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ÁREA 2 – HISTÓRIA ECONÔMICATítulo: The New-Style of Developmentalism in Latin America: Kubitschek and Frondizi

Autor: Maria Heloisa Lenz Professora Associada do PPGEEI e do Departamento de Ciências Econômicas/UFRGSCo - autor: Pedro Cezar Dutra Fonseca Professor Titular do PPGE e do Departamento de Ciências Econômicas/UFRGS e Pesquisador do CNPq

ResumoO artigo analisa as políticas econômicas de duas experiências de governos desenvolvimentistas ocorridos no Brasil e na Argentina em um mesmo período histórico do século XX: Kubitschek (Brasil, 1956-61) e Frondizi (Argentina, 1958-62) e discute a aproximação das mesmas ao tipificado na literatura como “populismo econômico”. A pesquisa utiliza uma metodologia que recorre como fontes primárias aos discursos de ambos os presidentes para cotejá-las com os resultados alcançados. O trabalho será dividido em quatro partes. Na primeira faz-se uma abordagem teórica sobre o significado do desenvolvimentismo como fenômeno latino-americano, ao mesmo tempo em que se discute sua relação com o fenômeno do populismo, principalmente em matéria de economia, quando também são apresentadas sinteticamente as principais hipóteses e conclusões da literatura sobre “ciclo econômico populista”. Na segunda parte analisam-se as principais medidas de políticas monetária, cambial, fiscal e salarial dos governos Kubitschek e Frondizi. Na terceira parte, mostra-se que o começo exitoso de ambos os governantes contrasta com a crise econômica do final dos respectivos períodos presidenciais. A conclusão salienta que a aproximação de ambos por uma proposta de desenvolvimento acelerado com abertura a investimentos estrangeiros coexiste com o proposto nos modelos de “ciclo populista”. Palavras chaves: Economia brasileira, Argentina, Kubitschek, Frondizi, desenvolvimentismoAbstractThe article analyzes the economic policies of two governments developmental experiences that occurred in Brazil and Argentina in the same historical period of the twentieth century: Kubitschek (Brazil, 1956-61) and Frondizi (Argentina, 1958-62) and discusses the approach of the same typified in the literature as "economic populism". The research uses a methodology that takes speeches by both presidents as primary sources in order to detect their project, then collating them with the results. The work will be divided into four parts. At first we will present a theoretical approach to the meaning of developmentalism as a Latin American phenomenon, while discussing its relationship with the phenomenon of populism, mainly on economic basis, when are also briefly presented the main assumptions and conclusions of the literature on "populist economic cycle." In the second part we analyze the main measures of monetary, exchange, fiscal and wage policy taken by the Kubitschek’s and Frondizi’s governments. The third part shows that the successful start of both governments contrasts with the economic crisis. In the conclusion emphasizes that the approach for a proposal for accelerated development with opening to foreign investment coexists with the models proposed in the "populist cycle". Key words: Brazililian Economy, Argentina, Kubitschek , Frondizi, developmentalism JEL N16

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The New-Style of Developmentalism in Latin America: Kubitschek and Frondizi

Introduction

The economic policies of Jucelino Kubitschek (Brazil, 1956-1961) and Arturo Frondizi (Argentina, 1958-1962), completely fulfill the proposed postulates in the classical work of Bloch (1963; 1964; 1983) in regard to comparative analysis. Those are two administrations in geographically close countries which share the same historical conjuncture (globally marked by an impressive economic growth, by the Cold War and by relevant geopolitical events, such as the Cuban Revolution), and have similarities and differences that justify and encourage the comparison. The economic policies of both countries are the subject of this paper. However, its focus is not the comparison stricto sensu – although this inevitably occurs. Its main focus is to show that the economic policies of both countries are what several scholars denominate “populist economic cycle” or simply economic populism, as was observed in the similarities of both administrations in relation to their economic policies.

These analyses of Kubitschek and Frondizi’s economic policies contribute to the debate of the models themselves and their analytical purpose. Both presidents do not fulfill what the literature traditionally regards as either political or economic populism. It is convenient to clarify each of these concepts; and also that both concepts, although they seem interconnected, they do not necessarily need to coexist historically and are research topics in their own realm (Bresser Pereira, 1991, p. 8). Although, the term “populism” is used in a variety of meanings, authors in the fields of Sociology and Political Science are important in the theories of the 20th Century Latin American societies, among them Gino Germani (1978 [1968]), Torcuato di Tella (in: Véliz, 1965) and Ernesto Laclau (1977; 1978), followed by Cardoso and Faletto (1970), Weffort (1966; 1977; 2004; 2006) and Ianni (1977). They used the term to designate leaders of masses of people, who are charismatic, have a strong nationalistic appeal and who manipulate the labor unions to their own profit disregarding the parties and institutions. However, the literature on economic populism which will be analyzed in this paper is more recent, including Canitrot ([1975] 1991) and O’Donnell ([1977] 1991), inspired by the Argentinean experience. Their followers substitute the structuralist-marxist approach of political populism by the economic mainstream. Diaz-Alejandro ([1981] 1991), Sachs ([1981] 1991) and Dornbusch and Edwards ([1989]) 1991; 1990) formulated the so-called “populist economic cycle” which was followed by Bresser Pereira (1989), from a different theoretical perspective. Despite the difference in nuances, these authors meet the ones of political populism as they associate the phenomenon in an economic analysis, to the industrialization by import-substitution, nationalism, state interventionism and leadership of the domestic market. In the 1990s, this way of conducting the economy was considered responsible for the rampant inflation in both countries, for the low growth and increasing public deficits and was used to justify the liberal agenda, more open to foreign countries and with less state intervention.

