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

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

Rio de Janeiro, June 9, 1959—11 a.m.

1782. President Kubitschek received me for half hour with Foreign Minister last night. After some violent preliminaries concerning the political difficulties in Rio Grande and Minas Gerais caused by American Foreign Power cases in those states (reported separately)² which he felt had psychological bearing on main purpose of his calling me, he spoke as follows with more contained emotion.

There would be no more Brazilian mission to Fund. He had made his final proposals and they had been rejected. This to-and-fro business had had a deplorable effect on the public. The Brazilian delegate Mr. Paranaguá remained in Washington for liaison purposes. The Fund continued to insist on exchange reform in a manner which was politically impossible for him to carry out in the present mood of the Brazilian people. The result would be strikes and violence with which he would not have the constitutional means to cope. It was all very well to talk about Argentina, where Frondizi was beginning his administration while he (Kubitschek) was ending his and where the alternative to a drastic internal program was the return of Peron, so that Frondizi found support from the military and was able to operate under a state of siege. It would be blindly unrealistic for the US to compare the two situations for it was to the US that he as a constant supporter of the western causes and consistent defender of close Brazil-American relationship must now address himself.

Whatever distinction might be made on paper between the US Government and the IMF, they were one in the minds of the Brazilian people. Brazil needed desperately $300 million, not as a gift but as a loan. Because of recent oil strikes and anticipated increased production therefrom, this was probably last year balance of payments loan would be required. (This was news to me.) He asked the US Government to weigh carefully the alternatives giving this loan under conditions politically acceptable to him (and he reiterated the extent to which he had gone to meet IMF conditions) and a situation where he would be obliged to choose the only alternative available to him and which he felt sure the Brazilian people would understand but which would cost the US and Brazil their long friendship. This alternative was a graduated default of Brazil’s external obligations and an arrangement to keep the country going at a reduced economic tempo for the next few months. He claimed to have the internal means to handle this. Once the cards were on the table they would cry bankruptcy from outside but the Brazilian people would understand. The issues were now drawn between nationalism and anti-nationalism in Brazil and the electoral campaign would revolve around them. His policy had been to avoid this but he was now backed into a corner and there was no choice for him.

Obviously he would not for the moment wish to make a public break with Fund and with US. He had about a month ahead of him during which he must arrive at a political solution with the US in whose power it lay to grant or reject the loan which Brazil needed. He had thought of writing a letter to President Eisenhower but instead had decided to appeal to the US Government more quietly and discreetly through me. He would be prepared to send a political mission to Washington to work this out but only if a solution was in sight. Otherwise he would be obliged to place his alternative plan into operation and he was now drawing it up. For this purpose he was waiting to receive (I had been chatting with the Embassy before I went in) the President of the Bank of Brazil and acting Finance Minister,³ the President of the National Petroleum Council,⁴ Poock Correa, Casimiro Ribeiro, and other high officials. He said part of plan would be extensive borrowing from foreign oil companies.

I resumed the US position very much as had Assistant Secretary Mann⁵ and said I was imperfectly informed as to US views since IMF’s rejection of latest Brazilian proposals. I said I would faithfully report his views. Reiterating what I had told him many times before that I considered the balance of payments crisis as lying at the heart of Brazil-American relations, I warned him too to weigh the consequences for Brazil and to avoid any precipitous publication which could crystallize public opinion here and abroad. He assured me that he would maintain the present public line (Embtel 1779)⁶ and would await with serenity my reply from Washington to his appeal.

Comment follows.⁷

Wallner

1. Source: Department of State, Central Files, 398.13/6–959. Confidential; Niact.
2. Telegram 1784 from Rio de Janeiro, June 9, reported President Kubitschek’s angry comments to Chargé Wallner regarding the American and Foreign Power Company. (ibid., 832.2614/6–959)
3. Sebastiào Paes de Almeida.
4. Colonel Alexino Bittencourt.
5. See Document 268.
6. Telegram 1779 from Rio de Janeiro, June 6, reported that Paes de Almeida had stated publicly that he would continue to follow the policies of Finance Minister Lucas Lopes. (Department of State, Central Files, 832.10/6–659)
7. In telegram 1783, June 9, Wallner expressed the opinion that President Kubitschek “will seize eagerly on a reasonable compromise” revolving around “a tolerable accommodation of the three factors mentioned paragraph 7, Embtel 1690.” (ibid., 398.13/ 6–959) The three factors mentioned in telegram 1690 from Rio de Janeiro, May 25, were the measures desired by the Fund, Kubitschek’s political situation, and the amount of the loan he could expect after he came to an agreement with the IMF. (ibid., 832.10/ 5–2559)