This paper is the first draft of section 2 of a long chapter on The Economy of
Brazil, 1928-1980 to be included in volume 11 of the Cambridge History of Latin
America edited by Leslie Bethell. The 1928-1980 chapter shall include a first section
on structural change between 1928 and 1980. The three following sections will cover
economic policy in a chronological perspective covering 1928-1945, 1945-1964 and
1964-1980.
The striking feature of the Brazilian economy during the first Vargas period
was its ability to recover quite rapidly from the consequences of the ‘great depression’.
To the conventional expenditure-switching policies related to a massive devaluation of
the mil-réis must be added the reinforcing effects of exchange and import controls. But
the important role of previously installed capacity in explaining the timing and strength
of recovery underlines the limits of structural change which occurred in the 1930’s.
The structural characteristics of Brazilian trade, and more specifically the trade
surplus with the United States, increased Brazil’s bargaining power in the 1930’s as,
especially after the United States commitment to multilateralism after 1934, there was
a marked unwillingness by the United States to use its commercial leverage to
constrain Brazil to adopt specific policies which would favour US interests. Brazil
exploited this advantage in relation to many aspects of its policies. Perhaps the most
important was the ambiguity of its stance on compensation trade with Germany. There
was much of a snowball effect in the position concerning the Brazilian foreign debt
contracted during the Old Republic. It was an achievement to reach a permanent
agreement with creditors in 1943, even if this was eased by the artificial accumulation
of reserves which resulted from the constraints on imports.