Created: 12/1/1953

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TAeAdWscrp Committee concurred in (All estimate The FBI abstained, the

subject being outside of Its jurisdiction. The following member organizations of the Intelligence Advisory Committee participated with the CentralAgency in the preparation of this estimate: The Intelligence organizations of the Departments of State, the Army, the Navy, the Air Force, and the Joint Stat}.




use of the reclpt*

^ thend pfjndlvfauils ohder the jurisdiction of th*erformanceof their offlc^alauties.

EBt'te-other offlees wr

may' be authorizediie Secretary for Intelligence, f

or Lhef the Army

r^Shgenceior the Department of,tte^

'the Joint Staff

AEC^for fheAtbmlc Energy Commission

I.-for" the Federal Bureau of Investigation

Collection and Dissemination. CIA. for any


may he* either, retained or destroyed by burrrhjg In accordance with applicabler" returned to the Central Intelligence Agency by arrangement' wUnthe OfBce of Collection and Dissemination. CIA.

he^fjverseas dissemination of this intelligence will be limited to sfsneriodJesuit* less, at the end of which tune^it will be destroyed, returned to theor permission.requested oT that agency to retain It InJune


National SecurityDepartment of Stale Department Of Defense Mutual Security Agency Operations Coordinating Board Atomic Energy Commission ederal Bureau of Intcrtlgatlon



To estimate the current situation and probable developments in Brazilith particular reference to the stability of the government and the probable development of its foreign policy.


The political situation in Brazil Ls characterized by growing social unrest and increasing nationalism. The chief factors in this situation are (a) Brazil's sustained effort toigh rate of economic development with emphasis on mdustrialization; (b) theinflation and rapid urbanization, which have caused particular distress among urban lower income groups; and (c) Brazil's failure to obtain from the United States the amount of financial assistance to which it feels entitled. These conditions facilitate ultranational-ist and Communist agitation.

President Vargas was elected primarily on the strength of his appeal to lowergroups, but he must enlistsupport in order to obtain amajority. So far he hasiddle-of-the-road course. Most conservatives distrust him, buthis adrninistration and seek toa moderating influence on it.

Vargas Is politically committed toigh rate of economicwhich can be accomplished only with substantial amounts of foreign Substantial foreign privateIs precluded by the prevalentattitude toward suchand by the uncertain economic outlook. Some modification of Brazil's investment policyetrenchment program may be prerequisite toforeign developmental politically dangerous in that Its immediate effects will probably be to intensify existing economicand social unrest. Vargas,will undertake the minimum which he considers necessary to obtain further substantial loans. He will also takeaction designed to soften therequirements of foreign lending institutions.

I Vargas succeeds in obtaining such loans and in checking inflation, hisposition will be reasonably secure and he will probably continue to pursue moderate policies during the remainder of his term. Otherwise he will be under increasing extremist pressures, but will probably not be threatened withfrom office as long as conservative elements, including the Army, are satis-fled that he has done all that could be done to improve the economic situation.

In the eventevere economicVargas might be able toconservative rapportore nationalistic program. On the other hand, Vargas might abandon hisconnections and seek to establish an authoritarian labor-leftist regime. In the latter case, however, the Army and the conservatives would probably depose him.

The Communists have no prospect of gaining control of Brazil by electoral means or by force, but their influence will probably increase through theirof popular issues and theirof the bureaucracy and oflabor. Their immediateis the exploitation of social unrest and Brazilian nationalism to neutralize Brazil as an effective ally of the United States.

Brazil will almost certainly continue to support the United States on major issues between the US and the Soviet Bloc, but, if not granted the specialto which it feels entitled, with particular reference to furtherloans, it may pursue anindependent course in economicesire to strengthen itspositionis the United States will be an important factor indiplomacy. Brazil will seek tocloser economic relations in Latin America and with Europe, includingto increase its now negligible non-strategic trade with the Soviet Bloc. It may also re-establish diplomaticwith the USSR.

Brazil will continue to opposebids for leadership in Latin America and the development of an Argentine-led bloc.

