The Situation and Prospects in Guatemala

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00904A000200020008-9
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 9, 2016
• Document Release Date: September 24, 1998
• Sequence Number: 8
• Publication Date: February 23, 1955
• Content Type: MF

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C E N T R A L I N T E L L I G E N C E A G E N C Y
OFFICE OF NATIONAL ESTIMATES
23 February 1955
MEMORANDUM FOR THE DIRECTOR OF CENTRAL INTELLIGENCE
SUBJECT: The Situation and Prospects in Guatemala*
1. Since Castillo Armsst assumption of power after the
June-July 1954 revolution, the situation in Guatemala has
generally been characterized by inept government, continuous
internal political tensions, and depressed economic conditions,
including serious unemployment. The failure to provide effective
political leadership and economic opportunity has resulted in the
slow erosion of confidence in the new administration. This ad-
verse movement of opinion has been abetted by Castillo's inability
to obtain implementation of a substantial U.S economic aid program
as rapidly as was widely expected after his accession. However,
Castillo's demonstrations of a firmer hand since his crushing of
an incipient coup on 20 January, together with the implementation
of the US aid program, suggest that the stability of the govern-
ment is improved at least temporarily. However, such stability
will not be maintained unless there is either an increase in
Guatemala's income from coffee exports or additional outside aid.
*The findings of this estimate are concurred in by CCI and the
relevant branch of DDP. It has not been coordinated with the
IAC agencies.
DOCUMENT NO.
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Political
2. Castillo Armas enjoys virtually dictatorial powers in
Guatemala and political parties are banned. The Army still wields
ultimate power. Castillo has attempted to consolidate his control
of that force by promising it special benefits and assigning
trusted associates to key positions, and in January the army did
in fact support his suppression of an incipient coup. His govern-
ment obtained ''legitimization" in the election of.a constituent
assembly on 10 October 1954, and in November Castillo was sworn
before that body to.a presidential term to last until March 1960.
Although a new Constitution is presently being drafted, Castillo
is endeavoring to delay its promulgation for at least a year, and
to continue to rule by decree for as long as possible,
3. Despite his authority, Castillo has been unable to pro-
vide vigorous political leadership. Having come to power with
the support of elements varying broadly from extreme right to non-
Communist left, and trusting none of them, he has been pulled first
one way and then another by his advisors. Castillo's weakness and
indecision, together with continuing squabbles within his adminis-
tration among the pro-clerical conservatives, anti-clerical liberals,
and top army officers, have consistently impaired effective political
direction in Guatemala. In recent months, the coalition of anti-
Communist groups which support Castillo began to disintegrate.
Disillusionment with Castillo's arbitrary measures and unpredictable
attitudes, aggravated by unsatisfactory economic conditions, stimu-
lated public demands for a return to constitutional democracy. A
Communist underground has resumed a limited circulation of propa-
ganda; four top Communists under the Arbenz regime are still at
large, possibly still in Guatemala. Since last November rumors
have circulated of impending plots against the regime by dissident
non-Communist elements and also by Communist exiles in Mexico and
El Salvador.
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lt. On 20 January, facing the first major challenge to its
power since the 2-3 August rebellion, the Castillo government
decisively put down an incipient coup organized by leftist dissi-
dent elements, including some former army officers who had served
the Arbenz administration. Although the coup centered in a
military cliques civilian elements were involved in the conspiracy,
and some 500 allegedly implicated individuals were jailed or
banished. A state of siege was immediately proclaimed,
5. By mid-February, tensions on the political scene had
somewhat relaxed, and the immediate effects of the 20 January
affair have tended to be favorable to Castillo. At least for the
short term, greater popular respect for the regime was inspired
by the fact that key Army officers remained loyal, and apprehen-
sion of further plots was reduced. Castillo's steps to improve
his administration, particular) ? the reorganization of his
cabinet and secretariat, further encouraged popular support. In
addition, Vice-President Nixon's recent visit helped to bolster
the regime.
