LATIN AMERICA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01184R000301560001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 27, 2016
• Document Release Date: September 28, 2010
• Sequence Number: 1
• Publication Date: February 1, 1985
• Content Type: REPORT

Syr
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
mac"
Directorate of t~ d
Intelligence MASTER. flLE
DD NOT GIVE OUT
OR MARK ON
393
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
Secret
Latin America
Review
1 February 1985
Page
Articles El Salvador: Limited Prospects for Economic Growth
Despite a growth in real GDP of 1.5 percent in 1984, prospects for
boosting economic growth much more, in our estimation, are poor.
25X1
1 25X1
25X1
President Suazo apparently has been thwarted for now in his efforts
to extend his term in office, but he will want to continue his central
role in politics as elections for his successor approach
Argentina's army materiel industry, second only to Brazil's in Latin
America, produces a wide range of weapons, including tanks,
armored vehicles, artillery, and small arms. F---]
Paraguay: Potential Successor to Stroessnerl L
Dominican Republic: Edging Closer to IMF Accord
Dominica: Opposition Prepares for Elections
St. Vincent: Labor Party Rebuilding
25X1
25X1
9 25X1
25X1
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
Secret
ALA LAR 85-004
1 February 1985
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
Secret
El Salvador: Limited Pros ects
for Economic Growth
El Salvador achieved an expansion in real GDP of 1.5
percent in 1984-the first economic growth in the
past five years. Considering the countrywide
insurgency and the narrow political and economic
constraints forced on President Duarte's
administration, this performance was credible.
Nevertheless, this growth resulted almost wholly from
higher government spending and increased foreign
aid.
Prospects for boosting economic growth much more,
in our estimation, are poor. Military and political
pressures severely constrain Duarte's flexibility. In
light of the security situation, we foresee little chance
that depressed living standards will improve much
during the remainder of Duarte's term. Foreign aid of
$550-600 million per year would be required to
maintain annual growth at just 1 percent through
1989. Some $1 billion per year would be required to
achieve the average 3-percent growth needed to
maintain living standards. Even if the insurgency
ended soon and current aid levels were maintained, we
judge that enduring financial, supply, and distribution
problems would limit economic growth to 3 percent
annually.
The Crippled Economy
When Duarte was inaugurated last June, he took over
a crippled and beleaguered economy. Five years of
civil war had ravaged productive capacity, while
economic reforms designed to ease social inequities
fed a massive flight of capital and entrepreneurs.
During 1979-83, real output of goods and services fell
by one-fourth. Living standards deteriorated as
unemployment grew, and per capita real incomes-
and consumption-plummeted more than one-third.
Table I
El Salvador: Foreign
Economic Assistance
United States
100
178
242
335
Inter-American
Development Bank
61
48
85
100
International Monetary
Fund
43
68
35
Only increased government spending, supported by
generous foreign asisstance, prevented sharper
declines.
The insurgency and redistributive economic policies
introduced by the military-Christian Democratic
junta in 1980 were responsible for most of the
economic decline. The guerrillas' strategy of targeting
the economy damaged productive capacity and
seriously disrupted agricultural, industrial, and
commercial activities. The US Embassy estimates the
cost of the direct damage and lost production at $1
billion during 1979-84. The land reform,
nationalization of banks, and establishment of
government monopolies for coffee and sugar exports
brought additional problems. Teamed with the
insurgency, these drastic policy changes caused
private investment to plummet, many businesses to
Secret
ALA LAR 85-004
1 February 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
Secret
Table 2
El Salvador:
Balance of Payments
Manufactured goods
to CACM countries
174
168
180
Imports, c.i.f.
883
892
981
Net services
-140
-151
-175
Net transfers
171
210
230
Capital account balance
222
276
101
Net official capital
267
274
103
Net private capital
-44
-4
-7
Errors and omissions
-1
6
5
fold, and capital flight to skyrocket. Land tenure
uncertainties caused by the agrarian reform resulted
in reduced planting and farm maintenance. Strict
banking requirements greatly reduced access to badly
needed working capital for many farmers and
businessmen. State marketing agencies further
reduced incentives by paying low prices to producers.
In this environment, the balance of payments
deteriorated rapidly. According to various estimates,
Salvadorans took more than $1 billion out of the
country during 1979-83. During the same period,
export earnings in real terms were halved. The
principal export crops-coffee, cotton, and sugar-
and manufactured goods traded in the Central
American Common Market (CACM) all shared in the
decline. To offset this drop, San Salvador cut import
volumes by one-third by restricting access to foreign
currency under government exchange controls
imposed in 1980. The controls allowed the
government to delay devaluing the colon-whose par
value has been fixed at US $1 =2.5 colones for over
50 years-but it depressed farm prices and severely
undermined the competitiveness of manufactured
exports. Nevertheless, the government stayed current
in servicing its external debt.F___1
The sharp decline in national output caused
unemployment to rise from single-digit levels before
1979 to 35 percent by 1983. Despite cuts in real
wages, workers' fears of more job losses kept strike
activity by organized labor low. While the national
wage and price freeze during 1980-83 effectively held
down wages, prices rose freely because growing
shortages undercut inadequate enforcement efforts.
