Memorandum by the Economic Adviser (Feis) of a Conference With Brazilian Representatives

Along with Mr. Crane and Mr. Williams of the Federal Reserve, I met the Brazilian Ambassador and Dr. Souza Dantas, the Director of the Exchange Control, at the Federal Reserve Bank of New York yesterday.

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The purpose of the meeting was to discuss the ways and means for putting into effect the system for exchange of information and reports provided for in the exchange of notes between this Government and the Brazilian Government which accompanied the signing of the commercial agreement.

About this subject I will dictate another memorandum.52

I took advantage of the meeting to seek information regarding several other questions in the foreign exchange field:

(1) I asked whether the allocation of exchange to American interests had been resumed now that the agreement was signed—emphasizing the handicap that American trade was suffering by a complete cessation of allocation and the fact that a new deferred indebtedness was being thereby created. The Ambassador said that allocation had not been resumed. The reason he gave was that he and the Finance Minister had been in steady communication with their Government and had proposed a major step in the direction of freeing exchange control. The proposal was under consideration by his Government and if accepted, he said would lead to the publication of the necessary orders Saturday,53 and the putting into effect of the new plan next Monday. He was awaiting final word from his Government now as to whether this would or would not be done, and I arranged to telephone him late Friday morning to find out whether the final decision had been received.

The plan under consideration would be to permit all Brazilian exporters to sell their exchange in the free market, except for a small percentage to be turned over to the Banco do Brazil and used by them to meet the service of the Congelado notes and the February 1934 Aranha debt agreement (approximately 20 percent). Then in the future all trade was to look to this free market for foreign exchange.

A choice would be presented to the holders of the present deferred indebtedness to go into the same free market to secure exchange, or simply to wait until the 60 percent due them under the present exchange regulations became available as a surplus over what was necessary for the Congelado notes and the debt payments (which might cause them to wait a very considerable time, depending upon how the amounts of available exchange were shuffled about). The Ambassador with his usual optimism felt that this plan would work without involving any lowering of the value of the milreis; in fact, he thought that the value might actually rise. It is apparent that a large element in the calculations of the Brazilians is in the future receipts from the sales of cotton, which he estimated for 1935 at £8,000,000.

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(2) He stated that he had not found it possible to arrange with the commercial banks for a loan to fund present deferred indebtedness. Personally he was not in favor of such an arrangement anyhow. But upon his return to Washington next week he would wish to talk with us informally on the possibility of getting a loan through some governmental or semi-governmental agency; I said we would be glad to discuss the matter with him.

(3) I told him that when I left Washington the Department felt somewhat disturbed over the divergencies between the text of the note which we understood the Brazilian Government was going to send us on the exchange control and the text actually received; he said he knew this, and that Freitas-Valle54 had sent him a revised text which he had just signed, and which he was sending to the Department the next day (today).55 I was not certain from his tone of voice as to whether the new text would conform in all respects to what our understanding of the substance of the note was to be.

(4) He said that the mission was going to sail Saturday and would spend only six days in Europe.

Note: If the new plan described under (1) is put into effect, and works successfully, exchange would be available for current trade. But how well the American bondholder and those now having deferred indebtedness would fare remains highly uncertain, depending on the amount of official exchange that becomes available. I think it will be highly desirable that as soon as the new plan is announced—if it is announced—we address another communication to the Brazilian Government through the Ambassador, taking note of the change in policy, perhaps even expressing the judgment that it is a step in a desirable direction, and also again state that we expect American interests now holding deferred indebtedness and the American bondholders to receive full consideration (by which I mean, in the case of the latter, full payment of the present debt arrangement). If the new plan is not put through, I believe we should immediately ask the Brazilian Government to resume allocation of the 60 percent of official exchange.

  1. Dated February 8; not printed.
  2. February 8.
  3. Minister-Counselor of the Brazilian Embassy.
  4. Not found in Department files.