Foreign Relations of the United States, Diplomatic Papers, 1943, The American Republics, Volume V

832.51/2162

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

No. 11934

Rio de Janeiro, July 10, 1943.
[Received July 16.]

Sir: Referring to the Department’s instruction No. 4703 of July 1, 1943,⁵ and to my telegram No. 2993 of June 19, 1943, 2 p.m., and despatch No. 11,735 of June 24, 1943,⁶ I have the honor to submit for the Department’s use a voluntary report, dated July 6, 1943, prepared by two officers of the Embassy and titled: “The Proposed Settlement of Brazil’s Sterling and Dollar Funded Debt.”⁷

The report’s outline of Brazil’s fiscal and exchange position is necessarily incomplete because of the lack of adequate data from Brazilian Government sources, but it is believed to be substantially correct. The Department’s special attention is directed to the sections of the report which contain an analysis of the proposed settlement and which suggest an alternative approach to this problem.

With regard to the copy of the memorandum enclosed with the Department’s instruction under reference, it will be recalled that in November, 1942, the local representative of the British bondholders had expressed a desire to have Mr. Clarence Dillon represent American interests in the debt negotiation, and that the Department in its instruction No. 3818 of December 19, 1942,⁸ confirmed the Embassy’s belief that this suggestion was designed to strengthen the interests of Federal bondholders, which would, in view of the distribution of Brazil’s external issues, work to the advantage of the British bondholders. The conversation reported in the memorandum under reference appears to reflect a further move in this direction, or at least to remove from the scene of negotiations this Embassy and to substitute some person less well acquainted with Brazil’s current economic situation and lacking the close working relationships which exist between Embassy personnel and the Brazilian officials who would be responsible for the debt settlement.

In this connection, it is pointed out that my Counselor for Economic Affairs is in contact with the Finance Minister on this matter, and that the results of their conversations have been reported to the Department. Furthermore, Third Secretary Ivan White, who prepared the main part of the attached report, is thoroughly familiar with the basic financial and economic problems concerned, and has close working relationships with the economists in the Finance Ministry who do the research and other technical works related to Brazil’s financial negotiations. This Embassy personnel is available to extend any appropriate assistance to such representation as the Foreign Bondholders Protective Council may designate for negotiation purposes.

The Embassy has no objection to the Department, in its discretion, making available to the Council’s officers the attached report. It should be mentioned, however, that certain of the data, particularly those related to exchange position, were transmitted to the Embassy on a strictly confidential basis, and that they are not subject to publication, public attribution or widespread distribution.

Respectfully yours,

For the Ambassador:

Walter J. Donnelly

Counselor of Embassy for Economic Affairs

5. Not printed; in this instruction (832.51/2168a) the Department transmitted a memorandum of conversation between British and Department of State representatives on the Brazilian debt question, which indicated that the time was ripe for negotiations (832.51/2183).
6. Despatch not printed.
7. Report No. 391, not printed. For proposals presented to the Brazilian authorities pursuant to this report, see memorandum by the Second Secretary of Embassy in Brazil, September 21, p. 772.
8. Not printed.