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BOARD OF GOVERNORS
or

THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Chairman Eccles

From

Date March s , 1947
Subject:

J« Burke Knapp

With reference to the attached letter to the Mexican Ambassador,
he has now filed formal applications with the Ibcport-Import Bank for
credits totalling #175,000,000 distributed as follows:
(1) |100,000,000 for a variety of industrial projects
(2)
50,000,000 for highway construction
(3)
25,000,000 for the development of tourist facilities.
All of the loans are requested to cover the cost of goods and
services imported from the United States in connection with these projects.
The Ambassador points out in a covering letter to the Export-Import Bank
that the large holdings of gold and foreign exchange accumulated by Mexico
during the war years were drawn upon very extensively during 1946 and
that foreign assistance on a large scale is necessary if Mexico is to
continue its present rate of imports.
The Ambassador points out that ^of the total volume of imports
in 1946, nearly three-fourths consisted of consumers goods, foodstuffs
and luxuries, instead of capital equipment which is needed to further
permanent economic development of the country.1* He might also have added
that there was a substantial flight of capital from Mexico during the
year as a result of uncertainties concerning the future of the Mexican
exchange rate. The Ambassador does not suggest, however, that Mexico
take any measures to make a more effective use of its foreign exchange
resources. On the contrary, he states that as a signatory of the Articles
of Agreement of the International Monetary Fund Mexico desires to avoid
recourse to exchange control, quantitative import restrictions and * other
discriminatory measures11, so that it wants to finance its special requirements for imported capital equipment through foreign loans.
As I see it at present, pending further study of the specific
projects that are proposed, there are two main policy problems in connection with the Mexican program:
(1) To what extent should Mexico be required to make more
effective use of its own foreign exchange resources?
(2) To the extent that foreign financing is considered
justifiable, how far should it be undertaken by the
Export-Import Bank as distinguished from the International
Bank, which is now getting ready to handle just this kind
of development loans?
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