g[T]he
Most Generous Assistanceh: U.S. Economic Aid to Guatemala and Bolivia,
1944-1959
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Most historians
examining United States-Latin American relations in the 1950s put this history
in a Cold War framework. Washington officials, these scholars argue, aimed to
create a noncommunist world. They acknowledge that the United States may have
had other interests, but security (defined as maintaining noncommunist regimes
in Latin America) was paramount.[2]
There was, however, a
more important and prior motive that shaped U.S. foreign policy toward the
nations to the south of the United States during the period 1953-61. U.S.
policy was more concerned about nationalism than communism. Latin American
nationalism was an older phenomenon than Latin American communism, and U.S.
policy had attempted to contain or eliminate Latin American nationalism that
was hostile to foreign investors and trade for nearly half a century before
Eisenhower entered the White House.[3] Thus the
Eisenhower administrationfs policies had deep roots that ran back well beyond
the Cold War years.
Many Latin American
nationalists desired increased control over foreign investment. They wanted
partial ownership of foreign enterprises in their nations, and they wanted
their own nationals to have management positions and technical training in
foreign-owned operations. Finally, nationalists desired increased economic
self-sufficiency\even at the expense of economic growth.[4]
These goals directly
contradicted Washingtonfs goals for inter-American relations. U.S. officialsf
main motive in the 1950s was to compel Latin American governments to open their
economies to outside private sector trade and investment and to create an
atmosphere amenable to private sector investment, both foreign and domestic.
Moreover, the United States saw private sector economic activity as the only
possible engine of Latin[5] economic
growth and industrialization.[6]
Washington policymakers
in the 1950s demanded that Latin economies remain open or become more open for
a number of reasons. They saw them as important outlets for U.S. exports.
During the decade the Latins bought 21% of these exports. In 1953, 34% of U.S.
direct investment was in Latin America.[7] Open
economies would, moreover, facilitate U.S. access to the strategic raw
materials Washington thought necessary to fight the Cold War.[8] Most
important, however, was stimulating Latin American economic growth. According
to policymakers, increased investment and trade in these societies would spur
such growth.[9]
Growth, officials
averred, would lead to political stability.[10] This
proposition was based on the assumption that the benefits of this capital accumulation
would trickle down to the non-elite classes.[11] Stability,
in turn, would immunize the Latins against nationalistic and anti-United States
regimes. Such regimes could damage U.S. prestige not only in the hemisphere but
worldwide. One 1955 National Security Council (NSC) analysis of United
States-Latin American relations argued that these relations ghave evolved in a
pattern that has shaped and influenced our arrangements and accommodations with
actions in other areas. The smoothness of their functioning is inextricably
entwined with the reputation and prestige of the United States in the foreign
policy field.h[12] In sum,
smooth United States-Latin American relations increased the ability of the
United States to implement its global foreign policy.
Two nations in
particular resisted Washingtonfs efforts to form an open hemisphere. The 1944
Guatemalan and 1952 Bolivian revolutions attempted experiments in gnational
capitalism.h Not a form of total autarky, this type of capitalism prescribed
state intervention in the economy as a means of implementing an economic policy
to promote the betterment of the non-elite classes.[13] Guatemala
and Bolivia aimed to achieve these goals by asserting more control over their
national resources, constraining the activities of foreign investors,
and\especially in the case of Bolivia\diversifying their economies. Economic
nationalists in these countries desired increased diversification of their
nationfs economy as a means of promoting stronger economic growth over the long
term and the betterment of the non-elite classes.[14]
The norteamericanos[15] in the 1950s
introduced a new tool for fighting nationalism: economic aid. Bolivia and
Guatemala became the two highest Latin American recipients of grant economic
aid during the Eisenhower Administration.[16] Stacy May, a
member of the Operations Coordinating Board, noted in 1955, gwithin Latin
America, our record has been one of offering the most generous assistance to
those nations that have departed most widely from what we regard as sound
practice.h[17] Washington
used such assistance in combination with other techniques to attempt to thwart
nationalistic policies in these two Latin American nations. In the early 1950s,
it appeared that this policy was successful. The policyfs flaws were not fully
apparent until the late 1950s and 1960s. U.S. efforts to thwart economic
nationalism contributed to rising anti-United States sentiment and political
instability which in turn contributed to the disintegration of democratic
governments in the two nations.
Previous interpretations
of United States-Guatemalan relations in the 1950s focused on U.S.
anticommunism.[18] Some works attempted
to put the policy in a broader context of U.S. foreign policy; others carefully
examined U.S. intervention in the 1954 coup (or gliberationh) itself.[19] Although
U.S. officials feared communists in certain Guatemalan agencies immediately
before the 1954 coup, the argument in this paper will attempt to put U.S.
policy in a broader historical context and center on U.S. attempts to thwart
nationalism both before and after the coup.
In 1944, a revolution
swept Jorge Ubicofs military dictatorship out of power. Ubico had sown the
seeds of his own destruction. His policies promoted economic growth; the main
beneficiaries were the elite and, to some extent, the middle class. The 1944
revolution was led by the middle class that was largely a creation of Ubicofs
economic policies.[20] The
international situation also contributed to the dictatorfs demise: World War II
made life difficult for dictators in the Allied camp; for example, President
Franklin Delano Roosevelt, admired by Latin Americans, compellingly spoke of
peace, freedom, and prosperity for all in his famous January 1941 gFour
Freedomsh speech. Such rhetoric inspired Guatemalan revolutionaries who desired
a more equitable economic system and a more responsive political structure.[21]
A former schoolteacher,
Juan José Arévalo, was elected president in a relatively free and open election
in December 1944, and moved quickly to implement reforms to make Guatemalan
capitalism more responsive to the majority of the people. A national bank, a
social security system, an institute for economic development were founded;
political parties flourished, and freedom of speech and press prevailed.
Perhaps most important in light of future events, workers were encouraged to
organize and bargain collectively.[22] Initially,
State Department Latin American hands did not object to the revolution. U.S.
