832.131 /2–2053: Telegram
The Secretary of State to
the Embassy in Brazil
secret
Washington, February
20, 1953—5:43 p.m.
891. Executive Board of IMF acted Feb. 19
on Brazil proposal for free market. Text of Brazil’s cable to Fund
describing market is contained in accompanying Department telegram.1 Fund decision as follows:
- “1. Brazil has consulted with the Fund regarding the
establishment of a free exchange market for most capital and
invisible transactions, as well as for some trade items, in
which the rates will fluctuate freely, according to supply
and demand. The Fund approves the establishment of a free
market as described in the cable of February 13 from the
Superintendency of Money and Credit, the remaining
transactions to be conducted in the official exchange market
at fixed rates based on the parities declared to the Fund by
its member countries.
- “2. The Fund considers that the objective should be
progressively to transfer exports and imports to the free
market. However, the Fund does not consider that multiple
mixing ratios for exports or imports are either desirable or
necessary. There might be developments in the free market
rate which would justify single mixing ratios for exports
and imports respectively for a temporary period. In this
event, the Fund realizes that some experiment to determine
the appropriate mixing ratio might be necessary and that
periodic adjustments in the mixing ratio might be needed.
The Fund wishes to continue in consultation with Brazil on
this aspect of the system.
- “3. The Fund agrees that Brazil may shift exports and
imports from the official to the free market without further
prior consultation with the Fund. It is understood, however,
that Brazil will remain in close consultation with the Fund,
and that Brazil will inform the Fund promptly of such
shifts, including any changes which may be made in the
mixing ratios.
- “4. The Fund notes that Brazil intends to continue a
highly restrictive import policy with a view toward
restoring its reserve position and [Page 607] reducing its heavy short-term exchange
obligations. The Fund further notes that measures are being
undertaken to ensure a more effective coordination between
the issuance of import licenses and exchange availabilities.
However, the Fund calls attention to the need for more far
reaching adjustments in order to bring about the prompt
restoration of Brazil’s balance of payments equilibrium. In
this connection, the Fund wishes to stress the importance of
enforcing effective monetary and credit policies, which are
indispensable to ensure the success of the new exchange
system.
- “5. The government of Brazil is deemed to have fulfilled
the requirement of consultation in accordance with Article
XIV of the Fund Agreement. In concluding the 1952
consultations, the Fund has no other comments to make on the
transitional arrangements maintained by Brazil.”
Embassy should note that effect of paragraph one of above Fund decision
is to approve Brazilian proposal contained in accompanying Department
telegram. Paragraph two of decision therefore has status of advice and
does not in legal sense qualify approval contained first paragraph. Thus
if Brazilians adopt three mixing ratios for exports they will not be
violating the Fund decision.
Decision should first reach Brazilian authorities direct from Fund.
Embassy should make certain this is case before revealing its knowledge
text.
