WEEKLY CONTRIBUTIONS LATIN AMERICA BRANCH, ORE, CIA 16 AUGUST 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000200030007-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 9, 2016
• Document Release Date: September 28, 1998
• Sequence Number: 7
• Publication Date: August 16, 1949
• Content Type: SUMMARY

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''''.1111111PINENNEN?
Weekljr Contributions
Latin America aih CAE, CIA
16 August 1949
B/LA suggests particular attention to the items an Argentina (p. 2)
and Bolivia (p. 2). The event treated in former may later prove of
great importance, though information permitting full evaluation is
lacking; the situation outlined in the latter may produce events affecting US relations later.
CURRENT DEVELOPMENTS
NORTHERN DIVISION: (See Situation Memo on Honduras, p. 1.1)
CENTRAL DIVISION: (See Situation Memo on Ecuador, p. 7)
SOUTHERN DIVISION: Bramuglia's resignation as foreign minister will
at least temporarily handicap US-Argentine relations; other implications
are not clear (P. 2). A recent Peruvian decree favors the US interest
in strategic materials (p. 2). The Bolivian situation is developing
toward an increased risk for foreigners in that country (p. 2). Lines
are being drawn for another showdown in Paraguay (p. 3).
SPECIAL SUBJECTS
The Current Situation in Honduras /4
The Current Situation in Ecuador . . . . . ? && ? . . 7
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Weekly Contributions, 13/LA
(C IA Working Paper)
16 August 19149
1.. ARGENTINA.: .Ut!ignMinister Er fa re lacement Jesiis Paz
an inexpe ence ? man repor 4 o strong na one s
leanings, will meaken the position of the economic reform group
(already a minority) in the Cabinet. It is not clear with which
if with any -- of the competing Argentine cliques Paz is to be iden-
tified. But the loss of Bramuglials experience and vigorous advocacy
of improved US-Argentine relations will be at least a temporary handi-
cap to these relations, even if no change of national policy is in-
volved,
'& PERU: US mini interests in Peru have been favored by a decree of
Augu ape sm o re "1153-a-the dollar ex-
change restating from their metal exports. Previously, they had
'co accept the loss represented by receiving 55% dollar exchange and
45% soles at the rate of 6,485 to the dollar. The new decree should
stim7nig Peruvian production and exports of metals, thus improving
US soarces of supply of strategic metals (particularly vanadium).
BOLIVIA: Current olitical and labor turmoil, particularly consider-
ni a weaWaTa-tg-TWWEI-V-Tivian govermnent? the
new alliance between the ANR and the PIR (See CIA DailyS 3 Aug)
he
and the natural characteristics of much of t Bolivian pop ion
are producing a situation of increased risk for foreigners in Bolivia.
The killing of two US citizens at the Catavi mines (See B/LA Mali for
3). May 1i.9) and the recently reported murder of a protestant million-
ary by BoliviaPilagils on 8 August illustrate possible results of
these risks, see no evidence
at present in Jo.u.via or any genera anti-foreign feeling and state
that the two above-mentioned killings are not connected, B/IA esti-
mates that, if present tensions are increased by economic hardship
following reductions in mining wages or working forces, a situation
maybe created in which recurring violence against foreigners -- for
example, representatives of US enterprises in Bolivia -- can be or-
pected,
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skly Contributions, D/LA
CIA Working Paper)
16 August 1.9
IA, PARAGUAY: Lines are bein drawn for another showdown. President
TEdis Lopez, suppor s y severe a nor ca'met members,
certain extremists of the Colorado Party, and the Paraguar artillery
regiments, is opposed by Federico Chaves, Colorado Party chief, who
has the backing of such key figures as the Uinister of Defense?,the
Commander-in-chief of the Armed Forces, the Chief of the Asuncion
police, and the connander of the ItIth Infantry Regiment. The align-
ment would give Chaves the preponderance of strength, but the xvcl
key to the military-- and, therefore, as is usual in Paraguay, to
the political -- situation is the First Cavalry Division, which has
not, so far, given any indication of its orientation. While the
weaker group may give up and be permitted exile, the forceful ex-
pulsion of one faction by the other is equally possible. Aside
from the setback to Hemisphere stability caused by another revolution, none of the changes in the Paraguayan government which
appear possible at this time would seriously affect US interests,
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Weekly Contributions, 1/IA
(CIA Working Paper)
Situation Memorandum L15-149 '
The Current Situation
n Honduras
16 August 2949
(Surma -- The Galvez government is popular and stable. The
au on rian controls of the Carlas dictatorship have been
relaxed. Some small-scale subversive activity has developed.
