The Ambassador in Brazil (Gibson) to the Secretary of State
[Received 1:55 p.m.]
15. Department’s 12, January 13, 7 p.m. Agreement outlined in Department’s first paragraph will be highly satisfactory to Americans here as it provides the security of Bank of Brazil notes which they consider so important. It is interesting to note that Aranha himself makes a point of the fact that Bank of Brazil notes are better secured than Brazilian Government obligations, a fact which New York negotiators have hitherto seemed to overlook despite the insistence of the Americans here. So long as negotiations proceed along these lines there will I feel sure be no further agitation by Americans here as the proposals constitute precisely what they desire.[Page 290]
The British and American situations are radically different: The British settlement is therefore basically so different from the proposed American settlement that it is difficult to find a basis for identity of treatment. The following differences may be noted: (1) The British plan calls for payments at predetermined figures until an indeterminate total sum shall have been covered. The American plan has contemplated an advance determination of a total then to be covered by an agreed number of monthly installments. (2) The British plan calls for Brazilian Treasury bonds which are safe for British holders because England is the traditional and sole remaining source of credit for Brazil and can count on not being let down; while the American plan now contemplates Bank of Brazil paper which alone can offer security to American holders equivalent to the security which Treasury bonds offer to British holders for the reason just stated. (3) The British plan calls for a substantial initial cash payment to cover not only small credits but a part of the amounts due to large creditors; while the American plan contemplates a small payment or set of short term notes for small holders only. The treatment accorded the British is rendered possible by the fact that they themselves advance the sum involved, we advance nothing and secure a lesser initial payment.
No hard and fast calculations to achieve a perfect balancing of the two agreements are therefore practicable. If an opinion may be ventured I should confirm the intimation contained at the end of my telegram number 13, January 13, 5 p.m. to the effect that if the American plan is based on initial settlement for small creditors by 120 or 150 day drafts aggregating not over 2 million dollars and if the monthly Bank of Brazil notes to cover the large creditors run for 48 months or even a little longer, the arrangement may be regarded as being about equally favorable.