by Gerard Colby
THE SECRETS OF BODOQUENA
Dwarfing the nearest large town, Aquidauana, Fazenda Bodoquena sprawled over 1,030,000 acres of forests, grasslands, and wetlands that had once been the lands of the Kadiwéu and their vassals, the Terêna Indians.
Situated south of the Amazon River Basin’s floodplain, in southwestern Mato Grasso, the ranch took its name from the Bodoquena Mountains, home of the Kadiwéu. The only Indians in South America who made thorough use of horses, the nomadic Kadiwéu earned a reputation as the best light cavalry on the continent, successfully resisting all invaders for centuries. European colonization of their hunting lands was held up until modern weapons decimated the tribe’s horsemen at the beginning of the twentieth century, massacres reducing their numbers to about 250 by the time Rockefeller moved into the area. The tribe’s resistance, however, had won them a 1.7 million-acre reserve west of the mountains up to the Rio Nabileque on the left bank of the Paraguaí River, granted in perpetuity, but with no technical aid or resources to develop it or to create markets for their traditional artifacts. Almost half the Kadiwéu lands, some 842,000 acres, would be taken after the 1964 military coup by ranchers, land speculators, and settlers.17
Most of the Terêna lands east of the mountains, on the other hand, had already been expropriated through centuries of contact with Europeans. The tribe tilled what lands remained and hired themselves out as ranch hands and low-wage laborers in Aquidauana and other towns. Although literate and registered as army reservists, the Terêna were prevented from exercising their voting rights on the false ground that since Indians could not be drafted into military service, they could not vote. In fact, the Service for the Protection of the Indian feared conflict with local politicians over the Indians voting.18 Politically disfranchised, the Indians had little means of influencing official policies or even illegal practices that affected land tenure.
In 1956, these Indians found themselves facing one of the world’s richest land speculators. Nelson Rockefeller had had his sights on the Bodoquena ranch even before he arrived, writing Moreira Salles a month before that he had “several ideas about your big cattle property in Mato Grosso that I would like to discuss with you.”19 Nelson wanted in, and Moreira Salles was willing. The Brazilian banker at first offered to sell 20 percent of Bodoquena, or 18,000 shares for 4,000 cruzeiros ($60) per share. This was a price that Berent Friele thought was “extremely fair.”20 He then settled on 30 percent, or 27,000 shares, for a total of $1,620,000.
But Moreira Salles had made two mistakes. Hoping to inspire a Rockefeller investment, he had told Nelson earlier about his plans to divide and sell off part of another property he had invested in, the 137,000-acre Cambuhy Coffee and Cotton Estates, Ltd., owner of Fazendas Paulistas, in São Paulo State.21 He also had been too quick in his willingness to sell 30 percent of Bodoquena.
Nelson caught the scent of desperation. He realized that Moreira Salles needed cash to develop his real estate ventures and improve his remaining coffee estates. And now Nelson knew the exact amount his friend wanted—$1,620,000. He decided to put on the squeeze. The Bodoquena ranch was remote, he wrote Friele, and that meant the property and its cattle were worth a whopping 25 percent less.
Nelson’s argument was not strong. Much of the ranch’s 50,000 head of cattle would have to be sold for slaughter anyway to make way for the better breeding stock Nelson planned to import from the United States. This sale would bring Nelson immediate cash-flow benefits. It was also obvious that Rockefeller planned to reduce the ranch’s need for feed by improving the pasture’s winter grass; that would reduce purchase and freight costs for grain. Finally, one of the ranch’s attractions was the recently completed Santa Cruz–São Paulo railroad that passed directly north of the ranch, with a freight station at the nearest town. This station eliminated much of the losses in numbers and weight that are incurred when cattle must be driven to distant rail terminals, as in the United States’ Old West.
