832.51 Sa 6/26

Memorandum by Mr. Stokeley W. Morgan, of the Division of Latin American Affairs, of a Conversation With Mr. Earle Bailie,1 August 18, 1925

Mr. Bailie stated that his firm had been approached by the Paulista Institute for the Permanent Defense of Coffee of Sao Paulo for a loan which it was thought would be in the neighborhood of $15,000,000. The Institute contemplates using the proceeds to (1) found a bank for financing coffee growers; (2) compile statistics on coffee production; (3) fight the coffee plague, and (4) regularize the price of coffee.

Mr. Bailie said that after his telephone conversation with Mr. White2 on July 30, (see attached memorandum)3 he cabled his representative in São Paulo that he thought the Department would not object to a loan the proceeds of which would be used for any legitimate business other than the valorization of coffee, to which Mr. Bailie’s representative replied inquiring what operations would be objected to by the Department on the plea of valorization, adding that he believed the Institute would be willing to consider any reasonable restrictions.

Mr. Bailie stated that he thought the Institute would be willing to obligate itself not to use the proceeds of the loan directly or indirectly to buy or store coffee and asked whether the Department would approve of a loan on those conditions.

I pointed out that this restriction on the activities of the Institute would not prevent the bank which was to be founded with the proceeds of the loan from carrying on the valorization program. Mr. Bailie agreed that this was the case but inquired whether the Department wished to go so far as to refuse its approval of money loaned for the ordinary financing of crops, which would be all the bank could be said to be undertaking. In this case, he pointed out, the Department would be practically refusing to approve any loan [Page 534] to the State of Sao Paulo on the grounds that the money might indirectly be used to keep up the price of coffee.

Mr. Bailie wished it distinctly understood that his firm was not urging that this loan be approved but would be glad to complete the transaction if it felt that it had the complete approval of the Department. I informed him that I would lay the matter before the Secretary.

It seems to me that the question hinges on whether the financing of crops by the bank will result in maintaining an artificially high price or merely a steady normal price.

Morgan
  1. Of J. & W. Seligman Co., New York, N. Y.
  2. Francis White, chief of the Division of Latin American Affairs.
  3. Not printed.