LATIN AMERICA REGIONAL AND POLITICAL ANALYSIS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00912A000700010006-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 33
• Document Creation Date: December 20, 2016
• Document Release Date: February 6, 2006
• Sequence Number: 6
• Publication Date: August 11, 1977
• Content Type: REPORT

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Secret
Latin America
State Department review completed
Secret 129
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F__ I
LATIN AMERICA
11 August 1977
CONTENTS
Venezuela: COPEI Convention . . . . . . . . . . . . . 4
Cuba-Guyana: Results of Burnham's Trip . . . . . . . 7
Jamaica's Foreign Financial Situation:
Touch and Go . . . . . . . . . . . . . . . . . . . 11
Colombia: Threatened Strike by Labor Unions. . . . . 19
Bolivia: Organizing for International Diplomacy. . . 21
The Cuban Municipal and Provincial
Assemblies (Part II) . . . . . . . . . . . . . . . 23
Cuba: Castro Announces Increase
in Foreign Assistance . . . . . . . . . . . . . . . 26
Cuban Chronology for July 1977 . . . . . . . . . . . 28
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Venezuela: COPEI Convention
The opposition Social Christian Party (COPEI) will
officially select Senator Luis Herrera Campins as the
party's presidential candidate during a two-day conven-
tion beginning on August 17. Herrera's nomination is
assured because he has had no serious competition and
his supporters control the party machinery,. A party
platform--Venezuela 78, as it is to be known--will be
unveiled following the convention. It is designed to
respond to critics who claim that the ideological posi-
tion of the party is unclear and that Herrera's con-
cepts of "communitarianism" and "participatory democracy"
are fuzzy, impractical, and unlikely to evoke much sup-
port or understanding from the large independent vote
that COPEI must attract if it is to win the election on
December 5, 1978.
COPEI leaders are increasingly confident that for
the first time since 1968 they have an attractive pres-
idential. candidate who can overcome the larger governing
Democratic Action Party (AD) and its well-oiled nation-
wide grass-roots organization. Party leaders believe
that the dull and plodding nominee of the AD party, Luis
Pinerua Ordaz, will be no match for Herrera, who is ex-
pected to wage an aggressive, media-oriented campaign.
A major challenge facing Herrera in the coming
months is the need to identify a COPEI ideology that is
clear and distinct from other Venezuelan political par-
ties. During the Caldera administration (1968-1974),
COPEI espoused a number of nationalistic causes that
gave the party more of a leftist slant than it had ever
shown. Nationalization of the gas industry, an attempt
to introduce legislation for a state takeover of the
petroleum industry, and other populist measures made up
a package that was clearly reformist in nature and went
beyond the party's earlier, more conservative middle-
class platforms.
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Many of the reforms carried out by Caldera have
since been eclipsed by the nationalistic character of
the Perez administration, which has already nationalized
the country's two major extractive industries--oil and
iron ore--and has actively intervened in the private
sector of the economy. As a result, COPEI found itself
reduced to the task of criticizing a series of popular
nationalistic programs executed by the AD government.
Bear-like in appearance, Herrera is a charismatic
political figure who often blends humor and candor into
his speeches. For many years the recognized leader of
the progressive or "left wing" of COPEI, Herrera is a
self-made man in a party traditionally led by comfort-
able, well-off Roman Catholic intellectuals; he is a
vehement polemicist who stands apart from. the conserva-
tive, slightly aloof old-guard leadership personified by
former president Rafael Caldera. In his frequent bouts
with Caldera over party policy, he acquired the reputa-
tion of being a radical, mostly because of his modest
origins and interest in social problems. It is more
Presidential nominee Senator Luis Herrera Campins (L) and
COPEI founder and former President Rafael Caldera (R)
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likely that he is a thoroughly pragmatic politician, who
does not let dogmatism take precedence over realism, and
who appreciates that the masses outnumber the wealthy.
