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

832.51/2315

The British Embassy to the Department of State

Aide-Mémoire

Negotiations on the Brazilian foreign debt are now proceeding between the Brazilian Government and representatives of the British and American bond-holders. The British and American interests are naturally not identical but there is every reason to believe that a scheme can be worked out which could be put forward by the representatives of both countries’ bond-holders as a reasonable compromise.

2. It is clear that there is little hope of reaching a settlement unless the British and American negotiators show a common line in their discussions with the Brazilian Government. The British Council have maintained close touch with the American Council during the discussion, but the latter have, on more than one occasion, put counterproposals to the Brazilians without prior discussion with the British negotiators and which were impossible for the British Council to put before their holders.

3. It seems to His Majesty’s Government that to create an impression of disunion can do nothing but harm. His Majesty’s Government have no desire to create an offensive front against the Brazilians, but the Brazilians have told the British negotiators that the British and United States negotiators must resolve their own differences between themselves before they can do more.

4. His Majesty’s Government hope that the State Department will impress on the Protective Council and their negotiators in Rio the desirabiliy of common action and of prior consultation before further proposals are put to the Brazilians.

5. The Council of Foreign Bond-holders are anxious to go as far as they can to meet the American point of view, and have therefore authorised their representatives to agree to the following terms as regards loans which have been principally in dispute:

(a) 3½ per cent, interest for the coffee loan under option one, provided it receive not less than double its present sinking fund, say 40 per cent, of the contractual sinking fund made cumulative;

(b) 3½ per cent, interest for the funding loans (i.e. the same interest rate as the highest loan in grade 3) provided that they are given not less than 70 per cent, of their respective contractual sinking funds.

These terms would be acceptable to the Council of Foreign Bondholders provided that the Brazilian authorities and American holders agreed to the following counter-concessions:

(a) Grades one and two (and, if the American holders so desire, grade three as well) to be excluded from option 2, the saving being applied to improve payments on other grades;

(b) In the case of both options, the total annuity to remain constant; that is when any loan is paid off, the service of such loan to be distributed among the other loans.

6. The Council have offered these proposals in a spirit of compromise, in the hope of reaching an agreed settlement. They feel that they can go no further without the risk of repudiation by their holders. If the American holders will support a scheme on these lines, His Majesty’s Government believe that agreement can soon be reached. If not, there is every reason to fear a break and an open confession of divided counsel. His Majesty’s Government hope that the State Department will agree that this should not be risked when it might be avoided by consultation in a spirit of reasonable compromise.

Washington , 2 November, 1943.