CENTRAL AMERICAN MONTHLY REPORT #30

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000707060001-0
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 19
• Document Creation Date: December 22, 2016
• Document Release Date: April 22, 2011
• Sequence Number: 1
• Publication Date: January 1, 1986
• Content Type: MEMO

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DIRECTORATE OF INTELLIGENCE
JANUARY 1986
CENTRAL AMERICAN MONTHLY REPORT #30
The three newly elected governments in Costa Rica, Guatemala, and Honduras
have generated high popular expectations and now must grapple with the region's
daunting economic problems. Like the incumbent administrations in Panama and Ell
Salvador, they face another year of declining per capita incomes with no upturn yet
insight.
The increase in world coffee prices and reduction in oil prices are unlikely to
lead to a noticeable improvement in Central American economic performance this
year. In our assessment, economic growth in Costa Rica, Ell Salvador, and Honduras
at best will only slightly exceed modest 1985 performances--an average of 2 percent.
Meanwhile, economic contraction is likely to continue in Guatemala and Panama. F_
Costa Rica's near term stabilization prospects are mixed. Maintaining IMF
support will require further budget cuts and tough new trade initiatives that business
interests are sure to oppose. While President-elect Arias has said he will work with
the IMF, he will likely move cautiously, and between now and his May inauguration
the lame duck administration will have little incentive for pressing austerity. Overall,
we predict 3 percent economic growth for San Jose this year, no improvement over
1985.
This memorandum was prepared by the Central America North and South
Branches, ALA. It was coordinated with the Directorate of Operations. It contains
information available as of 3 January 1986. Questions and comments are welcome
and should be addressed to Chief, Middle America-Caribbean Division, ALA
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Newly inaugurated Guatemalan President Cerezo faces unprecedented inflation,
slashed living standards, and a depressed economy. Although
Cerezo's top economic advisers have recommended decisive economic reforms,
including adopting an IMF stabilization program, so far he has temporized, and in fact
granted a 50 percent government-wide pay increase and approved a large increase in
the money supply. Of all the Central American economies, Guatemala will benefit the
least from higher coffee and lower oil prices: much of Guatemala City's coffee was
presold before the price increase and it is only a small net importer of oil. Overall,
the best the economy is likely to do for 1986 is no growth, compared to a slight
decline last year.
The lack of attention to corrective economic policies has been most noticeable
in Honduras. Although President Azcona pledged to revitalize the economy in his
inaugural address, we believe that domestic political opposition will preclude much
progress. It is unlikely, for example, that he will be able to temper expansionary
fiscal policies or unrealistic exchange rates. Organized labor, which torpedoed the
last economic stabilization program in 1984, will intensify pressures for inflationary
wage settlements. On balance, we expect sustained high levels of US economic aid
to keep economic growth at about 2 percent for the second straight year.
We see only marginal economic growth for El Salvador because of the continued
turmoil and stepped up insurgent attacks against economic targets. The President's
new economic package announced in late January--his first since taking office in
June 1984--addresses some budget and trade problems, but is unlikely by itself to
restore either domestic or international confidence in the economy. While the
program restricts growth in government spending and moderately devalues the colon,
it also institutes new price and exchange controls and offers nothing in the way of
investment or production incentives. Scheduled new infusions of US aid are likely to
boost economic growth only slightly, from about 1 percent in 1985 to maybe 2
percent this year.
Panama's near-term outlook is poor in large part because President Delvalle
lacks the domestic support required to implement stabilization measures. Although
he has recently announced his new economic program, it probably will not meet
foreign lenders' requirements and the new loan and debt rescheduling deals with
commerical banks, the World Bank, and the IMF remain in jeopardy. Furthermore, the
President's proposals for labor reform prompted immediate opposition, according to
the Embassy. Delvalle, installed by the Defense Forces and lacking any political base,
does not have the muscle to deliver on promised reforms. Investment will further
decline and economic growth--which stagnated in 1985--will likely contract this year.
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NICARAGUA
The regime hardened its line with new economic policies to deal with both critics
and pressing domestic problems. The US Embassy reports that a revision in the agrarian
reform law dropped the size limitation on plots eligible for confiscation. Although this
change institutionalizes common Sandinista practice, it also reduces the legal obstacles to
seizing properties of uncooperative private sector leaders while providing more land for
demobilized soldiers and discontented peasants. In addition, the regime has clamped
down on vendors selling products above government-set prices in an ineffective attempt
to reduce chronic shortages and distribution problems. Facing resistance to
controls--including the murder of a price inspector in Managua--the Sandinistas have
called on their mass organizations to aid in the campaign against "speculators."
