LATIN AMERICA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88T00792R000100020029-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 27, 2016
• Document Release Date: December 20, 2013
• Sequence Number: 29
• Publication Date: May 8, 1987
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2014/03/18: CIA-RDP88T00792R000100020029-6
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Latin America
Review
8 May 1987
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ALA LAR 87-011
8 May 1987
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Latin America
Review
8 May 1987
Page
Articles Libya?South America: Promoting Terrorism
Libya's political ties to South American terrorist and extremist
groups constitute a low-level threat to US interests in the area.
These groups have accepted some arms and training from Tripoli,
but none so far has accepted Qadhafi's leadership.
Jamaica: Make Way for the General Election
1
Jamaica's two major political parties are actively preparing for a
national election that must be held by December 1988, but Prime
Minister Seaga may call the election sooner if he believes his party
can win a third consecutive term.
Ecuador: The Left Gets Ready for the 1988 Election
Rodrigo Borja, who lost narrowly to President Febres-Cordero in the
1984 election, has emerged as the odds-on favorite to become
Ecuador's next president in 1988. Borja won the nomination of his
moderate socialist Democratic Left party in a landslide in March,
and he has already started to campaign aggressively
Venezuela's Stalled Economy
5
7
Venezuela faces economic stagnation and a growing financial bind
this year as President Lusinchi's administration boosts public
spending, particularly wage hikes, while imposing a variety of
restrictions on the private sector. We predict the public-sector
deficit will jump to 8 percent of GDP this year and inflation may
increase to 25 percent.
11
Articles have been coordinated as appropriate with other offices
within CIA. Comments and queries regarding this publication may
be directed to the Chief, Production Staff, Office of African and
Latin American Analysis,
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Latin America
Review
Articles
Libya-South America:
Promoting Terrorism
We believe that Libya's political ties to South
American terrorist and extremist groups constitute a
low-level threat to US interests in the area. South
American groups
have justified attacks
on US targets as protests against Washington's
opposition to Libyan leader Qadhafi, but none so far
has accepted Qadhafi's leadership. Nevertheless,
South American governments are reluctant to
condemn Qadhafi for fear that he might retaliate by
inciting local unrest.
A Limited and Expedient Relationship
Libya, in our view, has limited objectives in South
America.
because of their proximity to the United States and.to
generally weak governments, the Caribbean islands
are Tripoli's main target in the Western Hemisphere.
Libya has
offered only small amounts of financial aid to its
South American contacts. We believe that Libya's
relatively modest operations in South America
primarily support Tripoli's Caribbean operations
while granting Qadhafi satisfaction that he is fielding
a truly global effort to weaken the United States.
South American radicals take a cautious view of
Libyan patronage, underscoring the cultural
incompatibility of the region for Qadhafi. The more
established organizations, such as the M-19 in
Colombia and the Movement of the Revolutionary
Left (MIR) in Chile,
tend to look to Tripoli for help
when support from Cuba or the Soviet Union is not
available. Smaller groups, with little hope of securing
Cuban backing, are initiating contact with Libya. In
Argentina, for example,
the Libyans have political ties to a few
leftwing Peronist splinter groups and some small
leftist political parties, including the Movement
Toward Socialism. In September 1986 a few of these
groups agreed to attack US targets in Buenos Aires in
the event of another US air raid on Tripoli
More typically, however, the Libyans
turn down local fringe groups,
Arms, Training, and Financial Support
We believe Libya's fickle record as a patron, limited
resources, and the second-order priority Tripoli
attaches to the region all reinforce the preference of
South American extremist groups for Cuban or Soviet
assistance. Tripoli, however, has provided limited
financial assistance and sporadic training to
Colombia's M-19 and Ecuador's Alfaro Lives! (AVC)
terrorists, and since 1985 has been discussing
assistance with the Chilean MIR. Such contacts, in
our view, have not decisively contributed to the overall
capabilities of these groups.
