228. Report From the Inter-Departmental Survey Team on Brazil to President Kennedy1

Dear Mr. President: In accordance with your wishes, the Secretary of State appointed us a survey group to visit Brazil and to submit appropriate recommendations. Our briefings in Washington started on October first; we spent ten days in Rio de Janeiro, a day in Brasilia, two days in Sao Paulo and three days in Northeast Brazil.

We learned that Brazil is on the verge of financial collapse. Since you then expected to visit Brazil in November, we dispatched preliminary reports on October 23 and October 25 to the Secretary of State.2 Although you have now postponed your Brazilian trip, we confirm our preliminary recommendations, and repeat them later in this report.

Scope of Our Discussions

Our discussions in Washington included meetings with most of those concerned with Brazil in the several departments of our government, [Page 473]and with the heads of the Export-Import Bank, the World Bank and the International Monetary Fund. In Brazil Ambassador Gordon and his entire Country Team in the cities we visited gave us every possible cooperation, advice and help. We talked there with many officers of all the U.S. agencies represented in Brazil.

One or more members of the group met with President Goulart, the Prime Minister, Finance Minister, Minister charged with Planning, Superintendent of Money and Credit (SUMOC) and with officials of the Banco do Brasil and of the Northeast Development Agency (SUDENE), as well as with several Governors, Military Commanders and other officials.

We met with groups from the American Chamber of Commerce in both Rio de Janeiro and Sao Paulo and with a number of other American and Brazilian businessmen and bankers. We had discussions with both the local and foreign heads of the two large utility companies, American Foreign Power and Brazilian Light and Power, which the Brazilian government proposes to take over. In Panama, where we prepared much of this report, we had the benefit of the views of the Military Commander in the Caribbean area, whose interests include Brazil, and of his Political Advisor.

You will recognize that we could not check all the aspects of the problems involved in the time available and that our conclusions and recommendations, which are all unanimous, are necessarily largely based on a synthesis and analysis of the information and opinions given us by those with whom we talked.

[Here follows a section entitled “The Country Team.”]

The Image of the United States

There is in Brazil a long established and still effective tradition of special friendship with the United States, as between the two great, progressive, and non-Spanish powers of the Western Hemisphere. This tradition is still powerfully supported, especially within the military establishment, by pride in the fact that Brazil was the only Latin American state to make a substantial military contribution in World War II, as a loyal ally of the United States.

Since 1945 this favorable image has been clouded by a Brazilian feeling that the United States tends to take Brazil too much for granted, in particular that the United States has denied to Brazil the aid urgently required for its development while granting lavish aid less important allies, and even to neutralists. This feeling that the United States has disregarded Brazil’s needs and importance has been vigorously exploited by Communists and ultra-nationalists to whip up anti-American sentiment. These efforts have not materially affected the bulk of the population, but criticism of the United States and a sympathetic attitude toward [Page 474]Castro’s Cuba have received increasing acceptance in political and intellectual circles.

The recent forceful action of the United States with respect to Cuba, and the revelation of the extent of the Soviet presence in that country, is doing much to restore a more favorable image of the United States in Brazil. The friends of the United States have been emboldened to speak up. Even such a violent critic of the United States as Brizola has now found it expedient to denounce Khrushchev’s exploitation of Cuba in the face of the resurgence of pro-U.S. and anti-Castro sentiment.

The Political Situation

The Brazilians are convinced that theirs is a great country with a great future and that they are competent to manage their own affairs. They are disposed to claim U.S. financial support as a matter of right in consideration of Brazil’s importance to the United States, but are highly sensitive to any implication of U.S. tutelage or direction. This nationalistic attitude is not a new thing attributable to the perversity of the present Brazilian administration. It has been growing for a generation, but is now more acute than ever.

The parliamentary system which was improvised as a condition precedent to Goulart’s accession to the presidency has failed to function. Since then Brazil has been virtually without an effective national government; all concerned have attempted to evade responsibility for the political drift and rapid financial deterioration which have characterized the period. Goulart has been obsessed with his struggle to recover full presidential powers.

The recent election was peaceful enough but it was not conclusive—both left and right had gains and losses, and the presidential issue was not directly involved. Almost certainly, however, the presidential system will be restored through the plebiscite to be held in January.