Although the enigmatic Caldera is reportedly rec-
onciled to Herrera's leading the party into the next
election, the former president's enthusiasm is tempered
by his reluctance to relinquish control of the party he
founded and by his past bitter differences with Herrera.
The nature and degree of Caldera's support is expected
to be a major factor in whether COPEI can maintain the
unity that is essential to win the election.
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Cuba-Guyana: Results of Burnham's Trip
The results of the visit: by Guyana's Prime Minister
Forbes Burnham to Cuba in late July underscore the fact
/6 that unresolved differences continue to hamper relations
between the two countries despite their generally close
ties.
In hosting Burnham, Fidel Castro was continuing
a policy of developing a special relationship with the
leader of one of the two major leftward-leaning govern-
ments in the Caribbean. Castro probably reasoned that
(o it was especially important to reinvigorate his personal
ties with the Guyanese leader at a time when relations
between the US and Guyana are on the mend.
Castro was particularly interested in gaining Burn-
ham's support for Cuba's policy in Africa, an area that
is of special importance to Burnham and his Afro-Guyanese-
based People's National Congress. At the end of June,
Castro sent Raul Valdes Vivo-.-chief of the Cuban Commu-
nist Party's General Department of Foreign Relations--to
3 Georgetown to seek Burnham's backing for Cuba's con-
tinued presence in Angola, for Soviet and Cuban efforts
to promote rapprochement between Ethiopia and Somalia,
and for the possible commitment of Cuban troops to help
defend Mozambique and Zambia from attacks by Rhodesian
forces.
Burnham's noncommittal response apparently persuaded
Castro to try his own hand at cultivating the Guyanese
prime minister. Castro was not noticeably more success-
ful, however. Guyana's Foreign Minister Wills told the
US charge that Burnham informed Castro that his country
insisted on deferring judgment on major African issues
until the Organization of African Unity committed itself.
Burnham's trip came at a time of deteriorating re-
lations between Guyana and the Soviet Union and Burnham
doubtless hoped to persuade Castro to intercede with
/ Moscow on Guyana's behalf. Guyana is suffering from a
severe balance of payments crunch and is seeking
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immediate foreign economic assistance. Despite prolonged
discussions with the Burnham government regarding economic
aid, the Soviets have not budged from their position
that aid is contingent on Burnham's willingness to give
orthodox Marxist opposition leader Cheddi Jagan and his
People's Progressive Party a role in the government.
The Soviets also have pressured Burnham to move more
rapidly toward creating a socialist state. As a result
of this impasse, Burnham has not rescheduled a trip to
the USSR that he was forced to cancel early this year
following his heart attack.
Burnham also wanted to use the trip to Cuba to try
to obtain Cuban assurances of support--or at a minimum
to ensure Cuban neutrality in the election that he is
constitutionally required to hold by next July. For the
past two years or so, Havana has encouraged Jagan to
pursue a policy of "critical support" for the Burnham
government, but the Cubans have never been fully success-
ful in overcoming Burnham's lingering suspicion that
Havana prefers Jagan. For example, Wills recently com-
plained that the Cubans need to be reminded that their
ambassador in Georgetown is accredited to the Burnham
government and not to Jagan's party.
Cuban support would be particularly useful to Burn-
ham at this -juncture. Since national unity talks be-
tween Jagan and Burnham were broken off in February, the
opposition has gone increasingly on the offensive.
Jagan's party has allied itself with black radical
splinter parties to try to win support away from Burnham.