Colombia's M-19 guerrillas have had a relationship
with Libya since 1978. Libya met M-19's basic
funding requirements from 1978 to 1982, and trained
approximately 40 of its guerrillas in explosives and
basic military skills in 1983,
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Libyan financing and training for the
M-19 appear to have ended shortly thereafter,
probably because the Colombians were receiving
assistance from Havana and were dissatisfied with the
quality of Libyan training. Since then, Libya has
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apparently offered to renew assistance to the M-19,
but we cannot determine if any of these promises has
been fulfilled.
The AVC terrorists in Ecuador have had a limited
relationship with Libya, primarily through their links
to the M-19. The AVC reportedly first made contact
with Libya in 1983, participating in the same training
course offered to the M-19. Since then, sporadic
contact between Tripoli and AVC members has been
reported
Last year, however, Ecuadorean police dealt the AVC
a series of severe setbacks, and we doubt that the
group will revive any time soon?even if Libya
provides some assistance.
Chile's MIR has so far received little more than
romises of aid
The relationship reportedly began when
Tripoli promised to provide funds to an organization
in Argentina providing support to far-left groups
inside Chile?if the MIR launched a more visible
military campaign. As of early 1987, the MIR was
confident of receiving training and funding?probably
to mount an insurgency in southern Chile?through
the Libyan People's Bureau in Havana
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South American Governments Respond
South American governments?caught between their
desire for commercial deals with Tripoli and their fear
of Libyan-backed terrorism?have responded
ambivalently to the Libyan presence in the region.
Most governments want to maintain good relations
with Tripoli in order to promote profitable economic
ties or Third World political ties?such as common
membership in OPEC for Venezuela or in the Non-
aligned Movement for Peru?and reduce the
possibility of Libyan-inspired subversion. Argentina,
Brazil, and Venezuela have appeased Qadhafi by
neither reducing the Libyan diplomatic presence nor
preventing Tripoli from sending economic and
military delegations, according to US embassies in the
area.
Secret
On the other hand, reporting from
US embassies indicates area governments
take the Libyan threat seriously. Argentine officials,
for instance, said after the US raid on Tripoli that
they feared an outbreak of Libyan-inspired terrorism,
while the Brazilians expressed concern over the
impact of Libyan activities on their large Arab
community. Moreover, over the past year, most
countries have stepped up surveillance of Libyans and
have improved security arrangements for US facilities
throughout the region
Outlook
We do not expect the Libyans to make significant
progress in whipping up anti-US activity in South
America, but their activities in the region will remain
hostile to US interests in the foreseeable future.
Libyan activism is likely to stay focused on the
Caribbean, with South America serving as a source of
logistic support and a target of opportunity. As long
as Libyan representatives keep a low profile and do
not engage in blatantly illegal operations or terrorism,
South American governments will probably tolerate
their presence.
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Jamaica: Make Way for
the General Election
Jamaica's two major political parties are actively
preparing for a national election that must be held by
December 1988. Prime Minister Seaga may call the
election much sooner if he foresees a good chance that
his ruling Jamaica Labor Party (JLP) can win a third
consecutive term. Reliable public opinion polls over
the past year have consistently favored opposition
leader and former Prime Minister Michael Manley in
a contest with Seaga. Seaga's shrewd political tactics,
however, have recently slowed the opposition's
momentum. Moreover, Manley's recent
illness
growing divisiveness in his People's National Party
(PNP) threaten to set back his bid to defeat Seaga.
-and
Seaga Gaining Ground
Seaga's party is recovering from a demoralizing
defeat by Manley's party in local elections last July
and is striving to regain the initiative.
JLP leaders have taken
a number of steps recently to organize an effective
campaign for a national election to be called as early
as midyear.
negotiations for a new agreement at the time. The US
Embassy in Kingston says Seaga's ploy succeeded in
rallying support for him within the JLP. Moreover, he
concluded a favorable new agreement with the IMF
in January, bolstering his image at home while
depriving the PNP of a key election issue
Seaga's political tactics have helped to throw the PNP
into confusion and frustrate its cam ai n for an
immediate election
Since the JLP's trouncing in the local elections, Seaga
has taken a number of actions designed to improve his
party's chances in a national contest. Last October,
Seaga threatened to resign as JLP leader and Prime
Minister in a tactic to shore up his support within the
party, In our view, the
threat also was probably intended to alarm IMF
officials, with whom Seaga was involved in tough
5
Opposition Progress and Setbacks
Manley has adopted more moderate tactics than in
the past that, until a few weeks ago, appeared to have
significantly improved his electoral chances.
