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Concurred in byNITED STATES INTELLIGENCE BOARD
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Dr. R. J. SmHh, Adbsg OA Member ofughes, Director of Intelligence and Research, Department ofAdmiralaylor for Director, Defense IntelligonceGeneral Marshall S. Carter, USA, Director of the hiattonal-
Dr. Charles H. Roichardl for Assistant General Manager,'Atomic EnergyMr. Sam Papfch for Assistant Director, Federal Bureau of Investigation, the subject being outside of their [urisdlcrion. " '
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TABLE OF CONTENTS
rose
THE PROBLEM 1
1
DISCUSSION
I. NATURE OF THE BASIC PROBLEMS
IL THE CASTELLO BRANCO ADMINISTRATION
Eci)nomic Cains
Political
III. THE OUTLOOK
The Fall Ekcboos
The -Lame DucJT Period
Economic Prospects
Tlie New Government
THE OUTLOOK FOR BRAZIL
THE PROBLEM
To estimate the situation in Brazil and the prospects for the next year or two.
CONCLUSIONS
Branco has managed for the most part toforms without endangering the objectives of theand has retained solid military backing. His economicmeasures are showing favorable results, but the results haveand the measures have provoked widespread dissatisfaction.
administration is determined to see that acceptableare chosen in tlie series of elections scheduled for this fall. Itsteps to ensure that no opponents will become governors inelectionseptember hitates. But the touchiestwill be the direct popular one to be held onovembercongressmen and state legislators; Castello Branco maynecessary to interfere directly and obviously so as to retain amajority in Congress.
e Silva, who has been War Minister, is almost certainelected president by the present Congressctober. Henot exert much influence in the 'lame duck" periodfour-year term begins onarch. Castello Branco's policieschange much in those months, though there will be somemomentum.
dissatisfactions will persist, but the newprobably succeed in keeping the opposition off balance andAt least to begin with,ilva's control over theestablishment will be firm, and we do not believe that aagainst him is likely during the period of this estimate.
o Silva's administration is likely toarkedCastello Branco's, not in its broad goals, but in style ofin choice of key advisors, and in certain lines of policy. Inhe will probably perform better; for example, he will Riveto public relations and may reduce popular opposition toHe is likely to try for better relations with students andbut will take whatever measures seem necessary toa resurgence of the extreme left
other matters, however,ilva will probably notwell. In his efforts tohe economic program, hepresent checks on inflation. Because he isan of action than Castello Branco, we see morehe might resort to harsh, authoritarian methods. Finally,that he will put more emphasis on Brazilian nationalismin time this could cause friction in US-Brazilian relations.
DISCUSSION
I. NATURE OF THE BASIC PROBLEMS
Along with its wealth of resources and its great potential for long-term progress, Brazil has an extraordinary array of political, economic, and social problems. These stem from misdevelopment as well as from underdevelopment. Efforts to deal with them are complicated by the sheer size of the country, the continuing preoccupation with sectional interests, and the booming growth of population.1
The central government has been gaining power over the years, but tbe political systemederal one and secUonallst attitudes remain important. In part this is due to thenadequate transportation andnetworks: with an area roughly equal to the US, Brazil has only one-tenth as many miles of railroads andonly about five percent of its highways are paved. Scctionalist views gain strength, moreover, from the glaring economic disparities between regions, especially between the prosperous,south-central area and the impoverished, agricultural northeast Tbe political impact of sectionalism was apparent in the make-up of the traditional parties; even the major ones were convenient alliances among state and local interest groups, rather than national movements.
For the majority of Brazilians, the living standard is low. The per capita gross national product (GNF) of0 is much below that of the other large Latin American countries. In the northeast and in some other rural areas, the peasants live in conditions comparable to those of South Asia. But, in the south-central area, living levels are aboutar with those of southern Europe. There isharp contrast throughout the country between levels of living in the cities and those of the countryside Consequently there is substantial internal migration, especially in the northeast, towards the dries, which are growingate more than double that of the nationhole. Of the total population, onlyercent isas denned by2 government standard which required the individual only to write his name and assert that he could read. Educational facilities are grossly inadequate; it Is doubtful that as many asercent of the people have completed primary school.
