LATIN AMERICA REGIONAL AND POLITICAL ANALYSIS
Document Type:
Collection:
Document Number (FOIA) /ESDN (CREST):
CIA-RDP79T00912A000700010014-7
Release Decision:
RIPPUB
Original Classification:
S
Document Page Count:
29
Document Creation Date:
December 21, 2016
Document Release Date:
November 13, 2007
Sequence Number:
14
Case Number:
Publication Date:
June 2, 1977
Content Type:
REPORT
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Secret
Latin America
ONAL AND
POL
SOURCED
DIA review(s) completed.
State Dept. review completed
TICAL ANALYS
S
Secret
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LATIN AMERICA
2 June 1.977
Peru-USSR: Growing Problems
with Soviet Weapons . . . .. . . . . . . . . . . . . 3
Venezuela: Time Running Out: . . . . . . . . . . . . 7
Ecuador Reaches Settlement with Gulf Oil . . . . . . 11
Mexico: Financial Stabilization Measures
More Than Meet IMF Targets . . . . . . . . . . . . 13
Problems in Paradise . . . .. . . . . . . . . . . . . 19
Guyana: A Special Case for the US?. . . . . . . . . 24
NOTE: The LATIN AMERICA REGIONAL and POLITICAL ANALYSIS
will be published once a week on Thursday beginning with
this edition.
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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JCI,. II C I
Peru-USSR: Growing Problems with Soviet Weapons
The Peruvian army is having difficulty maintaining
and supplying its Soviet-made weapons and equipment.
Lack of spare parts, inadequate training, poor mainte-
/j nance.by Peruvian personnel, and problems caused by cli-
mate and topography have left some items unusable. It
is unlikely that Peruvian personnel can effectively use
all their new equipment, now or in the near future.
Some Peruvian military leaders blame Soviet support
and training and suspect that the Soviets may want to
keep the Peruvian military dependent on them. The
Soviets have sent some advisers, and more are expected.
~~ Soviet training of Peruvian personnel has improved in
r the past two years but will probably not keep pace with
Peru's acquisition of more complex missiles and aircraft.
Scope of the Problem
Peru probably now has 300 T-55 medium tanks; the
T-55 is the frontline armor weapon of Peruvian ground
units. In April, some 70 of these tanks were inoperable
because of a combination of problems:
--Major maintenance is required once a month.
--Engines cannot operate at high altitudes.
--Drivers rapidly become fatigued because of the
difficult steering mechanism and the manual trans-
mission.
--Clutches are weak.
--Fuel expansion caps frequently leak fumes into
the crew compartment.
--The tracks have a limited road life, further
shortened by rocky terrain and sand.
--The Soviet supply of spare parts is inadequate.
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The Soviet KRAZ 225 prime mover purchased to tow the
T-55 tanks apparently has proven unsatisfactory because
it lacks power in high altitudes and on steep inclines.
The Soviets were unable to solve these problems by modi-
fication and, as a result, Peru will have to obtain a
new prime mover. The Peruvians apparently will use the
KRAZ 225 for the Soviet ZSU-23-4, a 23-mm. self-propelled
antiaircraft gun, and for the US 155-mm. self-propelled
howitzer; both weigh less than the T-55.
Soviet trucks have generally performed adequately,
although they have had maintenance problems stemming
from transmission deficiencies, especially in flat bed
rigs.
Soviet failure, or reluctance, to teach fun amen a
maintenance procedures.
Peruvian maintenance has improved in the past two
years but has not, kept pace with the amount or sophisti-
cation of the Soviet equipment being acquired. Soviet
advisers believe equipment is abused and destroyed un-
necessarily and that the Peruvians do not comprehend con-
k reventive maintenance. Peruvian military
s
A number of the ZSU-23-4 self-propelled guns are
out of service because there are no spare parts; the
Soviets are supposed to modify the system to make the
weapon and radar power supply independent of external
sources. Some reports indicate that a major Peruvian
objection to the ZSU-23-4 is that it lacks equipment that
can distinguish whether a potential target is friend or
foe. Other reports suggest that this problem has been
solved.
