1942: Brazil

War Declared against Axis.

On Aug. 22, 1942, Brazil proclaimed a state of war with Germany and Italy, following the sinking off her coast of five Brazilian ships in three days by Axis submarines, which brought the total number of ships lost since January to nineteen. Diplomatic relations with all the Axis Powers had already been broken off in January during the Rio de Janeiro Conference (see below). Military preparations had been carried on steadily, supplemental lend-lease funds having been allocated to Brazil on March 3, as one of a series of accords concluded by the United States on that date. In addition to the purchase of military equipment, the funds were to be used for air and naval base facilities in Brazil, which other American countries, including the United States, would be entitled to use. Some months preceding the proclamation of war the partial confiscation of Nazi assets in Brazil had been decreed. Due to the large, compact settlements of German, Italian and Japanese minorities in Brazil, strong measures had already been taken against Axis suspects, and all Axis publications had been banned. On Feb. 19 the Fernando de Noronha archipelago, volcanic islands lying 125 miles off the Brazilian coast, in an almost direct line between Pernambuco and Dakar in Africa, was declared Federal territory, with the intent of strongly fortifying the islands.

The resignation from the Cabinet of Justice Minister Francisco Campos, reputed author of Brazil's still unratified 1937 Constitution, which would establish the authoritarian Novo Estado (new state), and a leader of the totalitarian faction in the Government, was a significant forerunner of the republic's entry into the war. Subsequent war measures against the Axis Powers have been the closing of Italian and German banks and the seizure of the German Condor airline, which had been previously taken over by the Government, as well as of seventeen Axis ships. There has been no proclamation of war against Japan but, following Pearl Harbor, Brazil froze Japanese funds, seized suspicious fishing craft, closed official agencies, and set up special police in São Paulo, where there is a large concentration of Japanese. Uruguay has entered into full military collaboration with Brazil (see URUGUAY). Argentina immediately announced its 'solidarity,' and along with Chile and Peru accorded Brazil non-belligerent rights, but established no equivalent basis of military unity or cooperation. On Sept. 16 general mobilization was decreed.

Rio de Janeiro Conference.

The third meeting of American Foreign Ministers was held at Rio de Janeiro from Jan. 15 to 28. The process of inter-American cooperation and continental solidarity begun at Panama (1939) and Havana (1940) was continued with greater vigor at Rio, due probably to the reality of war in the Western Hemisphere. At the opening session, Under-Secretary of State Sumner Welles held that 'classical neutrality' had become impossible for the states of the Western Hemisphere and pointed out that greater political, military, and economic cooperation, as well as the repression of subversive activity, was essential for common defense. The attempt to get unanimous action on the severance of diplomatic relations with the Axis Powers was blocked by Argentina and Chile, with the result that a compromise resolution was unanimously adopted on Jan. 26, merely recommending but not requiring a diplomatic break with the Axis. Insistence on a more decided stand would have threatened formal hemispheric unity. By the time the Conference disbanded all but these two dissenting states had formally broken off diplomatic relations.

The achievements of the Conference, consisting of forty-one declarations, resolutions and recommendations, were embodied in the Final Act of the Conference. They related to measures for improving hemisphere defense, steps to combat dangerous activities of the Axis throughout the Americas, and an outline of cooperative 'mobilization' of the economic resources of the participating states. The most important resolutions were those dealing with vital economic questions. Resolutions II, VII and XXV concerned respectively the formulation of plans for economic mobilization, the study of a customs union for the Western Hemisphere, and the convocation of an inter-American technical economic conference.

Further Inter-American Cooperation.

Concrete results in the way of collective consultation and action may be seen in the Inter-American Financial and Economic Advisory Committee, set up earlier, and in the Inter-American Conference on Systems of Financial and Economic Control and the Inter-American Defense Board, both of which last sprang directly from the Rio Conference. The former, which met in Washington in July, was concerned with the elimination of all Axis economic influence in the American republics, and came to more or less general agreement on resolutions freezing Axis assets, acquiring Axis patents and trademarks, and controlling the 'illegal' trafficking in United States currency. The Inter-American Defense Board, composed of military and naval men from all twenty-one republics, belligerent and non-belligerent alike, marks the first time in history that representatives of the armed forces of the American states have met continuously to discuss hemisphere defense.

