NIE 82-58: THE OUTLOOK FOR GUATEMALA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A012200020019-6
• Release Decision: RIFPUB
• Original Classification: C
• Document Page Count: 55
• Document Creation Date: December 23, 2016
• Document Release Date: April 8, 2014
• Sequence Number: 19
• Publication Date: April 1, 1958
• Content Type: REPORT

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CCM' ENTIAL 1 APR 1958
IRA CONTRIBUTION TO NIE 82758
25E1
SUBJECT: N1E 82-58: THE OUTLOOK FOR GUATEMALA
THE PROBLEM
To estimate the outlook in Guatemala 'over the next few years,
with special refereme to political trends and prospects for
CommuniSt influence.
Review of No document by CIA has
determined that
Ar CIA has no objection to declass
It contains information of CIA
interest that must remain
classified at IS $ 0
Authority: RR 104
0 It contains nothing of CIA interest
Date 7 Ami Reviewer Co 72.,/v
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DISCUSSION
I. BACKGRCUND
A. The Land and the People
1. Since 1944 Guatemala has undergone major changes in the whole
fabric of its national life. However, its problems continue to be
affected by the traditional social, economic, and political patterns of the
country. The inhabitants are racially and culturally heterogeneous; social
and intellectual barriers separate the classes; an extreme disparity in
opportunity and living standards exists between the upper and lower
sectors of society; the wealthy class exhibits virtually no interest in
the collective welfare of the nation; and many Guatemalans still prefer
authoritarian rule to democratic self-expression.
2. Guatemala is a predominantly agricultural country whose area of
42,000 square miles is about equal to that of Tennessee. The population of
approximately 3,500,000 is concentrated principally in the temperate high-
lands. Few people live in the tropical Pacific and Caribbean coastal
regions, and the northern half of' the country?the densely forested Pet6n--
is virtually uninhabited. About 70% of the Guatemalans are illiterate,
the bulk of them Indians who constitute over half of the population, are
to a large extent non-Spanish speaking, and are virtually unassimilated in
the political, social, and economic life of the rest of the populace.
Almost 70% of the people reside in rural areas and over 75% of the labor
force are agricultural workers.
3. The country displays most of the standard characteristics of under-
development: a low level of per capita production; inadequate transportation,
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pawer generation) and provision for health and education; a shortage of skilled
labor and of transferable savings; and an inefficient and cumbersome public
administration. Moreover, Guatemala's financial status depends to a great
degree on revenue derived from the export of a single commodity--coffee.
Efforts to diversify the economy have been advanced during the past three
years by official US financial and technical assistance, but are still
hampered by the need for an expansion of transportation and power facilities.
Other retarding factors are the limited internal market and the high con-
centration of income. The latter is illustrated by the uneven ownership of
Guatemala's 9,300,000 acres of agricultural land. Approximately 60% is
owned by large landholders other than the Guatemalan Government and the
United Fruit Company, which hold 8% and 4% respectively. Small landholders
own the remaining 28%. The large landholders, who comprise less than 2% of
the total farm owners, frequently invest their profits abroad rather than
in the development of the local economy.
4. Guatemala has made slow-progress toward political maturity. The
country has faced serious handicaps in the form of racial differences, an
underdeveloped economy, and a lack of farsighted political leadership.
Since the achievement of its independence in 1821, Guatemala theoretically
has had a republican form of government; in actual fact, however,
Guatemalans have had very little opportunity for democratic expression.
There has been no broad, politically articulate electorate to guide practice
and enforce political responsibility. In a potential electorate of approxi-
mately 1,0000000 voters, there are probably not over 200,000 Guatemalans
who are more than marginally politically conscious. Of this group the
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large landholders have almost never taken a role in the administration of
the country other than to exercise powerful pressures toward conservatism.
Only in recent years has the growing but still very small urban middle
class begun to acquire a voice in the determination of affairs.
B. The Revolution of 1944
5. Pressures for significant change?political, social, and economic--
culminated in the movement known as the Revolution of 1944. Until 1944 the
traditional Conservative and Liberal parties tended to draw their support
from the landowners and the long-established commercial groups, respectively,
but when in power usually served as the personal instruments of dictators.
A fairly liberal constitution was adopted and some gestures toward economic
and social reform were made during the period of Liberal Party ascendancy
from 1871 to 1944. However, political realities remained essentially
unaltered. The Revolution of 1944 challenged the old order through a
leadership that was strongly influenced by the worldwide social and economic
changes of the twentieth century. This movement was led by young patriots
and opportunists, some of whom accumulated their ideas as exiles in coun-
tries where change--moderate or extreme--was already in force. Their
intellectual orientation, combined with the bitterness felt toward the
authoritarian regime of President Jorge Ubico (1931-44), provided the
stimulus for a revolutionary movement that was to go considerably beyond the
superficial character of the ordinary Latin American revolution. The Revo-
lution manifested the aspirations of Guatemalans drawn largely from urban
civilian groups: students, teachers, and writers, as well as other
professionals and businessmen who had little reason to respect tradition.
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These groups were imbued with the vision of a new and great Guatemala.
6. The goals of the Revolution were set out moderately in the Constitu-
tion of 1945. Like other recent constitutions in Latin America, and else-
where, the Guatemalan charter strongly emphasized the responsibility of the
State with respect to economic and social matters and asserted its concern
for the welfare of the underprivileged. It formulated ambitious economic
goals; it spelled out extensive social reforms; it called for a more
equitable distribution of the national income. It specifically provided for
the protection of labor and for land reform. The document also included
many classical democratic principles. It guaranteed private property and
free enterprise and it stressed the value and dignity of the individual.
It was replete with guarantees in support of political democracy and it
attempted to limit the power of the executive by providing for a strong
legislature, broad electoral reform, and political neutralization of the
army. Freedom was the watchword of the new ruling group in Guatemala.
C. The Ar6va10-Arbenz Era
7. The actual political experience of Guatemala during the first decade
after 1944 contrasted sharply with the promise offered by the protagonists
of the Revolution and by the legislation enacted. Moderation, which would
have reflected the full and balanced political participation of an enlightened
electorate, was rare. Although under President Juan Jose Ar6valo (1945-51)
implementation of the revolutionary program was slow, the militant and
radical elements in political life received considerable encouragement. In
the administration of President Jacob? Arbenz Guzmgh (1951-54) the implemen-
tation of the program was more rapid and the more extreme political leaders
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strengthened their position in the government. The most decisive indication
of this trend toward extremism was the prominence achieved by Communists and
Communist sympathizers in the labor and agrarian reform movements, in the
progovernment political parties, in the fabric of the government itself, and
in intellectual circles. Communists even operated their awn party openly.
This extremist development was attributable in part to widespread ignorance
of the dangers of communism and in part to the political expediency and
Communist orientation of highly placed national leaders.
8. Communist operations were directed by a relatively small and loosely
organized group. Its material resources were limited and its outside
guidance was sporadic, indirect, and informal. The Communists skillfully
restricted themselves to the legal framework of the Revolution, but within
that framework, in the name of "progressivism", they emphasized the more
extreme aspects of the revolutionary program and gained recognition as
exponents of Guatemala's national aspirations. They successfully disguised
their real political objectives in the tactic of the United Front.
9. The Communists quickly identified the potential and actual loci of
political power in Guatemala and then concentrated their energies and
resources upon controlling or influencing these. They gave early and con-
sistent attention to the depressed and inarticulate population groups--
urban and rural. These groups, if ever completely controlled, were the
long-range guarantee of final political victory in a country where there was
not the counterforce of a large and united middle class. For their immediate
purposes, however, the top level control which the Communists early secured
in the Guatemalan labor movement was impoitant essentially because it
attracted the interest, and then gained for them the support of the Chief
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Executive, the central source of active political power.
10. The Communists appealed to and found most of their dedicated members
in new intellectual and professional groups. These groups were misfits in
the traditional social structure. They were without the numerical and
economic resources to stand alone politically, but were sufficiently
articulate to be receptive to both local and foreign impulses for change.
Though many of the middle sector came to recognize Communist penetration
and to reject Communist ideology, they remained susceptible to Communist
propaganda couched in nationalistic and democratic terms.
11. Contrary to the spirit of the law and the original objectives of
the Revolution of 1944, the most important locus of political power during
the Ar6valo and Arbenz regimes came to rest with the President and an inner
circle of professional politicians, intellectuals, and army officers. This
group, through its control of patronage and the financial resources of the
government, was able to buy security from the military, and to control the
executive, legislative, and judicial branches of the government; it succeeded
in maintaining a democratic facade by supporting loyal political parties
which were unstable and largely unrepresentative in character. By frequently
circumventing or violating the law, these regimes curbed political represen-
tation of the opposition.