1 With0 people, Brazil accounts for half tbe population of South America.0 the Brazilian population wasime moret willefore thef the present annual growth rale of about three peroent continue*.
4 The Brazilian economy made rapid gains in thender the administrations of Cctulio Vargas and Tuscelino Kubhschek. Theirwas on industrialization at the expense of agricultural development, and industrial production increased at an average rate of nearly ten percent annually. Agricultural production grew at less than half this rate, and most
Of Ms growth came from extending (he amount of land under cultivation rather Uun from an increase in productivity. But most important, their imprudent financialespecially those ofimpetus to inns, ttonary trends.
oao Coulart, who succeeded to ihe presidency in1 after tbe brief tenure of Janlo Quadros. proceeded to make things worse. He set new records for the dcfidl In the federal budget, and his nationalist and leftist attitude ledharporeign investment.2 the GNP growlh rate fell appreciably;3 it dropped to two percent and Industrial output showed no gain at alL In the same two years the cost of living rose bynd then by more than SO percent, Coulart acted with equal incompetence and Irresponsibility in political matters. He permitted the power of leftist subversives to grow, and his policies nurtured an expansion of corruption and factionalism. Also, it became clear that be intended to try to continue in office beyond the expiration of his term ami that one of tbe ways be intended tothis wasubvert tbe military hierarchy by turning theofficers against their superiors. By4 he lad brought Brazil to the edge of political and economic chaos.
II. THE CASTELLO BRANCO ADMINISTRATION
Among those who welcomed the overthrow offdmg figure, of tha nooun CaimJ* Church. The Catholic Church io Braril .loos not exerciseire. Influence on governor* and public opinion mat la characterisOc of some ofT SpanlU-Amerlcnn counties. 4nme the maior vehicle for
. Tf ause of his promises
to brine about social and economic reform. Tha-ve been tama.IsurhTcnOeai of tba performance of the Castello Branco governrMnt.
Th* military intervention which overthrew Coulart4 and installed Castello Branco as President served to avert disaster. It was greeted with relief and approval by most political and civic elements innd with apathy by those who had previously been ardently vocal in support of Goulart. In view of the urgency and magnitude of Brazil's problems, the military leaders proclaimed their action as an authentic revolution and resolved not to re-inouUh power to civilian politicians until the foundations for national recovery had been laid. They armed Castello Branco with extraordinary powers with respect to the rest of the political system-powers which they were later lo reinforce and expand.
For the most part. Castello Branco has exercised these powers withmoderation and restraint. On some occasions, he has undertaken strong action on his own initiative; in other cases, be has had to resist hard-line vxel sures; and in still ethers, he has accommodated to such pressures. He has recognized from the beginning that hb administration and its policies would continue to depend ultimately on military backing, and lie has acted consistently to maintain unity among military leaders.
Economic Gains
Castello Branco hasrogram of corrective economic measures devised by Planning Minister Roberto Campos and other officials of highcompetence. This included plans for the resumption of rapid growth rates and for social reform, but its main emphasis has been on bringing Brazil's hyperinflation under control. To avoid the social and political unrest likely torastic deceleration, the administration haseliberately gradualist policy.
The results have been essentially favorable, but they have come more slowly and painfully than tbe administration had hoped. The spiraling inflation was heldate ofercent4 and cut back toercento far this year it is running only slightly less than5 rate and far higher than the government bad hoped; however, this is parlly due to necessary adjustment of price distortions arising from earlier Inflationary periods. The budget deficit, forrimary engine of inflation, has been virtually eliminated. Part of the payments onarge external debt have been rescheduled; for this year and next, debt repayments will amount to aboutercent of projected export earnings. Exports expanded slightly4 and considerably5 to produce the 6rst favorable trade balances
government's deflationary measuresevere drought whichagricultural production caused CNP to fall two to three percent incapita consumption declined by nearly five percent. Tight credit andof consumer demand led to an industrial recession In theut agricultural output5 was high, owing chieflyigFor the yearhole, CNP rose by about five percent.had largely recovered by the end oftrend which continuedthe first half of this year.
