The Secretary of State to the Secretary of the Treasury (Morgenthau)

My Dear Mr. Secretary: I wish to acknowledge your letter of January 20, 1940 written to confirm the decision of the Treasury to abstain from participation in the present deliberations and negotiations having to do with the Brazilian debt. I realize the circumstances that have prompted this decision.

Though I think probably members of your Department understand the circumstances which have controlled our decisions, it might be well to review them for your information. Current discussions which are taking place in Rio de Janeiro arose out of the fact that our Ambassador in Rio de Janeiro reported to us that the Brazilian Government independently and on its own responsibility had reached a [Page 569]decision to make some kind of an offer to the holders of its external bonds now in complete default; it further reported that this action had been preceded by discussions with representatives of the European bondholders. The information which he sent to us regarding the character of the plans under consideration by the Brazilian Government was such as to lead us to believe that a real danger existed that events in this matter might develop into a very unsatisfactory outcome to the American bondholders. In the face of that possibility it was essential that the Ambassador informally advise the Brazilian authorities of our thoughts in the situation, while carefully avoiding any responsibility of action that the Brazilian Government might take more or less irrespective of our views. The situation seemed to make it a matter of imperative duty that we do what we could, within the limits of our established policy, to try to serve the American interests involved.

The subsequent instructions to the Ambassador were entirely dictated by this same purpose, and the time limits within which they had to be despatched and the manner in which they were handled was dictated entirely by the circumstances with which the Ambassador had to deal. In the first case we were required to get instruction to the Ambassador by noon on the basis of information received from him only at nine o’clock the same morning, and needed by him before a meeting of the Brazilian Cabinet in the early afternoon of the same day. In the second instance we were required to get the guiding instruction back to him in a similarly short period, so that he could take advantage of an opportunity afforded him by the Minister of Finance to present observations before the Minister of Finance met with the creditors’ representatives. These circumstances determined the timetable.

I understand too that my colleagues have been mindful of the obligations to the Foreign Bondholders Protective Council, and every care has been taken to in no way commit that organization, or anyone else, to the decisions the Brazilian Government might make. But the manner in which the situation has shaped itself up has made it impossible to exchange views with them. We have not, I repeat, undertaken to negotiate with the Brazilian Government. We have been faced by the fact, as reported by our representative, that it was very likely that the Brazilian Government would, on its own responsibility, undertake to make an offer to the bondholders and have tried to do the best we can to assure that if the Brazilian Government should do so, it would be as satisfactory an offer as they could be prevailed upon to make.

Sincerely yours,

Cordell Hull