Military Influence on Brazilian Economic Policy, 1930-1945: A Different View Open Access

The commonly held view of the military role in Latin American economic development is that the armed forces have ardently championed industrialization, that they have been “bearers of modernity as represented by industrialization.”¹ Generally speaking, this thesis is an impressionistic one based largely, perhaps, on reading contemporary trends into the past. In the absence of case studies, historians have had to accept that thesis essentially on faith. The present article, a step in the direction of more empirical studies needed to test such assumptions, is concerned with the impact of military demands on policy-making in two key economic issue-areas facing the Getúlio Vargas government during the period 1930-1945: trade and steel.

It is premature to speak of a “standard interpretation” of military influence on Brazilian economic policy during the Vargas era, yet certainly the view offered by John D. Wirth in his recent study The Poiitics of Brazilian Development has to be considered the prevailing one simply because it is the only extensive published statement on the subject. His argument, moreover, has been accepted in toto by other scholars.² Wirth’s focus is on national policies in the areas of foreign trade, steel, and petroleum, the latter being largely a post-war issue. His thesis is that the military was a modernizing force which “exercised great influence on policy at every turn of the political wheel.” The one exception was trade. Here Wirth finds no connection between the military’s requirements and perception of national needs on the one hand, and the commercial program of the government on the other. He mentions armaments only a few times in his fifty-page section on trade, indicating that satisfaction of military demands for equipment was at best an incidental consideration to policymakers.³ Trade policy was not an instrument for industrialization, according to Wirth, and “the Army was not yet prepared to force a decision [on development] as it would in the Estado Novo to obtain a steel complex.” Indeed, the distinguishing feature of policy formulation on the steel question was, by contrast, the major part played by a “forceful, initiating group of Army officers.” Vargas himself “rarely raised new issues, such as building a steel plant.” But “thanks to the Brazilian Army, Vargas and his ministers were under heavy and continuous pressure to produce results” after 1937.⁴

This argument seems internally consistent, for if heavy industry was an urgent demand of military leaders, then they logically would have had little to do with a trade program designed apparently only to maximize exports. Indeed, one would expect to find evidence of military opposition to the government’s policy. And certainly after establishment late in 1937 of a dictatorship dependent upon military backing, one would logically anticipate a change in the government’s trade policy in response to that alleged “heavy and continuous pressure” from military leaders. But the high command did not oppose the government’s trade policy before (or after) 1937, and that policy, as Wirth himself acknowledges, did not change between 1934 and 1939.

How are these contradictions to be explained? The answer is simply that the thesis is wrong. It ignores environmental factors crucial to military attitudes toward national goals, and it rests on erroneous a priori assumptions about military demands during the period. In fact, the evidence shows that the relative influence of military pressure on decisions in the areas of foreign trade and steel was precisely the reverse of that posited by Wirth. The high command took a keen interest in trade policy as a means of satisfying short-term security requirements; commercial objectives and military needs gradually meshed until trade policy became in large part a function of such needs. As for steel, military leaders looked benevolently upon civilian efforts to establish a large-scale industry, and they provided technical assistance. But they did not regard this long-term development project as an urgent necessity and therefore, according to available evidence, did not act as a, much less the, major pressure group for that issue.⁵ This, of course, does not mean that the Brazilian armed forces were not a “modernizing” current, or that they opposed industrialization. It does suggest, however, a need to examine more carefully the role of civilian agents in the implantation of Brazil’s basic industry, and it clearly shows that it is only at his peril that the historian ignores historical circumstances and context in favor of preconceived “models.”

The crucial aspect of policy formulation which must be evaluated in order properly to understand the extent and direction of military demands on national resources in the post-1930 period is the military image of the external environment. Whether or not that image coincided with reality is immaterial—how spokesmen for the armed forces perceived international and national conditions determined their objectives, which in turn shaped their political action.

The most important thing to bear in mind when attempting to sort out the priorities set up by military leaders is that they were convinced from the early 1930s on that another major international war was in the making. All countries, General Pedro de Góes Monteiro warned Vargas in 1934, “are actively preparing for the new conflagration.” Europe was naturally seen as a major focal point of tensions. German rearmament and Italian aggression in Africa in 1935 contributed significantly to Brazilian anxieties. “The international political situation is becoming daily more grave . . .,” the Minister of Navy privately worried early in 1936. Indeed, Hitler’s illegal reoccupation of the Rhineland in March, 1936, meant to officers on the army’s Estado-Maior that for all practical purposes the conflict had begun.⁶

Although understandably less inclined to discuss them publicly, military leaders were even more concerned with developments on the South American continent. The Leticia dispute between Peru and Colombia in 1932-1933 gave rise to a series of incidents on Brazilian borders, and raised in the collective mind of the high command serious doubts about Brazil’s being able to remain neutral and assert its sovereignty without resort to arms. The Estado-Maior was sufficiently uneasy to urge a strengthening of defenses in the northwest and recommend that plans be formulated to meet a possible attack on Brazil. Cessation of hostilities did not completely remove that preoccupation, and military leaders kept an uneasy eye on the disgruntled neighbors, since the struggle could “at any moment” be rekindled.⁷

