al
valuation adopted in 1906), the budget for 1907 provided for a revenue
of 353,590,593 milreis and an expenditure of 409,482,284 milreis,
showing a deficit of 55,891,691 milreis. These deficits were common
enough under the monarchy, but they have become still more prominent
under the republic. According to the "Retrospecto Commercial" for 1906
of the _Jornal do Commercio_ (Rio de Janeiro, March 5, 1907), the
aggregate deficits for the eleven years 1891 to 1904 were 692,000,000
milreis, or, say, L43,250,000.

The natural result of such a regime is increasing indebtedness. In
1888, a year before the republic was proclaimed, the internal and
external national debts amounted to L74,000,000 sterling, with the
currency at par. Ten years later, when the currency had fallen to
5-5/8 pence per milreis, the government found itself unable to meet
the interest obligations on its debt and railway guarantees, and an
arrangement was made with its creditors in London for the issue of a
5% funding loan to an amount not to exceed L10,000,000, and the
suspension of all amortization for thirteen years. On the other hand
the government agreed to withdraw currency, which had reached a total
of 788,364,614 1/2-milreis, _pari passu_ with the issue of the loan,
the milreis being computed at 18 pence. The purpose of this condition
was in order to improve the value of the paper milreis in order to
increase the specie value of the revenues. The scheme came into
operation in June 1898, and not only was a complete suspension of
payments avoided but the financial situation was greatly improved. The
government even withdrew more of its currency issues than required by
the agreement, and the value of the milreis steadily improved. At the
same time the government carried out the forced conversion of the
national loans into lower interest-bearing issues, which greatly
reduced the annual interest charges. These measures would have put the
financial affairs of the nation on a solid footing in a very few years
had the government been able to keep its expenditure within its
income. The naval revolt of 1893-1894, however, had aroused the spirit
of militarism in the ruling classes, and the effort to perfect the
organization and equipment of the army, strengthen the fortifications
of Rio de Janeiro, and increase the navy, have kept expenditures in
excess of the revenues. The purchase of g