1939: Brazil

Relations with United States.

Important financial agreements were concluded between the United States and Brazil in March. The provisions for financial assistance include three items: (1) the extension of acceptance credits by the Export-Import Bank, amounting to $19,200,000, to free Brazilian exchange and facilitate payments to North American exporters for merchandise already shipped; (2) further long-term credits up to $50,000,000, to be advanced by North American bankers, to help finance future exports and to assist in the development of Brazil's transportation facilities and industrial capacity; and (3) the transfer of gold up to $50,000,000, to enable Brazil to set up a genuine Central Reserve Bank. On May 20 the Bank of Brazil announced that it was prepared to liquidate all blocked credits covering merchandise of United States origin. Thus, the first portion of the March agreements has already borne fruit. The proposal regarding a reserve bank President Roosevelt was to request Congressional authority to carry out. In November it was reported that this measure was not voted.

The March discussions revolved around the economic interrelationship of Brazil and the United States. To this end it was agreed that the United States should provide agricultural technicians to assist in the diversification of Brazil's production, presumably to foster rubber, quinine, vegetable oils and tropical woods, none of them competitive commodities and all valuable to the United States. In return, Brazil undertook to relax in favor of this country its increasingly nationalistic policies, and to assure North American investors equal treatment with her own nationals.

The financial arrangement concluded in March is probably the most significant of the current attempts to combine the stimulation of inter-American trade with political or semi-political objectives, and to make credit facilities an implement of 'ideological' combat. This has been a distinct feature of the Roosevelt policy towards Latin America, but that the country has not given it complete support may be seen in the threatened opposition in Congress to the continuation of the Export-Import Bank and in the rejection of President Roosevelt's proposal for $500,000,000 to finance a two-year program of export loans, principally to Latin America. The United States Treasury Department has been accused of 'credit imperialism.' Moreover, cautious ones question the multiplication of credit facilities for Latin America, remembering the extensive lending of the 1920's and the subsequent defaults. The realistic understand that until the lack of balance in international payments is altered, relief by credits of our lagging trade with certain Latin American countries can only be temporary.

This is not an insuperable obstacle to satisfactory trade relations with Brazil, since the economies of the United States and that country are supplementary rather than competitive. But Latin America's purchasing power must be improved if the inter-American trade problem is to be solved, and only courageous resistance to the pressure of certain domestic interests and concessions with respect to a few major commodities can remove the basic difficulty. The interest in strategic raw materials manifested in the authorized expenditure of $100,500,000 in the next four years to finance the purchase of a reserve of 'essential war materials' may alter somewhat the unfavorable trade balance of some of the American republics with the United States, since Latin America is a source of many of these. In the case of Brazil and Argentina, tripartite trade between them and the United States will need ultimately to be arranged. See UNITED STATES: Foreign Relations.

Financial Matters.

Quite apart from the official agreements of March was the arrangement between Brazil and the Foreign Bondholders' Protective Council, a non-official agency, for resumption of payment, as of July 1, on the $357,000,000 of bonded indebtedness in default since 1937. On June 30 a small token payment was made, but final settlement depends on further negotiations, conversations for which were begun in August. The scale of repayment needs discussion. Moreover, liquidation depends on the volume of Brazil's trade and the nature of her trade balance. President Vargas has maintained that the solution of this problem must be based on the country's ability to pay. Preliminary reports indicate at the end of 1939 a net favorable trade balance of between $60,000,000 and $65,000,000, a balance about 300 times that for 1938. Cotton is chief among the products showing big export gains.

In April a new Director of Exchange assumed office. At the same time new exchange regulations were decreed, ending the exchange monopoly of the Bank of Brazil. Except for 30 per cent, foreign exchange shall be free and can be traded in by the banks at will. This removes fear of frozen credits and will improve exports to nations trading in international, not compensated currency. Brazil will thus be freed somewhat from the German system of blocked mark trading. The 30 per cent reserved by the Government is to be used by the Government to meet its foreign obligations. A further disadvantage was created for Aski, or compensated marks on Aug. 11, when the Bank of Brazil announced that they would fluctuate according to the United States dollar fluctuations in Brazil's foreign exchange. Thus the Aski, which hitherto traded at a fixed value in relation to the milreis, are now tied to the dollar. The war has further halted the Reich's export trade with Brazil, making the guarantee of deliveries impossible. Since Brazil has been the scene of the greatest German-United States commercial rivalry in all South America, North American exporters stand to gain by the European situation in this respect. The Morgenthau-deSouza Costa gold-purchase agreement of 1937, under which the United States is to sell gold to Brazil up to $60,000,000, went into effect in October, and the Brazilian Government accordingly purchased $3,000,000 to stabilize Brazilian-American exchange operations. See INTERNATIONAL BANKING AND FINANCE; WORLD ECONOMICS.

Armament Question.

The resolution of Senator Pittman, introduced in Congress in March, that the United States build warships in its navy yards for Brazil and other Latin American nations, although endorsed by the United States State, War and Navy Departments as 'a practical step towards a community of policy in Western Hemisphere defense,' met with considerable opposition in Latin America, especially in Argentina and Uruguay, which viewed with some alarm Brazil's reported five-year armament program. The charge was made that the United States was trying to start an armaments race in the Western Hemisphere.