Inflation-averaging 15 percent per year-was fueled
by heavy domestic borrowing to finance the soaring
public deficits. Government revenues were hard hit as
the economic slide eroded the tax base, and a growing
number of consumers and businessmen joined the
underground economy to avoid taxes and to cushion
losses.
Large amounts of economic assistance allowed
economic output to hold constant in 1983, after falling
by an average 6 percent per year during the previous
four years. The inflow of funds reduced foreign
payments deficits and allowed an increase in
international reserves. Export earnings ended a three-
year decline by rising 5 percent, largely because of a
higher sugar quota from the United States. While the
fiscal deficit was also reduced by adherence to
austerity guidelines of an IMF standby loan, inflation
increased slightly. F___]
Duarte Takes Over
Duarte's focus on crucial military, political, and social
problems has constrained him from taking bold
economic initiatives. His strategy has been largely one
of delaying unpopular economic adjustments until
progress is made in stabilizing the military situation.
Meanwhile, substantial success in increasing foreign
economic assistance has enabled him to postpone
making tough economic choices.
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
Secret
25X1
The ruling Christian Democrats have long advocated
an activist and redistributive role for the government
in the economy. Duarte, however, is constrained by
his need to maintain crucial support from the private
sector and the military. As a result, he has avoided
confrontations with business, and some initial hostility
appears to be fading. Nevertheless, minor legislation
approved by Duarte to encourage livestock production
tends to reflect the administration's priorities by
restricting most benefits to small-scale operations.
Duarte's ability to gain private-sector support is
constrained by pressures from organized labor, which
uniformly backed his election. Labor expects social
reforms to continue under the Christian Democrats,
and they are eager to recoup losses in real income.
Recognizing Duarte's dilemma, the guerrillas are
trying to foment labor unrest through the unions they
control. Union activism and strike activity increased
prior to the spring elections and continued throughout
1984. In a budget-busting move, Duarte was
pressured into granting public-sector employees a
25X1 large wage increase in July to avoid strikes.F___-]
Thus far, Duarte has balked at opening discussions
with the IMF on a new standby arrangement because
of his reluctance to impose austerity measures such as
tax increase and currency devaluation, which he views
as harming the poor. Duarte, however, has told US
Embassy officials he plans to ask for a tax increase
after the National Assembly election in March and to
officially devalue the colon by the end of 1985. He
showed some flexibility on the exchange rate issue by
allowing additional transactions for imports and
exports to move to the parallel foreign exchange
market in July and December. We estimate that 35
percent of foreign exchange transactions now take
place at the parallel rate of US $1= 4 colones,
compared to 15 percent when Duarte took office, an
effective devaluation of 10 percent.
Preliminary central bank estimates show that real
GDP grew 1.5 percent last year. Increased imports
spurred manufacturing, while high government
spending boosted utilities, transportation, and
construction. The United States and Inter-American
Development Bank provided foreign exchange for
imported goods and raw materials that helped
Table 3 Percent
El Salvador: Composition of GDP
Transportation and 6 6
communications
manufacturers to overcome foreign exchange
shortages under the government's allocation system.
Poor agricultural performance attributed to weak
incentives, and sabotage by the insurgents was largely
offset by the continued growth in the government
sector. Higher spending, particularly for the military,
and public-sector wage increases, pushed the deficit to
record levels.
A second year of growth in export earnings and
another large increase in foreign aid allowed the first
real import growth since 1978. Still, the import
expansion was capped by the substantial rise in debt
servicing-to 25 percent of exports-because the
grace period ended on many loans. Among other
pluses, worker remittances increased, wider use of the
parallel foreign exchange market boosted the volume
of nontraditional exports by a healthy 20 percent,
capital flight remained in check, and some foreign
investors indicated interest in El Salvador for the first
time in six years.
The slight economic growth was not enough to keep
per capita income from falling for the sixth
consecutive year, although two wage hikes allowed
public-sector employees to raise their real income
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
Secret
25X1
25X1
somewhat. While the inflation rate dipped slightly
because of increased imports and tight business and
consumer credit, the unemployment rate remained
steady.
Meager Economic Prospects
The economy is so depressed, and the impediments to
recovery so large, that we see only a small chance that
Duarte will be able to increase economic growth much
during the rest of his tenure, which ends in 1989.
