SPECIAL REPORT OFFICE OF CURRENT INTELLIGENCE ECONOMIC DETERIORATION AND LEFTIST GAINS IN BRAZIL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A004000070004-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 19, 2016
• Sequence Number: 4
• Content Type: REPORT

3 May 1963
0CI No. 0278/63B
Copy No. 81
SPECIAL REPORT
lease 2006/12/27: CIA-RDP79-00927AO04000070004-9
OFFICE OF CURRENT INTELLIGENCE
ECONOMIC DETERIORATION AND LEFTIST GAINS IN BRAZIL
CENTRAL INTELLIGENCE AGENCY
SECRET
GROUP I Excluded from automatic
downgrading and declassification
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THIS MATERIAL CONTAINS INFORMATION AFFECT-
ING THE NATIONAL DEFENSE OF THE UNITED STATES
WITHIN THE MEANING OF THE ESPIONAGE LAWS,
TITLE 18, USC, SECTIONS 793 AND 794, THE TRANSMIS-
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GOVERNMENTS, If marked with specific dissemination
controls in accordance with the provisions of DCID 117,
the document must be handled within the framework of
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3 May 1963
Despite US aid and its own efforts to put its
house in order, Brazil has formidable financial and
economic problems. The crisis eases the extension
of Communist gains, which recently have been sub-
stantial in national labor union organizations and
in the Pernambuco state administration. These
trends have caused increasing restlessness among
the military, who are weighing the chances of bring-
ing off a coup against President Goulart.
Financial Situation
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. Payment
of a further debt to petroleum
companies of $17.7 million ac-
cumulated in 1962 has been
postponed to September 1963.
On 24 April Brazil received
$84 million in US aid as a re-
sult of recent financial ne-
gotiations in Washington. This
alleviates the critical foreign
exchange situation but does not
resolve Brazil's problem.
The cost of living in Rio
de Janeiro went up 16 percent in
the first three months of 1963,
rising 9.7 percent in March
alone. The recent March rise
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 tightening
of credit is expected to have
an early favorable effect on
the cost-of-living rise, but it
is causing dislocations in the
manufacturing sector--notably
in the motor vehicle industry
where sales are down 50 per-
cent and procurement of parts
down 70 percent.
In recent months the Com-
munists--aided by the economic
crisis--have made notable prog-
ress in labor organizations
and in the administration of
Pernambuco State. They now
direct three of Brazil's five
national labor confederations--
including the National Confedera-
tion 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
minister 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
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rural labor, which now is be-
ginning to organize.
In Pernambuco State, pro-
Communist Governor Miguel Arraes
has appointed Communists and
extreme leftists to key posi-
tions in his administration.
Although it might have been
expected that Arraes would be
sobered by executive responsi-
bility, he is in fact depending
more on Communists at present
than he did in his previous
position as mayor of Recife,
the Pernambuco capital.
Particularly significant
among Arraes' appointments is
that of Diogenes Arruda Camara,
who directed the Brazilian
Communist Party during the late
1940s and early 1950s 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-Khrushchev 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, and possibly a member of
the clandestine Communist ap-
paratus among the military.
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Unrest Among the Military
Increased Communist and
pro-Communist influence in the
Brazilian Government and par-
ticularly in organized labor has
heightened tension in the Bra-
zilian military. Both Gou-
lart and the military are aware
that a government with strong
backing from organized labor
would stand a good chance of
resisting military pressure for
many years, as did Juan Peron
in Argentina.
The military are also seri-
ously concerned about Goulart's
promotion policies. They real-
ize that in time he could go
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far toward neutralizing his op-
position in the armed forces
through further selective pro-
motions and reassignments.
They also realize that their
careers will be adversely af-
fected, at least in the short
run, if they become closely
associated with anti-Goulart
activity.
At present, a majority of
military officers are anti-
Goulart, but pro-Goulart of-
ficers 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. Gotilart
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.
The main efforts to organ-
ize military opposition to
Goulart in recent months have
revolved around several high-
ranking officers, including re-
tired Marshal Denys, and have
evoked the name of former Presi-
dent Dutra. Denys recently
stated that he hoped to have
the support of key state gov-
ernors and planned to give a
civilian complexion to a post-
revolutionary government.
Military plotting does not
now appear to have reached an ad-
vanced stage, but it is contin-
uing. Denys has endorsed the
view prevalent among much of
the military that a coup would
be justifiable only if Goulart
were to commit some flagrantly
unconstitutional act, but other
plotters state that such a pre-
text will not be necessary.
General Amaury Kruel,
Goulart's war minister, who has
frequently made anti-Communist
pronouncements but has taken
little anti-Communist action,
may hold the balance in the
situation. An influential but
ambiguous figure, he has re-
assured elements fearful of
the government's leftist orien-
tation that he is a bulwark
against Communist subversion.
At the same time, however, he
has convinced Goulart and his
labor allies that he is on their
side.
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but would oppose any abrupt
swerve toward the Soviet bloc.
Anti-Goulart elements are seek-
ing to persuade Kruel to join
them but have thus far had no
perceptible success.
Foreign Policy
The Goulart government's
handling of its recent agree-
ment with the US reflects its
"independent" foreign policy,
which is designed to demonstrate
an ability to take positions
opposing or at least differing
from those of the United States.
Brazil has recently encountered
difficulties, however, in ex-
pressing its independence by
the establishment of closer
relationships with other great
powers.
Brazil has been especially
anxious to made closer contact
with De Gaulle, whose foreign
policy it considers "truly in-
dependent." However, this as-
piration has been frustrated
by Brazil's recent dispute with
France over fisheries.
Brazil's efforts to gain
increased trade and aid from
the Soviet bloc have also ap-
parently failed to fulfill
initial expectations. Pro-
tracted negotiations with the
USSR for renewal of the Brazil-
ian-Soviet trade agreement
which expired on 31 December
1962 were completed only on 20
April; such a delay could in-
dicate that it provides less
Soviet oil and wheat than the
Brazilians had requested. The
USSR has thus far failed to
made any substantial aid com-
mitment to Brazil, although
Finance Minister Dantas is
planning to go to Moscow in
September in a new effort to
seek aid.
President Goulart seems
likely to continue his efforts
to increase his personal power,
primarily by strategic reassign-
ments and promotions within the
military and by building a more
powerful labor movement. Gou-
lart will probably continue
trying to use Communist and
pro-Communist forces in both
these efforts, although he may
seek also to maintain a counter-
balancing non-Communist force.
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