Foreign Relations of the United States, 1958–1960, American Republics, Volume V

263. Telegram From the Embassy in Brazil to the Department of State¹

Rio de Janeiro, February 3, 1959—7 p.m.

1032. Reference Embassy telegram 1023.² In long talk with President Kubitschek this morning I found him far more concerned over economic situation than on any previous occasion and also more adequately informed about it. Substance of his presentation is that he will take every step recommended in Washington (except “complete exchange reform” which he declared his government could not survive). He offered reduce imports still further, slow down industrialization (specifically mentioned the expanding automotive industry), restrict credits, et cetera. (On all this I gather last night’s Lucas Lopes briefing sunk in.)³ He spoke on budget cuts, including armed forces. On coffee he says he is helpless and inheritor of situation that now can only be handled internationally; on petroleum he is willing establish rationing “if that considered necessary”.

To do this, Kubitschek says he must go to people, difficult though that will be for him. Prior thereto he is trying line up political support and that of armed forces. He has summoned Vice President (who was at his house during my visit) and said would do his best with his own party and opposition. He promised full support to his Finance Minister Lucas Lopes and also mentioned Roberto Campos currently under bitter nationalist attack over Bolivian arrangements,⁴ declaring that Campos would be maintained in office but, asserted President, when all these steps have been taken “and if your government has any further recommendations, please tell me what they are”, he will still need approximately $300 million balance of payments assistance, which can only come from US.

In parenthetical reference to Argentina at that point, Kubitschek spoke warmly of Frondizi US visit,⁵ observing that latter’s austerity measures while notable were nevertheless politically “not so difficult” as his own, and he repeated his offer to attempt all steps undertaken by Argentina,⁶ except “freeing exchange” which he repeated would lead to such sudden price increases as would be insupportable in Brazil.

I made two points only (details of what ought to be done having of course been covered in recent talks between Lucas Lopes and Treasury Attaché May): I said US Government sympathetic and desires be as helpful as possible; our assistance however would have to be based on prior arrangements between Brazil and IMF so that if his Finance Minister contemplating early trip to Washington it should be specifically for negotiations with Fund, rather than US Government.

How about, asked Kubitschek, proposed visit EXIM Bank representative? Would it not be possible, since Lucas Lopes knows what should be done and has so recently talked to IMF representative (Co-stanzo),⁷ for us to talk about credit arrangements directly, based on assumption Fund will agree on terms? I sought to discourage that, pointing out Fund discussions—and agreement—must precede.

To make sure foregoing clearly understood, I am asking May follow-up immediately with Finance Minister.⁸

I believe President may (at long last) be coming around. Suggest parallel talk with Peixoto might be helpful at this juncture.⁹

Briggs

1. Source: Department of State, Central Files, 832.10/2–359. Confidential.
2. In telegram 1023, February 2, Ambassador Briggs stated that he would respond to the Department’s questions regarding the feasibility of a currency stabilization program for Brazil after he met with President Kubitschek. (ibid., 832.10/2–259) In despatch 974, February 26, Briggs reported on the political feasibility of certain stabilization measures. (ibid., 832.10/2–2659)
3. Treasury Attaché May informed Finance Minister Lopes of the substance of Department of State telegram 717 to Rio de Janeiro, January 30, that a currency stabilization agreement with the IMF was a prerequisite to negotiations for credit from the Export-Import Bank. (ibid., 832.10/1–2859)
4. In despatch 856 from Rio de Janeiro, January 30, the Embassy reported on a student rally against Roberto de Oliveira Campos, President of the Brazilian National Economic Development Bank, for having permitted foreign financing of Brazil’s Bolivian oil concession. (ibid., 732.00(W)/l–3059) The referenced concession, granted to Brazil by Bolivia in 1938, permitted Brazilian exploration and exploitation of Bolivian oil fields on 8.6 million acres.
5. President Frondizi of Argentina visited Washington, January 20–23; see Documents 164 ff.
6. Reference is to the stabilization plan adopted by Argentina in December 1958 with the support of the International Monetary Fund and public and private U.S. agencies. See Document 161.
7. In telegram 999 from Rio de Janeiro, January 28, the Embassy reported on the conference between Finance Minister Lopes and G.A. Costanzo, Deputy Director, Western Hemesphere Department, International Monetary Fund, at Rio de Janeiro, January 26–27. (Department of State, Central Files, 832.10/1–2859)
8. The meeting took place on the same day and is reported in telegram 1033 from Rio de Janeiro, February 3. (ibid., 832.10/2–359)
9. The talk is reported in a memorandum of conversation between Peixoto and Bernbaum, February 4. (ibid., 832.10/2–459)