upon them. As regards Protection, several meetings attended by wealthy and influential business men were held, but without any result, and though the matter was frequently brought before the Government, nothing was gained but declarations by the Prime Minister and others against it. It is, however, so powerfully supported that something may be done in 1881. If so, it does not promise well for the future of Brazil, because her tariff is already high enough to be protective in other countries, whilst she lacks the stimulus for natural production. The Brazilian cannot be transformed into a manufacturer, for he is not made of stuff that can direct or perform skilled labour, nor has he the energy or administrative qualities to develop his resources so as to make them marketable. This, however, may shortly be tested practically, for a cotton factory, with machinery from England, and having twenty-four power-looms, is to be erected at Casa Branca during 1881. There is one thing that needs special attention and amendment, and that is the pernicious system of long credits. Latterly many of the importing houses at Rio have either adopted short credits or reduced their business to a cash basis; but this is insufficient, for a cash sale of the day means fourth months' credit. On the whole the financial position of the country is thought to be improving, chiefly owing to its increased production; and the coffee crop, on which the country depends for half its revenue, alone promises to yield six million bags. By comparison with the past, however, present progress cannot be considered satisfactory. The revenue, which had again and again doubled itself every tenth year, was 12,000,000l. in 1873. Since then it has not proved sufficient for its expenditure, and there has been an annual deficit of 2,000,000l., the effect of which has been to increase the National Debt by subsequent loans from seventy-two millions in 1876 to eighty millions in 1880. One half the revenue is usually absorbed by the charge on the debt and in army and navy expenditure, whilst one fourth is devoted either to the construction of railways or to the guarantee of their interest at 7 per cent. The Budget for 1880-81 estimated the expenditure at 114,183,138 milreis, and the receipts at about 115,449,000 milreis, the surplus to be applied to the reduction of paper money. For a long time the leading feature in Brazilian progress has been the extension of its railways, but the area to be traversed was so vast that there could be no immediate return for the necessarily large outlay, and there were many failures, notably the attempt to develop the navigation of the San Francisco river by constructing railways from Bahia and Pernambuco. It is perhaps hazardous to predict success for those gigantic lines which are to be continued to the frontiers of Uruguay, Paraguay, and Bolivia, but, on the other hand, some railways have been paying large dividends, and the latest enterprise really promises well, the necessary funds having been raised in England under an imperial guarantee of 7 per cent. This is the Donna Thereza Christina Railway, in the province of Santa

Catherina, noted for its excellent coal, which has hitherto needed a railway to convey it to the seaboard, and the company will not only possess the railway and coal mines, but also other advantages of which they have secured a monoply for many years. Another railway, inaugurated by the Emperor in April, and for which success is looked, has been undertaken from the port of Paranagua to Coritaba, in the province of Parana, by a French company, who have provided the capital and secured an imperial guarantee. The only produce which gives fair returns is coffee. Brazil makes about one half of the coffee produced throughout the world, and it threatens to absorb all the productive powers of the empire, for the other branches of agricultural industry in Brazil are declining. Her other principal exports are sugar, cotton, indiarubber, tobacco, Maté or Paraguay tea, and hides. England is her best customer, for she sends 30 per cent. and takes away 25 per cent.

There have been rumours of an unfriendly feeling growing up between Brazil and the Argentine Republic, in consequence of the increase in their respective armaments, but there appears to have been no foundation for such rumours, and the armaments were, as in Europe, only for self-defence. Owing to the warlike preparations of the Argentine Republic, the Brazilian Senate had unanimously voted a credit of 5,000,000 milreis for increasing the naval forces of the empire and 4,000,000 for improving the army material, the Government at the same time expressing its confidence in the pacific intentions of the Argentine Republic towards Brazil. To this probably may be attributed the rumours referred to.

