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

363. Telegram From the Ambassador in Brazil (Briggs) to the Department of State¹

Rio de Janeiro, May 22, 1957—7 p.m.

1272. Deptel 1109.² In realm current Brazil-U.S. relations, problem posed by Brazilian desire additional EXIM Bank financing at time when performance regarding inflation, etc. unimpressive may be one of our most difficult questions, bearing directly on broad political as well as economic matters. It has been Embassy’s belief shared insofar we aware by Department, EXIM Bank, and Treasury, that no easy solution this problem likely, … Reluctance stems from political factors which we also recognize no government can ignore.

At same time EXIM Bank loans to Brazil should not be dependent on satisfaction of impossible prerequisites nor upon ultimate lowering Bank’s standards to permit extension of loans when prerequisites unfulfilled. Either we should be serious about prerequisites or refrain from establishing them.

With foregoing factors in mind, Embassy concurs position taken Department and EXIM Bank that it would be unwise finance any new large-scale electric power projects until there has been substantial performance in reducing rate of inflation. … Specifically, Embassy suggests EXIM Bank now indicate willingness further to consider loans for major new electric power projects when satisfactory legislation has been enacted and when rate of inflation has been reduced to approximately 10 percent per annum (inflation during first 4 months current year approximately 7½ percent).

Suggest our views be presented to Brazilians informally rather than in writing, without prescribing specific anti-inflationary measures, and that publicity should of course be avoided. Subject highly critical and politically explosive in Brazil and should Bank express views in writing thereon and communication thereafter become public, government could be seriously embarrassed by accusation and misrepresentation of extreme nationalists.³

Briggs

1. Source: Department of State, Central Files, 832.10/5–2257. Confidential.
2. In telegram 1109, May 17, the Department informed the Embassy that Brazilian officials in the United States had recently complained that U.S. policy regarding financial support for Brazilian development had changed. In a conversation with Minister-Counselor Valle, Rubottom had stated “categorically” that U.S. policy had not changed and that the Export-Import Bank and the Department had merely agreed to apply the letter and spirit of the agreement made with Brazil the previous year that new large-scale development financing would be unwise until inflation was checked. (Ibid., 832.10/5–1757)
3. In telegram 1147 to Rio de Janeiro, May 28, the Department informed the Embassy that Arey had told Pinheiro on May 23 that the Export-Import Bank was not at that time prepared to undertake study applications for the Furnas power project or any other large Brazilian projects. Arey had pointed out that the inflation rate in Brazil during 1956 had been substantial, and that it would be necessary to wait for some months to determine whether real progress was being made during 1957 in curbing inflation. (Ibid., 832.10/5–2857) In conversations with Department officials, Pinheiro mentioned that financing the Furnas hydroelectric power project would require an initial credit of $50 million.