832.51/964: Telegram

The Chargé in Brazil ( Gordon ) to the Secretary of State

6. My 5, January 5, 6 p.m. I had an hour’s conversation with the Foreign Minister this morning in which he explained at length the two currents of opinion within the Government which have manifested themselves at the various discussions which have been held between December 29th and today on the question of the service of the foreign debt.

Briefly, the situation is that Souza Dantas favors suspension of the operation of the debt plan, presumably until such time as sufficient exchange is available to resume it, while still taking full care of current import and backlog requirements. The Foreign Minister, on the other hand, holds that the fundamental factor in this problem is the economic situation; while the financial situation of the Government is bad at the present moment this must be regarded as transitory because the economic situation is not only good at this time but gives every promise of becoming better. In support of this view he points out that the Government, states, and municipalities had not simply failed to make the January payments but had deposited the necessary milreis when due, the only difficulty being to secure sufficient exchange for their transfer. Accordingly, he feels that were this situation to recur, the difficulty again would only be of a transitory nature; therefore if a modification of the debt plan should prove to be necessary it should only be in the nature of a postponement—and he hopes a very temporary postponement—of the installments due with no question of not eventually making the full payments scheduled under the plan. In this connection, in the light of his view as to the soundness of [Page 327] Brazil’s economic condition, he would not be averse to incurring a further obligation in the nature of a relatively short term credit which he feels could readily be liquidated in order to tide over the present moment of exchange scarcity due to decreased coffee exports and thus avoid any modification of the debt plan.

In his own mind, however, the possibility of such modifications seems clearly present for he has sent instructions to the Brazilian Ambassadors both in Washington and London stating that in order to show its good faith the Brazilian Government is prepared to have its Minister of Finance come to those capitals to discuss the matter fully and freely with the creditors.

The Foreign Minister stated that the Minister of Finance was still wavering between the two views above set forth and he did not indicate which view the President appeared to favor. The Foreign Minister further informed me that Souza Dantas last week had offered his resignation which the Finance Minister had refused to accept.

In short, nothing has yet been decided and for that reason no official announcement as to the Government’s intentions is yet contemplated. The Foreign Minister made a further appointment for Wednesday morning coupled with the promise to let me know immediately if in the meantime there were any concrete developments.

Gordon