832.5151/795: Telegram

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

12. Your 12, January 11, 2 p.m.41 Owners of a principal amount of American deferred indebtedness in Brazil expressed the desire themselves to negotiate the detailed liquidation plan through the National Foreign Trade Council. The Department’s position has been [Page 289] to facilitate such negotiations, following them closely to insure that equitable treatment was being provided for all classes of creditors and that the terms discussed were comparable with those granted other foreign creditors. The Council has maintained that the terms of the American agreement shall not be inferior to those granted British creditors and the Department in its conversations with Aranha has upheld this position. As stated in the Department’s telegram No. 9 of January 9, 8 p.m., the Council indicated to Aranha that it would regard as comparable to the British plan an agreement whereby American creditors would receive a cash payment of only 2 million dollars as contrasted with the payment of 5 million dollars to the British, provided, in compensation, that the American frozen credit notes were endorsed, or issued, by the Bank of Brazil. Since an agreement along these lines is acceptable to the representatives of the American creditors the Department will use its good offices to promote its acceptance by the Brazilian Government.

In asking this suggestion, however, the Council assumed that the maturities of the British and American frozen credit obligations would be identical. On January 11 the Council informed the Department that Aranha had suggested a longer maturity should Bank of Brazil notes be issued, on the grounds that such notes were better secured than Brazilian Government obligations, since in case of their default the creditors could throw the Bank of Brazil into bankruptcy and the Bank of Brazil was unwilling to undertake such obligations except on terms that would insure its ability to meet them. The Council states that it informed Aranha that maturities longer than those of the British obligations would be unacceptable to the American creditors.

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