As for the economic mobilization of Western Hemisphere resources, skilled technicians from the United States have been doing a follow-up job, studying the potential production of rubber, metals and other commodities hitherto imported from Asia, while North American health and sanitation experts have visited a number of Latin American countries in the attempt to plan ways and means of preparing a suitable environment for workers. Moreover, Export-Import Bank credits have been widely granted to expand the production of strategic materials, to improve communications and to promote inter-American trade, all of which were economic objectives set by the Rio Conference. Mutual suspension of all tariff and trade barriers which might impede maximum productive effort for the duration of the war was agreed on by the United States and sixteen of the Latin American Republics on Jan. 25. This is part of a program elaborated in Washington to integrate and expand hemisphere production. This in itself shows that more than lip service was to be rendered to the resolutions for collaboration adopted at Rio.

Economic Mobilization.

In order to take complete advantage of the opportunities presented by the war, a mobilization of Brazil's economic life has been instituted with the appointment of João Alberto Lins de Barros as economic coordinator. Sweeping powers have been accorded him to regulate the activities of public and private enterprises, to fix prices, establish limits on articles, materials and services to be sold, and 'to do everything needed to safeguard public interest and insure maximum production.' One of his first acts was to commandeer the Apial lead mines in São Paulo State.

Export Expansion.

A shift in Brazil's economy since its entry into the war, from an emphasis on coffee and cotton to so-called 'secondary' export items, is in line with a trend noticeable for the last decade. Under existing contracts the United States is taking increasing amounts of these additional commodities, which include manganese, iron ore, rubber, vegetable oils and fibers. A new iron-ore contract, signed with both the United States and Britain in accord with the agreements of March 3, is expected to increase iron-ore shipments. Each country agrees to purchase a certain amount annually, the ore to come from the Itabira deposits, source of some of the highest grade ores in the world, which are to be developed by a mixed United States-Brazilian company. The mixed company is the form in which foreign capital is likely to be acceptable in South America, where the movement for economic nationalism and 'decolonization' is increasing in strength. The United States will provide the capital for the iron-ore project, $14,000,000 having been already advanced for this purpose. To make it practicable, the enterprise calls for port facilities and feeder railways. The rehabilitation of the Victoria Minas Railway, which the Brazilian Government has just taken over, will provide the latter. The mines are already producing about 500,000 tons yearly. Improvements are expected to triple that figure in 1943. Brazil is now the third producer of manganese in the world; of the 1941 export of 437,402 tons, 96 per cent went to the United States, the rest to Argentina and Japan. According to a rubber agreement, also signed on March 3, the United States will spend $5,000,000 in the development of rubber in the Amazon Valley; wild rubber collection will be put on a more profitable basis; and, by an exclusive purchase arrangement, the United States will buy all rubber produced in Brazil over the next five years at a basic price of 39 cents a pound, with a bonus of 2½ cents if deliveries exceed 5,000 tons, of 5 cents if over 10,000 tons. The total sum allocated by the Export-Import Bank, according to the March 3 agreements, amounted to $100,000,000, making the grants to Brazil the largest advanced to any Latin American country.

The general increase noticeable in Latin American trade balances as the result of heavy United States purchases of strategic and other essential raw materials is best exemplified by the rise in net exports from Brazil to the United States. Income from the export of four strategic minerals — iron ore, manganese, industrial diamonds, and quartz crystal — increased by 11 per cent in 1941, with still greater returns expected for 1942. In the first six months of 1942 Brazil's trade with the United States totalled $50,904,000, compared with $22,731,000 for the corresponding period in 1941. By a purchase agreement signed in the fall with the United States, Brazil will receive payment for the unshipped balance of the 1941-42 quota, and the basic 1942-43 quota of 9,300,000 bags of coffee. The United States has also acquired the nation's surplus cocoa for storage in Brazil. By an agreement signed on July 31, the expenditure of $33,000,000 over a twelve-months period, by the United States for the purchase of babassú nuts and oil, castor beans and oil, and other agricultural products was arranged.

Industrial Advance.

Brazil's rapid industrialization, of which the textile industry of São Paulo is an example, will be stepped up by the United States agreement to send a technical mission, headed by Morris L. Cooke, to Brazil, to introduce mass production methods and modern industrial techniques. Its chief tasks are (1) to increase the local production of essential commodities, formerly imported, thus saving shipping space; (2) to convert local industries to the use of native substitute raw materials; (3) to improve transportation facilities; and (4) to provide for long-range industrial expansion. Further industrialization would be stimulated by a plan under consideration for shipping from the United States machinery which is idle as a result of the curtailment of civilian industries, for use in Brazil and other Latin American countries in the manufacture of essential goods where raw materials are available locally.

