PROBABLE DEVELOPMENTS IN GUATEMALA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A006100030011-1
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 23, 2016
• Document Release Date: July 1, 2013
• Sequence Number: 11
• Publication Date: July 26, 1955
• Content Type: NIE

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NIE 82-55
26 July 1955
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 82-55
(Supersedes NIE-84)
PROBABLE DEVELOPMENTS IN GUATEMALA
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 26 July 1955. Concurring were the Special Assistant, In-
telligence, Department of State; the Assistant Chief of Staff,
G-2, Department of the Army; the Director of Naval Intelli-
gence; the Director of Intelligence, USAF; and the Deputy
Director for Intelligence, The Joint Staff. The Atomic En-
ergy Commission Representative to the IAC, and the Assist-
ant to the Director, Federal Bureau of Investigation, ab-
stained, the subject being outside of their jurisdiction.
'
3
maw-
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*CENTRAL INTELLIGENCE AGENCY
DISSFMTNATION NOTICE
1. This estimate was disseminated by the Central Intelligence Agency. This copy
is for the information and use of the recipient indicated on the front cover and of per-
sons under his jurisdiction on a need to know basis. Additional essential dissemination
may be authorized by the following officials within their respective departments:
a. Special Assistant to the Secretary for Intelligence, for the Department of
State
b. Assistant Chief of Staff, G-2, for the Department of the Army
c. Director of Naval Intelligence, for the Department of the Navy
d. Director of Intelligence, USAF, for the Department of the Air Force
e. Deputy Director for Intelligence, Joint Staff, for the Joint Staff
f. Director of Intelligence, AEC, for the Atomic Energy Commission
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partment or Agency
2. This copy may be retained, or destroyed by burning in accordance with appli-
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3. When an estimate is disseminated overseas, the overseas recipients may retain
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quested of the forwarding agency to retain it in accordance with IAC-D-69/2, 22
June 1953.
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
DISTRIBUTION:
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PROBABLE DEVELOPMENTS IN GUATEMALA
THE PROBLEM
To estimate: the strengths and weaknesses of Guatemala; probable Guatemalan
policies and courses of action; and prospects for Guatemalan stability, with particu-
lar reference to the stability of the Castillo regime.
CONCLUSIONS
1. Many Guatemalans are passionately
attached to the democratic-nationalist
ideals of the 1944 revolution which over-
threw the Ubico dictatorship. However,
few understand the processes and respon-
sibilities of democracy. A keen sense of
nationalism, largely directed at foreign
investors, colors Guatemalan politics.
Responsible democratic government is
therefore difficult to achieve. (Paras.
12-13)
2. President Carlos CASTILLO Armas
still rules by decree pending the promul-
gation of a new constitution and the
election of a Congress. He has a sub-
stantial residue of personal popularity
throughout the country despite his in-
experience and frequent spells of inde-
cision. He has attempted to follow mod-
erate policies and has placed national in-
terests first. (Paras. 19, 23-25)
3. The most immediate of Castillo's prob-
lems stem from depressed coffee prices
and from the effect of drought conditions
1 This estimate supersedes NIE-84, "Probable De-
velopments in Guatemala," published 19 May
1953.
on corn, the staple diet of Guatemala.
Castillo's difficulties have been further
complicated by poor management, and by
the impatience of the articulate sector of
the electorate for a return to constitu-
tional government. The Church-State
issue has been revived during the draft-
ing of a constitution, and is likely to prove
a source of political dissension in the
coming months. (Paras. 21-22)
4. The remainder of 1955 and the first
few months of 1956 will be especially dif-
ficult for Castillo. The government's
ability to survive will probably be deter-
mined by the effectiveness of Castillo's
leadership, by the amount of US as-
sistance and support, and by the inter-
national coffee market situation. Much
will also depend upon Castillo's success in
creating a political organization which
will give his government adequate sup-
port. Favorable developments in these
areas would tend to assure the loyalty of
the armed forces. On balance, we believe
that if economic conditions do not fur-
ther deteriorate, Castillo will probably be
able to remain in power during this pe-
riod. (Paras. 41-43)
1
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SOWNWM- 2
5. The armed forces continue to be es-
sential to the survival of the regime.
Many of the regular elements of the army
probably remain somewhat dissatisfied,
but there is little likelihood of their initi-
ating an organized rising. In the un-
likely event that any of the more popular
exiled army leaders were to launch a re-
bellion, the bulk of the army would prob-
ably remain loyal to Castillo and would
be able to cope with the situation unless
Castillo's political position had seriously
deteriorated and the rebellion were con-
ducted on a substantial scale. If right-
ist extremists among the Liberation ele-
ments in the army were to attempt a
coup, it would probably be put down by
the integrated regular and Liberation
forces. Nevertheless, we? believe that
there will continue to be sporadic unsuc-
cessful attempts against the government.
