LATIN AMERICA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000301590001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: March 30, 2011
• Sequence Number: 1
• Publication Date: July 18, 1986
• Content Type: REPORT

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Directorate of
Intelligence
Review
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Latin America
18 July 1986
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ALA LAR 86-017
18 July 1986
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Latin America
Review 25X1
Cuba: Foreign Financing Problems
Despite its worst financial difficulties in several years, Havana is
resisting demands from creditors that it cut imports because of fears
that this would lead to reduced production and fan discontent
among Cubans already dissatisfied with consumer shortages and
unemployment. ~~
Cuba: More Cabinet Changes
Two cabinet-level appointments announced early this month are
part of President Castro's effort to assemble a coherent management
team to halt the country's economic slide. ~~
Nicaragua: Role of Western Internationalists U 13 25X1
Paraguay: Radio Censorship 13 25X1
Chile: Developing Nuclear Expertise ~~ 14 25X1
Cuba: Castro Meets Mother Teresa 0 14 25X1
British Virgin Islands: Possible New Government 0 15 25X1
Production Stc~; OJ~ce oJAfrican and Latin American Analysis,
Comments and queries regarding this publication may be directed to the Chief;
Articles have been coordinated as appropriate with other o.~ces within CIA. 25X1
Secret
ALA LAR 86-0/7
l8 July /986
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Latin America
Review
Secret
ALA LAR 86-0/7
18 July 1986
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Cuba:
Foreign Financing Problems
Cuba is experiencing its worst financial difficulties
since it began rescheduling its hard currency foreign
debt in 1982. To fund uninterrupted imports over the
past year in the face of declining export earnings,
Havana dipped increasingly into relatively expensive
short-term credit markets and almost totally
extinguished its hard currency reserves. This led
Soviet and Western creditors to adopt a tough stance
on new hard currency assistance and to press for
reduced Cuban import spending. ~~
Havana unilaterally suspended interest payments on
both its official and commercial debt coming due
before finally agreeing to a Paris Club debt
rescheduling in July.We believe Havana, as it has in
the past, will try to delay making the import cuts
demanded by its creditors, fearing that limited access
to Western markets would slow production and fan
discontent among Cubans already dissatisfied with
consumer shortages and unemployment. Instead,
Cuban economic planners appear to hold unrealistic
expectations that the foreign trade account can be
balanced in large part with anear-term surge in
nontraditional exports and modest import substitution
efforts. ~~
Considering Havana's reluctance to tighten austerity
despite creditor insistence, President Castro could
turn to other measures to relieve some of the building
pressures on the regime, at least temporarily. We
believe Havana is likely to look for a way to increase
emigration and allow disgruntled, unemployed, and
imprisoned Cubans who tax limited state resources to
leave the country. In addition, Castro may try to
divert popular concern from domestic economic woes
temporarily by suspending or renouncing at least
some of the hard currency debt, in an attempt to
make scapegoats out of Cuba's creditors.
The Evolving Crisis
Despite Castro's announced plan to limit import
spending and increase exports to the West,
unfavorable market conditions, bureaucratic
inefficiencies, and political backsliding contributed to
a deterioration of Cuba's hard current trade balance
last year. hard currency 25X1
imports grew by at least 7 percent in 1985. Havana
was forced to purchase sugar in Western markets to
meet its export obligations to Moscow, while 25X1
relatively lenient access to imported producer goods
was allowed in an attempt to stimulate the economy
and head off popular dissatisfaction.
Cuban hard
currency export earnings could not match the increase
in imports last year. A sharp drop in world sugar
prices, weather damage, and the diversion of sugar
exports to the Soviet Union contributed to a
34-percent drop in Cuba's hard currency sugar
earnings. Despite energy conservation measures,
falling energy prices toward the end of last year cut
Cuba's income from the resale of Soviet oil-its
largest foreign exchange earner-by 5 percent.
Startup delays, planning and distribution problems,
agricultural disasters, and the continued impact of the
US trade embargo also were cited by Cuban officials
as major factors retarding the growth of hard
currency exports last year.~~
Early indicators point to the continued deterioration
of Cuba's hard currency trade deficit in 1986.
