PROSPECTS FOR THE LATIN AMERICAN ECONOMIC SYSTEM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00865A002500400002-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 8
• Document Creation Date: December 12, 2016
• Document Release Date: March 13, 2002
• Sequence Number: 2
• Publication Date: April 15, 1975
• Content Type: MEMO

Approved For
No. 0544/75
April 15, 1975
SUBJECT: Prospects for the Latin American Economic System
Summary
The proposal for an exclusively Latin American economic
system (SELA) has been greeted so far with considerable skep-
ticism. Apart from its co-sponsors, Mexico and Venezuela,
only a few governments seem eager to commit themselves. Even
if it does not attract new adherents, however, some sort of
regional cooperative is almost certain to be created before
the year is out. A number of governments probably will join,
perhaps for no better reason than to show support for Latin
American solidarity.
To become more than just another in the long list of
impotent regional organizations, SELA will have to overcome
formidable hurdles. Old and new rivalries, competing national
interests, and a concern that the organization could cause
trouble with the US will temper commitment.
SELA's ambitious goals and planned staffing will require
considerable financing. All members presumably will be re-
quired to pay dues. Although Venezuela and Mexico seem the
most eager and therefore will probably be the principal under-
writers, they are unlikely to provide more than a few million
dollars. Even then, they will contribute only if they also
have the key roles in determining what projects are to be
undertaken and are assured of receiving a good return for
their money. A number of governments, especially those in
South America, already are suspicious of Venezuelan and
Mexican pretensions to regional leadership. Some are wary
of Cuba's participation.
The underlying purpose of the new organization is to
develop the economies of Latin America and the Caribbean
This memorandum was prepared by the Office of Current
Intelligence and has been coordinated within CIA. Comments
and queries are welcome.
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and to promote their unification. Though the mechanics
have not been determined, the stated goals are to channel
capital into economic development projects, encourage
,Latin American-controlled multinational enterprises, de-
fend prices and ensure markets for raw materials and manu-
factured goods, increase the supply of food, exchange tech-
nology, and promote arrangements with other regional or-
ganizations. A more general objective will be to provide
an informal vehicle for governments to pool and coordinate
research and knowledge on economic issues affecting common
Latin interests.
Presidents Perez of Venezuela and Echeverria of Mexico
clearly consider the political gains to be made from the
creation of SELA as important as the purely economic con-
siderations. They are driving hard to lay claim to'leader-
ship in the hemisphere and in the Third World and no doubt
see their sponsorship of the organization as a good way to
promote their political aspirations. Should SELA succeed,
their intentions in this regard would be bolstered con-
siderably.
Whatever form it takes, SELA will press for better
economic treatment from the industrialized countries,
principally the US. Discontent with US policies toward
Latin America and the less developed world is broad, and
many governments might be attracted to participate if they
see a means of lobbying successfully for trade and other
concessions from the US. But economic and political re-
alities in the hemisphere will make it difficult for the
potential members to agree on how to solve their individual
problems in a coordinated manner. Most governments agree
that some method must be found to create a "new international
economic order," but they will have to be assured that an
organization of the type proposed can do it and do it in a
way that is consistent with their national interests.
Reception
Apart from its two co-sponsors, the only enthusiasm
has come from the Castro government, which views SELA as
a mechanism for putting pressure on the US to make polit-
ical and economic concessions to Cuba and the rest of
Latin America. Castro has long believed that the only
way to get concessions from the US is by confronting
Washington with a united Latin America. The new organi-
zation will allow Cuba to identify with the hemisphere
without abdicating what it has stood for during the last
decade of political and economic isolation. Castro probably
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also believes that SELA could complement his bilateral ef-
forts to re-establish political relations with the Latin
nations. Cuba has been advocating Latin-only forums for
some time and seems to have played a key role in planting
this latest idea. Even so, the Castro government does not
want to assume a leading role, at least at the outset, for
fear this would damage the organization's chances.
