811.20 Defense (M) Brazil/2594: Airgram
The Ambassador in Brazil (Caffery) to the Secretary of State
[Received February 12—4 p.m.]
A–219. The Minister of Finance27 invited the Counselor of Embassy for Economic Affairs28 to his office on February 1, to discuss the exportation of Brazilian crude rubber to Argentina. The Minister said that President Vargas had instructed him to study the problem [Page 665] with a view to reducing Brazil’s annual internal quota of crude rubber and exporting the difference to Argentina. The Minister said that he had informed the President that the Brazilian Government had not actually agreed to a quota for consumption in Brazil, but that he had indicated a maximum figure of 10,000 tons per year. The Minister also stated that this figure could be increased or decreased (which is unlikely), according to the situation in Brazil, but that all crude rubber in excess of Brazil’s requirements is reserved for exportation to the United States.
The Minister said that President Vargas had instructed Dr. Botelho, Commercial Counselor of the Brazilian Embassy in Argentina, to call on him and that Dr. Botelho has stressed the desirability of sending crude rubber to Argentina in order to relieve the serious situation there.
The Minister requested the comments of the Counselor of Embassy for Economic Affairs, who asserted that it would violate the rubber agreement between the Governments of the United States and Brazil,29 and would prejudice all of the wartime agreements between the two countries. He pointed out that the Embassy would not consult the Department on this point because the Department’s position is very clear, also that the Department would be greatly disappointed to learn that the Brazilian Government is even considering such a proposal. The Economic Counselor then recalled the recent unfortunate experience in connection with the exportation of small quantities of crude rubber to Chile, and that this development had had a serious effect on our rubber procurement program in the Amazon Valley because the rubber exporters had been told that Chile was buying rubber at $1.75 per pound, as against our purchase price of 45 cents per pound. He observed that the rubber exporters in the Amazon Valley had not taken into account the large sums of money now being spent by the Rubber Reserve Company there for the procurement of rubber, but that the Minister was well aware of the expenditures and efforts being made by the two Governments to increase the production of crude rubber for the war program.
The Minister of Finance said that he would again discuss the matter with the President and that he would repeat his former statement to President Vargas that it would be a serious mistake to even consider the proposal. The Minister added that pressure is being brought to bear on President Vargas from all sides and that the Argentine Ambassador30 is behind the move. The Minister requested the Embassy not to refer the matter to Washington because he felt [Page 666] that he could convince the President of the undesirability of permits ting the exportation of crude rubber except to the United States.
The Embassy is reliably informed that Souza Costa and not the President is responsible for the inquiry. It is stated that Souza Costa is apprehensive of the financial situation in Argentina and desires to liquidate Brazil’s credit position with Argentina, resulting from the compensation trade agreement, as quickly as possible. It appears that the Argentines are making rubber a condition to prompt settlement of the trade balance.
I shall keep the Department informed of any new developments.