Memorandum by the Chief of the Division of Latin American Affairs (Wilson)

First Informal Conversation With the Brazilian Ambassador Looking to the Possibility of Negotiating a Commercial Agreement

The Secretary being delayed in cabinet meeting, Mr. Caffery4 received the Ambassador. Mr. Caffery stressed the informal and exploratory nature of these conversations. Mr. Lima said that his Government was sending two experts, the Brazilian Treasury delegate in London, Mr. Flavio Penna, and the Consul General in New York, Sebastião Sampaio. He thought that Mr. Penna would be here about the end of September and the discussions could begin at that time, although he would be prepared to begin earlier if that seemed advisable.

At this point the Secretary came in. The Secretary referred to his experiences in the House and Senate over a period of some twenty years and the recurrent efforts made during these years, particularly when economic conditions in this country were bad, to place a tax on coffee and tea. He said that economists generally recognized that taxes on such commodities as tobacco, wine, coffee, cocoa and tea were sound economically. He spoke of the vast domestic program of this country at the present time to improve conditions, involving the expenditure of some four or five billions of dollars of public money, and the necessity of adequate taxation to meet the cost of this program. He said that for many years other countries, such as the European countries, had taxed coffee but that this Government had consistently made an effort and had succeeded in keeping coffee on the free list. He hoped that the Brazilian officials in considering this whole question of commercial interchange would take this phase of the matter into consideration.

The Ambassador said that Brazil of course had this phase of the matter particularly in mind. The Secretary added that any commercial agreement reached between the two countries should of course be mutually beneficial, and that he would not have proposed the idea [Page 20] of these discussions unless he had felt that they could be made of profit to both countries.

The Ambassador then said that he had instructions from his Government to raise another matter. The Brazilian Government would like to obtain a credit from the United States Government of $50,000,000 to be made available to the Bank of Brazil in equal parts monthly for sixteen months. This credit was desired in order to stabilize the milreis, and the Ambassador stated that it would be used “only for exchange going to America.” It was brought out that the situation as regards frozen commercial credits and capital investment interest earned in Brazil owing to American concerns had been cleared up by the recent agreement made between private concerns in this country and the Bank of Brazil.5 The Ambassador repeated, however, that his Government felt that this amount was required to stabilize the milreis (presumably in order to do away with exchange control, although the Ambassador did not state this). He did not mention the figure at which it was proposed to stabilize, and he did not know what terms of repayment his Government had in mind. The Ambassador referred to Brazil’s bad economic and financial situation owing to the low price of coffee and the large carry over from previous years’ crops.

The Secretary said that the R. F. C.6 lacked authority to make direct loans. If it was a matter of facilitating access of the Brazilian Government to the market in this country for a loan, he suggested that the Ambassador furnish the Department with a memorandum which we would study and transmit to the Treasury and the Federal Reserve Board for their consideration. The Ambassador said that he would do this.7 He asked that this question be treated in confidence.

Edwin C. Wilson
  1. Jefferson Caffery, Assistant Secretary of State.
  2. For text of agreement, see p. 57.
  3. Reconstruction Finance Corporation.
  4. See note of September 5, from the Brazilian Ambassador, p. 66; also the Department’s reply, November 10, p. 72.