309. Telegram From the Ambassador in Brazil (Dunn) to the Department of State1

1011. Following is a summary Embassy despatch2 analyzing developments and outlook Brazilian political-economic situation since Embassy despatch 599 [999] January 24.3

Political situation has continued to deteriorate. Government’s weaknesses, ineptitude and engrossment political maneuvering in which it has displayed little foresight or acumen have accentuated caretaker character and further diminished Cafe Filho’s prestige and popular support. It has failed to build significant support for self or for presidential candidate to oppose Kubitschek whose election it feels would mean return to Getulism.4

. . . . . . .

Strength of Kubitschek, backed by Vargas elements with considerable financial support grew steadily until early this week when alliance with Joao Goulart, Vargas political heir and PTB leader, caused significant defections among financial backers and influential Correio da Manha.

Marshal Dutra has publicly denounced Kubitschek–Goulart combination and Minister of War in letter released to press clearly implied that he might be unable to control army should such combination win.

Against this shifting background alternatives being discussed are postponement elections by congressional action involving amendment constitution or military coup. First of these would be possible only through extreme pressure on Congress, probably by military. Second would depend on unity of armed forces, now divided.

From our standpoint election Kubitschek might pose serious problem. Regardless his personal inclinations he would probably have same supporters and same opponents as Vargas and thus might become prisoner of situation beyond his control. Influence of Goulart in his administration might be factor of dangerous instability [Page 665] difficult to contain and Goulart’s anti-US bias would be prejudicial our relations with Brazil.

. . . . . . .

Postponement elections would merely beg question and might well prolong and intensify rather than relax tension, while replacement presidential system by European type parliamentary one, which now being considered, would tend toward greater instability and confusion.

Economic situation has continued largely unchanged since January with some improvements being noted in certain sectors due largely Gudin’s anti-inflation measures. Fact that $75 million export-import loan not yet drawn on is indication improvement and dollar receipts during April appear highest since last November. Nevertheless, failure Brazil to face so far basic problems in exchange control system and coffee and petroleum policy, coupled with uncertainty as to capacity of elderly new Finance Minister Whitaker5 result in confused economic outlook similar that political sphere. Administration obviously hopes utilize financial pressure to reduce Kubitschek support. No indication exists that Whitaker intentionally would return to inflationary policy. On contrary he apparently hopes undertake certain major steps in finance and coffee; however, his personal and political capability not clearly evident. Initial coffee move this week suspending government purchases, although step in right direction, was poorly executed.

In current tense preliminary period of fluid political maneuver with lines still obscure we feel it would be highly inadvisable to inject US into political picture in any way. Vargas political testament seems likely to be used in forthcoming campaign and anti-Americanism might become potent political weapon.

We see no immediate need for additional emergency financial assistance, which if granted might be dissipated to the benefit of neither Brazil nor US. But we should bear in mind possibility that serious deterioration could make rapid reappraisal necessary. Finally recommend that no decision be taken at this time re possible extension of $75 million credit and that if Brazilians should approach in matter we take position discussion this time premature.

  1. Source: Department of State, Central Files, 732.00/5–155. Secret; Priority.
  2. Reference is to despatch 1441 from Rio de Janeiro, May 4, not printed. (Ibid., 732.00/5–455)
  3. Document 300.
  4. A term applied to the programs and policies of former President Vargas.
  5. Gudin resigned as Finance Minister on April 5; José Maria Whitaker replaced him on April 13.