832.51/1281
The Secretary of State to the Ambassador in Brazil (Caffery)
Sir: Reference is made to your despatches nos. 38154 and 386 both of March 7, 1938, on the subject of the Brazilian foreign debt situation.
The Department concurs in your opinion that it would probably be unwise to press at this time for a permanent arrangement in regard to payments on the Brazilian bonds, but it believes that it would best serve all interests concerned if the Brazilian Government would not delay further the initiation of conversations with representatives of the American bondholders with a view to agreeing upon such temporary debt service as might be considered consistent with the country’s present economic resources. You are requested, therefore, to continue your efforts to impress upon the Brazilian authorities the advantages of commencing such conversations as soon as possible. In this connection, it is believed that you could well emphasize the effects that such action by the Brazilian Government would be calculated to have upon [Page 376] the unfavorable state of public opinion and credit standing which have been produced in this country by the suspension of debt service.
Current reports from Rio de Janeiro indicate that the Brazilian Government may be giving some consideration to modifying in the near future the present exchange control and possibly making provision for a return to the previous system of requiring that a certain percentage of export drafts be made available to the Government at a fixed rate of exchange, the remainder to be sold in a free market. It would seem particularly desirable that any such measure should be so devised that it would provide for a reasonable debt service.
Very truly yours,
- Not printed.↩