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eS~tudy ri,4~kvpfFM' iZT EIT usam nianaai~ I, j :1 ~ K;~ NOVEMBER 25, 1963 I XzcQL-v 14 ~ RIO DE JANEIRO - RECIFE Ask C' '-V 'i. t j _ ­ q n p ' F -

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gORTREAST STUDy a 5)3.

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November 25, 1963

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Rio de Janeiro Re oife

Reoaie Group' 3 &,/6/­ Downgrade 1 2 4 at -Year intervals; not automatically declassiiea LIMITED OFFICIAL USE

November 25, .1963

INTRODUCTORY MEMORANDUM

Subject: Special Northeast Study.

This is ai2 advance "dqvaft" copy of the Special Northeast Study just completed by USAID/Brazil. It does not represent an officially cleared document and final approved copies will be distributed later. In the meantime, however, it has been decided to make a limited distribution of the study in its present form in order to facilitate comments and suggestions and to serve as valuable background information for current .discussions of important USAID/Brazil program matters.

The decision to undertake this study was made some months ago. It was clear that an over-all review was desirable and would assist the Mission greatly in the preparation of its FY 1965 Country Assistance Program proposals for Brazil. Such a-study would also serve as important background in helping to prepare various elements of the U.S. Government for the joint review early in 1964 called for by the Northeast Agreement.

It was also clear that the study could not be made on a part-time basis by the regular Mission staff headquartered in Recife, which was already over-burdened and under heavy pressure to fulfill the commitment called for-by the Agreement. Accordingly, it was decided to form a special Task Group to make the study, collect the data, and prepare the report. Donor Lion, Assistant Director, USAID/Brazil, was designated to head the group on a full-time basis. Northeast Program Director John Dieffenderfer and his staff gave all-out support to the group. Substantial direct contributions, some also on a full-time basis, were made by Alan Bogatay, Alvanir de Carvalho, George Hawbaker, James Haynes, Bernard Immerdauer and I. J. Javrotsky of USAID/Recife; Thomas J. O'Donnell of Consulate/Recife ; and S. Michael Maia, Joga J. Vieira and Maria J. M. Costa of USAID/Rio. The team began work in Recife c September 9th and was officially disbanded early in November upon completion of the rough draft of the report. Readers of the repo't will, I believe, recognize the ezoellent work done by this group in such a short period of time. It is

IM7rPED WFFICIAL USE UdtL)AS..! LIMITED OPPIQI!L USE

only to be regrettld-'that tsubitantially -more time could not have been allowed now for this important assignment.

Many of the findings, conclusions and recommendations flowing from this study are reflected in the FY 1965 CAP submission. For example, the decision to integrate the Northeast program more fully into the national program for Brazil is one of the direct results of the study, 0A the other hand, some conclusions and recommendations require further analysis and discussion before final proposals will be ready.

I wish to draw attention to one conclusion of the report which I consider especially important, namely, that in reviewing program achievements; it is evident U.S. assistance in the Northeast should be regarded as a successful example of the use of aid as an instrument of U.S. policy. This accomplishment is especially noteworthy when consideration is given to some of the problems encountered.

The report itself consists of four parts;

Part I, SUMMARY, contains in one chapter t4 assumptions, issues, findings, conclusions and recommendation0 of the total study.

Part II, THE -ORTHEAST, contains five chapters which describe and analyze the Northeast economy and certain non­ economic forces affecting development in the Northeast.

Part III. DEVELOPMENT EFFORTS SINCE THE NORTHEAST AGREEMENT, consists of three chapters which present the background of-the Northeast Agreement and review development efforts since the Agreement by both the United States and Bratil.

Part IV, IPLEIENTATION OF U.S. POLICY IN THE NORTHEAST, consists of two chapters, one a -profile onSUDENE, the other .a discussion of AID policy with respect to the Northeast.

Jack B. kubish Wirector, USAmArasi

LIMITED OF.?ICIAL USE SPECIAL TORTHEAST S

TABLE OF CONTENTS

Page NQ

INTRODUCTORY MEMORANDUM

PART I. SUMMARY

Chapter I. Issued, Assumptions, Findings, 1 Conclusions and Recommendations

PART II, TE NORTHEAST

Chapter II. Economic Summary - 19 Chapter 111. Agriculture 34 Chapter IV. Industry * 42 Chapter V. Other Economic Sectors and Factors 58 Chapter VI. Selected Non-Economic Forces 86

PART III. DEVELOPMENT EFFORTS SINCE THE NORTHEAST AGREEMENT

Chapter VII. Background of the Northeast.-Agreement 98 Chapter VIII. Post-Agreement Brazilian Efforts :110 Chapter IX. Post-Ag-reement U.S., Efforts 1120

PART IV. IMPLEMENTATION OF U. S. POLICY IN THE NORTHEAST

Chapter X., Profile: SUDENE .130 Chapter XI. Strategy and Implementation of U. S; Policy 146

APPENDIX 4, STATISTICAL TABLES APPENDIX B. NORTHEAST AGRICITLTUREs TECHNICAL SUPPLEMENT APPENDIX C. SOURCE IHATERIALS APPENDIX-D,- THE NORTHEAST AGREEMENT CHARTS

I PER CAPITA INCOME TRENDS 20 II SHARE OF NATIONAL 1NCOME. THE NORTHEAST AND REST OF BRAZIL, 1950-1960 20 III INDEX OF REAL INCOME GROWTH. THE NORTHEAST AND REST OF BRAZIL, 1950-1960 20 IV NORTHEAST URBAN AND RURAL POPULATION DISTRIBUTION. ACTUAL 1940-1960; PROJECTED 1970 25 V SELECTED 'COMPARISONS, AREA AND POPULATION 29 VI DROUGHT POLYGON MEASURES 29 VII COST OF LIVING TRENDS IN THE -NORTHEAST -AND BRAZIL9 1950-1960 31 VIII RELATIVE IMPORTANCE IN VALUE OF PRINCIPAL NORTHEAST AGRICULTURAL CROPS IN 1950 AND 35 1960 IX THE NORTHEAST AREA UNDER SUDENE JURISDICTION ,AND POLYGON OF DROUGHTS 105 EXHIBITS

I SPECIA INCENTIVES TO PRIVATE 'INVESTfElT IN NORTHEAST BRAZIL 53 II SUMMALT( OF FEDERAL ACTIVITY IN THE NORTEEAST, 1877-1959 105 III SUMMARY OF NON-BRAZILIAN ASSISTANCE IN THE NORTHEAST, 1942 - APRIL 13, 1963 107 IV MAJOR REGIONAL AND 174TTQNAL DEVELOPMENT ENTITIES OPERATING WN NORTHEAST BRAZIL 111 V PARTIAL ESTIMATES, PLlAITED CONTRIBUTIONS TO NORTHEAST DrVELOPMENT, By PROGRAM BY BRAZILIAN ENTITIES, 1 ?Y'63 - FY'64 1.3 VI SUDENE APPROPRIATION AND ESTIMATED OBLIGATIONS, BY SECTOR, CALENDER YEARS 1962 AND 1963 115 VII NON-USAID, NON-BRAZILIAN ENTITIES PARTICIPATING DIRECTLY IN NORTHEAST DEVELOPIMENT 129 UNC[ASI~L~Page Nq TEXT TABLES

I ESTIMATE OF CAPITAL REQUIREMENTS TO RAISE PER CAPITA INCOME OF THE NORTHEAST TO THE 1960 LEVEL OF THE REST OF BRAZIL 22 II ESTIMATED CAPABILITY OF AGRICULTURAL RESOURCES TO SUPPORT RURAL POPULATIONS IN THE NORTHEAST, GOIAS, MATO GROSSO AND RONDONIA, 1960 23 III PERCENT DISTRIBUTION OF ECONOMICALLY ACTIVE POPULATION BY SECTOR, 1940-1960 30 IV PRICE TREND COMPARISONS, 1950-1960 32 V MANUELCTURIG IN TIHE NORTHEAST, SELECTED STATES, 1959 45 VI AVERAGE TRAFFIC J)EMSITY, MAIN? NORTHEAST RAIL- ROADSJND COMJEARISON WITH RAILROADS IN CENTER. SOUTH- 65 VII OPERATIONAL DEFICITS OF NORTHEAST RAILROADS 66 VIII COMPARATIVE INDICES OF VOLUME OF FREIGHT 66 .. CARRIED BY THE RAILROADS AND OF AGRICULTURAL AND INDUSTRIAL PRODUCTION IN THE NORTHEAST, 66 1957-1961 TX ]UMBER AND TYPES OF LOCOMOTIVES IN USE IN NORTHEAST RAILROADS, 1962 67 X VOLUME OF OCJGO HANDLED AT THE ORGANIZED PORTS IN THE NORTHSAST, 1957-4961 68 XI AVEIRAGE SHARE OF NORTHEAST WORTS, BY STATES, AS PECENT OF TOTAL BRAZI' EXPORTS, 1954-1962 77 XII VALS OF NORTHEAST FORE-;Gi A9D DOMESTIC EXPORTS A?' PERCENT OF NORTHEAST OME, 1950 AMN 1955­ 60 . 77 XIII: VALUE OF FOREIGN .BXPORTS 'PER CAPITA, NORTHEAST AND REST OF BRIlL 1 9 5, 1955, 1960 79 XIV GOVERNMENT OF BRAZIL FINIAL CONMITIENTS UNDER THE NORTHEAST- AGREEMENT 111 XV SUMMARY STATiJS OF NORTHEAST PROGRAM AS OF SEPTEMBER 30, 1963 - . . 129

T APPENDIX A .

1. AREA, POPULATION AND DENSITY BY STATES, NORTHEAST BRAZIL, 1960 2, AREA 9F DROUGHT POLYG0N; BY STATES, 1960 3. POPULATION GROWTH RATES Y STATES, NORTHEAST BRAZILs 1940,

- 1950, 1960. 4, POPULATION PROJECTIQN Tq 1970, BY 'STATES, NORTHEAST BRAZIL 5. COMPARATIVE POPULATION .PROJECTIONS, NORTHEAST BRAZIL, 1960, 1965, 1970 6. POPULATION DISTRIBUTION 1DY AGE GROUPS FOR NORTHBAST AnD REST OF BRAZIL: ACTUAL FOR 1940--1950; 2STIMATE FOR 1960; PROJECTION FOR 1970-.. . . ' -. 7, POPULATION MIGRATION INTO AND OUT OF THE NORTHEAST, 1950 8. OUT-MIGRATION AND INT4A-REWlONIAL POPULATION MOVEMENT, AN) COMDINED' MOVEMENT AS PERCENT OF POPULATION, BY REGIONS, 1950 9, INDICATED' RURAL AND URJ3AN POPULATION MOVEMENTS$ THE NORTH-- EAST AND BRAZIL, 1950-1960 10. URBAN AND RURAL POPULATION, NORTHEAST AND REST OR BRAZIL, 1940, 1950, -1960 11. PERCENT DISTRIBUTION .OF URBAN AND RURAL POPULATIONs 3Y STATES, NORTHEAST BRAZIL, 1940, 1950, 1960 12. POPULATION OF PRINCIPAL URBAN AREAS, NORTHEAST BRAZIL, 1950-1960 13, PERCENT CHANGE IN POPULATIONJ .lY SIZE $OF POPULATION CENTER, BY STATES, NORTEAST. BRAZIL, 1950-1960 14. POPULATION INCREASE IN NORTHEASTERN CITIES OF 20,000 AND OVER, 1950-1960 15, NUMBER OF CITIES BY SIZE OF POPULATION, BY STATE, NORTHEAST BRAZIL, 1950-1960 16. TRENDS IN ECONOMICALLY ACTIVE POPULATION, NORTHEAST BRAZIL, 1940, 1950, 1960 17, ECONOMICALLY ACTIVE POPULATIONQ.Y MAJOR SECTOR;, 1940, 1950 AND ESTIMATED FOR 1960, NORTHEAST BRAZIL

18. - PERCENT INCREASES IN ECONOMICALLY ACTIVE POPULATION 3BY MAJOR SECTOR, NORTHEAST AND REST OF BRAZIL, 1940-1960 19. PERCENT DISTRIBUTION- OF NATIONAL INCOME, BY STATES, NORTH- EAST BRAZIL, 1950-1960 A 1

20. INCOME BY SECTORS$ NORTHEAST AND REST OF BRAZIL, 1950-1960 21. PERCENT INCREASE IN INCOME, BT .SECTORS, NORTHEAST AND REST I OF BRAZIL, 1949-1955, 1955-1960;, 1949-1960 22. PER CAPITA -INCOME AS A PERCENT OF NATIONAL AVERAGE IN NORTH- ,I EAST BRAZIL, 1950-1960 23. INCOME AND ECONOMICALLY ACTIVE POPULATION BY SECTORS, NORTH- EAST AND REST' OP BRAZIL, 1960 24. INCOME PER ECONOMICALLY ACTIVE PERSON,. BY SECTOR, NORTHEAST AND REST OF BRAZIL, 1950-1960 25. INCOME DEFLATORS FOR THE NORTHEAST MD THE REST OF BRAZIL, * 1950-1960 26. INCOME IN 1960 PRICES, NORTHEAST AND REST OF BRAZIL, 1950-1960 4 274 REAL PER CAPITA INCOME, NORTHEAST AND REST OF BRAZIL, 1950­ 1960 28. INCOME IN 1960 PRICES, BY SECTOR, NORTHEAST AND BRAZIL, 1949,­ 2955 AND 1960 29, INDICES OF REAL PRODUCT, TEE NORTHEAST AND BRAZIL, 1949-1961 30. TOTAL AND CULTIVATED AREA, AND VALUE OF AGRICULTURAL PRODUCTION, NORTHEAST BRAZIL, 1961 31. AGRICULTURAL PRODUCTION, NORTHEAST AND REST OF BRAZIL, 1950, . 1956-1960 32, INCOME -OF AGRICULTURAL SECTOR, NORTHEAST BRAZIL, 1960 33. VALUE MID'PRODUCTION OF PRINCIPAL AGRICULTURAL CROPS, NORTH- EAST AND BRAZIL, 1950, 1955, 1960 34* CULTIVATED AREA.MID PRODUCTION OF PRINCIPAL AGRICULTURAL CROPS, NORTHEAST BRAZIL, 1961 35, PERCENT .INOREASE IN OUTPUT OF PRINCIPAL AGRICULTURAL CROPS, NORTHEAST BRAZIL, 1950-1960 36. INDICATORS OF PRODUCTIVITY IN AGRICULTURE, NORTHEAST BRAZIL, 1961 37, NUMBER AND VALUE OF LIVESTOCK AND POULTRY IN NORTHEAST AD - BRAZIL, 1961 38. VALUE OF PRODUCTS PROM LIVESTOCK AND POULTRY IN NORTHEAST AND BRAZIL, 1961 39* COMPARATIVE EFFICIENCY OF CATTLE INDUSTRY IN THE UNITED STATES NORTHEAST AND BRAZIL, 1961

* 40. SELECTED DATA, AGRICULTURAL EXPORTS, NORTHEAST AND BRAZIL, 1961 41. NUMBER OF PROFESSIONAL FISHERMEN, QUANTITY AND VALUE OF ' CATO OF NORTHEAST DISHINq INDUSTRY, VARIOUS YEARS, 1951­ 1961 42. ESTABLISHMENTS AND PRODUCTION WORKERS, BY INDUSTRY, NORTHEAST AND REST OF BRAZIL, 1949, 1958 43, PRODUCTION AND VALUE ADDED IN 1960 PRICES, f3Y INDUSTRY, NORTH- EAST AND REST OF BRAZIL? 1949, 1958 44, ESTABLISM2TS, PRODUCTION WORKERS, PRODUCTION AND VALUE ADDED nY TYPE OF ACTIVITY, NORTHEAST DRAZIL, 1958, 45. PERCENT DISTRIBUTION OF VALUE ADDED BY SIZE OF MANUFACTURING ESTABLISEMENT s NORTHEAST BRAZIL, 1958 46 ESTABLISHMENTS, PRODUCTION WORKERS AND VALUE ADDED, MAFUFACTURING INDUSTRIES, '1Y STATES, -NORTHEAST BRAZIL, 1959 47f MINERAL PRODUCTION, BY STATES, NORTHEAST BRAZIL, 1961 48, NORTHEAST MINERAL PRODUCTION COMPARED WITH BRAZILi 1961 49. INTERSTATE COMERCE, OVERLAND AND COASTWISE SHIPPING, NORTH- EAST BRAZIL, 1959 50. INTERSTATE COMMERCE BY COASTWISE SHIPPING, NORTHEAST AND BRAZIL, 1956-1961 51- OVERLAND INTRA-REGIONAL COMMERCE, NORTHEAST BRAZIL, -1959 52, FOREIGN COMMODITY TRADE, NORTHEAST AND BRAZIL, 1957-1962 53. VOLmIE OF fIPORTS AND EXPORTS THROUGH PRITCIPAL PORTS, NORTH- EAST BRAZIL, 1955-1960 54, CAPITAL STOCK IN NORTHEAST BRAZIL, 1955, 1958, 1959, 55. INVESrMIENTS IN THE FORM OF IMPORT2D-EQUIWMIT BY FOREIGN 'ENT9RETSESOFERATIO INl THE NOR!THEAST 'ja-1.961 56 GOVERNLTT INVESTMwNT 1AflD INCOME DT .TORTHEAST BRAZIL, 1958, 1959, 1960 . 57. ESTIMATED INVESTMENT AND KNOTWN INVES 1MUIT PLANS, BY -MAJOR SOURCES, NORTHEAST BRAZIL, VARIOUS YEARS, 1952-1966 58. SECTORAL DISTRIBUTION OF REPORTED INVESTMENT PLANS, NORTHEAST BRAZIL, 1963-1966 59, SUDETE PLANNED INVESTMENTS, 1963-1965 mSiAS-R

PART I - SUTIARY CONFIDENT IAL

* "** r1rfr, R I ONCL CHAPTE

ISSUES ASSUMPTIONS, FILDINGS. CONCLUSIONS AND RECOMMENDATIONS

This chapter summarizes and highlights the over-all study. First, the major issues are identified and the assumptions employed in conducting the study are set forth; next, the findings and conclusions are presented; finally, a summary of the report's recommendations is provided,

A. TSSUES AND ASSUMPTIONS 1. Major Issues

The challenge, of course9 lies not in stating the basic issues.- aid strategy, letelqoomposition, implementation, timing, Rather# it lies in selecting the key questions and answering them usefully. The issues and questions listed below are not easily separable. In any economic assistance situation, they would blend and inter-relate. But within the Northeast and total Brazilian environment, they are particularly, exasperatingly, complex. For convenience, two categories are presented.

a, Policy and Strategy (1) What should be the nature of a future U.S, commitment, if any, in the Northeast?

(2) Should the present Northeast Agreement be extended?

(3) Should the U.S. have a separate assistance progrm for the Northeast?

(4) That should be the nature of U.S. relation­ ships with SUDENE ai other Brazilian entities?

b. Economic Development (1) What are the key development problems and. obstacles?

(a) People-land ratios?

(b) Inadequate infrastructure?

- CONFIDENTIAL UNCLASSPIED (c) Low capital-output ratios?

(d) Regiqial traditions and institutional faqtprXs?

2. Major Assumptidhs The study adopted as its set of operating assumptions, those which are understood to reflect present (November, 1963) U.S, strategy and policy, However, in accordance with its purposes, the study did.'not take as g:ven, what appears to be a present explicit U4S, objeotives namely, to maintain a program of assistance in the Northeast at a substantial level,

Fbr the record., the following assumptions were adopted: , a, Political; Assumptions ­ (1) Brazil is a key country and the Northeast a critical region, meriting considerable U.S. attention; (2) .The .S. wishes to, and can, influence development in Brazil as part of a friendly, helpful posture toward the country, its people and government, as well as for other reasons, (3) In formulating its strategy and policy, the US. considers it of h4gh importance to strengthep 4emocratic, progressive oQnevwcot.vp sectors in Brazil. b. Economic Assumptions (1) Significant ibS. balance of payments -assistance would depend upon satisfactory F deral Government performance relating to such matters ps covered in the Bell-Dantaa exchange. (2) Other forms of US. assistance could, be substantial, provided they were in line with TUS. political objectives (such as those assumed above) and if they supported sound activities, well planned, well a'ministered and judged likely to contribute meaningfully to Brazil's development,

" CORPIDENTIAL CONFIDENTIAL

a. Other Assumptions (1) Volatility would continue to characterize virtually all aspects of Brazilian life ­ for example,. serious economic instability is the unhappy-prosppect for some additional period of tame. (2) Albeit with fluctuations, Brazil's attitude * toward the U.S. would not be much different­ for the next few ypars from its present one. (3)' SUDENE would continue to be the federal government~s primary development entity / in the Northeast, although the states are likely to continue to increase their activity, and other federal agencies will continue to be important.

B. PRINCIPAL FINDINGS AND CONCLUSIONS 1. Dimensions of the Economic Development Problem in the Northeast a. If per capita income in the Northeast were to increase by 5 - 6o per year (aouble the nationts rate in the past decade), it would take until 1980 before per capita income in the Northeast would achieve the 1960 level of the rest of Brazil. Or, to put it -another way: b. To achieve the rest of Brazills 1960 per capita income level by 1980, the Northeast would require by way of capital investment, something on the order of 350 to 400 billion oruseiros annually (196.3 prices)--a level estimated to be three to four times what was invested in 1960, 2, Root Causes of Poverty in the Northeast p., Witb the existing level of technology -and the prpsent forms of Sgricultural organization in the Northeast, the region's agricultural repguroes cannot successfully support its rural popu~atiah, (1) Although parts of the region (baraphao and Bahia) cold sipport larger mural populations than now resid6 there, the pural Yortheast as a whole is substantiplly over-pqpulated, amounting,. apprioimately,,.to 3 million.

CONFIDEN'IT IAL

-:::3­ UHCLASSIFIEBIAL

(2) The so-called "bige states" contain rural populations some 5 million in excess of their capability to support. (3) Despite considerable out-migration, the Northeast continues to grow, at a rate which exceeds 2% per year, adding both to the rural and increasingly crowded urban areas. b. The agricultural economy is based on technologies of farm work and of soil, crop and livestock management which, on the whole, are little changed since early colonial days. In 1960, with almost two-fifths of Brazil's rural population, the Northeast produced little more than one-fifth of the nation's agricultural income, c. Investment levels-in the Northeast have been substantially lower than in the rest of.Brazil. * In the 1950r s, regional investment * averaged about half of the national levely partly because of lower per capita income and savings and partly because of continuing large capital flights. a Twa-thirds of the Northeast's economibally active population are in agriculture, the least "productive" sectot; only 13 per cent are in industry. 3, Other Obstacles to Development in the Northeast Despite the comparatively disciplined federal attention 4 and large input of public resources to the Northeast, the region suffers, as does the rest of Brasil. from theincapacitating environment of-*ineffeotive national leadership and irresponsible political agitation.

Nation-wiae obstacles to development stemming from this situation are, in certain instances, felt even more strongly in the Northeast, For example.­

* Prices have risen more rapidly in the Northeast than in Brazil generally, * The regional tar structure is more regressive than for the country as a whole.

COOFIDETTIAL -4-­ CONFIDENTIAL

* The investment olimate i6 even A -S * The calamitous situation with respect to railroadas, ports and coastal shipping weighs particularly heavily on the Northeast.

In addition, the Northeast is faced with the typical problems of many under-develope4 Areas:

-. Paucity of trained public and private manpower. * Traditions and customs which inhibit risk-taking and discourage innovation, * Stiffening competition from more advanced regions * of the country as well as from-abroad. * Excessive dependence on a few export crops, . -vulnerable to sharp ptice fluctuations. * Low "capital-output' -3atios or to put it another way, low productivity ;n &11 sectors of economic activity. Two other factors complete the list of major obstacles to development in the Northeast: Failure to deal with the-,regionts problems in a truly national framework. * The recurring drought phenomenon. 4. Factors Favorable to Development The 19502s witnessed a most important-change in the economic history of the Northeast. Prior to 1950, in the face of rapid expansion elsewhere in Brazil, per capita incomo in the Northeast remained tirtudlly static, Moving from this period of economic stagnation, the Northeast, since the 19501s, has demonstrated a surprising capacity to grow which has roughly parallelled the national rate of expansion, Two aspects of this hopeful phenomenon are worth noting: * The droughts of 1951 and 1958 only temporarily * arrested the regionts impressive grovgth stirrings. * Growth performance was evident even before SUDEEI and the "new era" of national development policy was proclaimed for the Northeast. Because of the serious regional people-land imbalance, the fact that Nordestinos have dipplayed aq alpost unbelievable mobility is yet another favorabl'e aevelopppnt factor, It provides part of the basis for expectations of success for

CONFIDEBTTAL programs aimed at migration, colonization and resettlement. * At.1east two million people (net) left the Northeast between 1950 and. 1960. '*Probably more than one million moved within the . region from rural to urban areas, * In sum, there appeared to be a migration from rural areas in the Northeast which exceeded three million. Two other factors favorable to development should be mentioned.. * The on-going, long-term federal development effort, involving: so siderably larger, more consistent and sounder public--investment than past generations of haphazart activity; the beginnings of a major approach to providing incentives to private inves~tment in the ragion. This-effort is taking root,, gaining momentum and has created s6mething of a faith in the dlevelopment process in the Northeast. Finallys there is: * The increasingly responsible activity of many Northeast states where, under refreshingly - competent, democratic political leadership, - development programs are being formulated and fdevelopment institutions are being created. 5, The Northeast Agreement, SUDENE, and. the U.S. Commitment a. The Bohan Repbrt and the Northeast Agreement were -concluded at a time when there was wide­ spread belief in the existence of a serious political and social crisis andin the possibility of imminent violence, The Report and the Agreement, it has turned out, also reflected an overly optimistic view of the constructive impact and speed&with which short-term action projects could be implemented, b. Differences in development philosophy, in the conception of the Alliance for Progress, in the way in which the North6ast Agreement was to be implemented, and in other matters, inc2uding, those relating to the "immediate­ action" projects, created difficulties in the execution of the Northeast program.

CONFIDENTIAL

-6-. CONFIDENTIAL-- UNC.ASSIFIE c, br several reasons, including the fact that SUDENE is legally prevented from spending funds outside its jurisdiction, SUDENE has been unreceptive to any-consideration of projects in areas adjacent to the -Northeast which would be for the benefit of the Northeast. Such projects were explicitly mentioned in the Bohan Report and the Northeast Agreement. d. The pressure to fulfill the U.S. commitment under the Northeast Agreement reduced USAID effectiveness in working with S!DENE and introduced some other disadvantages in USAID operations in the Northeast, e, SUDENE, for reasons relatfng :to its political orientation, inadequacy of staff, legal limitations, planning shortcomings and parochial analysis'of Northeast development problems, is not fully up ,to the required development job, It is, nevertheless, in contrast with other government entities, a superior organization, capable of contributing significantly to economic development in the Northeast. f. The U.S. "commitment" under the Northeast Agreement can be fulfilled by Decembaef 31, 1963, if several projeots now in SUDEN and 2 projects now in AID/Washington are authorized before that date, and if an exchange rate--i used which reflects the deposit rates at which the cruzeiros were generated 'under the.PL 480 agreements. In any case, the commitment should be fulfilled by the second anniversary of the agreement, April 13, 1964, which has been ­ suggested by Celso Furtado as the'appropriate date.. ft g. If only tlqse pfojeqts wPich were "mutually agreed to'l are coiRdpred as fulfilling Brazil's commitmnent under the Agreepent, then-Brazil is not likely to fplff*1l its pommitment. ,2/

/ For various reasons, in both -UT', and Brazilian circles, the US "oommitment" has come to be accepted as $131 million, However, the.Northeast Agreement clearly states "up to, sums of money for different programs which total $13 million. V Note thqt in the Northeast Agreement, Brazil's "conmitmentn on long-term projects was Isubject to the appropriation of funds by the Brazilian Congress". CONFIDENTIAL CONFIDENTIEAL

Bowever, SUDEN-s appropriations exceed thck amounts *called for in the Northeast Agreement. Ifobligations undertaken by all Brazilian entities for all 4evelopment projects in the Northeast are coupte4t. they will exceed the amounts indicated in the Agreement for the Brazilian contribution.

h. - Finally, with respect to .achievement of many U;S. objectives in Brazil, an over-all assessment of the Northeast effort to-date demonstrates the effectiveness of foreign assistance as an instrument of U.S. policy.

C. MAJOR RECOMMENDATIONS The.recommendations presented fall into four categoriess General recommendations, relating to some of the broader aspects'of program development and

- operation.­ * Specific recommendations, relating to program directions and emphases. * Recommendations .relating to aid levels for the * Northeast. * Recommendations relating to aid strategy and imlementation. 1. General Recommhendations a. The U.S. should, even after the Northeast A-peazient is A'tulfilled", maintain a commit­ ment to devote a substtal level of resources to Northeast eypment problems. Four copsiderations support Ph4s recommendation. They ares britfly: (1) There is no largerregion in Latin America with a lower per opita-income than the Northeast. The Charter of Punta del Este calls for accelerated development of, and priority attention to "needier sectors", (2) Federal and state self-help effotts, ip the Northeast merit strong support, (3) It is a U.S. politibal Objective to foster development within a democratic envirqnMnt, especally in those areas believe'd vulnerable to non-democratic solutions.

CONFIDENTIAL OONP IM rr ,

(4) The record has demonstrated that many ' important U.S. objectives in Brazil can be successfully pursued in the Northeast. b. The recommended commitment should'-be regarded as an integral part of over-all U.S. policy toward Brazil. Assistance for the Northeast should be integrated into a national assistance plan. (1) Any commitment assumed by the U.S. is to the nation; its regional focus, if there is onei should reflect the pattern of eonomic development-within the country and the belief thab-such a focus is consistent with U.S, objectives embracing the Alliance and other matters of a more directly selfrinterested nature, (2) In the last analysis, a regional emphasis by the U.S. should be adopted 6nly if it is likely to contribute to U.S. objectives conoernin6 the whole country. c. ailding upon present program directions9 U.S. planning should move increasingly to programs direh-ted-at the Northeast's basic development problems. The approach-should be, pred minantly, long-run. Programs and acti ities should aim at the underlying causes of gional poverty' * This recommendation involves a recognition of achievement with respect *'tp some past emphasis on immediate action projects and the determination to devote resources primarily to 'long­ run projects as contemplated in both the Bohan Report and the Northeast Agreement, d. Technical assistance efforts should be expanded. (1) Sorely needed, large-scale capital - injections will not -e fully utilized unless important strides are made in the regionts technical, administrative and, institutional capacitiep. (2) The mechanisms of technical assistance, carried out within Brazil and in the UniteI States, are requirel to improve planning and administration of scarce domestic resources, to raise capital-output ratios, to increase the pay-off from economic infrastructure and to help to prepare the region to grapple with new and difficult problems of accelerating developt ment - for example, rapid urbanization.

CONIDENTIAL -9q­ UNCLASSFD -­ e, The U.S, should integrate, much more effectively than in the past, all of its assistance tools 'and resour6s) especially Foo& for Peace and the Peace.Corps. The need to achieve this is particularly urgent in the Northeast, with singular opportunities for accomplishment exist­ -ing if some of the recommended program emphases are adopted (in the areas of inigration-colonization-resettlement and * urban development.) f. The US., consistent with its strategr and policy for Brazil, should undertake "seed" programs and projects which look to productive follow-up after. 1965. Although the existing national situation is not favorable to courageous problem­ solving, it may very well be after 1965. It is important to undertake some "pre-investment" In.the intervening period, to maximize the benefits ot that eventuality, should it occur. 2. Specific Recommendations for Program Direction and

a4 Migrativntoloisation-Resettlement at"pming from the analysis of the fundamental regional peoplerland imbalance and the need to alter radically the organization of agricultural production, additional-projeotp relating to migration, colonization and resettlement '&ouli be developed. Successful efforts in these directioqp woiqd also contribute to the resolution of other important problems in the Northeast: the inadequacy and high prices of food; the requirez ment to stimulate savings and capital formation; and, the need to reduce potentially dangerous p6litical and social tensions.

j/ This section suggests program guidelines and illustrative projects rather-than detailed-project descriptions. The recommendations .point up.priorities and refer not only to needs already recognised (e.g. industrial development) but . to new areas-of program emphasis (e.g. aspectd of'urban development).

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-'10 ­ UL~U

A first step in developing plans In this area would be a comprehensive, national study of migration in Brazil,. This stitdy would help provide the basis for a much needed national resettlement plan, It would also beof major importance to programs relating to urban development. Other projects might relate to existing colonization efforts, assistance in the development of a national resettlement plan, credit programs, extension activity, grubstake arrangements, road construction, or migratory centers. A realistic national resettlement plan should be based not only on the recommended migration study but also on soil' surveys and river basin studies,

b. Urban :Development

Reflecting the analysis of migration9 the condition of the urban areas, the urban aspects of the require­ ments for stimulating industrial development, the present incapability of the region to handle rapid urbanization, and the need to take account of the possible shift of the center of social and political tensions from rural to urban areas, program emphasis upon urban development should be substantially enlarged.

An urban development program could include expanded efforts to; lWild and strengthen housing agencies ar4 savings and loan and other Institutional arrangements to stinpate and mobilize sayings; foqter qelf-help housing ppogaps and projects; establish and asqist in the formation of lurban developmpnt, departments and curripula in r4versties; 1el? preppe and ptrengthen capabilities for mulicipal planning and dministration - for example, land use plann4ng, facilities apd sepricep planning, fiscal planning and administration; and$­ organge workc-fpont aimed at "urban renewalrt.

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- 11 ­ CONFDETIL uCLASSIIB8 0 Jf-~l o, Industrial Development Recognition of the need to stimulate industrial development, of its relationship to facilitating the transition from the present archaic agrqultgral structure to a rational one and. of its role in smoothing rapid urbanization, industrial development programs shouldbe sharply accelerated in the Northeast assistance efforts

The most urgent component of a stepped-up industrial development program is the identification of opportunities for profitable investment, It is imperative to apply promptly and soundly the growing volume of private investment funds stimulated by vqrious incentives, much of which now sits idle in the Bank of the Northeast for want of identified, approved projects.

In this program also, the recommended expansion of a U.S. technical assistance effort would be particularly applicable. For example, SUDEHE, public and private development banks and state planning and develojnment commissions urgently need to add to their knowledge and techniques with respect to feasibility studies. State development agencies would also benefit from the acquisition of industrial promotion and development k1cow-how. The training.of industrial development specialists needs to be accelerated.

(id, Trajsportation

Long recognized as a bottleneck problem through­ out frazil, the transportation grid which inadequately undergirds the pnational and regional economies is in deplorable, apparently worsening condItion For the Northeast, the problem is especially serious. The incredibly poor coastal transportation and railroad situations in the region are curtailing gr eliminat4ng markets which would otherwise be available to the Northeast, compelling costly shifts to truck

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- 12 ­ transport, raising prices of needed food an raW material­ inter-regional imports, and restricting the region's export sector from making a more important contribution to Northeast as well as national economic growth,

For these reasons, it is important to lay the basis for responsible national action in the critical transportation field. t, 8, planning and programming should reflect that importance. A requisite first step would be a­ comprehensive, national transportation study embracing capital requirements, rate structure, manpower, administration, . organination, routes, financing And other related matters.

e. Economic Research

Brazil's situation with respect to economic information, while superior to many Underdeveloped countries, is grossly deficient. U.S. programming should increast :ts assistance in the area of economic planning and research. The first thrust should be on improving Brazil's capabilities .in the prompt and reliable gathering and manipulation of national and regional data, urgentl- needed for sound economic planning and policy formulation. + + +

The preceding recommendations with respect to new or expanded program emphases are not intended' to represent a complete prescription for aid programming as it affects the Northeast, For example, it is believed that, in addition to the areas mentioned above, continuing stress should be placed upon assistance in highway (most notably maintenance) and power programs, parficuarly on projects relating to feasibility studies technical assistance to state higbyay

I/ Recognizing that the action required to implement such a study would not be forthcoming in the present political context$ the results of this stuay would become available around the end of 1965.

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-- 13 ­ depart'ets, financing for imported equipment and for such local currency costs as will assure economic use of imported equipment or where U.S. assistance strategycalls for substantial support to sound state programs.

3. Aid Level Recommendations'

In view of the eavzier recommendation that economic assiptance to the Northeast should be integrated into a national assistance plan and progrpml, calling among other things, for' ptojects outside the Northeast of 'enefit to the Northeast, it is-suggested -thatspecificaid level recommenda­ tions reliting to the Northeast have less significance than they might otherwise. Arbitrary regional assignments of the program costs of activities directed at'national needs is not always a fruitful exercise. However, the following conents may be relevant:

(a) Based upon a preliminary costing of some of the illustrative projects discussed previously, the recommended program directions and .emphases do not involve, for the remainder of FY64 and FY65, more than $5 to $7 million in development loans and grants and do not require more than $2 million in cruseiro loans and grants. (b) However, should certain recommended studies be completed more rapidly than expected, and . should the situation-in Brasil be ripe for responsible action at-that time (say, in the migration-colonization-resettlement or transportation areas) or if substantial private industrial investment opportunities ae identified and ready for financial implenentation, the impact of the recommended program efforts would be considerably larger than now anticipated. (c) Consideration of the consisten-y of existing programs with U.S, objectives and of the implications of the redommended program emphases, points to a continuing large loan proram, essentially for economic infra­ structure, -

CONFIDI IL ICCASSiED -. (d) Depending upon U.S. views of national aid levels to Brazil, the kind of total develop­ met effort associate-d -with assistance for the Northeast would not be out of line if it approximated $50 million annually in the dollar loans ana grants for the next two years. (e) Although the recommended program emphases do not call for substantial additional financial assistance for FY764 and FY'65, they lay the basis foi significant develop­ ment help in the following years, provided circumstances in Brazil are favorable. However,. ansuiaing continuing progress on highways and power in the. Northeast during the next tw'o years$ the result would be more in the direction of altering the composition rather than the magnitude of the "Northeast program". 4, Strategy and Implementation Recommendations These recommendations relate to the U.S. posture toward assistance for the Northeast, US, relationships with

SUDENE and other Brazilian entities3 U.S.. handling of the prospective joint review of the Northeadt Agreement, and U.S. field.operations in the Northeast and Brazil.

a. In future discussions and: in the joint review of the Agreement, the U.S. should adopt the position that# although it sbet the need and is willing to make an especially strong effort in the Northeast, basically the U4 S. has a * national aid p'ogram rather than programs for the rest of Brazil and the Northeast. b. The U.S. should seek to work with SUDENE, as Primus inter multos, as far as programs actually conducted in the Northeast are concerned, but should work with other agencies, even if Northeast problems are involved, especially if their planning and implementation relates to areas outside the Northeast, o. The U.S. should not commit itself to any aid magnitude,. whether to be invested within the Northeast or related to the solution of Nprtheast problems (and expended outside the Northeast).

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- 15 ­ *I * CONFID9RTIAD d. The U.S. should initiate a joint review of the Northeast Agreement with the Government of Brazil, involving SUDENE and at least COCAP, as soon 'as possible. It is essential to enlarge the flexibility with which the U.S. can carry out national programs affecting the Northeast. To attain this flexibility promptly, requires an altetation of the Orules of the game" and. of the framework within which the presept Northeast program is carried on, e. The importance of Working out a new arrangement recommends a strong attempt to fulfill the - Northeast tcommitment'! as soon as possible, even if this requires more liberal views than presently held. toward dollar loans involving a large portion of cruzeiro costs. It is clearly desirable to be able to point to fulfillment of the U.S.­ "oommitment" in the joint review, It would be a -serious tactical mistake to conduct the review without-the leverage and favorable public image which would be associated with U.S. ., fulfillment. f, In order to: enhance the chances for a new arra*gement; reduce the likelihood of attacks .on the U.S. based upon the use of definitions of commitments or particular exchange rates by anti-U.S. elements; and, improve the prospects that the joint review will be amicable, with results favorable to the US., the U.S. should be prepared to accept a generous definition of Brazilian fulfillment provided a reasonable position on the U.S. commitment is adopted by the Brazilians. The U.S. should consider issuing with Brazil a joint "Declaration of Accomplishment" following the review of the Northeast Agreement and in this Declaration, seek to put in the most constructive light the U.S. and possible Brazilian new 'national" approach to the Northeast's problems,

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- 16 - - UNCIASSWE g. The present overAll U.S. pcl&cy and strategy for Drazil and the pregrpns puggsted in this, study regire an increase in field flexibility and maneuverability, This, in turn, requires some changes 4n 4ID/W-USAID/Brazil operating patterns and a strengthening of USAID/Brasil staff it a few inportant respects. h. A strong, well-staffed Mission, based in the Northeast, is rqquired. (1) U.S. strategy implies close, continuing and successful assistance relationships with key denocratic sectors in the region. (2) The U.S. aid presence, in force, would facilitate a persistent, effective confrontation'with anti-U.S., anti- Alliance elements. (3) Such a Mission would-make possible the kind of coordination needed. to carry on - a national assistafice-program in the "continent of Brasil",j (4) Suceessful management and implementation of the substantial programs already underway require "on-site" staff. i. The conducting of a U.S. national assistance plan requires a widening of USAID/Rio/Recife coordination and participation by both ­ groups of USAID/Brasil in natiual as well as regional planning and paogramming,

One final note. It is almost inevitable that the wordq "agrarian" and "reform" would be juxtaposed in any study of development in Brasii, This "problem", of course7 is essentially Brasilrs, hopefully to be handled in the democratib tradition. The'U.S. is, basically, only on the per4phery, contributing indirectly: for example, by assisting to hasten industria2 development or by working out joint programs aimed at accelerating inter- and intra'-regional populativn "bhifts.

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- 17.­ It may be possible$ however, for the U.S. tor identify itself somewhat more directly.with sound solut4ons to the "agrarian problem". If the U.S. sPula be assured that reason­ ably rational, reason~bly equitable, reas6nably and responsibly planned programs would be developed to alter patterns of land tenure so that they would expedite required shifts in the structure of agriculturalproduction,, then to participate in some aspects of the financing of these prggrams would probably bq in the U.S. national interest.

Provided adequate safeguards were available, it could be an important political as well as substantive contribution for the U.S. to declare that it wishes to be associated with the aspiratoiW of the people of Brazil (and Latin America) with respect to this one of the "reformas do base". It would be appropriate, therefore, to sufppont efforts, not only within Brazil, but also external help, as for example, from a foundation3 aimed at the prepar4tion-of rational programs for "agrarian reform".

The US. must endeavor to be associated with democratic social reform in Brazil, Some of the recommendations of this report would, if adopted and successfully -carried out, contribute to-that objeotiVe.

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. ,I .

k~

PART II -. TE NORTEEAST'

kM *1R

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CHAPTER II

ECONOMIC SUMMARY

This Chapter sumnmer4ps the rTial on the Northeast economy which is presented in Part Folowin6 a few introductory comments, the major economic funq4ngspa& copnclusions are set forth. The chapter concludes with a brie a koriptton of selected economic aggregates and sectors. Approaches to Fortheast probleps ham- always centered on the disparity between the regiont§ iftcpma or living lovels and those of other parts of Brazil? chieflR p puth. This emphasis has obsotned one significant aqet of r'cept development trends in the Northeast: in contrast to &ecacles of 4rtyal stagnation, the North­ east, to borrow a phrase, is lon the ngov" The pace may not be rapid enough; nbr may it te as apid as 5s feasible. But it re­ present$ a dramatic improvempnt ow' rito, of growth prior to 1950&- It s important, therefore, to consider pot only the question of rela­ tive regional performance, which this anM other chapters tend to emphasize, but also the question of thp Northeast's performance over time. When appraising past economic.pqrformance in the Northeast, one other factor should be consit)ered ArAslysis of growth rates or of structural trends in the Northeat suffers from the difficulties presented by the frustrating inability to measure the offects of droughts. This is particularly trtzq of the last. decade, which etperienced droughts in 1951 and 1950, A, MAJOR FINDINGS LTD OONCLUSIONS ­ 1. Recent Northeast Development Compared to Brazil The 1953 report of the Joint Brazil-United States Economic povelopment Commission noted that "the 4ive'gence in regional growth rates has been one of the outstanding foatures of Brazilian develop­ ment between 1939 and 19P2. The Comptssion roported that during this perioq4 *9 paftornl growth rate In per capita output

IIMITED OFFICIAL USE UNCLASS;lED I OFFICIAL USE approrirmated 25% while the Northeast increase was estimated at only 4%. The Commission further reported that between 1939 and 1950, the Northeasts share of national income fell from 21% to 16%. Finally, the Commission commented that "Inoreasina regional dis­ equilibrium is to some extent inevitable at the present stage of Brasil's economic development." (Underlining added.) The pessimistic note sounded by the Joint Commission with respect to the inevitability of increased regional disparities was subsequently repeated some years later in other quarters, as for example, in 1959, in Furitado's policy paper published by CO'ENO. The facts appear to show, however, that since at least the middle 1950's, real output in the Northeast tended to rise more * rapidly than throughout Brazil. Moreover, despite price developments which worsened the inter-regional tarms of trade from the Northeast point of view,- the Northeast's share of national income has increased on a per capita basis for several years. If the stage of economic deyelopment is a significant factor reflecting, determining or influencing comparative rates of regional growth, as- the Joint 'Commission implied and as Hirschman maintainsj then the recently narrowing gap between the Northeast and other regions is an extremely important aspect of the pattern of economic development in Brazil. This trend is of more than historical or academic interest; having begun before a systematic development 'program was introduced in the Northeapt, it bodes well for the poisi­ bilities of future regional expansion. 2. Long-unCapital Reauirements in the Northeast Recent past levels of investment in the Northeast will have to be substantially increased if the pace of regional development i

to be meaningfully accelerated. - The rate of gross capital formation in the Northeast was ostimateoato have bean 81per cent of the gross domestic product, on

9Uma olftica de.Desenvolvimento vara o Nordeste, Conselho de Desenvolvimento do Nordeste (COfDENO,), 1959; A Economia Brasileira 4 e suas Perspectivas, (APEC), Nov. 1962.

LfIESX FICIAL USE UNCLm PER CAPITA INCOME TZREN S' CHART - I The Northeast and-Rest of Brazil, 1950 - 1960 (Semi-log scale)

1950 1956 1960 #1

SHARE OF NATIONAL INCOME CHART - 2 THE NORTHEAST AND REST OF BRAZIL 1950 - 1960

NORTHEAST REST OF BRAZIL

16% 86% a 15% 85% = 0

14% 84% Ca

13% 13%83% * 0 a,

INDEX OF REAL INCOME GROWTH - 1950-1960 CHART - 3 (1950 = 100)

175

70 REST OF BRAZIL 65

160

55

50

145

40 S 35 NORTHEAST C

130

25

20

115

10

5

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the average, approximately half of -that for Brtil in thr 1A& ! 56. The average rate for Brazil in a more recent period, 1956-60, was 17%. If the same capital output ratio of 2.5 usually estimated for Brazil as a whole, is assumed to apply in the Northeast, then capital formati&n in the Northeast was sufficient to keep pace with the annual population growth. Given the income performance of the region, however, internal savings would not likely-provide-the needed expansion in investment funds. External capital financing is- therefore required.

(a) Estimate of Capital' Requiremvnts; The Income Gap Approach

One approach is to calculate the investment needed to raise the 1960 Northeast per capita income to the 1960 level of the rest of Brazil by 1980. As the table on the following page shows, annual capital outlays (in 1963 a prices) on the order of Cr0400 billion-would be required. In 1960, estimated gross investment in the Northeast (in 1963 prices) totalled from Cr375 to 100 billion. Without a dramatic ohange in the capital-output ratio, it is clear that the rate of investment in the Northeast would have to be in­ creased enormously, if the pace of increase in per capita income is to be sharply accelerated. - Appendix A, Table 57 indicates, on the basis -of incomplete information, that investment plans for 1963 called for some Cr3150 billion in the Northeast. Even if this sum were invested, it would still fall far short 'of total requirements.

S) -4 ina4 'at'-R4 e 144 yment -Approach " A second approach is to cons-ider the level of investment nee&ed to provide employment for additions to -the labor force and to provide jobs for the mass of unemployed and underemployed. The following factors should be. considered*. SNet-additions to the regional work force, estimated to range between 135,000 and 160,000 per year.

. Estimated unemployed and underemployed, assumed to be equivalent to 750,000 unemployed.

. A ratio which reflects the indirect employment effect of a created job in industry, assumed to, ber-3. tol2.

. Capital costs for creating one job in industry, estimated at Cr$2.5 million (1963 prices) I Calculations based upon the preceeding assumptions point to - 21 ­ wV

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Table - EStCtMT J CAPITAL REQUIRMNTS TO RAISE, BY 1980, PER CAPITA INCOM OF THE NORTEAST TO TIE 1960-LEVEL - OF THE REST OF BRAZIL - In 1960 In 1963 Prices Prices 1. Per capita income of the Northeast in 1960 (Cr) 13,500 40t500 2. Per capita income of the rest-of Brazil in 1960 (4) 32,900 9&2700 3. Total income of the Northeast in 1960 (Cc$ bilion) 300 900 4. Total Northeast income if its per capita income was the same as in the rest of Brazil (Cr billion) 740 2,220 Income Gap 440 19320 5. Total capittf necessary to close income .g'p ((rS billion)- 1,100 3,300 6. Tot-il capital to cover 17 year increase in population (C8%_billion) 750 2,250 7. Total-capital required to close income ,gap, including allowance for populdtion expansion (cr3 billion-)- 1,850 5,550 8. Total capital to cover estimated . depreciation (Cr$billion), . . 450 1,350 9.. Total capital requirements (7.) * ,.420 -plus (8.)- rS illion) 2250 6,750 10. Ahnual capital requirements (9.) +17 (CrW billion) 135 400

- 1,320

4Iigures are rounded.

2119r,3 Price level calculated at three times t]q, 1960 level.

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an annual investment leve of at least Ce8130 billion .(1963 .prices) ­ assuming that all additions to the work force are fully absorbed while the mass of unemployd and underemployed are accomodated over a 10-year period. This calculation does not take into account the magnitude of required social overhead capital or economic infrastructure. If, as expected, this magnitude would amount to some multiple of -the Crf130­ billion mentioned above, the capital requirements ihadicated by the "employment approach" are not inconsistent with the-estimate pre­ viously derived. 3. The People-Land Imbalance Given its present stage of development and given the present "state of the arts", one of the region!s most significant dev41opment problems is its inability to support its present population and to assure it and the increase to come, the level of living to which a steadily rising proportion of the population aspires. Table II ESTIMATED CAPABILITY OF AGRICULTURAL RESOURCES TO SUPPORT RURAL POPULATIOWS IN THE NORTHEAST, GOIAS, MATO GROSSO AND RONDONIA, 1960 (Figures in thousands) Northeast Hato Grosso Bulge and MFranhao States Bahia Total 'Goias Rondonia NUMDBER OF RURAL 600 90 FAMILIES SUPPORTABLE 600 to to to YGRIC URALBY ARIC RAL 7 660 800 900 2,360 1,000 2,700

ACTUAL U1MER OF RURAL FAMILIES IN 1960 CENSUS 410 1.760 780 2,950 310 115

ESTIMATED BALANCE - IN 1960 Excess 960 590 DQficit 250 120 290-690 785-2,585

/Assumes 5 people per family

Assumes average family requires sufficient land to produce 20 metric tons of cereal or metric tons of meat per year.

