832.51/1688

The Ambassador in Brazil (Caffery) to the Secretary of State

No. 2345

Sir: With reference to the Department’s telegram No. 249 of December 29, 7 p.m.,2 authorizing me to participate informally and independently in debt discussions with the Brazilian authorities for the purpose of ascertaining what terms the Brazilians are prepared to offer, I have the honor to enclose copies of a letter3 and memorandum that I have sent to the Minister for Foreign Affairs3a following my recent conversation with him on the subject mentioned in my telegram No. 461 of December 30, 10 p.m.4

No discussions are being carried on with the Europeans at present.

I have the honor to suggest that the Treasury Department be informed appropriately.

Respectfully yours,

Jefferson Caffery
[Enclosure]

Memorandum From the American Embassy to the Brazilian Ministry for Foreign Affairs

Is this a correct statement of the position of the Brazilian Government in regard to the dollar bonds of the Brazilian foreign debt?

The dollar bonds of all issues, state and municipal as well as Federal, are to be serviced.

The relative positions of the dollar issues in the Aranha Plan5 will be preserved so that no dollar issue will receive service relatively less favorable than any issue in other currencies on the basis of the Aranha Plan schedules.

No agreement is to be made with other bondholders prior to an agreement with the American bondholders.

[Page 560]

The state and municipal governments will obligate themselves in due form to provide the milreis payments on their foreign bonds up to the amount agreed upon.

The Federal Government will give appropriate guarantees to provide the foreign exchange required for the transfer of the payments of the states and municipalities as well as those of the Federal Government itself.

If this is a correct interpretation, the Embassy would be happy to hear what amounts in dollars will be available for the Federal dollar issues and what amounts in dollars will be available for the state and municipal dollar issues.