LATIN AMERICA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01184R000200980001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 23
• Document Creation Date: December 22, 2016
• Document Release Date: October 21, 2010
• Sequence Number: 1
• Publication Date: May 18, 1984
• Content Type: REPORT

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Review
Latin America
18 May 1984
ALA LAR 84-009
18 May 1984
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Review
Latin America
Argentina: Alfonsin's Peronist Opposition
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important government-sponsored legislation
Under the pressure of President Alfonsin's labor and economic
initiatives, which threaten the Peronists' traditional power base, the
disparate movement has achieved sufficient unity to defeat
Latin America: Impact of Higher Lending Rates I 7
already troubled financial rescue programs.
The recent increase in the US interest rate, which will result in
considerably higher payments for Latin debtors, is drawing harsh
criticism from hemispheric leaders and will place new strains on
South America: Economic Problems and the Armed Forces F__] 9
all of which are feeling the pinch of scarce resources.
series of articles that examine in depth the impact of economic
austerity measures on the armed forces of Brazil, Peru, and Chile,
Cuba: Trying To Exploit the Huambo Incident 11
resentment on the United States.
Havana's media treatment of the recent bombing of a Cuban
workers' habitation in Angola indicates the leadership is trying to
deflect domestic criticism of its international involvement and focus
Cuba: Limited Success in Energy Conservation I 13
consumption is the result of more efficient use.
During the past two years, Havana has implemented several energy
conservation measures to take advantage of a lucrative incentive
offered by the USSR, but only a portion of the significant drop in oil
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Nicaragua: Exaggerating Insurgent Economic DamageF--] 15
In an effort to shift blame away from their own mishandling of the
economy, Sandinista leaders have used the highly unrealistic
"official" exchange rate to inflate the US dollar cost of damage
inflicted by insurgent activities.
Paraguay: Stroessner May Plan To Step Down
Senior Paraguayan officials, believed to be speaking with
presidential approval, have let the US Embassy know that
Stroessner will not seek another term in 1988 because of his age-he
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is in his early seventies-and growing health problems.
Venezuela: Emergency Powers
Peru: Pressures on Economic Policy
Jamaica: New Bauxite Agreemen[
St. Vincent: Election Prospects
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Articles have been coordinated as appropriate with other offices within CIA.
Comments and queries regarding this publication may be directed to the Chief
Production Staff; Office of African and Latin American Analysis,
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Argentina: Alfonsin's
Peronist OppositionF
Peronist political and labor leaders have yet to begin
to revitalize and unify the disparate movement in the
wake of their defeat in last October's general
elections. Nonetheless, a modicum of unity-however
fragile-has been achieved as a result of President
Alfonsin's labor and economic initiatives, which
threaten the Peronists' traditional power base. The
Peronists succeeded in defeating important legislation
and in forcing the Radical government to
accommodate their interests. Although the Peronists
have become increasingly adversarial, they will
probably, in our view, reach an understanding on
economic issues, at least for the short term, with the
Alfonsin government.
While the Peronists have made important gains,
centrifugal forces within the movement remain
strong, leaving uncertain the party's ability to oppose
the government effectively over the long term. To a
considerable extent, their fortunes will depend on how
well Alfonsin deals with Argentina's pressing
economic problems, and how he performs on a range
of other issues that have thus far served as opposition
rallying points.
Postelection Blues
The electoral defeat in October deepened existing
internal rifts among the Peronists, with leaders of
both the political and labor wings blaming each other
for the loss. Reformers, mostly political moderates,
lobbied for a thorough housecleaning and
reorganization to recapture traditional working-class
support.
Two key second-echelon labor bosses wanted to
restructure the union movement and exclude followers
of old-line labor chief Lorenzo Miguel, whose well-
known ties to the military were blamed for the
Peronists' failure to win.
The Peronists took only tentative steps toward reform
in the weeks following the elections, however. In early
November, Miguel was forced to resign his position as
party vice president, although he retained his union
posts. At about the same time, moderate Peronists
resurrected the Peronist National Council-dormant
since the mid-1970s-to supervise the party in the
postelection period and serve as a focal point for
dealing with the new government. Although the group
produced a highly critical analysis of their electoral
performance in early January and made
recommendations for reforms, none were undertaken.
By mid-January calls for far-reaching reforms had
faded. Beyond problems posed by internal divisions 25X1
and mutual recriminations,
much of the impetus for reform was lost
when former President and titular party chief Isabel
Peron appointed a committee of rightwing politicians
loyal to her to oversee relations with the new
government. This undercut the moderates, and
further dampened their zeal for reform. Without
Peron's backing, reformers have been unable to force
out any of those they believed responsible for the
electoral defeat, and the party leadership structure
has remained essentially unchanged.