Although Juscelino and Frondizi embraced the industrialization proposition, they deviated from the typology in aspects that harm its hard core. They not only showed to be open to foreign capital but started to sustain their project of accelerated growth based on investment from big international corporations and on foreign financing, contrary to “populist” leaders, whose preference was for domestic capital either state or private, and for financing via domestic savings and transfer of income from the export sector (or the “rural oligarchies”) to industry, through taxes and/or discretionary measures in the foreign exchange area. As they were more cosmopolitan and “centrists” in the political field, Juscelino and Frondizi were elected, respectively, both with the support of laborers in Brazil and peronists in Argentina. However, their administrations removed themselves from the project historically connected to

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Vargas and Peron – often called “national developmentalism” -, and represented a tendency towards the industrialization by import-substitution (IIS) as they took over another project, the so-called “dependent-associated.”

The hypothesis formulated here, in agreement with the objective previously stated, is that the economic policies of the Juscelino and Frondizi’s administrations, unlike what is usually accepted, are close to what the before-mentioned authors describe as “populist economic cycle”. The criticism to the category “populism” comes from countless authors, in an attempt to deconstruct the concept and show its analytical imprecision (Gomes, 1989, 2005; Ferreira, 1997, 2001, 2005; Fonseca, 2010, 2011). The purpose of this paper is more humble: the choice is for a methodology that does not dispute it directly, but is based on the models themselves that are formulated by the authors who support the theoretical category of “economic populism” in order to show that the economic policies by Juscelino and Frondizi walk in the opposite direction to what was proposed in their formulations. Consequently, it is shown the impropriety of the undissociable relationship between IIS, nationalism, “national developmentalism” and populism in terms of what great part of the literature considers and is settled in the Latin American intellectual, political and economic thought.

Despite the various meanings of the term “populism”, which makes it difficult to precise it analytically (Weiland, 2001), there is a certain consensus in the literature about “economic populism” as to its definition. The authors usually assume the existence of a Curve of Phillips in the short term that is negatively bent, which would force the policymakers to an option between output growth and employment versus stabilization. The populist administrations choose the accelerated growth and reject the option for stability. Problems such as inflation, public deficit or deficit in the balance of payments, unemployment and concentration of income are usually credited to previous administrations. As Dornbusch and Edwards (1991, p. 9) state: “Policymakers explicitly reject the conservative paradigm”. Not rarely do they propose not only compatibility between growth and stabilization but also advocate more growth as an advisable path for the before mentioned problems. The goal of this paper is not to detail each of the approaches, largely known.3 It is important to highlight that, as the coincidental points between the authors are analyzed, they all assume, implicitly or explicitly, the proposition that the economic populism is revealed soon after the president takes office (sometimes even before, during the campaign) in the first phase of a “cycle”, when he already shows his intentions, presents his goals and takes the first measures of his administration (Fonseca, 2011). However, each author emphasizes mechanisms that are not always coincidental, although all are expansionist in relation to the aggregate demand. Diaz-Alejandro ([1981] 1991, p. 79) mentions the wage and the public expenditures increase that are not covered by taxation, but by expansion in the monetary supply. Sacks ([1989] 1991, p. 131), along O’Donnel ([1977] 1991), creates a model with two sectors, one which exports primary goods and the other which produces non-trading goods with intensive labor and dependent on imported raw material. The populist administration valuates foreign exchange (for instance, fixing it nominally and expanding the monetary supply), which diminishes the interest rate, elevates the aggregate demand, the employment rate, the demand for labor in the non-trading sector and the power of purchase of wages (the ratio between nominal wages and the prices of consumption goods). Dornbusch and Edwards ([1989] 1991, p. 154) along the same path, mention the wage increases and the unconditional option for growth. Bresser Pereira (1989, p. 111) shows several options for the first phase of the “cycle”: wage increases, whether from the public or the private sector; restraint of prices and public tariffs, foreign exchange valuation with the consequent growth in imports, wages and domestic consumption; increase in expenditure and public deficit; and an artificially low interest rate. They do not

3 Besides the references at the end of the paper, see the works of these authors in the collectanea organized by Bresser-Pereira (1989); the year of publication comes in parentheses.

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exclude one another and can be adopted simultaneously; they all converge to a “naive distributivism” and a “developmentalism that disconsiders costs” (id, p. 8).

All models imply that this first phase initially generates an atmosphere of euphoria with high popularity of the presidents. However, bottleneck points, inflation, deficit in the balance of payments and in the public budget start to appear. The leaders are reluctant in altering the path of the economic policy; sometimes due to the circumstances, they end up surrendering. The final phase of the populist cycle is always tragic: inflation goes rampant, the foreign exchange devaluation becomes inevitable, public deficit deepens and so does the political crisis, and at the end “the ministers in charge are replaced or even worse there is a coup d’état” (Bresser Pereira, id, p. 111). The situation that comes is always worse than the one in the beginning of the “cycle”.

Session 2, which follows, approaches this “first phase” of the administrations, beginning with Juscelino and next Frondizi. Session 3 focuses on the outcome of both of them, showing the similarity to what was foreseen in the mentioned models. Session 4 is the conclusion.

1. Accelerated growth as a priorityAccording to the formulation of the models, JK mentioned his proposal of an

accelerated growth back in his presidential campaign. In 1955 he published “General Guidelines of the National Development Plan”, a work that anticipated his Plan of Goals. It begins with a historical analysis where he associates colonialism and underdevelopment with agricultural exportation and defines the country as being in a transitional phase, which started in the 1920s with the first industries of consumption goods (Kubitschek, 1955, p.15; the quotations that follow were taken from this work). In order to reach a higher stage of full development and emancipation (p.18), massive investments were required, especially in the hard industry (steel; cement; chemicals; non-ferrous metals; equipment and ore) and in infrastructure (petrol; electrical, mineral and atomic energy; transportation; and communication). Brazil could not rely on the possibility of spontaneous development; as it was delayed in the run for industrialization, it had to “replace a sporadic and uncoordinated state intervention with the formulation of an organic program” (p.26). This speech is no different in its basic guidelines than the one usually associated with “National-Developmentalism”, unless when it is symptomatically explicit in the first person (suggesting a personal mark):

“To reach this goal, the governmental program I am about to undertake initially foresees the adoption of a “National Plan of Development”, where the goals and necessary conditions are determined so that the domestic private sector, aided by foreign capital and efficient help from the State, can embrace the great task of progress and emancipation” (p. 26).

