1939: Portugal

The outbreak of war in Europe greatly increased Portugal's diplomatic and economic problems during the last months of 1939. German influence, which had grown considerably in previous years, was noticeably weakened by the Nazi-Soviet pact of August. Germany's invasion of Poland, moreover, was condemned by the Primate of the Church in a pastoral letter issued Oct. 10. Early in September, Portugal proclaimed its neutrality. The Prime Minister declared Oct. 10 that this action was welcomed by Great Britain, and reaffirmed the historic Anglo-Portuguese alliance. Dr. Salazar stated that Germany had agreed to respect Portugal's neutrality and overseas possession. Portugal resumed normal relations with Spain, signing a treaty of friendship and non-aggression on March 16, and a commercial agreement on Dec. 13.

To safeguard its neutrality, Portugal undertook to expand its armed forces and to improve its economic position. The Government kept a close watch over shipping in both home and colonial ports, and sealed the wireless apparatus of all vessels in these ports. It issued decrees providing for control of exports and imports, reinforcement of industrial activity, prevention of speculation in commodities, and the rationing of consumers if necessary. As the war began to hamper normal trade with Great Britain and Germany, Portugal's relations with the United States showed improvement. With the aid of credits from the Export-Import Bank, Portugal agreed Oct. 3 to purchase $5,000,000 worth of American railway equipment on a modified barter basis, as an American firm undertook to sell an equivalent amount of Portuguese products in the United States. On Nov. 2, the Government ordered 72 American bombing planes, to cost $75,000 each.

Until the outbreak of war, the Portuguese economy improved to some degree. Industrial production increased, mining and textile output rose, and unemployment decreased because of public works. The wheat crop was slightly better than the exceedingly poor crop of 1938, while some other agricultural products improved. The sardine industry suffered severely from small catches and depleted stocks, and sardine canning declined 40 per cent from the previous year. The war disrupted Portugal's normal trade and shipping, creating deficiencies in coal, tin plate, chemicals and cotton. Although Portugal remedied some of its commercial difficulties later in the year and expected to enjoy a prosperous transit trade, it faced a serious decline in exports and loss of revenue from reduced imports.