The economdc situation is favorable. The military capabili-
ties of the Army have been reduced, but the Air Force continues
both efficient and loyal.
-- Nothing in the current situation importantly 'modi-
fies long-standing advantages for US severity interests deriv-
ing from Honduras' thorough-going support of the US and of
Hemisphere unity.)
Political
After seven months in office) President Galvez 1 governnent remains
popular and stable. Both its popularity and stability have been in-
creased by relaxation of the authoritarian controls of the sixteeneyear
Caries dictatorship. This trend toward a relatively liberal form of
republicanism is evidenced by: the administration's encouragement of
political oppositionists to return from exile; the revival with govexer-
ment sanction of trade unionism, which had been completely suppressed
under Caries; and the subordination of national- and internal-security
duties of the Army to public-service functions, such as road building.
The only important opposition to the administration cones from dis-
charged personal followers of ex-President earlas. These politicians)
angered over losing profitable jobs, have been further alienated by
the appointment of a nether of Liberal (opposition) Party members to
public office. As a result, there is a decided rift within the Nat-
ionalist (government) Party. BiLA estimates? however, that these
dissidents are unlikely to attempt a revolt because Caries, who is
still head of the Nationalist Party, remains completely loyal to his
close friend and handeeeicked successore Galvez.
Subversive
The easing of government controls has permitted infiltration by
potential subversive elements. Labor agitators fram Guatemala and El
Salvador have entered the banana-producing north coast region and in
SEC
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Weekly Contributions, WLA -2- 16 August 1949
(CIA Working Paper)
attuation Memorandum 45419
some cases have distributed Communistic propaganda, The workers have
not been responsive to their propaganda, however, and the fruit cope.
penies have been able to control agitation,, The government is unlikely
to intervene unless there is more serious trouble that at present seeps
probable,
Economic
The present economic situation is good. The goverment has already
started on its extensive road-building program, which will provide muca-
needed transportation facilities for maw semi-isolated rural areas and
rill stimulate economic activity. The slowly expanding operations of
the banana industry have provided additional employment, and expenditures
by the fruit companies in Honduras continue to provide dollars, so that
dollar imports for all practical purposes are unrestricted. g/LA believes
that economic conditions are such that the present relative prosperity
will continuo,
The administration is pursuing sound fiscal practices, having re-
versed the tendency toward deficit spending that had developed in the
later years of the Caries regime; revenues for the present fiscal year
exceeded expenditures by about $650,000. The 1949/50 budget has allo-
cated proportionately 30% more funds to public welfare, education, and
sanitation than the previous budget, and 20% less to the military. A
commission has been appointed to study tax revision and will probably
effect the enactment of a graduated Income tax by the next session cf
Congress. The views of the influential Vice President and Minister of
Government, Julio Lozano, who believes that the large companies -- all
UPe-oened -- have not made a contribution commensurate with the benefits
they have derived, will probably result in heavier taxes for US-owned
commercial enterprises.
/4111.ISEr
Arne strength has been reduced to an estimated 1500 from the October
election-time peak of 6000. The new Arpy departmental commanders are
presumably loyal to Galvez who appointed them. The Air Force has been
slightly strengthened by the acquisition of two new fighter planes. Air
Force personnel have received favored treatment and are considered loyal.
Apparently Galvez, like his predecessor, prefers to rely primarily on
the air arm for the security of his government,.
50
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-3-- 16 August 1949
Weekly Contributions,. B/IA
(C/A Working Paper)
Situation Memorandum 45-49
International
The Calves administration favors the concept of Hemisphere unity
and has shown no inclination to participate in Central Americani?
