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Central American University - UCA  
  Number 69 | Marzo 1987



Economic Crisis: A Ticking Time Bomb

Nitlápan-Envío team

The key element in Guatemala in 1986 was the consolidation of Vinicio Cerezo’s new civilian government brought about by a shifting of the social forces, especially by the alliance or "coordination" of the Christian Democrat government with the business sector, which was reached under the conditions imposed by the military. While Cerezo has found relative success in this rearrangement of the social forces and in the search for international legitimacy for his government, the vast majority of the Guatemalans, who had high hopes for the new government, have experienced no change. The military governments were marked by their inability to run the economy despite the fact that the military is one of Guatemala’s most important capitalist sectors—or perhaps precisely because of it. With 75% of the people still living below the poverty line, the economic situation is extremely critical; in fact, it is a time bomb triggering a foreseeable eruption of social forces. At present these forces are still limited and find their expression in rather timid protests since they are still recovering from the wounds of massive repression.

Three phases: Successes and failures

The first year of the Christian Democrat government, 1986, was presented as stage one of the new civilian administration with promises that the launching of various development projects in 1987 would open the second stage. The first stage had three main phases.

From January to June—"the 126 days"—was characterized by "coordination" with the private sector. The Cerezo government managed to arrive at basic agreements around the Economic and Social Restructuring Plan, thus establishing a kind of alliance with the private business sector—especially its top organization, the Coordinating Committee of Agricultural, Commercial, Industrial and Financial Associations (CACIF)—which the previous military governments had never been able to bring off.

The Economic and Social Restructuring Plan consisted of a broad range of agreements, all benefiting the private sector, with or without its military partners. One agreement, though not one stipulated in law, was that the owners would give their workers a 20% raise. But this was not done; the minimum wage, a nominal figure anyway, has stayed the same since 1980. The main purpose of the "coordination" with the private sector was to calm the fears of the large capitalists, for whom the Christian Democrat party has traditionally been synonymous with "communism." This was successfully accomplished, but all the objectives having to do with needed structural reforms remain unattained.

The second phase of the Cerezo government was the period from June to September. The President indicated that this next 126-day period would have as its main objectives putting civil service on a more stable footing, cleaning up corruption and reorganizing the state apparatus. The army had left the civilian government with a badly deteriorated, skeletal state structure, which the new civil servants were not accustomed to.

Although the army had withdrawn from state administration, it is keeping a close eye on the changes undertaken by the civilians. One of the clearest signals that the army is not ready to give up key positions came in this phase: the officers retook control of the National Police, the Immigration Service and the Customs Police. As for corruption within the state system, it was not stemmed but continues to grow.

One could say that this phase was not as successful for Cerezo as the first. It is important to note that the alliance between the new Christian Democrat President and the military is fundamentally based on Cerezo's acquiescence to the proposition that there are non-negotiable points for the military—for instance, that members of the armed forces cannot be brought to trial for the repressive actions carried out in the past. At the military's insistence the civilian government had to agree to avoid trials like those that took place in Argentina with Alfonsin's election to the presidency.

During this second phase, people began to feel the first effects of the Restructuring Plan. They were hit hard by the lifting of price controls on many basic products and by the rising price of the 11 products whose prices remained controlled. (These items include milk, sugar, beef, pork, pork sausage, cooking oil, margarine, bread and soap, and with the exception the first two, prices increased on all. Chicken, eggs and basic grains remain off the list of products with controlled prices, as part of a package offered by the Ministry of the Economy to the private sector.) Inflation—35% in 1986—had its effect on the diet of a traditionally malnourished population, 40% of whom live on diets that do not satisfy their minimum requirements. On top of this, people face a 16% unemployment rate and a 46% underemployment rate.

In addition to people's discontent over price increases, another criticism of the government came from the Mutual Support Group (GAM), with its demands to know the whereabouts of the disappeared. The Cerezo government has neither given a response to people's demands nor managed to put an end to the disappearances, which numbered 160 in 1986. The massive repression has given way to carefully selective repression, which is the military's responsibility though it often passes as common crime.

The third phase of the Cerezo government began in September with the President's trip to the US and Europe to look for political and economic support. He came up with a total of about $300 million, with greatest success in Spain and West Germany.

In this phase the economic plan acquired a certain definition. There was some control of inflation and a revaluation of the quetzal, from 3 per dollar to 2.5. It should be kept in mind that the quetzal-dollar parity symbolized the solid and stable state of the Guatemalan economy for decades. This symbol was broken in 1985, and no revaluation today seems capable of restoring it. The government has also had some success with its exchange rate policy and its monetary and credit policy, thus consolidating even further its alliance with the private sector.

