COMBINED RANCH/ROAD BRIEFING BOOK.

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00827A001800010003-5
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 83
• Document Creation Date: December 12, 2016
• Document Release Date: May 30, 2002
• Sequence Number: 3
• Publication Date: June 11, 1969
• Content Type: MEMO

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23 May 1969
I. The Chinese Communist Ninth Party Congress, which
lasted most of April, does not seem to have resolved
many of China's massive political problems.
A. Although'it was billed as a "unity" session,
the congress appears to have done little to
end the infighting. Signs of factionalism
persist in most provinces.
1. Violence died down last summer, but it has
not ended completely.
2. Clashes continue in West China--'-particu-
larly in populous Szechwan and in Tibet-/-
and there are sporadic outbreaks of vio-
lence in the east coast provinces as well.
B. The regime has not embarked on any major new
programs or policies in the wake of the congress.
Arguments about both political and economic
matters continue in the provin6j s and in Pe-
king.
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II. The congress itself was marked by discord and
rancor.
A. Quarrels among top-level figures forced a brief
postponeme.nt.of the meeting. Continued disputes
about policy and personnel caused it to last
more than twice as long as originally planned.
1. Two important issues were how hard to push
the radical and disruptive social programs
which are dear to Mao's heart, and what is
to be the shape of economic programs for
the next year or so. It appears that no
firm decision was made on either of these
issues.
2. Another divisive issue was the composi-
tion of the new central committee. The
congress apparently spent at least half
its time arguing this one out.
B. The central committee that finally emerged
from these deliberations seems to be a
compromise body, with some representation
for virtually every political interest
group within the regime. No single faction
has the strength to dominate, which may well
be the way Mao wants it. It leaves him in
full charge.
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1. It is heavily weighted in favor of the
provinces, and the military appear to
be the biggest gainers.
2. Party bureaucrats suffered badly. Gov-
ernment administrators seem to have done
little better.
3. This probably means that Chou En-lai has
suffered some loss of influence and power,
although he is still listed as the number
three man behind Mao Tse-tung and Lin Piao.
A number of his subordinates were dropped
from the new Politburo formed at the close
of the congress.
4. The most dramatic fact about the new Central
Committee is the evidence it offers on the
destruction of the Communist Party machinery,
Although the new Committee:'is much larger
than its predecessor, it has dropped nearly
70 percent of the Communist officials who
were still active in the old Central Com-
mittee at the time the Congress began.
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C. The Politburo tends to reflect and legiti-
mize power relationships as they now exist
in China.
1. Nearly all of Mao's radical associates
who were prominent in pushing the Cultural
Revolution are on the new body. They
dominate the Politburo Standing Committee,
the highest policy-making organ in the
country.
2. These radicals, however, have to share
power and authority with newly-important
military men. Almost all the new faces
on the,Politburo were drawn from the mili-
tary establishment. Military men from the
provinces appear to be particularly promi-
nent in this grouping.
D. Mao seems to have disposed of most, but not
all, of the important party bureaucrats he
labeled as his opponents in the course of
the Cultural Revolution. In this sense, this
was his congress.
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1. He was apparently active and energetic
throughout the Congress. Films and re-
cordings of some of the public proceedings
indicate that .he made a better impression,
physically and verbally, than his designated
successor, Lin Piao.
2. Mao does not have things all his own way.
He has to lean heavily on the army, which
is just about the only really operative arm
of the government at the moment.
3. Many of the army leaders opposed the excesses
of the Cultural Revolution. They are per-
sonally loyal to Mao, but they don't see
eye to eye with him on many of his policies.
4. The prospects are for continued infighting
and differences at virtually all levels of
the regime a situation that is not likely
to change until the old man dies.
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c: DOCI FYI
1. DCI is to fly to the ranch to brief LBJ on
Friday, 13 June.
2. By and large, as he did on last briefing, he
will brief from notes or a quick and dirty summary
page, to which recent briefings/memos/talking papers
will be attached as back-up reference.
3. Situation is complicated by fact Kissinger
yesterday spent 3-1/2 hours briefing LBJ, which on
one hand means some subjects needn't be covered, on
other hand means he will have stirred up some fur-
ther questions for DCI.
4. For the moment, DCI has requested papers on
Paris Vietnam Negotiations and Big Four/Bilateral
Middle East Negotiations from which he can talk, but
which he can also leave with LBJ.
5. Kissinger apparently briefed on WH view of
status of SALT negotiations, but DOCI feels this may
have served to whet LBJ appetite, and DCI should be
prepared to handle more questions. Accordingly DCI
should have status memo on SALT--readiness to talk,
testing and deployments continue, so does veiled
sniping by Soviet hardliners.
6. DOCI agrees these papers will be wide open
on classification, but Vietnam is particularly tricky
because it's so much WH State baby. DOCI feels
paper should stay pretty much on the generalized
side, and he wants to see it himself before it goes
forward to DCI.
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7. Could I have the papers by 1400 Monday, June 9?
STATINTL
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Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
THE BIAFRAN RELIEF PROBLEM
Secret
1.8
29 January 1969
No. 0611/69
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
_~. GROUP l --_--
EXCLUDED FROM AUTOMATIC
DOWNGRADING AND
DELI. ASS IS IC A TI(IN
*40
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
29 January 1969
INTELLIGENCE MEMORANDUM
The Biafran Relief Problem
Summary
Biafran relief has become a charged inter-
national issue that could severely strain and pos-
sibly rupture US-Nigerian relations. There is very
little reliable information on the actual number of
refugees or on the rate of starvation in Biafra, but
it does appear that the situation will worsen within
the next few months. The plight of the refugees has
not had any significant effect on the policies of
either side in the civil war, but the Biafrans use
it for propaganda purposes, and at least some Ni-
gerians favor starving the Biafrans into submission
as the best war policy.
As the war drags on, the federal authorities
will probably become increasingly suspicious of
foreign involvement in Biafran relief, and may feel
compelled to react strongly against foreign countries
backing stepped-up relief to the secessionists. Vio-
lent anti-US demonstrations could also occur.
Note: This memorandum was produced solely by CIA. It
was prepared by the office of Current Intelligence and
coordinated with the office of Economic Research, the
Office of National Estimates, and the Clandestine Ser-
vices.
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1. The area now under Biafran control is approx-
imately one fourth that of the former Eastern Region
which Colonel Ojukwu led into secession in May 1967. As
a result of the Ibo exodus into Biafran-controlled ter-
ritory as federal forces advanced, the population in
present-day Biafra has increased from a prewar four
million to somewhere between six and seven million.
Even before the civil war this particular section of
the Eastern Region was a densely populated area de-
pendent on imported food.
2. There is unquestionably starvation in the
Biafran-controlled area and in the areas of the former
Eastern Region overrun by federal forces. The number
of deaths from starvation appears to have risen sharply
during the period from last July through October. Deaths
probably numbered in the hundreds of thousands, but ac-
curate figures are not available. These deaths pre-
sumably occurred mostly among the very old, the young,
and the sick. After October there was an apparent de-
cline in deaths from starvation probably because of an
improvement in the food distribution system, the in-
creased airlift of food by relief organizations, and
the fact that the main yam harvest occurred at this
time.
3. Forecasts on the seriousness of the starva-
tion problem in the coming months range from a rela-
tively low death rate to those predicting mass starva-
tion. The US Embassy in Lagos has estimated that by
July some 3.5 million Biafrans and some 2.25 million
refugees in federal-held territory will be in need of
food. Should the direst predictions regarding the
food situation materialize and the worst circumstances
prevail, some two to three million people in Biafra and
in the federally occupied areas could die of starvation
in the next few months. It does not appear that death
from starvation will be anywhere near this serious,.
however. Moreover, a real if unmeasurable considera-
tion in any such estimate is the Biafrans' ability to
cope with the problem themselves. Colonel Ojukwu re-
cently launched another campaign to increase food pro-
duction, and it must be assumed that the Biafrans will
turn their considerable ingenuity toward alleviating
the problem.
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Sources of Assistance
4. Relief to the Biafrans has come mainly from
Joint Church Aid (JCA), an association of religious
relief agencies operating from the Portuguese island
of Sao Tome off the coast of Nigeria, and until early
this month from the International Committee of the
Red Cross (ICRC) based in neighboring Equatorial
Guinea. The unofficial Catholic charity organization,
Caritas, has also sent some relief supplies from Sao
Tome, and the French Red Cross operates relief flights
from Libreville.
5. The ICRC operation was suspended early this
month by the government of newly independent Equatorial
Guinea for a variety of reasons, not the least of which
is the unstable situation that prevails in this tiny
former Spanish dependency. There is a large Ibo work
force on Fernando Po, which the government of Equato-
rial Guinea fears is bent on subversion. Equatorial
Guinea also believes it is under pressure by its much
larger neighbor and has come down firmly on the side
of Nigeria over the Biafran question. When the terri-
tory was under Spanish control, the ICRC operation
worked smoothly. After independence last October,
however, tension developed between ICRC officials and
the Equatorial Guineans who have described the relief
workers as arrogant and disrespectful of Equatorial
Guinea's sovereignty. Equatorial Guinean Government
officials have also indicated that they are receiving
much less financial compensation for the ICRC opera-
tion than the Spanish did. Foreign Minister Ndongo
has indicated that his country would consider reopen-
ing the airlift if the proper financial compensation
were forthcoming. it is by no means certain, however,
that he was speaking for his government, particularly
the highly volatile President Macias, who has publicly
committed himself not to permit ICRC night flights and
who seems bent on using this issue to underscore Equa-
torial Guinea's independent status.
6. All relief fligths by the JCA and ICRC have
been made at night. The Biafrans refuse to open their
one operating airstrip to day flights, fearing that
the Nigerians would use this opportunity to land troops
on the airstrip. Also, the Biafrans want to continue
night relief flights as a cover for separate arms
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flights. The ICRC had been transporting approximately
80 tons of relief supplies per night to the Biafrans,
while the JCA is presently carrying about 100 tons of
relief supplies nightly.
Nigerian Attitudes on Relief
7. Nigeria has reluctantly accepted the need
for foreign participation in the Biafran relief effort,
but Lagos has always been suspicious of the activities
of the foreign relief agencies involved. Lagos would
prefer that all relief be channeled through Nigeria,
and, ideally, through Nigerian relief organizations.