(Paras. 27, 29-30)
6. Communist and Arbencista subversive
activity ? both domestic and foreign ?
has not been a serious threat to the Cas-
tillo government. We believe that the
Communist and Arbencista threat at
least in the short term will remain of rel-
atively little importance. The Commu-
nists and other discontented elements
will seek to harass the Castillo govern-
ment, and may be able to place their men
in a few minor government and labor
union posts, and in educational institu-
tions. However, under either Castillo or
any likely successor government, we be-
lieve that the Communists will not suc-
ceed in securing positions prerequisite to
a climb to power. (Paras. 31, 34)
7. We believe that if Castillo survives his
immediate economic and political diffi-
culties, with continued US support he will
have a better than even chance of govern-
ing for the next few years. He will prob-
ably continue to adhere to a moderate
course, and may be able to establish the
basis for responsible constitutional gov-
ernment. (Paras. 63-64)
8. If the Castillo government should be
overthrown, Guatemala would probably
experience a protracted period of politi-
cal instability. Rightest elements are
more likely to be able to achieve this over-
throw than any other group. (Para. 65)
DISCUSSION
I. INTRODUCTION
9. The land and the people. Guatemala is a
predominantly agricultural country about
equal in area to the state of Tennessee, with
a population currently estimated at roughly
3,200,000. Most of the population is con-
centrated in the temperate highlands. The
little-developed tropical land of the Pacific
coast is sparsely peopled, and the northern
half of the country ? the densely forested
Peten ? is virtually uninhabited. About 70
percent of the Guatemalans are illiterate,
the bulk of them Indians who constitute over
half the population and who have relatively
little contact with the money economy. Al-
most 70 percent of the people reside in rural
areas and over 75 percent of the labor force
are agricultural workers.
10. The country displays most of the standard
characteristics of underdevelopment: a low
level of per capita production; inadequate
transportation, power generation, and provi-
sion for health and education; a shortage of
skilled labor and of transferable savings; and
an inefficient and cumbersome public admin-
istration. Moreover, Guatemala's financial
status depends to a great degree on revenue
derived from the export of a single commodity
? coffee. Efforts to diversify the economy
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have been hampered by the shortage of in-
vestment funds for the requisite expansion of
transportation and power facilities. In ad-
dition, the domestic market is small, because
of low per capita production and high con-
centration of income. According to the coun-
try's 1950 census of agriculture, three-tenths
of one percent of the landholders held over 50
percent of the total agricultural area. These
are primarily the great coffee plantation
owners (finqueros), who frequently invest
their profits abroad rather than in the develop-
ment of the local economy. During the
Arevalo and Arbenz regimes the gap between
the very rich and the very poor was not nar-
rowed.
11. There are probably not over 200,000 Guate-
malans who are more than marginally po-
litically conscious. Of this group, the large
landholders have almost never taken a role in
the administration of the country other than
to exercise powerful pressures toward con-
servatism. Only in recent years has the
growing but still very small urban middle
class begun to acquire a voice in the deter-
mination of affairs. As a result, the profes-
sional class retains a disproportionate influ-
ence in the operation of the government.
12. Many Guatemalans are passionately at-
tached to the democratic-nationalist ideals
of the 1944 revolution which overthrew the
Ubico dictatorship. However, few understand
the processes and responsibilities of democ-
racy. Guatemalan politicians are disposed
to indulge in intrigue against the government
in power rather than to rely upon normal
democratic processes to achieve their objec-
tives. Hence there is an atmosphere of polit-
ical unreality, characterized by individual
manipulation and suspicion. At present
many Guatemalans appear to be primarily
concerned with preventing dictatorship of the
right or of the left. A keen sense of nation-
alism, at times verging upon the irrational,
colors Guatemalan politics. There is a strong
tendency to attribute Guatemala's backward-
ness to foreign investors, especially those from
the US. Even the most pro-US elements in
the area are not immune to this type of ex-
treme nationalism.
3
13. Responsible democratic government is
therefore difficult to achieve. The country's
most capable propertied citizens tradition-
ally are unwilling to put themselves in jeop-
ardy by participating in an administration
which might fall overnight. Many of the
Guatemalans formerly associated with the
Arbenz regime and hence experienced in gov-
ernment are no longer available. Thus, the
present government must rely in large part on
youths with little background or aptitude for
administration, or on men who served under
Ubico. Furthermore, the absence of agreed
political party programs and even of agree-
ment on objectives greatly hampers efficient
government.
14. Carlos CASTILLO Armas must reckon
with the heritage of the revolution of 1944
and with the social and economic programs
initiated by the Arevalo and Arbenz regimes.
Although these regimes failed to establish a
tradition of sound government or to improve,
notably, the material well-being of large seg-
ments of the population, they nevertheless
effectively popularized many of the tenets of
the 1944 revolution. Castillo recognizes the
political reality of the revolution and has
accepted, in principle, most of the major re-
forms advocated by his predecessors. He has
committed himself to the restoration of dem-
ocratic forms and practices, to land reform, to
the development of a modern economy, and
to the protection of a free labor movement
and other social gains. He is also guided by
nationalism, among the more dramatic sym-
bols of which are the Atlantic Highway and
a new Caribbean port, both of which were
initiated to break the monopoly of foreign
enterprise.
15. During the Arbenz regime, the social and
economic needs of labor and the peasantry
were articulated and exploited by the small
Communist leadership. Having infiltrated
key administrative positions the Communists
were able to promote measures which ap-
peared to meet some of the aspirations of these
groups. The Communists made considerable
progress in the organization of urban and
rural unions and were a prime influence in
inducing the government to expropriate large
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tIVIMMOSN5 4
tracts of land for distribution among the land-
less. Agrarian reform affected at least 35,000
peasant families.
16. Events of the past year. The Arbenz
regime collapsed in June 1954. After ten days
of indecisive fighting between government
forces and Castillo's small irregular "Army of
Liberation," top army leaders turned against
the regime. Although army leaders generally
supported Arbenz because of the many bene-
fits received from him, they became in-
creasingly concerned at his tolerance of Com-
munists in the government. As a conse-
quence, the army's loyalty to Arbenz was
weakened. Lacking the will to fight and real-
izing that Castillo would succeed, top army
leaders forced Arbenz to resign. They formed
a Junta, headed by Colonel Elfego MONZON
Aguirre, which effected a cease-fire with the
Liberation forces.
