303. Memorandum From the Officer in Charge of Brazilian Affairs (Cottrell) to the Director of the Office of South American Affairs (Atwood)1


  • Brazil

My analysis of the present situation is as follows:

Brazil, by committing two serious economic blunders (a buying spree in 1951 and 1952, and attempting to hold the coffee price at 87½¢) has run out of cash and credit. They are now showing us deficits in 1955 and are asking us to pick up the check. At the same time they are pursuing two bad policies (coffee and petroleum) and the Café administration has decided to adopt a “caretaker” role and avoid serious political fights. If they can get through 1955 without a crisis or a fight and turn the mess over to the new President elected in October of this year, they will be happy. Consequently, they are desperate to have us help them avoid a crisis.

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We can take several courses:

We can do nothing. Let them stew in their own juice. This will embitter the present administration, which, despite their weak showing, is the best group of Brazilian leaders in decades. Since they are lame ducks, we need not worry about their personal feelings, but from a practical standpoint, without aid from us they might close the cashier’s window some day early this year when they run out of dollars and leave commercial debts unpaid. This would cause pain to our export trade and strain our relations with Brazil.
We can loan them what they ask for ($138 million). This may be too much; and allow them to relax, finance Petrobraz, and continue to follow a poor coffee policy.
We can probe their figures and offer a loan which barely allows them to squeak through by maintaining an austerity program. This will relieve the political heat and avert an economic crisis but will postpone constructive reforms until the next administration (if then). I favor the third alternative, although I believe our relations with Brazil will never be on a sound basis until Brazil “puts its house in order.” As long as they postpone reforms, they will be broke and crying for help. This dependent position cannot produce a healthy relationship.

The interested agencies (State, Treasury, and the Eximbank) have agreed that talks will commence with Paranagua and probably lead to a visit to Brazil. It has been suggested that in return for a new loan we extract a quid-pro-quo from Brazil to include assurances that they will:

Balance their internal budget;
Not allocate any dollars to Petrobraz;
Improve export policies, particularly coffee;
Provide accurate statistics on a current basis.

These “quids” should be handled carefully or they will backfire. Brazil’s national budget is an internal affair and too much detailed attention to it on our part (even though we are their bankers) may produce considerable resentment against our meddling in their internal affairs.

. . . . . . .

I believe we have the right pitch for the coffee problem; namely, to avoid insisting on removal of the floor price but urge that something be done.

Eximbank can ask and expect accurate statistics on a current basis.

. . . . . . .

  1. Source: Department of State, OSA Files: Lot 58 D 42, Brazil 1955—Economic (General). Confidential.