Nelson buttressed his case for a better deal by reminding Moreira Salles of a more tangible asset of his own: the research resources Nelson would bring to the ranch through his two nonprofit organizations, IBEC Research and the AIA.22
Using nonprofits as a bargaining chip for personal gain was a violation of U.S. federal income tax laws that prohibit a director or trustee of a tax-exempt nonprofit corporation or foundation from any inurement from the nonprofit’s operations. But Moreira Salles was not about to blow the whistle on a Rockefeller. He wanted “the opportunity of closer association” with the Rockefellers that Nelson had offered when he sent Friele down to negotiate the Bodoquena purchase.23 Moreira Salles had already made a down payment on that possibility with a donation of 2 million cruzeiros (about $30,000) to IBEC Research the previous year.24 The Rockefeller name would bring prestige to his ventures in Brazil, making it easier to attract other partners and raise capital. Besides, he was Brazilian, and this was Brazil. U.S. law was unenforceable. The negotiations were confidential. The Rockefellers expected discretion. If they were exploiting that confidence, he could not break it without injury to his own interests.
Nelson, like his grandfather, had sized up his competition. He had Friele relay to Moreira Salles that he could recommend only 3,000 cruzeiros ($45) per share to IBEC for 30 percent of Bodoquena. But he also offered to sweeten the deal by having brothers David and Laurance join him in taking another 10 percent. That would give Moreira Salles the same $1,620,000. He had read the Brazilian right. Moreira Salles accepted.
The Rockefellers’ purchase of 40 percent of Fazenda Bodoquena gave them a big stake in other developments in the 94-mile-wide corridor along Bolivia’s border. This corridor was considered so politically sensitive that its development was governed by Brazil’s Federal Border Zone Commission under national security laws. Nelson’s aides feared that “nationalists … might try to connect our purchase of Bodoquena stock with oil in Bolivia and U.S. Steel’s manganese concession in Mato Grosso.”25
Their fear was not without foundation. Before serving as ambassador, Moreira Salles had been the chief negotiator of the bilateral accord that set the trade terms for U.S. access to Brazilian manganese during the Korean War. As for “oil in Bolivia,” IBEC’s Richard Aldrich had been monitoring a growing controversy over a 1938 treaty that gave Brazil a 50 percent stake in the development of Standard Oil’s expropriated field in Santa Cruz. According to the treaty, Brazil’s stake would go into effect just as soon as it fulfilled its commitment to build the railroad that would give eastern Bolivia duty-free access to the Atlantic. “The Brazilian-Bolivian railroad has been extended westward beyond the potentially rich oil field of eastern Bolivia,” Aldrich reported in 1950. “Industrial urban growth of western Brazil should gain speed with the installation of the equipment to exploit these fields.”26
Now the railroad’s construction was completed, and the Bolivians were refusing to allow Petrobrás in, on the grounds that its status as a Brazilian government entity would threaten Bolivia’s national sovereignty. At the same time, an old friend of Nelson, Bolivia’s ambassador to the United States, Victor Andrade, insisted that Brazil forgo shipping the oil by rail and instead ship by pipeline, which, under Brazilian law, had to be owned by Petrobrás. The Brazilians, well aware of the enormous cost of building a pipeline, correctly suspected that the Bolivians were trying to break the agreement and were secretly negotiating with American oil companies to develop the field. The advantage to the Bolivians was clear: Whereas Brazil was not obligated by the treaty to pay taxes on Bolivia’s oil, the foreign oil companies were.
Brazil’s Railroad Reaches Santa Cruz (1956)
The Corumbá–Santa Cruz railway linked Bolivia’s oil lands to the Brazilian railroad passing north of the million-acre ranch owned by Rockefellers and Walther Moreira Salles, a São Paulo banker and principal stockholder in an oil firm prospecting in Santa Cruz.
Sources: New York Times, January 6, 1955, and September 13, 1958; Ultima Hora, September 13, 1958; Peter Seab
orn Smith, Oil and Politics in Modern Brazil, pp. 119–21.
