The History of Brazil (1930-1945) reference article from the English Wikipedia on 24-Jul-2004
(provided by Fixed Reference: snapshots of Wikipedia from wikipedia.org)

History of Brazil (1930-1945)

See the real Africa
This article is part of
the Brazilian History
series.
Indigenous peoples
Colonial Brazil
Empire of Brazil
1889-1930
1930-1945
1945-1964
1964-present
Edit this box

Table of contents
1 Depression, coffee oligarchs, and the Revolution of 1930
2 The era of Brazilian populism
3 The Estado Novo

Depression, coffee oligarchs, and the Revolution of 1930

The Great Depression

The tenente rebellion (See History of Brazil (1889-1930)) did not mark the revolutionary breakthrough of Brazil's bourgeois social reformers. But the ruling paulista coffee oligarchy could not withstand the near-breakdown of world capitalism in 1929. Brazil's vulnerability to the Great Depression had its roots in the economy's heavy dependence on foreign markets and loans. Despite limited industrial development in São Paulo, the export of coffee and other primary products was still the mainstay of the economy.

Days after the U.S. stock market crash on October 29, 1929 (See Black Tuesday), coffee quotations immediately fell 30 percent. The subsequent decline was even sharper. Between 1929 and 1931, coffee prices fell from 22.5 to 8 cents a pound amid great stockpiling. As world trade contracted, the coffee exporters suffered a vast drop in foreign exchange earnings. The Great Depression possibly had a more dramatic effect on Brazil than on the United States.

The collapse of Brazil's valorization (price support) program, a safety net in times of economic crisis, was strongly intertwined with the collapse of the central government, whose base of support resided in the landed oligarchy. The coffee planters had grown dangerously dependent on government valorization. For example, in the aftermath of the recession following World War I, the government was not short of the cash needed to bail out coffee industry. But between 1929-1930, world demand for Brazil's primary products had fallen far too drastically to maintain government revenues. By the end of 1930, Brazil's gold reserves had been depleted, pushing the exchange rate down to a new low. The program for warehoused coffee collapsed altogether.

Washington Luís' government was stuck in a deepening balance-of-payments crisis, and the coffee growers were struck with an unsellable harvest. Since power ultimately rested on patronage, wide-scale defections in the delicate balance of regional interests left the regime of the Washington Luís quite vulnerable.

Government policies designed to favor foreign interests exasperated the crisis as well, leaving the regime alienated from just about every segment of society. Following the Wall Street panic, the government attempted to please foreign creditors by maintaining convertibility according to the money principles preached by the foreign bankers and economists who set the terms for Brazil's relations with the world economy, despite lacking any support from a single major sector in Brazilian society.

Despite capital flight, Washington Luís clung to a hard-money policy, guaranteeing the convertibility of the Brazilian currency into gold or British sterling. Once the gold and sterling reserves were exhausted amid the collapse of the valorization program, the government was finally forced to suspend convertibility of the currency. Foreign credit had now evaporated.

The Revolution of 1930

Aside from the depression and the emergence of the Brazilian bourgeoisie, Brazil's historic dynamic of interregional politics was a significant factor encouraging the alliance that Getúlio Vargas forged between the new urban sectors and the landowners hostile to the government in states other than São Paulo during the Revolution of 1930.

Along with the urban bourgeois groups, Northeastern sugar barons were left with a legacy of longstanding grievances against the paulista coffee oligarchs of the South. Northeastern landowners bitterly opposed Washington Luís' 1930 discontinuance of the drought projects of his predecessor. These tensions, however, can be traced back far earlier. The decay of established sugar oligarchies of the Northeast began dramatically with the severe drought of 1877. The rapid growth of coffee-producing São Paulo state was the flip side of the same coin. After the abolition of slavery in the 1880s, Brazil saw a mass exodus of emancipated slaves and other peasants from the Northeast to the Southeast, thus ensuring a steady supply of cheap labor for the coffee planters.

Under the Old Republic, the politics of café com leite rested on the domination of the republic's politics by the Southeastern states of São Paulo and Minas Gerais, which were Brazil's largest states in terms of population and richest. The first presidents of the republic were from São Paulo and thereafter succeeded by an alternation between the outgoing governors of the two leading states in the presidency.

