The outstanding fact in Brazilian nineteenth century economic history was the great development of coffee production from the 1830s. On the one hand the rapid spread of coffee plantations in the hinterland of the state of Rio de Janeiro consolidated the southward drift of the dynamic nucleus of economic activity begun with the gold rush of the eighteenth century and gave birth to a class of wealthy slave-owning planters who became the political mainstay of the imperial regime established after Brazil’s political independence from Portugal in 1822. On the other hand it defined the pattern in which the country was to be integrated in the new international division of labour emerging during the Pax Britannica. Its main characteristics were the growth of the new staple’s exports to the United States — which towards the end of the century would become Brazil’s largest market — and other dynamic coffee-consuming countries such as the German States; a great dependence on industrial imports, especially from the United Kingdom, until the decline of British competition and import substitution in cotton textiles and other British industrial staples substantially reduced her share in Brazilian imports in the last decades of the century; and a growing foreign long-term debt in the form of both government loans issued in London for fiscal reasons since political independence through Rothschilds — who became the sole agent for the Brazilian government by the middle of the century — and, later, of public utility company loans, mostly railway loans, which increased substantially from the late 1860s.
Although since 1901 ever smaller coffee crops and the exchange rate stability achieved until 1904 had taken a little of the heat out of the debate on coffee problems, in 1905 unexpectedly large foreign capital inflow and export earnings resulted in upward pressures on the exchange rate which were beyond the powers of Banco da República, to offset.1 At the beginning of the year the bank let the rate float and after two unsuccessful attempts to peg it at higher levels, was finally able to regain control of the market in September and managed to stabilise it at around 30 per cent above its pre-rise level.
The British declaration of war against the Central Powers had two immediate economic consequences for Brazil. On the one hand, there was a break in the credit lines between Brazilian banks and their London correspondents: the former were unable to discount trade bills bearing German endorsements or drawn against goods shipped in non-Allied vessels in London, where the bulk of German-Brazilian trade was financed. On the other hand, there was the temporary but almost complete halt of transatlantic shipping.1 This sudden disruption of foreign trade and payments immediately affected the foreign exchange market, the federal government’s tariff revenue and the coffee industry, just as the period for marketing the 1914 crop was approaching its peak financial demand.
Brazil’s macroeconomic instability in the three years following the return to peace as well as the difficult economic policy problems she faced until the mid-twenties have their roots in the violent worldwide postwar economic fluctuations and the ‘trail of devastation’ which, in the words of the late Professor Joslin, it left throughout Latin America.1
The political tensions generated by the dissent over the 1922 presidential succession between Brazilian regional groups marked the beginning of recurrent strains on the political stability of the First Republic during the twenties. As early as the beginning of 1921, Sao Paulo and Minas Gerais politicians had opened informal talks aimed at placing Arthur Bernardes, then governor of Minas Gerais, at the head of the Brazilian government. Although Bernardes’ candidacy did not find overt opposition from other regional interests, a confrontation over the choice of the vice-president developed between the two leading north-eastern states of Bahia and Pernambuco. When even Pessoa’s direct intervention could not settle the dispute and a third name had to be put forward as the government’s official candidate, ex-President Nilo Peçanha of Rio de Janeiro succeeded in obtaining the support of the now disaffected political cliques of Bahia and Pernambuco plus that of the strong southern state of Rio Grande do Sul in his bid for the presidency, standing as an independent ‘opposition’ candidate.1
The radical economic policy changes of 1924 did not affect the compromises implicit in the formal alliance made between the political establishments of São Paulo and Minas Gerais in 1922. In May 1925, Antonio Carlos went to São Paulo as the government’s envoy and settled the terms of the presidential succession. As the natural outcome, Washington Luis, former Governor of São Paulo, was appointed as the government’s — and the only — presidential candidate in the March 1926 elections, and this was confirmed without much ado at the regional parties’ convention in September.1
The evidence presented in the preceding chapters has an important bearing upon existing interpretative generalisations about the political motivations of economic policy making during the First Republic, briefly reviewed in the Preface to this book. Even though the works by Pelaez and others had the merit of stressing the resilience of orthodox doctrines within influential circles — a rather uncontroversial fact at the time and not only in Brazil — the evidence presented in the present study certainly does not support their strong claim about the permanent orthodox bias of actual economic policies. After its heyday at the time of Finance Ministers Murtinho and Bulhões, which can be conceived as the culmination of a reaction launched by orthodox opinion after the monetary explosion and exchange rate collapse of the early days of the Republic, orthodoxy was always on the defensive, only temporarily regaining enough influence to carry policy proposals through in the mid-twenties, when great external, fiscal and monetary disequilibria recurred. The explanations put forward in the preceding pages for the motives of the adoption of the gold standard in 1906 and 1926 as well as the policies actually followed during, for instance, Epitácio Pessoa and early Bernardes governments can hardly be said to have an orthodox inspiration — notwithstanding public men’s frequent utterances in favour of ‘sound finance’ — and were, in fact, carried out against the views held by the most representative sectors of orthodox opinion.
Winston Fritsch
Backmatter
Metadaten
Titel
External Constraints on Economic Policy in Brazil, 1889–1930
