Construction of the Lake Paranoá dam in Brasília in 1960. Public domain / Brazilian National Archives Collection.
Jânio Quadros governed Brazil from January 31 to August 25, 1961, when the accelerated modernization of Juscelino Kubitschek was beginning to reveal its costs. JK’s Plano de Metas, or Goals Plan, had used state resources and foreign credit to expand infrastructure and basic industry. Brasília condensed that developmental bet into a political symbol. In this respect, the program made the Brazilian economy more urban and industrial while deepening its dependence on public and foreign financing. Jânio tried to replace JK’s developmental impulse with an orthodox stabilization program, based on spending restraint and tighter credit. In that logic, recovering foreign credit required a more realistic exchange rate and credible signs of fiscal discipline.
The new strategy promised external relief, but it shifted costs into the domestic economy. By making formerly subsidized imports more expensive, the exchange-rate reform raised the price of essential goods and increased the government’s political wear. Debt renegotiation, in turn, improved relations with creditors and reduced the burden of short-term payments. To sustain those two movements, Jânio would have needed a congressional base able to defend the adjustment. Yet the president faced a Congress dominated by parties outside his control and combined domestic austerity with an independent foreign policy that displeased part of his conservative support. Jânio’s resignation, in August 1961, interrupted the program before its effects could be assessed with confidence.
The economic legacy of JK
Jânio’s inherited dilemma appeared in the indicators of 1961 themselves. Brazilian GDP grew by 8.6%, still pushed by projects connected to the Goals Plan as they matured. That growth, however, came with weaker investment: the investment rate fell to 13.1% of GDP, its lowest level since 1950. Although growth in 1961 still belonged, in part, to the JK cycle, the macroeconomic costs of that cycle were already in the hands of the new government.
JK’s legacy was especially difficult given that the success of the Goals Plan had created political expectations. Domestic political and economic actors had learned to associate development with abundant credit, protected imports, and rapid public works. When Jânio proposed cutting spending and making foreign exchange more expensive, the external bill came together with the recent memory of growth that seemed to avoid an explicit choice of costs. For technocrats and for creditors, stabilization looked like a necessary correction. For many domestic groups, by contrast, it looked like a concrete loss after years in which the state had managed tensions through expansion.
The most visible problem was inflation, already accelerating at the end of the JK government. The annual increase in the General Price Index rose from 30.5% in 1960 to 47.8% in 1961, a sign that the way development had been financed was becoming increasingly costly. Price increases reflected public investment financed by the previous government, protection for selected imports through the exchange-rate system, and tolerance for deficits in the name of growth. Expansion depended on cheap credit that ran through the state, the public banking system, and private firms. Inflation was therefore also a dispute over who would lose access to cheap financing and protected prices. Slowing that dynamic would affect industrial interests, urban workers, consumers, and local governments at the same time.
In the external sector, recent industrialization itself increased the pressure. During the JK years, Brazil had relied on loans, machinery imports, and exchange-rate mechanisms favorable to industrial production. Because exports grew more slowly than the demand for foreign currency, the country used commercial arrears, meaning the postponement of import payments, as financing of last resort. Industrialization had increased Brazilian productive capacity and raised the need for foreign exchange.
Jânio’s task was politically ungrateful because the government needed to contain the imbalances while preserving the promise of modernization. Since Vargas and JK, Brazilian political language had treated rapid growth and state-led industrialization as signs of national modernization. Inflation, exchange-rate subsidies, and foreign debt nevertheless limited the continuity of that arrangement. Faced with that impasse, the Jânio government began with the most urgent point: exchange policy and debt renegotiation.
