GUATEMALA: THE PROBLEM OF POVERTY

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500220050-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 16
• Document Creation Date: December 16, 2016
• Document Release Date: December 27, 2004
• Sequence Number: 50
• Publication Date: May 1, 1968
• Content Type: IM

 C/*/ OE-Q-1-T41 &8 -'S'8 D4 .a1~';L -5
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Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Guatemala: The Problem of Poverty
Confidential
ER IM 68-48
May 1968
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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 I
Excluded from automatic
downgrading and
declarfificalian
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
May 19 6 8
INTELLIGENCE MEMORANDUM
Guatemala: The Problem of Poverty
Summary
A majority of Guatemalans are illiterate subsist-
ence farmers who are mired in a harsh poverty that
seems intractable. They subsist on an inadequate
diet and receive education, health, and welfare
services that are among the poorest in Latin
America. At the core of the problem of poverty
are the Indians, who make up about half the total
population and whose traditions lead them to avoid
social integration and modernization. Although
partly inspired by the poverty of the masses, the
insurgency movement finds little support among the
poverty stricken, in part because of their political
apathy but also because of their fear of reprisals
from the army and the paramilitary counterinsurgency
forces.
Rural poverty reflects the failure to develop
peasant agriculture. A rapidly growing population
and a lack of credits, agricultural education, exten-
sion services, and incentives to small farmers have
contributed to holding agricultural output below the
nutritional needs of the people. Growth in agricul-
tural production has been concentrated in a few
export crops (mainly cotton and coffee) that are
raised on a few large, modern farms.
Note: This memorandum was produced soieZy by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
InteZZigence.
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Under the best circumstances, it would take many
years to make much impact on the problem of rural
poverty in Guatemala. Actually, there has not even
been a start in this direction, and the present
economic and political situation gives the govern-
ment neither the resources nor the incentive to
take action soon.
Economic growth has slowed down in recent years.
The export boom of the early 1960's came to an end
in 1966, when President Mendez was elected. Export
earnings dropped sharply in 1967 as a result of a
drop in world coffee prices and in Guatemalan cotton
output. A decline in imports was avoided, but only
temporarily, by increasing foreign indebtedness.
Guatemala has recently secured about $54 million
in loans from international agencies for economic
development, mostly for infrastructure projects in-
cluding roads, water systems, and electric power
generation, but has had little industrialization.
Most industries produce for the small domestic
market. A few modern industrial plants were built
in response to the opportunities of the Central
American Common Market (CACM) . Recently, however,
the stimulus from this source appears to have
greatly weakened.
The increasing foreign exchange stringency and
the insurgency problem have combined to sharply
limit President Mendez's freedom of action. It is
a difficult time to increase taxes on wealthy cit-
izens so as to cut back Guatemala's chronic budget
deficit or to find the financial resources needed
to implement the promised land reforms and other
welfare measures. At the same time, the freedom of
action given to the military-backed conservative
forces to combat the insurgents has increased.
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Introduction
1. In late 1967, several Maryknoll (Roman
Catholic) missionaries working in Guatemala rebelled
against their duties and called for a revolutionary
uprising as the only solution to the country's
poverty. To justify revolution, they argued that
the Guatemalan masses are victims of an institu-
tionalized "violence" embodied in the old social
order:
"I believe_the well-read studen
t can
say honestly /that/ the status quo
is so
intolerably violent that it is kill
ing
my brother /the Guatemalan peasant?
...
He is dying because he doesn't eat
...be-
cause he doesn't have land ... because he
has no schools . He realizes some-
thing is wrong with his life and he knows
that it can be better. He knows that the
goods and services of society do not reach
him. He is willing to fight rather than
deteriorate." Father Blase Bonpane
The Washington Post, 4 February 1968
The missionaries' description of economic conditions
in Guatemala and their call for revolution -- which
have been widely publicized -- raise a number of
questions. How severe and widespread is poverty in
Guatemala? What are its roots? Are conditions
improving? Do economic conditions have much to do
with the insurgent movement?
Extent and Roots of Poverty
2. Most of Guatemala's 5 million people are
indeed poor by the standards of this hemisphere. The
per capita national income of about $275 in 1967 was
about four-fifths of the average for Latin America.