According to official statistics, damage to sugarcane
fields, mills, and storage facilities from Hurricane
Kate last November will cut sugar production from
8 million metric tons last year to about 7 million
metric tons this year. Thus, Havana will have less
sugar available for sale on Western markets, and, due
to the large number of fixed-price contracts signed
before the recent runup in world sugar prices,0 25X1
hard currency income from
sugar will fall by more than $50 million this year.
Secret
ALA LAR 86-0/7
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Increased import spending last year, despite the
regime's determination to reduce hard currency
outlays, probably indicates that most of the fat
already has been trimmed from the import bill and
that further cuts would contribute to material
shortages and slowed national output. Cuban
planners apparently plan to reduce the trade deficit
with several modest trade adjustments:
Cuba is pressing its
Western suppliers to barter goods for Cuban
exports, primarily sugar.
? In a move toward greater import substitution,
Havana recently called for the collection of scrap
metal, paper, and textiles, according to the Cuban
press.
? To support dwindlingjoreign reserves, the National
Bank ojCuba is attempting to salvage precious
metals by establishing specialized stores to
appraise and purchase gold and silver coins and
jewelry at world market prices from Cuban citizens,
according to the Cuban press. Western press reports
that the gold mine on the Isle ojYouth, closed for
the past 25 years, has been reopened.
Moreover, we expect further cuts in the trade
account. Financial stringencies probably will force
Havana to yield more to Soviet pressures to
substitute often irderior Soviet Bloc goods for
Western imports that require hard currency. At the
same time, the trickle of Western consumer goods
into Cuba is likely to slow further unless the
transactions can be funded profitably by the state, as
with the government-operated catalog sales in which
Cuban exiles pay the state exorbitant prices in hard
currency to purchase consumer goods for theirjriends
and relatives in Cuba.
Over the past two years, the regime has pushed for
the diversification of exports to boost foreign
currency earnings and to obviate the need for import
cuts. Havana's seemingly unfocused effort to create
alternative export products has touched on the
generation oja number of medical products and
services, agricultural byproducts, and recycled goods.
Sales teams have been dispatched around the world
in search of new markets for Cuban exports. We
judge, however, that Cuba's well-documented
problems with quality control and transportation, its
limited technological base, and foreign exchange
shortages will continue to restrict the development,
testing, and marketing ojnew products. By the same
token, the depressed world oil market has dimmed
Havana's hopes for large profits from the resale of
Angolan and Libyan oil-at least some ojwhich it
received as payment for Cuban construction services.
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e Preliminary.
b Projected.
According to the US Interests Section, the consensus among
foreign observers in Havana is that this figure is understated.
Table 2
Cuban Hard Currency Foreign Debt
Total debt disbursed 3,148 3,236 3,374 3,552
Bilateral official debt 1,505 1,546 1,781 1,823
Government 1,238 1,291 1,556 1,632
insured export
credits
Financial institutions 1,566 1,548 1,316 1,310
Short-term and 911 974 803 827
import credits
plunging world oil
prices will cut hard currency oil reexport earnings in
recent fall in interest rates.
Havana again is showing little resolve in cutting its
hard currency imports this year. In a report to its
Western creditors in April, Havana referred to the
"impossibility" of reducing imports because many of
them have already been contracted for and doing so
would cut production of critical exports. Havana,
apparently in an effort to fund hard currency imports,
drew down its foreign exchange reserves from $248
million~r about two and a half months of import
coverage-at the beginning of this year to about two
weeks of import coverage by May, according to press
reports. The recent flurry of short-term commercial
borrowing by Havana suggests that Cuba continues
large import purchases despite the tightening credit
markets and the drawdown of its foreign reserve
holdings. short-term
commercial credits tied to imports now account for
more than 30 percent of Cuba's more than $3.5 billion
debt. In addition, the appreciation of key Western
currencies against the US dollars Havana earns for
sugar and oil sales has raised Cuban import costs and
increased its debt servicing expenses-even with the
Western Creditors Standing Firm
Cuban economic
p anners projected a $468 million financing gap
earlier this year despite Havana's unrealistic
expectations for import credits and prefinanced
exports. To close this gap, Havana turned to its
official and commercial Western creditors to
refinance $452 million, including previously
rescheduled interest and principal, coming due in
1986 and an additional $595 million in 1987. Havana
also requested $1 billion in new loans to finance
imports over the next two years and announced its
unilateral decision to suspend debt payments during
May and June. Apparently surprised by the creditors'
cold response, Havana agreed to continue making
interest payments in May and June, but later
suspended July payments.