In the event of general war Brazil would almost certainly enter the warin support of the United States.


razil's continued cooperation with the United Statesatter of great significance. Brazilajor power within the Latin American community and exercisesInfluence in the Organization ofStates and the United Nations.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, andoil. It is the only Latin Americanwith known sizeable deposits of atomic energy raw materials. The Brazilian armed forces are capable of making an Important contribution to Hemisphere defense.

in some areasao Paulo>progress has been made in developing

Brazil's large human and material resources The national economy continues to depend tn exports of agricultural products. Thesehave not been sufficient to sustain tbe postwar rate of economic development The Industrialization that has talun place0 has betn accompanied by severeand by economic and sotlal strains,on the rapidlyban middle classes and urban labor. Industrial andinlerests have acquired greaterp wer, vhich prior0 was largely heldarrow oligarchy of landowners and Army leaders. More recently lower Income urban groups have te*un to exert pressure for greater representa'itn In the government and for betterment of their lot. Thewhich are Inevitable In the process of such rapid and uneven economic development as Brazil is experiencing are exploited by na-

tionalists and Communists. Brazil, however, has been less subject to political violence than most Latin American countries.


As in many other Latin Americantne postwar pressures in Brazil (oreconomic and social progress haveto increasing political stresses and strains. These pressures are morethan the character of any particular administrationeterminant cf political developments.

The dominant personality in the present political situationyear-old Getuliowho was elected President0 to serveey political figure In BrazUas been an astutelie has shrewdly manipulated one group against another and has successfully posed as the friend of the underprivileged.

resentment of the Saoprolonged control of theand the severe depressionthe contemporary slump in coffeeprices enabled Vargas to seize theby force Seven yearsArmy support, he established aregime called the "New State,"facade for his strong personalthe "New State" Vargas espousedand economic nationalism,control over the states, abolishedparties, suppressed all opposition ofleft and the right, undertookand initiative in economic promoted industrialization, himself with amelioration of theof the urban masses, and soughtand control urban labor as athrough government-sponsored It was during this period thatlower Income groups began toImportant political factor.

n5 the Brazilian Army, In response to growing opposition toousted Vargaseaceful coup and paved the way for the constitutional election of General Eurico Gasper Dutra to theDutra'sas moderate: political parties re-emerged and popular participation in politicsHowever, the conservative ruling groups failed to cope effectively with theeconomic hardships experienced by lower middle class and labor groups. Partiallyesult of this failure. Vargasarge personal following and builtolitical machine. In0 presidential campaign he exploited the discontent of the lowergroups and the inept leadership of the two dominant conservative political parties and received aboutercent of the popular vote, as compared toercent for his nearest competitor.

argas returned to office with substantial popular support, particularly that of the urban proletariat. However, he has notthe problems confronting Brazil with the vigor and selI-conflder.ce whichhis earlier administratiom While this difference may be In some degree attributable to his more advanced age and reported ill-health, It stems more directly from thecircumstances reviewed below.

argas is in powerifficult time in Brazilian history. Heavy migrations from the back country into the rapidly growing cities have brought hundreds of thousands of Brazilians into their first contact with higher standards of living, glaring inequalities, and the Insecurity of urban existence. Distressed by Inflation, the urban masses generally are increasingly dissatisfied with their level ofand clamorous for its improvement. At the same tune middle and upper classIncluding Army leaders, areby the adverse prospects fora high rate of economic development and by the growth of labor-leftist and Communist strength, which threatens their dominant position in Brazilian life. Moreover, these elements are highly sensitive to any supposed denial of the international recognition to which they feel Brazil is entitled. These frustrations and tensions facilitate theof an emotional nationalism. Brazilian nationalism and the economic strains brought about by overexpansion have in recent years imposed considerable limitations upon foreign

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private investment and upon Brazil's ability to obtain development loans from theBank, which in turn has seriously-impeded the achievement ol either the social benefits demanded by leftist elements or the economic development desired by

he absence of well-organized andnational political parties makes Itfor the government to align stablefor political and economic programs. Brazilian politics has traditionally been based on regional rather than national interests, and on personalities rather than principles. The parties which have emerged5 have begun to espouse political and economic principles and national programs, but regional and personal interests still predominale.

