832.5151/792: Telegram

The Ambassador in Brazil ( Gibson ) to the Secretary of State

11. Department’s 9, January 9, 8 p.m. Minister of Finance informs me today that he considered Aranha’s proposal to split equally between British and American creditors the 1,000,000 pounds which the Brazilian Government will obtain in England as so entirely impracticable that he does not think it worth discussing with the British creditors. His attitude is that the Rothschild loan was obtained with a clear commitment that it would be applied exclusively toward liquidation of British frozen credits in accordance with the definite terms of the Anglo-Brazilian agreement.

The willingness of the Council to accept $2,000,000 for small creditors instead of 5,000,000 on condition of receiving Bank of Brazil endorsements for the treasury notes to cover the remaining creditors seems to indicate an important shift in the direction of the so-called Boucas arrangement. There would still appear to be a certain confusion, however, arising from the fact that the Council seems to be considering treasury notes endorsed by the Bank of Brazil whereas [Page 287] the Boucas proposal is for Bank of Brazil notes endorsed by the treasury. Under the latter the small creditors would receive 120 day notes which are virtually as good as cash but which could be handled here without the necessity for a new Brazilian loan. It is improbable, moreover, that the Brazilian authorities will consent to having their treasury notes endorsed by any bank, even the Bank of Brazil, so that the arrangement will presumably develop into the issuance of Bank of Brazil notes.

The Minister of Finance stated that in principle he was in accord with the proposition outlined in paragraph two of the Department’s telegram but that he would have to discuss the matter with the President of the Bank of Brazil who was out of town and that he hoped to be able to give a definite reply on Monday.

I venture to submit the following comments on the last paragraph of the Department’s telegram: (1) The American business community in Brazil has been carrying on no “negotiations”. Such “independent discussions” as have been conducted have been among the Americans themselves and between them and their principals in the United States. So far as I know no one of them has sought to reach an independent settlement with the Minister of Finance, the President of the Bank of Brazil or any one officially charged to deal with this question (this obviously with the single exception of Boucas, who is both a representative of the above American interests and a member of the Federal Foreign Trade Council) these men, who are the Rio representatives of practically all the interests involved in the negotiations under the Council, are a sober and experienced group and their action has been confined to impressing upon their principals at home their views gained on the ground as to which form of arrangement would best serve American interests. I have no knowledge as to what authority they may have from their home office to press for a different form of settlement than that proposed by the Council but I know that any pressure they have exerted up to this time has been upon their principals at home and not upon the Brazilian Government here. The Boucas plan which may have caused a contrary impression was evolved through the concern of the Brazilian Government to find some means of placing future Brazilian-American business relations upon a basis of greater confidence.