The economy: A time bomb

Economic indicators are warning that the economic situation in Guatemala is critical—so critical that it can be called a time bomb. Everyone is worried about this, including some of the military who, as they analyze the new reality, are distancing themselves from the civilian government. According to Fuentes Corado, an army officer who is an expert in counterinsurgency, the bomb will explode in 1990 with a revolutionary climax similar to that of 1981. If there is no development of a more "consistent" policy in this regard, the revolution ("communism," as Fuentes Corado puts it) will take over in 2000. This officer predicts a mini-insurrection in 1988, touched off by the tense economic situation.

The core of the government's economic policy has been the Restructuring Plan. In the broad range of agreements with the private sector, the latter got some important concessions. Broadly speaking, the plan looks to the following developments:

In the area of finance, the medium-range objective is to have a single exchange rate. In Guatemala there are currently three rates: the official or regulated rate (2.5 to 1); the parallel financial or inter-bank rate, authorized by the government for certain transactions; and the black market rate. The latter two fluctuate and are quite close to one another. The Bank of Guatemala is being pressured by the IMF to come up with one exchange rate as a precondition for renegotiating the debt with the international banks. (In 1986, 34% of Guatemala's exports went to pay the interest on the debt, another important sign of the breakdown of Guatemala’s economy. For decades the country did not devote more than 3% or 4% of its export earnings to interest payments.)

With regard to tax policy, the plan gave exporters a benefit by selling them dollars at 2.5 to 1.

As for credit policy, interest rates were raised two points and the Guatemalan Social Security Institute, one of the largest savings institutions in the country, took 300 million quetzals out of circulation. These measures lowered the monetarization of the economy, one of the causes of inflation.

Regarding price policy, many basic products were removed from the price-control list.

As for employment policy, there is a proposal, as yet unimplemented, to create 40,000 new jobs in the public sector.

With regard to investments, there is another unimplemented proposal to make new public investments.

With this plan the new government sought to eliminate the causes of disorder that had been introduced into the economy by the speculation and corruption of the military governments’ last years. By using state monetary reserves for counterinsurgency plans or personal business activity, the military had reduced the reserves from $800 million in 1981 to only $25 million in 1984. Economic activity declined notably in these years and 1.5 million quetzals were printed every day in 1986 to cover the demand requirements. The oversupply, along with the drop in productive activity, contributed to the quetza’sl decline.

The food distribution system—excessively concentrated in few hands—is also a root cause of the inflationary spiral. The economy, like that of the other Central American countries, is undergoing a growing dollarization. The impact of the dollars sent by family members in the US is great, although there are still no figures on this.

International factors must also be taken into account among the causes of the economic crisis: for example, the fall in cotton prices, leading to a 50% reduction of land under cotton cultivation and job losses for 28,000 seasonal workers. On a broader level, the exports of the Central American Common Market (which is itself in serious crisis given the current regional conflicts) are only half of what they were in 1980.

Industry is only operating at 60% of its capacity, and every week in 1985 saw a company close. The reduction of the internal market also affects industrial production, and this has had repercussions in lowering the people's consumption level. As for new investments, there were practically none in 1986. Of the billion quetzals budgeted for investments and repairs, about 850 million went unused, evidently due to a lack of capacity to implement projects.

This whole situation has brought negative growth: the gross domestic product (GDP) fell by 1-2% in 1986 and possibilities of short-term recovery are not on the horizon. This trend of a falling GDP since the start of the decade is a qualitatively new economic phenomenon for Guatemala. Closely related to it is the crisis in the agricultural sector, which is provoking a wave of migration from countryside to city. Every day about 500 new peasants arrive in Guatemala City, making the capital a potential powder keg of social tensions, and aggravating the economic crisis. Put another way, the combined economic and military repression of the indigenous peasants is producing annual growth rates of over 12% in the metropolitan area—the highest in the hemisphere and virtually unsustainable in economic terms. Only time will tell whether the military, the bourgeoisie, the new civilian government and the capitalist countries in financial solidarity will be able to respond effectively to the growing wave of economic protests foreseen for the country.

So far the civilian government has faced the economic problems of the moment like a good accountant, thus winning the confidence of the private sector. However, these technical measures have their limits, which can only be overcome with massive investments—on the order of $3 billion. The "good accountants" have also put off taking any steps to address the economy's structural problems—land reform, tax reform, nationalization of the export business, etc.—and it’s unclear whether there’s a real will to do anything. Meanwhile, the time bomb with its explosive contents—deterioration in living standards, loss of the real value of money, lowering of the real salary, growing unemployment, agricultural crisis, rural-urban migration, rise in crime—keeps ticking.

