832.51/1695: Telegram

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

18. We have informed the Council8 of the main points of the debt adjustment plan which the Finance Minister has been developing and of the informal efforts you have been making first to assure a larger total payment to American bondholders, and under any circumstances to procure better relative treatment.

The Council, without accepting any responsibility or indicating any judgment in the matter, has been reviewing the financial facts and suggests that a rearrangement of the following type would be a useful basis for improving the position of the American holders: that Grades I and III be combined, all of them being Federal obligations, the amount available for service in those two grades to be prorated equally among all the bonds, that Grades II, V and VI be similarly combined as they are all State obligations, and similarly treated, that the relative positions of Grades IV and VII be maintained as in [Page 567]the Aranha Plan, but that the bonds of the State of Ceara be included in Grade VII. Another alternative which the Council mentions is to give the bonds the following percentages of their contractual interest rate (note the percentages are of contractual service and not of service under the Aranha Plan): Grade I, 50 percent; Grade III, 30 percent; Grade IV, 20 percent; Grades II, V and VI, 15 percent; Grade VII, including Ceara, 10 percent.

The Department transmits these suggestions of the Council as of possible interest, without of course engaging its responsibility as regards an offer on these terms.

Hull
  1. Foreign Bondholders Protective Council.