17. The present government evolved from an
agreement reached on 2 July at San Salvador
between Castillo and Colonel Monzon. This
agreement was brought about after mediation
by El Salvador and the US. The principal
provisions of the agreement were to unite the
national army and the armed forces of the
Liberation, and to reorganize the Junta.
Soon afterward the Junta was reduced to
three men ? Castillo, Col. Monzon, and Major
Enrique OLIVA Quintana, an adherent of
Castillo's. Castillo was named its president.
One of the first steps of the Junta was an at-
tempt to rid the country of Arbenz supporters.
It immediately decreed the abolition of polit-
ical parties. It established a "Committee of
National Defense against Communism"
(CDNCC) late in July. In the meantime
most of the key Communist leaders had fled.
The Junta also initiated an extensive investi-
gation and punitive shake-up of the Com-
munist-controlled labor movement, and issued
an "agrarian statute" pending formulation
of a new Agrarian Reform Law. In the reor-
ganization of the armed forces, officers be-
lieved to be loyal to Castillo were given most of
the high posts.
18. Shortly after these initial steps, dissen-
sion between the regular army and the Libera-
tion forces broke out on 2-3 August following
an attack by the military academy cadets on
Liberation forces in the capital. A large pro-
portion of one regiment, led by disgruntled
regular officers, supported the cadets. This
action, which nearly resulted in a coup, was
ended by the Junta's show of strength, in
which the loyalty of Monzon and of the air
force were decisive factors. After several
weeks of declining public confidence in the
regime, Monzon and Oliva voluntarily resigned
to give sole power to Castillo as Provisional
President of the Republic.
19. Elections were held in October, resulting
in popular confirmation of Castillo and the
seating of 60 official "National Anti-Com-
munist Front" (FAN) candidates in the 66-
seat Constituent Assembly. On 6 November
Castillo was inaugurated for a term lasting
until March 1960. He thus exchanged his de
facto status for that of duly designated chief
of state. Castillo continues to govern by de-
cree on the basis of the "Political Statute"
issued by the Junta in August 1954. The As-
sembly has virtually no legislative powers,
and its primary function has been to draft a
new constitution to replace that which was
voided by the revolution.
20. Strife between regular and Liberation
army officers again erupted in January 1955
when the government announced discovery of
a "pseudo-Communist plot" involving dis-
sident regular army officers. The govern-
ment took strong and summary action to sup-
press the alleged plot. Six officers and men
were summarily executed, several leading reg-
ular officers including Col. Monzon were
banished, and additional Liberation officers
were appointed to key military positions. In
taking these actions, Castillo temporarily ac-
ceded to the persistent pressure of the Libera-
tiOn elements for a through clean-up of po-
tential dissidents. The January action was
followed by two months of relative political
tranquility, but subsequently the recurrence
of rumors of plots and counterplots suggested
growing dissatisfaction with the government.
21. The most immediate of Castillo's diffi-
culties since last January have been economic.
The problems of depressed business levels, un-
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employment, and financial stringency inherit-
ed from the Arbenz regime had not been
surmounted when the price of coffee fell
sharply in mid-February 1955. The fin queros
slowed down delivery of their coffee crops,
which resulted in a continued lag in the col-
lection of government revenue and a withhold-
ing of some millions of dollars from the econ-
omy. An equally important source of discon-
tent has been the delay in the advent of the
rainy season and in particular its destructive
effect on corn, the staple diet of Guatemala.
Some farmers have lost as many as three
plantings, and there are indications that the
corn shortage may extend into 1956. The US
is providing 30,000 tons of corn and a small
amount has been imported from Mexico.
However, increased imports of corn are likely
to be required during the remainder of the
year.
22. Castillo's difficulties have been further
complicated by poor management, and by the
impatience of the articulate sector of the
electorate for a return to constitutional gov-
ernment. The committee drafting the consti-
tution has submitted the document to the
Constituent Assembly. The committee's task
has been made particularly difficult by the
interjection of the religious issue. The Cath-
olic Church ? disestablished since 1871 ?
has sought to: (a) recover the right to own
property; (b) re-establish monastic orders;
(c) become active in the labor field; (d) open
the public schools to religious education; and
(e) win constitutional recognition of its "pre-
eminence." After extensive acrimonious de-
bate and political maneuvers, all but the last
of these major demands of the Archbishop
have been incorporated into the draft con-
stitution. However, the religious issue is far
from closed, and it is likely to prove a source of
political dissension in the coming months.
II. POLITICAL DEVELOPMENTS
Position of the Castillo Regime
23. The ability of the present government to
remain in power in the face of these diffi-
culties probably results largely from: (a) US
interest and support; (b) the substantial res-
idue of personal popularity possessed by Cas-
5
tillo; and (c) the continued support of the
armed forces. Most politically conscious
Guatemalans believe that the US planned and
underwrote the 1954 revolution, and there-
fore has a continuing responsibility for the
success or failure of the present government.
Castillo might have been deposed on any one
of several occasions had his prospective op-
ponents believed that the US would not give
him prompt support. Thus, most criticism
of the policies and performance of his govern-
ment has been directed at his advisors and at
the US rather than at Castillo himself.
24. One of Castillo's outstanding assets in the
eyes of his countrymen is his sincere patriot-
ism. Combined with that quality are modesty,
informality, and accessibility. Castillo's mod-
eration in employing the sweeping powers en-
trusted to him has reassured Guatemalans
that he would not become a dictator. How-
ever, Castillo is inexperienced in government
and lacks the intellectual qualities to over-
come this deficiency with ease. Castillo often
listens uncritically to anyone offering facile
solutions to administrative problems. In deal-
ing with his colleagues and subordinates his
conspiratorial background has of ten caused
him to vacillate between intense suspicion and
unreasoning trust. He also suffers from fre-
quent spells of nervousness and indecision.