The Soviet MI-8 helicopter has been the most disap-
pointing acquisition for the Peruvian military in terms
of maintenance. Last summer, the in-commission rate for
these helicopters was only 30 percent, and by January
1977 it had dropped to 20 percent. The Peruvians believe
the main problems are a shortage of spare parts and
d t 1
p
cepts suc a
charge that the USSR purposely delays
ver
h
,
owe
leaders,
replenishing spare parts, performs rather than teaches
s some instructors who do not speak
d
use
maintenance, an
Spanish.
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The Peruvian military expected some problems with
the new Soviet equipment, especially with the T-55 tank
and the MI-8 helicopter, but they are irritated by what
they believe to be a Soviet :Failure to send them quality
- units and spare parts. They strongly question the
Soviets' motives, arguing that the USSR could do better
if it wished.
Maintenance problems and performance failures of the
Soviet-supplied equipment adversely affect Peru's mili-
tary capabilities and will increasingly draw the atten-
tion of both Peruvian planners and Soviet advisers. Re-
cent deliveries by the Soviets of spare parts and replace-
ment units for the T-55 and other equipment and an in-
crease in the number of Soviet technicians may represent
Soviet attempts to rectify the problems.
Soviet purchase terms are attractive to the Peruvians.
Peruvian military leaders, confronted by economic con-
straints in the world arms market, see Soviet equipment
as the only short-term choice.
The reported delivery to Peru of surface-to-air
missile systems and the SU-22 fighter-bomber will probably
create additional maintenance problems. Peruvians are
receiving extensive maintenance and operations training
in the USSR, but the Soviets may have to send as many as
75 additional advisers and technicians to aid and train
the Peruvians to maintain the new systems.
Some 80 Soviet military advisers are in Peru at
present. The complexity of the systems, the usual lack
of timely parts deliveries by the Soviets, and the poor
5 Peruvian logistic system, however, suggest problems will
continue despite increased numbers of Soviet advisers.
These difficulties adversely affect the operational
ability of Peru's land forces. Recent reports indicate
that Peru's logistic system could not support a two-front
conflict (against Chile and Ecuador) for more than two
2 or three days. This would hinder realization of Peru's
reported strategic contingency planning, which calls for
two-front operations lasting two weeks or longer.
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The cost of such a conflict, moreover, would most
probably be too high for the Peruvian economy, which
suffers from inflation, lack of investment capital, and
a large balance-of-payments deficit. Although these
factors argue strongly against offensive action by Peru
against its neighbors, they could be offset by the belief
of many Peruvian. officers that conflict is inevitable.
Peru's neighbors suffer some of the same problems.
Ecuador and Bolivia have few ground units with modern
equipment, and the overwhelming amount of equipment pos-
sessed by Peru would enable it to keep more weaponry in
the field.
Chile, although it has fewer ground weapons than
Peru, has a much stronger defensive capability than
Ecuador or Bolivia. Chile also has numerous tanks and
support vehicles out of service for maintenance; only
half of Chile's 50 US-made M-41 tanks reportedly are
operational at any one time, and its 21 M-24 tanks are
still not sufficiently refurbished to enable them to
perform well against Peru's T-55s.
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StL.M t I
Venezuela: Time Running Out
Unless Venezuelan officials and representatives of
the ex-concessionaires achieve an early breakthrough in
current negotiations aimed at settling major problems
left over from the January 1976 nationalization of the
petroleum industry, there is little chance that final
agreements can be reached and implemented before the
formal start of the presidential campaign in April 1978.
Progress is slow and major obstacles remain on the
three outstanding issues yet to be resolved--disposition
of the billion dollar guaranty fund and two separate
claims for back taxes. Central to the negotiations is
the apportionment of the compensation bonds being held
by Venezuela in the guaranty fund. The fund was set up
in 1971 to ensure that the petroleum companies properly
maintained their oil facilities before they were trans-
ferred to government hands. Soon after nationalization,
government officials promised that this issue would be
settled quickly, but little headway was made in 1976 and
about half of the compensation promised to the ex-con-
cessionaires is still held by the government in the fund.