Ambassador to Cuba Spruille Braden applauded the new democracy in Guatemala;
Assistant Secretary of State and former Roosevelt gbraintrusterh Adolf A. Berle
thought that the revolution did not harm U.S. interests.[23]
In part, Berle was
right. The Arévalo regime passed laws favorable to U.S. investors and generally
supported United States foreign policy initiatives. A 1947 law promulgated
under Arévalofs regime, Decree Number 459, gave economic incentives to foreign
capitalists who wanted to export capital and goods to Guatemala.[24] Arévalo
supported, rhetorically, U.S. efforts in the Korean War.[25] His and his
successorfs administrations generally supported the norteamericanos in
the United Nations.[26]
In many respects,
however, Guatemalafs foreign policy challenged U.S. goals for intrahemispheric
relations. Conflicts cropped up at inter-American conferences. When the
American states met in 1947 to sign the Rio Pact, the Guatemalan delegation
introduced a proposition opposed by the United States representatives. The
Guatemalans asked that the final agreement contain language that required the
signatories gto abstain from lending aid, direct or indirect, to any aggression
or attempts thereof against one or more of the other signatory states and
prevent, in their territory, the exercise of any objectives which aim to change
the constitutional regime of the others by means of force.h[27] The members
of the U.S. delegation thought that it was impossible to frame a complete
definition of aggression, gparticularly at a time when the forms of aggression
are less foreseeable than ever, and that to include some and exclude others
would lessen the effectiveness of the treaty and give an advantage to would-be
aggressors.h[28] In the end,
the U.S. won. The treaty defined aggression as simply gunprovoked armed
attack.h
At the 1948 Bogota
conference, where the Economic Agreement of Bogota was signed, U.S. officials
proposed an article to the agreement that expropriations of foreign nationalsf
property be compensated in a gprompt, adequate, and effectiveh manner. Members
of the U.S. delegation proposed this language to safeguard U.S. investments in
Latin America. Guatemala, along with Mexico, Argentina, Uruguay, Cuba,
Venezuela, and Honduras argued that gprompt, adequate, and effectiveh
compensation for expropriated properties of foreigners should be interpreted by
each country separately, according to its own constitution. The language
proposed by the Latin American nations was voted down, however, by a 14 to 5
vote.[29] Also at the
Bogota conference, the Guatemalan conferees opposed a United States-introduced
measure that stated the g[s]tates therefore agree not to take unjustified, unreasonable
or discriminatory measures that would impair the legally acquired rights or
interest of nationals of other countries in the enterprises, capital skills, or
technology they have supplied.h Guatemala feared that the resolution,
ultimately accepted into the agreement, would be used by foreign investors to
argue that they were not subject to the laws of the host country.[30]
Guatemala challenged the
United States in other ways, in particular in the area of foreign economic
policy. Although Arévalo desired foreign capital, he also promoted reforms that
in some cases created a chilly environment for such capital, and,
concomitantly, United States-Guatemalan relations deteriorated. Arévalofs
policies required that foreign capital benefit the majority of the Guatemalan
people; sometimes this stipulation restricted the activity of foreign
businessmen. The U.S. government was distressed that concessions to foreign oil
companies were only allowed under certain, narrowly-defined conditions.[31] More
significantly, Guatemalan workers began to exercise their new right to
organize, bargain collectively, and strike. Arévalofs labor code, introduced in
1947, was particularly stringent vis-à-vis companies with more than 500
employees. The United Fruit Company (UFCO) argued that the law was aimed
specifically, and therefore prejudicially, at itself, and the State Department
backed up this charge. Management-worker friction hampered production by U.S.
companies operating in Guatemala, most notably UFCO and the International
Railways of Central America (IRCA).[32] UFCO owned a
controlling interest in IRCA. It could ship its goods on the IRCA railways at
preferential rates. Even more advantageous for UFCO was the IRCA monopoly on
lines that formed the only means of transportation connecting the Atlantic
Coast with the capital. The companies could effectively control Guatemalafs
trade.[33] Guatemalans
resented Washingtonfs efforts to stymie reform efforts that affected the
interests of U.S. companies; the Guatemalans had witnessed for decades UFCOfs
siphoning off of valuable resources. In his 1950 farewell address, Arévalo
bitterly noted how the United States frustrated at every turn his attempts at
reform.[34]
Arévalofs successor, Jacobo Arbenz
Guzmán, extended and deepened the reforms of his predecessor. In his 1951
inaugural address, Arbenz stated that he intended to raise the standard of
living of the people and protect the nationfs industry and freedom from foreign
domination. This was critical, he argued, in his quest to create a gmodern
capitalistic country.h[35] In 1951, he
initiated the construction of the Atlantic Highway from Guatemala City to
Puerto Barrios on the Atlantic coast. This new thoroughfare directly competed
with the IRCA railway that ran parallel to it; IRCA was understandably unhappy
at losing its monopoly position.[36] In addition,
Arbenz financed the construction of non-foreign owned power plants to break the
United States-controlled companiesf domination of the electricity-generating
industry.[37] Labor
strife, which had occurred under Arévalo, continued; the Department of State
claimed gpolitical disturbancesh (most notably strike violence) made investors
uneasy.[38] As a result,
U.S. investment declined.[39]
U.S. economic aid also quickly diminished to a trickle. The decline began under Arévalo but squeezed Arbenz much harder. Point Four technical assistance was not extended because the State Department said that the Guatemalans criticized such aid as an example of U.S. gimperialism.h[40] In 1951, the United States stopped subsidizing the construction of the Guatemalan portions of the Inter-American highway.[41] U.S. technical assistance for health and sanitation and education dropped from a peak of $483,000 in fiscal year (FY) 1948 to $50,000 in FY 1954, with the sharpest declines taking place when Arbenz took office.[42] Total U.S. economic aid to Guatemala fell from $2.9 million in FY 1949 to $0.2 million in FY 1954.[43] Policymakers intended, with these cuts, to weaken Arbenz. In 1951, a State Department memo noted, gThese pressures will be quietly imposed and queries by Guatemala, if any, will be explained on grounds of technicalities. We will not, for the present at least, relate them to our concern over political developments there and will leave it to the Guatemalansf own reasoning to draw this conclusion.h[44]
Falling U.S. aid hurt
Guatemala. Arbenz, however, continued to pursue his reform policies. The
Agrarian Reform, passed 17 June 1952, culminated eight years of slow but steady
Guatemalan reform and, concomitantly, marked the nadir of post-1944 United
States-Guatemalan relations. In the words of the Ambassador to Guatemala,
Rudolf E. Schoenfeld, the law threw ginto political controversy issues which
strike the roots of the countryfs economic and social organization.h[45]
Significantly, these roots had been recently examined in a 1951 International
Bank for Reconstruction and Development (IBRD) report. In the words of the
authors of the report, g[i]n the long view, however, the basic poverty of
Indian highland agriculture permanently hampers not only agricultural progress
but the whole economic growth of Guatemala; for the Indian population comprises
the bulk of the potential internal market, without which industry cannot
develop adequately.h[46]
The reform, which was
passed as Decree 900, legislated a more equitable distribution of land, and
began resolving the problems outlined in the 1951 report.[47] Much of
Guatemalafs arable land was owned by large, foreign-owned companies, most
notably UFCO, and much of this land lay fallow, in part to prevent competition
from springing up to threaten UFCOfs near-monopoly position.[48] Decree 900
stipulated that all properties larger than 660 acres that were not being
cultivated would be affected by the expropriation. The law required UFCO
initially to give up 234,000 acres of land, 8.2% of the land it held fallow.