Given the grievances with ruling regime in the Northeast and Rio Grande do Sul, Liberal Alliance opposition leader Getulio Vargas chose as his vice-presidential candidate in 1930 João Pessôsa of the Northeast state of Paraíba. With the understanding that the dominance of the landowners in the rural areas was to be absolute under any Liberal Alliance government, the Northeastern oligarchies were thus integrated into the Vargas alliance in a subordinate status via a new political party, the PSD.

Washington Luís' regime, isolated and unstable, was thus the verge of being toppled with relative facility regardless of official outcome of the election, which was customarily rigged. The government refused to seat opposition deputies from Minas Gerais and Paraíba. Although this did not provoke a thoroughgoing revolt, the politically motivated slaying of Vargas' ex-running mate João Pessoa finally triggered a coup d'état in October 1930. Insurgents led by the tenentes, backed by planter oligarchies from just about every state other than São Paulo, soon joined army units in seizing a series of state capitals. The revolt was backed by regional groups like Vargas' fellow gaúchos from Rio Grande do Sul, the sugar barons of the Northeast, urban bourgeois groups, disaffected politicians of the Minas Gerais (Brazil's second leading state), and those of other peripheral states. One week later, on October 24, 1930, Washington Luís peacefully stepped aside.

However, behind the façade of Vargas' populism lies the intricate nature of his coalition—ever-changing from this point onward. Consequently, these locally dominant regional groups—effectively the gaúchos of Rio Grande do Sul and the sugar barons of the Northeast of the Northeast—themselves ushered the new urban groups into the forefront of Brazilian political life in a revolution from above, tilting the balance of the central government in favor of the Liberal Alliance.

The rise of Getúlio Vargas

 Getúlio Dornelles VargasEnlarge

Getúlio Dornelles Vargas

A populist governor of Rio Grande do Sul - Brazil's southernmost state - Vargas was a gaúcho (cattle rancher) with a doctorate in law from the most politically influential of Brazil's peripheral states and the 1930 presidential candidate of the Liberal Alliance.

Vargas was a member of the gaucho-landed oligarchy and had risen through the system of patronage and clientelism, but he had a fresh vision of how Brazilian politics could be shaped to support national development. He hailed from a region with a positivist and populist tradition, and was an economic nationalist who favored industrial development and liberal reforms.

Moreover, Vargas understood that with the breakdown of direct relations between workers and owners in the expanding factories of Brazil, workers could become the basis for a new form of political power—populism. Using such insights, he would gradually establish such mastery over the Brazilian political world that he would stay in power for fifteen years. As the stranglehold of the agricultural elites eased, new urban industrial leaders acquired more influence nationally, and the middle class began to show some strength.

Vargas built up well-established political networks, and was attuned to the interests of the rising urban classes. In his early years, Vargas even relied on the support of the tenentes of the 1922 rebellion.

The era of Brazilian populism

Vargas' interim presidency

As a candidate in 1930, Vargas had utilized populist rhetoric to promote middle class concerns, thus opposing the primacy—but not the legitimacy—of the paulista coffee oligarchy and the landed elites, who had little interest in protecting and promoting industry.

The 1930 Revolution ushered in a coalition favoring protection of Brazilian manufacturers, backed by the bourgeoisie and landed interests. Between 1930-1934, Vargas followed a path of social reformism to attempt to reconcile these radically diverging interests. Reflecting the influence of the tenentes, he even advocated a program of social welfare and reform with striking parallel to New Deal in the United States, prompting U.S. President Franklin Roosevelt to proudly refer to him as "one of two people who invented the New Deal."

Vargas sought to bring Brazil out of the Great Depression through orthodox policies. Vargas satisfied the demands of the rapidly growing urban bourgeois groups, voiced by the new (to Brazil) mass-ideologies of populism and nationalism. Like Franklin Roosevelt, his first steps focused on economic stimulus, a program on which all factions could agree.

Favoring a state interventionist policy utilizing tax breaks, lowered duties, and import quotas to expand the domestic industrial base, the populist gaúcho linked his pro-middle class policies to nationalism, advocating heavy tariffs to "perfect our manufacturers to the point where it will become unpatriotic to feed or clothe ourselves with imported goods!" In his early years, Vargas also relied on the support of the tenentes.

