FINANCE
_Brazilian Currency_
In common with other young countries whose gold reserves are
insufficient to back the paper currency used to carry on the ordinary
business of life within her borders, Brazil has been and still is faced
with difficulties in regard to exchange, i. e., the gold value of her
paper and its relation to the face value of that paper. Exchange in
Brazil is the measure of the paper milreis (one thousand reis) with
English money: this standard is the official one as a result of the
preponderance of English finance.
The par value of the Brazilian milreis is twenty-seven pence (fifty-four
cents), but at the end of 1916 it was worth 12 pence, rose to 18 in
early 1920, and later sank below 8 pence. In 1889 the milreis was
actually above par by a fraction of a penny, but later on great
fluctuations took place, almost invariably as the result of the issue of
large quantities of paper money, which, unbacked by gold, are regarded
as of diminishing value in comparison with the gold-backed currency of
other countries.
The present rate of exchange, which is a recovery from the first panicky
drop of paper here, as in many other parts of the world on the outbreak
of the European War, is below a rate which the efforts of Brazilian
financial men succeeded in preserving for eight years by the
establishment of the Caixa de Conversão; continuance of exchange at a
lowered level is probably partly the result of the issue of extensive
amounts of inconvertible paper into circulation for budgetary purposes
since the middle of 1914, and partly on account of the heavy demand for
bills of exchange on London, which began to have their effect from the
time of the Balkan trouble of 1913. The drop would without doubt have
been much sharper were it not for three causes of strength: the first is
the unprecedentedly large trade balance in favour of Brazil in 1915,
amounting to nearly £28,000,000 ($140,000,000); the second is the
Funding Loan which the Federal Government succeeded in making with its
European creditors in the latter part of 1914 and which prevented the
outflow of other large sums in gold; and, third, the strong gold
reserves of the Caixa de Conversão. It is true that these reserves have
been drawn upon until they now stand at less than one-fifth of their
level at the beginning of 1913, but without that stream of gold and its
strengthening effect on circulation it is reasonable to suppose that
exchange would have suffered to a greater extent.
The Caixa de Conversão, which I will henceforth call the Conversion
Office, is Brazil’s concrete effort to fix a rate of exchange; it was
excellent in conception and performed its function admirably until
unforeseen world conditions overpowered its operation. After the
establishment of a Republic in Brazil large issues of paper were for the
first time put into circulation, with the accompaniment of successive
falls in exchange; the proclamation of the overthrow of the Empire found
Brazil with not more than 199,000 contos in paper, but eight years later
the amount had risen to nearly 790,000 and Brazil was obliged to suspend
interest on her debt to Europe. A Funding Loan of ten million pounds
sterling was arranged with Rothschild’s, which had the effect of
checking the fall in the value of the milreis, then (1897–98) down to
eight pence or nine pence, and even touching the threatening level of
six pence; the arrangement included destruction of the debased paper in
considerable quantities, and as this work was accomplished exchange
steadily rose until in another ten years’ time, 1908, outstanding
inconvertible paper amounted to less than 650,000 contos, and the value
of the milreis was sixteen pence. But by this time the Conversion Office
was in operation, thanks largely to the efforts of President Affonso
Penna; this office in 1906 began receiving deposits of gold and issuing
against them convertible paper bills having the fixed exchange value of
fifteen pence; these bills always equalling the amount of gold in the
Conversion Office had the value of actual gold; they differ in
appearance from the ordinary paper currency, and as they always command
a five per cent premium there was created a tendency to hoard them—a
tendency which cannot occur in the case of the bills of the similar
Conversion Office of Argentina, which exactly resemble the ordinary bank
bills.
By the end of 1909 the unbacked, inconvertible paper currency of Brazil
was about 628,000 contos, while the convertible bills of the Conversion
Office amounted to over 225,000 contos, with an equivalent amount of
gold on deposit there; in 1910 it was found possible to raise the
official value of the milreis to the point that the money market
indicated, sixteen pence, and at this rate of exchange all the paper in
the country stood until the outbreak of the European War. At the same
time that the exchange rate was officially raised a rule was put into
operation by which all foreign coins were received by the Conversion
Office at rates based on their mint value, excepting English sterling
which was still accepted at its exchange value.
It is likely that had neither the Balkan nor the great European wars
happened Brazil might have been able to raise again the official value
of the milreis farther towards par; at the end of 1912 and beginning of
1913 the gold-backed paper amounted to over 406,000 contos of reis, and
the unbacked was only 607,000 contos. In spite of the accumulation of
heavy debts Brazil was in such a flourishing condition that she was able
to show convertible currency amounting to two-thirds of the value of the
inconvertible, as against one-sixth in 1907–8. Today, with eighty per
cent of the gold of the early 1914 highwater mark gone from the Caixa,
the convertible currency is but one-tenth of the inconvertible, a matter
for regret, but things are undoubtedly in a much better condition than
had the Conversion Office not existed. Suspension of conversion was
ordered when deposits were reduced to £5,005,000.