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mandates in government-supervised union elections,
which Alfonsin hoped would lead to the ouster of the
old-line Peronists and the election of a more moderate
and cooperative leadership. Entrenched Peronist trade
unionists, who had the most to lose from the bill, took
the lead in opposing it, and, according to US Embassy
sources, when congressional debates began in
January, the two rival factions of the Peronist-
dominated General Workers Confederation (CGT)
ended an eight-year rift to work for the bill's defeat.
generated little worker support.
The opposition of the union bosses, however,
many second-echelon union chiefs
according to press and US Embassy reports.
favored a housecleaning and stood to gain from new
elections. The rank and file, many of whom had voted
for Alfonsin, also favored replacing the labor
hierarchy. As a result, demonstrations and a
nationwide bus strike in early February called by
union leaders to protest the bill were unsuccessful,
Alfonsin's failure to deal effectively with the troubled
economy in the first months of his administration
considerably strengthened the unions' hand against
the government. His inability to curb inflation-as
promised-provided labor leaders with ammunition to
convince workers that their interests would best be
defended by the existing union leadership. As a result,
in early March they began assaulting Alfonsin's wage
policy, in spite of substantial gains in real wages as
calculated by the US Embassy and Argentine
economists, and characterized his overall economic
program as largely a continuation of the military
regime's policies. In addition, as Argentina
approached the 31 March deadline for payment to US
banks of interest arrearages on the foreign debt, the
Peronists stepped up public criticisms of Alfonsin's
negotiating position. They argued that he was inclined
to cave into bankers' demands even at the risk of
further alienating the electorate, met frequently with
administration officials and publicly assured them of
their intention to protect Argentina's fragile
democracy. Peronists also assumed a number of key
posts in the new government, including that of a key
adviser on military matters.
Challenging the President
Alfonsin's labor union reform bill, however,
accomplished what Peronist reformers had failed to
do: bring at least temporary unity to the fractured
leadership and give it a first rallying point. The
legislation called for union bosses to renew their
slowing economic recovery
As important, the unions were able to pressure
moderate Peronist congressmen and senators to
oppose the union bill, according to US Embassy
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reporting. Many Peronist legislators reportedly
favored union reform as the key to
revitalizing their own party, and they were willing to
compromise with Alfonsin. On the day of the
congressional vote in the lower house, however, union
leaders packed the galleries with supporters. Although
the bill was passed by the Radical majority on to the
Senate where it was defeated, all the Peronists
opposed it. This, according to the US Embassy,
reflected both the unions' ability to intimidate
moderate politicians and the moderates fear of
forfeiting the party leadership to the party's right
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Peronist politicians also began challenging Alfonsin
on other issues as well as a way to broaden party
appeal. For example, in late March, they proposed a
law governing Argentina's nuclear program-long a
source of national pride-aimed at undercutting the
administration's reported plans to reduce the nuclear
budget and give up its "inalienable right" to conduct
peaceful nuclear explosions. They also moved ahead
of the administration in criticizing US policy in
Central America, which Alfonsin had downplayed to
heal relations with Washington. Moreover, the
Peronists took the lead in criticizing the
administration's performance in the Beagle Channel
negotiations with Chile and in maneuvers to ease
tensions with the United Kingdom on the Falklands
issue.
The Peronists' challenge has met with considerable
success. Their gains, according to press and US
Embassy reporting, include:
Defeating the administration's labor bill in the
Senate in mid-March, forcing Alfonsin to
reintroduce it.
Limiting the President's maneuvering room to ease
tensions with the United Kingdom on the Falklands
issue.
Convincing Alfonsin that, to protect himself from
charges by the Peronist left that he was supporting
US policy, he must move ahead with plans to
expand ties with Nicaragua and strongly back the
Contadora initiative in Central America.
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As an added dividend, Peronist successes have
strained the cohesion of Alfonsin's own Radical Party.
The US Embassy reported in mid-March that the
defeat of the labor bill in the Senate divided the
party's left wing from moderates over how to meet the
Alfonsin's Response
In trying to deal with his Peronist rivals, Alfonsin has
changed directions. Since assuming office, he has
nurtured the Radical Party's working-class
organizations to challenge the Peronists' control of the
unions.
IIn early February,
Alfonsin replaced military-appointed Peronist chiefs 25X1
with his own supporters to oversee new internal
elections. Later that month, he used his own labor
supporters to break a transportation strike, and he
threatened to use a modified version of his military
predecessors' trade union law to force new elections.