Vargas sought to mediate disputes between labor and capital. For instance, the provisional president quelled a paulista female worker's strike by co-opting much of its platform and requiring their "factory commissions" to use government mediation in the future.

However moderate these aims were, mild opposition arose among the powerful paulista coffee oligarchs who had grown accustomed to their domination of Brazilian politics. His tenuous collation also lacked a coherent program, being committed to a broad vision of modernization, but little else more definitive. Having to balance such conflicting ideological constituencies, regionalism, and economic interests in such a vast, diverse, and socio-economically varied nation would, thus, not only explain the sole constancy that marked Vargas' long career—abrupt shifts in alliances and ideologies—but also his eventual dictatorship, modeled surprisingly along the lines of European fascism, considering the liberal roots of his regime. By 1934, however, many shifts were still awaiting Brazil.

Vargas, the sugar barons, and the northeastern cangaço

Vargas' appeasement of the landed wing of his coalition would soon reveal the reactionary nature of his government, especially after 1934. To placate friendly agrarian oligarchs, the modernizing state not only left the impoverished domains of the rural oligarchs untouched, the government even helped the sugar barons to cement their control over rural Brazil.

Likely to the detriment of that region's long-term economic development, Vargas' static conservatism on matters of the countryside arguably exasperated the disparities between the impoverished, semi-feudal Northeast and the dynamic, urbanized Southeast to this day. In return for the support of the psugar barons, the state crushed a wave of peasant revolts in the Northeast known as the cangaço, marking the reversal of the drastic but gradual decline of the Northeastern latifundios from the 1870s to the 1930 revolution. Simply put, Northeastern latifundios had been collapsing from within amid inexorable decline and this flaring of peasant revolts. In the more prosperous past during the reign of Dom Pedro II (1831-1889), the peasantry under this system remained quite subordinate to the fazendeiros. With each planter retaining his own private militia responsible for the maintenance of law and order within his domain, and with these private militias were even often responsible for kin feuds arose between various dynastic groups, the Northeastern fazendeiros had grown accustomed to their iron grip on the rural countryside.

But the peasantry was not that servile—to the surprise of many accustomed to overlooking Brazil's peripheral regions. Banditry has actually been a common form of peasant protest. Other forms included messianism, anarchic uprisings, and tax evasion, each of which were common practice before 1930. With the Northeastern oligarchies now incorporated into the ruling coalition, the government focused on restructuring agriculture. In reality, the increasingly reactionary state intervened, suppressed the cangacieros, and restored order to the Northeast.

At the expense of the indigent peasantry—85 percent of the workforce—not only did Vargas renege on his promises of land reforms, he denied agricultural workers in general the working class' gains in labor regulations like Mussolini, Hitler, Franco, and Salazar.

Appeasement of landed interests, traditionally the country's dominant forces, would thus require a realignment of his coalition, forcing him to turn against its left-wing. After mid-1932 the influence of the tenente group over Vargas rapidly waned, although individual tenentes of moderate tendency continued to hold important positions in the regime. With the ouster of the center-left tenentes from his coalition, his rightward shift would become increasingly pronounced by 1934.

Toward dictatorship

By 1934 Vargas would develop in response what Thomas E. Skidmore and Peter H. Smith called "a legal hybrid" between the regimes of Mussolini's Italy and Salazar's Portuguese Estado Novo, copied repressive fascist tactics, and conveyed their same rejection of liberal capitalism, but attained power baring few indications of his future quasi-fascist polices.

Changing conditions forced Vargas to eventually abandon the arrangements of the "provisional government" (1930-34), characterized by a path of social reformism that appeared to favor the generally left wing of his revolutionary coalition, the tenentes.