The Burnham government has become especially concerned
by the apparent success of the opposition in winning
converts among black bauxite workers who are dissatisfied
with the government's wage freeze. Burnham presumably
reasoned that if he could ensure Cuban support he would
not only weaken ,:pagan and his allies but stifle the
criticism he has been receiving from young radicals with-
in his own party.,
The Castro government's response to Burnham's re-
quest for full support fell far short of satisfying
Burnham. Cuban Vice President for Foreign Affairs Carlos
Rafael Rodriguez-?-uaho has particularly close ties to
Moscow--antagonized Burnham by urging the Guyanese Prime
Minister to make the concessions requested by the Soviet
Union. Castro shrewdly let Rodriguez serve as Moscow's
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security assistance. At the same time, the Guyanese
leadership is becoming increasingly aware of the limits
to what Cuba can offer another poor developing country
and to the ideological problems that can arise in deal-
ing with a communist state--even one that is of the third
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spokesman while promising that Cuba would not take sides
in Guyana's internal politics and that Havana would co-
operate with Burnham's government.
These irritants have not prevented Cuba and Guyana
from continuing to cooperate closely in several impor-
tant areas.
Cuban also continues to provide relatively small-
scale technical assistance to Guyana. Eighteen Cuban
doctors are serving in Guyana, many in remote areas.
In addition, some 70 Cuban fishermen are assigned to
the fleet operating off Guyana's coast where they help
to train local fishermen.
After several years of trying to reassess and re-
structure its relations with a Cuba long isolated from
the hemisphere, Guyana has come to the point of accept-
ing a new balance in its relationship with Cuba. Guyana
can be expected to continue to cooperate with Cuba on
many foreign policy issues, especially those pertaining
to North-South economic issues, and Burnham will no
doubt continue to value his personal relationship with
Castro and to lock to Cuba for limited technical and
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Jamaica's Foreign Financial Situation: Touch and Go
Despite a narrowing of its foreign financial gap*
this year, Jamaica faces serious payments difficulties
that are only now beginning to ease. The improvement
has followed the securing in mid-July of a standby credit
from the International Monetary Fund, conditioned on a
further tightening of an already harsh austerity program.
The IMF commitment has paved the way for the left-leaning
government of Prime Minister Michael Manley to obtain
additional foreign funds. Kingston has succeeded in ob-
taining and/or is negotiating a patchwork of financing
that probably will cover the financial gap and meet es-
sential short-term foreign obligations this year.
Domestic political and economic pressures could still
upset this progress. The new austerity, which follows
import cuts and other restrictive measures slapped on in
the past two years, could cut real GNP another 4 percent
in 1977 and further boost the already high inflation and un-
employment rates. The result almost certainly will mean
a further loss of popularity for Manley, whose own sup-
porters have begun to criticize his handling of the eco-
nomy. Under these circumstances, Manley may be strongly
tempted to take advantage of the greater availability of
foreign financing to increase imports and otherwise re-
lax austerity measures-a step that would jeopardize the
IMF agreement and could put Jamaica back on square one.
Good Times Followed by Slump
Spurred by substantial direct foreign investment in
bauxite and tourism, Jamaica enjoyed steady economic
growth for the decade before Manley's election in 1972.
The economy then began to slip because of the deteriora-
tion in investor confidence, which was later intensified
*Financial gap is defined as the current account deficit
plus amortization of medium and Zang-term debt; shifts
in short-term capital are not included.
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Jamaica: Economic Indicators
Real GDP Growth Foreign Reserves
Percent Million US $, Yearend
5.9 5.6 245
Inflation Rate
Percent
Unemployment Rate
Percent
1973 ~-__-1974 ~._.._ 1975 1976 11977 2
". Estiinated
2 Projected
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by Manley's accelerated leftward drift. Investor fears
were justified in 1974 when Manley, prompted by higher
oil prices, imposed a 600-percent increase in taxes on
bauxite (produced mostly by US aluminum companies) and
demanded a small equity share in their Jamaican opera-
tions. Jamaica is the source of 37 percent of US supplies
of bauxite and alumina.
Jamaica initially benefited from the $145 million
tax hike. Higher bauxite returns--along with record su-
gar prices--contributed to near doubling of export earnings
and partly financed a jump in public works expenditures.