oajority In Congress Vargas must secure the support of conservatives who opposed his presidential candidacy. Hecontrols the Brazilian Labor Party and Is also supported by the Social Progressive Party, but these two Parties together hold onlyercent of the seats in the Senate andercent of those in the Chamber of Deputies. Forominal majority Vargas ison the mainly conservative Social Democratic Party, which opposed hisbut generally supports his The representatives of these three Parties constituteercent of the Senate andercent of the Chamber. Even so. party discipline is so lax that, to obtainfor specific measures, Vargas must often secure the additional support ofof the mainly conservative NationalUnion, the nominal opposition. Thus Vargas cannotoherent, well-defined legislative program, but must seek major legislation piecemeal, through shifting ad noc parliamentary combinations.

ost conservatives distrust Vargas because of his opportunism. They have beenabout his apparent Indifference to Communism, his labor-leftist backing, and the indecisive character of his economic policies.umber have remained in opposition, many others have decided to support and if possible dominate the administration. conflicting vested interests have thus far prevented the conservatives from agreeing among themselves on legislation to alleviate Brazil's economic problems. The3 appointment of Oswaldo Aranha. one ofmost prominent conservatives, asof Finance has tended to mitigate the differences among the conservatives andthem and Vargas. Aranha has beccme the dominant figure In the Vargas cabinet.

argas' necessary concessions toantagonize his lower Income groupThe largest single segment of these supporters consists of thelabor organizations whoseembers constitute approximatelyercent of the total labor force. These lower Income groups, although Increasingly restless, are not strong enough to provide an adequate base for political action. Recently the opportunist Minister of Labor. Joao Goulart, has made some attempts to buildtronger. Peronist-type laborThus far the clearly expressedof conservatives and the Army, and opposition within the labor movement Itself, have deterred Goulart from carrying any plans of this nature to fruition. However, his collaboration with Communists to further his objectives has enabled them to increase their influence.

he Brazilian Communist Party (PCB) lost strength when It was outlawedowever, and especiallyt has made considerable progress in recruiting new members and raising funds. It Is currently estimated toubject to party disciplineuch larger number of sympathizers, and Its strength and influence are increasing. The Communists draw their support largely from urban labor and lower middle class groups, although professional men. Intellectuals, and retired military personnel are prominent In the leadership of the Party and its front organizations. Communist strength isln and around the city of Rio dc Janeiro, in the important states of Sao Paulo and Minas Geraes, and In the strategic "hump" of Brazil.

he immediate objective of theappears lo be to stimulate anti-USin order to neutralize Brazil as an effective ally of the United States. Theyrigorous opposition to the ratification of the Brazilian rnilitary assistance agreement with the US. Although ultimately defeated in that case, they (in conjunction with ultra-nationalists) successfully promoted theof legislation which excluded theof foreign capital in theof Brazil's petroleum resources. More recently the Communists have concentrated on exploiting the social unrest caused by the rising cost of living and on promoting closer relations with the Soviet Bloc. On boththey enjoy considerable ncji-Communist support.

argas has remained largely indifferent to Communist activities and the Communists have now begun lo operate more openly in the leadership of popular movements and to renew pressure tor legalization of theumber of Communists andhave already infiltrated the(including the Foreign Office) and the labor organizations. Despite new legislation designed to curb Communist activities,motivated appointments to key positions in the Federal Police have considerablythe enforcement capabilities of itssection. An investigation of Communism in the armed forces has discovered fewthere, but has revealed the existence of an apparatus sufficiently well-organized to arouse concern among Brazilian military authorities.


he armed forces, organized and trained along US lines, have an approximate strength. The Array,trength. consistsrmored,avalry divisions, supplemented byseparate combat units. The Navy,ersonnel strengthombat strengthightestroyers, and smaller escort, patrol, and mining craft. The Air Force,ersonnel strength0asombat, transport, and reconnaissanceincluding aboul half of theritish jet fighters ordered for deliveryn addition, there are0 militarized police available for local or regional use.

he 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 Worldnd of theof US military missions. Theiris impaired, however,ack ofsupport 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 lo turn lo Europe for some aircraft and heavy military equipment, to the detriment of Hemisphere arms standardization.procurement from thislso severely limited by lack of foreign exchange.