12. Some sectors of the population did not occupy a decisive role in
policy formulation. The military, which had exerted a powerful and at
times determining influence in politics prior to the Revolution of 1944,
was
more a potential than an active force. It assisted the revolutionary govern-
ment to power in 1944 and subsequently supported it, but, on the whole,
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remained aloof from political and economic matters. Although the economic
and political power of the Catholic Church was sharply reduced during the
period of Liberal ascendancy after 1871, exponents of the Revolution of 1944
clearly provided in the Constitution of 1945 for the elimination of the
Church from politics. Furthermore, the Church had too few priests in rela-
? tion to the total population to oppose effectively the trend toward
? radicalism. The large landholders consistently opposed the social and economic
measures of the Revolution. Similarly, commercial and industrial groups
for whom the Revolution held some appeal gradually cooled toward the Ar6valo
and Arbenz administrations as they became Communist-influenced.
13. By 1954 opposition to the Arbenz administration had become active
and outspoken. Within Guatemala the government resorted to increasingly
harsh measures to preserve order., Pressure was also brought to bear by
exiles, particularly a group in Honduras under the leadership of
Lt. Col. Carlos Castillo Armas. In June1954 Castillo invaded Guatemala
with a few hundred men--the military phase of what he termed the Liberation
Movement. His force was favorably received by the citizenry, increased by
several thousand volunteers, and aided by the apathetic resistance of gov-
ernment forces sent against him. Concerned over Communist influence in the
government, top army leaders withdrew their support from Arbenz, whose
regime gave way to a succession of military juntas.
D. The Castillo Regime
14. The government of President Castillo evolved from an agreement
known as the Pact of San Salvador concluded on July 2, 1954 between Castillo
and a representative of the junta then governing Guatemala. As a result of
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this pact, the liberation forces and the regular army were united and the
junta was reorganized to include Castillo. Subsequently, he became
"provisional" President of the Republic, then was confirmed as President by
a plebiscite in October. In November he was inaugurated for a term which
was to have lasted until March 15, 1960. A new Congress was installed on
March 1, 1956, the same day that a new constitution was placed in force.
Like the Con*itution of 1945 after which it was basically patterned, the
new organic law provided safeguards for civil rights and against a return
to personalized government. It contained extensive yet to some extent less
liberal provisions dealing with political social, and economic relation-
ships. Probably the most significant innovation was the granting to the
Catholic Church of a number of privileges. These did not include the
Church's desire that Catholicism be made preeminent as the State religion.
15. The Castillo administration adhered generally to a moderate course.
In doing this it was beset by pressures from both the left and the right.
On the left, many Guatemalans expressed a strong attachment for the
democratic-nationalistic ideals of the 1944 revolution. Such sentiment
existed principally among students, intellectuals, middle-class professionals,
and the laboring and agrarian classes. A small number of Communists operating
clandestinely exerted some influence among these elements. From the right,
the administration was confronted with the strong conservative influence
of the propertied classes, particularly the large landholders, and other
rightist and moderately rightist groups.
16. Responding to pressures from the left, Castillo accepted the basic
tenets of the Revolution of 1944 and many of the reforms which had been
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enacted by his predecessors. He found it convenient to maintain an associa-
tion with the concepts of politieal democracy, social reform, economic
progress, and nationalistic sentiment. At the same time, rightist influences
were responsible for the modification of legislation such as that pertaining
to labor organization and agrarian reform. Urban labor was permitted to
reorganize, but its leadership was carefully screened and a central labor
confederation was discouraged. The worst abuses of the Arbenz agrarian
reform program were corrected and a revised system of land distribution
instituted Rightist pressures also contributed to a shift somewhat to the
right of center in mid-1956 when the administration suppressed unauthorized
student demonstrations and temporarily curtailed sharply the freedom of the
press. By the year's end, however, Castillo had begun a campaign to correct
the impression that his regime had shifted its orientation from a middle
course. During the first half of 1957 he warned landholders against
exploiting their labor, and his administration enacted minimum wage legisla-
tion designed to pave the way for correcting wage abuses against agrarian
workers.
17. Although the Castillo administration governed more moderately
than did the Argvalo and Arbenz regimes, it did not move significantly in
the direction of achieving the articulate popular participation required to
give reality to democratic processes. A single progovernment party, the
Nationalist Democratic Movement (Movimiento DemocrAtico Nacionalista --
MDN), dominated the countryls political organization. Elections were so
controlled that minority and opposition parties achieved few positions of
importance. In the Congress, for example, the progavernment coalition
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controlled all the seats. Authority was concentrated largely in the hands
of the President, who relied upon the armed forces for his principal support.
While the right of free expression and other civil liberties were generally
observed, the administration did not hesitate to employ restrictive measures,
including martial law, during periods of emergency.
18. Opposition within Guatemala to the Castillo regime centered in
labor, the peasantry, student groups, returned exiles, and ambitious politi-
cians and military leaders who sought more rapid advancement. A small
clandestine Communist Party also existed. While Castillo lived none of these
elements displayed a capacity for offering a serious challenge to the
security of his administration. Conspiracies and attempts against the gov-
ernment were discovered or dealt with before they assumed serious proportions.
A potentially dangerous concentration of exiles including the principal Commu-
nist leaders was located in Mexico, but the activities of this group were
limited by inadequate resources and close surveillance on the part of the
Mexican Government. Various Communist and noncommunist exile groups were
also active in Costa Rica and El Salvador; however, they were small in number,
beset by factionalism, and restricted by the host governments.
19. On July 26, 1957 President Castillo WAS shot to death by
Romero Vfisquez Sanchez, a member of the presidential guard. Immediately
after the assassination Vfisquez tried unsuccessfully to escape, then committed
suicide. Although extensive investigations have been conducted by the
Guatemalan authorities, no clear motivation for the crime or connection
between VAsquez and any other individual or group has been established.
VAsquez appears to have been a procommunist fanatic who for many months had
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been consumed by an intense hatred of Castillo and his political policies.
E. The Interim Period
20. In accordance with the constitution, Castillo was succeeded by the
First Presidential Designate, Arturo GonzAlez L6pez. His interim adminis-
tration had the constitutional responsibility of arranging for the election
of a new Pres5_dent within a four-month period. Accordingly, October 20 was
designated for this purpose; as well as the regular election of deputies to
replace one-half the members of Congress whose terms were expiring. During
the preelectoral period, political rivalry and factionalism were greatly
intensified. A resurgence of leftism including Communist activities took
place. Widespread resentment existed among leftists because of the Castillo
regime's moderate social and economic policies and repressive measures
against opposition elements. Both noncommunist leftists and Communists
expressed anew their strong interest in the democratic-nationalist goals of
the Revolution of 1944. In August the leftist Revolutionary-Party (Partido
Revolucionario -- PR) was organized, but was denied legal status on the
grounds that it was Communist-infiltrated. Incensed over this action, the
PR supported rightist candidate General Miguel Ydigoras Fuentes of the
National Democratic Reconciliation Party (Partido Reconciliaci6n Democratica
Nacional--- Rerl,emi6n). The presidency was won by Miguel Ortiz Passarelli,
candidate of the government-sponsored NDN and a coalition of minor parties.
This grouping also won the majority of deputy seats. After the defeat of
Ydigoras, he instigated with the help of PR elements and Communists, mob
demonstrations which resulted in the intervention of the armed forces arid
their persuading the Congress to nullify Ortiz' election. Subsequently, the
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results of the balloting for deputies were also nullified and new elections
set for January 19, 1958. Meanwhile, a military junta, which had temporarily
replaced interim President 0onzfilez after his resignation following the
October 20 balloting, gave way to the Second Presidential Designate,
Col. Guillermo Flores Avendafio.
21. The interim Flores administration restored order and arranged for .
the holding of new elections. Although political stability was at first
precarious because of factionalism among moderate parties and within the
armed forces, it steadily improved as President Flores gained the confidence
of civilian and military groups. He displayed firmness in dealing with
crisis situations, particularly the threat of coups and of violence by PR
extremists and General Ydigoras in the event the elections did not favor
their cause. Toward the PR Flores adopted a conciliatory attitude. Sup-
ported by strong congressional, press, and public sentiment, he permitted
the PR to register for the elections. Other actions by Flores favored the
leftists generally. He authorized the return of many exiled supporters of
ex-President Arbenz. Reentry was denied top Communists, but some returned
illegally. Flores also relaxed the enforcement of anticommunist legislation.
22. By December three principal candidates were campai3ning for the
presidency: (1) Mario Mendez Montenegro of the PR; (2) Col. Jose Luis Cruz
Salazar of the MDN; and (3) General Ydigoras of the RedenciOn. The parties
supporting these candidates, as well as several minor political organiza-
tions, also advanced slates for the congressional elections.
23. Mendez campaigned on a platform which promised the enactment of
more comprehensive social and economic reform legislation. Specifically,
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this included expanding the organizational privileges of labor, accelerating
the implementation of agrarian reform, and broadening the scope of secondary
education. To the underprivileged classes Mendez promised housing, welfare,
and other benefits. As a consequence, he attracted the support of workers
who were resentful over curbs imposed upon them by the Castillo regime and
the attempts of employers to reduce wages, eliminate overtime pay, and void
other benefits achieved during the Argvalo-Arbenz era. Similarly, Mendez
drew to the PR students, intellectuals, and professional men who were
bitter over their loss of prestige and the interruption in the progress of
the 1944 revolution. Moreover, as the PR gained political importance its
lower echelons came to include a number of extreme leftists. Among these
were some Communists and sympathizers who sought to use the PR as a front for
their operations. Although aware of the presence of these elements, leaders
of the PR made no attempt to expel them. At the same time, the Communists
maintained their clandestine party. They covertly supported Mendez, but
caused some disunity within the PR through disagreements with its basically
anticommunist leadership. This divisiveness, inadequate finances, and
organizational difficulties handicapped the PR considerably.
