811.20 Defense (M) Brazil/721a: Telegram
The Secretary of State to the Ambassador in Brazil (Caffery)
1532. Your 1804 of May 28.56 The general purpose of the development fund of 5 million dollars is to make available in Brazil funds for taking all action necessary to increase the production of raw rubber [Page 705] as fast as possible. Implied in this general purpose, however, is the limitation that the fund is not to be used unless, and only to the extent, it is needed for this purpose.
The fund is primarily available for subsidies without obligation of repayment. Included in such subsidies, per the terms of paragraph 4 of the agreement of March 3, 1942, are premiums for raw rubber purchased by the Rubber Reserve Company. These premiums are to be credited against the fund and turned over to the Brazilian Government to be expended by that Government for raw rubber development projects.
Where a request is made for a subsidy from the fund the governing consideration should be the importance of the project for which the subsidy is requested to expeditious production of raw rubber. Subject to this consideration, however, the following may also be taken into account: (1) Whether the project is commercially feasible on a profit basis without subsidy or with only partial subsidy; (2) If it is, whether there is assurance that it will be undertaken at the earliest possible moment regardless of a subsidy.
The fund is also available for loans. As in the case of subsidies, the governing consideration in passing upon a request for a loan is the importance of the project for which the loan is sought to expeditious production of raw rubber. Subject to this consideration, however, the following may also be taken into account: (1) Whether the project is such as is financed by loans according to the usual practice of the industry; (2) Whether the project is a sound risk according to ordinary standards of banking practice; (3) If it is a sound risk whether there is assurance that it will be financed by private sources of capital at the earliest possible moment. The amount of loans granted should be deducted from the fund in the same manner as subsidies in order to determine the balance on hand at any particular given time; but moneys received in repayment of the principal of such loans immediately should be returned to the fund and become available for re-expenditure.
It is suggested that in so far as possible requests for loans to finance projects which are commercially sound be granted from special funds to be set up by the Rubber Reserve Company. This would prevent undue depletion of the 5 million dollar fund which may be used to finance any project necessary to expedite raw rubber production regardless of how bad a commercial risk the project may be.
In accordance with what has been said previously with respect to granting subsidies from the fund, and for more specific guidance with respect to the same, the following are suggested as illustrative of projects meritorious of subsidy: This list is merely illustrative and is by no means to be considered as exhaustive.
[Page 706]- (1)
- The improvement of transportation and communication facilities, such as acquisition of vessels, building of roads into remote rubber producing areas (e. g., those in Matto Grosso), construction of airfields, and provision of short-wave radio transmitters to agents at key points within the Amazon Basin.
- (2)
- The preparation of facilities for tappers moving into production areas is likewise a primary expenditure to be met from the fund. This would include the building of houses and barracks, construction of supply and medicine depots (including launch dispensaries), movement of foods and medicines into the selected areas, and organization of subsistence agriculture (including provision of seeds and implements) in so far as necessary to assure food supplies and minimize import requirements from outside the Amazon system.
- (3)
- Distribution by public authority of food, tools, medicines and supplies for the tappers controlled so far as necessary to assure that they reach the tappers.
- (4)
- As the program expands, large-scale immigration into the Amazon may become essential. It is contemplated that this will involve large-scale preparations in advance of settlement and possibly subsidization of transport into the area and of operations there during a preliminary period.
In as much as the fund is set up to provide for direct developmental costs, salaries and general administrative overhead of Rubber Reserve officers in Brazil shall not under any circumstances be met from the fund.
With respect to arrangements heretofore proposed, on the basis of the foregoing the following treatment would be accorded. The supplies referred to in your 1484 of May 158 appear to be commercially profitable and only a financing problem is involved. The 500,000 dollar fund made available for that purpose will accordingly be restored to the fund to the extent repaid. On the other hand, the credit of $50,000 opened to build barracks and pay transportation does not appear to be a commercial undertaking and hence would be paid for out of the fund and reduce the amount thereafter to be available. The $500,000 made available for special loans pursuant to Department’s 1269 of May 1858 would be on the same basis as the $500,000 made available for financing the purchase of supplies. The expenditures of $50,000 each for projects approved by McAshan in Department’s 1365 of May 2758 would also presumably not be commercial propositions and hence paid for outright and finally from the fund.
Please advise whether you and McAshan concur in the foregoing.