APPRAISAL OF CENTRAL AMERICAN REPUBLICS

Created: 7/2/1968

OCR scan of the original document, errors are possible

Intelligence Report

Appraisal of Central American Republics

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APPRAISAL OF CENTRAL AMERICAN REPUBLICS

TABLE OF CONTENTS

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Introduction

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Central Anarican Cooperation

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CENTRAL INTELLIGENCE AGENCY

Directorate of8

INTELLIGENCE REPORT

APPRAISAL OF CENTRAL AMERICAN REPUBLICS

Introduction

The five republics of Central America novo an areaopulation about equal to those of Although ancient civilizations thrived there and contacts with Western culture arealf centuries old. Central America is one of the least developed areas in the world. Its inhabitants, aof Indian, European, African, and Asian, generally have poor health and little education. They oreretarded and culturally backward, buffeted by forces from the outside they seldom comprehend. Their economy is still largely colonial or The frailty of government institutions and the depravity of political practices have given several of these states the contemptuous name of "banana republic."

Recent trends in Central America point to great improvements in living standards and moreconsciousness. Education is doing much to acquaint the ruling classes with the forces that are dominating the world. The middle sectors arein power and ambition; even some of therural masses are being Westernized. Although the traditional landed aristocracy and moneyedare still conspicuous and ultimately direct the republics, they are on the defensive.

Note; This report was produced solely by CIA. It was prepared by the Office of Current Intelligence andwith the Office of Eaonomic Research, the Biographic Register of the Central Reference Service, the Office of National Estimates, and the Clandestine Services.

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One of the most interesting features of recent Central American history has boon tho groping for The first attempt at unification began shortly after independence1 when theof Central America was formed. owever, the confederation had broken up as each country sought its independence. he republics vowed not to interfere in each others affairs, to scorn rulers who came into power by violence, and to establish an international court of justice, which actuallyuncertainly This commendablesoonrash pile of broken promises and unratified conventions, but3 the republics again pledged their attachment to it. Littlecould be recorded thereafter; yetf the various states gathered in BIto reiterate their desire to strengthen ties, avoid conflict, and solve their common problems. Talkustoms union, standardized law codes, highways,niversity of Central America aroused hopes.S the five countries established anof Central American States (ODECA) within the framework of the Organization of American States and the United Nations. ODECA is responsible forhealth, education, and political cooperation. In1 the Central American Common Market (CACM) came into force, itystem for uniting andthe economies of the member states. Panama isember of CACM but does attend most meetings as an observer andember of several noneconomic ODECA organizations. Mexico isember of either CACM or ODECA.

The followingurrent appraisal of the political and economic situation in each of the five republicshort personality sketch of each of the presidents and their wives. Also includedrief description of the Central American Common

Market.

Joao Joaquin Trejos,our-year term in Februarythe opposition's control of the legislature

a bar to significant progress. Bis election followed the regular postwar pattern in Costa Rica whereby the presidency has changed hands between the country's single largest party, the National Liberation Party (PLN) founded by Joso "Pepo" Figueres, and other groups, which in this instance backed Trejos. the present political stalemate, advancefor0 elections, and the urgency of economic and social problems, Costa Ricatability unique in Central America as theeal commitment to political democracy and social advancement.

politicallyormer mathematics professor,further handicapped by the shakiness ofthat electedmarriage ofthe parties of two formerand Olate. Calderon has already giventhat he wishes to run for another term,

and Ulate has moved Lo loosen his ties with the Trejos government.

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PLN, while obstructingits own problems. Its defeatitterness. Differences betweenother veteran party leaders on the onetho younger politicians on the other, havethe approach of the next elections. already publicized his desire forand has the reluctant support ofparty faithful. Others will almostthis bid. Figueres' seriousproblems may lead him toin return for financial support. for political support,v

has alfeadV led him

eal with the small1Communist Party, whethe;

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or not this happens, Pigueres1 opponents areto saddle him with charges of being soft on Communism, and will certainly do so again.

Economic

4. Costa Rica's economy is growing rapidly. In67 its growth rate of over eight percent ranked second for all of Latin America* Land and income are more broadlythan in neighboring states, resulting in the presencetrong middle class. Social services are well developed.