Since the middle of 1914 the Brazilian Government has been obliged to
issue nearly 400,000 contos of new inconvertible paper; it has not
actually added more than about 100,000 contos to the total paper
currency, since at the same time a shrinkage in the convertible element
has been proceeding. An emergency issue of 250,000 contos was made in
the autumn of 1914 and another 150,000 was authorized in August, 1915.
During the same period of stress the internal floating debt was added to
by the issue of Treasury Bills to the nominal value of about 250,000
contos: a curious and instructive situation arose from the employment of
these special Bills.
The Government, called upon for currency by national banks which were
embarrassed by lack of paper owing to the financial _crise_, lent them
sums from the emergency issue, charging two and a half per cent
interest. Next, pressed for payment by creditors many of whom were
merchants supplying the various governmental departments, and the
emergency issue being insufficient for the purpose in all cases,
recourse was had to Treasury bills; as these are not legal tender the
merchants were not altogether pleased, and in some cases refused to
accept the bills and had to wait longer.
The creditor who did accept them found himself with paper in his
possession which could not be passed over the counter or paid into a
checking account at his bank, and his only recourse was to sell the
bills for what they would fetch, bearing the loss between their face
value and market price. Although the bills bear interest at five and six
per cent, almost the only buyers were the banks which had borrowed money
of the Emergency issue, for in the meantime the Government agreed to
accept the Bills as repayment of these sums, in a “curso libre,” or
(limited) legal tender.[17] The price of the Treasury bills was always
below par, and the writer saw them quoted in Brazilian newspapers as low
as seventy-six. Buying at this or higher prices the bankers were able to
present them to the Government at their face value in payment for
currency advances, and were thus in the fortunate position of making
profits on borrowed money. Promptly labelled “sabinas” in this country
where everything has a nickname, the Treasury Bills roused a storm of
discussion in the press. Totals of bonds (apolicies) and paper money
issued from August 1915 to October 1916 amounted to nearly 550,000
contos.
In late 1916, the total currency of the Republic stood as regards paper
money at 1,551,122:650$500, over a million contos being inconvertible.
It may be useful here to explain the manner in which Brazilian money is
counted. It is, like the Spanish from which most American systems are
derived, very simple, based as it is on the decimal plan. The
theoretical single _rei_ or _real_ does not exist, the smallest coin now
consisting of the nickel one hundred _reis_.[18]
There is also a coin of two hundred reis, which pays a car fare or buys
the _Jornal do Commercio_, and 400 reis, and a silver 500 reis. The
silver _milreis_ is what it says it is, one thousand reis, and any sum
reckoned in milreis and below a thousand of them is written with the
figures first, followed by the “dollar” sign; thus four hundred milreis
is written 400$000.
One thousand milreis (a million reis) is a _conto_, the colon sign being
written immediately after it. Six contos is written 6:000$000. The
present exchange value of the conto is a little over fifty pounds
sterling.
The following figures, extracted from reckonings made by the _Brazilian
Review_, show some of the variations in paper currency:
December, 1889 195.485:538$
„ 1894 367.358:625$
„ 1899 733.727:153$
„ 1904 673.739:908$
After the establishment of the Conversion Office a new element,
convertible paper, was added:
_Inconvertible_ _Convertible_ _Total_
1907 643.531:727$ 100.032:700$ 743.564:427$
1912 607.025:525$ 406.035:800$ 1.013.061:325$
1914 822.496:018$ 157.786:930$ 980.282:948$
1916 1.060.562:720$ 94.559:930$ 1.155.122:650$
Issues of paper money during war years greatly increased this currency,
but against it the Government held, in 1921, nearly 63 million contos of
gold, in the Treasury and Conversion Office. Besides this amount of
paper there is the coin circulation of nickel, and of silver in
half-milreis, milreis, and multiples.
It is an excellent coinage, of good design, well made and convenient,
that minted since the Republic bearing republican devices, the date of
inauguration of the new administrative plan, etc. But now and again a
handful of change contains a coin bearing the bearded head of Dom Pedro
II, for it is but twenty-seven years since the Empire was ended. A
curious superstition exists among some Brazilians with regard to these
coins; received, they are never passed on, but carefully put away in
some drawer: “it is not good to spend the Emperor,” they will tell you,
handling his image with kindliness.
The six million pounds sterling below which the gold reserves of the
Conversion Office have not been allowed to sink, and to which it has
been possible to add little, back the large amounts of convertible
paper, and, although a greatly shrunken sum, it has its effect in
steadying exchange: another factor in preventing farther breaks, in
spite of the seventy per cent increase in inconvertible paper, is the
earnestness with which the Federal Government and the people of Brazil
are insisting upon a vigorous solution of the problem of the foreign
debt. Individuals in Brazil show themselves no less interested than
officials: letters bearing upon the situation are constantly printed in
the public press, many personal sacrifices have been made of percentages
of salaries by legislators, officials and civil servants, and it is
clear that the ablest heads in Brazil are trying to find a way in which
Brazil can meet her obligations. This sincerity of purpose may not
create gold, but it does strengthen public credit and helps in a more or
less direct manner in restoring confidence which is certainly not
without its effect upon exchange.
