The Acting Secretary of State to the Ambassador in Brazil (Caffery)
145. For the Ambassador and Pierson.83 The Department and the War and Navy Departments have agreed on a program of making available to the Brazilian Government $100,000,000 of military and naval material over the next 3 years or so. This program will be carried out, in general, under the lend-lease arrangements, but, since the organization for the lend-lease activities has not yet been perfected, it is not possible at this time to provide the Brazilian Government with full details regarding the terms and conditions which will eventually be worked out.
On March 25 I explained this to the Brazilian Ambassador who appeared gratified and to understand the situation. The Brazilian Ambassador stated that General Amaro84 was afraid that the terms proposed for the immediate credit of $12,000,000 to be handled through the Export-Import Bank would apply to the entire program, and I replied that there was no basis for this belief, that the terms and [Page 529] conditions of the remaining portion of the program would be the subject of special consideration in view of all of the circumstances. The Brazilian Ambassador also showed me a copy of a telegram from President Vargas stating
“The Brazilian Government is interested in securing through the Export-Import Bank a credit for the purchase of matériel for its Army, Navy, Air Force and Airplane Engine Factory, to be repaid, if such arrangement be acceptable to the United States Government, by delivery to the latter of strategic minerals such as manganese, mica, industrial diamonds, quartz crystals, rubber and others. Employ all activity and interest towards an understanding between the Brazilian Government and the United States Government to place these transactions on a practical base.”
The same afternoon the War Department handed to General Amaro a confidential memorandum stating
“It appears that, prior to accepting the pending loan to cover the purchase of $12,000,000 worth of armament which is included in the current Brazilian procurement program for approximately $80,000,000 worth of army munitions, the Government of Brazil desires some assurance that the $80,000,000 program will be approved by the Government of the United States so as to permit procurement within a reasonable time and generally on the basis of payment in raw materials.
I am authorized to convey to you the information that it is the considered opinion of the State and War Departments that the $80,000,000 Brazilian program will be approved on the above basis, subject to later agreement by the two Governments upon the details involved and with the understanding that while it is expected that a great part, if not all, of these army munitions will be procurable within the next succeeding 2½ years, it must be understood that unpredictable events may make it necessary to defer deliveries beyond that period.”
The Navy Department will extend similar assurances with regard to the $20,000,000 naval program.
In order that the Brazilian Government may proceed immediately with placing orders for military equipment procurable within the near future, an immediate arrangement will be made by the Export-Import Bank with the Brazilian Government to loan to the latter $12,000,000 for the purchase of defense material provided that the Brazilian Government will enter into a comprehensive contract for the sale to United States government agencies of certain materials of Brazilian production, listed by the United States Government as strategic or critical, at mutually agreed on prices, the proceeds of such sales to be used in part or in whole to amortize the credit herein contemplated. The credit will be made available as soon as the general terms for the purchase of the commodities have been agreed upon.[Page 530]
It is suggested that the proposed contract for the purchase of the commodities have the following main provisions:
- The buying agencies will agree to purchase designated amounts of the various commodities.
- Any exportation of these commodities from Brazil to private concerns in the United States will be applied against the quantities called for in the agreements with the buying agencies as it is not the intention to interfere with private purchases. Dollar exchange arising from such transactions will be considered outside this agreement.
- In the event that Brazil’s exportable surpluses of such materials exceed the quantities contracted for by the buying agencies, the buying agencies will purchase such an excess of exportable surpluses of suitable grades at the same prices. If, on the other hand, Brazil’s production available for export should fall below the quantities contracted for, no penalty for non-performance will be assessed.
- The contracts will be for a period of 2 years.
Certain special provisions will have to be worked out with regard to industrial diamonds, quartz crystals and mica as it is recognized that the variety of grades and sizes of these commodities makes definite agreement as to qualities, quantities or prices extremely difficult and producers of these materials especially cannot predict or control the types of material to be produced. Under these circumstances we suggest that private concerns in the United States continue to purchase such commodities freely on the same basis as heretofore except that the sellers and purchasers shall be requested to provide the Brazilian Government and the United States Government respectively with detailed statements as to quantities and grades of material purchased and prices paid. Any surpluses not so purchased which meet the specifications with regard to quality established for the United States governmental agencies will then be purchased by the latter. The prices to be paid by United States governmental agencies c. i. f. United States Atlantic ports shall be the average of the prices paid by the private concerns in the preceding quarter for material of comparable grade.
Your reaction to this suggestion or alternative suggestions from you will be appreciated. In connection with the above suggestion we point out that it may be that a representative of the United States purchasing agencies will be on the spot in Brazil to assist in working out this entire arrangement for the purchase of commodities.
In the case of such materials as manganese, rubber, chromite, and others in which neither the range of prices nor the diversity of grades is so great, it should be possible to negotiate purchase agreements for a 2 year period on the basis of prices currently prevailing. In view of the probable reluctance of the Brazilians to commit themselves for 2 years at present prices the United States governmental buying agencies would be willing to have a clause in the agreement providing [Page 531] for a review of the price situation at 6 months intervals and for a consideration of an increase in the price in case of a rising market provided that there be a similar commitment by the Brazilians to reduce prices in the event of a falling market. Prices should be reviewed in the light of published quotations in authoritative trade publications and in all cases should be stated in United States currency based on market quotations in the United States.
You have made recent estimates of the probable production of critical materials during the years 1941–1942. It is suggested that these estimates be used as a basis of figuring the probable quantities involved. There may be of course other commodities than those contained in your estimates which will be the subject of the buying agreement.