The Sandinistas also began 1986 by closing the Catholic Church's radio station,
while continuing their harassment of other opponents. The regime blamed the action on
Radio Catolica's failure to broadcast President Ortega's New Year's speech.
National Directorate member Victor Tirado
predicted in October that the station would be closed and said the Church posed a major
threat to the regime. Meanwhile, the pro-government media took advantage of Cardinal
Obando y Bravo's trip to the United States in January to accuse him of serving
Washington's policies and backing the anti-Sandinista insurgents. Managua also
announced the discovery of a counterrevolutionary ring and implicated a local priest, an
opposition coalition party, and an independent labor union in the conspiracy, according to
the US Embassy. The Sandinistas likely will use this plot to justify further detentions and
interrogation of potential enemies. In addition, state security suspended publication of a
semi-weekly political flyer and arrested its editors.
Meanwhile, disputes within the democratic coalition are undermining the
effectiveness of the opposition. Internal differences over a strategy for dealing with the
Sandinistas caused a serious split this month when the coalition leadership publicly
criticized a member party--the Social Christians--for participating in Spanish-sponsored
talks with the regime, according to the US Embassy. The Social Christians now refuse to
participate in joint activities with the coalition until a public apology is issued. In our
view, the dispute is symptomatic of the internal rivalries and weak leadership that have
long plagued the coalition. As a result, the organization has been largely inactive in
challenging the regime, and the election, planned for March, of more effective coalition
leaders appears unlikely. Indeed, the Sandinistas apparently consider the democratic
opposition inconsequential--with the exception of private sector leader Enrique
Bolanos
On the military side, Sandinista forces attacked rebel base camps on the Honduran
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EL SALVADOR
In an effort to maintain the tactical initiative, the armed forces began the new year
with their largest offensive operation in several months. "Operation Phoenix"--involving
eight battalions and air, naval, and artillery support--is directed at rebel strongholds in
the Guazapa volcano area. While initially planned to last about 30 days,
that it may continue in a scaled-down version for several more months.
In the first three weeks of the operation, the armed forces claimed to have killed 41
rebels, captured 183 guerrilla or guerrilla supporters, and seized sizable caches of arms,
medical supplies, and insurgent documents. that
the operation probably will disrupt guerrilla resupply and offensive operations for at least
several weeks, although it is unlikely to drive the insurgents from the Guazapa region
permanently.
Guerrilla activity tapered off during the latter half of the month following an
extensive sabotage campaign and the first transportation ban of the new year. The US
Embassy reported that the nation's electrical power grid was significantly damaged by the
guerrillas' sabotage of almost 40 electrical pylons and that the capital and large portions
of eastern El Salvador suffered lengthy blackouts.
reporting also indicated that the guerrillas appear to be trying to make good on
their promise substantially increase their operations in the economically vital western
region. that about 100 insurgents destroyed coffee
processing facilities and about million worth of coffee during an attack on a town in
Sonsonate Department. It is still unclear, however, whether these attacks represent the
start of a major sustained campaign in the west or whether the rebels are trying to
disrupt the coffee harvest.
President Jose Azcona was inaugurated as scheduled on 27 January and agreed to
give the opposition National Party control of the Supreme Court as well as several policy
positions in the new Congress in return for its legislative cooperation, according to US
Embassy reporting. The agreement reportedly promised that the government will pursue
a bipartisan foreign policy that includes firm opposition to the Sandinistas and efforts to
resolve the border dispute with El Salvador. Despite this agreement, we believe that
Azcona--a minority President who controls only 46 of 134 congressional seats--is likely
to enjoy only a short political honeymoon.
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In our judgment, the sudden removal of armed forces Chief Lopez on 1 February
harmed the new administration's image by reinforcing the impression that the military
remains beyond civilian control. Lopez 25X1
was ousted by a powerful group of colonels after he tried to reassign them to
insignificant positions as part of an effort to solidify his control over the military. 25X1
the colonels--known as the "Fifth Promotion" class--intend to
make all major military decisions, regardless of who is chosen to complete the remaining
11 months of Lopez's term. The group reportedly backs close cooperation with the
US--including support for the Nicaraguan insurgency--but probably will take a tough 25X1
stance in demanding increased attention to Tegucigalpa's economic and security
concerns. Although the leading officer in the Fifth 25X1
Promotion, Colonel Riera, supports Azcona, we believe the group's record of political
intrigue and corruption could portend difficult times for the new administration.
