Created: 3/21/1968

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The Central Inialligecice Agency and theanliotk>ru of theof State and Defense, and ths NSA.

Director. Central InteiUgene* irector of Intelligence and Research, Department


Vico Adm. Rufus. Mr. Thomai L.

ofVico Adm. Vernon'L Lowroncsv for the Mrecror, Defense (ntelugenco Agency U. Gen. Marshall S. Carter, the Director. Notional Security Agency


Mr.rowrChe Assistant GonornI Manager, Atomic Energy Com-* mlulon and Mr^Wfllloni. O.or the Militant Director, Federal Bureau of Investigation; the subject being outside of their himdicHon.













To estimate the situation hi Brazil and the prospects for tho next year or two.


ilva administration has many things Inthat of CasteDo Branco, but Is relaxing some of the morecontrols which the latter had imposed- It is alsoto some extent respondingreater expression ofwhich for the most part have long had an anti-US cast.policies will probably not bringilva appreciablesupport;roubled economy, plus politicalare not likely to slacken, will tend to dirrunish his popularity.

opposition will probably increase, but it isunlikely to coalesce very effectively in the next two yean.establishment probably will urge further restnjnts ondissidence, insist upon stronger leadership by thepress for the present moderate program of arms acquisition.will probably act strongly enough in these respects tomilitary opinion. Hence he is likely to stay in office until thehis termnd bis administration is likely lo becomomore authoritarian.

economy showed some progressut itsare too fundamental, too numerous, and too interrelated togreat gains in the next two yean. Problems of Inflation,and the balance of payments will be manageable, butremain serious. The restraints required to maintaindegree of financial stability will keep increases inmodest figures. Thus economic improvement will not beprovide for much higher levels of living or to permit extensiveor advances.

D. Despite Brazil's increasing nationalism, dieilvawilluch friendlier attitude toward tne US thwri the Quadros or Goulart regimes did. It will not, however, follow the US lead in international matters as closely as Castello Branco's did, and we believe it wiU be less sympathetic toward the US role inIt will probably continue to oppose ratification of thetreaty on nuclear uonproliferation in its present form.


During almost four years in power, leaders of the Brazilian Revolution have consistently found that innovative zeal and firm convictions are not enough toevolution. The role of the Brazilian presidency has been changed from thatroker among theconomic and political interest groups lo that of an executive endowed with near-dictatorial powers. In an effort to preserve democratic forms and do away with the confusion of the old multiparty system, two new parties have beenovernment party, the Alliance of National Renewalnd an opposition Brazilianongress is dividedetween them. Power passed smoothly from the Castello Branco administration to the former Minister of War, Arthur dallva, who was elected by Congress and took officeew crxistirution effective on the same day has uirtrtiiQonalized many of the Revolutionary decrees.1

Progress has been greater in restructuring the government than Innew political attitudes, and popular enthusiasm for the Revolution has steadily decreased.ostalgia for tbe growth and optimism of Kubitschek's "fifty years of progress In five* has increased- Much of thedisaffection has stemmed from the austerity program launched by Castello Branco, and some from Brazils close pursuit of US policy leads during his administration. Few politicians, however, have the ability to profit from such discontent. The government of tbe Revolution showed its determination to prevent any political challenge by depriving many old-style politicians of their political rights forears; tbe list includes all three presidents of tbe: juscehno Kubitschck, Jahio Quadros, and JoSo Goulart. It has since employed this type of proscription to intervene in state elections. The most active and articulate opposition figure at present Is Carlosormer favorite of the rnilitary establishment, one of tbe engineers of the Revolution, and once the enemy of the presidents mentioned above.

' The new constitution provides tor the President to be elected by an electoral collegeof the national Congress and delegates appointed by state legislatures, fly contrast governors and congressmen are elected directly. Tbe power of the Presidentis tbe national Congress has been greatly strengthened.

a Silva has been well aware of Ihe need to attract popularpragmatic than his predecessor, he began, even before bintalk about "hiurtanizing^ the Devolution. On coming to power, bosoften somewhat the austerity ef the economic program. He has alsobroaden his appeal by 'governing' from different stale capitals. Yetnature of the Revolutionary policies Inn its tbe humanizing he can carry out.


