Created: 2/13/1986

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The recent Inauguration of President Vinlcio Cerezo Arevalo in Cuatemala has brought lo power the first civilian leader of the country in almost two decades. The new President Es faced with serious economicelicate political relationship with the armedersistent leftist Insurgency, and continuing political violence. In the foreign policy area. Cerezo has given early indications that he will take an active role in regional affairs, as weD as eipand Guatemala's international ties in an effort to attract greater foreign aid. This Estimate will address the prospects for the new government over the next year or so. beginning with internal economic, political, and military problems and then examining how its foreign policies are likely to evolve. It will also discuss the implications to the United States ofalternative outlooks. ifi*efT



The inauguration of President Vinicio Cerezo and the installationew civilian governmentecisive step toward the US goaltable democratic system in Cuatemala. but continued progress toward thatar from assured. Cerezo will need all the support he can marshal if he is to solve the serious economic and political problems he will face over the coming year Although thereeasonable chance that Cerezo will be able lo manage effectively the problems he confronts,on economic matters orwith thejeopardize the long-term prospects not only of his government, but also of the democraticr7

Guatemala is suffering its wont economic crisis Inentury, and the economy will be Cerezo's most pressing problem. The President will need to implement an effective domestic economic austerity program to attract increased foreign assistance and to halt the severe economic decline. Needed reforms will entail increased taxes and reduced public subsidies, probably resulting in considerable public opposition. We believe that thereetter jhan-even chance that he will adopt an economic adjustment program,*

|Other issues, such as the conduct of the counterinsurgency and the military budget/will be potential sources of


friction, but we believe both civilian and military leaders will work to keep disagreements within manageable limits.onsequence, we judge thatjbaic will bemall chanceoup over the coming year.

The size and effectiveness of the radical leftist insurgency has been reduced substantiallynd it does not nowerious threat to the government. We do notubstantial resurgence in guerrilla activityut the insurgents axe likely to receive sufficient external support, particularly Cuban and Nicaraguan, toiable military force. The Guatemalan military is capable of keeping the insurgency contained but will not be able significantly to increase pressure on the guerrillas without additional foreign military aid. The armed forces suffer important mobility, maintenance, and communications deficiencies, which continue to limit theirAlthough Cerezo is likely to extend an amnesty offer to theegotiated end to the guerrilla war6 is unlikely.

Under Cerezo, Cuatemala probably willore active role in the Contadora process, and Cerezo will strengthen relations with other Christian Democratic parties and governments in. Centralthat of Salvadoran President Duarte.

We see little danger that Guatemala will be drawn into the Soviet-Cuban orbit over the coming year. Cerezo has raised the possibility of establishing relations with Cuba, although we do not believe that this is motivated by any sympathy for Cuba or that he regards this as an important priority. Instead, he is likely to make improved relations withop priority and eventualltmove to resolve Guatemala'sdispute withat*t

Beyond the development of democracy and foreign policy, US interests will be principally engaged in Guatemala on questions of aid


and human rights. Cerezo will probably solicit US support in debt rescheduling and discussions with the IMF. Guatemala will alsoto make gradual progress on human rights, although we do not expect this issue to recede in importance and visibility. In addition, we judge that narcotics trafficking couldore important bilater-al issuefT

We are cautiously optimistic that Guatemala will make progress in consolidating its democratic institutions6 However, the system will remain fragile and vulnerable to internal and externalbeyond its control, suchew world recession or an inability


Tbe iittufurilbm of President Vinieio Cereto and the Instillationew Congressanuary marked the luccessfui fruitiontuee-year tnnaJ. Hon from military to civilian rule in Cualemala. The general elections of5 provided Cerexo and hii center-left Christian Democratic Party (DCC) an unexpectedly strong victory.ield of eight. Cereto capturedercent of the vole, while second-place finisher forge Oarpio Nicolle of the moderate National Centrist Union (UCN) managedercent Further, the DCC gained an absolute majority inember congress, winningeats.eronM victory over Carpio inecember presidential runoff election capped the DCG'i

