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

Reference is made to my memorandum of a telephone conversation with Mr. Kent on October 757 regarding the plan of the Brazilian Government for the payment of its foreign debt obligations. Mr. Kent telephoned this morning to say that in general he felt the plan was a sound one; Brazil did not have exchange enough to service all its foreign bonds, and it was therefore necessary to divide them into categories; this division was made so as to protect first the national credit, which seemed a sound principle.

Mr. Kent said that about a year ago the Brazilian Government had asked him to come down to Brazil to work out a scheme of reorganization of its foreign debt. It was not found possible for him to go to Brazil but he had conferred with Brazilian representatives in this [Page 81] country and suggested to them a method of dealing with the problem on the general principles which are now found in this present scheme.

Mr. Kent said he thought it was sound to protect the federal credit first, and to pay full interest and sinking fund on the scrip issued under the funding loans and also on the bonds affected by the Hague award. After provision for federal loans, the plan provides partial service on the state and then down to the municipal loans, figuring increasing amounts as the years go by on the theory that in the future there will be an increased amount of foreign exchange.

I asked Mr. Kent if he felt this plan was fair from the point of view of American holders. He said in general, yes, but that he did not have sufficient information as to the effect of the plan on the various issues of Brazilian bonds to determine whether there was any discrimination as respects certain issues against American holders. I asked whether he felt that this plan reflected Niemeyer’s views. Mr. Kent said it probably did. He asked if we had any information in the way of an analysis of the effect of the plan on the individual. I said that we had so far not received the full text of the plan, and that our Economic Adviser’s office had worked up a preliminary study of the matter58 on the basis of such information as we had. Mr. Kent asked if I would send him a copy of this, and I said that I would, and also send him later a more detailed examination of the matter, which we would make after receiving the full text of the plan.

Edwin C. Wilson
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