Opposition from the right, however, marked Vargas' earliest moves away from the social reformism of his early years. A conservative insurgency in 1932 was the key turning point. After the July 1932 "constitutionalist" revolt—a veiled attempt by the paulista coffee oligarchs to retake the central government—Vargas tried to recover support of the landed elites, including the coffee growers, in order to establish a new alliance of power. The revolt reacted to Vargas' appointment of João Alberto, a center-left tenente as "interventor" (provisional governor) in place of the elected governor of São Paulo. Elite paulistas loathed Alberto, resenting his centralization efforts and alarmed by the his economic reforms, such as a mere 5 percent wage increase and some minor distribution of some land to participants in the revolution . Amid threats of revolt, Vargas replaced João Alberto with a civilian from São Paulo, appointed a conservative paulista banker as his minister of finance, and announced a date for the holding of a constituent assembly . The coffee oligarchs were only emboldened, launching the counterrevolutionary revolt in July 1932, which collapsed after some minor, lackadaisical combat.

Regardless of the attempted counterrevolution, Vargas was determined to maintain his alliance with the original fazendeiro wing of his coalition and to strengthen his ties with the São Paulo establishment. The result was further concessions, further alienating the left wings of his coalition. The essential compromise was reneging on the promises of land reform made during the campaign of 1930. Vargas also pardoned half the bank debts of the coffee planters, who still had a significant grip on the state's electoral machinery, alleviating the crisis stemming from the collapse of the valorization program. To mollify his old paulista adversaries after their failed revolt, he even ordered the Bank of Brazil to take over the war bonds issued by the rebel government.

Yet, Vargas was increasingly threatened by pro-Communist elements in labor critical of the rural latifundios by 1934, who sought an alliance with the countries peasant majority by backing land reform. Despite the populist rhetoric of the "father of the poor," the gaúcho was ushered Vargas into power by planter oligarchies of peripheral regions amid a revolution from above, and was thus in no position to truly meet substantive popular demands. By 1934, armed with a new constitution drafted with extensive influence from European fascist models, Vargas began reining in even moderate trade unions and turning against the tenentes. His further concessions to the latifundios pushed him toward an alliance with the Integralists, Brazil's mobilized fascist movement. Following the end of the provisional presidency, the reactionary nature Vargas' regime between 1934 and 1945—characterized by the co-optation of Brazilian unions through state-run, sham syndicates, suppression of opposition (particularly) leftist opposition is thus was strongly becoming evident.

Despite the populist rhetoric of the "father of the poor," the gaúcho was essentially ushered into by planter oligarchies of peripheral regions amid a revolution from above, and was thus in no position to truly meet substantive popular demands.

As a result of this appeasement of the rural fazendeiros, Vargas was increasingly threatened by pro-Communist elements in labor critical of the latifundios by 1934 who were actually serious in their demands for land reform. Though eventually crushed by fascist-style force, it was quite astute for labor at the time to attempt to forge and alliance between Brazil's relatively small urban proletariat with the peasantry, who, as mentioned, accounted for the vast majority of the population.

The suppression of the communist movement

Aside from these recent political disputes, long-term trends suggest an atmosphere in São Paulo conducive to ideological extremism. The rapidly changing and industrializing Southeast, and the seething class conflict underlying this change, had been brewing an atmosphere conducive to the growth of European-style mass-movements; Brazil's Communist Party was established in 1922 and the postwar period witnessed the rise of the country's first waves of general strikes waged by viable trade unions. The Great Depression obviously intensified their strength.

The same Great Depression that had ushered Vargas into power in a wave of disillusionment with the laissez-faire orthodoxies of the time also managed to rejuvenate the left and calls for social reforms. The Brazilian left, always powerful—but rarely in power (ousted President João Goulart in the 1960s and now Lula da Silva are the exceptions)—has benefited from the nation's socio-economic contradictions—infamous for perhaps the world's most appalling disparity in social class correlated in terms of both race and region. With the challenges of the reactionary Paulista Revolt out of the way, and the mass-mobilization of a potential new enemy—the urban proletariat—looming, Vargas grew more concerned with imposing a paternalistic tutelage over the working class, functioning to both control them and co-opt them. Vargas' elite backers in both urban and rural Brazil, like those that prompted Paul von Hindenburg and Victor Emmanuel III to lay the groundwork for fascism in their respective countries, would begin to view labor, larger and better organized than directly after the First World War, as an ominous threat to established interests.