Later this month, Havana finally reached agreement
with the Paris Club to slash hard currency imports,
but not before alarming already skittish lenders.
Western bankers
have begun to recommend that banks prepare for a
possible writeoff of Cuban debt.
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OParis Club member governments began 25X1
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Even in such a case, we believe Moscow would require
Cuba to institute tough austerity measures as a price
for the aid.
Table 3
Cuba's Hard Currency Creditors at the
End of 1984 e
Total debt disbursed
1,748
1,679
3,427
Paris Club creditors
1,157
1,006
2,163
Japan
261
230
491
Spain
299
111
410
France
199
167
366
United Kingdom
87
123
210
Switzerland
22
106
128
Italy
83
27
110
Canada
29
54
83
Sweden
57
20
77
Luxembourg
1
68
69
Netherlands
23
42
65
Austria
31
16
47
Germany
11
33
44
Belgium
35
7
42
Denmark
19
2
21
Other free market
countries
354
95
449
Argentina
329
3
332
Luxembourg
1
68
69
Panama
5
22
27
The Bahamas
23
23
Yugoslavia
10
9
19
significantly. Moreover,
capital investment projects in Cuba during the current
~noc nn G .... ........ ..1.... Adn.u rnnon 4lv
a Cuban National Bank
official was sent to Moscow in late May to seek Soviet
concurrence in reducing Cuban sugar deliveries to the
Soviet Union to free up Cuban production for sale on
hard currency markets. According to US Interests
Capping hard currency assistance to Havana would
be in line with Moscow's previous criticism of
Havana's economic mismanagement and wasteful
spending of scarce hard currency resources
It also would help ease
Moscow's own hard currency difficulties resulting
largely from declining oil production and low energy
prices.
We believe Havana will lobby Moscow to reverse its
Oil exporting countries 237 57s s15 hardline position against additional hard currency
and others assistance, but we expect the Soviets probably will
a Differences between these data and those in table 2 result from comply only as a measure of last resort if Havana is
discrepancies in the0sources. unable to reach agreement with Western creditors.
to tighten restrictions on export insurance to Cuba
and some of Havana's regional creditors also have
hardened their stance. According to the US Embassy
in Mexico City, Mexico suspended its $150 million
credit line at the end of April, pending the resolution
of Havana's problems with the Paris Club. Similarly,
Argentina will not renew its $200 million yearly credit
line owing to Havana's current financial difficulties,
according to State Department reporting.
Nevertheless, we expect Havana to use the recently
negotiated Paris Club agreement to press other
official and commercial creditors for loans.
Debt Renunciation?
Castro, who sometimes acts on quixotic impulse
rather than pragmatic sense, may see several political
benefits from some kind of debt moratorium. It would
allow him to use Western creditor nations as a
collective scapegoat to justify sharply increased
austerity, while satisfying his own personal antipathy
for the West by delivering a blow to capitalist
Little Help From Moscow
So far, Moscow apparently has refused to bail
Havana out of its current financial crisis. Indeed, we 25X1
believe the Soviets may even be relishing Western
creditor demands of financial discipline from
Moscow's spendthrift client. The Soviet Union
Official Private Total apparently is holding firm on its refusal earlier this
Debt Debt Debt - istance to Cuba 25X1
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governments. He may also believe such a move would
allow him to regain prestige lost last year when he was
criticized by some Third World leaders for not
following his own calls for debt renunciation.
