WEEKLY CONTRIBUTIONS LATIN AMERICA DIVISION, ORE,CIA 10 JANUARY 1950

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000200050002-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 12, 2016
• Document Release Date: May 7, 2002
• Sequence Number: 2
• Publication Date: January 10, 1950
• Content Type: PERRPT

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Week Contributions
Latin America ivision, , CIA
10 January 1950
Of the items reported on this week, D/LA finds that on the effects
of COAS action on Caribbean disputes of particular interest (p. LL).
CURRENT DEVELOPMENTS
NORTHERN AREA: Panama's government may be taking steps to curtail police
influence (p. 2). Guatemala's influential Col. Azhhenz has a doubtful
political future (p. 2). Plots against Cuba's government are not expected
to be successful (p. 2).
CENTRAL AREA: In Colombia, recent government action worsens prospects for
foreign investment (p. 2). In Venezuela, adverse effects will be felt as
the result of the British reduction of dollar oil imports (p. 3). Venezuela's
junta has reestablished municipal councils (p. 4).
GENERAL: Inter-American action on the Haitian-Dominican dispute is expected
to yield short-term benefits (P. )4).
SPECIAL SUBJECTS
The Current Situation in Chile . . . . . . . . . . . . . . . . . . 6
The Current Situation in Honduras.
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1, PANAMA: Possible stop toward ourtail;;snt of olico influence
Pres3 en Arias is I [in atiating a sew mi1.~ tarp
organization known as the Guardia Civil., which may eventually be used,
in conjunction with the Secret Police, as a counterpoise to the
National Police, appears to be in line with the Presi-
dentts avowed inten ?on curtail the power and influence of the
Rational Police,, who played a key role in the coups of November, and
whose support in the past has been essential to any president's con-
tinuance in office,
2. GUATEYAIA: Political Future of Col. Arbenz in Doubt
cause e a ege comp ciy'o `r ster of Defense
Arbens in the assassination of the popular Col. Arena in July 1949_,
and because of his opportunistic political behavior., it is likely
that many persons within the Arevalo administration and the revolu-
tionary political parties now feel him to be a political liability.
Arbens cannot easily be repudiated or ignored, however, because he is
a key my-mber of the administration with pronounced presidential ambi-
tions and the ability to attract supporters. In fact, the administra-
tion appears obligated to protect him from adverse criticism and.
possible assassination by those who wish to avenge Col. Aranats
murder, It is logical to believe, therefore, that Arevalo may hope
to dispose of him in some politic manner possibly by arranging
for his residence abroad. Some evidence that a solution to the
Artie
ug
bl
25X1
25X1
r
pro
em is being ;ought is that 25X1'
Col. Victor Sandoval (Chief of Tile ii,i . Guard. and brother--3rriaw of
Are'valo) traveled to San Francisco to discuss the "disposition" of
Col. Arbenz with the local Guatemalan consul.
Although Arbenz has,, of late, expressed his vdllingness
to use his influence on behalf of US business interests in Guatemala,
his reputation as a supporter of militant leftists is such that his
ren ,val from the local scene might impr.?ove, rather than impair, U;-
Guatemalan re]ations,
3. CUBA : Flo to overthrow the Prio government of doubtful.
imno nce
510 0 0~ the Prio gore~nt from 25X1
Cuba, the plotters as a "large group of Cuban Army
Officers while that Trujillo is allegedly in alliance
with "certain Cuoans,, to oust Frio. On the basis of preliminary infer-
nation, D/fit. estimates that the present ri zmors are of doubtful signifi-
cance as a successful coup dtatat is considered unlikely at this time.
COLOMBIA: erects for Fora a Investment Worsen
Foreign investment suf_ere ono n" s-e back last week when
the long-awaited modification of petroleum leg:Lslation was finally
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promulgated as a decree-law without the expected modifications which
the oil industry considered necessary to any increase of exploration
activities. If current government policies generally can be taken to
be those of President-elect Lavaeano Oomez (and it seems clear that
little is done to which he is strongly opposed), the recent decree-law
runs contrary to Corneal publicly announced desire to encourage foreign
investors.
