832.51/12–849
Memorandum by the Assistant Officer ( O’Toole ) to the Officer in Charge of Brazilian Affairs ( Clark )
Subject: Chronology of Proposed Gold Loan for Liquidation of Brazilian Backlog.
In a memorandum to you, on March 15, 19491 I proposed that immediate steps be taken to sound out New York Federal Reserve Bank regarding a possible loan of $120 million, secured by Brazilian gold in possession of that bank and for the purpose of liquidating the so-called commercial backlog. It was further proposed that in the event of favorable action we seek to obtain the political advantage of having President Truman communicate this offer to President Dutra following his arrival in this country on May 18. At the time, you asked John Abbink what he thought of the proposal and he replied favorably, adding “but, a loan from New York Fed alone will not clear the air—a private loan, or a loan from the Fund will have to be made for the balance. I think a number of the New York banks would take up to $50 million in addition, if NY Fed led the way. I doubt anyone in President Dutra’s party will ask for a loan. Souza Costa may make some soundings”.
On March 21, in a second memorandum to you1 I set forth my disagreement with Abbink’s proposal to split the loan and gave my reasons therefor. On March 21 copies of my original proposal were sent to Messrs. Hayes (E),2 Corliss (FN), and Malenbaum (ED).3 From that point on the proposal was bandied about among OFD, FN, ED, the Treasury, the Federal Reserve Board, New York Fed, and (presumably) several New York banks, with a result that a number of variations of the original proposal were made. For example, on April 8, in a note to Mr. Thorp,1 Mr. Knapp sought authority “to get after the Federal Reserve system to take some constructive action to help clear up the backlog of commercial payments which has accumulated in Brazil”. On this occasion he proposed a gold loan of $160 million, of which $120 million was to be used to pay off the backlog [Page 586] and $40 million for refunding the balance due on an existing refunding of a Treasury stabilization loan. Moreover, he suggested the idea of Brazil selling part of its gold for liquidation of the backlog.
On April 15, Mr. Knapp, in another memorandum to Mr. Thorp,4 reported that, with the approval of a Governor of the Federal Reserve System, he had discussed this variation of the loan with an official of New York Fed who received the proposal favorably and promised to sound out various New York banks during the following week.
On April 21 Mr. Willis, Treasury, in a lengthy memorandum4 to Mr. Knapp came up with the idea that maturity of the $40 million balance of the outstanding Brazilian Treasury loan from New York Fed, should be extended and that Eximbank should open a $50 to $75 million credit for liquidation of the Brazilian commercial backlog on a contingency basis.
On April 28, 1949 you wrote a memorandum4 to Mr. Knapp clarifying our motives and position in the matter of the original loan proposal, emphasizing that President Dutra would arrive three weeks hence and requesting that a meeting be called to try to get some action. In the meantime our Rio Embassy, in response to a telegraphic inquiry from FN, expressed the opinion that the Brazilian Government would not strongly object to pledging gold against the originally proposed loan but would be unwilling to do so for a backlog liquidation loan from private banks. On May 3, you received a draft memorandum4 from Malenbaum to Thorp, intended for Under Secretary Webb’s signature, in which Mr. Malenbaum proposed taking up with President Dutra a number of matters to which you took exception in a memorandum4 to Messrs. Daniels, Rusk and Webb on the same date.
Up to the time of President Dutra’s arrival no action was taken on the loan proposals. On May 23, 1949 I was invited to attend a meeting in Mr. Knapp’s office along with a number of other people in the Department for the purpose of meeting and discussing Brazilian affairs with Mr. Octavio Bulhões of the Brazilian Ministry of Finance. In response to a question Mr. Bulhões opened the discussion by saying that he was acting informally but that he desired to find out what the Department’s thinking was with regard to the matters included in the joint statement of the American and Brazilian Presidents. He brought up the subject of the backlog liquidation and Mr. Abbink, who was; [Page 587] present, suggested the possibility of paying off the American exporters with notes which, by arrangement, could be discounted by Export Import Bank. Mr. Knapp told Mr. Bulhões that he himself would like to discuss the backlog situation and arranged to confer with him at a later date. Since that time there has been no action on the original loan proposal.