Miller files, lot 53 D 26, “Brazil”

The Assistant Secretary of State for Inter-American Affairs (Miller) to the Ambassador in Brazil (Johnson)


Dear Herschel: From your telephone conversation and the message1 from Lafer, our maneuver has apparently worked since I gather that Lafer will proceed with the free market proposal next week. If this deduction is correct we are over this hump. In such an event the Eximbank can announce next week $50 million of loans to [Page 581] the American & Foreign Power Subsidiary and the Paulista Railroad and very soon thereafter should be able to announce the Santos-Jundiai loan, making a total of roughly $60 million from the Eximbank.

As to the International Bank, my message2 referred to an aggregate of $42 million of loans, namely, $25 million to the Central do Brasil and $17 million to the Light. Developments during the last week may lead to the eventual modification of this. Valentim Boucas has been arguing vigorously with Black with regard to the Rio Grande do Sul loan and, as of the end of the last bout on Thursday, Black appeared to be getting softened up somewhat. However, Black seems to feel that until the free market bill is passed he should not put into Brazil much over $40 million (although he might be willing to make the Light loan in addition). In such an event, if he went ahead with the Rio Grande do Sul loan, he told Boucas that he would have to cut down the Central do Brasil to about $15 million. At this point apparently Boucas exploded and accused Black of breaking a commitment. There was apparently a very unpleasant scene in which Boucas at one point was on the verge of walking out of Black’s office and threatening to recommend to Lafer that they suspend all dealings with the International Bank. Black thereupon asked that he be permitted to think about the problem over the weekend and Boucas is coming back from New York to have lunch tomorow. Thus, as of this writing, our heroine is again tied to the railroad track, but I think that she will be snatched from disaster next week. My earnest hope is that Black will make the Rio Grande do Sul loan and the full $25 million for the Central and that after a few weeks he will probably also add the Light. This will make a total of over $120 million of loans from the two banks and it ought to create a very good atmosphere. I am, of course, a little bit concerned over some of the connotations of Lafer’s message in which he, in effect, puts the Secretary and me on the spot to produce automatic financing for Joint Commission projects as they are approved. However, I take it that this is customary Brazilian needling. Also I think that we will have some trouble in getting immediate financing for the Parana–Santa Catarina Railroad since the project has not arrived in Washington yet. My own feeling is that after the expected announcement in June of $100–$120 million of loans by the two banks, it will be hard to expect anything more until the free market bill is actually passed. Once that is done, then things ought to proceed very rapidly. In your discretion, you might point out to the Minister how important we consider actual passage of the free market proposal. If a long period of time elapses between the announcement of the government’s support of the Gentil Bill and the actual passage of it, pressure will start building up in the financial community against Brazil just as it has [Page 582] been building up in the last few months. As a matter of fact, there are elements in the financial community who are opposed to Black’s doing anything in the way of loans until the free market bill passes and others who seek to limit the amount of loans to be announced now to token sums. I, of course, disagree with this but it is part of the facts of life.

Black has not been particularly helpful. While he sees the point of view of the business community with all too perceptive eyes, he seems to have blinkers on when it comes to trying to understand the Brazilians. He talks to a person like Boucas just as if he were talking to a prospective borrower in the Chase National Bank, everything being on a take-it-or-leave-it basis. The fact that the U.S. Government has an investment of over $3 billion in the Bank seems to have no effect whatever in determining his judgment. At times I believe that the real Executive Director of the Bank is not the Assistant Secretary of the Treasury but Leo Welch of Standard of New Jersey. I sometimes regret that we ever created the Bank (your friends Messrs. Acheson and Miller having played a leading role in the launching of it at Bretton Woods3) or that we made the decision in February of 1951 to make the International Bank the institution of first recourse for Brazilian development loans. However, in extremis, we could fall back on the Eximbank and that possibility constitutes the one method of bringing leverage on Mr. Black. Thus far I have played it out as patiently as possible. Merwin Bohan and I have throughout this week tried to exercise a soothing influence on Boucas and we have thus far dissuaded him from pulling out of the International Bank which he on several occasions threatened to do on the theory that the Bank is not living up to the commitment which Mr. Black made to Mr. Lafer last September. However, if the time ever comes when it appears necessary to take the position that the Bank has not lived up to that commitment, then it would be possible, it seems to me, to review the earlier decision with regard to the preferential position of the International Bank for loans to Brazil. This would, of course, cause repercussions of enormous magnitude, but, if and when the time comes when we have to do this in the interests of U.S.-Brazilian relations, I am prepared to do it. I hope I never have to face up to the decision.

While in New York Boucas has apparently been conducting negotiations with the National City Bank for a substantial loan to Brazil based upon a negative pledge agreement with regard to its gold holdings in the Federal Reserve, the purpose of which is to pay off Brazil’s commercial [Page 583] arrears. He seems extremely enthusiastic about this and feels that it will greatly improve Brazil’s credit standing with the financial community. He has talked to Black also about this and Black infuriated him by saying that, under the terms of the Brazilian Government’s guarantee agreement with the Bank in respect of the Brazilian Traction loans, Brazil had to get the Bank’s consent before entering into such an operation. However, after Mr. Boucas exploded over than one, Black agreed to facilitate the operation in every possible way with the Federal Reserve.

With best regards,

Sincerely yours,

Edward G. Miller, Jr.

P.S. There have been some developments since I dictated the foregoing which make the first part of the second paragraph of this letter subject to some question. I understand that Black will not make the Light loan at all if he makes the Rio Grande do Sul loan even though he cuts down the Central. However, Boucas and Walther Moreira Salles are lunching with him today and are to see the Eximbank later. We will probably have more news before the afternoon is out. It is good to have Walther here and he has plunged right into full activity on his first day.

  1. Not identified.
  2. Not identified.
  3. Reference is to the UN Monetary and Financial Conference, held at Bretton Woods, New Hampshire, July 1–22, 1944; for documentation relating to the conference, see Foreign Relations, 1944, vol. ii, pp. 106 ff.