President Perez and other government officials now say
that they intend to settle these issues by the end of
1977.
Although some progress has occurred in recent months,
the government appears unrealistically optimistic. Evi-
dence suggests that these issues may be one of the major
problems faced by the new administration when it takes
office in 1979.
Guaranty Fund
Field evaluations of production equipment, pipelines,
and refineries have now been completed, and the resident
representatives of the ex-concessionaires are reviewing
5 the evaluations point by point with Martin Morales, chief
of the Reversion Office of the Ministry of Energy and
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Mines. Company officials describe their relations with
the government team as good and say that Morales is in-
creasingly willing to listen to their refutation of spe-
cific claims made by the government field inspectors.
Some companies reportedly have already signed preliminary
agreements with Morales' office on the amount of deduc-
tions from the guaranty fund, and most expect to sign
such agreements over the next month or so. The agree-
ments must then, however, be brought before a committee
composed of ministry officials and representatives of
the ex-concessionaires and Petroven, the state holding
company. This committee will review the preliminary
agreements and make recommendations to the minister of
energy and mines, Valentin Hernandez, who will decide the
final amount of the deduction. (He could even increase
the claims against the oil company.) Once agreement is
reached, payments from the guaranty fund will still be
held up until the two separate tax claims are resolved.
Tax Claims
The back taxes claimed by the Ministry of Finance
originate from deductions taken by the companies on their
income tax returns for 1975 and previous years. In early
1976, a separate tax claim was advanced by the Comptrol-
ler General's office totaling nearly $500 million. The
office of the Comptroller is a subordinate agency of the
Congress, entrusted with the control, auditing, and ad-
ministration of the nation's revenues, expenditures and
,.- assets. In asserting its claims, the Comptroller General
j acted on his own. His sole supporters were the Comptrol-
ler's office itself and leftist members of congress. Al-
though Ministry of Energy and Mines officials assert that
these claims have little or no legal basis, the ex-con-
cessionaires believe that final adjudication can come
only from the Supreme Court, a procedure that will take
months. It is also generally recognized that a foreign
oil company has yet to win a significant tax case in a
Venezuelan court.
Legislative Obstacles
Once these roadblocks have been passed, a more for-
midable political challenge faces the companies and the
government when details of the agreements are presented
,L to the Venezuelan Congress for debate. Although the
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governing Democratic Action Party has majority control
in both legislative chambers, it will not rush the agree-
ments through Congress without adequate debate. And time
is not on the government's side. The present congres-
sional session ends in little more than a month, and the
3 October-December session is traditionally set aside for
discussion and approval of the government's budget. Next
year, when elections are scheduled, Congress meets only
once, in March, and any important legislation it passes
will be of a nonpartisan nature. Time has just about run
out for any definitive settlement with the ex-concession-
aires until after the elections in December.
Outlook
If Venezuela is to be assured of long-term participa-
tion of foreign oil companies in areas where their serv-
ices are most needed--heavy oil and off-shore oil--a
basic change in the Venezuelan mind-set toward the foreign
oil companies will be necessary.
Although the current course of negotiations with the
government is unsettling to the former concessionaires,
it has apparently not yet affected the running of the
nationalized petroleum industry. The former owners are
still helping'to operate the industry under technical
service and marketing contracts, and there is no indica-
tion that the major oil companies are so dissatisfied
with their relations with the Venezuelan government that
they will not renew these service contracts. The frustra-
tions involved in dealings with the Venezuelan bureauc-
racy may, however, have a more negative effect when fu-
ture relationships are discussed.