24. A strong supporter of the Castillo administration, Cruz advocated
a continuation of its policies. These included moderate social and economic
advances oriented about gradual agrarian reform, controlled labor organiza-
tion, expanded rural education, and diversified industrialization. His
platform also pledged to safeguard private enterprise, maintain friendly
relations with the United States, and combat communism. With this middle-
of-the-road approach, Cruz hoped not only to attract moderate support but
also to reconcile divergent interests of the right and left. However,
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leftists regarded Cruz' objectives as too limited; rightists considered them
as too liberal; and many moderates resented the past actions of the NDN.
Furthermore, Cruz was handicapped by not being well-known in many parts'of
the country.
25. Ydigoras set forth a varied program and reflected his ability to
appeal to diverse social and political groups. Propertied elements
including planters industrialists, and businessmen were attracted because
of his promises to favor their interests by governing firmly, adhering to
sound economic policies, dealing sternly with Communists, and suppressing
labor agitators. At the same time, many among the underprivileged classes
apparently were convinced by Ydigoras' statements that he was not a rightist,
that he would adhere to the basic tenets of the 1944 revolution, and that he
would not be an oppressive ruler of the Ubico type. These poorer people,
who were acquainted with his name because of his participation in previous
presidential campaigns, also respected his personal prestige, his reputation
as an efficient administrator, and his symbolism as a caudillo, or strong
man. Perhaps the greatest attraction that Ydigoras held for voters was his
vigorous opposition to any efforts by the interim Flores administration to
favor, as the preceding Gonzfilez regime had done, the progovernment MDN.
Almost as important was the belief held by a large number of voters that
Ydigoras represented the law and would restore stability.
26. During the electoral campaign the fundamental issue was the extent
to which the social and economic goals of the Revolution of 1944 were to
be implemented. Since the three major candidates accepted and endorsed the
basic tenets of the revolution, their platforms differed more in emphasis
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than in substance. To a considerable degree, a similar situation prevailed
with regard to the attitude of voters. Generally, those who desired to
recover gains made during the Aravalo-Arbenz era and to implement reforms
more energetically than they had been by Castillo supported Mendez and the
PR; those who approved the moderate course adhered to by Castillo supported
Cruz and the NDN; and conservatives who were opposed to reform and individuals
of all classes who valued order above progress supported Ydigoras and the
Redenci6n.
27. In the'presidential election held on January-19, 1958 the balloting'
proved inconclusive since no candidate received the absolute majority of
votes required by the constitution. Under such circumstances, the obligation
devolved by law upon the Congress to name as President either the candidate
who received the plurality or his closest competitor. Accordingly, the
Congress appointed a special commission of deputies to recount the ballots.
The results showed that Ydigoras received 190,972 votes, or 39% of the
ballots cast. In second and third places, respectively, were Cruz with
138,488 votes or 28%, and Mendez, who polled 132,824 ballots, or 27%. The
remainder of the ballots were received by Col. Enrique ArdOn Fernandez (1%)
or were declared invalid (5%). With these results before it, the Congress
chose Ydigoras over Cruz by 40 to 18 votes. Seven of the 66 deputies
abstained from voting and one was absent.
28. In selecting Ydigoras the Congress was influenced perhaps decisively
by a pact that he had signed with Cruz on January 27, 1958. Unofficial
returns received immediately after the January balloting indicated that
Ydigoras had received a decisive plurality, but his election was by no means
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assured since the final decision had to be made by the Congress. In that
body the large majority of deputies were members of the NDN and strongly pro -
Cruz in sentiment. Legally they could have selected Cruz should their count
of the ballots dhow that he had won second place as seemed highly probable,
but to do so would have involved the risk of violence. Ydigoras threatened
to use force if he were denied the presidency, and the possibility existed
that extremist PR elements and Communists might exploit an outbreak. Such an
eventuality would have repeated the experience of the preceding October.
Despite the fact that the January elections had been conducted in a reasonably
impartial manner and without serious incident, stability subsequently remained
uncertain because of intense political rivalry and factionalism within the
armed forces. Thus a desire to avert civil strife, particularly on the part
of Cruz, was primarily responsible for the conclusion of an agreement.
29. At the same time, other factors motivated Ydigoras and Cruz. Cruz
desired, if defeated, to gain something for the ION and his supporters.
Both candidates recognized weaknesses if elected in their individual positions.
Not only would each have had to face the opposition of the other, but of
strongly resurgent leftist forces led principally by the PR. Neither could
have been certain of strong support within the military, the key to eventual
political stability. Ydigoras, furthermore, would have had to face HDN
control of the Congress for at least the first two years of his administration.
In view of these major considerations the two men and their party leaders
agreed to respect the choice of the Congress, to form a government with the
participation of centrist and rightist parties, to support free unionization
in accordance with existing labor legislation, to respect the nonpolitical
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character of the armed forces, and to refrain from acts of vengeance.
Although the pact made no mention of the fact, it in effect marked the
withdrawal of Cruz from the contest. The NDN deputies, therefore, were
free to vote for Ydigoras.
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II. PRESENT POLITICAL SITUATION
A. Composition of the Ydigoras Government
30. President Miguel Ydigoras Fuentes has been characterized variously
by relatively impartial observers, but the majority concede that he is a
conservative. At the same time he is an opportunist who attempts to be all
things to all people. He is vigorous and capable of displaying firmness
even to the point of harshness. As an administrator he possesses ability,
but is handicapped by the fact that his experience has been primarily in
an area of force rather than persuasion. Born of upper-class parentage in
1895, Ydigoras has had a varied career as a soldier, statesman, and
diplomat since graduating at the head of his class from the Guatemalan
Military Academy in 1915. He has served in various military positions, as
a departmental governor and highway director under Ubico, and as a diplomat.
In 1950 he ran unsuccessfully against Arbenz for the presidency. Also a
graduate in engineering from San Carlos University, Ydlgoras is well read,
a good but verbose conversationalist and public-speaker, and speaks some
English and French. He is married to Maria Teresa Laparra and has two
children who are graduates of United States universities. Although a pro-
Nazi during the early part of World War II, Ydigoras since 1943 apparently
has been sincerely pro-United States.
31. In designating his presidential staff, Ydigoras surrounded himself
with former officials of the Redenci6n. He appointed as Secretary General
of the Presidency Victor Ramiro Flores C., as Private Secretary
DAiila ardova, and as Secretary of Information Mario Zirion Lara. During
the electoral campaign, ardava, a conservative, had been Secretary General
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of the Redencion, while Flores and Ziri6n, both moderates, had been Vice
Presidents. The only nonparty appointment was that of Alejandro Micheo
Alejos, an extreme leftist, to be Subsecretary.
32. Contrary to a'provision of his pact with Cruz, Ydlgoras did not
form a conciliation government. The large majority of ministers and their
subsecretaries are members of the Redenci6n or close friends of Ydigoras.
While some have no party affiliation and several are members of minor
political organizations, only three appointees belong to other major parties.
One minister and one sabsecretary are members of the NDN; another sub-
secretary belongs to the PR. The political orientation of almost all these
officials is conservative. Probably a majority are comparatively unknown
and inexperienced in public administration, but appear to possess reasonable
competence.
33. Among the conservative ministers are Arturo Paiz Bolafios the
capable highway engineer who heads the Ministry of Communications and
Public Works; Dr. Mariano Levez Herrarte, a respected physician and Yale-
educated insurance company president serving as Minister of Public Health
and Social Welfare; and Col. Marco Aurelio Merida, the wall-regarded
Minister of Public Education who has served as a diplomat and congressman.
Other conservatives are Hernen Morales Daran and Jose Guirola Leal, the
Ministers of Government and Economy, respectively, who are former officials
of the Ubico regime and well-respected but somewhat limited in their capacity
to plan broadly. Still another conservative is Carlos Gonzelez Sigui, the
Minister of Labor, who is reportedly dishonest incompetent, and lacking in
a knowledge of labor matters. Col. Roberto Lorenzano Salazar, who supports
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Ydigoras but is apparently a leftist, is the temporary Minister of Defense.
He showed ability in this same office under the interim Flores administra-
tion. Enrique Garcia Salas, the Minister of Agriculture who is a member
of the MDN, is an experienced and able agriculturalist. The Minister of
Finance, Carlos Salazar Gatica, is a close friend of Ydigoras who also
supported Castillo's Liberation Movement and served as his first Minister
of Foreign Relations. He lacks ability. A moderate leftist, Carlos Garcia
Bauer, heads the Ministry of Foreign Relations. Probably the ablest member
of the cabinet, Garcia was formerly Guatemala's Permanent Representative
to the United Nations, a deputy in the Congress, and a professor in the
University of San Carlos. Although not a member of the cabinet,
Col. Enrique Peralta Azurdia occupies a position of virtually the same
importance as Director General of Agrarian Affairs. A widely popular and
highly capable officer who has served as a military attache and ambassador
in several countries Peralta is a moderate rightist who since 1944 has been
mentioned frequently as a presidential possibility.