5* The country faces many threats to its prosperity, however* The economy contlnuos heavily dependent on two products, coffoe and bananas, which account for two thirds of all Fluctuating prices of those two commodities(ising level of imports, have caused severe balance of paymentse facto partial devaluation was put into effect7 and IMF aid was obtained, but the country's foreign reserve status remains fragile. In addition, the failure of tax revenues to keep up with mountingon social benefits have brought continuedpressures. In response to pressure from the IMP and members of the Central Amorican Common Market, tho government is trying to speed tax collections and sell bonds to meet its most urgent needs. All services are under acute strain from the population growth rate ofer-cent"one of the world's highest*

6. Despite Trejoa' announced intention totraditionally paternalistic economic policy and to emphasize the privata sector in making economic progress, the political stalemate hasfor few program changes. Import dutiesto account for over half of the government's total revenue. Tax rates are the same forand corporations. Tax incentives for new industry have cost the government substantialand the industries attracted so far have not produced much in the way of export earnings.

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Pica's principal foreignare those of the International Coffeeand the Central American Common Market. Communist countries ispercent of totalthethese markets when coffee surpluses are

on hand.

international Relations

Costa Rica's normally excellent relations with the United States were enhanced by President Trejos' visit to Washington in earlyome government leaders may nevertheless remain suspicious that the US prefers the opposition PLN and its internationally known leader, Piguores. Although endorsing the idea of regional economic integration only reluctantly and tardily, Costa Rica has been in the forefront in signing the various Central American Common Market protocols. Relations with Nicaragua, which usually encounter difficulties when the PLN is in power because of old animosities between that party and the Somoza family, have been good under Trejos. Costa Rica has long been an ardent supporter of the OAS, whichcted to halt exile invasions from Nicaragua. Costa Ricaontingent to the Inter-American Peace Force in the Dominican Republic

Of the Communist countries, onlyand Poland have commercial missions in San Jose, and the Polish ambassador resident in Mexico handles diplomatic relations for both nations. Costa Rica occasionally receives trade missions from other Communist countries, but negotiations rarely go past the exploratory stage.

principal subversive group isParty, which is illegal but operatesthe name of the Popular Vanguard PartySoviet-aligned, nonviolent party hasmembers. It is now trying to organize a

Subversion

new front party, called the Workera. Peasants, and Intellectuals Bloc, which it hopes to register for participation in0 legislative elections. Although tho PVP has eschewed violenceactic, at leastarty members have received guerrilla training in Cuba, and four have received sabotage and paramilitary training in the USSR. The PVP is currently having difficulty inuban-oriented breakaway party called the Authentic Revolutionary Party. This group of extremists lias been growing slowly but steadily, and has afor subversion. In addition, Marcial Aguilus' small Socialist Action Party is pro-Castro and revolutionary.

are also four privatewhose loyalty to the government istimesispute election. Security Group has an estimated strengthmen, which is balanced by theof three rightist units that oweindividuals rather than to anyRica Movement, h of November Group,

orce behind Deputy Frank Marshall.

ignificant number ofNicaraguan exiles, some of themin Costa Rica. Like other Centralleftists, they have received smallmoney, materiel, and logistic support frombut their efforts are pointed toward Nicaragua.

Public Forces

Rica has no regular armedfor maintenance of law and orderin forces organized under fourof the government. Host important,only one with any military capability, isCivil Guard under the Ministry of The rapid population growth andcrime has pressed the Civil Guard to itsto perform routine police duties. 6 elections, however, the guardprevented large demonstrationsout of hand, Tho BOO-man Treasury Polico

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Force is responsible for controlling contraband and countering subversive activities, and outside the national and provincial capitals the town and village police maintain order. arge turnover of personnel in all the forces normally occurseach national election. The CSAID-supported public safety program is trying to helpruly professional police force.

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EL SALVADOR

Political

President Fidel Sanchez Hernandez, who was inauguratedive-year termas continued the pattern set by his predecessor and mentor, Julio A. Rivera, in stimulatingdemocratic growth in El Salvador. Sanchez and Rivera, both military men, have encouraged civilian participation in government.

A moderate, president Sanchez retains the military backing that is essential for political stability. His political strength, however, has been eroded by the reformist Christian Democratic Party (PDC). Sanchez1 military-led, seven-year-old National Conciliation Party (PCN) fell shortajority of the popular vote for the first time in tho8 congressional and munioipal elections. The PCN obtainedercent of the vote in the notably free and open contest, comparedor tho PDC. The government majority inseat unicameral legislature was reduced by four seats and the Christian Democrats now holdeats toor the government. PDC gains at thelevel-were alsot swept seven

ofepartment (state) aapitals and the three largest cities, retaining control of the capital, San Salvador.