Under Castello Branco, economic growth and social reform were for the most part subordinated to greater financial stability. His restrictive credit, fiscal, and wage policies were principally responsible for reducing the rate nf inflation from nearlyercent4 toercenthis program produced an average rate of growth ofercent duringbarely 1perwas accomplished mainly at the expense of urban labor, whose real wages continued to decline while unemployment increased. Efforts to implement agrarian and educational informs, as wellublic bousing program, fell far behind goals. The stabilization program was also largely responsible {alongoor harvest) for an industrial recession in6 and

VVhileilva recognized the political advantages of relating the austerity program, his advisers regarded many aspects of it as economicAfter analyzing the state of tho economy, they argued that production costs rather iban consumer demand hud become the principal force behind inflation. Tbey consequently emphasized the necessity for: (a) reduction of business costs by lowering interest rates and taxes and by holding down prices of raw materials; (b) increased availability of working capital; and (c) stima-latJon of consumer demand to bring about higher, more efficient levels of industrial output.

The new administration took various measures along these lines. CosteDo Branco had held down subsidies to coffee growers, partly to reduce their high returns and partly to encourage diversification of agriculture. Theilva administration has raised these subsidies almostercent, for reasons both political and economic. It has also raised price supports for such staples as rice and black beans. To stimulate industrial output, the governmentrace period for payment of excise taxes on most manufactures; this amounted in effectday interest-free loan in the amount of tbe monthly tas liabilities. Bank credit also was made easier for many firms to obtain. The government doubled the basicf personal income eirgrjpt from income tax, and limited the amount of permissible Increases in rentsmall concession to labor, the governmentinor change in its wage formula to take account of anticipated inflation, but this has not prevented somedecline in real wages.

By the second half7 industrial production wasact which, along witli nn excellent harvest, contributed to an estimated growth in gross

domestic product of neatly five percent for the year. Bumper food crops also helped to hold the increase in the cost of living7 toeroent. The administration's success in bringing the economy out of recession, however,iming difficulties for fhi' budget and balance, of payments Ihe federal budget deficit7 was probably twice thathe trade balance was damaged on tbe one handecline In coffee export earnings and on the other by an increase in imports resulting partly from the ecoraxnic recovery and partly from liberalized import laws. In contrastrade surplus7 million inhe surplus wasillion for the coTTesponding periodonsiderable loss of foreign exchange took placeourther deterioration of the balance of payments, to prevent speculation against tbo cruzeiro, and totho competitive position of Brazil's exports, the government devalued the cruzeiro. Inor the second timeear.

government's general economic strategy, as distinct from thameasures taken to combat the recession, has been set forth infhich callsrowth rata in realsix percent per year, together with increased gross investment. Therelative price stability occupies an important place in tbe program. Yetto Castello Branco's program, which set forth specific buttargets for the rate of inflation, the new program seeks only torate of inflation each year. There is now greater emphasis onon stabilization.


important divergence from the policies of Castello Brancoa greater recognition of, and responsiveness to. Brazilianhas for many" years been grounded in the deeply heldbecause of its size, population, and natural resources, Brazil is destineda great power. Nationalist sentiment has always cut across social linesandeservoir of good will toward Americans has inits Imong had an anti-USftvring students andUS programs with the Ministry of Education as 'culturalbusinessmen accuse the US of trying to undermine or take overSome politicians charge tlie US with trying to subordinateits foreign policies. Many Brazilians, civilian and military, feel that theto give it the favorable treatment to which it is entitled by reason ofsupport of the US and the prospect that it willowerful US allyfuture.

nationsis sharpenedense of dissatisfaction overlack of progress in many areas and an apprehension that It Isto bo the land of tbe future. Some Brazilians, already concernedthey consider to be the ubiquitous role of the US in Brazilian affairs,ready toariety of allegations. Various politiciansformer governor of Amazonas, an appointee of CasteQo Branco) make head-

lines by charging the US with sinister designs on the Amazonlooting its radioactive ore to planning to settle North American Negroes within it. Leftist students have joined conservative elements in denouncing birth control programs (allegedly supported by tbe US) in tbe bacldands. An ultra-conservative newspaper chain which had previously opposed Tune-Ltfe't efforts to expand its interests in Brazil was responsible for widely publicizing this birth control issue; its newspaper articles implied that the US wants to makeeak underpopulated satellite. Even some priests augmented their usual religious arguments against the programs with strong nationalistic arguments.

Theilva administraQon, while so far avoiding involvement In such extreme cases, has some favorite nationalist causes of its own. One is its insistence upon Brazil's sovereign right to develop Irs nuclear energy resources. Despite the infant state of Brazilian nuclear research, both the Castello Branco and theilva administrations have resisted the arguments of the nuclear powers that nonnuclear states should forgo research involving nuclear explosion.llva and other Brazilians have argued that the draft international ood-proliferation treaty discriminates against the underdeveloped nations by not distinguishing between nuclear explosions for peaceful purposes and ror the production of nuclear weapons.

