BRAZIL'S POST-COUP EXPORT DRIVE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600040035-9
• Release Decision: RIFPUB
• Original Classification: C
• Document Page Count: 26
• Document Creation Date: December 12, 2016
• Document Release Date: March 7, 2002
• Sequence Number: 35
• Publication Date: March 1, 1971
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Confidential
.0 o c~lG~
Intelligence Memorandum
Brazil's Post-Coup Export Drive
DOC!!!'!T c!!'
Ad Aft
DONUT OSTROY
Confidential
ER IM 71-34
March 1971
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
Excluded from oulomorlc
downgad; ng and
dedonifcolion
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CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
March 1971
INTELLIGENCE MEMORANDUM
Brazil's Post-Coup Export Dri-?e
. Introduction
Since the 1964 military coup, export expansion
has been an outstanding feature of the Brazilian
government's efforts to revitalize the economy.
Misguided policies and deteriorating coffee prices
had caused export stagnation for a full decade and
had generated a critical foreign exchange shortage
despite massive borrowing abroad. Because accele-
rated economic growth depended heavily on increas-
ing import capacity, the Castello Branco government
(1964-67) quickly initiated new export policies.
These policies have been maintained and even
strengthened, with excellent results, by Presidents
Costa e Silva (1967-69) and Garrastazu Medici
(inaugurated in October 1969). The weakening world
coffee market and the threat of new trade restric-
tions in the United States and other countries
nevertheless raise the question of whether export
expansion can continue supporting Brazil's economic
growth so strongly. This memorandum reviews the
program devised to diversify and otherwise enlarge
exports, examines its results thus far, and assesses
export prospects over the next few years.
Pre-Coup Trade Trends
1. Although Brazilian output generally grew
rapidly during the pre-coup decade, export perform-
ance remained extremely poor and eventually inhib-
ited the advance. From 1954 to 1963, while gross
Note: This memorandum was prepared by the Office
of Economic Research and coordinated within the
Directorate of Intelligence.
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domestic product rose by about 75%, exports fell
by 10%, from $1.56 billion to $1.41 billion.
Export earnings remained heavily dependent on
coffee and other traditional commodities such as
cotton, sugar, and cocoa because the Kubitschek,
Quadros, and Goulart administrations followed in-
ward-oriented policies that neglected and even
penalized sales abroad. Coffee exports held up
well through 1956 but then dropped substantially
as world market prices slumped. Sales of other
major crops also declined. In 1963, traditional
agricultural items still provided more than 80%
of export earnings -- about the same share as in
the mid-1950s -- and coffee alone continued to
provide almost 55% of the total.
2. Coffee exports were hurt not only by the
sharp price drop that began in the mid-1950s, as
world production outran consumption, but also by
Brazil's efforts to manipulate world coffee prices.
The average realized price of coffee exports fell
from 55 cents a pound in 1954 to 29 cents in
1963 -- each one-cent drop typically costing some
$20 million in annual export earnings. In an
effort to support the world price, Brazil periodical-
ly withheld coffee from the market even though its
internal price supports were stimulating output.
Coffee exports in several years were only 13-14
million bags (of 132 pounds each) compared with a
long-term average of about 17 million bags, and the
government had to buy and maintain large stocks at
considerable cost. In trying to influence world
supply and prices, Brazil spurred production in
competing countries and caused its market share
to drop from about 50% in 1954 to only 40% in 1963.
3. Manufacturing output grew rapidly during
the pre-coup decade, rising from 21% to 27% of GDP,
but little of the gain was exported. Government
policy focused on import substitution and on meet-
ing the growing demand within the relatively large
domestic market. The problem was that protecting
local manufactures permitted costly, uncompeticive
production to develop in various industries, and
the persistent and increasing inflation -- coupled
with lagging exchange rate devaluations -- created
an over-valued currency that made exports unattrac-
tive even to efficient plants. While exports of
nontraditional agricultural commodities and of
minerals more than doubled despite various prob-
lems, their combined value was only $146 million
(10% of total exports) in 1963.