The nationalized lands would be rented or granted as private plots to
individuals. The plots were to be less than 43 acres and were not to be sold.[49] The Arbenz
government offered a $1.2 million indemnity based on the companyfs
self-declared valuation of the land for tax purposes. The payment was to be in
bonds amortized over 25 years. UFCO responded that 25 years was too long and
therefore the reform amounted to an expropriation without compensation. The
company also thought $1.2 million too low; the U.S. government, acting for the
company, requested $ 16.5 million.[50]
To Guatemalan officials,
the land reform was imperative in order to lead their nation out of its
condition as a stratified society with a stagnant economy. The Guatemalan
Ambassador to the United States asserted that the gpermanently unproductive
stateh of fallow lands owned by large landowners, foreign or not, gwas causing
great injury to the people and economy of Guatemala by preventing the
profitable development of those lands from helping to increase production and
raise the standard of living of the Guatemalans.h[51]
U.S. officials believed
the opposite: such land reform, perhaps the most serious challenge of any
Central American nation to United States domination of the regionfs economy,
endangered the stability of the isthmus. In late 1953, Charles R. Burrows of
the Bureau of Inter-American Affairs argued, gGuatemala has become an
increasing threat to the stability of Honduras and El Salvador. Its agrarian
reform is a powerful propaganda weapon; its broad social program of aiding the
workers and peasants in a victorious struggle against the upper classes and
large foreign enterprises has a strong appeal to the populations of Central
American neighbors where similar conditions prevail.h[52] In addition,
State Department officials strongly criticized the reform because of the way it
was implemented. Two months after the promulgation of the reform these men
worried that gthis social change was to be forced through without regard to
constitutional safeguards of private property.h[53] A State
Department aide-mémoire concluded the reform represented a g[v]iolation of the
basic norms of justice that cannot fail to undermine mutual confidence without
which economic progress is retarded.h[54] The
differences over the land reform were the crux of the acrimonious conflict
between Guatemala and the United States in the early 1950s.
The Agrarian Reform
culminated a decade of Guatemalan attempts to force foreign investors to share
a larger portion of their earnings with the Guatemalan people, particularly
landless peasants. Unfortunately for the Arbenz regime, the high-water mark of
Guatemalan reform efforts occurred simultaneously with the zenith of the
extreme anticommunism of Joseph McCarthyfs Washington. One energetic lobbyist
for UFCO was crucial in both tagging Arbenz as communist and convincing the
National Security Council that it should install a Guatemalan leader amenable
to foreign-investment driven capitalist development. This official, the former
New Dealer Thomas G. Corcoran (gTommy the Corkh), had, by the 1940s, left
government service to become a lobbyist for UFCO.[55]
As the anti-Arbenz
sentiment in Washington intensified, and it became clear that the land reform
was going ahead as planned, Eisenhower took action. In August of 1953 he
approved a plan to oust Arbenz from power.[56] The
much-publicized arms purchase from Czechoslovakia in May 1954 simply made
implementation of this plan easier to sell to the United States and world
publics. A desperate move on Arbenzfs part to obtain arms in the face of a
six-year-old U.S. boycott, the purchase lent credence to those arguing that
Guatemala was a beachhead for Soviet intervention in Central America. U.S.
covert, paramilitary support supplied by the Central Intelligence Agency (CIA)
in late June and early July of 1954 provided crucial help for the success of a
revolt that installed a regime friendly to the United States, headed by Colonel
Carlos Castillo Armas. The Guatemalan Army, in large part, did not attempt to
stop the rebellion. It intensely disliked Arbenz, and feared rising rural
violence and increased campesino political power.[57] Soon after
assuming power Armas returned UFCOfs expropriated land; as the centerpiece of
his plan to revive the Guatemalan economy the new leader wanted to create a
friendly climate for foreign, particularly United States, capital.[58]
Although U.S.
