Brazilian Economy Under the Kubitschek Administration

The government of Juscelino Kubitschek (JK), which spanned from 1956 to 1961, marked a milestone in the history of Brazil. It was a period of intense industrial transformation and rapid modernization, when the country tried to change its economic base in only a few years. During his presidency, Kubitschek implemented the ambitious Plano de Metas (Goals Plan), whose motto was “50 years in 5,” aiming to accelerate national development. This plan involved numerous ambitious investments, including the construction of Brasília as a new capital. However, such initiatives also brought detrimental consequences to the country’s economic stability, especially high levels of government debt and inflation. The problems arising from unrestrained development would only be solved many years later.

The pursuit of national development

In 1955, during his electoral campaign for the presidency, Juscelino Kubitschek (JK) highlighted the transition phase through which Brazil was passing. The country was moving from an agrarian past toward a future imagined as industrial and urban. This was reflected in the economic data of the time: in 1956, the agricultural sector represented a share of GDP similar to that of the industrial sector, around 21% of the total.

Upon assuming government in 1956, JK faced a challenging economic scenario. Inflation was declining but still high, while structural changes in the Brazilian economy had become urgent.

In response to these challenges, his government adopted a national-developmentist strategy. The approach sought to catalyze national development with a special focus on industrialization. This movement was symbolized by the ambitious motto of “50 years in 5”, reflecting the intention to significantly accelerate the country’s development. As explained by Brazilian historian Boris Fausto, national-developmentism distinguishes itself from traditional nationalism by its openness to foreign capital. In this view, promoting national industry was not enough: industrialization would depend on a mixed economy in which public coordination, Brazilian business, and foreign capital worked together.

With the aim of structuring this vision and ensuring its execution, JK created the Development Council (Conselho do Desenvolvimento) in 1956. It was Brazil’s first permanent body for economic planning. Under the leadership of Lucas Lopes, also president of the National Economic Development Bank (Banco Nacional de Desenvolvimento Econômico, BNDE), the Council brought together various ministries and governmental bodies. Its task was to simplify state bureaucracy, organize economic planning, and identify sectors with growth potential. This body was directly subordinate to the Presidency and helped prepare the ground for a new era of industrial and urban prosperity.

The Goals Plan

The Plano de Metas (Goals Plan) represented the cornerstone of developmentism during the government of Juscelino Kubitschek. It is acknowledged as the most complete and coherent set of investments ever planned in the Brazilian economy. Drafted by the Development Council, the plan was a five-year project drafted by the Development Council and organized around the following key areas:

• Food
• Education
• Energy: with 43% of the total investments.
• Heavy industry, especially steelmaking: 20% of the total.
• Transports, especially road transportation, with the installation of foreign vehicle manufacturers in Brazil, but also significant investments in the shipbuilding industry: 30% of the total.
• Construction of a new capital for the country: the city of Brasília, considered the ultimate goal (meta-síntese). Originally, it was not included in the plan, but was later added as the 31st and final goal. It would be built up with money apart from the budget.

The roots of the Plano de Metas date back to ideas discussed at the Higher Institute of Brazilian Studies (Instituto Superior de Estudos Brasileiros, ISEB), an institution linked to the Ministry of Education and created in 1955. The institute’s intellectuals, professors, military personnel, and politicians defended the combination of domestic and foreign capital as a way to overcome underdevelopment. This vision was reinforced by the Report of the ECLAC-BNDE Group of 1955. Although the report was not implemented, it strongly influenced the Plano de Metas by identifying key areas for investment and potential bottlenecks in the economy.

The Plano de Metas was based on an economic triad, with the following division of competences among the entities involved:

• 50% of the invested capital would come from the State, aimed primarily at infrastructure and capital goods. The budgeted amount for the plan represented about 5% of the real GDP estimated for Brazil in the period from 1957 to 1961.
• 35% would come from national private capital, focused on non-durable goods — even though Brazilian companies had difficulties in replacing their depreciated machines, due to the context of inflation.
• 15% would come from foreign capital, focused on durable goods, often with the support of public financing.