Despite almost daily Sandinista incursions in Honduran territory throughout January,
the Honduran Government remained reluctant to retaliate as they did last September. The
Honduran military and outgoing government appeared intent on trying to avoid a major
military confrontation with Nicaragua on the eve of President Azcona's inauguration,
despite Honduran military reports of several Honduran troop and civilian fatalities.
Tegucigalpa, for example, discreetly returned a Nicaraguan AN-2 Colt plane in
mid-January that had been flown to Honduras by a Nicaraguan Air Force defector last
December,
President Cerezo--inaugurated on 14 January--faced his first political challenge
when the police peacefully expelled several thousand squatters who had occupied
government lands on inauguration day, according to the US Embassy. He subsequently
established an "emergency council" to investigate housing shortages. The US Embassy
reported that the new President's response reassured some private sector critics who
feared that the Christian Democratic government would not protect property rights.
Cerezo's early cabinet appointments--including a pro-business Finance Minister--appear
to reinforce the judgment that he will pursue pragmatic and cautious policies, at least
initially.
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US Embassy and that the military appeared 25X1
satisfied with the appointment of Brigadier General ernandez as the new Minister of
Defense. many in the military believe the politically 25X1
neutral Hernandez--due to retire from the military in six months--may be asked to stay
on in the post as a civilian to allow Cerezo to avoid choosing between more controversial
officers.
Cerezo further sought to ease military apprehensions about his administration by
renewing assurances that he would not try military officers for past human rights abuses.
Meanwhile, the new Interior Minister announced that the government would follow
through on its promise to abolish the Directorate of Technical Investigations. He did not
indicate, however, when or if the controversial secret police would be incorporated into
the National Police.
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The insurgents conducted no major operations during January.
there appears to be a general consensus that their interests are best
served by adopting a wait and see attitude and reassessing their options after Cerezo
more clearly spells out his policies.
In an apparent effort to influence US policy, Defense Chief Noriega in mid-January
said he might remove President Delvalle,
Seemingly riled by US refusal to disburse aid funds until economic reforms are in
place, the Defense Chief probably believed that he could loosen some purse strings by
bruiting reports of impending changes. If this tactic fails, or if Delvalle remains unable to
develop an economic plan, Noriega could orchestrate the President's removal and the
installation of a more competent if compliant civilian junta.
Meanwhile, Noriega reinforced his control over the military with his reassignments
to the General Staff and other key commands. the
Intelligence Chief--implicated in plotting against Noriega at the time of the Spadafora
murder last September--was transferred to a minor command. His replacement and the
new deputy are both staunch Noriega loyalists. The Defense Chief chose a trusted family
member to command the key Battalion 2000, which has a large concentration of troops
Oscar Arias, candidate of the governing National Liberation Party, will be installed as
President in May following his decisive victory over Social Christian Unity opponent Rafael
Calderon in elections on 2 February. The ruling party also won a majority of seats in the
unicameral legislature, according to press reports. Although the President-elect
acknowledges a clear Sandinista threat, he apparently believes Costa Rica can coexist
with Nicaragua and sees his election as a mandate for peace, according to the US
Embassy. Nevertheless, Arias plans to continue upgrading the security forces,
On economic issues, the new President has pledged growth
led by the private sector, increased exports, and an attractive investment climate. The US
Embassy reports that Arias plans an early visit to Washington to head off foreign
assistance cuts, warning that Costa Rica's economy is too fragile to withstand a drop in
aid levels.
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Following their meeting in Caraballeda, Venezuela on 12 January, the Contadora
mediators and the support group proposed nine specific actions to end the impasse
created in December when Nicaragua called for a six-month suspension of the talks. The
proposals, endorsed by the Central Americans several days later, include an end to
support for regional insurgencies and international military maneuvers, the phasing out of 25X1
foreign military bases and advisers, arms reductions, and steps toward national
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reconciliation. The mediators and support group also offered their good offices to
facilitate renewed talks between the US and Nicaragua. In a separate statement the
Central Americans agreed to consider forming a regional parliament and to hold a
Presidential summit in May.
Reports from various US Embassies point to contradictory interpretations of the
Contadora declaration. Mexico and Colombia, as well as Nicaragua, apparently see
implementation of the nine actions and a resumption of US-Nicaraguan talks as
preconditions for further treaty talks. Honduras, on the other hand, envisions talks
between the US and Nicaragua and between the Sandinistas and their opposition
proceeding simultaneously with renewed negotiations on the draft treaty.
