LATIN AMERICA REGIONAL AND POLITICAL ANALYSIS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00912A000700010001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 19, 2016
• Document Release Date: May 11, 2005
• Sequence Number: 1
• Publication Date: June 30, 1977
• Content Type: REPORT

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Secret
Latin America
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AL AND
CAL ANAl
State Department review completed
YS
Secret
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LATIN AMERICA
30 June 1977
CONTENTS
The OAS General Assembly and
the Human Rights Issue . . . . . . . . . . . . . . 1
Guatemala-Belize: Dispute
Escalates Again . . . . . . . . . . . . . . . . . . 5
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Argentina - North Korea: Break in
Relations . . . . . . . . . . . . . . . . . . . . . 10
Peru: Government Contains
Austerity Protests . . . . . . . . . . . . . . . . 11
Venezuela: Down to the Wire . . . . . . . . . . . .13
Paraguay: Stroessner and the Press. . . . . . . . .19
Bolivia: Pressures To Return
to Democracy ... . . . . . . . . . . . . . . . . . 21
Bahamas: Election Campaign . . . . . . . . . . . . .23
Netherlands Antilles: Election Outcome. . . . . . .26
Mexico: International Financial
Situation and Outlook . . . . . . . . . . . . . . .28
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This publication is prepared for regional specialists in the Washington community by
the Latin America Division, Office of Regional and Political Analysis, with oc-
casional contributions from other offices within the Directorate of Intelligence and
from other agencies within the Intelligence Community. Comments and queries are
welcome. They should be directed to the authors of the individual articles.
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The OAS General Assembly and the Human Rights Issue
Delegates to last week's OAS General Assembly in
Grenada returned home convinced of the sincerity of
Washington's commitment to the defense of human rights.
The conference, in fact, turned out to be a battle-
ground for the US human rights policy, and almost all
of the discussions were devoted to it. Even though the
delegates have been thoroughly sensitized to the issue,
the outlook for progress in curbing human rights abuses
is still mixed at best.
The 13 nations voting for the US initiative on
human rights were: Panama, Jamaica, Barbados, Surinam,
Grenada, Costa Rica, Trinidad, Mexico, the Dominican
Republic, Ecuador, Haiti, Venezuela, and Peru. Seven
of these are Caribbean countries. Five are countries
visited by Mrs. Carter in early June. The southern
cone countries of Brazil, Argentina, Chile, Paraguay,
and Uruguay abstained--a polite "no" vote--as did
Guatemala, Colombia, and El Salvador. Honduras,
Nicaragua, and Bolivia did not vote.
It has been apparent for some time now that US
spokesmen, including Mrs. Carter, Secretary Vance, and
Ambassador Young, have been getting the human rights
message across to the Latin Americans. The doubts
about Washington's long-term seriousness on the issue
have given way in many cases to concrete action by sev-
eral. of the countries to curb the worst abuses. For
example, Chile claims that it has freed its last polit-
ical prisoner. While the OAS was in session the Chilean
government also negotiated the settlement of a hunger
strike, staged by families of missing persons, that
has been in progress at the UN Economic Commission for
Latin America headquarters in Santiago. Argentina and
Brazil have directed security forces to be more circum-
spect when arresting suspected terrorists. Paraguay is
again talking about inviting the Inter-American Human
Rights Commission to make an on-sight inspection in
Asuncion.
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These positive steps, however, do not mean that the
OAS community will soon develop a unanimity of views
on the human rights issue. Although no country would
ever voice opposition to the defense of human rights
intrinsically, the reasons for the negative votes con-
tinue to be fear of political and economic destabili-
zation caused by communism and terrorism. The psycho-
logical and real factors are unlikely to go away in the
near future. In fact, it is conceivable that some of
the countries voting with the US on this issue may be
faced in the future with a security problem that could
lead to systematic violations of human rights. Haiti,
for example, already has one of the worst records in
the hemisphere on human rights. Politically related
violence is already common in Jamaica, always threat-
ening in Panama, and never far from the surface in the
Dominican Republic. Haiti's vote for the US resolution
is difficult to understand; Ambassador McGee believes
the Haitians had decided to vote yes on everything that
came up at the meeting.
The positive votes by Jamaica, Costa Rica, Ecuador,
Peru, and Venezuela could well have been influenced by
Mrs. Carter's visit to these countries. More than
likely, however, other considerations were just as
important. Even though Mrs. Carter reportedly was as-
sured by Jamaican Prime Minister Manley that he would
support the US on human rights, Manley was effusive
in his praise for President Carter on the human rights
issue well before Mrs. Carter's trip. Moreover, Jamaica
sorely needs US financial assistance now. Costa Rica
and Venezuela, two of the few practicing democracies
in Latin America, would be expected to support the US, as
would Mexico.
