832.5151/814: Telegram

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

30. After the Foreign Trade Council reached agreement with the Brazilian authorities regarding the proposed refunding on frozen commercial credit, it approached the Export-Import Bank and requested it to revise the discount agreement previously reached by the Council and the Export-Import Bank through its Executive Committee. This request was made because of certain changes effected [Page 294] in the refunding agreement after the discussions with the Export-Import Bank.

Since the resignation of Mr. Peek, Mr. Jesse Jones has been acting as President of the Bank because of the fact that the Reconstruction Finance Corporation would supply the funds for the discounting operation. Mr. Jones has undertaken a thoroughgoing renewed study of the question from the Bank’s viewpoint. He was much perturbed by the fact that if the Bank proceeded under the original commitment, so great a portion of the funds paid out by the Bank in rediscount would go to a small number of very large American enterprises who did not need ready cash to conduct their business. With this judgment in mind he has been in steady conference with the representatives of the Council. As a consequence, the Council now reports that the potential rediscount requests of the large corporations will be greatly reduced from the earlier estimates, first by omission of exchange arrears arising out of the shipment of goods from countries other than the United States (primarily oil) and secondly, because some of the largest creditors now state that they intend to hold the Bank of Brazil notes. But despite this reduction in the potential total liability of the Bank, that institution is insisting upon further time to consider its decision and will not give a final reply until next week.

The Foreign Trade Council takes the position that it cannot sign the agreement with the Brazilian Government unless the Export-Import Bank goes forward with the rediscounting agreement. The Department considers the two arrangements in no way dependent upon each other and has made that clear throughout its discussions with the Council. However, there seems little doubt that the Import-Export Bank took a commitment towards the Council in the early negotiations.

There is some ground for believing that within the next few days the discussions will result in a compromise agreement between the Council and the Bank whereunder the Bank will do a limited amount of rediscounting, but that is not certain.