Neither the ex-concessionaires nor other potential
foreign investors will be reassured by the Venezuelan
predisposition to mix oil and politics. In recent
speeches in two major oil-producing areas, Luis Pinerua
Ordaz, the secretary general of the Democratic Action
Party and front-runner for the party presidential nomina-
tion, promised that his administration would carry for-
ward the nationalization of the oil industry by "Vene-
zuelanizing" the foreign-owned service companies working
for the industry. Pinerua was clearly referring to the
Venezuelan subsidaries of the companies, largely US,
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which provide exploration, drilling, testing, and other
specialized services under contract to the oil industry
worldwide. While Pinerua's concept of "Venezuelanization"
was not further defined, these service-companies can be
expected to react to any serious threat of nationaliza-
tion by cutting back their activities in Venezuela. '
Should they take this action, the extensive exploration
and development research program planned by Petroven for
the Orinoco Tar Belt, as well as current. operations,
would be severely damaged.
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Ecuador Reaches Settlement with Gulf Oil
Ecuador has settled a long-standing dispute with
Gulf Oil Company.by agreeing to purchase Gulf's 37.5-per-
cent interest in the Texaco-Gulf Ecuadorean oil consor-
tium. Gulf received an initial payment of $82 million
Friday and expects to receive an additional $35 million
upon completion of an audit of the company's holdings.
The dispute began early last year when Gulf withheld
foreign exchange deposits on export sales in an effort to
force Ecuador to modify policies that had reduced company
profit margins. Gulf paid the overdue deposits in Sep-
tember, averting confiscation of its assets by the Ecua-
dorean government.
The purchase gives the Ecuadorean State Petroleum
y Corporation the controlling interest in the consortium,
with 62.5 percent of the shares. Texaco will probably
continue to handle the marketing of Ecuadorean oil and
s retains a 37.5-percent interest. The consortium produces
nearly all of Ecuador's oil.
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Selected Economic Indicators
Industrial Production
Index: 1970=100
500
- Mcnthly
- Annual Average
100 1 1 -I I 1
Jan Jun Dec Jun Dec
1975 1976 1977
Consumer Prices
Index: 1968=100
500
1001 1 1 _-1
Jan Jun Dec Jun Dec
1975 1976 1977
Money Supply
Index: 1970 Dec =100
500
1 Jan Jun Dec
1975
Wholesale Prices
Index: 1968=100
500
Jun Dec
1976 1977
Monthly
-- Annual Average
Jan Jun Dec Jun Dec
1975 1976 -1977
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Mexico: Financial Stabilization Measures More
IMF Targets
Mexico has more than met: the first quarter fiscal
and monetary targets set under its stabilization agree-
ment with the International Monetary Fund. Failure to
meet these targets would have restricted Mexico's draw-
ings on a $600 million, three-year Extended Fund Facility
and would have reduced its ability to obtain foreign com-
mercial credit. Meeting the targets has required severe
fiscal austerity measures. Consumer demand and private
investment remain severely depressed, and inflation,
though falling, is still currently running at a 20 per-
cent annual rate. Although the extreme austerity poli-
cies of the first quarter may be gradually relaxed to
spur private investment, we believe the IMF targets will
still be generally adhered to. Mexico City is likely,
however, to try to renegotiate restrictions on public
foreign borrowing under the Extended Fund Facility.
President Lopez Portillo apparently believes, as we do,
that efforts to develop Mexico's vast oil reserves are
being hindered by the IMF agreement.
Economic Policy
So far,_the Lopez Portillo administration seems to
have placed financial stabilization and adherence to the
IMF agreement well ahead of economic expansion. Mexico
City hopes that an increase in private demand and in
private investment will provide the impetus for recovery
from last year's sharp economic slowdown,. Whether or
not private demand revives, the present extreme austerity
measures will probably be relaxed somewhat later in the
year. We believe, however, Lopez Portillo will generally
adhere to the IMF targets.
To help chart his economic course, Lopez Portillo
has created an economic cabinet under his personal chair-
manship. Within the government economic establishment,
a number of loosely organized groups are vying for in-
fluence. These include:
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--The Cambridge group, headed by Carlos Tello,
secretary of planning and budget? which seeks
increased government spending.
--The Moctezuma group, headed by Julio Moctezuma
Cid, secretary of finance, which favors anti-
inflationary measures.