Peru and Panama are guardedly enthusiastic. The con-
cept is in line with Peru's support for organizations that
promote Latin American economic integration and the Velasco
government would probably join for that reason alone. Wari-
ness of Venezuelan and Mexican leadership aspirations, how-
ever, will temper Peru's enthusiasm and will prompt Lima
to look closely at the actual benefits it could gain. Panama
also would probably climb aboard if only to further the Third
World-oriented image General Torrijos is portraying. The
Panamanians will want, however, to be assured that they would
not be harming their chances in the canal negotiations.
The remaining countries are less enthusiastic for a
variety of reasons. Their reactions range from mild skep-
ticism to outright rejection. All share the same reserva-
tions about the proposal: wariness of Mexican and Venezuelan
intentions, doubts about its economic feasibility, concern
that it could cause political and economic difficulties with
the US, and concern that it would try to replace the OAS or
other existing regional organizations. Mexico and Venezuela
have been doing their utmost to convince Latin American and
Caribbean governments that these concerns are groundless,
but they have not had nor are they likely to have much
success. All the governments have made politely favorable
responses, but they simply are not likely to commit them-
selves until they determine exactly what tangible benefits
they can gain, and ensure that they are furthering their
national interests.
The larger countries are curious, but skepticism and
uncertainties prevail. Brazil, for example, would not sup-
port SELA if it appeared to be a forum for confrontation
with the US. Brazil prefers to work bilaterally with the
US to preserve what it perceives as its preferred relation-
ship, but it will not close the door if it concludes that
SELA can benefit its economy. Argentina has serious doubts
about the efficacy of the organization, and probably suspects
Venezuelan and Mexican motives. Other South American nations,
such as Chile, Colombia, Uruguay, Ecuador, and Bolivia, are
also non-committal. They would probably join, following the
initiative of others, but they are not likely to participate
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actively without first being assured that the organization
will benefit them and not create troubles with the US.
Central American and Caribbean countries are the most
reluctant. They have close bilateral economic and political
ties with the US and are concerned not to damage them. The
governments in this area may also believe that their own
regional organizations, such as the Central American and
Caribbean common markets, might suffer from the presence of
a group like SELA.
Some governments are concerned that Mexico and Venezuela
are promoting political purposes that they do not share. In
addition to the widespread belief that the co-sponsors are
trying to create a springboard for leadership in the hemis-
phere and an instrument to jab the US, they realize that
SELA will be used as a vehicle for readmitting Cuba into the
community of Latin American states. Mexico and Venezuela
are strong advocates of Cuban reentry into the Latin family
and probably see their new project as a way to accomplish
this.
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Despite the generally negative reception, Venezuela and
Mexico are emphasizing the few favorable responses
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ication of being thoroughly committed to the concept and ap-
pear determined to shepherd the fledgling organization into
existence. It could begin, they say, with only two or three
other countries, but they obviously hope for additional members.
Prospects
Most reports indicate that one of SELA's first attempts
at actually doing something will be in the area of government-
to-government joint ventures. It will apparently set up
machinery for Latin American governments to undertake joint
development projects. Some projects will apparently be under-
taken with countries outside of Latin America.
Some 40 to 50 joint projects, mostly in mining, petro-
leum and industry, have been discussed. Cooperative ventures
like these need money to succeed. Raising it would pre-
sumably be the responsibility of the governments directly
involved, but some governments might be expected to take the
lead in footing the bills.
Venezuela is the most likely source of funds, although
only to a limited extent. Despite its often expressed desire
to aid the development of other developing countries and to
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support other nations' efforts to boost prices of their com-
modity exports, Caracas is offering only limited support.
Most of its surplus funds are now placed abroad in short-
term deposits at commercial interest rates. In a few years,
this money will probably be needed to finance a growing
trade deficit. Only some $40 to $80 million in short-term
loans was offered to the Central American nations for a
coffee stockpiling scheme. Partial financing for oil sales
that can be converted into 25-year development loans was
recently initiated by Caracas for the five Central American
countries and Panama.
The Venezuelans will want a key role in determining
what projects SELA undertakes. Their experiences with un-
likely schemes devised in the Latin American Energy Organi-
zation will cause them to look closely at any proposals.
