Military Dictatorship and Conservative Modernization 1964-1985

The military coup, which took place in March 1964 with U.S. support,¹⁰ had two clear goals: To “. . . forestall the communist plan for seizing power . . . and to reestablish order so that legal reforms [could] be carried out” (Dines 1964, 144). Forestalling communists meant, in this context, the violent repression of those who fought for social inclusion through agrarian reform i.e. distribution of land and wealth. The military intelligence and the DOPS (the political police), carried out massive state terrorism schemes, such as “Operation Clean-Up”.¹¹ They targeted Catholic Church organizations,¹² political parties on the left,¹³ dissidents within the military, union officials, peasant militants, lawyers, human rights advocates, among others. Political persecution, assassinations, and torture were all part of a structural strategy that was especially strong in the Northeast of Brazil¹⁴ (Skidmore 1990, 23-27).

The second stated goal of reestablishing order to carry out legal reforms was, in effect, the continuation of the process of agricultural and industrial modernization, which started during Vargas’ first term. Agricultural policy continued to favor not land redistribution but increased production, most of which was destined for export in a time when 30 million Brazilians were going hungry (Skidmore 1990, 299). The military regime implemented what was effectively a Green Revolution. They created the conditions for the use of new inputs (from hybrid seeds and chemical fertilizers) and mechanized implements, all of which led to profound changes in agricultural production, and the creation of agro-industrial complexes. These policy goals were achieved through subsidies to big landowners, who received generous allocations of financial resources and other benefits (Delgado 1985; Müller 1985). For example, the National Monetary Council waived taxes on all key farm products and inputsfertilizer, tractors, processing equipment, etc. Subsidies also took the form of special interest rates for agricultural credit that had lowor even negativereal rates. The government also extended a program of guaranteed minimum prices for agricultural products, invested in agricultural research, and created upper-level governmental educational programs for the training of agricultural specialists (Skidmore 1990, 92; Sauer 2006, 2).

The Brazilian Green Revolution exacerbated the trend of rural exodus, social exclusion, income inequality, and land concentration. While in 1960 the rural population comprised 55 percent of the population, by the end of the military dictatorship in 1985 this number dropped to only 28.7 percent (World Bank 2011, 955). Simultaneously, the urban population skyrocketed. São Paulo, Brazil’s largest city, offers a good sample of the general situation. Within the same period, its population rose from 3.6 million to 9 million, favela dwellers grew from 30 thousand to 629 thousand (Lloyd-Sherlock 1997, 291), and real wages fell by two-thirds (Wolford 2004, 411). Furthermore, income inequality widened to extraordinary levels. From 1960 to 1990, the share of the total national income of the wealthiest five percent of Brazil’s population jumped from 27.7 percent to 35.8 percent (Skidmore 1999, 198). Last but not least, land concentration also increased, with ten percent of the landowners in control of 80 percent of the land (Wolford 2004, 411). This is why many historians and academics call this period either painful or conservative modernization. The military government, clearly enacting policies that favored the capitalist class, modernized the latifundios and the industrial sectors while reinforcing the socially pernicious effects of the model (Sauer 2006, 2; Silva 1982).

Within this social context, economic growth proceeded at a breakneck pace. Led by industrial growth,¹⁵ GDP increased at an annual rate of 11.2 percent between 1967 and 1973 (Fausto 1999, 291). The Brazilian “miracle,” however, came to a halt when the turmoil in the international market, which started with the oil price shock of 1973, unleashed the perfect economic storm on much of Latin America. To understand the debt crisis that subsequently hit Brazil, an overview of the weaknesses of its growth model is crucial.

Brazil’s economy was built around oil. This was the case for agriculture, which, thanks to the Green Revolution, became highly mechanized and dependent on oil-based inputs such as fertilizers and pesticides. But this oil dependency was true for industry as well. In the late 1950s, Brazil’s government decided to commit the expansion of Brazil’s transportation future to highways rather than railways, mainly due to the lower initial investment costs (Skidmore 1990, 178). Thereafter, the state oil company, Petrobrás, neglected the exploration of national reserves, and focused on refining and distributing cheap imported oil from the world market. As a result of these policies, Brazil imported 80 percent of its oil consumption (Skidmore 1990, 179).

