271. Telegram From the Embassy in Brazil to the Department of State1
1842. Department telegram 1280.2
President received Herbert May and me with FonMin this morning. I made presentation along following lines talking from a paper but leaving nothing in writing.
Begin talking paper. The United States Government has considered, carefully and sympathetically, situation created by the impasse between the Brazilian Government and the International Monetary [Page 727] Fund, and President Kubitschek’s appeal for direct conversations with the United States Government. The public debate which has raged around this issue in Brazil has made it more difficult for the United States Government to reach a decision. Nevertheless, the United States Government has considered various suggestions which have been brought forward as means of helping Brazil meet its present financial crisis. We have thought about the advantages and disadvantages for Brazil of seeking to finance its current imports on a shorter credit basis or of defaulting on its debt, and we have reached the conclusion that neither of those procedures would be in the best interest of Brazil.
After careful consideration of this matter, we have decided that a partial solution of Brazil’s financial problems might lie in a re-scheduling by Brazil of its debt obligations to its principal creditors. The United States Government is accordingly prepared to enter into direct conversations with the Brazilian Government aimed toward a rescheduling of the debts owed by Brazil to the United States Government. We believe that such re-scheduling would have various advantages among which are the following:
To the extent that debt payments are postponed, dollars destined for that purpose would become available for essential dollar imports, thereby relieving the pressure on Brazil’s balance of payments, while avoiding the necessity for default. It may be expected also that evidence of willingness by the United States Government to discuss a rescheduling of the debts owed to it should significantly influence European and other creditors to do likewise; this would, of course, be a matter for Brazil to work out with her other creditors. The re-scheduling of Brazil’s international debt would also serve the purpose of easing the pressure on the Brazilian cruzeiro budget insofar as cruzeiros would otherwise be necessary for the purchase of foreign exchange with which to make those debt payments. End talking paper.
Explaining that our decision to enter into direct talks was a new departure in policy for us in order to face unprecedent situation, I told the President that behind all this lay the fervent wish of my government, a wish he no doubt shared, that interruption of talks with Fund was interruption only and that ultimate solution would include accommodation between his government and IMF. President said he had prepared government statement of yesterday (Embassy telegram 1839)3 in order to clearly separate Fund from United States Government [Page 728] in public mind, since he considered it most important that United States not become embroiled in quarrel between Brazil and Fund. He would make every effort to get out of impasse with Fund but his limits to further accommodation were well known and unfortunately had entered in political arena under slogan “Nacionalismo Contra Frondizismo”. He wanted at all cost to preserve United States-Brazilian relations, consequently he welcomed our decision open direct talks and would send Walter Moreira Salles’ as his emissary. He reiterated great importance of rapid solution in view of political repercussions already evident throughout Brazil.
Walter Moreira Salles was then summoned from adjoining room and I congratulated President on his excellent choice of the former Ambassador as his emissary to Washington where he would again find warm welcome. After further discussion of points in talking paper, it was agreed that President would consult his financial advisors and then announce Moreira Salles’ departure.4 May and I emphasized importance of correct presentation to press particularly avoidance interpretation that by accepting direct talks United States Government had altered its policy re IMF.
There was no direct talk of new money. President did say deferment United States Government debts would not be enough to meet his financial obligations.
May will be talking this weekend to Kubitschek’s financial advisors to ensure they get story straight.5
- Source: Department of State, Central Files, 398.13/6–1359. Confidential; Priority.↩
- In telegram 1280 to Rio de Janeiro, June 12, the Department affirmed its instruction in telegram 1267, June 10, and listed the advantages to Brazil of rescheduling its U.S. Government debt. (ibid., 398.13/6–1159) Telegram 1267 instructed the Embassy to propose discussions in Washington on rescheduling the Brazilian debt. (ibid., 398.13/ 6–959)↩
- Telegram 1839 from Rio de Janeiro, June 12, transmitted the text of the Brazilian Government’s statement issued on that day regarding IMF discussions. The statement referred to the recall by President Kubitschek of Brazil’s representatives in the discussions after the Brazilian Government verified the fact that its representatives could not change the opinion of Fund technicians regarding the need for Brazil to adopt certain measures as a prerequisite for IMF assistance in financing Brazil’s balance-of-payments deficit. (ibid., 398.13/6–1259)↩
- In telegram 1874 from Rio de Janeiro, June 17, Wallner reported that Brazil would not send a special emissary to Washington for the debt rescheduling talks. Instead, the talks would be conducted through the Brazilian Embassy at Washington after Brazil’s Chargé Valle had returned to his country for a briefing. Moreira Salles, who had been previously selected as the emissary, had accepted appointment as Ambassador to the United States. (ibid., 601.3211/6–1759) He had previously served as Ambassador there, 1952–1953.↩
- The conversation between May and Poock Correa was reported in telegram 1844 from Rio de Janeiro, June 15. (ibid., 389.13/6–1559)↩