Memorandum by the Assistant Chief of the Division of Brazilian Affairs (Braddock) to the Chief of the Division (Chalmers)

I agree fully with Mr. O’Toole’s94 recommendation that the United States press Brazil vigorously to reach a satisfactory solution of the coffee realization bonds, whose service and retirement are now in default. The obligation is admitted by Brazil, and the Brazilian Government is financially able and morally bound to do something about the bonds.

Resumption of service and provision for gradual amortization would be easier to ask for than outright liquidation of the obligation because:

through our coffee ceiling prices95 we are restraining the coffee market, and to insist on sale while our ceilings are in force would be to put Brazil in a disadvantageous position (even though the coffee stocks securing the loan could be sold today at considerably more than the amount of the loan).
Brazilian coffee growers fear, rightly or wrongly, that if the stocks of bankers’ coffee were thrown on the market all at once, the coffee market would be disrupted.

As long as these bonds are in default, it will be difficult for the United States to entertain Brazilian requests for further loans from the United States. This matter should be cleared up with the least possible delay in order for the way to be opened for us to extend further financial help to Brazil with the confidence that Brazil will live up to her obligations.

  1. Richard F. O’Toole, Division of Brazilian Affairs.
  2. For documentation on discussions of coffee problems between Brazil and the United States, see pp. 504 ff.