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4. Export difficulties during 1955-63 even-
tually had serious economic consequences even though
output was boosted substantially and industriali-
zation limited demand for imports, which remained
below the 1954 level. The current account deficit
ranged between $250 million and $520 million
throughout most of the period because of continuing
trade deficits, large interest payments on foreign
debt, and sizable freight and insurance costs (see
Figure 1). To Cover the imbalance, Brazil incurred
$1.4 billion in medium- and long-term debt and re-
duced net foreign exchange reserves from a high of
roughly $325 million to $20 million. During
1960-63, continued sluggish export performance
necessitated foreign loans of more than $600 mil-
lion, caused a huge jump in commercial arrears,
and forced several major reschedulings of short-term
foreign debt. In addition, the foreign investment
BRAZIL: BALANCE-OF-PAYMENTS INDICATORS
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climate was hurt by restrictions on profit remit-
tances and capital repatriation and by expropria-
tion actions. As political and economic conditions
worsened in the early 1960s, the Goulart administra-
tion sought popular support by blaming foreign in-
vestors and ultimately expropriating several US
mining and utility holdings. By early 1964, the
import level seemed unsustainable because reserves
were almost exhausted, capital inflows had ceased,
the debt service burden remained very heavy, and
the international financial community considered
Brazil a bad crer'it risk.
Export Promotion Under the Military Governments
5. After Goulart was overthrown in March
1964 -- largely because of the military's concern
over growing Communist influence and the economy's
condition -- the junta headed by former Marshal
Castello Branco quickly set about overhauling
economic policy. Castello Branco relied heavily
on civilian advisers in deciding what to do. The
Minister of Planning, Roberto Campos, an economist
who took a traditional approach to solving economic
problems, was particularly influential. To curb
the then-rampant inflation and restore more satis-
factory economic growth rates, Campos advocated
financial austerity, more carefully planned public
investment, and a stronger role for the private
sector than Goulart had envisioned. The new program
was designed in various ways to raise exports sub-
stantially -- an obvious condition of its success.
The measures then adopted generally have been main-
tained and, in some ways, broadened by the two suc-
ceeding administrations.
6. Although favorable world commodity prices
played a part, the government's policies have con-
tributed greatly to Brazil's impressive export
growth since 1963. Exports were promoted through
considerably increased investment in farm-to-market
roads, railroads, and port facilities as well as
storage capacity. Export potential also was enlarged
by scheduling and supporting expansion of certain
semi-independent state enterprises, particularly in
the iron and steel industry.
7. The government also employed various fiscal,
credit, and other indirect measures to stimulate
IAL
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output and channel more of it into exports. One
of the most important steps was establishing a
more realistic exchange rate and making it more
broadly applicable. A large devaluation in June
1964 improved the exchange rate, but high infla-
..tion rates and long intervals between further de-
valuations continued to hamper exports in the mid-
1960s. This handicap was reduced with the intro-
duction in August 1968 of a "crawling peg"
exchange rate system, under which small adjustments
have been made every few weeks to reflect domestic
price changes.* Although these devaluations have
not fully offset the rise in internal prices, they
have-been sufficient to keep Brazil's exports
fairly competitive, since prices also have been
rising significantly in foreign markets. In 1970,
Brazil's devaluations totaled about 14%, compared
with an estimated 19% rise in internal prices.
Growth of Exports
8. Favorable trends in all major export
categories during 1964-70 almost doubled Brazil's
revenues, which increased from $1.41 billion to an
estimated $2.73 billion (see the table and Figure 2).
The average annual increase of 10% was the highest
in South America, except for Bolivia (which had
large gains in tin, antimony, and oil revenues).
Brazilian exports in 1970 of $30 per capita were
second only to Venezuela's. In total export value,
Brazil surpassed Venezuela to become Latin America's
leader, whereas its earnings were only half the
size of Venezuela's as recently as 1962.
Manufactures and Minerals
9. The most striking export gain has been in
manufactured goods, which earned an estimated $450
million in 1970, compared with $49 million in 1963.
Brazil's exports of manufactures are now by far
the largest in Latin America, and the per capita
value of about $5 is second only to Argentina's
$8. The products sold are quite varied. Although
processed agricultural and forest products still
make up a large share of these exports, significant
* For details, see ER IM 70-171, Brazil, Chile,
And Colombia: Experience With "Crawling Peg" Ex-
change Rates, December 1970, CONFIDENTIAL.
