In
Budget deficits had become chronic in Bra zil previous to 1914, on which date an attempt was made to relieve the situation by floating a new loan in Europe, but the European War rendered this attempt a failure and Brazil was forced to default in payments due on her for eign debts. Two months later a funding scheme was carried through with the co-opera tion of the Rothschilds, by which the interest of 12 of the 18 foreign loans was funded for three years and the sinking funds on them and another loan were suspended for 10 years more. These 12 loans comprised over 90 per cent of the external debt, which, by this funding ar rangement, was very considerably increased. This was followed by a reduction in the ex penses of the government and an increase in taxation was made. The tariff was so modi
fied as to encourage imports where, in many instances, the old tariff had had the contrary effect. Thus the budget deficit of more than $63,000,000 was reduced to $38,000,000 in 1915 and to an estimated $9,000,000 in 1917. By a decree of 9 May 1917, the Brazilian govern ment issued an additional 20,000,000 milreis ($4,800,000) of treasury notes, thus making a total of $75,600,000 issue of the,$84,000,000 au thorized on 28 Aug. 1915 to meet the deficits of the budget, to provide aid and preventive measures against drought and to assist the Banco do Brazil with funds at 3 per cent to develop its operations. On this date the amount of paper money in circulation was 1,157,527,725 milreis ($277,806,650), This had been increased by September 1917 to an equivalent in milreis of $319,025,985, United States currency. On 31 Dec. 1916, the external Brazilian debt was $533,577,000 United States currency, and the consolidated internal debt $216,000,000. This had increased to $220,498,425 by 1 April 1917. On the latter date the treasury reserve was somewhat more than $15,000,000 gold. The foreign trade balance in favor of Brazil was, for the first quarter of 1917, $76,000,000, while the imports show a steady increase since 1915. In 1916 this increase was over 30 per cent, and that of the first quarter of 1917 was per cent above the income for 1915. The state of Sao Paulo profited more than any other part of the country by this prosperity, its exports being nearly one-half of the total exports of the republic.
In 1916 the Brazilian government redeemed gold bonds to the value of $17,000,000, leaving a balance of $7,000,000, out of the $24,000,000 overdue, still to be redeemed.
In 1917 the state of Sao Paulo led the way in the establishment of state savings banks in Sao Paulo, Campinas, Santos and Ribeirao Preto with the avowed object of encouraging the people of the state to save and invest their savings. The main savings banks above men tioned are empowered to establish, in conformity with the provisions of the law, branch banks throughout the state as occasion may require. The investment of the deposits in these savings banks is carefully restricted and safe-guarded by law. These are the first savings banks estab lished in Brazil on a practical basis. As early as 1860 Federal savings banks were in operation, but as these were in reality dependencies of the public treasury, the regulations governing their investments never invited public confi dence, so they failed to accomplish the end of their being.
Conference, Pro ceedings of the First Pan American' (Wash ington 1915) ; Credits and the New Banking Act' (reprinted from 'Bulletin' Pan American Union, Washington) ; Lough, W. H., 'Financial Developments in South American Countries' (Washington 1915) and 'Banking Opportunities in South American Countries> (Department of Commerce, Washington 1915). For currency, etc., consult Cosby, J. T., 'Latin American Monetary Systems and Exchange Conditions' (New York 1915), and Gonzales, V., 'Modern Foreign Exchange' (New York 1914).