The Sandinistas will likely face more pressure to undertake internal reforms although
they were able to defuse charges of blocking the negotiations and gained endorsement of
their two key objectives in the treaty process--an end to the US military presence in the
area and resumption of talks with the US. Meanwhile, differences in opinion over the nine
proposed steps probably will divert attention from substantive negotiations on the draft
treaty, at least for a while. Managua will use scheduled regional meetings to lobby the
new governments in Guatemala, Honduras, and Costa Rica for more flexible terms and to
press for bilateral accords.
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NICARAGUAN MILITARY BUILDUP
Cubans train Nicaraguan pilots on MI-8, MI-17, and
MI-24 helicopters, and four Soviet pilots conduct
training exercises on AN-2 and AN-26 transport aircraft.
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3 January
4 January
6 January
Soviet ship carrying unspecified military-associated
cargo arrives in C
= photography.
Imagery reveals two storage/support areas partially
completed and possible bunkered storage site near
completion at Esteli radar site.
Satellite imagery shows Nicaraguan shi Aracely,
general cargo, arrived in Puerto Cabezas from Mariel,
Cuba. Nicaraguan ship Nicarao also seen in Puerto
carrying some 26 containers on dec
11-12 January Three AN-2 and two MI-2 helicopters observed on
overhead imagery at Sandino Airfield were transported
from Rama in military convoy of 33 vehicles, accordinc
to
13 Janaury
components, according to same sources.
vehicles seen transporting probable helicopter
Two Top Bar mobile communications vans
observed near Managua on overhead photograhy
probably part of same convoy. Second convoy of 30
Two short take-off and landing aircraft obtained by
Interior Ministry from East Germany being assembled at
Los Brasiles Airfield by East German technicians,
The aircraft reportedly
Mid-January
will be used for reconnaissance and for transporting
officials to sectors of country lacking good airstrips. F
MI-8/17's and 12 MI-25's.
Soviet technicians assemble up to nine MI-8
and MI-25 helicopters at Sandino Airfield. Current
estimates of Sandinista helicopter inventory are 21
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1 January
Nicaraguan Ministry of Interior closes down church radio
station, "Radio Catolica," due to failure to broadcast
President Ortega's New Year's message.
12 January
16 January
22 January
negotiations.
Contadora Foreign Ministers' meeting in Venezuela
issues Caraballeda document which lists nine actions as
a basis for peace to promote resumption of Contadora
While attending Guatemalan inauguration, Central
American Foreign Ministers endorse Caraballeda
document and Presidents of Nicaragua, Guatemala, El
Salvador and President-elect of Honduras issue similar
declaration.
United Nicaraguan Opposition leaders Arturo Cruz,
Alfonso Robelo and Adolfo Calero announce outline of
their proposal for provisional government of national
reconciliation in Nicaragua.
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NICARAGUAN HUMAN RIGHTS CHRONOLOGY
During January, Sandinista allegations of guerrilla human rights violations
declined significantly, but another report points to rebel abuses of Honduran locals
living near guerrilla base camps. Honduran nationals also suffered abuses from
Sandinistas who crossed the border from Nicaragua in search of rebel bases.
Meanwhile, Managua continued its crackdown on internal dissidents and made
plans to protect its international human rights image in coming months
Insurgent Human Rights Record
12 January
15 January
claims insurgents persistently engage in crimina
activities against Hondurans ranging from petty theft and cattle stealing to rape
and armed assault.
23 January
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Sandinista Human Rights Record
2 January
Sandinista troops bombed a civilian residence, killing
two children and wounding the mother and two other children
6 January
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7 January
special military unit assigned tote Interior Ministry does not take prisoners
during field operations
the guerrillas report that Sandinista troops
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arrested and tortured locals in southern Zelaya Department for allegedly aiding the
rebels. In one incident a child was allegedly wounded by random Sandinista
gunfire.
10 January
The proregime press reports two Sandinista soldiers received long prison
terms for the October murder of an evangelical minister in Esteli. The
progovernment evangelical organi he sentences as proof of the
regime's concern for human rights
16 January
The Honduran military reports that Sandinista troops operating inside
Honduras robbed a civilian family,
Proregime press reports that security officials suspend publication of Prisma,
a news publication, for violating press censorship laws
Speaking at a news conference during his recent visit to Guatemala,
President Ortega denies his government systematically violates human rights, but
admits that violations still occur, saying that 20 military men had been tried for
such abuses
19 January
The US Embassy reports that regime harassment of the recently established
Catholic Church human rights office has blocked investigations of complaint
20 January
Sandinista troops
operating in Honduras killed a civilian and took her two sons back into Nicaragua.
21 January
A US defense attache source in southern Zelaya Department reports that
Sandinista troops arrested nearly 300 locals on suspicion of aiding rebels in the
area.