Caribbean power-balance rivalries. The President is friendly with
Nicaragua's Somoza but also maintains amicable telations with the
other Central American governments, B/LA estimates that this policy
of strict neutrality will continue. Galvez and his colleagues are
pro-US and can be relied on to support the US wholeheartedly in most
international matters.
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Weekly Contributions? B/LA
(CIA Working Paper)
Situation Memorandum 46-49
The Current Situation in Ecuador
16 August 1949
(Summary-- After foiled plots and in the face of a national
disaster, the prospects of political stability appear to be
improved. The distressed economy, however, is in no shape
to recover from the earthquake without assistance. Communists
continue their policy of quiescence. For the time being, the
army may be expected to remain loyal to the government. There
are no serious international problems facing Ecuador at this
time
-- Nothing in the current Ecuadoran situation is
causing or immediately portends noticeable change in status
of US security interests in the area,)
Political.
The outlook for political stability- has improved as a result of
the government's successes on 24 and 26 July, and of the national din-
ter in early August.
The outcome of the two crises in July demonstrates that Presillent
Plaza has less popular and military opposition than over-pessimistic
reports had previously indicated, The outcry against the arrest of
certain prominent Liberals and Socialists in Loja and Cuenca on 4 July
1949 -- prompted in part by the fact that the arresting officials paid
too little attention to the requirements of judicial detention and
process -- subsided immediately when the president ordered the release
of these civilians nin order that they may better prepare their defense."
The Manchano fiasco on 26 July put the president in a still better posi-
tion in that it seemed to demonstrate -- not only to him and his friends
but also to his enemies -- that the armed forces were by no means in-
evitable collaborators in any revolutionary movement. Army commanders
almost to the man repudiated Manchuno and rushed their protestations of
loyalty to Plaza. Civilians involved were members of the Liberal and
Socialist parties, and were quickly and unequivocally disowned by their
parties,
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Weekly Contributione, B/LA -2- 16 August 1949
(CIA Working Paper)
Situation Memorandum 46-49
For some weeks prior to the earthquake, the convening of Congress
(10 August) was expected to be a time of serious crisis for the admine
1st-ration. An understanding vas reported beteeen the Liberal and Social-
ist parties that they would coMbine forces in Congress (thus giving them
a majority), pass resolutions to interpolate various members of the Plaza
cabinet, and follow these interpolations with a vote of lack of confidence
and a demand for the ministers resignations.. Upon the anticipated re-
fusal of the president to insist that his ministers resign, a general
etrike was to be called by the national labor confederation (CTE), cone.
trolled by the Socialists.
It is doubtful now that plans involving such blatant politicr will
be carried out in the face of the current national disaster. The horror
and fright induced should promote national unity and make all segments
of the population intolerant of any more of the plots and subversive
action which have recently plagued the Plaza administration, The dra-
matic may in which the president has worked in the devastated area
directing rescue operations and the manner in which he has put all the
food supplies of his not inconoiderable farm holdings freely at the dis-
posal of the relief workers will inspire wide popular approbation and
thereby promote the stability of the administration which he heads.
Economic
While business conditions cannot properly be considered critical,
the seasonal recovery due at this time has not yet appeared and will
probably not reach the levels of the past two years when it does. There
are bright prospects for exceptionally good crops, but high production
costs will endanger rice exports, which are counted on to counteract
the foreign-exchange deficit which Ecuador would otherwise have. If
this year's rice is sold at a loss, it is possible that additional ime
port controls will have to be imposed.
Credit remains tight and currency circulation restricted. After
a conference with International Monetary Fund experts, it Was decided
to extend the Emergency International Exchange Control Law for another
year (until 5 June 1950). The government's developuent program, fi-
nanced largely from the difference between import and export exchange
rates, has, however, accomplished little basic preparatory work and
goes forward an a wry inefficient day-to-day basis at present., The
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eeekly Contributions, BAA
SIA Working Paper)
Situation Memorandum 146"449
16 August 1949
poor impression made by the lack of a well-worked-out program on repre-
sentatives of the Bank for International Reconstruction and Development
will, in all probability, seriously reduce Ecuador's chances of getting
Shat volume of foreign loans necessary to supplement government funds
te the execution of President Plaza's large plans,
The relatively considerable budget imbalance requiring deficit
.enancing is reflected in the government's difficulties in meeting oat-
etanding obligations Including its payroll for civilian employees and
'.ee armed forces, Considering the unfavorable business conditions, it
Is unlikely that tax receipts will improve.
