467. Information Memorandum From the Assistant Secretary of State for Inter-American Affairs (Oliver) to Secretary of State Rusk 1

SUBJECT

  • Uruguayan Situation Report

The economic-political crisis in Uruguay is deepening. The situation might be described as a “crisis of confidence” which has affected members of the government, the two main political parties and the people. The crisis arises principally from the inability of the government to grapple effectively with the serious economic-financial situation confronting the country; spiraling inflation, budget imbalance, balance of payments problems, and the added burden of repairing the serious damage to the economy caused by inclement weather of the last six months. These problems in turn have given rise to social problems; i.e., strikes, work slowdowns, and communist agitation.

The ineffectiveness of the government is due to the indecisive nature of President Gestido’s leadership. Despite the hopes of Uruguayans and the USG, Gestido has been unable to rise above “politics as usual”, and not being very clever politically, he has managed to alienate the largest part of his own Colorado Party. The political crisis of June 1967 illustrates this situation: Gestido’s reaction to an attack on his managing of the economic situation by the leader of the largest faction of the Colorado Party was to exclude that faction from his government, form a new government representing only a minority (one-third) of the Party and completely reverse his administration’s economic policy from one seeking an IMF-type solution to one of rigid controls.

We, however, share the Country Team’s doubts that a coup will be attempted in the short term. Gestido still has several options open to him both on political and economic fronts. Politically, he could broaden the base of his administration by coming to agreement with the leaders of other factions of the Colorado Party or alternatively he could form a coalition government with selected factions of the opposition Blanco Party. The Embassy continues to urge the administration to adopt a sound stabilization and economic growth as a basis for US and IMF support. If Gestido could bring himself to heed this advice, which he receives not only from us but from the majority of the members [Page 985]of his own political party, he could perhaps restore confidence in himself and his government.

Foreign Minister Luisi, Ambassador Yriart, other high Uruguayan officials, and we expected the present crisis when Gestido decided against a sound economic program and opted for controls and other economic measures that have previously been so ineffective. At the moment we see no other course open to us but to await sound Uruguayan policies which we can support. We have rejected the alternative of supplying US dollars to support an unrealistic exchange rate and inadequate economic policies.

  1. Source: National Archives and Records Administration, RG 59, ARA Files, 1967–1969: Lot 72 D 33, Uruguay. Confidential. Drafted by Sayre and Sanders. A notation on the memorandum indicates Rusk saw it.