SUMOC Instruction 204
In March 1961, Brazil’s Superintendence of Money and Credit issued Instruction 204. The institution was known as SUMOC, and the rule became the main economic measure of the Jânio government. SUMOC was part of Brazil’s monetary authority before the creation of the Central Bank. The rule sought to bring the official exchange rate, meaning the price of foreign currency in cruzeiros, closer to its real cost. In addition, it reduced subsidies paid by the Treasury and moved the country toward unification of the exchange market. The logic of “exchange-rate realism” was simple: selling cheap dollars for some imports had become incompatible with scarce resources for meeting external obligations and limiting monetary issuance.
The previous system, which had already been adjusted under the Café Filho administration, combined multiple exchange rates and auction mechanisms. That architecture protected sectors considered priorities and reduced the price of essential imports, although it created distortions because the price of foreign currency depended on administrative categories. Importers, exporters, and public agencies needed to know which category applied to an operation before calculating costs or revenues. With Instruction 204, the government reduced part of that complexity. General imports moved closer to the free market, auctions were abolished for part of the transactions, and preferential imports underwent a sharp devaluation.
Unification remained partial because coffee, cocoa, and some derivatives continued to receive specific treatment, while the government preserved control instruments. Even so, the reform changed important relative prices by making imports that had previously received subsidies more expensive. That increase affected goods with direct weight in the cost of living, especially wheat and petroleum, which mattered for food, transport, and industry. Although it helped the balance of payments, the exchange-rate adjustment transferred part of the cost of stabilization to consumers and firms that depended on imported goods.
The inflationary effect appeared quickly because devaluation raised the prices of fuels, food, and industrial goods that used imported inputs. Instruction 204 explains only part of the inflationary acceleration. The government also faced a heated economy, credit that was hard to control, and poorly coordinated monetary institutions. The Bank of Brazil, a state institution that combined commercial and monetary functions, still performed central financial roles, and Brazil lacked a modern central bank capable of directing monetary policy in a unified way.
Even with those limits, Instruction 204 changed the signal of economic policy. Since the Vargas Era, Brazil had used exchange controls, multiple rates, and selective protection as instruments of industrialization. While it kept much of that model, the government concentrated the adjustment on its most expensive subsidies. The measure showed that stabilization would require choosing who would lose income: importers, consumers, exporters, workers, or the state itself. That distributive choice was precisely the type of conflict that Brazilian politics in the 1950s had tried to postpone through growth.
Austerity and foreign credit
The exchange-rate reform came together with an orthodox economic policy. The government tried to contain public spending, restrict credit, control monetary expansion, and limit wage increases. The minimum wage remained frozen, and the reduction of subsidies was meant to ease pressures on the budget. The program presented to the International Monetary Fund followed the same logic: controlling the public deficit in order to limit the expansion of money and credit.
Moreover, the program had a decisive external dimension, since Jânio needed to restore the confidence of foreign creditors. In 1961, an important part of Brazilian debt would mature in the following years, and export revenues were insufficient to cover those commitments comfortably. The economic team, with economist Roberto Campos and banker-diplomat Walter Moreira Salles involved in external negotiations, sought to reschedule payments and obtain new credits. Domestic austerity also worked as a signal to creditors: Brazil wanted to show that it would correct the exchange rate, reduce subsidies, and take foreign debt seriously.
That signal helped the government on the external front. The exchange-rate measures were well received by the IMF and by foreign creditors, which opened space for renegotiating debts due between 1961 and 1965. In May and June 1961, Brazil moved part of those payments to later years and obtained new loans in the United States and Europe. As a result, debt service fell as a share of export revenues in 1961, and the indicator comparing net foreign debt with exports improved in relation to 1960.
The success of external negotiations left the internal problem open. Inflation remained high, and exchange-rate devaluation made the short-term fight against prices harder. For the government, rescheduling bought time and reduced immediate pressure on reserves, while fiscal discipline and external credibility would take longer to appear as a lower cost of living. The political cost appeared differently among the affected groups: firms feared restrictions on working capital, workers faced lost purchasing power, consumers saw the price of essential goods rise, and politicians resisted cuts that affected their own regional support. The political difficulty of the program lay in that distribution of costs: stabilization required a coalition that was absent in the Jânio government.
