832.10/8–2350

The Assistant Secretary of State for Inter-American Affairs (Miller) to the Ambassador in Brazil (Johnson)

confidential

Dear Herschel: I think that I should forewarn you about a forthcoming development in the Latin American lending field which will probably send the Brazilians scurrying back to the wailing wall from which the recent Volta Redonda loan1 temporarily removed them. It now appears that arrangements have been concluded for the Export-Import Bank Board on August 31 to authorize the extension of a $150 million credit to Mexico for general development purposes [Page 761]on the basis of specific project loans to be approved from time to time under the general credit.2 Simultaneously the Bank may authorize a $30 million loan under the credit for irrigation purposes. Both actions on the part of the Bank will be announced on September 1st by both Governments and, in the case of Mexico, will be announced in person by President Aleman in his State of the Nation address at the opening of the Mexican Congress.

Added to the $125 million Argentine credit3 and the $100 million loan to Australia4 announced yesterday by the International Bank, I am afraid that the Brazilians may be angrier than ever when they hear about the Mexican credit.

The Mexican credit has a long background involving a personal commitment from President Truman to President Aleman in regard to a petroleum loan which became all snarled up after the intervention of a Congressional committee which publicly promised Mexico a $450 million loan for oil development which was, of course, fantastic. After the collapse last summer of the negotiations with Mexico for a smaller credit for refining, transportation and distribution, the proposed petroleum loan continued to hang over our relations with Mexico and cause considerable bitterness in some circles in both countries. The Department has never been enthusiastic about a loan to Mexico for any phase of its petroleum industry because of the embarrassing position that such a loan would put us in vis-à-vis countries such as Brazil and Chile, to whom we have denied loans for any phase of the petroleum industry, including refining.5 … I am naturally concerned about reactions to this in Brazil. It is, of course, useless for us to try to argue with Brazil that during the last two years they have received $130 million in productive development loans from the International Bank and the Export-Import Bank, with excellent possibilities for another $40 million in the next couple of months ($31 million as Brazil’s share of the American & Foreign Power expansion program, already approved by NAC and awaiting submission of necessary documentation to the Eximbank by the Company,6 and $10 million of credits under the Minas Gerais application). Nevertheless I am trying hard to bring this fact to the attention of some writers in the United States, and I think it would be well if you could have some friendly newspapermen in [Page 762]Brazil take cognizance of this fact in editorials. I do not believe that the average Brazilian has any conception of the magnitude of our effort to help Brazil largely because it has been dribbled out in relatively small quantities at a time so that there is no great dramatic figure such as $150 million credit for Mexico.

Even more would have been done for Brazil recently if it were not for the existence of a jurisdictional dispute between the International Bank and the Eximbank. Gene Black7 claims that his institution is the chosen instrument for long-term development lending programs and that the Eximbank should, in the case of Brazil, confine itself to short-term financing directly related to trade promotion (which, he says, was the Bank’s original objective) and continuation of programs which the Eximbank has already undertaken such as Volta Redonda and Rio Doce.8 This dispute flared up when the Eximbank asked the NAC for authority to consider the total Minas Gerais program of about $40 million,9 The Treasury and NAC ruled in favor of the International Bank so that the Eximbank is going to do only two or three short-term projects under the Minas application and send the remainder of the program over to the International Bank. (I should add that the Department’s feeling that the manganese application10 should go to Eximbank is based on the strategic character of this loan and our particular national interest in it. It will obviously be impossible ever to delimit exactly the respective functions of the two institutions.

With the atmosphere cleared to some extent as to the jurisdictional problem, Gene Black now seems anxious to go ahead to do a job with Brazil. I have talked with him at length recently and our talks culminated in a conversation which I had the night before last on the eve [Page 763]of his departure for Paris to attend the Board of Governors meeting of the Bank and Fund. He says that he is bullish about Brazil’s future and its ability to absorb capital investment and that he is prepared to tell the Brazilians that the Bank is ready to go ahead with them on a long-term development program. He may even be willing to announce a tentative figure of loans over a five-year period. He is also willing to help the Brazilians get up their projects. He authorized me to communicate all this to the Brazilians and I called in Nabuco11 and told him all of this yesterday. He also said that he was planning to visit Brazil in October or November and would be prepared to talk turkey down there then.