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that the Peronists are trying to destabilize Argentina's
fragile democracy)
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Forcing the administration to back away from
further concessions to gain a settlement to the
Beagle Channel dispute with Chile.
While seeking to demonstrate strength in confronting
the Peronists, Alfonsin has also tried to avoid a
complete break with them.
although the President would
probably prefer to hold firm on labor reform, he
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Key Peronist leaders
and former rivals (l to r) Saul
Ubaldini, Lorenzo Miguel, and
Alberto Triacca
realizes that he has lost some of his initial support.
Moreover, continuing budget debates and IMF
negotiations, according to the US Embassy, have
forced him to take steps to regain Peronist
acquiescence, if not cooperation, in managing
economic issues. To this end, Alfonsin:
? Met in mid-February with Peronist governors, who
exercise considerable influence over their
congressmen and senators, and promised them
extensive financial assistance.
? Offered labor leaders in early March a role in
economic policy making.
? Announced at about the same time that he would
open a new dialogue with Peronist political bosses,
and he has encouraged the return of Isabel Peron to
serve as interlocutor.
Moreover, according to the US Embassy and other
reporting, following the labor bill's defeat in mid-
March, Alfonsin intensified his efforts to seek an
accord with the Peronists. He arranged a meeting of
his representatives with arch-rival Lorenzo Miguel to
resolve differences. The President also appointed a
politically neutral, highly respected labor leader as his
personal representative to the unions to negotiate a
new labor reform bill and reach a compromise on
wage policy. Finally, in late April, the President
replaced his left-of-center combative labor minister
with a moderate, more able negotiator, thus signaling,
according to US Embassy sources, his intentions to
make concessions to the Peronists on new union
elections.
According to press reports, key Peronist leaders have
agreed to meet with administration officials but,
nonetheless, continue to exploit Alfonsin's
vulnerability on economic issues. At the end of
March, CGT leaders declared their intentions to form
a national front which the US Embassy believes will
be used to challenge government policies, and they
have sought support from a wide range of groups.
Labor bosses also made vague public threats to use
force to prevent changes in wage policy, and political
chiefs demanded a full congressional investigation
into Economic Minister Grinspun's negotiations with
the IMF. Finally, in mid-April, the Peronist National
Council publicly broke with the government, ruling
out cooperation in the formulation of economic
policies.
Outlook
We expect the Peronists to continue vitriolic
rhetorical attacks on the administration, as well as
call for more strikes and demonstrations. Peronist
leaders probably believe that focusing on the
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government's shortfalls will deflect attention away
from difficulties within the party. Moreover, it will
help them create the impression of Peronism as a real
alternative to Radicalism.
Nevertheless, we believe that, while continuing to
criticize the administration, most of the Peronist
leadership is probably inclined toward an
accommodation with Alfonsin, at least in the near
term. We believe the Peronists calculate that:
? Alfonsin is ready to give the Peronists a larger role
in formulating labor and economic policy.
? Argentina has little choice but to reach an accord
with the IMF and the commercial bankers, and they
do not want to block access to needed funds.
? They would be liable to counter charges of
destabilizing Argentine democracy from Alfonsin, if
they appeared obstructionist.
Moreover, Peronist leaders also probably calculate
that resurgent pressures for reform within the party
may threaten current fragile unity and, therefore,
their ability to seriously challenge Alfonsin over the
longer term. Press reports in April, for example,
indicated that moderates among Buenos Aires's
provincial Peronist party chiefs continued to press for
new internal elections, and that a serious split in the
Peronists' largest local party has cast them
considerable popular support. Also, Isabel Peron's
return to Argentina, now scheduled for this month, to
take control of the party will probably reopen old
wounds.
We agree with the US Embassy, however, that, even
in the short term, Peronist labor leaders may be hard
pressed to honor their part of any accord with the
government. Many of the recent local strikes, for
example, were not sanctioned by union leaders,
suggesting that they may be unable to contain worker
dissatisfaction, especially if Alfonsin fails to improve
the economy. Moreover, we expect that, after union
elections are scheduled, labor leaders themselves will
probably intensify criticisms of government economic
policy as they work to attract support.
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Latin America: Impact of
Higher Lending Rates F_
The increase in the US interest rate is drawing fire
from Latin American leaders and will place new
strains on the financial rescue programs,__~
Argentine President Alfonsin publicly denounced the
move and prompted government leaders in Mexico,
Brazil, Venezuela, Colombia, and Ecuador to issue a
joint statement decrying the increase. Argentine
Congressmen-already unhappy with rising
inflation-are claiming that the higher rate will
prevent economic recovery and threatens social peace.