Sanitation.

A vast sanitation project in the Amazon Valley has been undertaken by the United States, in cooperation with the Brazilian Government, in accordance with a contract signed on July 17 at Rio de Janeiro. It is being directed by the Brazilian Minister of Education and Public Health, and will call for the expenditure of $5,000,000, which the United States has already allotted. Brazil was to contribute 5,000 contos for 1942, and in 1943 a larger amount. Among many other things the undertaking will take over a task which until recently was in the hands of the Rockefeller Foundation, that of fighting the Gambiae mosquito.

1941: Brazil

Political Situation.

The Vargas administration is now in its tenth year. The 1937 Constitution, creating a corporative state, the Estado Novo, and extending President Vargas' term indefinitely, has not yet been submitted to the promised plebiscite and is, therefore, in suspension. Still continuing the state of emergency proclaimed after the 1937 coup, the President has centralized control in his own hands and instituted a personal rule which bears the distinct earmarks of dictatorship. Government by executive decree, official control of press and radio, the annulment of court decisions, the use of secret police, the abolition of political parties — all these characterize the present régime. Yet the standard of living has been raised, better health standards introduced, illiteracy reduced somewhat, and social legislation profitable to the masses decreed. Hence President Vargas has the support of the masses. Communism is ruthlessly suppressed. What opposition exists is found among the intellectual élite. Reasons of national defense may, in part, explain the relative lack of internal division. Even the traditionally hostile Paulistas seem reconciled to the régime.

Foreign Policy.

Dictatorial though the Vargas rule may be, Brazil's foreign policy, as indicated in several public utterances of the President during 1941, clearly favors the democracies in the world line-up. The pro-United States attitude of the Government is especially significant in the case of this Latin American neighbor because of its strategic position, the 'bulge' of South America making Natal, in Brazil, much closer geographically to Europe than to the United States. From Dakar, on the West African coast, to Natal is only about 1,600 nautical miles, or six to seven hours' flight for a fast bomber, whereas the distance from Natal to New York is some 3,600 miles. This puts Brazil in a key position in hemisphere defense, and explains the lend-lease agreement signed Oct. 1 for about $100,000,000, the largest single loan to any Latin American country in recent years, which is to be applied to defense purposes. It accounts, too, for the South Atlantic bomber ferry announced by President Roosevelt in August. It gives prime importance to the United States' blacklisting, in July, of the Condor airline, a subsidiary of Lufthansa, and of the Italian trans-Atlantic Lati, which links the Axis powers with South America. The Brazilian Government keeps close watch on the German Condor, and a Brazilian subsidiary of Pan American Airways, Panair do Brasil, flies nine-tenths of Condor's mileage. Moreover, Condor and Lati services are both being crippled by lack of fuel, Standard Oil of Brazil having cut off all gasoline supplies immediately following the United States' entry into the War.

In his address to the nation Dec. 31, President Vargas declared Brazil's 'solidarity with the United States.' Unquestionably, Brazil's decision seems to have been to cast in its lot with the United States, although, unlike the Caribbean and Central American republics; it had not declared war on the Axis states. By a decree of Dec. 9, President Vargas froze Axis funds in Brazil, and steps have been taken to muzzle the pro-Axis elements of the press.

Even before war actually came to the Western Hemisphere, Brazilian troops, cooperating with the United States, reinforced the garrisons on the southern boundary of Surinam (Dutch Guiana), to maintain 'military vigilance,' when, on Nov. 24, by agreement with the Netherlands Government, the United States established a base there, thus completing the string of Atlantic bases from Iceland south. The official reason offered by the United States was protection of the important bauxite mines, which furnish over 60 per cent of the requirements of the United States' aluminum industry. Surinam's proximity to the 'bulge' and to French Guiana, and the colony's potential air threat to the Panama Canal and to South American shipping lanes if controlled by the Axis, add further strategic significance to this move.