25. Castillo has attempted to follow a middle-
of-the-road course and to place national in-
terests ahead of the interests of specific
groups. He has identified himself with the
more moderate aspects of the revolution of
1944 and with the struggle against Commu-
nism, corruption, and political oppression.
However, the moderate political elements
which support him have not been organized,
and the individuals who immediately sur-
round him in advisory positions are, for the
most part, conservatively oriented. The ma-
jority of his Liberation army supporters advo-
cate stronger and more extreme rightist pol-
icies, and the elimination from office of those
who served the previous regime. On the other
hand, some of his Liberation colleagues and
many of the regular army officers advocate
the more liberal principles of the revolution
of 1944. Both groups, however, are divided
trainamik;
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internally by personal ambitions and con-
flicting views. The Church-State issue fur-
ther complicates the problem of formulating
policies which could secure majority support.
Castillo's government contains fervent anti-
clericals as well as advocates of the Church,
many of them far more intransigent than the
relatively moderate Archbishop.
26. Lacking organized political support, Cas-
tillo has been unable fully to implement his
program. The coalition of "Anti-Communist"
groups (FAN) formed for the elections disinte-
grated shortly thereafter under the stress of
conflicting aims and motives. Moreover, there
has been little administrative talent to draw
upon. Personnel appointed to administrative
positions have been either inexperienced in
government administration, interested pri-
marily in jockeying for position in the present
scramble to form political parties, or merely
out to line their own pockets. Policy accord-
ingly has vacillated, and its execution has been
slow and indecisive.
The Role of the Armed Forces
27. The army, which also commands the air
force, continues to be essential to the survival
of any Guatemalan regime. Addition of
the Liberation elements has brought army
strength to about 8,000 men. The air force
consists of approximately 350 men and 44 air-
craft of all types, of which the most impor-
tant element is six F-51's obtained from the
US. The National Police Force of 3,900 men
is staffed by army officers. As long as the
armed forces remain united and loyal, they
are capable of maintaining internal security
and of repelling attack from any of Guate-
mala's Central American neighbors.
28. The army traditionally is interested pri-
marily in the defense and expansion of its pre-
rogatives. Satisfaction of the army has usual-
ly been given top political priority by any Gua-
temalan regime. Castillo, however, has had
the additional problem of restraining the ri-
valry between regular officers who served the
previous regime and those of the Liberation.
Resisting his Liberation supporters' demands
for a complete purge, Castillo has moved cau-
6
tiously but steadily toward putting his trusted
adherents in key positions. Colonel J. Ernesto
NIEDERHEITMANN, an important Liberation
commander, is now army chief of staff, and the
only remaining highly placed holdover from
the Arbenz regime is Colonel Enrique CLOSE
de Leon, the defense minister. Castillo is un-
der pressure to replace the latter, but he is
probably deterred both by Close's considerable
prestige and following in the army, and by
a desire to offset overwhelming Liberation
influence.
29. Many of the regular elements of the army
probably remain somewhat dissatisfied with
their position under Castillo. However, since
their leaders have largely been replaced by
prominent Liberation figures, there is little
likelihood of disgruntled regulars initiating an
organized rising against the present regime.
In the unlikely event that any of the more
popular exiled army leaders were to launch
a rebellion, a small portion of the army would
probably try to join and some would wait on
the sidelines. However, the bulk of the army
would probably remain loyal to Castillo and
would be able to cope with the situation unless
Castillo's political position had seriously de-
teriorated and the rebellion were conducted
on a substantial scale. If rightist extremists
among the Liberation elements in the army
were to attempt a coup, it would probably be
put down by the integrated regular and Lib-
eration forces.
30. Castillo probably will continue to
strengthen his position by placing his trusted
supporters in key army positions and by
making further efforts to satisfy the army's
material demands. His position vis-a-vis the
armed forces will be further strengthened by
the recently signed Mutual Defense Assistance
Pact with the US. Nevertheless, we believe
that there will continue to be sporadic unsuc-
cessful attempts against the government.
The Potential Opposition ?
31. The Communist threat. Communist and
Arbencista subversive activity ? both do-
mestic and foreign ? has not been a serious
threat to the political stability of the
egalerftglre'
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SECRET
Castillo government. There were almost
certainly no more than 4,000, and perhaps
substantially fewer, Communists in Guatema-
la at the height of Arbenz's power. The most
prominent figures of the former regime are
no longer in Guatemala, but probably about
half the Communists, and a much larger
number of Arbenz sympathizers are still in
the country. Communist subversive activity
since July 1954 has been largely confined to
the circulation of sporadically produced mim-
eographed propaganda, and some broadcasts
over clandestine radio stations may have been
Communist-inspired. However, the organiza-
tion, Frente de Recuperacion Nacional, may
serve as cover for the remnants of the Com-
munist Party, reconstituted as an under-
ground movement.
32. Communists and Arbencistas in exile do
not constitute an immediate' threat to the
Guatemalan government. The exiles are pres-
ently resident in several Latin American
countries, with the largest concentrations in
Mexico, Argentina, Brazil, El Salvador, and
Ecuador. Potentially the most dangerous
group, which includes the majority of the key
figures in the former regime, is in Mexico.