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'Tab1le '5adiates that some 60o,000 rural families or approximhtoly 3,000,000 people cannot be adequately supported- by the region's agricultural resources. This critical imbalance, however, is not region-wide. The problem is centered in the "bulge" states, as Table II shows, Maranhao and Bahia actually could have supported, in 1960, larger rural populations than were living in these states.J 4. Mobility of the Nordestino The startling mobility of the Nordestinos, particularly those from the rural areas, has directly caused, on the one hand, the region's population growth rAte to lag behind the rest of the nation and, on the other hand, a rapid urban population expansion. However, all the evidence appears to support the conclusion that the basic rural structure in the Northeast has not been altered by what has been a dramatic rural cut­ migration. Furthermore, while the rural problems are still substantially unabated, the rural migration is tending at least to spread and ultimately to shift much of the welfare burdens, social tensions and possibly, political pressures.to the urban areas which are now completely unable to cope with problems, already clearly intensifying. Estimates of migration (Table 9, Appendix A) suggest that some 3,500,000 left Northeast rural areas between 1950 and 1960, at least 1,000,000.moving to urban areas in the Northeast, with the remainder moving out of the region. 5. Structural Patterns Over the decade 1950 to 1960, income from industry tended to decline (to 11.6%) as a percent of Northeast income. Agriculture rose to 46% of total regional income, gainipg at the expense of all other sectors. In contrast,,.throughout qpail, Andustry tpndeli tp increase its share of' income.

See Appendix B as well as Qhapter III for more detailed discussions of the regiopal relationship between peoplq and rpsources.

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- 24 ­ UNSLASSF D OFFICIAL -USE Manufacturing accounts for more than 95% of industrial activity in the Northeast, two-thirds of which is concentrated in food processing and textiles. Some 65% of regional manufacturing employment is located in Pernambuco and Bahia. One-third of agricultural production in the Northeast is exported, accounting for about one-fifth of Brazills total commodity exports in 1961. The regionts agricultural product is distributed -as follows: 40% for export and industrial crops; 35% in food crops; and 25% in livestock products. 6. Industrial IDevelopment Opportunities The Northeast has yet td exploit the industrial potential created by its mineral resources and sizeable local market. Industrial possibilities also exist in the traditionally important food processing and textile .in­ dustries, particularly if the latter were modernized. The raw materials, know-how, labor and potentially large demand provide the basis for the prospects of considerable growth in construction. It is evident that economic development in the Northeast will not proceed much more rapidly than in the past unless industrial development is sharply accelerated. 7. Relation of the Region to the National Economy The Northeast is not an economic entity conveniently separable from the national Brazilian economy; rather the Northeast is critically inter-related with the national economy, and has, in fact, contributed significantly to national economic growth. The Northeast is an organic part of the national economy. The region has transferred to other parts of Brazil perhaps a million workers since 1950. Being a deficit area with respect to food and manufactured products, it provides f-substantial market for the agricultural and industrial out-put of -otherregions. It has contributed significantly to national economic development in other ways: first, the Northeast appears to be a sub6tantial net exporter of private capital to other sections in Brazil, amounting, in the past, to milliois of dollars annually; second, because it ip a net earner of foreign eypgange, amounting to a.bout $1,3 billion in tbe last ten years, it has hq1pvd Brazil,

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chiefly the South, to sustain a high level of industrial imports so essential to rapid rates of economic development; third, inoreasingly, it exports many products to other regions of the country amounting to 030 to 840 million a year. In past years, reflecting construction and relief efforts in response-to the effects of the drotught and, in more recent years, as a matter of conscious national developmental policy, federal expenditures in the Northeast have substantially ex­ ceeded the federal tax take, thereby representing a transfer of resources from the rest of Brazil to the Northeast. In short, the Northeast is deeply woven into the national .economy in terms of human resource movements, intra-regional flows of funds and goods and, indirectly as well as significantly, via the mechanism of international trade and finance. 8. Regional Homogeneity and Heterogeneity Despite economic, social, political and ecological similarities within the region, the Northeast is, in several respects, a very heterogeneous "region". The boundaries of the "region" of the Northeast, now consisting of nine states, partly refleoib similar geographic, climatic. economic and other factors, but also partly stem from political exigencies. The "Drought Polygon", sometimes used -more or less interchangeably to mean the Northeast, has itself undergone successive and arbitary enlargements. Ifaranhgo was in­ cluded within STENE's geographic purview, not so much because it naturally was part of the Northeast, 2/ but rather because early programs supported by SUDENE called for shifting people out of the

J The significance of this transfer is diluted by the fact that federal expeqditures exceed its tax take in many other states although not to the same extent aq in the Northeast. The federal deficits partly resulting from these expenditures are a major cause of inflatio­ and, therefore, redyode the amount of real resource transfer.

Maxanhao id also included by SPIVEA (the regional development au thority for the Ampzo4 valley) within its jurisdiction.

3/ Such programs recognized the fact that naturalmigration to Maranhgo was already occurring.

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NORTHEAST URBAN AND RURAL POPULATION DISTRIBUTION CHART - 4 ACTUAL 1940 - 1960; PROJECTED 1970*

PER CENT DISTRIBUTION

URBAN RURAL

1940 23. 4% 76. 6%

1950 26.4% 73. 6%

RURAL 1960 34. 2% 65. 8% C 1970 44. 0% 56.0%

R ......

1960...... 0

1940 1950 1960 1970 *Projected by Special Northeast Study Team then Northeast into Maranhao. With the exception of the 33 1xanicipios in northern Minas Gerais$ SUThEf's area of responsibility has'become the geographic. definition, of the .Northeast.0 The Northeast is conveitionally described- as ponsisting of two great sub-regions - the hifid strips (east coasfid'Ma'raithio) and the semi-arid hinterlands - with a. ttansitoralTiFWilled the ­ "agreste". These sub-regions are characterized by different soils and h4oj+o 2 yen. leatic oxi4itions, population densities . conomic organization; atructure.and performance. These differences, in turn, have res4te4 in variations in customs, social organizations, land ownership-and use patterns, apt forms, and in diverse expression of political and social unrest. Within the region, the one phenomenon which, since the last quarter of the nineteenth century, has become identified with the entir egion namely),h odig1 droughts, has hal serious, calamitous onse­ qiwnop r .but for only a relatively small proportion of the regional population. There aire, of course, significant features of the Northeast which, in addition to its general location, provide over-ridi-ngy grounds for regarding this area in regional terms. Throughout the Nbrtheast, despite wide differences, incomes are lowest in Brazil and probably distributed least equitably. Uniformly, the working population is preponderantly agricultural. Uniformly, economic activity is characterized by low productivity and high vulnerability to price fluctuations and external market forces beyond the region's control, Perhaps a-quarter of the region is outside the market economy. Most important, the people of the Northeast regard them­ selves not only- as raziliansbut as "Nordestinosu with a fierce loyalty to their homes, .to their .land and to their part of the nation. Nevertheless, Nordestinos, as mentioned previously, are charaoterised by unusual mobility, with more than one of every ten moTing to a different,1state within the region or out of the region in 1950 (the latest year for which,this information 'is availabie). With the possible exception of residents, of the East region,

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Nbrdestinos appear to be the most mobile-group in Brazil. Finally the region is uniformly characterized by- low per capita investment in economic and human infrastructure, by considerable unemployment and underemployment and by a-generally outmoded, poorly maintained and rather limited industrial plant. By SELECTED ECONOMIC AGGREGATES AND SECTORS 1. Area and Population Nine statesIcomprise the Northeast, all with direct access to the Atlantib, The region, some 600,000 square miles, represents about one-sixth of Brazil's total area. The states vary gratly in size, from Sergipe, the smallest (8,500 square miles) to Bahia, the largest (216,600 square miles) which alone accounts for more than one-third of the entire Northeast. With approxinately 24 million people (1963), the regional population amounts to almost one-third of Brazil's total population (77 million in 1963). Population density in the Northeast, therefore, is double the average for rest of Brazil. There are, of course, areas of high population density in-other parts of Brazil as well as vast areas-of low density4 "Northeast natural population growth rates tend to exceed average rates throughout Brazil, largely because of a proportionately greater rural population. The fact that net actual populition growth-in the Northeast is considerably lower than in the rest of Brazil (an annual rate- of 2.2% compared to 3.2%) results directly fronf substantial regional out-migration'. .Z The previously described migration patterns in the Northeast account for the report's estimate that Northeast rural population movements represented almost 60o of the total migratory shift from rural to urban areas in all of Brazil, amounting to about 6.3 million

in the 1950's - The pace of urbanization in the Northeast, just as for the rest of Brazil, accelerated sharply in the 1950's. 'And the rate of -

Not including the about one-tenth of Minas Gerais. -28- LIMITED OFFICIAL USE LIMITED OFFICIAL -US. rural growth.actually declined in the Northeast, even while, compared to the 1940's, it rose for the rest of Brazil. By 1960, more than one-third of the Northeast population lived in urban-areas; 10 years earlier, the proportion was one-fqpxth . High rates of growth in Northeast cities of all size categoriep were experienced, especially in the 10,000 - 20,000 category which increased by.,140% in the 1950s. On the basis of past performance .and prevent evidence, more than 50% of the Northeast population will zeside in urban areas within 15 years, a ratio reached for the rest of Brasil three years agp. 2. Resources Neither is the Northeast bountifully blessed with, nor sorely Utaft of, significant natural fasogrce. While its soils. are, for the most part poor, its mineral base is sufficient to provide a prospect of substantial industrial activity. The.Northeast also contairis significant timber resources, Although hydro-carbon fuels for energy appear to be restrictedto (probably) limited oil deposits, these constitute thy only known oil-resorves in Brazil (except -for shale oil). Hydro-power potential is sufficient to meet industrial and other energy requirements for several years. -Rainfall is desperately inadequate or barely sufficient in much of the Northeast,

But there are significant sections of the Northeast where -water-is -­ adequate or ample. Almost half of the area of the Northeast has sufficient rainfall for dry farming, Dat, unfortunately, in only a small portion of the region's land area is there found a happy combi­ nation of soil structure, reasonable .fptility, convenient topography and satisfactory rainfall. Soil conditiovis also limit the amountof. irrigable land. Finally, the Northeastas-for.manyother areas in the tropics, is most favorably situated to benefit from any advances in technology which would permit the commercial or economic utilization of solar energy. A Note on the "Drought Polygon" With the exception of Maranhao, the area of the 'Wrought

Polygon" or "Polygon of the. Droughts" is roughiy co-terminous with ­ the Northeast. The "Polygon" accounts for 56% of the land area of - 29 - LIMITED OFFICIAL USE LIMITED OFFICIAL JUSE

the region ot 72% of the Northeast if Maranhgo is excluded. The "Polygon" consists of areas in the eight other states with two states, Pian and Bahia accounting for 60%o of the entire "tPolygon". The region, scene of intermittent droughts, seasonal dry spells and reourret floods, is generally semi-arid rather than massive desert. Prevailing soils are pdbr and highly saline but the.re are considerable stretches of relatively fertile land. 3. Employment and Wages Employment and wage data, partnl~uarly the latter, are sparse and unreliable. The analyst is also counfounded by knowing about, but being unable to quattify mass underemployment and considerable disguised unemployment. In addition, perhaps one-quarter of the woiking labor force participates only partially, if at all, in the wage economy. Nevertheless, data oh the "economically active popu­ lation" (persons 10 years of age and ever, receiving money wages) may be useful as an indicator of employment and structural trends. On this basis, more than I million Nordestinos were ',employed" in 1960, representing under one-thirde (32,5%) of the total population, a ratio slightly below the proportion for the rest of Brazil (34.3%). One important fact appears to te that the percentage of economically active in the-Northeast rose slightly in-the 1950's, in contrast to a significant fall between 1940 and 1950. Celso FTrtado estimated, in 1959, that unemployment and under­ employment in-the Northeast exceeded 500,000. To this day, all references to probableunemployment and underemployment repeat this foureyear.old estimate. The actual figure-is probably closer to 1,000,000. - Important changes appeer to be occurring in the structure of employment as is shown in the-following table, Table III PERCENT DISTRIBUTION OF S1COOMICALLY ACTIVE POPULATION BY SECTOR, 1940 - 1-960

-Northeast - Rest of Brazil 1940 195 -1960 1940 125 1960 Agrio4Xture 74.9% 72.4% 64,4%, 63i8% 50.7% 42.6% C. Industry 943 10.3 1341 14,9 18.7 2-lO Others 15.8 17.3 22.5 21.3 30.6 36.4 30 LIMITED OFFICIAL USE C 5 C UNLSFIED-CHART. 0

SELECTED COMPARISONS, co a .. AREA AND POPULATION o0 o co

0 O

0

AREA IN [] MILES

POPULATION IN MILLIONS - '

C 0 C N 0' En

C C C 0' -4

~-0 U) 0 En 0 N 0 C4 N C'

CC

E1960 1961 i1960 1961 | Northeast Argentina Central New Texas & Brazil South Brazil America England California America I LIMITED OFFICIAL USN

All throughout Brazil, agriculture is bsing, in relative employment terms, to industry and services& For the Northeast, this trend was considerably more marked in the 1950's than between 1940 and 1950. In contrast, the pace of this structural shift appeared to have slowed down in the rept of Brazil. Thus, from 1950 to 1960, the economically active population in industry in the Northeast actually grew more rapidly than for the rest of Brazil. Wage levels are importantly affected by minimum wage de­ terminations (presumed to reflect cost of living changes), although, depending upon labor strength, political consideration, labor market and other factors, departures from the legal minimum are not uncommon. Very substantial variqtions in wage rates exist, even with­ in similar labor categories, although, in the Northeast, a larga proportion of the labor force is paid only the present monthly legal minimum (or lower),4/ Fbr example, bank workers in Recife, better paid than other workers in trade and industry, average between 40,000 to 75,900 oruzeiros per month, 4. Prices Limited price data for the Northeast were used to construct a cost of living index for the region. This index was called upon to perform tasks - deflating aggregate and sectoral income for the Northeast -- which the quality of the underlying data would not, ordinarily, permit. In the absence of other tools, however, it is believed to be a useful eres. The following table suggests that while prices in the North­ bast and the rest of Brazil more or less paralleled each other between 1950 and 1955, subsequent years showed a considerably more rapid spurt in the Northeast, believed to arise chiefly from sharply rising food prices.

1For Recife and Salvador: Cr816,500; other legal minimums throughout the Northeast currently range between W$15,100 and Cn87,100, de­ pending upon the location. Legal minimums referred to-are those resulting from the January 1, 1963 minimum wage decree.

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Table. IV PRICE TREND COMPARISONS 1 1950 -- 1960 Rest of Northeast Brazil (1950-100) 1950 looiD l.o0 1955 2025 207.6 1960 625;6 540.1 Percent Increase 1955 - 1960 208. 9 160.o 5. - Productivity Various pieces-of evidence indicate- that- industrial and agricultural productivity are substantially lower in the Northeast than in the rest-of Brazil. For example, although the number of economically active workers in indistry grew more rapidly in the North­ east than elsewhere in Brazil, the rate of increase in real industrial output lagged behind the rest of Brazil between 1950 and 1960. Yields per hectare, in the Northeast for most crops (corn appears to be an exception) at well below yields elsewhere in Brazil, despite the fact that there are more wupal workers ppr cuiltvated hectare in the Northeast. The ratistp of animals, qeughtered ant pIeat pro­ duced per aninal are Ipwep i$ the Northeapt than in Brazil ap A whole. 6. Trade The Northe4t occupies an important place in Brafll's internal pommeppe and plays a vital role in the nation's foreign trade. The tegion accounts for more than 20% of Drazilfs exports while ir porting only 5% of the national total. -In the process, it contributed, in the eight years between 1954 a4 1962, ,net foreign exchange earnings which averaged $130 million annually. Domestic and foreign trade, though declining somewhat in. relative impbrtance, accoupts for one-fifth of the region's income, M§jor foreign imports to the Northeast, include petroleum products, dried fish, wheat and wheat flour and heavy equipment. Imports from other areas of Brazil, principally the States of

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COST OF LIVING TRENDS IN THE NORTHEAST AND BRAZIL. CHART - 7 (1950 = 100)

700.

650

600

550

500.

450 400 Cli 350

300

250

200

150

100

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Guanabara1 Sgo Paulo and Rio Grande do Sul, consist of foods and various industrial products. Exports are -overwhelmingly agri­ oultural products. The over-all hi gh significahoe Af intra-regional an& ext ernal movements of goods involv ing the Northeapt - not only to the regional economy but to 3razil as a whole - underscore the strategic importance of the transpo rtation sector to the economic developmen t of the Northeast,

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CHAPTER III

AGRICULTURE

The problems of Northeast agriculture require solutions as yet, apparently, completely uncontemplated by SUDENE, other arms of the federal establishment, the states of the Northeast or the individuals directly concerned, Eoonowic and technological pressures already operating, would ultimately bring about the required solutions. 'However, unless political decisions are made to hasten,achievement of these solutions and to provide an opportunity for peaceful transition, not unfamiliar social forces may well play havoc with the political framework-within which decisions have to be made. The price required for .expeditingthe inevitable economic adjustments may be high. But so are-the stakes.

This chapter contains the following three sections:

* Introduction - Analysis * Prescription

Appendix B provides detailed technical support for the con­ clusions presented in this chapter.

4t INTIDUCTION NQtkeast Brazil, with 38% of the nationts rural population and 19% of the nationls cultivated area, produce's 22% of the national income in agr'iculture. Its items of agioutup4l produge A.Pqt 4% export and industrial crops, 25% livestock products and 35% food crops. In value terms, one-third of the region's gross agrioultural product is exported. Northeast agricultural exports accounted for more than one-fifth of Brazilts total commodity exports in 1961.

At the farm level, the agricultural economy is based on technologies of farm work and of soil, crop and livestock management

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which,;with -localized .exceptions, have undergone.1ittle improve-W ment since early colonial days. Disparities between the Notheast & hnd the South with respect to per-capita income in agriculture, previously large, have increased in post-war years.

Major segments of the Brazilian markets, especially those for cotton and cane, which inpre-World War I-years were serviced largely by.Northeastern production,'now are increasingly being supplied by the higher-productivity agriculture of new producing centers in south Brazil.. For.this.reasons sections of the Northeast agricultural economy are in economic crisis; moreover, the problems may become more acute.

Large areas of the rural Northeast which formerly played a major role in the national economy now have a population load in excess of the capacity of the-land to support it. Despite very substantial out-migration, population continues to grow and the people-land balance remains unfavorable. The present pace of technological change is unlikely to alter it. Unfortunately, -new concepts of.rural social justiceand techniques for implementing them are mired in the incapacitating environment of ineffective national leadership, politics "as usual", and political agitation.

B. ANALYSIS

The dominating economic feature of the continental-bulge into the south Atlantic, which consists of Brazil's Northeast, is-an extensive inland area within which rainfall is marginal for dry farming. Except on its western margins, the soils of this dry zone are shallow, averaging lessthan 15 inches to bedrock. These latter consist of granite, Eneiss and- micashist. On decomposition, such rocks release elements needed for plant growth. They this serve as a source of-continuing natural fertility although, due to low volume of soil, the amount of plant nutrients available at any one time may be small.

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RELATIVE IMPORTANCE IN VALUE CHART - 8 OF PRINCIPAL NORTHEAST AGRICULTURAL CROPS IN 1950 AND 1960

PERCENTAGE DIST)IBUTION OF AGRICULTURAL PRODUCTS IN THE NORTHEAST, 1960 - LIMITED OFFICIAL USE

The marginality. of this dry zone for dry farming derives not only from circumstances of low average annual rainfall and shallow soils, but alsb:from extremely wid'e variations in'rainfall from year to year. Wiihip much of this dry zone, the frequency of years in which dry farming will produce crops has been just enough to,tempt very large imbprs of farmers to continue this type of economic activity' within the marginal aiea. The number of farmers and the area. sise involved aie so large that the alteration of better-thas-normal prop years with normal or sub­ normal crop years results in'year to year fluctuations, ranging between disasler and abundance.

When establishing the jurisdictional area of SUDENE, the political boundaries of the Northeast region deliberately were extended well beyond the borders of the drought area in order to give that agency more flexibility in handling economic problems related to the drought zone itself.' However, in order to give meaning to an analysis of the agriculture of the region, it is

necessary to separate the region into its widely-differing ­ geographic components. As used in the text, these components will be referred to as follows:

Sub-region 1 consists of the State of Maranhgo, which lies entirely' outsido the dry zone, and which still contains extensive areas of virgin tropical forests.

Sub-region 2 consists of the states whose economies are dominated either by the dry zone or by sugar economies, in turn dependent upon the dry zone fpr much of their fo6d supply. Sub-region 2 includes Piani, Ceari, . Rio Grande do-Norte, Paraiba, Pernambuco, Alagoas and Sergipe.' Sub-region 2 occupies the' continental Ibulget and is so identified in the text.

The Sub-region 3 consists of the Stat6 of Bahia,' which although containing large areas of the dry zone and producing some sugar, nonetheless has an agricultural economy which over-all is not dominated by these circumstances.

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1. Comparisons of the Sub-Regions The agricultural economy of the MaranhEo sub-region may be characterized as one in which an old stagnant agricultural economy based on extensive livestock production and? collecting activities is now receiving the shook of a rising tide of hard­ working hopeful immigrants from the bulge-states sub-region.

Being a frontier state, this sub-region is not-under the economic pressures which are affecting the other sub-regions of the Northeast. The frontier occupation is occurring in a disorganized anddestructive manner and the new additions to the economy of the state are made largely at the expense of the virgin forests which are burned for fertilizer. The type of agricultural economy coming in with the frontier waves does not have prospects of permanence after the forests are exhausted. An early survey of the natural resources of the state -isneeded to determine whether the economic activities of the immigrants could be directed into channels offering more-permanent and constructive use of human energies and of natural resources. It way well be that on the basis of such a survey, it would be to the advantage of the State of Maranhao to direct the migration stream to better soils farther west in order to avoid the future development of an imbalance between rural population and soil resources such as now characterizes the bulge-states sub-region.

The situation of'the bulge-states sub-region contrasts radically with that of Varanhao. The agricultural economy of this sub-regibn is under both economic and social pressure which are related to a series of forcos including acute imbalances between rural population pressures and soil resources, high rates of population increase, price pressures and dislocations as a result of competition from more advanced agricultural technologies, rising expectations on the part of the rural population, and political agitation in the rural areas, Unless the bulge-states sub-region makes adjustments to accomodate

LIMITED OFICIAL USE 37­ LIMITED OFFICIAL USE these pressures and especially those relating.to the inevitable impact of technical changes in agriculture, -the normal economic functions of an -agricultural sector will continue to be dis­ rupted. In other words,tfe sect6r will be unable to: (1) maintain its-present level of prime material production for domestic-industry and for export; (2) serve as a rdliable source of food supply for urban populations; and (3) fulfill traditional functions of capital formation foruse in other sectors of the economy.

The agricultural economy of the'B~hia sub-regioi differs in two important respects fiom that of the bulge-state sub-region. -The first of these'relates to the circumstance that the two more important products, of the a rioultural economy, livestock (32%) and cocoa (21%), are not under pressure froni -' technological advances elsewhere in the national economy. " (In the case -of cocoa, -production is under pressure from interna­ tional production but technical accomodation to thi's pressure is within the means of the producers.)' The second important difference between the economies of the two sub-regions lies in the fact that the State of Bahia has soil resources adequate in quantity and quality to take care of W5oth the resource require­ ments for introducing high-productivity agriculture and -for. resettlement of rural laborers on their own independent non-' commercial farms. Thus, while some areas of Bahia are under the same pressures of imbalance between rural populations and natural resources as is the bulge-state. sub-region generally,.­ the economy is not under as much pressure from technological advances and, moreover, still has sufficient flexibility.to resolve both problems, Moreover, the superior opportunities for industrialization within the Bahia sub-region, as compared with the bulge-state sub-region, provide an additional rationale for looking to Bahia as. a major destination for its present­ rural pppulation during, at least, the traLnsition period.

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.'QSC PAnESdRIBTION The required course of action seems clear. The burden of capital formation which hitherto was supported by rural labor will, whether one wishes or not, be transferred to sources of energy (animal or mechanical) directed by a technology which inevitably will replace the hand-labor working force. In order to minimize economic dislocation and human suffering during this transition, two distinct objectives should be achieved.

First to remove segments of the rural populati-on-from their economic and social tie to low-produotivity, marginal commercial agriculture (and, in the process, provide significant opportunities - agricultural and industrial - to these segments). Second, to stimulate the growth and expansion of large­ scale, technologically advanced agriculture. A process of adjustment of the imbalance between rural population>and.agricultural resources has been taking place for some time in the form of natural migration from the region. However, this natural migration is not sufficiently rapid to avoid the prospect of economic and social crisis within the bulge-state sub-region. Nor is it sufficiently rapid to stimulate within the Northeast-those technological and other major adjustments needed to preserve or strengthen the region's position as a commercial producer.in the face of technological revolution occurring in southern Brazil.

The program for providing alternative opportunities for rural workers released from their previous role in commercial agriculture can, at the outbet, best be resolved, in view of their numbers, by helping them to become independent self­ sufficient farmers engaged, es~entially, in non-commercial farming activities-. (As industrialization proceeds, additional opportunities will be created). Fbrtunately, Brazil has more than ample quantities of unoccupied land of qualities suitable for carrying out the indicated migration-colonization-resettlement program in the magnitudes needed for the Ilortheast. However,

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the Northeast itself does not contain lands 'inquantity-and quality necessary for executing the scale of program required. Inasmuch as the major part of this operation necessarily will be carried out at the pcint of ocoupation, this would mean -rf'>' 1 I' that responsibility for program"'; 1" 6peration would rest either with the federal government or the receiving states, or possibly some form of inter-state compact.

Accomplishment of the second objective - large-scale, advanced agriculture -- necessarily will. be executed- iii 'zones having soil resources physica-ly §uited to the-applibation of technologies in high-prolctiity agriculture. This will, in the case :of the Northeast,-involve a considerable amount of geographic reloctioh of centers of production. Considbred as a whole, the region has sufficient soil resources of this quality to maintain present levels of orop producti6n through high-productivity technologies. 'But the bulge-states'sub-region, while containing some soils of this *class, do not possess ar'eas in-sufficient quantity to maintain present levels of production by means of high-productivity agriculture. However hnfortunate this circumstance may be, the fact remains that the centers'of Brazilian agricultural production will shift to areas having soils physically suited to application of high-technolbgies . and, to the extent that-existing resource's within the1:Northeast are.not developed along these lines, .the needs of national and regional markets will be served from. more favred producing areas. Bahia, happily for the region, does -possess the required soils. The opportunity exists, thorefore, to-undertake programga relating to the high-productivity, technologically advanoed ­ agricultural objective, iithin the region itself.. Such-an, effort, if successful, would reduce the dislocation to the Northeast economy which otherwise Would occur. .

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It is -evident from previous discussion that .solutions-to Northeast agricultural problems are .ational and not solely regional in nature. This consideration is one of several which points to the need for -an integrated national program for the Northeast.

In the preparation of this chapter, considerable material was synthesized to provide the abkground for the analysis and­ conclusions'presented. This synthesis represents, it is believed, the necessary technical support for the preceding pages. To assure its availability, it is presented in the study in the form of a technical supplement as Appendix 3.

. A

W,

I .1

'S.I.'

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IIQ)USTRY

Four sections comprise this chapter:

. The Current Situation.

. Comparisons and Trends

" Obstacles to Industrial Expansion

. Industrial Development Possibilities

A. TEE CURRENT SITUATION

Industrial activity in the Northeast includes the extractive, manufacturing, construction, and public utility sectors. Current data are virtually non-existent. Even for recent years, information is incomplete. The latest past data for industry provide coverage for the manufacturing and extractive sectors but not for construction and public utilities. These last two segments, however, represent a small proportion of total industriaf af ivity in the Northeast,

For example, in 1949 (the latest year for which data for all seg­ ments of industry are available) manufacturing and extractive activity accounted for 92.3% of employment and 93.8% of "value added".

In 1960, industry accounted for 12.0% of the total income generated in the Northeast and 13% of the total economically active population.

Most of the following discussion of the "ourrent" situition is based upon'1958 data, the latest year for which comprehensive details are available. UNCLASS 0 d. manufacturing industries, in 1958, employed

172,314 persops engaged directly in the production process :u

20,440)4'industrial establishments. Production amounted to 79.0

billion cruzeiros.and "value added" -came to 36.0 billion 'ruzeiros

* (both figures in 1960.prices).

Industry as previously indicated, was less important than

agriculture. Agriculture provided almost -three times as much in­

come as industty (289 per cent) and, in terms of employment, was

even much more important, providing work for an estimated 4.7

million people against the 172,314 persons employed directly in

industrial activities. Even these figures tend to understate the

"importance" of agriculture, inasmuch as the data cover only these

"economically act-ive". A significant proportionof people "work­

ing" in agriculture awe--not included in the "economically active"

working population.

Manufacturing was carried on -in 19-,030 establishments employ­

ing 162,902 persons, while the extractive industry consisted of

. 1,410 establishments employing 9,812 persons. 'Manufacturing

accounted for 94.3% of industrial-employment. .The~dominance of

,manufacturing is similarly revealed by the fact that manufacturing

output amounted to 77 billion oruzeiros (in 1960 prices) and, for 1

t l value added", about 34.6 billion cruzeiros (in 1960 prices) - 97,9/ and 96.3%, respectively, of the total of the extractive and manu­ facturing sectors.

l/ The extractive industy consists of mining, quarrying, crude oil and natural gas production; and plant extraction of oils, fibers, etc.

- 43 ­ Producer goods inWdRb*"ay~eT asmewiihat larger role in terms of employment and "value added" than the consumer goods industries. -Production in producer goods industries was carried on in 32% of all industrial 0stablims]ents while accounting for

45.5% of employment and 52.8% of the "value added" in manufactur­ ing. In the extractive industry, the more important activities were mining, quarrying, and the production of crude oil and natural gas. These provided 88, % of employment and 9Vo of "value added" within the extractive sector.

In 1960 , the industrial sector of the Northeast (including extractive industry, manufacturing, construction and public utilities) contributed 35,374 million cruzeiros (in 1960 prices) or 11:6o to the gross domestic income of the Northeast. The agricultural sector,in contrast, accounted for 45.9 of the total xegional income, a familiar promfn4pp in an underdeveloped couhtry.

1. Loatjon of Industrial Activity

As might be expected? airpti altfy ) pveply dist'ibuted thypgghout the Northeasl, .nsg,f9T p ? the pip states

po Babia, Rio Grande do lo-tp, Cqg$, a4 ppafba wih ativity lopted prtmwrily in p1e copsal strid along the paptern phorp,

Jn 1961, Bahia ranked.first in crude oi, patyp.l gas, lead ore, and magnesit , producing 100o, 100o, 62% ahd-76%, respecttvpjy, of

Brazilts total production.

The States of Rio Grande do Norte and Oear4 are the largest producers of sea salt capable of yielding dozeris of by-products.

- 44 ­ UNKCIA f0 (More, than 40 have already been idewptified). In 1961s these two

states accounted for two-thirds of Brajle's sea salt production,

Rio Grande do Norte is the country's sole producer 6f tungsten,

producing 1,029 tons in -1961. Production of -barite is centered

in the State of Bahia which, in 1961, amounted to 62,393 tons, or

99.90o of the country's total production.

The 'blk of manufaturing, industry-itr the: Northeast is centered

in the States of Pernambuco and ]Ba~ia.,.,Pernambuco ranks first,.

with its factories and plants qoncentrating in and around the

capital city of Recife. In 1959, the state produced an estimated

34.6% of "value added of manufacturing in the Northeast, tiValue

addedt amounted to an estimated 15,867 million cruzeiros in 1960

prices. Manufacturing in Pernambuco employed an estimated 69,400

persons in 6,100 establishments. These and other figures are pre­

sented in the following table.

TA3LE - MAINUACTURING If TEE NORTHEAST, SELECTED STATES, 1959 (1960 Prices) No. of Production Establishments Value Added . Workers A­ (billion cruzeiros) Pernambuco 6,100 15;9 69,400 Bahia 5,900 12.0 * 36,488 - Ceart 2,100 3.9 15,200 Alagoas 1,564 3.7 16,463 Paraiba 1,050 4.3 15,100

In 1959, the five states shown in the preceeding table contribut­

ed an estimated 86.8% of the Northeast 'talue added", and provided

employment for an estimated 81.5%.of the. region's industrial

- 45 ­ personnel in 73.2%of the region t s establishments.

2. Selected Industrial As-pects

Although there are signs of change, -family ownership of the majority of business- oganisatiopg is characteristic. The top and other senior positiozis An company administrative azid production divisions typically are filled by members of the family controlling the business. It also ap'pders that expansion is often difficult because the-family is unwilling to share ownership with outsiders even if this would be what was required- to obtain additional capital; -

Another characteristic' of Northeast' business organization is its shaky fiiancial position. Obligations often go unmet. In

1960,'the negotiable inistruments protested in 'the dapitls of the

Northeast represented a total value of 253,600,OOO cruzeiros. An aspect of the financial condition of many enterprises in the North­ east is a non-existent or .faulty cost accounting system.

Although in recent years there are signs of improvement, North­ east businessmen are on the whole tradition-bound and, hence, slow to introduce or even toliearn &bout new techniques. The majority

is mainly interested in the export and import trade, or in tra­ ditional industrial activities associated with textiles and sugar.

They are inclined to regard non-traditional industrial activities with distrust. Although the younger generation of businessmen is

beginning to show a more progressive attitude, the Northeast has far to go before it can be said to possess an.aggressive and dynamic

- 46 ­ business community. In this respect, as- in others, there is a mark. ed contrast between the Northeast and the Central-South, where, since the 1930's, the business community entered into a rapid expansion of industrial activities and developed into a dynamic entrepreneurial force.

Manufacturing in the Northeast is largely carried on in small establishments. In some type of activity as in metalwork, non­ metallic minerals, furniture, transportation material, and a few others, small establishments7 accounted for 100o% of "value added".

In food processing, chemicals and pharmaceuticals, and paper and paper products, medium-size establishments produced respectively,

67% 51%, and 83% of "value added". Production 4,e only two industri&s - textile and tobacco products - was carried on to a significant degree in large establishments, contributing 50% and 88%, respectively, of "value added".

Pr'oductivity in industry is low. For example, in 1958, the average "value added" per worker in the foodstuffs industry amounted to 264,094 oruseiros (1960 prices). In the same year for the same indtistry, average "value added" per worker in the rest of the countryr was 946.044 oruzeiros (1960 prices) or about 3.5 times higher.

B. COMPARISONS AND TRENDS

Iridustry plays a much more important role in the rest of the country, 'as previously mentioned. In 1958, extraction and manu­ facturing in the rest of the country employed 1,251,234 persons,

'.l

- 47 ­ or over seven times the Northeast industrial force. These sectors

genera.ted 374 billion cruseiros (1960 prices), or more than ten

times "value added" compared with the Northeast. In 1960, industrial

income of the rest of the country contributed 455 billion cruzeiros

(in 1960 prices) or 28.5% of total gross domestic income, about

thirteen times the industrial income generated in the Northeast.

In the period 1949-1958, "value added" in the ettractive and

manufacturing industries increased from 32 billion cruzeiros to

36 billion (in 1960 prices), or 12.6o. Thus, "value added" increased

at an average yearly rate of 1.4o. During the same period, industrial

business establishments in the fortheast increased from 16,865 to

20,440 (21.2o) accompanied by a 10.2% rise in production, from

71.4 billion to 79 billion cruzeiros (in 1960 prices). It id

possible to regard the proportionately larger rise in the number of

establishments as a sign of quickening entrepreneurial activity in.

the Northeast.

From 1949 to 1960, the industrial sector lost ground, relatively,

to agriculture. Its proportion of regional income declined from 12.4

to 11.6%; for agriculture, theze was an increase from 37.2 to 45.9o.

However, the relative decline in -industry occurred in the second half

off the period. From 1949 to 1955, both agrioulture.and.industry

gained, relatively, at the exppnse of the !'other" sectors.

Various measures of industrial expansion point to the conclusion

that for the most of the 1949-1960 period, and for -the, period as

a whole, the pace of industrial growth in the Northeast lagged

90 behind the rest of Brazil - trends in "value added", employment,

- 48 ­ contribution to incomes and production all support this view.

C. OBSTACLES TO INDUSTRIAL EXPANSION -

Indffstrial dthvelopment is rightly regarded as one of the keys to

raising pqr capita incomes inthe'Northeast. In broad terms, this

follows fromh the fact that the Northeast in its present stage of

development, and given its relatively poor endowment of agricultural

resources, cannot rely on the development of the agricultural

sector as the springboard for rapil economic advance, Moreover,

industrial expansion must provide employment opportunities for

agrioultural workers who, as the agricultural sector develops, will

be forced to look elsewhere for employment.

1. Inflation

- fl recent years the pace of the inflationary process has sharply

accelerated. The rate of inflation has been substantial by any

standard, as well as persistent. Price rises in the Northeast,

moreover, seemed to have exceeded the spiral movements which

characterize Brazil generally.

The impqqt of inflation is manifold. It erodes the already low

-purchasingpower of the low income groups and thus weakens the

demand for industrial goods, particularly because food prices seem

to have led the inflation. It reduces incentives to save and,

consequently, l-imits capital 'formation both in industry and agriculture.

-It assists in the creation of profitable opportnitis to invest in

-activities- that by and large add little productive inuastrial

growth, e.g., urban luxury real estate construction, It stimulates

- 49 ­ capital flights out of the country, to havens .

2. Regressive Taxation

The regressive structure of federal, state and municfnio taxation is a deterrent to industrial development. The largest part of taxation consisting of export, import, sales and consign­ ment taxes are passed on to the consumer limiting thereby purchasing power, especially of the low income population, and contributing to their inability to enter the industrial market as a more serious demand factor.

Furthermore, because of lower regional incomes, the regressive federal tax structure weighs more heavily on the Northeast than on the Center-South9 Additionally, the state and municipio tax

structure being even more regressive than the federal system, is more of a burden on the Northeast than in the Center-South. While

in the Center-South, state and municfpio taxation are not much above federal taxes, in the Northeast they are almost double.

3. "Inertia"

Inertia, characterizes Northeast attitudes toward change. To no

small extent, it is an outcome of a backward agricultural environ­ ment accustomed for centuries to cultivate limited economic activities. Inertia is reinforced by la'ok of industrial know-how

as well as by the general atmosphere of doubt and distrust (toward

industrialization) prevailing in the traditional lines of economic activities such as export, import and industrial textile and sugar activities - as was described earlier in this chapter. Although UNCI.ASSIF 0b b , ,basic changes in attitudes - by businessmen, consumers, severs,

investors - may be*long in coming, Brazilian economic history

provides 'evidence that such changes are possible. Moreover,

there are indications of g .egIpggsof change in the Northeast.

4. Effects of the Obsolete, Low Productivity Agricultural Sector

- Northeast agriculture, w49h involves roughly-two-thirds of the

total population of the region, generates inadequate demandi upon

which to base Northeast industrial expansion. At least one-quarter

ofthe rural population is outside the money economy. A large

proportion of the remainder are barely able to survive, let alone

constitute a meaningf'pl maAet fo' consumer goods.

* Additionally, $idustrial de'elopMent requires ample supplies

of-food.at low prices, both to raise the real income of the population

and meet the food requirements of an expanding urban pbpulation.

.The region's "hoe" technology assures low yields and inadequate

* food produotion-and constitutes a major impediment to industrial

development.

*-5. Lack of Credit

One of the most serious barriers to industrial expansion is

the lack of long-term loans on reasonable terms. This is especial­

ly true in the case of small and medium-size industrial establish­

ments. The legal-rate of interest is 12% per year. In practice,

this is increased by lending agencies in order to maintain the real

value of loaned funds in an environment of rampant inflation. In

the Northeast, credit institutions prefer to make loans to traditional

-L 51 ­ channels of,economic activity:- conmerce and largesea e

In 1960, with the exception of mortgages, these two fields-of activity accounted for 61% ,-of .all loans in the, Northeast while loans for industry accounted for29,

Credit appears to be limited to 90 days. It is possible for a businessman to borrow from one bank for 90 days- and then "re­ borrow", but this is a very expensive way to procure investment capital. 'The use of "duplipatas! is another bit of evidence that adequate credit is lacking. A-businpssman will make,-a sale on time and immediately sell this contract or "duplicata" at a'-sub­ stantial discount to a man or-company dealing in this kind-of business. In this manner, the small business is able to sell on a limited credit basis and still get short-term, but very costly, operating capital. -

Normally extension of credit requires collateral.'As-inflation increases and companies do not.revalue assets because of taxes or other reasons, assets are less able to serve as collateral, -further weakening the -financial condition of many Northeastenterprises.

(This is a national problem)., ­

6. Capital Flight - '-.

Substantial investments are essential if the industrialization process is to acquire significantimpetua.- (In the.last.de6ade, however, the Northeast has suffered large-scale-capital flights either abroad or to the Center-South, draining the region of-badly needed capital resources., Incentives now .p3ovidedto:industry could

:-', 52 ­ UNCLASSIFEOy-halt'or substantially reduce this flight; they could conceivably

stimulate a reverse flow. See Exhibit 1 following this page which

describes various investment incentives in the -Northeast,

7. Insufficiency of Electric Power

Electric power capacity, which has expanded rapidly, still

falls short of meeting industrial requirements. A number of

industrial enterprises have found it necessary to provide their

own power installation, at least for stand-by-use. The demand for

industrial power has been the stimulus for CBESF's and SUDENE t s

planning of the extension of electrical bower lines to many parts

ofth6 Northeast from the Paulo Afonso power plant. An important

factor behind the-power shortage is the policy of valuing utility

assets on an historical cost basis. This policy results in limited,

even negative, returns on investment, discouraging private capital

from entering electric power generation. Power shortages have

limited production, lowered productivity by requiring the tactic

of abnormal work shifts and have adversely affected the operation

of equipment requiring continual heating.

Furthermore, the power shortage (combined with less than adequate

distribution of power) has tended to raise power costs, as high cost

substitutes have been.employed. For the structure of Northeast

industry, however, this has not proved to be a serious problem.

8. The Transportation Problem

The transportation grid in the Northeast constitutes a prime

bottleneck to industrial and over-all economic growth. The scaroity

and high cost of reliable transportation have forcei companies to

- 53 ­ *

* 44

EXHIBIT 1 SPECIAL INCENTIVES TO PRIVATE INVESTMENT IN NORTHEAST BRAZIL Special Northeast Study Types of Incentive Available to! D e sc r i p t i o n

I. Tax Exemptions

Firms now operating in Exemption through July 27, 1964 from taxes due to capitalization of reserve funds and SUDENE's area revaluation of assets. (law 4239 of June 27, 1963 -'Art.17)

Firms now operating in May pay only 50%of income taxes and non-refundable additional taxes from now until end SUDENE's area of 1973. Companies must increase their capital by amount of tax exemption. - (Law 4239 of June 27, 1963 - Art. 14 & 15)

New industrial and Exemption for firm starting up to 1968, from all income taxes and non-refundable additional - agricultural firms taxes. Exemption to last for 10 years from start of business, Firms must annually capitalize their tax exemption. (Law 4239 of June-27, 1963,- Art. 13 & 15)

Any firm paying income Income tax (and non-refundable additional tax) deduction amounting to .75% of value of taxes in Brazil purchased FIDENE bonds. Deduction permitted for indefinite period of time. (Law 4239 of June 27, 1963 - Art. 18 (n) ). FIDENE is th6 Investment Fund for the Economic and Social Development of the Northeast and is a means of financing various SUDENE projects.

Any firm paying income Deduction of 50% of value of approved investments in agricultural and industrial projects taxes in Brazil approved by SUDENE. Allowable for an indefinite period of time.-(Lawih239 of June 27,1963- Art. 18 (b)).

Any firm paying income Tax exemption on certain imported items without national similare approved by SUDENE. t taxes in Brazil (Art. 55 of the Regulation of Law 3692 of December 15, 1959, approved by, Decree No 17.890, of March 9, 1960) II. SUDENE's financial assistance

Any firm SIDENE will finance, wholly or partly, the prospecting, mineral extraction, 'and industrialization needed to help mineral resource development of Northeast. (Law 4239 of June 27, 1963 - Art. 5 (b)

Any firm SUDENE will pay 50% cost of imported equipment without national similars to firms wh bind themselves to use only agricultural raw materials from the Northeast. Product' must be 50% for export., SUDENE receives preferred stock for this investment. (Law of June 27, 1963 - Art. 4 §2, 3 & 4) BR zm r=perate at uneconomic levels, to conserve stocks of new materials

and finished or semi-finished goods, and to carry large inventories

at high financing costs. Goods from the Northeast are placed at

a serious competitive disadvantage; food, raw materials and inter­

mediate products imported from other areas enter Northeast markets

via high cost,transport modes with obvious unhappy effects on

industrial expansion.

9. Shortage of Educational and Research Facilities

Inadequate training, low skill levels and illiteracy have

obvious harmful effects on productivity and industrial development.

Shortage of vocational training facilities makes difficult the

transfer of underemployed manpower from primary activities to

the secondary and tertiary ones where the application of different

-or new techniques requires education. Furthermore, shortage of

higher technical training and research is responsible for the

inadequate supply of well-trained engineers, economist, and adminis­

trators required for industrial development. (Aggravating the

problem is the regionts out-migration of manpower, probably more con­

centrated in the age group 20 to 30 and likely to have higher than

average levels of education and skills). D. INDUSTRIAL DEVELOPMENT POSSIBILITIES

Although it was not a principal purpose of the study to identify

industrial developient possibilities, this question was reviewed as

part of the probess of assessing the region's potential for growth.

A number of possibilities appear to be available and are briefly

- 54 ­ desbribed below.

1. Iron and Steel -

It is possible that an economic, if small, iron and steel industry, larger than now exists in the .Northeast, boUld be develop­ ed. It could then serve as the basis of activities in the metallurgi­ oal field: for example, agricultural tools- and metal furniture.,

In 1960, Bahia was the regional center of iron and steel production, followed by Pernambuco and Oearg. The area -most favored for the expansion of the iron and steel industry is the State of

Bahia which produoes minor amounts of iron ore, and pessedses port facilities, a major supply of electric .energy, and other industrial potentials not unrelated to iron and steel.

2. Textiles

A second prospect for expansion is the textile industry, one of the traditional industries supported-by local demand, a supply of locally-grown cotton and relatively low cost manpower.- Centered in

Pernambaco, the textile industry has been developing slowly in comparison with south Brazil; in 1955, the physical volume of production rose by 17% (1948 base year) while in the South, textile manufacturing increased by 51%o. In the period 1949-1953,- the value of textile equipment imports unloaded in the port -of Santos amounted to $,108 million compared with $9.6 million at the port -of Recife.

This lag may be explained by two factors: first, the -willingness of

I/ This discussion is not intended -to substitute for badly-needed feasibility studies.

-- 55 ­ UNClMSAaF of the Southern textile mills to take advantage of the subsidy to mechanization provided by Brazilian.exchange policy; second, the

Northeast textile industry -isogarcterized by obsolete machinery and equipment. A study made by StDENE in 1960 concluded that 60 textile mills, accounting for 80% of total production, were in need of equipment renovatioi aiid replacement.

3. Cement

Another industry holding 'promise for the future is the cement industry. In 1961, the Northeast produced less than 600,000 tons of cement or about 12% of Brazil's total produdtion. Pernambuco ranked first in production followed by the States of Paraiba and

Bahia. In 1961, consumption of cement in the Northeast amounted to 514,610 tons, with the surplus being exported to other parts of Brazil. Northeast cement apparently could be placed economically in almost every port of the country, if the national problems relat­ ing to coastal transport were solved.

4. Fertilizer

The fertilizer industry can count on adequate supplies of phosphate rock in the Northeast. The development potential is increased [by the fact that the deposits of phosphate rock are the only significant deposits known in Brazil. About 97% of Brazil's known phosphate deposits are located in Pernambuco, which in 1961 produced 397,426 tons of phosphate rock.

5. Ceramics

Adequate supplies of raw material favor the development of ceramic and related industries based on the production of magnesite,

--56 ­ c1ay and gypsu. In 1961, the Northeast produoed about 85% of Brazil's ' gypsum, production centering in Rio Grande do Norte, and 76,702 tons

of magnesite, which represented all of Brazil's production, center­

ing in Bahia.

6, Sisal

Having available vast stretches of semi-arid land favoring

growth of sisal as well as a practically limitless supply of the

relatively low-cost hand-labor required for sisal cultivation and processing, the Northeast holds some development promise for a

sisal-processing industry, producing bags and cord, in demand in

Brazil and international markets.

7. Processing Industries

Processing industries based on meat, vegetable oils, sugar, alcohol, and cacao, represent, in total, a significant development prospect, provided modern machinery, modern industrial processes, and entrepreneurial initiative are introduced.

8. Sea Salt and Chemicals

Sea salt production could be expanded very substantially if production quotas were removed, to exploit fully the economies of scale. The prospects for an expanding chemical industry, based on sea salt and other available raw materials seem good.

9.- Castor-Seed Cake Products

The development of a castor-seed -cake industry, providing a rich supply of protein food for-animal husbandry, as well as a raw material for the production of amino acids widely used in the pharma­

outical industry, also has potential in the Northeast.

-.57 ­ LIMITED OFFICIAL USE

CHAPTER. V

OTIER ECONOMIC SECTORS AND FACTORS

The two preceeding chapters focused on agriculture and industry ­ the first representing the primary occupation in the Northeast; the second believed by many to hold for the region, its hope for rapid economic progress. This chapter concludes the presentation of materials on the Northeast economy. The following are discussed:

. Natural Resources

. Transportation

. Electric Energy

. Trade

* Labor

A. NATURAL RESOURCES

The regionts soils were discussed in Chapter III. In this

section, descriptions of mineral and energy resources and natural vegetation for economic use, are presented.

1. Non-Metallic Minerals'

a. Salt

The Northeast produces approximately 700,000 tons of salt annually, which accounts for 7.7%of national production. The salt is recovered by evaporation of sea water. Almost all Northeast production is carrie4 out in Rio Grande do Norte and Ceara where a combination of dry coastal climate and tidal flats favor this type of operation. Many of the operations are quite primitive and are carried out by small operators. Brazil has had opportunities to export quantities exceeding one and one-half million tons annually, 'but has been unable to

LIDITED OFFICIAL USE ONCISSYU

take advantage of this opportunity due to its-policy of assigning production quotas as a means of protecting the small inefficient producer. With a change in this policy sufficient to permit the mounting of more -- efficient large-seale installations, the recovery of salt from sea water in the Northeast area could be expanded almost indefinitely.

- N Phosphate

Rock phosphate deposits, similar in nature to those of Florida, lie near the coast between Recife and the Paraibastate border. The reserves are probably some­ thing in excess of 50,000,000 tons. Thg material being recovered averages between 16 and 20%o 20 5 and is concentrated in a modern processing plant to 320a P 05 1961 production from this'source is reported at 400,000 tons of the 326 rock phosphate, a decline from the reported production in 1959 of 860,000 tons. The phosphate is recovered by strip-mining operations and transported from the mine to the plant by truck.

Rock phosphate from Africa and the United States can be shipped to southern Brazil at prices lower than phosphate from the Northeast. In part, this is due .to the costly.and inefficient nationalized marine transportation system in Brazil and in part to high 1 unit-producti6n costs in the Northeast.

-c. Magnesium

-Magnesium is-recovered in the Northeast in the mineral magnesite. In 1961, almost 80,oo tons of this mineral were mined in the Northeast, accounting for Brazil's entire production. Magnesite is mined in Bahia and in Ceara. The Bahia deposit contains one cubic mile of the mineral. Due to wide-spread availability of magnesium, the mineral probably offers little possibility as an export item. d. Gypsum

In 1961, the Northeast produced almost 240,000 tons of gypsum. Most of this production came from northwestern Rio Grande do Norte from a deposit which 2ies quite'near the coast and from the Araripe formation which lies some 600 kilometers.inland in the States of Ceard, Pernambuco and Piani. The Araripe deposit has - substantial reserves, but transportation costs to points of Xuse are.high. The Northeast produced about LIMITED OFFICIAL USE

-95 .. LIMITED OFFICIAL USE

85% of Brazil's gypsum in 1961.

e. Limestone -

Both calcareous and dolomitic limestone occur in formations along the Northeastern coastline from Cearg to Bahia. These form 4aw materials for cement plants in Pernambuco and in Parafba. Up to the present time, limestone is rarely used as a soil amendment in the Northeast.

f. Non-Metallio minerals in minor quantities

From pegmatite dikes in the interior of Rio Grande do Norte and Paraifba, small-scale hand mining recovers beryllium and associated minerals of-tantalum,- niobium (columbium) and lithium; These dikes are abundant, but the minerals'of interest in them are scattered. In 1961, the Northeast produced 241 tons of beryl, most of which came from Bahia. Minor quantities of rutile are taken from stream gravels of Cbari.