B. SupportImg Groups
34. As President, Ydigoras faces the problem of heterogeneous and weak
organizational support. In the 66-member Congress, the Redenci6n controls
only 16 seats and has the possible support of 12 deputies who are either
independents or belong to minor parties. This weakness undoubtedly
influenced Ydigoras to invite the MDN, which has 22 seats, to work with
the Redenci6n. While there has been some tendency for MDN deputies to
climb on the Ydigoras bandwagon, this has not reached proportions sufficient
to give the President control of the Congress.
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\
35. In addition to its minority position in the Congress, the
Redenci6n is not an effective organization in many places except Guatemala
City. Even in the capital the Redenci6n is favored by the traditionally
conservative orientation of the electorate and the very intense feeling
against the IDM. The failure thus far to make Redenci6n an effective
nationwide organization is attributable primarily to its rightist orienta-
tion, a paucity of experienced leaders, and the fact that NDN members still
hold top political positions in many communities. The prospects for
Redenci6nls increasing its popular base are not bright. Some Redenci6n
leaders envision a merger with the NDN, but there is no indication that
MDN leaders desire such a union and few members of the party have defected
to Redenci6n.
36. Offsetting somewhat the weak organized political support available
to Ydigoras is the solid backing of rightist nonpolitical groups. Foremost
among these are landowners', industrialists', and businessmen's organiza-
tions. Probably the most important is the General Association of Agricul-
ture (hsociacion General de Agricultores -- AGA), which for more than half
a century has been composed principally of the economically powerful
finqueros or large landowners. Since the Revolution of 1944, the AGA has
expressed strong opposition to many of the social and economic measures
advanced by succeeding administrations. Labor policies, in particular,
have been attacked consistently. A similar reluctance to recognize the fact
that the years since 1944 have wrought any basic social and economic changes
in Guatemala characterizes the attitude of industrial and commercial
interests. These have devoted their principal activities to securing
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protection for national products from foreign imports or seeking other
special advantages. In return for supporting Ydigoras, these groups will
expect his administration to adhere to a generally conservative course.
The pressures which they can exert are powerful, but probably not nearly so
convincing in terms of political realities as the forces which an aroused
left could bring to bear.
37. Although the Catholic Church favored Cruz during the presidential
campaign, it has indicated that it will support Ydigoras now that he is
President. It has no sympathy for the resurgent left, which it fears might
reimpose the curbs of the Ar6valo,Arbenz era. Ydigoras is reportedly a
strong advocate of the separation of Church and State; however, he has
evidenced no intention of tampering with the present position of the Church.
As a pressure organization, the Church is only slightly more influential
than it was prior to the recovery of privileges during the Castillo regime.
38. The armed forces have demonstrated an increasing willingness
to support Ydigoras for at least the immediate future. Prior to the
January elections the military was beset by factionalism. The possibility
existed that a split would occur between adherents of Ydigoras and Cruz--
neither commanded a large following--in favor of the latter. While this
divisiveness has not disappeared, it has abated to the point that it does
not pose a serious threat to stability. Since the elections the majority
of officers have shown a willingness to adopt at least an attitude of
watchful waiting toward Ydigoras. This unifying trend has developed because
of Ydigoras' success in winning the presidency, the tendency of the military
to be responsive to public opinion, and the common opposition of both
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Ydlgoras and the military to a resurgence of extreme leftism. After
reviewing the army on February 28, Ydigoras made a speech in which he
promised to maintain an effective military establishment. In previous
statements he had indicated that he would improve the economic position
of the officer corps.
C. Neutral Groupl
39. Within the Congress there are a few deputies who classify them-
selves as independents. Almost all of these are members of minor political
organizations which have very little popular support. Even collectively
these deputies do not have the capability of acting as a balance of power
between the Redenci6n and the other major parties.
40. The MDN also regards itself as a neutral organization. On
February 28 1958, its leaders published a statement declaring that the
party was independent and that it was in no way bound by the Cruz -Ydlgoras
pact. Except for the support that NDN deputies gave Ydigoras in selecting
him for the presidency, the majority have tended to adhere to the party
line. Thus, MDN deputies joined ranks in electing the president of the
Congress and three of its other five principal officers when it was
reorganized for the present one-year period. Only the first vice president
is a member of Redenci6n. Similarly, the MDN and PR deputies united
against the Redenci6n and its supporters to pass a recommendation that
President Ydigoras sever diplomatic relations with the Dominican Republic.
While this action was taken partly because of intervention in Guatemalan
affairs by the Dominican Government it was also motivated by the belief
that Ydigoras had accepted assistance from Generalissimo Dr. Rafael Leonidas
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Trujillo during the presidential campaign and would be embarrassed no matter
how he reacted to the recommendation.
41. As a political organization the MDN is declining in importance.
It is losing members, particularly in rural communities, to the PR. One
highly competent observer has predicted that this trend may eventually
include 70% of the MDN's enrollment. Cruz himself has expressed deep con-
cern over this development and the opinion that the majority of MDN members
will join the PR. In an effort to prevent further defections and regain
public confidence, leaders of the NDN in March effected some changes
including the designation of a new secretary general.
D. Opposition Groups
42. Although the PR has only six deputies in the Congress, it is
rapidly developing into the principal opposition force to the Ydigoras
administration. The party is very strong numerically. Geographically, its
membership is greatest on the coasts, in the piedmont zone, and along the
railroad which connects Guatemala City with the Atlantic and Pacific. It
is weakest in the predominantly Indian highlands. The heterogeneous composi-
tion of the PR includes all elements of the left ranging from the mildly
socialistic to the militantly communistic. However, the majority are
moderately leftist in political orientation. A large part of the PR's
support comes from groups which were favorably affected by the labor and
land reform programs of the Ar6valo and Arbenz governments. The leaders
of the PR are chiefly lawyers and other professional men who played a major
role in shaping the initially moderate course of the Ar6valo regime.
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43. Since the January elections the PR has made significant gains in
several directions. Largely as a result of its conduct during the
electoral campaign, the PR has gained the respect of probably a majority
of the articulate electorate. It has been the subject of laudatory comment
by the independent press, which has the largest circulation in the country,
and by even conservative newspapers. The party has received substantial
accretions to its membership, particularly from the MDN. Furthermore, the
PR has made progress in developing close ties with organized labor. Two
of its deputies, who are members of the Labor Committee of the Congress,
are acting as legal advisers to labor unions of the United Fruit Company
and the International Railways of Central America.
44. The principal problem facing the PR is the maintenance of internal
unity. Thus far, the diverse elements comprising the party, have subordinated
their individual objectives in an effort to give the resurgent left a
respectable status. However, as the PR faces its first national convention
in June, the extreme left sector is maneuvering to gain a place on and,
if possible, control of the directorate. Meanwhile, moderates now in
control of the PR are aware of this threat and are considering a purge of
at least the Communist group.
I. Toward the Ydigoras administration the PR is adhering to the role
of a responsible opposition which champions the interests of the masses.
Leaders of the PR doubt that Ydigoras is sincere in claiming to be a
moderate and are very suspicious of his rightist supporters. They fear
that the regime will adopt a reactionary and dictatorial policy designed
to curb the PR's growing influence. At the same time, these leaders
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realize that they must avoid rash actions in order to preserve their gains
and improve the party's position for the 1959 congressional elections.
46. The principal minor political organization in opposition to the
Ydigoras administration is the Guatemalan Christian Democratic Party
(Partido Democracia Cristiana Guatemalteca -- DCG). While the orientation
of its membership is moderate and to some extent conservative, the party
stands for social reforms to which its leaders assume Ydlgoras is opposed.
Significantly, the DCG has nine deputies in the Congress.
E. Labor and Rural Grou!
47. The Guatemalan working class was more adversely affected than
any other group by the "Liberation" of June 1954. After having been
favored by the government for a decade, the workers suddenl 4elmed them-
selves the object of official mistrust and suspicion. Under the Castillo
regime organized labor was placed on the defensive by government policies
restricting and controlling the workers. In response to antilabor
sentiment among its backers, the administration initially denied 1abOr a
juridical position and froze union funds. Labor leaders attempting to
reconstitute their unions met with administrative delays and often were
discharged or even arrested. Although labor made modest gains during the
latter part of the Castillo regime, many workers continued to feel that
they had been better. off under Ar6valo and Arbenz.
48. The position of organized labor remains weak. Only about 25,000
workers belong to trade unions--less than a third of the membership which
they had in 1953 and early 1954. -Employers take advantage of the fact that
employees no longer have the right to reinstatement, if unjustly dismissed,
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by ridding themselves of union leaders and prounion workers. Efforts to
rebuild the labor movement are impeded by the virtual ban on rural labor
organizations and the prohibition against unionizing government employees.