These exiles have received assistance from
Mexican Communist and pro-Communist
groups and probably have attempted to form
a political organization. However, this activ-
ity apparently is impeded by divisions between
Communists and Arbencistas and by splits
within each of these groups. The exiles in El
Salvador are fewer in number, but are poten-
tially important by reason of their proximity
to Guatemala.
33. The government has given the principal
responsibility for investigating Communists to
an agency known as the Committee of Nation-
al Defense against Communism (CDNCC) .
The CDNCC, which has the power to arrest,
has often proven incompetent, overzealous,
and arbitrary and has aroused public disap-
proval and even ridicule. There are strong
pressures for its dissolution. In response to
these and other pressures, Castillo probably
will soon reorganize the government security
system.
7
34. We believe that the Communist and
Arbencista threat at least in the short term
will remain of relatively little importance. De-
spite the administration's scrutiny, the Com-
munists may be able to place their men in a
few minor government and labor union posts,
and in educational institutions. There are
many restless and discontented Guatemalan
groups which might become vulnerable targets
in a deteriorating economic and political en-
vironment. These include unemployed work-
ers, peasants threatened with eviction from
their lands, disillusioned student and intel-
lectual elements, and discharged government
employees. The Communists and other dis-
contented elements will seek to harass the
Castillo government. However, under either
Castillo or any likely successor government,
we believe the Communists will not succeed in
securing positions prerequisite to a climb to
power.
35. Labor and rural groups. Guatemalan
labor was the class most adversely affected by
the overthrow of Arbenz. The organization
of the labor movement was virtually destroyed
after the revolution. After being favored for
a decade, the workers are now often the object
of official suspicion, and are waging an uphill
battle to reconstitute their trade unions.
Moreover, depressed business conditions since
the revolution, as well as efforts by employers
to negate the benefits granted to labor by the
previous regime, have increased unemploy-
ment and intensified labor's feelings of in-
security and resentment. Although Castillo
made some promises to labor, he has been
unable to redeem them fully because of eco-
nomic difficulties and conservative opposition.
The result has been a decline in Castillo's
popularity and an increase in restlessness
among those groups.
36. In recent months the government has
shown greater interest in safeguarding trade
union liberties. By mid-1955 twenty-six
trade unions, including the half dozen most
important ones, had already been legally es-
tablished and others were awaiting approval.
More forceful attempts are being made to
implement the Labor Code, and the Labor
Courts, which immediately after the revolu-
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SECRET
tion had dealt harshly with workers' claims,
are now ruling more favorably to labor. On
balance, labor leaders appear to feel, that de-
spite antilabor sentiment in certain politically
influential circles, Castillo offers the best pres-
ent hope for the reconstitution of a free
labor movement.
37. In the eyes of labor the test of Castillo's
sincerity in labor matters will lie in his will-
ingness to permit the establishment of a
strong central labor organization free of polit-
ical control. To date, two central organiza-
tions have been established in embryonic form.
The Federacion Autonoma Sindical (FAS) ,
which represents the bid of the Catholic
Church for labor support, has so far failed
to attract an important segment of labor
because of anticlerical sentiment among
workers and the political ties of its leader
with the Administration. The Consejo
Sindical de Guatemala (CSG) represents
a small group of relatively well established
trade unions which are moderate in outlook
and have a promising leadership. If Castillo
accedes to the CSG's request for legal recogni-
tion free of political control, he will probably
win labor's support at least for the near fu-
ture. We believe there is a better than even
chance that Castillo will attempt to comply
with the CSG's wishes.
38. Rural groups are having even more dif-
ficulty in obtaining favorable government
action. The Arbenz regime resettled rural
workers on government lands as well as on
those it acquired through expropriation. It
also fostered the organization of plantation
workers. Although many of the benefits
given the peasants were illusory, and peasant
organizations were mainly used by the Com-
munists for political purposes, the Arbenz
regime's action responded to genuine rural
demand and need for land reform. Castillo is
under strong pressure from the landholders
to restore expropriated properties and to con-
tinue to deny rural workers the right to organ-
ize. In most cases he has postponed the re-
turn of land to original owners. He is develop-
ing a plan which envisages the resettlement
of 5,000 peasant families annually on public
lands in the Pacific Coast region. With US
8
technical and financial help, this project over
the long run is likely to prove of substantial
assistance in quieting rural discontent. In
fact, the government probably will have more
to fear over at least the short term from the
conservative critics of agrarian reform than
from the disorganized and virtually leader-
less rural population. On the other hand,
the possibility of sporadic violence among
plantation workers cannot be excluded in the
event of critically worsened economic condi-
tions against which the government fails to
take prompt remedial action.
39. The threat from the Right. The extreme
rightists among Castillo's supporters, together
with influential conservative civilian elements
throughout the country, probably constitute
the chief potential source of opposition to the
government. Most of these conservative fac-
tions strongly criticize Castillo for his "soft"
policy toward both civilian and military office-
holders of the previous regime, for his moder-
ate policies toward labor and agrarian prob-
lems, and generally for his refusal to turn
back the clock to 1943. However, Castillo so
far has kept rightist discontent within bounds.
There is no indication that the diverse rightist
elements are preparing any concerted attack
on the government. A rightist coup would be
highly unlikely so long as Castillo retains US
support and that of the Guatemalan armed
forces, and can secure public confidence by
making some progress toward solving Guate-
mala's economic problems.
40. The personalities around which conserva-
tive opposition might crystallize are few.
Juan CORDOVA Cerna, former head of the
National Council for Economic Planning and
the foremost civilian participant in the Libera-
tion, has intermittently clashed with Castillo.
