Foreign Relations of the United States: Diplomatic Papers, 1943, The American Republics, Volume V

832.51/2199

Memorandum by the Second Secretary of Embassy in Brazil (White) to the Ambassador in Brazil (Caffery)¹⁹

[Rio de Janeiro,] September 21, 1943.

Mr. Ambassador: There are attached copies of “Alternative A” and “Alternative B” proposals,²⁰ prepared by Embassy and Council representatives, and presented today to the Brazilian representatives as a basis for discussion. These schedules are based on the plan suggested in our report to the Department of July 6, and they incorporate the principles outlined in my memorandum to you of July 12:²¹ namely, acceptance of Finance Minister’s proposal on (1) total debt service $33,000,000, (2) cash available for debt reduction $83,000,000 and amount of debt reduction desired of $340,000,000. Within this framework, it was pointed out that American bondholders could receive more equitable treatment by eliminating the preferred position of fundings and coffee realizations and by allocating total debt service on a $22,000,000 interest and $11,000,000 [amortization] basis.

The two alternatives presented are in substance the following:

		$000 Omitted
	Amount Outstanding	Suggested Debt Reduction	Suggested Cash Payment	Suggested Annual Interest
Suggested “A”	862,358	–	–	22,303
Suggested “B”	862,358	333,995	82,422	20,935
	Suggested Amortization	Total Annual Debt Service
Suggested “A”	11,151	33,454
Suggested “B”	10,467	31,402

These schedules are, with slight adjustments, based on the regrouping outlined in the report under reference. The schedules do nothing to impair the overall British position and if the British Council is truly representative, I am convinced it will find the program acceptable because it is substantially better for sterling bonds en toto than was the June proposal²² which they appeared willing to accept. For instance, under our “Alternative A”, sterling bonds would receive 46.1 per cent of contractual interest, compared with only 42.8 per cent of contract for dollar bonds. This derives from the fact that we have voluntarily adopted the principle that high interest bonds (mostly dollars) should take in a permanent settlement a larger proportionate reduction than the others.

Mr. Donnelly has gathered from conversations with Souza Costa that the latter is conciliatory and appears anxious to reach an early settlement. I have discussed the details of our schedules with Bulhoes of the Finance Ministry and Cox of the Conselho Tecnico and am convinced that the margin between our suggestions and what they have in mind is very small. On the key point of interest payments under “Alternative A”, they both agreed with my thesis that any material reduction in the $22 million figure would result in psychological losses to Brazil (receptivity of bondholders) out of proportion to the small savings which could be effected.

The conclusion reached is that, barring the intervention of special interest[s], the chances of a settlement creditable to both Brazil and the creditor countries are good.

Ivan B. White

19. Copy transmitted to the Department by the Ambassador in his despatch No. 12846, September 24, printed infra.
20. Neither printed.
21. This memorandum does not appear to have been transmitted to the Department.
22. For principal features of the plan, see telegram No. 2993, June 19, 2 p.m., from the Ambassador in Brazil, p. 765.