As a whole, the workers are cynical and distrustful, feeling that real
unions disappeared with the Arbenz regime. Moreover, the workers have
little faith in the labor courts which they are convinced enforce the laws
in a manner favorable to the employers. The majority of labor leaders,
who have come to the fore since the fall of Arbenz, are self-appointed and
speak chiefly for themselves or for the political interests which use them.
49. The majority of workers favor the PR, which is making a determined
effort to win the support of key unions by offering them legal advice and
by championing their interests in the Congress. Such an attitude on the
part of labor contrasts with its hostility toward the MDN. As the
dominant proadministration party during the Castillo regime, the NDN was
unsuccessful in developing worker support and contributed to the disruption
of the labor movement. Similarly, the ORIT accomplished little in its
efforts to foster a "democratic" reorganization of trade unions. This
lack of success by both the NDN and the ORIT was attributable partly to
the belief of the workers that these organizations were associated with
the antilabor elements responsible for the formulation of the Castillo
administrationts policies, and partly to the ineptness and inexperience of
labor leaders.
50. Immediately after the fall of Arbenz, the Catholic Church was
instrumental in the founding of a social Christian labor organization,
the Autonomous Sindical Federation (Federaci6n Aut6noma Sindical -- FAS).
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Due largely to anticlerical sentiment among the workers and the ties of its
leader, Luis Felipe Balcfircell to the Castillo administration, FAS failed
to attract or hold an important segment of Guatemalan labor. Today it is
little more than a phantom group on the verge of liquidation as the after-
math of abortive IN maneuvers to take over the organization. Recently
Communists and sympathizers have been elected officers of the FAS.
Si. In 1955 a new trade union center, the Guatemalan Union Council
(Consejo Sindical de Guatemala -- CSG), was established as an ORIT affiliate.
In spite of the constructive influence of ORIT, the CSG has not grown into
an organization which can claim to represent a major segment of the
Guatemalan working class. Nevertheless, it does represent a small group of
relatively well-established trade unions possessing a moderate outlook.
Although it has suffered from friction with the MDN and the late President
Castillo, the CSG has so far avoided serious internal dissension or any
taint of Communist influence.
52. The most important labor organization is the Railway Workers'
Union (Sindicato de Acci6n y Mejoramiento de los Ferrocarrileros SAMF),
which is the country's largest union with 5,000 members. The SAMF's
control over the nation's most important transportation system and the
controversial status of the railroad company give this union a unique
political status. Having resisted the efforts of NDN agents to take it
over, the SAMF is now aligned with the PR.
53. Labor is generally pessimistic over its prospects under the
Ydigoras administration. Although intended to be conciliatory, the
President's statements on labor policy have not been wholly, reassuring to
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labor leaders. Many of his backers have adopted antilabor attitudes and
expressed their beliefs that "the General" will "take no nonsense" from
labor. On the other hand, Ydigoras' backers also include a number of
employers who are regarded by labor as examples of enlightened management,
and who express confidence that Ydigoras' social views were greatly
broadened by his travels abroad.
54. The skepticism of the working classes toward Ydigoras has been
increased by his selection of a poorly qualified conservative to be
Minister of Labor. Moreover, labor views the efforts of Ydigoras to attract
its support with less enthusiasm than might otherwise be the case because of
certain actions by the interim Flores administration. The latterts sponsor-
ship of the long-awaited Public Employeets Statute and establishment of a
Council on Social Policy were favorably received by labor. Both of these
measures tie Ydigoras' hands and reduce his opportunities for taking actions
calculated to appear more understanding of labor's problems than were the
policies of the Castillo regime. Consequently, whatever Ydigoras does for
labor will be viewed largely as a continuation of Flores' policies. Fur-
ther, any hesitation by Ydigoras in implementing the measures initiated by
his predecessor will be construed as evidencing a lack of interest in the
workers' problems.
55. Like the laboring classes, rural groups are oriented to a consid-
erable extent toward the PR and away from the MDN and Redenci6n. This
situation results from factors analogous to those which have affected labor.
Rural groups first entered the political arena through the agrarian reform
program of the Arbenz regime. Peasants were settled on land which belonged
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to the government or had been expropriated from private owners, in some
cases after it had been seized by landless elements. The government
retained the title to this land, but gave the peasants lifetime use and
their heirs priority in applying for continued use. Although these and
other benefits were illusory, the program responded to a genuine rural
demand and need. It also won much political support for the Arbenz regime.
56. When Castillo came to power, he yielded to pressure from the
private landowners and restored their expropriated land to them. However,
he was seriously concerned over the consequences of such a policy and used
land relinquished by the United Fruit Company, together with US financial
and technical assistance, to institute a modified agrarian reform and
resettlement program. This gave the peasants small but economically suffi-
cient plots of land in fee simple, and provided government credit for the
construction of a house and operating expenses through the first harvest.
It also provided agricultural experts to guide the peasants in efficient
land utilization. This same program was continued by the interim adminis-
trations and Ydigoras has not indicated that he will make any changes
other than to broaden its scope through .a more extensive utilization of
nationally owned land. While the majority of beneficiaries appear to be
satisfied with the modified agrarian program, some regard it as too limited
and rigid. Those peasants who are still landless are especially dis-
contented and feel, in many instances, that they would have been taken care
of if the Arbenz program had not been changed.
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F. Communism
57. The PGT contains possibly 400 members and can count upon 1,500
to 2,000 sympathizers. The party's greatest strength lies in its leader-
ship and a cadre of about 100 dedicated, indoctrinated, and relatively
well-trained militants. It has made steady, if unspectacular, progress in
rebuilding at the grass roots level and has had some success in infiltrating
the students' associations particularly in the schools of law and humani-
ties at the University of San Carlos, in secondary school faculties, and
in the lowest levels of the bureaucracy. There are no known Communists
and only a few sympathizers who hold influential positions in the Ydigoras
administration or the leadership of the legal political parties.
58. In an effort to regain an important place in the nation's life,
the PGT is focusing its attention upon infiltrating labor organizations.
A unique opportunity exists in this area since the labor code permits the
election of Communists to union offices, and the POT possesses a virtual
monopoly of experienced labor leaders and organizers. As a rule, these
leaders and organizers remain in the background and work through compara-
tively unknown party members and sympathizers in the unions. Several
Communists and sympathizers have reached positions of influence in the FAS.
They are also making steady headway in other organizations.
59. The capabilities of the Guatemalan Communists are currently
limited and their importance is more potential than actual. At the present
time they can do little more than capitalize upon unpopular actions of the
government, exploit ultranationalist and anti-Yankee sentiment, and strive
to infiltrate the much larger and politically more important noncommunist
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leftist organizations. However, in a deteriorating economic and still
unstable political environment there are restless and dissatisfied groups
which are receptive to Communist proposals.
60. In keeping with their capabilities, the goals of the PGT are
limited. The Communists desire the establishment of a government which
would permit the development of "popular and democratic forces" and the
free organization of labor. The PGT leaders are agreed that the best
prospect of improving their present position is to gain control of the PR
and convert it into the "militant and revolutionary expression of the
popular masses". This infiltration would begin at the local level and
endeavor to undermine the PR's "reactionary" leadership. Success in this
undertaking will depend largely upon securing control of a reorganized
labor movement and effecting cooperation with the Arbencistas. The thou-
sands of Guatemalans who were active in the labor and agrarian movements
during the period 1952-54 constitute an important reservoir of potential
support.
61. If thwarted in their efforts to gain a dominant position in the
PR, the Communists and their allies threaten to split away its left wing
and form a new party. The danger that such a party could not win legal
recognition has acted as a deterrent, although the Communists have explored
the possibility of converting the Revolutionary Unity Front (Frente Unidad
Revolucionario -- FUR) into an independent party. At present the FUR is
little more than a skeletal organization of the Communists and their
sympathizers within Guatemala. A decision by the Communists to convert the
FUR into a legal party would probably be made only in the event the
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moderate leadership of the PR decided to purge the party of Communists and
sympathizers.
62. The Guatemalan Communists have received aid from Mexican Communist
and procommunist groups as well as from the Soviet bloc missions in
Mexico City. The Soviet Embassy has furnished financial assistance and
arranged for trips to the Soviet Union for training and medical treatment.
In addition, the USSR has granted handsome scholarships for study in Moscow,
to the children of Charnaud MacDonald) the most prominent Arbencista leader
in Mexico. The Mexican Communists have helped the Guatemalan exiles find
work and have interceded in their favor before government authorities.