2. Metallic Minerals

Almost all of the mineralized area of the Northeast lies within the State of fahia, supplemented by a mineralized zone of minor

importance in the State of Rio Grande do Norte. The minejfalized

areas have not been prospected to the point oftderiving any extensive

or reliable information on reserves. ­

a. Lead

In 1961, 100,000 tons of lead were mined in ehita. This was 60% of national production. No estimate of reserves is available.

4b. Tungsten

1,000 tons of the mineral sche&1ite (wolfram) were mined in Rio Grande do Norte in 1961. Formerly, this operation was carried out by two commercial mining companies supplemented by numerous independent pick and shovel operations'. At present; it appears that both commercial operations are closed down because of low world tungsten prices, said to be the result of recent LIMITSD OFFICIAL-USE

- 60 ­ IMITED OFFICIAL. USE.

* Russion dumping. .No estimate of tungsten reserves is available.

e. Iron

* Several locations of iron ore are known in the State of Bahia and a few exist in the State of Ceara. None of these deposits appear to be sufficiently large to justify commercial exploitation. Moreover, the extensive Minas Gerais deposits of high-grade iron further reduce the probability that the Northeast occurrences *ill be worked.

d. -Metallic ores occurring in minor quantities

Very small quantities of copper, tin and chrome are -mined in the State of Bahia. No data on reserves are available.

3. Sourcesof Natural Energyv

Economic use of natural energy sources in the Northeast derives from petroleum, hydroelectric power and firewood. Hydropower is discussed later in the chapter in the section on electric energy.

a. Petroleum

The entire proven reserves of Brazilian-oil deposits lie along the coast of the Northeast region. These - reserves ate located in the Salvador area and in Ala­ goas and Sergipe. National production is limited to the Bahia fields. In 1961, these fields produced 527,000,000 cubic meters of natural gas and 35,ooo,ooo barrels of crude oil.- This production meets approximate­ ly one-third of national requirements. R61iable information on reserVes is not available.

b. -Fire-wood

Except for the capital cities and the largest of the interior cities, fire-wood serves as the principal souroe of fuel for domestic use (mostly cooking), and, * until recently, as fuel for small generating plants in cities. 'Som'e industries also still'depend upon fire­ - wood for operating their generators. In the case of industrial units, the more common form of fuel is charcoaT. 'The fuel is obtained by harvesiLng natural LIMITED OF'ICIAL USE t61. LIMITED OFFICIAL USE DNCLASZI

thornbush vegetation in the interior and from forest wastes in the humid zone. Firewood collefction is an important daily chore of almost all rural families. In 1957, the harypst of fuel from natural vegetation amounted to approxirately twenty-three million cubic meters of firewood and 245000 tons of charcoal.

4. Natural Vegetation for Economic Use a. Native brush and grass range used for livestock browse and asture

This is a major and renewable resource in the economy of the Nrtheaist. After discounting other sources of feed, this native vegetation is estimated to support ten million head of cattle, fifteen million head of goats and sheep, awd five million head of horses, donkeys and mules in the Northeast.

b. Lumber from native forest

There are three significant areas of forest containing economic species in the Northeast region. These are located respectively in southeast Bahia, the coastal humid zone from Bahia to Paraftba and in western Maranhao. The following estimates were prepared in the course of the study from inadequate sources and are intended merely to represent .useful orders of magnitude.

The tropical rain-forest of southern-Bahia is estimated to contain a reserve of ten million cubic meters of economic species. Harvested as managed forests, the potential sustained annual yield is estimated at 300,000 cubic meters.

The tropical deciduas forest of the Northeastern coastal humid zone, except south Bahia, is estimated to contain a reserve of about three million cubic meters of economic species. With forest management, potential annual sustained yield is estimated at 75,000 cubic meters.

The mixed Amazon forest of west Maranhgo is estimated to contain a reserve of -sixty million cubic meters of economic species, mostly-in virgin forests. It is estimated that 90%o of this reserve will be destroyed without bing used for lumber-by settlers uausing cut-and-burn agriculture. (the ashes provide fertilizer for one crop of rice and cotton). The LIMITED OPPICIALT USE - 62 ­ SITED OPPICIAL USE

remining reserves, some six million cubic meters, would be available for lumber,. The re-growth of Maranhgo forests., being on sedimentary soils lacking fertility, is not-expec'ted tp produce marketable lumber. The re-growth would be useful as firewood.

In summary, the forest resources of the region which likely will be used for lumber, now amount to about thirteen to nineteen million cubic meters. Potential sustained annual harvest with forest management could amount to approximately 375,000 cubic meters.

c. Babacu

This palm forms solid forests in a quite large zone in- Maranhao bordering on the Amazon rain-forest type of vegetation, and a much smaller area in Piaut Published estimates indicate- that these two states contain some fourteen million trees. The fruit is extracted for oil. In the frontier areas of Maranhgo, the palm fronds and trunks are used to construct temporary homes and for fence material. The separation of the ­ palm kernels from the husk is a laborious hand oper­ ation in which five kilos of kernels can be husked in an eight hour day. Maranhgo and Pimu the principal producing states, harvested 110,000 tons of nuts in 1961. Local oil extraction facilities exist in the producing area. Substantial increases in Whagu collection are not expected.

d. Carnailba

This is a palm which occurs in the saline valleys of the States of Piau, CearS and Rio Grande do Norte, A wax is taken-from the leaves by a laborious and primitive process of drying, shaping and scraping. The total harvest of wax from the Northeast in 1961 was 11,000 tons. No increase in regional production is expected.

e. Wild Plants of-Mino' Ecr--to Imnortance

- - - Carod, a desert plant resembling sanseveria, is harvested to some extent as a fiber crop. The fibera . of the plant are longer and stronger than those of jute. Scarcity of prime material and high labor costs in harvesting and processing limit expansion of economic uses of Carog LhIITED OFFICILL USE LIMTED OFFICIALoUSE

Some 10,000 tons of cashew nuts are harvested from 'wild trees which grow alone the coast of tnbst of the Northeast. -There is little chance of iricreasing production of the..preseht -harvest of wild plants. The recent appearafice of a new insect pest, a white fly, threatens to reduce present levels'of collection drastically. Other than the babagu, two additional native palms are Urioui, aid the Tucum, harvested for oil but of minor economnic importance.

f. Oiticica

This is a tree with an oil-bearing fruit which grows sparsely along the streams of 'the States of Ceard, Rio Grande do Norte and Paratla. The oil is extracted locally and exported to the United States and Europe. Production of oiticica in 1961 amounted to 60,000 tons for the Northeast-region. Collection varies from year to year, due to-climatic and price variations. Increased production is not a-s6lid prospect.

B. TRANfSPORTATION

The competitive position of the Northeast, both in national and international markets, is adversely affected by a seriously deficient transportation system. Regional and national transpbrtation shortc comings contribute to this situation as well as t6 -the reduction of the region's real purchasing power.

1. Railroads

The basic railroad network in the Northeast was constructed for the purpose of carrying primary products from the interior to the main ports of Fortaleza5 Recife and Salvador. There are three main trunk? lines with a total of 4,306 miles and four -minor Lboal railroads with a total of 715 miles-. The three main railroads are the Ride de Viagqo Cearense (914 miles) which serves the State of Ceari, the

RBde Ferrovidria do Nordeste (1810 miles) which extends over the

States of Pernambuco, Parafba, Rio Grande c4 Norte and Alag8as, and

L-lTITp -OFF IjA USE

-64­ UNCLASS EO LIMITED OFFICIAL ISE

the Viagao F4rrea Federal Leste Brasileiro (1582 miles), serving

the States of Bahia, Sergipe and Piaul. These three principal

railroads were originally built as "penetration" lines and only

recently has work been started to inter-connect them.

As might be expected, the original reasons for locating the

railroads do not coincide with subsequent economic changes in the

Northeast._ Thus, the demand for rail services provided by the exist­

ing grid are insufficient to permit economic operation.(Other

reasons, relating to administration, personnel policy, and so on,

are, of course powerful contributors to the incredibly costly oper­

ation of the roads). The structum of demand has resulted in low

average density of traffic and a predominance of short haulS.

- TABLE VI AVERAGE TRAFFIC DENSITY, MAIN NORTHEAST RAILROADS AND COMPARISON WITH RAILROADS IN CENTER-SOUTH

.125 158 1959 1960 1961 Northeast (thousands of tons/kilometer) Rgde Viagqo Cearense 64 67 62 105 112 Rede Ferrovidria Nordeste 270 265 275 272 263 Viagao F. Leste 'Brasileiro 128 121 135 81 74 Center-South

E.F. Sorocabana 1,941 (1961) E.?. Santos-Jundiaf 4,005 (1962) E.F. Central do Brasil 1,201 (1962)

Traffic density comparisons presented in the table above underscore

one of the problems faced by the rails in the Northeast. According

to one estimate,V thp main trunk lines in the Northeast were operating

in 1961, at density levels which were one-fifth to two-thirds of the LIAITED ZZZ,3IAL USE

-- 265.. LIMITED OFFICIAL USE

break-even level. These and other factors are reflected in the

three-year deficit of the major lines which exceeded Cr$ 18 billion

(1960-1962) - this deficit required a federal subsidy amounting to

more than three times railroad revenues.

TABLE VII -- OPERATIONAL DEFICITS Of NORTHEAST RAILROADS Three Year 1960 I961 1962 Total (cas Millions) Rede Viag o Cearenbe 391 902 1,507 2,800 Rde Ferrovi&ria Nordeste 1,357 2,969 5,444 9,770 Viagao Fdrrea Leste 3rasileiro 932 1,772 3.351 6,155 2,680 5,743 10,302 18,725

From various sources, it is evident that the railroads' share

of total freight moved has been steadily declining. Moreover, even

in the face of rising output, data for 1957-1961 suggest that the

absolute volume of freight hauled by rail declined.

TABLE VIII COPARATIVE IKDICES OF VOLUME OF FREIGHT CARRIED BY THE RAILROADS AND OF AGRICULTURAL AND INDUSTRIAL PRODUCTION IN TBE NORTHEAST, 1957-1961

Index of Volume Indices c "r-duction Year of, Traffic Agriculture Industry

1957 100 100 100 ;958 98 81 94 1959 101 104 102 1960 94 116 114 1961 95 125 - 123

High cost, inefficient performance is also due to poor track

4. Relat8rio do 1962. Conselho Nacional de Economia. LIAITED O. rICIAL USE - 66 ­ S LIMITED OFlICIAL USE

4W conditions, steep grades in certain stretches which, limit hauling.

capacity, and generaliyout-moded ."and obsoleta equipment, (despite

some efforts to modernize rolling stock). Obsolgte, wood-burning

steam-locomotives-astill predominate, as..is-shown-in the following

table. - . .-- - -

TABLE IX

NUMBER AND TYPES' OF LOCOMOTIVES_ -IN USE IN - NORTHEAST RAILROADS, 1962 Steam Diesel Diesel Electr ic Total Electric

Rgde.Viagao Cearense 22 . 36 r 2 - -. 60 Rgde Ferrovidria Nor .

;: deste- 85 30 - - ' 115 Viaqgo F~rrea Leste :frasileiro -43 8B 4 13' 150 104 .6 13 273

. In orderito reduce the very.largedpficits, the- preseat policy

of the federal railroad authority'(Rgde Ferrovidria Federal-S.A.,

R.F.F.S.A.:) in the. Northeast (as in the rest of Brazil) is to

gliminate those lines which are weakest and are-in sections where the

traffic potential-, bpth in quantity and quality, is poor or can better

becarried-by trucks. Present plans -aim at the 4limination, in the

railroads innthe Northeast, of 514 miles, or about 10 per oeiit of the total network, At the same time, 'however, the R.F.P.S.A. plans call for a- net increase. of the Northeast ndtwork by -some 30 per cent,

including its interconnectich with the southern regions of Brazil-.

Budgeted funds for thistpurposewere Cr.2:.7 -billion ih 1962 bhd-CW2.5 billion in 1963. (SUDET has included no funds.for the railroads in its 1963-65 Master Plan). It remains :b jie. seen.whether the CLl.IMItED-0OFwICGAL USE -67­ LIMITED OFFICIAL USE U problem of surplus personnel-, known to be a major cause of dneconomic railroad operation, is successfully attacked.­

2. Trucking

Given such factors as-the deteriorating conditiois of the rail­

roads, significant new highway construction and the sad state of

coastal shipping, trucks have become the major transport mode in At the Northeast. It is estiqated that tlre least 60 per cent of all

transport, both in intra - ind inter-regional trade in the Northeast, moves by truck.

- The Northeast has an extensive network of roads wbich is growing

more rapidly than tlio road mileage in the rest of Brazil. In 1955 there were 59,291 miles of roads (26.24 of rest of Brazil) and in

1961 there were 71,788 miles (30.1% of rest of Brazil)!

Of the total network only 1,334 miles (1.8 per cent) are paved

and practically.none of the rest can be described as all weather

roads. Federal roads -.(10,o8 of tota) are the main trunk lines for

inter-regional transport as they link the regional and the national

roads system. State roads (12.9% of total) are auxiliary to - federal roads and form the .basis of the state system. Municipal

roads (76.3% of total) are extremely poor and -most of them are

unsuitable for automotive vehicles. Because road construction

stimulated by past work relief programs not -uidertakei as

part- of -a rational plan, much of the Northeast rolad- network is<

unrelated to the economic requirements of the region.

Rolattrio de 1962, C.B.E. ­ ' LIMITD -OFTIIAL.?SE - 68 ­ LIMITEi OFFICTIL-USE

SUDENE has defined a network of priority roads and its Master

Plan for 1963-65 has allocated e:4 32 billion for construction,

relocation, 'general improvement and paving. Roads 'have the third

largest allocation of funds in the SUDENE budget, with 15.7 per cent

of the total resources. Eowever, sufficiently advanced road plans

have not been fully developed,'requiring considerable additional work on specifications, timing and location of road sections, and

other important matters.

3. Shipping '4 Up to World War-II, except for limited airline passenger service,

the only link of the Northeast with the rest of Brazil was coast­ wise shipping, both for carrying freight and people. As coastwise

shipping was practically paralyzed during the war years, overland routes began to be opened and there was a surge of road building which has since continued. The Brazilian neechant fleet suffered

heavy losses-in the war. Its previously limited capacity was,

therefore, further-reduced and it was less able than ever to meet

the demand for-transport when normal trade was resumed.

Port problems -in Brazil were identified 10 years ago by the

Joint U.S.-BraziI Commissi6n as requiring urgent attention. The need

then was no less serious in the Northeast. Today, "the port situation", if-anything, is worse.' Long and frequent dock-worker strikes, high

port fees, delays in cargo handling, a great deal of pilferage for

lack of proper storage, ships operating with no regard to schedules,

mal-adminiitrstion and 'Inefficient port procedures - are causing It shipping to experience a large reduqtion in its share of total traffic LIMITED OFFICIAL USE

- 69 - LIMITED OFFICIAL USE and are forcing the regional economy to turn from wha4 would otherwise be the lowest cost form of transportation in man .eircumstanoes..

The 9. states of the Northeast 4.aflo . total of 24 ports, only six of which can be said to have a miaimum of operating facilities.

These are shown in the following table. Also shown is the decline in absolute tonnage handled at these ports in the years 1957 to

1961, a drop of 20%. TABLE X VOLUME OF CARGO HUJTDLED AT THE ORGANIZED PORTS IN TRE KORTHEAST, 1957-61

1957 1958 199 960 196i (1000 tons)

Natal 127 153 164 171 164 Cabedelo 332 328 297 317 332 Regife 1,821 1,785 1,806 2,058 1,695 Macei6 225 228 271 281 285 Salvad.or 1,834 2,636 2,041 971 973 Ilh4us 184 217 208 222 183- Total 4,523. 5,347 4,787 4,020 3,632

Cargo handling costs more than doubled in the period 1960-1962, leading directly to parallel increases in freight~rates. High casts, completely unreliable delivery, and .all the other difficulties associated with coastal shipping have resulted in transportatiton patterns which, by any rational standard,- would ordinarily never

occur. To illustrate:

" All Rio Grande do Norte cotton exported to south Brazil­ now goes by truck.

. Gypsum from the same state to Rio and So Paulo is shipped over the road.

. One salt producer in R. G. do Norte-is shipping 240,000 bags annually by truck to the south. LIMITED. O3'ICAL USE. 11r LIMITED OFTICIAL USE

Despite the grave problems relating to ports in the Northeast, they still play an important role in the regional economy, One­ fifth of Brazil's total exports flow through Northeast ports.

That 'it is difficult to over-estimate the potential significance

of a rationalisation of port problems seems 'evident from the fact that sugar, caco, tobacco, pineapple, salt, cement, textiles, vegetable oil products'and petroleum,, are all produced near the

coast.

There aie national plans for the improvements of ports and merchant shipping. The Ministry of Transport and Public Works

contemplates total investments of Cr 32.5 billion in the period 1963­ 65 for construction and improvement in 24 main ports of Brazil. Five

of these are in the Northeast: Itaquf in MaranhEo, Muouripe (Forta­

leza) in Cear4, Luiz Correa in Piaui, Areia Branca, Macau and Natal

in Rio Grande do Norte. The SUDENE 1963-65 Master Plan has allocated funds 'to supplement the federal appropriations for the ports of

Areia'Branca and Macan and it inoludes three other ports to which the Ministry did not assign priorities: Cabedelo in Paraiba, Recife

in Pernambuco and Macei6 in Alag8as, Total SUDENE allocation for ports'amounts to Cr8 4.5 billion, or only 2.2 per cent of its total

1963-65 budget. Its attention to ports would have been even smaller had not the Congress added a few port projects to SUDENE's original submission.

With respect to river and air transport, the following brief comments are relevant. The SAo Francisco is the only perennial river in the Northeast. Two factors limit its present availability LI~ITESD :r:L~ USE

- 71 ­ -__ -_UNCLASS E for river transport­

. It is located almost entirely in the Drough Polygon.

A great number of rapids al~ng its course make difficult or impossible transport for any significant length of-the river. (Various dams now under construction or being contemplated by the Comissgo do Vale do Sgo Francisco will eventually enable the SEo Francisco to be-navigable for virtually its entire length of 1800 miles).

There are 38 "airportst ' in the Northeast, only two of which (Na­ tal and Recife) come close to meeting the standards of the Inter­ national Civil Aviation Orgazization for heavy transport aircraft.

There are no standard enroute or terminal navigation aide in operation at any Northeast airport at the present time (November, 1963).

Although passenger traffic by air is becoming a more significant factor in inter-regional affairs, air transport throughout the

Northeast plays only a limited role in the development .of the economy.

C. ELECTRIC ENERGY

If industrialization holds the key to Northeast development,. the availability of electric energy, at reaspnable, costs, must be assured.

The electric energy situation in Northeast Brazil prior to 1955 was deplorable. The major cities along the coast .were supplied by

small, relatively inefficient thermal plants. In fact, in 1952 there were only 157,000 kw installed in the whole Northeast , representing

a bare 8% of total Brazilian capacity. Today, as far as the major

coastal cities of the Northeast are conoerned, the situation is

radically improved.. Cheap, ample energy has been available from

-Paulo Afonso since 1955. By March, 1964 the total capacity of the

Paulo Afonso system will be 395,000 kw... Both Salvador and Recife LIMITE7 OFICI'm USE

-72­ LIMITED OFFICIAL USE

A& now connected o Paulo Afonso and Natal should be connected by

early next year. Providing financial resources are adequate to maintain the present rhythm of construction, Fortaleza should be

connected to Paulo Afonso by middle 1965.

Large sums of money have- been-obligatedp through SUDENE, and also through the individual states to build the sub-transmission and distribution networks necessary to bring this relatively inexpensive hydro-alectric power from Paulo- Afonso to the smaller cities and villages located within an economic range of Paulo Afonso, It is generally-believedthat Paulo-Afonso can economically serve areas within 500 km of the generating site. It is also estimated that Paulo

Afonso,-by the addition of generating units, can be expanded to close to 1,000,000 kw without any other large dam construction neodssary on the river. And even after Paulo Afonso has reached its matimum capacity-, there are nearby sites both upstream and downstream that will permit the additional development of approximately 600,000 kv.

In general, therofore, the major problem within the area of influence of Paulo Afonso is to find the resources to extend and * expand the transmission and distribution networks sufficiently to supply future energy needs. At the same time Paulo Afonso itself must be continuously expanding as the load develops.

The situation outside the area of influence of Paulo Afonso is much less favorable.. In those other areas, an energy shortage handi­ caps the - evelopment of economic activities. Plans for these areas have been -developed. Although the number of the large hydro-elsctto possibilities iD-limited, those that do exist are being actively 4 studied by 3UDE and other state ontities. The most important of

LIIT3D OFFICIAL USE -73­ I

theso ares - .

1. Boa Esperanca .

This site is on the upper Rio Parnalba which forms the border between Maranho and Piau. Total potential capacity is around 240-,000 kw. This should be sufficient to supply the major needs of such cities as Teresina, SEo JLuiz-and Parnalta,. as well as some-- ­ 50% of the rural areas of Maranhao and Piani, for ten years or more. SUDENE has organized a company to develop this project and preliminary construction has already- started. This plant. could be.ready in 5 years.

2, The Paraguabu River o -­

aThis river is near 'Salvador. SDDENE is financing a study by a consulting firm which is working closely with COELBA,.the Bahian state-owned operating company. Preliminary results indicate that 150,000 kw of capacity can be economically developed'at one site..>

3. Sobradinho

The Sobradinhp site is on the upper S9o Francisco River. The Comissao do Vale do So Francisco has contracted with a firm to investigate this.site. It appears that 600,000 kw could be developed.

4. The Pardo River

SUENE has contracted with a Franco-Brazilian consulting firm, to study hydro possibilities on this relatively small river in southern Bahia. This also is being done in cooperlation.with COELBA. It appears that approximately 15,000 kw could be develop­ ed to serve the.area around the city of Vit6ria da-. Conquista.

5. Salta da Divisa

This is a site on the Jequitinhonha River in Minas Gerais near the Bahia border.. It .is a site where approximately L,000,000 kw can be developed and it is being actively-investigated by CEMIG, the state operating company of Minas Gerais, with the- cooperation off the United Nationst- SUDENE hopes to share in this development inasmuch as rowerp f-rom this source- could.-serve a large area, of sotthern Bahia.

LIMITED OFFICIAL USE UD CLASF 20 LIMIITED OFFICIAL USE

Aside from these hydro-projects, the only near term possibility

of making increased energy available is by the development of

thermal generation. To this eod tvw0 qourses are being followed:

For the largest onters of population, SUDENE has -, .begun a program of intalling heavy diesel generation. This can be-relatiyely expensive in terms of operating costs but, obviously, even relatively high cost power is less of a handicap to economic development than the absence of energV. Present immediate programs contemplate the insta.llation of heavy diesel capacity in five locationstnamely, Vitoria da Conquista, Fortagez, Terpsipa, Sgo Luiz and Parnal­ ba. All of theseoities can ultimately be served by hydro power. However, this hydpQ power is not immediately in view and the energy shortage now exists. This - program calls for the installation of 45,000 kw of diesel generation next year.

For the small communities in the rural areas of the Northeast which are outside of the economic range of Paulo Afonso, a program of rural community electri­ fication has been developed. This-consists-of the installation of diesel electric units ranging from 50 to 600 kw each and the development of distribution net works to oover the small communities and reach into tte purely rural areas wherever economically feasible. Present programs call for electrification of 432 small cities and financing has been arranged and work started in the first 72 of these cities. CERNE is a SUDENE-controlled company carrying on this work. It is their objective to organize consumer-owned cooper­ atives for the operation of the individual systems, wherever this is feasible.

As is apparent from the preoeding comments, SUDENE has been

active in the formulation of plans for electric energy development.

It has-;also taken an active part in a re-organization of the various

operating companies and in many cases LF now, effectively, a major

shareholder in such companies-as CONEFOR of Fortaleza and SEPISA in

Teresina It is SUDENE's philosophy that eleotric energy in the

Northeast must be developed on the basis-of State and Federal ownership. LIMICED OFIC2IL USE

- 75 ­ LIMITED -OFFICIAL USE .

Under- SUDENErs present three-year plan', obligations of -approxi­ mately 65 billion cruzeiros are planned for 1963,.1964 and 1965., In 1963, SUDENEB planned to obligatq over 25 billions, more than any other object'of SUDENE activity. SUPENE has not.-however, been able to obligate funds at-this rate, due partly'to a slow'releaseof funds and tothe defayod passage of the law approving SUDENEts plans. Moreover, USAID and SUDENE agree tiat thq expenditure of such large sums will require considerably more'study th~n originally anticipated. SUDENE is, of course, not the only source of.-funds for electri­ ficatioi in-the Northeast. Each of the states is applying resources

-to electrification. ELETROBRAS, the federally-owned nation-wide electrio company, and the BNDE are-also supplying funds. It is difficult -to estimate accurately-exao-tly how much money is being put into-electrification of the Northeast by the Brazilian government as a whole, and it is even more difficult to estimate future contributions. Nevertheless, from'the information available, it would appear. that over the next five years, plans exist involving annual investments on the brder of 20 billion orueiros. D. TRADE . The economic history of the Northeast is marked by the fact that exports have constituted one of the leading sectors'of its economy. Exports of foodstuffs such as sugar and cacao and raw materials such as cotton, vcgetable fibers and oil-seeds,-among others, have re­ presented-important stimulating forces for investment, employment n( income'in the region. In the eight years, between 1954 and 1962, Northeast exports averaged $225 milion 4ollars a year,'ro'resefnting about 16 per'oost of total B:0zt-l exports. Annual imports averaged about $95 million dollars, or-approximately 5%o of total Brazil imports. Thus, the Northeast contributed diring this period more than 8 one billion or $130 million per year -to BrazilTs foreignrexchange'earnings . The average participation by.states intheiperiod 195462 was as followss LIMITED OFFICIAL USE UIMTED OFFICIAL VSE

TABLE XI AVERAGE SHARE OF NORTHEAST-EXPORTS, BY STATES, AS PERCENT OF TOTAL BRAZIL EXPORTS 1954 - 1962

Maranhao 0.1% Piaulf 0.2 Rio Grande do Norte 0.4 Alagias 0.4 Parafba 1.3 Cear4 2.sf Pernambuco 2.9 Bahia 8.6 15.9%

As an exporter of primary products, the Northeast has experienced severe flictuations in the demand and prices for its products in international markets. For example, cacao exports earned $136 million dollars .in 1954 but .only $24 million dollars in 1962; cotton, $223 million dollars in 1954 and..112 million :in 1962.

TI'hese ftottations are reflected in the changing participation of exports in the generatio2Lof regional income and.tbe distribution between income derived from toreign and domestic exports, as shown in the following table. 0

TABLE XII VALUE OF NORTBEAST FOREIGN AND DOIESTIC EXPORTS AS PERCENT OF NORTHEAST INCOME, 1950 AUD 1955-1960

Poreign Domestic Total

1950 9.2% 14.8% 24.0%

1956 10.2 16.4 28.6 1956 7.3 18.4 25.7 1957 8 .-f- 13.6 22.1 1958 9.8 11.1 20.9 1959 9.5 . 9.9 19.4

1960 11.1 10.6 21.7 LHIMITD OFFICIAL USE -'77 ­ LIMITED OFFIC .

Although the contribution of exports to the creation of Northeast

income has fluctuated throughout the ppriod, there appears to be'

a modest declining trend in their importance. This decline is

apparently -centered in exports tp Brazilian markets. Emphasizing

the inter-relationship of the Northeast to the total -Brazilian

eponomy, it is important to note that the contribution of domestic

trade to regional income has been higher, on the avtrage (13,3%), than

the contribution oftforeign trade (97o),

The composition of foreign importp into the Northeast for a

recent year (1960) shows the major products to be gasoline, dried

fish (tacalhau), wheat, fuel oil for burners and boilers, barbed

wire, rails and crawler tractors. Wieat, gasoline and bacalhau

accounted for 42% of the total value of imports. Machinery, vehicles,

equipment -and replacement parts accounted for 20.7%%f imports.

By coastwise shipping, the Northeast imported (1960) mainly

dried and, smoked meat, paper, lubrificants, iron and steel and t steel products and gasoline.

The principal importers from, and exporters to the Northeast are

the State of Guanabyra, Sao Paulo and Rio Grande do Sul.

The sharp fluctuations in export earnings from individual qammodity

exports emphasize the vultierability of ahe Northeast economy to

external market factors over which it has no control. Neverthsloss1 at least through the last half of the 1950's exports abroad tendtd .

to increase in importance as.a factor in regional economic activity.

* Moreover, exports per capita in the Northeast were Lighor in 1960 LIMITED 03=: IL USE

_7.2 RJ~kd~ k IMITED OFFICIAL USE than in 1950, while for the rest of Brazil, it declined by 40fe.

TABLE XIII VALUE OF -FOREIGN EXPORTS PER-CAPITA,' NORTHEAST AN REST OF' BRAZIL 1950, 1955, 1960 US$1 Northeast Rest of Brazil 1950 9.92 34.40 1955 12.15 30.60 1960 11.00- 21.00

The rise of foreign exports as a percent of regional income and the fact that foreign exports are relatively more important ,4 to the Northeast economy than to Brazil point to the importance of the tradsportation sector, particularly the ports, to the economic development of the xegion.

E. LABOR

Northeast non-agricultural labor organizations or sindicatos are concentrated in four cities: Recife with about 60 unions; Forta­ leza with some 45 unions; Salvador, with about 30 unions; and

Macei6, with an estimated 25 unions ­ in all, a total of 160 unions.

Unions are formed whenever two-thirds of the workers in a particular 4 locality so vote. ThereaftQy7 all units of this industry in the particular looaity are governed by wage and other agreements wored oi4 iwpn tpe labor sindicato and the corresponding employer's sindicato.

40e unions within a particular state form federations. The fedepations are occasionally regional, e.g, Federation of Street

Workers of the East and Southeast. At times they are 'national. The generally state-wide federations are fused into confederations, composed of a minimum of three federations, set up on the 'federal LIMITED OFFICIAL USE - 79 - level with headquarters in Brasilia. Thusfar, five confederations

_have been organized out of seven -permitted by federal legislation.

The labo; unions- in the.1fortheast contain an estimated

250,000 workers compared With 4bout 3 million of claimed membership

of the national confederations (19581. Of the 3 million, an estimated

1.5 million actually participate in uhion meetings and pay- voluntary

dues. The unions in the Northeast, aVe concentrated 4r the textile

industry, retail and wholesale trade1 banking, rail,=ads and bus

transportation,

In recent yeas, farm worker% Lave beed organisingj into unions

at a relatively rapid pace. ;hey -are. ooeafktad. in the sugar,

cotton, and manioc industrids. anc ogpanized 4roxnm4 & plant, or usin&.

The sindicatos rurals are eseentially Catholic -arganizations,

organized by Catholic priests. At present,. the2umber of agricultural

workers organized in the various rural Unions it estimated at 150,000.

Outside the trade uaion structure, i.e. not recognized by the

federal government, are the Workera Circles (CIrculo Opertrios).

There are an estmated 200 Circles in the Northeast, out of an

estimated 435 in all 3rasiI, They draw +heir membership from all

official unions, and operate more effectively than the recognized

unions. The-Circles are usually lead by Catholic priests, support

such principles as "Cristianity and Democracy" and are explicity

anti-comunist. They draw their main strength from the.intex.ior.

One of their activities involves the &istribution of Food for Peace.

1. Political Aspects of the Labor Yovement

The trade inions movement in the Northeast has been influenced,

- LhIMITED OFFICIAL USE

-- 0 UNCLASSFED ­ an in all of Brazil, by a policy of government paternalism begun by

Getilio Vargas. Influeced by the Vargas tradition, trade unions our can be buft not acgaare, closely regulated by the federal govern­

ment - the government having the powet to charter the sindicatos

and federations, to withdraw the charter, to approve union candidates

for elected positions, to interpret the by-laws, and to audit

unions income and expenditures.

The government is also one of the main sources of union finances.

It imposes a union tax (imposto sindical) amounting to one day's

wage on each non-agricultural worker. The tax is deducted by the

employers and sent to the Bank of Brazil% About 60%o of the tax

is distributed by the government to the 2ocal unions, the rest being

spent on socil security (20%o) and'among the state federations (15%)

and national confederations (Vo). Another spurce of union finanoes

are inions dues paid by active members who'desire to participate in

union 'meetings and elections. Although, -de jure, the government

p~tpqy,p the unlons, in prapice the unions are largely independent

following tfl 1i2ies of action for e4 by groups withp h Pions.

The majority of union membership inf city and countryside are

generally' non-communist. However, they are ideolo y oriented to

the left, and have been willing to be led by the co7Wnists or

oommunist-oriented members, owing largely to the fa 9 that the latter

are militant and energetic in their efforts to win labor benefits.

The majority democratic element -is typically without a specific

program bf action and usually lacks discipline and militancy. Too

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- 81 ­ LIMITEiD-.0 IAS often, it appeaest that democratic union leaders are out of contact with the rank and file membership. Despite these.shortoomings, ' ' democratic elements are.holding theiAow'n (or better)-in the

industrial centers of Northeast, with the exception of Recife -and the State of Pernambuco. Of the 45 most important unions in Recife, about 30 are comunist-controlled. ­

2. Labor - Management Relations

The meeting ground,, if any, between labor and management, is very narrow. Collective bargaining, which is employed mainly to

sign annual contracts between management and labor, is carried on

largely under the influence of the. federal government.-- Government.

participation .usually has'been keyed to-political consideratois ­

geared to maintain labor support - and-iot to qflestionw'ett the -ef­

foot of agreement on inflation, economic activity or similar matters.

In some instances, these political -settlements have directly

reduced economic activity and employment (for-exatnle, recent -dook

worker settlements).

3. Employment and Wages -

Current labor statistics are fragmentary,, almost non-existent.

For recent years the data are,both incomplete and fragmentaryi In

1960 the estimated economically active population in the Northeast

comprised 4,702,000 persons in agriculture, or 64.4% of the-tot&1 economically active population; 952,000 -persons in industry or

13.1% of the total; and 1,640,000 persons in.other segments-of ­

economic activity, 22.5% of the total. Out- of an estimated 22-.4

million Northeast population in 1960, the.economically active LIM4ITED OFICIAL USE

- 82 ­ LIMITED OFFICIAL USE-

ASJRF E W population7-accounted for 7.3 million,-or 32.5%o. . For the Northeast the rise of.the economically active population during the past C­ decade- was 30.3% compared with:43.1%-for thefrest of Brazil.

Over the.Veriod-1950-1960, some--significant shifts have ­ occurred,within the economically active population. While the economically active population in agriculture andin sectors others than industry increased 15.9%and 30.0% respectively, the industrial sector showed the largest- increase, 65.3%. For thib period the increase of the economically active population in Northeast­ industry exceeded the increase for-the-rest of thecountry: 65.3% compared with 61.4%-..

Levels of literacy and basio and technical education, and, ­ consequently,, productivity, are generally very low. Partial evidence suggests the conolusionthat Northeast labor does not compare favorably, in terms of productivity, with labor in the rest of Brazil. -Oily part of jthis shoula-be attributed to problems of skill, training and ener&y; higher levels of capital per worker in other areas of Brazil would also explain differences in productivity.

It may.be useful tq approach the questionof wages 'by assuming that basic wage levels in the Northeast Lp aoximatetbse establish­ ed by the latest. government minimum wage-decree. Thesp minimum wages are supposed, for workers covered by colle-ctive contracts, by an amount .equal,to the rise in the cost of living during the.: preceeding 12 months. (Contracts arp usually-negotiated qnnnally).

Increases granted to workers not under collective contract -in industrial centers tend- to parallel those awarded to workers covered by collective contracts. Skilled and. semi-skilled workers may receive LIITEII OFFICIAL USE 83­ LMITED OFFICIAL USE as much as double , and in a very few cases as much as three times, the wage for unskilled workers. In smaller towns, however, many unskilled workers are paid less than the prevailing minimum Wage.

The minimum wage decree currently prevailing (November, 1963) became effective on January 1, 1963. -For the Northeast, by States, the following monthly minimums were established:

Pernambuco - "C12,300 16,500

Bahia - cn$11 700 - 16,500

Cears - C412'400 -14,700

Alag8as - Cr$13, 100 14,'200

R.G. do Norte - Cn$11,700 - 13,500

Sergipe - CnS12,000--11, 100.

Paraiba- - CW$11,500 - 13,930 -

Maranhao - Cr. 9,800 - 12,000

Piaui - cr$ 7,100 - 9,000 -

It is not uncommon for a large segment of workers to be paid less than the legal minimums.

The federal law provides that ech worker, regardless of the method of payment, who works a full week of 6 days must also be paid for the 7ti day.

Workers (inclding agricultural workers,) must be paid for all legal holidays, an& qre entitled to a paid yacation after 1 yQa:Is service. The length qf the vaoatjon, contingent upon work attendanpes is usually 15 days 4A cases where the worke has worked 250 days during the year, Christm.p bonuses are paid by many -employers.and the "13th'

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merita" payment is a common occurrence.

Available fragmentary wage data for the fall of 1963 relate to

bank workers' average salaries in Recife. The estimated avirage

salaries in Recife,. The estimated average monthly salary of

Bank of Brazil employees is Cr.8 75,000, not including fringe benefits.

The average monthly pay of other bank employees range between Cr$40,000

and Or$ 50,000.

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CHAPTER VI .

-SELECTED NON--ECONOMIC FORCES

This chapter-presents a briet treatment of selecte& non­ economic factors, an und6tsTanding qf *hich is believed important f .1 ­ to the consideration of. problemis a. piospects of development in the Northeast.. Three brad areas of -discussion are uidertaken.. ­ fitA.,tkflinne.nce on 'durren attitides and mores of the "slave aristocracy" which l.oihtaed life in the Northeastfor three and one-half centurie 45 se3orid, what may be characterized as "development myths" operating in;t:e Northeast (and Brazil); and third, the present and prospectiye role of the Catholic, Church in Northeast developient, The significance of these forces, in-terms of the current compaative ferment and political instability in the rural and urban areas, is also discussed. A. INFLUENCES OF THE SLAVE ARISTOCRACY The first Portuguese settlements appeared on the eoastlie of the Northeast more than 400 years ago. The early generations of colonists came mostly from northern Portugal. Typically, they belonged to the agricultural nobility. When they came to the New World, they found conditiojs favorable for a continuation of their accustomed role it society. Demand and prices for sugar were rising, The soils and climate of the humid coastal zone were well suited for sugar production.' First the Indian, and later the negro from Africa, supplied slave labor for the sugar plantations.-- ftr-'the early part of the 17th century, the -coastal zonek fthNotheast had become one of the largest sugar pro­ duoingregonseinethe -world& 'Sugat- was king - izi the Nofrheast and Brazil.

Much of the discussion on this point is suggested by the writings of Gilberto Preyre. Dr. Freyre reviewed an un­ classified draft of this chapter and offered several help­ ful comments. LIMITED OFFICIAL USE­ r LIMIZER.0lflP-IAL USE

Perhaps the most striking fealpre of the agricultural system established by the first Portuguose sottlers was its early, prolonged, and almost complete domination of practically every aspect 6f life in the Northeast. The consequences of this system and its centuries-old preddminance constitute one of the Northeast's major present problems.

The powerful religious orders,. including the Jesuits, which tookan active part in colonizing the Northeast, accepted the plantation system. They established their-plantations, principally using Indian labor. Although these operations were conducted within a gentler environment, the economic and social

system of the mastor-slave culture was undisturbed. - U

The power of the sugar plantor was absolute; he was the feudal lord. Only in th last 75 years has the monoculture of sugar cane lost its economic position of supremacy in the Northeast. But it is still the dominant economic acticity in the-rural coastal zone, andas a system of social organization, it has changed litflo in tho 14*t 400 years. Some of the aspects of -his system are now discussed.

'The Pursuit-of Excollenco Learning was not a major concerp of the pqyrly colonists.

- Some evidence suggests, in fact, that there -existed what might be called an ansi-intellectual tra4tion. The socurity of the slave system and thoideological and philosophical leadership of the church tended to be safe-gparded by the isolatiep of the Northeast, by the paucity of eduotional institutions did the scarcity of books. There were a few-small church schools for the privileged; the wealthy and.ambitious could attend universities in Portugal. But in tho.fi'rst three conturies of colonial I society, there was-no university or printing press to be found anywhere in Brazil.

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Present educational patterns reflect the is oni reservation of access to learning to the wealthy and the particular emphasis which was given to the education of the aristocracy. Until recently, education, even on the elementary level and today, beyond the elementary level, is still a privilege of the wealthier classes, many of whom are descendents of the sugar aristocracy. Their preference for 1carors long

considered the only decent and-pr6ei 6hes for gontleoifen ­ government, lawpublic administration, mhedicine, the piesthood, army or navy", and their distaste for "manual- labor, and also' for trade, business, and commercial or industrial activities", strongly reflect the'iaristocrdtic traditions and values of their ancestors. The curricula of the universities, whore the emphasis is on the humanities and the- sciences, and the -general scarcity and poor Quality of voctional and commercial schools likewise reflect these preferences.-distastes and trAditions.

2. Individualism and 'Familism" The strong traditions of "individualism" and' "amiliam" which characterize many segments of the present day business community in the Northeast, can be traced, often through family lines, to the typical disposition of the former-sugar lords.. They find expression in the fiercely independent temperament of the entrepreneur. inhis reluctance to cooperate with other .­ businessmen, in his tendency to keep ownership and management within the family circle, in his general resistance tp oqtside assistance and to new ways of conducting Xis'bubnoa,

3. Science, Toohnoloav. to "Boom Psvcholog"vband Capital Flights

The decline of the early sugar prosperity toward the latter part of the 17th contafry re'sulted partly from the competi­

tion of English, Spanish, French and Daich 'sugar gr3owo s £n the - Caribbean. This competition would have been moro'su3ossfully met if the Northeapt had adopted improved production.and processing methods, The Dutch, whose 30 yearst occupation of

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- 88 ­ ITED OFFICL USE the Northeast endd in 54* apparently introduced some improve­ ments in sugar and othpat agticultural production. - However, the Portuguese did not,maiptain these mprovponts when the Dutch withdrew. Moreover, although -iou establishing a durable-agricultura ystem in the rudely tropical region of the Northeast 1 their-treatment of the land was dharacterizd by only a casual concern for soil fertility and limited knowledge. of sctentific mothods of agriculure Cotton growing, which started in Bahia ,ornambuco*, and MaranhEoi expeencd. its -era of rogfnrity dning most of the 18th century when 3rasil.was the chief world exporter of cotton. Here again, the failure to -odernize methods of production (the cotton gin could pick out seeds faster than could slaves) cost Brazil and the Northeast their initial advantage.

In short, the.plantation in-the Northeast never established a tradition of regard for technological improvements and scientific methods. The pervasive influence of this costly shortdoming contributes today to the Northeast's low agricultural productivity and carries over to aitiities in-the f6od processing and manufacturing sectors

The failure to improve-methods of production and, processing may in part be attributed to-the indifference of the Portugiuese to technologyand science, but it may also be linked to the "boom psychology" generated by the many "rushes" into ,&old and.diamonds (which started in 1693 in-Minas Gerais), cotton, tobacco,-rubbpr, and ceffee -economic bursts which mark the history 9f B4yZil. As.U,1rschman has pointed pt 1 thore is good qvidence -to suggest -thqt,these trushepl- Ty layg -led to "abandqnmont .of useful ongoing tdhthioh and o o :Po in favor of some new tget rick-qu ckt-actvtyu The diversion of capital to succ9ssive Vrusbes'" probably contribut9d to the

Fallure ,to Jpye, in.improved-ehniqv ,

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89­ Lfl91lED OFFICIAL USE'l "- ""C ASS f The same "excessive alertness toUnew opportLAnitiesS ­ an apparently deeply embedded component of the psychology-of the adventurer-exploiter-col6nizer, may help to explain another behavior pattern -of the uinvestor-entrepeneuru of the' Northeast -- his "rejection or postponement of perfootly good' projects on the ground that far.more profitable schemes -are bound to exist or to come along.

In addition to the possibility that profitable invest­ mont opportpnities may not abound in the Northeast, the tradAtions of the "rushes" and the 9zpectations of future' profitable prospects probably have contributed to thp flights of private Northeast capital to the South and abroad.

These factors have also opntributed to the roluctance of -theNortheast entrepreneur to ipw his available investment funds from a long-term point of view, Coptrast these views and-traditions with the cattle and agricultural entrepreneurs of the South who, in the 1930"s, by risking investment iii long-term ventures, helped to lay the basis for the rapid ­ industrial development of the South in the 1940's and 1950's.

4. Class. Race and Paternalism Through a gradual process described by Preyre as the "aryanization" of the Indian and negro, talent and uealth, rather than color, determined personal rank in society. "Aryanization" did not provent, however, the emergence of shaxp class differences in economic terms. The plantation system concentrated wealth in the hands of'the'very few, and ­ impoverished the many. However to a minor extent, the massive inequalities in wealth and economic station were mitigatbd by the paternalistic behavior of the ruling elite. -Paternalism ­ was reflected in the often-timed humanitarian concern of the Portuguese master for his slaves, and in the proprietary custody of the Indians assumed by the'religious orders. Paternalism, however, created the dependence of the slave on his masterand/or religious mentor for the satisfaction-of economic and-spiritual

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-90 ­ Lrn~Th UNCI., 4" 4 at a taditiQe of depeudtce, so madh -a part of.the present rural culture, became ingttined in Northeast society.,

The abolition of slavery in 1888 did not make the former slaves much less dependent on their td er mastert. Today, the typical agricultural laborer, ptstficularly if he lives in the coastal zone, must still depend on the "famendeirot for housing, health serstces, the education of his children, and a variety of other needs. I many parts of-the rural areas, the i"patreo" and the "parceiron are acting -out their archaic structure with little attention to the 'revolution of rising expectations". Paternalism continues, in other words, to be a strong sociil and economic force in the Northeast.

Aspects of the psychology of paternalism are found in the attitude of the poorer olassos which look to '!the government" to provide for their needs. (Wroyre has indicated that the nsocialism" of Vargas' "New State"-was in part a transfer of the paternal figure to the state.) Among many of the young intellectuals, "paternalismo" has come to symbolize the inability of the poorer classes to provide for theniselves, and the self-interested desire of.the wealthy to keep the poor in a position of abject dependence. Transferred to the realm of foreign assistance, "paternalismo" has sometimos been used to characterize the aid program of the United States as nothing but an attempt to irniptin tbe !!Jsiious economc dependence" of Brazf4 on t U4 Stastt

B, - SVELO[T MYTHS Vapy ort :an. other Braeilians, influential in develop­ ment policy-making, share beliefs which, although containing elements of truth, represent what might be called "development myths".. (Chapter I which discusses SUDENE also relates to this subject.) This description is not meant to deny the possjibility of legitimate differences in analysis or value judgements. It is meant to suggest that these beliefs are accepted almost

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without question, as fundamental truths - ,todeny themis -to.

prove, according to these practitioners, that economists from ­ developed countries simply do not understand the development

process in countries like Brvgil8 (9@is prejudice may also be considered a developent myth).

An early illustration of. a eyelopment myth, acted

upon for-decades to the mistoptun.of the.Northeast, was the ­ "mythology of the drought,.r The powpr;ad durability of this belief resulted .in the application of.icorrect, even harmful. public policies in the Nprtheast or th- better part of a century. Only since the earl7_ .s has the "mythology of.the drought" been fully discared by analyqls ond- policy makers' although it still has currency in many sectors of public opinion.

1. The "Assistentialism" Myth *... In Brazil and.in the Northeast, almost universally,

economists, planners, development technicians and even ­

politicians anxious -to criticize the U.S. and the Alliance, . condemn investment in "wolfarea or "assistential!' projects.. This.

view is shared, among.technicians, throughout Brazil as a . consequence of the approach,-sometimes identified with ECLA-,,.. which emphasized economic -infrastructure'and pointed-to the: rapid strides inthe SovietUnion where welfare or-consumer­ oriented investment activity had no place in early planning,--t stems in part from an extreme application of the basicaly-sound proposition that "welfare" problems will essentially be .solved by raising income levels and improving income distribution.,

. .In the .Northeast, additional support for-this view comes from the association of -work-relief- "assistentialist" projects with-the long history of failure to grapple with the­ basic problem of regional-poyaerty., Programs.containing -. activities addressed to human or social infrastructure -are to oftpn neyj JPdiscri4pael4r 4goribpd-'as "spistentialist' (a bad word), -or "wastes of resources". Because of this Qztrem .

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.emphasis, insufficient attention is given to the view that man can be an agent of d-velopment, rather than solely its beneficiary. To the extent that "assistential" activity can be a positive development force, the present bias tends to work against optimum allocation of scarce development resources.

Northeast governors and some of the state planners are understandably more concerned with welfare problems than are the "pure" technicians in SUDELEZor the BNDE. But, in the long run, they may be wiser. ot only will attention to health, education and housing have a development pay-off, but it may facilitate the continuing allocation of resources to infrastructure and pre­ investment activity at higher levels than a dissatisfied population would otherwise support.

2. The Self-Sufficiency, "Go-It-Alone" yth There is .awidely-held view in the Northeast that the region basically needs no outside resources (this means foreign resources). *Technical assistane., "yes"; but even here, of a limited kind. Given time, given "proper exchange rate policy", given the retention of Northeast capital in the region, the Northeast (the belief holds) can close the regional income gap on its own.

This attitude is linked to the past role of the Northeast in Brazilian history. During the first two centuries of the colonial period, the Northeast was the economic, political, and cultural center of Brazil. Although for some time clearly subordinate to the Center-South, the Northeast is still an important factor in the national political arena, and the Northeast continues to be regarded by many as the well-spring of Brazilian cultural life. The past greatness of the Northeast has made the Nordestino fiercely proud of his regional origins, and, as Gilberto Froyre has noted-, "more traditionally Brazilian in spirit and behavior than any other regional type."

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The, ttgo it alone" .mythology, partly. based on the remembrance of things past, has.gathered about-it some not always consistent corollaries. .One of these corollariesis that the Northeast has the physical resources which, if properly exploited, could transform it oyer-night.into-a. developed region. By some it is thought that as yet undis­ covered mineral wealth will 41tim tely assure developmer.. News of large deposits of utanium oxide ia Pernambpco is immediately referred to as the:ikey to The future", Others are persuaded that the concerted application of technology, or the introduction of new sciontific'ihods,T will open the door I*,I ,j- t t t . . . - !­ to progress. On a more sop4isicated*level, industrialization is regarded as a "cure-allt' It is rare, indeed, to find a SDRENE official who believes or admits to believing that the physical resources .oftthe-Noi.theast .areercould beg a limiting factbrin the devlopment of the Nottheast."

- aThe failure to recognize the weakness in the Northeast's resource bas partiniarly its agricultural resources), may result in an unwise application of national, as well as regionai resources which could, with greater benefit to Northeast development, be applied in areas outside the region*

A second corollary of the "So it alone" philosophy is the attitude that foreign assistance not only is not really necessary, but may in fact be harmful to development in the Northeast. One of the principal objebtions to the Food for Peace Program in the Northeast, in addition to charges of "paternalismt sassistentialism" -and "dumping", is that it will inhibit increased food prodp6tion in the 'Northeast by reducing incentiv6s to rais6 food crops.