Some hard-liners in the military would probably prefer some form of repression against tho PDC rather thanossible victory by that party in any upcoming elections. So far, Sanchez and other soft-liners have prevailed in insisting on free elections. The powerful conservative oligarchy is almost uniformly hostile to the PDC.

in its first year, the Sanchez regime was hamperedhortage offunds had been largely spent prior to his inauguration lastby preoccupation with the elections that took place in March of this year.

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ocal commitment to reform/ his regime has proceeded cautiously, in part because ofby conservatives of the elite oligarchy.

government probably will findcaught between mounting reformand entrenched conservative interests,oppose needed tightening of taxaddition, military support could wane iffails to respond adequately to thedesire to modernize with new The army, since its inepta border clash with Honduras inbeen acutely conscious of its tarnished imago.

Economic

growth,purt, has leveled off somewhat. growth7 was about four percent,an average of nearly seven percentercentercent Projected credit inflows and improvedwhich may be likely after two years ofcombined with prudent governmentallow the economy to regain momentuma growth rate in the neighborhood The balance of payments should

be achieved without severe pressure on foreign.

The slowdown after5 was partly aof lowor prices forcountry's principalreduction in cotton production, and declining public investment. El Salvador's coffee problems are complicated by its quota under the International Coffee Agreement (ICA) which covers only about three quarters of the country's production. equest to ICA for an increase in the Salvadoran quota is still pending.

El Salvador's economic problems areby its highopulation growth rateercent and the consequent population

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problem. The country le already tho moat densely populated continental country in the Western Hemisphere, withersons per square mile. There is little land remaining to be put into agricultural production. The present unevenof income will probably become even more pronounced if the population growth rate continues unchecked. Demographers of the Unitod Nations estimated5 that the population couldbyercent Because of thesocial implicationsirth control program, however, the government has so far failed to place its full supportamily planning program.

International Eolations

Salvador's principal Internationalstoma from tho border dispute with Border skirmishes in Mayn aboutalvadorans being capturedand several Hondurans being taken by Most of the prisoners aru still Progressolution to theborder problem has been complicated by Ellegalistic approach. Rumors ofsomowhat increased tensions in June,aide is likely intentionally to provoke

Salvador has generallywith other Contral American countries. past year, thero have been occasionalNicaragua and mutual allegations ofterritorial watere, but defense ministersmet to settle the problem. SItradition leans toward Centraland it supports strengtheningAmerican Common Market (CACM). uno, the minister of economy glorifiedand prosssd for approval of tha pendingtariff surcharge on imports into theso-called San Jose protocol, tloAmerica's problems to those in tho US. He

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requested fewer foreign trips to stop the money drain and likened the prospective surcharge in response to balance of payments difficulties to the US surtaximilar balance of payments problem,

11. si Salvador maintains no diplomaticwith any Communist country. The USSR was recognizedut relations were never established.

Subversion

The small, illegal Communist Party of El Salvador (PCES) hasctiveand anympathizers. The PCES was founded5 andloody uprising2 that was brutally suppressed by then-dictator General Hernandez Martinez. Party leaders realize that they cannot gain power by legal means, and theyro-Moscow "peaceful coexistence" line as the only feasible possibility in El Salvador today. Party members fear repression by the rabidly anti-Communist National Guard commander. Colonel Kedrano, and this has curtailed party activities. There is no active insurgency.

The Communists operate most successfully through their domination of one of the principal national labor organizations, FUSS, composedeterogeneous collection of unions. The FUSS is capable of creating disturbances but cannot, by itself, threaten the country's stability.

Although there are occasional reports of funds being sent from Cuba or the USSR, it appears that there has boon no significant foreign funding of the movement in recent years.

Security Forces

public security forcesan National GuardanPolice. They are capable of copingthreats to internal security. Lack ofincluding transport, would severely limit

their capability to cope with sustained disorder,

however, especially if commotion spread outside the capital.

16. The public security forces are backedan army that is considered weak even by Central American standards and could probably offer little resistanceodern force of equivalent size. They sufferariety of ills including excessive turnover of enlistedimited and heterogeneous collection of equipment andand ineffective leadership. Theirto conduct sustained combat operations is low.