The third Conference of American Foreign Ministers, called by Secretary Hull in accordance with Article 15 of the resolution for hemispheric defense adopted at Havana, met in Rio de Janeiro Jan. 15, 1942. Undersecretary of State, Sumner Welles, represented the United States. The chief question before this consultative gathering was a joint cessation of diplomatic relations with the Axis powers on the part of the twenty-one American republics. The agenda included both political and economic matters. The measures adopted by the Rio Conference (1) approval of the Atlantic Charter which had been proclaimed by President Roosevelt and Prime Minister Churchill; (2) a resolution calling for the suppression of wire and radio communications with aggressor nations, which was approved over the objections of Brazil and Chile; (3) the setting up of an Inter-American Economic Committee in Washington to study inter-American economic problems and post-war planning, and (4) the severance of political, diplomatic and commercial relations with the Axis by all of the South American nations. This last measure was carried out by all of the nations involved except Chile and Argentina. (See also NEW WORLD ORDER.)

Trade and Finance.

The export licensing system especially affected Japan's trade with Brazil, which assumed considerable importance during the year, both as a Japanese source of strategic materials, especially mica, and as a means, via transshipment, of lessening the restrictive measures adopted by the United States on its trade with Japan. The Japanese Empire became Brazil's best cotton customer, and the upward trend of cotton sales, principally to Japan, China and Canada, is one of the reasons for the marked improvement in Brazil's foreign trade in 1941, which shows a favorable balance of over $70,000,000. Closing of the Far Eastern market now creates anxiety over the disposal of this year's bumper crop. Western Hemisphere markets have absorbed increasing amounts of Brazilian products, however, 80 per cent of 1941 exports going to the Americas as compared with 51 per cent in 1940. Recent trade agreements with Chile, Paraguay and Argentina (See ARGENTINA) point to an expansion in sales to South American neighbors. In July, the United States agreed, for two years, to buy the entire export surpluses of fourteen strategic materials. North American defense needs have created a heavy demand for Brazilian manganese, iron ore, crystal quartz, mica, industrial diamonds and rubber. Shipping problems loom large, however, necessitating the conditional purchase of Axis ships in Brazilian ports. On Dec. 8, the Government announced that Italy would permit conditional purchase of eight Italian vessels tied up in Brazil, to be returned after the war.

The favorable trade trend has strengthened the milreis. The national currency has also been strengthened by the gold purchase program, inaugurated in 1933, which resulted in a gold coverage at the end of July 1941, of 27 per cent on banknotes then in circulation. The improved foreign exchange situation is further reflected in the reduction of the external bonded debt.

The Inter-American Coffee Agreement established in 1940 was put into operation April 15, 1941, with the signature by eight Latin American coffee-producing nations and the United States of a special protocol, which will run until October 1943. The decision on Oct. 23 to reduce the 1941-42 coffee quotas to 110 per cent of the basic allotment agreed on solved satisfactorily a serious problem before the Inter-American Coffee Board.

The total amount of coffee permitted to enter the United States during the quota year ending Sept. 30. 1942 is fixed at 17,640,255 bags, as compared with 16,239,240 bags for 1940-41. Of this, 17,246,431 bags may be shipped by the American republics: the small balance by non-signatories of the Coffee Agreement. Current price levels are about 100 per cent above the rock-bottom rates of the early months of 1940, and will yield a larger coffee income this year for Brazil in spite of the short 1941-42 crop, the smallest in years due to drought in the São Paulo region. A sacrifice quota, fixed at 35 per cent of the total, will be purchased by the government and either destroyed or put to a new and encouraging industrial use, the production of a plastic, called cafelite, which is already begun in a government experimental plant in São Paulo. If successful, this use of Brazil's troublesome coffee surplus will save the Government an annual loss of about $20,000,000. The basic weakness of the coffee quota system is its failure to hold production down to approximate world requirements.

Nationalistic measures against foreign capital have been eased twice during 1941. A September decree amended the constitutional ban on the foreign ownership of mines. In the same month the decree of April 9 prohibiting foreign banks from accepting deposits after July 1946 was revoked. The principal banks affected are the National City Bank of New York, the Royal Bank of Canada and the London South American Bank.

New Developments.

A huge land reclamation project in the Baixada Fluminense, marshy territory around Rio de Janeiro about the size of New Jersey, is to be completed about 1945. It is part of a program to remove the hazards of a monocultural economy, in Brazil's case hitherto based on coffee, and is designed to eliminate the heavy food imports from São Paulo and Minas Geraes to the Rio district. The rubber potentialities of the Amazonas area have interested the United States Departments of Agriculture and Commerce, which have cooperated in a plan for the promotion of agricultural settlements in that region. A Rockefeller Foundation report that the ten-year fight against malaria and yellow fever was meeting with success lends encouragement to hopes of opening up tropical Brazil. See also CHILD LABOR; PAN-AMERICAN AFFAIRS.

