SITUATION IN BRAZIL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00429A001100030021-9
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 6
• Document Creation Date: December 21, 2016
• Document Release Date: February 1, 2008
• Sequence Number: 21
• Publication Date: April 24, 1963
• Content Type: MEMO

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CENTRAL INTELLIGENCE AGENCY
Office of Current Intelligence
24 April 1963
CURRENT INTELLIGENCE MEMORANDUM
SUBJECT: Situation in Brazil
1. Another major public crisis in US-Brazilian
relations was narrowly averted last weekend when the
Goulart Government finally honored its commitment to
purchase US-owned public utilities in Brazil. Doubt
as to Brazil's intentions on this question had caused
a two-week delay in the release of US funds arranged
for during Finance Minister Dantas' recent visit to
Washington. Continued refusal by Brazil to carry out
its agreement would have in effect washed out the
Dantas negotiations. It would also have prejudiced
Brazil's negotiations for aid from European countries
and the International Monetary Fund.
The Economic Situation
2. Brazil's foreign exchange position has been
deteriorating rapidly despite a reduction of imports
and virtual cessation of profit remittances. Com-
mercial arrears totaled'$138.2 million on 1 April,
including arrears to petroleum companies of some $37
million. A further debt to petroleum companies of
$17.7 million accumulated in 1962 has been postponed
to September 1963.
3. The cost-of-living in Rio de Janeiro rose
16 percent in the first three months of 1963, rising
State Dept. review 9.7 percent in March alone. The recent March rise
completed probably gained impetus from the government's large
currency issuances last December, which are now
having peak effect in the banking system, and from
the removal of subsidies in January. Government
DIA review(s) tightening of credit should begin to show effect
this month. However, announcement of the March price
completed. rise may give rise to additional criticism of the gov-
ernment's stabilization program and generate other
unfavorable effects such as increased wage demands.
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Communist Gains
4. The deepening economic crisis favors fur-
ther Communist gains. In recent months the Commu-
nists have made notable progress in labor organiz-
ations and in the administration of Pernambuco state.
They now direct three of Brazil's five national labor
confederations, including the National Confederation,
of Industrial Workers, the largest and most powerful,
and have a fair chance of taking over the other two
confederations this year. The Brazilian Labor Min-
ister is said to be pressing for the establishment
of the pro-Communist General Workers Command as a
directing organ for all Brazilian labor. This step
would give the Communists increased influence not
only over urban labor, but also over rural labor,
which is now beginning to organize.
5. In Pernambuco state, pro-Communist Governor
Miguel Arraes has appointed Communists and extreme
leftists to key positions in his administration.
President Goulart recently told Ambassador Gordon
that Arraes would be sobered by executive responsi-
bility. In fact, however, Arraes is depending more
on Communists at present than he did in his previous
position as mayor of the Pernambucan capital of Re-
cife.
6. Particularly significant among Arraes' ap-
pointments is that of Diogenes Arruda Camara, who
directed the Brazilian Communist Party during the
late 1940's and early 1950's when Secretary General
Prestes was in hiding. Arruda Camara has fallen
from favor in the party because of his advocacy of
a hard line, in contrast to the party's pro-Khru-
shchev position, but he is still one of the party's
most important members. He is apparently in charge
of Pernambuco's agrarian reform program. Arraes'
new police chief is Humberto Andrade, for years a
faithful ally of the Communist Party,
7. In the Brazilian national congress, the
Communists have not thus far openly pitted the Na-
tionalist Parliamentary Front--which they influence
strongly--against the anti-Communist Democratic Ac-
tion. They may show their hand, however, if Goulart
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pursues his apparent intention to get congress to
modify the constitutional amending procedure. He
appears to be interested in an amendment permit-
ting his own reelection, a move which the Commu-
nists would probably favor.
Unrest Among the Military
8. Increased Communist and pro-Communist in-
fluence in the Brazilian government and particularly
in organized labor has heightened tension in the Bra-
zilian military. Both Goulart and the military are
aware that a government with strong backing from or-
ganized labor would stand a good chance of resisting
military pressure for many years, as did Juan Peron
in Argentina.
9. The military are also seriously concerned
about Goulart's promotion policies, They realize
that in time he could go far toward neutralizing his
opposition in the armed forces through further se-
lective promotions and reassignments. They also re-
alize that their careers will be adversely affected,
at least in the short run,, if they become closely
associated with anti-Goulart activity.
10. At present, a majority of the armed forces
officers are anti-Goulart, but pro-Goulart officers
occupy a considerable number of key positions. In
the powerful First Army, near Rio de Janeiro, pro-
Goulart officers now hold the post of army commander,
the three key division commands and some subsidiary
positions. Goulart has fewer adherents in the Sec-
ond and Third Armies, and is weak in the small Fourth
Army. This unit, however, is stationed in Pernambuco,
far from Brazil's center of power.
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12. General Amaury Kruel, Goulart's War Minis-
ter, who has frequently made anti-Communist pro-
nouncements but has taken little anti-Communist ac-
tion, may hold the balance in the situation. An
influential but ambiguous figure, he has reassured
elements fearful of the government's leftist orien-
tation that he is a bulwark against Communist sub-
version. At the same time, however, he has convinced
Goulart and his labor allies that he is on their side.
Foreign Policy
13. The Goulart government's handling of its
recent agreement with the US reflects its "independ-
ent" foreign policy, which is designed to demonstrate
its ability to take positions opposing or at least
differing from those of the United States. Brazil
has recently encountered difficulties, however, in
expressing its independence by the establishment of
closer relationships with other great powers. Bra-
zil has been especially anxious to make closer con-
tact with De Gaulle, whose foreign policy it con-
siders "truly independent," but has been frustrated
in this by its recent dispute with France over fish-
eries. Brazil's efforts to gain increased trade
and aid from the Soviet bloc have also apparently
failed to fulfill Brazil's initial expectations.
Protracted negotiations with the USSR for renewal
of the Brazil-Soviet trade agreement which expired
on 31 December 1962 were only completed on 20 April;
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Out look
14. President Goulart seems likely to continue
his efforts to increase his personal power, primarily
by strategic reassignments and promotions within the
military and by building a more powerful labor move-
ment. Goulart will probably continue trying to use
Communist and pro-Communist forces in both these ef-
forts and is likely thereby to add significantly to
Communist strength in Brazil. In these circumstances
the military may well continue weighing their chances
for a successful coup until Goulart can neutralize
their capability for taking action.
BRAZIL'S CONVERTIBLE FOREIGN EXCHANGE RESERVES
As of 28 February 1963
(Millions of US Dollars)
np a ge Freely Other Total
Gold Available Freely Net
US $ Available Reserves
Curr.
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