More than once a fall of exchange in Brazil has, by an anomaly, actually
saved industries from something near bankruptcy. This is readily
understood when it is realized that exporters of such products as rubber
and coffee, cacao and hides, selling in the markets of London, Paris,
Hamburg or New York, are paid in gold, while they pay their day
labourers in paper. To the Brazilian interior it is of little interest
that the bankers of Rio say that it takes another milreis paper to
purchase a gold pound sterling; the country markets do not reflect such
_nuances_, unless, indeed, a fall should be heavy and continued in which
case it must in course of time react upon the whole country. But a
temporary depression does not affect the amount of black beans or
mandioca that can be bought with a milreis, and neither the rubber
collector of the Upper Amazon or the more sophisticated worker upon a
_fazenda_ of coffee or cattle will demand a rise in wages because
exchange goes down for a time. To the exporter the fraction of a milreis
makes all the difference between prosperity and ruin, and both rubber
and coffee have benefited thus by temporary low rates of exchange; the
present crisis has certainly been smoothed to the agriculturist, the
producer and exporter, of Brazil, by the fall in exchange since the
middle of 1914, the paper receipts of the country showing marked
inflation due to the larger number of milreis bought by the foreign gold
paid for these products. Low prices received abroad for coffee and
rubber are thus compensated, and when, as has happened since the war
began, prices have been better than had been predicted. It is not to be
wondered at that there is a feeling of prosperity in Brazil and that
money is abundant among certain classes in spite of administrative
difficulties.
The people who really suffer from fallen exchange are, besides the
governments owing sums abroad which must be paid in gold, the importing
houses which have bought in gold and must sell in depreciated paper, and
which cannot always adjust paper prices to fit the monetary market; the
transportation companies, too, whose rates are fixed now find themselves
with paper in hand of a lowered value abroad; it is true that their
obligations to employees are paid in paper, but since most carrying
companies are owned or leased in Europe, and dividends must be paid in
gold, earnings are very much reduced when large quantities of additional
paper are needed to buy bills on London. Every railway, port company,
street-car line and lighting and power company which derives its capital
from outside Brazil has seen its dividends cut down during the last two
years even if earnings have been larger and expenses reduced.
[Illustration:
Ministry of War, Rio de Janeiro
Avenida Nazareth Belem (Pará)
]
Large foreign debts have of course a depressing effect upon exchange in
the long run, but at the time when the loans have been made there has
almost always been a rise corresponding to the influx of gold; this
effect was a marked cause of wild ups and downs of exchange in the
palmiest days of the present century. I have frequently asked bankers in
Brazil if they would like to see an absolutely stable rate of exchange:
more than once the answer has been Yes, and the examples of the
stabilized countries of the world quoted as showing that real financial
strength can only be obtained with a firmly gold-backed currency. But
even the most conservative banker will admit that variations in exchange
have been the cause of large earnings on the part of financial houses in
Brazil, and it is certain that fluctuation is not only the source of
many fortunes, but that it materially lends itself to the promotion of
the gambling spirit that helps both to make and to undo a young country;
it is a spirit prevalent in many parts of Latin America and perhaps
particularly in Brazil where such spectacular turns of Fortune’s wheel
have been seen from time to time in different parts of the country.
_Investment in Brazil_
Investment in Brazil from other countries has been of three chief kinds:
blood, brains, and money. The investment in blood came during the
sixteenth, seventeenth and eighteenth centuries almost exclusively from
Portugal—with a forcibly introduced negro element from Africa at the
same time—while during the nineteenth century colonies were introduced
of a remarkably wide variety of peoples; the investment in brains came
so far as technical skill is concerned almost directly as a result of
the great investment of the third element, money, which began soon after
the erection of the monarchy in Brazil in 1808, flowed steadily for
eighty years, and increased to a golden torrent after the establishment
of the republic in 1889.
Nearly the whole of the investment of manhood, skill, and gold came from
Europe. Brazil’s debt to other parts of the world is small. The African
slave contributed more towards the opening-up of Brazil than any other
race, and it is almost impossible to conceive of a flourishing Brazil
without him during at least the first three centuries after Portuguese
possession; the Asiatic only came here in noticeable numbers since the
beginning of the present century, and the Oriental is not a strong
element. North America has done remarkably little for Brazil. With the
exception of a few technically skilled individuals, and the ill-fated
little colonies which sought a home here after the Civil War in the
United States there has been practically no investment in personality
until within the last few years, when branches of American businesses
have sent resident employees to Brazil: investment in money is still in
its infancy so far as Government or State loans[19] are concerned,
development work in railways, docks, harbours, or city improvements, and
it is only within the last few years that North American money has made
timid entry into Brazil for the establishment of industries. The opening
of branches of North American financial establishments in Brazil dates
only from 1915, and the capital so far employed is insignificant in
comparison with that of the powerful European banks, established in
South America for a couple of generations.
No Brazilian securities were, up to the end of 1916, listed upon the New
York Stock Exchange, for the simple reason that there were practically
no North American investments in South American securities; but since
the war, changes in the world’s finance have induced a lively interest.
