The Ambassador in Brazil (Caffery) to the Secretary of State
[Received 4:21 p.m.]
160. Department’s 80, May 10, 6 p.m. The Bank of Brazil today took steps to liquidate exchange arrears of American firms by forwarding to the participating banks into the United States 90-day sight drafts corresponding to the credit allotted to each bank, and a letter outlining the procedure for liquidating the arrears. The chief points of the letter are summarized as follows:
The American banks will confirm by telegraph to the Bank of Brazil the actual opening of the credits on May 22nd. Bank of Brazil will release to the press in Brazil and the United States the following notice: [Page 395]
“The Bank of Brazil offers to liquidate promptly all pending collections covering merchandise of American origin for which milreis have been deposited subject, however, to a discount of six-tenths of 1 percent. If the American exporter does not wish to take advantage of this offer the Bank of Brazil will liquidate said deposits by 60 days exchange contracts without discount (interest charge). The American exporters who avail themselves of the offer of prompt liquidation of their collections are requested to take immediate steps to issue the necessary instructions of their respective collecting banks. If said instructions are not received by the collecting banks within a period of 20 days from the date of this announcement, the Bank of Brazil will reserve the right to liquidate these collections by means of 60 days exchange contracts.”
Although the foregoing notice refers only to collections (drafts) not covered by exchange contracts, the Director of Exchange informs me that similar treatment will be accorded to the deposits of firms operating on daily quotas and open accounts for which contracts have not yet been granted.
On the same date the Bank of Brazil will advise holders of exchange contracts here that it will liquidate the contracts by sight draft on American banks subject, however, to interest charge correspondence 3.6% per annum. The holders of the contracts (chiefly firms operating on open account and daily quota) will have 10 days in which to accept or reject the offer. If they reject it they will receive exchange upon maturity of the contracts. It is understood that the Bank of Brazil will liquidate arrears on the basis of the exchange rate and the exchange tax in effect at the time of the deposit of the milreis.
Bank of Brazil states definitely that it must impose an interest charge correspondence 3.6 per annum. The Director states that although the acceptance credits will cost Bank of Brazil 4.86% over a period of 2 years it is willing to restrict the charge to the basis of 3.6% per annum for all American arrears.
The Director states that the interest charge will not apply to the drafts of American companies under $1000 for which no exchange contracts have been granted but he does not want to disclose this information. I repeat that the plan refers only to American arrears.
Please inform Department of Commerce.