832.51/1656a: Telegram
The Secretary of State to the Ambassador in Brazil (Caffery)
235. The Department has been apprized of the receipt by the Foreign Bondholders Protective Council of a telegram of November 23 from the Council of Foreign Bondholders in London expressing the hope that this Government will press the Brazilian Government to formulate debt service proposals without delay.
The Department was subsequently approached by the Financial Counselor of the British Embassy and by the Counselor of the French Embassy, independently, for a statement affirming this Government’s support of a general settlement of the Brazilian foreign debt. The British official left an aide-mémoire stating that the British Council believes the Brazilian Government to be prepared to formulate proposals on the basis of the 1934 Aranha plan and that the British Government hoped the Department would accede to the British Council’s suggestion that you be requested to approach the Brazilian Government in the premises. (The British and French representations to the Department apparently result from the reported attitude of the Finance Minister—please see your despatch 213634
Any independent settlement reached with the Europeans prior to a settlement of the dollar portion of the Brazilian debt might not only provoke violent criticism by American bondholders but it might also, by creating an opening for Congressional criticism, prejudice the future of our cooperative financial relations with Brazil (Aranha’s explanation in your despatch no. 211235 that an agreement with the Europeans now would leave the way open for a “more generous arrangement with us” to the contrary notwithstanding).
It is therefore suggested, if you perceive no objection, that at an opportune moment you make informally the following points to Aranha:
- 1.
- The Department continues to believe that a settlement in the near future of the American portion of the debt is highly desirable. (This Government is in fact now giving special attention to the South American bond problem).
- 2.
- The Department is pleased to learn that the Brazilian Government, as part of the general plan for solving the debt problem and as an indication of Brazil’s willingness to make a definitive settlement, is now exploring the European angle with the agents at present in Rio de Janeiro. It is hoped however that the Brazilian Government will give careful consideration to the effect which a solution of the European phase alone would have on Congress and on public opinion in this country, vis-à-vis Brazil, unless it will work out its settlement with dollar bondholders simultaneously, at least, with anything it works out with other bondholders. Certainly no scheme should be concluded before a settlement with dollar bondholders is reached.
- 3.
- The Department hopes that the present studies being undertaken by the Brazilian Government will result in providing a satisfactory basis for negotiations, and that this basis must assure dollar bondholders equitable treatment as compared with other bondholders. The comparative position of the dollar issues, including state and municipal issues, should be recognized as they were in the original Aranha plan, which was accepted as being relatively fair as between the holders of different issues.