The bitter and bloody Chaco War (1932-1935) between Bolivia and Paraguay was a source of even deeper anxiety to military planners, whose attention during most of the decade was focused mainly on frontier defenses in the west and south. Border incidents during the war were frequent, and Brazilian shipping on the Paraguayan River was harassed and on at least one occasion subjected to an air attack.⁸ Argentina’s extensive military preparations and alleged designs on Bolivian territory aroused grave suspicion in Rio de Janeiro, where the main fear of the Estado-Maior was that the Chaco conflict might become generalized and Brazil might find itself pitted against Argentina. Even after a year and a half of peace talks, the Chaco situation was still cause for “grave apprehension” in high military circles.⁹

The conviction of military leaders that power and self-interest were the determinants of foreign policy behavior in an increasingly turbulent world society made even more ominous their image of present international conditions. A nation’s voice, asserted the navy minister in mid-1932, was listened to only “in accordance with the cannon which it represents, whether this please or displease the theorists of pacifism.” In 1935 Minister of War Góes Monteiro agreed that history and the “present conduct of some overseas states” vindicated the view that “no diplomacy, however brilliant and astute, can succeed without the decisive support of arms.” Both of his successors made similarly pessimistic statements in annual reports to Vargas.¹⁰

The consequence of this image of the world scene was a feeling of being increasingly endangered, as defense measures taken in response to South American quarrels reflected. Privately and publicly military leaders voiced their concern. In the midst of “worldwide agitation, this Brazilian comer of the earth heightens curiosity and awakens greed,” wrote General Pantaleão da Silva Pessôa, head of the Casa Militar. The Estado-Maior by 1936 was certain that “the ambitions and claims of Germany, Italy and Japan, propagandists of a new division of lands, constitute a latent danger for Brazil.” Returning from a tour of observation with the Italian army in Africa, General Waldomiro Lima cautioned fellow officers in 1937 that “Brazil is beginning to arouse the greed of the desperate,” a warning which Goes Monteiro, now Chief of Staff, subsequently repeated.¹¹

Given a generalized perception of threat within the high command—a perception shared by key civilian officials—the army’s self-image would determine the demands it would place on governmental resources. That self-image, when placed in the context of international politics, was disquieting. Deficient communications and transportation services; a long, irregular coastline; large portions of the national territory uninhabited or sparsely settled;¹² a population characterized by illiteracy and poor health;¹³ political and economic instability—these conditions weighed heavily on the minds of military leaders as they contemplated Brazil’s immediate defense capabilities.

The civil war that broke out in July 1932 when the state of São Paulo took up arms against the central government laid painfully bare the inadequacies of the federal armies. A month in the field was enough to lead Góes Monteiro, commander of the main federal army, to caution Vargas to prepare himself for a “persevering and drawn-out war” because of deficient supplies and equipment. Shortly after the conflict ended, Minister of War Espírito Santo Cardoso, nonplussed by the recommendation of Finance Minister Oswaldo Aranha that the army’s budget proposal be slashed, reminded him that the army had found itself on the outbreak of war “without troops, without armaments, without munition, without matériel.” The bitter consequence was that most of the hastily organized battalions demonstrated “total inefficiency” and suffered “fantastic casualties.”¹⁴

Following victory over the rebels, army chiefs continued to protest with undisguised concern the paucity of the tools of war at their disposal. A regional commander newly arrived at his Pernambuco post found the Seventh Region at “rock bottom” insofar as physical facilities and equipment were concerned, and he made “bitter complaints” to Vargas when the president visited the area months afterward. “There are no quarters, there is no matériel, there are . . . no officers,” moaned the regional commander in São Paulo, while the chief of staff found it “sad, but necessary” in 1934 to draw attention to the fact that the army not only could not mobilize rapidly, but that there was little to mobilize. This situation did not escape foreign experts. The American military attaché judged the antiquated coastal artillery defenses at Rio de Janeiro and Santos to be “of little use against modern ships.” And in 1935, when Goes Monteiro created a public furor by ridiculing national defenses, the attaché wryly observed that the inadequacy of Brazil’s armaments “is no secret and long has been patent to even casual observers.”¹⁵