The.attitude that foreign assistance is unnecessary does-not..carry over to assistance .from the Federal government-, or from the wealthier states to.the.South. Beoausq off.the.rolo of the Northeast as a generator of foreign exchange to support

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Center-South industrial imports, because of the traditional flight of investment capital to the South, and .because the Northeast has intermittently been "victimized" by Brazilian foreign exchange policy and unfavorable internal terms of trade, it is believed that the government and the Center-South should allogate a large share of capital directly to Northeast development., This emphasis- coUld hamper. the- use of public and private investment funds-.in areas: outside the Northeast, notwithstanding. the fact that such use- would abet the region's economic growth., For example, given the present collection of beliefs, it may be doubted that tax incentives would be available to private capital if invested in land resettlement outside the Northeast but established primarily for Northeast out-migrantsw

3. The Myth That To Have a Plan Is To Plan Although "planning" efforts in the Northeast represent substantial progress when compared with previous approachs, two beliefs (developed in recent years) are inhibiting sound planning activity and the process of development. The first is the satisfaction with a printed document labeled "development plan". There is an almost universal belief In the magic of this accomplishment; specific implementation strategy, the establish­ ment, financing and staffing of entities to execute the "plan", are steps often over-lo6ked. The second belief relates to a misconception of the meaning of planning: to' some extent SUlENE and, typically, in the states (throughout Brazil as well as in the Northeast), there is the notion that an aggregation of oaptal projects represents an economic dvolojflent plan.

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C. THE CHURCH In recent tears, ib is cjeap that partticipatJoand leader­ ship in the edonomia and sobia dqvb10etit'of the Northeast has' come to be regarded by the C o C ch 's an'appo riate missioi, 'with igent pririty Tho !obftic 41"t decision to take an active part in developient'oddurred in-the first special conferenice 6f the Northeast Bishg'wi'h mbt-in Campina G3adde in-1956. This miileston& conf6Tence resulted in the fdrmrtion of ad hoc working groups which;.c6niained representatives of such federal agencies as DNOS, YSF a:pdBNB, and'conceried'them­ selves -wiih small community rrojectsranging from wtr shpply to agricuItural rbettlement., Presid6e ' Kabitsohek'S "Operation N6rtheast, whiph-led to'the-cregtion of SUDENE, received the enthusgasticendosement ofa second meeting of the Bishops'in mid-1959--.'

Since 1959,'the'Church his -become' incroasingly adtiv6 in student groups and in the organfzipg and guidance 6f rurAl lab6r unions. In-addition, the Chupch hs established several literacyftrainiig and adult education programs in the rural' areasj ­ and has provided a network for"tho.distributionof 'Food for Peace commodities uhder Ti4le III 'of P'L. 480;

The active participation of the Church in social and economid.doelopment .prbjoots represents asignificant departure.from the traditional posture qf the Church' in Northeastsociety. The Church promises to be an important vehicle for economic and social progress, affecting the pace and structure of development, as well as the environment in which development policy decisions will be made and implemented.

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, 96~ I NCISSPEDLIMITED OFFICI VSE UNCLASSFEO L-E!=EI D TER CENTER OF SOCIAL TENSIONS AND POLITICAL UNREST Hirschman wrote in his Journeys Toward Progress that it "may wal be that (the) active support of the Bishops for Frtado's avant-garde reform group was forthcoming because the Church, with its permanent and close contacts with the people, sensed that a mood of defiance - evidenced by the outcropping of peasant leagues - was spreading In the Northeast." This observation is consistent with the Furtado analysis of the susceptibility of the rural peasant to violent solutions.

For many reasons, there are grounds to question the fear (and certainly its exaggerated formulatipn) that the rural areas of the Northeast are ripe for revolution. Those are some of the facts: (i) first, as described earlier in this chapter, paternalism remains a powerful force which still insulates a very large portion of the rural masses from the "agitation of the irresponsible left"; (2) also referred to previously is the noreasingly influential role of the Catholic Church in the rural areap (see additional comments in Chapter V); (3)-it also appears to be tho ofpa that those interested in agitation have formed competfig ;arhq7 Shan cooperating groups; (4) the facts concerning massiye rpmel gu.mi.ration indicate an "opon-nes&" in the rural Pociety pt #areto$Qre appreciated and suggest that these move­ ments are not only a social safety-valve but are transferring to -theuban 4r9as tjose who pre the more aggressive, the more disenchantod and those of the ruy. workers with the highest aspirations. Thpse now-comers to the cty arp ripe for political and demagogic eoploitation. Their living ponditiozn may not be any worse than they were in the rural areas, but they are rarely better. Absent is the security of their former way of life; present is their exposure toall the modern means of communication and persuasion. In short, it may very well develop that the center of social tensions and political unrest / will turn out to be the urban areas, already the location of almost 40% of the region's population.

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PART III - DEVELOPMENT EPFORTS SINCE. THE NORTHEAST AREEMENT LIMITED OFFICIAL USE UNCLarm- CHAPTER VII BACKGROUND OF THE NORTHEAST AGREEMENT On April 13, 1962, eight months after the signing of the Charter of runta del Este, the United States tnd Brazil.jpined in a new venture in hemispheric cooperation; the agreement "t ,.onthe Cooperation of the Government of the United States of America for the Promotion of Economic and Social Development in the Brazilian Northeast", Since known as the "Northeast Agreement", it assigned one pf the highest priorities to development efforts in the North-­ east. Perhaps no other region in Latin' America has been afforded greater Alliance attention no; has this Qxaot type of blateral cooperation been attempted elsewhere under the Alliance. ?our major sections comprise this chapter:

, Brief Historical Background f Pro-Agreoment Brapilian Development Efforts

, Pre-Agreemont U.S. Development Activity * Summary of the Northeast Agreement A. BRIEF HISTORICAL BACKGROUND Less than a century after sugar cane was planted in the Northeast (1532), the rpgion had become one of the world's largest sugar producing regions. Sgar cane broight more than prosperity to the coastal zona da mata. It established a system of agriculture 4' based on large land and slave holdings, devoted almost entirely to the cultivation of a singe crop. The sugar prosperty started to decline in the latter part of the sixteen hundrods, as sugar production spread to the Caribbean. Shortly thereafter, the cultivation of cotton (primarily in Bahia, Pernambuco and Maranhao) and. lator tobacco raising (Bahia), helped to compensate for the growing weaacness of the Northeasts competi­ tive position in sugar production. Cotton and tobacco did not, however, introduce any fundamental, changes in the system of land ownership and use in the Northeast. Nor did they enable the North­ east tojreoapture its early position of dominance in the Brazilian 19) economy.

LIMITED OFFICIAL USE -98­ UNCLAS LIMITED OFFICIAL USE With the opening of the mines in Minas. Gerais during the early seventeen hundreds, and later with the 'growth of cotton, rubber, coffee, and cacao.production for world markets in othtr parts of Brazil, the economic center of Brazil moved progressively southward. Within the Northeast, however, the monoculture of sugar cane, although operating on a precarious economic base,

maintained its predominant position until the twentieth century, - The problems of-the sugar economy-, and the increasingly serious consequences of monoculture agridulsture,. whatever the crop, were not given the attention they might otherwise have had, lapgely because of-the dramatic and "sudden" appearance, in 1877, of a "new" phenomenon, the drought.1/ For the next 75 years, the drought, rather than the underlying economic and structural problems of the region, occupied the attention of the Northeast. The decline of the sugar prosperity provided the initial stimulus to the gradual settlement of the vast hinterland of the Northeast known as the usertEao. With the exception of a narrow, hilly transition zone (the akreste), the interior'of the Northeast is a vast, semi-arid region of generally poor and shallow soils, little vegetation, and limited rainfall. Not -a desert, nor an area of permanent drought, the serto is an area of extremely limited potential for the support of life. Early settlement of the sertao proceeded on the.basis of extensive cattle growing, the cultivation of xerophytic (i.e., drought resistant) tree-cotton (moG6), and subsistence agriculture. Later, the inability'of the sugar zone to absorb population increases led to increased settlement in the sertao. This additional migration to the interior caused poorer and poorer lands to be cultivated and thereby increased the susceptibility of the inhabit­ ants and the largely subsistence sertao economy to the effects of drought.

1/ Droughts, of course, were not new in the Northeast. Bat it was not until 1877 that a substantial segment of the population was seriously affected.

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Thus- iA the three decaites prior to 1877, development in theNorheast rapially.indreased the region's vulnerability to - naturai calamity A but- this^ vulneiability jas not fully appoarent­ until the two yea arought o'1877-78; Official reports estiMted that 500s,00 in d'atg aloihe. "'6< .: --­ 3, PRE-AGREEMENT DRAZhIA DEVELOPMENT E1ORTS The feketal govern*:ment regonde to this catastrophic drought by setting up an Imperial'Contission ofInqitiry which, after­

For 75 years, - the spectre of the &roughts was the principal m6tivating force Eehind all programs of the fed.eri governm6nt in the Northeasti Froin the very beginning, -these programs concentrated on the building of large and small-dams, the dtilling of wells, and the construction of roads: in the semi-carid, hinterland. These ;programs were to: (I) increase the availability of water during drought periods through improved.water'storage facilities; (2) facili-tate escape from the dr6ight area; and, (3) provide temporary employment and welfare facilities. Expenditures for these programs fluotuaied. wilely. In 1921­ 22, with Epitacio Pessa-(o Nordestino) in the presidenoy expendi­ tures amounted to an incredible 15 per cent of federal-revenues. I '_ -' 1 . .I r Characteristic of the'- lack of continuity associated with government anti-drought programs, most of the -worls started by Pess a were quspended by his sucdessor'in office, Arthur Bernardes (o "Mineiro") before they could be completed. By 19251 speiding by the !Inspetorial' had declined to less than one per cent of federal revenuqs.

1/ Later thei 'Feeral Inppetorianlaid now the JNational Department" of Works Against the Drotghts - 'WNOCS".

LIMITED OFFICIAL USE -100­ UE LIMITED OFFICIAL Pessa, in 19?Q, initiated a fiscal technique subsequently used widely in Brazil. To ensure permanent snpport, for the 'Inspetorian- he established a "Special Fundu, -to be financed by two, per cent of'-annual federal revenues,- the proceeds- -of speol-al

loans, regular contributions from the Northeast States, and any - income resulting from public works costructed by-the Inspotoria. However,. in 1923, the Fund was liquidated by Bernardps and the

revenue reservation for-the "Iispotoria" was dropped% - 1930 ad -1931 were da--years:and 1932 producedxan. unusually seirere drought. .Expenditures by the "rnspetoria" in .1932 ainounted to'almost 10 per cent of the federal budget. Although expenditures declined after 1932, they remained high enough to~permit useful dam and road construction throughout the thirties. The device of earmarking.federal revenue re-appoared briefly during the Vargas -regime. The Constitution of 1934 made it mandatory that four per cent of annual federal tax revenues be allocated to drought relief in the Northeast. The constitutional reservation of funds required a precipe definition of the area in which these funds were to be expended. For this purpose, in 1936, a "Drought Polygon"nwas defiheds The earmarking provision,was left out of the Constitution of Vargas' New State (Estado Nov) in 1937, but was re-insorted,-allocating 3 per cent of the federal revenwe to the :ortheast, in the Constitution o-1946, still in force. Understandable political pressures, not necessarily responsive to natural factors, led to "definitional expansions" of the Polygon in-1947 and, again, in 1951. The completion of several large reservoirs during the thirties led to a growing perception of the difficulties inherent in the public works programs of the "Inspetoria". It came to be understood that prolifieration of dams and reservoirs, without --prior planning for irrigation or for the expropriation of irrigable

lands,: was- of little value to those who were principally affected - by drought - the-small landowner, the sharecropper, and the farm laborer. Too often, it was the large landowner alone who profited

LIMITED OFFICIAL USS -101­ 1'fited:,Official Use frok--thenoonstuioion-of damp and reservoirs.,. 24 The Begjiinings-_of- a- New. ra" : -The -failure..to full/ 'utilize and fairly distribte :the potential.:gains ifromspublic works'progtums was brought-to- national attention in 1940.7brtos.-Au usto Ttindade, -the Directo -of-the­ "Inspetoriars" division-of ag ioultuial research and--oxtension.-- TrindadeIs arguments. gained wide- aodeptie;,-they were reiterated in 1956 by the .Director of flNs,. y-the -National-Eoonoioe-Council in 1958, and again, ±n- 195 -y celso : rtado in his -important report which- laid . the basis ul-timatel fo UDENErs Master Plans.. (Nevertheless, -there.isr tod# ,stil 1inadequate provision:forufull and equitable utilization of-any publip clams and reservoirs.built in the Northeast by the "nspetbrian During the ninotaen fortiesj the attention of thefbderal government shifted somewhat toward the development:.of the ;Sao 4 Francisco River -fa.sin, *and away from the- traditional pre--occupation­ with dambuilding. . The ,growing interest :in the Sao Francisco­ resulted-. in the -creation in 1948 of two new federally-controlled ­ agencies. The Sgo Francisco Valley Commission (OVSF)-.was given]:. broad.responsibilities -fora wide range-of inter-relato-develop­ ment programs i the river valley-and its tributaries.: The Sao Prancisco Hydroelectric CompshyA(CHESF) was. given the,specific responsibility of developing -the hydroelectric potential of-Paulo

Afonso falls. Ocurring -during a decade marked by an absence of ­ droughts, this shift in emphasis is of-en associated--with -the - ­ world-wide attention given to the development of :the Tennessee Valley, a phenomenon which even, still occupies:-an important place in-the minds of many'tBrazilians,

- These two new agencies represented additional preliminary­ steps toward a sound development approach-to the Northeast. The.. philosophy behind the creation of CVSF.emphasizdd -the -ndod for - ­ integrated sub'r-gional development.. - OHESE openedh up the--prospect­ of abundAnt, cheap, eleotrio power,.he-beginning of attention to ­ industrial infrastructure.- - .1. .-- :- -

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The drought of 1951-52, the first major drought in 19 yersq stimulated an additional new response. by the- federal governmentb Influenced by recent critiques of the invalidity and futility of the hydraulic approach and by the public exposure of mismanag6ment, in­ efficiency and corruption in the use of DNOCSt relief funds, there was no great clamor, as in the past, for more dams and public works. Instead, there was created, in 1952, the Bank of the Northeast of. Brazil (BN). Intended- primarily as an iivestment and development bank, short-term commercial credit operations instead came-to dominate the BIB's lending operations throughout most of the fifties. This development- can be partly explained-by the difficulties on countered by the Bank in identifying industrial opportunities or. -9 stimulating industrial project applications. The necessary ground­ work.for investment and development type banking had simply not been done. In any casej the specialized credit operations of the Bank expanded rapidly and still characterizes the Bank's present ­ operations./ 3. The Thrtado Report

.By. all accounts, the, 1958 drought was one of the worst experienced by the Northeast. A typical panic situation dovoloped* Emergency funds were voted; relief shipments were dispatched; work fropts were.organized; dam and road building programs were accelerated. - The emergency programs were barely underway when reports of graft and corruption in DNOOS' use of relief funds were made public. Evidence of profiteering was disclosed; attempts to influence the

1/Thioughout its existence, the BN has disappointed those who thought it would become but another resting place of political appointees. The Bank early developed an excellent personnel training program. Many of the "graduatesn of this program now hold key positions in other agencies in the Northeast, including SUDENE. The Bank also established an economic research division (ETENE) which has made valuable contributions to the study of the Northeast economy. The orderlinessand reliability of its services were welcome additions -'to public service in the Northeast, It has yet to become, however, a truly significant development institution in the Northeast.

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ontootie of the crucial*October elections-wore uncovered. Relief shipments -and. employmnerit'on public -Works projects 'were manipulated for political purposes at the --polls, ' Economic dris joihed *dth the qage fo'r a thorough -@apratsal and political pressures to set aC'- <7oo a-radical .new attack oz-the rtobleas of the--.Northeast. ­

- - Early'in '1959, Celso Fartado published -anr official paper under 'the title "A Polief of EoniicDev-elopdient for -the Northeast". The pater, which camd to 'be kdiv d1T4he Iurtad6oEeport"-had -beeh prepared at the request -of Irdsideht -Kubitsoheck fbr tld Workifig Group for the Derelopment -of the:Notheast '(GTDN)-a, (After several years with -the Economic Commisdiohw of-Latin America -and a year at the University'of. Cambridge, - tao economist and -ecohomic­ -historian,p had, in 1958, beeh appi6ee a director--of the Nationi Bank for Economio' leelopment BNDE). - A native and a-student of'the Northeast, -Purtado based his report on 'the- data collected -y a, viork group of the BNDE.> The significance of the Puriado report may be sumiarized-- 'in the following terms: . It represented the ahalytical justificdtion for the sub­ sequent final, formal full rejection- by -the, federal . government of the hydiaulio-work relief solution. * It provided the ebonomic analysis required for ,the formulation of a iew federal policy for --the Northeast.- It became the ideological basis for the framework--and spe­ cific projects which were later put forward .in SUDENErS Master plans.

2An importarit analytical; tool had also become "available during the 19 5 0 's. The first- estimates of,national, regional, and ostato ­ income an1 product in Brazil became.-available in 1951-52.- .These, statistics made it jhossible t4 quantif.the -differences in levels and rates- of growth eetween -Centjr-South and the Northeast, -and -thereby not only to measure the exteht of' the economic problems of the Northeast but also to strengthen the-political claims.for -. special, organized attentfon- to' the region. - . . *-4 The GTDN, created- by Kubi-tsoheckin -1956 to cbordihate (with-little -spcess) -federal activitids in the -ortheast - gave tway, ih-1959, to 'CODENO (Development Council of the Northeast3 whichpublished 'the Furtaso Report as<- itg firstVdocument.

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Those accomplishments, plus the likelihood that it helped to assure Furtado's subsequent selection as SUDMEs Superintenden, suggest that the Report, quite possibly, represents the most significapt single development in the modern economic history of the Northeast. 4. SUDENE In February, 1959, President Kubitscheck proposed to the Congress the creation of the Superintendency for the Development of

the Northeast (SUDENE).. Pending the passage of the SUDENE'bill1 ]ubitscheck formed the Development Council for the Northeast (CODENO) which was used as a base of operations for Furtado during the eleven­ month legislative battle which was culminated by the passage of Law NO 3.692, creating SUDENqE. The powers granted to SUDENE were sweeping (and have since been extended) They included the coordination and control of the

activities'and investments of other federal agenciest in the Northeast 1 including DNOCS and,CVSF and- to a lesser extent, BNB. C, PRE-AGEEE!NT U.S. DEVELOPMENT ACTIVITY In terms of the development attention now being given to the Northeast and underdeveloped areas throughout the world non-Brazilian public development activity in the Northeast prior-to the Northeast Agreement was not significant, U.S. attention, moreover, was dis­ proportionately small when contrasted with its technical assistance and Ex-Im Bank activity in other parts of Brazil. In contrast, al­ though the UN. technical assistance program in the Northeast wast quantitatively, about on'a par with U*S, help, it reflected a conscious decision to assign priority to theNortheast, representing as it d7d,by tho-Tlate fifties, some 40o of the U.J,'s total program in Brag1,

- U.91 assistance to the Northeast prior to-the Northeast - Agreement falls into two periods, the war.years and the 1950's. U.N. assistnop in the 'Northeast began in 1950, The exhibit following this page summarizas non-Brazilian efforts. With the exception of

a $15 million World Bank loan to CasSF in 1950, and an Ex-lm $15 - 4

.LIMITED OFFICIAL USE -105­ CHARLT I' F~ r ORH-S AREA UNDER SUDENE JURISDICTION AND POLYGON OF DROUGHTfS

1

Droughts 'i - ( X )4 X SUDENE Area EXHIBIT 2 SUMARY OF FEDERAL ACTIVITY IN THE NORTHFAST, 1877 - 1959 Special Northeast Study

Year .D e s c r i p t i o, n

1877 Imperial Commission of Inquiry is established.

1909 Inspetoria of Works Againts the Droughts is established under Ministry of Public Works adTransportation; became DM030in 195.

1919-23 Period of highest federal expenditures for drought works, estimated at $l5,000,O0O, current purchasing power. Two percent of federal revenue is allocat~d to Special (drought) Fund.

1923-2W Spending on'drought works is suspended. Earmarking of federal revenue is discontinued. 1932-3h Period of second-highest expenditures. Costitution of 19314 earmarks four percent of federal revenue annually for drought works.,

1936., Neis constitution has no earmarking provision. Drought Polygon is defined.­ 19h6 New constitution earmharks three percent of federal revenue for drought works (otwhich ENOCS'I receives two percent.. and, the remaining one percent is placed in emergency f'und) and one percent for development of Sao Francisco Valley.

1937 Drought Plygonis expanded. 1948, S~o Francisco Valley Commission (cvsr) is created (and receives o'ne percent oi' federal revenue as pr'ovided. in ,l94= 191~8constitution). Sao Francisco Hydroelectric Compay (CHESF) is created. 1951 Drought P&Lygon 1966is expanded. ­ a 1952. , Bank of the Northeast of Brazifl XBNB) is established and receives 0.8 percent of :federal revenue (this amount beig-41%= transferred from1967 the emergency fund created in 1946).: 1956 Working Group for the Development of' the Nort16ast. ((flDN), is created.,.

(6ODENOj'is created as immediate predecessor of' SUDE t. SODNE Is created 1959 Development Council for the Northeast GOD" December 115, and receives two percent or federal, revenue. LIMITED OFFICIAL USE

million loan to OHESF in 1956P non-Brkbsilian assistance to the Northeast was negligible. 1. The Crisis Background of the Northeast Agreement The Northeast was first bropght -o the attention of the U.S. public in the fall of 1960. Two front-page articles by Tad Szule in the New York Times, and shortly afterward, the NBC television presentation "The Troubled Land", provided vivid portrayals of the depressed living conditions and (allegedly) potentially explosive political situation in the Northeast, Both accounts cited the activities of Francisco Juliao, leader of the "Peasant Leagues", as one of the prinoipal manifestations of social unrest.1/ These accounts helped to shape the impression that revolution by violent means was both a real and imminent p6ssibility in the Northeast, and that it could be fostered, provoked, and perhaps led by rural leaders such as Juliao, For the following reasons, Francisco Juliao and the Peasant Leagues did not, howeyer, merit the attention and notoriety which were thrust upon them. The Peasant Leagues at no time represented more than a minute and widely scattered portion of the rural popu­ letion; their leadership was often divided and their . organization was poor. , Although the activities of the Peasant Leagues received some attention in the Brazilian press, they were generally subordinated to, or regarded as a minor aspect of, the disturbance caused by the drought of 1958, the public out­ * cry against DNOCS, and the turmoil of the 1960 elections. . Against this baakgrom4 ad the knowledge that the Peasant Leagpos were in pany ways typic4l of a long line of rebellioup groups *hich dotted the -history of the Noztheast, the Brazilians themselves seemed much loss concernqd with the "immodiacy of the revolutionary dangers"

I/Both accounts wore appaiently partially inspired, at loaqt initially, by the publication earlier in 1960 of the book The Drought Industries and the "Galilous" of Pornambuco, (subtitled) 'Aspects qfttha Fight for Agrarian Reform in Brazil", by Antonio Callado, a Brazilian journalist. It was in this book, based onvarious articles, that Juligo roceived his first public attention.

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than were others outside the country. During the spring of 1961, SUDEEEoffigials and U.Se repro-, sentatives in Rio began to discuss the possibility of increased ,%.S. assistance to the Northeast.- As a result-of*these preliminary dis­ oussions, Celso Furtaclo and two members of hisstaff were invited to visit Washington in July, 1961. In Washington, Yurtaao.met 'with President Kennedy and high level representatives.ojf-U.S. assistance -agencies. The U.S. agreed to send a group of U.S. development specialists to the Northeast to study the problems of the area$ to review SUDENEs development plans, and to make specific recommen­

- dations concerning possibloU#S. assistance to the Northeast. In early November, 1961, the U.S. team of development specialists, heade4 by former Ambassador Merwin Bohanr, arrived in the Northoast. 2. -The Bohan Retort The Bohan Report, released in February, 1962, recommended that'the U.S. participate in two typos of programs: (a) a short-term (12-18 months) program of immediate impact projects designed to improve'conspicuously the .economic and social conditions in areas most urgently in need of.assistance; and (b) an over-lapping long-term (5 year) program designed to attack the fundamental causes of under­ development in the region. The short-term program may have been a product of the ari'sts atmosphere through which many looked at the Northeast at that 4 time. The long-term program coincided with, and was designed to supplement and complement the SUDENE Five Year Plan. The Bohan Team did not entirely agree with all the assumptions of the Five Year Plan (for example, the assumption that the Northeast by itself had the physical resources to sustain long-teri development), not was the Bohan Team persuaded of the merits of some of the programs spe-, cified in the PtMn (for example, .the.Maranhgo colonization project). Essontially, however, the Five Year Plan was recognized as the most likely framework for long-term development in.the Northeast.

Detailed negotiations of an agreement for U.S.. assistance to the r I Northeast began in earnest shortly after the Bohan Report was released.

LIMITED OFFICIAL USE 107 EXHIBrT 3 Special Northeast Study SUMARY OF NON-BRAZILIAN ASSISTANCE IN THE NORTHEAST, 1942 - April 13, 1962

Year D e s a r i p t i1o n

192 U.S. supports public health, minerals exploration, natural rubber production, and food supply programs under' rstitute for Inter-American Affairs. r

1503 U.S. Technical Mission to Brazil recommends multi-purpose river basin development program for So Francisco Valley.

1950 World Bank loansti5 million dollars to CHESF. UNICEF begins variety of public health programs, including distribution of P.L. 480, Title III powdered milk.

1951 U.N. expert advises Joaquim Nabuco (Social Research) Institute in Recife on problems of rural housing.

2.51 U.N. staff member Hans Singer makes brief study of Northeast's development potential. FAO and UNESCO send livestock and minerals technicians on short assignment.

U.;. sends development boonomist Stefan Robock on 3-year assignment to BNB. Robock helps establish training, research, and planning programs. U.N. sends rural credit 'advisor to ANCAR.

19515 UNESCO engineer-geologist helps establish hydrology program. Ov

1956 EX-W. Bank loans 15 million dollars to CHESF. (Other EX-TM loans for private utilities, grain storage, and purchases of trolley buses, diesel generators, and highway equipment, totalled approximately 5 million dollars during the nineteen fiftle -

Late 1950's U.S. Point TV technicians (approximately ten) active in public health, agricultural extension, rural credit, home economics, livestock, horticulture, and (intermittently) minerals exploration. During nineteen fifties, Point [V also sent approximatel 10 Nordestinos abroad for advanced study and training. U.N.-technicians (approximately eleven) dispersed among BNB, GTDN, UNESCO geology project, and ANCAR.

£ -I 1960 U.N. Special Fund allocates 1.5 million dollars for 5 year survey of Sso Francisco RiverBasin; with SUDENE backing, and U.N. technical assistance, program is initiated in 1961. . FordFoundation grants 140 thousand dollaro to SUDENE for fellowship training program.

1961 IDB loans: $10,000,000 to BNB for relending to private enterprise; $h,120,O00 to City of Salvador for water supply system;. $615,000 to "BRASQUIP", equipment manufactuier. BNDE transfersP.L. 480 cruzeiros to NB for relending to.private enterprise, Paulo Afonso, and Pernambuco warehousing project.

1962 IDB loans: $12,990,000 to SUDENE for water supply program; $265,000 to Bahia State Planning Commission for technical assistance. . I U.S. technicalz assistance activities continue at approximately same level as late nineteen fifties; technicians are assigned to USAID Recife office established shortly after signing of Northeast Agreement. U.N. technicians in Northeast number approximately 19; -of which 14 are ,on SUTENE staff. U.N. sends Nordestinos abroad for advanced study training (2h since 1955).

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D. SUMMY OF TM TORTEEAST AGREEMENT The resulting agreement, signed in Washington on April 13, 1962, provided the basis for cooperative en'deavours in many fields of development. To this extent it mepresented an actual "meeting of the miids". ut the agreement alpo reflected some assumptions and urgencies which later proved not to be shared by the Brasilians. To this extent, it did not represent actual agreement. Following the general recommendations of the Bohan Report, the Northeast Agreement provided for tdo general types of programs:2/' . "immediate action projects (such as community water­ supply, rural electrifcation, literacy training),. intended to achieve secdy rd:ults in meeting some of the more urgent needs of the 'people of Northeast Brazil", and; I . "long-term" development projects (such as the development of power, expansion of education, resource studies)... intended to improve fundamentally the ability of ibo Northeast and its residents to provide for themselves a better standard of living and to advance the economic integration of the Northeast with the rest of Brazil." Often forgotten was the provision, under the long-term program, for contemplating activities "to promote the accelerated devolopment of areas adjacent to the North­ east in order to create economic opportunities for .. people from the iNortheast". 1. Differences in Views Despite the Agreement Although, as has already been noted, the U.S. gave high priority to the immediate action program (it represented approximately 25 per cent of the U.S commitment), STUDEN did not give equal or even minimal priority to this program. The reasqns. The immediate action projects of the type included in the Bohan Report (the SUDENE Master Plan had no similar category or type of projects) reflected a different approach or a difference in emphasis as to the problems of economic development. SIDENE's belief was, and essentially still is, that social development is a consequence-, not an-initiating force in the development

2'Specific projects in both the "immediate action" and "long-term development" programs were to be "of the type included in the (Dohan) sqypy team repopt or'the t ,, MLster Plan, or which

(mi'ght) be mutually aged to,U .

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process. The immediate action projects were open to the charge of "mere assistentialismat To the extent that SUDKEN was concerned with the problems of social unrest in the rural areas, it believed that these problems would be and could only be rosolved by structural reform in the agrarian sector. . Quite apart from differences in approach, the immediate action projects were not sympathetically embraced by SUDENE because they would involve intimate identification of the United States in assistance efforts which would be "close to the people". Thus it was that the immediate action program called for in the Agreement was inadvertently responsible for some of the problems evident in the early period of USAID-SUDENE relations. The long-torm development program, obviously, was more acceptable to SUDENE iasmuch as it was, for the most part, based on the BUDENE Master Plan, -Yet one important aspect of the long-term program specified in the agreement rested on assumptions which were not shared by both parties. This was the provision for activities "to promote the accelerated development of areas adjacent to the Northeast in order to create-econpmic opportunities for people from the Northeast". (Emphasis.added). An indication of U.S. concern for the development of areas adjacent to the Northeast is the fact that the lohan Report tiaJJ& recommended the allocation of 150 million dollars to the opening of a land outside the NoTrtheast for settlement by people from the Northeast. This recommendation was a consequence of the Bohan TOm view that the long-thrm development of the Northeast would depend, in large measure, on reducing the peoplerland ratio/, a view with which SUDENE did not, and does not agree. The early sources of differences with respect to both the short and long-tem program provisions of the agreement were part of the environment, therefore, in which implementation of the Agreement

was commenced. -

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CHAPTER VIII

POST-AGREEMENT BRAZILIAN DEVELOPMENT EFFORTS

The Government of Brazil authorized and designated:SUF)DENE to work with USAID on the various projects and agreements involved in ibplementing the Northeapt Agreement. The Agreement also provided for the possibility of other Brazilian agencies, if designated by the Government of Brazil. Such-designation has not been made. However, deppite the fact that, under the Agreement, U.S. operations in the Northeast must ultimately be approved by SUDENE, and despite the predominant position the

Superintendency occupies in development activity in the Northeast1 many other entities play an impqrtant role .in the economic development of the Northeast.

Discussion of Brazilt s development efforts in the Northeast a undertaken in the following five sections:, * Summary Evaluation * SUDEfErs Sectoral Plans and Performance * Other Federal Entities * State Activity

* Brazilian Alliance for Progress

4. SUMMARY EVALUATION

On the basis of scattered information, this study estimates Jat thp equivalent of more than $1 Aillion (1963 prices) were qgpen&e4 by the federal government in the Northeast-between 1877 apd the creatipp of SUDENE. Development Qr enditures in the Northeast since STJENEts creation (largeiy rop ;easons discussed in Chapter X) lagged qonsiderably behind intended levels, but nevertheless represented, qs would be expected, a sharp rise in rate when contrasted with the previous flpouating, discontinuous history of past federal qfforts in the Northeast.

CONFIDENTIAL BCLASSIFED -­ 1. The Northeast Agreement and the Brazilian-Effort The two governments agreed to combine Brazil's self-help efforts and reform measures with U.S. economic, technical and related assistance. Total expenditures envisaged in the Agreement came to $750 million - 858 million for a program of "immediate action" projects and $692 million for "long-term development projects for the years 1962-1966". Brasilts financial- "commitment-" is set forth in the table below: Table. XIV GOVERNMENT OF BRAZIL FINANCIAL COMMITMENTS UNDER THE NORTBEAST AGREEMET (billion cruzeiros)

Immediate Action Projects 7.95 " / 3 Long Term Development Projects 35 j Total 45.45

/ Not less than ... from national, state and municipal sources plus such additional amounts of funds as shall be necessary to assure project completion.

2/ Covering only 1962 and 1963 of the five year period 1962-1966.

j "... subject to the appropriation of funds by the Brazilian Congress".

The following judgements are rendered ooncerz7pf ympipis performance with respect to its financial commiPent:. (1) In terms of appFopriations, Brazi1, to SUDEq gone, has already provided the basis fo.? meeting ity commitment

(2) I terms of obligations, Brazil, Nith SUDENE 4lone, 411 most likely meet the immediate action project aprmitpent by December 31, 1963. s (3) It is not likely that SUDENE, by itpelf, will have - 6bigated by December 31, 1963, the'amounts committed for the longa-tern &evelopjent projects.

CONFIDENTIAL .111­ MAJOR 2REGIONAL AND NA TIONAL DEVELOPMENT ENTITIES OPERATING IN EXHIBIT 4 NORTHEAST BRAZIL Special Northeast Study Entity D e a c r i p t i o n

Regional

1. ANCAR Associaqgo Nordestina de Crdito e Assistancia Rural. Rural Credit and Extension Association. A private, non-profit organization supported by federal Brazilian entities such as Ministry of Agriculture, Bank of Brazil and others. 2. BNB Banco do Nordeste do,Brasil. Bank of the Northeast of Brazil. A federal development bank making short- and long-term loans to agriculture, industry and supporting social infrastructure projects.

3. CHESF Companhia Hidroeletrica do Sao Francid'co. Sao Francisco Hydroelectric Company. A mixed corporation for the development of the Sao Francisco River hydroelectric power.

4.CVSF Comissao do Vale do S.o Francisco. Sao Francisco Valley Commission. A federal regional planning and execution agency for the developiient of the Sao,Francisco River basin, the greatest part of which is in the Northeast. 5. DNOCS Deparfamento Nacional de Obras Contra as Sacas. National Department Against the Droughts. Rece'ntly made semi­ autonomous, operating under the Ministry of Transport and Public Works.

6. SUDENE Superintendncia do Desenvolvimento dg Nordeste. 'Superintendency of the Development of the Northeast. This is the principal planning, co-ordinating and executive agency for economic and social development of the Northeast. National

1. BNhE Banco Nacional do Desenvolvimento Economico. .National Bank of Econ6mic Development. This bank is required by law (No 2973) to use 25% of the Economic Development Fund in under-developed areas of Brazil.,; 2. BB Banco do Brasil. Bank of Brazil. 'This bank provides chiefly agricultural and industrial short-termloans.

3. DNER Departamento Nacional de Estradas de Rodagem, NationalHighway.Department. A federal agency under the Ministry of Transport and Public Works, operating in the states mainly through the State Highway Departments.

4. DNOS Departamento Nacional de Obras de Saneamento. National Department of Sanitation Works. A department arider.the Ministry of Transport and Public Works. I .IL 5. FSESP Fundaq o Servigo Especial de Sande Publica. Special Pubiic Health S rvice Foundation. This is roughly equivalent to national public health service; it is semi-autonomous and not dire tly under control of any federal ministry.

6. SUDEPE Superintendencia do Desenvolviento da Pesca. Superintendency for the Development of Fisheries. A federal agency for planning and co-ordinating'activities related to fisheries.

In addition, several federal ministries are active in the Northeast in sectors not covered by the entities listed. State economic development commissions or councils, for all Northeast states, engaged in planning and assorted development activities, also exist. to which___ CONIDETU-- 8NCIlA3R C[SSIE The preceding cotnments raise the question of the extent to which the over-all Brazilian effort in the Northeast should be the basis of appraising performance under the Agreement. If Brasilts total financial peforimanpe in the Northeast is

considered - obligations to spend. *qdertaken by SUDENE and other entities (DNER, DNOCS, for example) on projects, whether or not they are mutually (Brazil-U.S.) agreed upon, then it would be concluded, that B3riil's-financial efforts in the Northeast represent achievepent o itp commitment.

Although this view is beliqevd to be reasonable and sensible, it tends to set the stae Tor a comparatively, perhaps unfair, critical assessment of U.S performance under the Agreement. The U.S. cannqt fulfill its commitments under the Agreement (as modified by the Tune, 1963 "graht letters") by financing projects unless they are agreed to by SEDENE. The practical opportunities for fulfilling Brazilian and U.S. commitments under the Agreement aro, simply, unequal. -Any appraisal of both Biazil and U.S. performance should take that fact into account.

2. Comments on the Non-Financial Aspects of the Brazilian Elffort- The "new era" in the Northeast (namely an attempt at a development attack on, for the first time, the properly identified problems of mass-poverty, rather than the futile I palliatives of the past) did pea gwpbep away past institutions. It wqs added on to the institutional and p'ogram epyironment which had been created over preVious Aecades. For #Jis epQp some - not all we of the unfayopapleaspepts of thp Brailian development activity in tbo Nprtheast were inevitable. a, Regional vs, National Planning SUDENEs regional "plan" is not systematically relate4 to nationa &developpent goals which do exist (even if not developed within a totally satisfactory national program).

CONFIDENTIAL 0 '-CONFIDWHTAL

ei.onal vs.. National Solutions SUDENE and other Brazilian-entity concepts and, therefore, policies and programs, do not recognize nor do they exploit the need to undertake development activity outside the Northeast for the Northeast.

C. Lack of Coordination Ministries are undertaking programs in the Northeast which are part of their national programs, These regional efforts are not always coordinated with SUDETE and vice-versa,

d. Duplication and Extension of Power SUDERE is attempting to extend its planning control and actual operations into fields where other Brazilian entities have the competence and approach to do a good job, and have done or are doing a good job. -

(Additional comments upon SUDENE's performance are contained in Chapter X.)

3, SUDENTE-USAID Relationships Various factors made it unlikely that joint cooperation immediately following the Northeast Agreement would be fully forthcoming. Despite these factors and fluctuations in the relationship, the general situation has continued to improve. 2SUIENE technicians now generally respect-and work well with W USAID staff. Personal relations at all levels are good to excellent. An atmosphere of good-will now prevails.

There are, however, important differences in concepts, philosophy and other aspects of.the tdevelopmentbusiness" in the Northeast, between SUDENE and the U.S., which are not likely to be reconciled despite good professional and personal relations. It becomes important, therefore, to the extent possible, to alter the framework, the "rules of the game", - within which U.S. aid is carried forward, in order to accomplish as much as possible of what the U.S. believes will most benefit the-Northeast and be consistent with other U.S. objectives.

CONFIDENT IAL -143­ if SS ED

EXHIBIT 5 Special Northeast Study

PARTIAL ESTTIATES, PLANNED CTRIBUTIONS T6 NORTHEAST DEVEWOTHENT, -BY PROGRAN BY BRAZILIAN ENTITIES, FY 63-Y 6? (lilinsE of Cruzeiros)

Federal Agencies Other Other States Entities Progr SUDENE Entity t CGrs Entity Cr5 Tot a. Health Nat'1 Ministry 020 Community Health P/SESP 1,459. Departmtents 2,331 of Health 1,230 5, .1 Health Community Water Supply 1.103 DNOCS 1,190 Depastments 35' PNOS 30 F/SESP 10 Comnities 100 058 CHEST 10 Industry 800 Community Electrification b,000 CHESF 900 Depriment 900 5,

Community Development Varios Housing Program 1,500 FIENE 100 Departments i,609 4,209 Health&Edut. 1,550 Food for Peace 1,500 Departments SO Bohan-Type Impact Programs 635 (Sub-Total) 6,103 1._360 1.3 "Various Resources Inventory 5,952 Departments 500 6,452 P.l. & Roads Nat'1 High­ Roads 8,h86 DERl 1,83 Department. 3,234. way Fund 86,000 99,535

Electric Power 19,713 Bonds 5;062 24,775 'Education 12,634 Education 3,200 Department 9,h3b Mi. of Agric. 968 Edue. 2461 1,629 Agricultural Education t00 Min. of

Industrial Education 2,000 'HESF 74. Education 2,835 b909 250 Ge-ological Education 250' 2,476 Industrial Development 2,Ub6 CODERMN 30'. Agriculture Min. o Agric. 1,086 Agric. Research & Extensoan 3,9h0 Department 72h ANCAR 77 5,827 5,10 Agric. Prod. & Marketing 5,1.10 6,360 Fisheries b,210 DN0CS 150 6914 6,000 Water Resources Development 7,000 Cl/SF 8,00c S AT ago 2,125 CHESF 16,000 140,10?. 0ONESP 105 Colonization and Resettlement 2,500 1-3,892 Long Range Programs (Sub-Total) 65. - 102,699 210.861

Grand Total 732.12 0217- - 103,859 0r*230,I98

Figures are derived from Project Agreements and proposed individual Federal and States Agencies' Budgets. In some instances, these plans will not be fulfilled by the end of PY 6h. CONFIDENTIAL a

Within the present framework, there are importan I, upon the likelihood of that achievement.

B. SUDENIES SECTORAL PLANS AND PERFORMANCE The Exhibit following this page sammarizes, by sector, SUDENE's 1962 appropriation and its plans for 1963 (approved by the Congress as part of an authoriaztion for three years). Also presented is the study!s estimate of obligations. Each of these sectors is now revie'ed briefly,

1. Electric Power SUDENE obligated virtully all of its 1962 appropriation but is having more diffiouity in carrying out its plans for 1963. The principal 1962 project invoived'the extension of the Paulo Afonso power lines into Rio Grahde do Norte and Cearg. Of the Cr25.4 billion approprated'fpr 1963, rS$10;9 billion was "liberated"-by President Goulart Iii ly, 1963. Fzom this amount, C43.8 billion went t. ?ear ad @:2.0 billion to Rio Grande do Norte to continue the northward extension of the Paulo Afonso lines, Cr41.4 Wil24oA'was given to CESF for the expansion of the power plant itself. "At the October, 1963 meeting of the Deliberative Council, 101.9 billion was obligated for the secondary systems of 7 states, Not all of these funds, however, are likely to be obligated in 1963.

2. Roads About 50f of the 1962 appropriation went for roads in Bahia, Rio Grande do Norte and Cearg, 1963 funds are to go for roads in all Northeast states except Rio Grande do Norte.

3. Agriculture Agriculture is one of the few sectors in which SUDENE elected to enter as the primary implementing agency. Because of this, SUDENE need not contract with other agencies for agricultural projects ani& the amounts obligated are not public knowledge, 1962 obligations apparently were directed toward the colonization of Maranhao, the development of livestock and feeds, the improvement of cotton strains in the Northeast and reforestation.

At the October, 1963 meeting, the Deliberative Council authorized the expenditure of C421 billion for SUDENE's coloniza­ tion project in Maranhao. Other objects of 1963 funds included agriculture and livestock cooperatives, cotton development, and survey.

4, Water Supply 1962 funds went for the "58 cities" community water project and for projects in Piaui, Paraiba, Ceard and Pernambuco. from the 1963 appropriation of 0:8.2 billion, obligations have CONFIENTIAL CONFIDENTIA already been incurred for CrS600 million in Cearf 0S500 million ) in Salvador, C6360 million for the purchase of water trucks for interior cities, 003.7 billion for urban water supply and Cr3250 million for water studies.

5, Basic Education Revealing a shift in emphasis from 1962 to 1963, is the large rise in authorizations and obligations in "basic educations (technical and vocational training), USAID is currently considering a possible project for vocational industrial train­ ing to which SUDENE would. contribute CB2.1 billion.

6. River Basins and Fisheries Both sectors were provided for in 1963 for the first time. Obligations for these sectors have probably not yet been inourred.

7. Water Well Drilling In 1962, an estimated Cr8204 million was obligated for water well drilling in Pernambuco, Ceard. Rio Grande do Norte ­ and-Piaui, The 1963 budget of CW2 billion was apparently exceeded when the Deliberative Council in August authorized SUDENE to give C62.6 billion for well drilling to CONESP, a mixed capital company.

8. Industrial Development Appropriations were substantially raised from 1962 to 1963. Most of the 1963 appropriationwent for the purchase of' stock in Usina Siderurgica da Bahia (steel plant). (Various other SUDENE activities, concerned with-industrial development, are not covered by these appropriations.)

9. Food Supply . P In 1962 SUDENE obligated an estimated C6107 million of its Cn240 million appropriation for the construction of food storage facilities near principal urban areas. The 1963 appropriation of Wt950 million will apparently be used. to purchase rice in Maranhao to supply Recife.

10, Mineral Resources and Cartography Here, too, a large increase in appropriations occurred in 1963. But the obligation rate is apparently low

11. Housing A small start in housing, with SUDEHE and the states working on pilot projects, ocourred in 1963.

COMFIDENTIAL - -T115­ - V

EXHIBIT 6 Special Northeast Study

SUDENE APPROPRIATIONS AND ESTIMATED OBLIGATIONS, BY SECTOR, CALENDAR YEARS 1962 AND 1963 (Millions of Cruzeiros)

2/ Appropriations Obligations 1,962 1,63 Total 1902 Total

Electric Power 5,748 ,25,409 31,157 5;,400 6,00o 12,300 Roads 2,91 8,829 11,743 2,897 2,818 5,715 Agriculture 2 ,161 6,401 8,562 1,297 5$800 7,097 Water Supply 1,037 8,172 9,209 628 5,4110 6,038 Basic Education 10 2,973 2,983 6 2,985 2,991 River Basins - 2,b12 2,412 Fisheries - 2,060 2,060 Water Wells 340 200 2,340 2o4 * 2,600 2,804 Industrial Development. 135 1,458 1,593 87 15000% 1,087 Food Supply - 340 990 1,290 107 950 1,057 Min6ral Resources and TM Cartography 120 S1,244 1,364 78, 293 371 Housing : 500 00 -In 2uDa Hydrologyj 440 200 640 2)42 100 342 State Governments 882.. 882 1,800 1,8,00 :Miscellanebus 310, '1,002 11312 217 350 567 ' - Total 13,555' 64,492 78,047 . 11,163 31,006, 42,165

:Estimated Obligations, November and December,,1963 12,000 Estimated Total Obligations, 1963 43,000­

Estimated Total Obligations, 1962 and 1963 55,000

1/ Distributed by sector in 1963 only through October; j Actual appropriations in 1962; for 1963, appropriations were assumed to be the amounts shown in SUDENEis Three Year Plan. -- UNC3ASSWn 12. Iydrology This was the only sector showing a dpoline in appropriations in 1963. -Several small projects throughout the regions are involved,

13. State Governments The 1963 appropriation act for SUDENE (law 4.239, June 27, 1963, Articles 3 and 84) provides that SUDENE will apply an amount equal to 0.2% of the national tax income in support of projects to be executed 1W the states. (This would total around C6200 billion of estimated 1963 income.) The first year of the SUDMl'1963-165 plan called for C68800 million. However, the Deliberative Counol has (in October) approved an expenditure exceeding the amount planned. for the first year.

C. OTHER FEDERAL ENTITIES The study was unable to develop useful information on either obligations or expenditures' of other federal entities. What follows, therefore, is a descripjion of the activities of these entities.

1. ABOAR The Rural Credit and Extension Association is a private, non-profit organization supported by such federal agencies as the Ministry of Agriculture and Bank of Brazil, It operates in the Northeast as ANCAR, The organization is modeled after the rural agricultural extension service in the United States, performing a variety of functions ranging from agricultural education to the provision of rural credit, Its budget for 1962-1963 approximated Cr$1 billion, ACAR is regarded highly by American technicians. Although iaNCARfs effectiveness varies from state to state, its work in Ceara is .udged to be outstanding,

2. Banco do-Nordeste do Brasil (BNB) Under the various incentives .-rovided by SUDEIE legislations BNtls rQle in the Northeast ou expand, BNB is also utilizing IDB funds for indus brial projects as well as for social infrastructure.

3. sank of Brazil Chiefly a source of short-term industrial qp4 agricultural credit, the 1gA* pf Braziles investnent operations in the Northeast are limited, Somo of the Cr815.8 billion of Special And cruzeiros9 Genorated by last spring's AID dollar loan to Brazil, will be used for financing investment in small and medium sized industry in the Northeast.

CONFIDEITIAL -116­ 0 Francisco Valley Commission) CVSFts history is not one of consistent-accomplishment. It officially pursues what is called "The Great Policy of Small Services". Miscellaneous, scattered projects with little , impact on river valley development appears to be its record# It is frequently noted that 0VSF has been taken over by the "political interests". -With one per cent of the federal budget eanmarked for CVSF, past results suggest an unfortunate waste of a rather substantial magnitude of resources.

5. CHESP (S8o Francisco ydxoelectric Company) In.oontrast to CVSF,'CHESF enjoys a first-rate reputation. Its- planning, engineering and. operating performance is unusually good.

6. DNER The National Highway Department is a division of the Ministry of Public Works which operates in the states, chiefly through the state highway departments. In the Northeast, SUDENE has virtually replaced DNER as the channel for federal funds for state highway construction. DNERts operations on federal roads in the Northeast are of courses substantial.

7. DNOCS- This National Department Ainst the Droughts operate's with earmarked federal revenues (2%) under the Ministry of Transport and Public Works. Its jurisdiction is the Drought Polygon. Although the earmarking calls for about C:$20 'billion, the agency itself estimates it will receive Cr24 to 5 billion in 1963. Regarded as technically competent, it still gives evidence of responding to political pressures, a characteristic it has displayed from time to time over its long history.

8. DNOS a The National Department of Sanitation Works is also a division of the Ministry of Transport and Public Works, operating in the sewage and public sanitation sector, It cooperates with FSESP, DNOCS and USAID in the community water and sewage program. For 1963, DNOS has budgeted C:$5.8 billion for the Northeast, American technicians rate iip ptaff as technically qualified, 9. FSESP The Special Public Health Service Foundation is roughly equivalent to a national public health service, It was first established in 1942, financed almost entirely from U.S. funds. (Institute of Inter-American Affairs). It is a semi­ autonomous national organizaiion, not directly under the control of any federal ministry. It receives a direct appropriation P from the Congress. CONFIDEUTIAL -l%7­ CONPIDENTIAL UAi

FSESP is currently involved -in the community 'health and water programs forthe'Northeast; "It also'-&venaa a consulting-agency to state health 'services. -- -

FSESP is accorded highest marks.of any.agency in' 'the Northeast from*American technicians. 'It is.oonsideredto be: effioieni, .with a professional a4 pp)Ai service orientation. It is administered by-ph3spiann,oft insttnational reputev Hampered by laok'of'fundq, it ial

10. Ministry of Agriculture- The Miniqtry has an 'estimated 6,000 employees in-the Northeast, less than 10-per cent pf whom are trained professionals. Its record in the Northeast is mix6d. Success in the area of reducing cattle &iseases,"forexahple, is offset-by poor or inadequate performance :ii research and extension. .

11. The Ministry of Education and Culture The- Ministry of- Edtcti3h and- Culture (MEC)-is: responsible for-all public'secbidary-eduoation, including-normal schools and vocational, trainitng$'and:a11 higher education. Subject to national criticism for inept performance, it has been described for its lack of activity in the Northdast as. "grossly negligent,"

SUDENE appears'to haye moved int6 the vacuun create& by MEC's abdication of responsible effort in the. Northeast.'-

D. STATE ACTIVITY * State development activity is-perforce minor because--of inadequate funds., N6t uncommonlysclose to all state funds go for state salaries.

