165. Telegram 374 From the Embassy in Guatemala to the Department of State1

374. Subject: Guatemala at Year End—Assessment and Prognostication. Ref: Guatemala 109, Jan 1972.

Summary: The Arana regime after 2½ years in office is fully in control and likely to remain so throughout coming year. Past year was one of improved stability and security, a return to legitimate political activity, healthy economic growth, and reasonable progress in economic development. We see 1973 as year of increased political activity building up to March 1, 1974 general elections, good economic performance and accelerated action on economic development front. However, we do not think that in a year just prior to elections Arana government will risk alienating its supporters by pushing for badly needed social reforms. Biggest imponderable is whether opposition parties will be able to unite behind an attractive slate for general elections. If they do, and if slate appears to be outdistancing government’s candidates who have already been chosen, government may indulge in harassing tactics. Doing so would increase level of violence and cause deterioration in security situation which otherwise would probably remain about as it was in 1972. End summary.

1. After two and a half years in office, Arana regime is more solidly ensconced than ever and President Arana himself has reached peak of his personal power and influence. As we foresaw a year ago (reftel) security situation has become somewhat improved, the once feared complete political polarization did not take place, nation enjoyed healthy economic growth, government coalition won off-year elections, and administration got its ambitious five-year development program moving although at a slower pace than targets called for.

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2. Nineteen seventy-three, a campaign year, promises to be more turbulent, although we believe that President Arana will continue to maintain full control of situation. When long-awaited showdown between President and President of Congress Mario Sandoval over selection of government coalition’s candidate for President in March 1974 elections came on January 9, President Arana, who had carefully prepared his ground, won hands down with selection of Minister of Defense General Laugerud. Sandoval accepted both decision (albeit reluctantly) and Vice Presidential nomination as we thought he would. With President’s full public support, backing of PID and MLN, and a substantial increase in rate of implementation of development program, Laugerud should be a strong Presidential contender. His chances will be even further improved if government coalition is able to attract significant elements of PR to its ranks. We remain doubtful this will happen, but do not rule out possibility. Attitude of Clemente Marroquin Rojas, who controls two of nine daily newspapers here, will be an important factor. Marroquin supported President Arana in 1970 and had hoped for MLN nomination this time around. His support for Laugerud may not mean much, but his opposition could be troublesome.

3. Most important political question remaining in this electoral year is whether opposition will be able to unite solidly and wholeheartedly behind a single slate. If it does, that slate will have a good chance of winning a free election, given inclination of the Guatemalan voter to prefer “outs” rather than “ins.” Most opposition leaders recognize this and are working for a coalition. But each of three principal parties (PR, FURD, and Christian Democrats) want to name their own candidate. Despite present lack of unity we believe there is a fair possibility left will get together.

4. As things stand now we believe that government will work hard to sell Laugerud-Sandoval slate with rather substantial resources at its disposal and will permit a relatively free play of electoral forces as long as it believes that it has a good chance of winning. Should it become convinced that opposition is gaining upper hand, we anticipate that it will harass and restrict them, and, should this occur, there could be a quick return to tense situation existing in 1970 with a new possibility for serious political polarization and increase in level of violence.

5. On economic front we expect real growth to hold around same six percent rate achieved in 1972. Such good performance again would be attributable primarily to high world market prices for Guatemala’s commodity exports. Contributing to this growth surge, but of lesser immediate importance, will be acceleration of public sector investment programs. Less vibrant private sector investment activity, however, will hold growth to its potential. Although private agricultural investment is accelerating in response to commodity situation, the still uncer[Page 474]tain outlook for Common Market continues to be a factor discouraging industrial investment. Industrial output, as opposed to industrial investment, will probably continue along moderate 6–7 pc growth path of recent years. Although Nicaraguan crisis may reduce size of that market (at least until reconstruction activities hit their stride), resumption of trade with Honduras under a bilateral arrangement should offset such transitory losses. Given adverse effect on lower class incomes of drought (which reportedly has reduced corn and bean production by up to one-third) and given concentration of commodity export earnings in relatively few hands, Guatemalan industry and commerce cannot expect a strong upsurge in local demand. The outlook, thus, is for an acceptable overall growth rate, but one which results primarily from exogenous price factors bearing on commercial agriculture and which leaves industry and commerce below their historical trend lines and which fails to greatly increase private consumption. Drought mentioned above will cause serious grain shortages in coming months, but we believe government will meet these shortages by imports.

6. With stronger high-level commitment to development in 1972, government made substantial progress toward meeting goals of five-year plan although lag experienced in 1970–71 tooling-up period was not entirely overtaken. It attained good results in education, health, rural electrification, penetration and rural roads, and cooperatives. Latter made a significant impact on rural population. Ministry of Agriculture program in which we are most interested—that aimed at reaching smallest farmers with credit and technical help—made substantial “design” progress in 1970–72, but was disappointing in terms of accomplishment. It remains behind schedule in its assistance to main target group but 1973 projections indicate that it will catch up in 1973 and be ahead of schedule before end of year. Agricultural commercialization is another area where projections have not been reached. Overall, however, we believe that government’s performance in development was creditable in 1972 and that implementation will improve significantly in 1973. One important factor is that the government will want to have as good a record as possible to present to voters in March of 1974.

