Memorandum by the Economic and Finance Adviser of the Bureau of Inter-American Affairs (White)

top secret

Subject: Suggested Comments to be made in Mr. Miller’s Talk with President Vargas in Pursuance of Vargas’ communication of January 15, 1951

The following comments are arranged in the same chronological order as that used by Vargas in his message. In practice, Mr. Miller may desire to discuss the economic topics first, following with the political and military subjects.

1. Mr. Miller should first deliver to him a personal, written message from President Truman, together with a Portuguese translation. This message should be short and concentrated on four key points:

President Truman is delighted at Vargas’ message of cooperation and looks forward to the maintenance of the same close personal relationship which existed between Vargas and Roosevelt and which proved so fruitful for both countries.
President Truman is quite aware of Brazil’s potentialities and needs for economic expansion. In his recent budget message to Congress, he emphasized the need to pursue vigorously economic development and technical cooperation programs. The maintenance of close economic cooperation between Brazil and the U.S. is very important.
Collaboration in the military sphere between the two countries is of key importance. Immediate implementation of this collaboration could have important effects in demonstrating to the world that a situation of such strength exists as to give the Soviet Imperialists pause in their planning of future aggression.
Assistant Secretary Miller has discussed Vargas’ message with the responsible members of Truman’s administration and will discuss its various aspects with Vargas in a spirit of complete cooperation and mutual confidence.

2. Mr. Miller should say that President Vargas’ expression of desire to continue political and military cooperation is deeply appreciated. It is most timely because the moment for concrete action has arrived if peace is to be preserved or, failing that, to establish basis for defeat of Soviet aggressors’ attempt to enslave the free world.1

Political collaboration means continuation of Brazil–U.S. united front in active support of the principles of the United Nations and Inter-American Treaty of Reciprocal Assistance.2
In vital military sphere, designation by Brazil of a ground force of one division to participate in United Nations action in Korea would be most helpful.
In the event Brazil decides it can make such a contribution, its announcement at time of the Meeting of the Consultation of Foreign Ministers would have a most important effect and might prove a great influence on the future course of world events.
In the event Brazil makes such a decision, the U.S. is prepared to cooperate in making available training equipment and logistical support necessary to make Brazilian troop participation most effective.
The Government of the United States will be prepared in the near future to enter into discussions with the Government of Brazil regarding additional joint military measures which might be taken to mobilize against the possibility of an outbreak of general hostilities.

3. The Government of the United States agrees with the Brazilian Government that appropriate measures should be adopted to arrest inflation and has already taken vigorous fiscal and other measures to deal with this problem. In the case of Brazil, the report of the Joint Technical Commission3 made certain recommendations regarding this matter. The U.S. is prepared, through the instrumentality of the Joint Economic Development Commission,4 to provide such technical experts as the Brazilian Government might find useful in dealing with this problem. After consultation with other government agencies in Washington, I am pleased to inform you that the Government of the U.S. is prepared to follow the following basic principles in dealing with Brazil’s materials problem: (There should follow at this point a summary of the U.S. Government position on economic items on the agenda for the emergency Consultation Meeting of Foreign Ministers of the American republics, rephrased in terms of U.S.-Brazilian economic relations.)

4. It is agreed that American private investment in Brazil has over the long run been treated equitably and the American business community in Brazil is an enthusiastic supporter of the Brazilian people and of the prospects for the economic growth of Brazil. The Government of the U.S. is prepared, through the instrumentality of the Joint [Page 1193] Economic Development Commission to consider measures which, if adopted, would result in a satisfactory flow of private investment to Brazil within the limitations of the mobilization period. It is most doubtful, however, whether the U.S. Congress or the American people would support tax incentive devices at a time when the American public and corporations at home are being called upon for progressively higher taxes.

5. The Government of the U.S. is making every effort to integrate its lending and materials policies so that they may go hand in hand in the field of the economic development of Brazil. The principal problem is one of deciding, within the framework of Brazil’s long-term requirements, which projects are of the most essential character and best adapted to meet the requirements of the joint defense effort.

6. The Government of the U.S. has had very much in mind the importance of coffee to the Brazilian economy in the formulation of its price control policies. It will be noted that price ceilings, as now applied in the U.S., are at a level for coffee approximately five times pre-war as compared with a coefficient of approximately two times pre-war for the U.S. manufactured goods which Brazil traditionally purchases from the U.S. This reveals an extraordinary improvement in the terms of trade for Brazil, an improvement which is also apparent in the case of a number of other key Brazilian exports such as cacao. The maintenance of this basically favorable situation will depend in part on the success of Brazilian anti-inflationary measures in preventing the excess domestic purchasing power being created in Brazil by these commodity prices from reflecting itself in general price and wage rises in Brazil. The U.S. is cognizant of the fact that these commodity prices are resulting in an internal source of capital for Brazil. It is important that this capital be channeled into essential sectors of the economy.