CONFIDENTIAL
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Brazil: Value of Exports, by Product Groups
Million US $
1970
1964
1965
1966
1967
1968
1969
Estimated
Main non-traditional
agricultural products 45
41
106
138
92
138
134
222
n
Corn 30
3
28
32
22
57
33
78
O
Beef (chilled and froze") 5
11
24
20
7
20
43
50
Ri
N
l
N
l
24
33
4
21
7
8
Z
ce
eg
.
eg
.
Soybeans and meal 7
3
15
28
40
25
29
69
Wool 3
24
15
25
19
15
22
17
Z
a'
Other agricultural products
(mostly traditional
exports)
406
375
412
488
453
518
726
685
r
Cotton (raw)
114
108
96
111
91
131
195
153
Sugar
63
33
54
81
80
102
115
118
Cocoa
52
46
41
72
85
73
137
104
Sisal 36
38
25
23
16
17
16
15
Tobacco 24
28
26
22
20
19
27
29
Castor oil
18
24
27
22
23
36
45
36
Other items
99
98
143
157
138
140
191
230
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 Brazil: Value of Exports, by Product Groups
(Continued)
Million US $
1970
1963
1964
1965
1966
1967
1968
1969
Estimated
Minerals
101
107
144
143
132
145
183
248
Iron ore
70
81
103
100
103
105
150
210
Manganese ore
25
21
29
27
14
24
17
22
Other
6
5
12
16
15
16
16
16
Manufactures
49
91
154
151
203
201
283
450
Other exports a/
57
56
72
57
69
113
163
175
Total
1,406
1,430
1,595
1,741
1,654
1,890
2,302
2,730
a. Including forest products, seafoods, and various unidentified items.
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BRAZIL: VALUE OF EXPORTS
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sales of machinery and equipment, iron and steel
products, chemicals, and textiles have been
developed, as indicated by the Appendix and the
following tabulation:
Commodity
Million US $
1968
1969
Soluble coffee
23
33
Other foodstuffs and
beverages
30
36
Wood products
12
23
Chemical products
26
31
Machinery and equipment
41
60
Iron and steel products
21
29
Cotton and jute textiles
9
10
Miscellaneous items
39
61
201
283
10. The government offered various inducements
and aids for such exports. Export earnings from manu-
factured items were exempted from income taxes, and
some state value-added taxes were abolished. Imports
needed to produce exports were exempted from import
surcharges and the requirement of prior deposit of
import payments. In addition, tariff levels were cut
substantially to introduce an element of competition
and to improve productive efficiency. These tariff
cuts also had the aim of encouraging trade concessions
from other members of the Latin American Free Trade
Association (LAFTA). To provide much-needed export
financing, the government established the Special
Industrial Financing Agency (FINAME), which is
supervised by the National Development Bank. The
red tape involved in exporting was sharply reduced
by the new National Council of Foreign Trade, which
replaced numerous agencies and became the central
authority in trade matters. According to some
businessmen, this was perhaps the government's
most important single move to boost exports.
11. Government investment was particularly
important in expanding exports of iron ore and
other minerals, which rose by an estimated 146%
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(to $248 million) during 1964-70. Most of the
iron ore exported comes from large, rich deposits
in the state of Minas Gerais. By far the largest
enterprise exploiting these deposits is the Com-
panhia Vale do Rio Doce (CVRD), which is 90%
government-owned. As CVRD expanded rail, storage,
and port facilities, it was able to raise its
iron ore exports from 7 million metric tons in
1964 to an estimated 21/ million in 1970. Now one
of the world's largest iron mining operations,
CVRD accounts for more than 80% of Brazil's iron
ore exports.
12. After fluctuating between $705 million and
$775 million for several years, coffee earnings
grew impressively in 1969-70, making a good export
record even better. The estimated 17% increase
in 1970 was primarily the result of a sharp price
rise set off by a severe frost in Brazil in August
1969. Considerable damage to coffee trees -- and
the government's skill in exaggerating the threaten-
ed supply shortage -- prompted importers to build
up coffee bean inventories in anticipation of
higher prices. In the ensuing scramble, which the
government helped along by holding deliveries 10%
below its international quota despite ample stocks,
Brazil's average realized price rose to 42 cents a
pound in 1970 compared with 33 cents in 1969.
Coffee export earnings accordingly jumped by an
estimated $137 million, to $550 million -- the
highest level in 14 years (see Figure 3).