Parties in crisis, people's movement growing

As for the political parties, the illness besetting them is diagnosed as ideological and organizational. Their crisis shows up most clearly in the far-right parties (MLN, CAN, PID), since all their proposals have been exceeded by the new Christian Democratic program, while the new liberal Right lacks even the ability to organize and get people together.

Even Vinicio Cerezo’s Christian Democrat party has little cohesion among its leaders and little clarity in its objectives. With different sectors of the party trying to steer it in different directions, it cannot become a strong mass party. One result is that Cerezo finds himself isolated within a party that shows strong symptoms of burn-out. In the first six months of his administration, for instance, 40% of the local Christian Democrat offices throughout the country were shut down. Cerezo, however, maintains his image over and above that of his party.

In the center, the Revolutionary Party (PR) is the one that seems to be recovering the best, as is the Socialist Party in the center-left, while Jorge Carpio's UCN is suffering from ideological splits. Congress would be a good forum to raise issues and break the political ice, but there the opposition is disorganized, acts uncertainly and is not committed to being an opposition.

At the other pole, the grassroots movements are alive, in spite of the horrible demobilizing repression of recent years, but for that very reason are weak and dispersed. The panorama has become complex for the movements as a whole. Though there is forward motion, it is very slow and lacks the capacity to respond to the opportunities and challenges presented by the economic crisis.

There are two movements with very concrete demands and strong symbolic elements. The first is the Mutual Support Group (GAM), which demands respect for human rights and insists on learning the whereabouts of the disappeared. The other is the peasant movement led by Father Girón of Escuintla, which is demanding land redistribution and agrarian reform.

GAM mobilizes about 3,000 people. This number may seem small, but their protest touches the still-open wounds of a repressive period that will never be erased from the memory of the Guatemalan people. GAM thus has broad outreach though it is still a small organization quantitatively speaking and without ties to more organized grassroots movements. Its message—"Let us not forget"—finds resonance in all those who suffered the repression, and they are legion. In this sense GAM is more of a consciousness-raising than a mobilizing movement, and its voice has often been clearly critical of the Cerezo government.

The movement for land, which mobilizes peasants throughout the country, gets to the Achilles heel of the landowning bourgeoisie. It is clear that the land problem will be the most decisive factor in the class struggle in the coming years, making the current peasant movement fertile soil for the appearance of new organizations with similar objectives.

The labor federations have tried new approaches, and new organizations have come on the scene. On the right there is the Confederation of Guatemalan Labor Unions (CUSG), which is related to the AFL-CIO and must be understood as part of the counterinsurgency plan. Its goal is the modernization of society for the better development of capitalism. In the first six months of the year, the CUSG organized 74 new unions, most of which are peasant village organizations. However, its real impact so far is more in publicity than in mobilization.

On the center-right is the General Coordinating Committee of Guatemalan Workers, related to CLAT. It was founded in March 1986, and has its greatest strength in the National Association of State Workers. A heterogeneous federation, it rejects the government and is closer to UNSITRAGUA than to the CUSG.

UNSITRAGUA (Labor Union of Guatemalan Workers) has its greatest strength in a dozen urban industries—Coca-Cola is one of them—and in two large unions at the Izabal banana plantations. It seeks to maintain its autonomy from any movement on the left, to avoid becoming an instrument of the revolutionary organizations. Its weakness lies in its union leaders, who are new and have little experience in the recent struggles and in working with labor law.

In the business sector certain modernizing tendencies are being strengthened through various research centers. There has been an attempt to organize and control unions by branches of production rather than by factory, such as in the food industry, for example. This is a new trend, which should not be seen in isolation but as part of an overall strategy to neutralize a potentially dangerous workers' movement.

In the same way, the peasants' movement for land has sparked a debate among the landowners of UNAGRO. The more traditional wing believes that to give an inch of land is to risk revolution, but the more modern wing is trying to face the real problem and respond to it. UNAGRO vice president Teddy Plocharsky represents the latter way of thinking. "If the communists want to change the country into one of proletarians," he says, "we should change it into a country of property owners." UNAGRO is looking for ways to get into technological modernization, and the US Agency for International Development (AID) has worked with it in this regard. Its assistance programs ($100 million in 1986) have implemented in indigenous regions where the insurgency was strong a few years ago.