However, institutions for pote'ntially useful state participation in development are being formed; -Every Northeast' state has some kind of planning agency (albeit with young, inadequate, poorly financed staff.) Some of the statesi­ notably Alagoas, have prepared surprising good "master plans. State development banks exist or are being created., Kbre, too, inexperience, shortage of:funds and other-difficulties must be overcome before these can play any kind of meanihgful roleian development.'

COFIDfl AL JUNCASSFEIED, E. BRAZILW ALjLIANGE FOR PROGRESS - It is generally agreed that despite the initial high promise of the original concept (qualified by the possible political use to which it might be put), Sao Paulo's Alliance for Progress -- announced as development help fbr the Northeast - has.neither advanced development in the Northeast nor the self-help movement in Brazil. A few small loans have been made. But funds are inadequate, there is virtually no staff, nor- technical capability for evaluating-project applicea­ tions or formulating sound projects.

Unless a serious planning, financial, and technical effort is made - which might then merit financial assistance from the hemispheric Alliance - the Brazilian Alliance for,Progress may 0 leave no:mark on the development history of Brazil.

4

CONFIDENTIAL 1

CONFIDENTIAL E 48Sr CHAPTER IX

POST-AGREEMENT UIS. EFFORT$

The operating framework v4thiq which U.S. assistance has been implemented in the Nortyeqst was set forth in the Northeast Agreement. Article VI qvded that the 1950 exchange of notes on tephnical 4sstpatnce, as supplemented by the 1953 Special ITechnical Spryies Agreement, would apply to activities discussed in the Northeast Agreement unless the Agreement itself altered the exchangee The procedures of the 1953 agreement, if adhered to, might have allowed greater flexibility to USAID in working with the states and other Brazilian entities. However, neither party intended that the earlier agreements would in fact apply since a new general agreement for U.S. economic and technical assistance was being negotiated currently with the Northeast Agreement and was expected to substitute for the earlier agreements. The reference to previous diplomatic-level agreements was designed to avoid submission of the Northeast Agreement to the Brazilian Congress.

A4ticle II of p 1953 agreement provided that project agreements, prq4eqT policies and procedures and all instruments re1 ting to the excution of the project were to be agreQd upon by the US,Miion Director and a "Minist6#Qr State Governpr," The prqeats, however, were also to liq pproved" by the GOB's Coordinator of the Point IV proaftl or such mnsorretresentative as theGOB might designate.

COFFIDENTIAL CONFIDENTIAL.

Article II of the Northeast Agreement provided -that the U.S. would carry out its commitment through .AID which would establish a special office in the Northeast. The Government of Brazil the Agreement stated, would be represented by SUDENE. The Agreement provided that agreemehts.for specific projects could be signed between AID and SUDENN. In addition, in such cases-as -may -be.designated by the Government -ofBrazil,..o.ther agencies could alsozbe. authorizedLto-enter intoragreement rith AID.. Thus-,. AID was in.the- position of dealing with SUDEIE unless the Government of Brazil specified some other organization. The central role of-SUDENE was solidified two months after the Northeast Agreement was' signed (Juhe4,.1962) by the so-oalled&

"grant letters." In these letters, the U.S4 accepted the provision that SUDENE "is the coordinator for the investment of the funds made available by the Government of the United States.of America through the U.S.21sgency for International Development (USAID) for financing ascc'ial and economic development projects in the Brazilian Northeast- 1 Under these rules, the fofl ng (largely or partially depended upon SUDE E in its role as ' cocidinktor"

The e5 tiWn-t-to- which US,,! resoutces were alloted in accordance with

-U.S. judgementsj -

The-extent to whichthe U.S. could influence planningv programming-an ;rojeotdevelopmnQ of Brazilan entities in the Northeast; ana,

The speed.mith which -t].11.S. could move forwaid iowrd fulfillizigitis commitment under the Northeast Agreemente

These: "grantletters"1-ere- substantially. the same as- an Qxohange of letters of March, '1962 tienAID -and- EAPA (at that $ipo the GOB entity-coordinatike FeL. 480 -grant funds). However1 PUDEN1E has chosen to interprect the grant 1@tters.,in a way whioh 1i4q bqen more aonfining, as far as 4SAlI td flxibility- is 4cohy4,than was the, oase 14th OiPA. ..:...COFFIDET-I'L .... UNCLASNA

In terms of assuring achievement of U.S. policy and objectivesq this dependeiice tui'ned o th bAke t~ p 1 ipal1 weakness in the lmplomeritition of the U.Si-aessi noe'program inttheoNortima To someody that weaknessr shold-be an objective of Us. policy inithe forthcoming jofi revie the Northeast Agreement, The remaining discussipn .,pr~wntd in three partst

*Natbre of theU Commitment

'U.S, Performance

- 'Non-U st..s 9 of..the Northeast

A. NATURE OF0ItS. 9O1WITMENT The U. a£greed to provide "not to exceed" $76,67Q,000 in the form of dollart grants or loans and the balance of its commitmnt'in ilie foim of grants or loans from P.L. 489 cruseiros, subject to the -availability of, funds, amounting to no less than 854,33O,OO0s combined total - $131,000,000. Reflecting the emphasis of'the Bohan Report, the Agreement called for a division of U.S. and Brazilian resources between two programss (1) Immediate Aotiori Projects (Article III); (2) Long- Term Development Projects (Aiticle IV). Financing for two years of long-term activities was provided for 'in the Agreement. It is specifically with respept to consideration of further participation by the two governments in the subsequent fihancing of these long-term projects. that a joint review of the Agreement is implied. (Article) . V, Comletiork of Long-Tern Developnent Pro jects).

1/ In his letter to President Goulart, President Kennedy wrote, on April 13, 1963, "At the-end-of tw6 years, we will:conductV­ a joint review..of the program.and decidae- together .how we .can nost .effectively work toward. Our goals in the- suoceeding years."

ITCO '2TIAL

.. . ..2...... CONPDENTIAL

1. Immediate Action Projects

$33,000,000 was to be provided by the U.S. for these projects in dollars or their cruzeiro equivalents unot to exceed" $14,620,000 in dollar grants or.loans; the balance of $18,330,000 'as grants or loans from P.L. 480 cruseiros. The immediate action projects were defined as'the: type "to achieve speedy results in meeting some of the most urgent needs of the people of Northeast Brazil!'. The Agreement. referred to the Bohan Report and the SUDENE Master Plan as guides to the kind of projects intended. Other projects could also meet immediate action criteria if "mutually agreed to",

As Chapter 4 VII suggested, the principal underlying purposes of the immediate action program recommended by the Bohan Report were related to the Bohan team's response to the crisis environment, to its wish to reduce the crisis and to the hope that immediate, visible benefits under the Alliance would have a constructive influence on the political situation. In retrospect, the,following conclusions may be dravms

- *Excessive emphasis was given to -the allocation of.resources for .projects which would generally have .1imt4w4 davelopont impact.

-The Pohan Report d9ppgtpto what subeqquently turnea'put to be unrealistic *faith in the speed with which the two -governments would

--It waspreviously noted&(O ptorVII) thatrthe urgency with whjoli the fUp '0ought to press for action and expejditures op immpdfate impact projects did not coincide with SUDENEPs approach nor vith -the extent to which -SUDENE wished -the U.S. to be identified with projects so close to "the people". Under these circumstances, at least the early effortz-at ISAID-SUlENE cooperation vere bound to be adversely affected.

C O'WIDEz!IAL

-123­ 00KEPIDENTIAL ~ at I 0

2, LonM-Ter2. DevelopmentLn~Tem Projects UNLASSIF

$98,000,000 was to be provided by the U.S, for these projects in'dollars or their puseiro equivalents "not to exceed" $62,000.1000 in dollar grants or loans; the balance of

S36,000,000'as grants.or lans frpm P4? -480 oruzeiros. Two differences in the treatment accorded th6 long-term and immediate action projeot& hould be noteds ' ­

'Biazilian coniribrtpnd to the long-term prpepwere eplicitly "subjeoftotil "appropriation of finds byh "Brasilian Conjress". OApparently, or4y'vthrespeqt to the long-term'tojects did -the .Agreement require the'Governmentof- Brazil to keep the U'.S. Itinformed . about 'development-activities inlthe Northeast.*, ­

,B. U.S. PERFORUENCE . * - The U,.S, 'prompily moved to -implement the Agrdemeiti Within two weeks, two s6nior U.S. officials arrived-in Reoffe Although the first sectoral, non-obligatory agreement (in health) was signed less-than two months after the Agreement itself was signed, sutbsequent progress was ndt to be characterized by speed. On -the U.S. side, the-principal obstacles to*'rapid'achieveinent consisted of the extraordinary logistical,problems'-aspooiated with creating a-regional mission and the agonizinly slow pace at whioh the ndmber and qu lity of .,needed U.S. personnel -becanqe ;available-to iRecife... Only in thelapt few monthp. hpr0 he logistiqg problems been essentially solvedd. But -important -PQI'onpnel gap. remain-f pimarily, :he,. need for a senior -developrIent loan zafNcor ari4 Lor-ezperioned program staff). .1-s .. ­

-124­

- -t** ­ uloCONF-TIAL

1. Implioations of the Commitment

The Northeast Agreement powerfully dramatized the.USVs firm intention to carry out its promises under the Charter. It helped to communicate not only to the peoples and officials of the Northeast, Brazil and Latin America# but to the peoples and various branches of the U.S. federal establishmpnt-, the urgency attached to the Alliance by the U.S. Government. These were and, of course, still are important objectives.' But the Agreement also created an inter-agency (SUENnE- USAID) operating climate (especially in conjunction with the "grant-letters") which was harmful to the program. Under the compulsion to deliver, to obligate, the opportunity for USAID to influence the substance and terms of assistance was limited. Moreover, as the pressures 'mounted to fulfill the U.S. commitment, it was inevitable that projects were pursued in areas where SUDENE was willing to cooperate. This is .not to say, however, that funds were unwisely obligated. Projects were not approved within USAID unless they met meaningful tests as to their contribution to Northeast development. The significance of these observations is that had there been no commitment to provide a level of funds by a oertin date1 USAID would have striven harder to develop agreements in important areas in which SUDENE was, unwilling, unable, or.not then prepared to work (e.g., agriculture; projects outside of the Northeast for the Northeast). The commitment, in short, removed any leverage USAID might otherwise have had available from the fact that substantial funds might be forthcoming. 2. USAID Overating Strate-aV ' g4 90gpnsequenq@ pf '49 p~rcumstances in whici USAID was compelled to operate, the strategy yp 44opted easentially, to wor y4to and through SUDENE to. thq wg1ppW ayRppj ppssible, ]but to apply indireet j- pa l StgDgTPN, xton thought neoessary,

'-I CONFIDENTIAL -- 125­ CO.. LFIDENTIAL ~2YIALUNCLASSB FL- through other entities (chiefly..the ,goyetnors); -attempt to accomplish what USAID Fas un ablieto do through direct,,oontaots with SUDE..E­

3. Qualitative Achievements - ., Looking flrta the qualitative aspects.or,- U.SO performance in thq, Nefthps z

b. Most of the governors of the Ndrtheast have come to acceptI

- not.uncritically-but basically within a constructive framework, the condepts of, thd Alliainde; dn& -the values of Brazil-U;S.­ cooperation and have continued to supp6rt the operation of the Alliance-in the Northeast.

a. USAID has.'developed, inder ' -diffidult ciroumstancesi a reasonably successful working relati6nship with SUDENE ani * has sucoeeded in-presenting the Alliance. (in- cooperation with other US. entities) to the INordestinos in a'generally favorable 'Light. . ..:

4, Quantitative Achievements In measuring quantitative performae o dte, perhaps the most troublesome !technical" problem relates to the question of exchange retes. This discussion :vill'steer-clear of that

difficulty by issuing ifllustrativ6 .aTes-withant --'assing ­ tjudgements.,as to--whatrates should be used, .- .- -

CONPIDErTIAL

A CONFIDENTIAL

The early emphasis on immediate action projects soon lost much of.its meaning as-the time passed within whiciithe projects were not only to :be implemented but wier also expected to show­ 're.sults. Thus,'USAID soon came to put emphasis upon achieving­ the.total U.S. commitment, rather'than 'to focus upon fulfilling first the.immediato-action programandthen the long-term program . Ascof September- 30, 1963,,- between. $58. and '$105 million (depending on the exchange rate) for grants and loans had been authorized or obligated. The $105 million total is arrived at' by using the average rate of exchange at the time -of-the cruseiro deposits - that is;-the rate at which the cruaseiros were turned over to the U.S.- By November I# with 'the-Fortelesa

power. loan, obligations exceeded $107 million. In'addition9 $30 million of projectU were being considered in Washin'gton

($19 million) or being discusse4, with RUB .($11 million). It.appears, therefore,'that if December 31, 1963 is taken as the deadline date for fulfilling the TUS. "Oommitment", it will require authorisation of projects now in Washington and.conclusions of discussions with SUDEN before December 31 'for the "commitment" to be carried out. However, more than $131 million should be obligated ortdu horized'by the second anniversary-of the ,Northeast Agreement, a target date recently

suggested by 'Celso. Furtado, ' 5. .Summary Assessment In reviewing 'program achieve'mets* it'is.evident that

pssi's ape"-inthe-Northeast .should be regarded'as

cjaopssful example' of-the use ofaid as.an instrument of U.S0 -olfcy. gioreover, this accompli0bhernt is especially notewbrthy th n considepation is given to the difficult environment and is the logiptical an staff problems enbountered

n*,sf K p ON-12e coaIDnTaUNCL ASS!Lt

,.,::Itzis9:of.course, too early to evaluate the impact.on. econqmic .development in the, 9- Actual expenditures naturally. have -lagged behiz d qigtpnsf -But even if expenditures­ were instantaneous, .the effec 6n3&dqyopment would not yet be. apparent, Quite properly, mh ofhq prgram has 'foused om long-term projects - on edut ad roads, for exampleq-.< Projectp relating to ,power comP flTyhealth and water -supply and resource development -not. onieldqnlytdp-not readily measurable results in development terms bp4. 4$ofects often are. not.,

fully visible.for :several ytears ...­ * In short, the first stage oathe UT. assistance .program:­ in the Northeast represents substantial achievement. :Part, of this achievement lies in:the-fact.that a sound -basis has been­ established for successful future U.S.. activity ,in'the region~:. C. NON-AID.ASSISTAME TO THE NORTHEAST : rs To round -out.the picture of development assistancd in the Northeast, a fewobspervatiQns.-conce rning help from other.

than AID sources conclude this chapter.. 2 . As the Exhibit on the, following page reveals, the IDB has been the. most. active international body in the -Northeast' in'.

quantitative terms The.United. Nations, of -cours.,-preceeded K. the IDB.:and still -continues essentially technical-assistance. -o,

activities at a modest level. . , - - . Four Free World countries can be citeds FPrance- Japan and Isreal with somp. aotiv4ty underway; .-West Germany, Tvith the

promise bf substantial development loans in prospect. -To- date, no actual direct a.ssistance to the Northeast, from.thp. Bloc:-­ countries is known tQ have -been delivored, despite. a-, considerable amount. of- discussiots-rith,- pmas missionsi

ZR af negotiations ard -tbT.iise. propets. . - . - -- *

CONFIDENTIAL

. . -128­ -YNCLAss3pRD TA-LE XV­ SUMARY STATUS OF NORTHEAST PROGRAM AS OF SEPTEMBER 30, 1963 (In Thousands)

U.S. Dollar-Equivalent Okl igat ions Based on 1/ -U.S. Dollars Cruzeiros a b

FY 1962 GRANTS U.S. Dollars 1,214 1,.214 1,214 1,214 Crumeiros (2nd. Agmt)' 750,000 2,2172.51 6,.4. TQTAL FY 1962 1,214_ 750,000 3,431_ .,2±. ,158

FY 1963.

U.S. Dollars 4,900 4,900 4,900 4,900 Cruzeiros (2nd Agmt) 4,530,110 9,848 14,246 41, 945 (4th Agmt) 449,000 951 1,412 1,120

LOANS Synthetic Rubber Plant 3,400 3,400 3,400 3i400 Carbon Black Plant 2,000 2,000 -2,000 2,000 TOTAL FY 1963 10,300 4.979,110 21,099 25,958 53.365 FY 1964 GRANTS U.S. Dollars 507 507 507 507 Cruzeiros (2nd. Agmt) 70,000 117 220 648 (4th Agat) 1,100,000 1,833 -- 459 2,743 LOANS Elem. & Basic Eduo. 16,817,598 28,029 52,886 31,973 Synthetic Rubber Plant 2,000.000 3,333 6,289 8,006 TOTAL FY 1964 507 19.987,598 33,819 63,361 43.871

GRAND TOTAL 12,021 254116108 58,349 92,891 105t394

a - Rate of exchange in effect on date of signature of the obligating document. b - Rate of exchange used in the Bohan and other Reports, Cn$318 US$1.00. c - Average rate of exchange based on exchange rate in effect at, times of deposit.

Secodd Agreement - Cn$108 = USt1.00; Furth Agreement Grants ­ cn$401 = US1.00; Fourth Agreement LQans - Qc$526 = US$1.00; Third Agreeiqent - C$250 =US$1,00. C.

'EXHIBIT 7 Special Northeast.Study NON-USAID, NON-BRAZILIAN ENTITIES PARTICIPATING DIRECTLY IN NORTHEAST DEVELOPRENT

Entity Des cri p tio n Export Import Bank Provided capital loans totalling $20 million in the 1950's, mostly to CHESF for. electrification.

International:

United Nations Technical assistance in the fields of agriculture, irrigation and education; material support (jeeps, etc.) to community health; free milk program for children (discontinued in 1963). U.N. working with SUDENE, Universities and Ministry of Health. Level of expenditures since 1960 estimated at $1 million per year.

Interamerican Development Bank Capital project loans since 1961 totalling $50 million for: urban water supply and sewage' ($17 million); credit for small and medium industry ($10 million); electric power expansio ($15 million); synthetic rubber plant ($3.6 million); public housing ($3.8 million); and, others ($0.8 million). Agreements signed with SUDENE, Bank of Northeast, City 6f Salvador, CHESF, COPERBO and BRASQUIP.

International Bank for Reconstruction and Development Provided $15 million to CHESF in 1950 for electrification. m Other Free World Nations: Germany An agreement which will provide approximately $35 million in capital loans to the Northeasd awaiting signature of Itamarati. SUDENE will probably administer the bulk of the funds. ucus4 S

Japan Providing $277,000 worth of textile manufacturing equipment for SUDENE training center and 4 V9 Japanese technicians under terms of agreement signed with SUDENE in 1963. 2 France Provided $4.4 million credit for purchase of French equipment for synthetic rubber plant. Approximately 6 technicians in the area working with SUDENE and the Sao Francisco Valley Co n.

Israel Assistance agreement signed with SUDENE in 1962 'to provide technical and educational information in fields of agriculture and irrigation. One technician currently in area and several scholar­ 11, ships given to study in Israel. - .

1/ To date, despite rumors, no development assistance has been given by the Blod. 4 ASS

4

PART IV - IMPLlEMETATIDB YT 8., POIGY 0I THE NORTDEAST -- UNCLASrIED

PROILE: SUDWE

- To carry out its business with USAID in the Northeast, the central government desigat6d ZU TE as its representative. Whether or not SUDWNE meets thq requ-irements of this responsi­ bility, and despite any feelings JSAID may have about the matter, the implementation of U assistance for and in the - Northeast will depend in large measure on SUDENE's attitudes, capabilities and strength-

For this reason$ the concluding part of this report is introduced with a description of SUPRM, presented in the' following sections:

* Phases of Development Political Orientation * Policy Assumptions and Objectives * Shortcomings and Limitatious t, Acpompldshments * Character * Attitude Toward the Alliance and USAID r SUEN's Prospects

The generalized- tone. of the ensuing discussion should not obscure the fact that SXIDENE is not a solidly uniform organiza­ tion. From time to time, its positions or policies or attitudes substantially shift,--seemingly-without changes in the -facto0 upon which these elements were believed to be based. With~in the organipation, also,, there are,.at many levels, individuals with different vieiws well as widely different profesjsional capabilities,

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Another illustration of the non-ionlithic aspect of SUDEE, and potenti4l1y an extremely important question, is the position of SUDENE's Deliberative Council and its relation­ ship to the Superintendent (Phrtado). The Deliberative Council consists of 26 members: ten representatives from the nine Northeast states and one from Minas Gerais; the Superintendent of SUDENE; the Superintendent of CVSF; the General Director of DNOCS and one representative each of eight federal ministriesl, the Bank of Brazil, NDE, Bank of the Northeast, CHESF and the- General Staff of the Armed Forces.

The SUDENE Superintendent clearly is not only the chief A executive officer, but also the policy-maker. There have been haphazard efforts to mobilise the governors from time to time, partly because of a wish to strengthen the influence of the Council vis-a-vis the SUDENE staff (Superintendent) and partly because of doubts as- to the wisdom of hrtado's policies. (it is difficult to describe the situation precisely, but it appears accurate to state that there is enough friction, sufficient differences and a distinction drawn, between the "staffn and the Council, to regard the situation as possibly enlarging the potential to USAID for some flexibility in aid operations in the Northeastj Although the record shows that the "staff" is in firm control, it is also true that the Council has suceeded, at least, in getting more and more into the consideration of policy matters. To date, however, the votes have alwayq gone down the "staff" line.

y Agriculture, Education and 'Culture, Finance, Health' Labors Industry and Commerce, Transportation and Public foks, and Mines and Energy.,

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-131 ­ LIMITED OFFICIAL USE ONCASSIFIED Nevertheless, although SUDENERs "predictability is of a frustratingly low orders there &re facts and generally valid patterns which should be undestood. To these the discussion now turns.

A. PHASES OF DEVELOPMENT

SUDE'E was created by law in December, 1959. Five months later, in May, 1960, it presented itp Five Year Master Plan to the national Congress. Between the PlanTs submission and its approval (aA incredible 18 months later in December, 1961), SUDENE, the flan and lVrtado Fere opposed adid attacked in what

wasLeven for Braziljj an unusually violent, intensive, persistent national campaign, The galxt of parliamentary obstructionist tactics was practicea atd possibly enriched by Congressional opponents, ledby Sepator Argemiro Figueiredo, from the State of Paradba, in the Northeast. The vitriolic Congressional battle was paralleled by a full week-in, week-out diet of highly critical news and magazine stories, editorials and columns. SUDENE and Phrtado survived, of course, and, although this sort of attack would not now be in keeping with the general national and regional mood, there are still occasional rumblings of opposition and suspicion, particularly in the south.

:Eurtado has not forgotten this period; his sensitivity to political opposition clearly limits SUDENE's willingness to tackle certain fundamental developmeht problems which involve, highly charged political issues and powerful vested interestsp

SUDEN~ts early period included efforts to overcome the problems of inexperience and lack of qualified staff. These problems remain serious, In addition to a difficult political environment and weaknesses in parsonnel, SUDENE was frequently involved in battles with other agencies, particularly DNOCS, operating in the Northeast. '4' ILIMITED OFFICIAL USE -1.32­ 'Ihi kl6lg £iilerations, when added to SUDDEN

ideological break with past bydrological, work relief effbrts ­ in the Northeast, plus an ECLA approach to development, help explain SUDbE t s heavy emphasis on economic infrastructure ­ roads and power. To some extent, also, such programs were "safe" - they were consistent with many previous federal efforts in the Northeast.

Only the program for the firstyear of the submitted Five Year Plan was approved by the Congress in December, 1961. This approval constituted a limited go-ahead for activities during calendar 1962. SUDWE submitted its plans to cover 1963, i964 and 1965 in December, 1962. It was approved in June, 1963,. to be financed on a "no year" basis. This is the plan now in effeot for the last three years of SUDENE's five year development program for the Northeast.

During 1962' as SUDENE accelerated its efforts to staff, organize, mount and implement its prograns, Thrtado was called upon (September,.1962) to prepare Brazil's national economic development plan, Purtado was effectively absent from SUDE&E, acting as inister for Planning, for nine months, until May, 1963. Moreover, about one-third of the approximately 50 technicians mobilised to prepare the national plan were "borrowed" from SUDhEbT.,/. Out of the 48 months between December,, 1959 and November, 1963, therefore, SUDEIE was either embroiled in a fight for survival, or without effeo­ tive leadership, or seriously crippled because of manpower limitations, for 27 months, almost 60 per cent of its total eaistepoe,

ITholuing the head of the SUDME coordinating groip involving UAID projects.

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SUDE,- despite its. early travails,--has shccessfully sunk roots in the Northeast. .Total personnel now number around

1500, of whom some 500.are college-trained tecbnicians6 - Permanence and expansion are in the air. The organization has confidence in itself and in its future. Raving gone through occasional internal.re-organizations, it is now involved in what Furtado calls the "concluding stage of re-oiganizationn consisting of the creation of mixed companies to perform various types of services for SDENE.

SUDENE has come to look at its-role as extending -beyond the planning, coordinatingand controlling of federal development activity in the Northeast. -It appiears to consider it entirely appropriate to implement and operate development programs, not only where vacuums Of rasponsibility or capability exist, but also where -other agencies are already working reasonably creditably. Fortunately, however, there is evidence that some individuals in SDENB have learned that there are limits to the organization's capacity to do every­ thing in the Northeast, But, as an organization, this is a phase of maturity which has yet to be reachqd.

B. POLITICAL ORIENTATION

Without being inflexibly doctrinaire, SUDENE's political orientation can be characterized as Uleftist-nationalist". It is cautious concerning the role of externail assistance; it appears suspicious of foreign governments apd foreign enter­ prise. Although not so: unbophisticated as to b4i4&ly accept­ charges of "imperialist colonization", 'Iforeigp domination", and 'repressive exploitation", enough of SUD1E's staff, at various levels, are sufficiently sympathetic to elements of these arguments as to give SUDENE a visible poltical coloration. A large number of SUDEN8Es ptaff is recently

LIMITED OFFICIAL -USE -134­ UCLAssiooIeUE LIMITED OFFIGAL VSR graduated from the Universities where-socialist, nationalist, anti-foreign, anti-private enterprise conceptions are, as one high SUDENE official put it, "understandable phases of intellectual development through *hich our young people must go". (He added that SUDENE was having some success in correcting this situation.)

SUDENE, as a matter of political faith, as well as for vested-interest bureaucratic reasonso believes implicitly in state economic planning, state intervention in the economy (to carry our "appropriate public, social purposes") and in ultimate determination of resource alloation by the state, either through inducements or direct control. Although Turtado appears to believe that desirable rates of development will not occur without significant contributions from the private sector, there is, clearly, no abundance of faith by Phrtado and still less among many of his associates, in the market mechanism,

Furtado personally, and SUDENE as an organization, do not preach violent revolution, In fact, if Furtado's views are to be accepted literally, he is fearful of the possibility of violent revolution and the "enormous human cost" which development would.involve if carried out in a totalitarian framework. His an(ypp rp to prevent vipppt revolution and a totaitprian take over by removing t4i ppessures - in the

agrioultrl septor -- whioh, in 'his opinion, have made the Northeast Vllgrable to a IKarript Leninist solution. This answer proimpty Phrtado to emphasize a constitutional revolution of the agrarian structure as one of the keys. not only to economic development in the Northeast (and in Brazil) but to the removal of social tensions and obstacles to a more equitable sharing of the national product. It should be

LIMITED OFFICIAL USE -135-­ LIMITED OFFICIAL USE noted, however, that because of the shortage of trained man­ power ai& beoaise of STJDENE's general orientation, it.makes. no apparent effort'to 6reen out staff members who Would be ­ receptive to Marrisit-Lez'nist 6oluionsofi'who entertain, &ootrinairp, professionhal at~i-U. an -We views., Fortunately, the members of SUDENEho. fall into this categ -­ appear to be few and with limited5 although occasionally noticeable, influence. *

C. POLICY ASSUMPTIONS AND pBJECTIVES

What came to be known as the'Furtado Report ,cme in 1959, remains the analyticals.manCaesto for SIfDENE's planning-­ and programming. No agency-wide reappraisal of that analysis, or subsequent economic trends, conclusions or basic recommenda­ tions has been undertaken. fequiring some modifications,, onl - a few of which are significant, this early pre-ST1)EE document ,. still serves well as a general guide-to policy and program, formulation, despite the fact that the latest data then avail­ able to Furtado were for 1956.

T.fhe-Furtado Report discreetly. emphasized. the -bankruptcy of past federal policy in the Northeast, rejecting the ­ %angineering-hydrological-work relief" approacol, followed, irregularly for 80 years. This approach was .regarded ap.

-defensive", blind to the root problem., -rouGht was but one of the difficulties; mass poverty was the .realtarget., This required a new neconomic detelopment" approach. The new policy, in the beginning, ernphasized four objectives,: (1) industrial developnient; (2).,alteration of the agrarian.. structure of the humid scoastal area; (3) altering.the

/ A Policy for the Economic Development of the Northeast Conselbo de Desenvolvimento do Notvdeste (CODEWO), 1959

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The first Five Year Plan developed the project implica­ tions of the Furtado Report. In the process, some attention was directed at limited social. inyestment. The Plan also referred to "guided peopling", involving a movement of one million people to Maranhgo in 5 to 10 years. More recently, SUDERE places greater stress than in the past on "pre­ investments" in infrastructure, both economic and human. Also more recently, the notion of moving masses of people within the Northeast has received less attention. Moreover, the idea of officially facilitating out-migration from the region,smacks, for SUDENE, of blasphemy.

One theme which has consistently dominated FUrtado and SUDENEts thinking is the need to reduce the disparities in regional income distribution. In fact, Fartado warned in 1959 that unless the new development policy was implemented, these disparities would inevitably grow,

Two additional important assumptions and objectives which characterize SUDENE's current thinking include the following:

* Problems of soc4qJ welfare repslt from low income levels. The-propel attack go these problems is to -raise income. Then, the Northeast would be able * to afford welfare programs. (This view, despite occasional program departures, is almost univa.sally held by SUDENE staff; it is a view which, in tp extreme form1 qppentiaWy Con6eives of the

-4nividual -solely ab the beneficiary of economic development, neglecting the possibility that he can also be an agent of development.)

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Basically, the Northeast has all the resources it requires, to take care of its present and.expected population. (This assumption is at variance with observations iiade by Fhrtado on previous occasions. 1/ But it coincides with.SUDENE's political dialectic in the Northeast, notwithstanding the obstacles it may create-to regional development.) -

D, SHORTOMINGS AND LIMITATIONS

The aggregation of projects which constitutes SUDENE's Master Plan, not surprisingly ,follows the general principles Furtad.o set.forth for regional "development policy in the three-year national economic development plan. -And they are consistbntwith the previously-4escribed, earlier over-all analysis of the region, also prepared by Phidtaio. Unfortu­ nately, however, SUDENE's plan capnot be considered a satisfactory economic development plan. Neither in the written text nor on the technical level can there be found regional income, production or employment targets. Without exception, no'one of the divisions in SUDENE has 4eveloped a

consistent set of quantitative targets for his area of - peppqnsibilik ai4 only in one of the divisions has there 'been any effort to think in these terms. Tj comes as no surprise, therefQre, that thpTe are ilppmeasures of capital requirements in the Northeast, to achieve employment or income objetjvep by specified years. Under these circum­ stances, it ip difficult to develop confidence -in the precision of SUDEATE's judgdents concerning priorities or the distribution of its resqurces. One official of SUDENE referrel to a kind of "intuitive marginalism" relating to cost-benefit

1/ For example, "The base of physical resources in agriculture is grievously inferior toythat of the South-Central part of the country", Purtado, C,, The Brazilian Pro-Revolution, EPndo de cultura, June, 1962.

LIMITED OFFICIAL USE -138­ UNC[ASSIFED LED OC ration, as his allocation criterioh. Be also indicated a distrust of capital-output ratios and a lack of faith in the competence of his technicians to handle complex planning problems with realism and mature professional judgement.

As a regional planning body, SybERE suffers-from other shortcomings and limitations, some of which are listed below: * Although in other circumstances, Furtado recognizes that the Northeast -is a -!national problem". SUDEEB .conceives of this, in its policies and programs, as meaning essentially the transfer of federal and private investment funds to the region. l/ * Relat6d to the previous observation, there is no pfficial recognition of the- possibility of develop- Vent action for the Northeast outside-of the Northeast. * SqUDENE is attempting to stretch its activities to a wide range of operations which liverts its attention from its originaland primary functions of planning and coordinating. Upon an already inadequate staff (as to competence$ training and experience), this can become an intolerable burden. * For reasons which cannot entirely be assigned to SUDENE shortcomings, theorgarisation has neither the political leverage, the power, nor the personnel to plan, coordinate and control effectively the large number of non-SUIlENE federal development activities in the Northeast, aside from the develop­ ment activities of the states which it is also striving to influence, * In many instances, project design is seriously deficient as to-basic sp0ifioations, location of construction, timing of-expenditures and other matters which are clearly associated with assuring that plans are properly implemented and funds optimally applied.

In short, despite significant achievements, STDENE, because of ideologioal, political aijd personnel considorations

.a/ SUDENE, for reasons alluded to in other parts of this krjf[phapterD is reluctant to tadkle such critical bottle­ neck problems represented by the condition of the ports and railroads in the Northeast, on the ground that these 4 are "national" and political: rather than "regional" problems. IMT9ED OPPICIAL USE -13 9­ LIMITD OFFICIAL us is not fully up to the economic planning and regional develop­ ment job to be done in the Northeast.

E. ACCOMPLISEMENTS

Coming after generations of generally misguided, incompe­ tent and oftentimes corrupt federal and state performance in the Northeast, SUDENEts achievements must be considered to be formidable. The fact that it survived and is flourishing is something of a minor miracle. In addition, it had made several positive contributions to development in the Northeast which merit recording:

*artado P and SUDENE have significantly revised age-old federal policy in the Northeast - whatever else one' may say of them, federal efforts now constitute1 in - large measure3 true economic development policy. The "drought industry" in the Northeast - large-scale, chroniog public and private profiteering as a result of economic'orises in the Northeast - has been, to all intents and purposes, destroyed. * Substantial disoipline and integrity are now expected of economic development practitioners and, more and more, other federal agencies and the states are striving to develop and implement economic programs which meet these standards, SDENE has been the chief factor in fostering a faith in the Northeast in the development process - a faith not yet pervasive nor permanent but of measurable significance in planning terms and, possibly, a force for reducing social tension. (SUDENE tends to take the edge off this achievement by seeking to equate itself entirely with the, Northeast development process). 3 * SUDENE has brought and generated techniopj knowledge to the Northeast; it is also playing a substantial research and training role, although many of its owp people leave for better-paying positions in other areas.

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Although legitimate technical questions can be, raised, most federal resources channeled through SUDENE are -devoted, within a systematic program, to badly needed, reasonably ponceived, development activity in the Northeast, a clain which could not be made heretofore, exept possibly for insub­ stantialactivity by the Bank of the Northeast and the BNDE.

F, CHARACTER

SUDENE is a rare type of public organization in Brazil. It is composed of generally young, dedicateds reform-oriented public servants. Almost uiverpagly, they are honest, hard­ working and, as individuals and collectively, have relatively high standards of performance. SUDENE personnel generally are proud, sensitive, with a sense of mission4 otubborn. The evidence suggests that, compared to other public agencies in Brazil, SUDENE is efficiently run and entirely devoted to spending its funds for the purposes planned dnd approved,

The organization is almost prudish. Fhrtado has called for rationality in politics in the Northeast, and the avoidance of domination by "demagogues and political adventurers". SUDENE, in short, is an organizational image of its Superintendent, omewhat secretive superior, driving 4 hard toward its objectives and politically astute.

G. ATTITUDE TOWARD THE ALLIANCE AND USAID

SUDDE. has not accepted the view that it and USAID are cooperatively working under the Aliance for Progress. Its reasons relate not to a confusion achoerning the self-help component of the Alliance (characteristic of Brazil generally);,rather, they relate to SUDENE's view that the U.S. has, in fact, not acted in acco rdaioe with the Charter.

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In other words, SmDENE is prepared to wor'k.with USAID under the Alliance but only. if USAIDTs activities conform-to what SUDENE-understands to be the meaning of the Alliance and the Charter. Fbrtado has made known to USAID/Racife that S0DENE hopes that an orientation "more in accordance" with the objectives of the Charter will be adopted in the future.

STDERE's position is that assistance, given on the basis of individual projects under conditions no different from those established in the past by bilateral assistance agencies3 .is .contrary to the fundamental idea of the Charter which called for multilateral assistance and support of good& development programs, SUDENE states that the fact that USAID chooses -ame of SUDEN0Is1 projects (all of which the Brazilian Congress has approved) for 'bilateral financial and technical cooperationt , is not the way the Alliance should operate,

SUDENE believes that its plans for the region take the place -of the national development plans called for in the 'Charterand are, therefore, "the basic documents for develop­ ing the program of the Alliance for Progress."

SUDENE would be.delightedl with a blank check. It would, however, be satisfied that the Alliance was functioning as intended,'if USAID programs were based entirely on SUDENE.­ plans.

SUDENE's attitude toward USAID -isobviously-*influenced by its conception of the Alliance and its view that USAID has departed from this conception-. Its own growth.experience, philosophy of dayelopment, political orientation, policy asspmptions and character all, clearly alsoaffect-SUDENE's posture toward USAID. Cautious suspicion of U.S. motivation (of foreign motivation generally); the belief that foreign

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technicians do not usually understand. underdeveloped countries and Brazil and the Northeast in particular; the deep-seaed

pride, 'and resentment of the icountry - poo* country" relationship Brazil finds itself in; the underlying faith that SUDENE will ultimately be able'to'udo-it all" with or without help;'the proprietary attitude which SUDENE has'toward the Northeast, leading to resentment against others working in the Northeast (Brazilian as well as foreign) - these are many of the elements'which have contributed to a less-than-optimum relationship between SUDENE-and USAID. -

On the other hand, the situation is considerably improved now that Furtado has returned from his Ministerial responsi­ bilitieb in Rio to full-time direction of the agency. Personal professional relatibnships on the technical level range from good. to excellent (or are in the initial.contact stage because of personnel changes or additions). It appears that if technicians and division heads in SUDENE were to be ultimately responsible for SUDEE policy decisions and for-decisions con­ cerning SUDENE-USAID affairs, the Alianoe in tha Northeast would be considerably advanced. But these men do not have the personal or-political stake, nor the complex intellectual and political approach to development posbeased by Partado and some of his other associates. a! / P

G0 SUDENErSPROSPECTS

Many agencies and activities over the years were launched in the Northeast with hig hopes and firm resolve. Although the long histr6y of disappointment0 with these efforts urges pqFAUJ nAasessltg (DWEfp prospects, it is difficult to

It should bpnoted that Artado' personally, and by direct instruction todhia staff$ was cordial and completely. ooopbrative with the efforts of the Special Study Team.

LIMITED OFFICIA USE -143­ LLIftTE' O~FlPCIAL USE resist, the conclusion that with SUDEIR, it will be "different. For one thing, national and- regional economio planning in brazil is likely to be expanded , SUDENE will, continuze to play a major role in economic planning and, perhaps to an excessive extent1 in program operation, Although it -isimpossible to foresee the precise future form of the agency, itq durability now appears to be impregsaive. The next few years may well be vital to lDEME, if not to its survival, then to< its future fmportance and role. -SUDENE, in a sense1 is on the spot, Having oome through,its early ordeals, it must justify its victory, Having helped to create a new hope and-faith intdevelopment, it is under pressure to produce, to show results,. lest the past cycles of hope and despair are repeated.

Another aspect of the near teifa future should be mentioned. Various incentives promise to iniince, have:already induced, billions of cruzeiros of private business funds to be moved to the Northeast for. possible investment. '0DENE'will be in the position, for the first time, to make.decisions concetning which private corporations do, in fact, come- to enjoy the potential tax benefits possible under various incentives. '-In addition to adding significantly to SUDENEts economic and political power, and testing its capability as a planning and resource -allocation entity, rather important

One final observation. SUDENEss*past It almost completely Thrtado's story. .For the near future, although less so, this

LIMITED OFFICIAL USE -144­ LIMITED OFFICIAL USE is likely to remain true. Should Thrta&o leave or be replaced (he- was' in- a sense-picked -by Kubitschek, :retained by Quadxos, and again, by .Goulart), SUDENEts future course could be significatly altered from its present direction. There is room for considerabie improvement; but there is-also room for dramatic, calamitous failure. This should be taken fully into account in U.S. planning and strategy for the Northeast.J

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-STRATEGY AND IMPLKKENTATION OF U.S, -POLICY'

Por a variety of. reasons, the United States has appearet since April 13, 1962, to hay@ a c ip a sense, two sets of aid policies in Brazils (1)-the Northeast program called for in the Northeast Agreement; and, (2) aid activities for the rest of Brazil. The latter assistance efforts were carried on within the context of a .variety of "performance" criteria and, inview of Brasil's "per­ formance",.resulted in urgencies and priopities of a much lower order than the U. S. operation in the Northeastt-

AJETERMIhANTS OF STRATEGY AND IMLEMETADN POLICY Judgements concerning the following ispuep are required before. final decision should be rendered concerning U. S. strategy and imple­

mentation: . ­ , U.S. Political and Economic Objectives

- The Relatignship of the Northeast to the Rest of Brazil * The.Nature of Appropriate US. Assistance , U.S.-Brazilian Cooperation in the Northeast and the Brazilian Self.-Help Effort

-. Attitudes of the Government of Brazil 1. U.S. Political and Economic Objectives Chapter I set forth the study's major assumption framework. In considering U. S. objectives specifically relating to the North­ east, some of these, assumptions should be restated here$ along with additional comments. a. The U.S. posture and policy in the Northeast should be an integral part of whatever posture and policy it chooses to adopt for all of Brazil.

b. The U.S. considers the Northeast a critical region in a key country and, under the Charter and Alliance, is pre­ I pared to respond with assistance in keeping with (1) the regional as well as national Brazilian self-help effort; and (2) other considerations of interest to the U.S.

c. In the Northeast, no less than throughout Brazil, the U.S. positively and actively wishes to strongthen democratic, progressive, cobstructive sectors - not only because of

CONFIDENTIAL CONFIDENTIAL

.S. iecognit on of the general relationship between strong democratic forces and desirable development directions, but also because, of the judgement that in the current situation in Brazil, there is a particularly urgent need to strengthen such forces. When considered together, the preceding statements suggest an important conclusion for U.S. assistance in or for the Northeast (or for that matter, anywhere in Brazil) a unsatisfactory Federal Government performance in the rebalm of matters covered in the Bell- Dantas exchange (for example, national monetary, fiscal, budgetary or foreign exchange poiicy) does not, automatically result in. cessa­ tion or substantial curtailment of T,S. assistance to Brazil. In I fact, the prospects for satisfactory Federal Government performance in these areas are not good; however, in view of other U.S. objectives,­ this does not preclude, the view that a substantial level of assist­ ance should be mounted. 2* The Relationship of the Northeast to the Rest of Brazil The economic imperatives of -regional development in the Northeast suggest, as noted earlier in the study, that economic planning for the-Northeast would be less than optimum unless related So national economic planning. Similarly, economict policy addressed to.Northeast development problems would fail to comprehend fully needed solutions unless it encompassgd aptivities to be undertaken both,in and outside of the Northeast. U.S. strategy and aid imple­ men+taion policy should attempt to move the Brazilians in these . directionsp and, in any event, should be formulated to reflect U.S. Judgements on the regional-national intor-rolationships. 3, The Nature of Appropriate U.S. Assistance The now directions or emphasbs recommended in Chapter I, point, in general terms, to: (a) the need to strengthen the quality and quantity of'technical assistance; (b) the need to pursue and ex­ pand certain nationalprograms which wo.uld directly accelerate North­ east development - such as those relating to urban development and migration, colonization and resettlement. ,The prceding comments are really an elaboration of para­ graph 2. above. What is clearly involved, with respect to the issue

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of the naoture df U.S. assistances is t Implementation should aim at facilitating U.Si --assistance for the Northeast, wheth6r, hat assist&an e is directly applied'in or out­ side of the region...... 4. U.S.-Brazilian Cooteration in the Noitheast -and the Brasilian"blf-Eei!Effit Materials presented :-ieaiier chapiera pointed to improv­ ing but less than optiminU relationships beween SEDfWand USAID. Neveitheless, significant haz&aao4evemonts have been and are being, recorded. In terms, 'of irt asmeapured y obligations, autho­ rizations or commitments, Bra41; esikely to meet its finan­ 'cial commitments unde, the Northe6t Ageemeyt, If a liberal inter­ 'prdtation of the Egreement is radpedthat is, if aotivityo all Brazilian entities are counted, without regard to whether the pro­ jectswore "mutually agreed to"1 . However, sote deficiencies with respdat t6 performance under the Northeast Agreementishouldbe noteds, a. Despite Artille I SULENE plans do not contemplate .aotivities outside the Northerast which k'ould 'benefit the .region.

4 b. The :Goyernment' of Brazil has sought to assure letels of PL 480 oruzeiros for BNDE which would make difficult, if not impossible, the. carrying out of its assurence under the Northeast Agreement that 'SUDENE wquld' receive such cruaeiros as was necessary for developpent projeots. ­

o. SUDENE has been reluctant,, evasive or simply.nontres Pnsive when queried on, matters cover6d in Article IV concerning keeping the U. S. ififormod about, development activities in -the Northeast., ... -

Article V stated that the two Governments, when cousidering participation in' the financing of long-term pt6jects after the fist -two years of the Agreement, would take into account three bUroad

items, including '.­

1/ "aInaddition, ac.-tivities are contemplated -to promnete the acce­ lerated apvelopment of areas adjacent to the Northeast in,. t yder 'jo preate ecoiomic 6pportunities for people from the

-0NYIDEM A -UCLASSIFIED CONFIDENTIUG

"(g) the implementation of the Bratilian program of finan­ oial rovery. aiming at holding down the cost of living and assuring a rapid rate of economic.growth and social development in a context of a balanced economy, and the achievement of other.economic andinstituti6nal reforms necessary to the success of the national devel9pment effort as contemplated in the Charter of Punta del Este."

As is well known, the record shows, unfortunately% abject

ifailure by Brazil on this score.

*Other considerations relating to the Brazilian self-help

.effort in the Northeast include the facts that: -

:ao There are several major federal and regional entities working at development in the Northeast$ in addition to the states; and,

b. SUtE1NE cannot (for reasons noted in Chapter X) , plan for, * control or coordinate all the ramifying federal and state * development-activity in the Northeast, let alone those - activities which should be undertaken outside the Northeast for the regionts benefit.

0. Despite the limitations on SUDEN'rs capabilities to do the nation&l d6velopment job required for the Northeast, SUDENE is already enormously powerful and could expand its economic (and, possibly, political) influence in the Northbast.- This situation creates potential dangers'to demootatic. devel6phent in the Northeast which the U.S.a as a matter of policy, should strive to mitigate. The ­ U.S.-has, in other voids5 ample reason to concern itself withthe extent to which its aid sttagtegy and implementa­ tion policy affect SUDENE's power in the Northeastt

d. Several-Northeast governors are engaged in commendable self-help efforts and merit assistance on these grounds, as well as for reasons relating to the strengthening of constructive political forces in the nation.

e' Despite Purtado's durability and SUDENEts success with t the national Congress, the volatility of the Brasilian scene does not stop at the borders of the Northeast. The national political situation is dynamic and, conse­ quently, the potential for considerable change in the

Northeast exists in full measure. * 4

CONFIDEUNTIL S- 149­ - -C~fNTAL NC ASSIFIED It is evident:that the observatioiis presented thus far point to the need for -maximumU,S, operating fl xibility in-Brazil. The kind of-flexibility: the 114S. should seek and,- of' course; decisions on over-all .S.%-strtegy ad.Ond ementa. wJ.1 ependt-in part, upon the attitudes of the. Govrnmentof Bratil ­ 5. Attitudes'65f the Government'ofKBrazil SUrENE':s3position toard'USAID and.,the Alliance was described in the preceding chapter. It is clea that under its present leadership, SUDENE s ewis.that all U.S. 'assistance on Northeast problems should be- sorened-, approved and negotiated through it. In thid regard? the presont-I"rules of the game" in the Northeast make it difficult:for the U.S. to do otherwise. It also seems clear that SUDENE would resist -any changes, in the '"iules" whicl would 'educe its control or influence on any U.S. assistance iti the Northeast. It is not now evident how SUDE1E would reac to the U.S. yish to devote resburces to activities of benefit to the Northeast,' if implemented outsid'e. tho Northeast. Its -reaction would probably be influenced' by its gqeepal proprietary attitude towards "things Northeast" and by its sensitivity- to actions which appear to reduce the favorable,idhtific'aion of SUD=E with the solution of $ortheast problems. -Inbshort, i% seems likely that SUDERE would not welcome a t1national" approach to 'Northeast. problems, whether initiated by the

USaot' other Brazilian entities., Whether or not, despite this9 SUDENE would seriously cooperate with states or other fedgral enti­ ties with which theU.S. would wish to work, is uncertain. (On the basis -of.-exchanges between, Furtado and USAID/Recife, it can be sdrmised that cooperation involving eipendituros y '8UDENE outside the Northeast would, in all likelihoodynot .be forthooming. Birt the possibility of discussions and.consultations,-in which SDJENE could partioipate, .should not be ruied out.) Recent past GOB attitdos toward U.S.' aid opirations in areas :outside the Northeast might improve th? chances of carrying out a national 'approach' to Northeast problems. COCAP has increas­ ingly sought to become involved in project development and loan

'CONFIDENTIAL­ -150­ u" CONRIENTIAL

agreement activity, going far beyond simple "approval.in principle" of possijle projects to be financed by AID. This reaching out to ndisiplinent foreign assistance in'Brazil by the federal government might coincide ith a U.S. wish to turn to COCAP to help to coordinate U.S. assistance activities as they affect the Northeast.

Bo ALTERNATIVES -

The recommended U.S. program, the economio'and institu­ tional analysis of-the Northeast, the fact of SUDENE in the Jortheast and the preceding discussion of the determinants of U.S. strategy-and implementation policy, appear to'rule out what, in other circumstances, might be regarded as desirable alterna­ tives. For example' it would not be feasible to attempt to conduct U.S. aid programs in the Northeast without regard for SUDEN's eiistence. *On the other hand, it would now,.and for the foreseeable future, be undesirable to conduct U.S. efforts entirely thiough SUIENE.

Practical alternatives, therefore, involve working.with some cobination of SIUDENE and other Brazilian entitios.