Theilva administration has taken account of nationalistbyore mdependent stance in its foreign policy. Like its predecessor it advocates trade with allof ideology. But in contrast to the statementormer Foreign Minister that "what's good for the US is good forhis admuiistratlon specifically rejects anyof Brazilian to US policy interests. Castello Branco enthusiasticallytbo conceptermanent Inter-American Peace Force (IAPF) and endorsed US policy oo Vietnam, but the present Foreign Minister, Jose de Magalhaes Pinto,id for popularity, has backed away in both cases. Staring his lack of enthusiasm for an IAPF, be has reiterated thai defense and maintenance of order In any country are the responsibilities of its national armed forces. He has outlined Brazils position toward Vietnam,essage to Congress, as "complete neutrality and abstention.*

Magalhaesormer governor of tbe state of Minas Cerais, hasuccessful career around his ability toolitical trend. He sometimes presses the nationalist-mdcpendcncc policies farther thanilva seems prepared to go, but heopular national figure whose presence in theIs valuable. Moreover his own inclinations an these matters are ofimportance because be is using the Foreign Ministryantage point from which to launch his campaign for the presidency


administration's changes in policy have not succeeded insupport- The governments political creation, ARENA, has noteffective arm of the Revolution and isiverse aggregation hungry The intention that itational party, organized from muiiici-

pal to regional lo national directorates, has not been fulfilled, even in politicaUy conscious areas like the State of Sao Paulo. Where it has been effective, it has bad to depend on the political machinery of the former parties. Although groups have been formed within ARENA to support the Executive's retention of special powers under the constitutionost of the party probablyuick return of previous congressional powers and prerogatives,elatively early return to direct presidential election.

* Opponent* have especially teared aspects af tbe decree that seem ta delegate much of the authority and responsibility for foreign policies and for economic planning to tbe Security Council. The decree wculd alio Increase the Importance of tbe Chief of tbe Militaiy Home-hold (who serves al secretary-general of tbeod Enquire that beads of divisions of security and intelligence af civilian mtnfauwn be ritbec mujtnry officers or civilian graduates of the National War College.

"The armed forcea. like other institutions ia Brazil, have traditionally been split intoWith tbe Revohirioo, leftist factious were purgedhajdline" came IntoThe hoidlinexi were field grade officers who were among the Brit to plot against Goulart. and whouritanical real to purge the country of "subversion- orherever they saw it As War Minister.ilva svos closer to them than Castello Branco was, and worked on numerous occasionsuffer between them and the President By the end of Castello Branco's term, the power of the "hardline" had been eonsiderahly

zr. hushed.

ilva has displayed little intention to develop and workolitical base, and instead has chosen to relyew civilian specialists, some politicians, and trusted military advisers. Despite the value be sees in the presence of such uifiuenrial dvilians as Magalhaes Pinto In his cabinet, he realizes that bis only solid base of support lies in the military establishment.ilva now shows signs of expanding tbe military role inaw recently proposed by the President, and certain to be passed by Congress, will widen tbe internal responsibilities of the National Security Council and increase the military representation in that body to nearlyn another move the Presidentilitary officer topecial committee on education. Such actions have increased dvilian fears thatilva intends to put the armed farces almost completely in charge of policy planning and government operations.

ilva retains strong prestige and influence among tbe armed forces. He was their candidate for the presidency in spite of the wishes of Castello Branco. Hehrewd sense of moods and trends within the militaryand he has firm control over the military machinery and over promotions and assignments. Nonetheless, there are dements within tbetherouping that was once enthusiastic about Costa ewho have become disenchanted with his administration.'

Such officers have been particularly concerned about the President's lack: of firm leadership. They feel that his preoccupation with "hunionization" is jeopardizing progress toward Revolutionary goals. They suspect that he may be tolerating some corruption In high places and fear that this will tarnish the reputation of the militaiy. They look back approvingly at the starker admin-

istrativc measures and economic program of Castello Branco (whose reputation among the military has Increased since his death in an airplane crash in; they would like to haveilva replace several members of the present cabinet and crack down on his most vocal political adversaries. Insome among the military are pressuring the government to move against Laccrda.


