832.5151/452: Telegram

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

298. Department’s 157, October 20, 1 p.m. On inquiry, I am informed that the Consulate General’s air mail despatch referred to is [Page 598] based on inferences from a statement given to the press by the Federal Foreign Trade Council (enclosure to my despatch No. 447). I am told that the indication of $7,000,000 as the amount involved was arrived at by calculation of the estimated value of 500,000 bags of coffee at present prices, but without considering the specific statement that not half of such amount had been shipped.

I have gone into this subject today with the Bank of Brazil, have examined the operation of remittances, the negotiations with the German mission, et cetera.

The following background may be of interest to the Department. Souza Dantas informed me today that in August the Bank of Brazil began to acquire marks which were being offered by coffee exporters in large lots. The Bank, noticing the increasing volume of these purchases, sought to learn how it was possible to sell coffee to Germany in view of the fact that coffee sales had been on a restricted quota basis during the early part of this year. He learned that Germany had opened a further special quota for coffee in the amount of approximately 25,000,000 German marks, which would be blocked and destined to the paymaster [payment?] of German exports to Brazil. In view of this declaration and in order not to take a dangerous exchange position the Bank of Brazil gradually applied about 20,000,000 to German frozen credits, which included collections dating from September 1933, leaving approximately 5,000,000. Cover is being liquidated in the proportion that the Bank of Brazil is receiving exchange resulting from coffee and other transactions. However, the Germans are refusing to apply this in Germany to blocked accounts. In other words, the drafts of the drawees here in Rio are being liquidated but the German drawers are still without cover and will have to wait until: (1) Germany resolves to accept the Bank of Brazil drafts against the blocked credits then [there?], or (2) until the Bank of Brazil actually receives the 25,000,000 marks. Up to the present time only 1,500,000 marks have been actually paid in Germany against collections, these dating from September 1933. Souza Dantas tells me that far from feeling that they are getting preferential treatment the German mission here is now protesting that the blocked credits in Germany instead of being used to finance current and future business as was intended by them are being applied by the Bank of Brazil exclusively to clearing up backlog dating from September, 1933. They have sought to persuade the Bank of Brazil to modify this course but I am informed that the Bank does not propose to do so under any circumstances.

It has been further made clear to the German mission that even when the backlog is brought up to date the furnishing of exchange for current and future needs will be dependent upon further purchases of coffee.

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Souza Dantas’ explanations appear to be confirmed by recent complaints made to me by the German Minister that he had been unable to get for German interests treatment as favorable as that accorded to Americans.

This would seem to indicate that no exchange for current needs is now being made automatically available for Germans.