This structural weakness was exposed when the oil crisis of 1973 and 1979,¹⁶ coupled with a global recession, put Brazil’s growth strategy in jeopardy. The sudden increase in oil prices, coupled with the diminishing demand for Brazilian products, threw Brazil’s international balance of payments in disarray. While imports and exports were almost in balance in 1973, from 1974 onwards, imports followed the rising international prices for oil, oil-derived products, and costs of transportation (Skidmore 1990, 180). This trend continued for more than a decade, and Brazil would run an uninterrupted deficit in its trade balance from 1970 to 1982, which would amount to a total of US $34 billion (World Bank 2011, 535).

To make up this deficit, Brazil had three options: to reduce imports, to deplete foreign reserves, and to incur foreign debt. The first option would have slowed growth, so it was not a viable choice for the government. Insofar as Brazil did not have nearly enough reserves to balance its trade, its only remaining option was to incur foreign debt,¹⁷ which went from approximately US $5.7 billion in 1970 to US $103 Billion in 1985 (World Bank 2011, 103). Consequently, Brazil now not only had to cope with the deficit in the trade balance, but also with the servicing of interests on its enormous debt. In only three years, payments on interest had more than tripled, from US $2.7 billion in 1978 to US $9.2 billion in 1981 (Skidmore 1990, 231). Inevitably, this debt treadmill started falling apart. The first indication came when interest rates went from 8.7 percent in 1978 to 17 percent in 1981, and continued soaring in the following years (Skidmore 1990, 236). Then, due to Mexico’s default on its debt servicing in August 1982, commercial banks became suspicious of Brazil, whose debt had surpassed that of Mexico, and refused to lend new money (Skidmore 1990, 232). Trapped without any other possible recourse, and faced with the prospect of a total collapse, Brazil was forced to seek help from the IMF (International Monetary Fund) (Skidmore 1990, 274).

The savage recession of 1981-83, which had been Brazil’s worst since the Great Depression, was the immediate consequence of the debt crisis (Skidmore 1990, 236-254). As the military government started to lose its grip on the economic situation, its legitimacy began to suffer as well. Internal class warfare and strife, which had never quite subsided, intensified when clamors for democracy and agrarian reform resurfaced into the center stage of Brazilian politics. Eventually, different social movements and political parties exercised enough pressure to force a return to democratic rule in 1985.

¹⁰ The U.S. intervention in Brazil and Latin America in general has to be considered in the context of the Cold War, and the attempts to curtail Communist expansion around the globe. For detailed accounts of the U.S. role in facilitating the military coup in Brazil, see Parker (1979; Black (1977). For accounts of U.S. involvement with Operation Condor, a campaign of political repression in the Southern Cone of South America, see Menjívar and Rodríguez (2005); Dinges (2004); McSherry (1999); McSherry (2000); McSherry (2001); McSherry (2002); McSherry (2005)

¹¹ For an overview of the repression, see M. H. M. Alves (1988); Fiechter (1975, p. 44). For a complete inventory of denunciations of torture, see M. M. Alves (1966); M. M. Alves (1973)

¹² MEB (Movimento de Educafdo de Base, or Basic Education Movement), JUC (Juventude Universitdria Catholica, or Catholic University Youth), and others whose organizing or charitable activities aroused suspicion.

¹³ The Moscow-line Communist Party (Partido Comunista Brasileiro, or PCB), the Maoist Communist Party (Partido Comunista do Brasil, or PC do B) and the Trotskyists, such as the ORM-POLOP (Organizafdo Revoluciondria Marxista-Politico Operdria, or the Revolutionary Marxist Organization/Workers’ Politics)

¹⁴ This area was the strongest center for Communist Party activities, and harbored many leaders deemed dangerous, such as Pernambuco Governor Miguel Arraes, SUDENE Superintendent Celso Furtado, literacy specialist Paulo Freire, peasant league lawyer Francisco Juliao, and long-time Communist Party activist Gregorio Bezerra (Skidmore 1990, 24).

¹⁵ “The most dynamic industrial sector was motor vehicles, growing at an annual rate of 34.5 percent. Of that production, which reached an annual output in 1969 of 354,000 units, 67 percent were passenger cars, the rest trucks and buses. That ratio contrasted sharply with the 1957-69 period, when the passenger car share was only 49 percent. Production was tilting toward the least fuel-efficient form of transportation” (Skidmore 1990, 139).

¹⁶ For a history of OPEC and the oil crisis, see Yergin (1993); Sampson (1991); Raymond (1976); Terzian (1985).

¹⁷ Total external debt is debt owed to nonresidents repayable in foreign currency, goods, or services. Total external debt is the sum of public, publicly guaranteed, and private nonguaranteed long-term debt, use of IMF credit, and short-term debt. Short-term debt includes all debt having an original maturity of one year or less and interest in arrears on long-term debt.