--La Asesoria, a small group, headed by Jose Antonio
Ugarte, with which Lopez Portillo's son apparently
works closely.
Lopez Portillo has moved deliberately through the prolific
and conflicting advice proffered by these groups and
others, seeking to avoid the rash implementation of ill-
conceived policies characteristic of the previous
Echeverria administration. Thus far, Rafael Izquierdo,
advisor to the president, Jose Ugarte, and others call-
ing for severe anti-inflationary measures have been most
influential. We cannot be sure they will remain so,
Fiscal Polig
Despite politically necessary public statements that
government spending is running at budgeted levels, the
new president has in fact drastically pruned public out-
lays. From January to March, the federal government's
deficit was reportedly only 3 billion pesos, compared
with 8 billion a year earlier. No data are available
on the remainder of the public sector, but this deficit
is generally slightly less than that of the federal gov-
ernment. Accordingly, we estimate that the total public
sector deficit was about 6 billion pesos, far below the
IMF target of 25 billion pesos.
The first quarter cutback reflects far more than the
reduced spending normally associated with a new adminis-
tration or with the normal seasonal downturn. Clearly,
the "transition budget" drafted mainly by the Echeverria
administration has been greatly slashed.
Spending curtailment has also been aided by:
--The centralization. of the budgetary process under
a new Secretariat of Programming and Budgeting.
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atLoh t I
--A new law giving the treasury authority to control
borrowing by government units.
--Reforms aimed at achieving a greater degree of
cohesion between agencies and ministries in for-
mulating and implementing policy.
Monetary Policy
The first quarter drop in borrowing requirements
permitted by the reduced deficit has allowed the adminis-
tration to more than meet the IMF money supply goals
without further curtailment of credit to the private
sector. The IMF agreement :Limits the growth of currency
in circulation to the change in foreign reserves. Al-
though foreign reserves increased by $205 million from
January to mid-March, currency in circulation by the end
of March had dropped 12 percent from the December level,
far greater than the normal seasonal decline.
The tight credit conditions that faced the private
sector last year have eased slightly, the inflation rate
is down, and an estimated $1 billion being hoarded in
the form of dollars has been returned to the banking
system to bolster time deposits. The government hopes
to further increase credit availability through the
following measures:
--Bank reserve requirements on new deposits have
been reduced from an average rate of 50 percent
to 39.5 percent, while maintaining selective
credit policies.
--The government has increased interest rates on
peso deposits and made them more flexible, and
market oriented.
--To encourage switching to peso deposits, interest
rates paid on dollar deposits have been lowered
to one percentage point above London Eurodollar
rates.
--To attract increased savings and the repatriation
of capital, the government has floated a trial
two-billion-peso "petrobond" offering, and more
are planned; these bonds have maturity values
directly. linked to world oil prices and a guaranteed
minimum annual tax-free interest rate of 7 percent.
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Inflation
Although first quarter fiscal and monetary policies
have reduced demand pressures, price rises to offset
higher costs continue. The rate of increase in the con-
sumer price index has steadily declined from 3.2 percent
in January to 1.5 percent in April. The wholesale price
index, however, after gaining only 1.9 percent in March,
jumped 2.9 percent in April.
Industry is pushing for higher prices for controlled
items. Lopez Portillo is reportedly beginning to feel
that the severe price controls on basic food products are
unsustainable. Termination of the controls, however,
could meet labor opposition and result in new wage de-
mands. Holding wage demands to a 10 percent ceiling has
been a key factor in the government's anti-inflation
efforts. In these circumstances, the government can be
expected to try to limit price increases to the minimum
necessary to discourage production cutbacks.
Economic Growth
The sharp drops in real GDP and industrial production
that followed the September float of the peso probably
have been stemmed; depressed demand is keeping output
stagnant. In January, industrial production was 3.6
percent below a year earlier and slightly below the De-
cember level, contrary to the usual seasonal increase.
Lopez Portillo had hoped that a revival of consumer de-
mand and private investment would partially offset the
slowdown in public spending. If the government maintains
tight fiscal and monetary policies, however, 1977 will
likely be a year of zero or negative economic growth.