During the JK government, one of the elements that most encouraged the establishment of multinational companies in Brazil was Instruction 70 of SUMOC, the central bank measure introduced in October 1953 by Getúlio Vargas. It implemented protectionism through multiple exchange rates that favored companies operating inside Brazil. In practice, access to the growing Brazilian market was largely reserved for companies operating within the country.

Financing and execution

When the Brazilian government launched the Plano de Metas, it opted not to initially disclose details about how it would be financed. This strategic decision aimed to circumvent the expected criticism that would arise in the private sector in the face of such an ambitious plan. Over time, the main sources of money for financing the plan became clear.

One of them was money issuance, a resource used by the government because it had difficulty in raising enough money through the sale of bonds, making monetary emission a crucial component for financing the plan.

Resources in Brazilian national currency came from several channels. The federal government’s budget supplied about 40%, including the reallocation of funds from other areas. State governments supplied 10%, while private and state-owned companies supplied 35%. Public banks supplied the remaining 15% through long-term credit on favorable terms, including low interest rates and grace periods. Considering the inflationary scenario of the time, these loans were characterized by having real negative interest rates.

As for resources in foreign currency, these came from loans with international organizations and official foreign entities. They also came from investments made under the guidelines of Instruction 113 of SUMOC, enacted in January 1955 during the government of Café Filho. This instruction allowed more than half of the foreign investments during the JK government to occur through the import of capital goods without exchange coverage — that is, without the capital movements in foreign currencies.

The Development Council was in charge of executing the investments foreseen in the Plano de Metas, through the supervision of its internal executive groups. These groups functioned as a parallel structure to the traditional state bureaucracy and were responsible for reviewing the goals of the Plan as they were achieved or in the face of potential setbacks.

Despite challenges and obstacles, most of the objectives of the Plano de Metas were fulfilled, both in the public and in the private sector. The strongest results came in sectors tied directly to industrialization and transport. Highway construction surpassed forecasts by 38%, electric power reached 72% of the goal, and vehicle production reached 78%. However, coal production, oil refining, and railway construction remained well below their targets. Coal reached only 23% of the goal, oil refining reached 26%, and railways reached 32%, although the creation of the Federal Railroad Network (RFFSA) was generally seen as a positive outcome.

The Monetary Stabilization Program (PEM)

In October 1958, faced with an economic scenario marked by rising inflation, the Brazilian government decided to introduce an intervention strategy called the “Monetary Stabilization Program” (Plano de Estabilização Monetária, PEM). This plan was developed by Lucas Lopes, who had recently taken over as Minister of Finance, in collaboration with Roberto Campos, president of the National Economic Development Bank (BNDE). The goal of the PEM was to apply contractionary measures gradually while preserving the development agenda. It aimed for economic stabilization without hindering the country’s development.

The PEM was structured in two main phases. The first was a transition and adjustment period that would last until the end of 1959. It aimed to correct inflationary distortions and promote real, rather than merely nominal, wage adjustments, responding to a growing social demand for greater equity. The second phase would focus on stabilization itself, with the goal of limiting the expansion of the money supply to what was strictly necessary to ensure sustainable growth of the Gross Domestic Product (GDP).

Among the measures proposed by the PEM, the establishment of limits to monetary expansion and to the granting of loans by the Bank of Brazil stood out. The program also proposed tax and administrative reforms aimed at greater progressivity and public-service efficiency. Its wage reform intended to link wage adjustments in state-owned companies to tariff increases and to contain wages in the private sector. Indirect restrictions on imports were also proposed, with the aim of resolving imbalances in the balance of payments.

However, as soon as the PEM was sent to Congress, it became the subject of intense controversies, facing a wide range of opponents whose interests were threatened by credit restriction and fiscal discipline. Businesses resisted the idea of a cut in bank credit, on which they depended to finance their working capital. Coffee growers, for their part, viewed any measure that could affect the government’s coffee purchase policy with suspicion. Sebastião Paes de Almeida, president of the Bank of Brazil at the time, opposed cutting the credit to industries. Mayors and governors, interested in maintaining an environment of economic prosperity that brought them political benefits, also stood against the plan. In the world stage, the International Monetary Fund (IMF) criticized the gradualist approach of the PEM, advocating for a more radical adjustment. Lastly, unions feared the contractionary effects of the plan on wage earners, suspecting an arrangement between the Brazilian government and the “imperialists,” theoretically represented by the IMF.