1 The open and honest elections will provide the newreater degree of domestic and international legitimacy than previous govern menu The armed forces, under former chief of state Cenerml Melta.trict neutraJlry In tha electoral process, aod the balloting was peaceful and fairly administered. Rightist parties did poorly, winning onlyongressional seats and suffering surprising defeats

Figure I

RepreseoUdoD la the Congress


CXmofiul< firrr oTNiUoaal Parry


oe Dr mocralic fart/

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hraaa, -'i'rtf *rKiiial r i nin. 1tnimn'



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In their eastern Guatemala strongholdi Cerezo'i main formal political cwan'tton will be (torn the centrist UCN rather than the right The widespreadof the electoral letults and his clear majority In Congress should place Cereio'i governmentirm political footing. (ajsiT""

3 Cerezo will need ail (he dornestlc andsupport he can marshal, as he will face serious economic and political problem! at the outset of his term.onfronting its worst economic crisis inent

- tenacious Insurgency andpoliticalailure to continue to contain the Insurgency is likely to hinder Cuaternala's economic recovery and cause increased friction with Xr*Je**mand the armed forces.

will face ii

Tho Economy

he most pressing problem the neweteriorating economy. With Central

America's largest resource base and population.has the potential lo be the moat dynamicIn the icgion Per capita CDP, however, has fallen by nearlyercent from0ecline unprecedented in the lifetime of moat Guatemalans. Ai with most less developed countries, Cualemala's economy was hit hard by the sharp rise in oil priceshe ensuing world recession, and worsening terms of trade as commodity prices felL The situation was exacerbated by domestic and regional turmoil-tourism earnings plummeted while the CentralCommon Market (CACM) was leriouily disrupted. The failure of successive military governments to lake necessary adjustment measures abo contributed lo economic decline (jyarf*

S. The situation Cento inherits is serious butcan be turned around if the government ads decisively toomprehensive economic stabillarion program. Cuatemala is experiencingexternal Imbalances, mounting arrears,rowing fiscal deficit Foreign exchange reserves are exhausted

The CDP, which declined aboutercentill probably remain sluggish

Cuatemala is experiencing unprecedentedrate rose at leastercent3 compared with lessercent in theyear. Inflation ia likely to increase6 unlesa the government restores fiscal anddiscipline

Balance of Payments




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Nf china? In fnitrniiiorjl ttynnft.duda fttel ol mean)



. -ao


The unflnanced balinee-ol payments imp.the Bock ofllllonX i>8 million3 and wiO worsen substantially8 withoutsignificant change In economic policies. Airesult, the localremain under severe pressure.

Debt service obligations wiD peak this year, rising to someercent of export earnings unless some relief Is providednrT

6 If Cerezo Is to establish the basisong-term recovery and obtain Increased foreign assistance, he will have to Implement economic adjustment and austerity measures. These. however, willtxrnif-leant potential to provokeprotest. An Important first step In an adjustment program would be the unification of the exchange rates forevaluation. Cerexo will also be pressed to eliminate fuel subsidies. Increasing the domestic price of gasoline and of fuel-dependent public service* such as electricity and tiaruportalioo When tbe Mflia goverruTservt attempted to Increase bus fare* Inhe resultant furor threatened MefU'i position and caused Urn lo rescind thehese measures would be inflationary In the sear term, cutting living standards for Guatemala's poor and lower middleprincipal constituency of thesdcUng to the political costs of

n effective adjustment program would reQuire that Cerezo reduce the fiscal gap; this would Involve significant Improvement lo Guatemala's extremely inefficient taa system. Taa receiptsercentage of CrVP arc among ihe lowest in the hemisphere and have been declining. The private sector fa unlikely to support any rise In taies unless the government also relaxes price controls and adopts other reforms. Meiia's Imposition of caport taxes and Increased import duties and value-added taxes In3 metirestorm of protest from the businessla responded by withdrawing the Increases and removing the Minister of Finance.