Vargas could unite with all sectors of the landed elites, however, to control the urban proletariat and the peasantry. With the cangaço thoroughly repressed in the Northeast, all segments of the elite—the new bourgeoisie and the landed oligarchs—shifted their well-founded fears toward the trade unionism and socialist sentiments of the burgeoning, often immigrant, urban proletariat from the more European (in terms of population, culture, ideology, and level of industrial development) and more urbanized Southeast. In 1934, following the disintegration of Vargas' delicate alliance with labor, Brazil entered "one of the most agitated periods in its political history." According to Skidmore and Smith, Brazil's major cities began to resemble the Nazi-Communist battles in Berlin of 1932-33. By mid-1935 Brazilian politics had been drastically destabilized.

Luís Carlos PrestesEnlarge

Luís Carlos Prestes

Vargas' attention focused on the rise of two nationally based and highly ideological European-style movements, both committed to European-style mass-mobilization: one pro-Communist and the other pro-fascist—one linked to Moscow and the other to Rome and Berlin. The mass-movement intimidating Vargas was the Aliança Nacional Libertadora (ANL), a leftwing popular front launched in 1935 of socialists, communists, and other progressives led by the Communist Party and Luís Carlos Prestes, known as "cavalier of hope" of the tenente rebellion (though not a Marxist at the time). A revolutionary forerunner of Che Guevara, Prestes led the legendary but futile "Long March" through the rural Brazilian interior following his participation in the failed 1922 tenente rebellion against the coffee oligarchs. This experience, however, left Prestes, who only died as recently as the 1990s, and some of his comrades skeptical of armed conflict for the rest of his life. As an interesting aside, Prestes' well-cultivated skepticism would later help precipitate the 1960s permanent schism between hard-line militant Maoists and orthodox Marxist-Leninists in the Brazilian Communist Party.

With center-left tenentes out of the coalition and the left crushed, Vargas turned to the only mobilized base of support on the right, elated by the atrocious, fascist-style crackdown against the ANL. As his coalition moved to the right after 1934, Vargas' ideological character and association with a global ideological orbit remained ambiguous. Integralism, claiming a rapidly growing membership throughout Brazil by 1935, especially among the approximately one million Brazilians of German descent, began filling this ideological void.

Plínio SalgadoEnlarge

Plínio Salgado

Founded and led by Plínio Salgado in late 1932, a minor literary figure, who adapted Fascist and Nazi symbolism and salutes and wore a square mustache like Hitler, Integralism had all the outlandish superficial trappings of European fascism. With a green-shirted paramilitary organization with uniformed ranks, highly regimented street demonstrations, and aggressive rhetoric directly financed in part by the Italian embassy , the Integralists borrowed their propaganda campaigns directly from Nazi materials—including the usual traditionalist excoriations of Marxism, liberalism, and Jews and espousals of fanatical nationalism (out of context in the heterogeneous and tolerant nation) and "Christian virtues." Like the European fascists, they were essentially petit bourgeois. In particular, they drew support from military officers, especially in the navy.

Class conflict, corporatism, and economic development

The strong parallels between the political economy of Vargas and the European police states thus began to appear by 1934, when a new constitution was enacted with direct fascist influence. After 1934, fascist-style programs would serve two important aims: stimulating industrial growth (under the guise of nationalism) and suppressing the working class. Passed on July 16, the Vargas government claimed that the corporatist provisions of the constitution of 1934 would unite all classes in mutual interests—its stated purpose in Fascist Italy. Actually, this propaganda point had somewhat of a basis in reality. In practice, this meant decimating organized labor and co-opting the working class. Of course, the advance of industry and urbanization, enlarged and strengthened the ranks of urban laborers, presenting the need to draw them into some sort of alliance committed to the capitalist modernization of Brazil. Vargas, and later Juan Perón in neighboring Argentina, another quasi-fascist, emulated Mussolini's strategy of consolidating power mediating class disputes and co-opting workers' demands under the banner of nationalism.

The constitution established a new Chamber of Deputies that placed government authority over the private economy, which established a system of state-guided capitalism aimed at industrialization and reducing foreign dependency. These provisions essentially designated corporate representatives according to class and profession, organizing industries into state syndicates, but generally maintained private ownership of Brazilian-owned businesses.