6. However, events since 20 January suggest that Castillo
has yielded at least temporarily to his advisors of the extreme
right. Many of the 500 imprisoned or banished were critics of
the regime, who apparently had little or nothing to do with the
plot. In recent days, the government has moved to substantially
restrict trade union organization in Guatemala, including pro-
scription of union activity among farm workers, and to restrain
"irresponsible" elements of the free press. If persisted in,
such actions to undo the popular reforms of recent years will
cost Castillo a sizeable element of his loft-of-center supporters
and will aggravate political tensions, particularly if economic
conditions should fail to improve.
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7. Agriculture is Guatemala's most important economic acbi-
vity. It employs more than 75 percent of the labor force, and
accounts for almost half of the gross national., product. As a whole,
agricultural. products comprise nearly 90 percent of the value of
Guatemala's exports, but coffee alone accounts for about 80 percent.
The gross national product in 1953 (at 1950 prices) was Q,>526 million,
or about 1170 per capita. This per capita figure is slightly
higher than that for any neighboring country. Although the na-
tional treasury was looted by the Arbenz regime, national reserves
currently stand at about ~42.5 million and the quetzal is being
maintained as a hard currency,
8. Since taking power, the Castillo government has been
faced with a consistently difficult economic situat _on. Economic
activity has recovered from its mid-19511. low to about the level
of a year ago. However, business conditions are still depressed,
business leaders still lack confidence in the government, and
recovery has fallen substantially short of public expectation.
It is esti ated that as much as ~a50 million of private Guatemalan
capital remains outside the country. Unemployment remains sub-
stantially higher than under the Arbenz government, and there
is strong popular dissatisfaction over advances in the cost of
liv_i.ng,
9,. Although government expenditures have recently been
in virtual balance with revenues, the government can provide no
funds for new public investment. Moreover, coffee exports are
moving slowly because coffee growers are unwilling to sell at the
prices currently offered. By mid-February Guate,-iiala had exported
approximately one-third of its current crop as compared with t.5
percent a year ago. On the most optimistic estimate, foreign
exchange earnings for the present crop year will reach only some
62 million, as against 79 million last year, in view of the
lower prices in the New fork market, which are now some 30 percent
below their postwar peak. Siriilarly, the slow movement of coffee
-1t-
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to market is reducing the government's expected tax revenues
and may force the government into either do .'icit financing or a
politically dangerous retrenchment of expenditures,
10, On the other hand, the 56.4 million US economic aid
program announced last October is now underway, Guatemala has
applied for a 5 million Export-Import Bank line of credit.
The new agreement with the United Fruit Company, if fully carried
out, will raise the governs lent I s incoiiie by about IP1.5 to v3
million annually, Such developments will help somewhat in easing
Guatemala's economic difficulties.
11, Although Guatemalan laws are now favorable to local in-
vestment of new foreign capital, such investment has not taken
place in any appreciable degree. There is some prospect of
expanded investment on the part of United Fruit and Empresa Llec-
trica (American and Foreign Power Corporation) and also new invest-
ment on the part of oil interests if a satisfactory Petroleum Law
(now under consideration) is enacted. However, such benefits
would accrue only over the longer term.
Prospects
12, Political tensions are likely to remain high in Guate-
mala and the administrat:_on is likely to continue to suffer from
Castillo's inexperience, vacillation, dearth of competent subordi-
nates, and reluctance to accept advice from qualified sources,
However, we be:~..eve that Castillo will be able to retain office
for the foreseeable future, because of his control of the armed
forces through key o'ficers, the inflow of US economic aid, and
the demonstrations of US confidence in the rog _~.me which are impli-
cit in the aid program.
13. The principal threat to the stability of the regime is
general economic discontent. The factor o US grant and loan aid
will serve to abate such discontent, or at least to prevent it
from reaching explosive dimensions, provided that the Guatemalan
coffee crop moves in time and at satisfactory prices. Should the
crop fa::.l so to move, the Castillo government woua.d almost cer-
tainly need prompt additional. external assistance in order to
preserve its position.
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14. The Guatemalan Communist underground almost certainly
will continue to be active. Continuation of a rightist trend
in government policy, particularly of actions to inhibit trade
union organization, would aggravate political. tc:risions and it
probably would give some encouragement to Communist recruitment
activities. However, the Party has no supporters in key govern-
ment positions. It is not likely to increase substantially or
become a threat to the stability of the regime in the short
terra.
SHr'ft l\N KENT
Assistant Director
National. st:i.mates
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