832.51/1718: Telegram

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

63. I do not like Aranha’s suggestion set out in my 60, February 14, 10 p.m. Interest rates on identical loans received by American and [Page 571] British bondholders respectively in the first year would be in grade I 2 and 2.5, grade II 2.9 and 3.5, grade III 1.44 and 1.14, grade VI State of Sao Paulo 8% loan 1.15 and .8, grade VII .9 and .6.

We would be getting $675,000 more under the plan based on the last year of the Aranha plan than under Costa’s plan. It might be difficult, however, to have our public understand the situation:

It would be necessary to explain to the public that we were being paid on the basis of 41.25% plus of the last year of the Aranha plan, while the Europeans were being paid 50% of the entire Aranha plan, the first year paid on the basis of 50% of the first year of that plan. In my opinion the European terms might sound better to the press and public.

Aranha this morning presented a new plan; interest and amortization would be paid at 50% and 40% respectively of the rates of the last year of the Aranha plan throughout the 4 years of the new plan for grades I and II and interest at 40%, 41%, 43% and 50% of the rates of the last year of the Aranha plan in the respective 4 successive years of the new plan for grades III to VII inclusive.

This plan would obviously cost the Brazilian Government considerably more money than any of the plans previously discussed; and we would get more money too than the other plans provided.

I strongly recommend a prompt expression of the Department’s opinion since final action will have to be taken very soon if Costa is not to be given an excuse for delaying execution of the new plan beyond April 1st when the semi-annual coupon on many American issues becomes due.