It is true that the “national-developmentalism” both for Vargas and Peron, did not exclude foreign capital, but restricted it to certain areas, in a game of bargain that assumed the state had a relevant role as a brake to the globalization of the productive sectors; foreign capital was ideologically seen as unethical to values such as national independence and sovereignty. However, under JK, foreign capital was the cornerstone of the development proposition, and the State would no longer be in a vigilant position . On the contrary, it would become a partner since both were interested in reaching the same project. In order to challenge those who try to interpret the political speech as an exercise in logic, foreign capital itself would now begin to contribute to “our progress and emancipation”. The plan considered essential to attract foreign savings to reach accelerated growth and criticized “the high income segments, usually prone to hedonic consumption and to reproducing the consumption patterns of the peoples that reached high levels of prosperity” (p.30). Therefore, instead of honoring the domestic businessmen (or the domestic bourgeoisie, as it was then called), their behavior

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was criticized. This rhetoric reinforced the thesis according to which it was required to attract foreign capital, culminating with the paroxysm of appealing to strong emotional terms, as a fatality, to highlight its importance to the success of the Plan of Goals: “In the definition of a policy of attraction of foreign capital, one can not forget the fatal contingency that forces the poorly developed country to directly interfere in foreign trade in search of situations that facilitate or allow its development” (p.31).

The repetition of the content of these quotations permeates the work and its mention is necessary here as we face the understanding of the models of economic populism as an explicit and intentional phenomenon by the ruler. It is also necessary to highlight the strong desire to execute it. Before taking office, JK traveled to the main international centers and communicated his intention to attract direct investments and foreign financing. He guaranteed that the union and nationalistic influence of the “Vargas' Era” was in the past and that, on the contrary to what was said by Goulart, his vice-president, the left wing and the laborers would not revoke Instruction 113 of SUMOC. This Instruction became a symbol, in the view of these segments, of the “surrender” of the previous Café Filho administration, whose Minister of Treasury was Eugenio Gudin, a traditional critic of the import-substitution industrialization and strongly opposed to Vargas. Instruction 113 allowed foreign companies to obtain licenses to import equipment to broaden their facilities without foreign exchange backing, a privilege that was not granted to domestic capital and was regarded by the nationalists as a way for the foreign corporations to export scrap equipments. These imports with no foreign exchange backing reached a “significant portion (70%) in average of the total imports of machines, vehicles and equipment” in the JK administration (Malan, in: Fausto, 1984, p.84). Still in this area, the government started to use BNDE as an instrument to assure credit abroad, taking co-responsibility, alongside the businessmen, with the liquidation of foreign debit - “guarantee, in many decisive cases to the success of the operation of foreign financing” (Lessa, 1982, p.159). On the other hand, it initially maintained Instruction 70 of SUMOC, from 1953 (Vargas administration), which established foreign exchange auctions, fixing a system of multiple foreign exchange rates with five categories of importation according with how essential the good was - this was established depending on the priorities of the project of import-substitution. In August, 1957, these categories were replaced with two, maintaining the essentiality criterion. Ad Valorem taxes were created (so far, the predominance was of archaic specific taxes, not very effective in an inflationary economy) of up to 150% to tax similar products, as well as to exempt the import of goods considered essential to industrialization, such as machines and raw material.2

As a consequence, the GDP began to grow at significant rates: 7.7% in 1957, 10.8% in 1958 and around 9% in the three following years. To make this possible, both the exchange rate policy aimed at this goal (as in the models of economic populism) and the fiscal and monetary policies did too. Therefore there was a cash deficit in the Treasury during all governmental period; and while inflation between 1955 and 1960 reached 238.5%, the federal expenditure rose 318.2% (IBGE, 1986, p.571).

Since there was no central bank, it was up to Banco do Brasil to cover the deficit through the primary expansion of means of payment. The monetary base grew 19.3% in 1956 and jumped to 35.1% the next year, and still higher in the last two years of the administration, near 40%. Such a procedure, as well as a huge credit expansion by Banco do Brasil, was

22 It is important to mention that the foreign exchange policy authenticates exactly what is described by the models of economic populism in relation to the option for accelerated growth and to the income transfer from the agrarian-exporter sector to industry and to the domestic market, which would result in a future problem in the balance of payments. However, this differs from the proposition of some authors, like Bresser-Pereira: he associates “exchange populism” and the valuation of the exchange rate in order to increase the consumption demand as well as the transitory popularity of the ruler. In the case of JK administration, like Vargas, there is a difference as to intentionality: the import bands associated with the exchange auctions restrained the exchange values destined to consumption in order to stimulate the import of capital goods and raw material.

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possible thanks to other institutional variables derived from this symbiosis between commercial bank and monetary authority: its Rediscounting Department was responsible for injecting money into the economy, besides not being restricted like the other banks in regard to the compulsory deposit since Banco do Brasil itself was the depository of the reserve (Abreu, 1989, p.406, 186).

