Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

305. Memorandum of a Conversation, Rio de Janeiro, February 8, 1955¹

Rio de Janeiro, February 8, 1955

PARTICIPANTS

• Raul Fernandes, Minister of Foreign Affairs
• Eugenio Gudin, Minister of Finance
• Henry F. Holland, Asst. Secy, of State for Inter-American Affairs
• William C. Trimble, Chargé d’Affaires, a.i.
• Andrew Overby, Asst. Secretary of U.S. Treasury
• Hawthorne Arey, Director of Export-Import Bank
• Robert P. Terrill, Economic Counselor of Embassy

Immediately after Mr. Holland’s arrival on the afternoon of February 8, 1955, the party proceeded to the Minister of Foreign Affairs for initial discussions.

Mr. Holland said that he had been greatly concerned by reports which had reached him from the American Embassy in Rio and the Brazilian Embassy in Washington that the Brazilian authorities feel that the United States regards the question of aid to Brazil in purely banking terms. He attached so much importance to eliminating this misconception that he considered it necessary to interrupt his trip to Cuba and Mexico with Vice President Nixon in order to explain our position directly to the Ministers of Foreign Affairs and Finance, Mr. Holland said he wished to assure both ministers that the United States looks on Brazil as an ally and a friend of long standing and that it desires to assist Brazil in its present difficulties in the role of a partner and not that of a banker, in the same way that Brazil had provided assistance to the United States in World War II. Mr. Holland continued that he regretted the delay which had occurred since Brazil’s original request for assistance had been received. He knew the Brazilians felt that it had been overly long and he himself was inclined to feel the same way. Nevertheless, the delay did not imply any reluctance to aid Brazil, but rather was necessary to assure full consideration of the situation, including all pertinent statistical data and other related information. The cooperation of Dr. Paranagua had been most helpful to interested authorities of our government and he wished to express his appreciation of the latter’s invaluable assistance. These studies had now been completed and we were now fortunately in a position to discuss the amount and nature of the assistance Brazil might require.

The United States had had a proposal which it was prepared to discuss with Mr. Paranagua, however, Mr. Holland felt that a more favorable plan, from the standpoint of Brazil, could be developed through direct conversations between himself, Assistant Secretary Overby of the Treasury and Mr. Arey of the Export-Import Bank, on the one hand, and the Ministers of Foreign Affairs and Finance and their associates, on the other.

Mr. Holland then referred to the announcement which had just appeared, to the effect that between three and five per cent of Brazil’s foreign exchange earnings would be earmarked for Petrobras. The ministers, he said, would appreciate that for domestic political reasons, it would be impossible for the United States to agree that any part of the financial aid which we proposed to extend to Brazil should be used to support the operations of a petroleum monopoly. The ministers replied that they could fully understand his position and that he need have no concern on that score.

Mr. Holland then raised the subject of aid which the United States had already provided to Brazil since the end of World War II. He pointed out that in the period mentioned, the Ex-Im Bank had authorized advances to Brazil in the amount of $830,000,000, of which Brazil had taken up in net of $650,000,000. This represented 44 per cent of all loans made by that agency. Furthermore, over 60 per cent of the value of military equipment furnished to the American Republics under MDAP had been allocated to Brazil. In addition, considerable aid had been extended to Brazil by the International Bank. Mr. Holland said he wished to mention these figures in order to show that we not only have been appreciative of Brazil’s needs, but also have made substantial contributions to assist her.

Minister Gudin inquired whether the United States was concerned that Brazil might not pay her debts. Mr. Holland replied that he regretted this point had been raised since it was extraneous to the issue. The question before us was how the United States as a partner of Brazil could assist Brazil in its present difficulties.

Minister Gudin then described at some length the disappointments he had suffered during his visit to Washington last October when, hat in hand, he had knocked at doors which did not open. He felt there was a misunderstanding of Brazil’s friendship and importance to us, and a strong tendency to regard its problems in strictly banking terms. After suffering a series of rebuffs, he had finally been able to raise a loan with private banks against Brazilian gold which, after all, was the best collateral you could have. It had been difficult for him to explain the reasons for Brazil’s troubles since they did not result from crop failures, floods or other acts of God, but were occasioned by poor management and bad government in the past. He drew a parallel in this connection between the situation in Brazil and the management of Argentina’s financial affairs in the past several years.

Minister Fernandes stated that what Minister Gudin had been saying concerned past history and could be dismissed from further discussion now that Mr. Holland had explained the position of the United States and its desire to aid Brazil.

At the close of the meeting, Minister Gudin invited Mr. Holland, Mr. Overby and Mr. Arey to his home for after dinner coffee and a more informal discussion.²

1. Source: Department of State, Central Files, 110.15–HO/2–1155. Secret. Drafted by Trimble and Clarence A. Boonstra, First Secretary of the Embassy. Transmitted to the Department in despatch 1101 from Rio de Janeiro, February 11.

2. On February 9, Holland, Arey, and Overby met once again with Brazilian officials to discuss Brazil’s financial problems. According to a memorandum of conversation drafted by Trimble and Boonstra, the question of U.S. assistance to Brazil was discussed and it was agreed that the Export-Import Bank would extend to the Banco do Brasil a line of credit of $75 million. This line of credit was to be made available during the next 6 months, in order to assist Brazil in financing minimum essential imports from the United States within its existing exchange budget. This memorandum was also enclosed in despatch 1101.

   On February 14, Arey reported to the National Advisory Council on International Monetary and Financial Problems (NAC) on the details of the line of credit. According to the minutes of the meeting, he commented “that it was designed to stay within Brazil’s austere import program and to avoid financing Petrobras imports.” (Ibid., NAC Files: Lot 60 D 137, Minutes) The agreement was signed in Washington on March 15; the text was transmitted in airgram 308 to Rio de Janeiro, April 19. (Ibid., Central Files, 832.10/4–1955) For further information, see Export-Import Bank of Washington, Twentieth Semiannual Report to Congress for the Period January-June 1955 (Washington, 1955), pp. 17–20.