Goulart’s political career has been based on demagogic leadership of organized labor, after the fashion of Vargas and Peron. His future course is unpredictable. He is essentially a clever opportunist, with no strong motivation save his craving for popularity and personal power. He is facile in political maneuver, but plays by ear according to the need and inspiration of the moment. It is unlikely that he fully comprehends or is competent to cope with Brazil’s desperate financial situation. He is not likely to take drastic remedial measures which would adversely affect his popularity so long as he can avoid them. If faced with a financial crisis which threatened his tenure of office, he would take whatever course seemed best calculated to ensure his retention of power and would have no personal conviction or inhibition against turning to the Soviet Bloc. The present deterrents to that course are (1) continuing hope [Page 475]of greater U.S. aid, (2) reduced Soviet prestige since the backdown in Cuba, and (3) fear of provoking a military coup.

A significant consequence of Goulart’s political opportunism is the favor and patronage which he has shown to Communists and suspected Communists throughout his career, in return for their political support. Almost certainly Goulart believes that the men he has appointed to key positions in his administration are personally loyal to him, but his tolerance and patronage have been affording the Communists an unprecedented opportunity to infiltrate the Federal bureaucracy.

The policy of the Communist Party in Brazil is calculated to make the most of this opportunity. The Party is numerically weak; it has no significant capabilities for revolutionary or guerrilla action. With the apparent sanction of Moscow, it has chosen to pursue its purposes by political action—by identifying itself with and fomenting anti-U.S. nationalism and radicalism, by infiltrating the bureaucracy and the leftist political parties, by extending its influence and control in organized labor and student groups, and by working to regain legal status as a political party. Traditionally, the Brazilian armed forces have considered themselves the guardians of constitutional order, above considerations of party politics. The unsuccessful attempt of the high command to prevent Goulart’s succession spread confusion in the military establishment and weakened the unity essential to this traditional role. Goulart has now appointed to high command officers on whom he believes he can rely, because they share his political views, or because they are personally committed to uphold his constitutional authority. Although the bulk of the officer corps remains highly dissatisfied with the political tendencies of the Goulart regime, a military move to overthrow the regime is highly unlikely, except in the event of an extreme provocation or a severe national crisis.

In consequence, Goulart may well serve out the remaining three years of his term, unless the rapidly deteriorating financial situation and resulting popular discontent should become so acute that the military, with substantial political support, would conclude that a political change was imperative.

As long as Goulart remains in office, the United States should continue its efforts to make him realize the gravity of Brazil’s financial and economic situation, and continue to urge the adoption of adequate remedial measures which would justify our large-scale financial help. At the same time we should attempt to influence his political orientation in directions better calculated to serve U.S. interests.

The United States should also intensify its intelligence concerning, and unobtrusively maintain contact with, any military and political elements of a potential and more friendly alternative regime, and should be prepared to act promptly and effectively in support of such a regime, in [Page 476]case the impending financial crisis or some other eventuality should result in the displacement of Goulart.

Assuming Goulart’s continuation in office, the United States should begin now to identify those political elements which it would wish to see prevail in the election of 1965, and to consider ways and means of discreetly supporting them in that election.

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[Here follow sections entitled “The Financial Crisis,” “The Alliance for Progress,” “The Population Problem,” “Other Economic Problems,” “The Military Assistance Program,” and “The Information Program.”]

Summarized Recommendations

Political

Washington should issue clear policy guidance setting forth the United States attitude, strategy and tactics toward the Goulart Administration.

Financial

Ambassador Gordon should immediately inform President Goulart of the U.S. assessment of the Brazilian financial situation, should explain that the size of the 1963 external deficit is too large for U.S. resources alone to meet, should nevertheless offer our help, if a workable stabilization plan is made effective, and should recommend that Brazil adopt a stabilization plan acceptable to the European creditors and to the International Monetary Fund, whose help will also be required.

We suggest that you confirm this position and offer of help in a personal letter to President Goulart for the record and for possible future use.

Because the Brazilian Constitution requires that legislation making structural tax changes be enacted before November 30, 1962 and making changes in tax rates before December 31, 1962, if the legislation is to become effective during 1963, we believe these recommended actions should be taken at the earliest possible moment.

If the Goulart Administration accepts these suggestions, and the Brazilian Congress enacts the necessary tax legislation, the United States should do everything possible to negotiate a stabilization plan acceptable to the Brazilian Government and to the International Monetary Fund.

