CIA PESSIMISTIC ABOUT FUTURE OF CENTRAL AMERICA OF ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000302050020-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 1
• Document Creation Date: December 22, 2016
• Document Release Date: September 25, 2012
• Sequence Number: 20
• Publication Date: January 30, 1986
• Content Type: OPEN SOURCE

ST -Declassified in Part - Sanitized Copy Approved for Release 2012/09/25: CIA-RDP90-00965R000302050020-3
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WASHINGTON TIMES
30 January 1986
CIA pessimistic about future
, of Central America economy
their total imports. Coffee provides
one-third of the core four's export
income.
Before these developments, the
worst economic crisis in Central
America's history had already
caused a 20 percent drop in per cap-
ita income in the last five years, ac-
cording to the report.
The four core nations were hit
nearly simultaneously by a number
of negative factors, including lower
prices for its major exports, espe-
cially coffee; high-priced oil im-
ports; and poor government eco-
nomic policies that accelerated the
flight of domestic capital and dis-
couraged foreign investors and
bankers who would no longer pro-
vide commercial credit.
They also were seriously affected
by political instability engendered
by the Nicaraguan revolution and se-
rious insurgencies in El Salvador
and Guatemala.
In sharp contrast, the 1960s and
'70s were periods of rapid growth
averaging 5 percent a year for the
five countries, including Nicaragua
under the rule of Anastasio Somoza,
the report noted.
The intelligence assessment pre-
dicts a 1 percent growth in gross
domestic product (GDP) for 1985
compared to 2 percent in 1984. It
predicts another slight rise this year,
perhaps 1.5 percent.
These modest growth rates ?
which the reports says are due to
U.S. aid ? are an improvement over
the negative growth of the early
1980s. But the small increase in GDP
will not stop the slide in per capita
income, long regarded as the most
critical social barometer by eco-
nomic analysts. Of the four nations,
only Costa Rica has had a rising
By Roger Fontaine
THE WASHIWTON TIMES
A new CIA survey of economic
difficulties in Central America,
taken as the Reagan administration
mounts a campaign to get over a bil-
lion dollars for the region, concludes
that Central American economic
difficulties aren't likely to ease sig-
nificantly soon.
That judgment assumes U.S. as-
sistance ? virtually the region's
only source of foreign financing ?
will continue at present rates for the
foreseeable future.
Last year, the United States pro-
vided $863 million in economic as-
sistance and $200 million in military
aid for Central America. This year,
the Reagan administration has
asked Congress to appropriate $907
million in economic aid and $234
million in military assistance.
The United States has provided
nearly $3.8 billion in total assistance
to the region since 1979.
Sources who prepared the assess.
ment told The Washington Times
that, even under optimal conditions,
it would take until the end of the
century for the region to match
pre-1980 standards of living. If this
proves accurate, it would give Cen-
tral America two straight decades of
decline and stagnation, while pros-
pects for continued violence are
rated high.
The report says an anti-American
backlash in the region is likely even
if Washington were to continue pref-
erential trade and large aid pro-
grams for the next decade.
The report focused on the eco-
nomic prospects of the so-called
"Central American core four" ?
Costa Rica, El Salvador, Guatemala
and Honduras. It left out Nicaragua,
which has not received U.S. assis-
tance since 1981 and is seen by the
report's authors as a prime cause of
the region's instability
The report, according to the
sources, was completed last Novem-
ber and does not include such new
factors as the rapid drop in oil prices
and the recent dramatic rise in cof-
fee prices. Reduced petroleum costs
greatly favor the core four countries
since fuel accounts for 20 percent of
standard of living in the last few
years.
Compounding the problems of
stagnation, high unemployment, and
inflation is government mismanage-
ment of the economy, particularly in
El Salvador, Guatemala, and Hondu-
ras. In 1985, all three had overvalued
currencies (El Salvador has only re-
cently devalued), budget deficits,
and multiple exchange rates that
have discouraged the private sector,
the report says.
Long-term prospects are equally
cheerless, according to the report,
particularly if Nicaragua remains a
threat to the other four countries.
The consensus within the intelli-
gence community, these sources say,
is that strong economic growth any
time in the near future is "virtually
Reinforcing that conclusion is the
prediction that Central America will
see only "marginal improvement" in
security. That judgment suggests
that the region's guerrilla and ter-
rorist movements need not seize
power, but only have to continue ha-
rassment to undermine its govern-
ments.
At best, the report concludes, per
capita income will not equal 1979
levels until 1997. Even then, current
rates of unemployment ? which
range up to 50 percent ? will not be
reduced. El Salvador, with the most
optimistic scenario of 5 percent an-
nual growth, would not match its
1979 standard of living until 2006.
The worst-case scenario envis-
ions a continuing decline in per cap-
ita income, with 1979 levels never
being equaled again. In addition,
half the new entrants into the re-
gion's job market each year would
find no employment, encouraging
further emigration.
These two factors alone are likely
to erode further confidence in the
fragile democratic institutions that
the Reagan administration has in-
vested so much time and effort in
fostering, the report concludes, pro-
viding further opportunities for
Central America's political radicals.
U.S. aid, while it kept conditions
from becoming even worse in the
past, also carries some negative con-
sequences. American dollars, the
sources say, ultimately may delay
governments from making the po-
litically costly decisions that would
promote financial stability and im-
prove business confidence.
Declassified in Part - Sanitized Copy Approved for Release 2012/09/25: CIA-RDP90-00965R000302050020-3