Manley's
moderation of his leftist image, exemplified by his
public endorsement of the latest IMF agreement, has
raised his standing with the business community.
Public
opinion polls taken recently showed Manley defeating
Seaga by 10 to 15 percentage points in a national
election
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ALA LAR 87-011
8 May 1987
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Although the opposition, like the JLP, is enhancing its
electoral readiness in preparation for elections, the
question of whether Manley will be able to return as
an effective leader hangs over the party's future.
Prospects for Political Violence
Although the local elections last July were relatively
peaceful, and the Embassy reports both major parties
are discussing ways of limiting electoral violence,
there are indications that an upsurge in clashes
between JLP and PNP armed gangs may occur once
an election is called.
The
Embassy says the key to limiting electoral violence is
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the personal commitment of Seaga and Manley to
rein in their armed supporters and declare that such
activity will not be tolerated. Clashes between JLP
and PNP gangs during the 1980 election campaign
claimed roughly 800 lives, according to the Embassy.
Outlook
In our view, Seaga may be tempted to opt for a snap
election later this year if opinion polls show his party
gaining in popularity and divisiveness continues to
grow in the opposition. According to the Embassy,
Seaga said last month that he would not call an
election while Manley is recovering from surgery
because he fears such a move could cause a negative
public reaction and backfire. Despite these
assurances, we believe his options would be
increasingly limited and his chances of winning
possibly diminished if he were to wait until next year,
especially since our analysis of Jamaica's IMF
program shows that the austerity measures mandated
by the Fund will begin to take hold more firmly in
1988.
We believe infighting within the opposition is likely to
increase during Manley's absence from the political
fray over the next few months. Some radicals?acting
without Manley's or Patterson's approval?may, in
our view, resort to political violence to keep pressure
on Seaga. Nevertheless, we believe the PNP will hold
together as long as Manley's return to full leadership
seems to be on track, if only because party leftists are
likely to continue to believe that he is their best
chance of gaining power.
Manley's health is certain to have a profound effect
on the course of political events in Jamaica in the near
term. If Manley returns to lead the PNP by early
summer and quickly reasserts his leadership, we
believe the moderates will continue to dominate the
party, enabling the PNP to retain a good chance of
winning the election. If Manley is unable to exert full
leadership by the time the party's national conference
is held in September, however, we believe open splits
between moderates and radicals in the PNP might
shift the electoral odds in favor of Seaga and the JLP.
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Ecuador: The Left Gets Rea
for the 1988 Election
Rodrigo Borja, who lost narrowly to President Febres-
Cordero in the 1984 election, has emerged as the
odds-on favorite to become Ecuador's next president
in 1988. Ecuador's constitution prohibits Febres-
Cordero from seeking a second term. Since he
founded the moderate socialist Democratic Left
party, Borja has been its standard bearer twice and
built the party into the strongest and best organized of
the several parties that constitute the center left.
Borja won his party's nomination in a landslide vote in
internal elections in March, and has already started to
campaign aggressively. He is aiming his appeal
largely at voters who are disillusioned with the
current administration, but are unlikely to favor a far-
left candidate.
A center-left victory is virtually assured in view of the
sharp setbacks and failures of Febres-Cordero's
conservative administration. The administration's
misfortunes have bolstered all opposition groups?
including the most radical, which are likely to gain
additional seats in Congress and increased leverage
over the moderate left. Prospects of such gains have
already aroused new anxieties within the politicized
military and could jeopardize the election and the
democratic succession.