The federal authorities tacitly sanctioned the prin-
ciple of daylight flights by the ICRC from Equatorial
Guinea, but have never given their approval for night
flights. Indeed, last November Lagos implied that
planes flying into Biafra at night risked being shot
down.
8. The Nigerians object strongly to the JCA
operation from Sao Tome, and with some justification.
The JCA has completely bypassed Lagos in its opera-
tions, and arms are also being flown to the secession-
ists from Sao Tome. The same airplanes have been used
for arms and relief flights, and it seems probable,
although there is no definite evidence, that some of
the planes have carried mixed cargoes. The JCA of-
ficials are definitely pro-Biafran and have not been
too discreet about expressing these sympathies publicly.
The Biafran Viewpoint
9. The Biafrans have said that they welcome
relief from any donors, except Nigeria, the UK, and
the USSR--the "unholy alliance" which the Biafrans
are convinced is bent on the extermination of the Ibos.
The Biafran insistence that relief not be channeled
through Lagos results from the secessionists' unwilling-
ness to appear dependent on Nigeria for anything, on
a genuine fear that Lagos would poison the food, and on
the probably justifiable fear that Nigeria would use
relief supply channels, such as a land relief corridor
from Nigeria to Biafra, for military purposes. The
Biafrans have done all they can to alleviate the refu-
gee and starvation problems, but the secessionist leader-
ship has given no indication--even during the July-
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October period--of being moved by the problem to a
more compromising position with respect to the seces-
sion issue.
Prospects
10. As the war drags on, with a probable in-
crease in starvation, the Nigerians are likely to be-
come even more sensitive to 'foreign meddling" over
the relief issue. Some Nigerian leaders regard star-
vation as a legitimate weapon of war and see aid to
theBiafrans as merely prolonging the fighting. Most
Nigerians, and at least some federal leaders, regard
foreign relief to Biafra as direct support to the se-
cessionists in an attempt to Balkanize Nigeria. The
strong adverse reaction that greeted the announcement
in December that the US was furnishing C-97 aircraft--
four to the ICRC and four to the dcA--provides evidence
of the Nigerian attitude on this matter..
11. Federal leader Gowon himself probably under-
stands the US position on relief, but he has made
clear to the US ambassador that the Nigerian people
regard it as aid and comfort to the enemy. US efforts
to reopen the ICRC's operation from Fernando Po have
resulted in a definite increase in anti-US sentiment
in Nigeria. The Nigerians recently leaked to the
press a US note strongly urging--Lagos termed it de-
manding--the resumption of the airlift. In the Ni-
gerian press and radio, the fact that US Secretary
Rogers held his first official meeting with the Equato-
rial Guinean foreign minister was portrayed as further
evidence of a change in US policy on Nigeria.
12. Official Nigerian reaction to US efforts to
increase relief. to Biafra has thus far been confined
to verbal expressions of displeasure. There has been
stinging criticism of the US in the Nigerian press and
radio, and some anti-US demonstrations have been held.
It would seem likely that as the war continues, further
efforts'by the US on behalf of Biafran relief will pro-
voke a dramatic increase in anti-US sentiment in Ni-
.geria. This in turn would increase pressure on federal
leaders to take strong official action against the US.
In the highly charged atmosphere in Nigeria, further
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US efforts for stepped-up Biafran relief could also
easily spark violent anti-US demonstrations that could
threaten some of the 5,200 US citizens now resident in
Nigeria.
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I. Latin American Communists and other militant
opponents of United States are making an increasing
effort to force cancellation of Governor Rockefeller's
fact-finding tours or make them useless.
II. On first trip, May 11 to 18, Mexico, Panama, and
the Central American countries in between were
visited without serious demonstrations. As far as
we could tell, most host government officials were
pleased and considered the talks productive.
III. Before second trip began on May 27, Peru cancelled
the visit there as "inopportune" and we were
predicting hostile demonstrations at every stop
except Trinidad---mainly Bolivia and Venezuela.
A. President Siles limited the Bolivian visit to
three hours at the airport, and Venezuela
cancelled the day before scheduled arrival.
1. Venezuelans feared 2 weeks of student riots
gave demonstrations too much impetus.
\~wa~s
IV. Schedule for third trip` `"'Brazil June 16, Paraguay
June 19, Uruguay June 20. Uruguay, where all left-wing
groups were planning demonstrations and Communists were
planning violence, has asked postponement to July 6 or 7.-
Brazil is uneasy over strikes and student demonstrations
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V. Fourth leg, last week in June, was to cover Chile,
Argentina, and Caribbean islands---Haiti, Dominican
Republic, Jamaica, Guyana, Barbados.
A. Chile, concerned over threat of extremely
serious rioting, has already cancelled, noting
that submission of CECLA (Latin American Economic
Coordinating Committee) study to President Nixon
on Latin American economic needs makes trip
unnecessary.
B. Argentina should logically be shifted to third
trip, but Argentines, while they have made no
official request, believe that in light of their
student riots, cancellation or at least postpone-
ment would be best.
C. Demonstrations are being planned in the Dominican
Republic and probably in Guyana.
Attached: Briefing of June 9.
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9 June 1969
DCI'S 9 JUNE BRIEFING
ROCKEFELLER TRIP
I. Governor Rockefeller, halfway through a schedule
of four separate fact-finding trips to Latin
America,;is encountering increasingly hostile
Communist-instigated demonstrations which are
giving his host governments pause.
II. During the first trip--to Mexico, the Central
American Republics, and Panama, from May 11 to 18--
The governor's visit was marked by only minor
demonstrations.
A. The most serious incident was in Honduras,
where student demonstrations led by a Commu-
nist front group resulted in the accidental
death of one student.
B. There were no demonstrations in Mexico, Panama,
or Guatemala.
C. Most government officials were pleased with the
visits and felt they were productive.
III. Even before the second trip began on May 27, we had
evidence that the Communists were planning demonstra-
tions of varying intensity at every point on the
itinerary except Trinidad.
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A. We identified Bolivia and Venezuela as the two
countries where the demonstrations would be
most hostile.
B. In addition, Peru cancelled the visit before
the Governor left the United States, calling
it "inopportune" because of the controversy
over the International Petroleum Company and
the U.S. suspension of military assistance.
C. Demonstrations at the first two stops--Colombia
and Ecuador--did not affect the Governor or his
party.
D. In Bolivia on May 31, however, the government
limited the visit to three hours at the airport.
President Siles feared that student demonstra-
tions would get out of hand, and be used by the
Bolivian military command as an excuse to throw
Siles out of office.
E. Venezuela, which had been plagued by two weeks
of student riots, first suggested that Governor
Rockefeller stay at the officers' club instead
of a Caracas hotel. One day before his scheduled
arrival, when Rockefeller was in Trinidad, the
Venezuelans cancelled the visit on grounds that
planned demonstrations would adversely affect
internal security.
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IV. The third leg of the tour is scheduled to start
next Monday, June 16, in Brazil, continuing to
Paraguay on June 19, and Uruguay on June 20.
A. Uruguay has asked for postponement=-g ^f =-ably
All leftist groups are planning
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demonstrations, some of them violent.
B. The Brazilians say they are "eagerly awaiting"
the visit, but the government is becoming
increasingly uneasy over the prospect of strikes
and student demonstrations.
C. There is little or no security threat in Paraguay.
V. The fourth trip, set to begin the last week in June,
originally included Chile, Argentina, and the Carib-
bean islands: Haiti, the Dominican Republic, Jamaica,
Guyana, and Barbados.
A. Chile, however, has already cancelled the visit.
There was a general consensus against it on grounds
that threatened rioting on an extremely serious
scale would only serve to weaken President Frei's
government, and that the visit appeared unnecessary.
1. The Chileans have been citing a document to be
submitted to President Nixon this week, produced
by the recent meeting in Chile of CECLA, the
Latin American Economic Coordinating Committee.
2. This document, drawn up by economic experts from
all the Latin American countries, covers Latin
America's economic needs from the United States,
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according to the Chileans, and thus obviates
the need for Governor Rockefeller's trips.
B. After Chile's cancellation, Governor Rockefeller
considered switching Argentina to the third trip--
with Brazil and Paraguay.
1. The Argentines have made no official demarche
yet, but they too fear major disturbances and
believe that cancellation or at least post-
ponement would be the best solution.
C. As for the Caribbean islands, students in the
Dominican Republic are beginning to plan demon-
strations, and some may be held in Guyana as well.
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I. There does not appear to be much ground for
accommodation between the position of Peru on
International Petroleum Company and U.S. legis-
lation requiring specific U.S. response.
A. Peru claims a "debt" of $690 million--far
more than the worth of IPC's holdings--for
all oil IPC has extracted since operations
began.
B. U.S. law requires suspension of economic aid
and sugar quotas six months after expropriation
of a U.S. firm without adequate compensation.
1. April 7 deadline was deferred on pretext
that Peruvian courts still afforded an
avenue for settlement--but ultimately there
must be either compensation, or sanctions.
2. Meanwhile incidents with U.S. fishing boats
in Peru's 200-mile limit have required (by
U.S. law--Pelley Amendment) suspension of
military aid, and Peru has requested withdrawal
of military mission.
C. From U.S. end, there seems to be no way around
sanctions required by U.S.law. In short term,
we do not believe economic effect of sanctions
will alter President Velasco's policy on IPC, or
bF~n 208/069T082~JMOT 03-~ June attached. )
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PERU
I. There has been no real progress toward a solu-
tion to the problem over the expropriation of
the International Petroleum Company since the
deferral of economic sanctions on 7 April.
A. Discussions have taken place in both'Lima
and Washington,/in the hope of finding a
solution,_,~but thus far the main thrust of
the discussions has been to give each side
a complete picture of the other's position.
B. The meetings between the negotiating teams
have been cordial and the Peruvians do not
seem to want an immediate confrontation.
They have not, however, given any indica-
tion that they are prepared to consider
seriously any solution involving Peru's ac-
tually paying any compensation for the ex-
propriated property.
C. The obstacle to an easy settlement of the
matter is the Peruvian claim that IPC owes
the state some $690 million.
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1. This amount far exceeds any valuation
that could be placed on the expropriated
assets, and thus precludes any net com-
pensation to IPC as long as Peru adheres
to its present position.
2. The Velasco government has shown no signs
of giving in on the matter of this "debt,"
and indeed, Velasco or any successor
would probably find it politically impos-
sible to concede on this point.