The continuing stream of
hard currency imports, despite the near elimination of
foreign reserves, may indicate that Havana is stocking
its shelves with critical Western imports in case the
decision is made to cut ties to Western lenders.
At this point, however, we think these hints of debt
repudiation probably are designed to gain additional
concessions from lenders. Castro almost certainly
realizes renunciation would effectively freeze Cuba's
access to foreign currency inflows, and, with little or
no foreign reserves remaining, Cuban planners would
face an impossible task in trying to fund a minimal
level of Western imports to support domestic
production. Based on the lukewarm reception Castro
received last year in his push for Third World debt
repudiation and the likely opposition of Moscow to
such a measure, we question whether the possibility of
enhancing his political image would, in Castro's eyes,
outweigh the cost associated with a cutoff from
Western lenders. ~~
The Emigration Safety Valve
The surges in Cuban emigration precipitated by
economic tensions and popular dissatisfaction in the
past could be repeated in coming months as the
regime struggles to provide an outlet for the
disgruntled, unemployed, and imprisoned who are
currently taxing limited state resources. We believe
Havana probably is looking for ways to increase
emigration to its Latin neighbors as well as the United
States. In addition to legal emigration, Cuba may also
be inclined to release political prisoners if Washington
will allow them to come to the United States. The
Castro regime, as it has in the past, may also allow
citizens to use illegal emigration channels to the
United States through third countries. If public
dissatisfaction reaches a level perceived as intolerable
to Castro, he could opt for another Mariel-style mass
emigration. ~~
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Cuba: More Cabinet Changes
Two cabinet-level appointments announced by
Havana on 1 July attest to the continuing fluidity in
the top ranks of the government as President Castro
tries to assemble a coherent management team to halt
the country's economic slide. There have been 15
ministerial changes since April 1985-a turnover of
almost half the 32 slots on the Council of Ministers.
In contrast, there were only seven changes made in
the five years prior to April 1985. There is no
indication when this trend will end, but it seems clear
to us that what Cuba needs most is fundamental
policy changes rather than more changes in the
ministerial ranks.
New Ministers
Joaquin Benavides Rodriguez was named Minister-
President of the National Commission for the
Economic Management and Planning System, which
had not had a chief executive since it was formed in
May with little fanfare. Judging from the brief press
announcements at the time of its establishment, the
commission has broad responsibility for integrating
and standardizing the management and planning
methods and systems used in the various branches of
government. It apparently is also charged with
developing and overseeing the implementation of
policy on labor incentives.
Benavides had served since 1980 as Minister-
President of the State Committee for Labor and
Social Security (CETSS) following three years at the
helm of the Central Committee's Economic
Department. Prior to this, he served nine years in
various posts with the CETSS's predecessor, the
Labor Ministry, and thus seems well prepared to deal
with run-of-the-mill labor matters.)
The issue of labor incentives is a political time bomb
at present, however, and Benavides seems certain to
be caught between Castro's puritanical distaste for
material incentives and the economic necessity of
using bonuses to promote badly needed increases in
productivity. In May, Castro dealt a major blow to
material stimuli for peasants by abolishing the
network of farmers' markets where surplus produce
could be sold for private gain. In June, he launched a
similar attack on nonagricultural workers who
apparently were abusing the system of salary bonuses
on a grand scale. While he has stopped short of
outlawing material incentives altogether, Castro
appears to be uncertain about how they can be used
effectively. Thus, Benavides has the task of
overcoming widespread, deep-seated worker apathy
without offending the political sensitivities of a chief
of state who himself is undecided on the matter. ~
Benavides's replacement as Minister-President of the
CETSS is Francisco Linares Calvo, who served for 17
years in numerous municipal and provincial posts in
the party and its mass organization for labor before
being appointed in 1980 to Castro's own Coordination
and Support Staff. (Since February 1985 Castro has
assigned four members of his personal staff to top
government positions.) The Linares Calvo
appointment, therefore, appears to be another setback
for those in the leadership who see decentralization
and greater delegation of authority as prerequisities to
the resolution of Cuba's economic crisis.
