27. Memorandum of Conversations, Department of State, Washington, April 28–29, 19551
SUBJECT
- Current Situation in Guatemala and Projected Aid Program
PARTICIPANTS
- ARA—Mr. Holland, Mr. Sparks, Mr. Krieg
- AmEmbassy—Guatemala—Mr. Mann
- MID—Mr. Newbegin, Mr. Fisher
Ambassador Cruz Salazar
Mr. Mann said the Guatemalan Ambassador to Washington constituted a problem. He felt left outside of affairs, and complained of inadequate liaison with our Embassy in Guatemala. He was obviously annoyed and frustrated because the substantive relations with Guatemala were being conducted through our Embassy in Guatemala, and Mr. Mann thought that this had caused the Ambassador resentfully to poison the minds of high officials in Guatemala on occasions when he returned there on consultation. Mr. Mann suggested that Mr. Fisher should meet with Ambassador Cruz regularly to keep him as fully briefed as possible. All agreed.
Army
Mr. Mann said that Castillo Armas must keep the key colonels on his side to stay in power. The Embassy believes that he has been alienating some of them by some of his policies, such as the treatment given to Monzon.2 Castillo is now in a stalemate with the Minister of Defense, Colonel Close,3 who is probably the most outstanding military figure in the country now, and appears to be a capable and intelligent army officer. Castillo would probably have removed him before this if he had the strength. Colonel Niederheitmann, Colonel Mendoza, and other liberation figures with army background advised Castillo against firing Close now, as Close might simply move into the presidential office. Mr. Mann said that the question of handling the army was the only one in which the Embassy had not become involved. Castillo Armas evidently considered [Page 72] himself able to make decisions on this without help from outside his own inner circle.
Mr. Holland inquired whether the Army Attaché was qualified, and when informed that a replacement was due to arrive shortly, he put in a telephone call to General Trudeau, who was said to be personally acquainted with the new man. Mr. Mann said he would not advise that the Army Attaché endeavor to mold the political thinking of Guatemalan army officials. This was the most delicate possible kind of activity which could more than likely blow up in one’s face.
Conservative Groups
Castillo’s immediate political opposition is in the conservative groups, of which Juan Cordoba Cerna is a leading figure. Many members of these factions subscribe to extreme measures and openly claim they would like … to purge Guatemala of its alleged Communist population. These men … bring great pressure on Castillo.
Arbencista Elements
Mr. Mann said the Leftist and Communist groups are still dispersed, although activity is picking up. Our intelligence on this is increasingly good, as is our intelligence on the Government.
Current Political Atmosphere
Mr. Mann described Guatemala politics as an incredible maze of intrigue, fathered by ignorance, inexperience, and native suspicion. He cited the example of Clemente Marroquin Rojas’ attack on Mr. Mann for allegedly recommending his expulsion. The Embassy had learned that the story came from inside the palace, where someone was busily adding to the thick layer of lies and rumors which covered the city, and which holds up the business which has to be transacted. President Castillo trusts no one, and seems to believe the last man who has spoken to him, in many cases. Not even his own cabinet ministers can be informed of matters discussed by the President with the Embassy. A further complication is the presence of John Dougherty, who has the President’s ear. The Embassy believed he was misleading the President, … Jerry DeLarm was apparently lying low, for the time being, at least. His was strictly a problem of money.…
Pacific Slope Highway
Mr. Mann said that Guatemala was unable to meet its commitment under the February agreement to contribute $1,500,000 to the Pacific Slope Highway. He recommended that we consider amending the agreement to make it realistic. All agreed.
[Page 73]Economic Developments.
Mr. Mann said there were a number of encouraging signs. A workable oil law was nearly finished. The Texas Gulf Sulphur Company was among the U.S. firms interested in prospecting for minerals. The United Fruit Company may still invest considerable sums to salvage its Bananera properties without waiting for settlement of the anti-trust suit. Mr. Mann felt the Company should amend its North Coast operating contract within the next few months, before conditions develop which may make it more difficult for the Company. The Empresa Electrica is working up to a $22,000,000 investment, probably financed by Eximbank, for power expansion. However, the Company is acting badly and has not won the confidence and respect of the Guatemalans. The Minister of Public Works4 is decidedly hostile to the Company, as are many of the ministry officials.