Political Losses
Despite his many talents of leadership, Castello Branco does not project the kind of image that excites tbe Brazilian body politic. It Is difficult in any case to keep people enthusiastic about taking bitter medicine when ihcy see no quick cure. The Castello Branco administration has been notablyin public relations on its economic program, as well as on other matters.
Most Brazilians have felt the hurt, in greater or lesser degree, of the government's economic corrective measures. Labor is dissatisfied that policies originally designed to keep real wages constant have actually resultedecline in real wageshe business community, which hadsupported the stabilization policies, has become more critical this year. Marginal firms continue to be forced out of business; bank credit was tightened again in the early part of this year; and many businessmen complain that they can't keep up with the series of new regulations on taxes, financing, prices, and foreign exchange. The coffee growers' association is resentful because govern-
ment pricing policies are reducing (heir margin for profit. Moreover, theincrease of prices6 gives rise to tbe contention that all theis for nothing.
This general dissatisfaction with the government's program has added to its problems in dealing with the Congress and the political parties. Castello Branco initiallyongressional bloc to support the administration, and his advisers were not above issuing pointed threats from time to time to keep members of Congress in line. Inowever, the victory ofcandidates in important gubernatorial elections disturbed many of Castello Branco's military colleagues. At their insistence, Castello Brancoecond Institutional Act, which extended the period in which the President could cancel the mandates of elected officials, instituted indirect election of the President and abolished all political parties. To replace thearties which had been represented in Congress, Castello Branco established standards andgoverning the formation of new "provisional" parries, designed to bein scope and less prone to corruption and special interest than the old ones. Only two qualified: the pro-revolution National Renewal Alliance (ARENA) and the opposition Brazilian Democratic Movementhird group, the followers of former governor Carlos Laocrda of Guanabaraynamic political leader who hasitter opponent of thefailed to qiullfy. Most of them are now affiliated with the MDB.
ARENA and MDB were brought into being not simply to strengthen the administration bloc in Congress, but toramework for the elections this fall It is Castello Branco's hope that they can also, in the long run, become the foundationew, and more effective, representative system ofARENA, based largely on tlie old National Democratic Union andesser extent the old Social Democratic Party, has had many more members of Congress join lis ranks than has tbe MDB. It Is not clear what role the MDB can, or will in practice bo permitted, to play in opposition. And the concept of turning ARENA and the MDB into an enduring two-party system seems dubious; they have been imposed artificially from above, neither can bea cohesive, disciplined entity, and both are sorely lacking in grassroots support.
III. THE OUTLOOK The Fall Elections
some bold and shrewd maneuvering. Marshalrthure Silva, the former War Minister, has managed to win the ARENAand Castello Branco's backing as tho revolution's candidate in theelection to be heldctober. The election is indirect, withdoing the voting; ARENA has large majorities in both the Senateof Deputies- The MDB, after some vacillating, decided topresidential election. Under these circumstances,ilva iswin.
In the September gubernatorial elections to be held inf Brazil'states, the government has initiated measures to ensure that no opponents will be elected. In addition to decreeing tliat the election bethe statesteps have been taken, such as tlie ouster of Covemor Adhemar de Barros of Sao Paulo and the requirement that ARENA statevote strictly along party lines, to avoid their casting ballots forcandidates. Faced with the certainty of defeat, the MDB nationalhas urged that MDB state leaders hoycott these elections as well.