Current food consumption, which also is less than
the average for Latin America, is well below the
reference standard for an adequate diet specified by
the US Department of Agriculture for Central America,
which is 2,450 calories per capita per day. Finally,
the concentration of income and wealth among a few
probably is more severe than in most Latin American
countries. The poorest three-quarters of Guatemala's
inhabitants have an estimated average income of less
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than $100 annually, or about one-eighth of the
average for the most prosperous quarter of the popu-
lation.* This implies a standard of living com-
parable to that of the poorer Asians and Africans.
3. Guatemalans rank low in Latin America not
only in the quantity and quality of food consumed but
in other representative measures of economic and
social welfare (see Table 1). Because of the low
level of income, neither the government nor most of
the people have been able to spend much for educa-
tion, health, and housing. The shortage of medical
and educational services and deficiencies in housing
are particularly severe in rural areas. Guatemalans
have a higher rate of infant mortality than most
Latin Americans, and their life expectancy is shorter.
There are few resources or facilities to treat the
sick.
4. Most Guatemalans have housing that is adequate
to protect them and their few possessions from the
elements, but that is all. In 1964, in rural areas,
one-third of the housing units had walls of sticks
and cane, one-half had thatched roofs, and nine-tenths
had dirt floors. Less than one-third of Guatemalan
homes had running water or sewerage systems. Electric
power was available to only about one-fifth of all
houses, and firewood was used as fuel in all but one-
fifth.
5. Guatemala's literacy rate of about 25 percent
is the lowest in Latin America except for Haiti. Edu-
cational problems include difficulties in enrolling
children and keeping them in school, inadequate facil-
ities, and a shortage of teachers. In contrast to the
rest of Latin America, Guatemala's literacy rate has
declined in recent years.
* This measure of average income among Guatemala's
rural poor is based on data from the country's national
accounts. As in other less developed countries, those
accounts include few, if any, estimates for goods and
services consumed by subsistence producers. Conse-
quently, the data undoubtedly underestimate the true
value of rural incomes. A more realistic figure prob-
ably is in the range of $150 to $200.
- 4 -
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Guatemala: Indicators of Economic and Social Welfare
Latin
America
Guatemala
Guatemala,'s
Rank a
Average daily food intake
per capita, in calories
Average daily intake of
proteins per capita,
2,560
2,000
18
in grams
Life expectancy,
71
58
11
in years
Infant mortality per
57
49
17
1,000 births
General mortality per
75
92
17
1,000 persons
Hospital beds per
14
17
16
100,000 persons
Inhabitants per
310
250
11
physician
Literacy, in percent of
1,800
4,000
16
total population
66
25
18
a. Among the 19 Latin American republics.
6. The roots of poverty lie partly in the economic
structure of Guatemala. More than 90 percent of the
rural population (or close to three-fourths of all
Guatemalans) depend on primitive, subsistence-type
farms or are landless. Small farms account for only
about one-seventh of the agricultural land and for
less than one-third of farm income (see Table 2).
Although Guatemala has a considerable amount of unused
agricultural land, its use is inhibited by poor trans-
portation and communications systems, the small
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domestic market for agricultural products, lack of
domestic capital, and in some instances a lack of
ambition and any expectation of a better life.
Guatemala: Distribution of Agricultural Land and Income
1950
Number of
Farm Units
Area of
Agricultural
Land
Amount of
Farm Income
Small farms
(less than 17 acres)
88
14
Family-size farms
(17 to 110 acres)
Medium-size and
large farms (more
than 110 acres)
2
72
57
Total
100
100
100
a. Including an estimate for the value of agricultural
products consumed on the farm.
7. To a large extent, Guatemalan poverty is a
problem of the Indian population. Concentrated in
the western highlands (see the map) and culturally
distinct, the Indians account for half of the popula-
tion and for at least two-thirds of the subsistence
farmers. Little has been done to improve the economic
position of the Indians; the small efforts that have
been made have been impeded by the Indians' "passive
resistance" to social integration. Generally, they
avoid the use of schools and other public services
and disapprove of their own members who speak Spanish
and adopt modern ways of life. They are unwilling,
moreover, to move to the more enervating climates at
lower elevations, where most of the unused land is
located.
8. Economic activities other than subsistence
agriculture (which support about one-fourth of the
population) are dominated by the large-scale,
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 GUATEMALA: Predominantly Indian Areas
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National capital
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Other road
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50 Kilometer:;
Puerto
Col'tA3
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frequently mechanized production and processing of
such export crops as coffee, cotton, sugar, and
bananas. While they often are dynamic centers of
economic activity, these farms and mills cannot
permanently absorb many migrants from the subsist-
ence sector. The growth of output and employment
opportunities in large-scale agriculture, moreover,
has been erratic because of the dampening effect
on investment of periodic political instability and
wide fluctuations in world market prices for exports.