During 1975 and 1976, however, Jamaica's foreign financial
gap tripled to a record $351 million. Weak world demand
had reduced bauxite shipments; tourism earnings had been
hit by violent crime; and a drop in world prices had cut
sugar export earnings by nearly two thirds. Kingston was
unable to cover the gap because capital flight and the
loss of direct investment partly offset increased borrow-
ing abroad. Although the Manley government dipped heavily
into the short-term money market, it still had to draw
against foreign reserves; it further weakened its credit
rating by delays in servicing private debts.
To limit inflationary pressures resulting from a
spurt in government spending, Kingston in 1975 greatly
increased personal income and property taxes and insti-
tuted stringent controls on private credit. Austerity
measures were intensified last year through the imposi-
tion of import restrictions and foreign exchange controls
to contain the financial gap. The result was a 6-percent
decline in real GNP following the 2-percent drop in 1975;
unemployment climbed to about :30 percent of the labor
force. Costly strikes, rising violent crime, and in-
creasing leftist influence in the government contributed
further to the malaise.
Tightened Payments Bind in 1977
The foreign financial gap has been narrowing in 1977
as a result of a substantial current account improvement.
Even so, Jamaica's inability to secure sufficient finan-
cing to cover the gap and to meet heavy amortization ob-
ligations on past short-term borrowing precipitated a
payments crisis by mid-year. Export earnings will likely
increase about $126 million (19 percent) in 1977, mainly
because recovery of the world aluminum industry will boost
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demand for Jamaica's bauxite and alumina. Strict foreign
exchange controls on private transfers and reduced imports
will allow a substantial improvement in the services def-
icit, despite higher interest payments and a probable
further decline in tourism. Additional austerity measures
imposed in January should slash imports 11. percent below
1976, to $718 million ($825 million on a c.i.f. basis).
These measures included strict foreign exchange controls,
direct import curbs, increased personal income taxes, and
a temporary wage-price freeze.
Reduced capital inflows severely strained Jamaica's
ability to cover the $108 million financial gap and to
meet net short-term debt service obligations of $250 mil-
lion. The country faced a 50-percent cut in medium- and
long-term capital. receipts, to $121 million in 1977,
largely because its extremely weak creditworthiness had
severely limited new commercial borrowing. Most of the
credit promised by mid-year was from official sources,
including $30 million from t: he US government this year.
Direct investment inflows remained nil. As matters
stood before the IMF agreement, Jamaica still had to
find as much as $237 million to cover this year's pay-
ments needs. Gross foreign exchange holdings were down
to about $20 million--less than two weeks' import cover--
and provided little cushion.
The IMF Agreement and Financial Impact
In trying to cope with the payments difficulties,
Manley followed the advice of political moderates and
accepted a $75 million loan from the IMF in mid-July--a
move he had earlier scorned.. About $35 million of the
loan is scheduled to be disbursed this year. The IMF
than is tied to additional belt-tighting, including an
immediate cut in government spending by 8 percent and a
more austere wage policy. The IMF dropped demands for
an immediate unification of the present dual foreign ex-
change rates. Instead, Jamaica's compliance with IMF
performance criteria will be reviewed in the coming
months to decide if the coverage of the recent 38-percent
devaluation for tourist and some commercial transactions
needs to be extended to curb imports. At the same time,
the IMF has eased Jamaica's financial squeeze by post-
poning repayments due this year on $27 million in com-
pensatory financing and oil facility loans. The IMF also
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has allowed Jamaica to delay repayment of $67 million
in private debts at least until next year without jeopar-
dizing the standby agreement.
The IMF agreement has paved the way for a patchwork
of additional foreign financing that we believe probably
will cover this year's payments needs if imports are
limited to the present target.
--Jamaica has reached preliminary agreement
with the aluminum companies for immediate
prepayment of at least $40 million in first
quarter 1978 bauxite tax liabilities as
part of an arrangement covering the next
two years.
