PROBABLE DEVELOPMENTS IN BRAZIL

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PROBABLE DEVELOPMENTS IN BRAZIL

. . Sutttnttted by the

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PROBABLE DEVELOPAAENTS IN BRAZIL

THE PROBLEM

To estimate the current situation in Brazil and probable developments

CONCLUSIONS

suicide of President Vargas in4 and succession of theCafe Filhohave not resulted in anychange in the Brazilian situation. The economic situation remainsInflation continues largelyand the persistent dollar shortage is being met only by successive US loans. The political situation is affected bysocial unrest, particularly in urban areas, and is aggravated byrelating to the presidentialto be held in

The new president to be elected inis likely toan committed to meet labor-leftist demands, assuming that free elections are held. Thelabor-leftist candidate is Juscelino Kubttschek, governor of Minas Geraisormer adherent of Vargas. The election ofan is likely toolitical situation similar to that which existed under the Vargashronic political tension between the executive and moderate-conservativein Congress and especially in the armed forces. The military would be confrontedard choice between condoning further evolution to the left or immediatelyovernment to their liking.

a moderate-conservative could be electedree contest only if the labor-leftist vote were seriously split.andidate, elected with multipartyand the approval of the military, could probably enlist sufficientcooperation to effect somein the economic situation. Aregime would beto antagonize politically vocalelements, and would beosition to employ force, if necessary, to suppress social unrest.

There is little chance that theto be elected in October will be able to deal effectively with Brazil's deep-seated and politically dangerous economic difficulties. In fact, as long as anyadministration assumes that dollar loans are readily available, there is little likelihood that it will incur the political

risk involved in stabilizing the economy. However, the administration would be even less willing to follow politicallypolicies in the absence of dollar loans. Rather, it would be underpressure to seek radical,solutions to Brazil's economicIn any case, effective action over an extended period will be required to stabilize the Brazilian economy.

he Brazilian Communist Party,outlawed, has approximately doubled in numbers during the last two years. It is now estimated to0 membersuch larger number of sympathizers. For some time to come, it will probably continue toin numbers and political influence. It is unlikely, however, that the party could, within the foreseeable future, gain sufficient strength to take control ofby electoral means or by force.)

Brazil will almost certainly continue to support the US on major issues between the US and the Soviet Bloc, but, if not granted the special consideration to which It feels entitled, with particular reference to dollar loans, may pursue an increasingly independent course. Brazil will seek to establish closer economicin Latin America and withEurope, and will also seek to increase its now minor nonstrategic trade with the Soviet Bloc.

Brazil will continue to opposebids for leadership in Latin America and the development of an Argentine-led bloc. Fundamentally, Brazil deprecates the idea of competing blocs In Latin America and promotes instead theof Hemisphere solidarity.

In the event of general war, Brazil would almost certainly participatein support of the US.

DISCUSSION

INTRODUCTION

razilajor power within the Latin American community. It exercisesinfluence in both the Organization of American States and the United Nations. Moreover, Brazil is strategically located with respect to sea and air routes in the South Atlantic and is an important source ofmaterials, notably metallurgicalquartz crystals, beryl ore, mica,tantallte. and castor oil. It is the only Latin American country with known sizeable deposits of atomic energy raw materials,thorium. The Brazilian armed forces are capable of making an importantto Hemisphere defense. Traditionally, Brazil has cooperated closely with the United States on important international questions.

Except in some geographical areasao Paulo) little progress has been made in developing Brazil's large human and material resources. The national economy continues to depend on exports of agricultural products. Earnings from these exports have not been sufficient to sustain the postwar rate ofdevelopment, while at the same time economic nationalism has Impeded foreignThe industrialization which has occurred0 has been accompanied by severe inflation and by economic and social strains felt particularly by the rapidlyurban population.

Heavy migrations from the back country into the cities have brought hundreds of thousands of Brazilians into their firstwitli higher standards of living, glaring

Inequalities, and the Insecurity of urbanAcutely distressed by inflation, the urban masses generally are increasinglywith their level of living and'or Improvement. At the same time middle and upper class conservatives,Array leaders as well as commercial and industrial Interests, have been disturbed by the adverse prospects forigh rate of economic development and by the growth of labor-leftist and Communist strength, which threatens their dominant position in Brazilian life. The conflicts and tensions which inevitably arise in such time of rapid economic and social change areexploited in Brazil by both extreme nationalists and Communists. Brazil,has been less subject to political violence than most Latin American countries.

