1938: Portugal

The Government of Dr. Salazar, throughout 1938, continued its program for budgetary economy, rehabilitation of the defense forces, and extension of the corporative system. The Government showed a surplus of 211,000,000 escudos for the fiscal year ending Dec. 31, 1937 — its ninth successive balanced budget — and predicted a small surplus for 1938. A three-year naval program was announced on May 3, providing for the acquisition of twenty new units, including three submarines and three destroyers, and four squadrons of complementary aircraft. Business remained rather dull throughout 1938, industrial production changing very little from the 1937 level, but employment improved slightly. Agricultural production declined seriously, almost every crop except wine grapes and chestnuts showing a decrease. Wheat production was still below the needs of domestic consumption despite Government efforts to promote self-sufficiency. Foreign trade declined sharply, partly because of unsettled conditions in Europe, and all exports — especially cork, fish and wine — suffered.

Portugal's international position continued to be uncertain because of the Spanish conflict. Having favored the Franco cause throughout the war, the Portuguese Government in June promoted its agent in Burgos to the rank of Ambassador, while General Franco similarly advanced his representative at Lisbon. Portugal severed relations with Czechoslovakia on Aug. 19 and dismissed the Czech Minister a few weeks later, owing to a disagreement over an order of machine guns placed with the Zbrojovka factory in Prague. Reports differed as to whether the diplomatic crisis arose over the inability of the firm to supply new-type guns on time or over its insistence that they be used in Portugal and not in Spain. Germany sought to increase its influence in Portugal by sending a fleet of warships to Lisbon at the same time that a British fleet, including the battleships Rodney and Nelson, were paying a formal visit, and by offering to sell munitions, and to train the Portuguese forces.

The British Government meanwhile endeavored to reinforce its alliance with Portugal, dating from the fourteenth century, by parliamentary declarations and goodwill missions. Britain's obligation to defend Portuguese territory was reaffirmed in the House of Commons on Dec. 22, 1937 by Foreign Minister Anthony Eden and on March 24, 1938 by Prime Minister Neville Chamberlain. A British military mission, consisting of Army, Navy, and Air representatives, left for Portugal in February 1938 and spent many months visiting various parts of the country and advising the Government on defense questions. A British engineer, Rear-Admiral R. C. Hugill, was appointed Naval Industrial Director in November, to organize the new arsenal and dockyard at Lisbon. Further indication of British interest in peninsular affairs was given in May, when an Anglo-Portuguese Society was established in London, with the Portuguese Ambassador as President.

The Portuguese Government exhibited growing concern over its colonial empire, following the victories of Germany in Central Europe and reports that the Nazi régime would soon demand territories in Africa and elsewhere. President Carmona was formally entertained in Principe, São Thomé and Angola, West Africa, during the summer, the first Portuguese head of state ever to visit the empire. The Prime Minister, Dr. Salazar, and other officials frequently proclaimed Portugal's intention to retain its colonies and warned that no concessions to Germany or other powers could be contemplated. The autumn visits of Oswald Pirow, South African Defense Minister, to Lisbon, London, and Berlin was widely rumored as presaging colonial concessions, but Portuguese officials maintained that only African economic and military questions were discussed. The Salazar Government claims that it has improved the colonial administration and contributed to economic and social progress throughout the empire.