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GUATEMALA

Political

Onuatemalan politics changed radically. President Julio Cesar Mendez Montenegro relieved three key military men of their posts, and gaveresident in fact, as well as in name, for the first time in five years. Guatemalans of all political shades have interpreted Mendez1 assertion of authority as an attempt to end the armed forces' constriction on civilian rule*

At Mendez' formal inaugurationhe military caretaker government transferred little power to the elected government, and retained its free hand in anti-Communist counterinsurgency Although the army "counterinsurgent" program was effective in reducing insurgency,ear the program had degenerated intoith both sides equally guilty of indiscriminate acts of violence; anersons lost their lives. Coirmand changes in the armed forces have been extensive but reaction from the military so far has been mild. Some officers, especially those who have been transferred, are unhappy and thereew rash of coup rumors. Some military officers believe that the government is reducing pressure on the Communists and that the President must bo removed. Plotting is endemic in Guatemala, however, and these conspirators are not believed to have sufficient supportove at this time. tensions have decreased since the military shifts took place and the five-month-old state of alert was allowed to lapse onune*

Xcononics

3* Living conditions for most Guatemalans have improved little during the postwar period. Bothand consumption, however, increased at an average annual rate of more than six percent3 toecauseharp expansion in earnings fromexports (coffee, cotton, and bananas) and new

industrial investment Induced by the formation of the Central American Common Market.

Economic performance under President Mendez has been weak, however, partly because of export in addition to the impact of restrictive credit policies taken to redress the balance of payments, private investment7 suffered from the depressive effects of political uncertainty, and public investment was adversely affected by the President's preoccupation with insurgency. Gross National Product (in constant prices) grewercent, or about the same as population,

A property tax development program recently was passed by the congress as were several other tax measures, including changes in the income tax "venue from these taxes will ba smallwith the country's vast needs but theytep in the right direction. In addition, anforward-looking Civil Service Act was recently enacted. There has also been growing optimism within the business community in the past several months.

The new ministers of economy and finance have begun actively to court business. The government is nearing an agreement with the International Nickel Companyining venture in the Lake Izabal area ofGuatemala. This project is expected eventually to infuse several hundred million dollars into theanticipated moderate recovery in exports should help to push economic growth to four to five percent8 as well as improve the balance of They will not significantly affect thehowever, of the country's poor people.

6. Basic to the economy's lack of dynamism are the deep-rooted conditions of inadequate skilledextensive underemployment, illiteracy, andand economic immobility. With half theoutside the money economy in subsistence agriculture, and the bulk of the other nan in only slightly better conditions as rural

rii*nis little impetus from within the economy to stimulate rapid and sustained growth.

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International Relations

foreign policy reflectsclose relations with neighboringrepublics, economic ties with theand anti^Conuniinist attitude. TheBritain over the future of Britishremains stalemated. After two and aof negotiation, the US mediator turned overtreaty to the disputants in mid-Apriltreaty would have converted the colony intostate of Belize and committed it towith Guatemala in the fields of defense,affairs, and economics. British Hondurasthe proposals as infringing on it* futureand the UK followed by stating that itguided by sentiment in the colony. Thehave long claimed the territory, have triedout the negotiations, perhaps Interminably,work for an immediate solution* The Mendezbelieves that it cannot accept thewithout opening itself toof capitulation to foreign pressure, also seeks an outlet from its northernBritish Honduras to the Caribbean Sea. Inxany Guatemalans fear that the virtuallycoastal region might someday be used asfoothold. Independence for the colonyand the UK may be willing to make agesture to Guatemala to make the move

has been friendly andthe United States in both the OAS and theconsistent support of the West onis expected to continue, Guatemala hasleader of the movement toward Central Americanand is the first Central Americanhave ratified all agreements on economic Guatemala has no diplomatic relationscountries, but commercial ones may bein an effort to alleviate the large

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Subversion

9. In tha recent past Guatemala has been faced with threats from the right as well as the left. Right-wing organizations that had existed sinceinauguration in6 seem to be underat least temporarily. Several of these groups were amy-sponsored but have apparently been disbanded since the military command shifts took place in late March. The right-wing National Liberation Movement may still have an organized paramilitary group but it has not been active recently. The main subversive threat comes from the Communist Guatemalan Labor Party (PGT) and their former paramilitary arm, the Communist Rebel Armed Forces (FAR).