Co RECOIMNDATIDONS

The Northeast Agreement looks to a review of the first two.years' progress.as part of a joint consideration of possible future U.S. financing. In conducting its.negotiations with the Govenrment of Brazil on-these matters and as part of developing U.S. policy for carrying out the recommended aid program affecting the Northeast) it is believed that the U.S. would maximize the chances of achieving its'political and economic objectives and its favorable impact upon Northeast economic development if the following five principles wore adopted:

CONFIDENTIAL :-151-­ 1. The Uhited States does not have an aid program for

the Northeast. It has a national aid program. - This program should be conducted within the frame- Work of national goals whibh include but do not separate or isolate-the.Northeast.. 2. Within this national assistance program, attention to the Northeast by the Thited States should and will be significant because the Northeast is a significant portion of Brazil"and because the economic development challenge in the Northeast is enormous. 3. The U.S. national program for Brazil will involve assistance activities affecting the Northeast which are undertaken both within and outside of the region. This follows from the .U.S.conviction that the Northeast is a national concern, with problems which requite, in part, national rather than solely regional solutib'ns. 4. To maximize the impact of its assistance, the U.S. . will work with any and all agencies whose programs influence Northeast development. It is expected that most U.S. aid activities will be conducted within the Northeast. To that extent, SU2FND is regarded as primus inter multos. To the extent that governments or agencies within the Northeast as well as outside the Northeast are jointly involved in specific projects, the U.S. would look to COCAP or some other federal agency which was legally empowered to coordinate inter-regional or inter-state development activities. 5. The U.S. will not undertake to commit itself to providing any fixed sum to the Northeast-or to any other region within Brazil. Any financial commitments assumed by the U.S. with respect to aiding Brazil under the Alliance will be undertaken only as part of larger considerations affecting Brazil's total development effort, its resources, availability of U.S. resources, and other matters of mutual interest. It is believed, as implied above, that the umbrella of a U.S. national development program which integrates the Northeast would increase the likelihood that:-

UJ1he flexibility the U.S. requires to pursue its economfo and politioa2 objotivos -vculd be aohtered or approvi natei

GQNFIDENTI 4 CONFIDENTIAL IINCLASSI-r0 AS ID

-. *Brazilian economic development planning would be improved; and Nbrtheast as well as national devel9pment-would be accelerated. It is believed, on the other hand, that to sign a new agreement or extend the present one, with or without a . financial commitment, would weaken-the ability of the 'U.S. to:

* Influence the planning and execution -of regional economic development; * Respond to individual state or private sector s.elf-help efforts; and, * Integrate its assistance program with its national political objectives. It is believed that if the U.S. were to be tied to specific performance in as large a portion of Brazil as is represented by the Northeast, its maneuverability and flexibility in the country as a whole would be impaired.

D. SOME IMLICATIONS

The Northeast Agreement states (Article VI) that it: * "...shall remain in force until ninety days after the date of communi-cation by which either Government gives written notification to the other of its intention to terminate it." The preceding recommendations are obviously incompatible with an extension of the Agreement in.its present form. It is suggested, therefbre, that the U.S.:

1. Initiate a review of the Agreement, as called'for in Article V, as boon as possible arter the U.S. fulfills its "commitment"; and, 2. Seek-to come out of this review with a joint declaration reflecting the substance of the previously recommended principles. Such a declaration should also contain at least an

-153­ CG TILUNCLASSFIE announcement of individual and joint dooomplishment under the Agreement. (Circumstances would dictate the extent- to which public attention should-be drawn to shortfalls in Brazil's.performance with respect to sections- (b) and- .() of Article VI.) Although a.joint revief of $he Nprheast Agreement might provide the U.S., with a framework.for focusing upon a range of larger questions affecting US.-Brazil relations under the Alliance, it is also possible that such a review would be an inappropriate occasion for a major "confrontation".

It would be entirely appropriate in any joint review of the Northeast Agreement to attempt to develop agreement upon specific procedures which the U.S. would follow in implementing its programs as they affect -the Northeast. The possibilities of carrying out project and loan agreement activities with Brazilian entities along lines similar to the IDB might well be explored.

The variots assumptions and recommendations presented above, as well as other consideratibns, have additional implications for USAID operations in,Brazil, as follows:

1. Strong staffs Sn Rio and Recife are indispensable to

- the conduct of AID businebs' in Brazil. Moreover, the maintenance- of a fully-staffed operation in - Recife would capitalize on the momentum of on-going programs and the achievement of improved rblationz-­ ships with SUFNIE, as well as reduce U.S. vulnerability to criticism that its "national program" approach was a disguised pull-otitin the Northeast. 2. Field operational fleibility should be enlarged. This requires some alterati'ans-in AID/W-USAID patterns and a 'selective swrengthening of field personnel.

CONFIDENTIAL -154­ CONFTDENTIAL ­

3. Rio-Recife.coordination should be widened with participation by senior personnel in both offices, on a regular, systematic basis, in national as well as regional USAID planning and programming.

CONFIDENTIAL -155­ ~J~'

APPENDIX A - STATISTICAL TADLES Table 1

-AREA, POPULATION AND DENSITY, BY S - NORTHEAST BRAZIL % 1960

Area Population, Densit ' As a 6 of As a of PoRLM2 As a $ of '1000 m2 - Rest &f Br. 1000 Rest of Br. Pod Rest of Br. NORTHEAST 596.9 22.2 22,427 446.2 38 211

Maranhao 126.9 h4.7 2,192 5.1 20 111 Piani 96.9 3.6 1,263 2.6 13 72 Ceara 57.1 2.1 3,338 6.9 58 320 R. G. do Norte 20.5 .8 1,157 2.4 56 311 Paiwalba * 21.8- .8 2,018 4.2 93 517 Pernambuco 37.9 4,137 8.5 109 605 L4 Alag8as 10.7 .14 1,271 2.6 119 661 Sergipe * 8.5 .3 760­ 1.6 89 h90 Bahia * 216.6- 8.1. 5,991 12.3 28 156

REST OF BRAZIL 2,690.4 100.0 48,5140 100.0 18 100

SOURCE: Anuirio Estatistico 1962, Instituto Brasileiro de Geografia e Estatistica (I.B.G.E.), Rio de Janeiro.

Table 2

AREA OF DROUGHT POLYGON, nT STATES 1960

State Area Area of Drought Polygon (Mi2 ) (Mi ) %of State %of Polygon

Pihaui . 96,886 79,930. 82.5% 235% (Litio Piaul-Geara) 1,009 * 1,009 100.0 .3 Ceara. 57,19 52,713 92.2 15.5 R. G. do Norte 20, L69 18,545 90.6 5.5 Paraiba 21,765 21,281 97.8 6.3 Pernambuco 37,946­ 33,776 89.0 9.9 Alag6as 10,707 4,736 44.2 1.4 Sergipe 8,492 4,014 47.3 1.2 Bahia 216,612 123,633 57.1 36.4

TOTAL h71,035 339,637 72.1% 100.0%

Excluding Mines Gerais. Note that Maranhao is not in the Drought Po'lygon.

Zone in dispute.

SOURCE: Anubrio Estatistico 1962. I.B.G.E. Table 3

POPUIATION GROWTH RATES, BY STATES, NORTHEAST BRAZIL 190, 1950, 1960

Population Lecerinial Growth Annual Growth,Compounded 19h0 1950-- 1960 1910-50 1950-60 19±0-50 M) 1950-60 NORTHEAST 1 , h33 17,972 22,b27 214.5% 2b.8% 2.2% 2.2%

Maranhao 1,235 1,583 2, h92 28.2 57. 2.5 4.6 Piaui 818 1,016 1,263 27.9 20.7 2.5 1.9 Ceara 2,091 2,695 3,338 28.9 23.9 2.6 2.2

R. G. do Norte 768 968 1,157 26.0 19.5 2.3 1.8 raralba 1,22 1,713 2,018 20.5 17.8 1.9 1.7 Pernambuco 2,688 3,395 L,137 26.3 21.9 2.4± 2.0 Alagaas 951 1,093 1,271 14.9 16.3 1.4± 1,5 Sergipe 512 6144 760 18.8 18.0 1.7 1.7 Bahia 3,918 4,835 5,991 23.1 23.9 2.1 2.2

REST OF BRAZIL 26,803 33,972 18,510 26.7 h2.9 *3.6

BRAZIL 6l,236 51,94 70,967 26.0% 36.6% 2.3% 3.2%

SURCE: Ann io Eatetistico 1962, I.B.G.E.

Table 4± PObUIATION PROJECTION T0 1970, BY STATES, NORTHEAST BRAZIL

Annual Population Estimatesas of Sept.1 Growth 1960 Compounded Census 1963 1965 1970 1260-1970 (1000)

NORTHEAST 22, 427 23,886 2h, 920 27,739 2.1%

Mkarabiao 2,h92 2,839 3,097 3,89 h.4 Piani 1,263 1,329 1,37h± 1, 91 1.7 Ceara 3,338 3,50 3,682 4,062 2.0

R. G. do Norte 1,157 1,214 1,251 1,358 1.6 Paraiba 2,018 2,112 2,177 2,349 1.5 Pernambuco b,137 h,372 h1,536 4,973 1.9

Alagaas 1,271 1,325 1,362 1,L158 1.4 Sergipe 760 796 821 887 1.5 Bahia 5,991 6,359 6,617 7,309 2.0

REST OF BRAZIL h8,510 53,635 $7,302 67,523 3.4

BRAZIL 70,967 77,521 82,222 95,262 3.0%

SOURCE: Anuaxio Estatistico 1962. I.B.G.E. Table 5 COMPARATIVE POPLATION PROJECTIONS, NORTHEAST BRAZIL, 1960, 1965, 1970 (1000)

Annual Average A&tual. 1965 Projected Growth,Compounded 196b 1965 , 1970 1960 - 1970 Census I.B.GO.E. S.T.A.P. ? I.B.G.E. S.T.A.F.

NORTHEAST 22,h27 2L, 920 25,601 27,739 29,230 2.1% 2.7%'

Maranhao ) Piaui ) 7,093 8,153 8,230 9,1405 9,530 2.8 3.0 Ceara, ) R.G. Norte) Paratba ) h,Id6S 4,793 '5,0O1 5,717 1-. 2.4 Alagoas )

Pernambuco) Sergipe ) 10,888 11,974 12,330 13,169 13,983 1.9 Bahia )

REST OF BRAZIL h8,510 57,302 67,523. 70,252 3.4 3.7

BRAZIL 70,967 82,222 , 83,766 95,262 99,482 3.0% 3.L%

1/ Servigo Tecnioo de Anlise e Planejamento, Ministry of Foreign Affairs.

SOURCES: Anuario Estatfstico 1962, I.B.GE. Estrutura Socio-Economica do Brasil e sua Evoliuao Provavel at 1980, S.T.A.P., 1961.

Table 6

POPULATION IISTRIBUTION BY AGE GROUPS FOR NORTHEAST AND REST OF BRAZIL: ACTUAL FOR 19L0-1950; ESTIMATE FOR 1960; PROJECTION FOR 1970

Age Groups 1940 1950 1960 1970 (1000) Percent (1000) Percent (1000) Percent (1000) Percent NORTHEAST V­ 13,193 16,339 19,937 23,795

0 - 6 years 2,923 22% 3,729 23% h, 692 23% 5,773 24% 7 - 1oe 2,791 21 3,56 21 ,229 21 5,074 21 15 - 66 7,13h4 54 8,729 53 10, h97 53 12,330 52 65 and over 3h45 3 2425 3 519 3 618 3

REST OF BRAZIL 28,011 35,h89 50,862 72,215

0 -6 years 5,915' 21 7,563 21 10,973 22 15,795 22 7 - 16 5,897 21 6,97 20 9,263 18 12, 218 17 15 - 6oe 15,558 56 20,135 57 29,371 58 h2,330 59 65 and over 611 2 806 2 1,255 2 1, 842 2

%NE/REST OF BRAZIL 147 146 39 - 33

Includes: Piaui, Ceara, Rio Grande do Norte, Paraiba, Pernambuco, Alag~as, Sergipe, Bahia and Fernando de Noronha.

SOURCE: Educaqgo e Desenvolvimento Econ8mioo,Report of the Conference on Education and Economic and Social Development in Latin America, Santiago,,Chile, 5-19th-March, 1962. Table 7

POPULATIO MIGRATION I go AnD OUT OF THE NORTHEAST, :L950 (1000)

From Northeast To Northeast To From Net Outflow

NORTH 114 17 97 EAST 253 33 220 SOUTH 191 5 186 CENTRAL WEST 76 3 73 TOTAL 63h4 576

TOTAL AS %OF TOTAL POPUIATION 0.1% 4.h%

Regional Definitions

North: Rondonia, Acre, Roraima, Amazonas, Para. Northeast: Maranhao, Piau?, Ceara, Rio Grande do Norte, Paraiba, Pernambuco, Alag8as. 4' East: Sergipe, Bahia, Minas Gerais, Espirito Santo, Rio de Janeiro. South; Slo Paulo, Parana, Santa Catarina, Rio Grande do Sul. Central West: Mato Grosso, Goias.

1/ Internal population movements in the Northeast totalled 7l8,000 in 1950.

SOURCE: A Economia Brasileira e suas Perspectivas,. Nov.1962, Anhise e Perspectiva Econinica (APEC) .

Table 8

OUT MIGRATION AND INTRA-REGIONAL POPULATION MOVEMENT, AND COBINED MOVEMENT AS PERCENT OF POPULATION, BY REGIONS 1950

Migration as Percent Regional Migiation Regional of Population Regions Out Intra Total Population Out Intra Total (1007 NORTH 56 92 119 1,751 3.2% 5.3% 8.5%

NORTHEAST 63 78 1,382 13,052 h.8 5.7 10.5 EAST 1,273 1, h26 2,699 19,37h1 6.6 7.3 13.9

SOUTH 208 695 903 15,066 1.4 b.6 6.o CENTRAL WEST 58 15 73 1, h26 4.1 1.0 5.1

BRAZIL 2,229 2,976 5,206 50,669 5.9% 10.3%

1/ See definition, Table 7.

'I SOURCE: A Economia Brasileira suas Perspectivas, Nov.1962, (APEC) SASSFD

Table 9

uIlNDICATEfD" 1/ RURAL AND URBAN POPULATION MOVEMENTS,- THE NORTHEAST AND BRAZIL, 1950-1960 (1000)

- Net Urban Rural- Movement

BRAZIL + 6,330 -6,330

NORTHEAST +1,123 -3,579 -2,166 NORTHEAST V AS A % OF BRA.ZIL 17.7% 56.5%

......

NORTHEAST POPULATION AS A % OF BRAZIL IN: Total Urban Rural

1950 3-4. 6% 25.2% 39.9%

1960 31.6 2b,0 37.8

1/ It was assumed that all individual areas in Brazil would have grown, between 1950 and 1960, at the same rate as actually occurred for - Brazil as a whole. The differences between actual 1960 and assumed 1960 population are taken to reflect the "indicated" results of . migration'. This is clearly an arbitrary calculation but believed to result in useful orders of magnitude. Other more complex estimating techniques generally confirmed the results here indicated. -These other techniques suggest that the "indicated" rural out-migrationrin the Northeast may somewhat understate the actual m6vement. -

Does not include. Maranhao which was a net in-migration state in this period.

SOURCE: Derived by Special Northeast Study Team from 'arious sources. Table 10

19PUATI0,1950, 1 S AN0REST OF EMIL~ -RURALSFOFTITATIN,UNULRAL N9oflASinfl

Northeast as % Northeast Rest of Brazil- of Rest of Brazil Urban Rural Urban Rural Urban Rural (1000)

1900 3,381 21,053 9,4,99 17,303 35.6% 63.9% 1950 h,745 13,229- 1,038 1,933 33.8 66.3 1960 7,681 14,78 24,310 24,219 31.6 60.9

Percent change

1940-1950 40.3% 19.7% 47.7% 15.5% - 5.1% 3.8%

1950-1960 61.9 11.4, 73.1 21.5 - 6.5 -8.1 1940-1960 127.2 33.4 155.8 ho.0 -11.2 -4.7 -

SOURGEt AnuArio Estathstico 1962, I.B.G.E.

Table 113 PERCENT DISTRIBUTION OF URBAN AND RURAL PDPULATION, BY STATES, NORTHEAST BRAZIL 1940, 1950, 1960

Per Gent Increase in Urban Rural Actual Urban Poulton 1960 1950 190 1940 1950 1960 19T-50To 1950 NORTHFAST 23.4 26.4 34.2 76.6 73.6 65.8 60.3% 61.9%

Mirknhd 15.0 17.3 18.0 85.0 82.7 82.0 4,7.9 63.5 PiauL - 15.2 16.3 23.6 8h.8 83.7 76.4 37.5 74.7 Gears, 22.7 25.2 33.7 77.3 7h.8 66.3 43.1 65.5 R. G. do Norte 21.4 26.2 37.8 78.6 73.8 62.2 514.6 71.4 Pardba 21.9 26.7 35.1 78.1 73.3 64.9 46.7 55,0 Pernambuco 29.3 34.h hb.9 70.7 65.6 55.1 68.1 59.0 Alagoas 2h.1 26.2 33.7 75.9 73.8 66.3 25.0 h9.5 Sergipe 30.6 31.8 38.9- 69.4 68.2 61.1 23.0 U6.3 Bahia 23.9 25.9 34.8 76.1 74.1 65.2 33.,4 66.6

REST OF ERAZIL 354.6 1.3 50.1 64.6 58.7 h9.9 h7.7 73.5

BRAZIL 31.2 . 36.2 45.1 68.8 63.8 54.9 45.8% 70.3%

1/ Defined as "places" with population of 2000 and over,

SOURCE: Antuiro Estatistico 1962, I.B.G.E. Table 12 REDR POPULATION OF PRINCIPAL URBAN - AREAS, NORTHEAST BRAZIL .1950-1960 Percent (1000) Increase Area State 1950 1960 1950 - 1960

Sao Luiz Maranhao 120 16o 33% Caxias 107 129 20

Teresina -Piaui 91 145 60

Fortale za Ceara 270 91 Natal R.G. do Norte 103 162

Joao Pessoa Paraiba 119 155 30 Campina Grande 173 207 20

Recife Pernambuco 525 797 52 Caruanu 103 106 3 Jaboatao 57 105 84 Olinda 62 110 76 Garanhuns 101 113 12

Maceao Alagoas 121 170 41

AracajuI Sergipe 78 116 h8

Salvador Bahia b17 656 57 lihe-us 134 lob 78 Itabuna 1h88 118 80 Feira de Santana 107 142 32 Jequie 90 113 Vitoria da Conquista 97 143 -48 Santo Amaro 86 100 17%

1/ Areas of 100,000 and over in 1960, including central cities and suburban environs.

SOURCES: Anuiario Estatistico 1962, I.B.G.E. Contribuigao para o Estudo da Demografia do Brasil, 1961, I.B.G.E. Table 13

PERCENT CHANGE IN POPULATION, BY SIZE OF POPULATION CENTER, BY STATES, NORTHEAST BRAZIL 1950-1960

'Population'Centers Up to 501 to 1,001 to 2,001 to 5,001 to 10,001 to 20,001 Tota 500 1,000 2,000 5,000 10,000 20,000 and over NQRTHEAST 171% 2h% 54% 58% 14o% .35%

Maranhao -38 31 71 150 300 0 26 Piaui 150-0 29 146 31 100 0 0 Ceara 2143 57 249 89 100 33 80

R. G. do 'Nbrte 0 150 17 150 29 1,00 100 : 73 Paratba.' 0 L50' 91 9 h3 350 100 *115 Pernambuco 0 -140 -L0 148 7 67 33 *13

AlagSas( 0 1,100 67. 60 150 S0 86 Sergipe 0 100 79: 0 50 50 48 Bahia 0 -0.6 -0.1 53 7.9 100 '.33 29

REST OF BRAZIL 06 .40 2.7 I 1 67 93 46

BRAZIL 1.16% 26% 46% 79% 47%

SOURCE: Anuario Estatistico 1962, I.B.G.E.

4 - .,. Table _lh

POPULATION INCREASE IN NORTHEASTERN CITIES 1950-1960 - . if % Increase - - 1 City State, - 1960 .1950 - 1960 *Saio Luiz _ .Maranhao. 94 125 33% Tere6slan~ Piaui 5l 1o 94 AParndba - -30 - 0 32 Fortaleda Ceara 236 -355 51 - Juazeiro do. Norte ... 2 53 27 Sobra:l -- - 23 . 32 43 Crato 16 28 79

Natal -- -R.G. -do Norte- 95 15b4 63 Mossoro. 20 39 98 Jo1o Pess8a Parinba 96 136 41 Campina Grande 72 116 60 Patos 14 27 96 Santa Rita 12 21 67

Maceio Alagoas 99 153 55 AracajA Sergipe 68 113 Recife Pernambuco 512 789 514 Olinda 38 100 163 Caruar' 44t 64 48 Garanhuns 21 3b4 66 Jaboauao - . I - 34 3)4 -1 Vitoria deSto-.-Antao 16 27 72 Limoejro --. 21 50 Timbauba, 11 21 90 Salvador Bahia 384 631 62 Feira de Santana 27 62 132 Itabuna 5h 5.7 Vitoria da Conquista 18 7 167 Ilheus 35 - 30 Jequie 21 LO 94 Alagoinhas 21 38 80 Juazeiro 16 21 33 1/ Excluding suburban environs. 2/ As of 1960.­

SOURCES: Anuario Estatistico 1962, I.B.G.E. Contribuigao para o Estudo da Demografia do'Brasil, 1961, I.B.G.E. - - Table 15 IJNtCASSFFAOF CITS I SIZE OF POpUIATION, BY STATE, NORIHEAST BRAZIL NMBR 1950 - 1960

Up to501 to 1,001 to 2,001 to 5,001 to 10,001 to 20,001 to 50,001 to over Total 500 1.000 5,000-2000 10,0 20000 0 100000 100,000 NORTHEAST 1950 I I 0 203 202 66 27 12 7 3 Ou 1960 19 12h 252 312 10% 60 16 4 11 902 Maranhao. 1950 2 - 21 >.29 1 4 1 - 1 - 72 * 1960 1 . 13 38 24 10 h - - 1 91 Piaui 1950 2 17 13 13 2 - 1 1 - 49 1960 .5 22 19 17 4 2 1 - 1 71 Ceara 1950 - 7 23 35' 9 2 2 - 1 79 1960 5 2k 36 52 17 h 2 1 1 12 R.G.Norte 1950 - C 23 10 7 1 - 1 - Ad 1960 3 15 27 25 9 2 1 - 1 83 Paraiba 1950 - 2 1 17 7 2 - 2 - 1 1960 - 1 21 33 10 9 2 - 2 88 Pernambuco 1950 - 5 23 31 1 9 - 1 89 1960 - 3 15 1 6 15 15 5 1 2 102 Alagoas 1950 - 1 12 16 5 2 - 1 - 37 1960 - 12 20 23 8 5 - - 1 69 Sergipe 1950 .- 1 4b 17 E 2 - 1 - 42 1960 2 8 25 17 6 3 - - 1 62 Babia 1950 3 17 3 9 11 W - 1 150 1960 3 16 51 75 25 16 1 2 1 194 REST OF BRAZIL 1950 3 17$ -3W 393 167 -891 Co 14 10 1,2b9 1960 7; 246 k2 555 254 139 89 32 20 1,861 -V. BRAZIL 19 T3 25 559 9 0 10 72 21 13 1,9 1960 93 370 70 867 358 199 105 36 31 2,763

1/ Oity pojmlation does not include suburban environs.

SOURCE: Anu rio Estatistico 1962, I.B.G.E. Contribuigao para o Estudo da Demografia do Brasil-196 1, I.B.G.E.

Table i6

TRENDS IN ECONOMICALLY ACTIVE FOPULATION, 2/NORTHEAST- BRAZIL 19h0, 1950, 1960 _(

Av. Annual %Increase .Active Poulat0on Active as %of Total Pop. SAiv Poplation 19T-1950 190 190-1950 1950-1960

NORTREAST -5,055 5,600 7,294 35.0% 31.2% 32.5% 2.7%

Maranhao * Piaui ) 1,b70 1,624 2,199 35.5 30.5 31.0 1.0 3.1 Ceara

R. G. do Norte ) - .Paraiba i,o68 1,176 1,h25 34.0 31.2 32.1 1.0 2.0 Alagoas

Pernambuco Sergipe )" 2,517 2,800 3,670 35.2 31.6 33.7 1.1 2.8 Bahia

REST OF BRAZIL 8,87h 11,65 16,661 33.1% 3b.3% 3.3% 2.8% 3.7%

1/ Persons 10 years of age and over receiving payment for work. 2/ Estimate by S.T.A.P.

SOURCE: Estrutura Socio Econamica do Brasil e sua Evoluveo Provave1 at4 1980, S.T.A.P. Table 17 UNCLASIRO ECONOMICALLY ACTIVE POPULATION BY MAJOR SECTOR; NORTHEAST BRAZIL 1960, 1950 'AND ESTIMATED FOR 1960

Active Population (1006) - 1950 - 1960 -nd Others Agre Id.. Others Agric. lad. Others NORTHEAST ,785 h72 798 h,057 576 966 4.702 952 1,64o ) Percent P,3 1, 72,4 10,3 173 64,4 13.1 225,

MaranhoL 1,037 148 285 1,216 142 266 1,500 233 h66 plaur )percent 10,1 19,h 68,2 10.6 Ceara 704 7h,9 8,7 16,4 21,2

aR 0do Norte) FPplaton 865 75 1?e 080 L0 195 952 198 315 Puralba ) Percent 61.0% 7,0 12.0 74,8 8.5 16,7 66.0 11. 22,1

pArnpabe 1 863 2S49 385 1,961 334 505 2,250 561 859 $argipe ) 15,3 70,0 1;'? l8.1 61.3 ;5,? BAIA Farount 7 8% 9,9 23,

REST OF BRAZIL ) opulation 5,663 1,320 1,8921 5,903 23173 3,569 7 093 3,507 6,061 Percent 63.8% 1.9 21,3 50.7 18.7 3o.6 2.6 21.0 36.4

SOURCE: Estrutura Sicio Economica do Brasil e asa Bvolu o Provavel atA 1980, S.T.A.P.

Table 18

PERCENT INCREASES IN ECONOMICALLY Ar:IVE POF1ATION BY MAJOR SECTOR, NORTHEAST AND REST OF BRAZIL 3 t0-1960

1960-1950 1L950-1960 1940-1960 BE Rest of Br. NE Rest of Br. NE Rest of Br.

Agriculture 7.2% L.2% 15.9% 20.1% 23.1% 24.3% Industry 22.0 6h.6 65.3 61.4 87.3 126.0 Others 9.5 88.7 30.0 69.8 39.5 158.5

Weighted Average Increase 10.8% 31.2% 30.3% 43.1% 'h1.1% 74.3%

SO0RCE: Estiutura Soeio Econamica do Brasil e sus Evoluqo Provavel atA 1980. S.T.A.P. - Table 19 UNCIA PRED ' PERCENT DISTRIBUTION OF NATIONAL INCOME, BY STATES, NORTHEAST BRAZIL I 1950 - 1960 -.

1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960

NORTHEAST 16.5 15.5 15.0 14.2 14.14 13.9" 1h.3 14.9 114.2 15.4 15.9

Maranhi -1.0- 1.0 1.0 1.0 1.0 .9 .9 1.0 1.0 1.2 2.2 .6 .5 .6 .5 .5 .5 .5 .5 .5 .5 .5 Geara 2.4 2.0 . 2.0 1.8 1.7 1.7 1.9. 2.0 1.4 2.0 2.1

R. G. do Norte 1.0 1.0 .9 .7 .7 .8 .8 .8 .7 .9 .9 Paradba 1.6 1.4 1.3 1.2 1.3 1.3 1.3 1.3 1.1 1.3 1.5 Pernambuco 3.9 3.9 3.6 3.5 3.4 3.3 3.4 3.6 3.7? 3.6 3.5 Alag~as .9 .9 .9 .8 .8 .7 .8 .9 .9 .9 .9 Sergipe .6 .6 .6 .6 .5 .5 .6 .6 .6 .6- .6 Bahia h.5 4.2 h.1 4.1 h.5 4.2 h.1 h.2 . h.3 4.4 4.7

REST OF BRAZIL 83.5 84.5 85.0 85.8 85.6 86.1 85.7 85.1 85.8 84.6 ' 84.1

SOURCE: Revista Brasileira dd Economia, March 1962, Fundagqo Getulio Vargas (F.G.V.),Rio de Janeiro.

Table 20

INO(E BY SECTORS , NORTHEAST AND REST OF BRAZIL, 1950-1960 (cr$ Millions)

1950 1960 Percent Increase,1950 - 60 Total Agrie. Iad. Others Total Agric. Ind. 'Others Total Agric. ed. Others NORTHEAST 36,006 14,719 4,806 16,479 304,234 139,761 35,374 129,099 745% 850% 636% 683%

Maranao ,2,22h4 863 286 1,075 22,961 12,610 2,247 8,104 932 1,361 686 654 1,2ho 476 81 683 9,741 4,406 517 4,818 683 826 538 605 eara 5,226 2,444 437 2,345 40,182 18,351 3,514 18,317 669 651 704 681 R.G. do Norte 2,130 1,071 165 8924 17,564 9,535 1,288 6,71a '725 '791 681 654 Paralba 3,434 1,887 321 1,226 29,120 18,6411 1,811 8,895 748 876 h64 626 Pernambuco 8,565 2,813 1,641 4,1i 66,993 23,991 10,753 32,249 682 753 655 - 6814 Alagsas 1,976 882 3A8 T746 17,193 9,168 2,491 5,554 770 937 616 64 Sergipe 1,300 410 226 664 11,1 o 4,778 1,461 h, 901 757 1,065 646 638 Bahia 9,91 3,873 1,303 4,735 89,340 38,528 11,292 39,520 801 895 767 735

REST OF BRAZIL 178,h402 46,701 46,321 85,38p 1,596,93 396,3o4 454,988 7h5,651 795 7h8 882 773

ERAZIL 21,408 61,420 51,129 101,859 1,901,177 536,o65 490,362 874,750 787% 773% 858% 759%

SOURCE: Revista Brasileira de Economia, March 1962, F.G.V. PBH IDIEPPr C- Pf11vFI Table 21 I.

PERCENT INCREASE IN NOaSM, i'By SECTORS, NORTHEAST AND REST 1949-1955, 1955-1960, 1949-1960

1949-1955 1955-1960 1949-1960 northeast Rest of Brazil Northeast Rest of Brazil . Northeast Rest of Brazil

TOTAL INCOME 19.7% 4h.9% 19.8% 4.0% 43.3% 50.8%

AgricIlture 31.3 55.4 35.0 '-7.4± 77.2 43.9 Industry 30.2 69.3 3.5 12.2 34.8 89.8 Other 8.5 28.9 11.0 6.3 20.5 37.0

I In 1960 prices.

SOURCES: Fundaqo Getulio Vargas, Rio de Janeiro; Escritbrio Thonico de Estudos Econ8mieos do Nordeste (ETENE), Banco do Nordeste, Fortaleza, Cear&J Conselho de Desenvolvimento Econmico do Ceara (CODEC), Fortaleza, Ceara.

Table 22

PER CAPITA INC(ME AS A PERCENT OF NATIONAL AVERAGE IN NORTHEAST BRAZIL 1950-1960

1950 191 3,952 1953 1954 1955 1956 t195? 1958 1959 1960

NORHSaAST 48.5 46.0 44.7 42.5 42.8 42.9 4.7 46.6 W6.7 48.4 50.6

Maranhio 34.0 33.3 33.3 33.5 32.5 29.3 28.6 30.2 31.0 33.7 34.4 Piaul 28.7 27.8 28.7 25.0 23.9 24.9 27.1 28.2 26.5 29.0 28.8 Ceara, 47.0 38.5 40.8 35.9 33.8 35.8 39.7 41.5 30.1 1.6 4.9 R.G. do Norte 53.0 53.8 51.2 1.3 1.0 4.6 53.8' 48.6 40.4 53.0 56.7 Paralba 48.5 45.2 43.8 37.4 39.7 l1.6 43.4± 42.7 38.6 46.4± 53.9 Pernambuco 61.1 61.1 53.7 54.8 53.9 53.9 56.7 61.4± 61,9 61,4 60.4 Alagoas 43.8 43.9 43.0 41.0 38.6 39.0 43.9 48.6 50.7 49.9 50.5 Sergipe 48.9 52.3 52.3 50.3 46.7 46.3 51.7 54.1 55.9 57.1 5h.7 Bahia 49.7 46.2 45.1 45.6 49.7 48.6 47.5 48.8 50.2 51.7 55.7

SOURMCE For 1950, 1956-1960, Three Tear Plan for Economic and Social Development. 1963-1965, Presid~ncia da Republica, Brasilia, 1962j for 1951-1955, derived by Special Northeast Study Team from various sources. Table 23

ECONOMICALLY ACTIVE POPUIATION BY SECTORS, NORTHEAST AND REST CF BRAZIL Al, 1960

Economically Active Income Populatio n Cr$ millions Percent Thousands Percent

NORTHEAST 304,234 1o.o% 7,294 100.o% Industry 35,374 12.0 952 13.1

Agriculture 139,761 46.0 4,702 64.4 Others 129,099 42.0 1,640 22.5

REST OF BRAZIL 1,596,943 100.0 16,661 100.0

Industry 454,988 28,4 3,507 21,0 Agriculture 396,304 24.8 7,093 42.6

Others 745,651 h6.7% 6,061 36.4% w

SOURCES: Revista Brasileira de Econoria, March 1962, F.G.V. Estrutura Socio Econdmica do Brasil e sua Evoluqao Provavel ate 190, S.T.A.P.

Table 214

niCOME PER ECONOMICALLY ACTIVE PERSON, BY SECTOR, NORTHEAST AND REST OF BRAZIL, 1950-1960

(Population in thousandsj income in thousands of erueiros)

1950 1960 Northeast Rest of Brazil Northeast Rest of Brazil Income Income Income Income Pop. Per Capita Pop. Per Capita Pop. Per Capita Pop. Per Capita

AGRICULUE 3.6 5,903 7.9 4,702 29.7 7,093 55.9 INDUSTRY 576 8.3 2,173 21.3 952 37.2 3,507 129.7 OTHERS 966 17.1 -3,569 23.9 1,640 78.7 6,061 123.0

TOTAL 5,599 6.4 11,65 15.3 7,294 2a.7 16,661 95.8

SOURCE: Derived from data from Revista Brasileira de Economia, March 1962, F.G.V. and Estrutura Socio Economica do Brasilesua Evolugao Provavel ate 1980, S.T.A.P. Table 25

INCOME DEFIATORS FOR THE NORTHEAST AND THE REST POF BRAZIL 1950-1960

Northeast Rest of Brazil .(1950 = 100)

1950 100.0 100.0 1951 115.7 114.9 1952 127.3 124.7 1953 160.6 148.0 1954 168.6 177.9 1955 202.5 -207.6 1956 250.4 260.5 1957 307.4 291.1 1958 377.7 338.5 1959 484.3 430.6 1960 . . ' 625.6 540.1.

I] Developed by the Special Northeast Study Team, as follows: ' Cost of living indices in each of the 9 capital cities were weightedi-for each year between 1950 and 1960, by the percentage share of the Northeast regional income represented by each state. This resulted in a weighted price deflator which reflected annual changes in the relative importance of each state. It is believed that this deflator is probably more valid for deflating Northeast income data than the F.G.V. nation-wide "implicit deflator".

2/ "Implicit Deflator" for Brazills-National Income, F.G.Y.

Table 26

INCONE IN 1960 PRICES, NORTHEAST AND REST OF BRAZIL, 1950 - 1960 ­ (Or$ Billions)

Index Income (1950 100) Northeast Rest of Brazil Northeast Rest of Brazil

1950 226.4 964.1 100,0 100.0 1951 218.2 1,006.0 96.± 10).3 1952 222.1 1,071.6 98.1 111.1 1953 234.3 1,123.2 103.5 116.5 1954 248.8 1,180.-4 109.9 122.4 1955 254.0 1,292.9 112.2 134.1 1956 268.3 1,298.1 118.5 134.6 1957 268.5 1,372.6 118.6 142.4 1958 251.8 1,442.2 111.2 S149.6. 1959 283.4 1,503.5. 125.2 * 155.9 - 1960 304.2 1,596.9 134.4 i6S.6

Percent Chang6 Northeast Rest of -Brazil 1950 - 1955 12.2% 34.1% 1955--- 1960 19. .23.5 1998 - 1960 20.9 10.7 1950 - 1960 34.4 65.6

SOURCE: Developed by Special Northeast Study Team from F.G.V. data. Table 27

REAL PER CAPITA INCOME, NORTHEAST AND REST OF BRAZIL, 1950-1960 (Thbusands'pf cruzeiros, in 1960 prices)

Per Capita Income 1 Index Northeast as a % Northeast Rest of Brazil Northeast Rest of Brazil of Rest of -Brazil

1950­ 12.6 28.4 100.0 100.0 44,3 1951 11.9 28.6 934.4 - 100.7 41.6 1952 - 9.34 93.6 * 103.5 0.1 1953 12.2 29.7 96.8 104.6 41.1 19534 12.6 30.2 100.0 106.3 41.7 1955, 12.6 31.9 100.0 112.3 39.5 1956 13.0 30.9 103.2 108.8 42.1 1957 12.7 31.5 100.8 110.9 0.3 1958 11.7 32.0 92.8 112.7 36.6 1959 12.8 32.2 101.6 13.4 39.8 1960 13.5 3340 -107.1 116.2 40.9 run Percent Change 1950-1955 0.0% 12.3% -10.8% C 1955-1960 7.4 3.4 3.5 1958-1960 15.3 3.1 11.7 1950-1960. 7.1 16.2 -7.7

SOURCE: Derived by Special Northeast Study Team from data from various sources.

4 44 .w

Tfable 2 1949, 1955 MID 1.960 NOT R, Mfl1AST AND 'BRAZIL, Mllin) Th0I OB ~IN196o RICS, BY (Cd$ 396,30141960ak. S ~3 6,06S28.?a8.2 .9v 20.8 724~has ~~ a9eas Ls of Brzl Norteast 536,065 13 9 761 28.2 297 28.2 103e245.9 26.0 354,L27.9 ~8,848 2752'34 0 ' Agriculw 37.2% 21. 7 '23.1. 490162 %of Total income Income 6 2% 40516714 454,988 %of Total Brazi Icm 314,181 26.14 214.6 S3.8 13.5 22:*7 439,855 28.5 24.6 8714,750C 265 20.9,923 2391673 20.9 239. 7145,651 146.0 26;25012.4% 18.822.6 46:-7 146.0 a2:1% B17 69B %of Total In 701 6!1 L7.7 Brazil Inomre 45.7 129 9 %of Total a9 116 306.5 6.B 39.2 651,301 45 107,163 1.2 5,1.2 Other 8.14% %of Total Income %of Total Brazil Income

Fortaldza, Cear Rio de Janeiro'B oordeste do r Eancocdo . de Estu Os e o Fo t 6 a, ea SOURCES. ?nq Cer.(O E ) ia entA Ecoflo~ -co der t r o e lSonflO CO mO Table 29

IDICES OF REAL PRODUCT, THE NORTHEAST AND BRAZIL, 1949-1961 (1950 = 100)

Total Agriculture Industry V. Years Northeast Brazil Northeast Brazil- Northeast Brazil ­

1949 93 95 93 99 91 .90 - 100 100 .100 100 100 100 29$1 - 93 105 83 £01 103 106 1952 97 92 110 .98 112 1953 102 114 94 110 107 121 1954 112 123 109 119 113 132

1955 118 132 113 128 130 146 1956 123 134 117 125 156 1957 133 144 124 136 170 1646_D 1958 122 153 100 139 162 191 1959 140 164 129 147 174 216 1960 153 175 144 152 193 239 1961 164 188 155 164 209 265 Percent Change

1949-52 4.3% 16.8% -1.1% 11.1% 7.7% 24.4% 1953-57 30.4 26.3 31.9 23.6 58.8 35.5. 1958-61 314.4 22.9 55.0 18.0 29.0 38.7 1949-61 76.3 97.9 66.7 65.6 130.0 194.4

SOURCE: Revista Brasileira de Economia, Margo 1962, F.G.V., except for industry index for the Northeast in 1958 which was estimated by the Special Northeast Study Team based on employment data, and 1959-1960 data. from Estatfsticas Nordestinas, Superintendencia do Desenvolvimento do Nordeste (SUDENE), Recife, 1962. Total product for Northeast for 1958-61 estimated by Study Team.

4t U , S Table 30 '96LAb MU-1-

TOTAL AIEA, CULTIVATED AREA, AND VALUE OF AGRICULTUb PRODUCTION, NQRTEEAST BRAZIL,1961 (Area in millions heetaresi; Value in millions US$ i7f l

Northeast uThlge Maranklo Ptateas Babia To ao Paulo Brazil TOTAL IAND A 32.8 66.0 56.1 154.9 24.8 851.2 ARE WITH AEQUAT ArALL FOR DRY FAnmmG 32.8 11.8 21.0 65.6 24.8 770.6 CUrAtED AREA ,85 26,54 TOTAL LAND AEA AS a PERCENT OF TOTAL DMIL 8% 7% 18% 3% 100% VAlUE OF Anluomt RODUCTIOR Meat, Eggs and milk 16 79 52 145 424 . 923 Cultivated Crops 31 323 109 463 443 1,936 Eztractive Y crops 11 11 /22 b/ 58 Total 61 12 181. 614 97 2,940 Total as %of Brazil 2% 14% 6% 2 % 31% 100%

Exchange rate US1 = Cr$280. oiated by applying the folloring percentages: 9.3% of total value for cattle; 16%of swine; 8.2%of aheep; 13.7%of goate; and 100%of chickens, eggs, and =Mlk. Uncultivated but harvested. Trace.

SOUROS: Ambio Estatstico 1962. I.B.G.E. -

STable 31

AGRICULTRAL PRODUCTION, NORTHEAST AND REST OF BRAZIL, 1950; 1956-60 (Cr$ 1illibns)

Northeast as %of: . Rest of Brazil Brazil Rost of Brazil . BraFl

1-950 14,721 57,987 72,708 20.2%

1956 43,244 191,832 235,076 22! 5 18.3 1957 52,948 233,563 286,5 n . 22;6 18.4 1958 56,200. 263,765 319,965 2143 17.5 1959 94,550 357,588 452,138 * 26;4 20.9 1960 139,760 491,586 631,346 28;I4 22.1

SOURCE: Revista Brasileira de Economia, Margo 1962, P.G.V. Table0 32

OM Op AGRZCULrORAL 1960 NCo aAFRT8 BZt.

AORrCrJLTUw A SECTOR aW A f AM±ca± IEC R 0 ~ Mio cuzi rs osa) 840 pau., As peraent or Gro 12.666 88.5 maional b odu ct s 466 38.5 203 - 39.6 POTAL aEGIONAL 735 INCON 0.5% 631.2 3.1 3,322 1.6 5..g 6 2 AGRI'CULTUA 7 22.9 26.7% PERCEg o INCOQE AS 523 OREOxy 41,010 TNCOMEs 304.2 1,60.1 RUALPT , O l,916.5 46 10,087 43 PER CAPR&POP0LATIZCON oNll ars) 5.9 U y INCOfEOp u 27,50 22 d as TOTAL P R 51.90 P~CAIlA INCOE 122.oo OA r~ I~j~ ~dollars) 129.32 852.20 / Xchang. rate US$. * .4.072 33% - . 72.ho 306.22­ 212* sOURos.Rf2,. 048.90 3u0 142.­ s I.6G2,

S 302

.4 a q

Table 33

VALUE AND PRODUCTION OF PRINCIPAL AGRICULTURAL GROPS, NORTHEAST AND BRAZIL 1950s 1955, 1960 (Value in billions of cruzeiros;Volume in thousands of tons

Northeast Value as 1950 1955 160 %of Brazil Northeast Brazil Northeast Brazil Northeast Brazil 1950 1M55 1960 Value Volume Value Volume Value Volume Value Volume Value volum4/ Value Volume

Cotton .3 .77 .6 774 .6 323 1.6 813 21.5 718 42.8 1,609 50% 38% 50% Sugar 1.3 13,436 3.3 32,671 2.7 '16,809 7.8 40,946 10.4 20,235 29.6 56,927 39 35 35 Maniac 1.2 5,768 3.1 12,532 2.6 6,900 6.7 14,863 9.6 7,631 23.7 17,613 39 39 41 Beans .6 289 2.2 1,248 1.7 326 8.5 -1,79 8.7 295 3p .9 1,731 27 20 22

Cacao 1.0 148 1.0 153 3.2 152 3.3 158 7.8 155 8.0 163' 100 97 98 Corn .6 660 5.6 6,02k 1.3 687 16.0 6,690 6.0 1,028 49.1 8,672 11 8 12

Bananas .3 913 1.0 4,072 1.0 1,267 2.9 5,107 4.4 1,541 10.9 6,4o8 30 34 40 Rice .2 239 5.4 3,218 1.0 421 17.1 3,737 4.3 1497 60.0 4,795 4 6. 7 Sisal .3 52 .3 52 .4 89 .4 90 3.2 164 3.2 164 100 100 oo Coffee .6 50 15.9, 1,071 .1.1 53 41.6 1,370 2.1 104 77.5 4,170 4 3 3 I/ Leading Producer States in 1960; Cotton-Paralba, Ceari, R.G.Norte Cacao-Bahia Rice-Maranho, CeaA, Bahia Sugar-Pernambuco, Alag8as, Bahia Corn-Ceari, Pernambuco, Bahia Sisal-Bahia, Paralba, R.G.Norte Manine-Babia, Pernambuco, Maranhac Bananasi-Cears, Pernambuco, Bahia Coffee-Bahia, Pernambuco Beans-Ceara, Bahia, Pernambuco

SOUCE: Amario Estatlstico, 1952, 1958, 1961, I.B.G.E. Table 34

CULTIVATED AREA AND PRODUCTION OF PRINCIPAL AGRICULTURAL CROPS, NORTHEAST BRAZIL 1961

Northeast Bulge NE as %(f Maranhao States Bahia Total Sao Paulo Brazil Brazil

CULTIVATED AREA BY. CROP (1000 hectares)

Cotton 156 1,871 108 2,135 686 3,224 66% Sugar 20 492 65 577 372 1,367 38 Cacao 4148 448 1474 95 Rice 31!4 157 28 499 601 3,17h 16 Sisal 97 53 150 151 99 Tobacco 6 41 142 89 2 227 39 PRODUCTION (1000 tons)

Cotton 58 63 51 * 752 692 1,818 )' Sugar 5142 17,975 2,787 21,304 20,362 59,377 36 Cacao 149 156 95 Rice 492 230 34 756 916 5,392 14 Sisal 60 166 170 98 Tobacco 4s 214 25 53 167 31

VALUE (1,000,000 dollars) Cotton 5 93 14 102 n.a. 2140 42 Sugar 1 149 6 56 n.a. 155 37 Cacao 3A n.a. 35 97 Rice 13 211 6 30 n.a. 240 11 Sisal 11 6 16 17 94 Tobacco 1 5 8 lbh n.a. 32. 44 TOTAL VALUE 20 169 253 n.a. 719 35%

1 Exchange rate US$1 ='Cr$280

SOURCE: Anurio Estatistico 1962, I.B.G.E.

4 Table 35

PERCENT INCREASE IN OUTPUT OF PRINCIPAL AGRICULRAL R

1950 - 1955 1955 - 1960 1950 - 1960

Cotton 3% Sugar 20 51

Manioc 20 11 32

Beans 13 52 71 Cacao 3 2 5 Corn 4 49 Bananas 39 *22 69 Rice 76 18 108 Sisal 71 84 215

Coffee 6 96 108

SOURCE: Anugrio EstatIstico, 1952, 1958, 1962, I.B.G.E.

Table 36

INDICATORS OF PRODUTIVITY IN AGRIULTMRE, NORTHEAST BWAZIL 1961

Northeast Bulge Maranhio States Bahia Total Sa0 Paulo Brazil

CULTIVATED AREA. PER RURAL WORKER' !(hectares) 1.20 1.67 1.05 1.4k 2.95 - 1.93

CROP YIELDS PER HECTARE (tons) Cotton 0.37 0.34 0.47 0.36 1.02 o.56 Sugar Cane 28.00 h2.00 43.00 1.00 57.00 43.00 Beans 0.6k 0.63 o.68 0.54 0.63 0.71 Corn 0.83 0.80 0.68 0.78 1.5 1.31- Rice 1.62 1.46 1.21 1.52 1.52 1.70 Manioc 9.00 10.00 14.00 12.00 18.00 19.00

PER CAPITA INOME 0 RURAL POPULTION V (us$) 2/ 27 47 41 43 142 74

Assumed to be 35% of Total Rural Population. Population figures for 1960. Exchange rate US$1 = Cr$280.

SOURCE: Anuirio-Estatlstico 1962, I.B.G.E. *

Table 37

NOMBER AND VALUE OF LIVESTOCK AND POULTRY IN NORTHEAST AND BRAZIL -1961 Northeast Bulge NE as % Maranhao States Bahia Total Brazil of Brazil NUMBER (millions) 10.78 1.19 22.98 74.95 342.78 21.9% cattle 1.56 7.05 5.81 76.18 18.9 Swine 2.54 5.08 3.89 14-2 50.05 23.1 Sheep 0.24 4.53 2.15 6.92 19.17 36,2 Goats 0.59 5.94 9.16 11.56 79.1 Chickens 5.85 18.59 8.50 32.94 185.82 17.5

VALUE (Cr$ billions). 18.66 10F.55 84.80 210.01 1,154.70 18.2% CatIb 11..10 82.50 64.20 157.80 889.00 17.7 Swine 6.14 13.40 14,16 34.00 199.10 17.1 Sheep 0..15 4.75 2.22 7.12 25.49 27.9. Goats 0.36 5.63 2.42 8.61 1o. o 85.8 Chickens 0.91 3.07 1.50 5.48 31.07 17.6

VALUE (US$ millions) !/ 66.64 391.25 302.86 750.4 4,123.93 18.2%

cattle 39.64 294.64 229.28 563;67 3,175.00 17.7 Swine 21.93 '47.86 51.646 12i.43 711.07 17.1 Sheep 16.97 7.93 25.3 -91.04 27.9 4 Goate 1.29 20.82 8.64 30.75 35.86 85.8 Chickensa 3.25 10.96 5.36 19.57 110.96 17.6

I/Us$1= Cr$280

SOURCE: Anuerio Estattstico 1962, I.B..E. F *1 Table 38 'I4t C[ASS;FE9 VALUE OF PRODUCTS FROM LIlVESTOCK AND -POULTRY IN NORTHEAST AND BRAZIL, 1961- (Cr$ Billions) Northeast Bulge NE as % Maranhao States Bahia Total Brazil of Brazil

NEAT 1.99 20.23 11.15 33.35 185.73 17.9%

Cattle 0.89 *12.94 7..61 21.4 128.25. 16.7

Swine 0.16 2.49 1.29' 3.92 23.11 16.9

Sheep 0.01 0.84 0.14 1.26 1.85 78.1

Goats 0.02 0.89 0.34 1.25 1.145 86.2 Chickens 0.91 3.07 1.50 5.48 31.07 17.6

EGGS 0.80 2.30 1.21' 4.31. 30.82 14.o

MILK 0.214 5.85 2.93 9.02 77.01 11.7

TOTAL 3.03 28.38 15.27 46.68 293.56- 15.9%

SOURCE: Anuario Estatistico 1962, I.B.G.E. $ Table 39

COMPARATIVE EFFIOIENCy OF CATTLE INDUSTRY IN THE UNITED STATES, NORTHEAST AND BRAZIL 1961

Unit United States Brazil Northeast Brazil Number of cattle 1000 99,782 76,176 21t,1h6­ Number of animals slaughtared 2,000 33,535 7,141 1,227 Percent of animals slaughtered 33.6% Amount of meat produced 9.14% 1,000 M.T. 7,210 1,369 19.2.5 Meat produced per animal Kg. 72.3 18.0 13.3 Milk Produced 1,000,000 L. 57,228 *5,202 558.4 Milk produced per animal L. . 573.5 68.3 38.6

1 For the year 1962.

rzzzz SOURCE: Anu rio Estatljttcb 962, I.B.GE.; Economic Research United Sttes Department ot Agriculture. Service, 1963, various issues, Table 4o.

?ELECTED DATA AGRICULTURAL EXPORTS NORTHEAST AND BRAZIL ­ 1961

Northeast Bulge Maraibao States Bahia Total Sao Paulo Brazil

VALUE OF TOTAL EXPORTS

(us$ millions) 51 $o.6 $111 "4 $20o $81 I $877 %of-total Brami 13 11 24 32 .100 VALUE OF TOTAL EXPORTS AS PERCENT OF 1961 AGRICUL1TRA(L HARVEST 1 27 56 33 31 30

EXPORTS PER CAPITA, RURAL POPULATION

(US$ dollars) $0.21 $12.16 $23.27 $13.56 $56.22 1 $21.73

vl Northeast agrioltural eports.were about 95% of tot4a"regional exports in 1961 2/ Exchange rate US$1 = Cr$280.