Though opponents of the Revolution are able to discomfort the military, opposition toilva is actually weak and in disarray, and has stirred few Brazilians out of political cynicism or apathy. The MDB is divided andas to its role under present conditions and as to its ultimate purpose. As an amalgamation of most members of the former Labor Party (PTB) and some followers of Eubitschek and Quadros, it is even less an entity than ARENA, and of course lacks patronage. Its program, based on nationalism and constitutional reform including the restoration of direct presidential elections, has caused little stir, and its organization at the grass roots is niL

A problem for government and opposition alike is the "Broadybrid grouping beaded by Lacerda and die proscribed former Presidents Kublt-scbek and Goulart It has denounced the government aad has called for rc-democratization of the country in far sharper terms than has the MDB. The presence of Lacerda as the Front's spokesman puts itort of political no-man's-land. On the one hand, Lacerda has alienated most of the members of the military establishment who were his enthusiastio backers when, as governor of Guaoabara, he was aa original conspirator against Goulart On the other, few of his former enemies, such as the Vargas family and Janio Quadros, are en* tirely convinced of the value of aligning themselves with Laccrda. Although some members of the MDB have been attracted by him as much the most articulate opposition spokesman (there is none of any national stature in thehe partyhole has stood warily by. Tbe government is similarly perplexed over how to deal with Laccrda; it probably would like to go along with military pressures to deprive him of his civil rights, but it recalls bis past effectiveness in creating severe crises when under attack.

Communists and radical leftists are also weak and split over doctrine as well as tactics and strategy. The small orthodox Communist Party under its septuagenarian leader, Luis Carlos Prestes, has limited itself to issuing dutiful pronouncements about the inevitability of the masses rallying round the party against the dictatorship. It hasissident wing ledormerof the Central Committee, Carlos Marigbcha, for advocating armedand Castro-style guerrilla warfare. Marighella is younger and more dynamic than Prestes, but It is hard to judge bow successful be has been In attracting followers vailing to undertake the risk of violent opposition to the government The "pro-Chinese" splinter that broke off from theew years ago has itself splintered and become virtually dormant Most former leaders of the

cat left such as Miguel Amies and Francisco Juiilo are scattered in exile. Tbe only one who has been active to any purpose bas been Leonel Brizola, tbe former governor of Bio Grande do SuL From exile in Uruguay, Brizola bas managed to sponsor sporadic guerrilla forays which have been quickly routed by the Brazilian security forces.

Beyond the rather nominal opposition of the organized politicalthere are notable pockets of disaffection, especially among labor and students. The governmentialogue with students and labor (as part of itsut it has done little to alleviate their specific grievances. Labor has born the brunt of the stabilization. Its organizations have always been subjectarge measure of government control. Long silent, it has recently tried to escape from political impotence by campaigning against therestrictive wage policy and the continuing inflation. This growing anti-government attitude has, moreover, made it easier for Communists and other leftists toart of tbe Influence they enjoyed in key unions before tho Revolution. The government's budget doesigher appropriation for education, but partly because of an ineffectual Minister of Education nothing has been done to assure students that the government is acting to cope with such basic problems as overcrowded classrooms, underpaid teachers,ack of space for those eligible to enter the universities. Furthermore the Revolutionary leaders have shown little interest in attempting to attract student support. Despite half-hearted efforts of the CasteTlo Branco govenrment to set up astudent organization, the Revolution has only succeeded in driving the proscribed leftist Notional Student Union underground.

Inspired by the teachings of liberal European Catholic philosophers and by recent papal ericyclicals, elements of the Church have graduallyore active role in advocating and sponsoring social reform. Before the Revolution, rural unions organized by the Church did much to undercut Francisco Juliao's Peasant Leagues io the Northeast; more recently energetic prelates have sorely irritated the military establishment by denouncing social conditions in that region. Some priests have further strained relations between the Church and the armed forces by siding with leftist students and criticizing the Revolution. Outspoken critics of the government Hke Dom Helder CAmara, the Archbishop of Olinda and Recife, have nevertheless kept eager opposition politicians at arm's length. Both tbe government and the Church are estremely wary of taking each other on as opponents and efforts toward an accommodation are being undertaken.


ilva administration has poor prospects for developingsupport. Pressures from within the armed forces will tendrom making further .significant concessions to the interestsgroups. The civilian groups themselves, whether political partiesand labor organizations, will probably remain too docile andpose any serious threat to the government. They will press on with efforts to

eturn to direct presidential election, but the government will almost certainly hold to the present system at least through tho ejection ofL

Economic difficulties will continue to hamper the administrations efforts to gain popular support Tbe kind of program it ii pursuing needs time to show results and is thus politically thankless. It calls for furebctinmce and aappreciation of Brazilian problems when the people simply want prompt and tangible eceoomic gains. The country's economic difficulties still uo tootoo numerous, and too interrelated to permit such gains with reasonably stable pricesolerable deficit in tbe balance of payroents. Dramatic moves in one sphere would quickly intensify problems in others, delaying necessary reforms and making them still more difficult If the government continues to stress growth in production, for example, it will almost certainly have to relax farther its effort to contain inflation. If it cannot find means to Improve Itsof payments and strengthen Its fiscal situation. It may bavc to retrench in its expansionary program.

