NAG Files, Lot 60 D 1371

Memorandum by the Executive Director of the International Monetary Fund for the United States (Southard) to the Secretary of the National Advisory Council (Glendinning)

Document No. 1232

Subject: Possible Brazilian Drawing on the Fund

Mr. Octavio Paranagua, Executive Director of the International Monetary Fund for Brazil, has twice discussed with me (most recently on December 10, 1951) the possibility of a Brazilian drawing on the Fund primarily to cover the cost of unanticipated dollar wheat purchases made necessary by the failure of Argentine supplies.
Brazil’s dollar imports have been running at a very high rate—those from the United States alone reportedly averaging about $70 million per month. This high level of imports has apparently been largely due to a deliberate relaxation of restrictions on the assumption that availabilities of dollar goods might be much less should war break out or United States defense preparations be intensified, although inflation in Brazil has undoubtedly played a role. Whatever the cause of the increased imports, the result has been to run down Brazilian reserves from a high of about $220 million at the end of March (Government and bank dollar balances) to about $92 million at the end of October (preliminary figure) and no doubt even less at the end of November. From Mr. Paranagua, and from other sources, it is understood that some measures are being taken to reintroduce restraints on imports. But they will presumably not operate without a lag.
In addition to the drain on reserves due to increased imports, Brazil faces two repurchase obligations (one as of April 30, 1950 and the other as of April 30, 1951) which Mr. Paranagua believes will total the entire $65 million which Brazil has drawn on the Fund. With respect to these two obligations, Mr. Paranagua intends to propose that the first one, which he thinks will run between $15 million and $20 million, be made very promptly, without waiting for all of the procedural delays. It might be completed before the end of this month. As to the second one, he proposes that Brazil will wait out the permitted delays which can run as much as 60 days.
Mr. Paranagua states that after the first repurchase has been completed—i.e., around the first of the year—Brazil wishes to draw on the Fund approximately $15 million per month for three months to [Page 1236] cover the estimated monthly cost of the additional wheat imports. Meantime, he hopes that Brazil will take adequate measures to reverse the current drain on its dollar reserves.
On the whole, I am inclined to the view that the United States should be prepared to support such drawings by Brazil, on the understanding that Brazil would give a firm repurchase commitment. Mr. Paranagua has assured me that Brazil will give such a commitment if he recommends it, and that he is prepared to recommend it in terms of a maximum of three years, with the hope that Brazil would repurchase in less than that time. I should appreciate having the advice of the NAC Staff on this matter as promptly as possible.2
  1. Master file of the documents of the National Advisory Council on International Monetary and Financial Problems (NAC) for the years 1945–1958, as maintained by the Bureau of Economic Affairs in the Department of State and preserved as item 70 of Federal Records Center Accession 71 A 6682.
  2. On January 23, 1952, at meeting No. 188, the National Advisory Council unanimously approved Action No. 522, which reads as follows:

    “The National Advisory Council offers no objection to consideration by the U.S. Executive Director of the International Monetary Fund of a Brazilian request for a Fund drawing of $37.5 million, to cover current wheat requirements, with the understanding that Brazil will assume a firm commitment to repurchase previous drawings during June, July and August, 1952, and that Brazil will undertake to repay half the proposed drawing in 12 months and the balance in 18 months.” (NAC Files, Lot 60 D 137, Box 362)