In relation to the wages, the problem of interpretation is due to several factors, but they all convey to which criterion is used by the models to define “wage populism”. First, whether there is a requirement of real wage increase or nominal increase is enough, once the models themselves admit that one of the consequences of populism is inflation; therefore, the intention of the government can only be manifested in nominal increases, because it can be frustrated in gaining a real increase. Second, even if there were a real increase in wages, one would always ask whether this was enough or an increase above productivity would be demanded, as the theoretical mainstream accepts the rule of productivity incorporation into the wages. Third, which is the variable used to test “wage populism”: is it the minimum wage, over which the government has a more direct interference or is it the wage of the industry? It is known that the determination of wages in the private sector depends on some variables that escape the governmental interference – although it exists, whether in the fixation of the minimum wage itself which can be a parameter for the labor market and for wage negotiations or by the pro-unions atmosphere that the “populist” government stimulates.

If the variable is the minimum wage and its real growth, there is no doubt as to its increase: JK continued the policy initiated by Vargas (and not followed by the two other post-war presidents until then, Dutra and Café Filho), of a periodical readjustment of the minimum wage. In his administration, there were three nominal increases that elevated it in real terms; the first, in June of 1956, by 58%; the second, in January of 1959, by 58%, and the third in October of 1960, by 60%. Consequently, during the JK administration the highest real minimum wage was registered in the country until then (and until today), with a peak in the year of 19593. Therefore, in relation to the minimum wage, there seems to be no doubt that the data follow the direction proposed by the models. However, when the impressive productivity growth in the period is taken into account – 41.1% in the manufacture industry between 1955 and 1959 based on the data of Colistete (2009, p.389) – it can be seen that neither the real minimum wage followed it at the same speed (only at the peak it is close to this rate) nor did the wages paid by the industrial sector in the period. These also showed a real growth, however much lower than the productivity: 14.98% if the deflator is the Consumer Price Index of the Ministry of Labor, and 9.75% with the Consumer Price Index of the city of São Paulo.

The conclusion is that JK's economic policy remarkably shows the behavior structured by the authors as “economic populism”. They do not require that the mentioned behavior be expressed in all instruments of economic policy. However, in this case, it can be undoubtedly detected both in the fiscal as in the monetary, wage and foreign exchange areas even considering this last observation on the wages. It must be stressed, in addition, that the proposal of an accelerated growth in intentional, explicit in the speech and reaffirmed in the actions, both consistent with each other. The novelty is to move away from nationalism and a more incisive rhetoric about income distribution, as was present in Vargas, the latter being more typical than what is usually associated with “national-developmentalism”.

33 The minimum wage was fixed at different levels according to a regional criterion. When there were differences, the one of the city of São Paulo was used. To access historical series of the real minimum wage to prove the real increase in the period, see: http://www.ipeadata.gov.br/Default.aspx or http://www.dieese.org.br/eop/salmin/xml. The latter shows that for the index 100 in July/1940 (the first minimum wage), the increase in June/1956 reached 142.50, while the last readjustment had reached 124.08. in January/1959 it reaches the peak of the period (144.08); with the growth of inflation, the real deterioration accelerates and the readjustment of October/1960, although nominally significant, takes it to a lower peak (128.59).

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As it has happened in Brazil with presidents Juscelino Kubitschek (JK) and Getúlio Vargas (Vargas), it is quite impossible to understand the Frondizi Government without explaining the political and economic context of Peron’s government whom he succeeded after his fall in a Military Coup, in 1955, when a temporary government was installed followed by a subsequent election that took Frondizi into power. One of the characteristics of Peron government –similarly to Vargas’- was a typical politic post-war phenomenon period in Latin America: a strong government leadership with a popular support, holding nationalist speech and practices. Peron leaded a radical change in conducting the Argentine economy, mainly in terms of the new relationships with the popular working classes.

Frondizi was elected by the Unión Cívica Radical Intransigente and supported by the non-legal peronism. His electoral campaign had as main flag the idea of a country with a development project, stressing that the strategic aim of Argentina would be to reach the industrial self-sufficiency. The diagnosis of the causes of and underdeveloped Argentine economy, presented in his electoral campaign plan identified its low growth not only in terms of savings but in investments as well; and the solution would have been based on a plan including external investment attraction in order to achieve reach an accelerated economic elevation. His speech clearly referred the structural problems of the country and emphasized the importance in the development of the productive forces and the new role the entrepreneurs should play. So, it would be a task for the industry, levered in external investments, to free Argentina from the situation of an economic stagnation in the final years of the 1950 decade. A strong push in infrastructure and basic industries investments to overcome the environment of poverty showed to be imperative and it had to be decisive and simultaneous to break the pessimistic expectations present in the economic set. The fact of Brazil having adopted this kind of policy with Juscelino Kubitschek could have reinforced the Argentine decision to face it through similar measures. In this particular case, however, the stimulus to the massive entry of foreign capital was much sharper due to the expressive insufficient national savings, having been widened a former law, passed by Peron, in the end of his government, which had already tolerated the entering of capitals in the country.

In his Inaugural Address, in May First, 1958, Frondizi stressed the role the national development should play:

“The Argenina nation starts today a new constitutional period that circunstances turned into the beginning of a new era. This deeply starting act is supported by a moral ideal: the clear and inequivocal wish the Argentine people found to resume the national development” (Frondizi, 1958, p.1).

But the most important of all was the emphasis that this development could not be performed without the entry of foreign capitals, because the national ones did not have enough condition to provide the necessary apportionement. This idea became evident in the following part of the same speech:

“The biggest apportionement towards the capitalization of the country should come from the national effort and national savings, but the local savings capacity is, however, not enough to finance the necessary progress rhythm we need. In such conditions, the foreign capital, applied in productive investments would function as an acceleration factor for the process”. (Frondizi, 1958, p. 6).

