De la Huerta-Lamont Treaty
Encyclopedia
The De la Huerta-Lamont Treaty (Spanish
: Acuerdos De la Huerta-Lamont) was a treaty
signed in 1922 between Mexico
and the International Committee of Bankers on Mexico (ICBM) concerning Mexico’s substantial post-Mexican Revolution
debts.
The treaty was negotiated by the Secretariat of Finance and Public Credit
, Adolfo de la Huerta
, and the chairman of the ICBM, Thomas Lamont. It was considered the initial step in the normalization of the foreign relations of Mexico
, and was the basis of the next several decades of Mexican foreign financing
agreements.
on its bonds since late 1913.
Claiming pressure from European bankers, in 1918, Thomas Lamont solicited the approval of the State Department to organize an international committee of bankers. In February 1919, the State Department granted approval to bring together American
, British
, and French
banks concerned with investments in Mexico on the condition that control of the committee's policy remain in American hands. Initially, 50% of the seats on the committee were for American banks, with 25% each for English and French banks. Banking interests from Switzerland
, Netherlands
, and Belgium
were later added to the committee
.
On February 23, 1919, bankers and representatives of foreign bondholders created the ICBM. The ICBM included the most prominent and influential commercial and investment banks of the time. It was designed to be a powerful mediator between bondholders and the Mexican government. No major bank in the world would have been able to build a syndicate to lend to Mexico without having a selection of ICBM members. The ICBM agreement stated that Mexican debt bondholders would adhere to the ICBM agreements with the Mexican government voluntarily. At its peak in 1925, the ICBM represented 97% of Mexico’s debt holders.
There was a significant amount of pressure from both the United States and Europe for Mexico to repay its debts and to deal with issues around Article 27 of the Political Constitution of the United Mexican States.
, which could be used to pay down the debt. The State Department wanted the bankers to get their money and for assets not to be seized, but they tried to keep the two issues separate.
Article 27 of the Political Constitution of the United Mexican States implied that United States’ citizen’s oil holdings in Mexico could be seized. In 1921, the Supreme Court of Justice of the Nation
ruled that Article 27 was not retroactive for oil reserves where “positive acts" had been undertaken to exploit them. Therefore, only untouched lands were covered under Article 27.
The United States had initiated a ban on loans to Mexico in 1921, and had put the repudiation of Article 27 as its condition for lifting the ban. At the time, the United States had a virtual monopoly on potential lending capital. Lamont and the ICBM were only marginally concerned with Article 27 and its effect on American oil companies. The primary concern of the bankers was to protect the holders of Mexican securities.
The United States wanted all American claims against Mexico to be settled simultaneously. The ICBM, on the other hand, was willing to negotiate a separate settlement of Mexico's foreign debt.
Álvaro Obregón
from the State Department in June 1921. Lamont sent a letter with a quasi-ultimatum
stating that negotiations could only begin after Mexico had declared that Article 27 was not retroactive. The Mexican government ignored this, and Lamont did not press them on it.
Lamont negotiated in Mexico from October 5, 1921 to October 21, 1921. The initial negotiations were unsuccessful. Lamont did not accept a plan that required a depreciation
of the debt. De la Huerta felt that Lamont’s terms were too onerous and humiliating.
There were a number of issues in the negotiations. The Mexican government insisted that any debt settlement include a new loan. Obregón argued that without new funds, Mexico would probably be unable to live up to any agreement. Members of the ICBM said that no new loan would be granted without a debt agreement and official American recognition of Mexico.
Negotiations resumed in January 1922 in New York City with Eduardo Iturbide, managing director of the Bank of Commerce and Industry of Mexico City, representing de la Huerta and the Mexican government. They failed to come to an agreement and Iturbide was recalled on January 18, 1922.
On March 3, 1922, the State Department sent a message to the banking community which effectively stopped any loans originating from the United States from non-members of the ICBM.
In late May, de la Huerta was sent to the United States.
A new round of talks began on June 2. De la Huerta and Lamont signed the self-titled De la Huerta-Lamont Treaty at 6pm on June 16, 1922 at the Offices of the Mexican Finance Commission at 120 Broadway, New York, NY. The signatures were attested by I. H. Pachin, secretary of the ICBM.
The tentative accord awaited ratification from Obregón. Initially, Obregón refused to ratify the agreement, stating that he was skeptical of the "good faith and sincerity" of the committee. Instead, he told de la Huerta to immediately open negotiations for a new loan. Lamont reminded de la Huerta that no loan was possible until the United States recognized the Obregón government. Realizing that recognition from the United States would not be forthcoming without a debt agreement, Obregón reluctantly signed the treaty on August 7, 1922. It was a surprise that he signed the treaty before he went on vacation because he said he would study it while on vacation. He was convinced of the urgency of signing it by de la Huerta.