The 1934-37 constitution, and especially the Estado Novo afterwards, heightened efforts to centralize authority in Rio de Janeiro and drastically limit provincial autonomy in the traditionally devolved, sprawling nation. This was its more progressive role, seeking to consolidate the 1930 revolution, displacing the institutional power of the paulista coffee oligarchs with a centralist policy that respected local agro-exporting interests, but created the necessary urban economic base for the new urban sectors . The modernizing legacy is firmly evident, state government was to be rationalized and regularized, freed from the grips of coronelismo.

The constitution of 1934 thus established a more direct mechanism for the federal executive to control the economy, pursing a policy of planning and direct investment for the creation of important industrial complexes. State and mixed public-private companies dominated heavy and infrastructure industries and private Brazilian capital predominated in manufacturing, but the 1930s also saw a significant growth of direct foreign investment as foreign corporations sought to enlarge their share of the internal market and overcome tariff barriers and exchange problems by establishing branch plants in Brazil. The state thus emphasized the basic sectors of the economy, facing the difficult task of forging a viable capital base for future growth in the first place, including mining, oil, steel, electric power, and chemicals.

The Estado Novo

 Vargas announcing the Estado Novo in 1937Enlarge

Vargas announcing the Estado Novo in 1937

Like the European fascists, Vargas also utilized fears over Communism to justify personal dictatorship. The fascist Estado Novo dictatorship, modeled after Salazar's nominally neutral, quasi-fascist Estado Nôvo in Brazil's mother country, finally materialized in 1937, when Vargas was supposed to step down from the presidency by January 1938 because his own 1934 constitution prohibited the president from succeeding himself. On September 29, 1937, Gen. Dutra presented "the Cohen Plan" (note the Jewish surname) that established a detailed plan for a Communist revolution. The Cohen Plan was a mere forgery concocted by the Integralists, but Vargas exploited it to have Dutra publicly demand "a state of siege" in a chain of events redolent of the Reichstag fire, which Hitler presented as a Communist conspiracy to justify a dictatorship. On November 10, Vargas, ruling by decree, then made a broadcast in which he stated his plans to assume dictatorial powers under the second new constitution of his regime derived from European fascist models , thereby curtailing presidential elections (his ultimate objections) and dissolving congress. Note the fact that Vargas, like Hitler in the Weimar Republic and Mussolini in the postwar Kingdom of Italy, joined the ranks of totalitarian dictatorship, the ranks of Mussolini, Hitler, Franco, and Salazar, in a gradual process within the established political system, not in a single coup d'état or revolution.

Although avowedly "totalitarian," the Estado Novo was it cannot be emphasized enough that Vargas' regime was comparatively benign next to those of the European fascists, especially Nazi Germany. Though like the European fascists, Vargas abolished opposition political parties, imposed rigid censorship, established a centralized police force, and filled prisons with political dissidents, while evoking a sense of nationalism that transcended class and bound the masses to the state.

Although his 1938 ban of paramilitary groups also entailed the suspension of the Fascist Integralists, who threatened his personal power, his political and economic policies nevertheless bore extensive similarities to those of Mussolini. Vargas banned strikes and striped workers of the right to organize independent of government-run unions. Vargas, like Mussolini, sought broad power by positioning the state as a mediator between the classes, when, for instance, he set wages and hours for industrial workers, while excluding agricultural workers from such protection, just as Mussolini appealed to the urban proletariat, but disregarded the peasantry. His industrialization policy through central planning under private ownership was another similarity, which demonstrated corporatist rejection of laissez-faire to impose a more orderly capitalism.

The Estado Novo and industrialization

Under the Estado Novo, the state announced an ambitious Five-Year Plan whose goals included the expansion of heavy industry, the creation of new sources of hydroelectric power, and the expansion of the railway network, again, to develop Brazil's capital base. Empirical data can confirm that Vargas was advancing the bourgeois revolution, at least to an extent. By 1940 Brazil's capacity for electricity generation reached 1 million kilowatts, of which 60 percent was located in the São Paulo area, primarily due to the construction of hydroelectric power stations. Cement production increased from 87,000 tons in 1930 to 700,000 tons in 1940. Iron and steel output went from 90,000 tons in 1929 to 150,000 tons in 1939. The number of manufacturing enterprises more than doubled during the decade, reaching 50,000 by 1940. Factories in the São Paulo area employed 35 percent of the industrial labor force and generated 43 percent of the value of industrial production. Aside from the export of textiles, the manufacturing industries served the domestic market almost exclusively.

