The Ambassador in Brazil (Johnson) to the Department of State


840. For Asst Secy Miller. Embtel 836, January 5.1 We are greatly disturbed in Emb at implications decree limiting remittances of profits on fon capital. It understatement to say it will discourage entry of private fon capital.

After conf this morning with Emb officers and experts Amer Section Joint Econ Comm,2 I called on FonMin Fontoura3 to discuss matter. I told him I had not yet had time make thorough study decree and I had as yet no instrs from my govt to make any comment. I said, however, that on basis my very real concern for successful progress Joint Comm in which both countries interested and for protection Amer interests already established here, I felt compelled express my apprehension that this decree together with certain statements in President’s speech4 re fon capital a day or two ago wld be interpreted in Wash as extreme trend toward nationalism and wld be a definite discouragement to all those endeavoring encourage flow of private capital to Braz for its econ development. I called his attention particularly to the provision that profit remittances in the past in excess of 8 percent of capital brought in from abroad will be considered as remittances of capital. In some cases this will mean all orig capital brought in from abroad has been repatriated and firms in question will therefore not be permitted make future profit remittances. … FonMin attempted defend doctrine that earnings plowed back into fon enterprise cld not be considered as fon investment on ground that this compounding feature wld drain away so much exchange Braz balance of payments cld not stand it.

It obvious FonMin had not been consulted by President Vargas in regard this decree and that he himself is seriously disturbed by it. He made several comments not relevant to technical features of decree but in attempted explanation of why it was issued. Although stating emphatically President is not opposed to entry fon capital and is not pursuing blindly nationalistic policy, his admin is nevertheless in so weak a position politically that he is faced with two alternatives, one is [Page 572] to take over by coup d’etat and rule by decree, the other is to remain loyal to 1946 constitution and govern according to that constitution. He had chosen latter way. In order be able govern at all under that dispensation, without even a simple majority his party in Congress, he is compelled gauge carefully opinion of all elements of opposition, to conciliate sections of that opinion and to secure their support. He has, therefore, been compelled take certain measures (and FonMin implied present decree is one of them) which will strengthen his support amongst the masses and give them feeling he is really doing something in their interest. FonMin remarked he wld make a comment to me which he as member of Vargas cabinet had no right to make. He asked if it had ever occurred to me Vargas might not be able to finish his term. This was said to emphasize his point that President is compelled make polit compensations in order hold things together and to combat ceaseless undermining of Commies which has reached proportions that have authorities here gravely concerned.

Argument that Braz will not have exchange possibilities to allow fon capital to be repatriated with earnings on any basis except that of orig investment may sound plausible from nationalist point of view but it seems to us here will have disastrous effect on entry fon capital so vital to Braz econ development. Question retroactive effect injuring vested interests which have operated under old decree and in good faith appears technically to be different matter and one on which we wld have every sound legal grounds for protest.

It wld be helpful have this decree carefully studied by Dept’s legal experts and for Emb to be given benefit any views which may result and of any instrs which Dept may care give. It wld be helpful if my informal representations of today might receive Dept’s support and with such direct instrs for further comment as may seem justified after full study question. Dept may care consult reps Eximbank and IBRD since this present decree, regardless FonMin’s statements, seems certain to appear as total discouragement of fon private investment and may seriously undermine concept on which Joint Comm has been erected.5

  1. Not printed.
  2. Reference is to the Joint Brazil–United States Economic Development Commission (JBUSEDC), which initiated its activities on July 19, 1951.
  3. Joāo Neves da Fontoura, Brazilian Minister for Foreign Affairs.
  4. The referenced speech, delivered by President Vargas on Jan. 1, 1952, is reported in telegram 824, from Rio de Janeiro, dated Jan. 2, 1952 (832.131/1–252).
  5. Department of State telegram 614, to Rio de Janeiro, drafted by Assistant Secretary Miller, dated Jan. 7, 1952, reads in part as follows: “Very much appreciate urtel 836 Jan 5 and completely concur ur analysis and especially with ur views concept on which Joint Comm has been created may be seriously undermined. Business circles here naturally bombarding Dept with questions and we are certain to come under heavy pressure engage in reprisals through holding up loans, etc.” (832.131/1–552)

    In a memorandum to Assistant Chief for Exchange Restrictions and Payments Agreements Mortimer D. Goldstein, dated Jan. 8, 1952, Deputy Assistant Legal Adviser for Economic Affairs Stanley D. Metzger stated that the Brazilian decree governing remittances did not violate international commitments of Brazil to the United States with respect to either the General Agreement on Tariffs and Trade (GATT) or the Articles of Agreement of the International Monetary Fund, and that such alleged violations should not be used as the basis for any representations to Brazil regarding the decree (832.131/1–852).