832.131 /2–2053: Telegram

The Secretary of State to the Embassy in Brazil


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.

  1. Telegram 892, to Rio de Janeiro, dated Feb. 20, 1953 (832.131/2–2053).

    The Brazilian law establishing a free exchange market became effective Feb. 21, 1953.