THE CHARACTER OF THE GOULART REGIME IN BRAZIL

Created: 2/27/1963

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THE CHARACTER OF THE GOULART REGIME IN BRAZIL

NOTE; This is Ihe final version ol the estimate and additional text will not be circulated.

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Central Intelligence Agency

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Submitted by the

The following intelligence organizations participated in the preparation of this estimate: The Central Intelligence Agency and the intelligence organizations of the Departments of State, Defense, the Army, the Navy, the Air Force, and NSA.

Concurred in by the

UNITED STATES INTELLIGENCE BOARD ononcurring were the Director ot Intelligence and Research, Department of State; TheDefense Intelligence Agency; the Assistant Chief of Staff for Intelligence, Department of the Army; the Assistant Chief of Naval Operationsepartment of the Navy; the Assistant Chief of Staff, Intelligence, USAF; the Director for Intelligence, Joint Staff; and the Director of the National Security Agency. The Atomic Energy Commissionto the USIB and the Assistant Director, Federal Bureau of Investigation, abstained, the subject being outside of their jurisdiction.

CENTRAL INTELLIGENCE AGSNCT

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SUBJECT: : THE CHARACTER OF TBE GCUIAKT REGIME IN BRAZIL

THE PROBLEM

To estimate the cbaraoter of the Goulart regime and the courses of action lt Is likely to take vith respect to the financial problemsBrazil.

NOTE

utcoiatic

This summary estimate is based on extensive research doneore elaborate national intelligence estimate on the situation and prospects in 3razil. This summary treatment is presented now in view of the impending visit of the Brazilian Minister of Finance. The mora extensive estimate will be produced later, when the results of his visit can be taken into account.

THE ESTIMATE

President Goulart is essentially an opportunist. Although hio political career hoa been based primarily on association vith organised labor and radical nationalists, including associations with known and suspected Cconunlsta, there is little reason to believe that he is dedicatedadical transformation of Brazilian society oradicalof Brazil's independent foreign policy. He appears to be Interested in political power primarily for the personal prestige, popularity, and prequisites to bo gained thereby. If he believed it to be politically feasible, he would probably seek toore authoritarianalong the Unas of Vargas" Sstador the Peron regloe in Argentina.

2. The circumstances of his accession to the presidency of Brazil have giveneep distrust of actual or potential opposition, particularly in the military establishment. He has taken care to appoint to high civil and military offices men on whose continuing personalhe has felt ha could rely. onsiderable number of them have been notably pro-Cceamniat or anti-US in attitude. Nevertheless, Goulart has also eatong his advisers men of more aodernte views. In domestic and foreign policy he has shifted front moderate to radical attitudes and back again according to his calculation of the political requirements of the moment.

to recover full presidential powers, to the neglect of the problems

presented by Brazil's runaway inflation and by mounting budgetary and

foreign exchange deficits. Having recovered full powers, be is now

addressing himself to these problems. His principal advisers on these

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matters are Celeo Furtado, authorhree-year plan for economic development, and San Thlagohe new minister of financo, whose task it is to obtain urgently needed external financial support.

k.0 Brazil's expansionist economic policies havelaimed growth in GNPercent per year, orercenter capita basis. These policies have also led to large deficits ln the balance of payments and to domestic inflation, which2 exceededercent per year. Inflation has in turn tended to aggravate the balance of payments problem, partly by its adverse effects on the flow of private capital; it has tended to stimulate remittances and to reduce new foreign

1/ Furtadoeputable economist and planner, with an eclectic, but predominantly statist attitude. He was formerly active In the Communist movement and still retains close associations with radical leftist and nationalist elements.

2j San Thiago Dantasolitical opportunist. razilian fascist, he perceived the political potential of Goulart's Labor Party and became one of its principal leaders. Although best known for his opposition to the US at Punta del Este, he is currently urging Goulart toward an accommodation with the US in order to obtain US financial support.

Investment. To some extent inflation has also discouraged exports, notably of meat, and bas encouraged large-scale smuggling to tha detriment oftax and exchange Income. At the present time Braz.il haa ao external debt totalingillion dollars. Payments ofillion are duef which anillion dollars is owed to private and official US creditors. Of the3 balance ofdeficitillion dollarsillion remains uncovered by financing now in sight.

5- As indicatedrtado'a three-year plan of eceoomic development, the government gives priority to maintaining rapid economic growth, but alsoradual attack on domestic inflation. According to the plan, GNP is to growercent per year, supported by annual foreign loans and capital investmentillion dollars to maintainImports at the levol of recent years. The rate of inflation is to be reduced toercent3 andercent^ through various eeaourea of internal reform, including decreases in government expendituresincreases in revenue, tha reduction of subsidies, and the use of "non-inflationary" means to finance government deficits. Steps have already been taken to increase taxes on Income and consumption and to remove subsidies on Imported wheat, newsprint, and petroleum.

6. The Furtado plan appears to have been designed with Goulart's political needs very much in mind and in an effort to solve Brazil's

financial problems without austerity. It attempts the difficult feat of reducing tbe rate of inflation and at tho sane timeigh rate of economic growth, and relies on extensive foreign assistance to make these both possible. Although the plan calls for certain unilateral Brazilian actions, it provides little evidence of any disposition to face the hard realities of the Brazilian situation or to cake decisionsolitically difficult character.

7> Negotiations in recent months appear to havo shaken the belief of tho Goulart regime that the US is so deeply committed that it oust come to an Brrangfltaent satisfactory to Brazil. The Brazilians nov appear to realize that the US will not raaat all of Brazil's financial needs, and to recognize that agreement with the US and the IMF is prerequisite toarrangements with European and private creditors. Dantoe has said thnt tho Brazilian government is willing to go beyond themeasures contained in tho Furtado plan. However, Goulart is most unlikely to Rake any concessions that he would consider prejudicial to the maintenanceigh rate of economic growth inatter of prima political concern, and this will seriously limit his ability to attack effectively inflation and the balance of payments problem.

8. If the financial assistance which Dantaa is able to obtain from Western sources falls far short of that which Brazil now seeks, adefault on Brazil's external obligations would bo inevitable and

severe economic disruption and hardship would ensue. In suchGoulart would probablyadical leftist,policy line and intensify efforts to obtain aid from tbe Soviet Bloc. While tho Bloc could make considerable contributions to Brazilian development over tha longer term, it is unlikely that It could render much effective aid on short notice. Goulart would Beek to blame the econ cole deterioration on DS hard-heartedneae, probably with considerable auccoss. He would seek to control the internal situation through theof authoritarian political and economic controls, and to disarm any opposition by appeals to Brazilian patriotism.

9- If Dantas does Obtain sufficient financial assistance to support substantially the Furtado plan, Goulart say conclude that it vould be to his political advantage tooderate political course for the next year or two. Hia constancy cannot be relied upon, however, His course will be determined by the pressures exerted upon him from all aides as the political situation develops. If it appourod to him that he was losing his basic support on the left without gaining any reliable compensatory support at the center, he would be likely to reverteftist, ultra-nationalist course.

10. Should Goulart embark on on extreme radical-authoritarian course, he vould riskilitary-conservative coup againstactor which vould be taken into account in his calculations. oup's

chances of success would dependonsiderable degree on how the issue was defined and tba lines drawn, as well as on the timing. As tlae passes, Goulart will have the opportunity to establish more of hissupporters in key military positions, thus strengthening hisover the military establishment and reducing the likelihooduccessful coup.

11. Under oven the most favorable conditions, Brazil faces theof serious economic difficulties and recurrent political crises during the next year or two.

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