832.51/1244

Memorandum of Conversation, by the Adviser on International Economic Affairs (Feis)

Mr. Aranha46 called upon Mr. Welles further to discuss the Brazilian debt problem.

Mr. Welles informed him of the observations that had been made by Mr. White47 regarding the inauguration of discussions. The Ambassador said that he could not go to New York tomorrow (and Mr. White could not come to Washington because of a previous engagement with the mission from the City of Danzig); it was therefore agreed that the beginning of discussion should be postponed until Mr. Clark,48 who is now in Utah, could come to Washington, which according to Mr. Clark’s present schedule would have been some time next week. After discussion it was decided that I should inform Mr. White that the protraction of delay was greatly to be regretted because the Ambassador would have to leave shortly for Brazil, and that Sunday would be a good day for the Ambassador, and that therefore I should ask Mr. White to inquire of Mr. Clark whether he could hasten his return and meet with the Ambassador on Sunday. (This I did subsequently.)

A general discussion regarding the possible bases of discussion with the Council ensued. The Ambassador stated that he thought Souza Costa, the Minister of Finance, was making a special effort to resume some payment on the American debt. But he also was strongly of the opinion that the only form of settlement that would interest the Brazilian authorities would be a permanent settlement which would result in one new type of Brazilian security to be exchanged for all types of dollar securities. The Ambassador argued that this would be to American advantage since the American holdings of Brazilian state and city loans were so much greater proportionately than the American holdings of Federal loans. He brought out the fact that Argentina had sustained full payment on its Federal loans while the provinces had gone into default.

I merely stated that I could not talk for the Council, that I assumed the Council would be willing to discuss a permanent settlement if the Brazilian authorities were prepared to make an offer which it could recommend as satisfactory to the bondholders as a permanent offer. [Page 358] I remarked that I had to point out that the Council was naturally apprehensive lest the Brazilian authorities would confront it with a permanent offer calculated on a greatly reduced capacity for payment corresponding to the coffee price lower than at any time in the recent past.

I am frankly afraid that this question of permanent versus temporary settlement is going to be a great source of difficulty. I rather gather from the Ambassador’s incidental remarks that he was of the opinion that the whole spirit in Brazil was against the payment of foreign debt. I received the distinct impression that the Ambassador had not been consulted regarding the method of handling foreign debts, and felt that the situation was being exploited in Brazil with the hope of getting rid of the Brazilian foreign debt (or at least to reduce the service tremendously), and that he further felt the Brazilian authorities did not fear the consequences of action of this type. In that connection I took occasion to emphasize to him the great number of American holders of Brazilian securities and to remark that cessation of payment by Brazil would be regarded as an injurious action by these bondholders.

The Ambassador did not manifest his usual spirit of assurance.

He incidentally gave as his opinion the prophecy that Brazil would not pay anything, at any rate in the immediate future, on its European debt.

I telephoned immediately thereafter to Mr. White and gave him the substance of the preceding. He said he would telephone Mr. Clark tomorrow morning and after talking with Mr. Clark would telephone us and possibly also the Ambassador.

  1. Oswaldo Aranlia, Brazilian Ambassador in the United States.
  2. Francis White, Executive Vice President and Secretary of the Foreign Bondholders Protective Council, Inc.
  3. J. Reuben Clark, Jr., President of the Foreign Bondholders Protective Council, Inc.