13. The effects of Brazilian coffee policy on
export earnings in 1964-70 are very difficult to
sort out and, in any case, should be judged in con-
junction with domestic goals. During the past
three years, coffee output has fallen below the
basic domestic and export demands of 7-8 million
and 17-18 million bags, respectively, and coffee
stocks have declined substantially, to perhaps 30
million bags. Production declined partly because
about one-fourth of Brazil's 3-3/ billion coffee
trees were eradicated to bring supply into better
balance with demand. in addition, Brazil was
troubled with frost and drought in 1967-69. Although
other coffee producers have been eager to make up for
any deficiencies in Brazil's exportable supply, the
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severe 1969 frost gave world prices a strong push,
aided by importers' psychological reactions. At
the same time, the eradication program and three-
year run of poor weather -- together with the recent
discovery of rust in some marginal coffee growing
areas -- reinforced the government's agricultural
diversification program. Furthermore, in channeling
a larger share of coffee export proceeds to the
Treasury, the government obtained additional
resources for export promotion in other fields.
14. As the world's largest coffee exporter,
Brazil tried during much of the period to support
world prices by holding its deliveries below the
International Coffee Agreement (ICA) quotas. Mot
observers agree that this policy helped to prop
up prices during 1964-67 -- perhaps exerting as
much stabilizing influence as the ICA mechanisms --
and contributed to the sharp rise in 1970. The
cost of the policy was further erosion of Brazil's
world market position because it gave competing
producers the incentive and opportunity to expand
exports. Although axport volume has risen since
the mid-1960s, Brazil's share of annual world
coffee exports has amounted to only 30%-35% since
the coup, compared with 40% in 1963.
15. Whether Brazil significantly increased its
coffee export earnings by holding back deliveries
is arguable. If it had maintained a market share
of about 39% by regularly shipping its full ICA
quota, Brazil could have duplicated its foreign
exchange earnings during 1964-70 at coffee prices
averaging one-fifth less than those actually
experienced. Even to maintain a 17 million bag
export volume in 1970, Brazil had to undercut the
high prices that it had been striving for. In
October, its coffee sales fell to about one-third
of normal because Central American producers cut
prices to fill the extra ICA quotas established
the previous month at the insistence of major
importing countries. By offering special, under-
cover rebates to selected customers, Brazil boosted
its export volume by more than 2 million bags late
in the year.
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Other Agricultural Products
16. Like Mexico a decade or so earlier, Brazil
has strengthened its export position by markedly
diversifying agricultural sales. Although coffee
is still by far the largest single export, its
earnings in 1969-70 were equalled by the combined
:revenues from other agricultural products. Export
growth for non-traditional commodities has been
especially notable; sales of the five main items --
corn, beef, soybeans, wool, and rice -- reached
about $222 million in 1970 compared with a pre-
coup level of only $45 million. A broad price
support program helped to create exportable sur-
pluses of such products, which previously were
produced almost solely for the domestic market.
In addition, the government removed quantitative
export restrictions on farm products. In taking
these steps, the government abandoned earlier price
and trade policies aimed at pleasing urban workers
and providing cheap inputs for industry.
17. Exports of other agricultural commodities --
mainly traditional items such as cocoa, cotton,
sugar, and castor oil -- also have done fairly well.
Total exports of these items have increased by about
69%, to an estimated $685 million, since the coup.
Exports of traditional commodities other than cof-
fee have benefited from government measures to
support prices, to make credit more widely available,
to improve farming practices, and to make additional
land available through coffee tree eradication and
road improvements.
Changing Structure of Exports
18. Export diversification thus has proceeded
very favorably since the military took over.
Despite record coffee earnings in 1970, the crop's
contribution to exports dropped to only 35% com-
pared with 53% in 1963. The main gain has been in
manufactured goods, which expanded from 3% to 16%
of exports. Minerals also increased their share,
from 7% to 9%. Although the growth in exports of
traditional agricultural commodities other than
coffee (from $406 million to some $685 million)
was less rapid than total exports, the striking
sales expansion of non-traditional agricultural
products raised their share in the total (see
Figure 4).
