U. S. oil supplies in about a decade. Harding supported the oil companies’ demand that Mexico explicitly repudiate all revolutionary legislation concerning oil. U. S. oil companies attempted to discredit Obregon with tales of a rising tide of Bolshevism in Mexico. The Catholic lobby also opposed recognition due to the Sonoran dynasty’s anti-clerical policies. The United States held out the prospect of recognition to pressure Mexico into settling damage claims by U. S. citizens, leaving intact existing oil concessions, making debt payments, and ending the seizure of U. S.-owned properties for land reform.16
In 1921, progress began on breaking the impasse on recognition. In August, the Mexican Supreme Court, following Obregon’s wishes, ruled that oil lands acquired before 1917 could remain in oil company hands if improvements, known as “positive acts,” had been made on them. The most common such act was drilling a well.17
The United States made it clear to Mexico that any discussion of future loans required settlement of existing Mexican debts. As much as the government might wish it, it could not just walk away from debt incurred by its pre-Revolutionary predecessor. This debt, which Huerta had defaulted on in 1914, included a public debt of $300 million and another $300 million in bonds that the Diaz administration had issued to finance the purchase of foreign-owned railroads.
In response to U. S. pressure, in 1922 Mexico agreed to a meeting to resolve the debt question. The Mexican negotiator was Adolfo de la Huerta, then Obregon’s Secretary of Finance. De la Huerta emphasized that Mexico was willing to recognize its pre-Revolutionary debts, but that the government would not sacrifice the well-being of the Mexican people to make immediate payments.
The negotiator for the International Committee of Bankers, representing U. S. and British interests, was Thomas Lamont, of J. P. Morgan Company, the most powerful American financial house. The Committee’s leaders met frequently with the U. S. State Department and had its blessing in dealing with Mexico.18
De la Huerta’s arguments did not persuade Lamont. As a result, there was no compromise on the debt. The negotiated result, known as the Lamont-De la Huerta Agreement, committed Mexico to pay the entire debt contracted by Obregon’s predecessors, as well as a considerable part of the interest accrued. This included paying full face value on bonds worth only half that on the market. The Lamont—De la Huerta Agreement stood in marked contrast to the example of the Soviets who had recently repudiated Czarist bonds.19
Signing the Lamont—De la Huerta Agreement led bankers to support diplomatic recognition of Obregon. They felt that if Obregon fell, the agreement would be rejected and debt payments would cease. The agreement drove a wedge between oilmen and bankers in that it guaranteed payment of past debts with future taxes on oil exports.20
Obregon’s seeking U. S. recognition was sound from both the economic and political point of view. With recognition would come—Obregon hoped—loans and protection from being toppled
By revolts organized in the United States. U. S. Undersecretary of State Robert Olds commented on the importance of U. S. recognition, “Central America has always understood that governments which we recognize and support stay in power, while those we do not recognize and support fall.”21 In 1923, Obregon, still unrecognized, agreed to hold talks with the United States. Not only was he in urgent need of loans but he also faced the threat of revolt posed by his former ally De la Huerta. Recognition by the United States was vital, since it would not only preempt U. S. support of De la Huerta but also allow the purchase of U. S. arms.
From May to August 1923, U. S. and Mexican representatives met in downtown Mexico City at No. 85 Bucareli Street, the former home of Porfirio Diaz’s finance minister. Given the relative strength of the two parties, not surprisingly, virtually all U. S. demands were met. In an understanding known as the Bucareli Accords, Obregon reaffirmed the Supreme Court decision on positive acts to property acquired before 1917. Its practical effect was to grant in perpetuity oil concessions made between 1876 and 1917. Mexico agreed to the formation of a claims commission to settle damage claims by U. S. citizens against Mexico. Finally, Mexico agreed to pay cash at market values for estates larger than 4,385 acres taken from U. S. citizens as part of the land reform. Since the Mexican government lacked cash to pay for such estates, the Bucareli Accords in effect guaranteed the tenancy of large, but not small, American landowners.22
About all that Mexico salvaged from the Bucareli negotiations was the stipulation that bonds, rather than cash, were acceptable as payment for estates of less than 4,385 acres taken for the land reform. Mexican surrender on oil issues was virtually total. Oil companies were unhappy that Mexico did not formally repudiate Article 27. The effect, though, was the same. Oil interests might have pushed through a formal repudiation if they had not been discredited by the Teapot Dome Scandal— a scandal that resulted in Senator Fall’s conviction for bribery.23
The Lamont—De la Huerta and Bucareli Accords led to U. S. recognition of the Obregon administration on August 31, 1923. In their 1924 platform, the formerly bellicose Republicans stated that “our difficulties with Mexico have happily yielded to a most friendly adjustment.” From then on, the United States would back incumbent Mexican governments when they were threatened by coups, since it feared instability would damage U. S. interests.24
For Obregon, the most immediate benefit of recognition was access to U. S. arms. When De la Huerta revolted, the United States supplied the Mexican government with sixteen aircraft, rifles, ammunition, and permission to move Mexican troops through Texas. The New York Times commented on the significance of these arms sales, “The State Department, acting with the support of President Coolidge, is opposed to the success of the De la Huerta revolutionary movement and hopeful that the Obregon government will succeed in putting down the present revolt.”25
As a result of declining oil exports and the costs incurred in suppressing the De la Huerta uprising, foreign debt payments were suspended. Mexico was unable to obtain loans and investment to revive the economy. The United States limited Mexico’s ability to service its debts by restricting imports from Mexico. This denied Mexico a source of foreign currency that could be used for debt service. As with its loan default in the 1820s, the 1924 default resulted not from Mexican unwillingness to pay but from a lack of foreign currency to pay with.26
World History