By 1941, Brazil had 44,100 plants employing 944,000 workers; the comparable figure for 1920 was 13,336 plants with about 300,000 workers. In 1942 the government established the Companhia Vale do Rio Doce to exploit the rich iron-ore deposits of Itabira; in 1944 it created a company for the production of materials needed by the chemical industry; and in 1946 the National Motor Company began the production of trucks. In the same year, Vargas saw the realization of one of his cherished dreams: The National Steel Company began production at the Volta Redonda plant between Rio de Janeiro and São Paulo. Aware of the need of modern industry for abundant sources of power, Vargas created the National Petroleum Company in 1938 to press the search for oil. By 1940 Brazil's, manufacturing output thus increased substantially, but coffee production declined . As a result, to further placate the forces of the old order, the government between 1934-37 and under the Estado Novo also invested considerably in the expansion of coffee production. Coffee was also the principal foreign exchange export earner.

Vargas, the Axis Powers, and the liberalization of the Estado Novo

Despite the fascist nature of the Estado Novo, Brazil eventually sided with the Allies and Vargas eventually liberalized his regime. Brazil, however, had appeared to be entering the Axis orbit—even before the 1938 declaration of the overtly fascist Estado Novo. The resemblance between the Estado Novo and the European police states had earlier suggested to some interwar observers that the Estado Novo was simply a variant of the European fascist model. Between 1933 and 1938 Germany became the principal market for Brazilian cotton, and its second largest importer of Brazilian coffee and cacao. The German Bank for South America even established three hundred braches in Vargas' Brazil. Eventually the consummate pragmatist sided with the antifascist Allies after a period of pitting both sides against each other, forcing them to compete to offer Brazil the most advantageous trade concessions. As late as May 1941, for example, after the invasions of Poland and the Soviet Union, and the beginnings of the Final Solution, Vargas sent a birthday telegram to Hitler, using it as opportunity to convey Brazilian ambiguity, playing both sides against each other. Vargas dispatched a telegram to Hitler saying, "best wishes for your personal happiness and the prosperity of the German nation." Such periodic overtures to the Axis Powers, along with rapid increase in civilian and military trade between Brazil and Nazi Germany caused US officials to constantly ask, "What is Vargas like and where does he stand."

Vargas' coalition was also torn between pro-Allied and pro-German wings. Brazilian generals, such as Pedro Goes Monteiro and Eurico Dutra, Vargas' close collaborators, admired the German military-industrial complex, and were eager to accept German arms deals. The pro-German faction of Vargas' regime was strongest in the military while his elite contributors were more sympathetic to the Allies, due to Brazil's established economic ties with the US and Britain. Since the Allies were more viable trading partners, Vargas eventually sided completely with the Allies, declaring war on Germany and Italy in 1942 and dispatching the Brazilian_Expeditionary_Force to aid the Allied war in Europe. Vargas liberalized his regime because of complications arising from this alliance.

Siding with the antifascist Allies created a paradox at home not unnoticed by Brazil's middle class (of a fascist-like regime joining the antifascist Allies) that Salazar and Franco avoided by maintaining nominal neutrality, allowing them to avoid both antifascist sentiment at home arising from siding with the Allies or annihilation by the Allies. Vargas thus astutely responded to the newly liberal sentiments of a middle class that was no longer fearful of disorder and proletariat discontent by moving away from fascist repression—promising "a new postwar era of liberty" that included amnesty for political prisoners, presidential elections, and the legalization of opposition parties—including the moderated and irreparably weakened Communist Party.


{| style="margin:0 auto;" align=center width=80% id=toc |align=center| History of Brazil: Timeline & Topics
Indians | Colonial | Empire | 1889–1930 | 1930–1945 | 1945–1964 | 1964–present
Military | Diplomatic | Religious