Sleus that 1%. Al Population figures for 1960.

SOURCE: AnuLrio Estattstico 1962, I.B.G.E.

9F A -Table, MA NUMBER OF PROFESSIONAL FISHERMEN, QUANTITY AND VALE OF CATOR OF NORTHEAST FISHING INDUSTRY, VARIOUS TEARS, 1951 - 1961 (Quantity in tons;. Value in thousands of oruzeiros)

Number of Percent Change Fishermee Quantity Value 4 Quantit. Valu.. 1960 1T -1957 1931 1957 1961 1951- 95761 197-61 NORTHEAST u6,562 47,154 66,568 95,796 277,169 3,668,425 103.1% 43.9% 275.4

Maranbio 32,321 30,089 33;352 35,634 356,113 1,079,205 18.4* 6.8- 203. ' PiaiA 5,889< 617 855 1,166 13;327 78,738 -89.0 36.4 490.8, Ceara 25,258 4,462 9,973 15,170 180,509 749,108 240.0, 52.1 3161.9 R. G. .do Norte 8,274- 3,375 3,9*3 5,655 63,ig.5 3014,373 67.6' 43.4', 379.9 Paraiba 5,989. 1,o~il 5,166 19,085 76410 275,680 1 ,733.3. 270..9 260.8 Pernambuco 5,249 888 1,22 4,801 34s288 ,293081 440.6 237.1 756.8 Alagoas 7,A86 1,183 4,844 4,096 67,622- 146,307 -226.2 -15.4 116.0 Sergipe 4,869 1,358 887 23,542 94,250 1.9 77.4 300.3 Bahia 21,227 4, 1a 6,144 8,615 161,943 646,923 108.0 40.2 299.5

REST OF BRAZIL 123,199 31,143 149,721 234,344 1,540,907 8,363,343 110.9 56.5 NORT.MAST AS % OF REST OF BRAZIL 94.6%' 42.4* 40.9 63.4 43.8% -3.6% -8.1%

SOURCE: Armario Estatistico1958, 1962, I.B.G.E.

.;, - t I

42 Table 42

ESTABLISHMENTS AND PRODUCTION WORKERS, BY INDUSTRY, NORTHEAST AND REST OF BRAZIL 1949, 1958 1949 1958 Percent Change Establishments Workers Establishments . Workers 1949-1958 Number $ Dist. Number FDist. Number Dist.D Number % Dist. Establ. Workers p, NORTHEAST 16,wT6 100.o- '1961960 100.0% 20,1s 100.0$ 172,314 100.0% 21.2% -13. EXTRACTIVE INDUSTRY 1,262 7.5 16,305 8.2 1,410 6,9 9,812 5.7 11.7 -39.8, Mineral products n.a. n.a. 569 2.8 8,715 5.1 n.a. n.a. Agricultural products n.a. fla. 841 4.1 1,097 .6 n.a. n.a.'. MANUFACTURING INDUSTRY 15,603 92.5 182,655 91.8 19,030 93.1 162,502 94.3, 22.0 -11.0 Non-metallic mineral products 3,034 18.0 16,197 8.1 3,512 17.2 15,518 8.9 15.8 -5.4' Basic metal industries 113 .7 2,800 1.4 162 .8 3,036 1.8 43.4 8.4 Machinery 23 1/ 338 .1 15 338 .2 -34.8 n.a. Electrical & Comm. equipt. n.a. 2 1/ n.a. 169 .1 * n.a. 8,350.0 Transportation equipment 37 .1 287 .1 45 .2 536 .3 21.6 86.8 Wood industry 381 2.2 2,518 1.3 1,573 7.7. 3,724 2.2 312.9 47.9 Furniture 24 1.4 1,535 .8 618 3.0 3,051 1.8 153.3 98.8 Paper and paper products 13 1/ 657 .3 26 1,307 .8 100.0 98.9 Rubber n.a. n.a. 17 1/ 6 222 .1 n.a. 1,205.9 Leather and hides 486 2.9 3,362 1.7 525 2.6 3,693 2.1 8.0 9.8 Chemical & pharm. pr6ducts 510 3.0 7,004 3.5 5145 2.7 7,488 4.3 6.9 6.9 Textiles 911 5.4 71,654 36.0 1,305 6.4 56,996 33.1 43.2 -20.5 Clothing and foot wear 1,057 6.3 5967 3.0 1,247 6.1 5,809 3.4 18.0 -2.6 Foodstuffs, 7,017 41.6 56,187 28 4 -7,155 35.0 48,081 27.9 2.0 -1 Beverages 852 5.1 5,401 2.7 492 2. 3,631 2.1 57.7 . -3 Tobacco products 78 .5 4,052 2.0 1,312 6.14 4,786 2.8 1,582.1 1 Printing and publishing 374 2.2 3, 755 1.9 309 1.5 3,331 1.9 -17.4 - Miscellaneous 139 .8 621 .3 183 .9 986 .6 31.6 5 REST OF BRAZIL 68,043 100.0% 943,640 100,0% 104,129 100.0%1,251,234 100.0% 53.0% 6% EX TRACTIVE INDUSTRY 1,92 2.2 31,236 3.3 1,999 1.9 24,896 2.0 34.0 - -2 MANUFACTURING INDUSTRY 66,551 97.8 912,404 96.7' 102,130 98.1 1,226,338 .98.0 53.5 a

1/ Less than .1% C0115 SOURCES: Produio Industrial Brasileira,1958, I.J.G.E. Escritrio Teenico de Estudos Economicos do Nordeste (ETENE), Banco do Nordeste, Fortaleza, Ceari. OMMM3 Table 23 C PRODUCTION AND VALUE ADDED IN 1 960 PRICES I BY INDUSTRY, NORTHEAST AND REST OF BRA2IL 19d , 19 8 (or$ millions)

1949 1958 Percent Change - Production V.alue Added * roductionil .Yalue Added 1949-1958 Or$ - $ Dist. . Cr$ % Dist. Gr Dist. Cr$ % Dist. Production Value Added NORTERAST 71,367- 100.0% 32,963 100,0% 78,988 100,0% 35,.992 100.0% 10.7% EXTRACTIVE INDUSTRY 2,078 2.9 1,1463 4.6 1,648 2.1 1,342 3.7 -20.7 -8.3 - Mineral products n.a. n.a. 2 n.a. Agricultural products 1,479 1.9 1,19 3.3 n.a-. n.a. n.a. 169 .2 147- .4 n.a. n.,a., MANUPACTURING INDUSTRY 69,289 97.1 30,500 95.4 77,3L0 97.9 3L,650 96.3' 11.6 Non-metallic mineral products 13.6 2,177 3.0 1,620 5.1 14,47 5.7 2,840 7.9 105.7 75.3 Basic metal industries 1,073 1.5 521 1.6 1,718 22.2 2.2 60,2 Machinery .780 49.8 I 72 .1 148 .1 126 .2. 51 .1 75.0 12.6 ,Electrical & Comm. equipt. .6 .3 1/ 40 .25 Transportation equipment 1/ / 6,534.0 8,131.2 e it 83 47 .1. 193 .2, .95 .3 132.1 103.8 Wood industry 663 .9 337 1.1 1,001 1.3 537 1.5 Furniture. 50.8 284 .14 176 .6 897 1.1 530 1.5 215.6 200.2 Paper and paper products 313 .14 140 1.3 361 1.0 236.0 .7 1,052 157.6 &m j Rubber 18 13 1/ 183 .2 96 .3 908.3 618.6 Leather and hides 1,573 2.2 605 1.9 1614 2.1 762 2.1 4.3 26.1 Chemical & pharm, products 5,370 7.5 1,705 5.3 13,732 17.4 155.7 206.0 Textiles 5,217 14.5 24,125 33.8 10,767 33.7 8,556 10.81 17.1 -42.7' 'Clothing and foot 6,171 -64.5 wear 1,136 1.6 550 1.7 1,571 2.0 745 2.1 38.3 35.4 Foodstuffs 27,985 39.2 11,553 36.1 44.9 Beverages 35,19 12,698 35.3 26.7 9.9 1,680 2.4 975 3.0 2,364 3.01 1,227' 3.4 25.9 Tobacco products Ia7.0 1,605 2.2 697 2.2 2,771 3.5 1,668 4.6 72.6 139.4 .Printing and publishing 986 1.4 653 2.0 1,306 1.6 701 Miscellaneous 1.9 32.5 7.3 145 .2 93 .3 261 .3, 143 .4 53.2

REST OF BRAZIL 688,731 100.0% 309,527 100.0% 1,213,789 100.0% 373,832 100.0% 76.2 20.8 EXTRACTIVE INDUSTRY 8,120 1.2 6,940 2.2 9,703 .8 2.3 MANUFACTURING INDUSTRY 8,557 19.9 23.3 68o,611 98.8 302,587 97.8 1,204,086 99.2 365,275 97.7 76.9 20.7 j Less than .1%

SOURCES: Produggo Industrial Brasfleira 198, I.B.G.E. Escritorio Teenico de Estudos Economicos do Nordeste (E2NE), Banec do Nordeste, Forta.eza, OearA. I

*

4 Added

vAIA ADDED verOent. 5,992 96 3 OFttrfl 5ecn I LIr~vd 3 4,650 5 . so .9

1 3 0 .3 17348553 78,7 91.9 2,er 6176 aoP4so,.3 iooo% 18,313 14.9 5 7 9o.3 16,331 3,16 5.3 9,030 75,126 3. 63.3 5.,? 1,34, 6,090 Z.3. produacer goodS 5.1 12,9ho 6.9 1.9 1489 consu.mer goodSe 9812 1,479 .2 .4u 2-,097 169 8xTAkoTIVE 569 n r odcts pro Agriculta dProducts. a d a Teveraetbacco W E 6 0 3~I.~ Prices' ~ 11 rn 19 th-ing and C lo 0 2 2 tu0J~~AEcoastPgs . avmo do 14ordeste, I*5 * odeste Ea) Olon do4 ,o do l ir ! I-

1'______Table 145

PERCENT DISTRIBUTION OF VALUE ADDED BY SIZE OF MANUFACTURING ESTABLISHMENT, NORTHEAST BRAZIL 1958

. Percent of Value Added Activity of % Type of Manufacturing Activity Small Medium Large of All Manu. Food Processing 33% 67% 34.4 Textiles 36 14 50% 22.9 Chemicals and Pharmaceuticals 149 '51 . 14.1 Minerals, Non-Metallic 100 7.7

Metalwork 100 0.1

Leather and Rides 58 2.1 88 Clothing, Shoes, Cloth Products 100 2.0

Beverages 100 - 3.3

Wood Products 100 1.5 Tobacco Products 4 8 4.5 Furniture 100 1.4

Printing and Publishing 100 1.9

Paper and Paper Products 17 83 1.0

Transportation Material 100 0.3

Comm. and Elect. Products 100 0.1

Others 100 2.7 j 1 Small". 5-49 workers, "Medium": 50-99, "Large": 100 or more.

SOURCES: Indstria de Transformaq o, 1958 (unpublished), Esritorio Teenico de Estudos Economicos do Nordeste, Banco do Nordeste do Brasil, Fortaleza. k#

Table 46

1 MANTJFACTURING INDUSTRIES, WORKERS AD VALE ADDED, pRODUCTION NORTHEAST BRAZIL ESTABLISHMENTS, By STATS, 1961VaeAdd

value Added production Workers Establishments N--- ercent Number P.erce.t 45,880 10o.0% 186,721 22,813 100,0% NCRTHFAST 11)5 73 4.1 6.21.8 1 881 437 1.0 2,333 10.35.1 8.7 Maranha0 9.2 3,Y448 8.1 3,927 1,171 15,200 Pian 2,100 4.4' ceara 4.14 2,003 1541007,549 4.3 4,327 9.4 995 4.6 37.18.1 R. G do Norte 1,050 26. B 15,867 69 400 3 F aralba 2 6,100 6.8 16,1463 26.0 Pernambuco 8.8 3,707 1,689 1,564 6.2 Alagoas 7.0 11,50036,488 11,969 1,600 19.4 r Sergipe 25.8 Bahia 5,900

/In 1960 Prices. Study Team. Special Northeast 2/ Estimated by

1960 . .E. Industrial Brasileiro SOURCE: C Table 47 RAL PRODUCTION, BY STATES, NORTHEAST BRAZIL, 1961 (tons)

MA PI CE RGN PB PE AL SE -BA Total- Manganese 9,891 9,8f1 Iron 6,00 6,000

Copper 3,773 3,773 Lead 102,b60 102,460 Magnesite 18,530 58,172 76,702

Gypsum 4,39k 36,114 67,922 27,405 135,535 Phosphate 397,426 397,426

Columbite 4 3 2 16 25 Beryllium 13 35 8 185 241. Barite 62,393 62,393 Apatite 300 300 Rutile 2 85 87 Sea Salt 36,760 15,095 103,373 498,840 103 725 h 21,700 12,814 689,414 Tungsten 1,029 1,029

Crude Oil1 34,807 3h,807 Nat. Gas 526,806 526,806

Barrela (1000); 2/ Cubic Meters (1000)

SOURGE: Anuirio Estatlstico 1962. I.B.G.E. Table 48

NORTEAST MINERAL PRODUOTION COMPARED WITH BRAZIL, 1961 '(Rounded to nearest 1%)

Northeast Northeast Product as %of Brazil Ptoduct as % of Brazil Manganese 1% Beryllium 16% Iron 1 Barite 100 * Copper 5 Apatite Lead 62 Rutile 39 Magnesite 100 Sea Salt 77 Gypsum 84 Tungsten 100 Phosphate 97 Crude Oil 100 Columbite 23 - Natural Gas 100

' Less than .5 of 1%. * SOURCE: Anuirio Estatistico 1962, I.B.G.E. ~nn~ assTable 49 IN4TERSTT OaERCE, OVERTA AND0081YISE SHIPPING NORTHEAST BRAZIL 199

Exports Imports Oerland Coastwise TotE Overland Coastwiee Total (Or$ 1,000WT NORTIEAST 29,772 21,85 51,627 44,250 26,695 70,945

Maranhio 1,863 3,172 5,035 2,590 1,907 4,497 Pian 770 194 964 2, 349 . 355 2,704 Cears 3,582 2,701 6,283 6,328 4,158 20,486 R. G. do Norte 1,103 2,477 3,60 2,501 1,086 3,587 Paralba n.a. 1,527 1,527 .6,689 1,347 8,036 Pernambuco 17,817 5,952 23,769 9,463 10,001, 19,464 Alag8as n.a. 1,571 1,571 3,596 1,146 4,742 Sergipe 1,673 708 2,381 1,531 650 2,181 Enhia 2,96kL 3,553 6,517 9,203 6,oh5 15,248

REST OF BRAZIL 381,306 66,175 447,481 366,828 61,335 428,163

BRAZIL 11,078 88,030 499,108 411,078 88,030 499,108

SGRCES: Boletim Estattatico, No. 81, Jan./March 1963, I.B.G.E.; Comtraio de-Cabotagem do Brasil 1960-61, Servigo de Estatfstica Economic a Financeira, Ministerio da Fazenda, Rio de Janeiro, 1961.

-Table 50

INTERSTATE COMMERCE BY COASTWISE SHIPPINO, NORTHEAST AND BRAZIL, 1956-1961 (r$ Millions)

1956 1957 195 8 1959 1960 1!% Exports iampots xporto Imports Eports Imports EporsI rts xports XaPrtS WORTHEAST 18,042 18,542 17,891 21,078 16,877 22,732 21,855 26,695 32,391' 31,847

Harahao 1,37h 1,190 1,821 1,452 1,821 1,380 3,172 1,907 4,281 2,262 Pia .250 294 319 246 232 210 194 355 377 301 Ceara 2,010 2,075 2,081 2,549 2,553 3, 811 2,701 4,2,58 4,o~o 4,373 6198 R.0Gjorte 1, 886 875 1,876 926 1,827 1,117 2,477 1,086 3,846 1,231 Parajbat 1,765 923 1,666 1,017 1,430 1,255 1,527 1,347 1,780 1,727 Pernambueo 6,131 7,386 5,632 8,397 4,698 8,545 5,952 10"001 7,332 23,079 Alagsas 2,027 610 2,607 935 952 930 1,571 1,146 2,563 1,567 Sergipe 442 490 414 545 45 W41 708 650 672 695 Bahia 2,157 4,499 2,675 5,0 2,919 5,043 3,553 6,045 8,490 6,612

REST OF BRAZIL 47,177 46,677 50,252 47,065 53,075 47,640 66,175 61,335 75,298 75,842

BRAZIL 65,219 65,219 68,143 68,143 70,372 70,372 88,030 88,030 107,689 107,689

SORCE: foletim Estatfstico 1963, SDnENE. Table 51

OVEItAND INTRA-REGIONAL CoMRCE, M NORTM.ST BRAZIL 1959

INports (Cr$1,000,000)

NORTmFEAST 22,090 21,081 FIT Maranhto r9. 1,633 1,295 *Ceara 3,196 2,22864j5 R* G. do Norte Paralba 1,865 689 Pernambuco 5,556 n.a. 13,991 Alag6as Sergipe 2,793 Bahia 94~2 4,897 1,073.n.a.

'PInorte and erporta do not balance because of incomplete information.

SOURCE: BoletimEtatati , No. 0 81, Jan./march 1962, I.B.G.E.

i

it ae 0,

*

Table 52 .hs6 2 MWV ol um e i9no s TKTo RE I OUW n t oeal F OREI N c O.jflioaMOI cr uso~ (Vale in 14ot oror9&s a a%or Brazil 'VavaluVoloV1 8.9% V3 18.% 92% .9% Vol. 'Vale 29.2% 6.1 8.6 Vau Vo. value 3..5 7. lVorteaat - -Balance- 23.0 5. -- 5905 19.0 B ~ 1,r Imort 0 i13,513 _as vslue 7,113 B6,1452 -4,8 . 463 5.0 8.3 Va. letS. 60651 103,323 14 7 23.0 15.6 63,53 297 5:4 6.3 6,82 4s 1,205 4,387 491 g3.6 17.2 3. 11,21 V,1 22.2 1065 5.0 1957 78 6,339 1,18.,53 15,610 -54,096h -500 1958 14,902 2,006 857 1,102 12,2481,7 30,130 92,3 8 608 1959 2015 222 23,769 355 339 1,52 1i,146 1,296 23,69 i,186 639 2.130 1960 i6.06 -,91 30723.1 78 5867716 1961 2, 125,521 659 1962 68,285 1,298 13.5 2.7 .7 -32-9 -100.9 23.1 percent 0118290 86.6 6.2 26.1 o.o -53 .0 -8.6 179.2 238.3 u. -5 -32.7 1957- 218.2 25.1 -2,78.1 1959 85.4% 7.5 80.o 108.8 L>.. 1960- -49.2 84 .1 C 101.3% -21.A4 151.5 24.2 .693.0 1962 491.9 406.3 60.2 ~~tvr 'xi 874 .8 130.1 .1957- 8 2714.0 -45.3 1962 509.1% 8" Rio dieJaneiro. .~~ -4­ ministrio da Fasonda, e Financeira Economica a~ A~.t'~ SOURCE: Servigo de 4h. S ~1 ~-t I Table 53

VOLUME OF IMPORTS AND EXPORTS THROUGH PRINCIPAL PORTS, NORTHEAST BRAZIL,1955-1960 (1000 tons)

%change 1955 1956 1957 1958 1959 1960 1955-1960 Fortaleza (Ceart) Imports 275 282 269 442 399 467' 70% Exports 153 163 139 138 161 158 3 Total - 428 445 388 80 E60 62s I6 '-a.-, '4$' Cabedelo (Paraiba) Imports 133 156 137 154 135 149 12 Li: ~ Exports 212 223 196 174 164 172 -19 Total L .3 345 379 333 328 299 321 -7 Recife (Pernambuco) Imports 1,1o6 1,062 1,074 1,055 1,106 1,054 -5 Exports 819 651 747 730 800 999 22 Total 1,925 1,713 1,821 1,785 2,058 7 Ct,, Salvador (Bahia) 1/ Imports 7) 482 512 ,536 535 500 697 45 ~rii~r3 Exports 364 604 898 703 833 274 -25 E ~7'~ Total J 846 1,n6 1,434 1,238 1,333 971 15 cI~s!~rtJ Ilhes (Bahia) Imports 61 48 '49 n.a. 62 67 10 Exports 117 142 135 n.a. 146 135 15 Total 178 190 184 n.a. 208 202 13

Total 3,722 3,843 4,160 3,931 4,306 4,177 12 Imports 2,057 2,060 2,045 2,186 2,156 2,3434 18 Exports 1,665 1,783 2,114 '1,745 2,150 1,743 4 1 Excluding oil exports.

SOURCE: Transporte Marltimo e Portos do Nordeste. 1961, SUDENE

* I* ' FiP Thn

Table S4 CAPITAL STOCK IN NORTHEAST BRAZIL 1955, 1958, 1959 %Change 1955 1958 1959 1955-1959 NE Br. NE j Br. E r. NE $ Br. NE Br. NE5 Br. HE Br. ______- (Grfllii CAPITAL STOCK L49 3,714 4.0% 169 4,038 4.2% 162 4,194 3.9% 9.0 12.9 Agriculture 22 513 4.3 27 512 5.3 27 589 4.6 19.6 1I.9 Industry 148 1,121 4.3 55 1,357 4 .1 54 1,392 3.9 11.9 12.4 Others 79 2,080 3.8 87 2,169 .0 81 2,213 3.7 2.5 6.4 (Cr$ Thousands) CAPITAL STOCK PER ECONOMICAILY ACTIVE EMPLOXED 24.2 190.7 12.7 26.0 188.6 13.7 24.6 190.8 12.9 1.6 0.0

Agriculture 5.3 49.5 10.7 6.2 h7.8 13.0 6.o 55.0 10.9 13.2 11.1 Industry 77.4 395.0 13.6 82.3 355.8 23.1 77.8 349.o 22.3 0.5 -11.6 Others 61.9 354.0 17.5 61.4 317.4 .19.3 56.6 304.3 18.6 -8.6 -14.0 RATIO OF CAPITAL (Ratio) STOCK TO AGRXCULiTRAL PRODUCTION Y 49% 180% 27% 38% 150% 25% 29% 130% 22% -41% -28%

1/ Production data in 1959 constant prices.

SOURDE: A Economia Brasileira e suas Perspectivas, 1962, A.P.E.C.

Table 55

INVESTMENTS IN THE FORM OF IMPORTED EQUIPMENT BY FOREIGN ENTERPRISES OPERATING IN THE NORTHEAST,1958-1961 (US$ Thousands) Percent Change 1958 1959 1960 1961 Total 195 - 1961 1960 - 1961 NORTHEAST 471.5 495.5 2,947.2 776.2 L,690. -74.0%

Maranhao PiauL Cearla - 31.5 350.o 77.5 459.0 0 -77.9

R.G. do Norte - 170.0 170.0 0 Paralba 160.3 9.4 169.7 -94.1 Pernambuco 233.6 139.0 372.6 0

Alagoas - - 521.5 38.8 560.3 0 -92.6 Sergipe Bahia 237.9 155.0 1,915.14 65o.5 2,958.8 173.4 -66.o

REST OF BRAZIL 103,704.2 86,320.4 82,138.9 22,687.4 297,850.9 -75.2 -68.7

NORTHEAST AS % OF REST OF BRAZIL .L% .6 3.6 3.0 2.2% 650.0% -16.7%

SOURCE; Anuario Estatistico, 1961, 1962, I.B.G.E. UW, V-- "f10

__ - -~ - - V I - Table _56

GOVERNMENT INVESTMENT AND INCOME IN NORTHEAST BRAZIL, 1958, 1959, 1960 . (r$ Thousands)-

I 1958 1959 1960 Total

.OVERNMENT INVES2MENT

Federal 5,828,027 7,089,571 7,4664,564 20,382,182 state 1,820,774 1,268,675 2,1467,735 5,557,184 Municipal 917,278 1,009,002 1,192,567 3,18,847 Total 8,566,079 9,367,2148 11,124,886 29;058,213

GOVERNMENT INCOME Total 10,866,900 1-4,020,300 17,768,200 12,655,oo Investment as % of Income 78.8% 66.8% 62.6% 68.1%

GOVERNMENT EXPENDITURES

Federal 16,153,231 23,863,551 24,607,917 64,6214,699 State 10,165,464 13,483,716 19,494,788 43,1143,968 Municipal 4,052,705 5,138,433 7,191,195 16,382,333 Total 30,371,400 2,485,700 51,293,900 124,151,000 Investment as % of Expenditures 28.2% 22.0% 21.7% 23.4%

GOVERNMENT INCOME AS % OF NE INCOME 7.2% 6.*4% .8% 6.3%

GOVERNMENT INVESTMENT AS % OF NE INCME - 5.7% 4.3% 3.7% 4.3% I

GOVERNMENT EXPENDITURES AS % OF NE INCOME 20.1% 19.4% 16.9%

TOTAL GOVERNMENT INCOME AS % O TOTAL GOVERNMENT EXPENDITURES 35.8% 33.0% 34.6%

1 Estimated by SUDENE.

SOURCES: Estatfsticas Nordestinas 1962, SUDENE Baa !sd Uniao, Ministerlo da Fazenda Centro de Estudo Fiecais, F.G.7. 4 A

Table 57 ESTIMATED IlVESTNENT AND KNOWN INVESIMERNT PLANS, BY MAJOR SOURCES, NORTHEAST BRAZIL, VARIOUS YEARS, 1952-1966 (Cr$ Billions)

Estimated Investment, Reported Investment Plans Indicated Years 1963 1960 1965 1966 Total

SUDENE 20.4 (1962) 64.8 69.o - 72.2 - 206.0 D.N.O.C.S., 'n.a. 17.7 14.5 - 32.2 D.N.O.S. n.a. 5.8 - 5.8 Federal Government 20.4 (1968-60) State! 5.5 (1958-60) 12.5 V 26.3 V 33.99 34.4 107.1 Municipios 3.1 1958-60)

Bank of Brazil B.N.D.E. 3.1 (1952-62) Bank of Northeast 35.4 (1952-62) 20.8 20.8

Article 34 of Law 3995 8.F0 2 - 6.0 Corporate 25.6 (1961-62) 31F19.0+

1/ Planned investment, including Cr$6 .8 billion for other (federal) regional agencies. Figures on actual investment by SUDENE are unavailable. 2/ Data available only for Oeara and Sergipe 1963-66 and Alagoas 1963-65. Developed investment plans of other states eiter do not exist or are unavailable. 3/ Some double-counting is involved inasmuch as possibly up to 10%of state expenditures are financed from other sources. W Provides primarily short-term, working capital. Figure for 196 represents estimate by Special Northeast Study Team of portion of Special Counterpart Fund going to long-term loans. 5/ Represents the amounts deposited at the Bank of Northeast as of August 1963, for investment in private projects approved by SUDENE. 6/ Estimated by Special Northeast Study Team, on the basis of actual figures for first half 1963. SOURCES: Balangos da Uniio, Ministhrio da Fazenda; Plano liretor d Execugo, 1962, SUDENE; Primeiro Plano de A 9ao, 1- Oramentoand de Aplicaes para 1963, anco do Nordeste do Urasil Orgamento Geral da Uniao, 1963 Proposta Orgamentaria para 1964; Plano do Metas (PLAMEG) 1963-66, GoVDrno do Ceara FPlano Trienal 1963-65. Governo de Alagoas; Programa Quadrienal do Governo, 1963-66, Estado do Sergipe; Anuario Estatistico 1962, I.B.G.E.; Conjuntura Economica, E.G.V., various issues. Table 58

SECTORAL DISTRIBUTION OF REPORTED INVES'PIENT PIANS NORTHEAST BRAZIL, 1963 - 1965 (Or$ Billions) Percent of

57.3 57.5 41.9 8.6 165.3 41.1% SUDENE 35.2 34.1 31.9 101.2 States 4.4 8.9 10.0 8,6 31.9

Other 17.7 145- - 32.2 AGRICULTURAL AND INDUSTRIAL DEVELOPMENT 68.i 28.3 27.9 7.0 131.3 32.7

SUDENE 17.3 20.4 21.4 - 59.1 states 3.0 5.4 6.5 7.0 21.9

Other 47.8 2.5 - 5033 SOCIAL INFRASRUoTURE 23.9 26.5 36.7 19.4 106.5 26.5

12.5 Th.5 18.9 - l45.9 States 5.6 12.0 17.8 19.4 54.8 Is'

Other 5.8 - - - 5.8

Total 1-8.6 112.3 106.1 34.4 401.4 Note: Details do not necessarily add to totat because of rounding.

SO0CE: Table 57. Table 59

SUDENE PLANNED INVESThENTS 1963 - 1965 (or$ billions5

1963 1964 1965 Total %ofr %of % of % of 2r$ Total Cr$ Total Or$ Total Cr$ Total

Electric Power 25.4 39.1% 21.1 30.5% 18.0 24.9% 64.5 31.2% Itoads 0.8 13.5 11.2 16.2 12.1 16.8 32.1 25.7 Port Improvement 1.0 1.5 1.8 2.6 1.8 2.5 4.6 2.2 Economic Infrastrncture. T52 3Z.T 34.1 79. TI9101. .jTI Water &Sewer 8.2 12.6 10.8 15.6 15.1 20. 34.1. 16.5 Human Factor 2.9 4.5 2.7 3.9 2.3 3.2 ' 7.9 3.8 Housing .5 .7 1.0 1.5 1.5 2.1 3.0 1.5 Human Resources 11 l7o& 1173 21.0 1 9I 6.2 IfUi 21. U

Agriculture 8.4 17.9 11.1 16.1 11.1 15.4 30.6 14.8 Fisheries 2.1 3.2 2.2 3.2 2.3 3.2 6.6 3.2 Natural Resources 3.8 5.8 3.9 5.6 4.2 5.8 11.9 5.8 Natural Resources U57 21.9 17.-2 -2T-.9 17.6 EiT 9.l -)Th Industry 2.0 3.2 2.6 3.8 3.1 4.2 7.7 3.7 Storage and Silos 1.0 1.5 .7 1.0 .7 1.0 2.4 1.2 Cooperation with State Governments .9 1.2 .9 0.4 Total 65.o loo.o% 69.1 10D.0% 72.2 100.0% 206.3 100.0% 1/ Includes technical and Zinancial assistance to handicraft industries.

SOURCE: Diio Oficial da Unilo, July 12. 1963, Law No. 4293, June 27, 1963, "Master Plan for the Development of the Northeast 1963/65.r. 4

Table 60

T ~ot; RT14FST I-jAZW3 ThSTMS ~ rO VSPa" Y0UTJO .10A By STk 5 TOSTflXsnUJ*!TT 6 ental' noYOMGe 3951- - 1 vo e w1 : 1 - 9tt26% r!a 22%1088% 8,31.220ai"9

a 2,919 156,200 3316,038 -32 492,239 193 152s7?2 28,283 ,96 63 130 B,21)4 7,598 -2 2,14928,631 NORTgaST 12,610) ii,o5O 1~6,259 F9, 53 -5 54,90 5,257 167 50631 3 87 3,520 i,693 5,210 29,126 9,232 93,913 11,670 -13 -87 Ceara 2,273 7614471,18 -1,4 "10 2 2 6,22)4 39,828 11,883 -82 do Norte 50,32 32)4,099 13 1i9­ -a G. 56,504 3.,06 6,684 parauba 10,336 350 13,178 164 123 4o5 3.4,938 363,927 33,012,653 8,074 pBa 16?tol , 2)933 1 230,731 36s407 1,396,301 3,808,g a5 S 35,190 1,584,756 1,939,9h6

1953 92 ~Stti1992 SOU~0~tAnn1'~ Table 61

ROADS IN NORTHEAST BRAZIL 1955 - 1961 ­

Kilometers (A-) %Change (1000) Per(1000) Pop (B) Per(lO00)Km2 (0)- 1955 - 1961 1955 1960 1961 1955 1960 1901 1955 19o 1961 '(A) (F) (0) NORTHEAST 95.h 115.3 215.6 47.5 51.3 50.5 61.6 74.1 74.6 21.1 6.3 21.1

Maranhao h.4 6.0 5.4 24.3 29.6 20.6 13.2 18.1 16.5 22.5 -15.2 25.0 Piaui 9.5 20.6 21,6 80.0 153.6 167.b 37.7 82.0 85.9 127.2 109.6 127.8 Ceara 12.2 12.8 13.0 39.9 36.8 38.0 82.8 86.9 87.3 5.9 -4.8 5. R. G. do Norte 7.8 8.7 8.6 71.9 70.8 73.3 147.5 163.3 162.6 10.2 1.9 10.2 Paraiba 10.5 10.6 10.6 55.7 51.0 51.6 185.4 186.9 187.5 o.8 -7.h 1.1 Pernambuco 16.4 16.1 15.6 42.8 37.3 37.0 166.7 163.9 158.4 4.8 -13.6 -5.0 3.4 5.1 5.1- 28.6 0.7 39.8 120.8 18.h.4 185.5 52.7 39.2 53.6 Sergipe 3.3 3.7 3.7 46.9 48.6 47.9 149.5 169.5 168.2 12.3 2.1 12.5 Bahia 28.1 31.6 32.1 52.2 52.8 52.5 49.8 - 56.1 57.3 14:3 0.6 15.1

REST OF BRAZIL 36h.3 361.7 384.0 94.5 74.5 76.5 52.3 51.6 54.8 5.h -19.0 4.7

SOURCE: Anubio Estatistico, 1956, 1962, I.B.G.E.

Table-62

RAILROAD TRACK IN NORTHEAST BRAZIL 1955 - 1961 % Change Kilometers (A) Per(1000)Po (B) Per(1000) Km2 (C) 1955 -- 1961 1955 1960 - 1961 1955 1960 1961- 1955 1960 1961 (A) (B) (C)

NORTHEAST 7,877 8,245 8,345 3.9 3.8 3.6 5.2. 5.4 5.4 5.9 -7.7 5.9

Naranhao 468 495 519 2.6 2.4 2.0 1.4 1.5 1.6 10.9 -23.1 14.3 Piaul 246 2414 244 2.11 1.8 1.9 1.0 1.0 1.0 -0.8 -9.5 0.0 Ceara, 1,395 1,38k4 1,266 h.5 L.0 3.7 9.4 9.4± 8.6 -9.2 -17.8 -8.5

R.G. do Norte 614 638 636 5.6 5.5 5.4 11.6 12.0 12.o 3.6 -3.6 10.3 Paraaba. 607 770 770 3.2 3.7 3.8 10.8 13.7 13.8 - 27.1 18.8 27.8 Pernambuco 1,183 1,546 1,546 3.1 3.6 3.7 12.0 15.7 15.8 - 30.7 19.3 31.7 Alag~as 474 474; 474 1.O 3.8 3.7 17.1 17.1 17.1 0.0 -7.5 0.0- Sergipe 297 297 297 h.2 3.9 3.8 13.5 13.5 13.5 0.0 -9.5 0.0 Bahia 2,593 2,593 2,5953 h.8 h.3 h.2 4.6 4.6 4.6 0.0 -12.5 0.0

REST OF BRAZIL 29,215 29,842 29,840 7.6 6.1 5.9 4.2 4.3 4.3 2.2 -22.4 2.4

SOURCE: Anmario Estatistico,1956, 1962, .B.o.E. *

Table 63

CAPACITY AND INSTALLATIONS OF PRINCIPAL PORTS, NORTHEAST BRAZIL

1961

-Fortaleza I Natal Cabedelo Recife .Maceio Salvador Ilheus (Ceara) (R.G.Norte) (Paraiba) (Pernambuco) *(Alag8ae) (Bahia) (Bahia)

STARTING TEAR OF OPERATIONS n.a. 1932 1935 1918 1942 1913 1925

LENGTH OF WARF (meters) 426 400 600 5,185 420 1,1480 478 WAREHOUSES 2 3 14 21 2 10 6 Useful area(square meters) 12,000 4,822 6,60 44,668 2,900 19,600 8,100

COLD STORAGE WAREHOUSES 1 1 1 Capacity (tons),. 140' 1,000

PORT RAILWAY TRACK (meters) 570 1,860 1,840 12, 000 3,800 7,000 700

PORT RAILWAY EQUIRENT Locomotives 1 1 6 14 3. Waggons 14 7 52 414 9 CRANES 5 7 10 47 5 31 Capacity per unit (tons) 1 to 20 2 to 9 1.5 to 10 1.5 to 20 2.5 to 10 1.5 to 5 OVERHEAD CRANES 14 *48 18 Capacity per unit (tons) 1.5 1.5 2 -s m

FORK-LIFT TRUCKS (2 ton capacity) 10 20 20 1 20 2 15 TOW-CARS 14 2 13 -. TUGS 3 .3 2 -l SOURCES: Anuario Estatfstico 1962, I.B.G.E. Transporte Maritimo e Portos do Nordeste, 1961, SUDENE Table 6k IgORTE'EAST BIL PORTS' OF sIPS OtE AT RIUNOIAL PORT56 SHIS 5 95ER 3961 7, OF- 1960 733 294 7,393. 7,5639% 10% 8,244 10% h6 10% 7 , 994 840 693 11ORTURAST *10%815 6% 6% (Ceara) 387 6% Fortaleza 535 662 5% 20% % of o eortheast 7% 8% 7% 1502 (paraiba) 17% 1,454 120% Cabedelo 1..4 1,609 19% 20% % of Northeast 19% 1,4631 UZ 20% (Pernab-uco) I,3 76 j, 123S7 -1,386 1 aje 2081% % of Northeast 19, 1% 16% 813 Salvador (Bahia) V 9% 8% 31%, % of Northeast 725 702 T0. ii~s(Bahia) 23% %of teast 3110, 29973 3,861 33j16 36,76 37,X3 3% lLrtheaa % ofseasil

,3.. 1961, 1 Eztie9 1958p SORCE: iO 4

4 Table 65 BUDGET COMPARISONS, AGRICULTURAL SECTOR BOHAN REPORT - SUDENE BUDGET

Bohan Repo rt SUDENE 5-Year Bud t 1963 Annual Budget 1.S. Dollars % of All- Cruzeiros % of All- (millions) Sectors (billions) ­ Sectors

RESOURCE SURVEYS 15.5 3.9%. 3.86 . 6.0% RESEARCH 4.0' 1.0 0.84 1.2 AGRIC. COLLEGE 2.8­ 0.7 -0.35 0.5 AID TO PRODUCERS:

Extension & Materials 13;3 3.2 1.37 2.2 Coops. & Credit 1.58 2.5

MARKETING & STORAGE 1i.4 2.9 1.01 1.6

IRRIGATION 12.7 3.9 3.43 6.0

FISHING 2.3 o.6 2.06 3.2 RESETTLEMENT

Within NE 1.5 o.4 1.10 1.7 Outside NE 150.0 38.2 0 -0

TOTAr AGRICULTURE 213.5 15.25 23.8%

TOTAL 395.8 100% 64.13 100%

1 Estimate by Special Northeast Study Team. W . -Table 66

SUMMARY OF NORTHEAST AGREEMENT COMMITMENTS (Thousands of U.S. Dollars V)

IMMEDIATE ACTION PROJECTS 58,000 Brazil (cruzeiros) 25,000

United States 33,000 (dollars) 14,670

(P.L. 480 cruzeiros) 18,330

LONG TERM DEVELOPMENT PROJECTS 216,000 (First two years, 1962-63) Brazil (cruzeiros) 118,000

United States 98,000

(dollars) 62,000

(P.L. 480 cruzeiros) 36,000

SUMARY TOTAL COMMITMENTS

United States

(dollars) 76,670 (cruzeiros) 54x330

Total 131,000

Brazil

(oruzeiros)

TOTAL 274,000

1/ US$1 = Cr$318

Note: All U.S. amounts are "not to exceed" commitments; all Brazil amounts are "not less than" commitments.

A - C.'r-' ~---V I~1i~F~ L~ ~

APPENDIX B - NORTHEAST AGRICULTURE TECDENICAL SUPPLEMENT LIMITED OFFICIAL USE

NORTIEAST AGRICULTURl TEENCAL SUPPIEMENT.

I. SUB-REGIONIlf iARANHrO

A, The Land

The- -surface gedlogy consists mostly of sandstones whicli on decomposition usually leave sandy soils or latosols, a type of clay. chara6teistic. 6f humid tropic climates. which', like sandJ.has no . ffective mechanisnr for preventing. the. leaching. by'high, rainfall of mineral .nutrients:-needed-for-planftgrowth' In. this-cobmbinatfonn-of:> readily-leachablzesoilsztia-soneof: higbrainfaI, itteordinarily­ will:'no-t2 b6: possiblesto -conductcarpezmanent-agriculture withtr ­ shallow-rooted- anual crops without the aid of continuing appli­ cations-bf commercial fertilizers. An exception, in degree at least, to this generality, occurs in the Mearim River valley which has headwaters located in mineral-bearing basalt mountains some 100 kilometers northeast of Carolina.

.Broad, flat-topped plains and mesas dominate the topography of southern Maranhao. Except at the wvstern boar'der, these high­ lands become-quite dissected at mid-state, being completely broken down into low-relief t6^pogr'ahy6,6 loosbsands on approaching the coast to the'north. The low-relief.arbas of the north*st pat.of the state are largeiy under water diring the mohths of heaviest rainfall,-

In the absence of any survey of the soil resources of the.' state,;evaluations given here are working approxiiations. The only known area of- significant size which promises to remain as a perma­ nent crop agriculture occurs in the Moarim'Villey. The Grajad Valley may hold similar possibilities, as do sevoral smaller streams having headwaters-in the basalt mountains near'Catolina.

It-is estimated that the quantity fand quality of resources of the state are sufficient for permanently'supporting. some 66. thousand ta families. In 1960, the state had 410 thousand fami­ lies and~as:ultid-ating only -85Q,oco hotares,

It is estimiate& that' the maximum amdunt 0f land physically, suited to mechanized agriculture in Miranhao 'is 3.7 million hectare6. However, the employment of mechanized agriculture could, not be'oarried out on these soils without contintous and generous use of commeroeial fCertilizers. This boipg a frontier state, and locatediat large distances from possible sources of fertilizer materials, it would appear that the time is far-off when signifipa4 mechanization and fertilization would become economical Mgnh(,a L , , * -

Statistical tables relating to materials discuss" JhL4 supplement gre in Appendix A.- --.- LIMITED OFWICIAL USE The Mearii Valley- is characterized by small- holdings, indi­ vidually owned and operated. The remainder of the state is charac­ terized by quite large holdings, sometimes over 10,000;heetares in the case of areas near thq frotier. Frontier.occupatiott by immi-' grants from the bulge states giOU4l fojppws hard on the heels qf the axe-men, opening new roas' lTkse bpupy the land Us squatters, make their .learings for plan ng:j, ie,)'.oving the locations of their plantins 'each year'gipc&- ind will pro.duce only one crop, frdm the ashes of the'buined'forp -'Wen es clearings become .of sufficieht area to be of aptprpptf r grazirig,. the hithrto unheard­ -of!-owner,'or his agent, invaitdby shos. up to demand that the squatter either pay rent or irYeXn. espite the, fact that -perma­ nence of tenure does not etis 6n £1he fr6ntiers, the census figures. indicate that somethink onth pr4& ot26,000 people per.year are" entering the Maranhao frohior a i nb. froin 'the bulge states.

B. Products ahd Production''

In 1961, Maranhgo,'aco5unted'for$o of the agricultural pro­ duction of the.Northeast re4pnl 'iLretgook and livestock products accounted for 25.5!f. f the top in o The leading items werei' Oatftle6 pStiSMihe, 6.Vo; Chickens., 5%; Eggs, 5.i%; and Milk, l5fo Sheep aid.goats- were of mnoreconomic importance in the state'.' Oattle are .the oriolo native types and are almost invariably produced extezisiiely on f6rest and 6avannaherange-*. The swine of Maranio are-ileani long-nosed razor backs, apparently, crossed with the wild hog. Like the cattle, the swine shift pretty much for themselves without benefit' of supplemental rations .or pre­ pared animal proteins in their diet. TheTe seems to be no large- ­ -scale operation of swine 'produqtion, but -each house, usually has sow or two in the vicinity. . - The en-ire rice crop of .Maranhao is an upland ,type .having unusual resistence to lodging. Most of the rice in Maranbao -is produced with the benefit of ashes from _recently,burned virgin' forest, the only significant exception being,the Mearim Valley. Produced from -those:ashes, -yields 'of 3 hons ei hec-tare are not. uncommon, although state yidlds are near those of.-'hq -national average. Rice accounted for aboutV24% of the agricultural income of the state. in 1961 and is a'principal economic activity of -the

state's organized agriculture. -. .

The iative fores letieen' the Meariffand the. PindarO Rivers was an almost solid, stAnd of babagti palm in it,!s virgin state. Babaqu accofinted for 28J%of the,. ste4e value of igrioultural pro­ duction il{ 1961. .- ...

AlthoughPsome hefb'aceoukcott6n is produced in Maranhao, the majority of the production comes from the perennial bush cotton which, when grown, is seeded in the same field aid'At' tle same'time.,

LIMITED OPPICIAL USE - . x LIMITED OFFICIAL USE

with corn or rice or both1 thus providing a follow-up crop for the following year. Cotton accounted for 8.5% of the agricultural income for the state in 1961.

In 1961, 28,000 tons of fish and 8,000 tons of lobsters and crabs-were taken from Maranhgo waters.

Manioc accounted for 6.7o, corn 6,0%-and beans 3% of the agricultural income for the state in 1961. In the frontier areas distant ,frommarkets, the greater part of production from these crops is used for local consumption.-

C. Marketing

Rice moves to roadside by mule back, often by means of a -­ middleman who buys the product at the farm at whatever price the owner will sell) which is sometimes one-fourth what can be obtained from the trucker at roadside. The pickup at roadside may be a re­ presentative of a jobber in a nearby city or by truck drivers for companies in Recife who ship commercial goods into the area over­ land. In the case of rice purchased by local jobbers, this may move into local storehouses or it may move by river to g0 Luis where it may be exported abroad, exported to the Northeast, or enter southern markets.

Babagu is collected' daily in person by local buyers for local ol expressing.plants. The oil is partly'exported to the United States and Europe, partly sent to southern Brazil.

At present a..significant system of two-way commerce between Recife and Central Maranhao involves consumergoods on the one hand and rice, cattle and swine on the return trip.

D. The Family Economy and the People 6

Unlike the bulge area, the frontier families store rice in the home for food from one harvest to-the next, Patches of mandioca and several banana trees are used- for subsisteno.o0 In frontier areas, the diet is supplemented by hunting and fishing. Ricu and babagu provide cash crops. Inquiry among the semi-nomadic scttlors brings eomplaints of poverty but most agree that life is much bettor than the one they left in the-bulga area.

Outside of the areas being occupied by people from the bulge area, the local population seem-to be oaught in a stagnant agriculture which appears to have changed little during the past two centuries. .

In the arieas of fjqntier occupation, the immigrants arrive full of enthusiasm and probably enjoy the highest economic level

W1MIW~l 1QFJrUSE -- .LIMITED 'OFFICIAL USE

they,.will 'have' the*first year 'following arriv&l. YroM 'that froiht on, the rapid d6pletion of -land, 6tehds fields farther-and ' : farther out until they touch those of neighbors and finally eids'up by moving to a new location farther toward the frontier.

Aside frpm being unabl to ' apitalt6-ateh mhigrant in the zone encounters heal-th~problemist ich-did not exist in the area of his origins Malarid-i almos universal and yellow fever occurs along- the frozitier, .n $f 1 eerheto 'acquire -his -owh land, the lack-of natur&l-fettili ti "hesoilwould still !ralgate-Hi to a semi-nomadio agriculuq, Those4 d do not-go forward with th6-1 frontier will be absorbed'as dependent labor in extensive' cattle production operations which follovinthe frontier cleaizigsw. -

E. The Government

The state governmept, aq a receivingstate, ;shos 'great enthusiasm for the'iziflux'b-f immigrafits into Mardnhgo.- -In'-fontiast governments of donor 'statep gbeEmally' donot view kindly plans -for moving their -people. Duing.-tho 5Ast $ear, "the State -of Marinh9o' has undertaken itts own :rbgrat of Iafnited osettlementi providing land titles, installatio'nassiptaoe4 ahasori&.tchnialorientatoff to settlers on-their projedts. "At the momerity'therse are progressind well, but time is needed to pass a judgment upon their-ierits wIrth: respect to technical-feasibil-ity and with respect to capacity to expand the operation. Unfortunately, it is cust6mary that plans based on 'early production over-rate tbd future, potehtial,; as 4he virgin fertility of the- land becomes exha'uated-. - ' - -­

. - SUDENE started its own,attempt at -largef-scale resettlement in Maranhao 'some two years ago. The site selected- was one of the'­ technically less desirable areas izf the state,'-located 1i'the ldw­ lands of northwest Maranhao Prospects for success of the project

at this particular location are notbIght.. . : -

The .program o'f the Ministry -of Agriculture in the :rioe­ producing area of-Maranhgo, provitding technical orientation and ,sources of, materials, has brought :tangible 'benefits 'td-the area

/ -F. 'The Prosvecvt *- - . . ..-

Although it may be possible that apermanent agricullural economy could be built on these sols ,by the use of a perennial tree crop such -as west-African oil' -palm, the -verifloation- of 'such- possi­ bilities -byresearch would reqire: several-years. Therefore',-pre­ sent prospects are for<&dontinuatibrd of-'-much' the sanie ei-oithtfoit df fertility from the asbes of the virgin forests until these are- -- - exhausted. (It is possible that the pressure of immigration against the hon-reneable resources -of-ranhgo. could be diverted to t -other frontiers where the sbild have sufficient natural 'fertilty for ­

.SLIMITED'OFFICIALSUE LIMITED OFFICIAL USE

permanent -agrioulture.. Such soils occur wist'-of 'the Toncontins River in Pare and in new settlement areas now developingalong the .e'lem;-Basilia highway in northern Goias.) -'

II., SUB-BEGIONW 2: T 'BULGE STATES .

A. -ThesLand . - .

Widely described as the *problem area of Northeast Brazil', some 82%-pf this- sub-region' 2Ies: within..the. arid; zone where rainfall is-marginal for: dry-farming- Only 6-filies within-the- true humid& Sone with: rainfalL.sutablet:fbr_ producti6n of sugarcane,"the "Zona da Matan-.,- -ThisuhumiEdone.- lies:in- the: narrow,:strip along the coast beginning:-atzNata-Vn- Rio- G-rande do Narte -and terminates -below Araoaju in Sergipe. Surrounding the, dry zone, and lying between 'it and. the humid Zona da -Mata, *lies a- zone of intermediate rainfall, called the,"AgrestO" which. serves as the main food-producing-center

for the sub-region. '- .

Because of the influence of geology upon soil fertility within the sub-region, it is convenient to distinguish between soils derived from.-sedimentary rocks, these usually being sandy and having no source of fertility in the soil-profile, .and those soils derived from crystalline rocks '(granite, gneis and micaseList). These- latter ordinarily .have a source of continuing fertility within the soil profile, even though the quantities involved may be quite small.