policymakers identified nationalism as the driving force behind Guatemalafs
policy between 1944 and 1954, after 1953 they also were concerned about
communism. This change can be measured by examining two State Department
reports written three years apart in the early 1950s. A State Department Office
of Intelligence Research (OIR) report dated 23 October 1950 pointed out that
strong Guatemalan institutions, most notably the Catholic Church and the Army,
constituted major forces against communism. The report stated that gthe
pro-labor laws do not in themselves appear to be communistic.h Regarding United
States-owned industries, gthe tendency of the administration and of the courts
to take the side of the workers in controversies involving foreign-owned
companies such as the United Fruit Company and the International Railways of
Central Americah was gbasically one of nationalism.h The report concluded that
Arévalofs government was gintensely nationalistic.h[59]
Three years later the
analysis was different. In a 1953 OIR report State Department officials stated
that communist infiltration had increased significantly since Arbenz assumed
the position as head of state. The authors of the report stated the communists
ghave heavily infiltrated the Social Security System, the Agrarian Department
and the propaganda agency.h They also noted that Guatemalan communists
constituted a focal point for communist activity in the region and supported
Central American communists outside Guatemala. The report concluded, however,
the Guatemalan voting record at the United Nations had gimprovedh since 1951.[60]
Although U.S. officials
were concerned about communism in the Guatemalan labor movement and in some
government offices, U.S. opposition to Guatemalafs policies did not hinge on
the perceived communism of the nationfs reforms. U.S. opposition to Guatemalafs
polices began before State Department officials ominously intoned that
communism was a problem in Guatemala. And as late as March of 1954 U.S.
officials publicly acknowledged that communists did not control the Central
American nation. Secretary of State John Foster Dulles stated that no Latin
American country was under communist domination.[61] More
importantly, U.S. policy was not driven by fears of Soviet domination of
Central America. On the eve of the 1954 coup Dulles told a group of Latin
American diplomats it was gimpossible to produce evidence clearly tying the
Guatemalan government to Moscow.h[62] Moreover,
State Department officials stated that gin any analysis of the situation in Guatemala
it must be recognized at the outset that evidence that the Communist Program in
Guatemala has been organized and directed in the world capitals of communism,
and that communism in Guatemala is part of a world apparatus, must be largely
circumstantial.h[63] In order to
sell the policy at home and abroad, the United States stated it was attempting
to prevent the expansion of Soviet power in Guatemala.[64] Despite the
rhetoric, Washington officials in the 1950s were mainly concerned with the
economic policies of the Guatemalan government.[65]
The aftermath of
Castillo Armasfs 1954 golpe has not been examined extensively by
scholars.[66] Analysis of this
period is not just important in the context of United States-Guatemalan
relations; it proves important in understanding the assumptions underlying U.S.
policy toward the entire hemisphere. In Guatemala, Washington assumed that a
more open economy, with the help of economic aid, could produce strong economic
growth and political stability. By 1959, this postulate was proved false.
Thwarting nationalism in
Guatemala was the centerpiece of U.S. efforts in Guatemala. In 1955, embassy
officials in Guatemala sent a memo back to the State Department warning that
gexaggerated nationalismh was on the rise in Guatemala. The officials meant
that anti-United States demonstrations were occurring in Guatemala with
increasing and disturbing frequency:
[s]imultaneously,
there has...been a steady revival of the atmosphere of exaggerated nationalism
with anti-United States overtones which characterized the gRevolution of 1944h
era. This has been exemplified in a series of incidents ranging from last
Decemberfs near-revolt of the Constituent Assembly against ratification of the
United Fruit contract through this Easterfs anti-U.S., anti-Castillo student
parade, to the current protest of the Engineerfs Association against the
governmentfs awarding contracts to U.S. engineering consulting firms.[67]
U.S.
officials attempted to fashion a policy to attack this nationalism. The policy
would have two prongs, one military and the other economic. Military assistance
was given to foster internal stability; economic aid, in order to spur private
foreign investment. U.S. officials perceived the latter as the touchstone of
strong economic growth and long-term political stability.[68]
Norteamericano officials
intended the Armas regime to be a showcase for the Cold War. In the words of
Assistant Secretary of State for Inter-American Affairs Henry F. Holland, the
United States wanted to gdemonstrate the superiority of the free world system
over communism, form which the Guatemalan leader, Colonel Castillo Armas,
liberated his people last year [1954]. The U.S. is giving its utmost
cooperation to Guatemala in its efforts to attain this goal.h[69] More
importantly, however, Washington officials wanted to prove that the new regime
was more beneficial to middle class and poor Guatemalans than was its nationalistic
predecessor. Near the end of 1956, U.S. Ambassador to Guatemala Edward J.
Sparks, in a letter to the newly-appointed Assistant Secretary of State for
Inter-American Affairs Roy R. Rubottom, Jr., reminded him that gworld opinion
believes that the United States was responsible for the overthrow of the Arbenz
regime...and the United States press in general...think that we have a special
responsibility for the success of the new government.h He forcefully concluded,
gif the Guatemalan people...are not convinced that they are enjoying a fuller
and better life than they had under the Arbenz regime, the Castillo Armas
Government will have failed in its declared purpose and political stability
will not have been strengthened.h[70] The
techniques the United States used to pursue this policy changed over the course
of the decade.
The First Hurdle: gA
Growing Number of Unemployedh
The first challenge was
to increase economic growth quickly and reduce unemployment. The economic
health of the country had suffered because of the Arbenz regimefs hasty weapons
purchase in its last months.[71] U.S.
officials succinctly summarized the short-term goals of United States policy:
(1) The
disruption of the economy and continued lack of confidence has produced a
growing number of unemployed whose existence aggravates the instability of the
situation.
(2) This
dissatisfaction and instability gives rise to active internal political
opposition, which is always ready to exploit weakness.[72]
In order to build
gconfidence,h U.S. officials aimed to make the economy more attractive to
outside investors. One way was to build infrastructure. The initial U.S. aid
allocations were concentrated on road-building. Road construction not only
created infrastructure, but it was a way of quickly employing a large number of
people. Indeed, U.S. ambassador Edward J. Sparks thought that, in the short
term, the existence of the Castillo regime rested on the increased employment
of Guatemalan workers. He wrote to the Deputy Assistant Secretary for Inter-American
Affairs, Roy R. Rubottom:
[w]hen we
undertook to assist Castillo Armas after he came to power in July 1954,
available economic data was meagre, projects had not been studied, and the
immediate necessity was to aid the Government to stay in power by assisting it
to resolve some of the most pressing problems threatening its stability,
including that of widespread unemployment and a depleted treasury. For these
reasons, the bulk of the development assistance for Fiscal Year 1955 was
assigned to the Pacific Slope Highway.[73]
The
road-building program was also part of a longer-term development plan.