he Brazilian armed forces are adequate to maintain internal security and to deterby any neighboring power. They could notajor overseas Invasion without US assistance, but Brazilians do not expect any such necessity to arise. In the event of general war they could probablystrategically important Installations and facilities from extensive sabotage and from possible raids. The Brazilian Navy and Air Force have limited convoy and antisubmarine capabilities, but effective patrol of the long Brazilian coast would require the activeof US forces. With US logisticthe Army couldmallforce, but Brazil Is presentlyto provide forces for service outside the Western Hemisphere.

he Brazilian Army hasecisive, though normally passive, factor in Brazilian politics. (The Navy tends to remain aloof, the Air Force to follow the Army's leadhe Army Is predisposed to uphold the established government, butthat it has an overriding responsibility for the preservation of Brazilian civicand the maintenance of order. In athreatening prolonged civil strife the

Army would be likely to give more weight to this sense of civic responsibility than toconsiderations. The Army's actioniven contingency would depend on itsas to the gravity of the threat toinstitutions and the relative amount of disorder which would ensue from thecourses open to it The growth andof the urban proletariat tends to inhibit political action by the Army insofar as the Army would prefer to avoid action which might provoke bitter popular resistance. At the same time the Army Is disturbed by this development and any precipitate attempt to mobilize the proletariatountervailing force might provoke the Army's immediate and decisive political intervention.

ost of the Army's leaders opposed the election of Vargas0 because theyhis labor-leftist backing and feared that he might again resortictatorship.they have given his administration their passive support The Army's leaders have been Increasingly disturbed by Vargas' lack of an effective economic program and by his Indifference to Communism.2 they forced the resignationinister of War whoationalist-Communist clique Ln the important Military Club.their dissatisfaction has not reached the point at which they would either Initiate orove to depose Vargas by force. No such movement could succeed without active Army participation.


razli has experienced rapid economic growth in the past seven years. The total production of goods and services has beenat an average rate of somewhatear, orear per capita. Funds devoted to public and private investment have greatly exceeded the amounts which Brazilians were willing to save and investment by foreigners has not come up to Brazilian expectations.ajor part of investment has gone into long-term basic Industry projects and very little intoof agricultural and mineralswhich furnished the bulk of Brazil's exports. The result has been sustained and rapid inflationeficit in foreigntransactions, which increased rapidly after the outbreak of the Korean War. The number of urban wage earners has grown rapidly under the impetus of industrialization but the level of living of this group has been declining rather than increasing.

he sustained inflation has been manifestonstant rise in the cost of living,among the growingarticularly sharp increase For example, in Sao Paulo the cost of living index has risen by more Wage rates have Increased much less. Steady increases in the prices of foodstuffs and consumer goods have resulted ln part from the increasing strains on the antiquated agricultural, transportation, and distribution systems as urban population has increased. Additional Inflationary factors haveargely unchecked creditinefficient tax collections, andfederal budgets In the past year,some headway has been made Inthese Inflationary financial policies.

he foreign exchange deficit reflectstendency since World War II to liveIts Income Until recently the Brazilian Government has been willing to incurforeign exchange deficits because of hopes that with foreign financial assistancedevelopment would soon permit asolution to the country's foreignproblem. These hopes have been so strong that the government has givenlittle attention to increasingand mineral production for export. The sizeable foreign exchange surplusesduring the war were expendedew years. Special Impetus was given toby rapid credit expansion andof the cruzeiro, and.0y liberal Import licensing policies basedear of shortages following the outbreak of the Korean War. Until foreign exchangewere imposed onrivate net capital outflows and large profiton foreign investments at the favorable official rate added to the dram on Brazil's foreign exchange.