3. The Peruvian negotiating team has several
times suggested that IPC take the matter
to the Peruvian courts, where it could
contest the debt by demonstrating that
it had legal title to the oil fields or
had at least operated them in good faith.
The implication is that the court might
uphold IPC, but there is very little
evidence that IPC would indeed receive
a fair and unbiased hearing.
D. Considering all the factors--internal polit-
ical, economic, diplomatic--there is little
possibility that a solution to the IPC con-
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troversy acceptable to the U.S. can be found
over the short term.
IT. A more immediate problem is Peru's long-standing
claim to a 200-mile limit to its territorial
sea, which has resulted in the seizure and fining
of several U.S. fishing boats in recent
months. U.S. military sales to Peru have con-
sequently been suspended under the Pelley Amend-
ment.
A. Peru reacted to the public disclosure of
this suspension with a request for the
immediate withdrawal of the U.S. military
missions, and a declaration that---;
I
Governor
Rockefeller's visit to Lima would be "inop-
portune."
1. It appears that the Peruvians have
seized on the current situation to just-
ify the replacement of the U.S. missions
with French and other European advisers,
an action they have long considered.
2. A high-level Peruvian military mission
is currently touring Western Europe
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to determine what armaments are avail-
able.
3. The suspension of U.S. military sales
probably struck Velasco as an opportunity
for a harsh reaction which would stir up
more nationalistic support for his gov-
ernment. His reaction may also have been
a bid for greater Latin American support
on the IPC issue.
B. There is some indication that Peru would agree
to attend a conference with Chile, Ecuador and
Ji.t5~ vs V$ ~urcLi.S
Uf fisk pr Lg-cts
pvlq f-
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the United States on the question of fishing
rights in the 200-mile seas claimed by the
three Latin American countries.
1. Peru's attendance would be conditioned,
however, on at least temporary lifting of
the sanctions now being applied against
Peru and Ecuador, and on Congressional
inaction on the legislation now being
proposed by Congressman Pellet'.
III. President Velasco's position remains strong, and
the economy has not yet suffered seriously from
the economic pressures being used by the U.S.
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A. There is still opposition to Velasco within
the government and military, but so far he has
been able to out-maneuver his opponents. Up
to now no opposition leader has emerged who
appears both desirous and capable of taking
over the presidency. Serious economic prob-
lems or a breakdown in public order could,
however, prompt someone to move against Velasco
at almost any time.
B. The heavy-handed manner in which the govern-
ment has arrested or deported several critical
editors and political figures has generated
growing vocal opposition.
1. The government is preparing decrees tight-
ening restrictions on the activities of
political parties and information media,
but there are indications of considerable
disagreement within the regime over these
measures.
C. The short term effect of U.S. economic pressures,
or even application of the sanctions called for
under the Hickenlooper Amendment and Sugar Act,
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U!Pt be sufficient to force Velasco to
change his policy on IPC or bring about his
ouster.
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 Approved For Release 2002/06/11 : CIA-RDP79T00827AO0180 1e00O
PERU - The IPC Controversy
Secret
1.58
15 May 1969
No. 1562/69
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
1.8, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
1:XCLn WNORAD2 NO . A71C
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 Approved For Rele 1800010003-5
15 May 1969
Peru - The IPC Controversy
Summary
Peru has had many military governments in its
history, but the product of the coup last October
is significantly different from anything that has
gone before.
--It is strongly nationalist and its lead-
ers are resolved to reduce Peruvian depend-
ence on the United States.
--Perhaps more important, there is evidence
of strong interest within the military gov-
ernment in the need for basic economic and
social changes aimed at improving the con-
ditions of life for the country's under-
privileged majorities. President Velasco
and others have spoken frequently of the
economic and social reforms they have in
mind, but thus far the government has taken
few, if any, concrete steps to carry out
the announced "revolution."
--Peru's new leaders have asserted that
theirs'isno mere caretaker government.
They say the military will remain in
power for as many years as it takes to
set the country irrevocably on the course
toward economic and social development--
and that they will never return power
to the ineffectual legislative and politi-
cal party systems that were thrown out in
October.
Note: This memorandum was produced solely by the Cen-
tra7 InteZZigence Agency. It was prepared by the Of-
fice of Current InteZZigence and was coordinated with
the Office of Economic Research, the Office of National
Estimates and the Clandestine Service. It also has the
coordination of the Bureau of Intelligence and Research
of the Department of State and the Defense Intelligence
Agency.
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1. The military's original plan of govern-
ment, drawn up shortly after the coup, was a gen-
eral set of guidelines encompassing the foregoing
objectives. The government's plans and tactics
have evolved during its first six months in power,
and they continue to evolve. The trend is toward
greater state control over the economy and, though
this is still not clearly defined, toward a more
comprehensive program of national development in-
cluding attempts to solve some of the country's
basic social problems.
2. The evolution of the government's tactics
and programs has to some extent been a product of
the rivalry within the government and the military
between the men around President Velasco and a group
of equally nationalistic, but somewhat more cautious
men frequently referred to as the "moderates." Thus
far, the "moderates" have lost every round. Their
influence has progressively declined. Additionally
there has been a growing exodus from the government
of able economists and technicians who had served
the old regime. Correspondingly, there has been a
rise in the influence of more radical men, many of
them civilians with leftist or, in a few cases, Com-
munist ties.
3. Opposition to Velasco still exists within
the government, but the President has shown a native
political shrewdness that has thus far kept his op-
ponents off balance and has compensated in large
measure for his own lack of popular appeal. One
of the most effective instruments Velasco has used
in his political power plays has been the high de-
gree of nationalism engendered by the dispute with
the United States. He has even, at least temporarily,
gained the support of much of the country's wealthy
class by making it appear that the rich will benefit
greatly from his efforts to reduce US economic power
in Peru. Organized labor is largely controlled by
the powerful APRA party and remains a potent source
of opposition. At the moment, however, no civilian
group could move successfully against the government
without the support of a faction of the military--and
there is no present sign that an effective alliance
along these lines is developing.
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4. The government has difficult economic prob-
lems, but none of them is likely to become critical
in the short term. The Belaunde administration's
stabilization program was.successful in greatly re-
ducing the rate of inflation, and the military gov-
ernment has been able to continue holding it to a
minimum. This has contributed, however, to a slow-
down in economic growth and a rise in unemployment.
Uncertainty over the prospect of US sanctions and
over the new government's own programs reduced in-
vestment activity somewhat after October, thus fur-
ther contributing to recessionary conditions. The
government is expected to increase public invest-
ment, to relax credit restrictions, and in other
ways to compensate partially for the economic de-
cline. The foreign trade picture is promising, and
foreign exchange reserves are expected to continue
improving this year. The outlook for Peru's long-
term economic development, however, would be severely
dimmed if the US imposed sanctions or continued dam-
aging economic pressures.. Much would then depend on
the willingness of European and Japanese governments
to guarantee supplier credits and of investors from
these countries to increase their activity in Peru.
5. The dispute with the United States has com-
plicated Velasco's economic problems somewhat, but
at the same time it has permitted him to consolidate
his political position considerably faster than would
otherwise have been the case.
6. Velasco's tactics have made it politically
impossible for him or any conceivable successor to
agree anytime soon to a settlement of the IPC case
on terms involving Peruvian compensation for the
property. "Surrender" on this issue would be tanta-
mount to treason, in his view. The President, though
still probably hopeful that the US will find some
way to get him off the hook, is convinced that Peru
can weather the storm if the US applies sanctions.
He probably also feels he could further benefit from
riding the resulting wave of anti-US nationalism.
He has said he "will know what to do" if the US
applies sanctions, but there is no solid information
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as to what his course may be. At least for the short
term, the radical and ultranationalist elements around
Velasco would probably be strengthened in the wake of
sanctions.
7. Whether or not the Peruvian Government is
faced with US sanctions, it is likely to enlarge the
role of the state in the Peruvian economy. This would
not by itself be a radical departure in the Latin
American context, particularly because the Peruvian
economy has long been one of the freest from government
control in the hemisphere. Neither would such a policy
necessarily mean drastic action against all foreign
investors in Peru. The danger, however, is that forces
may be set in motion in a highly charged nationalistic
atmosphere that might carry Peruvian leaders toward
policies which they may not now envisage. Consequently
the United States will have, at least for the short
term, only the most minimal capability to influence
favorably decisions of the Velasco government--whether
or not sanctions are invoked.
8. The other Latin American countries are most
anxious to avoid having to take sides in the US-Peru-
vian dispute. It it comes to a showdown, however,
the majority would feel compelled to express sympathy
publicly with Peru. The extent and duration of the
anti-US reaction in the hemisphere would in large
part depend, however, on the circumstances in which
sanctions were applied. If they were in obvious re-
sponse to a Peruvian provocation, reaction in the
hemisphere would probably be less severe than other-
wise.
9. A decision by the US to defer sanctions
indefinitely would be greeted with relief in Latin
America--as was the temporary deferral last month.
At the same time, indefinite deferral of sanctions,
unless accompanied by a credible rationale, might
well be interpreted as a US capitulation in such
countries as Argentina, Brazil, and Mexico. More-
over, it would give pause to real and potential
US investors in Latin America and tend to undermine
the US argument that it can be made worthwhile for
the US private sector to contribute to the develop-
ment of Latin America.
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political Dynamics
10. The military coup that brought General
Juan Velasco Alvarado to power on 3 October 1968
appears to have been motivated by essentially the
same factors that had prompted similar actions by
the Peruvian military in the past. These are: the
belief that the political and economic situation in
Peru was deteriorating; the desire to prevent Haya
de la Torre and the APRA party, traditional enemies
of the army, from coming to power; and the ambition
of one man or group of men--in this case, General
Velasco, who was to retire in January 1969 and
would thus lose his power base. The present mili-
tary government differs significantly from previous
ones, however. One of the primary differences is
that the top leaders, especially General Velasco,
come principally from middle- and lower-middle-
class backgrounds and, thus, do not have the close
ties to the oligarchy that for so long characterized
the majority of Latin American military officers.