An Ecuadorean spokesman has said that his country's
vote for the US resolution stemmed from a sincere belief
in human rights. Another Ecuadorean said, however,
that Quito has an ambivalent attitude toward the issue
because it could be construed as interference in inter-
nal affairs. He added, however, that the government had
decided to:support the US policy before Mrs. Carter's
visit and could not change its position even if it
wanted to. Both denied that the possibility of acquiring
arms from the US was a factor in their vote, but the
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Ecuadoreans are again inquiring about US aircraft. In
the case of Peru, the positive vote was not surprising.
Peru has generally supported public declarations of
human rights, and it is believed that the US declara-
tion on human rights will be incorporated into the new
Peruvian constitution.
The support for the US position by Barbados, the
Dominican Republic, Panama, Surinam, Grenada, and
rinidad-Tobago was not unexpected, but Jamaica had
to put pressure on the Grenadans in order to get their
vote. Progress in the canal negotiations certainly
as a factor in winning Panama's vote.
In the final analysis, the Grenada meeting of the
OAS may be remembered in the future as the beginning
of a new era of understanding between the US and
Latin America, or it may go down as the final disso-
lution of the special relationship most Latin American
countries have long assumed they enjoy with Washington.
Despite the US victory on the human rights issue, the
voting pattern raises disturbing questions. The
southern cone countries remain a solid intransigent
bloc, with Brazil emerging as a leader of this faction
and exerting its influence to a certain extent over
Bolivia and Colombia. The US is thus left with solid
support from Mexico, Venezuela, Ecuador, Peru, and the
Dominican Republic among the Spanish-speaking countries.
Continued backing for US initiatives from the English-
speaking Caribbean appears to be tenuous at best and
may, in the long run, be contingent on the willingness
of the US to provide economic assistance.
All of the Latin nations are now aware, however,
that the issue of human rights is the fundamental basis
of inter-American cooperation--at least in US eyes.
The linkage of US assistance to human rights is bound
to have a great impact on Latin America. It remains to
be seen if it will be positive or negative.
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GUATEMALA-BELIZE: Military Maneuvers
Military
Maneuver
Orange
Walk
GUATEMALA
Nive~
M~~nk v,
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Guatemala-Belize: Dispute Escalates Again
In the latest of a series of escalating maneuvers,
the Guatemalan army has initiated a week of military
activities on the border with Belize, presumably to put
pressure on the UK in the continuing negotiations over
Guatemalan claims to the British colony. Other Guate-
malan moves also continue to point to serious prepara-
tions for military action if negotiations fail.
The British were officially informed by Guatemala
of the military exercises. The maneuvers, along with a
recent limited mobilization--or at least stepped-up
training--of military reserves, seem designed primarily
for diplomatic impact before the Guatemala-UK talks on
July 6 and 7. Although some British officials view the
Guatemalan moves as irrational, President Laugerud ap-
parently believes the British are at least seriously
considering terminating the talks, and he is out to con-
vince them that such a move would raise a serious risk
of military conflict.
In response, British forces in Belize--about 1,300
men--have gone to the second stage of a four-stage
alert system. The British may well proceed with a
limited reinforcement, which has been under considera-
tion.
Guatemala has indicated it will present its minimal
demands during the talks in Washington. Recent report-
ing has indicated President Laugerud is focusing on a
single cession of territory in Belize south of the Mon-
key River. The Guatemalans have, however, at times
discussed the Moho River line--a much smaller piece of
territory--as a fall-back position. As a result, we
believe there is still give in the Guatemalan stand on
this point of,a territorial settlement.
Guatemalan-UK relations were further strained this
past week when authorities in Barbados--suspicious about
the cargo of a transiting plane--detained an Argentine
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aircraft which was en route to Guatemala with a large
shipment of ammunition. Guatemala termed the action by
the former British dependency a "UK provocation" that
demonstrated a lack of interest in a peaceful settlement.
of the Belize dispute. Aside from the increase in the
level of the rhetoric, the Guatemalans are obviously
seeking to bolster their stock of 5.56-mm ammunition
for the 15,000 Galil rifles they recently purchased
from Israel.
Laugerud's room for maneuver is also limited by
domestic political complications. Guatemala is now en-
tering the campaign period for the March 1978 presiden-
tial elections in which the government-backed candidate
could face a hard fight. The country is also again
experiencing increased political violence. A prominent
leftist attorney was assassinated on June 8 and there
have been two attempts to kidnap sons of wealthy busi-
nessmen this month. Business leaders recently attempted
to prevail upon Laugerud to impose a state of siege and
crack down on the left or allow the creation of extra-
legal anti-terrorist groups. Immediately following
Laugerud's reported refusal to authorize paramilitary
units, a new right wing group, the Secret Anti-Communist
Army, announced its existence.
