Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

51. Memorandum by the Officer in Charge of Guatemalan Affairs (King)¹

Washington, March 13, 1957.

GUATEMALA

There has been a record of positive accomplishment during the past 2½ years in Guatemala. Since June 1954 the only communist-dominated government in the Hemisphere has been replaced by the pro-U.S. Castillo Armas Government with which we have close and friendly relations. We are no longer faced with the menace to our security of the existence of a communist regime in Middle America, and international communism does not now present a direct threat to Guatemala. The Castillo Armas government has, for a Latin American state, pursued relatively moderate policies and we believe that although it has had to devote a disproportionate amount of effort to dealing with the political and economic problems it inherited, it has grown in strength and stability. We consider it vital that the government be able to demonstrate to the people of Guatemala that they can have a better life under democracy than under communism, and this has been one of our major policy objectives in furnishing aid to Guatemala.

The economic picture in Guatemala is currently favorable. The currency has for many years been at par with the U.S. dollar and Guatemala enjoys a favorable balance of trade with the United States. In spite of large expenditures for economic and social development projects (highways, agrarian reform, health and sanitation, agricultural development) the internal and external debts have not increased unmanageably, and as confidence in the Castillo government has increased, so has the flow of private investment. Although over-dependence on coffee remains a basic weakness of the economy, diversification of agricultural production, establishment of new industries, mounting production of lead and zinc mines, and above all, the fact that 22 companies, mostly American, have been authorized to explore for petroleum, are optimistic signs for the future.

U.S. Aid

Since FY 1955, the United States has appropriated $36 million dollars in grant aid and $5.6 million dollars in technical assistance for Guatemala. Most of the grant or defense support aid has gone into highway construction which Guatemala needs and which has incidentally eliminated the severe unemployment existing at the time the Castillo government came to power. U.S. grant aid has also gone into rural resettlement, agricultural development, and health and sanitation. We believe that Guatemala’s present economic position, in comparison with other Latin American countries, is sufficiently good that she can do without U.S. grant aid in FY 1958. In view of this and in accordance with NSC policy, neither the Department nor ICA has asked for grant aid in the current budget. However, the Guatemalans disagree with us and have told us that they need $10 million dollars in grant aid in FY 1958.²

United States Companies

United States investment in Guatemala is currently estimated at $140 million the bulk of which is represented by the holdings of the United Fruit Company, the International Railways of Central America (United Fruit controlled), and the power producing and distributing subsidiary of the American and Foreign Power Company. Relations between the government and United Fruit are now satisfactory but relations with the power company remain a problem. Additional power generating facilities are urgently needed but the company and the government during the past 2 years have failed to reach agreement on terms for new construction although the lack of power is severely hindering expansion of industry. We have frequently urged the Guatemalan Government to reach agreement with a private enterprise group for construction of the needed additional facilities, and have also on numerous occasions suggested to American and Foreign Power that it do all it can to reach agreement with the government. Progress has, unfortunately, been impeded by the dislike of American and Foreign Power in Guatemala and the company’s poor tactics and inflexibility on a number of issues under negotiation.

British Honduras

Guatemala has an ancient though questionable claim to the colony of British Honduras. This claim has become a matter of national pride with the Guatemalans and it can be said to be probably the only issue on which they are all in agreement. We have always told the Guatemalans, who have frequently asked us to intervene on their behalf with the British, that this claim should be settled through diplomatic negotiations or by an international judicial body. In November 1956, the Department was informed that the Guatemalans were contemplating an armed invasion of British Honduras. Both here and in Guatemala we made the strongest representations to them against such a move, and we believe that our representations resulted in their abandoning, at least for the time being, any plans for armed action they may have had.

1. Source: Department of State, Guatemala Files: Lot 60 D 647, Economics. Confidential.
2. In a memorandum of March 21 to Acting Assistant Secretary Rubottom, C. Allen Stewart reported that Ambassador Cruz stated that the Government of Guatemala planned to present a request for $10 million in defense support aid for fiscal year 1958. In a letter of March 21, King informed Ambassador Sparks of the Guatemalans’ planned aid request. (Ibid., ICA–Grant Aid)