According to officials at the United States Operations Mission (USOM) in
Guatemala, the organization in Guatemala City that implemented aid programs,
g[t]his [road] program should serve to open up new sources of production and to
improve the marketing of commodities which can be produced in areas of
difficult accessibility.h Most of the construction was to occur in FY 1956 and
FY 1957: $3.675 million was allocated for FY 1955, $10.261 million for 1956,
and $4.0 million for 1957.[74]
gInternal Securityh and
Military Aid
A second way Washington
attempted simultaneously to defeat nationalism and promote stability in
Guatemala was through military aid. Military aid had been withheld in 1948
which prompted the Guatemalan government to look elsewhere for matériel,
including a much-publicized purchase from Czechoslovakia in May 1954. After
Armas came to power, the flow of military aid to Guatemala resumed in order to
support his regime.[75] Two
bilateral agreements giving military assistance were signed, one in 1954 and
one in 1955.[76] U.S.
officials, in the language of the bilateral military aid treaty, left no doubt
about why they gave the money. The first agreement, entitled gTransfer of
Military Equipment to Guatemalah and dated 30 July 1954, stated that the
assistance was given, in part, to increase the political stability of
Guatemala:
[s]uch equipment and materials that may be provided to the Government of Guatemala under this agreement are required for and will be used solely to maintain Guatemalafs interest security, its legitimate self-defense, or to permit it to participate in the defense of the area of which it is a part, or in the United Nations collective security arrangements and measures, and Guatemala will not undertake any act of aggression against any other state.[77]
Castillo
Armas could, and did, use the aid to gmaintain...internal security.h In
practice, he used the assistance to quell dissent.[78] In addition,
the assistance increased the political influence of the Guatemalan Army, gthe
key factor in Guatemalan politics,h according to the Department of State.[79]
Maintaining ginternal
securityh proved at times to be brutal. U.S. military assistance helped to support
a repressive police system in Guatemala. In 1954, after the golpe, the
CIA help set up the Comité Contra el Communismo to track down and, in
some cases, kill suspected communists. The efforts of the committee went beyond
simply attempting to round up communists. Because gcommunisth came to mean
almost any dissenter, the committee detained many noncommunists who opposed the
Armas regime.[80] This intense
effort to quell dissent bordered, at times, on the psychopathic. The
International Cooperation Administration (ICA), the Washington agency that
coordinated aid policy, in a report on the police system, said gthe ever
present driving thought is the ealertf to communist activity and attack...
[T]he preparedness and functional operatives are more and more directed
toward...near-obsessive-compulsive acts closely bordering on the neurotic.h[81] The report
continued:
[i]t may be
assumed...that the primary policy function of protecting life and property, and
preserving the peace, is in reality a secondary function of the police
administration and executive management. Operations top level planning,
intelligence gathering activities, are singularly directed toward alertness and
preparedness against ethe threat of the communists,f instead of being directed
against the army of criminals.[82]
The key assumption of
U.S. officials was that if the Guatemalan government created a friendly
environment for private foreign investment, the Guatemalan economy would grow.
Economic aid could help this process work, but it was no substitute for the
private sector. Thomas Mann, a State Department official who, in 1954, was
second-in-command at the U.S. embassy in Guatemala City, summarized the
prevailing ethos of the Eisenhower Administrationfs Latin American economic
policy: g[i]n the long run it is private enterprise which must supply the
capital this country needs. It would be a small price to pay if...[economic
aid] should prepare the way for developments of this kind.h[83] State
Department officials thought that Arbenzfs policies had gharassed and
frightenedh investors and thus hurt the Guatemalan economy.[84] They urged
Armas to open up the nationfs economy to foreign private investment. Armas
publicly agreed with U.S. officials that such investment was key for Guatemalan
development.[85]
Economic aid could prove
useful for coercing Guatemala to promulgate policies that Washington officials
desired. Mann advocated using the aid as a lever to ensure the nationfs
economic policy would be receptive to U.S. capital, particularly investment in
petroleum. Mann noted the United States successfully used its leverage as an
aid donor to influence Bolivian legislation regulating investment in the oil
industry.[86] Castillo
Armasfs repeal of the Arévalo-Arbenz pro-labor legislation helped to make the
environment for foreign private investment more inviting. The Guatemalan
leaderfs efforts paid off: the number of U.S. firms operating in Guatemala rose
from eight in 1950-54 period to 32 in the 1955-59 period.[87]
The trade policies that
State Department officials recommended for Guatemala complemented the
departmentfs recommendations regarding private foreign investment. Washington
urged Guatemala to lower tariffs, especially gproducts which are essential in
the daily life of the people\and which are not produced in the country or are
not produced in anywhere [sic] sufficient quantities.h Policymakers also urged
that duties be eliminated on gcertain products which are important in improving
and expanding Agriculture\the countryfs main income producer and provider of
exports.h In this regard, the department noted that, in particular,
gagricultural machinery and fertilizersh and gpurebred cattle and other farm
animalsh should be free of tariffs.[88]
In order to better attract
foreign investment, State Department officials crafted an overall development
program for Guatemala. U.S. officers stated the program was to promote
gpolitical, economic and social stability.h To accomplish this, economic aid
had to promote a stronger and more diversified economy; improved health,
education, and general welfare; and a more efficient government. These goals
were to be met without bankrupting the Guatemalan or United States treasuries.[89] In early
1955, Foreign Operations Administration officials stated:
[t]he
objectives of economic development programs includes [sic] (a) helping the
Government of President Castillo Armas modernize and diversify both
agricultural and industrial parts of the economy, such as assistance in
establishing a modern credit system, and providing assistance and information
on machinery pools, productivity, etc. (b) relieving budgetary pressure (to
decrease year by year) in order that, substantial investment can be made as
soon as possible in heavy items of expenditure such as roads,
telecommunications, power, etc.