POLITICAL SITUATION AND

PROSPECTS

The Collapse of the Vargas Regime

present administration came4esult of the suicideGetullo Vargas. TheJoao Cafe Kilho. thereuponto the presidency for theof Vargas' termn understanding of the characterVargas regime and the causes of itsis prerequisite to an estimate ofpolitical situation and prospects.

was an astute politicianmanipulated opposing factionsposed as the friend of thepeople. During his first period inhe established theState" as an ideological facade forpersonal rule. He espousedeconomic nationalism, establishedover the states, abolishedsuppressed all opposition of bothand right, undertook governmentand initiative in economicpromoted industrialization,with amelioration of the livingof the urban musses, extended theand sought to mobilize andlaborolitical force throughlabor unions. It wasthis period that urban lower income groups began to become an Important factor in Brazilian politics.

n responserowingto totalitarianism, the Brazilian Army quietly deposed Vargas andore normal federal republican regime withEurico Gaspar Dutra as constitutionally elected president. The two principal political parties which emerged were the SocialParty (PSD) and the NationalUnionoth werein composition, but received theirprimarily from upper middle classand were correspondingly moderate-conservative in political outlook. Thedifference between them was that the PSD was led by men who had beenassociated with Vargas in the "Newhile many leaders of the UDN had opposed Vargas.

The moderate-conservative Dutrafailed to cope effectively with the growing economic hardships suffered by lower middle class and labor groups. Partlyesult of this failure, Vargas was able toa large personal following and to buildersonal political machinetheLabor Party (PTB)based primarily on organized labor. In0 presidential campaign Vargas exploited both theof lower income groups and theof conservative political leaders. He was elected withercent of the popular vote, as againstercent for his nearestHowever, moderate-conservatives (the PSD and UDN) continued to predominate in both houses of Congress and to control most state and municipal governments.

Vargas was no more successful In coping with Brazil's mounting economic difficulties than his predecessor had been. In contrast to the vigor and self-confidence of his earlier rule, his policy was indecisive, largely because of his lack of an assured majority in Congress. Although the PSD generally supported him, it did soolicy price which tended to alienate his labor-leftist following and its con-

Unued support could not be relied upon. Moderate-conservatives in general continued to distrust blm on account of his past record, his labor-leftist associations, his apparenttoward Communism, and his known tendency to subordinate pressing economic considerations to the requirements of political expediency. By vacillating between policies designed to gain moderate-conservativeand measures calculated to regain the loyalty of his Indispensable labor-leftistVargas forfeited the confidence of both groups.

By4 the economic and political situations in Brazil were both extremelyPolicies pursued under moderatehad temporarilyoreigncrisis, but Inflation continuedWith congressional electionsVargas turned again to the left, the symbol of this decisionecree doubling the minimum wage regardless of the economic consequences. By adroit politics, Vargas managed to maintain his position despite conservative efforts to oust him on this account, but political tension was raised tooint that his regime wasto any political accident. The accident occurred when an Air Force officer was killed by Vargas henchmen who were attempting to assassinate an editor who had beencritical of the regime. The publicexcited by the Air Force investigation of this affair deprived Vargas ofime when moderates andwere already out to get rid of him. In these circumstances the Army and Navyto Air Force demands that Vargas be forced to resign.

This political Intervention by the Army, as the dominant military force, was Inwith Brazilian traditions. The Army normally remains aloof from politics,the incumbent government, whatever Its political complexion, but the Army alsothat it has an overriding responsibility for the preservation of order and ofInstitutions. It had already warned Vargas, inhen It demanded and obtained the dismissal of his Minister of Labor. It acted in August, not only into Air Force pressure, but also to check the administration's sharp trend to the left and to avert the implicit danger of serious civil disturbances.