Amongst the miscellaneous news of the year may be mentioned the signing of a treaty of commerce, on September 5, at Tientsing between Brazil and China. In October, the band of marauders that sacked the town of Januaria in 1879, was broken up, after a severe fight with the force sent in pursuit of it; sixty persons were killed and most of the bandits captured. The new London and Brazilian Bank received twenty years' prolongation of the charter authorising operations within the empire. Yellow fever was prevalent at Rio early in 1880, there being eight or ten deaths daily, but it did not assume the form of an epidemic. The legislature voted a subsidy of 100,000 milreis per annum for a monthly line of steamers to be started shortly between Brazil and Canada, the voyage to occupy twenty-eight or twenty-nine days, and the contract to last for ten years. There was for some days in Rio a serious disturbance, owing to the imposition of an obnoxious personal tramway tax, which had to be substituted for one levied on the tramway companies.

As the year was closing, news arrived that vast phosphate deposits, valued at many millions of dollars, had been discovered on the Brazilian coast. Hitherto it was supposed that those persons having the control of the guano and nitrate beds in Peru and Bolivia virtually possessed a monopoly of those commodities, but it seems an American has been applying to the Brazilian

Government for a concession to collect and export phosphate deposits from Fernando, Noronha, and other islands on the coast to New York. Almost coincident with this news was the first arrival in Europe of guano froin Tarapaca, under the sanction of the Chilian Government, for the benefit of Peruvian bondholders.

II. CHILI, PERU, AND BOLIVIA.

At the close of 1879 it was thought that the war which had been waging most of the year was about to terminate, and that terms would be arranged between the three countries through the friendly mediation of some neutral Power. This, however, was not to be. The talked-of mediation took no definite shape, and peace was, therefore, out of the question, as much from the prostrate condition of Peru as from the hard terms required by Chili. The former had suffered so severely that the continuance of the war could scarcely make her case more desperate than it was already. With Chili it was different, yet her financial exhaustion rendered her condition only less desperate. Her successes had been gained at a strain that jeopardised her credit and tried her resources to the utmost, so that her determination to fight on seemed rash and impolitic. The desultory manner in which the war was conducted during the early months of 1880 pointed to her necessity for breathing time, or she might have taken advantage of the discontent prevailing amongst the Peruvians against their own Government after the reverses at Iquique, Colores, and Tarapaca. In Peru the failure of the war had been attributed to the incapacity of President Prado, and the feeling grew so bitter that he was compelled to flee the country in December, and a revolution followed. It was short and sharp, and on the 22nd of that month, after a combat in which 60 men were killed and 200 wounded, Pierola was hailed Dictator of Peru. An outbreak against him in the following month was promptly suppressed and the leaders of the movement shot. Hostilities were resumed on February 27 by an attack on Arica by the Chilian ram "Huascar" and the corvette "Magallanes," the Peruvian forts and monitor "Manco Capac" responding vigorously. After the attack the latter vessel followed the "Huascar" to her anchorage, and for an hour or more fought her at 100 yards' range, killing her commander. The "Huascar," however, continued to bombard Arica daily for three hours, and a good deal of injury was inflicted on both sides. On one occasion the Peruvian corvette "Union" forced the blockade, and after seven hours' fighting with two Chilian ironclads, discharged her cargo of supplies and returned to Callao. Moquegua was occupied by the Chilians on March 20 without a blow, and this was followed by their winning a battle at Los Angelos and occupying Sorata.

