232. Memorandum From the President’s Special Assistant (Rostow) to President Johnson 1


  • Program Loan Assistance for Brazil

Herewith are memos from Bill Gaud and Charlie Schultze (Tab A)2 recommending action on further disbursements of the $100 million FY 1967 program loan signed with Brazil last March. The Brazilian Finance Minister will be in town for talks tomorrow and Thursday.

In my memo to you of November 22 (Tab B),3 I explained the poor self-help performance of Brazil which led to postponement of further disbursements after the initial $25 million tranche in July. Since then Brazil has not taken adequate fiscal and monetary corrective measures. As a result it has suffered a serious loss in reserves (some $250 million in five months) and faces a renewed inflationary surge next year.

The issue is whether we should make another disbursement now in anticipation of promised corrective action by next January or February or make it contingent on performance.

Ambassador Tuthill favors immediate release of $25 million to create a favorable political impact and because he is convinced that Costa e Silva is committed to stabilization.

Covey Oliver recommend tying the disbursement to prior satisfactory devaluation, credit tightening and budget trimming, leaving the timing up to the Brazilians. They would be willing to increase the tranche to $50 million if this would help the Minister take action now.

Gaud and Oliver, except he questions increasing the release to $50 million in order to advance corrective action one month earlier. Secretary Fowler shares this view.

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Given the importance of Brazil and your good relations with President Costa e Silva, I favor being as forthcoming as we can consistent with our overriding objectives of:

  • —keeping Brazil’s momentum toward stabilization.
  • —maintaining a record on Brazil which will win continued Congressional support.

The GaudOliver formula comes closest to satisfying all points. I recommend you approve it.

Gaud and Oliver also ask authorization to tell the Finance Minister that we are prepared to negotiate a Program Loan agreement for 1968. The exact amount and self-help conditions would be submitted to you for approval, probably in January. I support this request.


Approve GaudOliver recommendation for $25 million after performance, with possible increase to $50 million for early action, and agree to negotiate 1968 program loan.

Approve BOB–Treasury variant of $25 million after performance, and agree to negotiate 1968 program loan.

Approve Tuthill recommendation for $25 million now.

Speak to me.4

  1. Source: Johnson Library, National Security File, Country File, Brazil, Vol. VII-a, 8/64–11/68. Confidential.
  2. Dated November 30 and December 4, respectively; attached but not printed.
  3. Attached but not printed.
  4. The President checked this option. In a memorandum to the President, December 13, Rostow explained that further discussion was unnecessary since the talks with Finance Minister Delfim Neto had resolved the matter: “$25 million will be disbursed early in January when Brazil takes the agreed exchange and credit actions” and the “remaining $50 million will be made part of the 1968 program loan.” (Johnson Library, National Security File, Country File, Brazil, Vol. VII–a, 8/64–11/68)