The British investment in Brazilian securities, apart from many
enterprises and businesses of a private nature, were reckoned at the
commencement of 1916 at £226,719,052, or the equivalent of about
$1,133,595,000. The French investment is estimated at Fr. 1,500,000,000
or some $300,000,000, and that of Belgium, with considerable railway
interests, at about half this sum; Germany and Portugal also hold a
certain quantity of Brazilian securities.
The following are the most important securities represented by the
British investment in Brazil; the list shows that it was this money,
more than any other element, which contributed to the opening-up of
Brazil in the nineteenth century, giving her railways, public utilities,
and helping to operate a number of industries. There was no philanthropy
about this stream of bright pounds sterling. South American investments
were expected to return a better rate of interest than did similar
securities in Great Britain, and frequently results justified the hope.
The average return on British investments in South America, which
altogether total about £1,050,000,000 (say $5,250,000,000) in 1913 was
four and seven-tenths per cent; this average dropped to three and
one-half in the first year of the European War, a showing which very
many profit-earning corporations in other regions of the world would
have been glad to equal in that critical time.
BRITISH INVESTMENTS IN BRAZIL
_Railways_
_Amount invested, _Name_
1916_
£605,569 Brazil Great Southern
£341,000 Brazil North Eastern
$57,835,200 Brazil Railways, 5 classes[20]
£4,187,650 Great Western of Brazil, 4 classes
£15,893,429 Leopoldina, 6 classes
£2,600,000 Madeira-Mamoré
£4,000,000 Mogyana Sul-Mineira
£100,000 Quarahim International Bridge
£6,000,000 São Paulo (to Santos)
£3,175,000 Sorocabana
£900,000 Southern São Paulo
_Public Utilities_
£1,154,700 Port of Pará
£115,800 Cantareira Water Co. (S. Paulo)
£1,321,900 City of Santos Improvements, 4 classes
£2,003,000 City of S. Paulo Improvements
£1,200,000 Manáos Harbour and Manáos Improvements
£349,000 Pará Improvements
£1,761,875 Rio de Janeiro City Improvements, 4 classes
£1,423,400 Central Bahia Railway Trust, A and B
£275,000 S. Paulo Gas, 2 classes
£2,571,871 Rio Claro Ry. and Investment, 2 classes
£527,800 Amazon Telegraph, 2 classes
£91,000 Pernambuco Waterworks, 2 classes
£596,000 Manáos Tramways
£1,384,449 Pará Electric, 4 classes
$110,361,400 Brazilian Traction, Light and Power, 2 classes
$1,400,000 Jardim Botanico Tramways
$28,013,500 Rio de Janeiro Tramways, Light and Power, 2 classes
$6,821,917 S. Paulo Tramways, Light and Power, 2 classes
$2,000,000 S. Paulo Electric
(The five last mentioned companies are registered in Canada, and the
securities are thus issued in dollars, although the stock was largely
held in Great Britain and Canada, prior to the European War.)
_Industrial Companies_
£1,182,400 Dumont Coffee Estates, 3 classes
£120,000 S. Paulo Coffee Estates
£150,000 Agua Santa Coffee Co.
£646,265 S. Juan del Rey Mining
£643,601 Rio de Janeiro Flour Mills
£100,154 North Brazilian Sugar
£100,000 Mappin and Webb (Rio and S. Paulo)
£850,000 Brazilian Warrant Co.
At the same time the British share in the total foreign debts of the
Federal, State and Municipal governments are estimated at about
£150,000,000 out of aggregate obligations of some £180,000,000. These
debts are treated in more detail on another page.
There are very many enterprises carried on with British capital which do
not figure upon the Stock Exchange, or are branches of businesses which
do not differentiate the capital employed in Brazil. Included in one or
other of these classes are the shoe factories belonging to Clarke
(Glasgow) in São Paulo; the cotton-spinning mills of Coats, also heir of
Scotch skill; several cotton cloth mills, as the Carioca in Rio, and
others in Petropolis and Campos; sugar factories in Pernambuco, etc.
Included also in money investments should be counted the eight and a
half million pounds of paid-up capital of the three British banks, the
British Bank of South America, the London and Brazilian and the London
and River Plate, which total with their branches to twenty-four
establishments. It is impossible to say what part of the huge shipping
investment serving Brazil should be included, but it is a highly
important element and quite the greatest developing factor in Brazilian
commerce; the Royal Mail is the great popular passenger and freight
line, while Lamport & Holt, Booth, Harrison, the Prince, Johnson, and
other smaller lines do a big Brazilian business.
Among firms doing energetic work and with large capital invested are the
two great coal firms, Wilson’s and Cory’s, with their depots for Welsh
coal, their fleets of lighters, repair equipment, salvage departments
and stevedoring; old-established commercial firms such as Stevenson’s
and Duder’s in Bahia, chiefly occupied with cacao export—the latter in
addition to other activities maintains a fleet of modern whaling boats,
and a factory for refining whale-oil; there are the “dry goods” stores
of Sloper’s series; the new house of Mappin; the Brack firm in
Pernambuco; all these and a score of other classes are not only
commercial developers but in a greater or smaller degree employers of
Brazilian labour. There are British cattle breeders, sugar and cotton
growers, owners of coffee and cacao estates, operators of ironworks,
foundries, schools, bookshops, oil-depots, and many other enterprises.
