239. Telegram From the Department of State to the Embassy in Brazil 1
1107. Embtel 1233.2 Appreciate your complete reporting discussions Kubitschek and Alkmim and recommendations transmitted; also pleased your urging prompt agreement with IMF. Dept recognizes gold pledge might be unpalatable for Brazilians and could have serious political implications. Suggestion that Brazil have recourse to gold pledge was not principal recommendation of Anderson letter. Principal recommendation was that Brazil work out comprehensive economic and financial program with IMF. Reference to gold pledge was merely means tiding Brazil over if necessary before satisfactory program agreed upon with IMF.
Dept believes Brazilians may be ready abandon idea US bailout (which Alkmim and Kubitschek seem to have expected despite position we maintained all along) and that if they really fear political implications gold pledge they will be forced deal seriously with IMF as only alternative. Should they however decide pledge gold and especially if in conjunction with joint statement such as mentioned Embtel 1224 we fear this might reduce urgency for solution with IMF and jeopardize our ability resist pressure for bailout prior IMF solution once gold exhausted. Brazil might then take line that gold pledged only as consequence joint statement which constituted US commitment to aid unilaterally at exhaustion gold. Furthermore, such statement could be used identify US with restrictive measures to be called for by IMF, thus providing ammunition to anti-US nationalist opposition forces.
Recommend therefore you inform Kubitschek:
- (a)
-
that US in suggesting loan against gold was not proposing for Brazil a course of action different from that which it has recommended to other countries; and that US financial assistance, without comprehensive program designed to restore balance in external accounts and satisfactory to IMF, would be contrary to established US policy and would constitute unacceptable precedent. Also, US Govt itself would be subject to serious domestic criticism if it failed make most effective use limited loan resources.
[Page 670]You should, however, reassure him clearly as to continuing sympathetic interest US Govt in sound and expanding Brazilian economy. Also of US willingness consider financial assistance in connection with a program giving promise durable solution Brazil’s current problems. Before considering such assistance US would expect Brazil to bring its recent discussions with IMF to satisfactory conclusion.
FYI Washington cannot know at this time magnitude or form of possible loan assistance which may be necessary. Both amount Brazil may need and form and extent US support will depend upon adequacy of program Brazil prepared adopt. Possible we may need to seek Congressional approval in advance on formal or informal basis. This would not be for purpose stalling. We are not now in position go to Congress because in absence missing element sound Brazilian program we are unable assure Congress aid could contribute lasting solution Brazil’s problems. Congressional consultation would, of course, involve risk of leaks. Believe you should explain this to Brazilians in manner you deem best, emphasize our desire be of help to Brazil in time her need and our need to make sure additional help from us would make real contribution Brazil’s progress rather than merely postpone solution causes crisis. End FYI.
- (b)
-
that IMF can act quickly if satisfactory program presented to it. Brazilian economists understand nature of problem and should be able in few days to draw up general program which could then be discussed with IMF, looking toward prompt agreement, provided Brazil prepared make policy decisions in field of budget, credit and foreign exchange. If Brazil prepared to undertake necessary measures it should be possible to work out satisfactory arrangements with IMF without delay. Principal question is whether Brazil is prepared to pursue financial policy leading to financial stability and economic growth. IMF cannot make resources available unless satisfied country is following or prepared to follow appropriate policies and gives IMF firm assurances. US has confidence in ability of Brazil and IMF work out appropriate program.
Peixoto plans leave Washington April 1. Meeting with Rubottom scheduled afternoon March 31. Dept will forcefully take lines set forth in paragraphs (a) and (b) above with him at that meeting.
- Source: Department of State, Central Files, 832.10/3–2458. Confidential; Priority. Drafted by Siracusa on March 26, revised by Young on March 27, and signed for Dulles by Bernbaum.↩
- In telegram 1233, March 24, Briggs reported that Kubitschek told him he could not pledge Brazilian gold as collateral for a loan, but that he was willing to make sacrifices in his development program. (ibid.)↩