The Congress of Mexico
ratified the treaty in September, and the agreement became effective September 29, 1922.
on Mexican bonds was to start January 2, 1923, and the back interest was going to be paid by January 1, 1928.
The treaty dealt with all the external Mexican government debts, direct or guaranteed, the railroad debt and certain internal government debts largely held outside Mexico. The treaty consolidated Mexico's debts.
The preamble of the treaty stated that the ICBM recognized the "difficulties with which Mexico has had to contend and the limitations upon her capacity for the immediate payment." It desired to coöperate "with the Mexican government in the solution of its problems and in the upbuilding of its credit." In addition, the ICBM recommended “bondholders make substantial adjustments of their rights".
Mexico agreed to set aside funds that would allow it to begin making full payments on its bonds in 1928. Mexico said it would commit $15 million to the fund in 1923, and increase the amount it was putting in the fund by $2.5 million each year.
The money was to come from 10% of the gross revenue of the Mexico railroads and from an oil export tax. If that wasn’t enough, the difference was to be made up of bonds that would not bear interest until 1928, and that would then bear 3% after 1928 with a maturity date of 1943. Also, Mexico agreed, starting in 1928, to make forty equal payments that would pay off all the bonds by 1968.
Additionally, Mexico agreed to privatize its railroads, although the government would still be in charge of the railroad debt. The total debt covered by this agreement pre-interest was $507,457,000. The interest owed was around $280,000,000.
The percent of direct debt held was 22.9% United States, 19.6% England, and 32.4% France. The railroad debt was also mostly in foreign hands: 12.5% United States, 35.9% England, 36.4% France.
There was no time table set for the privatization of the Mexican railroad.
The repayment of the debt took money away from social reform. Mexico paid about $15 million dollars in 1922 for the first annual deposit of the debt agreement. The ICBM lent $350,000 that Mexico was missing to complete the first payment, which the Mexican government paid back a year later. Mexico also sent the ICBM $700,000 at the beginning of 1923 as part of the second payment due in 1924.
The treaty also led to de la Huerta's rebellion
in 1923. The cost of putting down the rebellion, as well as the inability of Mexico to secure new loans, caused Mexico to go into default again. On June 30, 1924, President Obregón ordered the suspension of further payment. This made it necessary for another adjustment of the foreign Mexican debt.
This was done in the Pani-Lamont Amendment to the De la Huerta-Lamont Treaty, which reduced Mexico’s debt while keeping its credit status. Mexico again defaulted on the agreement soon after the amendment was signed. Mexico made small payments on its debt from 1923 to 1927. Efforts to resolve the default continued throughout the 1930s.
The Mexican oil expropriation eventually occurred in 1938. The entirety of the Mexican rail system
was nationalized between 1929 and 1937.
Spanish language
Spanish , also known as Castilian , is a Romance language in the Ibero-Romance group that evolved from several languages and dialects in central-northern Iberia around the 9th century and gradually spread with the expansion of the Kingdom of Castile into central and southern Iberia during the...
: Acuerdos De la Huerta-Lamont) was a treaty
Treaty
A treaty is an express agreement under international law entered into by actors in international law, namely sovereign states and international organizations. A treaty may also be known as an agreement, protocol, covenant, convention or exchange of letters, among other terms...
signed in 1922 between Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
and the International Committee of Bankers on Mexico (ICBM) concerning Mexico’s substantial post-Mexican Revolution
Mexican Revolution
The Mexican Revolution was a major armed struggle that started in 1910, with an uprising led by Francisco I. Madero against longtime autocrat Porfirio Díaz. The Revolution was characterized by several socialist, liberal, anarchist, populist, and agrarianist movements. Over time the Revolution...
debts.
The treaty was negotiated by the Secretariat of Finance and Public Credit
Secretariat of Finance and Public Credit
The Secretariat of Finance and Public Credit is Mexico's finance ministry. The Secretary of Finance and Public Credit is a member of the federal executive cabinet and is appointed by the President of the Republic.In Mexico the Secretary of Finance is the head of the Secretariat of Finance and...
, Adolfo de la Huerta
Adolfo de la Huerta
Felipe Adolfo de la Huerta Marcor was a Mexican politician and interim President of Mexico from June 1 to December 1, 1920....
, and the chairman of the ICBM, Thomas Lamont. It was considered the initial step in the normalization of the foreign relations of Mexico
Foreign relations of Mexico
The foreign relations of Mexico are directed by the President of the United Mexican States and managed through the Secretariat of Foreign Affairs...
, and was the basis of the next several decades of Mexican foreign financing
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
agreements.