[Also,] the
objective of technical assistance programs is to make available to an ever
increasing number of the population, the benefits which the U.S. people have
come to regard as a natural and appropriate inheritance. These are mostly direct
benefits to the people in fields of agriculture, health, education, etc.,
which will enable them to rise above mere subsistence level, to become
healthier, to become better equipped educationally, socially and materially to
successfully encounter problems attendant to technical advances. There are, of
course, indirect benefits resulting from programs to better [sic] public
administration, to better industrial practices, to better social and community
techniques.[90]
In order to promote a
higher standard of living amongst the Guatemalan people, aid officials realized
the aid program must target a critically important sector of the Guatemalan
economy: the agricultural sector. Stimulating agricultural production was a key
element of the plan. U.S. aid officials on site in Guatemala stated that the
[f]irst priority in the Guatemalan
Program is to improve agricultural productivity, increase agricultural
production in such a way as to raise the standard of living generally, increase
farm income and establish a nucleus agricultural middle class. This is
reflected in the Rural and Agricultural Development Programs. The government of
Guatemala with U.S. aid is colonizing faint families on a permanent basis,
building access roads, introducing mechanization, building irrigation systems,
etc. The program is being concentrated primarily in the rural areas of
Guatemala.[91]
Agriculture
was specifically targeted because spurring agricultural growth could produce a
number of benefits:
Guatemala is
essentially all agricultural country. It produces practically all of its food.
Agricultural products account for 95% of its export trade. Further, agriculture
is an industry amenable to spectacular improvement. It can raise the living
standards of the Guatemalan people. Hence, a major objective of the FOA
[Foreign Operations Administration] program is the improvement of agriculture
through the development of basic food crops and animal industry. This includes
seed improvement, crop protection, agricultural processing, aid studies of
soil.[92]
Specifically, the U.S.
mission in Guatemala aimed to achieve its goals in agriculture by increasing
small private land holding through utilization of undeveloped government lands and
diversifying cash crops. U.S. officials thought supplying technical advice was
key gbecause development of agriculture is dependent on private investment,
initiative and efforts.h[93] The
development plan called for both the development of food crops and agricultural
products for export.[94]
Funding for these
projects came from the United States and multinational organizations. Normally,
policymakers expected underdeveloped countries to go first to the multinational
organizations when seeking funding for development projects. The World Bank, a
key source of Guatemalan development aid after 1954, shared many if not most of
the assumptions of U.S. policymakers. Some U.S. officials doubted, however,
that international lending institutions could promote foreign investment-led
development quickly enough without creating havoc in the Guatemalan financial
system. Not only were loans from international institutions limited, tending
might hurt Guatemala because it would have to extend the payback period for
existing bonds or borrow money against its reserves, actions that would not
promote Guatemalan fiscal integrity. Hence the State Department gave special
U.S. grant aid for Guatemala. (Only a small portion of U.S. aid for Guatemala
during this period had to be paid back.) State Department officials feared
political and social instability would overtake Guatemala unless a broader
range of projects\the technical assistance efforts\were started very quickly.[95] During the
first two and a half years of the economic aid program, the World Bank provided
$12.7 million in aid; the U.S. Bureau of Public Roads supplied $15.7 million
for building the Inter-American highway; the United States supplied $26.9
million through the ICA and the FOA; and the United Nations (specifically UNICEF)
supplied $0.6 million.[96]
Between 1953 and 1961,
the Eisenhower Administration ensured that $138 million of aid mowed to
Guatemala directly from Washington and international organizations that
Washington funded. Guatemala became the second largest recipient of grant
economic aid during an administration that aimed to cut spending. Soon after
Eisenhower entered the White House, a NSC report intoned, gThe survival of the
free world depends on the maintenance by the United States of a sound, strong
economy. For the United States to continue a high rate of Federal spending in
excess of Federal income, at a time of heavy taxation, will weaken and
eventually destroy that economy.h[97]
Guatemala became
dependent on U.S. assistance. Although assistance was reduced during
Eisenhowerfs second term, it was not entirely cut off. In fiscal year 1956 and
to Guatemala reached $34.4 million; it dropped to $19.0 million in 1957 and
fell to $17.3 million in 1958. In 1959, it was cut again to $12.4 million.[98] When the aid
flow was reduced, the economy suffered. The reduction in aid was especially
painful as it occurred as coffee prices fell. Based on an index where 1951
equals 100, the price of coffee was 83.5 in 1958 and fell to 67.5 in 1959 and
67 in 1960.[99]
Although foreign private investment and economic growth increased in the Central American nation,[100] in broader, more significant ways Washingtonfs policy failed. The poor were economically worse off than they were in the early 1950s and political stability had deteriorated. Life for the peasants became much worse; their income had declined and the number of landless peasants had increased.[101] Most critically, per capita production of food was level throughout the decade and fell at the end of Eisenhowerfs time in office.[102] In general, the economy was weak. Increased flows of public and private capital in the 1950s pushed Guatemalafs demand for imports above its ability to pay for them. Guatemala had to go into debt to pay for this increased demand for foreign goods. At the end of the 1950s, although the Guatemalan economy had expanded the production of a number of export crops, notably cotton, sugar, meat, and vegetables, it was still basically a monoculture: it remained dependent on one crop\coffee\for over 66 percent of its foreign exchange earnings.[103]
U.S. policies directly
contributed to Guatemalafs problem of paying for its increased stream of
imports. Even a top U.S. official recognized this. The U.S. Ambassador to
Guatemala City, Lester D. Mallory, pointed out to his superiors at Foggy Bottom
that Guatemala was spending a portion of its foreign exchange on imported eggs.
