1940: Brazil

Coffee Market.

The inter-American coffee agreement signed Nov. 28 (see EL SALVADOR), which provides a larger quota for Brazil (9,300,000 bags to the United States; 7,813,000 bags to markets outside the United States) than that country has been able to sell in any of the last five years, will be of great assistance in insuring a steady market and in helping dispose of Brazil's principal crop. Ever since overproduction became first evident in 1931 this South American country, which produces about 65 per cent of the world's coffee and has a potential production that exceeds market demand by at least 5,000,000 bags annually, has been forced to destroy approximately 70,000,000 bags, valued at over half a billion dollars. The loss of European sales of about 5,000,000 bags per year, due to the war, still further intensifies the problem of surplus coffee stocks. The official estimate of the 1940-41 crop puts the figure at 20,850,000 bags; the export crop is estimated at 13,000,000. The cartel scheme for the disposal of surpluses suggested in Washington this year was opposed by Brazilians as unworkable, and the government prefers to manage its economic defense in this particular respect by itself. Its policy for meeting the problem of coffee disposal, as adopted by the National Coffee Department in September, is designed to stabilize the market, eliminate excessive surpluses and regulate prices by the withdrawal, as an 'equilibrium quota,' of 25 per cent of the crop, at a price of two milreis a bag to the planters, part to be consigned to destruction, part to be converted into a new plastic material, cafelite. A supplementary quota of 30 per cent is to be acquired by the State of Sao Paulo. Credits equivalent to $23,000,000 were voted to the government for this purpose. The proposal of the São Paulo growers to restore the earlier valorization policy, at the same time, was rejected. The chronic overproduction of coffee suggests the need for crops diversification.

Trade, Industry and Finance.

Although coffee and cotton shipments have both fallen off, the loss is moderated by impressive gains in exports of meat and some lesser items, and the year, on the whole, closed on an optimistic note, with easy foreign exchange in spite of an adverse trade balance, due to the influx of immigrant funds and foreign money for investment in trade and manufacturing. In view of this fact, it may not be necessary to use the $25,000,000 revolving credit granted by the Export-Import Bank to the Bank of Brazil, available Jan. 1, 1941, to facilitate purchases from the United States. Although German commercial agents, in mid-summer, were reported soliciting business, guaranteeing deliveries in October and November, and promising, in default of delivery, to pay penalties in Reichsmark of from 10 to 40 per cent, the German market has shrunken substantially. New markets, especially in Canada and Great Britain, are opening up, however, and trade with the United States has gained considerably. A trade arrangement with Great Britain was closed in June providing for payment of merchandise sold to that country with the transfer not of currency but of monies derived from British investments in Brazil. By a recent trade entente with Argentina, Brazil undertook to put aside the equivalent of $20,000,000 to purchase surplus Argentine products, Argentina to create a similar fund. A Brazilian trade mission, to survey mutually profitable trade possibilities in the Americas, visited a number of the countries to the north, exploring potential markets for Brazilian manufactured goods, especially textiles.

A big step forward in the country's industrialization is marked by the grant of a $20,000,000 credit by the Export-Import Bank, guaranteed by the Brazilian government, to help finance a steel plant, to be completed in about two and a half years. The proceeds of the loan will go to the purchase in the United States of materials and equipment. North American steel interests will also lend technical assistance. When the proposed plant is completed Brazil will be able to produce over one-half of its own steel requirements. The country has large reserves of two major raw materials needed in steel-making: high grade iron ore and manganese, but is poor in coal resources and is hampered by lack of transportation facilities from mines to seaboard. British and German interests were angling for the contract to manufacture Brazilian steel. The United States Steel Company, on the other hand, rejected a $40,000,000 project which had been approved by its technical experts.

A four-year plan, decreed March 8, for the partial resumption of service on all external obligations, Federal, State and municipal, suspended five years ago, has been placed into active operation. The plan calls for the payment over this period of £16,800,000. The scheduled payments are based on 53 per cent of the Aranha plan of 1934, and interest payments range from 5 per cent on certain preferred issues to as low as 0.64 per cent.

Amazon Valley Development.

President Vargas has outlined a program of settlement of Brazil's part of the Amazon Basin by subsidized immigrants. The present government is keen about the possibilities of developing the rich Amazon Valley, and in the fall the President made an inspection tour of north Brazil. Rubber-growing potentialities are being explored by the United States Department of Agriculture. President Vargas has also proposed a conference of all the nations which touch the Amazon Basin and of the United States as leading potential consumer of its products, to coordinate their economic interests and to remove the causes of political friction.

Political Affairs.

An alleged conspiracy in São Paulo to overthrow the Vargas government led to the arrest late in March of a number of prominent Brazilians and the temporary suppression of the influential newspaper, O Estado de São Paulo. São Paulo is a rapidly growing industrial city and the logical center of opposition to the present régime since its economic interests clash with those of the capital, Rio de Janeiro. The Paulista conspiracy was charged to the Communists but it has become almost routine procedure to attribute to them any threatened uprising against the Vargas régime, which brooks no opposition and maintains a close censorship on all divergent opinions. Normalcy was soon restored, however, and with the measures taken during the Vargas rule towards centralization, the Brazilian States are powerless to effect a successful regional revolt without the support of the nation's armed forces. (See also FASCISM.)

Foreign Relations.

Although declaring his country 'united by ties of strict solidarity with all American countries,' in a speech on June 11 President Vargas made comments on the sterility of democracy and on the new world order that have been interpreted as throwing him ideologically with the Axis powers. At a dinner, Dec. 31, celebrating the tenth anniversary of his régime, a warning against outside interference with Brazilian affairs was made by the President. This referred presumably to the halting by Great Britain of Brazilian ships carrying German merchandise. The maintenance of the country's neutrality and respect for the 'rights of belligerents without preference or sympathy' was included in his statement of Brazil's position in international affairs. On the other hand, a move towards a completer assimilation of the children of foreign colonists, Japanese, Italian and German, has led to the closing of some 260 foreign schools, the law requiring such to teach Portuguese, to have a certain percentage of Brazilian teachers and a Brazilian superintendent. The large foreign colonies in south Brazil are often considered fertile soil for 'subversive activities.' The principal air line, the Condor Syndicate, a Brazilian subsidiary of Lufthansa, has been required to comply with the law with respect to the employment of Brazilian personnel, and in September its contract with the State of Pará for a new line from Bélem to the French Guiana border was annulled. See also WORLD ECONOMICS.