Furthermore, Jânio’s congressional base was eroded by the independent foreign policy known in Brazil as the Política Externa Independente, or PEI. The president sought greater diplomatic autonomy, opened space for relations with socialist countries, rejected automatic alignment with the United States, and treated Cuba more openly than conservative sectors wanted. Even though it expanded Brazil’s diplomatic margin, the PEI distanced part of the National Democratic Union, or UDN, the conservative-liberal party that had been central to his campaign, and part of the military that had supported his election. In economic policy, the government wanted to please Western creditors. In diplomacy, it wanted to preserve autonomy. The combination of domestic orthodoxy and external independence left Jânio politically isolated in more than one direction.
Jânio’s resignation and the interruption of the program
Jânio resigned on August 25, 1961, and turned an already fragile economic program into an institutional crisis. The president’s departure opened an immediate dispute given that Vice President João Goulart was traveling in China and faced strong resistance from military and civilian sectors. The parliamentary solution allowed Goulart to take office in September, but it reduced the powers of the new president and inaugurated a phase of institutional instability. That compromise transferred part of presidential power to a prime minister and to a cabinet responsible to Congress. For the economy, the consequence was direct: the stabilization program begun by Jânio lost its political command before it could consolidate.
The interruption caused by Jânio’s resignation makes it difficult to judge the results of his economic policy. Although the government had managed to renegotiate part of the debt and recover some foreign credit, it still had to prove that it could control inflation. In fact, prices continued to accelerate, partly because of the costs of the exchange-rate devaluation itself. The central point is that Jânio paid part of the initial political cost of stabilization and left office before he could collect its possible benefits.
Although the economy was still growing strongly at the end of 1961, the trend was more fragile: investment was falling, inflation was rising, and the political crisis increased uncertainty. During the parliamentary regime, the authorities would try to maintain some continuity, especially with Walter Moreira Salles at the Ministry of Finance. That continuity, however, now depended on a permanent institutional dispute. Relations with the United States would worsen, the debate over profit remittances by foreign companies would become sharper, and the external imbalance would again pressure the country.
Jânio’s resignation also changed the political meaning of adjustment. Measures that could have been defended as part of a presidential program came to depend on provisional arrangements involving Congress, the cabinet, and the presidency. Instead of a clear authority able to sustain the initial cost of stabilization, the country entered a period of permanent institutional negotiation. The economic problem came to involve both the choice between inflation and austerity and the legitimate authority to impose that choice.
The Jânio government, therefore, was more than a brief interval between JK and Goulart. The period marked an orthodox attempt to correct the imbalances created by a decade of accelerated developmentalism. The president’s resignation prevented Jânio’s stabilization from becoming a durable program. After Jânio left office, the Brazilian economy entered a phase in which stabilization, growth, and political legitimacy increasingly blocked one another.
Conclusion
Under Jânio Quadros, the Brazilian economy went through a short and incomplete stabilization attempt. Although it was still growing rapidly, the economy received by the government carried high inflation, public deficits, dependence on external financing, and an exchange-rate system full of subsidies and controls. The Jânio government’s response was a policy of austerity, exchange-rate realism, and foreign-debt renegotiation.
SUMOC Instruction 204 was the center of Jânio’s economic response. By bringing the exchange rate closer to its real cost and reducing subsidies, the instruction signaled seriousness to creditors. In return, it made essential imports more expensive and pushed prices upward, making stabilization socially unpopular. The government managed to improve its external position, but inflation remained high and the political base needed to sustain the adjustment remained fragile.
For that reason, Jânio left an economic legacy of an interrupted program. Jânio’s resignation destroyed administrative continuity and opened the crisis that would lead to parliamentarism and the Goulart government. The episode showed that the imbalances left by accelerated growth required more than economic technique: they required a political coalition able to decide who would pay the cost of stabilization.