Foreign Relations of the United States, 1961–1963, Volume XII, American Republics

235. Memorandum From the Ambassador to Brazil (Gordon) to President Kennedy¹

Washington, undated.

SUBJECT

• Brazilian Political Developments and U.S. Assistance

I. The Problem

Brazil’s new Finance Minister, Dr. San Thiago Dantas, is now planning to engage in talks in Washington for a week to ten days beginning March 11 with high officials of the U.S. Government, the Managing Director of the IMF and representatives of other international financial institutions. He will be seeking external financial assistance to support the Goulart administration efforts to reduce substantially and progressively the rate of inflation in Brazil while maintaining a high rate of economic development. His aim will be an assistance package, including debt postponement, short term balance of payments assistance, and long term development assistance within the Alliance for Progress, if possible backed jointly by the U.S. Government, European governments and Japan, the IMF, and perhaps the Inter-American Development Bank and the World Bank.

Our preliminary analysis of the Brazilian stabilization and development effort, which is still being reviewed in technical bilateral and IMF talks, indicates that it does contain the essential ingredients of an effective program, although a large number of technical and policy questions have yet to be resolved. Actions have already been taken by the GOB under this program, including tax increases, elimination of major import subsidies, restraint of excessive credit expansion, and formal adoption of a program for large-scale budget cuts. The program is being pursued with an apparent firmness of purpose unmatched in Brazil in recent years. The GOB has also taken steps to eliminate certain specific areas of friction between Brazil and the U.S., including a satisfactory interim settlement of the IT&T expropriation case,² tentative agreement to reasonable voluntary purchase terms for the AMFORP electric utility properties, and the removal of discrimination against import of sulphur from the U.S.

At the same time, although there has been some improvement since last December, there is a continuing problem of communist and other extreme nationalist, far left wing, and anti-American infiltration in important civilian and military posts within the government, and governmental tolerance or even encouragement of communist and other extreme left wing influence in trade union and student organizations. The foreign policy of the Goulart administration, likewise, although showing some sense of greater cooperativeness with the U.S. is still equivocal, with neutralist overtones, on various issues including Cuba, arms control, and trade and aid relations with the Soviet bloc.

Assuming agreement by the GOB on an effective economic program for stabilization and development, therefore, the question remains whether Brazil’s domestic and foreign political trends warrant U.S. economic support and if so, on what terms. If the answer is negative, there arises the subsidiary problem of whether Finance Minister Dantas should not be advised to cancel his now scheduled mission.

Our preliminary analysis indicates that, if an agreement can be worked out between Brazil and the IMF, and if reasonable European support can be secured, the U.S. resources required for aid to Brazil during the 12 months of April 1963-March 1964, apart from the release of $84 million remaining from the May 1961 “stabilization support package,” would be in the general magnitude of $200 million.

II. Recommendations

It is recommended that support be given to a technically satisfactory Brazilian program for economic stabilization and development, but on a “short-leash” basis permitting periodic review and making possible the withdrawal of support on either economic or political grounds. The support program should be scaled over time in relation to balance-of-payments needs and should be contingent upon explicit standards of GOB performance in implementing the necessary economic policies. At the same time, continuous diplomatic pressure should be maintained for the reduction of communist and other extremist influences within the government and for the pursuit of policies favoring democratic development, strengthening the private sector of the Brazilian economy (both domestic and foreign), and progressively shifting the “independent foreign policy” toward more systematic collaboration with the U.S. and the free world.

Parallel with the basic relationship with the Brazilian government summarized above, efforts should be maintained to strengthen and encourage democratic anti-communist forces outside the government. The principal organizations involved are the Congress, the vast majority of the state governors, the military officer corps, the Sao Paulo industrial community, mass media of public information, the Church, and labor and student groups. This effort should be directed at reducing the likelihood of a further leftist-nationalist swing by Goulart and, if this proves impossible, to prepare the most promising possible environment for his replacement by a more desirable regime in the event that conditions deteriorate to the point where coups and counter-coups are attempted.

The basic strategy, in short, should continue to be one of encouraging Goulart to constructive courses of action, strengthening the forces restraining him from undesirable courses of action, and strengthening the prospects for a favorable successor regime if the constitutional order breaks down.

As an immediate step, the Dantas mission should be received on March 11 and the program for economic stabilization and development should be encouraged. During the Dantas visit, appropriate occasions should be used to restate our continuing concern with the political problems pointed out to Goulart by the Attorney General in December.

[Here follows section III entitled “Considerations.”]