The matching of last year's 2 percent increase in GDP,
far below the rate necessary to absorb all the new en-
trants to the labor force, is probably the best that can
be hoped for.
Lopez Portillo is reportedly discouraged by the
failure of domestic and foreign investment to pick up.
The President has tasked his advisers to come up with
recommendations on ways to encourage investment and has
sought to stimulate business by abolishing the highly
unpopular excess profits tax.
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St Cali t: I
While Lopez Portillo has cleared away much of the
bad feeling between the government and the private sector,
business is not likely to respond with large investments
in the next few months. Companies are financially strapped
by the large increase in the, peso cost of servicing their
dollar debt. Because of excess capacity and a poor
profit year in 1976, investment is unlikely to respond
quickly even with the modest credit expansion and in-
creased business confidence.
Balance of Payments
Tight fiscal and monetary policies have helped bring
a dramatic improvement in the balance of payments. In
March, Mexico recorded its first monthly trade surplus in
Mexico: Balance of Payments
1975
1976
Exports (f.o.b.)
2,858.6
3,297.8
Imports (c.i.f.)
6,580.2
6,029.6
Trade balance
-3,721.6
-2,731.8
Net services'
-47.3
-291.9
Current account
balance
-3,768.9
-3,023.7
Net errors and
omissions and
short-term
capital
1306.0
-2,199.42
Capital account
balance
4,339.9
4,889.92
Change in reserves
165.1
-333.1
Million US $
1st 2d 3d 4th 1st
Qtr Qtr Qtr Qtr Qtr
781.2 879.7 673.7 963.2 1,063.2
1,433.4 1,656.8 1,497.2 1,442.2 1,132.9
-652.2 -777.1 -823.5 1379.0 -69.7
-13.6 -110.4 -127.3 -40.6 -230.3
-665.8 -887.5 -950.8 -519.6 -300
-238.2 -163.0 -718.2 -715.0 200
858.5 1,026.5 1,015.3 1,624.5 300
.45.4 -24.0 -653.6 389.9 200
1. Including value added by border industries.
2. Data for quarters do not correspond to annual totals because foreign credit to companies with foreign
investment is available only on an annual basis.
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28 years. Reportedly, the first-quarter trade deficit
was about $70 million and the current-account deficit was
$300 million, compared with $652 million and $666 million,
respectively, during the first quarter of 1976. Imports
reflecting the impact of the devaluation and economic
stagnation and probably the end of speculative accumula-
tion, were down an estimated 21 percent:; capital goods
accounted for more than half of the drop. Exports were
reportedly up 36 percent, led by coffee and petroleum
sales. Net errors and omissions, which. include short-term
capital, showed a new inflow as capital. flight was re-
versed. As a result, Mexico, with modest net foreign
borrowing well below the IMF target, ended the quarter
with an increase in reserves.
Lopez Portillo and key advisers apparently plan to
rely on rapid development of petroleum exports to improve
Mexico's balance-of-payments position. The President re-
portedly believes that Mexico can borrow against its future
petroleum production to meet debt servicinq requirements
and to acquire financing to maintain federal spending
levels. He believes, however, that efforts to increase
oil production are being unduly restricted by the IMF
agreement. He points out that the IMF wants Mexico to
develop its energy resources while at the same time re-
stricting access to foreign credit needed to finance it.
Although renegotiation of the IMF borrowing target
may be advisable--the program did not foresee the surqe
in inflation following the floating of the peso or the
obvious need for financing to develop Mexico's oil
reserves--the IMF will be extremely reluctant to accept
a chanqe. The IMF probably fears that a drastic rene-
gotiation of the targets in the Mexican stabilization pro-
gram could cause a loss of confidence in the IMF's ability
to impose conditions on other countries. Even though the
agreement is becoming a political issue in the country,
Mexican officials, while pushing for a renegotiation,
probably will be forced to live with the agreement.