In April Callao was blockaded by six Chilian steamers. A

panic ensued and the inhabitants fled, the garrison alone remaining. The bombardment of the place followed, much damage being caused by the shells of the "Huascar," whilst the injury inflicted on the Chilians was trifling. On May 25 the latter attacked the allied armies before Tacna, and after three days' fighting, defeated them, taking possession of the town and capturing eight cannon. The loss on both sides is said to have been 8,000. On June 7 Arica was impetuously attacked by the Chilians in the early morning. The attack had been expected by those within its walls, and energetic steps taken to repel it, but by a clever move the blow was delivered on the side of the town where it was not expected and least prepared. One fort was seized by a rush, then another, every soldier being bayoneted, and the fight was continued from street to street, until within three hours of the first shot, the Chilian flag was waving over the town. Some Peruvian officers and men had taken refuge in the British Consulate, but they were found by the Chilians and several shot, no quarter being given. Three or four rooms in the British Consulate were forced, and the contents stolen or destroyed, whilst the French, German, and Brazilian Consulates were sacked and the North American burnt. The soldiers were let loose in the city, and in the afternoon it was in flames; fortunately the women and children had been taken on board the foreign men-of-war earlier in the day and were saved. As soon as the captain of the Peruvian monitor, "Manco Capac," saw that the Chilians had captured Arica he opened the plugs in his vessel and sank her to prevent her falling into the hands of the enemy, he and his men escaping in the boats and surrendering to the Chilian ship "Italia." By the defeat at Arica the Southern army of Peru was exterminated. The attention of the Chilians was next concentrated on Callao and Lima. The Admiral of the Fleet blockading the former notified to the Diplomatic body that he intended to bombard Lima, allowing until July 8 for the departure of foreigners, women, and children. The city was prepared for a vigorous defence, and the Archbishop placed the treasure of his church at the disposal of the Peruvian Government. Pierola decreed that all men, with few exceptions, between the ages of sixteen and sixty should present themselves for drill, armed and in uniform, every day from eleven to two, all places of business being closed during those hours, and the men who did not comply were to be sent to join the active army. Whilst these preparations were going on within the city, the Peruvians succeeded in blowing up by means of torpedoes the Chilian transports "Loa" and "Amazonas." The former was a terrible affair; every house in Callao is said to have been shaken to its foundations, and every ship in the bay quivered as by an earthquake. The torpedo, which contained 300 lbs. of dynamite, wore the disguise of a fruit boat, of which there were always several about; when it came in contact with the "Loa," the latter was almost lifted out of the water by the force of the explosion and sank in eight

minutes, killing 150 men and leaving 40 more to be picked up by the boats of neutral vessels. A lull in hostilities ensued. Not that the Peruvians ceased from their efforts to render their capital as secure as possible, or that the Chilians in any way abandoned their intention to effect its capture, but rumours of peace produced inaction. It was announced early in September that, in consequence of the mediation of England, France, and Italy, the Governments of Chili and Peru had opened negotiations for the cessation of hostilities. The United States Government had previously offered to mediate in July, but not withstanding the Chilian Minister at Washington had informed the United States Government that his Government would undoubtedly accept his mediation with a view to terminating the war, and correspondence had followed on the subject between the three Governments, no official notification of the acceptance had been received by the United States Government by the middle of September. The extravagance of the terms insisted on by Chili sufficed to let the war drag on. Desperate as the situation was, Peru could not bring herself to sign her death warrant as an existing State. Her future would not be worth having if she were to be absorbed in Bolivia, agree to the surrender of all the Bolivian coast on the Pacific, and allow Tarapaca to be held by Chili as a guarantee for payment of a war indemnity of 40,000,000l.

In the absence of any settlement the war was continued. Chimbote, north of Lima, was occupied by the Chilians on September 10. There not being a single Peruvian soldier in the place, of course no opposition was offered. Chorillos, the Brighton of Peru, Ancon, and Chancoy, all unfortified places, were bombarded by the Chilian fleet. It was whilst blockading the latter town that the Chilian corvette "Coradonga" was blown up by a torpedo, and it was out of revenge for this act that the above-mentioned defenceless places were bombarded by the Chilians, who were still sore about the loss of their two vessels "Loa" and "Amazonas." On October 29 Lynch, the Chilian leader, who is reported to have been at one time in the employ of the Peruvian Government, arrived at Callao with seven vessels, having completed a successful raiding expedition in the north of Lima. Several towns had paid the war contributions levied by him rather than suffer destruction, but many refused, and he had destroyed an immense amount of public and private property at Moussefu, Chielayo, Pinuntel, Lamboycke, and Patapo. Negotiations for peace were again set on foot by the United States Government in November, and a conference took place at Arica, the following terms being submitted by Chili:

1. Cession to Chili of the Peruvian and Bolivian territories extending south of the Quebrada de Camarones and east of the line which, in the Cordillera of the Andes, separates Peru from Bolivia as far as the Quebrada de la Chacarilla, and to the west also of a line stretching from this point to the Argentine frontier, passing through the centre of the Lake Ascotan.