832.6511/154: Telegram

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

315. The Department’s 278 of August 30, 6 p.m. Jones and Guinle Monday afternoon agreed on the essential portions of a proposed exchange of letters on the steel project. Jones is ready to sign as soon as various drafting questions and minor points are settled and Guinle, who has cabled the terms to his Government, receives authorization to sign.

The principal points of the draft letters as they now stand are as follows:

Contingent upon the investment by the Brazilian Government of milreis to the value of $25,000,000 in the form of junior money, the Export-Import Bank confirms its tentative commitment of $10,000,000 and will increase the commitment to a cumulative total of $20,000,000, as work progresses, for the purchase in the United States of materials and equipment for the mill and for the hiring of engineering and professional talent. The loan will be made to the Brazilian steel company endorsed by the Bank of Brazil and guaranteed by the Brazilian Government. Repayment will be made in 20 semiannual instalments, the first of which will become due 3 years from the date of the first advance. The loan will constitute a first claim against the mill and the Export-Import Bank shall have the privilege of concurring in the selection of managerial officers, engineers, contractors and materials. The Bank would expect the mill to employ officers and engineers experienced in the manufacture of steel in the United States until successful operation has been assured.

With regard to interest, Jones is asking 4 percent per annum during the first 3 years and 4½ percent thereafter, payable semi-annually. Guinle, we understand, would not make an issue of the 4½ percent rate, but Ambassador Martins informed President Vargas some weeks ago that Pierson agreed to a flat rate of 4 percent. When we see Jones tomorrow we shall take up this matter with the hope of settling upon a 4 percent rate throughout.

The texts of the letters will be sent you by telegraph when they are signed.