The US Embassy in Brasilia reports the government
has reacted with uncharacteristic harshness and
believes the higher rate could nullify gains made in its
adjustment program.
Western bankers are also voicing concern.
senior economist is warning that a cash
Despite such predictions of a resurgence of cash
problems, we believe the immediate impact on Latin
American debtors will be minimal. Interest rates on
commercial loans are adjusted only every three to six
months, so that the recent hikes will not have a major
effect until later in the year. Moreover, the current
growth in many Latin American exports will blunt the
initial increase in the debt service burden.
In time, however, the financial burden of the higher
interest rate will grow, straining the financial rescue
programs. According to the estimates of a respected
financial journal, an increase of 1 percentage point in
short-term interest rates adds some $2 billion to Latin
America's annual debt servicing requirements.
Moreover, an increase in world interest rates could
slow recovery of exports to the industrialized
Latin America. Annual Impact of a
1.5-Percentage-Point Increase
in Interest Rates
Key Debtors Projected Countries' Interest
Increase in Estimate of Hike as a
Export Increased Share of
Revenues Interest Exports
(million US $) Payments (percent)
(million US $)
Argentina 300 600 200
Brazil 2,500 1,275 51
Chile 528 210 40
countries, leading to cash-flow difficulties that could
exceed the ability of creditors to cover larger
payments deficits.
We believe Latin debtors will more closely coordinate
their criticisms of rising world interest rates in the
future, especially the adverse impact on their
adjustment programs. Latin governments probably
will issue a collective statement against the interest
rate and trade policies of industrial countries before
the London Economic Summit next month. They
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probably will also press private bankers harder in 25X1
future debt negotiations for easier repayment terms to
offset the impact of higher rates on their debt
servicing capability and efforts to engineer domestic
recovery.
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South America- Economic Problems
and the Armed Forces
Peru's ' civilian government is struggling with how to
impose fiscal discipline without antagonizing a
politically powerful military establishment that is
unaccustomed to limits on its arms expenditures.
Military leaders have already seen spending
guidelines delay some arms purchases, limit the
expansion of counterinsurgency capabilities, and slow
the development of domestic arms industries. We
believe the military eventually could fear that its
ability to suppress domestic insurgents and maintain
its superiority over armed forces in Chile and Ecuador
is being jeopardized.
If the military gets nervous, the government will come
under considerable pressure from military leaders to
violate this year's IMF-directed budget guidelines.
Moreover, concerns by the armed forces over
President Belaunde's declining popularity, recent
leftist electoral gains, increasing strikes and civil
disorder, and perceived administration restrictions on
military autonomy in counterinsurgency operations
have increased the possibility that the military will
intervene to replace the current government.
Brazil's 2 four-year recession has taken its toll on the
military. Budget cuts and reduced foreign exchange
allocations have meant:
Dwindling stocks of fuel and ammunition.
o Inadequate training.
? Reduced equipment purchases, especially from
foreign sources.
As a result, combat readiness has deteriorated, and
Brazil's armed forces have had to emphasize
improvements-such as the expansion of troop
strength-that do not involve significant hard
currency costs. In addition, Brazil's need to boost
exports has caused local defense industries to look to
foreign markets, particularly in the Middle East. As
military industrial cooperation with the United States
increases, the secrecy, export orientation, and
clientele of the Brazilian arms industry could pose
technology transfer problems for the United States.
Adverse economic conditions have strengthened the
armed forces' commitment to return power to civilians
by 1985. The military hopes to avoid further damage
to its prestige by ceding responsibility for resolving
the country's economic woes. In addition, the high
command appears eager to concentrate on
professional matters and leave government to civilian
politicians.
Chile's 3 domestic political crisis and the depressed
economy are eclipsing the armed forces' traditional
concerns about the military balance with rival forces
of its neighbors, particularly Peru and Argentina. The
armed forces, who prefer a purely military role, have
been strained in recent years by their political role in
supporting President Pinochet and the ruling military
junta. The development of broad, active opposition to
the regime has aggravated that strain, and the armed
forces face critical choices in the coming months.
