832.51/799: Telegram

The Secretary of State to the Ambassador in Brazil ( Gibson )

91. A United Press dispatch in Wall Street Journal reports that Brazilian Finance Minister stated Brazil will accept Niemeyer’s recommendation and establish a central bank, adding: The Government soon would make an important declaration regarding the foreign debt service; representatives of bondholders already had accepted in principle a Government plan by which Brazil soon would pay what it was actually able to on the services of State and Municipal debts; at present the Government awaited final consent of bankers. The article adds: “He did not say whether the proposal he mentioned was the nationalization of debts, mentioned recently, whereby dollar and sterling obligations would be paid in milreis”.

Department does not understand statement that representatives of bondholders had accepted Government plan in principle. Kent has absolutely no capacity to represent bondholders. The American Committee on Brazilian State and Municipal Loans (for which see Embassy files) on May 17 rejected Bouças’ proposal for milreis payment, suggested temporary basis for treatment of these loans and asked further discussion. By May 26 Brazilian Government was apparently discussing with Niemeyer its present proposal for ten to fifteen percent payment of service on State and Municipal bonds of which Americans hold some $160,000,000, extremely low interest payments continuing for four years with Brazil making exchange available to buy in these depreciated bonds in the open market. In the [Page 90] meantime Brazil has announced continuance of 1931 scrip plan for national government bonds until September 30, 1934, and proposed plan would announce 100% service on this scrip and 100% interest service on coffee realization loan.

Representatives of American holders of State and Municipal bonds have been trying since 1931 to avert the making of some unfair Brazilian plan of payment under British banking influences. An ugly situation would be created should Brazil announce a discriminatory payment plan without consulting American interests.

Department trusts the Brazilian Government will take seriously the communication made pursuant to Department’s telegram 84, October 21, 1933, and the formal statement of this Government’s position which you will make on receipt of air mail instruction of October 24.