11. Contingency plans for governing the coun-
try had been in existence for more than a year be-
fore the military assumed power. These plans re-
flected the hopes and values of the middle-class
men responsible for drawing them up. The military's
basic plan for governing the country was, in fact,
written by a group of graduates from the Center
for Higher Military Studies (CAEM), where the pre-
dominantly leftist civilian professors had en-
deavored to impress upon their students the need
for social and economic reform in Peru. The plan
reflects this teaching in that it assigns to the
state a dominant role in the economy and society,
while at the same time upholding the armed forces'
traditional position on the need for a strong and
modern military establishment and an anti-Communist
stance.
12. The Peruvian military men also came to
power with a lingering resentment against the US,
engendered by what they interpreted as unacceptable
attempts by the US on several occasions in recent
years to interfere with sovereign Peruvian deci-
sions. Several incidents since 1962 involved
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either the threatened or the actual suspension of
US aid to Peru. The strong and unsuccessful US
efforts in 1967 to dissuade the Peruvians from pur-
chasing French Mirage fighter planes was the most
galling of these incidents to the Peruvian military.
In a period of rising Peruvian nationalism, these
pressures served to emphasize Peru's economic de-
pendence on the US--and to strengthen the resolve
of some Peruvian military men to get the country
out from under the US shadow.
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13. On 9 October the military government ex-
propriated large portions of the US-owned Interna-
tional Petroleum Company's (IPC) holdings in Peru.
This accomplished several things, (1) it ended
almost a half century of controversy in Peruvian
political circles over IPC's role; (2) it provided
justification for the military coup; (3) it generated
immediate popular support for the military govern-
ment; (4) it provided great personal satisfaction
to President Velasco and others who have very
strong feelings on IPC's alleged exploitation of
Peru's people and natural resources. The IPC is-
sue became the raison d'etre of the military gov-
ernment and the expropriation an act "in defense
of the national sovereignty." The initial hard
line that President Velasco took on the matter soon
had the entire government boxed into a position
from which it could not have retreated, even if
it had wanted to. To back down, even slightly,
would have been a severe blow 25X6
I Iwould have eliminate_ ____ o_ , us ifi-
ca ion tor he coup, and in the eyes of government
leaders would have been political suicide.
14. The original plan for the military govern-
ment, developed by CAM and approved by President
Velasco and his cabinet shortly after taking over
in October, provided general guidelines for gov-
erning the country but specified no concrete ac-
tions. It emphasized the need for rapid develop-
ment of the country with the government playing a
large role, but also assigned significant responsi-
bilities to the private sector and foreign invest-
ment. It called for close cooperation with the US
in combating Communist subversion in Latin America
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while at the same time rejecting US efforts to inter-
fere in Peru's sovereign decisions. The new govern-
ment's economic program included the strengthening
of major elements of the Belaunde administration's
stabilization program, such as tax reform and reduc-
tion in government expenditures. The refinancing of
part of Peru's foreign debt was also successfully com-
pleted. In its desire to attract needed foreign in-
vestment, the Velasco government has taken every op-
portunity to emphasize that the IPC is a "special"
case and that foreign investment is welcome in Peru.
15. By mid-November 1968, it was evident that
the government's policies were progressing beyond
the guidelines set forth in the CAEM plan. In late
November the foreign minister, supposedly one of the
"moderates" in the government, spoke on Latin Ameri-
can economic integration and gave some hints as to
what the government was planning for its internal
economic and development policy. He said that a
vigorous collaboration of private industry and gov-
ernment was needed, but that the government expected
to guide private industry, make the final decisions
in all cases involving the national interest and
problems of economic and social integration, define
the state's participation in basic production, and
determine conditions for the association of state
with private capital.
16. Prime Minister Montagne, the leader of the
so-called moderates, enunciated on 5 December the "Rev-
olutionary" Government's development policy, which
resembles the long established policies of Mexico,
Argentina, and Chile. The evolution of thinking in
the government toward greater state participation
in the economy is evident in Montagne's statement
that "the state will assume the role of the promoter
of the national development for the benefit of the
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nation and of the national majority. This does not
deny the right of private initiative but defines the
obligation of the state to orient private initiative
to function on behalf of the common good." He said
that the new policies marked a change in the tradi-
tional pattern of development and would assure the
integration of Peru with social justice and reduce
the national dependence on external forces (i.e., the
US) that have been increasingly present in Peru since
its independence. The development plan itself put
heavy emphasis on state planning to achieve economic
and social goals. Agricultural policy as spelled out
by General Benavides, the minister of agriculture,
reflected the same spirit of reform, and the US Embassy
remarked that many aspects of the policy were pre-
cisely those the US had been advocating, to no avail,
for years. One primary aspiration of these various
ambitious plans is the integration of the large In-
dian population, which currently is almost totally
outside the money economy, into the economic, social,
and political life of the country.
17. The military also appears to have some
vague plan for the restructuring of the political
scene in Peru, but this is so far evident only in
negative statements. Part of this, the restructuring
of the government's organization, has already been
essentially carried out. This reorganization was
aimed at reducing duplication of effort, bringing
several autonomous agencies under direct ministerial
control, and cutting expenditures. The military
has placed most of the blame for the sad state of
Peruvian affairs on politicians and the political
system. In its view, the political competition
between parties served only to stagnate the nation's
development and create an atmosphere in which all
politicians are motivated primarily by self-interest.
The military has made clear that it believes it is
the only institution capable of putting Peru on the
path to development and that it will remain in power
as long as it takes to get the process irreversibly
on its way. This analysis by the military govern-
ment is probably essentially correct, for the con-
gress had in fact hamstrung most of the worthwhile
programs recommended by the Belaunde administration.
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18. The early attention that the new government
devoted to quick establishment of relations with the
USSR and Eastern Europe was probably a direct out-
growth of two priorities: the broadening of export
markets, and the lessening of US economic and politi-
cal influence. Evidence indicates that top govern-
ment leaders do not view this as a radical change
in their essentially pro-Western stance, but as a
justifiable move in view of the changed situation
in the world and the fact that several Latin Ameri-
can nations had already done the same thing. The
confrontation with the US might encourage the Peru-
vian Government to seek some additional assistance
from the Communist countries, but Peru apparently
has no intention of getting deeply involved with
them. In addition, there is no indication that the
Soviet Union has any intention of moving rapidly
in Peru, although it can be expected to reassess
the situation if US-Peruvian problems are further
exacerbated.
19. Since November the statements of govern-
ment officials, particularly President Velasco, have
been remarkably consistent in describing the attitudes,
ideology, and goals of the military government. Ex-
cerpts from an interview with Velasco in January,
1969, probably provide the best clue to Velasco's view
of the role of his government. He described the
ideology of the government as nationalistic and
revolutionary. Nationalism, he said, meant a rigor-
ous defense of the nation's interests, the "Peruviani-
zation" of the national economy, and a broadening
of Peru's diplomatic relations with the rest of the
world. He then stated: "This is a REVOLUTION... If
it is pacific and tranquil, so much the better. But
REVOLUTION means, according to the dictionary, 'vio-
lent change in the political institutions of a nation.'
We are making changes as you can see, and we will
make others very much greater--without regard for
what the old legal concepts say. We will turn over
the entire structure of the nation in order to hand
over a completely new framework." His dedication
to these principles, at least publicly, can be seen
in his statement: "We are ready to step over thou-
sands of cadavers, to die in the attempt to achieve
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the accomplishment of our goals...I offer my life
in the holocaust of the revolutionary government
and of the transformation of Peru."
20. The ideology and stated policy objectives
of this government are, of course, directly related
to the personalities who hold the top positions in
sontewnat e iettist or statist orientation of the gov-
ernment's policies can be traced to the graduates
of CAEM, who now hold 70-80 percent of the key gov-
ernment posts, and the civilian advisers around
Velasco. These advisers, headed by the leftist
lawyer Alberto Ruiz Eldredge, were originally brought
in to help set policy in the government's handling
of the IPC matter. Their primary qualification was
that they were all ultra-nationalistic and had spent
a great deal of time in activities designed to force
IPC out of Peru. Their influence has increased in
recent months, partly as a result of the continuing
difficulties with the US, and they are probably now
involved in advising Velasco in matters other than
petroleum. These advisers, some of whom have Com-
munist leanings, can be expected to seek to expand
their roles in the government, although for now at
least, it appears that Velasco is in firm control
and directs them rather than vice versa.
21. There also exists in the government an
opposition group of sorts, which is frequently re-
ferred to as the "moderates." This group is composed
primarily of generals who can be described as mod-
erate only in the sense that they are probably more
reasonable than Velasco and his coterie, without
being significantly less nationalistic. The in-
fluence of this "moderate" group has appeared to
be on the decline in the past few months, as the
radicals behind Velasco have utilized their oppor-
tunities to weaken the opposition and have suc-
ceeded in removing one of its leading members, Min-
ister of Finance Valdivia, from the cabinet.
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22. The moderates have not taken advantage of
opportunities, such as Velasco's retirement from ac-
tive army duty on 31 January, to oust him. Prime
Minister Montagne, the recognized leader of the mod-
erate opposition, seems to lack the will to take over
the presidency and the drive to take any drastic action.
Other possibilities of ousting Velasco exist, but
any attempt to do so must have at least the tacit
support of Montagne. General Jose Benavides, the
minister of agriculture, has the drive and ambition
to make the move, but lacks the needed muscle.
There is also some talk that Army Inspector General
Vasi might sometime lead a move against Velasco,
possibly to put a retired general, Ambassador to
Brazil Julio Doig, in the presidency. In addition,
there have been recent reports that the ousted fi-
nance minister, General Valdivia, is seeking support
for an attempt against Velasco. Nevertheless, it
does not seem likely that any of these possibilities
will materialize in the next few months, unless there
is some unexpected economic fiasco or a breakdown in
public order.
23. Civilian opposition could arise from the
wealthy businessmen and landowners or the labor
sector led by Haya de la Torre's APRA party. The
wealthy would be effective only in conjunction with
elements within the military, but could bring pres-
sure on some of the known opposition groups in the
military to take the action they have put off for
so long. Velasco is not popular with any significant
group, either within or outside the military, and
any move against him would probably have at least
the moral support of most sectors of the population.
He has, however, at least temporarily bought off
much of the wealthy sector by dangling before it
the prospect of great benefits from the reduction
of the overpowering US presence in the Peruvian
economy. Labor and APRA have not been bought off,
however, and could stir up trouble for Velasco
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24. The Velasco government is moving toward
more authoritarian control of the country, tighten-
ing the noose on political activity and on freedom
of the press. The government has not yet imposed
official censorship, but censorship exists unofficially;
most news commentators and editorialists take great
care not to offend the government unduly. This has
not, however, prevented several Lima newspapers
from criticizing Minister of Interior Artola for
his "witch hunt," which has resulted in many arrests
and deportations. Artola has concentrated his at-.
tacks against former officials of the Belaunde gov-
ernment, usually accusing them of fraud or embezzle-
ment, but even members of the current government
have been caught up in his "moralization campaign?"