The navy, too, lived “eternally in hope of better days.”¹⁸ Discontent was serious in naval circles, especially since both Chile and Argentina possessed larger fleets, the latter having more than twice the total tonnage of the Brazilian navy.¹⁷ A detailed analysis of the fleet in 1932 led the chief of naval operations to the despairing conclusion that it consisted of nothing but a “heap of aged vessels.” In mid-1934 the fleet had no ship that could launch mines nor did it have any operative torpedoes. The single new addition to the navy in two decades had been the submarine Humaytá, purchased in 1928 and in such “precarious condition by 1935 that it had to be withdrawn from maneuvers that year. A report on the destroyers found them to be in “very bad” shape and warned that even firing the heavier guns during the exercises was ‘absolutely inadvisable” because of the vessels’ doubtful structural resistance. Reflecting the despondency of naval leaders was the minister’s candid warning to Vargas early in 1936 that the fleet had reached a degree of “decreptitude and precariousness” that rendered it incapable of effective defensive action.¹⁸

With the nation perceived to be threatened, and with defense capabilities patently deficient, the major and immediate goal of the Brazilian high command throughout the decade and into the war was acquisition of armaments and ships. The armed forces faced two fundamental problems, said Goes Monteiro in 1934: insufficient matériel and the quality of human resources. Since national industry could not provide the necessary equipment, the government would have to make purchases abroad, as he admonished Vargas in a confidential memorandum outlining the terms on which he would accept the portfolio of War. The army’s lack of armaments was one of the “constant preoccupations” of General Pessôa who, like his friend Goes Monteiro, stressed war matériel as the army’s most urgent need. So vital was the problem to army planners that a special committee set up in 1935 under General Pessôa, now chief of staff, to draw up a long-term plan for remodeling the army, decided at its first meeting that it was useless to consider enlarging or reorganizing the army until it possessed adequate equipment.¹⁹ In ensuing years the need for armaments remained the major theme of official expositions of the army’s situation.²⁰

Military unrest over the inadequate material conditions of the armed forces, and translation of that discontent into pressure for matériel, became a key component of decision-making on foreign trade policy. Brazilian authorities faced a decisional problem since the methods championed by the major trade partners, Nazi Germany and the United States, were mutually antagonistic. The former adopted a variety of restrictive bilateral practices that clashed with the “liberal” program of the Roosevelt government, based on most-favored-nation treatment. Berlin was especially successful in Brazil and other South American countries with such export-promotion devices as clearing agreements and import payments in special currency, known popularly as Aski or compensation marks, which could be used only to purchase goods from Germany.

In simplest terms, the policy adopted by the Vargas government was one of playing off the two powers against each other. Brazil signed a reciprocal agreement with Washington in 1935 embodying most-favored-nation concessions, yet at the same time it traded with the Third Reich on a bilateral basis involving discriminatory procedures that contravened provisions of the Brazilian-American treaty. Under a confidential “informal” arrangement of November 1934 between the Banco do Brasil and the Reichsbank, and a secret exchange of notes in June 1936, commerce between Brazil and Germany expanded rapidly, and Brazil quickly replaced Argentina as Germany’s leading market in Latin America. This expansion occurred despite continual objections from Washington that Brazil was not living up to its agreement with the United States, a fact which influential Brazilian policy-makers privately admitted.²¹

The opening salvo in the commercial battle between Berlin and Washington was fired in mid-1934, when Congress passed the Reciprocal Trade Agreements Act and Berlin dispatched a special delegation to South America to test the appeal of its trade program. In the fall of that year Brazil began negotiations with both countries. The merger of defense needs and commercial policy was already beginning to take shape, as civilian officials were by now keenly alive to the resentment in high military circles over the lack of matériel.

Vargas by this time was in a delicate situation. He had pledged himself to satisfying the pressing needs of the armed forces; indeed, his appointment of Goes Monteiro as minister of war in January 1934, given the General’s terms for acceptance, represented in effect a pact between Vargas and the high command for outfitting the services.²² He had signed decrees authorizing credits, hoping that the funds would materialize before bills had to be paid. But the financial picture was bleak; prices of foodstuffs and raw materials continued to decline, exports were falling off, and commercial arrears were piling up.²³ Yet the military ministers were insistently requesting substantial budget increases and special credits, and following the return to constitutional government in July they both pressed Vargas in writing about the plight of the armed forces.²⁴ Friction between civilian and military administrators over funds became common knowledge in diplomatic circles. Given the shortage of foreign exchange and the budgetary deficit, the British chargé noted, Vargas would “need all his adroitness to steer a smooth course” between demands of the treasury and the military.²⁵ The response of the administration to German trade overtures showed that civilian leaders were now wondering whether that “smooth course” might not be paved with compensation marks.

Military pressure was, of course, not the sole determinant of Brazil’s readiness to join in Berlin’s trade program. Producers of a variety of raw materials and foodstuffs had surplus stocks, and the German market offered greater opportunities than did the American for export diversification, a major goal of Brazilian policy-makers. Satisfaction of regional economic interests was, in 1934, probably a more important consideration to government leaders.²⁶ But the possibility of acquiring equipment for the navy and army, with payment not in scarce foreign exchange but in compensation marks earned by the sale of surplus raw materials, was an effective goad to policy-makers as they set off on the path of bilaterialism.