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In contrast with some Latin American democratic
governments that feel compelled to accede to demands
by politically powerful militaries for new weapons,
Pinochet has used his dual government/ military
leadership role to tightly control defense expenditures,
in part to comply with guidelines on government
spending under Chile's IMF-supported economic
adjustment program. Selected weapons purchases
continue, but the determination to maintain fiscal
discipline-combined with the continuing
international arms embargo against Chile-will limit
Santiago's ability to modernize its arsenal and we
believe will degrade operational effectiveness
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Cuba: Trying To Exploit
the Huambo Incident
Antigovernment guerrillas detonated a bomb in
Huambo, Angola, near a building housing Cuban
"internationalist" workers on 19 April, destroying the
building and causing many casualties. The Cuban
media ignored the incident until six days later when
the party's daily newspaper, in an unprecedented
display of candor about casualties in Angola,
announced that the blast had killed 14 Cuban
civilians and wounded 66 others. The unusual decision
to go public with the casualty list, undoubtedly made
by President Castro himself, bolsters our belief that
Cuban losses overseas have become a major public
concern and that the Castro regime realizes the
subject can no longer be swept under the rug. F--]
Havana probably had several aims, the most
important of which was preventing a recurrence of the
public dismay in many parts of Cuba in the days
immediately after the invasion of Grenada last
October. The initial confusion over what was going
on, fed by news stories about fierce fighting, led many
Cubans to believe that the entire Cuban contingent
there had been wiped out. The Grenada experience
sensitized the Cuban public to the human cost of
Cuba's overseas activities.
The announcement of the Huambo casualties also was
intended to deflect popular criticism from the Cuban
leadership and focus it on the regime's main enemy,
Washington. During the Grenada invasion, significant
public hostility in Cuba was directed not so much at
the invading forces as at Havana for not withdrawing
the civilians when it became clear an invasion was
imminent and for ordering a fight to the death. At the
time, a group of Cubans reportedly tried to hold a
demonstration in Havana calling for the withdrawal
of all Cubans from Grenada and Nicaragua, but it
was dispersed quickly by authorities. Havana wanted
no repetition of such activities and saw the United
States as a convenient scapegoat, accusing it of
responsibility for the Huambo incident.
Moreover, Havana wanted to dispel any impression
that it had suffered a military defeat in Angola. The
armed forces are still smarting from the blow to their
image wrought by the Grenada experience and want
no further diminution of their prestige, especially
when there is persistent talk in the international press
of a possible withdrawal from Angola. Havana's
announcement was careful to note that all of the
Cuban casualties were civilian workers in
construction, education, and public health, thus
helping the Castro regime to portray the incident as
an atrocity rather than a military defeat
In addition, Havana probably hoped that giving
publicity to the bombing would help to maintain a
warlike atmosphere in Cuba and generate popular
support for the military preparations the leadership
believes are necessary if the United States is to be
deterred from intervention. Judging from statements
by the Cuban leaders, Havana assesses the US threat
to be greater now than at any time since 1962 and
believes its best defense lies in convincing Washington
that an invasion would cost too many casualties to
justify.
In taking its case against the United States to
international public opinion through the media and by
means of a protest to the United Nations, Havana
appears to believe it has an opportunity to detract
from whatever international prestige may accrue to
the United States as a result of Washington's
longstanding effort to bring peace to southern Africa.
Havana does not want openly to oppose negotiations
that seem to be improving chances for a peaceful
settlement in the region, but neither does it want
Washington to get credit if the talks prove successful.
By attributing the Huambo disaster to the CIA, it
hopes to equate the United States with violence. In
fact, many in the Cuban leadership may have
convinced themselves that the United States did
indeed engineer the attack.
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Many Cubans probably will accept the government's
explanation of the bombing as a US plot, but they
nevertheless are likely to question the need for risking
noncombatants on a mission that has no apparent
connection to Cuba's vital interests. Whatever
increased antipathy toward the United States is
aroused probably will be matched by a heightened
fear of volunteering for service abroad. Cuban
workers, with Grenada and Huambo on their minds,
are likely to avoid projects in countries harboring
active insurgencies.
The Castro regime's sensitivity to the Huambo
incident is certain to be reflected in increased security
measures wherever large numbers of Cubans are
stationed abroad. Havana probably sees groups of
Cubans housed together as particularly vulnerable
and requiring special protection. Security was
tightened in some Cuban enclaves abroad after the
Grenada intervention last October, and new
restrictions are likely to cause alarm among Cubans
on internationalist duty. Havana, however, cannot
afford another incident in which it must justify
further casualties to the people at home.
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Energy Conservation
Havana has implemented several energy conservation
measures during the past two years in response to a
lucrative incentive offered by the USSR.
Consumption of oil-which produces nearly four-
fifths of Cuba's total energy-dropped significantly
during the period, but only a portion of the decline
was the result of more efficient use.