This campaign has stifled activity on the part of
the traditional political parties and at the same
time has instilled in government officials a hesi-
tancy to act without direct orders from above.
Current Economic Situation
25. The Velasco government's economic policy
from the outset utilized much of the program drawn
up by Belaunde's Minister of Finance Ulloa. The
tax reforms were continued, to the surprise of the
wealthy sectors, and efforts to refinance part of
the foreign debt were successfully carried out by
General Valdivia, Velasco's first finance minister.
The Belaunde government's stabilization program re-
duced the rate of inflation, and the military's
adoption of the program and its further reduction
of the government deficit have enabled it to hold
inflation to a minimum. Prices have risen faster
in the last month or two, but this seems largely
attributable to landslides that have blocked routes
into Lima, resulting in significant increases in
food prices.
26. The 31-percent devaluation of the sol in
1967 and the subsequent stabilization measures, com-
bined with rising world market prices for some key
exports, have changed a substantial trade deficit
into a large trade surplus. The value of exports
increased by 15 percent in 1968 with earnings from
exports of copper, fishmeal, and silver showing
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the most rapid increases. At the same time, imports
fell by 23 percent as import costs rose because of
the devaluation and the imposition of an import sur-
charge and as demand for investment goods weakened.
In addition, the heavy stockpiling of imports--which
had taken place in anticipation of the devaluation--
largely ceased after 1967. A ban on the import of
luxury automobiles was the major cause of a 58-
percent drop in imports of transportation equipment.
Imports of other consumer goods declined by eight per-
cent, capital goods by 27 percent, and industrial
raw materials by about 15 percent. The balance-of-
trade account improved by almost $300 million in
1968, and a strong export surplus continued into
early 1969.
27. Largely as a result of the stabilization
program, economic growth slowed from 4.6 percent in
1967 to roughly two percent in 1968, compared with a
rate of growth in population of about three percent.
It is probable that the rate of economic growth
slowed even further in early 1969. Most of this
slowdown resulted from the stringent controls on
fiscal and credit operations that were imposed under
the austerity program and that have been progressively
tightened through the first quarter of 1969. In
addition, uncertainty over the new government's eco-
nomic policies reduced investment activity after
October, thus further complicating existing re-
cessionary conditions. The economic slowdown un-
doubtedly has contributed to a rise in unemployment
as additions to the rapidly growing labor force have
been increasingly difficult to absorb. Per capita
private consumption, however, probably has been
maintained largely at the expense of investment in
inventories and machinery. Despite the decline in
per capita GDP and in imports, it is doubtful if
there has been any appreciable shortage of consumer
goods and raw materials. In anticipation of deval-
uation,.inventories had been heavily built up in
1966 and 1967. Moreover, pockets of prosperity
continue to exist in important sectors of the econ-
omy. Output of export industries and import-com-
peting industries in particular has grown during
the period since devaluation.
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28. The threat of sanctions has had the effect
of reinforcing the recessionary effects of the sta-
bilization program. Business confidence dropped and
economic activity slowed when uncertainty over impend-
ing sanctions delayed management decisions. As the
six-month deadline for the imposition of economic
sanctions approached, this uncertainty had an in-
creasing effect on the Peruvian economy. US and
foreign bankers and businessmen began to curtail
bank credits and supplier loans and temporarily to
defer intended investment in Peru. This, in time,
imposed an added burden on domestic credit sources--
already strained by the credit restraints of the
stabilization program--as borrowers who had traditionally
depended on foreign credit were forced to turn to
domestic sources. The Peruvian authorities nevertheless
opted to pursue very conservative fiscal and mone-
tary policies during this period.
29. Peru's short-run economic prospects are
for slow expansion, although real economic growth
during 1969 will probably be less than the three-per-
cent annual rate of population growth. Unemployment
will continue to grow, but the recently announced
42-percent increase in public investment expenditures
in 1969 probably will be directed toward public works
projects with a high labor and low import content.
In addition, the recent selective relaxation in credit
restrictions is likely to lead to some small increase
in domestic investment and thus create new jobs.
30. Inflation is unlikely to present a major
problem during the remainder of 1969. The Central
Bank can be expected to keep over-all credit expan-
sion within manageable limits, although some further
credit relaxation will probably. occur. In addition,
reduction in the budget deficit appears likely during
this calendar year. Budget expenditures are expected
to increase by 8.3 percent for the remainder of the
year, but at the same time revenues should increase
somewhat. The government has put a high priority on
tax reform, and a recently appointed tax commission
is scheduled to recommend further changes by 30 June.
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31. Exports for 1969 should equal or exceed
those of 1968, and imports should continue at a
low level as a result of the slowdown in the rate
of economic growth. Private foreign investment
may be on the increase after a virtual cessa-
tion of the inflow of long-term private capital in
late 1968 and early 1969. About $64 million in new
investment contracts with three companies have
been signed since February 1969, or soon will be.
There are indications that Japan and France are
considering projects that would bring even more
outside money into Peru this year. Furthermore,
Peru's foreign exchange reserves are expected to
continue to improve in 1969. There is a good
possibility that Peru will meet both the reserve
and expenditure targets required to be eligible
to make its May drawing under the IMF standby agree-
ment.
ICP and Economic Sanctions: Impact on Peru:
32. The issue of compensation for the expro-
priated properties of the International Petroleum
Company (IPC) has complicated the economic problems
that the Velasco government would have had to face
in any event; at the same time, however, it has allowed
Velasco to consolidate his political position con-
siderably faster and with much greater ease than
would have otherwise been the case. IPC had been
a burning political issue for decades, and the mili-
tary's forceful handling of the problem through ex-
propriation had the full and'immediate support of
the public and stirred the smouldering fires of
nationalism. Since the expropriation on 9 October,
Velasco has had no difficulty in keeping the issue
before the people and playing on the usually sup-
pressed anti-American feelings of the general public.
33. The hard line Velasco has taken since
expropriation has brought the situation to the point
where no Peruvian could make a significant compromise
with the US without opening himself to charges of
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"sell-out" and even treason, such as those made against
officials of the Belaunde administration involved
in the August 1968 agreement with the company. This.
is why it is highly unlikely that anyone, be it Velasco
or any conceivable replacement, could agree anytime
soon to a solution that included Peruvian compensation
for the expropriated property. Ruiz Eldredge, Velasco's
chief adviser on the IPC case, has several times sug-
gested to US negotiators that the US and IPC should
agree to submit the whole matter to the Peruvian judi-
cial system, seeming to hold out the possibility of
some sort of an agreeable solution through this proce-
dure. It seems unlikely, however, that a Peruvian
judge would feel any more freedom from pressures than
a politician or'government official. Thus, there is
little likelihood that an amicable solution to the
problem will be found in the near future.
34. As for the long term, it is the opinion
of the US Country Team in Lima that the prospect of
inducing Peru eventually to grant compensation to
IPC can best be promoted by maintenance of US eco-
monic pressures, but avoidance of overt sanctions.
There is no way to tell how much time would be re-
quired for this approach to be effective. Some
kind of formula, particularly if it involved
indirect compensation to IPC, perhaps through another
company or a consortium, might ultimately prove ac-
ceptable to the Peruvians. Even this, however,
would probably have to wait until public awareness
of the issues had simmered down or been diverted.
At the present time, the Peruvians seem willing to
let negotiations go on indefinitely, although
Velasco himself had seemed to be pushing for a
US decision one way or the other at the conclusion
of Ambassador Irwin's visit in April.
35. An analysis of the over-all situation sug-
gests that either a hard line--i.e., one including
the imposition of the sanctions--or a soft line of
cooperation with the Velasco government would delay,
or end the possibility of, obtaining compensation,
rather than hasten it. Velasco has stated that he
"will know what to do" if the US imposes the sanctions.
A variety of options are open to him, any or all of
which would crystallize the hard-line positions of
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all involved. Velasco would in all probability in-
crease economic controls harass US business inter-
ests, and perhaps take some diplomatic moves against
the US--reducing or breaking relations and/or attack-
ing the US action in some international forum. Close
cooperation with Velasco, on the other hand, would con-
vince him that he need make no concession to reach an
agreement and would, at the same time, undermine
whatever opposition might be building against him.
36. The Velasco government is gradually moving
toward more state control of the economy and the society.
If the US imposes economic sanctions against Peru,
the likelihood is that Velasco will use the opportunity
to consolidate his position further and perhaps take
advantage of the psychological reaction in Peru to
impose greater control over the society and economy
as a whole. In addition, the more radical elements
in the government, including Ruiz Eldredge and his
colleagues, would have an opportunity to increase
their influence at the expense of the moderates.
In other words, the action/reaction process that
could be touched off by the announced application
of the economic sanctions might result in a situation
in which the Peruvian Government was rapidly carried
beyond what anyone other than a few extreme leftists
now envisage as the ultimate goals for social and
economic reform. An extension of negotiations, on
the other hand, would not stop nor even slow the
process now going on, but neither would it provide
the opportunists with the ammunition they need to
take control more completely and pursue their goals.
37. Invocation of the Hickenlooper and Sugar
Act Amendments would not be likely to cause critical
short-run economic problems for Peru. Because of the
success of the administration's austerity program,
the Peruvian economy should be able to absorb the
additional short-run impact of actual sanctions.
It should'be able to do so, moreover,. without finding
it economically necessary to take retaliatory actions
which would adversely affect much-needed foreign in-
vestment. The relative price stability and improvement
in foreign reserves thus far achieved gives the Peru-
vian Government considerable flexibility in its eco-
nomic policy options during the remainder of 1969.
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The government could choose to adhere rigidly to the
stabilization program in order to accumulate foreign
reserves at a rapid rate. On the other hand, the
government is in a position to adopt more expansion-
ary programs, although at some cost in reserves and
a resurgence of a degree of inflationary pressure.
At this point, it should be possible for the Peru-
vian authorities to inject a degree of liquidity
into the economy sufficient to maintain output, and
perhaps achieve some growth, without driving the
rate of inflation to a damaging level, at least in
the short run. The Peruvian Government now appears
to be moving toward the adoption of this alternative.