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Faced with these domestic difficulties and the
prospect of escalating left-right violence, Laugerud
can ill afford. to be perceived as a weak leader. In
part, this accounts for his hard line pronouncements on
/ the :3elize issue. In a speech this week, he again
warned of the possible need to take up arms to confront
aggression by Great Britain and pledged as commandin
general, "to be at the head of all."
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Argentina - North Korea: Break in Relations
Argentina recently severed. diplomatic relations
with North Korea after Pyongyang's entire mission had
abruptly left the country. The break was largely a
product of the suspicion with which the Videla govern-
ment has viewed North Korean activities in Argentina.
The move undoubtedly pleased the highly conservative
Argentine navy, which controls the Foreign Ministry.
The North Koreans contend that they left Argentina
because of harassment and surveillance by Argentine
security and intelligence services. A note of explan-
ation to President Videla stated that until the situation
improved, North Korean diplomatic matters with Argentina
would be handled by the mission in Cuba; no mention was
made, however, of ending diplomatic relations.
The staunchly anti-Marxist government in Buenos
Aires, suspicious that communist aid is going to sub-
versive groups in Argentina, has long kept close watch
on the communist missions. Official Soviet and Romanian
personnel, as well as communist news correspondents,
are restricted to a limited area in and around Buenos
Aires, and North Korean staff members were also under
travel restrictions.
Recent reports indicate that Argentina intended
to reduce the number of both North Korean and Cuban
personnel assigned to their embassies in Buenos Aires.
The decision to do so apparently was awaiting an assess-
ment of economic and political benefits and losses.
The North Koreans have steadily reduced the staff
of their mission in Buenos Aires over the past year in
response to obvious Argentine irritation about impro-
)rieties and the crude behavior of North Korean diplo-
ats.
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Peru: Government Contains Austerity Protests
The Peruvian government, thus far, has succeeded
in containing public protest demonstrations triggered
by the harsh new economic plan announced on June 10.
Bank officials, meanwhile, are hopeful that early Inter-
national Monetary Fund approval of the new plan will
pave the way for balance-of-payments support loans that
Peru badly needs.
The government has moved swiftly to localize the
protests which have taken place in most major cities by
rapidly deploying security forces, imposing curfews,
and making hundreds of axrests.
The most serious disturbances occurred in the
southern cities of Cuzco and Puno. On June 15 and 16,
Cuzco was the scene of a confrontation between leftist
students and police which deteriorated into general
rioting before the civil guard could restore order.
During protests over food price increases in Puno on
June 23, a train was derailed and a police station and
several other government buildings were burned. Further
demonstrations, though much less severe, have occurred
in Lima, Arequipa, Ayacucho, and several smaller local-
ities.
Students, with encouragement from leftists, remain
the principal agents in the disturbances, with organ-
ized labor playing a far less conspicuous role. Lo-
calized strikes in support of the students have been
only partially successful--undoubtedly the result of
government threats of immediate punishment for workers
who participate.
Although talking tough with union leaders may be
sufficient to keep labor at bay, the government continues
to fear an open confrontation with the workers. It will
face further challenges on June 30 when bank workers
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plan to strike in Lima, and again on July 5, when a
nationwide strike has been scheduled by the far-left
teachers' union.
Peruvian banking officials are optimistic that a
team from the International Monetary Fund, now visiting
Lima, will find the new economic measures an acceptable
response to conditions imposed by the Fund last March
for a standby loan. If agreement is imminent, as
these sources suggest, discussion with New York com-
mercial banks concerning further balance-of-payments
assistance--which has been contingent upon the IMF
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Venezuela: Down to the Wire
More than a million registered members of the gov-
erning Democratic Action Party (AD) will cast their
votes on July 17 in a nationwide direct primary to
select a presidential candidate for the general elec-
tion in December 1978. Several weeks later, the op-
position Social Christian Party of former president
Rafael Caldera and the Marxist Movement Toward Social-
ism will each select their standardbearers, actions
which will all but officially launch the start of what
is likely to be a sharp and bitterly fought campaign.
A Unique Approach
The AD's new selection experiment is a radical
departure from the complex five-level system used in
the past to choose the party's National Convention
delegates, who, in turn, selected the presidential
candidate. This new system involves open assembly
voting for delegates, starting at the base of the party's
pyramidal structure and proceeding upward through mu-
nicipal and state committees. A side effect of the
system is to reduce the traditional influence of party
power brokers who formerly dictated the party's choice
at the party convention. Now, an element of uncertainty
has been added both because secret ballots will be cast
and by the fact that all party members are eligible to
participate, thus ensuring a large vote. The universal
suffrage experiment will be limited to presidential
primaries; legislative and other elective posts will
still be filled through the traditional system. Al-
though some older party leaders consider the electoral
reform transitory, there is widespread pressure from
younger AD members to institutionalize the new system.