10, In mid-January two US Military Assistance Group officers in Guatemala City ware assassinated by tho FAR. At about the sane time the PGT and the FAR split because PGT Leaders did not want to push violence. Since the split, theeen relatively quiet as they conductsat up support networks to replace those that were destroyed laat year, and prepare generally toguerrilla warfare. Four bombs that exploded in Guatemala City in June apparently ware placedAR training exercise. The explosionsune created panic among security forces and sethooting spree between police and army troops which accidentally killed two police officials and wounded three others.

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guerrilla activity may be renewed very soon. mall group within the FAR was dissatisfied becauseack of activity against the government and wasto begin action on ita own. To appeaso these dissidents, FAR leader Yon Sosa agreed to renew Current targets are high-ranking military officers end rightist politicians. FAR guerrilla groups have again been noted active in northeasterntraditional guerrillathe past month,uerrilla patrol was ambushed by the army in mid-May. Four of the Mix guerrillas killed were said to be Important FAR leaders. Recentindicates that there has been an increase in

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12. Tha PGT has raportedlyew paramili-tary aro. The new group will be identified by the sane initials (FAR) as Yon Sosa's guerrillas. Thestrength, and source of funding has not yet been determined. The illegal PGT hasembersympathizers. Although the party has bean subjected to continual damage by effective government raids, it maintains itself through its well-trained leadership and its hard core of disciplined members who have in the past been able to reorganize and resume activities.

Security Forces

man armed forces haveerious blow to the Communists in the past year. If the Communists mount an effective, widespread campaign, however, tha military could have difficulty handling the situation. Under these circumstances, they might act against the Mendez government and establish aregime.

The new commanders who replaced those shifted in March are unknown factors. Many are not as capable or aggressive as those they replaced. Youngerare reported to ba unhappy with Mendez' decision to ban the government-sponsored clandestine counter-terrorism and to rely solely on overt military insurgency. They regard Defense Minister Chinchilla aa weak.

Since the government's reduction of extralegal activity against the guerrillas,an civilian counterterrorists in Zacapa have not been active and the government would like to disarm them. Thesecouldotential threat to Mendez if he tries to disband them.

HONDURAS

Political

President Oswaldo Lopez Arellano came to powerilitary coup that he led e was "elected"presidentix-year term byominated Constituent Assembly. Since Lopez took officeis government can boast ofeasure of stability, financial soundnees, soms orderly economicand the beginningrofessional civil service system. Corruption is rampant, but it is neither new nor unexpected in Honduras.

The country's political tempo stepped up briefly prior to and immediately following the municipal elections of TheLiberal Party, the country's traditional majority party, lost heavilyontest that was characterized by widespread fraud and repression engineered by Lopez' right-hand man, Minister of the Presidency Ricardo Zuniga. Liberal leaders tried unsuccessfully toountrywide protest to force the President to annul theions and fireEunlga. The Liberalsitnaraw tram the few government positions thoy held, and to order their municipal winners to refrain from accepting their posts. Only two of theiberal deputies followed party orders and withdrew from the unicameralhowever, and most of the municipal posts were finally accepted by those Liberals elected to them.

Events of the last few months have again pointed up the fact that the Liberals have little ability to influence the government, and President Lopes can no longer maintain the fiction that he

isregime of conciliation." The Liberal leadnra' inability to maintain party discipline, moreover, has weakened them and has dimmediable two-party system. Zuniga's removal would do much for the prestige of tha

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President, who has always claimed to be apolitical, as well as prove that Lopez is serious about uniting the country. He is not likely to take such action,faU9f!is dependence on Zuniga. Zuniga'sfc?eParty machine and hislections will help him to achieve hisitLopez in the presidency.

Economic

4. Although it is making gradual progress, the Honduran economy is one of the most backward in Latin America, and in recent years has beenumber of critical developments. The moderately high rate of economic growth56 (about six percent) trailed off7ercent, just slightly higher than the country's rate of population growth. This slowdown wasecline in major exports of bananas and coffee, and the insufficiency of government There is widespread confidence that thesituation will improve The optimism is based on indications that public investment in road building will be significantly accelerated and that increased banana and coffee exports willise in over-all exports of betweenndercent. Despite increased oxports, the current accountsof payments deficit, nevertheless, should rise because of increased capital goods Imports. The GNP growth rate8 is estimated at almost sixin real terms orercent per capita. Prices should rise about two percent.

Only slight progress has been made on the basic economic problems. Communications and powor resources, although recently improved, are still among the least adequate in Latin America. whichivelihood for aboutercent of tha population, suffers from antiquated techniques and inadequate credit, marketing,and transportation facilities.