The effects of the sanctions would be further miti-
gated if, as seems probable, European and Japanese
businessmen moved into any breach left, by US busi-
ness. Nevertheless, the sanctions would do serious
damage to Peru's development prospects over the long
term, even if the large US mining companies eventually
decided to go ahead with some of their planned new
investments rather than lose their concessions.
38. In the event that sanctions continue to
be deferred, the US probably could exercise some in-
fluence on the Peruvian Government if it selectively
used its influence in the international lending in-
stitutions and financial community to help Peru find
financing for worthwhile projects. Even in this case,
however, the influence would be limited. The US
might occasionally be able to maneuver Peru into
taking a. favorable or desired action, but it is ex-
tremely unlikely that the US would under any circum-
stances be able to persuade the Peruvian Government
not to take some course of action that it had de-
cided on. The US could also expect to retain the
selective Peruvian support in international forums,
at least on subjects not directly related to US eco-
nomic policy in Latin America. On the other hand,
if sanctions are invoked, the US would lose most, if
not all, of its diplomatic influence on Peru. Fur-
thermore, the damage to relations between the two
countries would be extremely difficult to repair,
even given optimum circumstances over a long period
of time
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The Hemisphere
39. The attitudes of Latin American govern-
ments toward the US-Peru dispute have been ambiv-
alent from the beginning. Each government has
been and remains anxious to improve bilateral re-
lations with the United States, particularly at a
time when it sees the possibility of influencing
the policies of a new administration in Washington.
At the same time, most Latin Americans have a built-
in tendency to side with the Latin American David
in his struggles with the US Goliath. No major
Latin American government believed early this year
that it could avoid publicly expressing sympathy
with Peru if the situation developed into a clear-
cut confrontation between Peru and the United States.
40. The announcement in early April that the
United States would defer imposing sanctions on Peru
was met with widespread relief in every Latin Ameri-
can capital. At least temporarily, it got them
off the hook: they would not be obliged to stand
up and be counted. Moreover, the US decision was
widely considered a statesmanlike move demonstrat-
ing that the United States was willing to make every
effort to reach a satisfactory settlement. In the
weeks since the deferral announcement, Latin Ameri-
can interest in the problem has dwindled. Even in
Argentina, where the case had been receiving wide-
spread attention in the press and in government
circles, the subject has largely disappeared from
public view.
41. Most Latin Americans, in and out of govern-
ment, recognize that the problem will probably again
come to the fore and that it may well require them
to be more forthright in their reactions. Already,
in Venezuela at least, the date of 6 August--when
the current Peruvian administrative procedures on
the IPC case expires--has, in the public eye, as-
sumed the nature of a new "deadline" after which the
US may be obliged to invoke sanctions.
42. Public statements by Latin American govern-
ment leaders on the dispute have been rare in recent
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weeks, but privately many of them show full awareness
of the potential seriousness of the problem. In Chile,
top government leaders are privately but strongly
urging the United States to find some solution which
does not include application of sanctions. With the
possible exception of the conservative National Party,
all other political parties in Chile, including the
Christian Democrats, tend to favor the Peruvian posi-
tion. The Frei government obviously fears being put
into a position of having either to resist or to succumb
to these strong pro-Peru pressures during this difficult
political year in Chile.
43. In Mexico, too, the government is very
anxious to avoid being caught in the middle of a
controversy in which Mexico's sympathy with Peru
as a Latin American country would conflict with its
direct interest in maintaining friendly, cooperative
relations with the United States. Thus Mexican
leaders would also favor some sort of bilateral ar-
rangement between the US and Peru that would avoid
sanctions.
44. The Argentine Government publicly expressed
its "solidarity" with Peru prior to the announcement
that sanctions would be deferred. It claimed that
this was a necessary tactic in its effort to earn
the trust of the Peruvian Government and thus per-
mit it more effectively to use its influence in Lima
in favor of moderation. Privately, Argentine lead-
ers have lamented the impasse, expressed their con-
cern over the possibly serious consequences, and
advised the United States to soft-pedal the threat
of sanctions while quietly continuing talks with
the Peruvians.
45. The Argentine Government, like many others,
is strongly opposed in principle to the Hickenlooper
Amendment. The use of economic pressure by one
country in the hemisphere in an attempt to force
the compliance of another with its demands is anath-
ema in Latin America--particularly in juridical
circles. The Latin Americans agreed to economic
sanctions against Cuba only after it had been proven
beyond the shadow of a doubt that Cuba had inter-
vened militarily in Venezuela. The principle has
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even been written into the Charter of Bogota, which
stipulates that no member state can apply coercive
economic pressures to impose its will on another
state or to obtain any advantage of any nature.
46. The duration and the extent of the reac-
tion in Latin America to a decision by the US to in-
voke sanctions against Peru would depend in large
measure on the timing and the circumstances in which
sanctions were applied. If sanctions were applied in
obvious response to a clear-cut Peruvian provocation,
the reaction against the US would be less severe. If
they came suddenly and without apparent provocation,
reaction would be more hostile to the United States.
To most Latin Americans, the current trips of Gov-
ernor Rockefeller are of far greater potential sig-
nificance than the problem the US is having with
Peru. In many Latin American eyes, the US decision
in the Peru case will be linked to the Rockefeller
mission as an indication of coming US policy.
47. If the United States invokes sanctions:
The reactions in the rest of Latin America would
probably be most negative if sanctions were invoked
during or in the immediate aftermath of the Rocke-
feller visits. Sanctions would probably be inter-
preted as signifying that the new administration
in Washington had adopted a "hard-line" in its re-
lations with the rest of the hemisphere. The US
would be subjected to abuse from the press, in legis-
latures, and from some government officials. Most
governments would feel obliged at least to express
their public sympathy with Peru. The effect, of
course, might be mitigated if it could be made to
appear that Peru had provoked the US action.
48. If sanctions are avoided and the compen-
sation issue is strung out indefinitely: Indefi-
nite deferral of sanctions would clearly be the so-
lution most preferred by the other Latin American
governments. Most governments would be relieved.
Some, however, would interpret it as a sign of US
"softness." Even the temporary deferral last month
prompted the Colombian foreign minister to say that
he thought the US action might be interpreted as a
sign of weakness.
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49. Unless it were accompanied with some cred-
ible rationale, an indefinite deferral of sanctions
might well be interpreted in such countries as Ar-
gentina, Brazil, and Mexico as a US capitulation.
Moreover, it might well give pause to real and po-
tential US investors in Latin America and tend to
undermine the US position that it can be made worth-
while for the US private sector to contribute to the
economic development of Latin America.
50. If US economic pressures continue: Con-
tinuing, quiet US economic pressures on Peru would
probably not greatly upset the Latin Americans.
Many would prefer to ignore them.
51. If the US abandons the effort to secure
settlement of the is ute and moves toward c oser
collaboration wit Velasco: -This-
is would e t e most
puzzling action the US could take as far as the rest
of Latin America is concerned. Unless such a US
turnabout were accompanied by some understandable
explanation, most Latin Americans would regard it
as outright capitulation to a government practicing
blackmail.
52. To date there is no indication that any
Latin American country has been encouraged by the
Peru case to move toward nationalization of foreign
investors. In Chile, pressures on the copper com-
panies have in recent days become much more strident,
but the US Embassy is convinced that there is no re-
lation to the Peru case and that any action Chile
takes will be determined by the government's concept
of Chile's national interests and by internal politi-
cal pressures.
53. It is difficult to predict whether any long
term "domino effect" might come from an apparent US
capitulation to Peru. It would be very unlikely to
have any effect in the foreseeable future in Mexico,
for instance, where the government has an active
policy of promoting foreign investment and where the
foreign investors feel completely secure. In Venezu-
ela, and perhaps other countries, the IPC is con-
sidered to have had a very unsavory history in Peru
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and, for that reason, a US "exception to the rule"
might be considered justified and not signifying a
lessening of the US resolve to protect its investors
abroad. In every Latin American country, any de-
cision to nationalize foreign investors will be
dictated to a much greater extent by the govern-
ment's assessment of national interest. The Peru
example would be a subsidiary consideration at best.
54. If Peru should formally charge the United
States with "economic aggression" in some interna-
tional body, all Latin American governments would
feel obliged to offer some support to Peru. Most,
however, would try to avoid being put on the spot.
As in the recent CECLA conference in Santiago, they
would probably try to work out some form of "compro-
mise resolution" which went as far as possible in
support of Peru without unnecessarily offending the
United States. In such circumstances, however, it
would be unrealistic for the United States to expect
active backing from any Latin American country.
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I. As we see Cuba, Fidel Castro is in firm control.
USSR keeps his armed forces well supplied.
His relations with Moscow have improved.
Exiles do not constitute a threat.
He has moderated his efforts to export revolution--
partly to please Russia and the orthodox Latin
American Communists, but mainly because of
failures--particularly Guevara's in Bolivia.
Castro's biggest immediate problems are economic----
mismanagement, inefficiency, low productivity,
labor shortages and natural disasters combined.
1970 goal for sugar crop is 10 million tons. This
year's will be below 5 million, next year's
probably no more than 7.5 to 8 million tons.
Below 7 million, Castro will'?be hard-pressed
to explain failure of 1970 goal.
Attached: Briefing of 9 June.
25 April Intel Memo, "The Situation in Cuba."
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I. Fidel Castro is firmly in control of Cuba.
A. His power position is based on the loyalty
of key officials in the military and security
forces and in the Cuban Communist Party.
1. Senior military officers4most of them
veterans of Castro's 26th of July Move-
ment-;-comprise about two-thirds of the
party's Central Committee, and dominate
almost all other public institutions.
B. Despite his increased demands for harder
work, austerity, and the unpopular reforms
of 1968, Castro probably still has the support
of a majority of the population.
C. Activities by Cuban exiles pose no threat to
the stability of the Castro regime. A ten-man
team of exiles bent on sabotage was wrapped
up in less than six days early last month; a
similar group met the same fate last December.
II. The economic situation is still Castro's biggest
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headache.
A. Troubles arising from mismanagement, inef-
ficiency, low labor productivity, and short-
ages of workers for agriculture have been
aggravated by a series of natural disasters.
