Brazil - A Period of Sweeping Change, 1930-45
A Period of Sweeping Change, 1930-45
The decade of the 1930s was a period of interrelated political and
economic changes. The decade started with the 1930 revolution, which
abolished the Old Republic (1889-1930), a federation of semiautonomous
states. After a transitional period in which centralizing elements
struggled with the old oligarchies for control, a coup in 1937 established
the New State (Estado Novo) dictatorship (1937-45) (see The
Era of Getúlio Vargas, 1930-54).
To a large extent, the revolution of 1930 reflected a dissatisfaction
with the political control exercised by the old oligarchies. The
political unrest of the first half of the 1930s and the 1937 coup
were influenced strongly by the onset of economic problems in 1930.
The coffee economy suffered from a severe decline in world demand
caused by the Great Depression and an excess capacity of coffee
production created in the 1920s. As a result, the price of coffee
fell sharply and remained at very low levels. Brazil's terms of
trade (see Glossary) deteriorated significantly. These events, and
a large foreign debt, led to an external crisis that took almost
a decade to resolve.
The external difficulties had far-reaching consequences. The government
was forced to suspend part of the country's debt payments and eventually
to impose exchange controls. Excess coffee production led to increasing
interventions in the coffee market. The state programs to support
coffee prices went bankrupt in 1930. To avoid further decreases
in coffee prices, the central government bought huge amounts of
coffee, which was then destroyed. Central government intervention
provided support to the coffee sector and, through its linkages,
to the rest of the economy.
Despite the economic difficulties, the income maintenance scheme
of the coffee support program, coupled with the implicit protection
provided by the external crisis, was responsible for greater industrial
growth. Initially, this growth was based on increased utilization
of the productive capacity and later on moderate spurts of investment.
import-substitution industrialization that occurred especially
during World War I did not lead to industrialization; it became
a process of industrialization only in the 1930s.
The 1930s also saw a change in the role of government. Until then,
the state acted primarily in response to the demands of the export
sector. During the first half of the decade, it was forced to interfere
swiftly in an attempt to control the external crisis and to avoid
the collapse of the coffee economy; government leaders hoped that
the crisis would pass soon and that another export boom would occur.
However, with the magnitude and duration of the crisis it became
clear that Brazil could no longer rely solely on exports of primary
goods and that it was necessary to promote economic diversification.
During the Estado Novo, the government made initial attempts at
economic planning, and in the late 1930s began to establish the
first large government enterprise, an integrated steel mill.
The World War II period saw mixed achievements. By the late 1930s,
coffee production capacity had been reduced drastically, the worst
of the external crisis had passed, and the Brazilian economy was
ready to grow. However, the war interfered with development efforts.
Output increased mainly through better utilization of the existing
capacity but, except for the steel mill, there was little industrial
and infrastructure investment. Thus, at the end of the war Brazil's
industrial capacity was obsolete and the transportation
infrastructure was inadequate and badly deteriorated.
Data as of April 1997