9. Industrial development is hampered by lack
of investment and by -Lhe scarcity of Guatemalan
resources. Although Guatemala has some hydroelectric
power potential and small nickel and sulphur depos-
its, there are no commercially exploitable reserves
of petroleum, coal, or ferrous minerals. The
country's labor force, moreover, is notably short
of mechanical and managerial skills. Concentration
of political power in a military-backed oligarchy
of mostly large land owners (whose greatest concern
is preservation of their interests) is a further
barrier to growth of urban economic activities.
Finally, economic gains generally are offset by ad-
ditions to the population, which has doubled during
the past quarter century.
The Pace of Change Through 1966
10. Living conditions for most Guatemalans
have improved little during the postwar period. In
most years, the growth of output and consumption has
only approximated the increase in population of a
little more than 3 percent. Foreign trade has been,
and continues to be, the major variable affecting
economic performance. In the first half of the
1950's, however, the stimulus to economic growth of
rapidly rising exports and imports was offset by
the depressive influence on investment of the
policies carried out during the administration of
the pro-Communist President Jacobo Arbenz (1951-54).
The more conservative policies of President Castillo
Armas (1954-57), aided by a continuing rise in
foreign trade, led to a sharp expansion of the
economy in 1957, but exports th.An stagnated and per
capita output leveled off.
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11. The output of the economy grew rapidly in
1963-66 because of a sharp expansion in earnings
from traditional exports and, to a lesser extent,
because of new industrial investment induced by
the formation of the Central American Common Market
(CACM).* In 1963-66, as measured by gross national
product (GNP) in constant prices, output increased
at an average annual rate of 731 percent, or more
than 4 percent per capita, and private consumption
per capita rose at an average rate of about 3 per-
cent. But the poor, particularly those in rural
areas, did not share fully in these gains in income.
Economic Developments Under Mendez
12. The Mendez Montenegro government, which
took office in mid-1966, was elected partly because
of the reformist nature of its platform. Calling
itself the "third government of the revolution" that
was inaugurated in 1944 with a popular uprising
and carried forward under the pro-Communist admini-
strations of Presidents Arevalo (1945-50) and Arbenz
(1951-54), the new administration announced four
goals. In order of priority, they were (1) expan-
sion of social services, particularly education,
health, and housing, (2) tightening of internal
security, (3) overhaul of the inefficient government
bureaucracy, and (4) expansion of productive investment,
particularly in transportation and communications
facilities.
13. A slowdown in economic growth in 1967
restricted government action, and the leadership
became increasingly preoccupied with the insurgent
movement. The rate of economic growth, which had
slowed in 1966, declined to about 331 percent in
1967 -- mostly as a result of a drop of approximately
15 percent in export earnings. Guatemala forestalled
a decline in imports only by borrowing in foreign
private money markets. New CACM-related industrial
investment also appears to have weakened recently.
There is a widening consensus among foreign observ-
ers that internal security has absorbed most of the
government's energies since the beginning of 1967.
' The other CA CM members are El Salvador, Costa
Rica, Honduras, and Nicaragua.
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Economic considerations tended to be neglected as
the military forces and paramilitary gangs such as
16 the Mano Blanca (White Hand) reacted and over-reacted
to the insurgents.
14. The insurgency, which intensified at about
the time the Mendez government was inaugurated, is
led by Communists and manned mainly by pro-Communist,
middle-class "intellectuals and students." Even
though the insurgency is in a sense a reaction to
Guatemalan poverty, it has won little active support
in rural areas. This failure to gain widespread
support reflects the political arathy of the peas-
ants and the success of counterinsurgency efforts
that include civic action measures and ruthless
elimination of those suspected of aiding the insur-
gents.
15. The Mendez administrations has improved
Guatemala's ability to obtain foreign aid by retreat-
ing from the petulant nationalism of its predecessor
and resolving the "sterling debt" issue -- a dispute
over bonded obligations ;:hat had prevented borrowing
from some international lenders, including the Inter-
national Bank for Reconstruction and Development.