The navy’s Estado-Maior by late 1934 was already thinking of bilateral agreements involving an exchange of raw materials for ships as a means of fleet renewal.²⁷ Under prodding from the ministry of navy, Foreign Minister José Carlos de Macedo Soares endorsed and then actively promoted this idea. Macedo Soares had headed Brazil’s delegation to the Geneva Disarmament Conference two years before, and shared the high command’s sensitivity about Brazil’s military weakness. Working in conjunction with the ministries of navy and finance, Macedo Soares set his staff to work on a general plan to fink naval contracts to trade agreements. The navy wanted to order subs and possibly destroyers from Italian builders, who had already indicated a willingness to accept raw materials in payment. Authorities in Rome were interested chiefly in cotton, but Itamaraty hoped to force trade in a variety of products.²⁸

Aware of the contradiction between the trade principles espoused by the United States—principles to which Brazil publicly paid homage —and the direction that Brazil’s commercial relations with Italy and Germany were taking, Macedo Soares instructed Aranha, now ambassador in Washington, to make certain the projected agreement with the United States allowed Brazil sufficient maneuverability to deal with those two promising trade partners on a compensation basis. Ensuing commercial and naval negotiations with Italy were intimately connected, and centered around the concept of compensation. Brazilian negotiators, in fact, at one point deliberately delayed talks on a new trade agreement to await the results of bargaining for naval contracts. The “greater advantages” which the government anticipated from joint conclusion of the two agreements had as their core the forcing of the Italian market for several products, not solely the cotton that Mussolini, despite his “notorious sympathy” for Brazil, initially insisted upon. Eventually Rome agreed to payment terms of 60 percent in cotton and 40 percent in other products.²⁹

The worsening Italo-Ethiopian crisis led to sober reflection in Rio de Janeiro, and it was not until August 1936 that a commercial modus vivendi was signed. That agreement, which came less than a month after Macedo Soares had assured the American ambassador that Brazil would reach no understanding with Italy that would contravene the United States-Brazilian treaty, was in fact a clearing agreement between the Banco do Brasil and the Instituto Nazionali di Cambi. As Finance Minister Artur Souza Costa subsequently acknowledged, what Brazilian policy-makers had in mind when they negotiated this accord was buying submarines with the compensation lire earned from exports to Italy. Within three weeks the contract for three submarines was signed, and early in 1938 Italy made delivery.³⁰

For the army, the commercial lanes to Germany proved to be the most promising route to modern matériel. Because of the financial situation, Brazilian authorities in mid-1934 began discussions with Krupp agents on the possibility of acquiring artillery, tanks and other matériel “im Kompensationswege,” with cotton the projected item of exchange. In talks with the German trade delegation later that year, Brazilian negotiators expressed interest on “repeated occasions” in purchasing military equipment with the compensation marks gained from increased exports to Germany under the envisioned confidential agreement. Following conclusion of that understanding, Macedo Soares and his chief aide both discussed the idea with the German minister, who learned that the Brazilian government was interested in “great quantities” of cannon. Anxious to boost Germany’s rearmament and industrial recovery programs, Berlin readily accepted the idea of filling Brazilian government orders in return for raw materials and foodstuffs. Indeed, because of its need for such imports, reported a Brazilian official in Berlin, the Reich government would furnish “all the war matériel we need.”³¹

The rapidly emerging identification of military interests with trade policy was strengthened in 1935 by continued financial distress, which militated against purchases of matériel in foreign exchange. The budgetary deficit for 1934 had been sizable, and by mid-1935 the government was running a half million contos in the red.³² One result of the Communist-led uprising late in November was a sudden run on the treasury as police and military expenses shot upward, bringing a flood of requests for special allocations to Souza Costa’s desk.³³ This financial pressure came as the value of Brazil’s export surplus was falling to its lowest level in three years.³⁴ It was only natural, therefore, that the large stocks of compensation marks piling up in the Banco do Brasil assumed even greater attractiveness as a way of satisfying disgruntled army leaders.³⁵

Now that the threat to national security was internal as well as external, the acquisition of armaments became a matter of “pressing importance” to Brazilian officials.³⁶ Krupp’s recent public re-entry into the international armaments trade brought renewed assurances from Germany of a readiness to fill military contracts, and negotiations began in earnest at the turn of the year. Since Vargas decided in December to terminate the spate of most-favored-nation treaties signed in 1931, the problem of placing commercial relations with Germany on a statutory footing merged with that of finding a way to gain equipment for the army.