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BRAZIL: EXPORT DIVERSIFICATION
Other Exports
Main Nontraditional
;::Other , manufactures
Alrlcutursl Predools ! 11%
(Mostly Traditional)
Main Nontraditional
Atrlcultural Products
1%
Mlnerala
1%
East
Europe
1%
EEC
te%
Other ,%
EFTA
Japan
1%
LAFTA
17%
Total Exports 1969 Manufactured Exports 1999
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7.9. Exports also have become more diversified
geographically, reflecting reduced dependence on
the US market. Although the United States remains
Brazil's best customer by far, its share of
Brazilian exports dropped from 38% in 1963 to 26%
in 1969. Growing shares of exports went to Latin
America, the European Economic Community (EEC) --
especially West Germany -- and Japan, which is an
important buyer of iron ore. Argentina, Chile,
Uruguay, Mexico, and other Latin American countries
have become particularly important markets for
manufactures, taking 37% of 1969 deliveries. But
Brazil also is competing effectively in the United
States in some manufacturing lines -- for example,
cotton textiles, sheet steel, and certain types
of machinery and parts. The US share of Brazilian
exports of manufactured goods in 1969 was larger
than for deliveries in general (see Figure 4).
Broad Economic Impact
20. Impressive export performance enabled
Brazil to increase imports greatly and to register
trade surpluses in five of the past seven years.
With a gain of approximately 75% in 1964-70 (from
$1.5 billion to $2.6 billion), imports showed the
first pronounced upward trend since the early
1950s. Imports of capital equipment and industrial
inputs gr'aw even faster than other categories, to
the benefit of the development effort. At the
same timeb, Brazil established trade surpluses of
perhaps $175 million in 1970 and at least $1.1
billion during the entire 1964-70 period. Current
account deficits persisted -- except possibly in
1970 -- because of annual net factor payments
(largely interest) of some $200-$300 million and
other service outlays. Brazil's good economic
record and business climate, however, helped keep
capital inflows higher than current account def-
icits, and net reserves rose from $20 million in
1963 to $424 million in 1969 and probably climbed
to nearly $1 billion in 1970.
21. Surging exports and imports unquestionably
have been major factors in Brazil's broadly success-
ful economic program since the military takeover.
Production for export and growing import capacity
helped considerably in raising the average econom-
ic growth rate to at least 7% (the official claim
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is 9%) for 1968-70, Brazil's best record since
1960 and one of Latin America's highest rates.
Increased imports of capital goods and industrial
materials supported an expansion of output that
helped in reducing the annual inflation rate from
about 90% in 1964 to 20%-25% in recent years.
Growing export orientation strengthened investment
incentives and played a part in the gradually'rising
rate of capital formation. It also exerted pres-
sure for greater productive efficiency and improved
product quality. Both directly and indirectly,
the export drive created jobs, broadenec the
domestic market, and improved the balance among
economic sectors and regions. At the same time,
export expansion -- and the economic recovery pro-
gram generally -- required a temporary, small
decline in Brazilian workers' real wages.
Prospects
22. Export prospects for the next several
years are generally favorable, but Brazil can
hardly expect to match the average yearly 10% gains
of 1964-70. If the military retains power, as
seems highly likely, policy probably will remain
favorable to exports. But even under military-
dominated governments, the hard-line wage policy
of recent years probably will be relaxed and a
growing share of resources channeled to popular
welfare, partly at the expen,e of exports. Even
with continued export-oriented policies, expansion
of foreign exchange earnings faces several possible
problems, including weakening commodity prices
and foreign import restrictions on Brazilian manu-
factures.
23. The most promising field for export expan-
sion in the early 1970s is minerals -- primarily
iron ore but also including tin, manganese, and
bauxite. CVRD and other companies have scheduled
investments of about $500 million during 1969-73
in iron ore mining and pelletization, which will
boost exports to an estimated 50 million tons, or
more than double the 1970 level. Much of this
ore has already been earmarked for Japan under
long-term contracts. Private investments of some
$50 million that are now in process should provide
$40 million-$60 million in tin exports and approx-
imately $10 million in bauxite exports by 1973-74.
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Altogether, these efforts are expected to raise
minerals. exports from an estimated $248 million
in 1970 to about $450 million in 1973 or 1974.
If plans are fully realized, minerals probably
will-be the fastest growing export category in the
early 1970s. Minerals exports will jump even more
if the announced plans of the US Steel Corporation
and the Brazilian government jointly to develop
large iron ore deposits in the Amazon basin can be
realized within the next several years.
