832.00 TA/3–1152:Telegram

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


1112. For Asst Secy Miller. Embtels 1109, Mar 10,1 and 1101, Mar 7,2 urlet Mar 4.3 I met yesterday afternoon with FonMin and contd discussion reported Embtel 1109. It evident FonMin deeply concerned about possible effect of banks withholding action on Joint Comm projects until satis Braz action on exchange decree. His views which appeared to me slightly over-emphasized but perhaps not intentionally so are substantially as fols:

There are two groups in Braz whose activities and intentions are hostile to US-Braz collaboration. One of these groups is Commie whose motives are known and require no particular discussion relation present situation. Other group composed people who profess profound skepticism at practical possibility of any benefit to result to Braz through coop with US. This group at present moment is focusing its attacks on Lafer4 who is staunch proponent Braz-US collaboration. Any indication that banks are withholding action on Joint Comm projects as means of pressure on Braz Govt wld be according to FonMin immed pointed to by Lafer’s enemies as proof that US lacks sincerity and that loans so confidently promised by Lafer wld never materialize. As much as FonMin wld like have banks issue favorable statement re these projects, he wld not want them to issue any statement if it were coupled with reservation re Braz on exchange decree. He professed belief it wld have damaging effect on position Lafer in particular and on those elements in govt who are struggling for effective coop with US. FonMin further stated that if Lafer shld lose out in his present fight, he wld unquestionably be replaced by some one not favorable to close coop with US, that it wld mean a serious setback for all proponents of that collaboration. He considers it particularly unfortunate that this crisis has arisen just at moment when US and Braz are approaching agreement on various important matters long under study. He mentioned specifically this connection mil agreement and pending discussions on sales of monazite and still unconcluded manganese and uranium questions. All these matters are progressing favorably he said, the two latter being under active study. While he did not specifically say so, he indicated that a polit crisis which wld result in Lafer’s departure might jeopardize or seriously retard our agreement on other matters. [Page 574] Attacks on Lafer and Joint Comm have not been caused by US reactions to decree but according to FonMin are motivated by desire to get rid of Lafer who is sound and conservative FinMin intent on curbing public expenditures and imposing regime of austerity on govt depts. This is maddening to other group which also has ear of Pres and whose real desire according to FonMin is to destroy Lafer so they can “get their hands into the public treasury”. This group therefore seizes on any angle from which to attack MinFin. Recent disaster with many fatalities of central railway has given new ammunition to attack MinFin and Joint Comm for failure expedite necessary financing of railway improvements.

Pressures from various quarters for a “get-tough policy” described urlet Mar 4 are known to both Fon and Fin Mins. I have personally been at particular pains to point out to them on repeated occasions our practical difficulties, and our disagreement with them on subj fon exchange decree. I referred to this point again in my talk with FonMin yesterday urging that he and MinFin facilitate our task of trying to help Braz by speeding up as much as possible action on fon exchange decree which MinFin’s comite now trying work out in practical terms. I urged him not to let us get caught in a vicious circle of conflicting polit difficulties. I told him that I understood and sympathized with difficult position which MinFin was passing at present and asked him to realize that my own govt likewise had difficulties in maintaining its position without public evidence of corresponding understanding and action from Braz side. I very much appreciate stand Dept has taken and hope it will continue to press view on banks that processing of these agreed projects shld go forward in normal manner. While I am not able to share in full degree FonMin’s pessimism re possible results Lafer’s losing out, I nevertheless think that his departure from FinMin on this issue wld be grave setback to our interests in Braz. I believe I realize difficulty of dealing with dissident business groups in US. I hope, however, that banks can continue to be urged to resist undue pressure from this quarter and proceed firmly on basis confidence in good faith Braz and her Fon and Fin Mins. In my opinion we have nothing to lose by supporting our friends in this govt. If fortified by our confidence and support they win, as I believe they can, we shld be in better case than before. If they lose out and we shld be forced to reconsider our position and measures for safeguarding Amer interests, we wld be no worse off than if we take a “get-tough attitude” now for I do not believe Vargas from a polit point of view cld voluntarily yield to US pressure. If eventually forced to do so through overriding econ facts and circumstances, we wld have aroused a deep and abiding [Page 575] hostility which wld play into hands of those elements who for whatever reason desire to diminish Amer influence and interests here.

Lafer is more calm and restrained than Neves in expressing his views and seems more confident his position with the Pres than above-reported remarks of FonMin wld indicate. However, when I saw him at the office on Mar 6 after a bad day and vicious public attacks, there was no doubt in my mind that he cared very much for what position the banks might take on the agreed project and made a dignified plea for our understanding and support.

  1. Not printed (832.00 T A/3–1054).
  2. Not printed.
  3. A copy of the referenced letter is contained in Miller files, lot 53 D 26, “Brazil.” In the letter, Mr. Miller stated that some businessmen believed there was a “great deal of merit to our policy which might be described as ‘not rocking the boat’”, but that many others feel it is “wishy-washy and amounts to appeasement.” He further stated that if the situation was not soon clarified, business groups in the United States would begin to exert increasing pressure on the International Bank for Reconstruction and Development (IBRD) and the Export–Import Bank not to make any loans to Brazil.
  4. Horacio Láfer, Brazilian Minister of Finance.