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

273. Letter From the Chargé in Brazil (Wallner) to the Director of the Office of East Coast Affairs (Boonstra)¹

Rio de Janeiro, July 10, 1959.

Dear Clare: Your letter of July 2² came in this morning. While I hasten to reply, the classified pouch service is so slow that the situation may make certain parts of this letter meaningless. However, there are fundamental principles involved which I think will bear reading a week hence.

First of all I should like to clear up an apparent misconception in your mind: We have spoken frequently of an eventual accommodation between Brazil and the Fund but have never in our wildest dreams imagined, much less suggested, that all the give should come from the Fund’s side. Our conception was that it would be a Canossa for Kubitschek and we have tried to show that Kubitschek’s public statements have not firmly committed him.

In my letter of June 26 to Dick Rubottom³ I spoke of “an accommodation with the Fund which will not impugn the Fund’s authority and yet will provide a formula which will be acceptable to Kubitschek and consonant with the political, social and economic situation here.” This is our concept and I believe it is Moreira Salles’ concept. Presumably Kubitschek would have to go a long way but also presumably the IMF terms have not been frozen. If this last is wrong we should know it.

My second point relates to the idea in your third paragraph of making sure an IMF agreement doesn’t become the basis for an argument about new money: No one here has encouraged the Brazilians in this belief; nor has anyone discouraged them—including Tom Mann; what we have done is continuously to make it clear to the Brazilians that we would not help out on balance of payments unless they reached agreement with the IMF. On June 9, following the Fund’s rejection of the latest Kubitschek proposals, the President appealed to us for a loan without such an agreement. We in effect rejected this appeal by agreeing to reschedule the debt but making no mention of new money. In presenting this counteroffer to Kubitschek on June 13 I stated that it was the fervent wish of our Government that he eventually come to terms with the Fund. The absence of any offer of new money underlined the assumption that this was a precondition to a balance of payments loan in accordance with standing US policy toward friendly free world countries, including Brazil, who are in serious difficulties. Certain statements made earlier by the Eximbank about parallel conversations with the Brazilians reinforced the assumption. To reverse the concept, to say that there is no point in coming to terms with the IMF because we will not give a balance of payments loan under any conditions would be to open up a crisis whose consequences here could be very serious.

At the very best it would strengthen those elements here who sought a break with the Fund, consolidate the break and in Brazilian eyes make us the villain of the piece. What worries us most is how it could be explained to our friends here and to the supporters of the Moreira Salles school. His assignment is being described as an “op-ção” i.e., a deliberate choice, a conscious return to the old, traditional, confident way of doing business with the United States as an alternative to new school that preaches defiance, threats, neutralism or dealing with the Russians. Moreira Salles left here heavily mortgaged. But the underlying assumption of his mission was that the US had not changed and that its policy would be to continue to help Brazil out of its financial difficulties. We here can figure no way by which this can be done without new money which is in turn dependent on prior agreement with IMF.

But I am not a technician; neither, I assume, are you. In any case ARA and the Embassy are responsible for the Brazil-US relationship. The technical means to carry out policy must be devised by the technicians to fit into the overall concept. What concerns me is that this overall concept is vague and it is constantly shifting in response to each new technical suggestion. There is just a hint of tail-wag-dog.

Your letter implies a change of policy which is nothing short of revolutionary and which if practiced on Brazil for the first time at the present juncture, should be preceded by a reappraisal of our whole relationship with this country. I can’t think of a more serious step and before it is taken (or more than whispered about) I believe it should be reviewed at Cabinet level.

With the imminent arrival of the new Ambassador, I strongly recommend that anything drastic be given us for comment before it is frozen in Washington.⁴

Very best.

Woodie

1. Source: Department of State, ARA/EST Files: Lot 61 D 332, Official Correspondence. Confidential; Official-Informal.
2. In his July 2 letter, Boonstra affirmed the idea of rescheduling Brazilian debts as the principal means of assistance rather than encouraging Brazil with hopes for new money as an incentive for an agreement with the International Monetary Fund. (ibid., Rio de Janeiro Embassy Files: Lot 68 F 77, 501 Financial Matters, General, July-December 1959)
3. Not found.
4. In a letter, a copy of which is attached to the source text, July 17, Boonstra assured Wallner that should Brazil “reach agreement with the Fund we would then consider how and to what extent we could be of help.”