8 Another immediate concern for Cerezo willevere foreign eiehange thortage, particularly In (he first sii months8 To alleviate this problem,reklng asubstantial Increase in foreign aid Artnough he wiQ rely heavily eo the United Sain, Wrsteni Europe, and Japan, Cerezo will also look to Venezuela and Mexico to usurt the continued supply of oil Guatemala wlB he hard pressed to oseet lawaediite debt obligations unleas it can obtain relief from official and commercial aTo be successful In obtaining Increased assistance and debt rebel wil requite that Cualemala develop an adjust men! prog) its endorsed by the IMF. fi>arff**

hereide range of potential outcomes for the Guatemalan economy over the course of Cerrto'i term, and we believe tbat his actions over tbe first yea/ willritical Impact on long-term economic devetopcnenti Tbat for. Careio has publicly Indicated he will pursue raeoratary adjustment measures and wtDradicalas econoanic

willl least, follow moderate ecorsornk policies. We believe poiifcaJover lha first Si months of his administration would permit Implementation of on adjustmentacceptable k> the IMF. li Cerezo foOowspoboes ova the neat two yean or ao, we believe the economy wiDood chance of returning to positive par capita CDP growth. (sjjajwTtJcT

ess hkehr possibility fa that Cerexo may abandon austerity aadocuhat agenda. Tbe role of tbe smal bat Increasingly influential Labor movement could bt Important la pushing Cerezo to take suchhe principal labor group, tbeWent Ceedederarjon of Guatemalan Syndicalist Unity (CUSCX fa reportedly uvdloed to grant Cerezo time to establish lafa ecorvxnlc program, but

Hcure 2

Guatemala: Selected Economic Indicators


wdftl Ofici uStun of CDP (Ptrc-Mj



The military has been the dominant political Institution In Cuatemalae oast

j The maintenance of positive

relations with the military will clearly be an important priority for Cerezo. Hise made easier by the extent of hn electoral victory and the fact that the arrned forces are anxious to relinaulsh theof government. The appointment of Generalmoderate, apolitical, and unassumingMinister of Defense will further facilitate srnooth military relations with the civilianWe believe there hasrood attitudinal shift within the armed forces Id favor of civilian government and the democratic process

molon Mltory

Wrtfcstraagth ofrnulan Army is spread amongctive military zona, each containing at least one Inftnlry battalion. The ArmyeD-tnioed and competent oaiatertaaurieneyrincipal assetits hiihfr soorlvalod and relatively young oil.orps; the proportloo of senior officen Is small, and lieutenants and captainsenrn< of the corps Principal arau aupphen include Wni'Tf. Europe. Israel, and Argentina. Cuatemala produces Its own soiaD anas ammunition bul has experienced shortageiarger muni tun. Including mortar andounck Otherinclude inadequate oouunuaka lions and mobility andengineer equipment luerT-

TW Alt Foroaoonaats ofir-craft,f USgbl attack )eU The cutoff of US miiii.iv aid la 1BT7 arverctv affected tha ataLnUaaace off heD-

foncOcruna alary equipment, such aa esOtioo aaats. Deaptie this, the Air Force haseffective tactical aupporl lo the TheNan.of II patrol crtlu an amphibious craft, and two hydrogriphic aarvey ships, can provide local security bul canaot effectively zaotutor CuatenuJa's coasts.



long bawo ctr.bcddod ir. Culcnuhn political culture. Since a! least, politically motivated murdenductions have born carried out by insurgents, government securityoliticalnd private individual* Therepute tion for violence.reached Hi peal under the government of Gen Rome* LocalJl At ihe Inaurgency gained momentuml. therespondedampaign of violence again* the preiumed supporters of the guerrillas In the coun-tiyiide- especially against (he largely Indianof the central highlands. Moreover. Local con-doned-and in aome oaaea probablyolicy of ehm.rwmng leftiat opponent* of the government including labor leaden end moderate lefluta notwith (he iniurgency. During Ihliumber of DCG political organizers vera killed, and Cerrto himself .ai ihe targeteadion aliempts.

