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

266. Memorandum of a Conversation, Department of State, Washington, April 8, 1959¹

Washington, April 8, 1959

SUBJECT

• Brazilian Economic Problems

PARTICIPANTS

• Brazilian Ambassador Ernani do Amaral Peixoto
• Mr. Octavio Paranagua, Brazilian Director of International Monetary Fund
• Minister-Counselor Henrique Rodrigues Valle of the Brazilian Embassy
• ARA—Mr. R. R. Rubottom, Jr.
• EST—Mr. C. A. Boonstra
• EST—Mr. W. T. Briggs

Ambassador Peixoto called April 8 at 4:00 p.m. at Mr. Rubottom’s request. After the usual exchange of courtesies, Mr. Rubottom asked Ambassador Peixoto as to his future plans. The Ambassador said that he has resigned his post and that his resignation will become effective in approximately one month, at which time he plans to depart for Rio. He pointed out that, with the 1960 presidential election in the offing, it is necessary for him to be in Brazil to carry out his duties as National Chairman of the Social Democratic Party. He indicated that there was nothing definite to say at this time with respect to his possible successor.

Ambassador Peixoto then remarked to Mr. Rubottom that the financial situation in Brazil is serious. He said that fortunately coffee exports during the first three months of this year had increased considerably above the prevailing level, so that the balance of payments situation had noticeably improved. Nevertheless, he went on, the Brazilian Government considered that it would not be possible to count on this high rate of coffee exports for the remainder of the year so that with heavy payments which will come due toward mid-year, the balance of payments situation will probably become acute some time during May. He therefore had arranged an appointment with Mr. Waugh of the Export-Import Bank, whom he would see immediately after his talk with the Department’s representatives.² The Ambassador hoped that the Export-Import Bank would be willing to make available a line of credit to Brazil which would relieve the situation during the next several months.

Mr. Rubottom replied that although the Department and the various financial agencies of the United States Government are fully aware of and sympathetic with Brazil’s financial problems, he thought it only fair to tell Ambassador Peixoto that there is a strong feeling among these agencies that agreement between the Government of Brazil and the International Monetary Fund on a sound program to combat inflation and to bring the balance of payments deficit into line would be an essential prerequisite to discussions looking to financial assistance from this Government. He pointed out that while the United States is desirous of assisting Brazil’s economic development, it finds this exceedingly difficult to do as long as continuing Brazilian Government deficits require large amounts for short-term financial assistance which have no lasting beneficial effect on the economic progress of Brazil.

At the Ambassador’s request, Mr. Paranaguá explained that the Brazilian Government considers that consultations with the IMF on a program would be much better undertaken later this year in as much as it is expected that Brazil’s quota with IMF will be greatly increased in September. Such a delay would make it possible for the IMF to furnish substantial material assistance in supporting a program at that time, whereas now Brazil could not hope to obtain more than $37,000,000 from that source, in view of present quota limitations and Brazil’s previous drawings. For this reason, he went on, it would be much more feasible to undertake IMF consultations in September than now and Brazil therefore seeks interim assistance to enable the Government to hold the line until that time.

With respect to Brazil’s internal inflation, Mr. Paranaguá remarked that Finance Minister Lopes has already accomplished a good deal, having reduced the budget deficit from CR$47 billion to CR$12 billion and having substantially reduced the expansion of credit by both the Bank of Brazil and private banks. He said that in fact the IMF and the GOB were in substantial agreement with respect to virtually everything concerned in a stabilization program except exchange rate policy. On this point, he continued, the IMF insists on a unitary rate, which is politically impossible in Brazil at this time, Mr. Paranaguá went on say that Brazil must maintain a pegged rate on coffee exports, because abandonment of this rate would be such a bonanza to coffee producers and exporters that it would result in an immediate upsurge of production, thus further complicating the world coffee market, which is already in serious over-supply. Moreover, he went on, the special rates on wheat and petroleum must be continued in view of the immediate and far-reaching effect which freeing these rates would have on the cost of living. He went into some detail on this subject. (He forebore mentioning that according to our sources, the Monetary Fund is willing to consider special rates on coffee, wheat, and petroleum for the immediate future within the framework of the program which the Fund staff is recommending. He likewise refrained from mentioning that, although Minister Lopes has indeed worked heroically to reduce the budget and to restrict credit, he has been unable to obtain the President’s interest and support, so that his efforts have been largely nullified by slippages in other sectors and on balance the over-all Brazilian effort to contain inflation has been relatively flaccid and ineffective.)