Level of Aid
Under Arbenz, the Government ran up an internal debt of almost $50,000,000, spending was free and easy, and trade was fairly brisk. In contrast, under Castillo Armas, who not only has no $50,000,000 to spend, but must begin to pay it back, commercial activity has gone into a slump and private capital has not regained confidence. Arbenz benefited from the highest coffee prices, while under Castillo Armas a serious drop in the market has resulted in unexpected budget retrenchment. In his last year, Arbenz had $90,000,000 available to spend. Even with U.S. aid, Castillo Armas had only $84,000,000, and prospects for the coming fiscal year are even more dim. To keep up the level of activity, additional funds must be pumped into the internal economy. International reserves have gone down $3.4 million, comparing the peak month of March. The IMF has recently concluded that this is about the maximum safe level, which means they should not be drawn upon.5 It is impracticable to expect the present Government to float further internal bond issues, in view of the existing heavy debt and lack of confidence.
The IBRD already has a loan program in sight which exceeds $20,000,000. This includes money to cover the dollar costs of the Atlantic and Pacific Coast Highways, INFOP, Agriculture Operations, and miscellaneous loans. If we add $22,000,000 for expansion of electric power facilities and miscellaneous small loans, it is safe to [Page 74] say that a level of $50,000,000 is in sight, which, added to the internal debt gives a total of $100,000,000. This would be a drain of some $10,000,000 a year on the budget for debt service, or about 14 percent of the budget, a high proportion by any standard. Borrowing for the Inter-American Highway would therefore automatically reduce the scope of the planned economic development program.
Equally important, Mr. Mann stated, is the psychological effect, not only in terms of creating confidence and economic stability by refraining from borrowing too much, too fast, but as a measure of our willingness to support the regime until it can stand on its own feet. Another important factor is the traditional hard money policy of Guatemala which is based on a practice of no foreign debt.
The Embassy’s recommendation is for grant aid for the following proposed (tentative) projects:
| Atlantic Highway | $5,000,000 |
| Pacific Slope Highway | 3,000,000 |
| Highway Maintenance | 4,000,000 |
| Rural Resettlement | 1,500,000 |
| Roosevelt Hospital | 500,000 |
| Total: | $14,000,000 |
Mr. Mann said this program would permit Guatemala to pay its own share of the Inter-American Highway next fiscal year, as it had $4,800,000 budgeted for highway maintenance, part of which could be diverted if our grant program were carried out.
Mr. Holland pointed out that the only question was whether the $4,000,000 of the total grant-loan program was to be in the form of an Eximbank loan or an FOA grant. He requested justification for making it a grant.
Mr. Mann said that considering the present debt level and the low state of public confidence in Castillo, to require that the Government borrow the $4,000,000 for the Inter-American Highway rather than receive budgetary relief through a grant, would cause an adverse psychological and political reaction in the country of sufficient seriousness to make it inadvisable that we take the risk.
Mr. Mann said that under present conditions we must avoid measures which would weaken Castillo Armas. He thought that requiring Guatemala to borrow the $4 million now would, in fact, weaken him. Furthermore, Mr. Mann said, an adequate grant ($14 million) at this time would strengthen our bargaining position in Guatemala, which could prove to be an important consideration. Mr. Mann said this was the Embassy’s conclusion after a detailed examination of all the factors in a situation which obviously did not lend itself to mathematically precise determinations.
[Page 75]Mr. Holland said that his own guess from this distance would be that the effect of borrowing the $4,000,000 for the Inter-American Highway would be favorable rather than the contrary. However, he intended to be guided by the views of the capable men we had on the spot and accepted without reservation the recommendation for expanding grant aid from $5,000,000 to $14,000,000.
Mr. Holland telephoned Mr. Nolting, who recommended that in the Congressional hearings next week, Mr. Holland take the opportunity to support an increase in grant aid for Guatemala from $5,000,000 to $14,000,000. It was hoped that if a committee member raised the question of adequacy of aid to Guatemala, Mr. Holland’s testimony might result in the bill’s emerging from the Congress with the latter figure incorporated in it, which would make it unnecessary to compete for the share of the possible contingency fund. Mr. Holland directed that a memorandum to the Secretary be prepared to establish the Department’s position along the foregoing lines.6
- Source: Department of State, Central Files, 714.00/4–2955. Secret. Drafted by Fisher, Officer in Charge of Guatemalan Affairs.↩
- Colonel Elfego Hernan Monzon Aguirre was a member of the Junta of Government which assumed control of Guatemala following the resignation of President Arbenz in 1954.↩
- Lieutenant Colonel Enrique Close de León.↩
- Juan Luis Lizarralde, Minister of Communications and Public Works.↩
- The words “borrowed on” were deleted from the source text at this point and replaced with “drawn upon.”↩
- In a memorandum of May 3, Holland recommended to Dulles that he authorize the Department of State to support an increase from $5 million to $14 million in fiscal year 1956 grant aid to Guatemala in Congressional consideration of Mutual Security legislation. (Department of State, Central Files, 714.5–MSP/5–355)↩