832.24/10–2344
Memorandum by Mr. John Ferguson, Division of Financial and Monetary Affairs, to the Assistant Secretary of State (Acheson)
As you no doubt know, a proposed supplemental lend-lease agreement with Brazil has been prepared and has been circulated for clearance in the Department. Its circulation seems to be completed and only minor changes have been suggested.
It was drafted before I came on the scene. I believe the idea of it arose out of discussions held several months ago at the instigation of the War Department, which had feared that the present agreement with Brazil would not be adequate to meet the needs of the Brazilian Expeditionary Forces for combat supplies.
An advance copy of the proposed new agreement was unofficially handed to FEA for its information, and somehow or other an official letter from Crowley18 was written on the basis of the draft and received by your office several days ago. That letter raised two questions: (1) whether or not we should now ask for reverse lend-lease from Brazil, and (2) whether it was proper, as provided in the proposed agreement, to furnish aid to the Expeditionary Forces without specifying any terms of dollar repayment.
The second question raised by FEA should, I think, be answered in the affirmative. The idea of having a new agreement was to facilitate the furnishing of supplies to the Expeditionary Forces in the field, and this type of aid would seem to fall clearly within a category for which we should not establish the precedent of requesting any cash payment.
With respect to the first question, it has apparently been the consistent [Page 595] policy of the Department not to request reverse lend-lease from South American countries. All of the existing agreements have provided for cash payment of a specified percentage of the value of the supplies, the percentage being based upon the ability of each country to pay. The agreements state that this payment will discharge in full the fiscal obligations of the country with respect to such supplies. To ask for reverse lend-lease in addition to such cash payment seemed to the Department to be unnecessary and unwarranted.
Despite the absence of formal arrangements, Brazil has been furnishing to our Army in Brazil certain services such as local labor, and has made available airfields, et cetera, free of charge. It is not anticipated that any supplies or services will be furnished to our forces outside of Brazil. Whether now, when aid to the Expeditionary Forces in theaters of war is to be supplied by us without any provision for cash payment, services furnished to us in Brazil should be credited as reverse lend-lease presents a somewhat different question than has arisen before. My own feeling is that it does not matter much whether we treat what we receive in Brazil as reverse lend-lease or not, since the supplies furnished to the Expeditionary Forces will not create serious settlement problems, and I think I would favor leaving the situation as it is, rather than establishing a new practice which would not be applied to any other American republic.
I would like to raise one additional point with you, and that is whether the proposed new agreement should be cleared with the War Department or the substance of it discussed with them. I should think the latter would be appropriate, but I am inclined to think we should avoid getting formal approval of the document.