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.

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.

1938: Brazil

No single problem in the Latin-American situation received greater prominence in the press during 1938 than the growth of totalitarianism. The spread of Nazi and Fascist influence, along familiar propaganda channels, became well-nigh universal in the Western Hemisphere south of the Rio Grande. Frequently, as in the case of Mexico, it increased with the negotiation of barter-trade agreements. That it struck at the very roots of Pan-Americanism was apparent throughout the deliberations of the Eighth Pan-American Conference at Lima, from which emerged the Declaration of Lima, affirming the solidarity of the Americas (see PERU: PAN-AMERICAN UNION). Moreover, attempts of any non-American power to undermine democratic institutions in this hemisphere are essentially thrusts at the Monroe Doctrine which, in its implications, may be interpreted as insurance against 'Ideological' as well as armed aggression, from either Europe or Asia. The New Regime. In no American country was the threat to liberal principles and democratic institutions brought so sharply to focus as in Brazil where a new regime, bearing many of the earmarks of the totalitarian state, had been set up at the close of 1937. An analysis of the new constitution and of public expressions of President Vargas and of his representatives leads to the conclusion that the basic philosophy, the 'ideology,' of the present regime bears strong resemblance to that of the corporative states of Italy and Germany. The point open to question is the degree of foreign influence behind this development. Or is the new authoritarian state in Brazil an indigenous growth? A belief in the obsolescence of liberalism is set forth in the statements of the Committee of Doctrine and Divulgation of the Regime, an official propaganda body: 'Liberalism no longer corresponds to the new sense of life'; 'Liberal democracy has gone bankrupt'; 'Individualism now is dead'; 'In the authoritarian democracy the state is not the enemy of the citizen as it was always considered in liberal democracy.' In a press interview at the end of 1937 President Vargas declared, 'The new system is the consecration of authoritarian government.' He has called his government 'neither Fascism nor Communism but democracy moulded to Brazilian necessities.' Francisco de Campos, a leading figure in the Vargas Cabinet, in an interview to Corrcio de Manha, set forth the philosophy of the new state as follows: 'Liberty in the corporative state is limited on the surface but guaranteed in the depths. It is the liberty of individual initiative within the corporation. . . . The individual has the right to services and wealth, and the state to assure, guarantee and promote the enjoyment of these services and this wealth; which include the right to engage in creative activity, to a job, to an adequate standard of living, to security, to education . . . 'To assure and insure these, the state must exercise effective control over all economic, social, political, and educational activities. . . . Central power is no longer the enemy but the servant of the citizen . . . 'Freedom of thought and of teaching cannot be confused with the lack of social and educational values and aims, unless humanity were to be compared to an academy of anarchists. At some point, some faith, belief or dogma insinuates itself into education. . . . Recognizing this, the state has assumed the function of tracing the norms which the education — physical, intellectual and moral — of youth must obey.' These statements leave little question as to the official break in Brazil with its former political traditions. Moreover, the pattern of the new state, in many respects, follows familiar totalitarian lines. It is a no-party government, the Integralistas or Green Shirts, to whom Vargas was heavily indebted for the success of his November coup, being now outlawed along with all political parties. It has strong military backing (nothing new in Latin-American history), the second most important figure in Brazil today being Gen. Aurelio Goes Monteiro, Chief of Staff of the Army. It is government without representation, the Federal Congress as well as the State legislatures and municipal councils having all been abolished. It is strongly centralized, the powers of the hitherto virtually autonomous State governments having been sharply curbed, and the functions of government being largely concentrated in the hands of the President, making for a highly personalized dictatorship. It is intensely nationalistic, with important economic controls wielded by the Government, as in the corporative state. And yet the Vargas regime has been at some pains to make clear that its government is not Fascist and that it is entirely free, even in its philosophy, from Nazi or Fascist influences. In a special statement to the press at the time of the first anniversary of the new regime the President said. 