The Brazilian Ambassador ( Lima e Silva ) to the Secretary of State

No. 85

The Ambassador of Brazil presents his compliments to the Honorable the Secretary of State and has the honor to transmit to His Excellency the enclosed memorandum of which he spoke in the conversation of August 29.45



Brazil, being a new country without capital, can only progress and equilibrate her balance of payments with the entrance of foreign capital which has been interrupted for various reasons since October 1929. In the two years 1930 and 1931 she has exported all her gold reserves, about 160 million dollars, to meet her foreign obligations. Notwithstanding this sacrifice and the exhaustion of these reserves she continues to owe to foreign bankers about 35 million dollars for commercial importation, etc. The increasing world depression has [Page 67] not permitted Brazil to borrow new capital in foreign countries, and the uninterrupted low prices of her principal products of exportation obliged her to suspend payment in specie of the greater part of her external debt and contract a funding loan of 8 million, which was entirely executed. In order to pay the bankers the 35 million abovementioned and to obviate a catastrophe resulting from the fall of exchange the Brazilian Government was compelled to give the Banco do Brasil a monopoly of the exchange. Within its own means the Banco do Brasil sought to impede evasion of capital and the sending of funds to Brazilians residing abroad, or for trips, thus demonstrating its determination to reserve disposable exchange of the country for commercial necessities and external obligations. It could not, however, make all the above payments but only amortize totally the bank credits with fixed terms and it has just made agreements in New York and London on frozen credits in Brazil owned by nationals of the United States and Great Britain. Notwithstanding this action the situation was not bettered as had been hoped, principally because the price of coffee, which represents 75% of the Brazilian exportation, suffered a tremendous decline in the past three months. A bag of coffee which had the value five years ago of one hundred shillings gold, and three months ago forty-four shillings, is now valued at only thirty-three shillings. For a country like ours which cannot equilibrate her international debts without the help of foreign capital it is necessary again to have this help which can only be obtained with the restoration of free foreign exchange, which will be controlled only in the sense of avoiding speculation. The Government will have the right to reserve a quota of not more than 30% of all the exchange offered for her foreign obligations. This will be the only restriction of free exchange. This seems to be the opportunity to work a credit for the purpose of acting as an exchange fund, since recent agreements on frozen credits have relieved the exchange pressure. The minimum credit to be asked must be fifty million dollars for the exclusive purpose of paying for imported merchandise. The annual quota for the interest and amortization of this credit must not exceed six million dollars. It is sufficient for Brazil to honor the drafts of the Banco do Brasil until that amount is reached. These drafts must be issued monthly over a period of sixteen months in equal amounts, but in case of emergency there may be drawn in one month an amount equal to four months. Paper money received in payment of these drafts of the Banco do Brasil will be taken out of circulation. The Brazilian exchange situation will be eased with the realization of this financial transaction and the stability of exchange would be guaranteed at about 4 pence per milreis.

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The Brazilian Government may justify the request for the opening of this credit by several reasons, among them the following:

Different countries such as Austria, The Union of South Africa, etc., got important loans from various European countries for the purpose of guaranteeing continuation of their commercial transactions and bills of exchange.
Brazil has once more proved her desire to intensify commerce with the United States of America by making the recent agreement of the so-called frozen credits which amounted to 177 thousand contos, when in London the same agreement amounted to 260 thousand contos: Of Brazil’s total imports 30% come from America and 19% from England.
The Brazilian Government has done its best to reduce her expenses principally on imported goods. In spite of this the commercial trade has not permitted Brazil to secure the balance of her accounts, because she does not possess the resources which she is now requesting.
With the opening of this credit Brazil could inaugurate a new trade policy with the United States.

  1. See memorandum of August 29 by the Chief of the Division of Latin American Affairs, p. 19.