Febres-Cordero and the Political Right
The political right, which consists of several center-
right and centrist groups, including Febres-Cordero's
Social Christian party, is in disarray. According to
US Embassy sources, groups formerly collaborating
with the government have maintained some distance,
believing identification with a discredited
administration will doom their electoral prospects.
This disenchantment began shortly after the
government lost control of Congress in elections last
June and it has accelerated in recent months. In early
February, for example, conservative leader Averroes
Bucaram, once a key participant in the government
coalition, formally broke with the administration after
losing control of the municipal council in Guayaquil.
Although Bucaram's Concentration of Popular Forces
7
Hoy
Democratic left candidate
Rodrigo Borja
party continues to work quietly with the government
on various substantive matters, restoration of the
coalition is highly unlikely
one of Bucaram's
objectives is to enhance the political prospects of his
party's presidential candidate, Angel Duarte, by
attracting center-right voters disillusioned with the
current administration. Febres-Cordero personally
dislikes Duarte and has tried to quash his candidacy,
but Febres-Cordero's own embattled party has not
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Duarte will probably emerge as the only viable
candidate for the embattled right. He is clearly the
local favorite in Guayas Province and in its key city,
Guayaquil, and he can probably extend his support
into other coastal conservative strongholds. His
prospects on the national level, however, must still be
rated slim. Early Ecuadorean polls give him 30
percent of the vote at best.
The Resurgence of the Democratic Left
Borja is clearly the frontrunner in a crowded
presidential race. He has begun to heal rifts within his
own party and to revive its grassroots strength. His
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Conservative candidate
Angel Duarte
aggressive campaign tactics, which include frequent
attacks on the administration and effective
manipulation of the media, mark him as the leading
critic of an unpopular government.
Borja plans to emphasize the
themes of nationalism, anti-imperialism, and statist
economic policies during the campaign. He will
almost certainly intensify his attacks on the free
market policies of the Febres-Cordero administration,
citing the need for more government intervention in
the economy.
Despite his efforts to discredit the current
government, Borja realizes he must walk a tightrope
to avoid antagonizing an already wary military. He
has stated publicly that he is not a Communist
He is likely to
resist pressures from his party's left wing, which has
been urging him to adopt a more radical platform.
The Far-Left's Role
Far-left parties made impressive gains in last June's
congressional elections, and now occupy 13 seats in
the 71-seat unicameral Congress. They frequently
assault the administration with cries for
impeachment. Their constituencies come mostly from
labor, students, and the urban and rural poor, but a
lack of ideological cohesion?Maoists are pitted
against orthodox Communists?inhibit their ability to
form a united front.
both the Maoist Popular Democratic Movement,
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Ecuador's Political Parties
Right to Center Parties
? National Reconstruction Front (FRN)
? Social Christian Party (PSC)
? Conservative Party (PC)
? Radical Liberal Party (PL)
Centrist Parties That Have Supported the
Government
? Concentration of Popular Forces (CFP)
? Alfarist Radical Front (FRA)
Center-Left Opposition Parties
? Revolutionary Popular Action Party (APRE)
? Ecuadorean Democratic Action (ADE)
? Democratic Party (PD)
? Ecuadorean Roldosista Party (PRE)
? People, Change and Democracy (PCD)
? Popular Democracy (DP)
? Democratic Left (ID)
Far-Left Parties
? Broad Leftist Front (FASI)
? Socialist Front (PSEIPSRE)
? Popular Democratic Movement (MPD)
the most radical party in Ecuador, and the Socialist
Front seek agreement on a united electoral slate, but
rivalries have stymied their efforts so far.
Activist tactics are nevertheless continuing to win new
adherents for the far left. Most recently, these parties
have played on economic grievances to organize
violent and effective antigovernment demonstrations.
Radical groups, for example, were in the forefront of
a nationwide work stoppage in March that succeeded
in paralyzing Quito and other major cities for the first
time since Febres-Cordero took office. The far left is
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not likely to win the presidential election, but it may
displace the right as the second strongest political
force in Ecuador. Radical politicians could position
themselves as power brokers in the next Congress,
particularly if they gain six or seven additional seats.
