The Acting Secretary of State to the Ambassador in Brazil (Pawley)

No. 15

Sir: Reference is made to the Embassy’s despatch no. 4974 of May 6, 1946, transmitting the original and copies of letters addressed to the Export-Import Bank of Washington from Mr. R. K. West, regarding the Companhia Vale do Rio Doce.

The entire Itabira iron-ore project has been carefully studied by the Department and the Export-Import Bank. In as much as the Finance Minister has expressed unwillingness to advance the necessary funds to fulfill the obligations undertaken by the Brazilian Government in connection with this project, but such unwillingness has not been officially communicated to this Government, it is requested that the Embassy address an informal note to the Ministry of Foreign Affairs, pointing out Brazil’s original commitment in the Memorandum Agreement of March 3, 1942, stressing the fact that service on the Eximbank loan of $14 million is limited in time and conditioned upon eventual shipment and sale of iron-ore.

It is requested that when you deliver this Note you bring to the attention of the Brazilian Government, verbally, the unfavorable effects that might result to Brazil’s credit standing by not fulfilling the obligations undertaken in the Memorandum Agreement.

The following is the suggested text of an informal note which, subject to your discretion, it is considered should be transmitted to the Brazilian Government:

“The Embassy of the United States of America presents its compliments to the Brazilian Ministry of Foreign Affairs, and has the honor to refer to the Memorandum Agreement of March 3, 1942, entered into between the Governments of Brazil, Great Britain, and the United States of America, for the reconstruction of the Victoria–Minas Railway, the improvement of the port facilities at Victoria, and the development of the Itabira iron mines.

“Title to the Itabira iron-ore properties was delivered to the Brazilian Government as agreed. The Export-Import Bank of Washington extended a credit of $14 million under the terms and conditions of the Financing Agreement executed March 18, 1943, with the Companhia Vale do Rio Doce and the Brazilian Government, the repayment of the principal amount and interest thereon being limited in time and conditioned upon the sale and transportation of ore which cannot be effected in volume until the mine is equipped to produce and the railway reconstructed to transport the ore.

“The Brazilian Government, on the other hand (Article 8–b of the Memorandum Agreement of March 3, 1942), undertook ‘to pay the milreis (cruzeiros) expenditures in connection with the extension and [Page 498] rehabilitation of the (Victoria–Minas) Railway, the completion and expansion of the port facilities (Victoria) and the development of the Mines’.

“It was understood by all parties to the Memorandum Agreement that the entire project would be expedited as much as possible, and although it has been fraught with considerable delay, it is now estimated that by the advancement of adequate funds by the Brazilian Government, and employing the mechanized equipment and American contractors now present at the site, the project can be completed by the end of 1948.

“Therefore, the United States Government would appreciate being assured that the Brazilian Government intends to expedite the fulfillment of the obligations agreed to under the Memorandum Agreement of March 3, 1942, assuring thereby the repayment of the credit advanced by the Export-Import Bank of Washington.”

Very truly yours,

For the Acting Secretary of State:
William L. Clayton