This action and the centralization of foreign loan
acquisition in the Minis :ry of Finance enabled the
Mendez government to secure almost $40 million in
new foreign loans from June 1966 through December
19 6 7 , or more than five times the amount secr-ed in
the previous 18 months. Drawings on foreign loans,
although larger than in 1966, continued to be held
down by the government's difficulties in providing
the necessary matching funds. The government tried
to increase revenues for this and other purposes by
introducing new taxes in early 1968, but it has
rescinded them because of public opposition. A
National Development Plan for 1965-69, adopted by
the previous administration, provides some well-
formulated guidelines for public investment expen-
ditures, but implementation of its priorities and
schedules generally continues to be as weak under
the Mendez government as under the previous adminis-
tration.
16. In 1967 -- the first full year of the Mendez
government -- public investment expenditures rose
to about $43 million (see Table 3). Virtually
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all of the increase in government outlays was for
electric power facilities and road construction,
especially trunk lines. Government operating
expenditures in 1967 for social services and
national defense amounted to $35 million and $17
million, respectively, and remained essentially un-
changed as shares of total operating expenditure.
Guatemala:
Public Investment Expenditures
1965-67
Million US $
1965
1966
Estimated
1967
Total
40.2
35.4
42.5
Government
34.9
29.4
36.0
Agriculture
4.5
1.6
3.0
Transportation
14.0
9.3
15.7
Communications
1.2
1.5
1.3
Energy
5.8
3.8
7.0
Housing
1.3
2.7
3.0
Education
1.8
1.8
1.0
Health
3.2
4.3
3.0
Other
3.1
4.4
2.0
Public enterprises
and agencies 5.3 6.0 6.5
17. The government's main effort in education
has been directed to increasing the number and
quality of teachers. A thousand teachers were added
in 1967, and steps were taken to upgrade the quality
of instruction throucth teacher training programs and
improved facilities. Construction began on three
rural hospitals, and expansion of the main hospital
in Guatemala City. A project to construct 5,000
low-cost housing units, mostly in Guatemala City,
also is well underway.
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18. Little has been dcne to attack rural
poverty, particularly in the Indian areas where the
Maryknoll missionaries are most active. The Mendez
government has deemphasized colonization and resettle-
ment programs for the rural populace, which were
costly and benefited only a few. Instead, it plans
to give title to government-owned farms to the
cooperatives of farmers already working on them.
But since initiation of the program in mid-1966,
only two national farms (involving only a few
hundred families) out of a total of 41 have been
transferred. The functioning of the farms under
the new owners has deteriorated because of their
ignorance, lack of capital and technical assistance,
and resistance to change.
19. Greater success has been achieved in the
Zacapa-Izabal pilot project in the isolated and
economically depressed Northeast. Several govern-
ment agencies are participating in this project,
which involves community development, agricultural
extension services, school construction, the build-
ing or improvement of feeder roads, water supply,
mobile health facilities, cooperative organization,
and credit for small farmers. The government in-
tends to apply this technique to other rural areas.
Prospects
20. The Mendez administration has not taken any
bold new economic initiatives. Under the circum-
stance of declining exports, it could hardly have
done so without massive foreign financial assistance
or drastic tax reforms that might have precipitated
a military coup d'etat. President Mendez now
evidently considers that the survival of his adminis-
tration to mid-1970 outweighs economic reform as a
primary objective. In any case, Guatemalan poverty
is so widespread and the government's resources so
small that no program (including revolutionary
reform of public and private institutions) can be
expected to show dramatic results in less than a
decade.
21. It may be difficult to take even small steps
forward in 1968. Export earnings in 1968 probably
will 'recover only moderately from the level of 1967,
and the resulting slow growth in customs revenues
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will make it difficult to increase public invest-
ment expenditures. The sharply increased loan
authorizations from major international lenders
raised the total outstvnding to about $70 million
at the end of September 1967, but the prospective
slow growth of government revenues will impede dis-
bursements from the foreign loans because of the
inability to generate matching funds. Even if
receipts of foreign aid increase, the gain probably
will only partly offset the depressive effects in
the private sector of low export earnings. Because
of the unfavorable outlook for government revenues
in 1968, the agrarian reform agency will operate
with a budget only one-fourth as large as in 1967,
and plans to extend social security coverage into
rural areas have been abandoned.
22. The impoverished status of Guatemala's
Indians will remain the central problem of poverty
in Guatemala, and prospects for improving their
situation in the near future are dim. Even a rel-
atively large program of foreign aid probably would
have little short-term effect. The political
structure is not conducive to improved economic
conditions for the Indians, and generations may
pass before the Indians' social attitudes will be
favorable for their economic advancement.
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