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Economic difficulties in the Caribbean Community
(CARICOM) are impeding the movement for regional coopera-
tion and unity, despite the best efforts of some members,
especially Trinidad and Tobago. Many of the economic
problems are longstanding and have pitted the smaller,
poorer members against the larger, more prosperous ones.
There also are tensions among the larger members over
political issues. The immediate causes of the problems
are:
--The refusal by the smaller members to ratify a
proposal to restrict the trade of non-Caribbean
commodities within CARICOM.
--Separate decisions by three members faced with
balance-of-payments problems to restrict further
imports from other CARICOM members.
--The rumored resignation of the head of the CARICOM
secretariat, a principal proponent of regional
economic cooperation.
Established in 1973 as the successor to the Carib-
bean Free Trade Association (CARIFTA), CARICOM embraces
three broad areas of cooperation:
--A modified common market with a high external
tariff.
--A community treaty to harmonize economic policies,
foster economic development, and aid members faced
with balance-of-payments problems.
--Coordination of foreign policy issues.
The 12 member countries are classified as "more developed"
(MDCs) and "less developed" (LDCs). Trinidad and Tobago,
Barbados, Jamaica, and Guyana--known as the "big four"--
make up the first group. The less developed countries
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The Caribbean Community (CARICOM)
Puart
(U.S.)
IThpo+a
'ieques +V)rglrt-IS~~
to. Rico) (U ,S;)
Angutua
(U.K.):
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include the eastern Caribbean islands of Antigua,
Dominica, Grenada, Montserrat, St. Kitts-Nevis-Anguilla,
St. Lucia, St. Vincent, and the mainland entity of
Belize.
One of the key issues facing CARICOM is whether
"integrationist" views or planning for the economic
development of individual countries will receive prior-
ity. The CARICOM secretariat and the MDCs have promoted
the establishment of supplementary regional institutions
such as the Caribbean Multinational Shipping Line and
the Caribbean Food Corporation. These organizations were
set up to achieve greater intraregional economic planning.
Another regional institution, the Caribbean Development
Bank (CDB)--originally established by CARIFTA in 1970--
finances regional projects. Under the last two direc-
tors, however, the bank has tried to make it easier for
the LDCs to obtain loans for individual economic develop-
ment purposes.
The smaller countries' belief that the benefits of
regional cooperation have been unequally distributed is
a major source of contention between them and the larger
countries. The eastern Caribbean mini-states--for the
most part hard-pressed, economically unviable units--
have resisted efforts to "harmonize" economic policies.
The characteristics of these countries' deteriorating
economies are rising population growth, lack of natural
resources, declining tourist revenues, high fuel bills,
inflation, and attendant social ills. In addition, they
are running large trade deficits with the more prosperous
countries. The LDCs believe flexible economic arrange-
ments will aid their industrialization prospects, and
they have blocked an attempt by the "big four" to re-
strict market access to CARICOM commodities.
At the recent CARICOM ministerial talks, the mini-
states collectively argued that they were less concerned
than the large countries about "refining" rules on re-
gional integration. Speaking for the LDCs, Montserrat
7 Chief Minister Austin Bramble said community priorities
should be rearranged to make "actual industrial develop-
ment" of the LDCs--particularly the location of new in-
dustries--the number one agenda item. He intimated that
only MDC acceptance of this position would break the
stalemate.
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The inability of the smaller countries to become
self-sufficient through CARICOM has caused them to be-
come more protective of their interests. They have re-
sisted the adoption of a common framework to govern their
relationship with non-CARICOM countries and have indi-
cated a willingness to explore non-CARICOM sources of
economic and technical assistance. Dominica and St.
Lucia, for example, were offered technical assistance
by Cuba; Antigua, after receiving economic assistance
from Venezuela, supported the Venezuelan petition for
CARICOM membership.
In addition, the smaller countries believe that
subregional integration mechanisms--the Eastern Carib-
bean Common Market and Eastern Caribbean Currency Au-
thority, both originally established by CARIFTA--better
serve their needs. Some LDC leaders, for example, have
suggested that transforming the currency authority into
a development bank to serve the smaller countries would
enhance investment prospects as well as lessen their
dependence on loans from the CDB. Adoption of this sug-
gestion would probably delay full integration of the
LDCs into CARICOM.