Unless the security situation substantially improves,
we expect economic growth to stay at an average of
about 1 percent annually. Even if the war ended soon,
we project that import constraints and the bleak
business climate would maintain economic growth at
the rate of population increase. Only the best of
circumstances-including an unlikely jump in already
unprecedented levels of foreign aid-would allow the
economy to expand by more than 3 percent, thus
raising the standard of living.
To have any chance for boosting living standards,
Duarte must gain the support of international
creditors and local business and labor leaders. To do
this, we believe El Salvador would have to adopt the
kind of budget, trade, credit, and foreign exchange
policies that the IMF would endorse. At the same
time, Duarte would have to overcome his antibusiness
image without alienating labor. While international
creditors will expect higher taxes, wage restraints, and
a sharp currency devaluation, business leaders will
push for financial concessions as labor demands a
quick boost in wages. Organized labor and consumers
will resist a devaluation because of its expected
impact on inflation. Achieving all of this would
require considerable skill and luck.
Duarte's success in overcoming embedded economic
problems will be critically dependent on the status of
the insurgency and on the financial support of foreign
lenders and donors. To assess El Salvador's medium-
term potential, we have analyzed import requirements
under alternative military situations. In each scenario
we have targeted an average annual 1-percent growth
during 1985-89 as well as a 3-percent growth path
and examined the implicit domestic savings and
foreign financial requirements. We then estimated El
Salvador's ability to finance required imports, with
and without increased foreign aid.0
Scenario I-No Major Change in the Insurgency. In
this case, guerrilla forces continue to demonstrate
their military capabilities in the face of aggressive
Army operations, despite Duarte's peace efforts.
Because they prove unable to extend their influence
significantly in new areas, however, we would expect
them to increase attacks on economic targets and
efforts to disrupt key coffee, cotton, and sugar
harvests. The Duarte government continues to resolve
economic policy differences with labor and business
through compromise but is still constrained from bold
initiatives or controversial decisions. In this
environment, only those businessmen willing to take
high risks for potentially large profits would commit
resources to the economy. Some others would try to
cut their losses, reviving the flight of capital and
human resources although at much lower levels than
in the past.
Even for El Salvador to achieve an annual 1-percent
growth through 1989 in these circumstances, it would
be necessary to finance rising current account deficits.
We calculate that 5-percent annual growth in import
volume would be needed to sustain 1-percent
economic expansion. Imports would be needed first to
restore depleted stocks of industrial raw materials,
intermediate goods, agrochemicals, and spare parts,
and then to replace damaged machines and equipment
and begin to expand the capital stock. Meanwhile, in
our judgment, export earnings still would expand by
no more than 5 percent yearly because of continued
guerrilla interdiction and uncertain world commodity
markets.
If, as we expect, foreign investors and lenders remain
chary of El Salvador, the burden will fall to foreign
official assistance to fill balance-of-payments
financing requirements of $550-600 million each year.
These funds would be required to cover annual trade
and service deficits of $300-350 million yearly and
public debt amortization obligations and capital flight
projected to average $250 million per annum. To meet
these requirements-and achieve just 1-percent
annual growth through 1989-foreign financial flows
from official sources would have to stay at current
levels for the next five years.
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
V .CL
El Salvador, Economic Indicators, 1979-85
Real GDP Growth
Percent
Consumer Price Inflation
Percent
t{stintated.
h Projected
To achieve annual 3-percent economic growth just
enough to offset population growth-during 1985-89,
El Salvador would have to finance substantially
higher foreign payments deficits. We calculate that
total imports would need to rise 12 percent per year.
This would increase the trade and services deficit to
the $700-750 million range. In this circumstance, we
expect that the increased debt service caused by
greater borrowing would be largely offset by lower
capital flight encouraged by new opportunities offered
by the higher economic expansion. Nevertheless, just
to achieve 3-percent growth would require $950
million to $1 billion each year in foreign assistance-a
60- to 65-percent increase over current levels.F_~
Scenario II-Improved Security Situation. A
reduced guerrilla threat-either by mutual cease-fire
or by a shift in the tactical balance in favor of the
military-would further encourage the private sector,
as long as the insurgents' military efforts are not
replaced by equally violent terrorism and economic
sabotage. Even if the war ended, however, an
enormous effort would be required to revitalize the
Overall Government Deficit Debt Service
Percent of GLOP Percent of exports
economy. The US Embassy estimates that restoring
basic government services by rebuilding bridges, and
electrical and water systems, and replacing damaged
buildings and equipment would require $150 million
in public investment. Gearing up privately owned
factories and boosting agricultural production
probably would require additional money and a much
longer time.
Some short-term economic gains would be achieved
by more fully utilizing existing productive capacity.
Reduced risk of terrorist attacks would encourage
farmers to plant more acreage and enable them to
attain substantially greater crop harvests. In addition,
enhanced government protection of electric power
facilities would permit significant increases in
industrial production. We calculate that rising output
of cash crops and manufactured goods might spur an
expansion of exports by about 10 percent yearly.
