Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

327. Letter From the Assistant Secretary of State for Inter-American Affairs (Holland) to the Ambassador in Brazil (Dunn)¹

Washington, February 20, 1956.

Dear Jimmy: I have read with a great deal of interest your letter of February 8, 1956² and its two attachments regarding petroleum. There is no question but that it is of the utmost importance to persuade Brazil to admit private enterprise to the petroleum industry. The reasons as I see them are:

1) The existence of an effective domestic petroleum industry is the key to the solution of Brazil’s economic problems.

2) Only through private enterprise can Brazil achieve such an industry. United States financing to Petrobras would produce a wasteful, inefficient monster.

3) Sooner or later the Russians are going to offer financing to Petrobras. That will pose an almost irresistible temptation to the Brazilian government and very difficult problems for us.

This problem is tied up with our basic policy against official financing for state replacement of private enterprise generally in Latin America. We run into the same problem in the field of electric power generation and many different industrial activities. If we make Export-Import and International Bank financing available to enable governments to go into areas of industry and commerce where private capital is willing to go if permitted, then we have done Latin America and ourselves a great disservice. The socialistic thinking of some government officials and the avarice of others will combine to retard by years the development of private enterprise in Latin America. That will mean years of delay in the development of sound economies.

The memorandum of conversation between Barbosa da Silva and Terrill of January 30 intrigued me when I first read it. It indicates that Kubitschek sees clearly the importance of having an oil industry; sees that Petrobras cannot in all probability produce one; sees that the problem is one of emotions generated for Brazil by the Communists (he stated this bluntly to the Secretary and me here in Washington) and, finally, that he is determined to do something about it along the lines of private enterprise.

If we are resourceful in our thinking, we can keep Kubitschek on this course and can strengthen his resolve to pursue it. If we engage in any open or disguised financing of Petrobras in the manner suggested by the memorandum of April 6, 1955 attached to your letter, we shall dissipate the incentive presently motivating Kubitschek’s thinking.

I have for some time been meditating on an alternative course, one upon which I would appreciate having your thoughts.

The Communists’ success in their present propaganda program is derived overwhelmingly from the popular conviction that private enterprise in the oil industry means United States oil companies. The strongest possible approach on behalf of private enterprise would be through a group composed of some such combination as Spanish, Italian, Portuguese and Brazilian capitalists. It is my opinion that if such a group could be put together it would be possible for it to assemble adequate capital to engage in an effective, conventional oil operation.

The proposal made by such a group should contemplate that Petrobras would remain in being. The only amendment of existing legislation that would be required would be one permitting the Government to make an appropriate agreement directly with such a private enterprise group authorizing it to operate in defined areas in which Petrobras would have no rights.

This is the time to initiate thinking and action on such a proposal if it is to be followed. Kubitschek is making up his mind as to the course he will follow. The investigation of the effectiveness of Petrobras is now going on. The Russians have not yet made the overture to finance the Brazilian oil industry which I feel confident that they will eventually make.

Please let me have your thoughts. From your experience in Spain³ you may well know of groups there around whom such a proposal could be constructed. It is my feeling that the United States oil industry might well approve such an opening wedge which, if successful, would inevitably mean that some time in the future private enterprise of all nationalities would be admitted.

With warmest regards and best wishes, I am

Sincerely,

Henry F. Holland⁴

1. Source: Department of State, Holland Files: Lot 57 D 295, Brazil. Secret; Official–Informal.
2. In this letter, Ambassador Dunn reiterated his and Assistant Secretary Holland’s belief that a breakthrough on the Brazilian petroleum matter was “of utmost importance.” On the basis of a recent conversation held between them and Vice President Goulart, Dunn suggested that “our immediate problem is to find a formula which would recognize the existence of Petrobras as a going concern and, at the same time, be sufficiently attractive to induce the Brazilians to amend their legislation to permit the entry of private firms.” He enclosed a copy of a memorandum by Robert P. Terrill, Economic Counselor of the Embassy, dated April 6, 1955, recommending a program of U.S. assistance to Brazil for petroleum development and a memorandum of conversation between Terrill and Barbosa da Silva regarding the petroleum development question. (Ibid., Central Files, 832.2553/2–856)
3. Dunn served as Ambassador to Spain until February 9, 1955.
4. Printed from a copy which bears this typed signature.