611.3231/1295: Telegram
The Chargé in Brazil (Scotten) to the Secretary of State
[Received 7:05 p.m.]
274. Department 132, November 24, noon. I feel that before presenting any note to the Brazilian Government regarding the exchange situation the Department should consider the following factors.
The Bank of Brazil does not at present possess adequate exchange of international acceptance to carry out the provisions of Aranha’s letter of February 2, 1935 for the following reasons: [Page 363]
- (a)
- The trade balance for the first 8 months of 1938 is slightly adverse to Brazil as against traditional favorable balances.
- (b)
- The servicing by the Bank of Brazil of the notes of its various unfreezing arrangements.
- (c)
- There is at present an unusually heavy demand for exchange by the Government due to rearmament program.
- (d)
- The receipt of exchange by the Bank from the exports of coffee is delayed owing to the fact that most of the coffee sales are in futures ranging from 3 months to a year.
Attention is called to the fact that Brazil has not only guaranteed most-favored-nation treatment to the United States but under its agreements with other nations it must automatically extend the same treatment to them and with the current serious shortage of exchange of international acceptance it would be impossible to grant spot exchange to all.
Although it is true that German exporters are now receiving slightly preferential treatment over exporters from the United States, the reason is inherent in the compensation system itself. According to the Director of Exchange the Bank has a long position in compensation mark credits and, in keeping with sound banking, the bank desires to keep the position reduced to a safe level which is difficult owing to skillful trade tactics on the part of Germany.
In spite of the above, immediate and adequate exchange for American exports could undoubtedly be obtained if credits are extended to the Bank of Brazil by the Export-Import Bank (see Embassy’s telegram No. 219, September 21, 1 p.m.). I feel that until this matter is thoroughly explored and a decision reached it is premature to make representations.
The danger of our insisting at this time upon a strict compliance with the Aranha letter of February 2, 1935 is that Brazil might comply but counter with restrictive measures on importations, already contemplated in President Vargas’ statement of November 10 (see Embassy’s telegram No. 257, November 10, 1 p.m.43).
- Not printed.↩