Staunchly conservative and highly ambitious,
Cordova has persistently been cited as Cas-
tillo's greatest rival. However, Cordova's
power appears to have been neutralized.
Shortly after the revolution the return to
Guatemala of General Miguel YDIGORAS
Fuentes, a former presidential aspirant, posed
another problem. Castillo at least temporar-
ily has resolved this problem by assigning
Ydigoras to the post of Minister to Colombia.
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Finally, Chief of Staff Col. Niederheitmann,
although currently a close associate of Cas-
tillo, is the type of conservative military
"strong man" around whom disaffected right-
ist elements might naturally rally.
Short-Term Political Prospects (Through
Early 1956)
41. The remaining months of this year and
those of early 1956 will be especially difficult
for Castillo Armas. The draft constitution
has been submitted to the Constituent As-
sembly for approval by fall. If it is adopted,
the Constituent Assembly is to schedule elec-
tions for a new Congress, probably for some
time in the winter of 1955-1956. Meanwhile,
in preparation for a resumption of normal
political activities, the formation of political
parties has begun. In addition, the govern-
ment will have to cope with budgetary and
other economic difficulties created by de-
pressed coffee prices and by the inadequate
rainfall. The ability of the present govern-
ment to survive will probably be determined by
the effectiveness with which Castillo deals with
these problems, by the amount of US assist-
ance, and by the international coffee market
situation.
42. Much will also depend upon Castillo's suc-
cess in creating a political organization which
will give his government adequate support.
Such an undertaking is rendered difficult by
the widely conflicting views and interests of
even his staunchest adherents. Nevertheless,
the process is underway. The administra-
tion has launched an "official" political party
named the National Democratic Movement
(MDN) . The MDN's middle-of-the-road pol-
icy statement is signed by 144 individuals rep-
resenting all shades of non-Communist polit-
ical beliefs. The government's strongest
supporting organization to date, the Commit-
tee of Anti-Communist University Students
(CEUA) , has dissolved itself and has joined
the MDN. The old Liberal Party, reconsti-
tuted as the National Democratic Association
(ANDE) , has decided not to join the new
party. The hybrid character of the MDN is al-
ready the target of considerable criticism, and
it is improbable that such diverse elements
can be held together within a single party.
If the MDN splinters or does not attain a
dominant position, Castillo probably will have
to attempt to form a coalition of parties will-
ing to support his government. In either case
Castillo will have difficulties in securing sus-
tained and consistent legislative and political
support for his moderate policies.
43. To maintain control and to carry out an
effective program in the period ahead will re-
quire a substantial degree of skill on Castillo's
part. Castillo has shown some talent in the
past for playing off the extremes against each
other. On balance, we believe that if eco-
nomic conditions do not further deteriorate,
Castillo will probably be able to retain office
both during and immediately after the period
of reconstructing constitutional government.
III. ECONOMIC DEVEOPMENTS
44. Characteristics of the economy. The econ-
omy of Guatemala is based primarily on the
production and export of coffee. Coffee pro-
duction amounts to over 1.2 million quintals2
annually, with most of it going into the export
trade. Government-owned lands ? largely
expropriated from the Germans during World
War II? accounted for about one-third of
that production at the time of their nationali-
zation. Coffee accounted for 79 percent of
total exports, which were valued at about $96
million3 in 1954. It is the most important
single source of Guatemala's revenues; in re-
cent years 'coffee export taxes have constitu-
ted around 20 percent of all government rev-
enues. Moreover, since the major direct tax
is on business profits, and since domestic pros-
perity depends mainly on the coffee trade, a
drop in world coffee prices has a multiple de-
teriorating effect on government revenue.
45. Bananas, the only other major export
crop, have averaged roughly 10 percent of the
value of exports over the past several years.
Chicle, lumber, and essential oils are the re-
maining exports of any significance. How-
One quintal = 100 Spanish lbs. = 101.4 English
lbs.
'The Guatemalan quetzal is freely convertible
and has been at par with the US dollar since
1924.
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ever, Guatemala produces a good grade of
long-staple cotton, and increasing production
may result in a surplus for export this year.
There are indications of commercially exploit-
able oil deposits in the northeastern part of
the country, and the Castillo government has
prepared a Petroleum Law which it hopes will
attract foreign investment while appeasing
nationalistic fears of foreign exploitation. In-
dustry in Guatemala is confined largely to the
processing of agricultural products and the
manufacture of simple consumer goods and
building materials. Even such industry de-
pends heavily on imported capital goods,
equipment, and raw materials. Power facili-
ties barely meet present requirements.
46. In 1954, Guatemala's GNP is estimated to
have been approximately $650 million. While
GNP in real terms (constant prices) appears
to have been growing at about three percent
per year over the period 1950-1954, per capita
income changed very little owing to the rapid
rate of population growth, estimated at two
and a half percent a year. From year to year
Guatemala's GNP is subject to wide fluctua-
tions reflecting abrupt changes in the terms
of trade which, in turn, are governed largely
by the trend of coffee prices. Average saving
and investment are relatively low, as in virtu-
ally all underdeveloped countries, and are sub-
ject to the same short-term fluctuations as
the GNP.
47. The book value of direct US investments
in Guatemala was $107 million in 1953, almost
all represented by the branches and subsid-
iaries of three US corporations: the United
Fruit Company (UFCo); International Rail-
ways of Central America (IRCA) ; and Em-
presa Electrica, a subsidiary of American and
Foreign Power.