The total British investment of money in Brazil cannot be under
£300,000,000.
The external debts of the Brazilian States and Municipalities have
varied very little since 1913–14. Loans became difficult to obtain from
the beginning of Balkan troubles, while since the outbreak of the great
European War there have been no additions to cash advances and in only a
few cases has there been substantial reduction of debts. On the
contrary, most debtor States and cities found it necessary to make
funding arrangements by which specie payments were suspended for a
number of years—measures which gave temporary relief, but seriously
increase the amount of money to be paid annually when the funding period
comes to an end.
Certain states, as São Paulo, Rio de Janeiro, Paraná (paid up until the
autumn of 1917), Espirito Santo, and the Federal District, have made
gallant efforts to avoid piling up debt in this way, and by severe
economy have continued to pay interest on their foreign obligations. The
sacrifice has not been small, for with depressed exchange it has taken
an unusually large number of paper milreis to buy sterling, and at a
time when it has not been easy to collect even paper revenues. The
effort is all the more creditable.
With the worst part of the 1921 crisis past, state finances have been
materially eased by calls for Brazilian products at enhanced prices, and
there is a perceptible restoration of confidence, at the end of 1922. In
some districts the post-war boom proved an undisguised blessing,
bringing profits that could not have been looked for under normal
conditions: coffee, hides, rubber, cacao, frozen meat, sugar and
manganese, have all brought stimulated prices, and many home industries,
such as coal mining and cotton spinning and weaving, have been greatly
encouraged.
In round numbers the external debts of the separate states of the
Brazilian Union appear to amount to about forty-seven million pounds,
with the municipalities adding another twelve or thirteen million
pounds.
The British interest in these loans is largely dominant, but important
sums of French money have also been invested. Brazil’s direct debt to
France includes £10,400,000 for three loans with which the Bahia, Goyaz,
and Corumbá railways were constructed; there are also state debts, that
of the State of Pará being held by Meyer Frères of Paris, while the
Société Marseillaise holds the bonds of the big Amazonas debt. Part of
São Paulo’s debt is owed to the Société Générale, and the State of
Espirito Santo owes nearly two million pounds to the Banque Française et
Italienne, as well as large sums about which a dispute rages, advanced
by the French Hypothecary Bank established at the port of Victoria.
There is a good deal of French money sunk in the Madeira-Mamoré railway,
one of the Farquhar undertakings which cost the equivalent of more than
six million pounds sterling, fifteen hundred livres, is said to need
much reconstruction already (opened to traffic in 1912), and does no
more than pay its way. French bondholders also hold part of Minas Geraes
debt, and of that of Rio de Janeiro. French engineers, operating with
French money, built several of the existing railways, notably the
Auxiliaire de Chemins de Fer au Brésil with 1,400 miles of track; it was
a French firm, the Compagnie Française de Rio Grande do Sul, formed in
Paris in 1906, which put one hundred and fifty million francs into the
port works of that southerly city, opened to shipping in November, 1916.
French companies also began the port works of Pernambuco, checked by
money paralysis after 1914, and constructed the new harbour facilities
of Bahia.
When the much-discussed “Missão Baudin” came to Brazil in 1915, it was
with the object of investigating the condition of the properties in
which French money was concerned, and the chief member of the party was
also credited with an effort to induce the Brazilian Government to
guarantee the rather clouded State obligations to French bondholders.
German investment in Brazil is, as regards money, not of great
importance; it is largely confined to the loans made by the Dresdner
Bank, and to capital expenditures in the southern states, including the
construction there of a couple of small railways. There has, however,
been great investment of blood and energy, there are many strong German
commercial houses and retail stores in all districts, and to Germany was
due the first granting of long and easy credit facilities to Brazil.
Germans have been largely interested in the coffee and rubber
businesses. The Brasilianische Bank für Deutschland operates with a
capital of fifteen million marks, and the Banco Alemão Transatlantico is
another strong German financial house.
This summing up of European investment in Brazil, incomplete as it is,
serves to demonstrate the extent to which Brazil has been opened up by
Europeans. The European has asked for Brazilian raw products, brought
ships to carry them, built ports for the ships to lie in and railroads
to freight the products to the ports; has sold manufactured goods and
lent Brazil the money with which to pay for them, and established banks
for financial operations connected with the business created. Millions
of hardy and industrious people have gone to live in Brazil and to bring
the land into cultivation, to educate their children as Brazilians and
help in the mental progress of the country.
When, therefore, some of the less thoughtful journals of the United
States turned their eyes towards South America at the outbreak of the
European War and protested loudly that this country was not getting her
“share” of commerce, it was rather as if the cuckoo complained that she
was not getting her share of the robin’s nest. To accuse Europe of
monopolizing Brazilian trade is like accusing water of monopolizing the
river. Brazil, in fact, like the whole of the Americas, had no trade
until Europe created it by calls for natural products, supply of
transportation means, and loans of money for development work.