Eggs could be inexpensively produced in Guatemala if there was a suitable
supply of feed for the chickens. The easiest and least inexpensive way to
produce this feed was from the by-products of flour milling.[104] However,
when the Guatemalan government tried to increase restrictions on flour imports
to protect and stimulate the local production of flour, Secretary of State
Dulles remonstrated that such barriers contradicted U.S. policy. In a succinct
statement of the rationale behind Washingtonfs efforts to get Guatemala to open
up its economy to foreign goods, Dulles stated:
industries which are able to survive only with the assistance of continued excessive protection will not contribute substantially to the economic development of a country. The use by the Government of Guatemala of extensive restriction against the importation of flour, and the possibility of further protection, has serious repercussions on trade relations and creates problems for Guatemala as well as for flour exporting countries. Local consumers are deprived of the benefits of competitive prices, while any possible saving of foreign exchange would generally be obtained at the expense of efficient and economic use of available resources and at the expense of efforts to promote international trade.[105]
Between 1953 and 1959,
Guatemala imported 47.6% of its wheat flour, 146,800 metric tons. The United
States provided a significant portion of these imports. In fiscal year 1959
alone, U.S. exports of wheat flour to the Central American nation totaled 3,900
metric tons.[106] g[E]fficient
and economic use of available resourcesh apparently meant increased U.S.
exports and Guatemalan dependency on the United States.
There were other
ramifications of Washingtonfs policy of promoting U.S. exports to Guatemala. In
order to obtain loans from the U.S. Development Loan Fund, recipient nations
could gnot expend foreign exchange on luxury items from abroad...[which] may be
grown or produced within the country.h Eggs were categorized as such an item.
Not only did the U.S. policy cause the Guatemalans to purchase an imported good
that it could inexpensively produce at home; it also made it more difficult for
the Guatemalans to tap the DLF as a source of public financing for
industrialization. In addition, Mallory also noted that Washingtonfs attempts
to lower Guatemalafs tariffs on its imports directly contradicted U.S. efforts
to increase private foreign investment in Guatemala. Lower duties would hurt
not only domestic but foreign industry. The ambassador concluded that although
U.S. policymakers were rhetorically committed to promoting Guatemalan
development, their actions proved otherwise. An exasperated Mallory, unsure of
the direction of the policy emanating from Foggy Bottom, concluded: g[t]he
basic problem which we face abroad is one of not becoming completely impotent
and obviously foolish by trying to say diametrically opposed things at one and
the same time.h[107] No evidence
has been found in the documentary record that State Department officials
responded.
The political situation
in Guatemala was as dismal as the economic situation. Political instability had
increased and was on the rise. Instability had been sown by the nature of the
1954 counterrevolution. Jealous army officers resented the special treatment
received by the garmy of liberationh and triggered uprisings after 1954.[108] Ten years of
relatively free and open political space, moreover, had opened peoplesf eyes
and minds only to have this space quickly eliminated in 1954. By 1959,
anti-United States sentiment was rising[109] and the
seeds were well-sown for revolutionary activity which erupted in that year.[110] Guatemala
was neither a showcase nor were the majority of its citizens better off than
they were under Arbenz.
Since the beginning of
the aid program, U.S. officials had desired a considerable degree of control
over Guatemalan economic affairs. In 1956, the year the United States dispensed
the greatest amount of aid to Guatemala,[111] Burke Knapp
of the IBRD asked Holland to what extent the United States thought it should
concern itself with gthe decisions in the economic field of the Guatemalan Government
and its development.h Hollandfs response was revealing. He replied, gthe United
States should participate from the moment the Guatemalans hit on an idea in all
phases of analysis and reaching decisions, drafting of plans or decisions\in
short, every phase of their planning as long as the United States government is
carrying the heavy responsibilities it is in that country...there is no aspect
of their internal affairs of which we should be aware, concerned, and
vigilant.h[112] By 1959, the
United States had lost what control it had had over the situation in Guatemala.
U.S. leaders wanted to reduce aid; but the Guatemalan government in 1958 and
1959 was maneuvering to increase the flow of aid. The head of the U.S. mission
(USOM) in Guatemala City, Oscar M. Powell, wrote to Rollin S. Atwood, the
Regional Director for Latin America in the State Department, that gin my
opinion, the present Government of Guatemala is permitting a build up of
strength by the extreme left at a rate which, if it is not stopped and
reversed, will shortly be too great for the government to control.h Powell
averred that the buildup could partially be explained by the desire of the
government of Miguel Ydígoras Fuentes to tap the United States for more aid. In
effect, the USOM chief maintained, the Guatemalan government was attempting to
manipulate aid officials: g[t]here is evidence to support the idea that the
present government leaders believe that if they let things get bad enough the
U.S. will be forced to make substantial additional sums of money available to
Guatemala.h
U.S. officials faced the
prospect of bailing out a government that had not adhered to Washingtonfs
formula for a stronger Guatemalan political system and economy. Powellfs
critique of the aid programs indicted the Guatemalan government for failing gin
several important respects to comply with its obligations under the aid
agreements. Land has not been made available to carry forward the rural
resettlement project and the government has long been delinquent in its contributions
to the Supervised Agricultural Credit Program. Balances in excess of $7.7
million allotted to these projects remain unexpended.h[113]
There were other
problems as well. Powell said that the Ydígoras Fuentes government was gbadly
organized and weakly staffed.h Corruption increased.[114] To make
matters worse, the Minister of Agriculture, Clemente Marroquín Rojas, publicly
demanded the Guatemalan government be given some authority over the servicio,
the United States-run office that helped administer the agricultural aid
programs that was paired with the Ministry of Agriculture. According to the
U.S. Ambassador, Marroquín Rojasfs gloud complaints that United States aid is a
enational shamef have wide appeal, even to persons who feel that United States aid
must be continued.h[115] The mission
chief ended his evaluation of the aid programs by stating that the efforts of
the past five years had been wasted. gIt is my judgement,h he said, gthat
Guatemala is not profiting from the ICA programs there in proportion to the
U.S. funds and efforts being invested in them. Nor do I believe that U.S.
