The Ambassador in Brazil (Caffery) to the Secretary of State
[Received July 24.]
Sir: Referring to previous reports concerning the possibility of Brazil’s falling altogether into the German orbit, I have the honor to repeat that there are in sight at this juncture only two effective factors which are of any use in combatting the increasing German menace: the first factor is, as I have frequently reported, the desire of the Brazilian military authorities to purchase arms on credit in the United States; the second factor is the desire of President Vargas to have the Export-Import Bank, or other similar institution, finance the purchases in the United States of necessary equipment in connection with the construction of a steel plant in Brazil.63
Again, as I have frequently pointed out, if the Brazilian military authorities cannot purchase arms on credit in the United States they will purchase them on long-term credit or accept them as gifts from the Germans. This will eventually be followed by German dominance in the Army and elsewhere, of course. If President Vargas cannot obtain the desired steel plant financing in the United States, he will accept it from Krupp who has offered to finance not only purchases of material but construction, et cetera, as well, on terms and conditions to be fixed by the Brazilian authorities. If the Germans furnish the arms and finance the steel project, or if they do either of those things, it is idle for us to hope to maintain our present position in Brazil; it is equally idle to talk of financial or economic plans on a large or [Page 50]small scale if these two matters are not taken care of … The time has come when we must decide whether keeping Brazil out of the German orbit is worth taking these risks, if they are risks, or not.
I repeat that … President Vargas and the Minister for Foreign Affairs, Aranha, agree with the Army on these questions. For the long run, it will be idle to discuss military cooperation or military defense in any other terms than these.