Negotiations between the two countries in 1936 centered around a Berlin-endorsed proposal by a private German-Brazilian consortium, the Sociedade Internacional de Comércio (SOINC), to act as a middleman in an exchange of extra-quota coffee for military and railroad equipment. The official frame of mind in Rio de Janeiro was now uniformly receptive, and Souza Costa was determined to “harmonize” trade needs with the Reich in order to obtain artillery for the army. The Finance Minister, in fact, recommended to Vargas that any commercial understanding with Berlin be made contingent upon an armaments contract. Capitalizing on Brazilian eagerness, German authorities promised to provide “any quantity of land, air and naval war materiel. Early in June, despite repeated Brazilian assurances to the American government that bilateral trade with Germany would be curtailed, the two powers signed a confidential gentlemen’s agreement consisting of separate notes on enlarged reciprocal import quotas and the SOINC plan.³⁷

The first arms contract was not signed for several months, however, since Brazilian leaders faced the ticklish question of what to do about previous unofficial commitments to the Swedish armaments firm Bofors, which had been conducting tests for the Brazilian army since 1933. Souza Costa, aware that raw materials were his only currency, had suggested that Bofors accept part payment in German compensation marks, but Swedish authorities balked and Brazilian army technicians then spent several futile weeks examining the feasibility of combining Bofors and Krupp matériel. Moreover, the Rhineland crisis and the outbreak of civil war in Spain raised doubts about placing orders in a Europe that might soon find itself plunged into general war.³⁸ But no other suppliers were available—Washington during this time discouraged foreign arms sales—and the financial situation militated against payments in foreign currencies. Compensation marks, on the other hand, were mounting in the Banco do Brasil, and by the end of the year totaled 18,000,000. Krupp pushed this advantage, offering to accept 80 percent of the payment in the blocked currency. Appointment of General Eurico Dutra as minister of war early in December clinched a contract for Krupp, since he was known to favor German equipment. A few weeks later a contract for one hundred pieces of light field artillery was signed. Compensation marks earned from sales of raw materials would cover four-fifths of the cost.³⁹

The fink between military needs and trade policy was strengthened even further the following year when Krupp landed the major contract for Brazil’s rearmament program. Several European firms competed for the order, but again compensation trade gave the German supplier a decided advantage. Brazil in mid-1937 extended its modus vivendi with Berlin, and even sought higher quotas for its exports to Germany in order to build up a stock of compensation marks which could pay for the armaments.⁴⁰ With the assistance of SOINC, which had become Krupp’s “Mittelmann” in Brazil and received handsome commissions for its lobbying, a contract was signed on March 28, 1938, calling for delivery over a six-year period of nearly 900 pieces of artillery. Krupp gave the Brazilian government the “option” of paying for three-fourths of the cost in compensation marks.⁴¹

In evaluating the determinants of Brazil’s decision to accept bilateral commerce with Germany, it should be emphasized again that the “military factor” was not originally the major one. In 1934 Vargas responded mainly to the demands of coffee, cotton, and tobacco growers, shippers of meat and hides, and exporters of other primary products. But the discontent expressed publicly and privately by military spokesmen was an important ingredient of the atmosphere in which policymakers weighed alternatives, and that dissatisfaction, given the opportunities for satisfying military needs that compensation trade seemed to offer, strengthened the resolve of government leaders. The scheme under discussion at that time of linking military contracts to commercial pacts, is clear evidence of the nascent interdependence between national defense requirements and trade policy. In effect, a convenient alliance was being forged between the export sector, urban consumers interested in cheaper goods,⁴² and military planners. The delay in signing an armaments contract resulted from both external factors—European instability, prior verbal commitments to Bofors, the necessity of caution in negotiations with Germany because of American opposition—and domestic developments, particularly personnel instability at the highest army levels, which hindered completion of rearmament plans.⁴³ It is clear, however, that by 1936 both military and civilian policy-makers had become deeply security-conscious, and commercial policy decisions reflected such concern. Souza Costa’s suggestion in April of that year that Brazil continue to play Berlin’s trade game only if an armaments contract were realized showed how profoundly key administrators were influenced by military arguments. The Krupp contracts in 1937 and 1938 directly involved the ministry of war in the trade issue, and meant that commercial policy had become to a considerable degree a function of the material needs of the armed forces. Satisfaction of military requirements, in other words, had become a major objective of Brazil’s trade program.

What about steel? Was Volta Redonda primarily an army infant? Is it accurate to charge that Vargas himself “rarely raised new issues, such as building a steel plant”? Did he in fact have no interest in, or ideas of his own about, the steel question? The evidence, though still fragmentary, shows that Vargas was keenly interested in a steel industry long before the Estado Novo. As early as January 1930, in his presidential platform speech he stressed the advantages of greater economic independence, arguing that not only the economy but national security required a solution of the “steel problem.” A year later he repeated that steel was the “maximum problem” of the economy, and forecast an era of “opulence” for Brazil once its steel industry was firmly established.⁴⁴

When General Pessôa was appointed head of the Casa Militar in 1933, the first thing Vargas asked him to do was wade through the voluminous documentation on the Percival Farquhar concession so that they could discuss solutions to the steel question, one in which Vargas repeatedly expressed personal interest.⁴⁵ The problem, of course, was complex and required careful planning. Consequently "Vargas, during the early and middle 1930s, appointed several commissions to examine various phases relating to this industry.” Studies of transportation facilities, mineral resources, internal steel needs, and consumption were undertaken.⁴⁶ Establishment of a large-scale steel industry also required capital, which the Brazilians did not have and which European investors were unable or reluctant to invest. And certainly political stability was necessary for execution of a program requiring coordinated planning and considerable governmental resources; such stability was lacking prior to November 1937.⁴⁷ With a stable internal situation from 1938 on, and the American government now disposed, because of fear of German penetration of South America, to assist in development projects in Brazil, Vargas moved relatively quickly to carry out his long-sought objective.