The Cafe Administration

Cafe Filho's known personal Integrity and political independence raised hopes that he might succeed where Vargas had failed ineffective solutions for Brazil's politico-economic difficulties. Although himselfleft of center, Cafe had come to power with the support of theand the military. His cabinet includes representatives of all the principal parties as well as men without party affiliation. For the first time in recent years the Brazilian cabinet Is composed predominantly of men of high intellectual and moral character,primarily with the national welfare rather than with personal or party interest.

As was the case with Its predecessors, the new administration's most pressing problems are economic, particularly the foreignshortage and inflation. It hasto meet them by advancing aof retrenchment and austerity such as no Brazilian government has hitherto dared to propose. Government expenditures have been reduced and government support ofexpansion has been withdrawn. In large part, however, the administration'sprogram has been frustrated by lack of support in Congress. Inflation has not been substantially retarded.

The4 congressional elections failed tolear mandate for or against the Cafe program. Thepartiesombined majority in Congress and could enact the Cafe program if they united to do so. Party discipline in Congress is lax, however. Moreover, party politicians are understandably disinclined to vote for tax increases, credit restrictions,of agricultural price supports, or curtailment ol wurking class benefitsresidential election year.

Approaching Presidential Election

Party preparations for the presidential election to be held in5 are taking place in unusual circumstances. For twenty* five years Brazilian politics have taken the form of support for or opposition to Getullo Vargas. His death has removed theirpoint of reference. The labor-leftist elements who followed him are now leader-less, but otherwise moderate politicians are tempted to compete for the labor-leftist vote, realizing that the directton which it takes will probably determine the outcome of theOn the other hand, the armed forces arereater than usual Interest in politics. They are strongly opposed to the electionargas-associated labor-leftist, and. if political developments should tend toward that result, they might intervene to prevent the election ofandidate.

In order to avoid Incitement of the masses by competing candidates, and also to ensure the electionresident satisfactory to themselves, the armed forces have favored the ideaoalition of all major partiesingle candidate more or lessto carry out the policies of the Cafe administration. The UDN has been receptive to this idea. The PSD, however, under the influence of Its pro-Vargas wing, has chosen tosee lino Kubitschek. theof Manas Gerais, and tooalition with the labor-leftist PTE, The PTB is not yet ready to commit itself to Kubitschek and the PSD. but could probably be persuaded to do so by proper political concessions. Inwith Kubitschek's popularSD-PTB combination would probably heto ensure his victoryree election. It might, however, provoke militaryin the electionunless the military were privately persuaded that Kubitschek. in office, would pursue acceptable policies.

The outcome of the election will depend primarily on whether the bulk of the labor-leftist vote can be won by Kubitschek (or any other singler whether it will be divided among many candidates. The latter contingencyossibility, other potential candidates with labor-leftist appeal arede Barros, Janio Quadros. and Estlilac Leal, representing diverse factions.oderate-conservative to theof Brazil would be possible only In tbe eventerious division of the labor-leftist vote.

The action of the UDN will be greatlyby the prospect for division of the labor-leftist vote.SD-PTBthe UDN would be likely to seek acoalition with Janio Quadros, the independent leftist governor of Sao Paulo. If, however, it appears that the labor-leftist vote will be divided, the UDN mightoderate-conservative with militarysuch as Oencral Juarez Tavora.

The next president of Brazil is likely toan (such as Kubltsrhek) committed to pursue labor-leftist policies. The election ofresident wouldoliticalsimilar to that which existed during the Vargas regime. The armed forces would be confrontedard choice between condoning further evolution to the left, at the risk of eventually losing their power to act as arbiter in Brazilian politics,overnment to their liking, at the risk of precipitating bitter Internalbetween labor-leftist andelements and possibly severe civil disturbances. The prospect, at best. Is for continuing political tension in Brazil.

