832.00 TA/5–2252:Telegram

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


1451. Totec.

Knapp, Bohan telephone conversations have caused us greatest anxiety. Firm loan assurances obtained up to now, seem to us fall tragically short of “package” required to restore some measure confidence in US-Braz econ collaboration thus enabling Lafer obtain positive backing Pres on free market and save Braz development program, including joint comm.
As we understand it, firm package so far developed includes Am Fon Power $41 million Paulista Railway $7 Central Railway $10 plus IBRD assurance $15 additional on railroads other than Santos Jundiai total $73. In our judgment this package must be improved by, at very least, addition of Santos Jundiai and Rio Grande power loan, plus new general statement from banks recognizing progress Braz has made since last Sept in domestic financial and institutional program, expressing confidence in work joint comm on basis projects completed thus far, and doing utmost, short of fixing actual figures on time sched, to carry conviction to skeptics here that, aside from initial package, banks really mean business in Braz.
Santos Jundiai project is technically inseparable from Paulista project and omission from package renders inclusion Paulista largely meaningless. This addition wld bring total to $82 million. Believe, however, further addition Rio Grande do Sul project indispensable for any prospect of success for fol multiple reasons:
Only its inclusion, bringing total to 107, comes within shooting distance of Braz aspirations;
Without it Braz Govt approval of Am Fon Power loan is most seriously jeopardized; without this loan, company wld be unable meet clamor for better service and its ability maintain operation as private enterprise wld be seriously threatened.
Collapse Rio Grande loan negotiations because of insistence further legis changes wld be violently resented throughout Braz as evidencing attempt at unjustifiable intrusion in Braz domestic affairs; and
Pres has keen personal interest in this program for his home state, which is ardently shared by FonMin also from Rio Grande whose [Page 580] influence with Pres in present crisis has probably been lifesaver. Nothing wld be better calculated antagonize them than further delays granting this loan.
In addition foregoing strongly urge Eximbank consideration $15 million credit for agricultural equipment subject to working out project details. This wld bring total to 122, or roughly half figure mentioned by Lafer. We are not prepared say inclusion this loan in package is indispensable, but on other hand it shld in no sense be considered substitute for Santos Jundiai or Rio Grande loan.
We have been shocked by Bohan’s latest advice that IBRD assurance of $15 million in addition to $10 million central project constitutes credit ceiling not for Central Railway but rather for all railways other than Santos Jundiai prior to passage reorganization legis. Any such statement to Braz wld be disastrous. Assuming $15 million devoted to central suburban cars, we must have latitude for emergency rehabilitation loans to other railways during next few months while Lafer is obtaining passage reorganization legis.
I cannot emphasize strongly enough the importance as I see it of basing our actions vis-à-vis Braz at this time on a sober realization that Braz patience is running out. It is not necessary to remind the Dept that Brazs are convinced that in granting econ assistance to other important countries US has acted with despatch when high policy considerations have been involved. I also do not need point out that Brazs are not asking for grants but for loans for vitally important purposes.
I do not wish to be alarmist, but it seems to me Braz leaders right now are questioning whether close econ collaboration with US is a useful policy. We shld realize that our failure to provide convincing assurance on this score can have important repercussions in other fields vital to us including the mil and polit fields.