The striking thing about the argument that army leaders prodded Vargas down the road to Volta Redonda is its total lack of documentary support. Wirth attributes major responsibility for that achievement to a “forceful, initiating group of army officers,” but never identifies them. Neither of the two officers whom he does discuss—General Mendonça Lima, the Minister of Transportation, and Major Edmundo Macedo Soares e Silva—had any decisive political influence. The major was an apolitical technician who had spent several years in Europe on commission between 1932 and 1939, and at one point even wanted to abandon the army for a career in business, but was persuaded to remain in the service by his cousin, Foreign Minister Macedo Soares.⁴⁸

Mendonça Lima early in 1938 was still a colonel and had assumed the portfolio of Transportation only at the end of November 1937. Prior to that time he had been director of the government-owned Central do Brasil railroad, not a post aspired to by staff officers or the military-politicos. He achieved cabinet status because of his experience and did not command the kind of personal support within the armed forces that a Goes Monteiro did. “A young man who has had no political career, but is regarded as a competent administrator,” was the characterization British embassy experts gave Mendonça Lima at this time. As minister, Mendonça Lima’s primary interest was logically in rolling stock, and too much emphasis should not be placed on the steel mill in his scheme to exchange iron ore for railroad equipment, coal, and a steel mill. In October 1938, a period which Wirth views as the begining of the “most directly military phase of the decision-making process” on the steel issue, a phase allegedly “coordinated” by Mendonça Lima, the latter was appealing to Vargas about the “urgent necessity” of acquiring new railroad equipment and underscoring the possibility of bartering raw materials for German machines.⁴⁹

There is no evidence that it was not Vargas who held the policy initiative during 1938-1939, and he made certain that interested parties understood his role. Informed by an officer serving with the Berlin embassy that a German firm had expressed willingness to help set up a steel mill “in accordance with the program of Col[onel] Mendonça Lima,” an indignant Vargas promptly set the record straight. “Reply that the steel problem is the government’s problem and not Col. Mendonça Lima’s,” read his terse instructions to his personal secretary, instructions that Vargas would hardly have issued had Mendonça Lima really been a highly influential spokesman for the high command.⁵⁰

The fate of Mendonça Lima’s plan suggests no change in the subordinate relationship the colonel held, and casts serious doubt on his influence. When he put the proposal forward early in 1938, Vargas apparently paid little attention to it, allowing the Conselho Técnico de Economia e Finanças, the “voice of private enterprise” in the Estado Novo, to study the various options. The Conselho rejected the idea of a steel plant dependent upon foreign coal, and recommended the separation of iron ore exports from the steel issue. When the Conselho Federal de Comércio Exterior, a body which followed closely the progress of compensation trade with Germany and probably thought in terms of facility of payment, and which Wirth labels “an administrative cover for the Army,” revived the idea of trading ore for a steel plant, Vargas again shelved the plan, this time definitively, by sending it to the Conselho de Segurança Nacional “for further study.”⁵¹ The formula finally adopted was the separation of ore exports from steel.

The two major army figures during the Vargas years, the only generals in a position to place decisive pressure on Vargas in order to gain a determined objective, were unquestionably Góes Monteiro and Eurico Dutra.⁵² Without their support it is highly unlikely that any army commander or group of officers could have lobbied effectively at Catete Palace. What were Góes Monteiro and Dutra saying about pressing national needs during the period when Vargas allegedly was “under heavy pressure from the Army” to give Brazil a modern steel mill?⁵³ Since no link between these two key military-political figures and the drive for Volta Redonda has been established, could it be that such a steel complex was not on their list of high priorities?

By 1938 the level of threat perception within top policy-making circles had risen markedly. The Destroyers Episode in August 1937, in which an outcry from Argentina blocked the leasing to Brazil by Washington of six overage destroyers, greatly deepened Brazilian mistrust of the La Plata rival.⁵⁴ So alarmed were Brazilian leaders that war with Argentina was now seen as a distinct possibility. The navy quietly took stock of its fuel supplies for the Mato Grosso flotilla and surveyed defense capabilities at its air base in Rio Grande do Sul. The already “grave apprehensions” of the army Estado-Maior increased “in startling fashion” because of Argentina’s military build-up and the European situation, and following the destroyers incident Góes Monteiro sent directives to regional commanders in the south and west on mobilization procedures in the event of a surprise attack. Early in 1938 the Chief of Staff personally visited Argentina, where the undisguised “hostility” of the Argentine minister of war made a deep impression, and upon his return to Brazil the General immediately put his staff to work on guidelines for defense against attack.⁵⁵

