No. 71.
Mr. Hilliard to Mr. Evarts.
Rio de Janeiro, August 2, 1879. (Received Aug. 27, 1879.)
Sir: The present liberal minister came into power on the 5th of January, 1878, and found the government in a state of serious financial embarrassment, the treasury exhausted, and the estimated revenue for the ensuing six months of the fiscal year already disposed of.
Funds for immediate and pressing demands were required, and it was not desirable to attempt to negotiate a foreign loan which must be effected, if at all, under great disadvantages.
The government, as a last resource, decided to make an issue of $30,000,000 of paper currency. Of this amount $20,000,000 were put in circulation, but the minister of finance, observing the disastrous effects of this scheme, felt that it must seriously impair the public credit. He therefore took occasion to announce that he would not use the remaining $10,000,000.
Another measure was adopted by the new ministry authorizing the issue of $20,000,000 of government bonds bearing an interest of six per centum, which was put on this market by a syndicate in the latter part of the year 1878. The measure was successful, and it was a temporary relief to the government.
Meanwhile the budget came up for discussion before the new Chamber [Page 84] of Deputies, and after some delay it passed that body and is now before the Senate.
The new minister of finance found that the budget could not be matured in time to enable him to meet the actual demands upon the treasury. He therefore applied to the Chambers to authorize the law of October 20, 1877 (budget law of 1876–’77) to continue in operation until December 31, 1879.
The Chamber of Deputies passed the resolution, thus continuing in force the existing law, which was about to expire. Supplementary credits were also voted for the several departments. The resolution then came up in the Senate, where it encountered opposition. Baron de Cotegipe, the leader of the conservative’s in that body, proposed to limit the authority of the existing law to two months after the expiration of the fiscal year, but Mr. Affonso Celso, minister of finance, made such a statement of the actual demands upon the government that the Senate passed the measure as it came from the Chamber of Deputies, and concurred in the vote of supplementary credits for the use of the departments. The minister of finance was also authorized, by a vote taken the same day, June 20, 1879, to contract a loan of 50 contos of reis (about $25,000,000) for the following purposes:
- 1st.
- To consolidate the floating debt, consisting in great part of treasury bills, to the amount of $11,000,000.
- 2d.
- To liquidate the budget of 1878–’79, in which are included the deficits of previous years.
This new loan is of 50 contos of reis ($25,000,000), bearing 4½ per cent, interest per annum, payable in gold, or in currency at the rate of exchange on the day of payment.
The decree of July 19, authorizing the minister of finance to effect this operation, establishes that the minimum shall be 96 per cent. The bonds have coupons attached for the payment of the interest. Interest is to be counted from the 1st of October next, and payable every three months upon presentation of the coupons. Redemption shall be made semi-annually, at par, by lot or purchase, according to the condition of the market. The payments shall be made, at the will of the holder of the bonds, in Rio de Janeiro, Para, Rio Grande do Sul, or San Paulo, or in London, Paris, or Lisbon. The bonds are to enjoy all the rights and privileges belonging to other bonds in circulation. In the subscription for these bonds a payment must be made of 10 per cent, of their nominal value, and any sum besides which the subscriber may choose. The other payments are to be made as follows: September 22, 16 per cent.; October 20, 20 per cent.; November 20, 15 per cent.; December 22, 20 per cent.; January 21, 1880, 15 per cent.
The loan has met great success; it is understood that the amount has already been more than subscribed for. A syndicate of three native banks and one Brazilian capitalist guaranteed the taking of 35 contos ($17,500,000) at a fraction below the minimum price marked by the government circular, announcing the loan before the circular was published; so that really the public had only some 15 contos ($7,500,000) to take.
The success of the loan was thus assured from the first, and reflects great credit on the present minister of finance, Mr. Affonso Celso. Subscriptions were undoubtedly checked at first by doubts as to the interpretation of certain parts of the circular; but these have been cleared away by explicit declarations of the minister of finance. At present rate of exchange a gold loan at 96 per cent, is about equal to a 6 per cent, bond of the old type, and much superior as a security, being payable to bearer with coupons attached, and redeemable after a fixed [Page 85] term, like our five-twenties. The result of the subscription for the loan has not yet been officially announced.
Another important financial operation has just been effected by the government and presents some remarkable features. A Senhor Pecego, having received a railroad concession from the imperial government, has been for a long time endeavoring to raise money in England to construct his road. He could do nothing in London. * * * He transferred his operations to, a new field; he went over to Paris, and a combination of banking associations decided to look into the scheme. To that end they sent out here a representative, Monsieur de La Hande, with an engineer, to examine the projected line of railway, and empowered their agent to treat with the imperial government.
After surveying the situation, the representative of the French capitalists said to the government, “You want money at once.” This arrested attention, and after a free conference it was understood that instead of advancing money to the scheme, as the construction proceeded, the capitalists would hand over to the government the entire amount estimated for the work (upon which the government had guaranteed 7 per cent.) in one lump.
The government accepted this advance in the way of a deposit as a bank sometimes does, paying 7 per cent, interest on the fund intrusted to their keeping.
The railroad is estimated to cost somewhere about 11,000 contos ($5,500,000), and a great consideration with the French capitalists in making the arrangement is that this is regarded as the initial of several similar financial arrangements in which they are to be interested. The prospective advantages are, therefore, very great. The French negotiators are understood to represent a large amount of capital. Of course this arrangement indicates great confidence in the ability of the imperial government to pay in future, and it is at the same time a splendid proof of perfect trust in its good faith. It is well entitled to this confidence, for the whole spirit of the government, of which the Emperor is a noble illustration, is earnest in its purpose to meet all its obligations.
As to Brazilian finances, I propose to conclude this dispatch with an authentic statement giving a condensed summary of the debt of the government, taken from a recent report made to the Chamber of Deputies bv the minister of finance. The public debt is stated as follows:
| Class: | Milreis. |
| Foreign dept (par of 27d.) | 158,283,555 |
| Internal dept | 363,569,700 |
| Internal dept anterior to 1827 | 336,734 |
| Emancipation fund | 5,136,217 |
| Loan from orphans, fund | 16,478,705 |
| Private loans | 700,000 |
| Estates of deceased and absentes | 2,632,487 |
| Savings deposits | 12,924,942 |
| Monte do Soccorro deposits | 740,447 |
| Miscellaneous deposits | 8,799,796 |
| Treasury bills | 20,255,900 |
| Paper currency | 189,258,354 |
| Total milreis | 779,116,837 |
| Or at par exchange | £88,327,733 |
This discloses an increase over the official report of December last of £3,756,000. The total amount of paper currency issued within the last year is £4,900,000, and government 6 per cent, bonds £4,500,000.
The total public debt of Brazil in 1870 was £39,600,000 and in 1876 £78,880,000. Such is the financial condition of Brazil to-day.
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[Page 86]The measures just adopted here are based upon ideas already exhibited in the operations of the Secretary of the Treasury of the United States.
I have, &c.,