Today the situation is changed. It was inevitably changing as North
America herself became during the last fifty years herself a caller for
raw products, and began to take great quantities of Brazilian coffee and
rubber, drugs and hides. Her sales to Brazil, despite the drawback of
the shipping triangle, have been increasing for some time along certain
highly specialized lines, but sales and purchases are not sufficient to
create a permanent link between countries, especially when conducted
through the medium of a third person as freighter and banker. The
European War brought about as no other awakening process perhaps could
have done, a realization of the new duty of the United States to South
America: it is part of her inheritance from Europe. It is the work that
lies to her hand: if she will do it, there is no one better fitted at
the present time; if she will not she loses an extraordinary chance for
both service—and profit.
She must not think only of buying and selling, and when she is occupied
with this trading she must remember that to her as to South America,
sales of North American goods are less important than purchases of South
American raw materials. It would not matter very much to the United
States if she did not sell anything to Brazil: the probability is that
more money has been spent on making sales, so far, than the profits
amount to. What does matter is that North American manufacturers should
continue to be supplied in vast and increasing quantities with South
American hides for the use of leather manufactories; with ivory nuts for
the button industry; with the coffee that cannot be grown in northern
climes; with rubber and fibres and tannin materials; and with the
minerals that exist in the sands and rocks of South America in
unexampled variety and which can be there produced at half the cost that
North America is forced to pay for labour.
Apart from trading there is a great need for more investment in Brazil,
for more opening of great spaces, planting of fields, lumbering,
road-building, mining, cattle-raising. There is space for twenty million
people in the cool temperate zones alone, excluding tropical areas. Is
the United States ready to take up the task which Brazil cannot perform
alone, however seriously she attacks her problems? Is she prepared to
devote to this work blood, brains and money?
Entry of North American interests into Brazil has been steadily
increasing for the last ten years, and was hastened after the outbreak
of the European War; there has been noticeable since then much more
energy on the part of individuals and small firms. Before 1914 the bulk
of United States work done in Brazil was part of the international
campaign of such big firms as Standard Oil or the Singer Sewing Machine
Company. Oil has its rivals in other companies, also with depots on the
coast, but the Singer machine has almost a South American monopoly;
locomotives, cars, elevators, most of the typewriters, electrical
equipment, and quantities of agricultural machinery, are sold by
American houses with branches in Brazil. Agricultural, printing and shoe
machinery of United States origin also seems to make good sales.
In 1915 the National City Bank of New York opened branches in Santos,
Rio and S. Paulo; the United States Steel Corporation started a line of
freight steamers, and was followed by a number of new lines.
The two great Light and Power companies of Rio and S. Paulo are
Canadian, but some of the capital, equipment and personnel are from the
U. S.; one of the two existing packing-houses is Chicagoan in capital,
equipment and personnel. Several of the allied enterprises of the Brazil
Railways Company are American managed and equipped, as the lumber mills
at Tres Barras and the cattle company, as well as part of the
transportation lines. The Brazil Railways is the largest
American-registered company in Brazil, but is rather an example of how
not to do things in South America, for although a few interests, as
those cited above, are doing well, the company as a whole is in the
hands of a receiver. The time is probably past when money could be
obtained in Europe by persons registering a company in a second country
to spend it in a third, and what is most needed now is continued and
genuine development work actually financed from North America.
Most of the United States firms with agencies in Brazil are sellers, but
among the purchasers are several coffee-importing houses and, with the
eclipse of German traders, the greatest rubber dealers, while the past
year has seen American agents coming to Brazil to increase takings of
manganese, precious stones and hides.
_The State Debts_
The figures given below are in round numbers only, and are without the
additions which the Funding loans entail; all sums are in pounds
sterling:
_State_ _External Debt_
Alagôas £ 500,000
Amazonas 3,000,000
Bahia 3,875,000
Ceará 600,000
Espirito Santo 1,160,000
Maranhão 720,000
Minas Geraes 6,800,000
Pará 2,040,000
Paraná 2,200,000
Pernambuco 2,370,000
Rio de Janeiro 3,000,000
Rio Grande do Norte 350,000
Santa Catharina 220,000
São Paulo 20,350,000
The States of Goyaz, Matto Grosso, Parahyba, Piauhy, Rio Grande do Sul
and Sergipe have no external debts.
The Funding Loan arranged by the State of Pará adds another £1,070,000
to her debt; the Funding Loan of Minas Geraes adds £600,000 and that of
Amazonas, £850,000.
