Foreign Relations of the United States, 1958–1960, American Republics, Volume V

264. Memorandum From the Director of the Office of International Financial and Development Affairs (Adair) to the Assistant Secretary of State for Economic Affairs (Mann)¹

Washington, February 10, 1959.

SUBJECT

• Brazil’s Balance of Payments Problem

In my memo of February 2,² I reported that Brazil was thinking of sending a mission to Washington within two weeks to negotiate with the IMF and the Eximbank for assistance to cover a balance of payments deficit for 1959 estimated at some $300 million. I also noted that the Department had cabled Embassy Rio that Brazil should complete arrangements with the IMF before approaching the Eximbank and that before sending a mission to talk with the IMF, Brazil should be sure the IMF is ready and considers Brazil ready for discussions.³

There have been subsequent conversations between Ambassador Briggs and President Kubitschek, Treasury Attaché May and Finance Minister Lucas Lopes, and Department representatives and Ambassador Peixoto. The results of these conversations were encouraging in that they indicated Brazilian understanding of the position being taken by the United States and Brazilian willingness to work first with the IMF. Particularly encouraging was the fact that President Kubitschek appeared to have been well briefed and to have addressed himself seriously to the problem. On the other hand, the President did not talk in terms of a thoroughgoing stabilization effort including a full exchange reform which is especially needed. He also said that even after doing everything it can, Brazil will still need $300 million in balance of payments assistance.

The next step probably will be a visit by Brazilian technicians to Washington to talk with the IMF (if and when the IMF agrees to this). Ambassador Peixoto has said that he intends to talk with Mr. Jacobs-son this week. The Ambassador is scheduled to return to Rio for consultations about the end of this week.

The IMF feels strongly that Brazil should modify its unrealistic exchange system: yet Kubitschek has said that he cannot do much in this field since he believes devaluation would be politically difficult. We agree with the IMF that unless Brazil modifies the exchange system there is not much hope that it will be able to balance its international accounts, and thus cease coming to the U.S. every year for balance of payments assistance. Whether in the final analysis the IMF will yield on this vital part of a stabilization program remains to be seen.

It is to be noted that when the U.S. tells Brazil to complete arrangements with the IMF before approaching the Eximbank, there is an implied commitment on the part of the U.S. that if Brazil comes to terms with the IMF the U.S. will assist Brazil.

I believe that the U.S. should take a firm line against U.S. financial assistance without an adequate stabilization program. The problem is, of course, complicated by relations with Brazil on other matters. We stood firm with Argentina, Turkey and other countries, and the Brazilian case is being watched by other countries.

It is desirable that the U.S. position on the matter be determined at least in general terms and that our views be made known to the IMF, also to the Embassy. Any misconception that President Kubitschek may have on the importance of exchange reform should be removed. Ambassador Briggs in accordance with Deptel 717 told Kubitschek February 3 in substance “The U.S. Government is sympathetic and desires to be as helpful as possible; our assistance, nevertheless, would need to be based on prior arrangements between Brazil and the IMF so that if the Finance Minister is contemplating a trip to Washington, the purpose should be specifically for negotiations with the Fund, rather than with the U.S. Government.”⁴

On the same day Treasury representative May told Finance Minister Lopes in substance: “Agreement between Brazil and the Fund is a precondition for any possible subsequent discussions with the U.S. Government, but there is no U.S. Government commitment for balance of payments assistance even if Brazil should reach agreement with the IMF.”⁵ Despite this statement it is probable that the Brazilians expect U.S. assistance if they reach agreement with the IMF. It is therefore desirable that the IMF understand that the U.S. is prepared to support a strong stand, if this is the case, on an adequate stabilization program.⁶

1. Source: Department of State, Central Files, 832.10/2–1059. Confidential. Drafted by Young and Eaton.
2. Not found in Department of State files.
3. Reference is to telegram 717 to Rio de Janeiro, January 30. (Department of State, Central Files, 832.10/1–2859)
4. See Document 263.
5. The conversation between Lopes and May, February 3, was reported in telegram 1033 from Rio de Janeiro, on that day. (Department of State, Central Files, 832.10/ 2–359)
6. In a February 16 memorandum to Adair, attached to the source text, Mann agreed “to take a strong stand in support of the IMF recommendations regarding Brazil,” and instructed Adair to “pass the word along.”