Need for a Treaty
Mexico had been in defaultDefault (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
on its bonds since late 1913.
Claiming pressure from European bankers, in 1918, Thomas Lamont solicited the approval of the State Department to organize an international committee of bankers. In February 1919, the State Department granted approval to bring together American
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, British
Great Britain
Great Britain or Britain is an island situated to the northwest of Continental Europe. It is the ninth largest island in the world, and the largest European island, as well as the largest of the British Isles...
, and French
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
banks concerned with investments in Mexico on the condition that control of the committee's policy remain in American hands. Initially, 50% of the seats on the committee were for American banks, with 25% each for English and French banks. Banking interests from Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
, Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
, and Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
were later added to the committee
Committee
A committee is a type of small deliberative assembly that is usually intended to remain subordinate to another, larger deliberative assembly—which when organized so that action on committee requires a vote by all its entitled members, is called the "Committee of the Whole"...
.
On February 23, 1919, bankers and representatives of foreign bondholders created the ICBM. The ICBM included the most prominent and influential commercial and investment banks of the time. It was designed to be a powerful mediator between bondholders and the Mexican government. No major bank in the world would have been able to build a syndicate to lend to Mexico without having a selection of ICBM members. The ICBM agreement stated that Mexican debt bondholders would adhere to the ICBM agreements with the Mexican government voluntarily. At its peak in 1925, the ICBM represented 97% of Mexico’s debt holders.
There was a significant amount of pressure from both the United States and Europe for Mexico to repay its debts and to deal with issues around Article 27 of the Political Constitution of the United Mexican States.
Different Priorities
There was a tension between the repayment of debt and the Mexican government’s potential control over Mexican natural resourcesNatural Resources
Natural Resources is a soul album released by Motown girl group Martha Reeves and the Vandellas in 1970 on the Gordy label. The album is significant for the Vietnam War ballad "I Should Be Proud" and the slow jam, "Love Guess Who"...
, which could be used to pay down the debt. The State Department wanted the bankers to get their money and for assets not to be seized, but they tried to keep the two issues separate.
Article 27 of the Political Constitution of the United Mexican States implied that United States’ citizen’s oil holdings in Mexico could be seized. In 1921, the Supreme Court of Justice of the Nation
Supreme Court of Justice of the Nation
The Supreme Court of Justice of the Nation is the highest federal court in the United Mexican States. It consists of a President of the Supreme Court and ten Ministers who are confirmed by the Senate from a list proposed by the President of the Republic.Justices of the SCJN serve for fifteen...
ruled that Article 27 was not retroactive for oil reserves where “positive acts" had been undertaken to exploit them. Therefore, only untouched lands were covered under Article 27.
The United States had initiated a ban on loans to Mexico in 1921, and had put the repudiation of Article 27 as its condition for lifting the ban. At the time, the United States had a virtual monopoly on potential lending capital. Lamont and the ICBM were only marginally concerned with Article 27 and its effect on American oil companies. The primary concern of the bankers was to protect the holders of Mexican securities.
The United States wanted all American claims against Mexico to be settled simultaneously. The ICBM, on the other hand, was willing to negotiate a separate settlement of Mexico's foreign debt.
Negotiations
The Mexican government initially invited Lamont to discuss the country’s finances in 1921. Lamont obtained approval to begin negotiations with the administration of PresidentPresident of Mexico
The President of the United Mexican States is the head of state and government of Mexico. Under the Constitution, the president is also the Supreme Commander of the Mexican armed forces...
Álvaro Obregón
Álvaro Obregón
General Álvaro Obregón Salido was the President of Mexico from 1920 to 1924. He was assassinated in 1928, shortly after winning election to another presidential term....
from the State Department in June 1921. Lamont sent a letter with a quasi-ultimatum
Ultimatum
An ultimatum is a demand whose fulfillment is requested in a specified period of time and which is backed up by a threat to be followed through in case of noncompliance. An ultimatum is generally the final demand in a series of requests...
stating that negotiations could only begin after Mexico had declared that Article 27 was not retroactive. The Mexican government ignored this, and Lamont did not press them on it.
Lamont negotiated in Mexico from October 5, 1921 to October 21, 1921. The initial negotiations were unsuccessful. Lamont did not accept a plan that required a depreciation
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....
of the debt. De la Huerta felt that Lamont’s terms were too onerous and humiliating.
There were a number of issues in the negotiations. The Mexican government insisted that any debt settlement include a new loan. Obregón argued that without new funds, Mexico would probably be unable to live up to any agreement. Members of the ICBM said that no new loan would be granted without a debt agreement and official American recognition of Mexico.