interests are being advanced, or are likely to be advanced, under present
conditions there, through our aid programs in Guatemala.h[116]
A number of determinants
contributed to the failure of U.S. policy. Policymakers thought that increased
trade and investment could provide the foundation of a Guatemala that,
eventually, would not need economic assistance. The policy of increased trade,
however, proved detrimental to Guatemalan development as Mallory pointed out in
late 1958. Guatemalafs economic problems were exacerbated by the reduction in
economic aid after FY 1957. As the economy soured, aid dropped, political
stability rose, and anti-norteamericano sentiment grew, Washington turned
to the military. Military aid rose from less than $50,000 in FY 1959 to
$200,000 in FY 1960.[117]
On the surface, U.S. reaction
to the Bolivian revolution seems radically different from its policy toward
Guatemala. Instead of toppling a revolutionary government, Washington supported
it with, first, economic, and, later, military assistance. In one key way,
however, U.S. goals in the Andean nation were the same as for Guatemala.
Washington wanted Bolivia to provide a friendly environment for foreign
private-sector investment which they thought would spur growth, necessary, they
concluded, for political stability.[118] As in Guatemala,
the United States was fighting economic nationalism and exerted a great deal of
power to try to suppress it. In Guatemala, a combination of paramilitary force,
military assistance, and economic aid were used to pursue policy goals; in
Bolivia, only the latter two were employed.
Previous interpretations
of United States-Bolivian relations in the 1950s have stressed U.S. security
concerns. Washington officials, these scholars argue, wanted to prevent a
Soviet-backed communist regime from taking power in Bolivia.[119] Six months
after the 1952 revolution, however, U.S. diplomats in La Paz privately told
their British counterparts that they did not see a Soviet Union-backed
communist party coming to power.[120] The threat
they saw was economic stagnation and political chaos. To promote growth, norteamericano
officials believed, U.S. policy had to support the revolutionary government
with economic assistance; but some parts of the 1952 Bolivian revolution had to
be annulled. In fact, U.S. officials used their leverage obtained from the
dispensing of aid to roll back some of the revolutionary legislation. In this
Process, the United States helped to destabilize Bolivia to the point that it
seemed the nation was ready to disintegrate into chaos, exactly the crises the
United States had sought to avoid.[121]
In 1952, Bolivia erupted
in one of the few truly social revolutions in recent Latin American history.[122] The costly
Chaco War against Paraguay (1932-35), which Bolivia lost, was a cause of the
revolution; the war shook the credibility of the oligarchic-authoritarian
leadership as Bolivians (especially the middle class) began to question the
leadership of the regime.[123] In addition,
the bourgeoisie clamored for more state-funded projects which the
oligarch-dominated government did not provide. Middle and working class
resentment toward the tin barons and the military (known collectively as la
rosca) fed the popularity and increased the political power of the
broad-based Movimiento Nacionalista Revolucionario (MNR) party.
The MNRfs agenda
included agrarian reform, increased state control over the foreign-owned tin
mines, and economic diversification.[124]
Interestingly, a good deal of the MNR platform matched recommendations from the
State Department and the United Nations. A prominent State Department Latin
American expert, Merwin I. Bohan, led a team of experts on a mission to Bolivia
and argued in a 1942 report that the nation needed to diversify its economy and
improve its infrastructure. In order to spur self-sustaining development, Bohan
argued, Bolivia needed to build up its foreign exchange by both increasing
exports and, especially, decreasing imports. When Bohan was in Bolivia, the
nation was spending scarce foreign exchange on foodstuffs and agricultural
products it could produce at home.[125] A 1951 U.N.
paper (the gKeenleyside Reporth) argued that Boliviafs low agricultural
production resulted in part from the vastly unequal distribution of land.[126]
An important short-term cause
of the 1952 revolution was the falling price of tin and Bolivian efforts to
raise it. During World War II, the U.S. government negotiated an agreement with
the Bolivians to buy tin below the market price. To meet the large wartime
demand and earn sufficient foreign exchange the mine owners intensively mined
the easily-obtainable tin in the mines. At the end of the war, due to falling
prices, the mine ownersf profits dropped while U.S. power over the world tin
market markedly increased. The norteamericanos possessed the worldfs
largest smelting capacity and massive buffer stocks of tin. With the Korean
War, world tin prices rose sharply; Washingtonfs response was to force the
price down by selling off part of its stockpile while refusing to sign a contract
agreeing to purchase Bolivian tin. In 1951, the government of Bolivia halted
all tin exports (half of which went to the United States) to raise the price
and compel the United States to sign a contract. The strategy failed and the
Bolivian economy went into a tailspin.[127] The MNR
revolutionaries capitalized on the hard times. With the revolution on 12 April
1952, the constitutionally-elected MNR, prevented a year earlier from assuming
office by a military coup, was back in power.[128]
The MNR was divided into
a left-wing and right-wing factions. Two broad goals united the groups,
diversification of the economy and improvement of the Bolivian infrastructure,
as did two more specific goals, land reform and nationalization of the tin
mines. The factions differed in their ideas on foreign investment and
public-sector economic aid to Bolivia.
In the rural regions, government leaders implemented land reform for moral, economic, and pragmatic political reasons. Many argued that the feudal-like agricultural system exploited the peasantry and should be demolished. Land reform was a prerequisite, top MNR officials stated, for modernizing agriculture and increasing output.[129] In addition, the urban-based MNR was forced to implement land reform quickly because of increasing unrest in the countryside. Some farmers were violently demanding land.[130] The reform stated that land must be gdevelopedh and there were limits to how much land a single person could own. The revolutionaries tried to soften the blow to large landholders by stipulating that indemnities were to be paid to those whose lan