It seems to me that it might be well for Shelly to discuss with Bulhoes and Gudin ways and means by which the Brazilians could prepare for Black’s visit and present to him a sensible program when he gets there. I asked him whether he would be well [willing?] to announce a large loan to Brazil as in the case of the Australian announcement yesterday but he said that he doubted it since he did not think that they would be able to get up their development projects as effectively as the Australians, who apparently made an excellent presentation. As you know, one of the things that has held up the Minas application has been its rather skimpy character.

We are anxious to do everything possible to help Brazil and I think that Black’s visit will give you all good opportunity to get started on the right foot.

Sincerely yours,

Edward G. Miller, Jr.
  1. On July 20, 1950, the Export-Import Bank had authorized a credit of $25 million to the government-owned Cia. Siderurgica Nacional for the financing of steel mill equipment at its plant at Volta Redonda. Regarding this plant, the Department’s Policy Statement for Brazil of December 18, 1950, includes this statement under the heading “Strategic Materials”:

    “It has been anticipated that in the event of another major war, Brazil would most certainly demand as a quid pro quo for her essential materials some sort of guarantee from the United States for the supply of those minimum essential requirements necessary to the country’s economy. With this in mind every possible encouragement has been given to Brazil’s efforts to increase her productive capacity of these essential items, with particular attention given to steel. Substantial loans have been granted to the National Steel Company of Brazil by the Export-Import Bank for the development of the Volta Redonda steel plant and the situation has improved to the point where Brazil now supplies a large portion of the national demand for pig iron and other rough and semi-finished steel products. Production facilities for rolled sheets and finished forms are insufficient.” (611.32/12–1850)

  2. For documentation on this loan, see pp. 936 ff.
  3. For documentation on this loan, see pp. 691 ff.
  4. For documentation on this loan, see vol. vi, pp. 189 ff.
  5. With regard to petroleum, the Policy Statement cited in footnote 1 above includes under the heading “Strategic Materials”, this statement:

    “In the field of petroleum production we have rendered technical assistance where possible and should continue to try to convince the Brazilians that they should enact legislation which would provide a favorable atmosphere for the investment of foreign private capital in the field of petroleum exploration and development.”

  6. Action was not completed on any loans of the Export-Import Bank to the American and Foreign Power Company during 1950.
  7. Eugene R. Black, President of the International Bank for Reconstruction and Development.
  8. The Export-Import Bank had on three occasions authorized credits to Companhia Vale do Rio Doce for the purchase of railway and mining equipment. At the time its latest authorization was one of February 19, 1947, in the amount of $7.5 million.
  9. No action on the application of the Brazilian State of Minas Gerais for loan funds to finance a diverse set of projects was completed during 1950 by either the Export-Import Bank or the IBRD. A detailed description of Minas Gerais projects is in NAC Staff Document 433, June 21, 1950, apparently written before the IBRD was assigned primary responsibility for them. Neither minutes of the NAC proper nor minutes of its Staff Committee indicate that the Minas Gerais applications received formal NAC consideration during 1950. (NAC Files, Lot 60 D137)
  10. By the end of 1950, the Export-Import Bank had under active consideration an application from the Brazilian associate of U.S. Steel to develop a manganese deposit at Urucum, while a Brazilian partner of Bethlehem Steel Company had submitted an application for $35 million from the IBRD to aid in the exploitation of a deposit in the Province of Amapa. (Files 832.2547 and 832.10 for 1950)

    A letter of November 1, 1950, to Mr. Miller from Ivan B. White, ARA’s Economic Adviser, indicated in part that the United States had by then dropped its opposition to IBRD financing in the ease of Amapa. (832.2547/11–150)

    During 1950, U.S. access to monazite deposits was also under discussion between U.S. and Brazilian officials. Documentation is scheduled for publication in volume i.

  11. Mauricio Nabuco, Ambassador of Brazil to the United States.