The government will probably fall short of achieving its goalrowth of six percent in gross domestic productt may, however, match last year's growth of five percent, whicharticularly good harvest and recovery from tbe recession. Agricultural porxiuctjon will be encouraged8 by increased support prices but even with favorable weather will not increase as much asxpansion of exports is not likely to be significant and export earnings will be depressed by low world roarket prices for coffee, which cxmstitutesercent of the total value of Brazilian exports. Some progress has been made In diversifying exports but it will be many years before Brazil con substantially lessen Its dependence upon export of coffee. Debt servicing obligations willeak4 million8 or about one-fourth of projected exportThe outlook for tadustrial growth is uncertain. Although gains were maderogress8 could be inhibited if exchange difficulties resulted in restrictions on Industrial Imports.

razil's perennial problem of maximizing its earnings from coffee exports bas once again produced friction in its relations with tbe US. The recent dispute has concerned BraiaTi Infant soluble-coffee industry, whichariety of reasons has been able to undercut the competition of US producers of soluble coffee. At one point the issue appeared to jeopardize renewal cf the entire International Coffeeettlement has since been arrived at. but many Brazilians have been disturbed tbat one of Brazil's successful attempts to develop new

exports, in accord with the precepts of the Alliance for Progress, could in practice

be so effectively opposed by US companies.

isaffection within the military may grow and plots wiD be rumored,oup is unlikely. Asolitical diversity and geographic distancearmies and conmiauders makeomplex matterear unanimity amongllva is not likely to camostile consensus. He obtained tbe presidency through military

seriMis. and bis tenure depends an the continuing support of it least the majority of thn military establishment. On most matters, be and the military will manage to compose their differences. He will, for example, agree to sumo, though not all, military suggestions, and willew changes in his cabinet. And if oppositioncomes particularly grating, he might go along with military recommendatloQi to act in some manner againstcerda.

On matters closely affecting the interest of the military establishment itself, the administration probably has little room for maneuver. After years of making do with obsolete oquipment, military leaders are determined tn proceed with the rcequipment program now underway. In the unlikely event thatilva rejected military opinion on important aspects of the ixmtent or pace of the program, he wouldajor internal crisis. In fact, there has been no disagreeinetrt on tbe basic issues of reequlpoieot between tbe president and the military estahliihnscnt. But some dirBenltirg ore likely to arise because offactors.

ilva has, for example, soft-pedaled the issue of the request from the Air Ministry for Mirage airplanes; he would prefer tos, though with some additional components. This would of itself probably notritical issue. But the situation is complicated by recent US legislation Intended to reduce expenditures of certain foreign countries for "srmluxticatcd weaponsIf, in consequence of this legislation, the US refused to furnish this hardware, Brazil would purchase at least some comparable equipment In Europe. Even if this did notut in US economic aid,ilvaa confidence in the US would beot in US aid, apart from its effect on the economic program, would make tbe government vulnerable to attacks hy the civilianand tend to create dissension among the military.

These Issues, combined with tbe latent anti-US altitudes discussed above, will make Brazilian.US relations less harmonious than they have been.ilva would prefer to maintain cordial relations with tbe US, but his dealings with it will be complicated by nationalistic issues. Fox example, Brazil Is likely to continue to oppose ratification of the acaipTCuifcratioa treaty in its present form While tbe tone of Brazilian foreign policy underilva is unlikely to be as stridentlyas it was before the Revolution, Brazil is less likely to follow the US lead in international matters thaa it was in Castello Branco's time. There would now, for example, be less chance of Brazilian pertidpationituation like that which prevailed in the Dominican Republic.

Whether "hardline" elementsore authoritarian rule or thepermits greater scope to civilian politics, tho military establishment will continue to be the central dominating factor in the Brazilian Government well beyond the period of this estimate. The effect of the Revolution on politics and political movements has been so stultifying that return to effective civilian rule will bomall step In (hat direction the Revolutionary leadership couldivilian as its presidential candidate



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