811.20 Defense (M) Brazil/276b: Telegram

The Acting Secretary of State to the Ambassador in Brazil (Caffery)

454. In keeping with Resolution II of the Rio de Janeiro Meeting of Foreign Ministers, conversations have been held with Souza Costa and his colleagues, in which the Brazilian Ambassador participated, looking to the establishment in Brazil of an organization under Brazilian Governmental sponsorship and control to increase the production of strategic materials and other natural resources. The new organization would examine all feasible projects for such development and would see that those recommended be effected either by existing enterprises in Brazil or, where suitable entities do not already exist, by new organizations which would be established for that purpose.

The overall organization would be a non-profit one. It would utilize to a very considerable degree United States expert assistance. In addition to funds for local expenditures to be supplied by Brazil, a substantial line of dollar credit would have to be allocated by the Federal Loan Agency to be drawn against as needed for dollar expenditures in connection with specific projects. The Federal Loan Agency would, of course, have the right to approve or disapprove specific undertakings. For your strictly confidential information, the amount now under discussion is $100,000,000, and, while it is anticipated [Page 681] that this sum will be forthcoming, it is not as yet definitely committed.

Agreement in principle has been reached here with the Brazilians on the aforedescribed plan. Souza Costa is telephoning Aranha and said that, if his Government approves, we will proceed rapidly with an exchange of notes to formalize the matter.

Quite aside from the urgent need for the materials to be produced and the stabilizing effect on hemisphere economy, it is believed that the public announcement of a program of the kind described, particularly one involving such a high line of credit, should have a salutary effect on the Brazilian public, as well as in the public minds of the other American republics.

Discussions are also proceeding between Souza Costa, the Department and the Export-Import Bank, of a plan and agreement for development of Itabira Mines and connected railway.

Welles