63. Anticommunist legislation permits the government to take effective
action against the Communists, particularly in time of emergency. The
constitution prohibits the organization or functioning of political parties
which advocate the Communist ideology and provides that "every Communist
act ... is punishable" by law. The Preventive-Penal Law against Communism
(Decree 59) outlaws communism in all its forms and enumerates a large
number of specific Communist acts which are punishable by prison terms of
from six months to 10 years. In addition, the constitution provides that
in case of threats to the security of the State certain guarantees can be
suspended and that an emergency Law of Public Order, which confers special
powers upon the executive, can be invoked. The principal weakness of these
measures is that they do not define communism clearly. Consequently, the
courts have difficulty in reaching decisions in apparently well-documented
cases. To avoid delays, the Castillo regime resorted to the exiling of
Communists rather than to prosecuting them legally. Recent court rulings
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severely limit the authority of the executive to exile even Communists.
64. The principal responsibility for protecting the country against
Communist activities is vested in the General Office of National Security
(DirecciOn General de Seguridad Nacional) and its subordinate agency, the
Section for Defense against Communism (Secci6n de Defensa contra Comunismo).
These agencies coordinate their operations with the National Police
(Policia Nacional), the Secret Police (Guardia Judicial), and the Border
Patrol (Guardia de Hacienda).
65. In discharging their duties against Communist activities, the
security and police agencies often have been arbitrary, incompetent, and
overzealous. They have been particularly ineffective since the abortive
elections of October 1957. While this has been due partly to the consequent
political instability, it has also resulted from actions of the government
which have undermined public confidence in the security and police agencies.
For example, the Flores administration reversed a decision by the Gonzalez
regime that 1,000 members of the PR were on the government's list of Commu-
nists, thus revealing that the law enforcement agencies had become mere
tools of the politicians. Ydigoras is attempting to restore
dence and improve efficiency. He has appointed new heads of
and is devising plans for a broad functional reorganization.
66. A further factor which limits the effectiveness of
legislation is an increasingly adverse public opinion. For
Guatemalans have shown disapproval and even ridicule for the
public confi-
several agencies,
anticommunist
several years
manner in which
laws pertaining to communism have been enforced. Recently, there have been
strong indications that a considerable sector of the population believes
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that persons accused of being Communists or sympathizers are the victims
of smear tactics and, more importantly, that the country does not face a
Communist problem of any significance.
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III. PRESENT ECONOMIC SITUATION
67. The Guatemalan economy includes two almost independent sectors--
one tied to international markets for Guatemalan exports and the other a
subsistence economy. Agricultural production for export has prospered in
the postwar period and at the same time the urban economy has undergone an
expansion. A continued rise in volume and value of agricultural output
contributed greatly to an 80% rise in real gross national product between
1954 and 1957, to a level estimated at about $700 million (about $200 per
capita) in current prices. Despite this expansion, Guatemala continues to
be an underdeveloped country. The market for domestically manufactured
products is small even in the cities because of the high concentration of
income in a limited number of households.
68. Since 1954 the Guatemalan Government has followed policies
designed to speed economic development over a wide front, with encourage-
ment to private capital as well as the use of government funds and foreign
grants loans and technical assistance. These new policies have given an
impulse to many sectors of the economy, including agriculture, industry,
mineral production, and transportation. Guatemala's economy is the strongest
in Central America, and its prospects for future development the most promising.
69. A few key crops contribute the great proportion of total output
in Guatemala's agricultural sector. In 1957 coffee, bananas, and cotton
formed 95% of exports. Corn provides the chief staple of the local diet.
Agricultural exports are largely produced under a plantation system. Gov-
ernment holdings include one-quarter of all coffee lands and produce 12% of
total coffee exports. The United Fruit Company has sizable properties in
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banana areas: the company's production and its local purchases account for
two-thirds of banana exports, which in turn represent 15% of total exports.
Small farms typically produce foodstuffs for subsistence and local sale.
The government has distributed land to 16,000 rural farmers under an agrarian
reform law of January 1956. This program, and the provision of technical
and financial assistance to small farmers, is helping to expand the agri-
cultural middle class.
70. Like most raw material exporters, Guatemala has enjoyed a postwar
surge in world prices for its exports. In the last dozen years it has
continued to market its coffee and bananas largely in the United States
and has enjoyed favorable terms of trade. Export values increased from
1
$37 million in 1946 to $105 million in 1954 and to about $120 million in
1957. Coffee production reached bumper levels in 1956 and 1957, with an
annual crop of about 165 million pounds, and represented three-quarters of
1957 exports. Prices for the premium-grade Guatemalan coffees, at a new
peak of 73 cents per pound in 1956, receded to 51 cents in late 1957, but
at that lower level were still three times 1946? prices, and substantially
above cost of production. In late 1957 the government-sponsored Guatemalan
membership in the Mexico City Coffee Pact, under which it plans to hold
off the market coffee produced from government farms in an effort to
strengthen world prices. Guatemala's other major export crops?bananas
and cotton--also benefited from favorable conditions in 1956 and 1957.
Corn, which is grown throughout the country on subsistence farms yielded
1. The Guatemalan quetzal is freely convertible and has been at par with
the US dollar since 1924.
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bumper crops in 1956 and 1957, which were almost sufficient to cover rapidly
increasing urban demand, as well as subsistence needs.
71. Though over 60% of Guatemala is forested, there has been little
development of timber resources. Most of the forests are government-owned,
including the entire Pettn area. Under a basic forestry law passed in
1956, commercial exploitation has been almost entirely discouraged by the
capital requirements involved in the size of forest zones offered for
exploitation (5,000 sq km minimum), and the stipulation that a lumbering
operation include the building of towns, roads, churches and hospitals in
addition to normal conservation practices. Furthermore, long outstanding
claims against the government by various investors who previously attempted
lumbering operations on government lands discourage both operators with
Guatemalan experience as well as potential new investors. At present most
of the lumbering operations are carried out on private land with products
destined for local construction and fuel uses.
72. Guatemalats mineral resources have not been explored or exploited
to any significant extent. In a climate favoring foreign investment since
1954, foreign companies have taken up petroleum concessions in northern
Guatemala, leasing all of the Pet6n and portions of Verapaz and Izabal.
Other foreign companies have laid plans to exploit various metal deposits,
and the production of lead and zinc has already assumed some importance.
The value of Guatemalan mineral resources remains to be proven and they do
not offer a means of increasing exports in the near future. Over the long
run, however, they promise to help increase and diversify production and
exports.
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73. Industry in Guatemala is largely confined to processing agricul-
tural commodities and producing simple consumer goods. Since 1954 indus-
trial activity has expanded rapidly in response to favorable government
policies, including tax and customs privileges. New investment has
included some foreign capital, notably a tire factory. Thus far, however,
the opportunities for industrial employment have not kept pace with the
growth of the urban population, and the growth potential of industry remains
limited by the restricted local market. If integration of the Central
American economies is undertaken, an additional market for some industries
may open up.
74. The development of Guatemalan resources has been hampered by
inadequate transportation facilities. Until recent years the transportation
of bulk commodities was largely limited to the lines owned by the Interna-
tional Railways of Central America (1RCA), which were built to service the
needs of banana and coffee producers. Since 1954 the government, with US
aid, has pushed the construction of highways begun under the Arbenz regime,
and has further developed a national road network. The major links in this
program have been the Inter-American Highway (Mexican border to El Salvador
border), the Atlantic Highway (Guatemala City to Puerto Barrios), and the
Pacific Coastal Highway (Guatemala City to the Mexican border). These
routes are now passable over most of their extent on an all-weather basis.
With this expansion of the highway system and the construction of feeder
roads, an important step has been taken to integrate the national economy,
to lower the costs of agricultural production, and to permit increase and
diversification in HanWdatput.
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75. Since the war Guatemala has suffered from an increasing shortage
of electric power. In Guatemala City the major source of power is the
Empresa Electrical a local subsidiary of the American and Foreign Power
Company, which has survived years of public and government hostility.
Government-owned facilities serve the Quezaltenango-Mazatenango area west
of Guatemala City. In rural regions and small towns there is very little
power available, though in some locations small municipal plants or private
units service limited ,areas. Guatemalan Governments in the postwar period
sought to limit expansion of Empresa Electrical but since the government
did not provide alternate power facilities much demand in the capital remained
unsatisfied. A new concession contract was signed by the Empresa Electrica
in the last days of the interim Flores administration, and if ratified by
. the Guatemalan Congress may provide the basis for important new investments
by the company.
76. Since 1954 funds and assistance for Guatemalan development have
been drawn from a variety of sources - -public and private, national and
foreign. They have taken the form of direct investment, loans grant aid,
and technical assistance. The Guatemalan Government in 1957 spent $40
million of its own resources on capital improvements. US grant aid, of which
about 6010 was invested in highway construction, totaled over $18 million,
bringing US grant aid since 1954 to more than $43.5 million. The IBRD
disbursed over 11 million of an $18 million highway loan in 1956 and 1957.
Guatemalan citizens increased their domestic investments sharply during the
Castillo period, reversing the heavy flight of capital which took place
under the Arbenz regime. Total newprivate foreign investments which
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increased rapidly after 1954, reached a high level in 1957, with an esti-
mated investment of $12 million in that year.