Although in 199 there was no absolute decline in new petro-
leum investment, (because of heavy expenditures by one or two companies
to develop fields already under exploitation), such investment was sub-
stantially less in 1949 than it would have been had the Colombian
government provided conditions attractive to new capital. Various
companies withdrew from Colombia entirely, and others, with substantial
amounts already invested, awaited the new legislation which has since
proved to be disappointing.
Private foreign investment other than petroleum-has decreased
markedly in the past two ysars. Now investments, which in the first nine
months of 1.947 amounted to $2,233,000, were $625,000 for the first nine
months of 1948 and only $154,,000 in the first nine months of 1949.
Although, because of high coffee prices,, Colombia's 1950 balance of pay--
mnts is expected to be such that Colombia will not need the foreign
exchange from new investment, nevertheless, it will be a serious setback
to Colombian development, and hence to long-term economic stability, if
the present trend of declining foreign investment is allowed to continue.
5.
Vg1-ZUEIA: Effects of British Reduction of Dollar oil its
MINIM o : he ennzue n- goverrair n#; o e American oil
companies, and of DS Embassy Caracas have expressed considerable anxiety
regarding the anticipated effects of British restriction of dollar oil
imports. The immediate result is expected to be curtailment of produc-
tion by American companies, among which Creole, the leading producer,
has already cut back by 1h6,000 barrels daily (a reduction of approxi-
mately 7%) beginning 3 January. The Shell group, on the other hands
is expected to increase its production by an amount roughly equivalent
to the reduction by American companies.
A decrease in production of dollar oil in Venezuela would
have repercussions, serious in proportion to the amount of decrease,
affecting US interests as well as internal, economic, and political
stability. One effect would be to weaken Venezuelats hitherto strong
dollar position, with a consequent tightening of a leading market for
US exports in Latin America. Another effect would probably be an increase
in unemployment., since it is anticipated that Shell would be unable to
reabsorb all workers dismissed by the American companies. The Commi-
nists would undoubtedly exploit to the fullest the possibilities for
anti. American propaganda inherent in a situation of increasing unemploy-
ment.
SdJ ty, r^
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6.
Reestablishment of municipal councils
e reel 1 s n o municipal councils by decree of the
military junta government on 23 November is significant, not because the
councils are in themselves important, but because they offer scope for
political activity practically nonrexistant until now, and also because
their political complexion serves as a possible indication of the
'junta's policy towards political parties. Designation of council menr
bers by the state governors with approval of the junta is now in process
throughout the country. The council of the Federal District was reestab-
lished on 20 December` with a membership of eleven, including two repre-
sentativessof the Union Republicans Democratica CURD), two of the Comte
Organization Politics ]electoral Indepeizdiente (COPEI)
, and seven independ-
ents. The naming of a majority of independents is a pattern apparently
being followed in other cities. The minority position of URD on the
councils, and the balancing of URD with COPEI representatives, suggests
that it is unlikely, as previously rumored, that URD Ws11 become the
government-sponsored party. It is by no means clear that the junta
intends to support any political party. If it should do so, however,
its support would probably be given to a new party formed about the
nucleus of independents on the municipal councils and similar bodies
yet to be named.
GENERAL: Effects of CQAS Action on Caribbean Disputes
The cision on January 1 0 o the Council of the Organiza-
tion of American States (COGS) -- to constitute itself a provisional
organ of consultation until a meeting of foreign ministers can be held
-- follows the pattern of the one previous occasion that the Rio treaty
machinery has been used since it came into effect in December 194g, and
can be expected to have comparable effects in easing Caribbean tension
over the short term.
In the present case of the Haitian-Dominican dispute, the
same technique has been employed to permit action by the council as was
used in the conflict between Costa Rica and Nicaragua in December 19tO
-?W announcement of a meeting of foreign ministers without setting a
date or place (and it is unlikely that a date or place will be set).