razil's commercialwith the US and otherillion, approximatelyof the value of its annualsituation has been somewhatillion balance of paymentsthe Export-Import Bank, by loansbanks in the US, and byEuropean creditors.een able to reduce the rate ofof foreign exchange deficits byImports and by improving to somethe marketability of some of lismeasures, however, have not beento close the gap between ImportsThe government maintains thatvolume of imports ofercent of totalbe further substantially reduced.without adversely affecting theeconomic activity, cut deeply intoraw materials andercent ofIt has also been reluctant loImports of capital goods,Jeopardize the rate of growth toactivity has been geared in

problem of Brazil's developmentwas the subject of intensivethe Joint Brazil-US Economicestablished inumber ofprojects emphasizing the developmentdistribution, and powerBrazilian hopes for loans fromand the Internationalto finance these projects havematerialized. To date Brazil hasfrom theseotalor specific development projects aswith Brazilian expectations0 million forby the Joint Commission).of0 million in loans hasin relieving Brazil's presentdifficulties because the loansfor intermediate and long rangeprojects. Moreover, thecrisis which Brazil hoped theprevent had already materializedtime they were granted.

lie IBRD thus far has refused lo meet Brazil's request for loans in addition loillion now being negotiated on the ground that Brazil's present economic policies make It impracticable for Brazil to Increase its financial obligations The Bank has urged Brazil to facilitate development andof Brazilian resources, especially oil, by encouraging foreign investment and tofuller development of Brazil'spotential. The Vargas administration has reluctantly recognized the unlikelihood of securing financial assistance of theIt expected at the time the Jointwas created. It has also recognized that it must re-examine its present economicIf it Is to secure sizeable credits from the US and the IBRD. It has, however, hesitated to take concrete steps toward readjustment, primarily because any of the alternative courses ot action Involve political decisions which the government at this time wouldto avoid making.

he existence of Important petroleumIn Brazil is suspected on the basis of geological indications, but has not been proved. Exploration and development of such resources might be of substantial advantage in reducing Brazil's adverse balance of trade. At present Brazil must import almost all of its petroleum requirements. Such Imports now constituteercent of total imports and Brazilian requirements are rapidly increasing. Present prospects for petroleum development are poor, however. Brazilian capital and technical resources avaUable for the purpose are inadequate. The IBRD and Eximbank are unwilling to grant loans for petroleum development because adequate private foreign capital is available on reasonable terms. Meanwhile Brazilian ultranationallsts,by the Communists, have secured the passageaw prohibiting the participation of foreign capital In petroleum development In view of this law, Brazilian oil resources will not be substantially developed ln the near future. In general, the prevalent nationalistic attitude regarding the exploitation of Brazil's mineral resources has deterred theof foreign capital ui their development.

i) p


razil has traditionally regarded itself as the particular friend and ally of the United States in Latin America. With abased on its vast extent and relative political stability. It has considered itselfto its Spanish-speaking neighbors and the natural associate of the United States. Moreover, the United States ls by far Brazil's most important coffee market and the only Important source of needed financial and teclinicai aid. For these reasons Brazil strongly desires the friendship and support of the United States and is highly sensitive to any US tendency not to accord Brazil special consideration and favor. At the same time Brazil Is sensitive to any implication of US tutelage.

recent years US-Brazilianbeen impaired by growing Brazilianwhich has produced friction inand politico-military affairs.factor In this development hasgrowing feeling in Brazil that theBrazil's friendship and tendsit fcr granted. In particular.that US economic and financialBrazil has not been commensuratepast services and present strategicto the US, or with Brazils valueUSoderating influence inand In UN affairs.

cooperates closely with the USOrganization of American States andsupported the US Ln the UNissues between the US and theThus far Brazil has made no movediplomatic relations with thewere brokenndrelations with only Polandamong the Bloctrade with the Bloc is atThere are, however,and popular pressures for closerwith the Bloc. This Idea Lsof BrazU's need to find newits exports, and perhaps also as astrengthening Brazil's bargainingthe US. Communists and theirare pressing it for their ownwith considerable nationalist

n the Latin American community Brazil has always opposed Argentine bids for At present Brazil is principallyregarding the efforts of the Peron regime to expand Its Influence in neighboring countries. It views the recent Argentine-Chilean economic treaty with disfavor as the possible forerunner of an ArgenUne-dem-inated economic bloc. Brazil has sought to counter Argentine penetration of Uruguay, Paraguay, and Bolivia, and. for Its own part, has cultivated Its relations with Peru.and Venezuela. Fundamentally,Brazil deprecates the Idea of competing blocs ln Latin America and promotes instead the concept of Hemisphere solidarity.

