242. Telegram From the Embassy in Brazil to the Department of State 1

14720. References: State 288130,2 291004,3 292127.4 Joint State/AID Message.

1.
In the absence of a clear view of what the Brazilian political future holds, the Embassy believes the basic premise on which the U.S. Government should operate is that we still want to see Brazil advance and develop, and therefore we continue to be willing to assist this [Page 538]process wherever the prospects for accomplishment are reasonable. In adopting this premise we are recognizing that genuine political development can only be achieved as an extremely long-range result of other fundamental social and cultural improvements, which in turn can be assisted and accelerated with outside help of the sort we are able to offer. We assume that while in certain circumstances we would cut off aid, we would be reluctant to do so, thus we assume we are involved in a process of determining first how, under the new conditions existing in Brazil, we ought to tailor our programs for maximum results, and, secondly, how to use our preparedness to continue assistance as a stimulus to encourage the GOB to relax its political extremism. Another important consideration is the political image of the U.S. both here and throughout the Hemisphere. We are aware also that our posture must be adjusted to the need for continuing support for aid programs in Brazil among those U.S. public and Congressional elements who may favor aid in general but who have difficulty with the fact that it does not buy instant democracy.
2.
We anticipate it will take some weeks or even months before the pattern of Brazilian Government and politics will become sufficiently clear to enable us to make final recommendations on the shape of our aid program to reflect fully the changed situation. Until the new norms of the IA–5 become spelled out in practice, e.g., in such areas as civil liberties, freedom of press and parliamentary and judicial processes, and until we know how the GOB will perform in the economic field under the changed circumstances, we feel a wait-and-see approach on new aid undertakings to be appropriate. Such an approach in the form outlined below would reduce (but not entirely avoid) the impression in Latin America and the U.S. that the USG uncritically accepts what has happened here. Moreover, if skillfully handled it might strengthen those elements in the military and the government who are counseling restraint in the use of IA–5 and an early restoration of civil liberties, although we must recognize that our influence on internal political events is marginal at best.
3.
At the same time, we do not wish to breach existing commitments. To terminate or suspend activities which have been undertaken or authorized on the basis of good faith and with the investment of energies and financial resources on both sides could create an aftermath of distrust that could circumscribe our options for the future. Thus, for the initial wait-and-see period or first phase, and unless the situation deteriorates, we recommend a policy of (a) continuing activities covered by existing agreements and (b) proceeding, in an unhurried manner, with negotiations of outstanding loan authorizations, namely, health sector, southern states road maintenance, education sector, Passo Real, IBGE, agricultural research, to the extent practicable, or we would attempt to structure the completion of negotiations on these loans so [Page 539]that the socially-oriented ones, such as health and education, would get signed first. If there is future political retrogression, we would once again suspend negotiations and further review the situation.
4.
In all continuing activities we would seek to minimize and if possible avoid publicity. We must however expect pressures on GOB side to hurry negotiations and to generate publicity which we will be alert to combat.
5.
During the wait-and-see phase we would not discuss further with the GOB the contemplated FY 1969 loan program (program loan, three education sector loans, and Manaus power). Of this package the most immediate significance for USG/GOB relations is the program loan, negotiation of which had been planned for January. These negotiations would have to be postponed sine die. The suspension of dialogue on new programs might well mean that we would not be able to authorize these loans, or at least some of them, before the end of the fiscal year. With this in mind, we may wish to reconsider fairly soon whether preparatory work on the education sector loans should not go forward as an exception to the “wait-and-see” approach, since these loans seem to us to be of high priority even under the changed political circumstances in Brazil.
6.