The PEM began to be implemented in January 1959, starting with measures such as the cut in subsidies for the import of wheat and oil. These actions, although aimed at economic stabilization, had immediate impacts on the cost of living, because they increased the prices of essential products while the Bank of Brazil resisted full adherence to the program. The Bank of Brazil therefore remained a source of resistance to the plan.

Over time, the PEM did not achieve its monetary stabilization objectives, mainly because the government opted to prioritize the Plano de Metas. It believed the best strategy to attract foreign investments was an aggressive investment policy, sustaining the idea that Brazil had to deal with a certain level of inflation in order to become more industrialized.

In light of the difficulties encountered by the PEM, there was a change in the economic leadership of the country in mid-1959. Lucas Lopes was dismissed from his position as Minister of Finance, being replaced by Sebastião Paes de Almeida. Simultaneously, Roberto Campos was replaced by Lúcio Meira as president of the BNDE. These changes reflected the dissatisfaction with the PEM and the government’s preference for other economic approaches.

In this context of changing economic policies, the government of Juscelino Kubitschek also decided to break with the IMF. This decision was made after Brazil expected, yet did not receive, crucial support from the Fund in facilitating negotiations of private loans. The JK government publicly announced this stance as a break with the institution, and not just with the negotiations that were underway. The gesture was well received by different political, industrial, and military sectors of Brazilian society. Support came from the Brazilian Labor Party (PTB), the Brazilian Communist Party (PCB), then outlawed, the São Paulo State Industry Federation (Fiesp), and the military leadership.

However, it’s important to note that despite this confrontational stance, Brazil did not cease to be a member of the IMF. In practice, what happened was a gesture of protest against the institution, without a formal break. Moreover, it wasn’t long before the relations between Brazil and the IMF were normalized. The following year, in the context of the visit of U.S. President Dwight Eisenhower to Brazil, the country resumed negotiations with the Fund, on terms considered more favorable for the Brazilian economy.

Conclusion

During the government of Juscelino Kubitschek, Brazil underwent a series of significant transformations that outlined the country’s direction in the following decades. Among the positive aspects, strong economic growth stood out, with the country achieving growth rates higher than the average for both Latin America and the world. After a modest growth of 2.9% in 1956, mainly affected by bad crops, Brazil saw its economy expand significantly. In the subsequent years until 1961, growth peaks varied between 7.7% and 10.8%. This economic expansion was accompanied by significant advances in the integration and inland expansion of the national territory, with investments that established the basis for solving infrastructure problems and facilitating future GDP growth.

In this period, there was a fundamental shift in the composition of Brazil’s GDP, with industry surpassing agriculture for the first time, although the service sector remained more significant than both. This advancement marked the transition from an essentially agrarian economy to an industrial economy. Coffee lost its primacy in GDP, despite continuing to be a key product in foreign trade. In addition, the country entered a new stage of industrialization, emphasizing the production of durable and capital goods without neglecting non-durable goods. Concurrently, life expectancy, infant mortality, and literacy indicators improved, though they were still far from ideal.

However, the JK government also faces criticism for leaving a poor legacy for its successors. There was a notable omission in critical areas such as agriculture and basic education. Income concentration and regional concentration of production deepened social and regional inequalities, problems that JK promised to address in a future presidential term. Accusations of corruption, especially involving construction companies, also highlighted problems in the economy. So did an average inflation rate of 23.8%, which acted as a form of forcibly extracting savings from common people and channeling resources to companies involved in the Plano de Metas.

Moreover, the government had significant fiscal deficits, as its debt doubled in real terms despite remaining at a third of the federal government’s total revenues. There were also setbacks in the balance of payments, with strong deficits caused by a fall in coffee prices. Exports fell almost 15% between 1956 and 1960. Despite these obstacles, there was an excess influx of foreign capital into Brazil, but this was not enough to compensate for the country’s imports except in 1961, when there was no deficit in the balance of payments.

This duality marks the legacy of the JK government, characterized both by significant advances in infrastructure and industrialization and by social and economic challenges that would influence Brazil’s development in the future.