7. Reference is made to the observations contained in Paragraph 5 above.

8. The Government of the U.S. has studied the Note5 of the Brazilian Ministry of Foreign Affairs in regard to the establishment of a Joint Economic Development Commission and has assumed that the policy of economic reciprocity between the two countries should be based on the basic premise set forth in that Note; namely, that the primary areas in the Brazilian economy requiring the most active financial and economic cooperation between Brazil and the U.S. are: (a) inland transportation, (b) agricultural development, (c) power development, and (d) development of mineral resources. This analysis coincides with the thesis of the report of the Joint Technical Commission which pointed out that the rate of economic growth in private [Page 1194] industries in the past decade had been much greater than these basic sectors of the economy, and that future economic growth in Brazil, including the growth of private industry, was dependent on a solution to the problems in these basic sectors.

The Government of the U.S. has assumed that the Joint Economic Development Commission would operate under the terms of reference of the Note from the Brazilian Ministry of Foreign Affairs.

9. The Government of the U.S. agrees that private initiative should be encouraged.

10. In accordance with the views expressed above, the Government of the U.S. believes that the activities of the Joint Economic Development Commission and the lending activities of the Eximbank and the International Bank should be concentrated on these four basic sectors. This does not exclude the possibility that in certain special cases such as the expansion of the National Steel Mill and the construction of the alkali plant, these lending institutions would be actively interested. It is believed, however, that the essential requirements of the basic sectors of the Brazilian economy are so large that, when taken together with the sensible desire of the Brazilian Government not to so over-burden its external debt position as to threaten its future stability, private investment, Brazilian and American, should be looked to as the source of financing for individual industrial expansion and future development of Brazil’s petroleum industry.

In defining the respective roles of the two lending institutions, it is believed that consideration might be given to the following ad hoc arrangement; it being understood that each project will have to be considered in the light of its individual merit and essentiality:

Eximbank : In view of its long history of credit operations in Brazilian railroad and shipping activities, it is believed that the Eximbank would be disposed to undertake active working relationships with the Brazilian Government and with the Joint Economic Development Commission in essential projects dealing with railroad rehabilitation and development, port works, aviation and any other essential transportation investment.
International Bank: It is believed that the International Bank, of which both the U.S. and Brazil are members, should be approached with a view to obtaining its active cooperation with the Brazilian Government and with the Joint Economic Development Commission in the development and execution of the essential projects in the field of agricultural production and energy production.
Both lending institutions have an interest in the field of mineral development, as demonstrated in the current Amapa and Urucum projects, and it is hoped that this interest will be continued.
Both institutions agree that proper management is a key element in economic development.

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There is attached a memorandum6 dealing with the fourteen specific economic development projects and programs set forth in the Vargas communication.

  1. For documentation concerning United States policy with respect to the Korean “emergency” in early 1951, see volume vii ; for related documentation dealing with United states national security policy, see vol. i, pp. 1 ff.
  2. For text of the Inter-American Treaty of Reciprocal Assistance (Rio Treaty), opened for signature at Rio de Janeiro on September 2, 1947, and entered into force for the United States, December 3, 1948, see Department of State Treaties and Other International Acts Series (TIAS), No. 1838, or 62 Stat. (pt. 2) 1681.
  3. The Joint Brazil–United States Technical Commission had been established in 1948. The commission’s report, popularly referred to as the “Abbink Report” (after the chairman of the United States section, John Abbink), was issued on March 24, 1949, as Department of State publication 3487. For previous documentation on the commission, see Foreign Relations, 1948, vol. ix, pp. 364375.
  4. The Joint Brazil–United States Economic Development Commission had been established by a formal exchange of notes on December 19, 1950; its activities were initiated on July 19, 1951. For documentation on the establishment of the commission, see ibid., 1950, vol. ii, pp. 757 ff. For Department of State press releases during 1951 concerning the commission, see Department of State Bulletin, May 21, 1951, p. 814; ibid., July 23, 1951, p. 156; ibid., October 8, 1951, p. 581; ibid., October 22, 1951, pp. 654–655. For the commission’s final report, see Institute of Inter-American Affairs, The Development of Brazil: Report of the Joint Brazil-United States Economic Development Commission (Washington, 1954).
  5. Not printed.
  6. Not attached to the source text. A draft copy of the memorandum in question, however, was found in the Department of State files under file number 832.00/1–3151.