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
secret
We believe an expansion of private capital formation
and commercial bank credit also would occur, but
slowly. Domestic and foreign businessmen would be
likely to proceed cautiously until they were convinced
that the improved security conditions would endure.
At the same time, however, the public sector would be
in a better financial position to contribute to economic
recovery as a result of rechanneling defense spending
and higher export tax revenues.
In this situation, El Salvador could achieve 1-percent
average economic growth with foreign assistance of
about one-half current levels. Higher exports would
add an average $120 million per year to foreign
exchange earnings during 1985-89, reducing the trade
and service deficit to $200-250 million per year. We
also believe that these circumstances over time would
encourage Salvadorans to bring money back into the
country and that renewed commercial credits and
foreign investment would supply another $120 million
or so.
In the 3-percent economic growth case, we calculate
that the trade and services deficit would total $580-
630 million per year. In this case, we would also
expect an increase in private capital flows as
opportunities for profits encourage local and foreign
investors. We anticipate that the best El Salvador
could expect from foreign commercial bankers would
be $200 million per year, twice the prewar average
but roughly equal to amortization obligations. Despite
increased private financial flows, foreign aid of
roughly $550-600 million per year would still be
required.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
secret
Honduras: Confusion Over
"Continuismo"F__1
25X1
25X1
25X1
25X1
President Suazo apparently has been thwarted for
now in his efforts to extend his term in office. 1
contemplating such a move, despite constitutional
provisions requiring him to step down after general
elections to be held this November. Suazo initially
tried to undercut resistance to an extension by
denying the opposition National Party and other
critics access to political power. Senior military
officers, however, expressed strong opposition to this
Suazo had been
maneuvering
Since the new year the armed forces high
command has appeared content that Suazo has
yielded to its pressures against an extension.
Nevertheless, we believe that Suazo seeks to continue
to play a central role in the political arena as elections
for a successor approach and that he will remain
disinclined to halt efforts to lock his opponents out of
the political process. Such a course could prompt the
power within their parties. This strategy has caused
deep divisions among party factions. According to the
Embassy, Suazo's faction in the Liberal Party has
systematically excluded all dissidents from party
positions and has falsely accused some of plotting to
assassinate the President last November.)
Embassy reporting indicates, moreover, that the
government repeatedly has denied legal recognition-
essential for organizing a political group and fielding
candidates in elections-to factions in the National
Party that are critical of Suazo's political
maneuvering. Dissident Nationalists hold nine of 14
seats on the party Central Committee, but the
Electoral Tribunal and Supreme Court-both stacked
by Suazo-have refused to grant them official status.
Instead, the Tribunal and Supreme Court have
recognized a faction that apparently has received
substantial funds from Suazo in return for support
since early 1984.F__-]
25X1
25X1
military again to take a more active role.
"Continuismo"
Since taking office in 1982 as Honduras's first civilian
president after a decade of direct military rule, Suazo
consistently has denied having an interest in
extending his term beyond the four years mandated
by the Constitution. Nevertheless, we believe that
throughout 1984 Suazo at least acquiesced in
supporters' efforts to lay the groundwork for
"continuismo." According to the US Embassy, a
Suazo supporter said that the President's commitment
to elections in November was simply "role playing,"
and that his close political advisers, with his blessing,
have drafted legislation to bypass the constitutional
restrictions on presidential terms. Some ruling Liberal
Party congressmen also are arguing publicly that a
large but, we believe, manageable backlog in voter
registration precludes fair elections this year.F__-]
Apparently to weaken political opposition to
"continuismo," Suazo has used various party and
government mechanisms to deny critics access to
Political and Military Opposition
Opposition politicians are concerned that Suazo's
efforts to deny them legal status have made it
impossible for them to participate effectively in the
elections. A group of disenfranchised members of
both parties, some of whom were bitter rivals in the
past, has condemned "continuismo" and manipulation
of the parties, and has threatened an election boycott.
In addition,
many of the dissidents have formed a secret united
opposition front to counter Suazo's efforts. The
diversity of the front's membership and its lack of
legal recognition probably will prevent them from
running a presidential candidate this year, but we
believe this increasingly powerful group of dissidents
conceivably could mount a disruptive boycott of the
elections.
Secret
ALA LAR 85-004
1 February 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
secret
Meanwhile, the armed forces high command fears
that Suazo's moves endanger Honduran stability by
debilitating democratic institutions and giving the
country's small and generally ineffective left-the
only political group that remains largely unaffected
by government manipulation-attractive issues
around which to rally popular discontent. The
Embassy reports senior military officers categorically
rejected a Suazo confidant's recent effort to enlist
their support for "continuismo."
