BRAZIL IN THE 1980S

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000101510002-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: May 26, 2010
• Sequence Number: 2
• Publication Date: July 8, 1980
• Content Type: MEMO

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CENTRAL INTELLIGENCE AGENCY
NATIONAL FOREIGN ASSESSMENT CENTER
8 July 1980
MEMORANDUM
Summary
In many respects, Brazil is among the most promising and dynamic of the
less developed countries. Important factors for stability in this decade are
the government's willingness to accommodate some poZiticaZ change, extensive
institutional development, ample experience in overcoming poZiticaZ and eco-
nomic crises, a rich resource base, and growing ties to other countries in
Latin America and elsewhere.
Brazil's efforts to open up its Zong-ctosed poZiticaZ system are being
chaZtenged by worsening economic conditions. Widespread economic privation
underscores the importance of a poZiticaZ safety valve for rising social frus-
trations. Yet if the government does not soon begin to control inflation, it
may feel obliged to suspend or, in extreme circumstances, even abort the
liberalization process while it takes stronger measures to right the economy.
Brazil's leaders recognize that failure on either the economic or poZiticaZ
front would Zead to greater unrest and confront them with still more difficult
choices.
PoZicymakers will face similar frustrating alternatives for years to
come. Even a modest economic improvement would give Brasilia more breathing
This memorandum was prepared by the Latin America Division of the Office
of Political Analysis. It was requested by the Director of Central InteZZi-
gence. Information in this memorandum includes aZZ reports received through 8
July. It was coordinated with the Office of Economic Research and the Assis-
tant National Intelligence Officer for Latin America. Questions and comments
may be addressed to Chief, Latin America Division
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space, but it i~ouZd not assure ultimate success. Increasing energy constraints
raiZZ intensify Brazil's problems because of. its almost total dependence on
foreign oit and vulnerability to fluctuating global economic conditions. It
rriZZ take alt the skill top poZicymakers can muster to ease Brazil through the
1980s, and toe are apt to see frequent tactical changes on both the economic
and political fronts as they seek to cope with the problems.
Economic Problems
Slower economic growth poses a major risk for Brazil. The
heady tempo of the economic miracle will be tempered by a slowing
world economy and oil-induced financial contraints. Growing un-
employment and reduced economic opportunities could trigger poli-
tical demands for counterproductive economic policies. Moreover,
the government's ability to redress serious socioeconomic problems
--such as unequal income distribution and poverty in the Northeast--
will be impaired by the need to sustain austerity measures aimed
at improving the balance of payments and fighting inflation.
Unanticipated shocks--a new runup in world oil prices, the collapse
of international coffee or iron ore markets, disruptions in
petrodollar recycling, domestic agricultural disasters-would
intensify Brazil's economic woes and worsen social tensions.
Chronic inflation and demands for increased urban infra-
structure and social services are likely throughout the 1980s,
even if Brazil attains the 6-percent economic growth necessary to
absorb the growing labor force. Prolonged stagflation could
result as Brasilia stretches its resources to the limit. Under
these conditions, foreign investor confidence probably would be
undermined, jeopardizing Brazil's access to foreign credit.
Brazil could then easily be drawn into a major foreign exchange
crisis that in turn might provoke demands to nationalize foreign
firms or default on foreign debt.
Any of these events would threaten the substantial US stake
in Brazil. About 600 US firms have direct investments in Brazil
valued at nearly $8 billion. The US is Brazil's major overseas
creditor, holding an estimated $30 billion of the country's
foreign debt. rioreover, the US could lose Brazil's cooperation
in avoiding excessive competition in world markets and its moder-
ating influence in ~gnternational forums.
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Gradual Liberalization
The regime has inherent flexibility and appears prepared to
deal with political problems. Brasilia's top political priority,
gradual liberalization of the political system, so far has not
been abandoned despite the mounting economic concerns. To achieve
liberalization without losing control over the pace of change,
the regime has given amnesty to political prisoners and exiles
and reformed the party system to broaden participation. The
government also plans to restore direct elections for state
governors and those senators who now are appointed.
Even so, further moves .toward liberalization will prove
increasingly difficult if progress on the economic front is not
made during the next six months. If pressed by the economy, the
regime may put liberalization."on hold." Adverse socioeconomic
conditions have led to increased crime and social unrest--notably
in the labor movement. Military hardliners--already dubious
about liberalization--see the system further jeopardized by the
increasing support the Church is giving to striking workers and
landless peasants.' Abandoning the political opening, however,
might engender a bitter reaction from a public weary of lengthy
military rule.
The direct congressional and gubernatorial elections planned
for 1982 will be a crucial test of the government's policies.
The elections could determine the composition of the electoral
college that would select the next president, if the regime
decides to permit civilians to have a role in that process. The
regime almost certainly will take steps--gerrymandering for
example--to ensure its supporters retain control. If these moves
are too obviously contrived, serious opposition could develop.
25X1
Brazil's leadership has proved innovative in the past when
confronted with economic-and political challenges. It has taken
some of the difficult steps necessary to deal with current
difficulties and expresses. confidence that the economy will show
improvement while liberalization continues. Without question the
1980s will be difficult, but the Brazilians will be aided by
these factors:
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~.. va.a 1LLl\11LiL
--Their generally optimistic view about their country's
future and their tendency to favor compromise rather
--In general, the poor and the working classes tradition-
ally have not provided fertile ground for the left.
--Most of the political opposition has shown restraint
and appears willing to work with the government as long
as it does not resort to outright fraud.
--The relatively difficult economic conditions of 1979
did not produce much-violence or political agitation,
even though a record number of strikes occurred.
At any time in the 1980s, however, Brazil could find itself
in serious economic and political trouble because it is sailing
so close to the wind. The key.economic_weakness--a serious
insufficiency of crude oi~1--places enormous-stress on:what had.J ,
been an especially fast-growing economy. Population pressures
preclude sharp economic deceleration to cope with this difficulty.
The burden of financing Brazilian growth has fallen increasingly
to foreign lenders, many of whom already have a large stake in
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