832.5151/1361: Telegram

The Chargé in Brazil (Scotten) to the Secretary of State

113. Department’s 57, April 11, 6 p.m. Supplementing Aranha’s statement in my 110, April 11, noon, the Director of Exchange this morning informed me that it was found necessary to increase the proportion of the Government’s share of exchange derived from export drafts from 10% to 30% because it was decided that 10% was inadequate based upon last year’s official remittances which amounted to 9,549,998 pounds. This amount is roughly 17% of Brazil’s total exports in 1938, which amounted to approximately $295,000,000. Moreover it [Page 387]was deemed advisable to establish a reasonable reserve fund for governmental purposes. The Director informs me in confidence that the Government may allocate part of the reserve fund for remittances of earnings and dividends.

Although the Bank of Brazil has not fixed a limit for its bought position on compensation marks, the Director informs me that it is his intention to maintain the position at a safe level for normal trading operations with Germany. With respect to the compensation mark situation the Director states that the bank has now adopted the following policy: The Bank of Brazil will maintain the monopoly and will allow German banks to purchase compensation marks only for the liquidation of their own collections and all transactions will be subject to the control of the Bank of Brazil. The Director states that he has issued instructions to alter the quotations on compensation marks in accordance with the fluctuations of exchange of international acceptance on the free market. Although the German banks are now quoting a selling rate of 6 milreis and a buying rate of 5 mil 500 reis for compensation marks, the Director states that he will take steps at once to bring these quotations into line with the policy outlined above.

The Director of Exchange is entirely disposed to allocate exchange for the remittance of dividends and earnings when the exchange position of the bank permits. The Director has called for a statement of the actual amount of arrears of earnings and dividends now due to American companies operating in Brazil. At my suggestion the Director will today receive the manager of the local subsidiary of the American and Foreign Power Company to discuss their exchange problems.

The Director states that the Government decided upon an official buying rate of 16.500 milreis in order to acquire at this lower rate exchange for official requirements of the Government. It appears to the Embassy that an official selling rate for dollars based in part upon the official buying rate of 16.500 milreis is more advantageous to American exporters than the former rate of 17.300 milreis. For example, today banks are selling dollars in liquidation of import bills at 18.500 milreis exclusive of the 5% tax. If the official buying rate were 17.300 the selling rate in the free market for dollars for payment of imports would be increased correspondingly.

On the day the decree law went into effect firms offered export drafts on the free market at 19 milreis and gradually reduced quotations to 18 milreis yesterday. The milreis firmed today with banks buying 70% of export drafts at from 18.300 to 18.400 milreis and banks are selling dollars for the liquidation of import bills at from 18.420 to 18.500 milreis exclusive of the 5% tax.