102.8951: Airgram
The Secretary of State to the Ambassador in Brazil (Caffery)
A–1248. For Neumann from Allen RDC. Beferring to telephone conversation, we confirm that we are not prepared to consider an extension of the price premium to December 31, 1946. The agreed extension to March 31, 1946, is intended to cover rubber produced in the 1945 season in the same manner that the initial premium was designed to cover rubber produced in the 1944 season. The governments of countries concerned, other than Brazil, have been advised of the extension to March 31, 1946, and have accepted such extension and have made public announcement thereof.
As regards profits of the Banco da Borracha, our understanding is as follows:
- (a)
- That profits derived from the application of the price premium to stocks of rubber on hand as of February 9, 1944, the sale of salvage rubber and volume premiums, are all to be paid into a special development fund to be used for the benefit of the rubber program.
- (b)
- That five per cent of annual net profits shall be paid into a reserve fund until the said fund equals twenty per cent of the capital of the Bank.
- (c)
- That dividends are to be limited to twelve per cent of the capital of the Bank and that any excess is to be paid into the development fund.
We understand that the CCWA is informally inquiring whether we would be willing to consider limiting dividends to six per cent instead of twelve per cent if the Government of Brazil would likewise agree. We do not. perceive any objection to this proposal but official approval on our part would require action by the Directors.
We would suggest that you look into the question of whether the five per cent reserve for losses on loans is adequate and, if not, whether it might not be preferable to add to such reserve profits in excess of six per cent at least until the full twenty per cent reserve has been achieved.
In connection with the utilization of the development fund, we wish to emphasize that our primary interest lies in measures designed to bring about immediate stimulation of rubber production rather than in long-term plantation projects. The language of the applicable agreements seems to indicate that the fund was intended to be used for such immediate stimulation rather than for long-term projects but it may not be wise to oppose the use of any part of the fund for such long-term projects, particularly in view of President Vargas’ interest in such projects. [Allen.]