The intelectual and political group based on the Frondizi’s developmentalism represented an integrated social block formed by industry entrepreneurs, workers, part of the intellectuality, Church and Army. In opposition to this group there was another one composed by the land owners sector, formed by most of the groups of agro-exporters to whom Frondizi and his team considered as responsible for the country’s underdevelopment; thus one could not believe that this sector would lever the development of the country. (Caraballo et al.,

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1998). In this manner, the new government strategy preconized an integrated industrial development, based on the ISI (Process of Import Substitution), combining the state action and the presence of foreign investment capital in the base industry and petrochemical and also in the transportation sectors. The major difference as far as approach is concerned was that these capitals were not considered anymore conflicting elements with local interests; on the contrary, as essential elements of this new type of development.

When starting his government, Frondizi not only found an economy with serious structural problems but also flooded in an intrincated conjuncture. The international reserves of the Argentine Central Bank had been strongly reduced and a considerable amount of them was engaged with views to the payment deadlines of the next foreign credits. Serious import processes difficulties were detected and they got worse because of the cattle stock shortage for export. In 1957, the inflation started showing up as a new problem with a 24, 7 % tax, having the fiscal deficit reached an equivalent 8,08 % of the GNP (Gross Internal Product), in 1958.

Frondizi tried to enhance a new equilibrium in the relationship between Argentina and the United States and also tried to reinforce the Latin American identity in his diplomatic speech in order to dissipate the distrusts which could ruin his pretension of being a leader in a developing world. The Argentine opening for North American capital, the international economic cooperation and the integration of the productive chains in the region made steady the development project of industrial cut.

The development proposition of the new government, according to Rapoport (2.000, p.548) came about after a strong criticism to the economic liberalism as a reason to obtain the economic development as it kept the mechanisms that blocked the accumulation. The state should firmly intervene and state a pool of stimuli, such as a strong taxation policy, protection, a regime of industrial promotion– that utilized a favorable tax policy and abundant credit – besides incentives towards the creation of applied technologies, to stimulate the investments elevation in branches in which the private sector response was not enough.

As for the salary policy the outstanding fact was a 60% of basic salaries 4raise under a decree (in 1958). It adjusted salaries which were frozen since 1956, as part of a policy of consumption increment, but, mainly to honor electoral promises made to Peron and peronists; and above all to raise Frondizi’s popularity. Thus, it becomes clear the presence of a popular bias according to the models and contrary to his electoral speech.

One of the first findings of the new economic team was the “strangulation” of the energetic sector in Argentina, in essence represented by the combustion of petroleum derivatives, which made the proposed industrial development quite impossible. According to Rapoport (2000, p. 550), the petroleum consumption reached 14 million m3/per year, being only 4 million of them locally extracted. Petroleum import represented almost 25% of the total external purchases, in a total of 350 million dollars, amount that overcame the country commercial deficit. In this way the arrangement of this issue arrived as a compulsory condition for the economic development of the country. However, the advance of the local petroleum extraction was not an easy task because the country did not own enough money resources and equipment to fully increase the production in the short run basis (Acotto & Giugliano, 2000). In fact, in previous years, the production growth has been lower than the increase in consumption, what substantially elevated the difference to pay in terms of imports. Still in the beginning of his mandate, Frondizi allowed the opening of petroleum exploration by foreign capital, but the measure has provoked a huge discussion as it was promoted through presidential decrees and not under the approval of the National Congress.4 It is important to stand out, according to Rapoport (2000, p. 550) that this raise was not the same for all categories, because it had to absorb previous given raises in former years.

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The thesis that insufficient resources could be overcome with foreign capital was considered a contradictory issue in Frondizi’s policies. In 1954 he had toughly criticized the contract Peron had signed with the American company Standard Oil, but he started to change his point of view after his electoral campaign, emphasizing that without the help of foreign investments it would be impossible to administer the petroleum problem, having this position caused rejection by both leftists and national rightists. In a speech (July 24, 1958) Frondizi announced the “battle of petroleum”5, explaining the problems and consequences to the country if they continue importing this mineral. When stating that the objective was to reach self-supply in petroleum of the country, he defended the need to attract foreign funds to exploit the hidrocarboneto even if the companies could earn part of the profits 6 and stated emphatically: “We will look for the cooperation of private capital, but without concessions and without resigning the State domination over our petroleum wealth (Frondizi, 1958, p.3)

To developmentists it seemed impossible to achieve a spontaneous industrial development once the initial costs of new investments, the need of a learning stage and the interests linked to these goods import would make this process difficult. (Rapoport, 2000). The essence of Frondizi economical policy was marked by the laws of permanence of foreign capitals and industrial promotion, passed in 1958. The new laws garanteed freedom for the profitable sending to the foreign companies as well as repatriation of capitals 7. At the same time high customs taxes and the passing of an industrial promotion law which protected the national production and stimulated the industrial export were established. According to Rapoport data (2000, p. 559) the increasing of the Internal Gross Investment in relation to the PIB raised from 19,0%, in 1958, to 22,6%, in 1962. The self – supply in petroleum was almost reached and the steal and vehicles production have grew in a spectacular way.

The Argentine industrial development soon took the hopeful direction by Frondizi government. From 1958 on, the industrial branches which were the leaders in growing in the past – in terms of non- durable consumption goods- suffered a relative stagnation while the branches of intermediate production goods and durable consumption goods became greatly dynamic. The petrochemical and metal-mechanic sectors were outstanding. In the energy area, the annual petroleum production, which formerly was of 5.6 million of cubic meters, reached around 16 million, being the obtained currency 300 million dollars a year. (Diaz Alejandro, 2002). Similar to the petroleum was the ironworks growth after the beginning of a new ironworks plant and the exploitation of local iron ore and also the increased cement production due to the increment of civil construction. As for the petrochemical activity, the production growing was stimulated by the high level of foreign investments. However, in any other activity there was a so vertiginous and disorganized growth as in the motor vehicle industry. According Gerchunoff & Llach (2003), around 80% of the manufacture production increment, between 1958 and 1961, can be explained by the expansion of this industrial branch. The vehicle industry illustrated that in any other sector the impetus of both progress impetus and the intention of the industrial development. The production of motor vehicles grew faster (more than 400%) in five years, from 28.900 in 1957 to 134.418 in 1961, mainly due to investment of so many foreign investments.