Senior officers are concerned that a confrontation
with Suazo would project an image of Honduran
disunity at a time of growing domestic concern about
the Contadora talks and about US intentions in the
region. The officers, therefore, have limited
themselves to less direct means of moderating the
President's efforts. Armed forces chief Lopez recently
asserted publicly that the military would not tolerate
politicians who seek "immoderate power" and who
are "causing divisions within the Honduran people."
Military members of the National Security Council
succeeded in persuading that body to announce it
would guarantee presidential succession in November.
Lopez apparently believes that Suazo has abandoned
"continuismo" efforts, at least for the time being. The
Embassy reports that, in a sharp departure from his
earlier statement, Lopez recently praised the
President publicly for his support of democracy. The
armed forces chief made no mention, however, of
what assurances he had received from the President
that elections would be held on schedule
Outlook
At a minimum, Suazo wants to maintain his central
role in Honduran politics as a successor is chosen. His
long record of political intrigue and perseverance
indicates that he probably will be reluctant to cease
maneuvering in the immediate future, and we believe
he will continue to manipulate his opponents,
particularly in the National Party, at least until a
Liberal Party victory in November is assured. Faced
with increasingly bleak electoral prospects,
Nationalist dissidents probably will remain active in
the united opposition front, and, if chances of a
boycott in November grow, tensions between Suazo
and the armed forces could be renewed. Under such
circumstances, the military may feel obligated to
confront the President and force him to open up the
political process.
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
Argentina: Army Materiel
Industry F7
Argentina's army materiel industry, second only to
Brazil's in Latin America, produces a wide range of
weapons, including tanks, armored vehicles, artillery,
and small arms. Most ground forces weapons are
copied from foreign equipment, but Argentina is
beginning to implement its own designs and
modifications in a drive to produce totally indigenous
arms. To date, overseas sales have been extremely
limited because of high costs, export restrictions set
by coproducers, and-most of all-by the industry's
concentration on meeting domestic military needs. In
addition, the budgetary squeeze currently affecting
most of the government's activities is forcing delays in
several weapon programs. We believe that expansion
of exports will be necessary if the industry is to
prosper. F__1
Structure and Funding
The Argentine weapons industry is approximately 80
percent government owned. The government's Armed
Forces Scientific and Technical Research Center
(CITEFA) directs weapons research and development
programs and allocates the industry's share of the
national budget. The technology developed by
CITEFA is passed to Military Industries
(Fabricaciones Militares, or FM), the government
production conglomerate, which includes about a
dozen principal plants and a number of support
facilities. Most of Argentina's arms production
facilities, including an expanding private sector, are
located in the Buenos Aires-Cordoba industrial
corridor.
Historically, the Argentine military has managed
arms production, and funding has been part of the
overall defense budget. After the restoration of
civilian rule in late 1983, however, the Ministry of
Defense assumed control of CITEFA and FM. The
government is now considering the establishment of a
separate budget allocation for the industry, probably
to insulate it from the impact of sharp cuts expected
in the 1985 defense allocation.)
Current Programs
Armored Vehicles. Argentina's armored vehicle
production capability was developed through a series
of agreements with West European companies during
the 1970s. The most significant contract was signed in
1974 with the Thyssen Henschel company of West
Germany. It provided for the design, development,
and construction of prototypes for the Argentine
Medium Tank, or TAM, and for a family of related
armored vehicles. The West German firm completed
the first prototype of the TAM in 1976, and
production began in Argentina three years later.
TAMSE, a government-owned Argentine company,
manufactures the turret and chassis and assembles
the tank. The engine, transmission, and fire-control
system are provided by Thyssen Henschel.
The TAM, like other Argentine ground forces
equipment, was developed for Argentina's Army, and
little, if any, consideration was initially given to its
exportability. Negotiations have been conducted in
recent years with several countries-among them
Iran, Taiwan, Malaysia, and Peru-but there have
been no TAM export sales. There are several
underlying reasons for this, in our judgment:
? Because the Argentine Army reportedly needs no
more than 200 TAMs, the production level has
remained low and unit costs are high.
Secret
ALA LAR 85-004
1 February 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
G~. Gt
Argentine Arms Production Facilities
Scientific and Technical Research Center of the
Armed Forces (CITEFA). Designs and develops weap-
on systems. Government owned.
Military Industries (FM). Government arms produc-
tion conglomerate. Directs all government production
of weapon systems. Government owned.
Banlield Arms Plant Metro. Produces 9-mm machine
pistol and a 37-mm tear gas pistol. Privately owned.
TAMSE/Boulogne Tank Assembly Plant. Assembles
TAM tanks and VCTP APCs. Government owned.
Buenos Aires Shipyard and Artillery Plant. Produces
the 155-mm towed howitzer. Government owned.
Fray Luis Beltran Military Plant. Produces various
types of ammunition, handgrenades, rifle grenades,
and Mathogo antitank guided missile. Government
owned.
