Memorandum of Telephone Conversation, by the Chief of the Division of Brazilian Affairs (Braddock)

On October 18, 1946 at 5:15 p.m. I telephoned Ambassador Pawley and informed him that the Export-Import Bank in a meeting held this morning had decided that the assurance received from Brazil on the Vale do Rio Doce case was not satisfactory in that it guaranteed nothing; and that Embassy Rio was being informed to this effect in a telegram. I told him that at our request a second telegram was being sent instructing the Embassy not to convey this information to the Brazilian Government yet if it thought the political reaction was going to be very bad. Ambassador Pawley interjected that the reaction [Page 502] would be “terrible”. I stated that BA was urging on the financial officials in the Department that we offer Brazil the alternative of guaranteeing the Vale do Bio Doce loan instead of putting up the money for the completion of the work. Ambassador Pawley approved of this and requested an effort be made to get Eximbank to consider and authorize this approach on Monday, October 21.

Ambassador Pawley said that he thought the best thing to do now was for him to call Acting Foreign Minister Gracie on the telephone and tell him that the written assurance that had been received was not what had been promised to him since it was not a straight guarantee with no strings, that he greatly feared that this assurance was not going to be acceptable to the Eximbank, and that this development was most regrettable since the United States Government wished to be able to help Brazil with the new loan. He proposed finding out from Gracie whether this assurance was the very best that could be obtained. (Ambassador Pawley stated that he knew for certain that the President of Brazil had no fund on which he could draw for the money required to finish the Rio Doce Project without getting prior approval from the Congress.)

I agreed with the Ambassador that the approach he suggested was probably the best in the circumstances, whereupon he said he would put in a call for Gracie at once.