832.51/2186a: Telegram
The Secretary of State to the Ambassador in Brazil (Caffery)
3200. For the Ambassador and Walter Donnelly. Meetings have been held in the Department yesterday and today between representatives of the Foreign Bondholders Protective Council, Inc. and officers of the Department to discuss the Brazilian proposal for the adjustment of Brazilian dollar and sterling bonded indebtedness. Among the representatives of the Bondholders Protective Council were Robert E. McCormick and Mr. Lee Orton, who hoped to be able to leave New York for Rio on or about September 2 to act as the Council representatives in the forthcoming negotiations.
[Page 769]The Department has agreed upon the following informal memorandum of understanding, which will be subject to your concurrence as a general guide for the negotiators:
- “(a) Grades I to VII, inclusive,13 under the Aranha Plan now operating under Decree 2085 to be regrouped as follows: Group A formerly Grades I and III; Group B formerly Grade IV; Group C formerly Grades II, V and VI; Group D formerly Grade VII; Group E formerly Grade VIII (it being understood between the Department and the Council that the chances of obtaining a regrouping with respect to Grade II are slight); or as an alternative,
- (b) Give the holders of Grade III substantially the same interest rates as enjoyed by Grade I—this to be accomplished through raising the new principal amount from 60 percent to 70 percent but without altering the proposed cash payment or coupon rate proposed by Brazil.
- (c) Reclassification of the State of Maranhao bonds from Grade VII to VI.
- (d) Attempt to obtain within the limits of the present Brazilian proposal (approximately $33 million) a re-shuffling of the funds allocated to interest and to amortization from the present approximately 54 percent for interest—46 percent for amortization to approximately 66 percent for interest and 34 percent for amortization.
Option A under 193 Proposal
- 1.
- Same as (a) under Option B above.13a
- 2.
- To secure an increase in the interest percentages of the last year (1938) of the Aranha Plan e. g., from 70 percent to 75 percent. (This is the position being taken by the British.) It would be argued that these increased payments should be obtained from the Brazilian Government, and failing this from the amortization funds.
- 3.
- To treat arrears of interest on an annual basis, one coupon to be paid annually at the rate provided in Decree 2085, and failing that to obtain a partial settlement on an annual basis.
It is believed that the Brazilian Government contemplates that these arrears of interest under “Option B” are to be cancelled in partial consideration of the cash payment.
August 24, 1943.”
You will observe that the afore-quoted memorandum takes into account the points made in the Embassy’s very comprehensive report no. 391 of July 6, 1943,14 which was of great help to the Department and the Council in the discussions here. While it is believed that this memorandum will in general be acceptable to you, please endeavor to comment promptly so that there may be ample time for the discussions with the Council’s representatives prior to their departure.
[Page 770]The Department wishes to point out that this memorandum represents the general objectives of the Department and the Council, subject of course to the peculiarities of the situation that may develop in the course of negotiations.
- The grading of Brazilian loans into seven groups was proposed by Brazil and incorporated as a schedule in decree No. 23829 of February 5, 1934. For description of the grades, see Foreign Relations, 1933, vol. v, pp. 77 ff. For negotiations concerning the modifications of this schedule, see ibid., 1939, vol. v, pp. 357 ff., and ibid., 1940, vol. v, pp. 559 ff.↩
- For substance of Options (Alternatives) A and B, see memorandum by the Second Secretary of Embassy in Brazil, September 21, p. 772.↩
- Not printed.↩