24. In expanding exports of manufactures,
Brazil almost certainly will be unable to sustain
the estimated 24% annual growth rate of 1966-70,
much less the average annual gains of 37% that have
been piled on the small 1963 base. What can be
accomplished depends on various factors, including
(a) administration of the "crawling peg" exchange
rate system, (b) protectionist trends abroad, in-
cluding the LAFTA area, (c) the fate of proposed
tariff preferences for less developed countries,
(d) the climate for foreign investment in manu-
facturing, and (e) wage policy, easing of which
could increase export prices and cut into export
availabilities. To keep its manufactures competi-
tive abroad, the government need not fully reflect
domestic inflation in its mini-devaluations. But
it will have to maintain the general policy of
preventing its export prices from. rising faster
than prices in the developed countries.
25. in Brazil's view, the greatest threat to
exports of manufactured goods is growing protec-
tionism in the United States and other major mar-
kets. In the dispute over exports of soluble
coffee, Washington and one element of the US
coffee industry charge that Brazil's tax practices
unfairly favor domestic processors, while Brazilian
interests say this is just another effort to pro-
tect US business. Although exports of soluble
coffee to the United States amounted to only $26
million last year, the issue has inflamed nationa-
list sentiment in Brazil and poses a possible
threat to the ICA. Textile exports, which reached
$9 million during the first quarter of 1970 (double
the 1969 quarterly average), also have run into
resistance because most of them are going to the US
market. Although the United States and Brazil have
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negotiated a "voluntary" quota agreement for cotton
textiles, strong commercial pressures in the United
States remain for mandatory limits on imports of
other textiles and shoes.
26.. In addition, Canada has moved to similarly
restrict imports of Brazilian cotton yarn, and
.Brazilian beef exports to the United Kingdom may
suffer from new restrictions. Brazilians also are
worried that their rapidly growing exports to LAFTA
countries may provoke protectionist reactions.
Argentina, for example, expressed concern about its
$35 million trade deficit with Brazil in 1969 and,
in the tariff reductions associated with its 1970
currency devaluation, did not fully preserve pref-
erences for LAFTA members. Despite Brazilian pro-
tests that this action violated the LAFTA treaty,
Argentina has not yet modified it.
27. Prospects for expanding coffee export
revenues encompass many complexities and uncertain-
ties; on the whole, they do not se,.!. 2avorable,
although average revenues perhaps can be held near
the 1970 level. World coffee demand probably will
grow only slowly, if at all, over the next several
years.. Brazil thus can expect little increase in
its exports within the ICA quota system. Its
relatively small nonquota exports to Communist
countries probably will increase, but not greatly.
Moreover, Brazil may be tempted at times, as in the
past, to ship less than its full ICA quota in an
effort to shore up prices. Under Finance Minister
Delfim Netto, the country has shown greater concern
since 1967 about defending its market share. Bra-
zilian officials still feel, however, that importers
acquire too much power over prices if allowed to
build up substantial stocks. Consequently, Brazil
favors a cutback in ICA quotas to prevent such a
buildup and to avoid a price war aimed at preserving
its share of world exports.
28. Coffee price increases beyond the 1970 level
seem unlikely, unless bad weather or blight sub-
stantially reduces output. At present, producing
countries' stocks are ample, importers' inventories
are relatively high, and prices are near the level
where demand begins to suffer. Moreover, ICA quotas
for the 1970/71 market year were set above world de-
mand to put downward pressure on prices. At the same
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 Approved For Release 200603NS.F1c 5ATj0875RO01600040035-9
time, other factors will help to keep prices higher
than in the late 1960s -- at least for a year or
two. For the 1970/71 coffee: year, the ICA's price
floor of 46 cents a pound (an average for the four
major coffee types) is 30% above the average of
the two preceding years. The present price floor --
having been accepted as reasonable by major import-
ing countries -- seems unlikely to be lowered. The
ICA's future role remains uncertain, however, be-
cause of the possible US withdrawal from the agree-
ment if the dispute over soluble coffee is not
settled. In avoiding precipitate price declines,
Brazil has one other strong advantage: perhaps
two-thirds of its prospective exports are covered
by three-year contracts that it has won by offering
price concessions.