Trinidad and Tobago Prime Minister Eric Williams'
financial largesse has been crucial in holding the or-
ganization together in the face of disagreement over the
issue of a community-wide foreign policy and the deteri-
orating economic conditions in the member countries.
Williams has cooled off on his belief that Cuba should
be included in the regional cooperative effort. This
backtracking is partly due to Castro's rejection of
Williams' view of the role of the remaining colonial
powers and the US in the Caribbean.
Williams, on the other hand, opposes efforts by
Jamaica and Guyana to formulate a community foreign
policy which would reflect their domestic economic poli-
cies and which would partly support Cuba's foreign
policy. He feels that regional interests would be best
served if CARICOM took what amounts to a neutral posi-
tion on issues that the community has very little influ-
ence on. In 1976 a CARICOM heads of state meeting broke
up after Williams blocked a joint Jamaican-Guyanese
effort to adopt a common position condemning alleged US
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--A $20 million balance--of-payments support loan
to Guyana and separate $25 million and $70 million
loans to Jamaica. He also placed $10 million in
reserve for Barbados.
--A purchase in 1974 of $15 million in bonds with
the understanding that the funds would be used to
increase lending activities in the Caribbean re-
gion.
--A $10 million contribution to a special CDB fund
for loans to the CARICOM LDCs.
Williams has tried to use the loans to ward off
"destabilization" of the region. He also refused to
discuss extension of regional. aid to Mozambique and to
vote on joint recognition of Angola.
Williams' past financial. assistance to protect
CARICOM includes:
Jamaican and Guyanese pressures on CARICOM foreign policy
positions and to extract promises from Manley and Burnham
to support the principles of the CARICOM treaty. How-
ever, efforts to unite the ":big four" have not been suc-
cessful. For instance, a CARICOM secretariat proposal
for a regional aluminum smelter project that would in-
tegrate the "big four" economies by using Trinidad and
Tobago's natural gas to process Jamaican and Guyanese
bauxite into aluminum is in limbo because of a lack of
funds.
litical problems remain.
Although CARICOM will survive--with the help of
Williams' petroleum-based wealth--deep economic and po-
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Guyana: A_-Special Case for the US?
In his most recent attempt to obtain economic assis-
tance from the US, Guyana's Foreign Minister Fred Wills
has suggested that the US, for economic assistance pur-
poses, ought to consider the Caribbean as a special case
apart from other less developed countries--essentially,
an economic "Monroe Doctrine" area.
According to Wills, US cultural and economic domi-
nance in the region means that the consumption patterns
and attitudes of Caribbean, especially Guyanese, people
are molded by the US and, as a consequence, Caribbean
countries are less inclined to sacrifice than other less
developed nations. Wills added that, although Guyana
has a relatively high per capita income, it should be
listed as a less developed country.
Wills' clear message is that the US has a responsi-
bility to offer economic assistance to Guyana. He ap-
parently feels that without outside assistance, his
government will be forced to cut back on investment in
development projects. He pointed out that the govern-
ment could not afford the political costs of compelling
its citizens to lower their expectations and standard
of living.
Wills' remarks to the US charge are indicative of
Guyana's disappointment that its expectations for finan-
cial assistance from the US have not yet materialized.
Like the rulers of many other less developed countries,
Guyana's leaders have a love-hate attitude toward the US.
After several years of criticism of US policies, in re-
cent months Guyana has blunted explicit criticisms of Wash-
ington in the expectation that financial assistance would
be forthcoming.
Wills' comments reiterate Prime Minister Burnham's
recent friendly statements about the US. They also serve
as a reminder, however, that the Guyanese government will
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regard favorable US decisions on such items as transfer
of resources, designation of Guyanese sugar as eligible
for preferential access to the US market, and financial
assistance for balance-of-payments support as the real
indicators of Washington's altitude toward Guyana.
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