5 The so-called “Battle of Petroleum”, according to Rapoport (2000, p.551) started with the nationalization of the hidrocarboneto reserves and the renegotiation of import contracts signed during the (Revolução Libertdora - Freedom Revolution).6 Frondizi wrote a book (in 1954) Petroleum and Politics where he expressed an anti-imperialist posture and said that the YPF –Yacimientos Petroliferos Fiscales was able to obtain self-supply without any foreign help. 7 According to Rapoport, the Law 14.780 on Radication of Capitals, together with the Industrial Promotion established that foreign capitals would kept the same rights as the Argentine, eliminating, among other issues, any limitation towards utilities repatriation and dividends.

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Although presenting high growing indices during Frondizi’s period, the industry kept showing some gaps in other extremely important sectors. The import matrix reflected a clear deficit in chemistry, plastic, metal and ironwork products. However, the main deficiencies were in machinery, instruments and transportation material sectors and in some moments they overcame 50% of the imports costs. The fragility of the sector was responsible for all future strategy in order to advance in the industrialization process, turning Argentina very dependent of the foreigner capital goods and technology, so that, although high advances, the industrialization remained incomplete and disintegrated. (Diaz Alexandro, 2002).

To Fausto & Devoto (2005) Frondizi’s economic policy showed the possibility of an accelerated launching of an aggressive investment policy towards the expansion of the productive capacity in considered essencial sectors, as fuel and dynamic industries. There was a significant raise in salaries and a wide program of public building was launched. According to Rapoport (2000, p. 556) in the first years of Frondizi government there were not only an expansion of public expenses but also in the fiscal deficit, having the PIB percentage reached 8,08 like the como the circulating currency. These factors have contributed to lever the economic growth. The negative consequences of them will be analyzed in the next section.

In this way one can infer that although the speech, Frondizi economic policy, in the beginning of his government, could not stay away from the former economic policies, mainly when one identifies that his government started with a high salary increase. At the same time, the functions of the State were considered as necessary to implement a new industrial policy and to attract foreign capital. The difference is surely located in the proposition of a new industrial matrix, emphasizing the base industries and in self-supply in petroleum, and mainly in the treatment provided to the foreign capital, seen as essentials as well as protagonists of this new kind of development.

2. The growth reversion and costsThe Kubitschek’s Plano Metas has a genetic problem pointed exactly in the core of the

proposed issue by the popular economic cycle models: its design stipulated sectorial goals in growing but has not explicited the financial sources to make it viable. Even in its execution the efforts were concentrated in the follow up of the performance of each sector and in detecting possible strangling points. For these tasks “executive groups” were formed being directly subordinated by the Republic Presidency. The financial investment, one can interpret, was not declared, but supposed: the entrance of foreign capitals through direct investment or financial fluxes. In fact, in the first years, they came to the country. According to SUMOC registers, the direct investments jumped from 31,3 million (1955) to 55,7 million (1956) and to 108,2 million (1957), but gradually falling in the following years: 82,5 and 65,8 million in 1958 and 1959, but they started again to grow in 1960; on the other hand the foreign investments reached their peaks in 1958 (507,4 million), and fell again in the next years to respectively to 269,4 million, 304,0 million and 130,2 million (Ianni, 1977, p. 164). Thus more significant increment in the foreign capital fluxes in the first years of the government term was registered, to gradually diminish the rhythm from 1958 on. In 1958, JK launched the Panamerican Operation which proposed, in the Cold War environment, that the best way to combat the communism in Latin America was with the growth, having though an ideological and geopolitical reason for the United States and other international organs “collaborate” with the subcontinent governments. But in the first years of government one could realize that the executing the goals demanded much more than this: The ISI process, as very well Tavares points out (1972, p. 41) does not intend to eliminate the country relations with foreigners and also even linearly diminish them because their dynamics imply one more quality change in the import schedule due to the growing need for importing capital goods and basic funds. As for the Plano de Metas, according to Lafer (1975, p.40), the main “zone of incertitude of the system was external”, because from the total of the presumed total of resources to its

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implementation 43,9% was due to goods and services imports. This author also reminds the only the costs of Brasilia construction, in 1960 prices, were around 2,3 % of the PNB (id, p. 48). An alarming situation when remembering that in the end of the 1959 decade there was a significant, important fall in the international prices of the coffee, fact that forced the government to purchase stocks whose values, according to Pinho’s figures (Apud Abreu, 1989, p. 191), were kept between 3 or 4 times higher than the costs of Brasilia construction.

