312. Report by the Operations Coordinating Board1
BRAZIL—SPECIAL STATUS REPORT
Summary
Brazil’s dollar deficit, internal inflation and political turmoil are the outstanding characteristics of the present situation in that country. The Café Filho administration is concerned almost solely with political maneuvering prior to the October 3 presidential election, and the deteriorating economic situation is not receiving constructive attention. U.S. immediate interests in the Brazilian situation are: (1) in having a new administration in Brazil which will be responsible and able to face and handle her many problems; (2) in doing what [Page 670] we can to keep Brazil’s head above water until a new administration takes over and (3) then helping Brazil regain some measure of economic equilibrium. With respect to the first point, it is at present impossible to determine any point at which U.S. influence can effectively be brought to bear on the Brazilian political situation because the parties are too fragmented. If a regrouping of political forces takes place, it may be possible at a later date to consider appropriate action. Concerning the second point, the U.S. should consider whether additional “stop-gap” aid will be necessary to keep Brazil’s head above water. Concerning the third point, Embassy Rio is being requested to outline an agenda for discussion with the incoming Brazilian administration … to re-establish economic equilibrium. The working group is preparing an outline plan … which is tentatively scheduled for consideration of the Board on July 6, 1955.2
Political Situation
The following candidates for president in the October elections have appeared: Juscelino Kubitschek, ex-Governor of Minas Gerais, is a strong contender. If elected, he is likely to pursue a rather nationalistic course particularly if ex-Labor Minister Goulart and the old Vargas crowd come with him. Etelvino Lins, the conservative ex-Governor of Pernambuco, is weak politically and unlikely to win. … Adhemar de Barros may announce his candidacy on a progressive platform. General Juarez Tavora, who is moderately nationalistic and of high personal integrity and reputation, will attract conservative and military support. Ex-Finance Minister Oswaldo Aranha has a following from the old Vargas group. Plineo Salgado will attract some ultra-nationalist support. Moura Andrade, wealthy coffee and cattle grower, has small support in Sao Paulo. The Communists are uncommitted but pushing for organization of a popular front.
Joao Goulart, ex-Labor Minister under Vargas, is still expected to run as vice presidential candidate on the Kubitschek ticket. This combination appears to have the most support at the present time. The other candidates, with the exception of Salgado, draw support from and split the conservative forces. … Certain attitudes and pronouncements, on the part of the armed services, expressing their opposition to continuance in power of the Vargas forces, raise the possibility that a military coup might supervene to prevent elections. [Page 671] This possibility appears to have receded within recent weeks but cannot be entirely discounted.
The Brazilian Communist Party (PCB) appears to have three immediate objectives: (a) to stimulate and exploit public discontent in order to discredit moderate-conservative government; (b) to stimulate and exploit anti-U.S. nationalism in order to neutralize Brazil as an effective ally of the United States and (c) to advance its popularity by electoral means in coalition with other groups. It is unlikely that the Brazilian Communists can or will attempt to seize power by force in the near future.
The disunity and disorganization of moderate-conservative preparations for the October presidential elections, together with the widespread popular unrest resulting from the Vargas legacy of extreme economic instability and severe inflation, are currently providing a propitious background for the exploitation of popular discontent. The PCB’s most effective work against the U.S. is being carried out under the National Emancipation League (LEN) whose aims include “national economic independence” based on the defense of subsoil riches and liberation of Brazil from “North American Imperialist Yoke.” Branches of this organization have been established in some 250 cities and towns, and the organization appears to be both active and vociferous. The Party’s recent electoral activities have been characterized by a frantic but thus far unsuccessful search for a presidential candidate behind which it could marshal its strength and its recent coalition with Adhemar de Barro’s PSP–PTB combination in Sao Paulo whose candidates just won a smashing victory in the mayoralty contest. This mayoralty victory will probably add to Communist prestige and should enhance their position in the forthcoming presidential elections.
Economic Situation
The deterioration of the Brazilian dollar position continues. Despite efforts of the Bank of Brazil to reduce dollar payments as much as possible, the very low level of receipts has continued the drain on limited dollar reserves. The Bank of Brazil estimates that during June-December 1955 it will have to meet dollar requirements of $510 million, and has projected dollar receipts of $420 million. To cover this projected gap of $90 million, on June 1 Brazil had $80 million in disposable cash and unused credit lines, including $30 million not yet drawn on the Eximbank line established in March. Earlier forecasts by the Bank of Brazil have overestimated both dollar earnings and expenditures. The outcome for the remainder of this year can scarcely be predicted before the Brazilian Government has reached a decision on its support price for the new coffee crop and the coffee exchange rate. It is possible, however, that a substantial [Page 672] deficit will occur, in which case the U.S. Government may wish to consider extending additional minimum credits to Brazil.
Mr. Bernstein3 of the International Monetary Fund has recently returned from a visit to Brazil and with the assistance of the IMF staff is now preparing a report which is to recommend the principles which should guide Brazil in the revision of its exchange system. Revision is necessary because the movement of coffee is now on a hand-to-mouth basis since importers expect a lower price and are reluctant to buy, while exporters expect an exchange revision in Brazil which would give them a higher cruzeiro return so they are reluctant to sell. Consequently, a major revision of the exchange system, which had prospects of lasting for a reasonable period, would probably promote larger sales, although at lower prices. When the IMF Staff has drawn up these recommendations for submission to the Fund’s Board of Directors, it will be necessary for the U.S. Government to consider these proposals.
Coffee has moved slowly into foreign markets, partly because of Brazilian indecision concerning its exchange policy. Last week in New York a non-government conference of coffee interests of Latin America proposed the organization of an International Coffee Office and an international agreement to be submitted for ratification by their respective governments. The agreement would be designed to “achieve stability of the market, protecting both the interests of the consumer and the producers.” Events will determine whether this new organization can obtain support for any plan which will be effective.
Secondary Problems
In addition to our major policies, the U.S. is taking certain limited constructive actions which include: (1) negotiation of atomic energy agreements, (2) limited military understandings, (3) strengthening the technical cooperation program in Brazil, (4) USIA efforts to mitigate anti-U.S. election propaganda, … (6) training of labor leaders and other key people under our exchange program, (7) expanding our binational center program, and (8) arranging to provide coal in return for cruzeiros and rare sulphates through FOA.
- Source: Department of State, OCB Files: Lot 62 D 430, Brazil. Top Secret. Forwarded to the Operations Coordinating Board on June 16 under cover of a note by Elmer B. Staats, the Board’s Executive Officer. In the note, Staats indicated that the special status report on Brazil had been prepared by the OCB Working Group on Latin America in response to the OCB’s request at its June 1 meeting. The Board had noted the report at its June 14 meeting. This version of the report, Staats explained, contained the revisions of the original June 7 draft report which were suggested by Treasury and State.↩
- The outline plan for Brazil, dated June 27, was considered by the OCB on July 20. It was approved with minor revisions and circulated on July 26, under cover of a memorandum by Elmer Staats. The plan, not printed, is ibid.: Lot 61 D 38, Latin America—Documents, 1954–1956.↩
- Edward M. Bernstein, Director of the Research and Statistics Department, IMF.↩