There also are enclosed two copies of a memorandum prepared by the
Commercial Attaché,54 in
which he presents an analysis of the plan, pointing out certain features
which would appear to be of concern to American holders of Brazilian
bonds.
In this connection, I may say that while the fact that a plan for the
readjustment of the Brazilian foreign debts is under consideration is
quite generally known, the subject has not been mentioned to me by any
Brazilian official other than Sr. Bouças.
[Enclosure]
Draft Plan for the Adjustment of National,
State, and Municipal Debts
The following announcement is made by the Federal Government of
Brazil:—
1—The Federal Government being gravely concerned at the nonpayment of
the foreign debt obligations of the States and Municipalities of
Brazil has, after consultation with Sir Otto Niemeyer during his
recent visit to Brazil, decided to put into operation a
comprehensive plan for the payment of bondholders which will operate
for a period terminating in October 1937.
2—The plan is designed to ensure that available foreign exchange
shall be applied in equitable proportions to the service of all
loans of the Federal Government and of the States and Municipalities
of Brazil.
3—For the purpose of operating the plan the Federal Government has
classified into seven grades all external loans of the Federal
Government and of the States and municipalities as follows:
Grade I. This grade will comprise the
Funding loans of the Federal Government including the amounts funded
and to be funded [under?] the 1931 Funding Plan. It will also
include the repayment of arrears under the Hague Award,55
which arrangement formed part of the 1931 Funding Plan. The Federal
Government recognise the special character and importance of its
Funding loans and foreign exchange for the full service of such
loans will be provided.
Grade II. Having regard to the special
conditions attaching to the São Paulo Coffee Realisation Loan of
1930 sufficient exchange will be allocated to maintain payment of
interest in full on this loan. From the date on which this plan
comes into operation an amount representing 50% of the full
contractual sinking fund will also be made available for the
purchase of bonds in the market for cancellation so long as they are
obtainable below par or for drawings at par if the bonds rise to
that price.
[Page 78]
Grade[s] III and IV. Grade III will consist of the
following loans of the Federal Government:
| U. S. |
of |
Brazil |
— |
5% |
Loan 1903 |
|
|
do. |
|
— |
5% |
Loan 1909 |
(Port of Pernambuco) |
|
do. |
|
— |
8% |
Loan 1921 |
|
|
do. |
|
— |
7% |
Loan 1922 |
|
|
do. |
|
— |
6½% |
Loan 1926 |
|
|
do. |
|
— |
6½% |
Loan 1927 |
|
and the specially secured State of São Paulo Coffee
Institute 7½% Loan. Grade IV will include the remaining loans of the
Federal Government, the State of São Paulo External 8% Loan 1921 and
the Bank of the State of São Paulo 6% Guaranteed Sterling Mortgage
Loan.
Sufficient foreign exchange will be made available on or after 1st
October 1933 for partial interest payment on the above-mentioned
three São Paulo loans.
Interest in respect of all Federal Government loans included in these
grades will continue to be payable until the end of September 1934
under the 1931 Funding Scheme; but from the close of this Scheme
partial payments of interest will also be made on all such loans in
accordance with the provisions of this plan, since the Federal
Government is convinced that any further increase in the capital
amount of the External Debt as the result of an extension of the
Funding Scheme would be contrary to the interest of all parties.
No Sinking Fund payments will be transferred in respect of any of the
loans in these grades.
The Brazilian Balance of Payments has now been relieved by the
liquidation of certain external obligations and having regard to the
terms of the 1931 Funding Scheme the Federal Government proposes to
provide during the year 1933/4 an amount of not less than £1.200.000
to be applied to the redemption of 20-year Funding Bonds created
under the Funding Plan of 1931. In consequence of the payment of
this amount the milreis deposits in Special Account in respect of
the service of the loans funded under the 1931 Funding Plan will be
utilised by the Federal Government in the redemption of internal
interest-bearing debt.
Grades V–VI and VII—include all remaining
external loans of the States and Municipalities. Sinking Funds in
respect of these loans will not be transferred for the period of
this plan but foreign exchange will be held available for partial
interest payments on all such loans to commence on or after 1st.
October 1933, except those under Grade VII for which no exchange
will be available.
4—In the case of loans other than those of the Federal Government the
liability will remain with the original debtor but foreign exchange
[Page 79]
for the partial payments
scheduled in this plan will be made available against payment by
these debtors of milreis.
5—To the extent to which the full service (interest and sinking fund)
of any loan is not transferred in foreign exchange under this plan
milreis at fixed rates of 1 milreis=6 d., 1 milreis=12.166 cents, 1
milreis=3.105 franc, respectively, will be included in the
respective budgets of the Federal Government, State or Municipality
concerned and deposited in special accounts. Such milreis may be
invested by the Federal Government, State or Municipality, as the
case may be in existing internal obligations or as may be otherwise
agreed.
6—Should it be possible during the period of the plan to set aside
further foreign exchange, the Federal Government intends to apply
such foreign exchange to the redemption by purchase below par of
Bonds of the Federal Government or of the States and Municipalities
then outstanding.
7—The plan will be reviewed not later than the Spring of 1937 when
the Federal Government propose to reconsider in the light of the
then circumstances the future service of all Brazilian external
loans.
8—Whenever an interest payment whether partial or in full, is made
under this plan, it will be made in respect of the coupon then due
together with all overdue coupons (if any).
9—The classification of the loans into the various grades and
percentage of service monies payable under the plan in respect of
different grades are detailed in the following schedule.56