22 January
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on the Atlantic coast reports the regime enticed
a large group of Indians to return to Nicaragua from camps in Honduras with
promises that they could occupy their traditional lands. Instead, the Sandinistas
confined them to a camp to force them to work in the local gold mines
25 January
27 January
28 January
According to press reports, four civilians were killed and several others
wounded, including an American Indian activist traveling with Miskito Indian rebels
along Nicaragua's Atlantic coast, when Sandinista troops fired rockets into a
village
30 January
31 January
Insurgents patrolling in the salient reported that between 18 and 21 January,
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4 January
8 January
14 January
15 January
NICARAGUAN TRIPS/VISITS
JANUARY 1986
Vice President Ramirez departs for Guatemala to attend
Third Central American Games. F_~
Czech Culture Minister Klusak arrives in Managua for five
day visit. n
Duarte.
President Ortega and Foreign Minister D'Escoto visit
Guatemala for inauguration of President Cerezo during
which Ortega also meets with Presidents Betancur and
coalition.
Spanish Foreign Minister Ordonez visits Managua and
meets with President Ortega, National Directorate
member Nunez, and members of the opposition
22 January 25X1
23 January- Nicaraguan trade delegation headed by Minister
8 February of Foreign Cooperation Ruiz to travel to eastern Europe
and Soviet Union.
27 January Vice President Ramirez to Honduras for inauguration of
President-elect Azcona. F1
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COMING EVENTS IN CENTRAL AMERICA DURING FEBRUARY
4-11 February
6-7 February
6-11 February
10 February
10-12 February
Socialist International delegation to visit Nicaragua, Costa
Rica, and Guatemala.
Honduras, Costa Rica, and El Salvador scheduled to meet
to discuss strategy for Contadora peace negotiations. F
Former President Jimmy Carter to visit Costa Rica,
Nicaragua, and El Salvador. F7
Contadora Foreign Ministers representing mediators and
support group to meet with Secretary of State Shultz.
invited.
Sandinista National Liberation Front to hold conference of
Latin American political leaders to which representatives
of almost all parties holding elected office have been
14-15 February Contadora Plenipotentiary meeting scheduled in Panama.
21 February Outline of Nicaraguan draft constitution scheduled to be
presented to National Assembly. 0
Fifty-second anniversary of Sandino's death.
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COSTA RICAp
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International boundary
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CENTRAL AMERICAN MONTHLY REPORT #28
Distribution
Copy # 1 - Vice Admiral John Poindexter
- Mr. William Walker
- Mr. Donald Gregg
- Ambassador Shlaudeman
- HPSCI
- SSCI
- Lt. Gen. Leonard H. Perroots, USA
- Mr. Nestor D. Sanchez
- Mr. Ray Burghardt
- Lt. Gen. Lincoln D. Faurer, USAF
- LTG John H. Moellering, USA
- Ambassador Morton I. Abramowitz
- Ambassador Elliott Abrams
- Doug Mulholland
- Dr. Darnell Whitt
- DCI - 7060
- DDCI - 706011
- Executive Secretary - 7D60
- SA/DCI/IA - 7E12
- IADO - 1 E4846
- NIO/LA - 7E62
- NIC/AG - 2G40
- Comptroller - 7C21
- C/DDI/PES - 7F24
- Executive Registry--
- DDI - 7E44
- DDO - 7E26
Director, Legislative Liaison - 7043
Legislative Liaison - 7B04
32 - PDB Staff - 7F30
33 & 34 - D/ALA - 3F45
35 - C/DDO/LA - 3C3203
36 - DDO/LA,- 3D5309
37 - C/DDO/LAD- 3C3203
38 - C/DDO/LA,1 - 3B44
39 - C/LAA
40 & 41 - ALA/PS - 3F38
42 - ALA Research Director - 3F44
43 - 46 - CPAS/IMC/CB - 7G07
47 - DDI/CPAS/ISS 7G40
48 - CPAS/CDPB/CC - GH25
49 - DC/RIG/SOYA - 5E25
50 - - C/LE/OCR - 1 H39
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/12/22 : CIA-RDP86T01017R000707060001-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/22 : CIA-RDP86T01017R000707060001-0
51
52
53 - C/MCD
54 - DC/MCD
55 - C/CAN
56 - C/MX
57 - C/CAR
58 - C/CU
59 - C/CAS
81 - MCD Files
82 - CAN Files
83 - CAS Files
- PPS/PO/RPB - 3D02
DDI/ALA/MC/CAS/ I (1 November 1985)
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/12/22 : CIA-RDP86T01017R000707060001-0