In the meantime, we would convey the policy outlined above in broad terms to the top leadership of the GOB. We would say that, while we cannot anticipate the reaction of the new U.S. administration which will be taking office on January 20, we assume its attitude will be shaped by traditional U.S. concern for individual freedoms. Therefore, it is likely that the length of the “wait-and-see” period, particularly with respect to new FY69 assistance commitments, would be influenced by future Brazilian actions regarding civil liberties, press freedom, and the like. The Ambassador’s farewell calls on the President and a number of cabinet officers would provide appropriate occasions to get this message across, and, possibly, to learn of the GOB’s plans re IA–5.
7.
In specific terms we thus envisage the following U.S. position, program by program:
A.
FY68 Program Loan. Because of the undesirable impact payment of $50 million tranche now due under the FY68 program loan would have, we recommend protracted delay. We can expect considerable diplomatic pressure from the GOB to release these funds. No recommendation on the second tranche can be made at this time.
B.
Development Loan Projects. In an attempt to avoid the impression that we were going back to “business as usual” our tactics would be different from those formerly employed in at least two respects: (1) we would not press the GOB to take action in order to move forward on pending matters, but instead would let the initiative come [Page 540]from the Brazilian side and (2) even with rapid movement on the part of the GOB to bring these pending matters to a head, we would reevaluate the political situation on one hand and the importance we attach to the particular loan on the other before any signings. Undue GOB delays or failures to meet conditions of the loans will lead to early termination and appropriate deobligations or de-authorizations. The deadlines which we had previously set for ourselves would have to be extended because of the current interruption and deliberate spacing of the signatures.
C.
Development Grant Projects. Continuation of ongoing activities, with a special review of public safety program to determine whether modification of the current phaseout schedule would be appropriate in light of the changed situation.
D.
Counterpart Releases. We advocate continuing releases of PL 480 and program loan counterpart generated from existing agreements. As indicated in Rio 14497,5 further delays in a number of cases will be disruptive for projects in which we have had strong interest.
E.
Housing Extended Risk Guarantees. Follow through with closing and signatures on already authorized guarantees. On December 2, USAID requested January 24 for execution of documents. BNH has not yet responded. Our information indicates that sponsors and BNH would be desirous of postponing until early March. USAID would concur on basis of current situation, but position of U.S. investors should be ascertained by AID/W. Further authorizations are not an immediate issue as GOB has not yet indicated interest.
F.
Other AID Guarantees. Follow through on applications submitted where letters of intent already issued. Would also continue process new applications as these are essentially non-concessional, private sector to private sector activities.
G.
Title II–PL 480. On humanitarian grounds, continuation of planned programs.
H.
Title I–PL 480. Inasmuch as Title I sales are complementary to program assistance, negotiations on new agreement will also have to be delayed.
8.
We have also considered our position concerning Exim-Bank financing and assistance from multilateral agencies. We recommend no change in Exim approach toward private sector projects. Such proposals should continue to be considered on their individual merits and within normal Exim financing policies. Pending projects for publicly-owned companies, such as Volta Redonda and Rio Doce, would be used by the GOB to create the impression that the U.S. has no qualms about new [Page 541]economic assistance to Brazil: in general Exim should put a “slow man” on the job for the time being and final approval and announcement of each loan should be considered at the time in terms of its political impact.
9.
On multilateral assistance, our recommendation is that projects being considered by the multilateral agencies be processed as per their usual policies and regulations. We should avoid actions that would lead to accusations that the U.S. is attempting to use multilateral agencies to accomplish unilateral political objectives. U.S. positions on specific projects should be taken on the merits of the individual projects.
Tuthill
  1. Source: National Archives and Records Administration, RG 59, Central Files 1967–69, AID(US) BRAZ. Secret; Priority. Repeated to Recife and Sao Paulo.
  2. Document 237.
  3. In telegram 291004 to Rio de Janeiro, December 21, the Department suggested that the Embassy submit its recommendations on economic assistance and other bilateral matters within the next 2 weeks “if, as we expect, situation clarifies sufficiently for you to do so.” (National Archives and Records Administration, RG 59, Central Files 1967–69, POL BRAZ–US)
  4. Document 241.
  5. Not found.