832.5151/601: Telegram
The Secretary of State to the Chargé in Brazil (Gordon)
73. Brazilian Ambassador discussed with the Department, under instruction of his Government, the proposal of the Finance Minister that the deferred credit should be dealt with in a convention between the two Governments. It was explained to him that this was not a feasible arrangement, first, because this Government does not possess the legal power to enter into any agreement dealing with the rights of the private holders of these deferred credits, and second, as a precedent which the American Government would be called upon to follow in regard to American investments and deferred credits throughout the globe, it would have most undesirable consequences.
Will you please explain this to the Finance Minister and then put before him the following outline of a suggested method of dealing with the question.
The Department understands that the results of the census of American deferred indebtedness will be completed by May 10. In accordance with what we understand to be the accepted intention of the Brazilian Government, it could, immediately thereafter, (a) pay off in cash such deferred credits for which exchange contracts had been previously closed and for which necessary supplies of official exchange had not yet been granted; (b) simultaneously pay off in cash the small creditors (a matter of great importance to the American commercial community because these small credits often form a vital part of the working capital of small American manufacturers and exporting concerns). The class of creditors to be regarded as small creditors might be made the same as that which would be established in the application of the agreement with the British (this is an alternative [Page 366] suggestion to our previous one that $25,000 should be the dividing line; it may have the merit in Brazilian eyes of working out identically with the terms of the British agreement and it is understood that it will result in an actual dividing line not unfavorable to American interests), (c) That then the Bank of Brazil should send a communication to each of the remaining American creditors in a form which meets the legal and constitutional requirements under the new Constitution, in which letter the creditor would be informed by the Bank of the amounts due and of the amounts which would be supplied on this indebtedness at a series of future dates. The Department understands that these legal requirements would be satisfied if the communication took the form roughly of a letter in which the Bank of Brazil stated that by order of the Brazilian Government it invited the creditor to present himself at the Bank on each of the specified future dates to receive the specified amounts of exchange. These individual communications would not, it is understood, constitute a contract.
For your information, the Ambassador seems to grow increasingly convinced that the amount of deferred indebtedness which will remain after those debts have been paid for which exchange contracts have already been closed, and after small debts are discharged, will be very moderate in amount and therefore call for future remittances of small dimensions. The figure he mentions is in the region of five to seven million dollars.
Please present these suggestions to the Finance Minister as representing the Department’s best judgment of the simplest, most expeditious, and least expensive way of dealing with the situation. Furthermore, you may express the opinion that the disposition of the matter in this way would enhance Brazil’s credit standing more than any of the other suggested alternatives.
Department believes that the Brazilian Ambassador will telegraph the Finance Minister tonight making recommendations along the same lines as the preceding.