It may even be a precursor of further changes that will
affect other parties as well. Venezuela's traditional
system of obligatory party block voting for congressional
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and municipal posts, where a split ticket is impossible,
is under heavy fire from an electorate largely composed
of independent voters.
Supporters of both major candidates, AD congres-
sional whip Jaime Lusinchi and party secretary general
Luis Pinerua Ordaz, are predicting victory. The fever-
ish activity in both camps belies this confidence, how-
ever, and suggests that both men consider the next few
weeks critical. Former president Romulo Betancourt
had made clear his strong preference for the party's
secretary general and has stated privately that he is
determined to do whatever is necessary to secure the
nomination for Pinerua. His statement may reflect some
anxiety that Pinerua's campaign has stalled in recent
weeks while Lusinchi's campaign, starting virtually
from nowhere six months ago, is beginning to pay off at
the grass roots level, offsetting to some extent bene-
fits Pinerua receives from his tight grip on the party
machinery.
By again taking an active role within the party and
the country, Betancourt, the party's "president for
life," has directly challenged President Carlos Andres
Perez over the question of party leadership, especially
as it relates to the choice of the party's 1978 presi-
dential candidate. Perez is known to favor Lusinchi
and some of Perez' closest advisers publicly support
him. The President, a strong-willed man, will not take
lying down Betancourt's reassertion of a leadership
role for himself within the party. Neither will Perez
tolerate remarks openly critical of major aspects of
his foreign policies. While Perez has not openly chal-
lenged Betancourt, he has issued thinly veiled public
rebuttals to Betancourt's analysis of foreign policy
issues.
A Party in Transition
The struggle for the party nomination has tended
to overshadow the fact that the AD is going through a
period of considerable soul-searching and strain as it
approaches the elections. The aging fathers of the
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party, Betancourt and Gonzalo Barrios, are nearing the
end of their political careers, but still retain enor-
mous party power. President Perez, 53 years old, has
great influence, but is something of a lame duck since
he cannot become a candidate for president again for
ten years after he leaves office. This explains in
part his great interest in demonstrating his political
skills on the domestic and international levels in an
effort to obtain a secure hold on the party leadership
when Betancourt departs the scene. The competition with-
in the party also represents something more than the ri-
valry between two well-known politicians; it is also
a clear reflection of the changing times in the country.
Lusinchi has not defined his political goals very
well, but he insists that the old-line leadership,
Betancourt and Barrios among others, is no longer rep-
resentative of the Venezuela of 1977. Lusinchi is more
at ease with the big merchants and industrialists and
less dependent on the traditional base of the party,
the unions and peasants. In keeping with what his
supporters believe to be the present day Venezuelan
reality, he seeks to project a more sophisticated and
polished image than his rival.
Pinerua is more representative of the AD party
which was formed under the Gomez dictatorship during
the 1930s--an organization made up largely of workers,
peasants, and small-business men. He is more provincial,
suspicious of big-city ways and big business, and is
firmly opposed to the Communists and any kind of deals
with them. He is also critical of the corruption and
immorality that he feels are characteristic of many
of the newly rich elements of Venezuelan society.
AChallenge
The problem facing the Democratic Action Party is
to determine how much the country has changed since
the last general election--before massive oil-gener-
ated revenues poured into the country--and how many
people have changed with it. If the AD is to continue
to claim to represent the Venezuelan average man, it
will have to decide who he is. While he may no longer
be the "Juan Bimba" in peasant attire and sandals, he
is probably also not the well-dressed young man riding
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around Caracas in a Mercedes. Lusinchi and Pinerua
serve as opposing symbols for what the party is and
what its future role is to be. This explains the feel-
ing of many party leaders who see that what is at stake
is not necessarily the political fortunes of two very
ambitious politicians but the control of the ideo-
logical heart and soul of Venezuela's largest poll 1 al
party.
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Paraguay: Stroessner and the Press
President Stroessner has repeatedly demonstrated his
ability to perpetuate his stay in office by manipulating
"democratic" procedures. Now, he apparently is moving
behind the scenes to gain control over the Paraguayan
press.
Within the past few months two evening newspapers
have been started in Asuncion,, apparently to compete with
the morning daily A B C Color, the only Paraguayan period-
ical that occasionally criticizes the government. Both
new publications are said to have financial backing from
pro-government sources, and the principal stockholder in
one launched this month is Stroessner's son-in-law,
Humberto Dominguez Dibb.