77. The three US companies that until recently accounted for virtually
all US capital in Guatemala--United Fruit, IRCA, and the Empresa Electrica--
invested about 44 million in 1957. Investments by the Empresa Electrica
would probably have been much larger had the Guatemalan Government adopted
a policy making possible expansion of the company's service to satisfy all
demand in its service area. The IRCA's expansion potential was reduced in
1957 by the competition of truck transport along the parallel Atlantic
Highway. At the end of 1957 the IRCA suffered a damaging strike, and in
early 1958 was sued by the interim government for special taxes assessed
by the Arbenz regime. The difficulties experienced by the above US firms
have not deterred o.:;her US interests from making new investments in
Guatemala. These have included a tire factory, a $3 million investment by
mining companies, the establishment of a branch of the Bank of America, and
expenditures on petroleum exploration beginning in 1957. Over nine million
acres of land are held for petroleum exploration by major US firms such as
Standard Oil of New Jersey, Standard Oil (Ohio), Tidewater, Union Oil
(California), and Amerada, in addition to a number of smaller companies.
By mid-1957 company expenditures were running at a rate of 41 million a
month for the initial exploratory phase, with about half this amount spent
for labor, supplies and taxes in Guatemala. With the continuation of
existing official policies, these expenditures are likely to increase
rapidly through 1958 and 1959, until the presence of oil in commercial quan-
tities is definitely determined. At the close of 1957 total US investments
in Guatemala amounted to an estimated
170 million.
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78.. In the past three years gross national product at constant prices
has risen, probably more than 2% per capita annually, reflecting the high
level of investment and favorable agricultural conditions. The sectors
benefiting most from the boom have been the proprietors of urban real estate,
merchants industrialists, and large farmers. Wage earners, especially the
two-thirds of the labor force in rural areas, have gained little from the
increasing pace of economic activity beyond fuller employment plus scattered
wage raises as labor shortages developed in some areas.
79. Guatemala has avoided the problems of drastic inflation and
depreciated currency common in many underdeveloped countries. The consumer
price index stood at a level about 35% higher than in 1946. During the same
decade the total money supply (currency plus demand deposits) increased by
136%. A notable feature of the monetary expansion has been a tripling of
demand deposits, reflecting the rapid growth of the business community and
the expansion of new investment. The expansion of the circulating media
without a similar rise in prices was made possible by increases in real
production plus an extension of the money economy into more remote areas of
the country. While the money supply expanded at home, the Guatemalan
quetzal remained at par with the US dollar, and the government's holdings
of foreign exchange almost doubled during the Castillo administration.
80. Government revenues rose from $35 million in 1946 to $70 million
in 1954 and to a new high of about $91 million in 1957. This gain in
revenues came without any major improvement in tax methods, which are largely
tied to levies on import and export trade. Much of the revenue gain is
directly due to price increases in Guatemala's exports, and the concomitant
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rise in imports. In addition to its domestic sources of revenue the govern-
ment alto was able to expand its operations due to the large influx of US
grant aid during the Castillo administration (1954-57). In this period
there was actually some decrease in domestic debt despite new and enlarged
expenditures for capital improvements, education, and public health.
81. In the period 1955-57, the Guatemalan economy strengthened
appreciably. Highway construction was pushed forward rapidly and is con-
tributing to lower marketing costs, increased production from existing
sources, and the opening of new sources of production. Foreign exchange
reserves totaled $75 million at the end of 1957. The government's internal
debt stood at a low level of
62 million. Propertied interests benefiting
from the boom in economic activity had accumulated substantial savings.
Development of new resources by foreign private capital, notably in petroleum
Vas under way. Other foreign investment and foreign grant aid and loans
were scheduled to continue at a high rate in 1958.
82. Offsetting these favorable factors has been the decline of coffee
prices. Together with the fear of continued political instability, and
the prospect of further price decline this has caused a pause in business
activity. ?The price of coffee has been and continues to be of basic
importance to the national economy. Earnings from coffee have traditionally
provided much of the means of payment for imports, thereby affecting both
the level of consumption and investment in Guatemala. Coffee export taxes,
which vary with the price of coffee, have constituted about one-fifth of
all government revenues in recent years. Import taxes and associated levies,
which have generally responded to the level of coffee sales, account for
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another 30% of government income. Internal taxes are largely tied to
domestic prosperity, which normally depends heavily on the coffee trade.
83. In the immediate future, the effect of a decline in coffee prices
on economic activity and government revenues will be cushioned by continuing
receipt of US grant aid, which is expected to total
18.4 million in 1958,
including $13.6 million in ICA funds and $4.8 million for the roadbuilding
program; and by the IBRD highway loans, of which $5 million will be spent
in 1958.
Moreover the high level of foreign exchange reserves can be used
to finance a current trade deficit, and the government's credit standing
will permit continued investment despite declines in budget receipts. Thus
the economic effect of a coffee price decline will probably be limited
during at least the next 12 months. It may cause a decline of $5-10 Million
in government revenues. It may also mean a continuation of the lull in
domestic private investment that has been noted since late 1957.
84. Over, the longer term, Guatemala's problems are those associated
with an expanding economy; that is, they are problems of managing and
allocating relatively substantial resources in order to maintain a balanced
development as well as a satisfactory rate Of economic activity.. Careful
planning will be required to prevent urban development from becoming an
incubus on the agricultural sector, as it has elsewhere in Latin America.
Thus the government must encourage urban industry that will complement the
agricultural sector and operate at reasonable costs as well as provide
employment to the growing urban population. The need for such careful
planning can be avoided only if national resources are substantially
augmented, as they would be through large petroleum production.
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IV. FOREIGN RELATIONS
85. Ydigoras has indicated that the principal objectives of
Guatemala's foreign policy during his administration will be: (a) to con-
tinue amicable relations with the United States; (b) to develop closer
ties with neighboring republics; (c) to press for recognition of Guatemala's
claim to British Honduras; and (d) to further the international prestige of
Guatemala through participation in the ODECA, the OAS, and the United Nations,
86. Ydigoras professes a warm friendship for the United States, which
he has visited several times. During the official visit which he paid the
United States in February 19580 he was most favorably impressed by the
reception tendered him. He is fully appreciative of the benefits that have
accrued to Guatemala from US financial and technical assistance since 1954$
but is determined not to permit Guatemala to become subservient to the
United States or any other country. In February he created much good will
when he visited El Salvador, Honduras, Nicaragua, Costa Rica, and Mexico.
87. The Dominican Government, which for several years has sought to
enhance its prestige and influence in Guatemala, increased its efforts
after the assassination of Castillo. At the beginning of the Castillo
administration, Generalissimo Dr. Rafael Leonidas Trujillo offered to help
the new government provided he received cooperation in extending Dominican
influence to the other Central American republics. Castillo rejected this
proposition and subsequent overtures by Trujillo. Upon the death of
Castillo, Trujillo endeavored through offers of cash and military equipment
to establish a position of influence within the Guatemalan armed forces,
but apparently accomplished little if anything. Whatever progress he may
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have made was more than offset immediately after the October 1957 elections
by a sharp public reaction which developed against the Dominican Republic.
This resulted when the Guatemalan Foreign Minister, on the basis of strong
circumstantial evidence, accused two officials of the Dominican Embassy of
involvement in the murder of a Guatemalan citizen. The Guatemalan public
became further incensed when the Dominican national radio sponsored broad-
casts by a self-styled mistress of Castillo accusing the Foreign Minister
of complicity in his assassination. A break in diplomatic relations was
averted partly as a result of opposition to such a course by Guatemalan
deputies who were apparently friendly to the Dominican Republic. Continuing
Dominican interest in Guatemalan affairs was evident during the campaign
preceding the January 1958 elections, for the Dominican Ambassador in
Guatemala told an official of the American Embassy that he favored the
election of Ydigoras. Subsequently, shortly before the inauguration of
Ydigoras, the Dominican Ambassador was recalled by his government after the
Flores administration alleged that he had sought to influence the vote of
the Guatemalan Congress against Ydigoras in favor of Cruz. After the
election, Ydigoras denied persistent reports - -soMe dated back to the 1950
elections--that he had accepted financial assistance from Trujillo.
Immediately afterwards, Ydigoras permitted the recalled Dominican Ambassador
to resume his duties in Guatemala. This act angered the opposition in the
Congress, which enacted a:resolution recommending that Ydigoras sever
diplomatic relations with the Dominican Republic.
88. Guatemalan-Mexican relations are outwardly cordial. There are
no important differences between the two countries, although the insistence
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with which Mexico is pressing its claim to the northern tip of British
Honduras is causing serious concern to a number of Guatemalan officials.
Also, Mexico remains the principal sanctuary for the majority of Guatemalan
Communist and Arbencista exiles, but the Mexican authorities have imposed
close surveillance over them, have restrained their political activities,
and have prevented large-scale arms smuggling and illegal reentry into
Guatemala. Some easing of the exile problem resulted during the Flores
administration when a number of the least undesirable exiles were permitted
to resume their residence in Guatemala. A further easing or almost
complete disappearance of the problem will in all probability, result should
Ydigoras carry out his announced intention of permitting the majority of
exiles to return.
