832.51/2217: Telegram
The Ambassador in Brazil (Caffery) to the Secretary of State
[Received 4:24 p.m.]
4895. Reference my 4894 of October 18, 1 p.m.32 Agreement of October 1633 should be studied in relation to enclosure 2,34 my despatch 12846 of September 24. For dollar bonds this represents an [Page 781] improvement in the neighborhood of 15% above minimum interest indicated Department–Council memorandum of understanding and is only 3.6% less than our basic suggestion. These gains were achieved through a combination of successes in (1) maintaining our regrouping arrangement, (2) obtaining from the Finance Minister an additional $414,000 in cash, and (3) his agreement to apply total interest sum of $20,500,000 to bonds outstanding as of October 16.
It now appears probable that a satisfactory permanent debt settlement can be attained, barring unforeseen complications (the possibilities of which can be minimized by speedy action this week). In this connection, the Brazilians feel that they have made (as they have) substantial interest concessions to us, and we should minimize any additional requests which modify other aspects of their program. The most difficult remaining problem is the distribution of amortization between grades. The heavy concentration of amortization proposed by the British, if adopted for option A, would be so attractive for certain issued [issues] as to defeat partially the Brazilian debt reduction objective under option B.
The Council is to be commended for its pragmatic approach to the debt problem, which has made possible a local solution to the interest question more favorable than original expectations.
Any assistance the Department can give in expediting decisions by the Council on the remaining questions would be very helpful.
I desire to repeat that Souza Costa is the only Cabinet Minister in favor of a debt settlement at this time. I am reliably informed that Aranha considers the proposed settlement as too liberal and that he has told Souza Costa that the Americans and British were prepared to accept less favorable terms.