Stroessner recently took strong exception to a state-
ment by the Inter-American Press Association that there
is no freedom of the press in Paraguay, but he has
frequently been sensitive to public criticism of his
policies. On one occasion, he jailed the editor of a
newspaper for publishing a joke about the Chaco War
that was apolitical, but one that Stroessner considered
to be in poor taste. Most newspapers practice self-
censorship and even A B C Color refrains from attacking
the President directly.
Nevertheless, A B C Color has probably aroused of-
ficial ire by its repeated criticism of the terms of the
Itaipu hydroelectric project which, it alleges, consti-
tutes a virtual sell-out to Brazilian interests, and by
the paper's propensity to call attention to the grosser
abuses of the contraband trade--reportedly run by some
of St.roessner's closest associates.
According to estimates of the United States Infor-
mation Agency, the two new dailies already have achieved
a combined circulation of approximately 55,000 rivaling
that of A B C Color. They also enjoy the latest offset
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presses and new typesetting and photo-reproduction
equipment--all purchased in the US. A B C CoZor, how-
ever, also has considerable financial resources and is
not likely to fold in the near future.
cording to one report, he and s
ing his son-in-law and Army Co
plan to launch a weekly magazin
station (the two Paraguayan cha
are state-controlled). Such de
complete Stroessner's hold on t
everal associates, includ-
mander General Rodrigues,
e and a third television
nnels now in operation
velopments would virtually
he country's media.
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Bolivia: Pressures To Return to Democracy
Demands from various public sectors have resulted in
a ground swell of pressure on the government to open the
way for a resumption of political activities. President
[Banter has responded by reassuring the nation that Bolivia
will be "constitutionalized" by 1980 but at the same time
he is monitoring the momentum being created by unofficial
political activities.
Over 100 prominent Bolivians, including former offi-
cials of the current government, peasant and labor leaders,
retired military officers, and former president Luis Adolfo
Siles, signed a published letter calling for elections
by 1978 and an end to the suspension of political parties
and trade unions imposed in 1974. The letter was probably
precipitated by a speech in which Banzer announced that
Bolivia would not return to a "formal democracy," which
he termed a "great hypocrisy."
The latest official declaration restates what has
become a familiar theme--that the "transitory" Banzer
government intends to "institutionalize" Bolivia and pro-
vide for a "new" democracy beginning at a "moment best
suited to the national interests." He reiterated his
three-stage plan for democratization: institutional sta-
bility, which has already been accomplished; strengthening
of economic and social structure, now in progress; and
democratic institutionalization. Banzer apparently has
consulted with his advisers about the restoration of
democratic principles, but as yet has neither defined
the "new" democracy nor decided how it will come about.
In fact, the President's remarks go no further than the
armed forces "Plan for a New Bolivia"--issued last October--
which offered a justification for continued military rule
and a rough blueprint for the country's future.
The Banzer regime is clearly opposed, however, to
the reactivation any time soon of traditional political
parties. In early June the President said that he would
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not permit a return to "false democracy." Minister of
Interior Pereda coincidentally made a statement precluding
the lifting of the 1974 decrees that suspended political
and labor union activities. A recent official communique
says that to return "to politicking is to vitiate democracy,
check development, and prevent civilized coexistence."
These statements characterize La Paz's reactions to the
increasing efforts of the two major Bolivian political
parties, the Nationalist Revolutionary Movement (MNR) and
Bolivian Socialist Falange (FSB), to regain the right to
engage in political activity.
The FSB has for some time been insisting it will hold
a national convention in August to plan future activities.
The MNR demanded elections in an open letter published on
the 25th anniversary of the 1952 revolution in April.
Both parties have been sharply reminded that the ban on
political activity is still in force. Banzer further
warned that parties would be allowed to resume activities
only when they could guarantee "unity, well being,
peaceful coexistence, and political stability for every
citizen without exception."
Banzer is undoubtedly concerned about the potentially
destabilizing effect on his government of lifting the lid
off party activity. At a minimum, the strong official
criticism directed toward the MNR and the FSB is intended
to retard their efforts toward constitutionalization,
while ensuring Banzer's continued control over the direction
and rate of the process. More important, the government's
censure of the parties may be signaling the end of the
truce under which the MNR and FSB have existed with the
Banzer regime since the installation of the all-military
government three years ago.
In any case, the official reaction
for democratization will probably not sa
opposition leaders. The government's va
response to their demands offers little
the 1980 deadline less reversible. Crit
Banzer regime's rule by decree is likely
is the call for more explicit plans for
to the demands
tisfy political
gue and repetitive
beyond making
icism of the
to continue as
Bolivia's future.