The ei ceases of the Luoai govcn.menracklash within the armed forces, resultingoup that brought letirod Cen. Efrain Riot Monlt to power. Bios Monti and his nicccstor moved with some success lo reduce the level of violence Gauging 'he esientt-cuk becauaela often impossible lo identify ihe prtpetraion of politicalor even lo differentiate betweennd criminal violence Nevertheless, US Embaiiy figures suggest thai politically motivated violence has been significantly reduced and is nowthe orderercent of whal it wasj

We do not believe that ihe armed forces are systeen-atksllyolicy of repression In theFor esample, the "poles ofvillages in thebeen attacked by some human rtghu gioupa ai concentration camps, butuvrafigaMa by the US Embassy has failed loear charges. Ahuirs in the field, howavce. doerious problem, though we fudge that Ihese are largely earned out by husk* officers and isolatedeyhat tha mtlt-larv faih to prosecute the offer-Sera Officersf serious vioUtioru arc genet *Hy reassigned lo poavtiocuhere ihey gfjn be more eantr controlled by their su person, jsuef"

- eapect thai. Ihough Cereio >ill move1in addressing ihe problem of political violence, hr wifj be able to make gradual prograai aa further curbing human rights vtokbona Two ley factors that could frustrate ho efforts will be ihe economy and insurgentontinued deterioration of the economy would probably produce some Increase la the level of violence conducted by leftwlng snd righr-ing citrrav bti la particular,head* some evidence of reemergence of nghtwing violence, probably Ieaaodadarning to Cerezo over ha economic polktea Additionally, pofctlcaf violence would be greatly eincer-bated were the Insurgents toraicgy ofurban lerrorUan.arsh resportse bv ihe security force* JsyrfT

this Is likely loontinuing point of contention. In addition, we Judge the armed forces would accept surrender and amnesty discussions with the guerrillas but would reject negotiations involving any govern -meni concessions suchease-fire, the reevjgnition of "liberatedr the granting of any political advantagesnsurgenl organizations For Cerezo has

an area of dbpote. In the past, the armed forces have been able lo augment their fuoda by tapping the budgets of other ministries. Cerezo will seek to prevent tha and gain greater cootrol over military spending; Another sensitive area wiD be ihe Internal admiiustra-tkm of the armed forces, particularly such key marten as retirements, ptonyotiora, and dutyhe military hierarchy will strenuously protect tl from civilian intrusion]

There will be other points of civilian- military contention, but we do notern to havecritical impact on the newin Us first year The military budget, for example, could be

oth Ihe armed forces and Cerezo are likely to work lo keep any disagreements within manageable limits. There are circumstances that could trigger cc-jp-plotting, raost notably should Cerezo reverse himself and attempt to exactfor past


human rights offenses or other wrongdoing by ihe military or should the government interfere with theorporate Interests or profesjiooalWe do not cipeet widespread public disturbance* over government policies, but ihould public order deteriorate, the potentialoup would increase if (he armed force* felt that Cerezo mishandled the situation or lost control We believe that over the next year, however, these are unlikely eventualities and that there will bemall chanceilitary coup.

Thereomewhaf greater probability that,eries of gradual missteps. Cerezo could over the longer term com promise hiswith the military and provoke some tcnti-mentoup Should itoup would almost certainly Intensify domestic political pr> laniaUon and violence and result in an adverse international reaction. (sJf**T

The Insurgency

Cuatemal* has had an iruurgency problem since,umber ofand repression under the Lucas government, theof the Sandinistas, and increased Cuban support toramatic increase in guerrilla activity beginning9 Insurgent forces grew from fewerombatants to. and by2 the three principal guerrilla organizations threatened to wrest control of keyand western departments from the government The Army respondedoresometimeseffcatlnat drove many Indians into refuge in Mexico, yfl

