832.5151/611: Telegram
The Secretary of State to the Chargé in Brazil (Gordon)
84. Your 121, May 7. Department hopes that any confusion in your mind or in the minds of the Brazilian authorities regarding Department’s attitude towards a settlement for the American holders of deferred balances has now been cleared up.
[Page 374]The Department does not believe it incumbent upon it to work out in full the details of a satisfactory settlement. The Brazilian Government is obligated under the exchange of notes with the American Government to dispose of this situation promptly. The discussions we have been carrying on with Aranha and which you are conducting are to be considered as an exchange of views on what would constitute a settlement in accordance with the obligations accepted in the exchange of notes and of a general character which the Department believes acceptable to the American creditors. To assure however that any Brazilian plans are acceptable to the American creditors and meet their needs it will be most helpful as well as in accord with established practice if the Brazilian Government before finally determining the exact details of the plan will discuss it with the American creditors and seek agreement with them.
There are summarized again below the suggestions which in the Department’s view would appear to be (a) compatible with the exchange of notes, (b) a reasonably satisfactory method of dealing with the situation and (c) acceptable to the American creditors, subject to agreement upon detail.
- (1)
- The provision of immediate payment in cash for deferred credits covered by exchange contracts concluded by the Banco do Brazil.
- (2)
- The immediate provision of exchange for the payment of small deferred creditors on a basis of classification no less favorable than that arising from the British settlement.
- (3)
- Issuance to owners of deferred credits not falling within the preceding classifications of interest-bearing obligations of the Banco do Brazil guaranteed by the Brazilian Government, towards the discharge of which there should be provided an annuity bearing at least that relation to the total as would the annuity set aside in the British agreement bear to the total of similar British obligations; further any balance of this annuity not required for interest on these obligations should be employed to redeem the obligations by repayment at par under precise conditions to be determined.
To repeat, all the preceding is merely the Department’s suggestion as to what main details might be deemed to constitute a satisfactory settlement. The actual details should certainly not be less favorable than those extended to the creditors of any other country. It is hoped the Finance Minister will shortly present to you a summary of the plan by which he hopes to dispose of this matter, plus an indication of the dates when payments and issuance of obligations will be effective.
For your information. The Department did join with Aranha in the view that the method of exchange of individual letters might well be the most expeditious method of dealing with creditors of Class (3) [C?]; for one thing, it is the Department’s thought that under this method the credits might be paid off more promptly than under any [Page 375] alternative. However, in view of the doubt surrounding the legal validity and negotiability of such an exchange of letters and the definite opposition expressed by the American creditors to this method, the Department withdrew the suggestion. You may explain this shift in the Department’s attitude to the Finance Minister if you find it necessary to clear up any confusion in his mind.