89. Ydigoras has indicated that he intends to press vigorously for
the recognition of Guatemala's claim to British Honduras. He made this
clear during his campaign and inaugural speeches, and in an address to the
Guatemalan Army on February 28 he stated that British Honduras had to be
recovered, if necessary by force. On his visit to the United States he
included in his party Jorge Garcia Granados, an expert on international
relations, for the specific purpose of discussing the British Honduran
problem with US officials. In these conversations, Garcia revealed that
Guatemala, upon securing recognition of its claim to British Honduras, would
in lieu of outright annexation provide the area associated status with
autonomy over its internal affairs. These would be directed by an elective
Prime Minister who would be a member of the Guatemalan Cabinet. Foreign
affairs and defense would be conducted by the Guatemalan Government, and
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118
the President of Guatemala would also be the President of British Honduras.
Subsequently, Ydigoras designated Garcia to be a special adviser to his
administration on matters pertaining to British Honduras. A number of Latin
American countries have supported the position taken by Ydigoras. In
general, Ydigoras' attitude and statements do not represent a wholly new
policy approach. As many other Guatemalan presidents have successfully
done, Ydigoras is employing this perennial issue primarily to develop
domestic support for his administration.
90. Since being readmitted to ODECA in 1955, Guatemala has endeavored
to give the organization a permanent and useful character. It has served
as host for conferences and joined in efforts to remove barriers to closer
relationships among the Central American republics. Partly as a result of
its ODECA membership, Guatemala has concluded trade pacts with El Salvador
and Honduras and is negotiating similar arrangements with Costa Rica and
Nicaragua. Also on several occasions ODECA has supported Guatemala's claim
to British Honduras, thus serving as medium for unified action by the
member countries in such matters.
91. No country of the Soviet bloc has or. is attempting to establish
diplomatic relations with Guatemala. Currently negligible economic ties
are not being expanded. Furthermore, recent bloc diplomatic, propaganda,
and scientific successes have not materially benefited the Guatemalan
Communist movement.
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PROBABLE FUTURE DEVELOPMENTS
92. The Ydigoras administration apparently intends to follow a
moderate course. However, the sincerity of the President's expressed
intentions in this regard may be viewed with skepticism because of his recent
appointment of a basically conservative cabinet. Unless Ydigoras can allay
fears that he is inclined to be a rightist authoritarian ruler, he will
probably lose considerable moderate support to the leftist opposition.
Nevertheless, the President is believed to have sufficient prestige, mili-
tary backing, acquiesence from opposition groups, and security in the
national economy to govern with reasonable success for the next few months.
93. Over the longer run the ability of the Ydigoras administration
to survive will probably be determined by the effectiveness of the Presi-
dent's leadership and the general level of economic activity including
foreign aid. It will be necessary for him to strengthen his rightist
political organization with sufficient moderate elements to provide his
government adequate support. He must also reconcile to some extent
divergent interests of the right and left. Success in these areas would
tend to assure the loyalty of the armed forces and would win the backing of
at least some moderate deputies in the Congress. Under such circumstances,
Ydigoras probably would have a little better than even chance of remaining
in office for the first half of his term.
94. Should Ydigoras in the long run decide to adhere to a rightist
course, he mould lose much of his rather limited popular support and would
have to resort to dictatorial methods to stay in power. Furthermore,
moderates in the Congress would probably join leftist forces in opposition
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to Ydigoras. In such a case the left could be expected to assume an
intransigent position and follow a more aggressive line. There would also
be the probability that dissatisfaction might reach the point where
moderate and leftist groups would attempt to overthrow Ydigoras. In the
face of such an extensive loss of popular backing the armed forces would
probably withdraw their support. If the Ydigoras government should fall,
a protracted period of political instability could be expected. Such a
development would almost inevitably lead to the formation of a military
junta, and would enhance the ultimate likelihood of a leftist government
coming to power. Should Ydigoras orient his administration to the right,
it is considered that he would have a somewhat less than even chance of
completing the first half of his term.
95. Despite the adverse effect of factionalism generated during the
electoral period, the armed forces, which are essential to political
stability, are apparently willing to support Ydigoras for at least the
immediate future. Continuance of their support will depend upon Ydigoras'
success in demonstrating that he has a substantial popular backing, and
that he is willing to improve the economic position of the military. It
will also be necessary for him to demonstrate that he sincerely intends to
curb extreme leftism including Communist operations. Even should Ydigoras
be successful in these areas, there will be in all probability plotting
against his administration by ambitious officers.
96. Since the leftist political resurgence is a relatively recent
development, there is a potential for rapid change in both its cohesiveness
and leadership. Tensions and contradictions within the heterogeneous PR
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are likely to increase. The Communists will probably intensify their
efforts to infiltrate the PR, which they may attempt to disrupt should they
fail to gain substantial influence over its policies. Moreover, the leaders
of the Arbenz regime, some of whom have recently returned to Guatemala from
exile, may seek to gain an influential position in the PR.
97. While the leftist resurgence presents a danger of increased
Communist activity, it may also afford an opportunity for the long-run
containment of communism through the development of a strong noncommunist
left. ?There is reason to believe that many leftists are more politically
sophisticated and aware of the Communist danger than before 1954. Their
performance in the recent campaign shows that they have learned to work
effectively at the grass roots level. If so, the moderate leaders of the
PR stand a good chame of winning and keeping the loyalty of the Guatemalan
masses. On the other hand, should they fail and leaders who have worked
closely with the Communists win the support of a significant portion of the
workers and rural classes, the prospect for Communist =nitration or the
leftist movement would be enhanced.
98. It is believed that the Communist threat, at least in the short
term, will remain of relatively little importance. At present the
Guatemalan Communists do not constitute a danger to the security of the
government. They have appreciable influence among the students and
organized labor, but neither alone nor in conjunction with their present
or probable allies could the Communists hope to seize power in Guatemala
in the foreseeable future. The Communists, whose past success was achieved
from the top down, must regain a position of strength in the labor movement
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and establish an alliance with noncommunist leaders before they would be
able to make a significant political comeback. This is likely to prove a
slow and difficult task. Should the Ydigoras administration be succeeded
by a PR government, Communist prospects could become significant only if
US influence ceases to be a factor in Guatemalan politics. Even in the
unlikely event that Arevalista or Arbencista forces return to power, their
leaders would probably not allow the Communists to become as influential
as before 19%-
99. After 1958, with a tapering off in foreign aid and loans and the
likelihood of a continued depression in coffee prices, development of new
sources of production will be essential to maintain economic activity near
the present rate. While the present exploration for petroleum may yield
results, it remains a gamble. Improvements in agricultural technology will
no doubt continue and, linked with better-transportation, will mean increasing
productivity in the agricultural sector. At the same time, with the improve-
ment in agricultural methods, the problem of developing the urban economy
will become more pressing as large numbers of agricultural workers move to
urban centers. With an anticipated population increase of one-third, or
over one million persons, in the next decade, there will be a rapid increase
in urban population. Basic services, including electric power, housing,
sanitation, and schools, and opportunities for employment will have to
increase very sharply in order to meet the needs of a much expanded urban
population.
100. Ydigoras may be expected to seek advice and assistance from the
United States on many Guatemalan domestic problems and undoubtedly will
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cooperate with the United States on international questions. At the same
time, in view of the traditional nationalist sentiment and the revival of
the left in Guatemala, he is likely to be careful not to give the
impression of excessive reliance upon the United States. As was the case
with Castillo Ydigoras' friendly relations with the United States should
be a highly stable element in Guatemalan foreign affairs.
101. Under the Ydigoras administration Guatemala's relations with its
Central American neighbors should continue to reflect the improvement
achieved by Castillo. Despite ideological differences and possible
personality conflicts, Ydigoras is unlikely to meddle in the politics of
other countries unless a clearly unfriendly government comes to power in
a bordering state. For the immediate future, at least, he will almost
certainly be too occupied with domestic problems to concern himself with
the internal affairs of other countries.
102. It seems possible that Ydigoras is obligated to Generalissimo
Dr. Rafael Leonidas Trujillo, chief of the Dominican Republic, in spite of
his protestations to the contrary, and may have to tolerate for the time
being renewed attempts by Trujillo to find in him a friend and supporter.
It is believed that Ydigoras will maintain ostensibly friendly relations
with the Dominican Republic but not permit Trujillo's efforts to influence
his administration.
103. With regard to the British Honduran issue, it is believed that
the situation will not deteriorate to the point where extreme measures
will be taken by the Guatemalan Government. An accelerated course of action
short of military aggression would probably follow the discovery of oil in
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northern Guatemala, from which the most direct outlet to the Caribbean is
through British Honduras. Guatemala could also be expected to press its
claim more vigorously should British Honduras show indications of joining
the federation of British Caribbean possessions known as The Nest Indies.
104. In all probability, the Ydigoras regime will adhere to the
Castillo policy of furthering Guatemala's prestige in regional, hemispheric,
and world affairs.
105. There is virtually no chance that diplomatic relations will be
established between Guatemala and the countries of the Soviet bloc or that
currently negligible economic ties will be expanded.
CONFIDENTI.AL State - FD Wash., D.C.
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