The Chairman of the Council On Inter-American Relations, Inc. (James S. Carson), to the Economic Adviser (Feis)

Dear Dr. Feis: Referring to the conversations you and Mr. Sloan have had with Messrs. E. P. Thomas, E. Momsen and the undersigned on the subject of Brazilian Exchange, we outline the present situation resulting from replies to our circular of January 19th attached,48 and other information which will furnish the basis of a letter to Mr. Marcos Souza Dantas, Brazilian Controller of Exchange.

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As of record, on June 17th, 1933 we negotiated an agreement with the Brazilian Government under the terms of which approximately fourteen millions of dollars immobilized in Brazil were converted into dollar obligations. Approximately 10% of this amount, and representing holders of balances in amounts less than $50,000, were to be paid within 90 days. An extension of a further 90 days, under an option, was subsequently taken by Brazil for meeting a part of the cash payments, but some payments under this category have to date not been satisfied. As to this last mentioned situation, the attached copy of letter to Mr. Souza gives further particulars.49 The balance of approximately 90% of the $14,000,000 was covered by the issuance of 72 notes payable monthly over six years with proportionate monthly payments as to amortization, and interest at 6% per annum. This service has been met in full since the date of its inception.

We appreciate your concern over the present and future position of American interests exporting to Brazil; as also those having investments in Brazilian public utilities and branch plants; insofar as they are affected by the difficulty of obtaining dollar exchange to liquidate sales and for the transfer of accrued profits arising from investments.

In the negotiation of reciprocal trade agreements it is understood that attention will be given to the subject of adequate provision of exchange, as otherwise the expected benefits to American exports may be rendered ineffective. A copy of our telegram of November 10th, 1933 to Secretary Hull is attached,50 as pertinent to this subject.

The American exporter cannot afford to jeopardize his capital to finance shipments, if the recovery of the value is problematical or unduly prolonged.

The Brazilian Government insisted on the insertion of a clause in the Agreement of June 17th to the effect that signatories to the Agreement would receive preferential consideration in connection with their future exchange requirements. This was later generalized to include all American interests. There have been no signs of special consideration having been shown, however, as overdue exchange now exceeds Five Million Dollars. Unofficially the ingenuous suggestion is offered of negotiating a further “forced loan”.

Brazil has a very large and favorable balance in her trade with the United States—$53,000,000 in 1933, $53,500,000 in 1932 and $81,600,000 in 1931. We purchased an excess in value of over three times more of Brazilian products than Brazil purchased from the United States. However, whereas Brazilian products are paid for, Americans have had to wait, and are still waiting, for a considerable portion of their money. Comparisons are frequently offered of the beneficial effects [Page 581] to British trade with Argentina resulting from the Kunciman Koca Agreement of 1933.51 Such comparisons ignore the broader necessities of multi-lateral foreign trade and possibilities of reprisals. We are appreciative, however, of the viewpoint, that the State Department may properly take cognizance of the exchange situation in favor of American interests selling to or having industrial investments in Brazil, and especially to the balance of payments.

During the two years of 1932 and 1933 total sales of United States products to Brazil totalled $58,000,000, and on June 17th, 1933 blocked milreis in Brazil belonging to American nationals had to seek protection against further depreciation by accepting upwards of $14,000,000 of deferred dollar obligations. The accumulation since the signing of the agreement of an amount in excess of $5,000,000 by the same signers of the Agreement, also the suggestion that they resort to the “grey” exchange market in order to repatriate their funds—which action calls for a monetary loss—should have official attention in any discussions of reciprocal trade agreements with Brazil.

We would like to see, in the interest both of American and Brazilian trade, a proper exchange control and the elimination of “grey” exchange. Our nationals are not receiving the consideration due us as the creators of the bulk of the foreign exchange arising from Brazilian exports. Some of our correspondents have suggested a plan whereby a fixed proportion of our purchases of Brazilian products shall be paid for out of the blocked funds of American nationals in Brazil. We do suggest that means be sought to prevent the accumulation of new blocked balances, by definite agreement with Brazil before the reciprocal trade agreement is ratified.

The proper method to be employed by Brazil under existing conditions is the licensing of imports, with guarantee of the availability of exchange as specified in the corresponding license. In this way Brazil could adjust the class and quantity of imports to the country’s requirements and the anticipated supply of exchange. While this plan is somewhat similar, up to this point, to that adopted by Argentina, we deprecate the adoption of the additional Argentine policy whereby imports from any country are limited to that country’s purchases of Argentine products. The British fostered the Argentine scheme as a means of increasing their trade, especially at the expense of the United States. The adoption of such a plan by the United States is inadvisable. Through the licensing of imports, however, it would be possible to guard against any discriminatory action taken against American interests.

The opinion seems to persist in the minds of some Brazilians that a means for obtaining necessary financing is through periodic “forced [Page 582] loans” of immobilized milreis, more especially those belonging to American interests. The traditional influence and control by British interests of Brazil’s foreign financial structure undoubtedly places us at a disadvantage at the present time in all economic and exchange matters, particularly with a lack of control of imports, secrecy in the available volume and allocation of exchange and the functioning of the “grey” exchange market.

We welcome, therefore, the reported intention of the State Department to have one of its officials sojourn in Brazil for a sufficient time to study the situation and take appropriate action, in concert with American trade and investment interests, to alleviate the present unstable situation.

Yours very truly,

James S. Carson
  1. Not printed.
  2. Not found in Department files.
  3. Not printed.
  4. For correspondence concerning the Anglo-Argentine (Roca) Agreement, see Foreign Relations, 1933, vol. iv, pp. 722 ff.