The Communists

Brazilian Communist Partystrength after It was outlawed1 (whennd especially during the lastIt has had remarkable success infunds and recruiting new members. Itestimated touch larger number ofIt draws its chief supportlabor and lower middle classthe leadership of the party islargely of professional men andRetired military personnelbeen active In the leadership ofFor the present, theeffort Is directed toward the consoli-

T

datlon of its recent gains, rat her than toward further expansion. The Communists not only maintain numerous newspapers for the dissemination of propaganda, but have also established an extensive school system for the indoctrination of party cadres. They talk of developing the party in accordance with "the Chinese revolutionaryyand organization among the peasants leading to guerrilla resistance in the back country and to eventual revolution. Their present strength is concentrated in and around the city of Rio de Janeiro. In thestate of Sao Paulo, and In the"hump" of BraziL1

The PCB appears to have two immediate objectives: (a) to stimulate and exploitdiscontent in order to discredit moderate-conservative government, and <b) toand exploit anti-US nationalism In order to neutralize Brazil as an effective ally of the Unitedood example oftechnique is the agitation, In conjunction with that of non-Communist ultranatlon-ahsts, which contributed to enactment of the existing law excluding foreign capital from participation in the development of Brazil's petroleum resources.

Vargas was largely indifferent to the rapid revival of Communism in Brazil during his presidency. No Communist sympathizerhe presumably supposed that he could control the situation. His indifference,permitted intensive Communistof some labor organizations, and.esser extent, of the bureaucracy and the armed forces.

The Cafe administration has taken some action to neutralize this CommunistMilitary officers of known Communist sympathies have been retired or reassigned; known Communists among the enlistedare being court-martialedare also being removed from positions of labor union leadership. As yet. however,has been accomplished toward removing Communiits from the bureaucracy or from elective public office.

'The attached map shttw* iiioie fully the dUtrt-tmllon of Communist strength In Brail),

Possibly because the Brazilian Catholic Church underestimates the strength ofin Brazil, it has not engagedilitant campaign against Communism. In any case. Church influence in Brazilianis usually weak.

Inasmuch as the Communist Party, as such, is still outlawed, Communist political action must be effected through other political parties. The extent ot Communistof other political organizations Isit may be extensive In the PTB. In4 congressional election at least five Communists and Communist sympathizers, running under non-Communist party labels, were elected, as compared with one suchin the previous Congress.

The Brazilian Communists may be able to derive advantage from Vargas' suicide and from his "politicalhichremarkably with the Communist Party line. Their previous condemnation of Vargas has been obscured by their effort toiolent popular reaction to his suicide. They now are able to claim himartyr to "Yankeeurthermore, in the forthcoming presidential election they will be in an advantageous position to push their united front program,arge bloc of assured votes in exchange for political

For some time to come, the BrazilianParty will probably continue toin membership and political Influence. It Is not likely, however, that the party could, within the foreseeable future, gain sufficient strength to win direct control of Brazil by electoral means or by force. Its influence on Brazilian policy will be exerted through the popular pressures engendered by itsof social discontent and nationalist tendencies In the non-Communist population.

III. THE ECONOMIC SITUATION AND PROSPECTS

has the greatest economicany country in Latin America.larger than the United States, itfast-growing population of aboutillion,

which is about double that of the next largest Latin American republiclthough agriculture occupies over two-thirds of the population, only five percent of the arable land is cultivated. Nevertheless, Brazil is the world's largest producer of coffee andranks second in the production of cacao and citrus fruits, and is at least in fifthin the production of sugar, tobacco, corn, and cotton. Brazil's herds of cattle and pigs are fourth largest in the world Although much of the country remains to be explored, Brazil is believed to have the resources for self-sufficiency in most of the major minerals, the principal exceptions being tin, zinc, lead, copper, sulphur, and coal. Brazil is anarea for US trade {trade both ways3 was1 billion) and for direct Investment of US private capital.3 such investment totalled slightly overillion.

razil's economic growth0 has been rapid. Since the end of Worldross investment has amounted to aboutercent of GNP annually, the overwhelming proportion of which has been devoted toand construction. GNP increased about five percent annually from anillion0illion0 prices)1 the manufacturing sector (Including construction) had come to5 percent to total ONP, thus equaling the contribution made by thesector. Brazil has continued,to rely overwhelmingly on agricultural and animal exports for foreign exchange earnings. Such exports, except during World War II, have accounted for wellf Brazilian exports, with coffeebetweenndercent. (Brazil normally supplies about one-half of US coffee imports, thus acquiring the foreign exchange which has permitted Brazil to become one of the important American markets forand vehicles.34 Brazil supplied onlyercent ol the US coffee market, however. In the latter year the decrease was particularly serious forsince total US coffee Imports were offercent under the impact of an unprcccdent-edly high coffee price )

Divergences In the rate of growth between the various sectors of the economy have given rise to serious maladjustments. Rapidexpansion has not been accompaniedroportionate development ofand power facilities. Agricultural and mining production for export has been neglected in favor of manufacturingMoreover, emphasis upon capital goods industries within the industrial sector tended to create an imbalance between the supply of and effective demand for consumers' goods. Inadequacies in basic productive facilities and high cost of distributive services contributed to high unit costs of consumer goods,and encouragedeliberate policy of protection through tariff and foreignregulations.

