832.51/1769
Memorandum by the Adviser on International Economic Affairs (Feis)
Ambassador Caffery telephoned me this morning from Rio de Janeiro. He stated that Aranha was going up to the country to see President Vargas today and talk through with him the debt offer which has been under discussion. Mr. Caffery said that he had spoken to Aranha earlier this morning and that Aranha had said that he would accept the text of the possible statement to be issued by the Council, as cabled him last night in the Department’s 51 of March 4.
The Ambassador then said he wanted to make clear that we understood that Grade IV bonds would be elevated to 45 percent. He explained that the Brazilian Government had found it necessary to do this when it increased the percentages allocated to Grade III because of the fact that the French had given up their position in regard to payment in gold francs. I replied that I had not been aware of this fact myself, and on inquiry of Mr. Livesey and Mr. Briggs, who were present, I ascertained that this information had been contained in a cable that came in late Friday afternoon and had been discussed in the Department but the Council had not been advised on this point. The Department had made no comment on it in its subsequent cables to Ambassador Caffery and therefore the Ambassador was raising the question.
I said to the Ambassador that I had not been on duty in the Department last week and that the point was new to me; I regretted that it arose at this time but in view of the advanced stage of the discussions between himself and the Brazilian authorities, I saw no alternative but to continue working as we had been working during the past several days and see whether the Council would accept the Brazilian offer as it stood—with this point included—or whether it would refuse to do so.
The Ambassador then reiterated his explanations of the fact that the situation seemed to him to require prompt decision. I told him that we had not yet received any confirmation from Mr. White of the agreement worked out in the meeting in the Secretary of State’s office last night but that as soon as we had done so, I would telephone him.
Messrs. Briggs and Livesey and myself immediately consulted with Mr. Berle and came to the judgment that Mr. White should be advised of this telephone conversation. I thereupon telephoned to Mr. White and recounted it to him. Mr. White said that of course this improvement in the treatment of Grade IV gave further advantage to [Page 589] the sterling bondholders and I agreed that this was so but added that this left the situation unchanged as to whether the Council would interpose itself. Mr. White again then went into an exposition of the Council’s viewpoint, basing it on the same ground as he had last night and trying to make a distinction between the fact that they were working for the bondholders’ interests and that the Department was engaged in serving the national interest. I again, as directly as I could, restated the situation, to wit: that the Brazilian Government had agreed to make this offer unilaterally; that since the Council had had no representative present, the Ambassador had done his utmost to secure as favorable terms as possible for the American bondholders; that he now reported that in his judgment the present offer was the best that could be obtained; that the Brazilian Government was taking the position that they would only make this offer if assured that the Council would pass upon it favorably or at worst abstain from adverse public comment; that this decision was put before the Council by the Department, and in doing this we were as deeply animated by our desire to serve the bondholders’ interests as was the Council.
Mr. White brought up again the fact that he had been advised that the Brazilian Government might use $10,000,000 in the course of the four years to buy up bonds in the market. He said he was of the opinion that if the Brazilian Government was going to do that, it should certainly so state publicly in its offer, thus making the information available to the bondholders. He said that the Council was opposed to the practice while such low interest rates were being paid and certainly was opposed to having it done without advice to the bondholders. I said I would convey these views to Caffery when I spoke to him over the telephone this afternoon. (The Department had already in a previous cable, no. 44 of February 28, conveyed the Council’s views to this effect). Mr. White then again brought up the question of what the Council would say in private letters to correspondents asking for advice regarding the Brazilian bond offer, indicating distinctly that the Council might make critical comment. I said that it was my understanding in the talk with the Secretary of State last evening that the formula suggested was to apply to both the private and public comment of the Council. I interrupted the conversation to consult Messrs. Berle, Livesey and Briggs, who all agreed with this view of the conclusion reached last evening. I reported this unanimity of opinion to Mr. White and he said he would put it up to the Executive Committee in this sense. I said that it was plain that if the Brazilian Government went ahead in the belief that the Council had met its condition and then the Council distributed [Page 590] adverse comment, which was sure to be reported, it would certainly be believed that bad faith had been shown. The conversation terminated in a renewed emphasis on the part of Mr. White, as the representative of the Council, and in renewed emphasis by myself to the effect that our prime purpose, guided by the advice of our diplomatic representative, was to have the bondholders have the opportunity to accept or reject the offer.
The four of us then reported the two preceding conversations to the Secretary of State.
Since on the basis of our telegram last night and our earlier conversation with him this morning, it would have been natural for Ambassador Caffery to conclude that the Council would in all probability give its acquiescence, it seemed advisable to telephone him at once and tell him that no word had yet been received from the Council but Mr. White was continuing his objections and that we did not know what their decision would be, so that he might not encourage the Brazilian Government with premature or undue optimism. I telephoned him and so explained.
He said that Aranha had already left but that he had arranged to telephone him and would wait for a further report from me. I promised to let him know as soon as we had further word from the Council later this afternoon. I explained that the Secretary’s present attitude was that if the Council felt that it could not respond to the Brazilian Government’s offer, that we should have to let the responsibility rest upon them and let the situation drift until the question of our relations to the Council was made more satisfactory. Caffery said that of course he was doubtful as to whether it could drift, whether what would not happen was postponement of any action until after the war. I replied that I knew that was his judgment.
I inquired of him as to whether there was any chance that the Brazilian Government might go ahead even if it knew that the Council might make adverse comment. He said he thought it possible if the State Department would be willing to give out a strong enough statement.