103.9151/2–1947
Memorandum by Mr. Richard F. O’Toole of the Division of Brazilian Affairs to the Chief of That Division (Dawson)
Subject: Liquidation of RDC’s Investment in the Banco de Credito da Borracha
In 1942 the predecessor of RDC invested $3 million in 40 percent of the capital stock of Banco de Credito da Borracha—the remainder [Page 481] having been furnished by the Brazilian Government through the Bank of Brazil. The Rubber Bank was established for the purpose of financing rubber production and development in connection with the war emergency.
In addition to paying 6 percent dividends on its stock, part of the Bank’s profits, amounting to several million dollars, was diverted to a fund for development of the Amazon country. The administration and disposal of this fund was exclusively vested in the President of Brazil. Rubber Development Corporation was represented on the Board of the Bank by two American directors.
In August 1946, when RDC began to liquidate its affairs and, following resignation of RDC’s directors on the Board of the Rubber Bank, our Rio Embassy addressed a formal note to the Brazilian Foreign Office regarding the desire of RDC to recapture its investment in the Bank. The note stated, substantially, that the US Government would appreciate prompt arrangements permitting withdrawal of RDC’s investment, on the basis of full reimbursement of its holdings in the Bank. Mention was also made that since the war emergency had ended further participation by this Government in the affairs of the Bank was considered both unnecessary and unwise.
A short time later RDC sent a representative (Holt) to Rio de Janeiro to assist in the negotiations while Valentim Bouças (Executive Director, Committee for the Control of the Washington Agreements) was authorized to act for the Brazilian Government. Mr. Bouças took the position that there was no obligation requiring the Brazilian Government to take over RDC’s investment in the Bank, a fact that was conceded. However, he claimed that during the preliminary discussions which led to the formation of the Bank it was understood that RDC’s investment would remain for the duration of the Bank’s charter,—20 years. Mr. Holt immediately challenged this statement and Bouças said that he would produce the minutes of a certain meeting to prove his statement. He was not able to do so, however, and announced that he would go to Washington to see Mr. Clayton68 who would confirm his statement. In the meantime officials of RDC, as well as Mr. Clayton, who had been informed of the matter, discussed it with former officials of Rubber Development Corporation who in every case denied that any such agreement had been made.
On several recent occasions Mr. Bouças has discussed the Banco de Credito da Borracha case with Mr. Clayton and a few days ago, during a telephone conversation from New York with RDC officials, referred to a letter he had written to Mr. Clayton on February 1069 and said [Page 482] that Mr. Clayton had told him that the matter was being studied. A copy of his letter has been obtained and it is important to note that it implies the possibility of the shares being purchased from the Bank at their nominal value, although on a trading basis whereby the consideration would be extension of our rubber purchase agreement from the present expiry date (June 30, 1947) to March 1948. RDC officials have told him that this is out of the question.
In my judgment the Minister of Finance70 is not so much opposed to taking over the investment as he is concerned with the practical consideration of the terms of payment. In recent discussions with officers of our Rio Embassy, regarding re-imbursement of a loan for surplus property purchases, he said that it would be easier for Brazil to liquidate this transaction with dollar exchange rather than to make available to the US Government cruzeiro currency. It is well-known that the Minister is adamant against any further currency issues for any purpose. In my judgment, our strategy should be that of trying to obtain an agreement of the Minister of Finance to take over RDC’s investment at its nominal value. The terms of repayment as to currency and time of repayment are really secondary matters and could be adapted to any reasonable proposal of the Brazilians.
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It is my belief that during recent negotiations in the Department Bouças has sensed a tendency in certain places to agree to a compromise in settling this case, probably along the lines of reduction in the amount of repayment and he therefore hopes to capitalize on this situation. I am convinced that if we stand pat and decline to take any reduction or to permit a tie in with any other proposal, that we shall get the agreement we desire.