The rapid growth of the Brazilianhas occurred under conditions ofinflation. In the lastears the cost of living has been increasing at an annual rate of more thanercent; in the firstonths4 the cost of livingrices at the end4 wereercent above thosehis rate of price increase Isifferent order of magnitude from that historically experienced by Brazil, namely,ercent annually. In general, wages have lagged behind prices. The inflation has been the result of several factors. For some years priort was stimulated by the accumulation offoreign exchange surpluses, which Brazil was unable to convert into consumers' goods.omestic factors such asdeficits and the expansion of credit have fostered the inflation Of considerablealso has been the factarge proportion of investment was of the long-term variety which did not result in anoutput of consumer goods.

Brazil's effort to maintain the rate of Industrialization, even at the cost of severe inflation, has led to recurrent foreignshortages. In order to permitindustry to purchase Its needed Importsighly inflated value for thewas maintained. This over-valuationeakening of the competitive

tion of Brazilian exportsoncurrent loss of foreign exchange. At the same time expansion of industry stimulated Brazil'sfor raw materials, capital goods, and fuels, most importantly petroleum. Although industrial production was able to provideforeign exchange earnings during World War II, during the postwar period It was unable to compete with the oldercountries, in part because of theof the cruzeiro. In the samealthough the Brazilian Government has insisted in recent years that new foreignbet has given greater emphasis to further industrialization than to investments that would produceexchange. Consequently the drain on foreign exchange resources caused by Brazil's rising industrial production has beenby new foreign exchange earning power.

Brazil's foreign exchange difficulties are dominated by the large and increasingfor fuel imports. About one-third of5 dollar receipts are allocated to petroleum imports The wisdom offoreign capital to find and exploit the domestic petroleum resources, which have been inferred from Brazil's geologicalhas long been recognized by manyBrazilians, in view of the lack of good coal reserves and poorly located hydroelectric resources.owever, extremeand Communists spearheaded passage of legislationovernment petroleum monopoly and excluding foreign capital, and they have since prevented aof the legislation by the newBrazil's monopoly is not likely to succeed except, perhaps, over the long term, because of the country's lack of funds and technical skill. Yet. in the absence offuel resources, further economic growth will place increasing strains on the already inadequate foreign exchange

erious attempt was made to meet the foreign exchange problem Early in the year the Vargas administration was facedoreign exchange crisisarge commercial debt backlog, which was temporarily resolved0 millionBank loan. Shortlyew Finance Minister, Oswaldo Aranha,to reorient the economy lo eliminate some of the obvious causes of disequilibrium Heetermined effort to stimulate exports by providing subsidies and exchange incentives. Simultaneously, heoreign exchange system which restricted the volume of all imports, but especially the less essential ones. Particularly important was the preference given through exchangeto the development of the retarded basic service industries such as transportation and power. Aranha failed, however, to secureexecutive or congressional support. The executive branch fearedurbing of Inflation with the consequent restriction of Industrial development would seriouslyVargas' already weakened politicalThe Congress, on the other hand,to accept the political risk Involved in opening Brazilian oil to foreign investment. Both Congress and Vargas apparently hoped that large coffee exports at favorable prices would postpone or eliminate the problem of drastic Internal economic readjustment

However, coffee prices weakened ineriously aggravating Brazil's economic position. Vargas then attempted to peg the price ofove which resultederious curtailment in Brazil's volume of ox-ports and earnings of exchange. Commercial exchange obligations once again rose toproportions. At the same time inflation was permitted to run, fed by treasury deficits, expansion of bank credits, and the de facto devaluation of the cruzeiro. The price-wage spiral was put Into motion once againeries of wage increases, particularly by the doubling of minimum wages decreed byas