Pilar Explosives Plant. Produces pyrotechnic prod-
ucts. Government owned.
Quilmes Ammunition Plant. Produces various types
of ammunition. Government owned.
Rio Tercero Military Factory. Produces 105-mm
recoilless rifles; mortar, howitzer, and naval gun
ammunition; antitank rockets; 500- and 1,000 pound
bombs; and Mathogo warhead. Government owned.
Domingo Matheu Small-Arms Plant. Produces 7.62-
mm rifle parts and 9-mm machine pistols. Govern-
ment owned.
San Martin Armored Vehicle and Telecommunica-
tions Equipment Plant. Produces chassis of TAM
tank and VCTP APCs, night vision devices, field
telephones, and electronics. Government owned.
Villa Maria Explosives and Solid-Propellant Plant.
Produces propellants. Government owned.
Pescarmona Metallurgic Industries. Produces tank
and armored vehicle engines and castings. Privately
owned.
TENSA. Produces brakes and tracks for the TAM
tank. Developed the TAM turrets. Performs military
engineering and design work. Privately owned.
? Bonn has placed export restrictions on all tanks
using West German components. This has
particularly affected sales to controversial buyers
such as Iran.
? There is a limited Third World market for light
tanks.
? The TAM has not been proved in battle.
25X1 ? There is stiff competition from newer and less
expensive light tanks.0
The Argentines are taking steps to try to improve the
TAM's marketability.
lattempting to
circumvent export restrictions by producing an all-
Argentine TAM.
Secret
TAM prototype with a domestic engine has already
been produced, but we believe efforts to manufacture
the tank with Argentine components will probably be
unsuccessful because of technical and funding
limitations.'
FM has three other armored vehicle programs based
on the original Thyssen design for the TAM. The
VCTP, an armored personnel carrier, carries a
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
20-mm cannon and a 7.62-mm machinegun. The
Argentine Army now has 150 VCTPs in service and
has ordered 150 more. A limited number of VCTMs,
mortar-carrying versions of the VCTP, have also been
delivered to the Army. In addition, FM has produced
a prototype for a tank recovery vehicle based on the
TAM, but it has not been completed because of lack
of funds to purchase a recovery crane from West
Germany. These vehicles face many of the same
marketing problems confronting the TAM, and at
present there are no active foreign customers.
for intermediate work. The vehicles were
then s ipped to Italy, where Oto Melara finished
assembly. The Italian firm, however, now refuses to
release the completed vehicles because Argentina
failed to pay its bills.F___1
Press reports indicate that series production of an
Israeli-Argentine multipurpose armored vehicle began
in November 1984 and that 90 percent of the
components are being made in Argentina. This four-
wheel-drive vehicle can be used for troop transport
and can be equipped with antitank rockets,
antiaircraft cannons, and machineguns. Thus far, only
Argentina's border guard force is scheduled to receive
the vehicles, but there have been indications in the
Argentine press that Peru may place an order.
FM also produces armored vehicles and their
components under license for West European firms. It
manufactures components of the AMX-13 light tank
and the AMX-VC1 tracked armored personnel
carrier for a French company; assembly is completed
in France. A Swiss firm recently selected Argentina
to produce components for its M-3 and M-16 APCs,
FM is also being
Rockets and Missiles. CITEFA has independently
designed two major rocket systems for the Army: the
Pampero multiple rocket launcher and a follow-on,
the SAPBA-l. The Pampero, designed as a battlefield
support system, has a range of 12 kilometers. It has a
16-tube launcher and can be mounted on either a
trailer or a vehicle. It is now in series production. The
SAPBA-1 system builds on the Pampero design, but
has a 40-tube launcher with 127-mm rockets and
increased range.
The Mathogo antitank missile, similar to West
European designs of the 1950s, is manufactured by
FM. An entirely Argentine product, the Mathogo is
wire guided, operable by one person, and has a range
of 2 kilometers, It is
available in either an infantry or pack type and a
helicopter-launched version.
To date, there have been no export sales of these
rocket and missile systems because of competition
from other producing countries.
considered by two Italian firms for joint production of
an armored vehicle now under development.
Artillery. Argentina's drive to produce totally
indigenous weapons is evident in its artillery
programs. FM has begun producing the "Model 81
155-mm howitzer, which uses only Argentine
components. Ammunition for the Model 81 is made
under French license. According to the US defense
attache in Buenos Aires, Argentina sold some of this
ammunition to Iran in 1984.1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
Mortars in the Argentine inventory were originally of
West German design, but two indigenous mortars-
81-mm and 120-nun versions-were developed in the
early 1980s. Both are in the Argentine Army's
inventories, but there is no evidence of export sales.