A similar course has also been followed in deciding on a fact-finding
committee to make a thorough study of the Caribbean situation.
The dispatch with which the council acted in the dispute
between Costa Rica and Nicaragua may well have been the deciding factor
in halting the development of the border fighting and preventing further
development of that particular incident. The present Haitian-Dominican
controversy -- and also the recent Cuban-Dominican difficulties already
taken up by the Inter-American Peace Committee (see D/1A 'klies, 2;9 Dec 19
and 4 Jan 50) - are symptomatic of the tensions prevailing in the Carib-
bean for some time. Among the contributing factors are the limited
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opportunities for economic advancement outside political and military
activities,, the long standing struggle between democratic and authori-
tarian elements throughout the area transcending national boundaries,
the traditional hospitality of countries of this area to each other=s
political exiles, and the general good repute of the profession of
revolutionary. While inter-American machinery can make substantial
contributions by focusing attention on the natural manifestations of
these difficulties and by moderating their expression and thus pre-
venting serious outbreaks of open warfare, it cannot by itself solve
permanently the political and economic roots of these difficulties.
D/LA believes that the council's decision to study the Carib-
bean situation, including the Haitian-Dominican controversy, will contrib-
ute toward clearing the air, and that it will afford at least a temporary
relief of tension. Such a result, even if the cure is of symptoms rather
then of the disease, would increase the prestige and usefulness of the
Rio treaty, and strengthen the outward machinery of inter-American
solidarity against more serious tests.
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Situation Yomrandum 1-50
The Current Situation in Chile
10 January 1,950
(Summarr -- The present Chilean government has maintained
ier precarious stability during the past few months.
Its principal problem is the imbalance of its economy which
can scarcely be stabilized before further dislocations. The
armed forces continue to support the regime but without any
great personal loyalty to the present incumbents of high
civilian posts, Recent disturbances indicate that the
Communist potential is still such as to cause concern. In
spite of these unfavorable factors, however, the present
regias36 will probably maintain itself during the forthcoming
six-month period. Internationally, Chile is affairs have
improved notably within the last three months.
-- Recent changes have not significantly affected
US security interests.)
Political
a Gonzalez Videla goverrmnt has been maintained in its rather pre-
carious stability as much by the inability of its enemies to unites as by
its own defensive measures. The principal political problem faced by
the administration is Chile's unfavorable economic situation which provides
the opposition with most of its ammunition against the present regime.
Gonzalez Videla has attempted to meet the situation by a program of devel-
opment and has managed to dragoon the reluctant ,ambers of his coalition
into supporting a new monetary exchange policy - a significant political
achievement whether the policy is ultimately effective or not. He also
prevented the defection of a significant faction of his own party to the
opposition by a strategic diplomatic appointment and a subsequent reor-
ganization of the party's central committee. Meanwhile, the attempts of
opposition parties to unite into larger and more effective blocs have
proved unsuccessful. The more covert threat of plotting by military,
oppositioniat, and Communist groups has been countered, to date, by
government vigilance and effective action in the few disturbances that
-- like the November Communist outbreak (A/TA. Wkly? 15 Nov 49) showed
evidences of careful planning. There has apparently been little correla-
tion of effort between the several subversive groups.
Inasmuch as little real progress appears 'to have been made in resolving
Chile's economic difficulties,, the discontent of diverse sectors of the
population and the maneuvering of opposition factions are expected to con-
tinue during the first half of 1950, increasing the pressures on the
Gout lez Videla regime. 'D/TA estimates, however, that the government
will survive these pressures because united opposition is not expected
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Situation Memorandum 1-50
10 January 1950
within this period and the present administration has shown its ability
at political extemporization in difficult situations, aided by the basic
moderation and relative political maturity of the Chilean people.
Economic
Mil.e ea economic problems have caused increasing concern since mid-
'1949 and it appears that the remedial measures under"walcen by the government
my not prevent adverse effects on employment and the Chilean standard of
living before eventual improvement can result. In essence, there is a
race between the effects of a decline in copper revenues and the hoped for
results of new industrial developments, financed by government borrowing.
