Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

800.05132/5–852

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

secret
priority

Rio de Janeiro, May 8, 1952—1 p.m.

1370. For Asst Secy Miller. I can understand argument with which Dept apparently is faced, namely that US shld refuse take action on all loan applications until remittance decree satisfactorily modified (Deptel 998 May 7¹). Such a stand at least by implication is threat that we are willing to let Lafer plan die if Brazil does not take action we consider necessary. Those favoring such tactics must not realize President appears adamant against giving into pressure, and using approaching expiration date of Lafer plan is considered pressure by him.

If we are patient and can convince President our sincere intent assist econ development Brazil, I am certain we shall work out solution remittance decree problem which we can accept. If we allow Lafer plan succumb adjustment remittance decree in my opinion will become impossible for long period to come. Consequences will be extremely serious to all phases our relationship with Brazil: mil, raw materials, polit in UN and agencies and OAS with its organs. I wish repeat our relations with Brazil now at crossroads.

With specific reference to remittance decree problem, in our opinion making $10 million central loan does not materially weaken our bargaining position since Lafer and others know additional loans will not be forthcoming till acceptable solution remittance problem found. In other words we wld be making $10 million loan the withholding of which in our opinion might lessen possibility finding solution while making it wld at least postpone and perhaps prevent crisis of first magnitude in all phases our relationship with Brazil.

I am certain it realized in Wash that Lafer plan provides internal financing to extent $500 millions. Plan was undertaken partly because our insistence early days of joint comm that Brazil itself must solve its cruzeiro financing problem. It seems to us that as internatl institution IBRD can not take upon itself responsibility for causing this internal financing plan to become inoperative.

Bohan and I are seeing President tomorrow (Friday) at 3:30.

Johnson

1. In the referenced telegram, to Rio de Janeiro, drafted by Mr. Miller, dated May 7, 1952, Ambassador Johnson was informed that the Department could not promise President Vargas that Brazil’s request for a loan to the Central do Brasil railroad would be made irrespective of a solution to the remittance decree problem, in view of the fact that the IBRD had to take into account strong sentiments in U.S. financial quarters, and also that it would be impossible, as suggested by the Embassy, to transfer the loan application to the Export–Import Bank (800.05132/5–652).