B. In 1967, Cuba's GNP was only about 15 percent
higher than in the highest pre-revolution
year--1957. In that ten year period, however,
there was a 20 percent increase in the Cuban
population. In 1968, because of the drought,
the GNP undoubtedly declined and is not ex-
pected to recover significantly this year.
C. The outlook in the crucial area of sugar
production is not good.
1. This year's harvest, which was meant to
be a dress rehearsal for the planned ten
million ton crop in 1970, will be about
half a million tons below last year's poor
crop of only slightly more than 5 million tons.
2. The 1970 yield, moreover, will probably be no
greater than 7.5 to 8 million tons. If it
sinks below 7 million tons, Castro will be
hard pressed to shrug off the complete fail-
ure of the goal of 10 million tons he has
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pushed dramatically and unequivocally for
the past four years.
III. Castro's armed forces are in good shape. The
Cuban military establishment is the most modern,
the best trained, and best equipped in Latin
America. It could successfully defend the island
from any attack short of an invasion with U.S. support.
A. The Cubans depend primarily on Soviet-supplied
arms and equipment. From September 1966 to
February 1968, an average of two major mili-
tary shipments per month were received from
the USSR, in a campaign to update and resupply
the military services. There have been no
major arms deliveries in the past 15 months,
but the armed forces are at satisfactory levels
of readiness and proficiency.
I-is unlikeiy that t e USSR-11 attempt to
rntradu.:kate.g' _missiles intQ..Cuba,
although we.recog ize that the Soviets have
the technical pability to reintroduce the
clandestine
1LUss1.Le system .
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IV. During the 20 months since the death of Che
Guevara, Cuba has modified its tactics and
priorities for "exporting" the revolution in
Latin America.
A. Castro has withdrawn from the aggressive
approach he pursued in 1966-67,/"has toned
down Cuban propaganda, and has allowed front
groups like the Latin American Solidarity
Organization to lapse into virtual dormancy.
He has almost completely ignored themes of
revolution in his speeches during this period.
B. Castro is more cautious because of the repeated
failures of guerrilla groups he has supported,
and because he may realize that Cuban inter-
ference-and bullying have contributed to
their factionalism and impotence.
1. He was stunned by the failure of Che
Guevara in Bolivia, and in retrospect
probably recognized the hopelessness of
the campaign as it was revealed in
Guevara's diary.
C. Cuba-continues to train Latin Americans in
guerrilla techniques, but more selectively
than in the past, and Castro has not renounced
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the principle of armed revolution as an
instrument of his foreign policy.
V. Cuban relations with the USSR have improved con-
siderably since last August when Castro endorsed
the invasion of Czechoslovakia.
A. This January, Castro had warm and unequivocal
praise for Moscow for the first time in three
years, even though massive Soviet economic
support had continued without interruption
in the interim.
B. Another indication of the improved state of
affairs is Havana's decision to send a high-
level delegation of observers to the Communist
Party Conference in Moscow this month. Soviet-
CubanCrelations may'now be better than at any
time since Brezhnev and Kosygin came to power.
C. Castro probably hopes that if he appears more
compliant, Moscow will increase its aid to
Cuba significantly.
D. Cuba's relations with Peking have been ex-
tremely cool since early 1966. Havana's
decision to attend the Moscow conference and
its warm praise earlier this month for the Soviet
border guard will hardly improve the situation.
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ecret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Current Situation in Cuba
Secret
25 April 1969
No. 1554/69
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law,
GROUPI
EXCLUDED FROM AUTOMATIC
DOWNC m1ADINO AND
FIP.CX 1851PICATION
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
25 April 1969
INTELLIGENCE MEMORANDUM
The Current Situation in Cuba
Summary
After a decade in power, Fidel Castro rules Cuba
absolutely through a totalitarian personal apparatus.
The military and security forces, under the control
of Fidel's younger brother Raul, are well trained,
well equipped, and effective in identifying and elim-
inating opposition to the regime. The officer corps--
especially the senior majors who are veterans of Cas-
tro's 26th of July Movement--is the main buttress of
the regime. In addition, several other groups are
important factors for stability. Most youths, stu-
dents, and peasants, large segments of the urban work-
ing groups, and the activist members of the mass or-
ganizations provide Castro with a large constituency.
Finally, the government's complete control of all pub-
lic information media, Fidel Castro's political skills,
and his ability to charm his countrymen are important
factors upholding his dictatorship.
Cuba's current problems stem in large measure
from the ragged performance of the economy. Despite
shortages of almost every kind since 1961 and consid-
erable fluctuations in the economy, however, output
has tended to increase slightly. In 1967 Cuba's GNP
was only about 15 percent higher than in 1957 (the
best prerevolution year). In 1968, moreover, under-
lying economic problems were aggravated by severe
drought and harsh, puritanical reforms. Gains in
agricultural production early this year have appar-
ently caused an upturn to 1967 levels, but longer
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Current Intelligence
and coordinated with the Office of Economic Research,
the Office of National Estimates, and the Clandestine
Service.
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range economic growth is uncertain. This year's
sugar harvest, which was meant to be a dress re-
hearsal for the planned 10-million-ton harvest
next year, may not exceed last year's output of
5.2 million tons. Thus, while it is still possible
for Castro to produce a record crop in 1970, it al-
most certainly will not exceed 8 million tons, far
short of his objective of 10 million.
Cuban-Soviet relations improved following Cas-
tro's endorsement of the invasion of Czechoslovakia.
In January Castro warmly praised Moscow for the
first time in about three years. Castro probably
believes that by associating Cuba more closely with
the USSR he will gain expanded economic and techni-
cal aid. Castro's more moderate approach in Latin
America has also contributed to better relations
with Moscow. Since the death of Che Guevara a year
and a half ago, Cuba has modified its tactics and
priorities for "exporting" the revolution.
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The Military Establishment
1. During the decade that Castro has been in
power, his position has been firmly anchored by the
military and security forces through a number of
senior officers who are veterans of his 26th of July
Movement. Senior officers comprise about two thirds
of the central committee of the Cuban Communist Party,
and military men make up at least one fifth of the
party membership. The two civilians on the eight-
man politburo are outnumbered by Fidel and Raul Cas-
tro and four other army majors. During 1968 at
least six high-ranking officers were appointed by
the politburo as plenipotentiary delegates to direct
provincial and regional affairs, and another was
placed in charge of the construction industry. Thus
the party, originally constituted with a wide repre-
sentation of military and civilian leaders, is under
the exclusive control of Castro and a personal en-
tourage of army majors.
2. These same men dominate almost all other
public institutions and mass organizations through
the party. In 1968 the military were responsible
for mobilizing tens of thousands of civilians for
the sugar harvest and other agricultural work. This
year the Ministry of the Armed Forces is directing
the harvest. During the past two years the military
also assumed complete control of civil aviation and
began the reorganization of preuniversity education.
3. The military have become the supreme insti-
tutional force, probably because the officer corps
is the only organized element that Castro completely
trusts. The officer corps consists of about 200 ma-
jors (the highest military rank) and an unknown num-
ber of captains and junior officers. Most of the
latter were commissioned after Castro came to power,
and although they are not members of the 26th of July
group, they have been subjected to extensive political
indoctrination and military discipline and are loyal
to the regime. No Cuban military officer on active
duty has defected to the US in several years, although
a few noncommissioned officers and some conscripts
have defected via the Guantanamo Naval Base.
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4. Because most of the senior majors are simple,
unsophisticated men who may be uncomfortable with the
power they have acquired, and because they are devoted
to Castro, few of them are considered politically am-
bitious. Field commanders are rotated regularly, and
Raul Castro and his deputy minister of the armed forces
conduct frequent field tours. The loyalties of Cas-
tro's colleagues clearly transcend the ideological and
the political. Very few were exposed to Marxist-Len-
inist thought before 1959, and even now their ideo-
logical commitments are probably shallow. So deep is
their personal commitment to Castro, however, that the
cult of his personality has become for them an ideology.
Castro's Popularity
5. Fidel Castro has consistently been able to
maintain the support of a majority of the population.
He has made full use of his charm and political adroit-
ness and the effective propaganda machine he controls.
In addition, he has encouraged the departure of his
opponents and critics. Since 1959 between 500,000
and 700,000 Cubans have left the island; about 1,000
leave each week on the Varadero-Miami airlift. Many
others have left in small boats, on refugee flights
to Spain and Mexico, or via "fence jumping" at the
US Navy base at Guantanamo. Most legal refugees have
been middle aged or elderly and former members of
the middle and upper classes.
6. As a result of this steady migration of the
disenfranchised and the high rate of population
growth, the groups most favored and benefited by
Castro have become larger in proportion to the rest
of the population. The median age has steadily de-
clined; in January 1969, an estimated 55 percent of
the population was under 25. The oldest of these
were only 14 when Castro came to power, and they
have been subjected ever since to an intense and ef-
fective propaganda assault.
7. Their loyalty to the regime has also been
encouraged by special privileges and endowments.
All education is free. Tuition charges have been
eliminated, and textbooks--when available--are pro-
vided by the government. About 300,000 scholarship
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students are provided free room and board, clothing,
medical care, and a monthly allowance. In ten years
the government has doubled the number of both schools
and students. As wards of the state, students are
spared many of the hardships of rationing and food
shortages. They do not have to wait in queues for
food, or supplement their rations by covertly pa-
tronizing the black market. Thus favored, the stu-
dents are probably overwhelmingly in accord with
Castro.
8. As the military has expanded its role, and
as a result of the radical and puritanical reforms
imposed last year, the morale of some of the older
youths has deteriorated. Many of them are school
dropouts and former students who have become disaf-
fected because of the drop in their standard of liv-
ing after leaving school. In addition, because of
the oversupply of labor for nonagricultural work,
many have become idle. Their expectations rose dur-
ing their school years, and they are disappointed
to find few job opportunities outside of agriculture.
Last September Castro criticized such youths for be-
ing "hippies and loafers" and sent several hundred
of them off to the fields. More than 30,000 other
youths between the ages of 17 and 27 were inducted
last year for three-year hitches in agricultural
work under military discipline.
9. Although a growing number of youths out of
school seem disenchanted with the regime, most of
them probably still support it. They have been sub-
jected to propaganda for a decade, and have little
objective knowledge of the rest of the world. Most
of them are probably convinced that they are better
off under Castro than they would have been under
previous administrations; in any case they can see
no alternative. The older youths, however, seem
more cynical in judging Castro and the accomplish-
ments of the revolution than do the youths in school.