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25X1A
Bahamas: Election Campaign
The popularity of Prime Minister Lynden Pindling
and his Popular Liberal Party (PLP) appears to have
slipped in the last year. The fragmentation of the op-
position, however, is likely to allow him to return to
power in the July 19 House of Assembly election, al-
though perhaps with a reduced, margin.
Elected in 1967 as the first black head of govern-
ment, Pindling enjoyed wide popularity. He strengthened
his position by leading his country of 213,000 inhabi-
tants to independence in July 1973 and by chartering a
generally moderate though nationalistic course. In
recent months, however, he has had to beat back chal-
lenges even from within his own party.
Opposition to Pindling from within the PLP culmi-
nated in May when a group of backbench "rebels"--opposed
to Pindling's increasingly personal control of the party--
tried to thwart the Prime Minister's efforts to manage
the party's nomination process. Only after threatening
to resign did Pindling succeed in dropping 10 members of
parliament from the party's list of candidates. Many of
these individuals are running as independents and their
strength in their home constituencies could cost the
PLP several seats.
Pindling's growing awareness that he may be in for
a tough battle led him to cut short his attendance at the
Commonwealth conference in London earlier this month so
that he could return home and begin campaigning. He
got off to a bad start, however. Speaking to a rally of
party faithful and not a few opposition hecklers on
June 13, Pindling lacked his customary charisma and
misjudged the mood of the crowd. Challenged in advance
by an opposition party leader to use the occasion to
discuss major campaign issues of underemployment--espe-
cially of youth--and government corruption, Pindling
instead delivered a prepared statement concerning the
results of the Commonwealth conference.
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The Bahamas
Kilometers
GRAND:
BAHAMA
GREAT
ABACO
Miarni.,
BIMINI
ISLANDS
BERRY
ISLANDS - . Ounmore Town
Governors Harbor,
NASSAUO ELEUTHERA
ANDROS pROV DENCI= Rock Sound
ISLAND Andros
Town.
CAT
ISLAND
GREAT
EXUMA
George
Town
SAN
SALVADOR
LONG
ISLAND
C 4a / r
GREAT INAGUA
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Pindling is now on the defensive, but he is likely
to be saved by the fact that the opposition is even
more divided than the ruling party. Last December, the
parliamentary faction of the major opposition party, the
Free National Movement (FNM), broke away and formed the
Bahamian Democratic Party (BDP) led by Henry Bostwick.
In April, the BDP and FNM made a last ditch attempt
to submerge their differences--which are based more on
personality than on ideology--and to present a single
list of candidates. Efforts at conciliation failed,
however, and now both parties are running nearly a full
slate of candidates for the 38 available seats.
The BDP was originally expected to have more voter
appeal than the FNM but has so far concluded a lackluster
campaign. In addition, Pindling appears to be having
some success in exploiting the reputation of the BDP as
a spokesman for the white business community. The FNM
remains basically a creature of its controversial
leader Cecil Wallace-Whitfield, who left the PLP in
1970. It is offering a group of young, mainly untested
candidates, but the party has so far had surprising
success in attracting new voters. In the unlikely event
that Pindling fails to obtain a majority, he might well
strike an alliance with Wallace-Whitfield.
'.Phis election offers little prospect of a signifi-
cant change of course in The Bahamas since neither of
the ruling party's two major challengers offers a pro-
gram that differs markedly from that espoused by the
government. There are forces at work below the surface,
however. The Bahamas has been less affected by the more
militant ideologies and movements--such as black power
in the early 1970s and more recently third world social-
ism--than have other countries in the Caribbean. As
young people from the isolated "out islands" continue to
migrate to the overcrowded, unemployment plagued main
islands of New Providence and Grand Bahama, a breeding
ground for adherents to more radical political movements
may be forming.
More immediately, the government is likely to come
under increasing pressure as the campaign progresses to
shake its image as a haven for geriatric "fat cats." It
has to persuade the electorate that after 10 years of
rule it maintains its dynamism and is not indifferent to
the country's socio-economic problems.
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25X1A
Netherlands Antilles: Election Outcome
The victory of Sylvius G. M. "Boy" Rozendal and
his Democratic Party in the June 17 Staten elections
is likely to ensure continued centrist leadership and
will enhance the prospects for an accommodation with
separatist forces in Aruba.
With a combination of business and labor support
the Democratic Party won 6 of a possible 12 seats from
the federation's largest island, Curacao. The Staten
has a total of 22 seats. Rozendal will replace Juan
Evertsz as Minister President and is currently in the
process of forging a new coalition. The major loser
was Wilson "Papa" Godett and his left-leaning Workers'
Party of Liberation (FOL). The strongest party on the
island following local elections in 1975, the FOL won
only three seats this time. The FOL's poor showing
was due in large part to successful efforts by its oppo-
nents to arouse popular suspicion that Godett planned
to bring Cuban-style socialism to Curacao. The
FOL may be hard pressed to remain united as new lead-
ers, including the dynamic Don Martina, try to give
the party a new direction.