VI. PROBABLE DEVELOPMENTSegardless of the policies pursued by Vargas during the remainder of his term, Brazil will continue to be subject to great political and economic stresses and strains. Vargas, dependent on both the right and left for support, will probablyiddle-of-the-road course at least until theelections In the faUe will continue recently Initiated efforts to avoid foreign exchange deficits and will attempt lo control inflation. In these efforts he will probably be able to enlist the active support of influential moderate-rightist elements which are anxious to improve Brazil's International economic situation.

Vargas will probably succeed Inless inflationaryancialNevertheless, the cost of Hiring will probably continue to rise and social unrest will probably increase among the urban lower income groups. This trend may lead topopular disorder, but will probably not by Itselferious threat to the stability of the government.

The nationalistic attitude prevalent with regard to the exploitation of Brazilian mineral resources will probably continue to deterinvestments in this field. Brazil'sresources will probably not be developedarge scale. Should the result of the

ongressional elections strengthenpolitical position, he might attempt to liberalize the nationalistic petroleum law so as to attract foreign private capital. However, in view of the nationalistic emotions aroused by this issue, It ls unlikely that such anwould succeed.

Vargas will continue to seek foreignloans He will undertake theretrenchment which he considersfcr that purpose, and will also takeaction designed to soften the economic requirements of foreign lending Institutions If he should succeed in obtaining largeloans before4 congressional elections, his political position wouldailure to obtain loans by then, however, would not greatly weakenpolitical position if he had adoptedmeasures which the moderatebelieved would alleviate Brazil'sdifficulties.

Vargas will probably continue toiddle-of-the-road course throughout his presidential term, unless his political position is seriously weakened by the results of thelections. In the latter event, he mightore nationalistic course in response to increasing extremist pressures.

In the eventevere economicconservative groups mighta more nationalist program if they foresee no quick end to Brazil's difficulties. It Is also possible that Vargas, should heapprehensiveeterioration of his political position, might take extremeto build up mass support. Should he appeal to the masses over the heads of the Congress and the military, or should he move precipitately to consolidate organized laborource of political support, he wouldbe removed from office by moderate and conservative elements, including the Army, which are hostile toward dictatorship and toward labor-leftist elements.

Reports lhal Vargas Is in ill-healththe possibility of his becoming physically or mentally incapable of coping wttl. the strenuous problems of governing. Theprovides that In the event of the


President's death or incapacitation the Vice-President should serve the remainder of the term as President, The presentis Joao Cafe Ftlho. If he came to power he would probably pursue moderate policies. He would in particular avoid alienating the conservatives, including the Army, since he would probably estimate that his crucialwould come from those elements.

The Communists will continue to enjoy ample opportunities for agitation, in view of the continuing economic- and socialof the mass of the people. They will probably continue to exploit those issues which already have aroused considerablefeeling, in particular the rising cost of living. Their association with such Issues will probably enhance their influence and further their efforts to obtain legalization of the Party. Their primary objective will continue to be to stimulate anti-US feeling in order to neutralize Brazil as an effective ally of the US. The Communists will be unable to win control of the government, but theirin official circles and popular opinion will probably increase.

Brazil will almost certainly continue to support the United States on major issuesthe US and the Soviet Bloc, but. If not granted the special consideration to which it feels entitled, with particular reference todevelopmental loans, It may pursue an increasingly independent course in economicesire to strengthen Itspositionls the United States will be an Important factor in Brazilian diplomacy. Brazil will seek to establish closer economic relations ln Latin America and with Europe, including efforts to Increase Its non-strategic trade with the Soviet Bloc, It may alsodiplomatic relations with the USSR and other nations of the Soviet Bloc. These developments would enhance the prestige and influence of the Communists in Brazil.

Brazil will continue to oppose Argentine bids for the leadership of Latin America. It will oppose any Argentine political orpenetration of neighboring countries and the development of anyeconomic bloc in South America.


In the event of general war Brazil would almost certainly enter the war actively inof the United States. Its contribution would consist primarily of making available strategic raw materials and air and naval bases, and of honoring its commitments to fumish forces for Hemisphere defense.pressure it might alsomall expeditionary force for use outside the Hemisphere.

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