832.5151/149a: Telegram

The Acting Secretary of State to President Roosevelt42

24. An important question of economic policy is presented for immediate determination. It is a conflict between American citizens owning Brazilian bonds represented by the bankers on the one hand and a larger number of American exporters to Brazil whose credits have been frozen by governmental arbitrary control of exchanges. In Brazil blocked American currencies aggregate between thirty and thirty-five millions of dollars. To liberate these currencies American exporters like the Standard Oil Company, Westinghouse Electric International Company, Atlantic Refining Company, the Caloric Company, Electric Bond and Share Company, the Texas Company and others are consummating an agreement with the Bank of Brazil, with the Federal Government of the United States of Brazil as guarantor. This is the result of several months of negotiations by the National Foreign Trade Council and the Council of Inter-American Relations and the agreement has the strong approval of Mr. Fred Kent who purposes to promote similar agreements with other Latin American countries if this is approved.

The agreement with Brazil must be signed by all American exporters desiring to participate in its benefits on or before June 30, 1933. The major beneficiaries of course would be the companies hereinbefore mentioned. The agreement provides that:

“The seventy-two (72) bills of exchange or notes shall be dated July 1, 1933 and shall mature one each calendar month following the date of issue and shall be payable without discount or extension of time by the fiscal agent appointed by the Brazilian Government, in the City of New York, in U. S. A. dollars.

“3. Banco agrees to reserve from the exchange made available out of exports from Brazil the necessary amounts to meet on maturity any and all bills of exchange or notes delivered by it hereunder.

“Banco further guarantees to each of the parties of the second part, on the request of the latter, out of said exchange and after the payment of such bills as and when matured, a preference in the supply of U. S. A. dollar exchange sufficient for the current needs of each of the parties of the second part, from the date of this agreement on and until payments of all of the bills of exchange delivered hereunder.”

The agreement also provides in Section 4 that smaller blocked accounts shall be liberated within ninety days provided the aggregate of such accounts does not exceed one million dollars.

This Department is in receipt of letters of complaints written by American citizens owning Brazilian bonds requesting governmental [Page 61] intervention in their behalf. Senator Borah and others have transmitted such letters to us. These holdings among American citizens aggregate many millions of dollars. A committee known as the American Committee on Brazilian State and Municipal Loans representing these bond owners has had conversations with Mr. Kent and has also sent protests to this Department. This committee known as the bankers as contradistinguished from the industrialists or exporters has made arguments in the public press and in economic magazines that the success or failure of commerce depends in considerable measure upon the security of such loans. Their view is that it is unfair to give the exporters the exclusive benefit of the liberation of exchanges; that in fairness there should be some proration of available exchange in Brazil between the exporters on the one hand and the bondholders on the other hand.

Manifestly the Department is without power to approve such an agreement; probably it has no power to disapprove. In accordance with your standing instructions we have been announcing the policy that the Department can not undertake to express any opinion with respect to the advisability or propriety of foreign undertakings and that individuals and corporations engaging therein do so upon their own responsibility and at their own risk. In view of the fact that the present situation is somewhat different and presents a preference in favor of one group of American creditors as against another group of American creditors, I feel uneasy. In the circumstances, I am venturing to inquire whether you have any instructions to give which would supplement your standing instructions.

  1. On board the U. S. S. Ellis at sea.