Inilitary coup rpeaiheadrd by reformist-minded officers brought to power retired Gen Efrain Rio* Monti, who rapidlyew civic action program while continuing theon maintaining tbe tactical initiative. This "bullets and beans"by Generalon anan CivilForce to more directly Involve tbe civilian population In the establishment ol local security, military civic action companies to bring to rural areas tangible benefits of cooperation with the government, and "poles ofand newly built modelrevitalize the largelycentral and westernr,

he implementation of thla strategy,by an amnesty, has reduced insurgent forces tond has severely undercut their popular support. The guerrillas are restricted principallyelt about SO miles wide along the border with Meaico and are generally isolated from key populationThe Insurgents do not nowritical threat to public security, but theyiable military force. The three major Imurgcot groups are well organized, reasonably well armed, and able to make use of safehavens on Mexican territory. The level and scope of combat operationsb likely toalthough the guerrillas have been able to Inflict more casualties on government forces than they ubemselves have suffered during the past year, due to greater guerrijja reliance oa mines, booby traps, aod

ver the next year, we tee little etunce fordramatic growth of the insurgency. The guerrtllaj will probablyaiting game, preserving their force* in the hope that over the long run their rsreapeots will improve If Cereto proves unable to cope withproblems. The Insurgents will retain theto mount small ambushes and harassng attacksthe military. In addition, we expect that the guerrillas will continue to use terrorism, assassinations, and sabotage against econoaucaJly important targets. We expect that the insurgents will seek lo flrertgthen their urban terrorist networks, which so far have been effectively neutralized by government tecurity forces. Although we believe that most insurgents will support these tad ics, some rebel leaders may try towo-track strategy like that used by the FMLN in El Salvador. This strategy would include the continuation of military pressure while seekingoriat>ons with the government-*

On the whole, however, we believe thelack popular support and urbanremaineripheralforce and will notritical threat to public security tJuoughfirst year. (sjrf*f*

n tbe other hand, we do not expect areduction la the Insurgency In the nextonth* The armed force* are currently stretched to tbe limits of tbetr resource* and willifficult time increasing their counterinsurgencv efforts. Thelimitations of tbe military an trajuportatioo, communications, and logistics. The lack of mobility haserious handicapey element of theounterinsurgencvhe rap-Id movement of troops to seek out aggressively and malotaln contact with Insurgent forces in their remote operating areas. The magnitude of this task becomes clearer when we recognise that the Guatemalan armed forces are responsible for securing an area over five rime* larger than El Salvador butewer troops than their Salvadoran counterparts, (ym


Forion PoDcy

uatemala began to emerge from itsdiplomatic isolation2 after tho Rio* Montt coup Since then, greater efforts have been made to improventernational image and reduce its International Isolation resulting from Its poorrights record Mega's attempts to stem political violence and support the electoral process laid the foundations for improvements in Guatemala'srelations. This was exemplified by the reestab-lishment of relations with Spain, which had been ruptured Inuatemala also began toore active role in regional matters with itsIn the Conlador* talks:

Guatemalan policy, traditionally antlhas beer

e do not expect that Cerezo will effectchanges la Guatemalan foreign policy,In bus first year. His principal goal wiD be to Improve Guatemala's International image and its Handing with potential Western aid donors. Cerezo appears strongly committedegional political solution to Central Americanlong with his support for tbe Contadora process, he has suggested tbe creationentra! American Parliament.the Sandinistas,echanism for resolving economic and political problems. He aboeeting of moat Central American leaden. Including President Ortega of Nkaragua, Immediately after his ins ugura tsort^ef*

erezo has stated be wiDobcy of "activewhich probablyesire toIndependence of theState* and of East-West conflict. This will lead to somewhat moreonaltgned tone In foreign policy rhetoric and Increased friction with the United Slates on some



Cerezo has raised the poaibility ol* establishing diplomatic relations wllh Cuba, but we have no indication that he regards thb as an immediate foreign policy priority. We are uncertain of his motlvartoei for that suggestion, but we do not believe that it represents any sympathy for Cuba or its goals. He may regard the Initiation of relationseans of demonstrating Guatemala's neutralist policy as well as moderating Cuban policy toward Guatemala. In anye see

uatemala'] loogrtaixiing territorial claimIs not likely to surfaceajor issuefirst year. Cuatarnala docs notsovereignty and has officially regardedGuatemalan lerrilory. In past discuwomilitary force InGovernment has scaled back itsfar ihe la Iks have foundered eo the Questioaconcessions. Cerexo will be flexible Ina



docs not enjoy an immediate pfioriiy on his foreign policy agenda. To facilitate an agreement. Se will probably establish formal diplomatic relations with the United Kingdom, bul we do not expect major developments in negotiations soon.