The touchy elections, as far as the government is concerned, are the congressional elections scheduled forovember. They are to be by direct popular vote. An entire new federal Chamber of Deputies is to be chosen, along with one-third of the Senate; new legislatures arc also to be elected in all the states. Discontent with Castello Branco's policies is likely to hurt ARENA candidates and strengthen MDB nominees, particularly in urban areas where tbe labor vote is significant. Acutely aware of this,RENA deputiesotalRENA deputies incat chamber) at oneonstitutional amendment that would permit them to run asand notarty ticket.
The administration has decided instead on other devices which will be advantageous to ARENA. Onorovision permitting candidates fn rural areas to have ballots printed and distributed in advance. This will give ARENA the opportunity to capitalize on its larger supply of funds and its betterin the countryside Anotherequirement for linked voting: that is, the voter must cast his ballot for state and federal candidates of the same party. The fact that all or almost all of the governorships, with their patronage and spending powers, wiD be in hands friendly to the administration should improve prospects far ARENA in the statelinked voting would carry over this advantage to the federal ones. There Is certain to be, as well, some careful advance screening of candidates,umber of disqualifications.
If, as the elections draw closer, tlie government thinks their outcomeit might simply decide to cancel them. More likely, it will hold them On schedule, anticipating some loss of support in Congress and the statebut calculating that by various precautions it can ensure continuing work' ing majorities. Although Castello Branco would clearly prefer to avoid the necessity for starker action, it should be noted that the Second Institutional Act empowers him to dissolve Congress at will or lo unseat members withoutof cause.
The "Lamo Duck" Period
the administration resorts to obvious manipulation during theor to Ihe dissolution of the new Congress, this might rally thoprovoke some local disturbances, but no real threat to thelikely to ensue. However, assuming that Castello Branco managesdrastic devices to obtain the required working majority in tlie November
congressional elections, tlie period until inauguration of the new president on IS March is likely to pan fairly smoothly.llva wiQ be ccocentraiing on lining up key members of hLi government and preparing himself for office; he may be absent from Brazil for stibstantlHl periods on semiofficial visits to the US and other countries. Castello Branco's policies willontinuation of those be has been following, although there mayeduction in efficiency' due to the departure of some cabinet ministers who will be running for office. Castello Branco may try toumber of actions which he considers to be necessary bat which might be politically awkward farilva to accomplish. These probably would include creaooninistry of Defenseermanent revision of the constitution designed to institutionalize the ad hoc reforms of the revolution.
matters which might liave provoked controversy between Costaand Castello Branco have been ironed out in advance. For example,men seem in complete agreement on tho commanders of Brn/Jl's keyforces -tha first, second, third, and fourthifferent landlikely to contributeuiet interregnum is the season: from tbeof December to tho beginning of March Is summer vacation time.is in recess, school is out. Carnival is in. Political activity isin these months.
Economic Prospects
Despite some significant progress, Castello Branco will pass on to theilvaide range of uiduushedajorto the administration is that Its stabilization efforts are onlyin holding the increase in cost of living torercent0hole This will be, nevertheless, an improvement over the Iwo prior years. More encouraging is the degree to which the government is reducing itsdeficit, one of the main causes of inflation. It declined fromercent of expenditures4 toercent5 and Is estimated at onlyercent this year. Moreover, most of this deficit6 will be financed through Treasury bonds, rather than through the more inflationary procedure of bank borrowing.
The overall economic growth rate6 will probably be about five percent, the same ashis year's increase will stem primarily from an Increase in indostrial output, however, while last year's was mostly duo to an expansion of agricultural production, in which exceptionally good weatheractor. The economic prospect7 is less certain. In part It will depend on whether the new government modifies present policies andif no, to what extent We believo that the achievements made so faroundation for gains7 at least equal to those Ixiing registered this year, both in terms of stabilization results and in terms of general growth.
long with this fairly favorable prospect, thellva government willarge accumulation of popular ond business discontent. The bur-
den of this program of economic correctives is heavy, and it falls largely on the lower income groups urn! marginal entrepreneurs who can afford ft least. If these groups feel any relief from the economic pinch between now and the inauguration of the new president next March, it will probably bo only slight.