The Cafe administration hasIts awareness of the necessity for politically unpalatable measures to meet Brazil's economic difficulties. However. It has not felt itself sufficiently strongto propose such basic reforms asof wages, abandonment of coffee

stabilization, or the admission ol foreignfor petroleum development. Moreover, congressional cooperaUon has not been

On taking office the Cafe administration was immediately facedoreigncrisis which was met with the help0 million loan from US banks. At the same time itrogram to raise exports and reduce imports, particularly in relation to the dollar area. The tradeplanned5 provides for imports from convertible currency areas (primarily the US) In the amount2harp decrease from5 millionhe machinery for implementing this decrease liesurely administrative reduction of the dollar exchange auctioned to Importers.eduction Is probably feasible since some Imports can be shifted to the noncon-vertible account where there is little payment difficulty except in connection with sterling. Exports to the convertible currency areas are to be raised0 million40 millionrazil's recapture of Itsshare of the American coffee market will be essential to the realization of thisgoal.

The major deterrent to adequate coffee sales In the past eight months has been the price stabilization program instituted byin the last months of his regime, with nationalist overtones of "protecting"coffee interests from "internationalnder theinimum export price was established, and the Bank of Brazil granted to coffee interests loansercent of the value of thestocks, valued at the equivalentew York price ofents per pound. When the policy was instituted it was hoped that the New York price would be forced up. In fact, it has decreased aboutercent, mostly in two stages, in4 andeanwhile the coffee Interests are stillthe same minimum cruzeiro price and are under no financial pressure to dispose of their stocks, and foreign exchange receipts from coffee sales are running below Brazil's minimum requirements. esult of this,

Brazil was forced to seek new financial aid early this year.5 the Export-Import Bankillion credit which Brazil may draw on at the rateillion monthly, if necessary to meet the estimated minimum dollar exchangeInternational financialIn dollars, which cannot be further postponed, require foreign exchange earnings (including drawings under theillion Export-Import Bank credit) of atillion monthly; such earnings can be obtained only from exports of coffee to the United States in greater quantity thnn InIf this does not take place, the use of cash balances and existing borrowing rights from private American banks might close the gaphort time, but subsequently Brazil would again seek US Government aid. The Brazilian Government may believe that American exporters, alarmed at the loss of their markets in Brazil to European firmsby the dollar shortage, wouldpress the US Government to grantfinancial aid.

he Cafe adniirdstratlon recognizes the need to check inflation, but. in the existing political situation, the courses open to it are narrowly circumscribed. It has restricted bank credit. It has also proposed new taxes In order to reduce its deficit spending, but could obtain from Congress only one-third of the tax increase requested. It thereuponto reduce government expenditures, but has actually been obliged to grant to its civil and military employees "temporary" pay increases not provided for In the budget. Moreover, the Brazilian Government isIn the public mind, for thecontinued economic growth, and isunder heavy pressure toigh rate of economicontinuedin the rate of private investment, such as occurred, would probably compel the government to resumefor public works, even though it is fully aware of the inflationary effects ofolicy. Consequently, there Is little prospect that the Cal'e administration canretard the progress of inflation.

1J

In these circumstances) the Caie administration cannot be expected to accomplish much toward the solution oldcepseated and politically dangerous economic difficulties. The administration to be elected in5 will have to face the same problems. There is little prospect that It will have the political strength todrastic remedies. In fact, as long as any Brazilian administration assumes that dollar loans are readily available, there is littlethat it wiU incur the political risks involved in stabilizing the economy. the administration would be even less willing to follow politically dangerous policies in the absence of dollar loans- Rather, It would be under extreme pressure to apply radical, nationalistic solutions to Brazil's economic problems. In any case, effective action over an extended period will beto stabilize the Brazilian economy.

IV. THE ARMED FORCES

The Brazilian armed forces, organized and trained on US lines, have an over-ail strength of. Theonsistsrmored,avalry divisions, numerous separate combat units, and supporting troops. In addition, there0 mllitamed police available for local and regional use. The Navy,ersonnel strengthombat forceight cruisers, 7andmaller escort, patrol, and mining vessels. Two additional destroyers now under construction may become availablehe Air Force,ersonnel strength0 (includingghteconnaissance,ransport squadrons. It hasombat,and transport aircraft, includingritish jet fighters.