The external debts of Brazilian municipalities, also borrowers from
Europe, are about as follows, round numbers again being used:
Federal District of Rio de Janeiro £4,395,000
Manáos (Amazonas) 214,000
Belem do Pará 750,000
plus Funding Loan 88,500
Recife (Pernambuco) 400,000
Bahia 2,000,000
São Paulo 750,000
Santos 1,000,000
plus Funding Loan 118,000
Other municipalities in S. Paulo State 685,000
Porto Alegre (Rio Grande do Sul) 600,000
Pelotas (Rio Grande do Sul) 600,000
Bello Horizonte 216,000
_Federal Debts_
On the outbreak of war in Europe in August, 1914, the foreign debts of
the Federal Government of the United States of Brazil amounted to
something over £102,000,000. President Wencesláo Braz inherited
obligations which had been enhanced by about £30,000,000 during the
previous four-year régime of Marechal Hermes da Fonseca. Brazil’s
reputation as a good world customer had long permitted her to borrow
freely, often paying old debts or interest with new loans, and piling up
deficits as the most facile solution of economic complications.
The world shock of 1914 brought exchange down with a run, and, although
it recovered from the first fall, it was soon evident that Brazilian
credit could not bring it back to its old level, and that the financial
burden of the country, its obligation to pay foreign debts, would be
rendered still more onerous by this depression; it would take just so
many more milreis, with Federal receipts perilously lessened by the
stoppage of imports, to buy pounds sterling, than in normal times.
Brazil asked her foreign creditors for relief, obtained a Funding Loan
by which payments on interest and amortization were suspended until
October, 1917. As the specie payments called for by the foreign debt
would have needed about £5,200,000 in both 1915 and 1916, a burden was
lightened, for the time, which the increased balances of trade during
the intervening period have also helped to lift. But between 1914 and
1918 the Foreign Debt was increased by nearly £12,000,000 of accumulated
interest, and the sums required for annual service were more difficult
to find after the depreciation of the milreis in 1920. In 1920 the total
nominal Foreign Debt was £120,400,000, plus 325,000,000 francs. Later,
Brazil borrowed a few millions from the United States, and in early 1922
again borrowed successfully in London. The internal debt, at the
beginning of 1921, amounted to over one million contos. It will be seen
from the following list that while nearly £12,000,000 came from France
yet the great bulk of the borrowed sums came from England originally: a
considerable proportion of the original sums—apparently about forty per
cent—were destined to the construction or acquisition of railways and
port works in the Republic.
BRAZIL’S EXTERNAL STERLING DEBT, DECEMBER 31ST, 1920
STERLING
Loan— £ _s._ _d._
1883 4,599,600 0 0
1888 6,297,300 0 0
1889 19,837,000 0 0
1895 7,442,000 0 0
1898 (Funding) 8,613,717
1901 (Recision) 16,619,320 0 0
1903 (Port Works, Rio de Janeiro) 8,500,000 0 0
1908 4,000,000 0 0
1910 10,000,000 0 0
1911 (Port Works, Rio de Janeiro) 4,500,000 0 0
Ceará Railways, 1911 2,400,000 0 0
Lloyd Braziliero, 1906–1911 2,100,000 0 0
Loan—
1913 11,000,000 0 0
1914 (Funding) 14,502,396
───────────────────────────────────────────────────────────────────────
Total nominal 120,411,334 0 0
FRANC DEBT
1908–1909—Loan for the construction of the Itapura to 100,000,000
Corumbá Railway
1909—Loan for the Port Works at Pernambuco 40,000,000
1910—Loan for the construction of the Goyaz Railway 100,000,000
1911—Loan for the construction of the Viação Bahiana 60,000,000
network of railways
1916—Goyaz Railway loan, responsibility for which was 25,000,0000
assumed by the Government by Decree No. 12,183 of
August 30th, 1916
───────────────────────────────────────────────────────────────────────
Total nominal Fr 325,000,000
This would be an exceedingly heavy debt if Brazil were an old,
exploited, filled up country with no spare lands and her natural
resources tapped; Brazil’s reason for hopefulness lies in her youth, the
vast undeveloped land and mineral resources of her patrimony, her good
credit among the nations, and the sincerity with which her statesmen are
attacking the task of resuming interest payments.
Brazil has a big income, but it needs to be increased before she can pay
her debts without a strain; the President has repeatedly declared his
firm intention to sustain payments at whatever sacrifice, and has
recently called the States into conference with a view to devising new
methods of raising revenue. In the Budget estimates of the Federal
Government for 1921 revenue was reckoned at 102,000 contos gold (milreis
= twenty-seven pence) and 624,761 contos paper (probably a fraction over
twelve pence); expenditure at the same time was calculated at 75,680
gold and 711,640 paper contos, including in the gold payments the
service of the foreign debt.
The Federal Government’s chief revenues are derived from import taxes,
impartially placed upon entries into all the States; income of the
States is mainly derived from export dues, while municipalities get
revenues from imposts upon professions and industries, and manage
sometimes to get a share in export dues. The Acre Territory, purchased
by the Brazilian Government from Bolivia in 1903, is the only part of
Brazil paying export as well as import dues to the Federal authorities,
this contribution coming from rubber.
