The Ambassador in Brazil (Gibson) to the Secretary of State
[Received 1:48 p.m.]
19. My 17, January 14, 1 p.m. If the frozen credits agreement is to provide for monthly payments of a regular amount whether of 100,000 pounds or more the total amount of the creditors’ claims which will be admitted to participate in the settlement must be determined in advance. Claims which are outstanding in an indefinite or unadmitted condition can be passed upon gradually after the payments have commenced.
The definite determination of the amounts of the claims to be allowed is a complicated matter and if the conclusion of the settlement were to await it the delays might still be great. From this stand [Page 292] point the proposal for fixed installments to commence in the near future is desirable.
On the other hand if the monthly installments paid to the English and the American creditors are equal and it eventuates that the American total is larger than the English as is probable the American firms will not receive complete satisfaction as early as the English.
To meet this difficulty two suggestions have been made:
- Provision might be made that if in the working out of the agreements the English creditors reach the stage of having received full payment before the American creditors the same monthly amount of Brazilian exchange hitherto devoted to the British payments will be added to the regular monthly payments to Americans. This would greatly accelerate the final stages of the liquidation.
- The agreement might include a provision for the automatic readjustment of the monthly payments at the end of the first 18 months or 2 years. By that time the total amounts to be admitted under each of the two agreements would have been ascertained. If the American total should prove to be somewhat greater than English total the monthly payments to the American creditors could be stepped up to 110,000 or 120,000 pounds or more so as to bring the two processes of liquidation to an end at approximately the same time. Present indications are that the two totals will be within 2 or 3 million dollars of one another.
I take the liberty likewise of mentioning the relation of the payments under the frozen credits settlement to the payments under the Aranha plan for Brazilian external debts. If the frozen credits monthly payments are made too onerous they will be regarded by the Brazilian officials as hampering the general debt service payments. However true it may be that the Brazilian Government has not been practicing the economies which are feasible it is equally true that the finding of exchange is chronically very difficult for Brazil. Accordingly the frozen credits installments ought perhaps to be kept moderate in scale. Aranha as well as the Brazilian Government here might be allowed to feel (confidentially of course) that the new arrangement is being tempered in recognition of their efforts regarding the general external debts and in the expectation that these efforts will be maintained.