832.51/2262: Telegram
The Ambassador in Brazil (Caffery) to the Secretary of State
[Received 7:17 p.m.]
5396. See my 5390, November 19, 8 p.m.42 To Foreign Bondholders Protective Council from Orton. The following translation of the proposed Decree-Law was made by the Embassy. Official Brazilian translation has not as yet been made, but it is not believed that there will be any important textual differences:
“The President of the Republic using the powers conferred on him by article 180 of the constitution, and
“Considering the understanding reached with the representatives of the Council of the Corporation of Bondholders of London and of the Foreign Bondholders Protective Council, of New York, for the purpose of establishing definitive forms for payment and service of Brazil’s external debt in pounds sterling and dollars, decrees:
“Article I—effective January 1, 1944—the payment of interest and amortization of the bonds of the external loans issued in pounds sterling and dollars by federal, state and municipal governments, Coffee Institute of the State of São Paulo and the Banco do Estado de São Paulo, will be made in accordance with one of plans A or B annexed,43 at the option of the bondholders.
“Paragraph 1—plan A maintains the nominal and original value of the bond, establishing new and definitive rates of interest and quotas of amortization.
“Paragraph 2—plan B establishes a reduction in the nominal original value of the bond, compensated by payments in cash, establishing a uniform rate of interest and quotas of amortization.
“Paragraph 3—the option will be made before the respective paying agent who, by means of an appropriate legend, will record on the bond the terms of the plan accepted.
“Paragraph 4—there is conceded to the bondholders of the sterling loan, Districto Federal 1904—5%, the right to exercise the option treated by the present Decree-Law, guaranteeing to them the advantages granted to equivalent loans.
[Page 791]“Article II—the Federal Government will redeem at sight, effective January 1, 1944 the bonds of loans included in attachment No. 2 on the basis of 12% of their nominal value, against their delivery to the paying agents, all coupons due or to become due relative to such bonds being considered canceled.
“Sole paragraph—the conditions to which the present article refers are applicable to the loan issued in pounds sterling by the municipality of Belo Horizonte in 1905.
“Article III—the Federal Government will redeem at sight, effective January 1, 1944 the coupons included in attachment No. 3 on the following bases:
- 1.
- Ten percent of the rates of the last period of the plan approved by Decree-Law 2085 of March 8, 1940 those included in column one which relate to arrears previous to Decree number 23829 of February 5, 1934.
- 2.
- Twenty-five percent of the rates referred to in the previous item, those included in column two, referring to coupons whose due dates are included in the period between July 1, 1939 and December 31, 1943.
- 3.
- At the rates fixed in the referred to Decree-Law number 2085, those included in column three and referring to arrears occurring during its effective period.
“Article IV—the period conceded to bondholders to exercise the option referred to in Article I of this Decree-Law will be 12 months from January 1 to December 31, 1944 inclusive, the Minister of Finance having the power to authorize its extension.
“Paragraph 1—the bondholders who exercise during the period granted the option to which Article I refers will be guaranteed the advantages and the payment of the interest due from January 1, 1944 on the basis of the plan elected.
“Paragraph 2—if the period established in this article lapses with out the bondholder having exercised the option, he will be automatically included in plan A, there being assured to him the right of receiving the interest due, beginning with the date to which the previous paragraph refers.
“Paragraph 3—to the bondholders who have not exercised the right of option for reasons independent of their will and who have submitted sufficient proof to the respective paying agent, there will be conceded a supplementary period by the Minister of Finance.
“Article V—in case of the loans included in plan A, the responsibility lies with the original debtor, exchange drafts being assured by the appropriate authority, against a previous deposit to be made in national currency by the respective debtors.
“Article VI—the Federal Government makes itself responsible for the payment of service of state and municipal bonds, inclusive of those of the Coffee Institute of the State of São Paulo and of the Banco do Estado de São Paulo whose bondholders have chosen plan B.
“Article VII—the Minister of Finance is authorized to convoke, opportunely, a reunion of interested state and municipal governments in order to establish norms for the exact execution of the obligations resulting from this Decree-Law.
[Page 792]“Article VIII—it is the duty of the Contadoria Geral da República, relative to federal loans, and of the technical section referred to in Decree number 22089A of November 16, 1932, in that which concerns state and municipal loans, to supervise the execution of this Decree-Law.
“Article IX—the respective paying agents should adjust directly with the Minister of Finance the amount of the remuneration due for the payment of interest, redemption and stamping of bonds.
“Sole paragraph—the paying agents of dollar loans will deduct in the payment of the first coupon one-eighth of one percent of the nominal and original value of the bond, which amount will be delivered to the Foreign Bondholders Protective Council Inc. of New York.
“Article X—the Federal Government as it is found practicable, will extend to the bondholders of the state and municipal loans, issued in francs and florins, treatment corresponding to that extended to bondholders of equivalent dollar and sterling loans.
“Article XI—there shall be included in the federal, state and municipal budgets the appropriations necessary to the payments foreseen in this Decree-Law, by means of instructions issued by the appropriate authorities.
“Article XII—the amortization funds will be cumulative and employed in the purchase of bonds when quoted below par and in the drawing at nominal values when at par or above.
“Paragraph 1—in plan A the total annual service of interest and amortization established for each debtor will be constant until the final redemption of all the bonds issued by it and currently in circulation.
“Paragraph 2—in plan B the total annual service of interest and amortization will be constant until the final liquidation of all the bonds included in the plan referred to.
“Article XIII—the loans issued in pounds sterling and dollars will be paid in the respective currencies of legal tender.
“Article XIV—exchange drafts being available, it is optional to apply them to extraordinary redemption of bonds of Brazil’s external debt.
“Article XV—the text A of this Decree-Law and of the plans referred to therein shall be transmitted en toto immediately to the Brazilian Ambassadors in England and the United States for purposes of publication.
“Article XVI—the Minister of Finance is authorized to issue regulations, instructions and to promote the necessary arrangements for making effective the operations pertaining to the present Decree-Law.
“Article XVII—cases of omission will be considered and decided by the Minister of Finance, upon representation by the interested parties through the respective paying agents.
“Article XVIII—dispositions to the contrary are revoked.”
Interpretative telegrams from Embassy and Council’s representative will follow this afternoon. [Orton.]