To help raise new revenues, _impostos do consumo_ (excise) have been
increased on articles consumed in the country, the addition to the
burden of the retailer and the consumer himself raising some outcry, as
has also the suggestion to put on railway freight imposts. The States,
exporting larger quantities of goods than normally, are not so badly
placed as the Federal Government, but that they look upon the matter of
raising income from produce exported with different eyes in different
parts of the republic is shown by a look at some of the export tax
figures for 1922; these figures are not constant, as the _pauta_ is
frequently changed by the officials of exporting points in response to
conditions in international markets:
Coffee, the premier export of Brazil, pays to S. Paulo an export tax of
9 per cent, plus five francs a bag for Valorization service; in Minas it
pays 8½, plus five francs a bag, used for administrative purposes; Bahia
coffee pays 10 per cent of its value, Pernambuco 4.8, Paraná 30 per
cent, Santa Catharina 8, Espirito Santo 12½.
Cacao pays in Bahia 14 per cent of its value; in Amazonas 5 per cent; in
Pará 5 per cent; in Maranhão 4 per cent.
[Illustration:
Fishing Boats of North Brazil.
]
[Illustration:
Rocks at Guarujá, near Santos.
]
[Illustration:
Bertioga, the Old Entrance to Santos.
]
[Illustration:
Cantareira Water Supply, São Paulo.
]
Sugar pays in Pernambuco, the principal producing state, 8 per cent,
with additional charges bringing this to nearly 10 per cent for
interstate, and 12 per cent for foreign, exports; in Bahia, 4 per cent;
Alagôas, 7.8; Paraná, 4.4; Rio sugar pays 2½ to the State and 2 per cent
to the municipality of Campos.
Rubber pays 15 per cent of its value in Amazonas, or half of the amount
paid in the palmy days of the industry; Pará charges 18 per cent; the
Acre, 6 per cent; Matto Grosso, 10 per cent.
Cotton pays 11 per cent in Pernambuco, nearly 12 in Alagôas, 8 per cent
in Bahia.
Hides pay 20 per cent in Amazonas; Maranhão, two cents a kilo;
Pernambuco, 18 per cent; Alagôas, 13 per cent; Bahia, 15 per cent;
Paraná, and Santa Catharina, 10 per cent; Rio Grande do Sul, 10.5; Matto
Grosso, 6 per cent.
Tobacco pays a variety of dues, ranging from 12 per cent in Bahia, the
chief exporting point, to 4 per cent in Pernambuco and the southern
States.
Matte pays 3.6 in Rio Grande, 46 reis a kilo in Paraná and 20 reis a
kilo in Santa Catharina.
Frozen meat, a new industry, escaped taxation until September, 1916,
when Rio put on a tax of about one-hundredth of an American cent per
pound, a delicately weighted burden, which a vigorous industry can stand
perfectly well if it is not multiplied too much.
_Principal Banks in Brazil_
Certain strong banks, as the three of British origin (London and
Brazilian, London and River Plate, and the British Bank of South
America), have branches or agencies at several places, the two first
possessing establishments in every important town; the National City
Bank of New York has three Brazilian branches (Santos, Rio and S.
Paulo); the French-Italian Banque Française et Italienne and the
(French) Crédit Foncier have several branches besides the establishments
in Rio and S. Paulo, as also have the (German) Banco Alemão
Transatlantico, Brasilienische Bank für Deutschland, and the
Sudamericanische, the (Spanish) Banco Español del Rio de la Plata, and
the (Portuguese) Banco Nacional Ultramarino, and the (Italian-Belgian)
Italo-Belge.
The Banco do Brasil is the strongest Brazilian bank, with headquarters
in Rio and many branches. In addition to the houses spreading all over
Brazil each State has its own banking firms established in the capital.
In banking power the Federal Capital, Rio de Janeiro stands first, with
a capital of nearly 46,000 contos of reis; S. Paulo is next, with
banking capital of over 13,000 contos; Rio Grande do Sul comes third,
with over 11,000 contos, Minas Geraes following, succeeded by Bahia and
Pernambuco, Pará and Amazonas.
The chief banks of Rio, in addition to the three British, one American,
and other foreign banks above mentioned, as well as the Banco do Brazil,
are the Banco Commercial do Rio de Janeiro; the Banco do Commercio;
Banco do Estado do Rio de Janeiro; Mercantil do Rio de Janeiro; and the
Lavoura e Commercio do Brasil. São Paulo, besides the foreign
establishments, has the Commercial do Estado de S. Paulo; Banco do
Commercio e Industria de S. Paulo; Banco de S. Paulo; Banco de Credito
Hypothecario e Agricola do Estado de S. Paulo; the Banco de Construcções
e Reservas, and the União de S. Paulo.
Among the local banks doing excellent service are the Hypothecario e
Agricola do Estado de Minas Geraes (headquarters in Bello Horizonte);
the Provincia do Rio Grande do Sul; Banco do Porto Alegre; the Banco do
Recife (Pernambuco); the Commercial do Pará; Credito Hypothecario e
Agricola do Estado da Bahia; Banco do Ceará; Banco do Maranhão; but many
other places also have comparatively small banks, and in addition there
are many private “Casas bancarias”—financial houses—strongly entrenched,
doing sound and useful work.