In addition, FM is involved in two coproduction
programs involving artillery systems. Together with a
French firm, FM produces 105-mm towed artillery
pieces, mortars, and shells. It also produces
antiaircraft artillery weapons in cooperation with a
Swiss firm, Oerlikon-Burble. FM and Oerlikon-
Burhle are discussing the possible expansion of their
agreement to encompass license production of
20-mm and 40-mm antiaircraft weapons.
Small Arms and Ammunition. Small-arms production
by the public and private sectors has been sufficient to
meet domestic needs for the past several years. FM
manufactures various NATO-designed rifles and
machineguns under Belgian license, and the Banfield
Arms Plant, a private concern, is a significant
producer of pistols, machineguns, and automatic
rifles. Ammunition is produced in Argentina for all
calibers of weapons made in the country. Again,
Refit Programs. The privately owned Argentine firm
TENSA is reportedly directing the reconditioning of
Soviet-made T-55 tanks belonging to Peru. This
program encompasses the replacement of the T-55's
turret and 100-mm gun with the TAM turret and
105-mm gun. The gun replacement affords only a
slight gain in firepower, but it complements the
Peruvian military's current policy of decreasing its
dependence on the Soviets in favor of more diversified
sources of maintenance and supplies.
the industry's main
goal for the future is to expand its export sales to
offset its current budgetary problems. FM hopes to
achieve this objective by:
? Arranging for coproduction programs that will
further enhance Argentine technical capabilities.
? Upgrading existing systems, thereby increasing
their marketability.
? Deemphasizing production for the Argentine Army.
TAMSE, the TAM tank production firm, is
considering a plan for assembly of Austrian-made
vehicles under license, according to a source of the
US defense attache. Possible candidates include
Austrian SK-105 light tank/tank destroyers, all-
terrain vehicles, and wheeled vehicles. TAMSE
would deactivate one of its two TAM production
lines and would assemble the Austrian vehicles
under license using imported components. It would
export the finished vehicles according to the
manufacturer's instructions. The Argentine Army is
not expected to be a customer for these vehicles.
Funding for
two prototypes was approved in mid-1983, and the
first of these is scheduled for completion early this
year. These howitzers will be entirely Argentine,
with steel from a domestic steel mill and barrels
from the government's Rio Tercero Military
Factory.
25X1
25X1
'') F Y 1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
Secret
CITEFA is also testing variants of the Pampero
rocket launcher system. A launcher with a projected
range of 30 kilometers is under development.
CITEFA also has stated that an air-to-surface version
of the Pampero rocket launcher has been successfully
tested on the Argentine-made IA-58 Pucara ground
attack aircraft.
and
its variants. The preproduction stage is complete, with
machinery in place at FM's San Martin facility, but
budget constraints are delaying the start of series
production.
Development of a new antitank missile, the MATVA,
is under way at CITEFA. It appears to be based on
the Milan missile, produced by Euromissile, a West
European conglomerate. The Milan performed
successfully for Argentina in the 1982 Falklands
conflict.
Outlook
Budget constraints affecting all aspects of the
Argentine military will continue to be a major
concern of the arms industry for the near term. We
therefore expect that manufacturers will begin to
deemphasize production for the Argentine Army and
give top priority to increasing export sales. To boost
exports, the Argentines would need to launch a
comprehensive marketing program similar to Brazil's.
They would need to perform more market research
and develop new products that conform to customer
requirements. If exports cannot be increased, the
current as well as planned programs.
industry's financial problems will worsen, resulting in
further program delays and perhaps cancellations of
Even if exports rise, Argentina will remain dependent
on Western suppliers for several years to come. The
drive to reduce this dependence will continue, in our
view, and increasingly complex indigenous programs
will result, but Argentina will continue to lag a distant
second behind Brazil as a regional arms producer.
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
,egret
Latin America
Briefs
Sanguinetti to discuss the party's future role.
President-elect Sanguinetti is likely to legalize the Uruguayan Communist Party
after he takes office in March, Uruguay's
military rulers declared the Soviet-backed party illegal after seizing power in
1973. The party's First Secretary, Rodney Arismendi, directed party activity from
exile in the USSR and Argentina, according to press Last
November, with the transition process under way, the military allowed Arismendi
and other party officials to return to Uruguay. Arismendi already has met with
and will not challenge his actions early in his administration.
but we do not believe the party is strong enough to pose a serious threat to
Sanguinetti's government in the near term. Legalization, however, would likely
displease Uruguay's conservative military leaders, particularly because
Sanguinetti reportedly also plans to upgrade diplomatic relations with Cuba and
Nicaragua. Sanguinetti probably calculates that the military-which supported
Colorado Party in the November elections-will give him some room to maneuver
defense, financial, and propaganda apparatus,
Sanguinetti has said that he opposes Communism and hopes to weaken the party's
strong influence within Uruguay's labor movement, but he also has advocated
active participation by all political parties in the democratic process. By allowing
the roughly 7,500-member party to operate legally, Sanguinetti probably believes
it will be easier for his government to contain and monitor Communist activity.