Hondurasember of the CentralCommon Market, but it will derive only limited benefits from the Market until it is able to compete

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better with its more industrialized neighbors. trade with the Communist countries isand the government is not making any effort to expand the commerce.

International Relations

7. Two long-standing foreign disputes flare-up periodically. One is with the United states over the sovereignty of the Swan Islands in the Caribbean and the other over an undemarcated border with El Salvador. Sinceorder tensions have risen periodically, especially during the last month, but no conflict is expected. Both countries hava been slow to suggest means to resolve the dispute and persons taken oaptive in the dispute still remain captive. Some face-saving solution will probably be worked out, however.

Subversion

8. The small Honduran Communist Party, withembers0 sympathizers, is split into two factions and is not very effective. Party leaders fear government repression and are careful to keep themselves and the party out of the limelight. Several guerrilla organizations, which were active shortly after Lopez took officeave since been disbanded. Overondurans have received guerrilla training in Cuba, and the Conraunist Party receives limited travel funds from Havana. Guatemalan guerrillas operating inGuatemala have crossed into Honduras whenrefuge. Last year, Honduran military patrols clashed with guerrillasew occasions.

Security Forces

9. The Honduran Army numbersen, the air force, and the Special Security corps (police), scattered throughout the country. The army maintains two OS-trained and equipped battalions in or near the capital, but the bulk of its forces are widely dispersed. The air force isin the Tegucigalpa area. The armed forces are

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capable of coping with any internal Communist threat but would be hard pressed to cope with well-organized, widespread subversive activity, orevolution receiving substantial outside support. The Honduran Army has recently shown that it can defend the country's borders. Inhe military reacted to theborder threategree of rapidity and competence that surprised most observers.

10. In the past few months. President Lopez has been recruiting andan "presidential guard" to be under his personal command. There are some indications that he is creating this force in order to stay in power after his term expires

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NICARAGUA

Political

President Anastasio Somoza, inaugurated7ive year term- continuesyear Somoza family tradition of providingstability imposed through the rulingLiberal Party (PLN) and the National Guard. Somoza follows both his father, who was assassinatednd His brother, who diedo the presidency*

The7 presidential election and preceding campaign were marked by fairlyirregularities. Voter lists were inflated and the opposition touched off pre-election rioting in7 which left someeople dead. Genoral Somoza and the PLN obtainedercent of the vote, but part of the total was undoubtedly due to tampering with the electoral machinery* Somoza probably would haveair election, but his victory margin would have been narrower.

3* Latent bitterness over continued somoza rule, reinforced by the president's sometimes heavy-handed manner,otentially divisive political factor. If President Somoza moves to extend his term beyond the constitutional limit, he could stir opposition from within his own party. Anti-Soraozaism is also the rallying cry for opposition political elements, especially for the TraditionalistParty (PCT)* The conduct and result of7 election reinforced the belief of opposition leaders that they cannot come to political power bymeans*

4. President Somoza exercises direct control over the National Guard, the country's only armed force* In his year in the presidency, Somoza has proven to be capable, if sometimes tactless* The country's vested interest groups, despite latentprobably prefer the stability of the Somozas to any available alternative. Somoza's death.

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by assassination or natural causes, might give rise to temporary unrest. The National Guard and the ruling political factions, howovor, woulduniteingle individual inemporary replacenent.

Economic

five years of rapid economicavrraged eight percent annually, thefaltered6hen theproduct (GNP)ercentpercent respectively. In per capita terns,has virtually stagnated of agricultural exports because oflargely responsible for the slowedwhich accounts for approximately one half

of all exports, and coffee, have been affected,by insect infestation and other causes ofproduction costs. Higher world market prices for cottonarge coffee crop should moderately improve the country's recently poor balance ofperformance. GNP, however, probably willonly at about the same rate8 as

rising trade deficit withof the Central American Common Marketprompted the government tooreattitude in negotiations with other CACM The government recently indicated thefall apart if the San Jose protocol,surcharge proposal and presently underby the individual country legislatures, is The government is trying to maintainprice level and is counting on increasedinto revive growth rates.

International Relations

7* Nicaragua's international relations are characterizedtaunch anti-Communistf pro-US stance. The government supplied troops to the Dominican peace-keeping force Its offer earlier this year tomall contingent for duty in Vietnam underscores its position.