The Chilean government has decided that the only way to met the situation
is to resort to deficit spending and further credit operations to finance
industries that - in tip - should provide new pay rolls, additional
expos: revenues,, and savings in foreign exchange. The recently completed
Export-Import Bank loan covers only a very smmll part of the contemplated
program and an additional loan of I billion pesos is expected to be floated
in Chile. While the Ruachipato steel pro jecThas received more publicity,
there is increasing sentiment in favor of agricultural, small-Manufacturing.,
electrification,, petroleum and lumbering projects as opposed to the devel-
opment of heavy industries; and this sentiment is rei"i ected in the goverrr-
meant program for 1950.
The effects of Chile's unfavorable exchange pos%tion, reflecting the
general economic difficulties mentioned, placed inc:,easxng pressure on
the so causing the government to decide on a sub,~tantial devaluation
of t1 . The decision set off bitter political bickering, as conserv-
atives oppose continued government controls while the liberals and
radicals fear the inflationary effect on the cost of living - already
a matter of concern because of crop failures are. reduced employment.
Opposition forces continue their cannonading against the measure as
actual impletation awaits the result of contiultation with officials
of the international Monetary Fund.
Neither progress toward long-range industrial development nor ad just-
uie nt of exchange rates can be expected to resolve immediately Chile Is
problems. The best that can be expected for *e current year would be a
relatively easy adjustment to decreased nation ;1 income and govsrmmntal
revenue.. Since this inevitably involves a certain degree of discontent
and political pressures f/IA estian tees that the Chilean economic situation
during the first half of 1950 will continue to provide serious problems
to the administration regardless of the relative success of its measures
or of the amount of additional credit that nay be obtained.
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Situation Memorandum 1-50
0 3 -
10 January 1950
B ilitarr
~Ti armed forces continue to support the government out of 1 alt to
o
the institutions rather than to the present incumbents of office.
II 25X1
military plotting it is believed that such 25X1
movements are largely directed by individuals not in active military serv-
ice and that the extent of the plotting is rather limited. D/L.& estimates
that serious danger will not originate in this quarter during tho next six
months.
Recent disturbances and open Communist threats indicate that the Com-
munists still have the ability to exploit favorable opportunities to harass
the government and to create trouble. Although popular discontent over
economic conditions is likely to provide a situation increasingly favor-
able to Conwaunist-inspired disturbances., it is estimated that the goverm-
ment will continue to exercise sufficient vigilance and authority to
thwart any serious threats to its stability. Subversive plots by other
than Communists will continue, to be of minor importance during the next
few months,
International
Mle ss international relations have improved within the past quarter
year, Serious friction with Argentina., growing out of Argentine statements
during the August disturbances in Chile and alleged Argentine involvement -
in Bolivian affairs, has been terminated and better relations were initiated
by an exchange of friendly sentiments between President Gonzalez Videla
and President Peron. Chile's vigorous anti Russian activity in the UN and
its general support of US policies have kept US-Chilean relations on the
most cordial terms a condition which was heightened by the completion
of the Export-Import Bank loan arrangements.
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Situation JLmwrandum 2-50
The Currant Situation in Honduras
10 January 1950
(Summary - The Galvez administration remains stable despite
i activeness. The economic situation is relatively
favorable. Some small-scale subversive activity has developed.
The military capabilities of the army have been substantially
reduced, but the air force continues both efficient and loyal.
Nothing in the current situation importantly
modifies long-standing advantages for US security interests
deriving from Honduras' thoroughgoing support of.the US and
of Hemisphere unity.)