The Cuban Government has long urged the public to
conserve costly raw materials, particularly oil. Such
exhortations rose appreciably in late 1981 after an
agreement apparently was reached with the USSR
whereby Cuba received hard currency for the oil it
saved from its protocol allotment. The Castro
government sought to alleviate its severe foreign
exchange shortages by taking maximum advantage of
the program. Television and billboard slogans
encouraged conservation, gasoline rations were
reduced, and bonuses were awarded to workers at
enterprises that lowered oil consumption. Havana
even forced savings by turning off electricity at firms
that used more than their allotment. In addition, a
National Energy Commission was created last year to
develop and manage energy policies.
As a result, oil consumption apparently has dropped
significantly. Actual Soviet oil deliveries to Cuba
were only about 170,000 b/d last year, down from
nearly 200,000 b/d in 1982 and 215,000 b/d in 1981.2
Cuban statistics indicate that the incentive plan
brought Havana over $200 million in 1982 and nearly
$600 million last year.
' Although Cuba produces some oil itself, the only significant
domestic source of energy is bagasse-a byproduct of sugarcane
milling. It accounts for an estimated 20 percent of total energy]
consumption
Most of Cuba's oil imports come from the USSR, but some are
furnished by Venezuela under a swap arrangement whereby
Moscow delivers an equal amount of oil to one of Caracas'
customers in Western Europe. The deliveries from Venezuela are
Domestic production of oil increased during the
period, but not nearly enough to cover the 20 percent
decline in deliveries during the past two years.
According to Cuban data, extraction more than
doubled to almost 11,000 b/d in 1982 and rose an
additional 35 percent last year. However, this still
represents only a small portion-8 percent-of total
oil usel
Havana may have used its oil reserves to make up for
part of the lower deliveries. According to imagery
analysis, the island has a storage capacity of about
15.5 million barrels, but it is not possible to determine
the actual amount stored in the tanks at any given
time. Nevertheless, we believe that Havana's fears of
a US naval blockade preclude it from drawing on its
petroleum reserves for a sustained period. Moreover,
even if the oil storage tanks are now full, they would 25X1
be totally depleted by 1985 just to bring annual
consumption in 1984 up to the 1981 level.
Cuban statistics and our analysis of the island's hard
currency needs through 1985-when the incentive
plan expires-indicate that Havana will continue to 25X1
rely on the special arrangement as a source of funds.
Thus, we do not expect oil deliveries to return to the
1981 level during this period, even though they may
rise slightly over last year's level.
Effect of Lower Consumption
We have no evidence that the fall of petroleum
imports in 1982 and 1983 has resulted in shortages. 25X1
Conservation efforts probably helped to fill the gap,
and slower economic activity during the period also
played a part. The lack of foreign exchange for 25X1
imports for industry and transportation-which
account for over 70 percent of total oil use-probably 25X1
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The lower rate of oil imports is likely to be felt more
this year and next as demand moderately increases. A
new Soviet-funded nickel plant is scheduled to come
on line during this period, and this alone will increase
total oil demand by about 5 percent. In addition,
thermoelectric power plants scheduled to open could
raise needs by an additional 3 to 5 percent.
The government likely will endeavor to protect export
industries, particularly those that earn hard currency.
Most of the sugar industry's energy requirements are
satisfied by bagasse, and tobacco harvesting and
processing also uses only minimal amounts of
petroleum. The export industries most dependent on
oil are nickel and seafood. Moreover, all exports
depend on the cargo transportation sector, a heavy
petroleum user
Based on the regime's past practices, we expect
consumers will bear the brunt of any oil shortages.
This would be accomplished through brownouts of
homes and of industries that produce for domestic
consumption as well as through reductions in public
transportation. Such measures probably would result
in a moderate reduction in economic activity, living
standards, and labor productivity, while increasing
worker absenteeism.
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Secret
Nicaragua: Exaggerating Insurgent
Economic DamageF--]
In public speeches excoriating US policy toward
Nicaragua, Junta Coordinator Daniel Ortega and
other Sandinista leaders periodically have announced
the costs-both in cordobas and in US dollars-that
they claim the anti-Sandinista insurgents have
inflicted on the economy. We have insufficient
evidence to confirm or refute specific items on the
balance sheet, but, even if Ortega's cordoba figures
are accurate, he grossly overstated the value of the
Nicaraguan currency.
In an address to the Council of State on 4 May, for
example, Ortega claimed that the insurgents had
caused 1.28 billion cordobas' worth of physical
damage in 1983, equivalent-he claimed-to US
$128 million. Ortega, however, used an unrealistic
exchange rate-the "official" one of 10 cordobas to
the dollar. 0
Nicaragua has three exchange rates, two of which-
the "official" and "parallel"-are set at artificially
low levels by the government. Government entities
buy imports at the "official" rate, while the costlier
commercial or "parallel" rate of 28 to 1 is used for
officially sanctioned private transactions. With its net
international reserves already in the red, Managua is
honoring only the most essential transactions at these
exchange rates. The pent-up demand for dollars,
however, has created a flourishing black market, on
which the exchange rate rose rapidly last year, and
currently is about 140 to 1.
