832.51/1715: Telegram

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

33. Your 60, February 14, 10 p.m. The Department has considered carefully Aranha’s new suggestion. It notes that although American holders of securities of grades III to VI would receive a greater percentage of coupon than European holders of securities in such grades, Europeans, as holders of sterling bonds in grades I and II would receive 50 percent of coupon and amortization while American holders of precisely similar dollar securities would receive but 41.25 percent. Public reaction in the United States would undoubtedly be unfavorable to any debt offer of the Brazilian Government which discriminated in this way in favor of European holders in connection with the Federal and coffee realization bonds, and the Department, especially in view of the repeated statements of Brazilian authorities that Americans would get at least as favorable treatment as the Europeans, would not be able to approach the Council to give it a favorable reception.

The grading relationship in the last year of the Aranha Plan appears to provide a fairly equitable and reasonable distribution as among all parties concerned. The Department therefore, in so far as concerns distribution among the grades, would interpose no objection to any proposal based as regards dollar bonds on the last year of the Aranha Plan provided that in no grades the treatment accorded Europeans as regards percentage of coupon and of amortization is greater than that accorded American holders of securities in the same grades. If the Brazilian Government unilaterally offers to resume payment on such a basis offering to the American holders of dollar securities the suggested percentage (41.25 percent for the first year of the new plan) of the last year of the Aranha Plan, the Department will use its best offices to obtain for the offer as favorable a reception as possible from the Council, which has given no indication of attitude except for the suggestions it volunteered as reported in the Department’s 18, January 25.

Your 63, February 16. Aranha’s suggestion of February 16 would alter the grading relationship established under the Aranha Plan of 1934 to provide, as we understand your telegram, 50% of the interest for grades I and II during the last year of the Aranha plan throughout the 4 years of the new plan; and to provide for 40% of the amortization for grades I and II during the last year of the Aranha plan throughout the 4 years of the new plan. Your telegram might also be interpreted, however, to mean that Aranha’s suggestion of February [Page 573] 16 would alter the grading relationship established under the Aranha plan of 1934 insofar as it concerns grades I and II, demoting grade II slightly in order to give grade I uniform service of 50% of contractual interest and amortization. Although the Department hopes that the first interpretation is correct, it does not perceive that it need object to the proposal under either interpretation if it would serve to solve the difficulties on the European side, which apparently have stood in the way of a prompt announcement of the resumption of service under the new provisional basis.