800.515 B.W.A./7–849
The Assistant Chief of the Division of Brazilian
Affairs (
O’Toole
) to the Counselor
of Embassy in Brazil (
Brooks
)
confidential
Washington
, July 8,
1949.
Dear Clarence: There is enclosed a copy of
a despatch,1 and its
accompanying enclosure, that will go forward today or Monday. The
enclosure consists of a copy of a letter addressed to Mr. Thorp, on
June 24, by the United States Executive Director of the
International Monetary Fund. In this document the latter attempts to
refute the Brazilian position, as presented in the Embassy’s
despatch No. 497, of June 10,1 with respect to the rejection of Brazil’s recent
application for dollar drawings from IMF.
Jim Corliss2 agrees with me that the
United States Executive Director’s statements completely fail to
meet the real issues involved, and merely skirt them. You will note,
in particular, that he makes no reference to his statement to NAC (which I, myself, heard him make),
that the Brazilians acted in bad faith—the particulars of which
allegation were set forth more fully in my files memorandum of May
27,1 of which a
copy went forward to you.
I hope this finds you well and doing your best, under the load.
Best regards—
Sincerely,
[Page 578]
[Enclosure]
The United States Executive Director of the
International Monetary Fund (
Southard
) to the Assistant Secretary of State for
Economic Affairs (
Thorp
)
confidential
Washington
, June 24,
1949.
Dear Willard: I have read Report No.
497 of June 10, 1949, from Rio, in which the Embassy reports the
great disappointment among Brazilian officials over Brazil’s
inability to draw a second $15 million on the Fund. I noted
particularly the final paragraph which states that “The Embassy
feels that the refusal of Brazil’s second application is
unfortunate because … it is probable that the IMF has lost support in Brazilian
official circles and that the United States will bear a large
part of the onus.”
I realize that it is difficult to convey to officers in the field
the full sense of the reasons which dictate decisions of the
Government in Washington, and I am also aware that the State
Department has done its best to explain to the Embassy the
reasons why we proposed a delay in Fund action on the Brazilian
request. Possibly, however, another effort might be made to
emphasize to the Embassy the following aspects of the
situation.
- (a)
- The second request had to be considered against the
background of Brazilian assurances at the time of the first
request on April 1, that the exchange situation was in hand
and that it was opportune to make an attack on the problem
of arrears. It was clear at the end of May that these
expectations had not been borne out by the facts and that it
was altogether reasonable to expect the Brazilians to
demonstrate effective results before further drawings on the
Fund.
- (b)
- The United States has declared in the Fund that it will
approve drawings only where countries meet the test of
rather strict criteria. Brazil may be able to meet these
criteria if they carry out their stated intentions with
respect to the administration of their foreign exchange
resources and maintain firm controls over their internal
monetary and fiscal situation. But, in the meantime, the
U.S. Executive Director was in no position to relax the
application of these criteria in the case of Brazil.
- (c)
- The U.S. Executive Director did not argue that Brazil’s
financial difficulties are “permanent” nor did he object to
the use of a drawing to repay the Federal Reserve Bank
loan.
I am sending a copy of this letter to Assistant Secretary of the
Treasury Martin and to Mr. J. Burke Knapp.3
Sincerely yours,