IV. Alternative Courses of Action

Support by the U.S. for the Brazilian effort at economic stabilization and development involves two dimensions: time and quantity. There is considerable flexibility as to the lengths of time for which we might make a forward commitment, the circumstances for periodic review, and the associated conditions of performance on the Brazilian side. In the dimension of quantity, however, there is less flexibility, since effective support requires that the combined external sources—U.S., European, Japanese, and international institutions—be sufficient to permit Brazil to maintain the inflow of raw materials, capital goods, oil and wheat required for continued growth while also meeting its external financial obligations. In the first phase, therefore, which includes the immediate balance-of-payments needs pending negotiation of an accord with the IMF, followed by nine to twelve months of combined balance-of-payments and development support related to assistance from the IMF and from other creditor countries, the realistic alternatives are adequate support or no support. In a later phase, implying a well thought through development program under the Alliance for Progress, there might be a much wider range of choice on the volume and sources of support.

The alternative of withholding support is advocated by a few conservative Brazilian political leaders and by some U.S. businessmen with long experience in Brazil. Their argument is that Goulart is absolutely untrustworthy, anti-American by instinct, and consciously or unconsciously inclined toward putting the country either under outright communist control or under some form of national-socialist, Peronist, syndicalist dictatorship—which would be almost as bad from the viewpoint of U.S.-Brazilian relationships. If we refuse support, they argue, the resultant combination of debt defaults and import shrinkage will bring about such a deterioration in social and economic conditions as to entail serious internal disorder permitting a right wing coup to replace Goulart by a more satisfactory regime. The bulk of the Brazilian business community, and some portion of the American, are disposed to give some margin of confidenceto the Dantas’ effort, although they are deeply suspicious of both him and Goulart.

The Embassy has sought to appraise carefully the strength of center and right wing opposition to Goulart and the likelihood of a successful coup against him. Our present view is that, in the absence of overtly unconstitutional action by Goulart himself there does not now exist in Brazil adequate leadership, organization, or strength to carry out such a coup successfully. The military attitudes are crucial in this regard. The bulk of the officer corps, although suspicious of Goulart, retain their deeply rooted Brazilian tradition of support for legally constituted civilian authority. If an obviously illegal initiative were taken by Goulart, there is a substantial prospect of a successful center-right reaction. The mere deterioration of confidence as a result of non-support for the economic program by the U.S., however, cannot be relied upon to lead to a successful center-right action against Goulart.

The exact nature of a Goulart reaction to a refusal of U.S. support is not easy to predict. At one point last November, he indicated as the alternative a kind of blackmail threat of turning to the Russians, as well as denouncing the U.S., defaulting on debt payments, nationalizing foreign enterprise, and tightening the Brazilian belt through a radical socializing program. Subsequently he has carefully eschewed the repetition of such threats.

In recent weeks, the Soviet Ambassador has been actively courting Goulart, but we are not informed on the details of their conversations. Apart from the dubious question of large scale Soviet support, it is plausible to expect a violently nationalist reaction against the stabilization effort in the event of American non-support, combined with a debt moratorium and adverse action of many types against American business interests. The Alliance for Progress in Brazil would come to a quick and sticky end. Although Brazilian economic conditions would be gravely impaired, the nationalist impulse toward closing ranks behind Goulart might keep him in power for a substantial period.

Given the presence of an apparently constructive and genuine effort at economic stabilization and development, modest (though still far from satisfactory) improvement in domestic political orientation, and at least a temporary disposition for collaboration with the U.S. under the Alliance for Progress and in other ways, the superior alternative clearly appears to be as recommended in Section II above.

1. Source: Department of State, Central Files, POL 1 BRAZ-US. Secret. Drafted by Gordon. The paper was sent with a second paper (not printed), which summarized recent Brazilian political developments, under cover of a memorandum from Brubeck to Bundy dated March 6. The covering memorandum stated that the document was discussed on March 5 by senior representatives of the Departments of State and Defense, AID, and CIA all of whom had contributed to the documents considered at the December 11 meeting of the NSC Executive Committee (see Document 230). At their March 5 meeting they agreed that the approach described in the undated memorandum from Gordon was sound and that the decisions reached at the December 11 meeting were still valid.
2. At their meetings April 3-5, Presidents Kennedy and Goulart agreed that in cases involving the nationalization of foreign companies by the Brazilian Government, “the principle of fair compensation with reinvestment in other sectors important to Brazilian economic development” would be maintained. See Public Papers of the Presidents of the United States: John F. Kennedy, 1962, pp. 287-289, and Documents 223 and 224.