The acquiescence of the great powers in Hitler’s absorption of Austria and the Sudetenland seemed to bode ill for weak nations and heightened the sense of urgency with which Brazilian military planners considered their needs. Days after the ill-fated Munich agreement, General Dutra urged Vargas to organize defense against air attacks. Naval planners in the latter part of the year undertook studies for the air defense of Rio de Janeiro and laying of mine barriers at the major coastal ports. In a confidential report to Dutra early in 1939 Góes Monteiro again stressed the disconcerting possibility of an ill-prepared nation finding itself suddenly and unwillingly at war.⁵⁶

The immediacy of the perceived threat explains why influential army leaders pressed Vargas in the late 1930s not for a steel mill, but for more armaments. There is suggestive evidence that guarantees regarding additional acquisitions were a condition imposed by the high-command for its continuing support of Vargas after November 1937.⁵⁷ The Krupp contract of March 1938 could be viewed as partial payment on that political debt, although Vargas unquestionably shared his military advisers’ anxieties.⁵⁸ Much still was needed, however, and Goes Monteiro and Dutra continued to campaign for more matériel. What the army really needs, stated Góes Monteiro in a memorandum on national defense requirements in January 1939, was “copious” military equipment. “This, Mr. President, is the fundamental problem of contemporary Brazil,” Dutra told Vargas as late as November 1940. “It needs to arm itself so that it does not become, from one moment to the next, a new American Mongolia. . . .” This pressure from the high command for armaments and immediate preparedness makes understandable Vargas’ public declaration in 1938 that the “most pressing” problems facing the nation were the “material outfitting of the armed forces and reorganization of transportation services.”⁵⁹

Anxiety over material deficiencies in the face of apparently grave threats to national security had forged an alliance between the high command and commercial bilateralism, an alliance that was well in evidence during the period 1938-1940. A confident Nazi ambassador accurately predicted after the second Krupp contract that Brazil would not bow to American pressure by discontinuing compensation trade, “especially” since it had the strong support of military leaders. Indeed, late in 1938 the government not only once again extended the modus vivendi, but agreed to a 15 percent increase in the cotton quota and a 10 percent hike in all others, a move General Dutra promptly hailed as a new opportunity for speeding up the defense program.⁶⁰

Arrival early in 1939 of the first consignments of artillery, ordered two years previously, greatly enhanced the prestige of German suppliers, and for Dutra one of the most distressing aspects of the deteriorating international scene was, as he told Vargas, that a clash might jeopardize Brazil’s “freedom of trade with European nations,” and thus cut off arms supplies. With compensation trade enlivened by renewal of the modus vivendi, Dutra knew that financing additional contracts was feasible, and in mid-1939 the Conselho de Segurança Nacional debated not the necessity of a steel mill, but the wisdom of further exchanges of cotton and coffee for German military hardware. In secret session, Dutra persuaded his colleagues that only the Reich could provide vital complementary equipment for the artillery already contracted.⁶¹ At the end of the month the war ministry signed five more contracts with German firms for artillery transport equipment. Despite Brazilian hopes, the outbreak of war in September severely hampered trade with Germany, and consequently receiving the matériel ordered became one of Dutra’s “greatest preoccupations, perhaps the most important one.” Although the last of the batteries contracted in 1937 arrived by early 1940, only a portion of the matériel ordered in 1938-1939 ever reached Brazil, and that after bitter diplomatic squabble with Great Britain.⁶²

The question logically arises as to whether or not the steel plant was not expected to make a contribution to national defense. The answer is yes, in the long-run and indirectly, but no, in the short-run and in a direct sense. And the latter was of much greater importance to military leaders who believed that they were operating on borrowed time. Dutra’s insistence throughout 1940 on fulfillment of the German contracts is graphic evidence of the high command’s assessment of the relative importance of arms orders and a steel mill.⁶³ Volta Redonda was a long-range project, one with myriad difficult problems to be solved before completion. Construction at the plant site began only in January 1942, and initial estimates were that work would be finished by mid-1945.⁶⁴ By that time, of course, Brazil had been at war for three years, a possibility long foreseen and feared by the high command. But there is even a more crucial point to consider than the time factor: the plant as projected and built was not intended to produce armaments. In acknowledging that Volta Redonda “was not run as a military operation, the workers were not placed under military discipline, and the objective was clearly industrial growth in general rather than arms production,”⁶⁵ Wirth inadvertently explains the lack of convincing evidence that the high command pushed Vargas into acting on the steel issue.