As a result, one of the major problems for Castro's
government during the next few years will be to cre-
ate satisfactory employment for them and to maintain
their motivation and loyalty at the level of their
school years.
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10. In addition to the military caste and the
youth, the peasants and some urban working elements
have been the most favored groups in Cuba. They
were the first beneficiaries of Castro's reforms.
Unskilled and semiskilled workers received pay
raises and other benefits that augmented their pur-
chasing power. Unemployment and underemployment
were reduced, and large numbers of agriculture
workers migrated to better paying jobs in industry
and construction. As expenditures for public con-
sumption increased, they experienced an advance in
their standards of living. Programs in health, edu-
cation, and welfare benefited those who could not
afford these services before the revolution.
Discontent
11. Shortages of food and consumer goods, and
the radical and puritanical reforms imposed last
year, however, caused some deterioration of Castro's
popularity even among the groups he has most favored.
In March 1968 he announced a harsh "revolutionary
offensive" to restore "momentum" to the revolution
and to impose more austere conditions for greater
productivity. He closed all bars and nightclubs in
Cuba, reduced beer production, outlawed gambling and
cockfighting, mobilized tens of thousands of civil-
ians into agricultural work brigades, further up-
graded the military over the civilian bureaucracy,
and nationalized more than 57,000 small private
businesses. Castro railed against "cafe pundits"
and "barroom philosophers," and insisted that city
dwellers and youths perform "volunteer" agricultural
work. In addition, mainly because of the severe
drought of 1967, food shortages increased last year,
and the list of rationed goods was expanded. Since
January 1969 even sugar has been rationed.
12. As a result of such shortages and auster-
ity, there has been an increase in dissatisfaction
and in the number of(isolated) acts of sabotage and
vandalism. Last year there were almost twice as
many "fence jumpers" at the Guantanamo Naval Base
as in 1967, and the same high rates have continued
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this year.* High crime rates have apparently also
continued, but the regime has not resorted to harsh
crackdowns or wide-ranging social and economic re-
forms like those of 1968. Recent speeches by Presi-
dent Dorticos and Sergio del Valle, who as minister
of interior is chief of Cuba's internal security ap-
paratus, indicate that the increase in crime and
dissidence does not pose a significant political
challenge to the government. They revealed that ad-
ministrative and legal reforms will be undertaken to
counteract criminal activities and to reduce the con-
ditions that contribute to the frustrations of many
Cubans. Increased food production this year may also
ease some hardships and reduce crime and dissatisfac-
tion.
13. Despite some fluctuations in morale, how-
ever, Castro probably retains the hard-core support
of large majorities of the youth, peasants, and vari-
ous working class groups. No organized resistance
to Fidel is known to exist inside Cuba.
Economic Problems
14. After an initial period of growth and ex-
pansion, the Cuban economy has stagnated, despite
the annual infusion of some $350 million in Soviet
subsidies and credits. In 1967, the year of highest
output since Castro came to power, Cuba's estimated
GNP was only 15 percent higher than in 1957 (the
highest prerevolution year). In that ten-year per-
iod, however, there was a 20-percent increase in
the Cuban population, resulting in a 15- to 20-per-
cent decline in per capita consumption. In 1968,
moreover, the GNP declined further mainly because
of serious drought and economic disruptions.
15. Economic stagnation results from a vari-
ety of factors, many of which are direct outgrowths
of the rapid and disruptive nationalization under-
taken during the first few years of the revolution.
'There were few defectors from Cuba via the Guan-
tanamo Naval Base before 1965. Figures since then
are as follows: 1965-36, 1966-138, 1967-511, 1968-
1005, Jan - 20 April 1969-315.
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Fundamental to all of these factors, however, is
the inefficiency and disorganization of the new
managerial class. Most white-collar workers are
inexperienced and poorly educated, and political
reliability has long been the main criterion for
their employment.
16. The antibureaucracy drives and adminis-
trative purges of the last few years seriously dis-
rupted government ministries and agencies, and their
efficiency is further reduced as they are forced to
provide personnel for "voluntary" agricultural work.
Even more disruptive, however, have been the mass
mobilizations of office workers to help in the sug-
ar harvest. Management is also weak because the
strictly centralized system of administration stifles
initiative and reduces the effectiveness of lower
level managers.
17. Another important reason for economic
failure and managerial confusion is the frequency
with which economic plans and national priorities
have changed during the last decade. Many short-
range programs also have been expensive fiascos be-
cause they were undertaken impulsively.
18. A shortage of agricultural labor and a
surplus of white-collar workers add to the problems
causing the economy to stagnate. The problem wors-
ens yearly, moreover, as the schools graduate tech-
nically skilled students who prefer to shun manual
labor. Severe drought during four of the last
eight years has also caused serious difficulties.
Finally, the US trade embargo has forced Cuba to
import large amounts of capital goods to replace
US-built machinery and equipment for which spare
parts are no longer available. This has further
restricted Cuba's ability to import other needed
goods.
Economic Outlook
19. In his speech on 2 January 1969, Castro
was ebullient and confident, predicting that many
of the economic goals for 1970 will be fulfilled.
He was probably correct in appraising the various
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factors that point to some economic recovery this
year even though he has been highly critical of
this year's sugar harvest. Rainfall has been nor-
mal, large quantities of fertilizer have been used,
and the military can probably organize and manage
the economy more authoritatively and rationally
than the civilian bureaucrats. These factors and
the high price of sugar on the world market could
result in further improvements in 1970.
20. During the first half of 1969, output will
probably be higher than it was last year without re-
gaining the level of 1967. Fruit and vegetable crops
will probably increase, and meat and dairy products
and other foodstuffs should be in greater supply.
Furthermore, although it is not likely that Castro's
oft-mentioned goal of 10 million tons of sugar will
be milled in 1970, Cuba may be able to produce a
record crop even though this year's harvest may not
exceed the 5.2 million tons produced in 1968.
21. Gains in sugar output, however, may be
offset by disruptions elsewhere in the economy be-
cause large numbers of workers will be diverted from
their regular work to cut cane. It is still too
early to determine to what extent gains made in the
economy this year will benefit the consumer. In the
past Castro has exported food commodities to earn
foreign exchange while rationing them at home. In
addition, per capita gains will be partially offset
by population growth.
22. Long-range economic growth is uncertain.
Plans have centered on agricultural diversification
and increased sugar production, but a number of prob-
lems must be resolved before production goals can be
fulfilled. Castro has attempted to remedy the acute
shortage of regular agricultural workers by investing
heavily in machinery and by propagandizing the joys
of rural life.
23. These efforts may stimulate agricultural
output over the next few years. The USSR has ex-
tended large credits to support Castro's vigorous
effort to expand and renovate Cuba's sugar industry
and distribution system. By late 1968 Cuba's
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indebtedness to the USSR for economic aid totaled
$1.8 billion. Since 1961 Havana has also received
military assistance and equipment worth more than
$700 million. Without more rational and professional
management and planning, however, the Cuban economy
will probably fluctuate without achieving a lasting
and significant rate of growth.
Cuba, the USSR, and Latin America
24. Castro's preoccupation with domestic problems
during the last year and a half, and the moderation of
Cuban tactics and priorities for "exporting" the revo-
lution in Latin America, have contributed to a con-
siderable improvement in Cuban-Soviet relations. The
watershed apparently was reached last August when Cas-
tro publicly supported the invasion of Czechoslovakia.
Since then relations have continued to improve, and
in January, for the first time in about three years,
Castro warmly and unequivocally praised Moscow. He
probably hopes that Moscow will increase economic and
technical assistance to such an extent that significant
economic gains can be made by the end of next year.
With this in mind, Castro might now be willing to send
a high-level delegate to the June meeting of world
Communist parties if he were to feel confident that
he would not have to be a partner in a specific de-
nunciation of Peking.
26. Since the death of Che Guevara a year and a
half ago, Castro has withdrawn from the extreme and
violent approach he pursued in 1966-67. He has not
attempted to initiate new areas of insurgency, has
toned down Cuban propaganda, and has allowed front groups
like the Latin American Solidarity Organization to lapse
25X1
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into dormancy. During this time he has almost com-
pletely ignored themes of revolution in his oratory.
27. Castro's caution is a result of a variety
of pressures and realizations. He was stunned by
Guevara's rapid defeat in Bolivia; in retrospect he
probably recognized the quixotic hopelessness of the
campaign as it was revealed in Guevara's field diary.
Castro has been repeatedly discouraged by the failures
of guerrilla groups he has supported, and may realize
that Cuban interference and bullying have contributed
to their factionalism and impotence. He seems to have
grown more pessimistic about the prospects of revolu-
tion in Latin America and about Cuba's ability to be
the decisive influence.
28. In any case Castro is apparently disen-
chanted or at odds with the groups he has supported
in Guatemala, Venezuela, and Colombia, and he prob-
ably does not believe that conditions in most other
counties are right for armed struggle. At least
until the end of next year's sugar harvest, there-
fore, he is not likely to take a significant part
in new guerrilla initiatives or introduce any siz-
able escalation in Cuban support of existing groups.
The Cuban intelligence service will probably con-
tinue a selective guerrilla training program, and
Castro will probably adhere generally to the concept
of guerrilla action, but he is likely to step in
only if Cuban support is desired and when he be-
lieves it could be decisive.
Prospects for Castro's Tenure
29. There is no evidence of organized opposi-
tion to Castro and his regime. Whatever course
Castro follows, he seems likely to retain the hard-
core support of the groups he has favored. They
realize that they are better off than they were be-
fore, and they see no alternative to him.
30. By ceding greater responsibility to his
followers in the military and security forces, Cas-
tro has granted supreme institutional power to the
group that is most loyal to him. As long as this
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group remains loyal, Castro can deal with threats
to his position from any other internal source or
combination of internal forces. Any threat to him
from this group would also have to be against his
brother, Raul. It is unlikely that Raul would take
part in any move against Fidel.
31. If a significant number of majors were to
become convinced that Fidel was either mentally or
physically unable to rule and that Raul could not
be separated from his brother, they could conceiv-
ably attempt to limit Fidel's power. At 42, how-
ever, Castro is in robust health. There is little
chance that any plot against his regime--none is
known now to exist--could succeed in the foresee-
able future.
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Secret
Secret
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 O~z
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