For 1983, we believe the "true" equilibrium exchange
rate-balancing the demand for and supply of
dollars-most likely ranged between 28 and 80 to 1.
If Ortega's cordoba figures are converted on this
basis, the dollar cost of alleged insurgent damage
would range between $16 million and $46 million.
In addition to overstating the value of the cordoba, the
Sandinistas have in at least one instance inflated the
extent of damage. In totaling the costs arising from
the mining of Nicaragua's harbors, for example,
Ortega included $2.8 million for damage to foreign
ships, but this probably was paid by the ships' foreign
owners.
Calculation of the costs of a large-scale military
action is extremely difficult, especially when the
estimators are far from the scene, only fragmentary
information is available, and the local economy would
be shrinking even if no insurgency existed.
Nevertheless, simply recalculating the Sandinistas'
own damage claims tracks with our independent
judgment that the economic impact of the insurgency
has been fairly limited. The Sandinistas exaggerate
the dollar costs to deflect domestic criticism over their
sagging economy and to rally international support to
their cause
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ALA LAR 84-009
18 May 1984
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aecret
Paraguay: Stroessner May Plan
To Step Down
Since late April, two senior Paraguayan officials,
believed to be speaking with presidential approval,
have told US Embassy officials that President
Stroessner would not seek another term in 1988. His
age-he would be nearly 76 at the start of the
campaign-and growing health problems were cited
as reasons.
Stroessner reportedly wants to visit the United States,
perhaps under the pretext of attending the Olympics
this summer, to receive a thorough medical
examination.
the President was
planning to take steps to quell widely circulating
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25X1
rumors of his ill health, but that he was also making
plans for a possible prolonged absence from Paraguay.
The US Embassy reports there are no indications that
Stroessner is ill,
His decision to tell the
United States of his plans may be designed to reduce
human rights pressure in the wake of his recent
closure of a major opposition newspaper.
The rumors of Stroessner's ill health have sparked a
new round of quiet maneuvering among senior
military commanders as well as potential successors
within the ruling Colorado Party and opposition
political groups. Because the President apparently has
made no plans for his succession, any prolonged
absence on his part will heighten restiveness among
the contenders. The President's grip on power remains
firm, however, and we do not expect the potential
heirs to risk any overt moves until Stroessner clearly
signals his intentions.
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secret
Latin America
Briefs
attempt to decrease government expenditures by 10 percent.
Venezuelan President Lusinchi is seeking to expedite his economic program by
pushing for an "enabling law" that would allow him to bypass Congress and issue
measures by presidential decree. We believe that in requesting this legislation,
which would grant him power extended to only two of his predecessors, Lusinchi is
trying to prevent opposition parties from delaying congressional action and to deny
them a podium for criticizing his government's austerity measures as municipal
elections approach on 27 May. Because of the ruling party's solid majority in
Congress, the law is virtually certain to be enacted soon and will remain in effect
for one year. It will enable Lusinchi to implement measures to subsidize the food
costs of lower income groups, increase employment in the private sector, and
Peru Pressures on Economic Policy
standards and raising social tensions.
The Belaunde government recently reached agreement with the IMF, but we
believe its commitment to the revised austerity program will be severely tested this
year. In late April, the IMF approved $340 million in compensatory financing and
standby credit after Lima agreed to painful belt-tightening measures, including
sharp cuts in government spending and large tax increases. Together with a
mandated relaxation of price controls and higher import surtaxes, last year's
triple-digit inflation rate is likely to be pushed higher, further eroding living
The US Embassy reports that Peru met first-quarter IMF criteria, but we agree
with foreign creditors that the program could easily come apart because the strains
of inflation and economic recession are stirring social unrest. Prices rose 30
percent in the first four months, and public employees are already demanding
wage increases. According to the US Embassy, a threatened nationwide labor
strike would further press Belaunde to ease austerity. Moreover, when the IMF-
approved program is presented to the Peruvian congress, we anticipate harsh
criticism in view of the Belaunde government's weak political position and the
approaching election year.