Negotiations resumed in January 1922 in New York City with Eduardo Iturbide, managing director of the Bank of Commerce and Industry of Mexico City, representing de la Huerta and the Mexican government. They failed to come to an agreement and Iturbide was recalled on January 18, 1922.
On March 3, 1922, the State Department sent a message to the banking community which effectively stopped any loans originating from the United States from non-members of the ICBM.
In late May, de la Huerta was sent to the United States.
Agreement to the Agreement
The tentative accord awaited ratification from Obregón. Initially, Obregón refused to ratify the agreement, stating that he was skeptical of the "good faith and sincerity" of the committee. Instead, he told de la Huerta to immediately open negotiations for a new loan. Lamont reminded de la Huerta that no loan was possible until the United States recognized the Obregón government. Realizing that recognition from the United States would not be forthcoming without a debt agreement, Obregón reluctantly signed the treaty on August 7, 1922. It was a surprise that he signed the treaty before he went on vacation because he said he would study it while on vacation. He was convinced of the urgency of signing it by de la Huerta.
The Congress of Mexico
Congress of Mexico
The Congress of the Union is the legislative branch of the Mexican government...
ratified the treaty in September, and the agreement became effective September 29, 1922.
Contents of the Treaty
The ICBM got nearly everything that it wanted in the treaty. Payments on the current interestInterest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
on Mexican bonds was to start January 2, 1923, and the back interest was going to be paid by January 1, 1928.
The treaty dealt with all the external Mexican government debts, direct or guaranteed, the railroad debt and certain internal government debts largely held outside Mexico. The treaty consolidated Mexico's debts.
The preamble of the treaty stated that the ICBM recognized the "difficulties with which Mexico has had to contend and the limitations upon her capacity for the immediate payment." It desired to coöperate "with the Mexican government in the solution of its problems and in the upbuilding of its credit." In addition, the ICBM recommended “bondholders make substantial adjustments of their rights".
Mexico agreed to set aside funds that would allow it to begin making full payments on its bonds in 1928. Mexico said it would commit $15 million to the fund in 1923, and increase the amount it was putting in the fund by $2.5 million each year.
The money was to come from 10% of the gross revenue of the Mexico railroads and from an oil export tax. If that wasn’t enough, the difference was to be made up of bonds that would not bear interest until 1928, and that would then bear 3% after 1928 with a maturity date of 1943. Also, Mexico agreed, starting in 1928, to make forty equal payments that would pay off all the bonds by 1968.
Additionally, Mexico agreed to privatize its railroads, although the government would still be in charge of the railroad debt. The total debt covered by this agreement pre-interest was $507,457,000. The interest owed was around $280,000,000.
The percent of direct debt held was 22.9% United States, 19.6% England, and 32.4% France. The railroad debt was also mostly in foreign hands: 12.5% United States, 35.9% England, 36.4% France.
There was no time table set for the privatization of the Mexican railroad.
Post-ratification outcome
The treaty had mixed effects. It was considered a brilliant success by some. The treaty represented a short term solution to others because of the heavy burden it imposed on government finances. De la Huerta’s supporters tried to claim the treaty as a victory for Mexico. The treaty paved the way for the Bucareli Treaty between the Mexican and United States governments in 1923, which led to recognition of Obregón's government by the United States in August 1923.The repayment of the debt took money away from social reform. Mexico paid about $15 million dollars in 1922 for the first annual deposit of the debt agreement. The ICBM lent $350,000 that Mexico was missing to complete the first payment, which the Mexican government paid back a year later. Mexico also sent the ICBM $700,000 at the beginning of 1923 as part of the second payment due in 1924.
The treaty also led to de la Huerta's rebellion
Rebellion
Rebellion, uprising or insurrection, is a refusal of obedience or order. It may, therefore, be seen as encompassing a range of behaviors aimed at destroying or replacing an established authority such as a government or a head of state...
in 1923. The cost of putting down the rebellion, as well as the inability of Mexico to secure new loans, caused Mexico to go into default again. On June 30, 1924, President Obregón ordered the suspension of further payment. This made it necessary for another adjustment of the foreign Mexican debt.
This was done in the Pani-Lamont Amendment to the De la Huerta-Lamont Treaty, which reduced Mexico’s debt while keeping its credit status. Mexico again defaulted on the agreement soon after the amendment was signed. Mexico made small payments on its debt from 1923 to 1927. Efforts to resolve the default continued throughout the 1930s.
The Mexican oil expropriation eventually occurred in 1938. The entirety of the Mexican rail system
Rail transport in Mexico
Mexico has a freight railway system that is privately owned and extends across most of the country, connecting major industrial centers with ports and with rail connections at the United States border...
was nationalized between 1929 and 1937.