297. Memorandum From the Director of the Office of South American Affairs (Atwood) to the Assistant Secretary of State for Inter-American Affairs (Holland)1


  • Brazil


(1) Brazils Economic Program is Slipping

Minister Gudin outlined in Washington, and later in Brazil, a constructive program to meet Brazil’s pressing economic problems. This program included: 1) Slowing inflation; 2) Increasing exports; 3) Encouraging private foreign investment; 4) Balancing the national budget; 5) Modifying the petroleum legislation; and 6) Adjusting Brazil’s external balance of payments.

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Brazil has made very little progress on this program. 1) Gudin has cut bank credit but issuance of currency hit a new high in December—3.6 billion cruzeiros—and the inflation rate has not slowed. 2) Exports have not increased. On the contrary, December receipts of $55 million showed a sharp drop and January to date looks worse at about $1 million per day. (Brazil’s dollar budget is based on a $60 million monthly average.) The President and Gudin have publicly stated they do not like the present coffee policy, but they have done nothing about it because of political pressures. The Government is now forced to buy large quantities of coffee. A new system of export rates was announced today, but it is doubtful that this will improve the situation much. 3) There has been much talk but for practical results in improving conditions affecting foreign investment. Brazil raised the remittance tax from 8% to 10% and halted its development programs. 4) Congress turned down Gudin’s request for more taxes and passed a national budget for 1955 of 56 billion cruzeiros with an anticipated deficit of 3.2 billion cruzeiros. Gudin then announced with gloom an actual anticipated deficit of about $15 billion when other items not in the budget are taken into account. He says this will be highly inflationary. 5) Although the President and Gudin are opposed to Petrobraz, they have decided not to take on a political fight by attempting to change the legislation during their remaining term in office.

(2) Our Present Policy

We have declined to give Brazil a sizeable standby credit or new outright loan because this would relieve the pressure now on Brazil to do everything in its own power to solve its problems. We have suggested a close mutual continuous review of Brazil’s developing financial situation with a definite statement that the U.S. is ready to cooperate. This is sound financial practice but is leading to an unsuccessful impasse because Brazil does not agree. The administration is becoming desperate. It will not face political fights in Brazil and insists that the U.S. must come to the rescue. It is becoming bitter about our “refusal” to do so. We now must draft a reply to Brazil’s latest proposal that we take over $138.5 million of its already committed obligations in 1955 for U.S. imports other than petroleum. If our reply is negative, a bitter reaction is likely. Government officials and the press will probably claim that the U.S. has abandoned Brazil in its worst crisis in years.

(3) A New U.S. Approach

A concrete suggestion as to what we are willing to do at this moment might help resolve the short run situation.

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The U.S. is seriously concerned at the reported current decrease in export earnings and is willing to discuss immediately cooperative plans to help resolve the financial situation facing Brazil in the first quarter of 1955.
The U.S. again offers to work closely with a representative of Gudin’s choice and believes this is necessary.
  1. Source: Department of State, Central Files, 832.00/1–1955. Confidential. Drafted by Atwood and Cottrell. In a handwritten note on the source text, Atwood made the following comment: “This does not constitute a change in policy—It’s a change in approach. It’s really a matter for State, Treasury & Eximbank.”