If, however, no satisfactory plan is worked out and the Brazilian Government is unable to meet its maturing obligations, the United States should still offer limited help, such as PL 480 wheat and an Export-Import loan for oil, while the Brazilian situation is being clarified, attempting to use aid and other U.S. resources to orient the Brazilian Government as closely as possible toward U.S. objectives.

Alliance for Progress

The overriding need for financial stability in Brazil should be given precedence over new Alliance for Progress projects, except as counterpart funds become available which are not needed for budgetary support.

All presently approved Alliance for Progress programs, and particularly the Northeast Program, should be reduced to specific, funded projects within the next six months and implemented as rapidly as possible. The Ambassador should be given ample authority to accomplish this.

Population

We recommend that you appoint a Commission to study the implications of rapidly growing populations and their relationship to economic development, particularly in underdeveloped countries, and to recommend to you the related policies best suited to accomplish the aims of the United States in its foreign economic assistance programs.

Economic

The United States should stress the need for increased Brazilian exports of both agricultural commodities and industrial goods, and should encourage Brazil to increase its production of wheat to reduce its future dependence on PL 480 wheat from the United States.

Military

Every effort should be made to increase the number of Brazilian officers assigned for training in U.S. Military Schools, as only a small percentage of available vacancies have been filled during the past two years.

Our Mission in Brazil should bring pressure at the earliest appropriate time on the Brazilian Navy and the Brazilian Air Force to resolve the controversy that now makes the only Brazilian aircraft carrier inoperable and which has caused a serious rift between these two services.

Conclusion

The political and economic future of Brazil is of tremendous importance to the United States. Its orientation toward or away from the West will greatly influence the other Latin American Republics.

While the present difficulties in Brazil are primarily financial, they stem from what we believe is an incorrect economic philosophy.

Brazil has given the expansion of her economy highest priority among her economic objectives, and has counted on inflationary governmental spending and United States aid to make up any resulting deficit. Nationalistic policies have put up bars to the vital capital from abroad that otherwise would have eased Brazil’s problems.

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Economic laws eventually operate in the same way throughout the world. Brazil is no exception to the fact that a depreciating currency robs the population generally of its savings and that inflation, if uncontrolled, eventually leads to financial disaster.

Germany and Japan are examples of war shattered economies which adopted sound measures to rebuild their currencies and to restore their prosperity. In both countries the spirit of the slogan “Export or Die” became the dominant force that led to the solution of their balance of payments difficulties, which were much greater in 1945 than Brazil’s similar difficulties are today.

France, Greece and Spain are other examples of countries which have overcome their internal budgetary difficulties and their external deficits by adopting sound but harsh measures and then strictly enforced them.

Political calm and economic sanity are both essential to solve Brazil’s difficulties.

In Germany, Adenauer and Erhard have made up the politico-economic team. In Japan it was Yoshida and Ikeda. In France General de Gaulle held the fort while Pinay carried out the economic program.

If we could persuade President Goulart of this thesis—this economic philosophy—and he could keep Brazil calm politically while some man of his choosing laid down and enforced the necessary financial and economic measures, Goulart could become the savior of his country’s economy.

Perhaps this is too much to expect or even to hope for, but as the traditional and sincere friend of Brazil, and in our own interest as well, we should do our utmost in this direction.

Respectfully yours,

  • William H. Draper, Jr.
    Chairman
  • Douglas V. Johnson
    Department of Defense
  • Ludwell L. Montague
    Central Intelligence Agency
  • Thomas E. Naughten
    Agency for International Development
  • C. Edward Wells
    United States Information Agency
  • Henry J. Costanzo
    Treasury Department
  • William B. Connett, Jr.
    Department of State
  1. Source: Kennedy Library, National Security Files, William H. Brubeck Series, Brazil, November-December 1962. Secret. Under the provisions of NSAM 173, “Interdepartmental Field Visits,” July 18, the Special Group (Counter-Insurgency) approved the creation of a joint survey team, headed by General William H. Draper, Jr., to examine the effectiveness of the cooperation of the Country Team in Brazil and the departments and agencies in Washington with which they worked. The Draper Commission spent 16 days traveling throughout Brazil in October 1962. (Department of State, NSAM Files: Lot 72 D 316)
  2. The preliminary report of October 23 was transmitted in telegram 912 from Rio de Janeiro, October 24. (Ibid., Central Files, 732.00/10-2661) The text of the other preliminary report was not found.