Caracas will be reluctant to be the sole financial backer,
especially if it finds that the organization does not produce
the desired benefit for Venezuela.
Mexico's growing revenues from oil should enable it to
contribute eventually. For the near term however, it is not
likely to sink large amounts of oil-derived capital in ex-
ternal enterprises.' Presently, it is concentrating on ex-
panding its petroleum industry and exploiting its new oil
fields. Mexico will probably use most of its oil revenues
for domestic development rather than for joint.regional pro-
jects. It is also distinctly possible that Mexico's next
president will not be as enthusiastic about regional partner-
ships as President Echeverria, and decide to curtail Mexican
participation., In that event, the organization could be
severely crippled.
Other than Venezuela and Mexico, few if any governments
are likely to be able or willing to provide significant funds.
SELA might well become increasingly attractive to other govern-
ments, however, if real economic benefits from its projects
become apparent to them. Details are a long way from being
worked out, but its boosters say it will undertake projects
that are realistic and profitable. Previous efforts at
regional integration were too ambitious; this one, its pro-
ponents say, will bite off something it can chew. ,
Implications for the US
A major objective of SELA is to defend prices and ensure
markets for exports. At least one prominent spokesman, Mexico's
Minister of National Properties Francisco Alejo, has acknow-
ledged that the organization will try to follow the example
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of OPEC in defending the prices of Latin American raw mate-
rials. Although he and SELA's other advocates deny that the
intention is to bring the organization into conflict with
the US, the idea of applying the OPEC model to commodities
other than oil has wide appeal. Some producer arrangements
have been formed -- such as the banana cartel promoted last
year by the Central Americans, and other organizations of
producers of coffee and sugar -- but they have not been
successfulln manipulating markets or prices.
Most of the nations in the hemisphere, moreover, prefer
not to get involved in an organization that could lead them
into new trouble with the US over economic and political is-
sues. They doubtless consider Secretary Kissinger's Houston
speech on March 1 a clear warning against forming organi-
zations that restrict access or artificially raise prices
of raw materials to levels that cause serious disruption
of the world economy.
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Also, most Latin nations believe that the right conditions
for cartels do not exist in Latin America. Brazil, for one,
believes that the OPEC example is difficult to copy; it pre-
fers that raw materials suppliers deal with consumer countries
on mutually beneficial arrangements. Confrontation tactics,
Brazil believes, will have to give way to more rational ap-
proaches. Other governments, aware of the political hazards
and uncertain of the economic feasibility of forming cartels,
will'probably be as wary as Brazil.
Even though the Latins are likely to balk at forming a
group that might emulate OPEC tactics, they nevertheless will
be attracted to the notion that, working together, they can
extract economic concessions from the US. The success that
the Third World has had in commanding the attention of de-
veloped nations has not gone unnoticed. They probably believe
that through SELA they might be able to lobby for better prices
for their raw materials and fewer restrictions in marketing
them. They may also expect assistance on such issues as
access to US technology and financial resources and to the
capital of international lending institutions.
There is also a growing feeling, articulated most often
by would-be Latin American leaders Echeverria and Perez, that
unless some bold new pattern of unity and integration can be
developed under the control of the dependent Latin nations,
realistic options for economic development will remain pain-
fully limited.
Echeverria, for example, is saying that Mexico cannot
find answers to all its development problems by dealing with
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the industrialized powers -- i.e., the US -- on a one-to-
one basis. To begin to solve these problems, he says, the
collective weight of several or all economies in Latin
America is needed. SELA, Echeverria believes, is the
mechanism that can help deal with the area's development
problems.
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Most Latin American nations probably agree with Echeverria,
at least in theory. Latin America and the less developed
world are dissatisfied with US policies toward them. They
are seeking to mobilize themselves around a common cause
against the developed states. Their desire to create a "new
world economic order" that will unify them on key issues of
underdevelopment is strong. In practice, however, the Latin
American nations will want to know first what SELA can ac-
complish for them and what its approach will be before com-
mitting themselves to genuine participation. But even if
SELA turns out to be more successful than now appears likely,
there will be no rapid solutions to the continent's develop-
ment problems.
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