Created: 5/30/1956

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REF ?6

In accordance with subject, the drafting officer will attempt to apell out nore clearly the suggestion put forth in paragraph six of reference. Before doing so, however, he would like to expound on general subject of reference.

2* As Headquarters knows,been confronted with subject

problea for alaoot two years. It has required ouch effort through the eediun of SKBiKER to force any action at all on ESCHOSTart re settleaent of the claim. His reluctance to rove most probably derives from two facts 1

a* Ro realises that any pay aunt ex-gratia or othsrwlao made to PBPRIME or Idontity interests will bo counterproductive to hia political Interests, and

b. bo probably feels that he la not obligated toaske any paymentthe old constitution gave hln legal grounds for refusing to entertain negotiations with any of the Interested parties. He is sufficiently astute, politically, to realise that this position, though lt would net enhance his prestige internationally, would prevent his political opponents froa crying another example of puppet-hood or subservience to PBPRIME.

3. In accordance with the agreed position of Headquarters and cin. full cognisanco of PBSOCCESS and the incidents leading up to the claim, "


jswucceeded in getting FSOHOST to recognise tho fact that a T succeeded ln getting ESGHOST to wake representations

to the interested parties that ho would consider an ex-gratia settlement, since to was desirous of preserving Cnatemala's position in the "comunlty of nations".

it. Persuading ESGHOST to take the aforementioned actions, however,about one-half of the problem, and in fact the least difficult phase of the whole affair. The real larue is to Introduce SKDOffEP. funds Into the GVateaalan coffersecure, covert manner to defray the coot of the claim, and ensure

that thay actually get there. This is an extremely difficult if not an lnposaible op ar at ipn_ beoause of the strict limitations placed upon the handling of"funds by the new constitution. Honey mat bo aocounted for, and in tho caae of the refer-eno- clain, it must bo budgeted for and pasoed by the Guatonalan Congress before it can be paid. Since payaent of this clain will at best be an unpopular issue, lt Kill be scrutinised vith the greatest care, not only by the Congress but by ESuMOST's opposition, which is not inconsiderable. Therefore, anything connected with the negotiation and/or payment which appears the least irregular, willbacon) suspect, and be attacked vigorously if the slightest excuse for an attack exists.

5*. Recognising the foregoingfact of life",applied

its boot collective effort. In conjunction with ESTEUD, toecureto the "fund Introduction" problea. To date, no good or perhaps evensolution has boon arrived at. At various tines we have considered the following alternatives!

payaentlat accent tohe amount of the

claim, with the understanding that ESCHOST would,eriod of tine, introduce the money Into the Guatemalan eoonony through his confidential funds, which are suite altable. This method was rejected by ESTEUu because he io afraid that ESCHOST would hold the money apart and most probably in another oountry, as anfund should things become unpleasant for hia in Guatemala. In other words, ESFEUD feels that ESOtOST would be more inclined to remove hlsself from the country if heizable amount of ooney waiting for hln. Thisoint worth considering. It ia also within the realm of possibility that ESCHOST would hold the noney apart ln any event, to use at some future date. Perhaps Headquarters would not find thiB completely objectionable, ln view of the terrific problem inTolvod in introducing funca.

raised, andwith bin,thefeasibility of manipulating grant aid inannerwould receive in additional aid, tie amount of theof course, would notKIUVTR operation. would not be an operation that tho Guatemalan public wouldof. Xt would of necessity have to bo limited to ESGHOSTE3FEOT). *Ms toe* nas exanlned thoroughly bythe Jfand they collectively persuadedthe idea was too dangerous and difficult to undertake.

idea of SKIMMERiuatemal an bond issue inthe amount of the_ clajn, was considered. Periodically,

t Ifouth American countries float long-term debenture bondsIIthe principal PBFRTME brokerage houses. The bond issue theoreti-[Hllcelly could relate directly to the clain or it couldart of 1 ESCHOST's effort to raiae funde for inemased electrical power. This idea presents many problems, however, aome of which are the creation of straw men or fictitious buyers, payment of bondwhich wouldontinuing expense to the Guatemalanand the eventual retirement of the bonds which would beine when ESCHOST would most probably not be on ths political scene. Because of these difficulties, the idea was rejected.

In addition lo the many organic flaws, tho foregoing schemes all contain ths asme baslo fsult. They do noteans whereby ESCHOST can negate ths political inpact of paying up big-veeted interests. The Guatemalan public would newer know that it was not their own money that was aotually used to sake the Tho undersigned has almost retched the opinion, however, that nothing can ba done about this in any event. The goal for which to striveolution which would have the least negative political impact-

Aa Indicated above, all of thehrough c, were rejected for one reason or another. ember of the Station, Edward D. KNAPUAtt, suggested tbe scheee cited in paragraph six of reference. In ths Chief of Station's view, although not ideal, the plan had nore aerit than any idea conceived to date by all concerned with the problem. The underlying prealae of the plan ls this. There appears to be no ideal solution to the probles and we have not at this point decided to turn "X" dollars over to ESGHOST, hoping it is handled properly.chene is needed which Willi

ESCHOST with ths price of the claim in negotiableequal value, even though the people would never know it, and

the impact of the payment because it willenseto the payment, and

w 7

present no administrative probleB of many years duration.

ESCHOST has already related from Douglas J. HtEAPAKE informally, SKIMMER's views on how he can incorporate SKIMMER funds securely when the pay rent is made.


f this writing, SKIMMER had no answer for him other than to suggest anscheme. 3incoba io undoubtedly concerned about the political repercussions ofh* elalm, ha should be interestedcheme which would tend to enhance hie position in the public eye. As Headquarters knows, his popularity has slipped during the last year,ood "shot in tho are" would not be out of order. oluble philanthropic foundation, PBPRIME or otherwise, would announce its intention to donate tochool, library, or sere other suitable gift, in recognition of the splended work that ESCHOST did in throwing ComwnisB out of Guatemala and his striving toiddle-of-the-road government In the aftcrcath, this couldalutory sffect on the Guatemalan public if properly publicised. The announcement of the gift, however, would have to preceed payment of the claimonsiderable amount of tlreo to avoidwith lt. For the same reason, the amount of the claim and the net value of the gift would hsve to differ somewhat. Implenentatlon of thia plan, however, would depond upon tho practicability or feasibility of Headquarters arranging an anonymous donationleared contactuitable philanthropic group or foundation. It may well be that this represents as great an impasse as the problem of introducing funds into the Guatemalan treasuryecure andmanner.

8. It should be clearly understood by Headquarters that we do not consider ,the foregoingood or perhaps even acceptable one. Headquarters isuch better position to deternine its true practicability since lt involves Headquartors aupport. Additionally, many more specialists are available tofor consultation. We merely state that we tend to rogard thia as the leaser of many evils, unlosa it ls deolded to merelyayment to ESCHOST

and hope he handles lt properly. It may well be that Headquarters will find more merit in one of the schemee sentionsd Inbove. Tf so, we would be happy to explore lt more thoroughly in an exchange of dispatches or cables. Wo have by no means given up on this problea* This dispatch, however, represents the best of our thinking to date for what lt is worth. Ve will advise promptly aa further ideas emerge. Meanwhile, we would greatly appreciate any ideas or schemes that Headquarters may havo. It may well be that our thinking ls along the wrong lines, and an exchange of views could quickly clarify the situation, and at least permit us to arrive at an acceptable cotvpronlse solution. Aa stated in reference, there ls no question ln Chief of Station's mind that this ls one of the most difficult, if not the most difficult, problem that has faced theduring his tenure. Itroblem that diould bo resolved ln tho not-too-distant future*



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