Kubitschek refused to be provoked or to back out. Since private Brazilian companies were not allowed to develop Brazil’s oil, but faced no such restrictions outside their own country, he opened up bids for the Bolivian oil to private Brazilian companies. One of the companies that bid, indeed the only Brazilian company that would actually drill for oil in Santa Cruz, was Refinaria Exploracão de Petrólio União, S.A. This firm already had a controversial history. Standard Oil of New Jersey had been its partner in a planned refinery until adverse publicity from nationalists forced Standard Oil’s withdrawal in 1946. União had to go it alone, using Brazilian capital organized by railroad builder Alberto Soares de Sampaio to build a refinery at Capuava between São Paulo and the port of Santos. The refinery relied on Gulf Oil to supply it with Saudi Arabian crude. Now, with Gulf shortly to be given a large concession in Bolivia, União’s crude source would be much closer to home, in Santa Cruz. But there was more involved here than convenience or cheaper oil: União’s bank was none other than Banco Moreira Salles, with Walther’s father, João Moreira Salles, overseeing the oil firm’s finances as a member of its administrative council.27 Walther Moreira Salles, in fact, was then the principal stockholder of União.
The Brazilian people, many of whom backed Petrobrás and suspected private oil companies of being fronts for Standard Oil, Gulf, and other foreign interests, did not know this; they, the media, and even historians later believed that the oil company was controlled by its founder, Alberto Soares. But the Rockefellers had been informed otherwise by the head of IFI’s Rio office in November 1955, when Moreira Salles proposed two deals to the Rockefellers. The first was a capital increase of the Moreira Salles bank’s stock by 168 million cruzeiros with “the underwriting headed by Interamericana [IFI].” The second deal involved the União refinery, proposing “a secondary distribution of the União stock subscribed by the controlling group—probably CR$100MM [100 million cruzeiros]—the principal shareholder being Moreira Salles.”
Moreira Salles was the hidden force behind the União oil company, and now Moreira Salles was turning to the Rockefellers to act as a silent partner in arranging more money for his oil company to expand his refinery’s capacity and to provide funds for exploration in Bolivia. Because Kubitschek was opening Bolivian oil to private Brazilian companies, and União was making a strong bid, União’s stock would be attractive to investors. His bank’s resources would not have to be tapped and, moreover, the additional capital for the bank would permit it to continue spreading throughout central Brazil. It was the chance of a lifetime, allowing a rapid growth in power for the Moreira Salles financial group. For the Rockefellers, it meant profitable fees for IFI as the lead investment bank handling the stock offerings and opened the possibility of a wider alliance with a major Brazilian bank, perhaps as partners in secondary stock sales to the public, a much larger, untapped source of capital, through a mutual fund.
The Rockefellers decided to test the prospects for this alliance. IFI offered a deal to Moreira Salles: to set up an investment company of 500 million to 2 billion cruzeiros “to settle Brazil’s long defaulted French railroad and port improvement bonds.” This deal would require “Walther Moreira Salles’ liaison and connections with the government.” Through the government’s guarantee of new securities, money could be raised to pay off the French bonds. As the lead investment bank, control of the government-owned railroad’s debt would pass to the Rockefellers and the Moreira Salles group and their investors. This would be the opening wedge of a new financial era in Brazil in which the Rockefellers, in alliance with Moreira Salles, would gain a powerful influence over Brazil’s finances; development plans; financial laws; and, ultimately, the government itself.
Nelson’s men were clear about the role that Moreira Salles’s bank and oil company could play in spreading the influence of the Rockefeller investment firm, IFI, throughout Brazil: “The capital increase of the bank stock, followed up by a secondary distribution of the oil refinery stock might well be the key to solving one of the basic problems [for IFI]—distribution of securities through a network of branch banks.
“Walther Moreira Salles is one of the closest collaborators with the newly elected [Kubitschek] administration and should have a great deal of influence. This could be of invaluable assistance to Interamericana.” Moreira Salles had participated in all of IFI’s recent underwritings and had pledged a 20 to 30 million cruzeiro standby loan, the kind of valuable local bank support the Rockefellers needed if they were to compete with the leading American investment firm in Brazil, Deltec, S.A., which was backed by the powerful Banco Mercantil de São Paulo, Moreira Salles’s principal competitor.
“Moreira Salles is deal-minded and is anxious to share his bank in a leading position, which he feels can be in part accomplished through investment banking activities.… Based upon the verbal proposals of Moreira Salles, as well as growing actual participation and giving deals—União—Interamericana may have its best vehicle to develop and grow with the assistance of a commercial bank.”28 The IFI’s underwriting of Banco Moreira Salles’s stock increase was scheduled for distribution in March–April 1956, exactly when Nelson chose to strike the anvil with a visit.