The earthquake in and around Ambato obviously cane at a time when
the Ecuadoran economy was least able to meet such a major blow to its
productive capacity, Ambato and its environs -- one of the country's
most important industrial areas because of ample water power -- speeial-
lee in textile manufactures (the most important industry from the stand-
point of employment, engaging 1144% of all the country's non-agricultural
labor force) and flour milling. The extensive devastation will most
certainly create, among several economic problems, one of serious unem-
ployment, Should humane considerations, however, make available more
extensive foreign loans gin the name of reconstruction" than hard-headed
eeonomic considerations formerly considered justifiable: the adverse
eonsequences would be reduced. In the textile industry, particularly,
reconstruction loans would mean modern machinery, the lack of which has
been the major cause of the decline of this all-inportant local industry.
Subversive
In all the recent plotting against the government (see Political
aection), the Comnuniets have been notably inactive and extremely careful
to avoid giving any appearance of participation. Apparently this policy
of quiescence is motivated both by the conviction that the present plot-
ting elements lack sufficient strength to have any veil-founded hopes of
success, and by realization that the only part the Communists could play
in any overthrow of the Ecuadoran government would be that of a junior
partner to elements that are not in the least sympathetic with Communism
or with the Communist Party per se. The wisdom of their policy of none
participation has been amply justified by the reaction to theManch-en?
coup (26 July 1949). No one, in or out of the government, has tried to
make a whipping-boy of the Comennists,
9,
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Weekly Contributions, Bilea -4- 16 August 1949
(CIA Working Paper)
Situation Memorandum 46-49
In spite of the unusually large number of reports concerning anti-
government plotting by army officers (retired and active) and of dare
gerously widespread unrest in the ranks, thefe is a strong probability
that the military plotters make exaggerated claims as to the extent and
Intensity of dissatisfaction in the armed forces. The rather ridiculeua
failure of the recent Mancheno coup (intended to be primarily an army
lame) indicates that, although the army nay be dissatisfied with itr
loe economically, it is by no means possessed of an overwhelming eesire
to revolt on any handy occasion. B/LA estimates that the army will re-
mein loyal to the government unless the anti-Plaza V.iticos achieve a
dRgree of unity, cohesion, and determination sufficient to convince the
armed forces of their ability to fulfill any promises they might make
to min army support, or unless President Plaza outrages the army's
leftist orientation by delivering himself over to the Conservatives,
body and soul an improbable development.
:cuadoran purely military capabilities remain at the normal lorr
Internet:anal
In the international field, the major preoccupation of the Ecuadoran
government continues to be fear of Peruvian egression, in which they per-
sist in spite of dissipation of all alleged present bases for that fear.
The reported secret defensive military alliance with Colombia is probably
mostly conversation.
In broader international affairs, the present Ecuadoran government
stresses independence, but does not depart far from US-approved policies.
It would like to resolve the Franco question independently by recognition,
but is held back by hesitancy to deser t the US line and by reluctance to
be a follower of Peru. It has officially announced its approval of the
Atlantic Pact and has expressed the judgment that it is consonant with
and reenforces the Treaty of Mutual Aid signed at Rio de Janeirc in 1947.
Ecuador has, however, signed with another country (Chile in August
1949) a treaty dealing with the exchange of commodities comparable to
10?
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Veekly Contributions 13/LA
(CIA Working Paper)
Situation Memorandum 46449
-5- 16 August 1949
that signed with Colombia in April 1949. In each treaty a list of
specified items will be mutually exchanged duty-free. It is not yet,
clear whether Ecuador, in compliance with the most-favored-nation
clause (Art. XI) of the US-Ecuadoran Reciprocal Trade Agreement, will
move to admit duty-free from the US the saue goods which may now enter
Ecuador from Chile and Colombia duty-free.
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