Like Benavides, Linares Calvo faces major problems. 25X1
Cuba's industrial payrolls, for example, are
enormously bloated with excess workers who, if fired
as a result of the drive to improve efficiency and
profitability, would worsen the already serious
unemployment problem. Some excess workers almost
certainly will be formed into "microbrigades" to work
on the construction of housing, but the availability of
government resources for such projects is likely to
limit the number of microbrigades formed. Moreover, 25X1
according to the CETSS's own admission in October
1985, if the 234,000 Cuban workers now eligible to
retire did so all at once, the economy could not
support the expenditures necessary for providing
annuities for them. The CETSS will also be
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responsible for adjudicating the wave of labor
litigation that could well result from the government's
current crackdown on the disbursal of salary bonuses
and other incentives.
Outlook
Benavides and Linares Calvo clearly are destined to
play key roles in the regime's efforts to overcome
worker apathy at the same time workers' benefits are
being reduced. As a result, they will be prime
candidates for scapegoats if these efforts arouse
antipathy in the already weary and disillusioned
population. Benavides is particularly vulnerable; he
must deal directly with the sensitive incentives issue,
and in doing so must rely on an untested new element
of the governmental structure that is still in the
process of organization.
Some experimentation is likely. The basing of salaries
on group productivity rather than individual
productivity, for example, seems to be gaining favor
after about a year of trial, according to the Cuban
press. This system theoretically induces high
producers in each group to exert social pressure on
low producers to boost output and thus assure an
acceptable salary for the group as a whole. This and
other economic mechanisms that Benavides's
National Commission may introduce, however, seem
unlikely to do much to motivate the work force in the
face of increasing austerity.~~
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Latin America
Briefs
Nicaragua Role of Western Internationalists
The role of foreign volunteers in Nicaragua recently has been highlighted by the
kidnaping of eight West Germans by anti-Sandinista rebels, the death of a Spanish
health worker in a landmine explosion, and the killing of a Swiss doctor in an
insurgent ambush. While relying largely on technical assistance from Cuba and
the Soviet Bloc, the regime has also recruited sympathetic Westerners to assist in a
variety of development projects and to spread pro-Sandinista views in their own
Although the internationalists contribute marginally to the Nicaraguan economy
through their labor and expertise-as well as the small quantities of hard currency
they exchange-we believe their principal asset to the regime lies in their role as
lobbyists. US Embassy and press reporting indicates these groups use
demonstrations and press conferences to persuade their own governments to
support the Sandinistas. To foster such activities, Managua established the
Nicaraguan People's Committee in 1979 to promote "internationalism and ties to
national liberation groups." Last October, the regime initiated an international
campaign called Nicaragua Must Survive to reduce the effects of US trade
sanctions through international solidarity. ~~
five-member Barbadian work brigade to Nicaragua to assist in agricultural
projects and to work in the country's schools. Friendship and church groups,
cultural organizations, peace organizations, and leftist political parties in West
Germany, Belgium, Switzerland, Ecuador, Brazil, Argentina, and Uruguay also
have sent volunteers in recent years.0 25X1
Cuba is financing the visit of a 25X1
assist in teaching and coffee harvesting
officials met with solidarity groups and local authorities in West Germany,
Austria, and Italy in May to obtain commitments and personnel for specific 25X1
ventures including irrigation and electrification projects. In addition, the
Nicaraguan Embassy in Madrid recruited a 50-man Spanish brigade in June to
Paraguay Radio Censorship
Radio Nanduti, the country's largest independent radio station, may soon be
forced to close as a result. of government harassment. For the past few months,
Radio Nanduti has been subject to selective jammings, preventing the broadcast of
sensitive political themes such as protest demonstrations or public criticism of
President Stroessner's policies, according to the US Embassy. The frequent
interference-discontinued only during the recent visit of a representative of the
UN Human Rights Commission-is costing the station much of its audience and
advertising funds. The US Embassy reports that the ruling Colorado Party has
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interference.
publicly warned businesses that it considers advertising on Radio Nanduti to be
"financial aid" to subversives. The station has complained about the jamming, but
the government contends it lacks the technical capability to locate the source of the
We believe the Paraguayan Government may eventually shut down the station.