Military Unease and Potential for Conflict
Sustained military support for civilian rule remains a
crucial and unresolved issue for the 1988 election. The
armed forces, which relinquished power in 1979, have
become highly politicized during the Febres-Cordero
administration. Recurrent clashing between rebel Air
Force and loyal Army forces has opened wounds that
will not easily heal. Many Army leaders blame the far
left for exploiting the Air Force mutinies and doubt
the ability and determination of moderate leftists,
such as Borja, to contain extremist pressures. Some in
the military argue that the center left is yielding
Reverse Blank 9
power to the radicals and fear that an opposition
government?seeking to throw out supporters of
Febres-Cordero?might lash out against the armed
forces.
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In our view, the military has turned more conservative 25X1
and reactive than when it ceded power back to the
civilians. Although the massive economic problems
confronting Ecuador may restrain their willingness to
assume power directly, senior officers will demand a
strong voice, if not the role of final arbiter, in
monitoring all major political developments between
now and the election.
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Venezuela's Stalled
Economy
Venezuela faces economic stagnation and a growing
financial bind this year as President Lusinchi's
administration boosts public spending, particularly
wage hikes, while imposing a variety of restrictions on
the private sector. We predict the public-sector deficit
will jump from 6 percent to nearly 8 percent of GDP
this year and inflation may increase to 25 percent.
Caracas is seeking external funding and is likely to
draw down reserves to avoid much-needed but
unpopular reforms. The administration probably will
seek to reopen negotiations on its public-sector debt in
an effort to match terms recently granted to
Argentina?a maneuver that will benefit Lusinchi
politically, but will probably encounter resistance
from creditors.
Trends Under Lusinchi
Lusinchi began his term in 1984 by instituting a
stabilization plan to reduce the fiscal and foreign
payments deficits that had grown under the previous
administration. The government devalued the bolivar,
tightened import controls, reduced access to foreign
exchange, and placed limits on public-sector spending.
This shock treatment initially proved successful. In
1984, Venezuela posted a $4.4 billion surplus in the
current account of the balance of payments, and
foreign exchange reserves rose by $1.3 billion to
nearly $8 billion. The following year, real GDP
declined by less than 1 percent?its smallest decrease
in three years, and the public-sector budget recorded
a surplus equal to 3 percent of GDP. In addition,
inflation fell from 16 percent in 1984 to 9 percent in
1985, and Venezuela rescheduled $21.2 billion in
foreign public debt?the first Latin American country
to obtain a multiyear rescheduling agreement without
an accompanying IMF program
Backing off from the stabilization policy, the
administration bowed to.public pressure for economic
growth and announced a three-year plan of large
infrastructure projects in early 1986 calculated to
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boost the economy in time to influence the 1988
elections. The collapse of world oil prices in early
1986, however, partly undermined the attempt?oil
revenues fell by $5.7 billion, precipitating a current
account deficit of $2.2 billion. Nonetheless,
Venezuela achieved about 2 percent real growth?the
first since 1982.
Because Lusinchi failed to anticipate the extent of the
oil price decline, and his penchant for consensus-
building delayed important economic policy decisions,
needed adjustment measures were postponed until last
December. By then foreign exchange reserves had
fallen by $3.9 billion to a level of $5 billion. The new
reform package included a 70-percent devaluation, 25X1
which significantly narrowed the difference between
preferential and free market exchange rates. Lusinchi
also imposed tighter controls on imports. To make the
economic package palatable to his labor constituency,
he retained price controls on basic consumer goods,
granted a 25-percent increase in the minimum wage,
and avoided cuts in his three-year development plan.
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The impact of these adjustment measures has begun
to reverberate through the economy. The annual
inflation rate increased from 12.7 percent in
December to 14.3 percent in February, and the
government estimates that it will top off at 20 percent
by the end of the year?a figure we consider overly
optimistic based on developments so far. Delays in the
approval process for imports at the preferential
exchange rate are creating shortages of raw materials,
and higher import costs have led some industries to
raise product prices by as much as 60 percent. On 29
April the government announced several measures
designed to please its large labor constituency. They
included wage increases averaging 25 percent, a
120-day ban on the dismissal of workers, and a three-
month price freeze on essential goods and services.