'Brazil will continue its policy against foreign `isms.' The actions of my government clearly show that. It repelled the 1935 Leftist attempt; it repelled the 1938 Rightist. Thus Brazil is free from any exotic ideology.' Its suppression of the Integralistas, Brazil's indigenous brand of Fascism, once the 1937 coup was effected, was indicative of its desire to make unreasonable any allegation of Fascist tendencies. The suspension in January of the deportation orders against some 800 or more Jews, mostly from the German Reich, who were in the country illegally, is further evidence not only of a lack of anti-racialism, but of a desire to establish its freedom from Nazi influence. The Government's action in April against German propaganda activities in South Brazil, where there is a large concentration of Germans, demonstrates a lack of sympathy with the Nazis. These measures, effective in Rio Grande do Sul. Santa Catharina and Parana, where the German element has never become culturally assimilated, call for the teaching of Portuguese and of Brazilian history and geography in the private schools, of which in one state alone there are over 2,000; require that the teachers shall be Brazilian born; insist on the display of the national flag in all schoolrooms and ban all foreign symbols; and prohibit subsidies either from foreign governments or organizations. Finally, a decree of April 19 forbids foreign residents to engage in political activities or to take part in public demonstrations. Internal Difficulties. The necessity for these measures indicates the amount of totalitarian propaganda to which Brazil is being subjected, not only German but Italian as well. The Nazis have a rest-dent commissioner in the country, and on the German Embassy staff is an 'Attache of Nazi culture.' There are fifteen Nazi newspapers, although a recent decree, prohibiting circulation of foreign-language newspapers in rural areas, will considerably reduce their effectiveness. As elsewhere in Latin America, press and radio are used to disseminate totalitarian propaganda, both Italian and German. In an effort to counteract these influences a series of pro-American supplements was published this year by Diario de Noticias, one of the leading newspapers of Rio de Janeiro. The development of Fascist propaganda in South America has been the subject of investigation by the United States Department of State, and plans are afoot, largely involving the radio, to meet its inroads by the promotion of more intimate cultural relations with Latin America. The most serious internal threat to the Vargas regime came from the Integralistas, who, though outlawed, were still active. The movement claims a membership of a million to a million and a half. Ideologically full of contradictions, it is united by two definite ideas, hatred of Communism and a belief in totalitarianism. It represents the first successful attempt in the history of the Brazilian republic to form a national political party. It was begun in 1925 by Plinio Salgado, who is still its chief, though now a refugee in Uruguay. It grew to national proportions after the 1935 Revolution, although its Green Shirts and 'sigma' flag first appeared at the time of the São Paulo revolt of 1932. It was a formidable force in the presidential campaign which the Vargas coup terminated. There seems to be little evidence of either German or Italian financial support, though it is rumored that a more extreme faction, backed by foreign interests, was responsible for the revolt on May 11. President Vargas declared that the uprising had 'foreign help,' and open charges of German complicity were made in both the Brazilian and Buenos Aires press. The revolt was put down after a few hours fighting. Within a week over 800 arrests had been made, and those found guilty by the National Security Court were sentenced to not more than ten years imprisonment. Another plot to assassinate high officials in the Vargas regime was reported by the Minister of Justice in October. Government Measures. The outstanding measures of the present government have been suspension of payments on the foreign debt, one source of conflict between President Vargas and his liberal Foreign Minister. Dr. Oswaldo Aranha, who tried to resign in June; the abandonment of the coffee valorization scheme; the reduction of the power of the States, leading at one time to ceremonial burning of State flags; the reorganization of the government service in the interests of economy, and as an effective means of breaking up political rings; and the undertaking of a large armament program. Brazil's nationalistic tendencies, not new to this regime, are expressed in the recent move to give effect to the Constitutional provision regarding 'nationalization' of the insurance companies and banks (nationalization in Brazil meaning not public ownership but control by Brazilian shareholders); in the decree of April 20 nationalizing the oil-refining industry; and in President Vargas' attitude towards foreign capital, which is one not of hostility but of restraint, with Brazil the prime consideration and the profits of capitalist exploitation secondary. In February the President issued an appeal for Brazilian capital to finance the extensive program of national development. A minimum wage decree was signed May 1, regional commissions being created at the same time to investigate living standards and costs and to recommend minimum wages for all workers. Immigration restrictions were relaxed in May, when a new immigration law, effective Dec. 22, was issued, permitting the entry of larger numbers but by a selective process, favoring agricultural workers. The new law will prevent the formation of one-nationality foreign settlements and regulates elementary education in these settlements. Bilateral treaties with countries of emigration are permitted, and the State of São Paulo, which needs 300,000 workers, especially in the cotton fields, may