Polity aal
The administration of President Galvez, vtioh has just completed its
first year in office, has, contrary to expectation, little solid achievement-
to its credit. Official corruption continues unabated despite an inaugural
promise of "absolute honesty in the handling of funds." The much-heralded
road building program has made barely perceptible progress. Arm morale
is at a low ebb. The cabinet, with the exception of Vice President and
Minister of Interior beano, is notably lacking in competence and leader-
ship. The President himself has demonstrated a lackadaisical approach to
25X6 public affairs F' 1! 1 25X6
25X6 Ex-Fres n arias, while he oes not
ere- is successor's administration, is reportedly concerned with
the seemingly indiscriminate abandonment of authoritarian controls. Former
Vice President Williams, politically dominant in southern Honduras and a
warm personal friend of the President's, is "unenthusiastic" about Galves'
record so far. However, such little domestic opposition as there is to
date appears to be confined to Arab businessmen, who resent the recently
enacted income tax; personal adherents of Carlas, mho have been removed
from their former lucrative jobs; and the surviving remnant of the mori-
bund Liberal (opposition) Party. D/LA believes that these elements are
neither sufficiently strong, united, or determined to constitute a serious
threat to the stability of the administration during the next six months.
Economic
~conormic activity remains at a satisfactory level. Fruit Company
expenditures in Honduras,, presently averaging around $5 million a quarter,
provide ample dollar exchange for the country's import requirements. Because
of storm damage to fruit tress, banana exports for the -U wee months ended
30 September totaled only 3,8O0,000 stems, a,15% drop from the preceding
quarter. Increased banana shipments are currently anticipated, however,
as a result of new plantings and more favorable weather conditions. The
expanded United Fr'nit Company concession, recently approved by the congress
(see B/LA ' klyy~* 22 Nov 49), should ultimately provide a greater volume and
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Situation lfaZmorandum 2-50
variety of agricultural exports, While Honduras is a relatively small
exporter of coffee (8 million pounds in the fiscal year 1948-49).,, the
recent rise in the price of that cor=odity has Increased the cash incom
of mater small upland farmers. During the last six months there has been
modest industrial development in the form of a new match factory, sugar
mill and a modern plant for the production of farinaceous foods. A now
and burdensome export tax on lumber has caused a sharp reduction in lum-
bering operations with some unemployment resulting. In general, however,
prospects of continued relative prosperity in Honduras are favorable.
Subversive
~r is some possibility that nationalistic criticism of the United
Fruit Company concession mere at least partly inspired and financed from
abroad. Reprints of Guatemalan editorials attacking United Fruit and
other inflammatory fly sheets of apparently foreign origin were circulated
in Tegucigalpa and the north coast banana region. There was no very great
response to this propaganda, which subsided with congressional approval of
the concession, 'While some of this activity may have been inspired by
foreign Comunista, D/JA believes that whatever support it gained in
Honduras was primarily from extreme nationalists rather than Communists,
who at present, are a relatively unimportant. factor,
Mil.ita
w_~a 715s'- Honduran army has deteriorated steadily in size, organization, and
efficiency since Galvezt inauguration. It is doubtful that at present the
army could maintain internal order if a major domestic crisis arose. The
loyalty of the Palace Guard is doubtful., owing largely to the meddling of
the President Es "military adviser", his Mexican brother-in-law, Galvez
:appears to have deferred promised reforms in the military establishment
for fear of reprisals on the part of the semi-autonomous departmental
commanders. On the other hand, the air force, one of the best in Central:
America, continues to enjoy a favored position as it did under Cartas and
remains loyal. In the event of ay revolt or armed conflict in the near
future, the security of the regime would depend almost entirely on the
efficacy of the air force.
international
on urea continues aloof from Central American-Caribbean power balance
rivalries and maintains, at least sup rficial.ly, cordial relations with
its neighbors, Early in December., the government's seizure of a small arms
cache near the Guatemalan border reportedly thwarted plans for a Caribbean
legion-supported plot to overthrow Galvez. If such a plot actually existed,
it was ill--conceived and apparently did not have Guatemalan government
support. Mile futu. small-scale legion activity against the Honduran
government cannot be ruled out as a possibility, it would have little chance
of success until domestic opposition to Galvez becomes considerably more
widespread and militant.
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