--Canada is considering the provision of an
additional $20 million in commodity grants,
most of which will be available in 1977.
--Ottawa has delayed repayment of $25 mil-
lion in short-term credits until next year
and is considering their conversion to
longer terms.
--Manley probably can count on as much as
$20 million in additional loans from
Venezuela.
--Trinidad has offered $45 million in export
financing, although only part can be drawn
in 1977.
--The Netherlands has pledged loans of $10
million.
--Some additional financing from other
official sources such as West Germany
may still be worked out.
--We expect that this financing will cover
Jamaica's financial gap in 1977 as follows:
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Before IMF Loan
Financial gap -$108 million -$96 million ($12 million in Canadian grants)
Medium- and $121 million $159 million ($38 million in official loans)
long-term
receipts
Net short-term -$250 million -$56 million ($27 million in debt relief and
obligations $35 million in new loans from the
IMF, $67 million in prospective
repayment delays on private loans,
$25 million in Canadian debt roll-
overs, and $40 million in bauxite
tax prepayments)
Deficit or -$237 million $7 million
surplus
Domestic Repercussions
Tightened austerity is having a serious impact on
the Jamaican economy this year. The import reduction now
projected probably would cut real GNP another 4 percent,
to roughly 88 percent of the 1974 level. Manley will
likely suffer a further erosion in public support as the
unemployment rate is pushed above 30 percent of the labor
force, inflation accelerates, and basic goods--including
drought--afflicted domestic food stocks--remain in short
supply. Jamaican businessmen are protesting that inven-
tories are being exhausted under the current import ceil-
ing, resulting both in the closure of retail and manufac-
turing operations and in black markets for some import
items. Moreover, pressures from militant unions for wage
increases are mounting in the wake of a strike in June
at Jamaica's only oil refinery. In an unprecedented ac-
tion, the National Workers Union--the trade union base of
Manley's party--has begun to criticize the government for
its handling of the economy.
Under these circumstances, Manley will be strongly
tempted to take advantage of the recent improvement in
the financial outlook by relaxing import restrictions, thus
risking violation of IMF guidelines. Should imports be
increased substantially beyond the present target level,
they must be matched by a corresponding rise in foreign
financing if IMF conditions are to be honored. Since
sufficient new financing seems unlikely at this point,
a loosening in import restrictions could trigger IMF
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Jamaica: Foreign Financial Gap
Exports, f.o.b.
Imports, f.o.b.
Net services and
transfers
Current account balance
Debt amortization3
Financial gap
Medium- and long-term
capital inflows
Official borrowing
Direct investment
Other private inflows
Net short-term capital
and errors and ommissions
Change in reserves
External public debt
yearend
Debt service ratio (public
medium- and long-term)
.
4Based on financing now contracted or being negotiated, including small
disbursements on Trinidad's loan and prepayment of the first quarter 1978
bauxite levy.
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393
754
808
672
798
-570
-811
-970
-808
-718
-71
-35
-91
-166
-101
-248
-92
-253
-302
-21
-17
-23
-32
-49
-75
-265
-115
-285
-351
-96
223
249
206
238
159
54
122
153
134
149
75
23
0
0
0
94
104
53
104
10
12
-64
-1
-32
-56
-30
'10
-80
-145
74
306
474
632
649
611
7
7
9
14
15
1 Provisional.
2Projected.
3 Public and publicly guaranteed medium- and long-term debt
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demands for a full devaluation and/or deeper cuts in
major public works programs at the initial performance
review in October. Failure to comply could jeopardize
the standby agreement and, in turn, the financial patch-
work so carefully being worked out.
Even if Jamaica weathers the present crisis, the econ-
omy faces a bleak outlook over the next few years. Al-
though continuing recovery of the world aluminum industry
should allow earnings from bauxite and alumina to increase,
imports will have to be kept under tight control at the
cost of continued sluggish economic performance. Poor
prospects for other major exports and tourism as well as
higher debt service payments will prolong the financial
gap. Substantial new foreign financing will be needed
to cover the gap and permit Jamaica to resume servicing
private debts now in arrears.
