232. Telegram From the Department of State to the Embassy in Brazil1

938. Ref EmbTel 1048.2

Dillon, Rubottom and Southard met with Secretary Anderson this morning to discuss Brazilian financial problem. Generally agreed on Embassy line reported reftel and urgent need for answers to questions Herbert May put to Alkmim outlined Embtel 1049.3

Agreed that Brazil’s only chance to obtain temporary financial relief prior next Wednesday deadline is to turn to New York banks where we understand Brazil has 45 million dollars in unused credit line. Conceivably New York Federal Reserve might help if Brazil willing use 60 million dollars unpledged goal [gold] we understand to be available although this would require negotiation.

Strong feeling prevails entire American financial community as well as IMF that Brazil has arrived at showdown which was inevitable as result bad fiscal policies especially over-spending past year. For U.S. Gov’t itself to become involved in kind of hard negotiations and ultimate application stern disciplinary measures required would be highly impolitic and would strain traditionally friendly relations two countries. Nevertheless, Brazil must be made appreciate that large bail-out by U.S. Government not possible and you should discourage Alkmim’s anticipation of it. FYI Expectation for similar assistance would be inevitable chain reaction throughout free world if U.S. gave in to Brazil now. End FYI

At today’s meeting it was agreed that Brazil should commence soonest discussions with IMF leading to agreement heretofore refused by Brazil to have IMF consultants come there for thorough study entire Brazilian financial system. Unpalatable though this may be, Department sees this as only way achieve Brazilian salvation. Since crisis likely to worsen reaching peak late spring or summer, talks with IMF should be started without delay. In your discretion and only if discussion seems to require, you may tell Alkmim that only if Brazil agrees to [Page 660] IMF procedure and accepts probably stern corrective measures could U.S. give consideration to participation in a stabilization program.4

Secretary Anderson agrees that we should take no initiative regarding Alkmim visit. He would of course be received if he decides to come and every effort would be made to persuade him of necessity taking proper steps.

  1. Source: Department of State, Central Files, 832.10/2–1458. Confidential; Priority. Drafted and signed for Herter by Rubottom.
  2. In telegram 1048, February 14, the Embassy in Rio de Janeiro stated it would ask Brazilian Finance Minister Alkmim for more information about Brazil’s financial outlook as background on which to base the Embassy’s advice to Washington concerning Brazil’s request for $100 million standby credit. (ibid.)
  3. Not printed. (ibid.) The answers to May’s questions on Brazil’s external financial situation, which were given on March 17, were reported in telegram 1184, March 18, and despatches 1059, March 25, and 1090, April 2. (ibid., 832.10/3–1858, 832.151/ 3–2558, and 832.101/4–258, respectively)
  4. In telegram 1089, February 24, the Embassy reported that Alkmim agreed to this procedure. (ibid., 832.10/2–2458)