A related problem will be CuatemaU ^Insurgents in Bclizcl

|There willmal cnance that Guatemalan" Atmv operations near Belize will result in border incursions andwilh Beliiean or British forces. However, unless guerrilla use of Belize Increasesunlikelydo notthat border problems will pose majorfor the Guatemalan or Beliiean Governments, ftarf)

Implication* for (he United State!

installationew civilian governmentdecisive step toward the US goaltablepolitical system in Cuatemala, buttoward that end is far from assured.that Cerezo'i administration will almostsurvive its first year in office, especiallytask will be initially easedeneralihe return to civilian rule, moderation on thethe military and important sectors ofand by the disarray of the right. BulCerezofalls tohaveImpact on the longer term viability both ofand of the democratic process,rf")

cenariosofdministration over the

First, thereetter-than-even criance lhat Cerezo will be able to consolidate bis pcaition. pursue an economiccon* tain his political opposition, and avoidihe military. Our chief concerns are thai he will fall to take all the actions necessary to stabilize the economy or that his economic policy willatchwork of compromise and half-measures, often at cross-purposes with one another. Nevertheless, Cerezo has so farbeood perception of potentialand the political skills to resolve them successfully.

A less likely possibility is that Cerezo might shrink from making difficult decisions orhis hand. Incenario, we would anticipate heightened activism by the private sector, labor, and political parties as the economyith an Increasedof publict ions and duturbances. The confidence of ihe military In thei ability lo preserve public order would gradually erode,oup In the first year or two of the administration would be unlikely.

eyond Ihe development of democracy and foreign policy. US interests will be principally engaged in Cuatemala on questioas of aid and human rights Cerezo will look to the United States for increased economic aid, bul we believe heealisticfor the level of assistance he can eapect duringe has not requested increased military aid. but we eapect that the military will purchase spare parts, vehicles, and perhaps communications andequipment from the United States. Cerezo will ebo seek US support In rescheduling Guatemala's external debt and reaching an agTeemen! with the IMF.o Indication that be plans ononiroota-tionaj approach to the debt Issue, but surging debt repayment requirements this year could raiseon him to follow the Peruvian example and unilaterally limit repayment We expect Cerezo to make continued progress on human rights Issues, particularly if he follows through on hb stated intent lo reorganize the national ponce and the criminal justice system He will press for US assistance In police training, and we judge thai such training would greatly contribute to raising the professionalism of the police. We do not expect the human rightsrecede in importance and visibility,)

n issue that may emerge Into greater bilateral prominence In the next year is narcotics trafficking.

ell suitedircotics transshipment point. It offers traffickers good access by land, sea, and airelatively permissive envuonment. as the security forcesery limited capability to police Guatemala'scoverage, for example, is nonexistent outside Guatemala City. Though we lack information on the extent of trafficking, we believe that the Increase in trafficking throughout Central America could leadise in transshipment through Cuatemala. There are also limited indications ofinvolvement with drug traffickers. We eipect that, if the drug problem becomes increasinglyCerezo will be cooperative with (he United States on drug enforcement matters, (tarfl

e are cautiously optimistic that Cuatemala will make progress in consolidating Its democratic institutions Inowever,time frame of this Estimate, the system will remain fragile and vulnerable to internal and external developments, suchew world recession or an inability to attract sufflcseot foreign aid- We also recognize thai one lesson of recent political history in Central America Is that, given unsettled domestic conditions and sufficient external support,can grow dramaticallyhort space of tune. Thus, although we do not expect significant adverse developments In Cuatemala over the coming year, we are not equally confident about the long-term prospects for Cuaternalao democracy. The depth of the country's economic problems, the fragility of the emerging political system, the tenacity of the Insurgent threat, and the political violence will renderof continuing concern to the United States for some time to come. [sarJv

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