The operational effectiveness of the three combatant services Is high by Latin American standardsesult of their reorganization, re-equipment, and operational experience with US forces in World War II. and of the<if US military missions. TheirIs Impaired, however,ack of adequate support facilities, poor maintenance and general obsolescence of equipment, and dependence on foreign sources for resupply of material, munitions, andevereshortage and the high cost orof US military supplies have caused Brazil to turn to Europe for some aircraft and military equipment, to the detriment of Hemisphere arms standardization However, procurement from this source Is also severely limited by fiscal considerations.

Brazil participates actively in the Inter-American Defense Board andilateral military assistance agreement with the US. Under this agreement. Brazil has designated certain units as available for Hemisphereincluding service outside its ownterritory. With MDAP support, the equipment and training of these units will be improved.

The Brazilian armed forces are adequate to maintain internal security and to deter aggression by any neighboring power. They could notajor overseas invasion without US assistance. In the event ofwar they could probably protectimportant Installations and facilities from extensive sabotage and Irom possible raids. The Brazilian Navy and Air Force have limited convoy escort and antisubmarine warfare capabilities, but effective patrol of the long Brazilian coast would require the active participation of US forces. With US logistic support the Army couldmall expeditionary force.

V. PROBABLE FOREIGN POLICY

has traditionally regarded itselfparticular friend and ally of the USAmerica.elf-confidencelis vast extent and relative politicalit has considered itself superior toneighbors and theof the US. Moreover, the US isBrazil's most Important coffee marketonly important source of neededtechnical aid. For these reasonsdesires the friendship and supportUS and is highly sensitive lo anynot to accord Brazil special consul-

l'i

and favor. At the same time Brazil is sensitive to any implication of US tutelage.

In recent years US-Brazilian relations have occasionally been Impaired by growing Brazilian nationalism, which has produced friction in both economic and politico-military affairs. An Important factor in thishasrowing feeling in Brazil that the US undervalues Brazil's friendship and tends to take it for granted. InBrazilians feel that US economic and financial assistance to Brazil has not been commensurate with Brazil's past services and present strategic importance to the US, or with Brazil's value to the USoderating influence in Latin America and in UN affairs. In common with other Latin Americans,resent what they regard as the favored position of Europe and Asiathe amount and terms of US assistance.

Brazil has made no move to restorerelations with the USSR which Brazil severedt maintains diplomaticwith Poland and Czechoslovakia and tinsommercial mission fromBrazil's trade with the Bloc hasmarkedly over the past year, but is still very small. There are mounting popular pressures for expanding relations with the Bloc. This idea is generally attractiveof Brazil's need to find new markets for its exports, and also probably at official levelseans of strengthening Brazil's bargaining positionis the US.and their sympathizers are pressing the Idea ol large Bloc markets for their own ulterior purposes, with considerablesupport.

In the Latin American community, Brazil has always opposed Argentine bids forIn particular, it has sought toArgentine designs on Uruguay, Paraguay, and Bolivia. Fundamentally, Brazilthe idea of competing blocs in Latin America, and promotes Instead the concept of Hemisphere solidarity.

Brazil's political and military leaders favor the conceptollective Hemisphere defense, and they also seem opposed topositions in connection with broader international problems. In event of general war, Brazil almost certainly would participate actively in support of the US.

Brazil almost certainly will continue to support the US on major issues between the US and the Soviet Bloc. Barring an Increase in the influence of the Communist and extreme-nationalist factions In the Foreign Office. Brazil wUl almost certainly continue to support the US on most important Issues In Hemisphere affairs. Brazil's strategicwill continue to be available to the US and it Is likely that progress on the large-scale manganese development in northeastern Amapa will permit shipments to the US to begin inesire to strengthen its bargaining positionis the US will be an Important factor inpeacetime diplomacy, and frictions will almost certainly continue to occur,on economic questions. Brazil will seek to establish closer economic relations In Latin America and with Western Europe, and will also seek to increase Its now minor non-strategic trade with the Soviet Bloc.

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