As expected, Gilberto "Betico" Croes and the
People's Electoral Movement (MEP) were the big winners
in Aruba where they captured five of the eight Staten
seats. The election outcome has reinforced Croes'
belief that he has broad popular support for moving
toward Aruban separation from Curacao. Croes hopes
to join the new governing coalition and reportedly
would settle in the short run for a government commit-
Iment to grant Aruba increased local autonomy. Croes
has threatened to demand immediate separation for Aruba,
however, if the MEP is excluded from the coalition.
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The composition of the new coalition is still uncertain,
but Rozendal reportedly favors establishing a government
that would include the MEP, as well as the Aruban Patri-
otic Party (PPA), and a representative from Bonaire. To
form this coalition Rozendal is apparently willing to
make concessions to the MEP by moving toward a more
decentralized system of government. In addition, he
will undoubtedly have to overcome the resentment the PPA
must feel toward the MEP, following a campaign that saw
Croes' followers resort to violence to prevent the PPA
from opening a campaign headquarters. 25X1
25X1A
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Mexico: Foreign Financial Gap
Million US $
Current account deficit 1,175 2,558 3,769 3,024 2,400
Debt amortization -845 -596 -839 -1,141 -1,600
Financial gap -2,020 -3,154 -4,608 -4,165 -4,000
Medium- and long-term
capital inflows 2,520 3,326 5,179 6,031 5,200
Official borrowing 1,962 2,739 4,349 5,032 4,500
Direct private investment 287 362 362 331 400
Other net private inflows 271 225 468 668 300
Net short-term capital and
errors and omissions -378 -136 1106 -2,199 -300
Change in reserves 122 36 165 -333 900
Other financial items:
External public debt yearend
(including short-term) 7,617 10,497 14,449 19,600 22,500
Debt service ratio (public
medium- and long-term) 25 18 29 36 45
Million US $
Exports, f.o.b.4 2,348 3,293 3,313 3,818 4,600
Imports, c.i.f. 3,813 6,057 6,580 6,030 5,900
1. Provisional. -~ -- _~
2. Projected.
3. Including amortization of public and publicly guaranteed debt, the great bulk of the medium- and long-term
debt.
4. Including value added by border industry operations.
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Mexico: International Financial Situation and Outlook
The Mexican economy is passing through a difficult
readjustment period, but its future remains exceptionally
bright. Sharply rising debt amortization obligations
will keep the foreign financial gap* large this year
despite extreme austerity measures. The pace of future
improvement will depend on how rapidly Mexico City de-
velops its new-found oil reserves and what rates of eco-
nomic growth it decides to maintain. By 1980, Mexico
could be achieving substantial current-account surpluses;
at worst, it should be running a considerably smaller
deficit.
The Oil Crisis Period
Mexico's foreign financial gap more than doubled
between 1973 and 1975, to $4.6 billion, mainly as a re-
sult of a worsening trade imbalance. During this period,
the higher oil bills that plagued other LDCs were not a
problem for Mexico; in fact it had become a net oil ex-
porter by 1975. Nonoil imports nearly doubled because
of:
--A highly import-intensive program of public
investments.
--Inventory accumulation spurred by inflationary
expectations.
--Shortfalls in domestic food production due
to poor weather and low government support
prices.
--The steady inflation of Mexico's cost-price
structure relative to those of its major
trading partners.
*In this article, financial gap is defined as the current-
account deficit plus amortization of medium- and Long-
term debt; shifts in short-term capital are not included.
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Export earnings grew by 40 percent in 1974 but stag-
nated in 1975 as recession struck world commodity mar-
kets. Exports also suffered from a continued erosion
in the international competitive position of Mexican
manufactures and from poor harvests. By 1975, the trade
deficit totaled $3.3 billion, compared with $1.5 billion
in 1973.
To make matters worse, the services account--tra-
ditionally in substantial surplus--shifted into the red
in 1974 and registered a deficit of $700 million in 1975.
The predominant cause of the shift was a rapid rise in
interest payments on external public sector debt, from
$378 million in 1973 to $850 million in 1975. In addi-
tion, net earnings from tourism stagnated as Mexico's
inflation outpaced the US rate by an annual average of
11 percentage points.
As news of its new-found oil riches spread, Mexico
found it easy to tap private markets to meet the bulk of
its foreign capital needs. Borrowing by the public sec-
tor--long the main user of foreign capital markets--in-
creased from $2 billion in 1973 to $4.3 billion in 1975.