7. Factors of constraint that retard achievement of goals are (A) unwillingness of Arana government to consider basic reform legislation and (B) endemic reluctance of many of President Arana’s supporters to embrace “development” as fully as he has done. While President and his ministers have generally gained a vision of development requirements of country and understand need for basic change and the role of government in bringing about such change, they have been unwilling to enjoin their supporters of center-right coalition to face up to impera[Page 475]tives of reform and consequences of development. This is most manifest in their reluctance to pay for costs of development through taxation and to push for better wages particularly in countryside. While there is little serious opposition to enforcement of existing taxes, need for new taxes is not gaining recognition as fast as development program needs money. We have serious doubts that President will risk alienating his conservative supporters by pushing to raise taxes or improve wages in election year. Reform-minded members of his cabinet are saying that this will be task of next government. In this we agree. This administration for the first time in 25 years has set in motion a program of growth and change that is not likely to be stopped and which will soon have placed squarely before the nation’s decision makers issue of their willingness to pay for program. Most are willing to borrow at home and abroad to pay, some to point beyond prudence. Few in the current power structure are at present ready face up to the essential course of substantially raising taxes. This will soon become an unavoidable issue in Guatemala. We do not yet hazard a prediction as to its resolution.

8. As noted previously, security situation improved somewhat during year. Level of politically inspired violence in 1972 as measured by Embassy’s admittedly imperfect barometer fell by about a third from 1972 to an average of about 60 plus incidents a month. We would expect it to stay in about same range in 1973 unless government begins to use violence to harass opposition.

9. Disappearance of top Communist leadership in September although traumatic for PGT probably did not permanently damage PGT organization, and we would not be at all surprised to see terrorist actions by PGT/PAR and/or FAR against both high GOG officials and diplomatic personnel, especially as year draws to a close. However, we do not think Communist terrorist organizations will be able to build back to 1970 levels. Capabilities of uniformed police have improved over previous years, and if used properly they can be counted on to help stabilize security situation. In a word, security is not likely to deteriorate significantly unless government steps up its use of violence.

10. With successful resolutions of purchase of Empresa Electrica by government and sale of United Fruit Holdings to Del Monte with GOG approval, principal remaining GOG–U.S. company problems concern Exmibal (financing), Pan Am (operating contract), and IRCA (compensation for disputed items under mortgage foreclosure). We also see a growing problem in relationship between GOG and U.S.-owned petroleum refineries who claim to find themselves in an increasingly tighter cost/price squeeze resulting from government’s refusal to allow increases in retail prices. (Guatemala is only LA country which has not allowed such increases in recent years.)

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11. We will continue to use discreet influence where advisable to promote GOG-company negotiations toward mutually satisfactory agreements. We are hopeful that Exmibal will be able to obtain necessary financing and start construction of nickel processing plant during 1973. We believe that there is a good chance that the GOG will continue to allow Pan Am to continue operating at current levels under reasonably satisfactory conditions. It will probably do this through temporary extensions of existing permits rather than negotiating an entirely new operating contract. We are less sanguine about settlement of IRCA bonds and petroleum price problems.

12. Level of tension over Belize is considerably reduced from what it was early last year and we do not believe an increase is likely as long as Guatemalans do not come to believe Great Britain is about to grant unilateral independence. There is some chance that talks between Guatemala and Britain may resume, although we believe that GOG will try to stall any final solution until after March 1974 election.

13. In sum, we see 1973 as a year of increased political activity, building up to 1974 general election, good economic performance, and relatively creditable progress on economic development front. Biggest imponderable is whether opposition parties will be able to unite behind an attractive slate. If they do and if slate appears to be outdistancing government’s candidates, we fear that government may indulge in tactics which will increase level of violence and revise level of political stability achieved during past year. Such a situation would play into the hands of violent opposition.

  1. Summary: In its annual country analysis, the Embassy asserted that President Carlos Arana Osorio had successfully improved Guatemala’s political and economic stability, while selecting a successor, Minister of Defense General Kjell Laugerud García. If the country’s opposition parties could select a candidate representing a strong enough political threat to Arana’s MLN–PID alliance, the government might engage in political harassment, leading to increased levels of political violence.

    Source: National Archives, RG 59, Central Files 1970–73, POL GUAT. Confidential. Repeated to San José, San Salvador, Tegucigalpa, USCINCSO, and Managua. In airgram A–8 from Guatemala City, January 12, the Embassy observed, “Laugerud enjoys the close friendship, confidence and admiration of President Arana which is why he got the nomination.” (Ibid., POL 6 GUAT)