S1.-- DEE Zone

-With the exception of -the, western edge&of -the zone in Piaui­ and the .two, sed-imentary-rock. islands o_--the Chapadas of Araripe and Apodfi the soils-of-the dry zone are -developed from crystalline rooks,. The soils of .the crystalline rocks genorally are rocky with frequent granite 6utorops, generally are sandy, often being saline, and average less than-15" depth to bedrock. Due to their shallow­ ness, the capacity-for storing ,soil,moisture is, limited so that a few days without .rain result in damage to types of crops used in dr'y farming while..a-.-few hoyrs of excessive rain will cause flash floods-. Topography. is mountainous to rplling--within the crystalline.:area. The mountains.usu4lly receiy more rainfall than the -surroundlThg lowlands, and serve as islands. of crop .production which- enable the dry zone to-maintain a--donsity oft rpral-population much, higher than would.' be expected from the 'combination of soils' and--climates of the

Dry zone soils developed from sedimentary rooks in Piaui and -on the, Chapaas of-Araripo and Apod! generally are deep, droughty and sandy. . They havp no source of natural fertility within the soil.".­ profile". I- LIMITED, OFFICIAL USE LIMITED:OFFCIAL;USE

2. -The Agreste. Zone -

The zone of intermediate, rainfall which paralleis the- west border of the dry sone in Piaui has soils derived from sedimentary rocks and is quite low ix natural-aoftVertiiity. 'cases' however extensive areas'of spils qre found which physically would be suited to moehanizatfon butiwhih ap completely lacking, in" natural fertility.

That part, of the intermediate rainfall z6ne'which lies east' of th6 dry zone is developed'froms6r ystalline-rooks, The-topbgraphy is mountainous to rolling" Lihoos (shallow soils dominated by rocks) predominate on well over half'of-the area; The soilsseldom exceed one'meter in deptI Th'debomposition of-thbrcrystalline rocks serves as a oontinuingf6ureb "o±ffertility whioh-is utilized in a system where one year of propping alternates with.sevbral years of rest. %A'.very small percatage, of, the soils- in- this tsne are physically suited to meohnized agriculture.

3. ThefEumid Zone"

The humid-zono li6s 4long hpe'astern coast of the bul'0tand contains both soils..derived'from" ostalline'formationd and from sedimentary formations. The sedimentary formations extend from the sea inland to a distance yarying 'from'10 to 50 kilometdrs. Alohg the coast at elevations of 30 to 50 motors risd rmnants of a forir sedimentary plaint, now in various stages of dissection by streams0 - Locally called "tabuleiros", the remaining surfaces ofthis plain rarely are used for agriculture due to the extremely low fertility of thesoil. Large perdentages-'of the tabuleiro -p1ainfs ate physical­ ly suited to mechanized agriculture. There exist locally-ocurihg' minerals (rockophosphato, biotite- gypsum'and Itm&stond) whidhoould be- utilised for correcting the 'low fertility condition of these%,

tabuleiros. : ',. -,. .3 -

The soils of'the humid zones developed from crystalline rocks'lie between thesedimontary-"tabuliro" plains band'the border of-the Agroste zone to the west. .Host of the,-topography withini'this crystalline zoe-.is steeply rolling 'although lo'olized parts 'of the crystalline zone -obuld be used -for'mechanized agrldtflture pi~ovided appropriate- precautions were, taken6 Except- alornlg the- western limitt, soils,developed'over these crystalline rocks usually are deep, vary­ ing from 1 to 10 meters to bodrock. The soils normally show quite­ marked response to phosphorus,. and in the case of deep soils, to potash as well.

The dry zone of the subi-region ooupieb-'bome 66 million hectarea, There is-only one perennial rivoF'within thie 'dry'zone, the Sgo Jrancisco. Soils suited for irrigation within this sub­ f-region amount to about 100,000 hectares, of which possibly 15,000 IDMITEDb OPPiCTAL -6 :- -LIMITED' 'OPICIAL USE hectares are already irrigated, the-majority of whichis. privately developede. *-' - - . - ---

The intermediate or Agreste zone contains some 8 million hectares within. the sub-region. Of this amount-, approximately 3 millionhectares.lie on the east-side of the dry zone,

- The humid zone, of the4-sub-region contains approximately 4­ million-hectares, This amount is-divided approximately into 3 million, hctares in-the, crystalline part. of the- zone. and approximate­ ly 1 million -hectares in-.the- sedimentary- part-. Considerings.the-entirmareac oft the sub-ragionrwhich. ies ontside the dry-sone, this,technical supplement estimates-that about 1,256,000 heetares -are physically suited to mechanized agricultureb Of .thiq -amount some .3,50,000 hegtares are located in Piauia It is :: estimated thatonly 300,0QO hectares of the land now -oultivatedwith­ in- the, Bulge subr-regipn -are -physically -suited to mechanized agri­ culture...,This wbuld mean that some 950,000 hectares of land physically suitedto :rechanised alriculture within -the Bulge sub­ kegion are not now being used for cultivated crops. Without exception, these lands are not used for crop production because of low, soil fertility Economically, the use of fertilizers on these lands cannot-be justified-unless-at the same time3 high-productivity technologiesof: mechanised'agriculture are applied..'

3. Tenure--Systems and -Land Use - .

. Census data-are not available (as of November) 1963) for distributionpof rural properties according-to size.- However, con­ sideringSbhe-sub-rogion as a whole, it is likely that these-follbw - the pattern of those existing in Bahia, which are reported under the discussionr for,the third sub-region.. -. : - -

In the Ary.zone, large properties predominate in a land pattern which i;. approppiat9 for the extonsive range- cattle production carried on in-, that zone. The secondary, activity of- these ranchesf­ that of producing-perennial cotton, is--responsible for the intro­ duction of, tenure systems leaving littlp security for rural- workers. In one variety of this relationship, the.rural worker is'a permanent tenant on a ranch and receives the minimum subsistence needs for his family from the owner in exchange for the labor-service- of all the working members of his family. This generally is a paternalistic relationhip-in which-the land owner frequently has.a.level of living only. lit le:botter'than that of.his Senants. -.

.Ip -share-eqgpping practice, the owner reoeives -half--of the ­ gross production of the worker with ho participation in-the operation other than holding title to the land. A common variety of ,this 4nr greement obliges. the spprpropper to prnn..ovqr his o.wn:59o of the LIMITED OFFIOIALrUSE­ -7 kt~ti~ q7:1lJ LIMITED 'OFPICIAL USE

production to the owner at whatever 'price'th& conscience of the" owner will allow. Similar arrangements exist for such other crops­ as are produced in the dry zone,

'The predominating'agrarian tcture iti the Agreste one' is­ the small 9 individually-ovied' proery flf -from two 'to eight heotards. However, both medium sized and,iaigeroperties also exist', In the latter, owners depend upon-oths to catry out the actual farm Qperations. In one structure usuall.where the -owner is also resident on the property? a1,moradd5l.system is used .­in -which -thd­ tenant is allowed the use oitamdsakk and a small garden slao6 iii return for an obligation to work' on' th& crops of the owner for any­ thing from 1 to 4 days pe' wee atpno'salary or at only a 'symbolic salary. - In cases.'of farm: labr not 'resideit on the farm, money -wages ate paid. ,The -system"of sl4te- oppiig 8in which 'the owier enteis the agreement only with titI' to" thb4iud adi' reoeives 'half of -4g!eM crop produced is also quitp oommona tAtother agratian dtrictutd id' renting,, limited to, one-yereropni (actsatprices leaviag the small­ lot 're.ntor with a net defidit.t '@e thigh pribes on be sucoes--' fully imposed because .,there' aze6. moro'&aiers than -there is 'land to farm,

In the humid zone, the large planrtation, running upward of'­ 1000 heotares, prodominates. Almdst without dxceptiozi4' the'se are dedicated to sugarcane production, although beef cattle are oc­ casionally employed as a sideline. Sugarcane plantations in the past have used permanent tenants whoar. paid wages but..who -wore obliged to buy their requirements through a company store very similar to the system formerly uded in parts of the U4 S& -On the more progressive plantations, the'managemeht provides health' services for -all 'and schools for the children of' the' workeks.

In some ai*eas of the humid-zbne where sugar productioh has been abandoned, the former plantation land is rented or sold in small parcels to.-farmers who pro-duce' food- crops for nearby 'urban tmarkets. - Where steep land-has been under this. management for: several years, deep gully erosion -has developed. 'Attempts to occupy plantation land-as squatters for the production bf drops other than' cane have been a matter 'd froquent occurrend throughout

the long history of the zone. '

0, Products 'and Production ­

.-Cotton accounted for about 24% of, the' -total 'agriouiturai ' production of the sub-region 'in 1961.. It is- dstimated' that about three fourths of this'cotton is of the perennial long-staple.variety grown in the dry zone. Herbaceous otton is produced within the zone. of intermediate rainfall. ­

. 'Livestock arid livestock products 'adoourited- for -2 o'of'the- LIMITED QFFICIAL USE UNCLAQ 84 LIMITED OFFICIAL USE

agricultural income from the. sub-region in 1,9_61. Cattle accounted. * for 6% of-the income from agrioulture, -chibkons and ggs accoutted

for 4 2% and milk, accounted for 4.5%. -

Most-of the beef- cattle of this sub-region are produced in extensive range operations within the dry zone. These usually stay on range until 5 or 6 years- of age, suffer losses in body weight ­ during the dry season and recover it during the rainy season. Supplemental feed is rarely given- the animals during the dry seasons Range management is not practiced. The Bulge sub-region is a meat­ deficient area, regularly Importing from Bahia, Maranho and. oc­ casionally from Xinas Gerais 'and Rio Grande do Sul..

-Many of the small farms located in the intermediate rainfall zone keep a few chickens which -survive without much attention& Mod'ern or near-modern poultry. and egg installations using balanced rations are located- near the capital cities.

Milk is produced in the zone of intermediate rainfall and trncked.-to the urban centers. In many cases, balanced rations are used, these coming from commercial sources and not from onthe-frm' production. Preservation of forage is practiced on some of the farms producing milk. The majority of farms producing milk use a ­ once-a-day milking.

More flexibility for improving efficiency of production ­ exists within the area of livestock production than,in any other ­ branch of agricultural activity within the sub-region.

In 1961,.sugarcane accounted for almost 13% of the total ­ agricultural income of the Bulge sub-region. Almost the entire amount of tthis production was in the humid zone, *and accounts for

the principal agricultural activity -of 'this zone. In the case of ­ field operations, the technologies are much the same as those of three centuries ago so that productivity per worker is ,extremely low. Very little fertilizer is employed in the production of sugaroane. (In the -case of one plantation, yields have been more than doubled by the :combined -use of fertiliers -insecticides and supplemental irrigation during the dry season.)

The -production of sisal -accounted for' 2.7% of the sub­ regional production- from agriculture in 1961. Sisal is grown with­ in the intermediate rainfall zone. The sub-region produces minor quantities of castor beans. Various attempts made to export the excellent pineapple produced in the intermediate rainfall sone of Paratba and Pernambuco have not -succeeded -in establishing .a perma­ nent foreign market.

In 1961, mandioca accounted for 12 ,of the sub-regional value of agricultural-production, beans 7T.5f%, oorn 6.8f., bananas 3.47. LIMITED 9WJnMW .'LIMITED,. OFFICIAL, USE

and rice 2.7%. The manioc, corn andrbeans l'argely a-re ptoduced in the -intermediate zbnej although the'dry sone also makes a- sub- , stantial contribution to this source of food for 'the urban po.pu- . lations of the sub-region. Most of the rice is produced along the margins 'of the SEo- Francisco Riybr, 'al hough&small Plantings are scattered throughout the sub4regin. .roductibn of bananas occurs­ mostly in the'humid.one in a itLatehes -there being.only a-few commercialplantings exbeedia two httares in the -area, -

Although the subs-egion has-a lob- ocean-coastline9x fish form' only a small fradtion bf -ha diet of -the-'people. -The waters­ are tropical without cold curronts) "'tesultingin a relatively low fish yield. The operations being qarriod out at the present time are by means of primitive pafts.' Although there is no doubt that the present low ocean yield of. !Ihardl fsh -suitablafor local marketing are fresh fish could be 'iproved-somowhat,'.experts on the subject, hold little hope for large-scale coteroidl 'fishing operations-. for hard fish in these waters.- Expbrtp advise that larger quantities of hard fish can be produced, in thehilanh.reservoirs-built by the government in the dry sohe of Jtha- ubrpgin-'than ban be' harvested­ from coastal marine waters. Bettween two and three millionddllars tin export value of lobsters'.aie takon'!dz-uiually from coastal watersof the' Bulge' sub-region. - ' : ---'-. -

D. Marketing

:.Cottongins are soattered.fairlynw6ll..-throughout;e pror ducing area* -In-:the case of large, producersq the.cotton moves-, directly from the producer to the gins. In the case of distant or scattered ptoducers, a middleman operation is involved. -The bulge area has its own textile mills an&a sizeable part: of.-the ;cottbri produced in the region is processed through these. A part oftthe_­ long-staple obtton produced in the -dry zone -goes -td- the- textile ­ mills of-SEo Taulo for 'production -of better fabrics--than can be. - produced by-Northeast'mills ' ' ' ' ' . .

- Under present regdlations, the sugar usinas are limited'in the percentage of sugar they -canmill ,frdm-heir own prdduction. The- production of the plantations which no longer refine their ownM sugar moves directly from the plantation to the usina of the owner's choice, The refined sugar is stored in the portsf6r movement, to Tbe det'ermined by the Institute of Alcoliol and' Sugar.' - .

Beef cattle move to-Recife by rail, 'ttuck 'ship and 'owrfoot. Consumers re 'not accustomed:to using-beef-which has been in cold-. storage and hence the-md&t moves diredtly-from -p6intofslaughter to the consumer markets. The bulge area receives over-landsconsignments of beef from as far distant as Minas Gerais, which may take as much as a year to arrive in the urban markets ofth&Northeast due to 'intedmediate stops for periods of weight recovery. .- LIMITED OFFICIAL US 10 -~NSf - LIMITED- OFKICIAL USE

7o6&crops, sdoh as-corns beans and manioc flour, may pass throh five-or six hands betwon th producer and -the codsumer. The mark'idgesystemafor: tood crops-absorbs -a ;very substantial . ,amount of l.cal,..unemployment.'.City .street markets. are held on . specified days of the week in each city, the vendord 'moving:from city to city with the market days.

. The Tamily Economy and the.,People

Theeconomy bf the -resident sugarcane worker family is sifficieitly' similar- to -that of the; bid cotton plantations of southern -U.S., usitg the company- store-system, to- need little ­ further- description., -n the. Brazilian..mtdel, more pstornalism . is pra6 tioed than was the case of the U.S, south.. The tenant worker on"the-nmiLed-farnixg zones of-the'Agreaste often lives outsidethe. money economy and depends upon the owner for his subsistence* Under conditions of economic orisis, the land owner is obliged to alter the structur6, -either -renting his property, out in small lots to indi­

vidual farmers or'shifting to -alivestock operation which is less - demanding-.oflabor. Inte6ither case, the tenant is dislocated into an already-saturied,labor market. .

The economic condition of thQ:small owner-operator is not makedlt bette± - than- that o.f a -tenant. Having no capital reserve, he, is forded-'to borrow prior to'crop. harvest.- This system ordinarily will-involve -selliig at-least a part of the crop before it is harvest­ ed. Almost invariably, the entire crop is sold atharvest for- the lowest price of the year. Soon after the ezd of the crop seasonp the small farmer is further involved in another cycle of -debts from which he has no hope of being freed. In general, the economic situation of thb rural family i- the kgreste zone- engaged in pro­ &utinig fok theo'mfier6ial-m-rket is far more critical than that of the worker'6n thestgarcane plantation, where there is-a reasonable cegree df sbourity. - ---

In other agricultural economies, especially ones in which ­ food crops are being produced, the labor force actually working on the farmweathdrs 6conomic' crises':and low prices'by*producing its o*h--food iequireinents aMd preserving them from one.harvest to. the ne:±t-TI- Oottest esentially the entire -rural labor force of the' Northeast- economis-engaged almost- exclusively in, serving commercial akricilture.* The farm workersl. independent br-dependent,. rarely have eithet the'habits of providence'or the arts'of.stdrage. of foods and feed for their own needs from one harvest season to the next.

The-rural worker on sugar plantations has never-participated in any significant decision-making on his own account and moreover, -his knowledge- of agrioultural;arts is quite'limited. As compared with othi'e segments. of-the rural labor foroe, the Augarcane- worker is-leas%'trephed to undertake iltariiative opportunities for. selfr.t­ betterment. Yet, it is clear that considerable dislocation of 4 IfTED.OFFICTALUSE UNCLASS11 r - LIMTED OPPICtAL US­ labor will occur -within this economi c-area. At present, the, North­ east is using something over 500,000 field workers. in cane . With a suitable 'combination of -soil-s.:technologv and capitalization the amount of cane equal -to the -entire-Northeast- crop could be iroduo ed with less than 30.000 field workers-* .

The rural worker of the Agreqte1 especially the numerous owner-operators of small propqrtie6-andthe even more numerous.in­ dependent share-croppers ad hrattersare experience in decision­ -making, have a reasonable lnowIedgeo.-agrioul-tural arts, and are notoriously hard workers,.' This -spqgpt of theo.rural labor-force-.is propared-to undertake higher proaid(tigty.activities in--agrioulture, should the -opportunity- to do this-be 4aglable. .The rigors.:of s'ur­ vival in-the -dry zone are ta -hiuraI labor force,, -both dependentand independentr h hddctdhlarn-ae to shift. for themsblves and generally are excelUi6tn- et

As in the case of sugarcane i #he humid- zone,--thmajority, of crops -produced in the-Agreasz~o a re siubject to the influence of technological changes.in ag pIl b rFor-instanoe. the-entire cotton crop of the Northeast. vhichno es -a4 ut 1.800.000 rural workers, could be produced with 188t0th 50 000d-Tield workers using antropri­ ate combinations of soil4?ttehnlsr an )reavitalisaiton. Corn, maniac and beans technically are-tubjectto.-similar poonomios .in farm labor force. -Of the-majoragrioultutal activities in the -Northeast- onily livestock and cacao production do-not hold an earlyprospect-for the technological-'dislocation of farm labor. --­

-F.Prospects - . -.

In the past,-the commece-dedioated agriculture of the North­ east has been adcustomed to-meeting more efficient-competitionfrom abroad by transferring the lower prices for.products -to the-farm ­ worker rather than by introducing the high- productitity-technologies employed by competitors. This recourse now appoars to be virtually exhausted.

Brazil, fortunately, has-large -reserves of unused land-at its disposal* -Thus, it is one of the ,few-countries in.the-world ppssess­ ing the opportunity to transfer itslow productivity-rural farmers to areas -where,-reasonable self-sufficiency and securlty can be6 achieved. Until such time as-industrial and' otler-nonag iiculitral opotuities are created' a successful transfer will ease the dislocations of 'eco­ nomic development: --

G. -Government -. -

The federal government has, until-recently,practiced the-view that-it was-physically possible and even feasible.tq- "put an end", to the Northeast problem by-technology including-reservoirs, irrigation

LIMIED OFFICIAL USXa 12 - dCLASSF LIMITED *OFFICIAL-USEr and roads for rapid communication. in times- of- emergencya. This could be called -a: drou ---- -

The federal government bas on- diffrent ccasi ns aparently followed contradictory policies on the question of "colonization" of the Northeast. At one time. the--fedekral gQvornlmeihtmiladeavailable free transportation for Northeasterners-to the humid zones of Am4:aonia. . In-recent years-,-. the. Institute of Colonization and Inmi­ gration undertook resettlement programs with the avwed intention of telocating people of-the,Northeast-to the west. In contrast'with ­ this policy-,. there -have--been. fbderallytsponsoro -calonies. established within the -Nbrtheas$t*for"the purpose,of receiving excessxpopulations from: other, countries, SUDEE). irt-its: early..analyses,- pointed out.-the nebessity- of ringinga bettdrtalance: between -rural working. force,­ and astural -±sourc6s by o'ut-mig±ation to unoccupied s6ils2 bit -Bu ­ within :the Northeast political considerations inay cause governmexit officials. -to be reluctant -to support programs involving movenient of people from their areas to areas outside of their jurisdictioh. By. the same.stoken, any policy-makers within a state haviig-prospectb as a receiver of people would probably give such programs their enthusiastic support.

Some groups within the federal government apparently accept or seem; to--accept-the belief that the econoic situation in the Northeast., as' well as -the -rest of.thA natior, is the product of existing- agrarian- stiuotutes and' -that these will-- be solveditImmediate­ lyu7pon a,--restructitring of the ekistirig' system. nAnalys's" which support this - solution-have-hot beenfof a highly -teohnioal nature;

III. SUB-REGION 3 i BAHIA

A.- The Land.

- Babia,has sdmet 21 million -heetares lying outside -th arid ' zone-and some 15 -million-hectares -lying within it. 'Otthesilsare lying outside the arid zones, an estimated Sof overlie crystalline rocks - a ciroumstance-which can contribute to a source of renewable natural soil fertility. (A relatively :smalo perdc6ntage of-the soils overlying sedimentary rocks h o any source of natural fertility within- their: profiles.) -­ 'The- technical, supplement estinates that 327 millidn hectates" of the land'1-ying outside the arid adhe are physicliy 'uited to mechanized agriculture.- Of-this amount of mechanisable land, it is estimate4 thbat-only- 250, 00- hectares -ar&ziow unaer-oulti-vation. Most oftthe presently-uiiased mechanizable land would ie-uire he a plicatioz-of-commercial-fertilizers if order-fo bting- it into in­ tensive crop production.-

Along thezupper Sgo-Francisoo. River iaid its tributaries; thei'd

IIIITED OFFIC 1AMr .. . _ ED -LIMITED OFFIIAL -USE are estimated to exist something between 300,000 'ahd ,OO/900 ­ hectares of land suitable . to-large-scale irrigation .by gravity flow from perennial streams arising at the base of a sandstone highland on.the western .border of. the state*.

3. Tenure Systems . and Lan&Use .

The following table defines the.: pattern of landvownership and presents an indicatiop of re1&five eponomic :use of land hdldings according to size. - -

DISTRIBUTION OF ABS BY SIZECLAss IN -BAIN r960 . 'larmSizel % of t % Stite -'%'of Cultivated Class (HoCtares) 'NO ofFr Ai' in' Farms Ared of Stae

Less than 10 4 I .- 15-:' 10 -100 .9 --47;­ 100 - 13,000 .- 4 30 1000 - 10,000 - Over '1,000. .O - '41'---'5,-,-0 SOURCE: Anutrio Estatfstiob. 1962 IBOE

-In.the interpretation of the pxecbifng table, it should be recalled that Bahia.contains sizeable areas within .the dry sbne-so­ thata part:.of.the-large landholdings-consist of extehsive'raile"-:­ cattleo.OperationsA -It is- estimated that. betweent:35fo-and.40% oftthe­ rural families. of -Bahia 4re-owner-operators of- rural- properties averaging slightly less than 10 hectares each. Within this group, some 25% of the total rural population is- engaged in - opetatid0n-of ­ properties averaging only 4 heotares each, It. is estimated that Bahia has natural resources sufficient to provide a reas.onable -­ standard of 1ving for 120,000 farm families in addition to its present ,population of 780,000 farm -families. .3owver.within the state, there are severe. local imbalances -betwooli isouirces and rural population. ­

f0, Products and Production

In 1961 Bhhiat s agricultural sector coitributed 6%t of the­ nationts income, This amounted to approximately 26% of the agri­ cultural output of -the Northeast as- a .whole.w -Its,most. important . agricultural- productis ware livQstock, -cacao, manioc and *bbacco0

ivestock and its products accounteddfor approximately 341­ of the agricultural income- of.the state in.1961.- Cattle- accotmted-­ .for 1 ; l or 7%;. chickens and eg6g,6%; and:, swine- for 5f,

Bahia accounts for almost the entire natioial p;e&uctionO cacao in the tropical-rain forestzon -in tthe v4nty'6t Ilheus.

IMT31ITED OFFICIL USE I-..14$--' ---ONCLAS EDE LIMITED OFFICIAL USE

In 2961f cacao generated 21fo of the agricultural income of the state. Most of the cacao_1s-produced on plantation-system--- ­ operations. Considerable opportunity for improvement exists through the replacement of present stands with stock of -known high-yielding ability.

'Tobacco accounted'for 5% of the state's income from agri­ culture. Producing areas near Sgo Gongalos are using modern techno­ logies of production and processinga Cotton accounted for only-3fo of the agricultural production of the state. Sugarcane accounted for less than 5. -Among the food crops, the most important were manioa, beans and corn. A small- part--of the corn and bean production is cultivated wirh animal-traction eqipment,

a

LIMITED OFFICIAL USE m m

- 15 ­ A­ uN QLAS SIFTED ~SLR&~ N

A

APPENDIX C - SOURCE MATERIALS

UNCLASSIFIED SOURCE MATERIALS U4CLASSrIIED

In the course of this study, approximately 200 separate printed sources of information were consulted, consisting of reports, census and other statistical documents and publications, periodicals, books, special studies, legislation, budgets, plans, and agreements. Some of these were only briefly reviewed. Others required exztensive study and analysis.

For ease of reference, these materials are arranged under the following headings:

I. SUPERINTENDENCIA DO DESENVOLVIMENTO DO NORDESTE (SUnENE)

II. INSTITUTO BRASILEIRO DE GEOGRAPIA E ESTATISTICA (IBGE)

III. BANCO DO NORDESTE DO BRASIL (NB)

IV. OTHER FEDERAL GOVERNMENT OF BRAZIL

V. U. S. GOVERNMENT

VI. AUTHORS

VII. OTHER I. SUPERINTENDNIA DO DESENVOLVDAENTO O N hL

Anais da II Reuniao de Tnvestigaggo AgronSmica do Nordeste, Four Volumes, )962.

A Policy for the Econoic Development.of the Northeast, Conseiho de Desenvolvimento d Nordedt4 (CODENO),- 1959.

Baoia do Rio Jaguaribe - Chapada do Araripe,- Reoonhecimento'Geo­ 16gico e Eidrogeologic6 1961.

Bases of Development Policy for the Northeast of Brazil and Scheme of SUDENE's Five Year Pln, 1961.

Basic Legislation of SUDENE, 1960-

Boletim Econ8mico, Vol.1, il, 1962.

Boletim EstatIstico, various issues.

Brazilian Northeast and its Institutions for-Economic Development, 1961.

Brazilian Northeast, STJDENE and Its First Guiding Plan (English), 1962.

Estatisticas Nordestinas 1962.

Farias, Juarez de, Aspectos Estruturais e Diretrizes para um Pro­ grama de Desenvolvimento da Economia Parnaibana, CODENO, Rio de Janeiro, 1959.

Five Year Plan for the Development of the Brazilian Northeast, 1961.

Incontivos do Govtrno:Federal Atraves da §UDENE para Industriali­ zac do Nordeste, livis o de Indlstrias, 1963.

Kegel, Wilhelm, Pesquisa Sistemdtica da Agua SubterA e na Bacia do Parnalba e na Bacia do Apodi 161.

Master Plan for the Development of the oThheas c Stae 1961-1965,1 1963.

0 Transporte Fergovitrio no ordte to Brasil, 1962.

Plano Diretor em eOUQEoI 19C2?

Primeiro Plano flietor de D .senvovimeptodoj pep (oTord-este, 1900t

Pro rama de Ensino Primirio e de Educa oe Base aa o Nordeste­ 1962. r: I. SUDENE -(continue&)

-SUDENE -Informs, -Volume--r-, -Number -T-and72; Sept mber,1962.-

STJDENE- Mster Plan for -19 1 and Related Provisions, December, 1961.

SUDENE Master Plan for 1963-1965, Draft of Law, 1962.

SUDENE Report on Poreign--Assistance in the Northeast, June 1962 - July 1963, Yearz 1963.

Sumdrio do Programa de.Reequipamentoda Inddstria .Textil Regional,. 1962..

. Sumirio dos' Projetos AproVados-pela SUDENE, 1960-1962.

TransportesMaritimos _e.Portos do Nordeste, 1961.

Uma Eeriencia de-Planejamento Educacional no No deste do Brasil.

-II. -INSTITUTO BRASILEIRO DE GEOGRAPIA B ESTATISTICA (IBGE)

* AlYmeida9F..$. -de an-Lima, M.A, de, The West' Gntral Plateau . I Jj. .. S ap and Mato Grosso Pantanal, Rio de Janeiro, 1956.

tAnurio Estafistico; 1952-1953, 19569-1958, 1961, 1962,;

Boletim Es~atistico, Nos. 77-81, Jan. 1962 - .Mgarbh, 1963.

Bonder, gregoio, -Solos da Bahia, Sua Conservagao e Aproveitamento, Rio do Janeiro,- 1952. -

Censo Industrial Brasileiro, 1960. ­

,Comrcio Exterior--do Brasil (por mercacdorias--segundo-os portos), 1949-50, 1955-56. ­

Contribdio~es -pr' suod eorfad is-,91:

Gmaraes Regio'es ieio-Norte e Nordeste. Vol. III, Serie A, 1962.-

ProducoTndustrial- Brasileira, 1958..

ReiatsrioAnual do Diretor, -Departamento Nacional de:Produggo Mineral, Divisga de Geologia e'Minera1dgia-,- 1960.-

Sinopse Prdliminar-de Censdeigricola Se oNaional -Rcene­ mento, 1960. II. TMGE (continu@(y Sinopse Preliminar do Coiso Temogrf !, Servig o Nacional de - Re­ censeamento, 1960.

Trabalhos Tecnicos da Divisa db Geodesia-e Topografia 6 da Divi­ a 0. de Crtografia 196t -

III. BANCO DO NORDESTE DO BRASiIJ (SnB,

1.Esoritbrio Tgcnico deEstiidos Econ8micos do Nordeste (ETENE)

Consolidago das Normas de Ctddito Rurai, 196i. *- 7 Duque, J.G., Ligeiro Eftidostbre Irrigacgo doWNorieste, 06tober, 1959. %

Estimativa da Renda Social do Nordeste war Regioes Naturais, 1960.

Estrtitra da In&dstria erambucana, August, i962.

Galvo,. Olavo J., O Desenvolvimento Econ8mioo.do-Nordeste: Ausin-.

cia de Coordenaqgo Regional; 1956. -

Hillman, J.-S., 0 Desenvolvimento Econ8micoe o Nordeste*.3rasileiro 1956.' -. - . - -

Indistria de Transf ormako , ..1958, 1Jptib Ishe&'Report,j19§3.

Manual de Estatfsticas Bisi6as do Nordeste June 198.

Manual.de Sbrvigo - II Ci'&ito-Rural Supervisionado.

Mercado Brasileiro de Titulos, 1961.

Nordeste, Estatjsticas, Boletim No 4? no: dat1e.

Realidade Econ8mica e Planejamento do Xordeste, Mayr 1956

Recomendacaes a Teses do Primeiro Semindrio da PePgidria de'Corte do Nordeste,- November, 1960.

Relat6rios* Exerolios de 296( and 1g6i."

Robock, Stefan H., Proieto de Planejamento Global ara a ordeste do Brasil 1955. ­

, Aspectos Regionais de Desenvolvimento Ecoon8mi­ co: Uma Experigncia no -Nbrdeste.do Brasil-1956.:

- , - .3

/ 2.0ther-

Orgamento de Apicagoes para 1963.

Primeiro Plano de Ao6?'i66 :1,1

IV. OTHER FEDERAL GOVERNMENT OF'BRAZIL

Atlas 0limatolgfocardo -Brasit-,t Vb2IY, Nbs. 1 and 2,. Conselho Na­ atonal'de Geografta e- Servfo 'de MetsoroTogia, Rio de Janeiro, 1955.

Atlas Pluviomitrico do Brasil, 1914-1938, Boletim N95, Ministdrio da Agricultura, Rio de-Janeiro, 1948.

Balangos da Ch-igo, Ministdrio da Fazenda,

Com4rcio-de-Cabotagem do Brasil, Ministerio da Fazenda, 1959/1960. 1960/1961.,

Comgrcio Internacional, Boletim Mensal do Banco do Brasil, Ano XI, Nos. 2 & 3., Setembro/Outubro de 1961.

uue I-X- Sb oeAgua0 no Poligono das Sgoas DNOCS, Nol74 S5ries 1-A, Second Edition, Fortaleza, 1953.

Estrutura Sicio-Econ8mica do Brasil e sua Evolugao Provivel at .S2Is;80'M:Aidist f6§dd..Relag36e-Ext6ri ores, SerVigo Tgcnio de Angilise-e Planejamento, 1961.

Exposipgo Geral da Situaedo EconSmica do Brasil,- Conselho Nacional de Economia, Rio de Janeiro, 1962.

Frequencia--Feinmenos Yol.V L ,Conselho Nacional de Geografia e Servigo 'd.e Meteorologia, Rio de Janeiro, 1956.

MeIidi, .:M2A cerdaS~el,20bidniis aoe as 'Problnias- A±rrs dgri Noid6ti, IhstittAb J-oa4iiNabibyR&cife' 1961.'

Mensgrio Estatistico Ministrio da Fazenda, No141, Margo de 193.

Orgamentd-Gra-l da Uni$8 1963. .I."

21d6Qi qu1geil-,de ,Ob ra s-R6&od~,ii s do Govdrno Federal: 1961-19659 .DNERv (nodte).

PropostiOeamentgria para 1964.

- 4­ IT, OTHER FEDERWL GOVERNMENT OF BRAZIL (continu'd) Relatirio-Anual 1962, Rode Yerroviiria Federal S/A (RjFFSA)

Theophilo, Fernando de Oliveira,.Contas Culturais - Bases para Orgamento do Trabalth6 Agrico--DNOCS,' N 146; S6rts II, L.7 1946.

Three Year Plan for Economic and Social Development, 1963-1965, (Summary), December, 1962.

V.

1. USAID.

Alliance for Progress in the Northeast, April, 1963.

AAalysis-of the CAP of Deaemtert1962-inb1 lation to-The Bohan Report, Northeast Agreement, and STIDENEs' Second Master Plan,

1963. . . . Brazilian Agrarian Reform - A Technical Summary, 1963.1 Controller's Office Monthly Reports, 1962-1963...

Couitry Assistance (CAP) Det mitgr2 1roam-1

Northeast Brazil Survey, Industrial Section, Paulding, S.A., 1961.

Outline of Direct Action Programs for a Transition from Paternalism To Self-Sufficienoy, September 13,, 1963.

Pernambuco Agricultural Redources Report : Estimates of Physical Resources for Acricultural Prdauction in Pernambuco and . Opinions Itegarding Passibilities for InortasingTheir Productive Use.- Oct6b64 -1960. - * '

reliminary Renort of the Planalto Pre-Survey 'Group, The Amer-ican tInterationa4 Associhtion, Januaryf, 1963c

Prograni-Office. Monthly Reports, 1962-1963. .

Report. on Field Trip to tE State of dear to Observe Progress Made Under ProlecT Asimow, 1963.

Survey of the Agricultural Potential. of the Central Plateau of Braiil, American International Ass6ciation fo:iZ:Ecohomic and Social Development (AIpL), Maroh, 1963.

Survey and Appraisal of Grain Conditioninp, 'Storage and Handling Facilities in Northeast Brazil, July, 1961.

-5­ v. . U.S. cOVERNME (continued) ELIAD Travel Report, Inspect-ion-of -Cerami&sFactexr at Fortaleza (C6ar& 1963.

2. Other

Basic Data on the Economy of Brazil, U.S. Department of Commerce, Washington, D.C., December, 1958. Northeast Agreement, April 13, 1962.

Northeast Brazil Survey Team Report (Bohan Report), Two Volumes, February, 1962.

United States Papers ?repared for the U.N. Conference on the Application of Science and Technology for the Benefit of the Less Developed Areas, Science, Technology, and Development "Infdustrial Development", YVo.IV, U.S. Government Printing Office, Washington, D.C.

VI.. AUTHORS

Bryce, M.D., IidudtfiidI Development, McGraw-Hill Book Co., New York, 1960.

Faria, Oswaldo Lamartirie d., A.B.C. da Pescaria de Aqudes de Serid6, 1961.

Pei, J.0.1., and Rais,'G., American Economic Review, Vol.23, No3, June 1963, "Innovation, Capital Accumulationt and Economic Developmen t .

Ferreira, Arthur, II Ourso de Desenvolvimento Econ8mico. Sistema. EstatIstie' Brasileiro, 1962.

-Feyroy Gilberto, New'Worldin the Tropic, Alfred -A.Knopf, New York, 1959,

, The Master--and th&SlaFes. Alfred A. Knopf, New York, 1956.

Furtado, Celso, Brazil, "Economic Development",ed. by A.Papelasis, L.Mears, and I.Adelman, Harper and Brothers, New York, 1961.

- - , The Economic Growth -of Brazil, University of -Calirdria iPess>Berkeley and Los .Angeles, 1963.

Quarter- Kind of Revolution, "Foreign Affairs lyqly, AprI9, pril 1963,What

- 6 ­ VI0 AUTHORS (continued) Furtado, Celso, Orientation of the Economy of the Nort ta t. "Seminar on Northeast Development'' Garanhuns, Pernamb-ioo, April-May, 1959.

, Pre-Revoluto Brasileira, Fundo de Cultura, Rio de Janeiro, 1962.

Gongalves, Antonio Carolino As MigraQes para.o Recife, Vols.1-4, 1961. Fi

Guimarges, Luiz Ethewaldo de A., Analysis of.the Domestic Regional Income in the Northeast of Brazil, Unpublished Paper written for Vanderbilt- Biversity, Nashville, Team., 1961.

Harring, Hubert, A Historyoof Latin America, Second Edition, Alfred A. Knopf, NevtTork, 1961.

.irschman, Albert 0., The Strategy of Economic Development, Yale University-Press, New flhen- 1958.

, Journeys Toward Progress : Studies of Economic Policy-Making in Latin America, The Twentieth Century Found., New York, 1963.

ICoeing, Nathan, Agriculture in Brazil - Its Needs in the Expanding' Economy, 1959.

Krause, Walter, Economic Development. Wadsworth Publishing Company, San Francisco, 1961.

Mota, Mauro, Problemas do Abastecimento no kecife, Instituto Joaquim Nabuco, Recife, 1962.

Robock, Stefan H., Northeast Brazil : A leveloping Economy, First Draft of took, The Booking Institute, Washington, D.C., November, 196Z.

* Recent Economic Trends in Northeast Brazil, "Inter-American Economic Affairs', Vol.16,r3, Winter, 1963.

* Economic Development in Northeast Brazil, United Nations, Report .NTAA/BRA/3, February, 1957.

VII. OTHER

Anais da Primeira Reunigo de Investigapgo Agron8mica do Nordeste, Instituto de Pesquisas Agron8imicas do Estado de Pernambuco, Recife, 1958.

- 7 ­ VII. OTHER 4oontinued) Boletim Estatistico da Bahia, Bureau de Estatfsticas da Bahia, -Ano V, NO 60.,-% ulho,. 1962..

Boletim de Junho - *Safra do 1962/196t Institto de A-Sear e de Alcool. ,Brazil. Factors Affecting Foreign Investment. Stanford Research Institute, Mello Park, California, 1958.

Cadastro Industrial. Imprensa Industrial, Pernambuco, 1956.

Conjuntura Econimica, Fundaggo Getil1io Vargas, various issues, 1962, 1963.

Development of Brazil, Report of Joint Brazil-United States Economic Development Commission, 1953.

Economia Brasileira e suas Perspectivas, Anglise e Perspectivas Econ8mica (APEC), Nov., 1962.

Educaao e Desenvolvimento Econimico, Report- of the Conference on Education and Economic and Social Development in Latin America, Santiago, Chile, 5-19th March, 1962.

EstatIsticas de Pernambuco, CODEPE, Recife, 1961.

Industrialization,and Productivity, Bulletin 5, United Nations, Department.

Melo, Mario Lacerda de, As Migrapqes Para o Recife, Instituto Joaquim Nabuco do Pesquisas Sociais, Recife, 1961. Tricart, Jean e Santos, Milton, et al, Estudop de Geografia da Bahia - Geografia e Planejamento, Livraria Progresso Editora, Salvador, 1958.

Exchange of Letters Between USAID and SUDENE on Utilization of -Dollar Grants. June 4, 1962.

Exchange of Letters Between USAID ahd SUDENE on Utilization of P.., 480 Grant Funds, June 4, 1962. J Pernambuco Coastal Highway System, Cia. Morrison-Knudsen do B3asil' S/'A '1949.

Plano de Metas -, 1963/1966 (PLAMEG), Estado do Cearg.

Plano Trienal do Estado do Alag8as - 1963/1965, Vols. 1 &; 2.

Programa Quadrienal do Govdrno do Estado do Sergipe, 1963-66.

-8­ VII. OTHER (continued) ,cLAs;Y r Projects for Immediate Application - Initial Phase of the Four- Year Develo ment Plan-for the State of Bahia .1963 1967 and Annexes), January, 1963.

Report of Work GrouM of Arraes Government orr-Apreements with USAIDBrazil in State of Pernambuco, May, 1963.

Revista Brasileira de Economia, Fundatgo Gettilio Vargas,' March an& Decem-ber, 1962.

-9­ NC.ASSFIEC

APPENDIX D - THE NORTHEAST AGREEMENT AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE UNITED STATES OF BRAZIL ON THE COOPERATION OF THE GOVERNMENT OF THE UNITED STATES OF AMERICA FOR TEE PROMOTION OF ECONOMIC AND SOCIAL DEVELOPMENT IN TEE BRAZILIAN NORTHEAST

1HEREAS the Government of the United States of Brazil has recognized the improvement of the critical economic and social conditions in

Northeast Brazil as an urgent problem requiring priority attention both through immediate measures and through a long-term development program, and has taken important steps to meet the problem by creating an agency, the Superintendency of the Development of the

Northeast (SUDENE), which has been empowered to coordinate Brazil's­ programs for the Northeast, and which has produced a master plan which has been approved by the Brazilian Congress and given initial financial support by the Government of the United States of Brazil;

WHEREAS the Government of the United States of America shares the view of the Government of the United States of Brazil that the problems of the Northeast require urgent attention, and has sent a survey team to Brazil which has studied the problems of the

Northeast and has submitted to the United States Government a report containing its recommendations for financial and technical assistance for the purpose of aiding in .their solution, and is prepared to support the efforts of the Government of the United

States of Brazil in the Northeast through measures based upon certain of those recommendations;

WHEREAS such cooperation, by combining the self-help efforts and reform measures of the Government of the United States of Brazil with the economic, technical and related assistance from the Government of the United States of America, will directly further *1 the objedtives-'of the'Charter of Punta del Este and'wi-l be an important siep in carrying out the Alliance for Prdgress;

NOW, THEREFORE, the Government of the United States of

America and the Government of the United States of Brazil hereby agree as followt*

ARTICLE I I

Programs

In accordance with Article III and IV hereof the Government of the Uhited States of America will suppleett 'the dfforts ofbthe

Government of the United States of Brazil:

A. In carrying out a program of immediate action projects intended to achieve speedy results in meeting some of the most urgent needs of the people of Northeast Brazil. These projects, designed to produce immediate benefit, are of the type included in the survey team report or the SUDENE master plan, or which may be mutually agreed to. It is estimated that these projects will require expenditures totalling the equivalent of approximately

#58,.000,000 or the equivalent of approximately C0$18,400,000,000 from Brazilian and external sources.

B In undertaking at the same time the financing of the first two years of long-term development projects for the years

1962-1966 intended to improvd'Tundamentally the ability of the

Northeast and its residents to provide for themselve a bottor

-2­ standard of living and to advance the economic integration of the-

Northeast with the rest of Brazil. The purpoce of these projects,

which are to be of the type included in the suvey team report or

the SUDENE -masterplan, or which may be mutually-agreed to, will

be accdmplished through measures such as the counteracting of

Irought conditions through fuller use of available water supplies

in the interior, improvement of roads, development of electrical

power, expansion of primary and vocation41 education, health 4ni

sanitation, assistance to agricultural production, marketing and

distribution, and fisheries, and through studies and research

concerning the resource -potefltials of the area. It is estimated that

these projects will require expenditures for the long-term period

totalling the equivalent of approximately*$692,000,000 or the

equivalent of approximately Cn$220,000,000,000 from Brazilian and

external sources. In addition activities are contemplated to promote the accelerated development of areas adjacent to the

Northeast in order to create economic opportunities for people

from the Northeast. Expenditures for the first two years (1962­

1963) are estimated- to total the equivalent of approximately

$216,000,000 or the equivalent of approximately Cr$6 8 ,700,000,000

from Brazilian and external sources.

ARTICLE II

Administration

The two Governments recognize that effective cooperation in

the administration of these projects requires clear designation

-3­ ,of coordinating and operating resjnsEb'1Ei?%n rsidesAccordingly,

A. - The Government of the United States of America designates the-Agency for International -Development (USAID) to-carry out its responsibilities utder these projects and will establish a special office in the Northeast area for this purpose with-the hecessary staff and facilities. USAID may sign agreements for individual projects with SUDENE or other appropriate agencies of organizations in accordance with applicable regulations.

B. The Government of the United States of Brazil is represent­

"ed by SUDENE in accordance with the terms of Law no. 3,692, Decembeie

15, 1959, and Law No. 3,996, January 15, 1962, in the coordination of programs in Northeast Brazil. In the terms of this and related legislation, SUENE is authorized to enter into project and other agreements, including loan agreements, to carry out specific projects. Activities under these projects may be administered by

SUDENE or by such other agency or organization as amy be mutually agreed. In such,,cases as may be designated by the Government of the United States of--Brasil, other agencies may be authorized to enter into project and other agreements under this Agreement directly withUSAID and-be authorized to receive loans or grants.

ARTICLE III Immediate Action Projects

In oifder to put into effect the immediate action projects, and subject to mutual agreement on specific projects which satisfy the-rTequireinents of the applicable legislation and

-4­ ofbothi countries: wCLAS"FEF A. The Government of the United States of America agress to

provide toward -the cost of such projects not to exceed $33,000,000

in U.S. dollars or the cpuzeiro equivalent thereof; not to exceed

$14,670,000 will be supplied in the form of dollar giants or loans

and the balance estimated at the equivalent of $18,330,009 as -I grants or loans in cruseiros derived from Agricultural Commodities

Agreements between the two Governments, subject to the availability

of funds under such agreements.

B. The Government of the United States of Brazil agrees:

1. To have provided from national, state and-municipal

sources not less than Cr$7,950,000,000 toward the cost -of such

projects plus such additional amounts of finds as shill be necessary

to assure their completion..

2. To assure the allocation to SUDENE or other.4ppropriate

agencies or organizations of the cruzeiros available' for grant and

loan purposes under Agricultural Commodities Agreements between the

two Governments in amounts required.for such projects as estimated

in Paragraph III-A above. . ­

3. To guarantee.the repayment'of piincipal and interest on all loans made by the Government of the United States of America

under this Agreement.

4. To use its blest efforts to assure thq,.STDENE and other appropriate agencies and organizations have adeqqtate legislation,

funds and administrative authority to carry out their responsibilities

under the immediate action projects.

- 5 ­ ARTICLE IV UNCiMIa ASE Initiation of Long-term-Levelopment. rojects (1

In order to provide for the first two years of activities under the long-term economic development projects, and subject to mutual agreement on specific projects which satisfy the requirements of the applicable legislation and regulations of both countrjes, the two Governments agree to finance the costs of such projects;:during the calendar years 1962 and 1963 as follows:

A. The Government of the Uhited States of America agrees to provide not to exceed $98,000,000 in U.S. dollars or the oruzeiro equivalent thereof toward the cost of such development projects during such period subject to the appropriation and availability of funds. Not to exceed $62,000,000 will be supplied in the form of dollar grants or loans and the balance estimated at the equivalent of $36,000,000 in grants or loans in cruzeiros derived from

Agricultural Commodities Agreements which may be concluded between the two Governments subject to the availability of funds under such agreements.

B. The Government of the United States of Brazil agrees:

J.To* have provided from national, state and-municipal sources not less than Cr37,500,000,000 for the purposes of these projects plus such additional amounts of funds as shall be necessary to assure the completion of quch projects, subject to the appropriatior of funds by the Brazilian Congreqs,

2. To assure the allocation to SUDENE or other appropriate agencies and organizations of the cruzeiros available for grant 4 UNCLASSFNED. and loan purposes under Agricultural Commodities Agreements between the two Governments in amounts required for these projects as estimated in Paragraph IV-A above.

3. To guarantee the payment of principal and interest on all loans made by the Government of the United States of

America under this Agreement.

4. To use its best efforts to assure that SUDENE and other appropriate agencies and organizations have adequate legislation, funds-and administrative authority to carry out their responsibilities under these projects.

C. The Government of the United States of Brazil will keep the Government of the United States of America informed about development activities in the Northeast, including economic and technical asRpp ae activitiep. The Governm.ent of the United

Staty of Amwppra will cooperate with the Qpgprnment of the United

States of Prapil in obtaining and inorpasing the Interest of other friendly qations apd internaj4opal agencies in part Jypating in prograps -forNortheast Brazil, utilizing for thysq pqrppoes the mechanism of the Development Assistance Committee of the Organization for Economic Cooperation and Development as well as other phA"cpp.

.The two Governments will keep each other informed of the prpgress of such discussions, and will take them into accoun4in the further - development of the programs described-herein. ARTICLE V

Completion of Long-Term Development Projeots

Each of the two Governments will hereafter consider participation

in the financing of the long-term development projects for periods

after that provided for in Article IV. In such consideration the

two Governments will take into accounts

(a) satisfactory accomplishment during the first two years;

(b) provision in Brazil's national development program of

appropriate priority for the Northeast, taking due regard

of the total resources expected to be available and of

the needs and plans of other regions of Brazil; and

(c) the implementation of the Brazilian program of financial

recovery, aiming at holding down the cost of living and

assuring a rapid rate of economic growth and social

development in a context of a balanced economy, and the

achievement of other economic and institutional reforms

necessary to the success of the national development

effort as contemplated in the Charter of Punta del Este.

ARTICLE VI

Entry Xnto Force 44d Relation to Existing Agreement

This Agpement phall qpfer into force on the date on which it is signed by thq tro GoveTq'wqntp epa shall remain in force until ninety days after thd datq 9f the cq~punication by which either

Government gives written nqft4tion to the other of its intention to terminate it. This Agreement shall supplement the Agreement relating to technical cooperation effected by an exchange of notes

-8­ signed at Rio de Janeiro on December 12, 1950, as amended and supplemented, or any General Agreement superseding that agreement, and the provisions of either such agreement shall apply to activities under this Agreement except as specifically altered in this -Agreement.

DONE in duplicate in the nglish and Portuguese languages, both being equally authentic, at Washington this 13th day of April, 1962.

FOR THE GOVERMENT OF THE UNITED STATES OF AMERICA:

DEAN RUSK

FOR THE GOVERNMEMT OF TBE UNITED STATES OF BRAZILe

SMTIAGO DANTAS

.. ~9cc. UNCLASSIFIED

Washington, April13, 1962 Excellencye

With reference to Articles III and IV of the

Agreement between our two Governments, signed today, on the cooper­ ation of the Government of the United States of America for the pro­ motion of Economic and Social Development in the Brazilian Northeast, I have the honor to state the understaning of my Government that the proportion between the contrfbutionp of the United States of

America and the expenditure of Brazilian resources indicated in the above-mentioned. Articles apply to the group of projects as a whole, and that the proportions may vary in the case of individual projects.

This letter and Your Excellency's reply will constitute a valid interpretation of the text of the Articles III and IV.

I avail myself of this opportunity to renew to Your

Excellency the assurances of my highest consideration.

Signed: San Tiago Dantas

Minister of Foreign Relations

of Brazil

His Excellency Dean Rusk

Secretary of State of the United States of America

.10.­ April 13, 1962

Dear Mr. Minister: -

This is to acknowledge receipt of your letter of

April 13, 1962 concerning the interpretation of Articles III and IV2 of the Agreement between our two Governments on the Cooperation of the United States of America for the Promotion of Economic and

Social Development in the Brazilian Northeast, and to confirm the understanding set forth in your letter.

Accept, Excellency, the renewed assurances of my highest consideration.

Sincerely yours,

Dean Rusk

His Excellency

Francisco Clementino de San Tiago Dantas

Minister of External Relations of the

Republic of The United States of Brazil.

- 3:1-- ­ 4

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