Ability to attract new capital will remain limited.
Manley almost certainly will continue to rely on Western
industrial nations as the best source of funds. At the
same time, Kingston probably will continue to probe for
closer ties with Cuba and the USSR, despite poor prospects
for large-scale financial assistance from these sources.
Manley's hope that recent contract settlements with
the aluminum companies will lead to renewed investment
is ill-founded; the unsettled political situation almost
certainly will keep the investment climate poor. An
Alcoa official recently stated, for example, that his
company will not put another penny in Jamaica. The com-
panies also have balked at Jamaica's request that they
resume investment as a condition for including bauxite
transactions under the devaluation. Unless Kingston over
the next few years can sustain foreign borrowing far
beyond the meager levels warranted by its credit rating,
pressures for a new bauxite tax hike will :mount. The
alternative could be increasing violence, strikes, and
emigration of Jamaica's middle class.
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Colombia: Threatened Strike by Labor Unions
According to a recent report in the Bogota press,
a large number of Colombian labor unions have issued a
joint list of demands to President Lopez. Labor spokes-
men warn that if the demands are not met, the unions--
which are not affiliated with the nations major labor
organizations--will continue with their plans to stage a
national strike. The date of the threatened work stop-
page, however, was not specified.
Among other things, the unions are calling for a
general wage and salary increase of at least 50 percent,
a freeze on the prices of staples, and an eight hour
workday. At the same time they are demanding that the
state of siege be lifted and that the universities be
reopened.
The unions issuing the demands-have the apparent
backing of elements of the country's largest and oldest
labor organizations--the Union of Workers of Colombia
(UTC) and the Confederation of Workers of Colombia (CTC),
which began in the 1930s and 1940s under the sponsorship
of the political parties and the church. For the most
part, the Liberal and Conservative parties have since
co-opted the two major unions, conditioning them to ac-
cept the values of the ruling elite.
At the same time, labor legislation has developed
in such a way as to afford the government a measure of
control over all of the unions. For example, the right
to strike is limited to 40 days for most workers, and
the government can impose cooling off periods, arbitrate
disputes and, if the strike is declared illegal, dismiss
workers who refuse to return to work.
The proliferation of new and independent unions,
however, has affected the character of the national labor
movement in recent years. The new activist unions feel
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that neither the Liberals nor the Conservatives repre-
sent labor's interests. The maverick labor organiza-
tions, which increasingly have attracted workers who are
discontented with the UTC and CTC, are politically active
and willing to challenge the traditional parties. Persis-
tent inflation, charges of government corruption, and
high unemployment account in part for the increase in
labor militancy.
The Lopez government has contributed to labor's un-
rest with its attempts to control the country's high in-
flation by placing ceilings on wage increases. Early
last year, dissatisfaction within labor ranks erupted in
violent demonstrations and, major work stoppages. Lopez
was forced to call out troops to quell the disturbances
and impose a state of siege. Even so, labor unrest has
continued, and sporadic strikes have become virtually
endemic throughout the country.
The latest threatened work stoppage may result in
some compromise concessions, but the government's policy
of holding the lid on the country's 30 percent annual
inflation rate will prevent large pay hikes, a situation
that will only prompt additional strikes later on.
Although national and local government policies in
Colombia are determined by a small, informal elite com-
posed of business, political, church, and some military
leaders, the labor organizations are an influential polit-
ical force within this group. With elections scheduled
for next year, the country's economic ills will become
even more of a political issue in coming months. At the
same time, the angry voices of the independent unions
will be listened to more intently by the candidates.
RP ALA 77-052
11 August 1977
SECRET
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Bolivia: Organizing Cor International Diploma
Bolivia--long a subject of international. ridicule
for its chronic political instability--is or