832.51/1490: Telegram
The Ambassador in Brazil (Caffery) to the Secretary of State
[Received 5:25 p.m.]
202. Department’s 118, June 26, 6 p.m. Aranha told me very confidentially this morning that yesterday the Minister of Finance came to him with a draft note, addressed to me, which he had prepared for Aranha’s signature (Aranha showed me the note) setting out that Brazil recognized its foreign debt and instructions were being given to the Bank of Brazil to set aside funds for a payment to be made thereon at a date to be fixed in the near future. The note also contained an invitation to the Foreign Bondholders Protective Council to send representatives here to discuss a final settlement of the whole debt business.
Aranha went yesterday afternoon to the President and told him that he was willing to sign the note but that it would be the last document he signed as a member of his Government. He said that if he remained in the Government a payment should be made as promised on July 1. The Minister of Finance was brought into the discussion and produced an article from the New York Times allegedly setting out that the Foreign Bondholders Protective Council would not accept any unilateral arrangements. Souza Costa said, “Therefore it would be better to make no payment at all at this time”. Aranha still insisted on the July 1st payment, telling the President that “it is essential to reestablish the principle of honoring debts and of keeping promises”. The President finally said that he agreed with Aranha.
The President is to see the Minister of Finance again today and Aranha hopes to let me have a reply this evening.
The milreis went to 23 yesterday on the open market.