These ties of the Moreira Salles group to railroad bonds and Bolivian oil could help Nelson develop Bodoquena, but they could also backfire on him. Indeed, in May 1957, the same month Nelson would announce his purchase of Bodoquena, IBEC would be accused by Brazilian congressmen and Rio’s Jornal do Comercio of handling, through Walther Moreira Salles, the offering rights to stockholders for União’s capital increase. The charge would be denied, but suspicions of Rockefeller–Moreira Salles ties to União’s interest in Bolivian oil would linger.
Nelson’s aides knew that Nelson’s insistence on changing the Bodoquena company’s bylaws to allow mining could inflame Brazilian public opinion, especially since the Santa Cruz–São Paulo railroad passed not only near U.S. Steel’s mining concession north of Bodoquena, but also through Aquidauana, near Nelson’s ranch. Any request for a change in the ranch’s corporate bylaws that would permit foreign participation in “extractive industries” would require approval by Brazil’s National Security Council, warned IBEC lawyers. In spite of the danger, the option was so important to Nelson that he was willing to risk the whole purchase by insisting upon the change in the bylaws.
To avoid “nationalist objections,” the Rockefeller group got Moreira Salles’s agreement to keep the purchase secret, at least until the Border Zone Commission approved the change in the bylaws. In early January 1957, however, Rockefeller aides became alarmed when “someone leaked” the news to two Brazilian newspapers. Their worst fears were realized when the New York Times called. The IBEC office at Rockefeller Plaza went into crisis mode. Frank Jamieson advised Nelson to keep a steady course and to continue to hold up any press release, despite the fear that silence from the Rockefellers could only increase Brazilian suspicions. Jamieson bought time by securing the cooperation of Times reporter Frank Garcia, an old friend, by promising him a scoop. On February 20, Jamieson met with Nelson on whether to disclose the size of the million-acre ranch. Nelson decided not to.29
Nelson’s main worry was how much control Moreira Salles actually had. IBEC’s press release would point out that 20 percent was held by Bodoquena’s manager, Mauricio Verdier, allowing IBEC to reassure Brazilians that “the management and majority of the shares” were in Brazilian hands.30 But in the real world beyond public relations, the Rockefeller group’s goal was control.
“We hope that [Verdier] is not just a Moreira Salles stooge,” an IBEC officer wrote Jamieson, “for we have had much unhappy experience in companies where our minority position kept us from having a strong voice.”31
After the Bodoquena land purchase was approved, Nelson deepened his commitment to Kubitschek’s economic expansion program. In mid-1957, while he and Winthrop guaranteed a $4.5 million loan from David’s Ch
ase National Bank, Nelson strengthened IBEC’s access to capital in two ways, by reaching back to Washington and by reaching deeper into the savings of South America’s largest country. IBEC acquired a substantial interest in a new leader in medium-term overseas venture finance, American Overseas Finance Company, setting up a parent holding company, American Overseas Investing Company, in partnership with CIT Financial Corporation of New York, a Chase holding company.32
That year, Nelson also began his most serious penetration yet of the Brazilian economy. IBEC replaced IFI with a mutual fund called Crescinco, offering shares to the Brazilian public in an initial portfolio of Brazilian stocks worth 40 million cruzeiros. In one year, Crescinco could announce in its 1958 annual report, it had made “a spectacular gain” in the sales of its participating certificates, leaping from 90 million to 400 million cruzeiros. How did it happen? Nelson’s methods were as deceptively simple as they were quiet and unobtrusive. Working through a São Paulo–based subsidiary, Companhia Distribuidora de Valores, Crescinco “sold [its shares] from Belém on the Amazon to Port Alegro in the south” at a price based on the fund’s current asset value; the money collected from the sales was then “invested in the stock of leading Brazilian companies.” IBEC made more money as Crescinco’s portfolio grew by having its management subsidiary Emprendimentos (“Undertaking”) charge an annual fee of 2 percent of Crescinco’s total value.