Mr. Rubottom reiterated his previous point and stated that while he could see a certain advantage in the possibility of greater support from the Fund, he believed that little, if anything, could be gained by postponing until September measures which were better taken immediately. He added that he was not at all optimistic as to the prospects that the United States financial agencies would be willing to consider further credits to Brazil in the absence of a satisfactory agreement with the IMF.

Mr. Rubottom then remarked that he was anxious to call to the attention of Ambassador Peixoto, particularly in his capacity as a national political leader, the potential harm inherent in recent statements of high-level officials of the Brazilian Government with respect to remittances on foreign private captital. He said that both Minister of War Lott and Vice President Goulart have been recently quoted to the effect that remittances on foreign investments in Brazil are constituting a serious drain on the country’s foreign exchange reserves, with at least the implication that measures should be considered to restrict such remittances. He added that he had had an opportunity to talk with Minister Lott on this subject during the latter’s recent visit here,³ who had listened attentively but did not indicate that his viewpoint was changed. Mr. Rubottom then quoted the SUMOC figures on remittances of profits through the free market during the first quarter of this year and pointed out that these remittances were considerably outweighed by new investment. He also remarked on the damage which a campaign of this sort could cause to Brazil’s prospects for obtaining the additional capital needed for economic development and the fact that these statements are not consonant with Brazil’s views as expressed in Operation Pan America. Mr. Rubottom hoped that Ambassador Peixoto could use his influence to combat these sentiments and expressed the thought that statements by well informed high-level Brazilian government officials might be useful in countering these views. Ambassador Peixoto appeared to agree, saying that most of the “excessive nationalists” who express such sentiments really do not know what they are talking about.

Ambassador Peixoto said that he had heard in Rio that the United States delegation to the Buenos Aires conference of the Committee of 21 will be headed by Secretary Anderson of Treasury. He asked Mr. Rubottom whether this could be confirmed and what additional information Mr. Rubottom could give him on the composition of the United States delegation. Mr. Rubottom replied that the makeup of the delegation is still not fully decided but that he could say in confidence that it is tentatively planned that Mr. Mann will head it and that he, Mr. Rubottom, and Assistant Secretary Upton of Treasury will also be members. He explained that the pressure of business precludes Secretary Anderson’s absence from Washington at the time and that Mr. Dillon, who will shortly return from the SEATO meeting, will be needed here because of the Acting Secretary’s absence at the meeting of Foreign Ministers in Paris.

Ambassador Peixoto thanked Mr. Rubottom for the information.

1. Source: Department of State, Central Files, 832.10/4–859. Confidential. Drafted by Briggs.
2. In telegram 975 to Rio de Janeiro, April 10, the Department reported that Ambassador Peixoto left an aide-mémoire with the Export-Import Bank on April 8, requesting a substantial line of credit until the increase in Brazil’s IMF quota became effective, after which Brazil planned to ask for IMF assistance. Eximbank President Waugh gave Peixoto little hope for a favorable response in view of the Eximbank’s policy to consider credits covering exchange deficits only after a country had reached an agreement with the International Monetary Fund satisfactory to the Export-Import Bank. (ibid., 383.13/ 4–1059) The increase in Brazil’s IMF quota from $150 to $280 million became effective September 1959. For further information, see International Monetary Fund, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1959 (Washington, 1959), pp. 18, 19, and 189.
3. No memorandum of Rubottom’s conversation with War Minister Lott has been found. In a letter of August 4 to Ambassador Cabot in Brazil, Clarence A. Boonstra reviewed Lott’s conversation with Rubottom in Washington earlier in 1959. (Department of State, Rio de Janeiro Embassy Files: Lot 68 F 77, 320 Brazil-U.S. 1959)