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6. Although the Somozas have in the past been accused of meddling in the affairs of neighboring countries, relations with the Central Americanhave been generally good for the last few years. President Somoza would undoubtedly like to be looked upon as the leader of the Central American bloc. The only Communist country with which Nicaragua maintains diplomatic relations is Poland. The Polish ambaHsador to Nicaragua, however, resides in Mexico where he is also accredited, and has not visitedsince presenting his credentials over four years ago.

Subversion

potential for subversion andvery limited at the present tiroo andthe opposition Tradlonalist Conservativeand the very small pro-Castro guerrillathe Sandinist National Liberation frontPCT has shown itself capable of inciting The pre-election disorders of Januarytookives, were planned by PCTsame leaders still control the party, butactivities are directed toward internal

party conflict.

The PSLN is dedicated to the establishmentastro-stylo type of government in Nicaragua. It has received some financial support, training and guidance from Cuba. However, the FSLNevere setback late last summer in guerrillawith the National Guard. An ensuing PSLN urban campaign was also easily defeated. Thelost abouten, including some top loaders. Its ranks, probably not more thanen at tho time, were thinned both by its losooa and its resulting loss of attractiveness forstudents.

The Communist party is weak and divided and its total membership is no moreersons. The party itself is illegal and itsfront organization, the Republican(MR) is now defunct. The party has officially

split into groups of hard-liners and soft-liners which further undermines its effectiveness. Both factions, however, claim to represent theMoscow party andenerallylino.

Security Forces

12. an National Guard is the nation's only armed force, performing bothand police functions. The Guardairly effective force, by Central American standards, and is capable of maintaining internal security, barring substantial external supportomestic Nearly half of the Guard strength and tbe bulk of the two tactical battalions are stationed in Managua. The Somoza family has effectivelythe Guard for over three decades. President Somoza presently exercises direct supervision over the Guard and his half-brother commands theGuard, one of the two tactical units. Guard loyalty has been ensured by the benefits accorded its members, although there have been rumblings of discontent over the9 retirement of the first Nicaraguan military class.

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CENTRAL AMERICAN COOPERATION

for Central Americanback to the time of Independence fromCentral American nations originally formedconfederationut theapart in the. Later efforts The persistence of the intogratlonistillustrated, however, by the SI Salvadoranwhich authorizes the executive to join a

confederation without legislative approval ifovement develops.

most important regionalare the Organization of Central Americanestablishednd the CentralMarketstablished Salvador, Guatemala, Honduras, and Costa Ricaof both organizations. Panamaembernon-economic ODECA organizations, but is not

a member of the CACM. Thereumber of other regional bodies,egional defenss hich facilitates the flow ofsecurity information among the capitals and which this yearoint military maneuver. organs of ODECA suchegislative Councilentral Amorican Court of Justice have also been established, but have done little. The emphasis in the integration movement, however, is on the aspects of cooperation; integration probably will succeed or falter with the CACM.

was established under favorablecircumstances. Per capita CNP for thehad practically stagnated8 torose on the averageercent This growth was stimulated as muchexport earnings as by increased Investmentarising from the establishment of aexternal tariff and the abolition of almosttariffs. owever, tho CACMexperiencedercent fallexport earnings, and regionaldropped to about the same rate as population

expansion. Poorer agricultural export earningsof bad weather and falling prices contributed to the decline. The7 economic performances will probably continueear or so,to balance of payments pressures for all members.

The most immediate problem of the CACMon the San Jose Protocol which calls0 percent tariff surcharge on trade with non-CACM members. Nicaraguan President Somoza. among others, has pushed hard for this measureof his country's balance of payments and fiscal problems. His economy miniatar reputedly has said that Nicaragua might break up the market if theis not approved by the Individual country some of the countries, however, face greater internal problems, in part because of the Somoza "threat" in securing legislative ratification of tho additional tax measure before any one country canthe change. Initial raports indicate that Nicaragua, contrary to rules of the protocal, hasinstituted the surcharge. ove could be counterproductive, and if other countries fail to ratify, it would severely strain the Common Market bond.

The next few years willevere teat for the integration movement. Nationalistic andInterests, including the critical need of each government to improve ita fiscal performance, will hampet integration. Another obstacle is theevident fact that tha market area is simply too small toontinuing stimulus to new This problem can probably be resolved only within the context of the Latin American integration movement. Other obstacles to integration are thedeficiencies of the principal regional organizations and the competitive rather thannature of the economies of the Central American countries;.

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