Mexico: Foreign Trade and Net Tourism, 1976
Net x
~awrlsm
50
Jan Feb Mar Apr May Jun Jul Aug SOP Oct Nov Dec
1. Excluding value added by border industries operations. Data on border industries are available
only on a quarterly basis.
2. Including border transactions.
573344 6-77 CIA
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Throughout the period, Mexico continued its policy of
borrowing somewhat more than it needed to cover the fi-
nancial gap plus short-term capital losses to increase
its foreign exchange reserves.
Paying the Piper in 1976
Last year was probably the most difficult year for
the Mexican economy in more than two decades. The fi-
nancial gap narrowed in 1976 only because of the sharp
drop in industrial production and real GDP that followed
the loss of business confidence with the September float
of the peso. Immense short-term capital flight both be-
fore and after the devaluation required a jump in foreign
borrowing. Although medium- and long-term capital inflows
rose to a record $56 billion, Mexico City was still forced
to draw on reserves to cover its needs.
The substantial improvement in the current account
in 1976 resulted from a $1.1-billion drop in the trade
deficit, split between a $500-million increase in ex-
ports and a $600-million reduction in imports. The 15-
percent increase in exports was largely due to higher
prices for agricultural products, particularly coffee,
and increased petroleum sales. Exports of manufactures
failed to respond to economic recovery in the industrial
countries largely because they were not priced competi-
tively prior to the peso float. Speculative import pur-
chases prior to September were held down by licensing
requirements imposed in mid-1975 and economic recession.
With the further loss of business confidence following
the floating of the peso, imports in the last four months
declined by 25 percent from year earlier levels.
Public sector foreign debt increased substantially
in 1976 as the government again turned to foreign bor-
rowing to increase public spending, to cover the financial
gap, and--most important--to offset a short-term capital
flight exceeding $2-billion net. Public sector foreign
debt, which accounts for the great bulk of total foreign
debt, had climbed to $19.6 billion by the end of 1976.
Public debt servicing had increased by almost 40 percent,
to $2.5 billion, or 36 percent of exports of goods and
services.
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Outlook for 1977
So far, the Lopez Portillo administration has placed
adherence to an International Monetary Fund (IMF) agree-
ment signed late last year and its own financial stabili-
zation goals well ahead of economic expansion. Tight
fiscal and monetary policies to control inflation will
likely result in a year of zero or negative economic
growth. The matching of last year's 2-percent increase
in real GDP is probably the best that can be hoped for.
Austerity measures coupled with the 45-percent de-
preciation of the peso should dramatically improve the
current account, but higher amortization payments will
allow only a slight narrowing in the financial gap. The
estimated $600-million improvement in the current account
results from an expected 40-percent decline in the trade
deficit. Since Mexico City is expected to sharply in-
crease its spending on imported equipment needed to expand
petroleum production, the decline in the trade deficit
is not as large as might be expected from the government's
extreme austerity policies. Nevertheless, because of
peso devaluation, economic stagnation, continued import
controls, and increased domestic production of oil and
chemicals, imports are expected to decline in value as
well as volume. Imports were down 20 percent in Janu-
ary-April but should rise later in the year as the econ-
omy picks up, inventories are worked off, food imports
increase, and, most important, Pemex increases its for-
eign procurement.
25X1
Exports are expected to increase 20 percent largely
because of higher earnings from coffee and petroleum.
Exports of manufactures and other goods will also be
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buoyed by low domestic demand, an improved competitive
position, and the reinstitution of export incentives
withdrawn last year.
A sharp runup in debt servicing will hold down im-
provement in the financial gap. Servicing of the public
medium- and long-term debt will require $3.2 billion,
yielding a debt service ratio of 45 percent; amortization
payments alone will increase by $460 million, to $1.6
billion. As a result, the financial gap will decrease
by only about 4 percent, to $4 billion.
We estimate Mexico's total medium- and long-term
capital needs this year at $5.2 billion, an amount suf-
ficient to cover the financial gap and moderate losses
of short-term capital while adding $900 million to inter-
national reserves. Official borrowing totaling $4.5
billion would fall within IMF restrictions on net additions
to debt. In addition, the government will have to roll
over close to 4 billion in short-term debt.
obtain the necessary capita from the private market,
Mexico can be expected to turn to international financial
organizations and the US for additional assistance.
As a result of IMF limitations placed on government
borrowing and the tighter credit situation, Mexico is
looking for new sources to finance Pemex development
programs. For the first time, it appears willing to
commit future oil and gas exports to foreign companies
in exchange for financing and other help in developing
its vast oil potential.
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