The New Government
ilva, who will ben election day. Is sharply different in per-senality from Castello Branco, once his classmate at tbe Brazilian military academy. Castello Branco lends to be reserved, contemplative, and fadicious;ilva is gregarious, shrewd, more ready to compromise, and oftenoutspoken.ilva isember of the "Sorbonce" group of military intellectual! of which Castello Branco Is tho leading figure, oor wasember of the Brazilian Expeditionary Force which fought alongside American troops against tho Germans in Italy during the Second World War. He tends to be more Bruiilimi and less internationalist in outlook than Castello Branca
ilvu is.trong figure in his own right More troop commander than stall strategist be retains numerous useful contacts among officers in subordinate command positions. He is something of an opportunist politically and showed cleverness, as well as boldness. In his maneuvering to get Castello Branco's endorsement for the presidency. His wife Is polttically ambitious forilva and influential with him.
While pursuing the same broad goals,ilva's administration is likely toarked departure from Castello Branco's in stylo of governing, in choice of key advisors, and in certain lines of policy. For one thing,ilva will rely on different military advisors. Castello Bianco himself will not have much Influence on the new administration. And In contrast to Castello Branco's strong preference for working with political figures formerly associated with the conservative National Democratic Union,ilva will probably seek to improve relationshipsumber of members ol the former Social Democratic and Labor Parties.
Though general dissatisfactions will persist the new administration will probably manage to keep its political opposition off balance and fragmented. Carlos Lacerda has been fairly well isolated politically, and we doubt that he canomeback In the next year or two. CostaSilva may give high priorityemolding and strengthening of ARENA to servetauncher
I base. To tbe extent that be plays ball with some of the old political be is likely to incur tbe displeasure of young hardliners among the military officers. At least to begin with, however, his control over the military establishment will be firm, and we do notilitary coup against him is likely within the period of this estimate.
e Silvu will probably face some Increase in agitation on the partextreme left, which hasajor loss of strength andevolution. Recent terrorist activities in Recife, Brasilia, and Sao
o
Paulo are indicative of the continuing capability of antiregime elements to initiate isolated violence. This capability it limited, however, and is unlikely toerious threat to stability during the period ol this estimate. Exiles incountries and their associates in Brazil may seek to mount an insurgency campaign, but the present state of preparedness of security forces dooms such adventures to almost certain failure.
n somo ways, Costa eadministration will probablytter than its predecessor. We believe, for example, that he will give more attention to public relations and will probably have greater success in cultivating popular support. Me will probably appoint some Individuals sympathetic to theof student groups and laborof the population
with which tbe Castello Branco government was unable to maintain any rapport. However,ilva Is not likely to make changes sufficient to provoke a
serious military reaction, and he can be expected to take all necessary measures
toesurgence of the extreme left
other matters, we think the new government may not do ase Silva has said thai while he Intends to continue the anlUnflaMonhe thinks that it has been applied too rigidly in the past and tbatof low-income groups must be eased.lmost certain notthe present Planning Minister Roberto Campos In his cabinet,probably will keep on most of the other economic technicians. Costa aquick to admit that he knows little about economics; he may loosenwagemuch and tooinflation get oul of hand once again.
only becauseess judicious andan cfCastello Branco, weomewhat greater chance that, in the presshe might resort to harsh, authoritarian measures. Suchif long sustuincd, would tend to sharpen existing politicalbroaden the opposition to the admin is nation and jeopardizeeventual resumption of constitutional, representative government. Wethatilva will be inclined to put more emphasis ondid Castello Branco and that In time thb could produce friction Inrelations. Similarities of attitude and interest on some mattersto drawllva's government into closer cooperation withgovernment ofmore so since he and Onganiafriends. These tendencies will cause concern in such governmentsIn Uruguay, Chile, and Venezuela, and may add to existing strainsOrganization of American States.
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