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Venezuela: Selected Economic
Indicators, 1982-87
Note scale change
Real GDP Growth
Percent
Public-Sector Balance
as a Share of GDP
Percent
-6
-15
Consumer Price Growth ?
Percent
Unemployment
Percent
30
15
41.???=ar
'mom.
20
10
10
5
Oil Export Earnings
Billion US $
Foreign Exchange
Reserves, Yearend b
Billion US $
16
12
8
4
0
1982 83 84 85 86
C
'Change from the previous December.
5Excludes gold.
Projected.
10
?
8
6
r--
4
2
Financing the Deficit
Lushinchi plans to finance his ambitious
infrastructure development plan and other budgetary
expenses through a mix of domestic and external
sources. Caracas proposes to increase the amount of
government debt that the Central Bank can acquire.
In addition, it wants to raise the limits on the share of
a bank's capital that may be invested in government
financial instruments, and permit loans to state
agencies of up to 40 percent of capital.
Dealing With Foreign Creditors
Because of growing political pressure to obtain more
favorable repayment terms, Venezuela has adopted
tougher positions in its debt negotiations with foreign
banks despite its increased financial needs. After
months of hard bargaining, Caracas and its Bank
Advisory Committee agreed in February to revise the
$21 billion public-debt rescheduling package signed in
1985.
Domestic Pressures on the Rise
The renewed efforts to obtain additional concessions
on debt are mOtivated largely by preelection political
pressures. The major opposition party has stepped up
flits criticism of Lusinchi's economic policy, claiming
that Venezuela is bowing to foreign interests. Public
attention has focused on Brazil's announcement of a
payments moratorium and more recently Argentina's
debt relief package
1982 83 84 85 86 87'
312566 547
Secret 12
Declassified in Part - Sanitized Copy Approved for Release 2014/03/18 : CIA-RDP88T00792R000100020029-6
Declassified in Part - Sanitized Copy Approved for Release 2014/03/18: CIA-RDP88T00792R000100020029-6
Secret
Venezuela: Current Account Balance, 1982-87
Billion US $
1982
1983
1984
1985
1986
1987 a
Current account balance
-3.2
3.6
4.4
3.1
-2.2
-0.7
Trade balance
3.9
8.2
8.8
6.9
1.1
3.3
Exports, f.o.b.
16.5
14.9
16.0
14.2
8.7
11.3
Oil
15.6
13.8
14.9
12.9
7.2
9.8 b
Nonoil
0.9
1.1
1.1
1.3
1.5
1.5
Imports, f.o.b.
12.6
6.7
7.2
7.3
7.6
8.0
Net services and transfers
-7.1
-4.6
-4.4
-3.8
-3.3
-4.0
Estimated.
b Assumes oil prices at $17 per barrel.
Outlook
Because of government controls on prices and access
to foreign exchange, the private sector is likely to
experience a slowdown this year, dragging GDP
growth to near zero. The recent devaluation will
probably cause consumer prices to double to at least
25 percent by the end of the year, and the
administration's efforts to expand public expenditures
and raise wages will spur more inflation. With the
reopening of public-debt negotiations imminent,
Venezuela may push for new loans as well as interest
rate concessions, and threaten to postpone $400
million in principal payments due next year unless
banks offer new funds. Lusinchi is unlikely to make
any major economic policy adjustments during the
remainder of his term, leaving the next
administration-barring a resurgence in oil prices-
with critically low foreign exchange reserves, a large
deficit, and high inflation.
Reverse Blank
13
Secret
Declassified in Part - Sanitized Copy Approved for Release 2014/03/18: CIA-RDP88T00792R000100020029-6
Declassified in Part - Sanitized Copy Approved for Release 2014/03/18: CIA-RDP88T00792R000100020029-6
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2014/03/18: CIA-RDP88T00792R000100020029-6