48. UFCo controls most of the production and
export of bananas in Guatemala. The com-
pany operates two divisions: the Atlantic,
with its main office at Bananera; and the Pa-
cific, with headquarters at Tiquisate. The
symbol of foreign exploitation in Guatemala,
UFCo was consistently attacked by the Arbenz
regime, which expropriated almost 420,000
unused acres of its total land holdings of about
560,000 acres. UFCo has achieved good rela-
10
tions with the Castillo government. In two
contracts UFCo regained about 245,000 acres
expropriated from its Pacific division, and
agreed to pay taxes on that division's net prof-
its up to a maximum of 30 percent. It also
ceded to the government without charge about
110,000 of those acres. A contract covering
the Atlantic division remains to be negotiated.
However, despite UFCo's improved relation-
ship with the government, and the company's
relatively high wage and living standards, it
faces a strong residue of hostility in Guate-
mala. Castillo may have to refrain from mak-
ing new agreements with UFCo for a time.
On the other hand, UFCo has stated its in-
tention of making large new investments in
Guatemala after settlement of the US anti-
trust suit now pending.
49. The US-owned IRCA operates virtually all
of Guatemala's roughly 700 miles of track. It
carries most of the country's freight and af-
fords the only means of access by land to the
major Caribbean port, Puerto Barrios. UFCo
has a 43 percent interest in the IRCA system,
which is linked with the fruit company's plan-
tations, and obtains an artifically low freight
rate for its bananas. At the same time, IRCA
subjects other freight to excessively high
charges. As a result, Guatemalans are strong-
ly critical of IRCA and are most anxious for
the completion of the Atlantic Highway which
will break the railroad's monopoly of land
traffic to the Caribbean.
50. Empresa Electrica provides roughly 75 per-
cent of Guatemala's power, and the govern-
ment controls the remainder. Over two-thirds
of the power is derived from hydro stations.
Resources are centered around the capital and
are only sufficient to provide for the cities and
the larger towns. Empresa Electrica proposes
to expand its generating capacity through the
investment of about $17 million over a ten-
year period. However, its plan has not yet
been approved by the government, which ob-
jects to certain features and considers the
company too conservative. Furthermore, in
indicating its displeasure with Empresa Elec-
trica, the government has intimated that it
might attempt to carry out a power expansion
program itself.
AMOIN.10$
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aiggiORIPT
51. Government economic policies. The eco-
nomic policies of the Arbenz regime probably
retarded economic growth and led to a sub-
stantial increase in the public debt. Moreover,
the Guatemalan economy weakened consider-
ably following the fall of Arbenz. Despite the
aid received from the US the economy has not
fully recovered, largely because of unfavor-
able weather and the drop in world coffee
prices. The government has followed con-
servative fiscal policies and will probably
achieve a balanced budget for FY 1956. How-
ever, budget revenues and expenditures for
FY 1956 are estimated at around $66 million
(excluding US aid) , compared with last year's
approximately $73 million (including the spe-
cial Liberation tax) and, more important, with
the roughly $75 million expended by the Ar-
benz government during its last year in office.
52. The government has made a number of
mistakes in its economic policy. The abrupt
halting of public works projects helped to swell
the unemployment figure to perhaps as high
as 30,000. The government has vacillated in
its attitude toward encouraging private ifi-
vestment, it has not instilled sufficient busi-
ness confidence to insure sustained expansion
of the private sector of the economy, and it has
failed to make funds available for large public
investment.
53. An extensive highway construction pro-
gram offers the Castillo regime an effective
means of coping with both its immediate and
long-range economic problems. With only a
few hundred miles of paved roads out of a
total of roughly 6,000 miles, the transporta-
tion net is wholly insufficient for the economic
needs and development of the country. Of the
$6,425,000 US aid for FY 1955 (excluding
emergency corn shipments) the bulk has been
devoted to the road-building program, with
Guatemala contributing about half as much
as the US. The main effort is on the Inter-
American Highway and on improving a high-
way, paralleling the Pacific coast, which tra-
verses the richest agricultural area in Guate-
mala. Work on the final quarter of the all-
weather Atlantic Highway to Santo Tomas
will begin as soon as funds can be made avail-
able. The Castillo administration has applied
11
to the IBRD for a $20 million loan to finance
local costs of highway construction, as well as
for various development projects requiring ag-
ricultural machinery and for industrial plants.
54. Economic prospects. The Castillo govern-
ment faces acute short-range economic prob-
lems. The most serious of these is the failure
of the corn crop. The ability of the Castillo
regime to meet this crisis will depend largely
on the promptness and adequacy of US assist-
ance. Serious dislocations in the rural econ-
omy not only would have a depressing effect
on the entire economy, but would increase
public dissatisfaction with the regime. An-
other serious problem is unemployment. How-
ever, we believe that the present level of un-
employment will not confront the Castillo re-
gime with insuperable difficulties during the
summer months. With the end of the rainy
season in late fall, unemployment probably
will be reduced by increased activity on the
highway projects and an expansion of the
public works program. If Castillo makes sub-
stantial progress with these problems, and
impresses political elements with the effec-
tiveness of his leadership, a rise in business
confidence and activity is likely to result.
55. Over the longer haul, substantial econom-
ic improvement will depend on an expan-
sion of capital investments, public and private,
including development of the Pacific coastal
area. The present volume of private invest-
ment cannot readily be assessed, and there is
no concrete evidence of any large-scale repa-
triation of capital. On the other hand, Guate-
mala's reserves of gold and foreign exchange
have been steadily rising and now stand at a
new record figure of about $57 million, possi-
bly indicating some repatriation of capital.