The inflection point of the cyclic reversion occurred in the middle of 1958; it has not only diminished the entrance of foreign capitals, with an impact in the currency volume, but the inflation abruptly jumped to 24,3% after the index of the past year (7%). After noticing the problem, the Minister of Finance -José Maria Alkmin- tried to obtain a US$ 300 million loan from the Eximbank, in the beginning of 1958, but with the guarantee of the FMI. It also demanded a cut in public spending, credit and salaries expenses, and also the alteration in the multiple taxes system in the rate of exchange.The worsening of the crisis has heavily reflected in the payment balance. The credit of the commercial balance which formerly was US$ 407 million in 1956, fell down to a level around US$70 million, in 1958/59, reaching a 24 million negative figure, in 1960. On the other hand, the current business transactions have always presented a negative balance in the period, but with exponential growing of US$ 23 million in 1956 to US$ 300, US$ 265, US$ 345 and US$519 million dollars, respectively, from 1957 to 1960. In June 1958, Alkmin was substituted by Lucas Lopes in the Ministry of Finance. This presidential option, besides that Almeida was in charge of Banco do Brasil, may have indicated that JK was not supposed to go for a harsh stabilization policy because both of ministries followed the industrialists thesis. The new minister opted by a gradual inflation fight policy, rejecting the FBI proposed shock treatment proposed by the FMI and exposed in the Monetary Stabilization Plan (PEM) sent to the National Congress in October 27, 1958. He has proposed, in a first moment, in 1959, to practically administer the inflation consequences, including the maintenance of real salaries, which was supposed to change, from 1960 on; by more effective policies such as monetary contention, betterment of tax collecting system, revenue tax control and also elimination of exchange subsidies. In different aspects, the plan was vague and showed JK strategy that is, postponing the costs of the adjustments to the future). Even having an “ambiguous” and “politically” inconsistent format Orenstein and Sochaczewski suggested (in: Abreu, 1989, p. 193) that the plan neither could not calm down the opponents who considered the plan recessive and nor could convince both the foreign financiers and the FMI about the seriousness of proposition. The successive changes of Finance ministers following the popular cycle models occurred one more time, in June 1959, with the substitution of Lopes by Sebastião Paes de Almeida under JK orientations: to finish the negotiations with the FMI in Washington, all “in the middle of a sprinkled political atmosphere” (Skidmore, 1976, p. 223).

It is interesting to register that in the beginning of his mandate, JK started to manifest an apparently steady rhetoric to face inflation as a problem, demanding much attention and immediate facing. As it was shown in the accurate Campos (2007) paper, the speech was being changed exactly when the inflation accelerated. It was not just mere advocating that the policymakers should try do arrange growing together with anti-inflation policy, a traditional proposition part of the development ideology. And more, in JK words: “one cannot fight inflation only through comprehension, but by compression and expansion (Oliveira, 1958, p. 25-6). It was proper that two anti-ethics words should be treated as compatible, but they were peculiar in political speech. With the worsening of the crisis, the president started to practice a more radical tone, with strong nationalist appeals in response to the FMI requirements: “The responsible by Brazil are the Brazilians”. But, at the same time, he used common sense and prudence to legitimate his attitudes (“No prudence will make me practice imprudence and abandon our industry or consent that it could fall in the hands of foreign hands”). And more: that he would not get back even “a step when the task is defending Brazil”. In the limit, he

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courageously assumed the stabilization plan with a historical regression: “We are not going back to the tribal places, going back to times when we consumed everything from abroad” (Oliveira, 1960, p. 188-9) In this last speech, as one can notice, he infers how growth and stabilization are incompatible, an issue that sometimes he was against and sometimes he gets rebelled with and what he once considered improper; as for the foreign capital: so exalted in the first years of government, now becomes a “hangman” and enemy of the project that in the past he considered not only a partner but the main Plano de Metas propellant force. This change in the rhetoric and its radicalization once more can come together with the described path of the popular cycle models.

With any political conditions to tote towards a revenue reform and without any security market where he could catch resources (The “Usura Law” imposed maximum year interest rates of 12% ), the only government option was currency emission, that is, an “the inflation tax”). The growing rates started to fall down gradually, from 1958 on, but they remained in a high level till the end of his government to, afterwards, quickly fall down again, reaching 0,6% in 1963. With the impossibility of reelection, JK left to his successors, Jânio Quadros and João Goulart, the costs and the adjustment unpopularity and, as known, he was aware of it. (Maram, in: Gomes, 1991). He intended to run for another mandate (Skidmore, 1976, p.332), maybe when thinking about and comparing the good performance of his government with the next, but he was prevented by the 1964 military coup - a tragic event considered as a possible definite closing of the popular cycle, according to the above mentioned authors.

In the first months of Frondizi government, the expansionist policy, as in the JK government, provoked a huge rise in public expenses, as mentioned in the previous section. The former governments had left a substantial fiscal deficit that had to be helped through the widening of currency supply. It is true that the great currency expansion had contributed for the economic growth, but its economic cost was significant because it worsened the inflationary phenomenon which corroded faster the fiscal adjustments (Fausto & Devoto, 2005). The inflation came to its peak in 1959, reaching three digits, with a 129, 5 % rate this year.

By the end of 1958, only eight months after the beginning of Frondizi mandate, the country had already asked FMI for an external help and also launched a stabilization plan basically through currency undervaluation, salary freezing and elimination of the State’s rules and regulations whose consequences were a strong reduction of the workers income and a generalized scenery of unemployment. In the middle of 1959, Frondizi changed the already orthodox plan still more drastic with the appointment of Alvaro Alsogaray as his Finance minister who adopted some economic policy measures that deepened the recessive tendency of the plan. The raising of the banks compulsory deposit and the cuts of public expenses caused a strong reduction of the currency offer even with payments delays to the suppliers and government officials. Besides, the outstanding growing in imports -due to the great demand of inputs the industry in expansion- highly reduced the international reserves of the country8.

The economic crisis left Frondizi in a hard situation, marked by a strong social mobilization and multiplication of popular riots. Following this state of affairs, in the next year the government implemented a successful plan against the social agitation known as Conintes Plan – Internal State Commotion Plan- which involved not only the repression of terrorist activities and similar actions but against people who instigated and promoted subversive acts.

In beginning of 1961, Frondizi ended the stabilization policy and adopted a more flexible social one and threw himself towards the hard task of facing the peronists on an electorate basis once the prohibition of a formal participation could not be maintained. The

8 In order to continue the policy proposed by Frondizi it was necessary to import capital and intermediate goods which could not be produced in sufficient quantity in the country.

