832.51/1708: Telegram

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

24. Your 45, January 31. For such use as may present itself, the memorandum of the British creditors prompts the following observations:

The assertion about ignoring “contractual rules” has no basis known to the Department. Reuben Clark in greater or lesser measure assented to the schedules in January 19349 when he could get no more satisfactory recognition for the grades of securities primarily in American hands; he carefully let the Aranha plan stand as a unilateral act. How an arrangement of relative percentages of payment contained in this plan should attain a higher degree of sanctity than the contracts contained in the original bonds is difficult for us to perceive.

As to Grade II, the Coffee Realization Loan, its “superior security” is irrelevant in the face of a general transfer moratorium. It may or may not be true as compared with various other loans engaging the full credit and responsibility of Brazilian public authorities. In short, the whole argument can be recognized as a defense of British interests in the form of an assertion of legal right.

  1. J. Reuben Clark, Jr., was at that time in Brazil as representative of the Foreign Bondholders Protective Council. See Foreign Relations, 1934, vol. iv, pp. 602 ff.