The Stroessner regime has systematically harassed Radio Nanduti since July
1983-arbitrarily closing the station, detaining the owner, and prohibiting certain
programs. In early May, masked thugs-widely considered to be acting at the
government's behest-vandalized the radio's transmitter. The government's tactics
against Radio Nanduti come on the heels of the closure in March 1984 of
Paraguay's most popular and independent daily newspaper, ABC Color. In
addition, the Catholic radio station, Radio Charitas, is beginning to experience
problems similar to those of Radio Nanduti, and last month the priest in charge of
the station was prevented from reentering the country. Continued censorship of
opposition media will further fuel international criticism of Stroessner's blatant
repression of civil rights but, in our view, is unlikely to change his policies. ~
nuclear areas.
0 Because of design problems experienced with the reactor when it was first
started up in 1977, the government opted to disassemble its core and put major
new investments on hold. At the time, Pinochet mollified military proponents of
the project by offering to consider whether economic conditions would justify
renewed funding in the mid-1980s. The past two years of economic growth
bolstered the case of the military faction that favors developing expertise in
nuclear reactor, one of Chile's two nuclear training centers
President Pinochet has approved the redesign and completion of the Lo Aguirre
Developing Nuclear Expertise
scale irradiation sterilization unit may be included.
Chile's nuclear energy commission estimates the project will cost several million
dollars and take 18 months to complete. The revised plans for the reactor, a near
copy of Spain's JEN-1 pool-type reactor, call for it to operate on 20-percent
enriched uranium fuel-not suitable for nuclear weapons-rather than the
original 90-percent enriched fuel. We have not identified the supplier. The center
housing of the reactor is designed for reactor operations and training, as well as for
applied and theoretical research in physics, isotopes, and materials testing. In
addition, a multipurpose radioisotope production laboratory and an industrial-
Mother Teresa's 24-hour visit to Cuba on 8 July was unquestionably a public
relations plus for the Castro regime, but the brevity of her stay appears to have
limited-at least for the moment-Havana's ability to exploit it politically. A
better opportunity to do so may arise later. Mother Teresa announced she would
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return at some unspecified date to confer with government officials about
establishing a Cuban affiliate of her religious community, the Missionaries of
Charity, according to the Cuban media. ~~
Mother Teresa was both welcomed and seen off at the airport by Jose Felipe
Carneado, the Central Committee member in charge of the party's relations with
religious groups. In addition to meeting with President Castro, she visited the
Santovenia Home for the Aged, where nuns care for 430 elderly tenants, and
stopped briefly at the Nuestra Virgen de Regla Church in a working-class
neighborhood in Havana. The US Interests Section in Havana notes that the large
crowd on hand to greet Mother Teresa at the church~iespite the lack of advance
warning-was jubilant and enthusiastic, at times appearing almost to crush her
with good wishes. The popular demonstration may alert the Castro regime to the
political danger inherent in giving any revered religious figure ready access to the
public when times are growing more difficult.
British Virgin Islands Possible New Government
Legislative Council members in the British Virgin Islands, led by Minister of
Labor Conrad Maduro, are quietly organizing for a vote of no confidence soon
against Chief Minister Cyril Romney. Romney, a political independent, was 25X1
selected as head of the government in November 1983. Dissatisfaction with the
Chief Minister stems from his close association with businesses linked to drug-
related money laundering, according to the US Embassy in Antigua.
Romney believes he could survive a call for new 25X1
elections but that such a move could suggest an international image of instability
and would be a financial burden to the country. Elections are not constitutionally
mandated until 1988. The Embassy indicates that Romney's support in the
Council and the general population is not strong. Many of his colleagues
reportedly believe he is motivated by economic profit and personal greed in serving
as Chief Minister. 25X1
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Secret
Secret
Declassified in Part -Sanitized Copy Approved for Release 2011/12/08 :CIA-RDP87T00289R000301590001-1