employ its right to propose such a treaty to renew Japanese immigration, cut to only 4,000 a year by the 2 per cent quota. Economic Problems. The chief economic problems of Brazil center on the production and marketing of coffee and cotton, which account for nearly 70 per cent of its agricultural output and export. In November President Vargas reported that his coffee policy had been so successful that he did not expect a surplus from the next crop; if true, an astonishing achievement, since the destruction of coffee in 1937 reached a high of 17,196,428 bags, making a total of 56,728,914 bags destroyed since June 1931. Coffee exports for 1938, as announced by the National Coffee Department, totalled 17,800,000 bags, an increase of more than five million bags over the 1937 figure. The removal of restrictions by the abandonment of the thirty-year old valorization scheme, in which Brazil is estimated to have sunk over $1,000,000,000, has caused consternation among competing coffee-producing nations, particularly El Salvador and Colombia, who are attempting to secure a new price-fixing agreement. Brazil is likely to cooperate only if it is assured of a quota of at least 15,000,000 bags, or 60 per cent of the world's consumption of coffee. The effect of the Government's coffee policy was to reduce the price of Brazilian coffee abroad by about 30 per cent. Cotton figures heavily in the trade with Germany, which has been so successfully promoted as a result of its barter agreement that the Reich and the United States are running a neck-and-neck race for Brazil's import trade. The barter treaty negotiated in 1935 expired in July 1937, but its terms continue in effect by 90-day extension. A new treaty has been drafted, and has been urged by the cotton interests, but at the end of 1938 was still unsigned. The system of commercial transactions in compensation (Aski) marks, by which Germany exchanges its manufactured goods for Brazil's raw materials up to fixed quota limits (the annual quota for cotton is 62,000 tons, for coffee 1,600,000 bags), has reduced the effectiveness of the reciprocity treaty with the United States and has been considered in some quarters a violation of its spirit. Through barter, subsidies, and long-term credits German exporters hold such a definite advantage over American exporters that, in 1937, Germany had a 24-per cent share in Brazil's import trade as against 21 per cent for the United States. The latter country continues to be Brazil's best cash customer, however, taking one-third of all of its exports and almost three-fifths of its coffee. On June 12 Brazil declared 2 trade war on Germany when it refused to accept more compensation marks, thus suspending German purchases. The reason given was that Germany had exhausted the treaty quotas, after which the trade agreement calls for payment in international currency. As a matter of fact, Brazil found itself flooded with Aski marks, the surplus being estimated at 40,000,000 to 50,000,000. The Reich, unable to pay cash, cut off its imports, and so forced Brazil's hand that on July 22 the purchase of Aski was resumed, except for cotton. In November compensated marks were again made acceptable in cotton deals as well. It has been charged that Germany resells, for cash, some of the commodities from Brazil, notably cocoa, on which there is no quota, while Brazil is paid in these blocked domestic marks, which can be liquidated only by the purchase of German merchandise. Thus the Reich unloads its surplus goods and, at the same time, gains much-needed foreign exchange. Similar trade arrangements with other Latin-American countries have caused Germany's export trade to Latin America to jump from 4.4 per cent in 1931 to 11.2 per cent in 1937, and its import trade from 10.3 per cent to 17 per cent. The government exchange control became effective Jan. 1, but soon the exchange embargo was partly lifted, and later exchange restrictions on imports from the United States were further eased. On Oct. 11 instructions were issued to give North-American imports preference over all others in allotting exchange. The Bank of Brazil found itself early in October forty-two days behind in exchange coverage, in spite of its increased export trade, due to the shortage of foreign currency caused by payment in Aski marks. (See also WORLD ECONOMICS.) Finances. A slight deficit in budgetary operations was foreseen for 1938, the Federal Government's budget for the year estimating revenues at 3,823,623 contos of reis and expenditures at 3,875,227 contos. The Budget for 1939, on the other hand, anticipates a surplus. A new decree bans supplementary budget credits in the first six months of 1939. The following statement from President Vargas with regard to the suspension of payments on the foreign debt, is of interest: 'We suspended the payment of the foreign debt owing to the existence of circumstances beyond our control. This does not mean that we will renege on these obligations. What we need is time to solve the difficulties which we did not create, and to readjust our economy, transforming our potential resources into tangible assets which will permit us to satisfy, without sacrifice, the demands of our creditors . . . The investment of foreign capital is, without doubt, an important factor in our progress, but we must not forget that such capital operates according to the remunerative possibilities found here as against lower earnings on capital in the countries of origin. . . .'