832.61333/4–2946

Memorandum by Mr. Richard F. O’Toole of the Division of Brazilian Affairs to the Associate Chief of the International Resources Division (Cale)

confidential

Your memorandum of April 107 (copy of which was received in BA a few days ago) refers to a meeting with Mr. Eurico Penteado, Brazilian delegate to the Inter-American Coffee Board, in which you and several representatives of OPA participated.

On behalf of his Government the Brazilian delegate proposed, in effect, the removal of coffee price ceilings against an undertaking of the Brazilian Government to offer for sale on the American market [Page 491]over a six months period up to 3,000,000 bags of coffee at a price of three cents per pound above current ceiling prices. Mr. Penteado also stated that 3,000,000 bags is the maximum amount which his Government could sell despite the fact that it “owns” slightly more than 6,000,000 bags of coffee,—including bankers’ stocks. By way of explanation he then added that of the 6,000,000 bags approximately 4,500,000 are of exportable types but that only 3,000,000 bags (of the 4,500,000) are useable in the United States.

As you know, these so-called bankers’ stocks are not the property of the Brazilian Government but constitute collateral for repayment of the Coffee Realization Loan of 1930, a substantial part of which is still outstanding and unpaid.

On February 21, 1946, pursuant to the Department’s request for information about the outstanding balance of this loan, as well as particulars of the collateral held, an official of our Embassy at Rio de Janeiro received the following information from the President of the National Coffee Department of Brazil:8

1.
As of December 31, 1945 the so-called bankers’ stocks consisted of 6,052,638 bags of coffee worth $101,000,000.00.
2.
The average quality was Type 5 Santos.
3.
As of December 31, 1945 the par values of outstanding bonds of this loan, guaranteed by coffee, were U. S. $12,825,500.00 and Pounds Sterling 4,272,920–/–, respectively.
4.
The President of the National Coffee Department knew of no recent reduction of the outstanding loan balance nor had he heard of any since October 1945.

If the statements of the Brazilian delegate, as set forth in your memorandum of April 10, about government stocks of coffee are compared with the information furnished by the President of the National Coffee Department, it is evident that extreme caution should be exercised in any coffee price ceiling discussions involving the sale of coffee owned or controlled by the Brazilian Government. Otherwise, this Government may find itself a party to the wrongful conversion of these pledged stocks of coffee.

If, as stated by the President of the National Coffee Department, on February 21 of this year, the so-called bankers’ stocks consist of 6,052,638 bags of coffee then Mr. Penteado’s statement that his Government “owns” slightly more than 6,000,000 bags of coffee, including the bankers’ stocks, should be considered in light of previous information in possession of the Department that some of this pledged coffee was sold without consulting the bankers.

If, in fact, Mr. Penteado is proposing that his Government will sell any part of these bankers’ stocks then it becomes this Government’s duty to insist vigorously that:— [Page 492]

a.
the Brazilian Government agree to call for redemption the outstanding bonds of the Coffee Realization Loan.
b.
the Brazilian coffee export tax of Cr$12.00 per bag be terminated forthwith, since the purpose of this tax is to service the Coffee Realization Loan.
c.
Coffee offered for sale should be sold at current ceiling prices and not at a premium of three cents per pound as proposed. Otherwise it would mean a gift of about $24,000,000 which would be particularly repugnant in light of the facts that the dollar equivalent of the outstanding loan is not quite $30,000,000, the value of the coffee held as collateral is $101,000,000, and the subsidy payments to June 30 of this year will have cost our taxpayers in the neighborhood of $50,000,000.

Finally, if, as Mr. Penteado has substantially stated, only 3,000,000 bags of his Government’s coffee stocks (including bankers’ stocks) are of a quality suitable for American requirements then it is a reasonable conclusion that the bankers’ stocks coffees are far from being Type 5 Santos as they are supposed to be and as the loan contract requires.

  1. Not printed.
  2. Ovidio de Abreu.