Foreign Relations of the United States Diplomatic Papers, 1937, The American Republics, Volume V

832.51/1200: Telegram

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

Washington, November 16, 1937—2 p.m.

80. Your 162, November 13. Recent developments make it possible that the controversies arising over Brazilian foreign debt may have most widespread disturbing effects, including potential controversies between the governments of creditor countries as to the treatment of bondholders of their respective nationalities. The Embassy in Paris advised the Department that the French Government may insist that service be continued and that if necessary to achieve this end the French Government would intervene to prevent the importation into France of Brazilian coffee. In response to the Embassy’s request for information which might be communicated to the French Government, the Department is cabling as follows:

“You may tell de la Baume⁴⁴ that the announcement of the Brazilian President of suspension of debt service was a distinct surprise. Upon this announcement the Foreign Bondholders Protective Council in New York made a vigorous protest in behalf of the holders of dollar bonds. The Department has asked its Ambassador to seek clarification of the situation and to use its good offices to make clear to the Brazilian Government the desirability of avoiding interruption of debt service, on the ground that it would be regrettable if Brazil thereby impaired its credit standing in the great financial markets of the world.

For your own information, Department would greatly regret if by this prospective action Brazil gravely prejudiced its credit standing and impaired its financial relationships in this country, Great Britain and France, both because of the economic and other indirect effects. It therefore will continue by all appropriate means, and wholly without threat of coercive measures, to seek to convince the Brazilian Government of the desirability of doing everything compatible with its economic position to continue some measure of debt service. Both the Council and the Department necessarily could only put forward the interests of the holders of the dollar bonds, but the Department will seek in every way to avoid sponsoring measures discriminatory in character as between investors of different nationalities.

Correspondingly, it would be regrettable if the French Government were to try to impose measures on Brazil which involve terms for the French bondholders that Brazil was not in a position to extend to bondholders of all nationalities, and thereby create a potential controversy over discrimination which would redound to the disadvantage of investors of all nationalities.”

The Department is informed that the Foreign Bondholders Protective Council has made a vigorous protest to the Brazilian Government. It has requested this Government to consider the use of coercive measures in order to secure the continuation of debt service on dollar bonds. The Department is definitely informing the Council that it will not consider the use of coercive measures. In its reply it has stated that three elements of the situation which it is called upon to consider are as follows:

• “(1) The desirability of securing from the Brazilian Government as favorable treatment for American investors as the economic circumstances of Brazil make possible.
• (2) The desirability of avoiding conflicting action towards this end on the part of the several governments of the creditor countries concerned.
• (3) The desirability of avoiding action which might compel Brazil to impose new restrictions upon its trade with the United States, and possibly even seriously prejudice the operation of the Brazilian-American commercial agreement.”⁴⁵

All of the above is transmitted to you as background information.

You will recognize the importance of not having the situation become one of protracted dispute and delay. It seems to the Department that it would be most helpful if the Brazilian Government would promptly announce that it would appoint a commission to get in touch at once with the representatives of the bondholders in the different countries, and to explain to them fully Brazil’s economic situation with the view of arriving at new agreements for the handling of the debt in accordance with Brazil’s situation, and act upon this announcement promptly.

If this suggestion seems to you sound, you may put it before the Brazilian Government.

Hull

44. Robert Renom de la Baume, Director of the Division of Commercial Relations of the French Ministry for Foreign Affairs.
45. Reciprocal trade agreement signed February 2, 1935, Department of State Executive Agreement Series No. 82, or 49 Stat. 3808; for correspondence, see Foreign Relations, 1935, vol. iv, pp. 300 ff.