In 1953, when coffee prices were roughly equal
to the present levels, private investment was
estimated at about $39 million. Once the
public works program gets fully underway and
if coffee prices remain stable, business confi-
dence will probably improve sufficiently to in-
sure a level of domestic capital investment at
least equal to that of 1953. Moreover, assum-
ing that the IBRD loan is granted, that the
government consequently will not have to fi-
nance highway construction in FY 1956, and
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that the cost of government operations will
remain approximately constant, the Castillo
regime probably will be able to maintain pub-
lic investment next year at close to the 1953
0
rate of $29 million.
56. On the other hand, there will almost cer-
tainly be a gradual expansion of government
expenditures over the next several years as
land reform measures are adopted, expropria-
tion claims are settled, and public health, ed-
ucation, and other social services make great-
er claims on the treasury. In these circum-
stances, a considerable revision of the tax
structure will be required if government defi-
cits are to be avoided. The Castillo govern-
ment has drawn on US technical assistance
funds to employ American consultants to re-
vamp thoroughly both the tax laws and cus-
toms tariffs with a view toward increasing
government revenue. A program for Guae-
mala's first income tax is also being readied,
and there are indications that it will be ac-
cepted, though with resignation, even by the
professional class so long as the rates are kept
as moderate as is now envisaged.
57. Completion of the new Pacific highway
will probably result in development of the Pa-
cific coastal land and constitute one of the
most promising aspects of Guatemala's fu-
ture. Already expanding coffee production
probably will accelerate, even in a period of
low prices, if there are stable political condi-
tions, and if world demand remains at ap-
proximately present levels. There is also at
least an even chance that oil will be exploited
in profitable quantities, and that the Lake
Izabal area will yield increased exports of lum-
ber and wood products.
IV. INTERNATIONAL RELATIONS
58. The principal objectives of Guatemala's
foreign relations under Castillo are: (a) closer
ties with the US; (b) improved relations with
immediate neighbors; and (c) the end of the
country's isolation in hemispheric affairs.
59. The Castillo administration has been con-
sistently pro-US in its policies and attitudes,
seeking advice and assistance on many do-
mestic problems and cooperating closely on
12
international questions. In fact, Castillo may
have damaged his potential capacity for lead-
ership by excessive reliance on US advice and
aid. At the same time, Castillo and, to a
greater degree, his associates on occasion sus-
pect the motives of representatives of the US.
Nevertheless, Castillo's friendship for and re-
liance on the US is the most stable element in
Guatemala's foreign affairs.
60. Guatemala's relations with its neighbors
have greatly improved under Castillo, largely
because of the moderate character of his ad-
ministration and the cessation of Guatemalan
Communist propaganda activities in those
countries. At Castillo's request, Guatemala
was readmitted to the Organization of Central
American States (ODECA) and is to play host
at its scheduled summer meeting. Further-
more, Guatemala has completed, or is nego-
tiating, commercial treaties with Costa Rica,
Honduras, Nicaragua, and El Salvador. Po-
tential friction exists, however, between Gua-
temala and its neighbors because of ide-
ological and personality conflicts. Castillo
reportedly distrusts Osorio of El Salvador, al-
though to date their official relations have not
been unfriendly. His suspicious attitude to-
ward Figueres of Costa Rica is owing partly to
ideological differences and partly to the lat-
ter's noncommittal position during the 1954
Liberation. On the other hand, Castillo has
friendly ties with Somoza of Nicaragua and
PEREZ Jimenez of Venezuela. In any case,
because of his domestic problems, his ties with
the US, and his moderate nature, Castillo is
unlikely to meddle actively in Central Ameri-
can politics unless a clearly unfriendly gov-
ernment comes to power in a bordering state.
61. Mexican?Guatemalan relations were
strained in 1954 as a result of Mexico's position
as sanctuary for the majority of Guatemalan
Communist and Arbencista leaders. However,
Mexican authorities recently have imposed
close surveillance over the important Gua-
temalan exiles and have prohibited their po-
litical activities. The conclusion of a trade
agreement for importing Mexican corn, the in-
formal visit of ex-President Aleman to Castillo,
and the appointment of. a top-ranking Mexi-
vikalgiare*:
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?
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AS.M4fr 13
can ambassador to Guatemala have contrib-
uted to improved relations between the two
countries.
62. The Castillo government has also taken
steps to re-establish Guatemala's prestige in
hemispheric affairs by rejoining ODECA, ad-
hering to the Caracas Resolution, and deposit-
ing its ratification of the OAS Charter and the
Rio Treaty. On the other hand, the Castillo
administration has reaffirmed Guatemala's
traditional claim to British Honduras. Res-
ervations to this effect have been appended
to Guatemala's ratification of both the Rio
Treaty and the OAS Charter. Despite the
emotional strength of this issue, however, it is
unlikely to prove a source of serious friction
in the area during the foreseeable future.
V. PROSPECTS FOR STABILITY
IN GUATEMALA
63. We believe that if Castillo survives his
immediate economic and political difficulties,
with continued US support he will have a bet-
ter than even chance of governing for the
next few years.
64. Castillo probably will resist extremist pres-
sures and continue to adhere to the moderate
course he has followed to date. If he main-
tains his prestige as a mediator, he will prob-
ably be able to retain much of his present
authority even in the face of an unruly legis-
lature. He may also be able to make further
progress in unifying the armed forces behind
him. Thus, Castillo may be able to remain in
office long enough to establish the basis for
responsible constitutional government.
65. On the other hand, if the Castillo govern-
ment should be overthrown, Guatemala would
probably experience a protracted period of po-
litical instability. Rightist elements are more
likely to be able to achieve this overthrow than
any other group.
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4
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13876 7-55
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