832.51/2228
The Ambassador in Brazil (Caffery) to the Secretary of State
[Received October 26.]
Sir: Referring to my despatch No. 12988 of October 7, 1943, I have the honor to report the following developments in regard to negotiations for the permanent settlement of Brazil’s external debt, and to attach as Enclosure I the “Alternative A” schedule which was signed by the Brazilian, British and American representatives on October 16.
Negotiations appeared to have reached an impasse when the Finance Minister’s offer of October 6 and the October 9 telegram of the Foreign Bondholders Protective Council revealed a wide gap in views. The difficulty was that the Finance Minister’s interest offer of $19,936,000 was somewhat lower than the figure of $22,320,000 in the schedule of September 20 which the Council had found acceptable. Furthermore, the Finance Minister’s proposal was so low as to make the American regrouping proposal unacceptable to the British Council.
On October 11 the Embassy prepared and, with the approval of the Council’s representatives, presented to the Finance Minister a memorandum, a copy of which is attached as Enclosure IV.31 This was done for the purposes of preventing lapse in active negotiations and of ascertaining, if possible, the maximum Brazilian position. The Finance Ministry in its reply of October 13 indicated that it would accept the suggested total debt service figures of $29,746,000 for “A” and $31,315,800 for “B”, but that the September 20 “A” interest schedule would be reduced by a flat ¼ per cent and that the September 20 “B” interest schedule would be adjusted downward from 4.00 to 3.75 per cent.
My Economic Counselor pointed out to the Finance Minister the inadequacies of this offer, and requested that the “A” interest figure [Page 778] be raised to $20,500,000. After some deliberation and with considerable reluctance, the Finance Minister agreed. It was this concession which brought a debt settlement within the range of possible achievement.
At the joint meeting on October 15, Mr. McCormick said that he believed it would be possible to prepare acceptable schedules on the new amount, provided the sum could be applied to bonds now outstanding rather than to those outstanding at the end of 1942. The Brazilian delegation, after consultation with the Finance Minister, agreed to this plan which had the effect of making an additional $260,000 available for interest purposes.
During the afternoon of October 15, Second Secretary White held separate conversations with Dr. Bulhões and Mr. Claudinor of the Brazilian delegation for the purpose of ascertaining their views on the distribution of interest plan which, within the regrouping framework, would best meet Brazil’s and Great Britain’s wishes. The Brazilian delegates indicated that they were not inclined, for reasons of financial prestige, to lower the interest rate on any issue below the level of the 1940 Arrangement. This view referred specifically to the Coffee Realization issues. Furthermore, they indicated that Brazil was not anxious to pay as high as 3.75 per cent interest on any issue under “Alternative A”. Their views on this point appeared to be based on considerations of official and public acceptance of any agreement in Brazil, and on the thought that a 3.75 per cent rate in any “Alternative A” proposal would make the “Alternative B” proposal correspondingly less attractive to bondholders in the exercise of their option. Finally, they said that the British representative was still demanding 4.5 per cent for the coffee loans and 3.75 per cent for the fundings and that any Brazilian offer of less than 3.0 per cent for the latter had little hope of success.
The same evening Messrs. Orton and White, after testing several possibilities, devised the Plano Meia-Noite, a translation of which is attached as Enclosure III. The following morning Mr. McCormick took this plan to Mr. Bougas, head of the Brazilian delegation, and suggested that, if he agreed with it, the plan should be presented to the joint meeting as a Brazilian proposal. It was thought that this procedure would please Mr. Bouças and tend to minimize the objections of the British representative. After consultation with the Finance Minister, Mr. Bouças presented the plan as a Brazilian proposal and it was approved by both the American and Brazilian delegates. The British representative signed the plan but qualified his action by the statement that it was doubtful whether the British Council would accept it and they would certainly not accept it unless the plan was accompanied by very heavy amortization provisions for the Fundings and Coffee Realization issues.
[Page 779]Discussions are now proceeding between the American and Brazilian representatives on questions of readjustment of “Alternative B”, amortization and arrearages. If it were not for the wide differences of opinion held by the British Council, there is reason to believe that a debt settlement could be reached within the next few days. The Finance Minister has informed my Economic Counselor that he had hoped to reach an agreement this week, but was still waiting for confirmation from the British Council of the understanding reached last Saturday.
It is requested that a copy of this despatch be transmitted as expeditiously as possible to the Foreign Bondholders Protective Council, Inc., 90 Broad Street, New York City.
Respectfully yours,
First Secretary of Embassy
- Not printed.↩