832.5151/598: Telegram
The Secretary of State to the Chargé in Brazil (Gordon)
68. Your 106, April 25, 7 p.m. The Department considers its conversations with Aranha and your conversations with the Finance Minister to be a facilitation of a settlement of the question of deferred indebtedness which stands in the way of the smooth operation of American trade relations, and not a formal negotiation of an agreement [Page 362] between the two countries. As it has explained to the Brazilian Government, it sees a possibility of satisfactory solution in a unilateral action by the Brazilian Government which would meet the reasonable requirements of the American interests, and which would fulfill the pledge given in the exchange of notes between the two Governments dealing with exchange matters.
In regard to your question as to responsibility for the classification of small creditors, it seems to the Department that once the dividing line is established, say at $25,000, the matter becomes merely one of fact which can be established by the Banco do’ Brazil. Disputed cases or differences of opinion could probably be handled by friendly discussions between the Banco do Brazil and the National Foreign Trade Council or the American Chamber of Commerce in Brazil.
As for your query as to the sum total of amounts of individual credits under $25,000, the Department has no conclusive information, but the tentative figures of the National Foreign Trade Council show a very much smaller total than the figures which you cite.
There can be no doubt that the Foreign Trade Council and the American creditors would be dissatisfied with any plan which did not provide for the immediate payment of this class of credits. Furthermore, since such is promised in the agreement with the British, the assurances given in the commercial agreement and the exchange of notes would seem to make it incumbent upon the Brazilian Government to treat this group of American creditors as well as the British creditors of the same class had been treated. In the Department’s view, this action should not be made dependent upon the arrangement of any loan but should be unconditionally undertaken by the Brazilian Government. It is noted that in the text of the agreement with the British there is no mention of a loan for this purpose.
For your confidential information. Aranha has informed the Department that Souza Costa told him that while in London the loan arrangements made with the Rothschilds were calculated to provide funds not only to pay off the small British creditors but also to pay off the small American creditors. Of course the Department has no conclusive confirmation of this, but regardless of whether it is true or not, believes that the Brazilian plan should provide immediate payment for this class.
As regards the credits classified under C in your telegram the Department sees no objection to their being funded in governmental interest bearing obligations. It suggests that it would be desirable for the Brazilian Government to consult with the Council or some other representative American trade organization so as to ensure that the obligations are in a form suitable to the requirements of the American creditors.
[Page 363]The Department feels that the criterion for the liquidation of credits of Class C should be the most favored nation principle reasonably interpreted with regard to the exchange availabilities of the Banco do Brazil. The Department does not see why American credits necessarily must receive the treatment provided in the Anglo-Brazilian agreement since it understands from your reports that German arrears have now been entirely cleared up and that agreements have been concluded for the rapid liquidation of Swedish and Italian credits.
It is assumed that in the event of a unilateral settlement the Brazilian Government would consult with the Department before deciding on and announcing the final terms of the settlement.
With regard to inquiry in paragraph 1 of your 96 the Department is not informed as to amount of American credits covered by closed exchange contracts. It would seem that such information should be available to the Banco do Brazil.