The Situation and Prospects in Guatemala

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00904A000200020009-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 9, 2016
• Document Release Date: September 24, 1998
• Sequence Number: 9
• Publication Date: February 22, 1955
• Content Type: MF

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CENTRAL INTELLIGENCE AGENCY
22 February 1955
ORANDUM FOR THE. DIRECTOR OF CENTRAL INTELLICENCE
SUBJECTS The Situation and Prospects in Guatemala
L, Since Castillo Armas? assumption of the presidency on
1 September 19, the situation in Guatemala has generally been char-
acterized 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 popular confidence
in the new administration. This adverse movement of opinion has been
abetted by Casti.l.loQe inability to obtain implementation of a sub-
utantial US 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 sta-
bility of the government is about to improve at least temporarily,
unless Guatemala?s income from coffee exports decreases seriously.
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Political
2. Castillo Armas enjoys virtually dictatorial powers in
Guatemala and political parties are banned. Although the army still
wields ultimate power, Castillo has fairly securely consolidated
his control of that force by promising it special benefits and assigning
trusted associates to key positions. His government obtained I'legia
timization" 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 Consti-
tution is presently being drafted, Castillo apparently hopes to
delay its promulgation for at least a year, and to continue to rule
by decree for as long as possible,
3o Despite his authority, Castillo has been unable to pro.
vide vi orous
g political leadership. Having come to power with the
support of elements varying broadly from extreme rig
ht to non-Communist
left, he has been pulled first one way and then another by his
advisors. Castillo"s weakness and indecision, together with con.
tinuing squabbles within his administration among the pro-clerical
conservatives, anticlerical liberals and top army officers, have
consistently imp**d effective political direction in Guatemala. In
recent months, the coalition of anticommunist groups which support
Castillo began to disintegrate. Pisiil.usionment with Castillo?s
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arbitrary measures and uncertain attitudes, aggravated by unsatis-
factory economic conditions, stimulated public demands for a return
to constitutional democracy and the forming of "civic organizations"
of definite political orientation, A Communist underground re-appeared,
despite the reorganization last December of The Committee for National
Defense against Communism, and began a limited circulation of propa-
ganda, Since last November rumors circulated of impending plots against
the regime by dissident non-Communist elements and also by Communist
exiles in Mexico and El Salvador.
4Q On 20 January, facing the first major challenge to its
power since the 2-3 August rebellion? the government decisively
put dawn an incipient coup organized by leftist dissident elements,
including some former army officers who had served the Arbenz adminis-
tration. Though centering in a military clique, civilian elements
were involved in the conspiracy, and some 500 allegedly implicated
individuals were jailed or banished. A state of siege was immediately
proclaimed, which remains in effect,
So. By mid-February, tensions on the political scene had some-
what 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
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key Army officers remained loyal, and apprehension of counter-govern-
ment plots was reduced, Castillo?s steps following the abortive
coup to improve his administration, particularly the reorganization
of his cabinet and secretariat, further encouraged popular support.
In addition, Vice.President Nixon's recent visit served to bolster
the regime,
6A However, events since 20 January suggest that Castillo
has yielded at least temporarily to his rightist advisors. Among
the 500 imprisoned~or banished were a large number of the regime?s
critics who could have had little or nothing to do with the plot,
In recent days, the government moved to substantially restrict trade
union organization in Guatemala, including proscription of union
activity among faxm 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
left-of-center supporters and will aggravate political tensions, par-
ticularly if economic conditions should fail to improve.
7. The Castillo government has been faced with a consistently
difficult economic situation. Economic activity has recovered from
its mid -1954 low to about the level of a year agog However, business
conditions are still depressed, business leaders still lack confidence
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in the government, and recovery has fallen substantially short
of public expectations. Unemployment apparently remains at almost
record levels-for the capital alone, the best guess In 1540,0000
unemployed, substantieliy higher than under the Arbenz governaent-
and there is strong popular dissatisfaction over advances in the
cost of living6
8; Although government expenditures have recently been
in virtual balance with revenues, the government can provide no funds
for new public investment. moreover, coffee exports, which account
for about 80 percent of the value of Guatemala's total, exports,
are moving slowly,, By mid-February Guatemala had exported approxi-
mately one-third of its current crop as compared with 45 percent
a year ago. On the most optimistic estimate, foreign exchange
earnings for the present crop year will reach only some $62 million,
a drop of more than 20 percent from last year, in view of the
lower prices in the Now York market. Similarly., the slow movement
of coffee to market is reducing the government's expected tax
revenues and may force the government into either deficit financing
or a politically dangerous retrenchment of expenditures.
90 On the other hand, the $6.4 million US economic aid
program announced last October is now underway, Guatemala has
applied for a $5 million Expsrt.Import Bank line of credit. The
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new agreement with the United Fruit Company will raise the govern-
ment's income by about $105 to $3 million annually. Such developments
will help somewhat in easing Ouatemalaes economic difficulties, barring
further adverse developments in coffee exports or prices,
10. Although Guatemalan laws are now favorable to local invest-
ment 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 S1.ectrica, and
also new investment on the part of oil interests when a satisfactory
Petroleum Law (now under consideration) is enacted. However., such
benefits would accrue only over the longer term.
Proms
11o Political tensions are likely to remain serious in Guate-
mala and administration is likely to continue to suffer from Cas-
tillo(s inexperience, vacillation, and dearth of competent subordi-
nates. However, w believe that Castillo will be able to retain
office for the foreseeable future, because of his control of the
armed forces through key officers, the inflow of US economic aid,
and the demonstrations of US confidence in the regime which are
implicit inthe aid program and the Nixon visit.
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l2o'he principal threat to the stability of the regime is
general economic discontent, The factor of US grant and loan aid
will serge to abate such discontent, or at least to prevent it fran
reaching explosive dissensions, provided that the Guateialan ooffee
crop moves at satisfactory prices, Should the crop fail to move
so, the Castillo government almost certainly would have to obtain
prompt additional external assistance in order to preserve its
position,
130 The Uuatemalan sui,st underground almost certainly
wild, continue to be active. Continuation of a rightist trend in
government policy, particularly of actiorA to inhibit trade union
organization)would aggravate political tensions and it probably would
give some encouragement to Casmnuniat recruitment activities o I3omover,
the Party appears to have no supporters in key government positions,
its strength is not likely to increase substantially at least over
the short.term,, and it presents no threat to the stability of the
regime,
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