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economy started showing signals of deceleration, due to mainly the fall of foreign investments (Rapoport, 2000). As for the commercial balance of trade, a commercial deficit in almost all the period under Frondizi was observed. Only in 1959, under a heavy contraction policy it was observed a surplus of 16 million dollars. In that particular year, the imports started to experience a considerable reduction while the exports remained with an amount similar to those in the last previous two years. The relation exports/PIB varied between 8,7 and 12,0 from 1957 to 1962.

The state expenses have grossly elevated from 1957 on. In 1958, its increment went beyond 100% and the elevation tendency was only controlled in 1959 with the adoption of a stabilization policy, when the raise was slightly above 70%. The reason fiscal deficit/PIB has also risen from 1957 to 1958, but it could have recovered in the subsequent year. Two years after, it got figures almost next to those in 1957. This can be observed in the behavior of the PIB raising tax, as shown by Rapoport (2000, p. 559), after a fall in 1959, they raised considerably in 1960 and 1961, reaching to 7,8 % and 7,6 % respectively.

The new industrial sectors, as petroleum, steel, cellulose, petrochemical products and automotive vehicles quickly raised due to incentives and by taking advantages of the presence of an unsatisfied and growing demand. On the other hand the leading sectors in terms of growing in the peronist period (the textile and electrical home appliance industries) stagnate because their market were already satiated or shrunk. There was also a concentration of the industry activity, changing the relatively scattered inherited from the Peron era (Gerchunoff & Llach, 2003) .

Although the Frondizi government had not succeeded in facing the most serious problems of the Argentine economy, it could overcame its chronic energetic deficit, and promote capitalization, modernization and concentration processes in several industrial sectors. It surely was deeply important to the continuity of the economic and social development in Argentina in the years to come, leaving as heritage the raising of productivity capacity. However, with the introduction of intensive technology in terms of capital, a decrease, in terms of the employment fall and salary deterioration, occurred. From 1956 to 1959 the real salaries decreased more than 30% mostly because an extremely recession policy in 1959. But in 1969, there was an increasing tendency that was confirmed in the President Illia government who took office in 1962, after Frondizi fall. In relation to the workers participation in the national income, there was a partial recovering due to the 1959 stabilization policy, and it started growing in 1961, having reached 42,4%. The same figures that in 1955 were 49, 8, had been considerably reduced up to 1960, reaching 39%.

Another factor to be stood out is the issue about the terms of the period interchange. Based on the logic of the development model, the imports should have grown either through the increment of the imports or by the raising of capitals entrance. According to CEPAL data ((apud Rapoport, 2000, p. 562), in 1961 both indicators presented a different behavior from the expected one. On one hand, the climate factors reduced the exports while the interchange terms, -whose evolution had shown a 14,8% improvement, between 1958 and 1961- started a deterioration in the final of this year, falling 7,5 %, in 1962. At the same time, the political conjuncture of the country has affected the entry of these long run capitals that have been substantially contracted.

The Frondizi economic denationalization policy providing incentive to the foreign capital investment concurred for, in 1962, (when Frondizi was named both anti-nationalist and anti-popular) his deposition from power, through another Military Coup. Two factors were decisive in both the loss of confidence of his government military forces and the identification of leftist tendencies in Frodizi and his team work: 1.The devolution of the CGT to several union representatives and 2. his meeting with Ernesto Che Guevara. Together with those two facts, the peronists support to the government was being reduced along his

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mandate. In this way, after several political crises, the military again interfered in the Argentine democratic process and took Frondizi away from the government in 1962.

ConclusionResorting to foreign capital in order to attain JK and Frondizi’s projects is nothing new in

History. However, this paper aims at highlighting the new style of development implanted by both administrations, which is different from what the literature considers to be “populism”. Both the authors who wrote about political populism and the ones who wrote about economic populism were inspired in their analyses by administrations that were seem as advocates of the domestic market and domestic capital (either public or private), based upon labor unions, pro income distribution and opposite stabilization and restraining policies. Vargas and Peron are the best examples of this behavior. The criticism to these administrations is usually based on the existence of an association between populism as a political phenomenon and “national-developmentalism” in terms of the economy; the “irrationality” of both would materialize in a cycle whose outcome is the opposite of what is expected and is always bad.

However, even in a new style, far away from the theoretical construction that is typical of “national-developmentalism”, the analysis of the economic policy of Kubitscheck and Frondizi’s administrations show evidence that allow the detection of trajectories that are similar to the ones proposed by models of populist economic cycle. Both presidents had accelerated growth as the main goal of their administrative programs and both took strong monetary, exchange, fiscal and/or wage policies to make it happen. Similarly, both were faced with scarcity of domestic sources of financing and even before taking office they deliberately stated that they intended to rely on foreign financing and investment. Likewise, after an initial phase of strong growth – which lasted longer in Brazil than in Argentina – inflation, public deficit and a bottleneck in the balance of payments occurred. Both reluctantly surrendered and resorted to the IMF. The deepening crisis in both cases contributed to the increase in the political conflicts and ended up in military coups d’état (although JK had enough support to finish his term and postpone the adjustment of an economic crisis which was inherited by the Janio Quadros and Goulart’s administrations. This crisis was a relevant factor that favored a civilian-military intervention in 1964).

The coexistence of a populist economic cycle which is strongly pro foreign capital, with no support from labor unions, disseminator of imitating consumption patterns and not focused on income distribution as a rhetoric undoubtedly is in shock with the corollary of the models – and it certainly reinforces the demand for further analyses to test the validity and the reach of the models in describing behavior paths of the policymakers.

JK and Frondizi’s administrations, despite what was described, undoubtedly have merits that are worth being remembered, such as widening the capital goods industry, in the Brazilian case, and facing the Argentinean energy deficit, in Frondizi’s; likewise, both attained a project of modernization and increase in the industrial productive capacity, strengthening the import-substitution process.

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