Jamaica New Bauxite Agreement
Jamaica and the four US and Canadian aluminum companies operating on the
island have agreed on a new five-year tax regime to replace the agreement that
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ended last December. The new measures include production incentives, a slight
reduction in the levy charged on the sales of aluminum, and an increase in the
royalties paid per ton of bauxite. The companies also have agreed to maintain
investment at the 1983 level over the next five years and to make monthly rather
than quarterly payments to the government, which should help smooth Jamaica's
chronic cash flow problems. Jamaican officials estimate that the new tax schedule,
together with the strengthening of world demand for aluminum, will help boost
bauxite production almost 20 percent to 9 million metric tons this year, adding as
much as $10 million in new government revenues.
The government's optimism for the bauxite sector, however, may be quickly
shattered. Bauxite workers and management have been waiting to see how the tax
discussions and recent currency devaluations work out before beginning
negotiations on a new contract. The quickening pace of inflation and the
probability that opposition leader Michael Manley will head the labor delegation
could politicize and prolong the negotiations.
Prime Minister Cato will call for general
elections in late June or early July, nearly one year earlier than required by the
Constitution. Cato apparently hopes to secure another term for his St. Vincent
Labor Party before announcing unpopular budget measures in July. Voter turnout
will probably be low because of widespread dissatisfaction with Cato's party, but
the lack of a unified opposition should allow him to win a third consecutive term.
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25X1
25X1
Opposition parties have abandoned their efforts to reach some measure of unity.
Since the last elections in 1979, their parliamentary representation has resembled
a game of musical chairs, with members from each of the represented parties
having served as leader of the opposition for a brief period of time. Although the
New Democratic Movement is the best organized and strongest of the opposition
parties, it is based in the associated Grenadine Islands and has little following on
St. Vincent. Without the cooperation of parties on the main island, the New
Democratic Movement's chances of success are limited. The remaining opposition
parties, poorly organized and plagued by internal squabbles, are unlikely to make a
significant showing at the polls
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Secret
Cuba Chronology
Foreign Minister Malmierca arrives in Paris where he discusses the situation in
Central America and southern Africa with French Foreign Minister Claude
Cheysson.
Cuba's UNCTAD delegate Carlos Lechuga denounces US aggression in Central
America and the Caribbean, alleging this precludes successful economic
negotiations.
The USSR's Petroleum Industry Minister Nikolay Mal'tsev and Cuba's Minister
of Basic Industry Marcos Portal sign a cooperation protocol in oil production in
Moscow.
Foreign Minister Malmierca tells French Prime Minister Mauroy that Fidel
Castro would like to visit several European countries, but the current situation in
Cuba and the region does not allow him to do so at present.
The Grenadian Government announces the police, in cooperation with the
Caribbean Peacekeeping Force, have discovered a major arms cache in the now-
vacated Cuban Embassy.
During a speech in Pinar del Rio Province, Raul Castro says that Cuba, if
attacked, will fight not only to its last drop of blood, but to the invaders' last drop
as well.
Senior Pentagon officials say the Soviet helicopter carrier Leningrad is conducting
operations with a Cuban frigate in the Gulf of Mexico and approached within 100
miles of the US coast on 7 April.
Guyana press reports that, during a visit to Havana by Manpower and
Cooperatives Minister Kenneth Denny, a memorandum on collaboration in labor,
social security, and cooperation was signed.
A 28-year-old Cuban citizen is killed by police when he tries to seek asylum at the
Venezuelan Embassy in Havana.
Venezuelan President Lusinchi asks Havana to explain the killing of a Cuban who
tried to enter the Venezuelan Embassy in Havana on 10 April, the second such
incident this year.
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Raul Castro presides over a military ceremony commemorating the 23rd
anniversary of the Bay of Pigs.
Division General Raul Menendez Tomassevich condemns US policy in Central
America during a speech commemorating the 23rd anniversary of the Bay of Pigs.
Prensa Latina reports Foreign Minister Malmierca's statement that Cuba
probably would be willing to help sweep mines from Nicaraguan harbors, if
invited.
The Deputy Prime Minister of Antigua, Lester Bird, says he was able to persuade
the cabinet that talks with Cuba should be held to discuss sporting and cultural
relations.
Life expectancy in Cuba now exceeds 73 years, the infant mortality rate last year
was 16.8 percent, and there was a marked reduction of infectious diseases,
according to Abelardo Ramirez.
The Union for the Total Independence of Angola claims responsibility for a bomb
attack in Huambo on 19 April that killed two Soviet military officials and 37
Cubans and wounded about 100.
After meeting with Venezuelan President Lusinchi, US Special Envoy
Shlaudeman rejects broadening of the Contadora peace process to bring in Cuba.
Granma accuses the United States and its South African allies of responsibility for
last week's bomb explosion in Huambo.
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