This is not to say that military leaders did not favor the steel mill or, more broadly, industrialization. Certainly they did, for “economic independence” was an oft-cited goal in military circles. It is relatively easy to find articles in service journals extolling the advantages of increased steel-making capacity, or calling for establishment of new industries based on national raw materials. Privately, too, army leaders contemplated with longing the day when Brazil would achieve self-sufficiency in arms production.⁶⁶ But that day was in the distant future, military spokesmen realized it, and consequently when allocating resources they stressed more immediate and feasible goals linked to mobilization: fuel and transportation, individual supplies (small arms and clothing), and munitions for heavier armaments purchased abroad.

The Comissão Nacional de Siderurgia set up in the ministry of war in 1931, which Wirth cites as evidence of the army’s interest in a steel industry,⁶⁷ did study the question, but concluded that the “important problem at hand” was gaining coal by exporting iron ore. “The development of metallurgy, in the Commission’s view, depended on a number of other factors such as the growth of the domestic market and the improvement of technical skills in Brazil.”⁶⁸ Its survey of the steel situation, in addition, was more one of existing plants in order to determine how they might be integrated into the army’s program.⁶⁹ The mission that General Leite de Castro headed to Europe in 1933 was not so much “to study European steel plants”⁷⁰ as it was, initially, to purchase arms and later to gather information to help in the “creation and development of military industries in our country.”⁷¹ Again, it is important to distinguish between a project such as Volta Redonda and “military industries,” by which army leaders meant primarily plants for the production of arms and munition. Góes Monteiro in 1934, for example, urged upon Vargas both secret purchases of armaments abroad —a requirement he considered to be of “first urgency”—and “industrial mobilization.” The army re-organization program which he launched months later showed what the General meant by the latter phrase: expansion of army plants, mainly those producing munitions.⁷²

The widespread perception of increasing external threat led in the late 1930s to a two-stage industrial military program, the first stage of which involved a concentration of resources on production of “items of greatest consumption during war time.” The second, and future, stage would be the production of armaments, something that could be accomplished only after the time-consuming and resource-demanding task of establishing “several great basic industries,” of which steel was just one, had been achieved.⁷³ The greater priority given to production of military supplies explains why, in General Dutra’s annual report to Vargas delivered in May 1938, he devoted only two sentences to “our steel problem.”⁷⁴ Distribution of the army’s share of funds under the Five Year Plan announced in January 1939 also reflected the high command’s sense of immediacy. The money, applied under the “first phase” of the army’s industrial program, was allocated for grenade and cartridge production, completion of a gas mask factory, and new machinery for repair shops.⁷⁵

The army sought at the same time to encourage cooperative civilian plants, among which those “of greatest importance” by 1940 were producers of munitions, copper, aluminum, machinery, and the steel mills at Sabara and Neves.⁷⁶ By 1943 this policy of aiding key industries through contracts had yielded the “best fruits,” but the primordial concern of military leaders remained armaments. Since neither existing civilian industry nor the Volta Redonda plant then building could produce armaments, the ministry of war hoped to capitalize on Washington’s desire to bolster hemispheric defense by obtaining American plant equipment and producing its own automatic weapons, artillery and tanks. These plans were still under discussion when the war ended.⁷⁷

Throughout the post-1930 period military leaders had expressed their discontent over matériel deficiencies through consistent, and increasingly insistent, pressure for funds. The social cost of military expenditures is impossible to assess, since such outlays may have averted costlier sacrifices. Be that as it may, the fact is that a great deal of money was spent on the armed forces. The combined “official” annual budgets of the army and navy rose from less than 400,000 contos in 1931 to over a million by 1939, and they increased even more as war spread across the globe. Public statistics, furthermore, do not reveal the whole story, since numerous secret laws provided the armed forces with supplementary credits.⁷⁸ Under the Five-Year Plan the armed forces were assigned 80,000 contos per year, but actually received more, since the 275,000 contos allotted to the ministry of finance were intended as cover for secret military orders.⁷⁹ This financial pressure was exerted on a government that annually operated in the red, and it heightened in the latter 1930s at a time when Vargas “urgently” wanted to carry out his steel plans, but when financing was still the major obstacle to overcome.”⁸⁰ Seen from this perspective, it could be argued that the overall effect of military lobbying was to delay the establishment of Brazil’s steel industry.

The argument that the army had a project like Volta Redonda “as one of its primary goals” and that Vargas after 1937 acted on the steel issue “largely because of Army pressures” overlooks not only Vargas’ own plans and ambitions for industrialization.⁸¹ It also divorces the issue from its historical context and in so doing rests on erroneous assumptions about military priorities. Under the impact of international turbulence, with a relatively strong and potentially aggressive neighbor on the southern flank, the high command gave top priority during the period to purchases of armaments abroad. Army planners also sought expanded production of munitions and small arms, and to the extent that they provided technical assistance and granted contracts to certain existing civilian factories they encouraged manufacturing. The establishment of basic industry on a large scale, such as the Volta Redonda steel complex, was, however, part of the high command’s general and much less urgent vision of Brazil as an industrial power.

Author notes