29. Although exports of agricultural products
other than coffee will depend partly on weather
and world prices, prospects are for continuing sub-
stantial expansion. President Medici recently has
reordered national priorities to give more attention
and resources to agricultural development. The
government already has initiated a National Plan
for Integration (for opening the Amazon Region),
established federal tax incentives for agricultural
investment, and obtained the elimination of state
taxes on fertilizer and farm machinery. Rising
domestic demand, however, fed by a booming economy
and possible increases in workers' purchasing power,
could absorb much of the growth of output.
Conclusions
30. Brazilian export performance since 1963
has been among the best in Latin America and is
one of the government's most creditable economic
achievements. Estimated earnings of $2.7 billion
in 1970 were almost twice the 1963 level, and exports
were much more diversified than ever before, in terms
of products and markets. The most impressive gain was
in sales of manufactured goods, which jumped from $49
million to an estimated $450 million. Expansion of
iron mining brought another large gain, and high prices
pushed coffee earnings to a record of about $950 mil-
lion in 1970 even though Brazil's world market share
was much lower than in the early 1960s. Exports of
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 Approved For Release d?j%M$W-MjVLT00875R001600040035-9
other traditional agricultural commodities and of
several nontraditional ones (such as corn, beef,
and soybeans) also took large strides; collectively,
they have recently matched coffee export earnings.
Brazil now has the region's largest exports and, on
a per capita basis, the second largest total earnings
and exports of manufactures (after Venezuela and
Argentina, respectively).
31. The successive post-coup governments set the
stage for these gains by adopting a balanced policy
aimed at financial stabilization with moderate
economic growth and by taking specific steps to
stimulate exports. Among the latter were increased
public investment in transportation and storage
facilities, expansion of state industrial enter-
prises with export potential, introduction of
"crawling peg" exchange rates that regularly take
account of inflation, and various fiscal and credit
measures to stimulate private, export-oriented in-
vestment. This program paid off well, permitting
substantially increased imports and contributing
to a marked recovery in foreign exchange holdings.
The export drive also played a part, directly or
indirectly, in the acceleration of economic growth
and slowing of inflation.
32. Under the military-dominated governments
that seem likely to remain in power, Brazilian
policy promises to remain broadly favorable to
exports during the next several years. It is doubt-
ful, however, that the 10% growth rate of 1964-70
can be equaled (or even closely approached) and a
comparable impetus given to the economy's further
progress. Exports of minerals and of agricultural
products other than coffee should continue to do
well. But coffee exports remain highly vulnerable,
and recent experience suggests that Brazil cannot
both exert significant upward pressure on prices
and preserve its world market share. Average
coffee export values in the early 1970s probably
will not appreciably exceed the 1970 level and
could fall below it. Although substantial invest-
ments seem likely in export-oriented manufacturing
plants, exports of manufactured goods can scarcely
be expected to maintain the high rate of recent
years even if threatened protectionist measures
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are not very damaging. If the government relaxes
its wage restraint policy, export growth for
manufactures and agricultural products other than
coffee could be slowed by rising prices and diver-
sion of supplies to the domestic market.
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CONFIDENTIAL
Brazil: Composition of Manufactured Exports
Million US $
1968
1969
Processed forest products
16.2
30.8
Of which:
Wood veneer sheets
7.4
16.6
Celotex and other artificial wood
3.0
3.2
Chemical wood pulp
1.4
3.2
Foodstuffs and beverages
52.4
68.6
Of which:
Processed beef
12:6
12.8
Soluble coffee
22.8
32.8
Fruit juice
11.8
11.1
Flours and starches
1.5
3.1
Chemicals and pharmaceuticals
26.4
30.6
Of which:
Menthol
10.5
10.1
Peppermint oil
3.0
3.4
Essential oils
3.0
4.1
and vehicles
Machiner
41.1
60.3
y
Of which:
Electrical machinery and apparatus 6.0
8.9
Punching and tabulating machines 7.6
9.3
Typewriters 3.2
6.2
Machine tools and metalworking
machines 2.4
3.1
Sewing machines 2.0
3.1
Earthmoving and construction
equipment 2.4
4.4
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Million US $
Other manufactures
Of which:
Total
1968
1969
64.9
93.0
1.8
4.2
7.8
9.7
6.3
5.9
5.8
5.9
7.2
5.5
7.0
13.6
201.0
283.3
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Common cotton fabrics
Iron and steel bars
Iron and steel plates
Bulbs for electric lamps
Jute textiles
Steel plates and sheets, coated