The Uruguayan Communists may continue to maintain their underground self-
25X1
25X1
25X1
25X1
Secret
ALA LAR 85-004
1 February 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
xuca
Paraguay
Luis Maria Argana, the president of Paraguay's Supreme Court, is emerging as a
leading contender eventually to succeed 72-year-old President Stroessner,
Argana is
more moderate factions of the ruling Colorado Party.
considered the most acceptable successor by the armed forces and the public, and
is highly regarded by Stroessner as well. Argana also
appears to have considerable support within both the hardline authoritarian and
President.
Among Argana's main strengths is his reputation for greater personal honesty
than most other senior Paraguayan officials. As head of the Supreme Court, he is
reported to have removed a number of corrupt officials from the country's judicial
system. Stroessner is scheduled to spend a week in West Germany in July and
reportedly will designate Argana as Acting President during that period. This
appointment, in our view, would underscore Argana's good standing with the
there are several other civilian and military
leaders who still have a chance to succeed Stroessner. The President's apparent
intention to remain in office for at least a few more years leaves ample time for
other contenders to maneuver. One key figure is Maj. Gen. Andres Rodriguez,
widely regarded as Paraguay's military strongman and the second most powerful
person in the country. US Embassy reporting suggests that
Rodriguez may dominate the armed forces and be a major power broker in the
post-Stroessner era
Dominican Republic Edging Closer to IMF Accord
After more than a year of contentious negotiations with the IMF, President Jorge
Blanco late last month announced new austerity measures aimed at securing a
$65-70 million standby loan. The measures include unification of the exchange
rate and hefty export surcharges, the latter partially replacing a tax package that
the Fund had wanted but had been rejected in early January by the Dominican
Senate. The exchange rate adjustment caused prices of many basic commodities,
especially foods and petroleum products, to increase immediately. Prices for
gasoline and kerosene soared 34 percent and 87 percent, respectively, and
electricity rates for residential users increased as much as 68 percent. These
measures could pave the way for a new standby loan as early as March and allow
Santo Domingo to reschedule its burgeoning foreign debt and gain access to much-
needed new lending.F--]
Although the actions have provoked some backlash, popular reaction so far has
been less violent than last April, when similar price hikes caused riots that killed
more than 60 people. Nevertheless, political realities have prompted the President
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
Secret
to soften the impact of the new measures. To help keep labor quiet, he announced
plans to increase the minimum wage by 20 percent and pledged to continue
subsidizing sales of some food and medicine. He also promised improved housing
and other services for the military and a new health plan for teachers. Jorge
Blanco's demonstrated willingness to use force to contain violence also will restrain
popular outbursts. Quick actions by security forces, including the occupation of the
headquarters of a major union, played a major role in dissuading opposition groups
from attempting violent protests.
Dominica Opposition Prepares for Elections
The formation of a new party, the Labor Party of Dominica, was announced on 18
January, following several months of negotiations between opposition leaders. Led
by social democrat Michael Douglas, the party comprises members of the United
Dominica Labor Party and the Dominica Labor Party, as well as a number of
independents, including former Freedom Party Communications and Works
Minister Henry Dyer. Although the Marxist Dominica Liberation Movement
participated in the alliance talks, the
Liberation Movement has opted not to field any candidates in the general elections
to be held this year. Instead, the Movement-badly weakened since the departure
of leader Bill Riviere in mid-1984-reportedly intends to support the Labor Party,
using the influence it has in the farm community.
25X1
25X1
believe the unified opposition will present a stronger challenge to the ruling party
in this election than in the 1980 contest, in which the Freedom Party captured 17
of the 21 House of Assembly seats. Douglas, nonetheless, admits that the ruling
party will be difficult to defeat and, in a recent conversation with US Embassy
officers, conceded that Charles probably will win a second term, albeit by a
reduced majority.
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85T01184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
Secret
St. Vincent Labor Party Rebuilding
Political infighting in the opposition Labor Party is likely to continue following the
replacement of former Prime Minister Cato after 30 years as party leader. In a
special convention held on 22 January, former Deputy Prime Minister Tannis-
deputy leader of the Labor Party since 1958-was elected to succeed the ailing
Cato, who stepped down as party leader in November. Friction between the party's
old guard and the younger members has increased since the party was ousted from
power in elections last July. It won only four of the 13 elected seats in the House of
Assembly. Younger members place much of the blame for the party's defeat on
the corruption and inefficiency of party veterans. The choice of Tannis over
ex-Minister of Trade and Agriculture Beach, who represents the younger faction,
shows that a majority of the party favors continuity in its leadership. In these
circumstances, Tannis will face a difficult task in trying to make peace and
strengthen the demoralized party.
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1
Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/02/24: CIA-RDP85TO1184R000301560001-1