These modernizing tendencies within the Guatemalan bourgeoisie are not progressive, but neo-conservative. They are seeking to take advantage of this period, when the people are demobilized politically and militarily after the barbarism of 1980-1985, to create an expansive economy. Such an economy would be based on development of administrative quality, an austere use of foreign-exchange earnings and reforms aimed not at profoundly changing the economic structure but rather at containing the grassroots movements. In 1987 and 1988 tensions will increase between these neoconservative groups and the more reactionary sectors of the bourgeoisie and the military.

The indigenous population is still in very bad shape. The AID financing, which seeks to deprive the insurgency of any motive and to create new leadership almost exclusively around issues of ethnicity in the areas of protest (Quetzaltenango and Totonicapán), could produce bases for movements that would be less populist and more liberationist. The return of tourism and an environment filled with indigenous folklore, unrelated to real indigenous people, hides the hard reality of recent brutal repression.

Outbreaks of people's protest and spontaneous mobilizations are being seen throughout the country, except in the southeast. The very selective repressive forces want to eliminate the organizers of these outbreaks. The mobilizations are in a germinal phase and there are no proposals to unite them; the various initiatives remain isolated. No one current is gaining the high ground, nor are the revolutionary movements acting as the vanguard of these mobilizations. The present situation could be compared to a big cauldron of stew in which bubbles are beginning to appear, bursting on one side and then on another, with no pattern. When will the whole cauldron come to a boil?

Army without barracks, guerrilla forces shift strategy

As a civilian government, the Cerezo administration has tried to sell the image that with it the long periods of military governments have come to an end. But the army maintains a high degree of control over Guatemalan life and Cerezo's own executive office. The army is enjoying an energizing and refreshing breather with the Christian Democrat government.

For one thing, by withdrawing from the day-to-day business of governing, the army has been able to perfect itself as a counterinsurgency force. The consolidation of the high command and refurbishing of the military bases point to a greater concentration of power. The army has also become more professional, once again sending its officers to the School of the Americas in Panama. In an effort to beef up its weaponry, it is now negotiating to get heavy arms for the zones bordering on Honduras and El Salvador. The growth of its air force is also an important development. In fact, all of this is significant in the new "civilian" situation.

The army does not view its withdrawal from the state apparatus as a retreat to the barracks. "The counterinsurgency army is an army without barracks," they say, "and its barracks is the whole national territory." They are still in charge of the political counterinsurgency plan, which has "development poles" and "strategic hamlets" as its cornerstone. Each hamlet, with 40 to 50 army troops, is practically impenetrable by the revolutionary movement; air power is called in immediately if guerrilla forces approach.

In the military sphere, the army continues to lay down the laws of the war. The guerrilla theaters have been reduced to the zones of Nebaj, San Marcos, Suchitepéquez and El Petén, and the situation has remained the same in these theaters during 1986. According to Comandante Gaspar Ilom of the Revolutionary Organization of the People in Arms (ORPA), there were two large army offensives up to September 1986. In the second phase of the first of these offensives, begun in April, 70% of the army's troops were involved—between 30,000 and 40,000 men.

Facing this very active army is the Guatemalan National Revolutionary Union (URNG), which brings together the country’s four guerrilla organizations under one general command. Although URNG's data is not systematic, its partial reports indicate that the number of casualties it has caused the army has been going down since 1984, from an average of about 100 per month in 1984 and 1985 to about 50 per month in 1986. The most recent information from URNG also indicates that while military activity such as sabotage, ambushes and direct confrontations have been on the decline, there has been an increase in political activity: occupations of farms, villages or sections of highway and what has come to be known in Latin America as "armed propaganda." The latter can consist of anything from quick gatherings for a political talk to painting slogans on walls, all of which must be carried out with military cover.

All this suggests that the URNG is tending to place a higher value on the political aspects of the revolutionary struggle. For the first time, for example, it has proposed a dialogue to the government. On October 25, testing the President's capacity to follow through on declarations he made in Spain, the URNG proposed to Cerezo that a preparatory meeting for future dialogue at the highest level begin in the Spanish or Mexican Embassy in Guatemala.

The Minister of Defense responded first, turning down the proposal because to dialogue would be "to recognize a certain status in the insurgency that is not found in the Constitution." The government itself then issued a statement clarifying that "if the proposal is made officially, the government would send a delegate to listen and consider its seriousness." Three days later the President offered a blurry government version of a confrontation in which Guerrilla Army of the Poor (EGP) guerrilla forces supposedly committed atrocities on dead soldiers. Cerezo used this both to reject the possibility of a meeting and dialogue and to cast doubt on the URNG’s representativeness and its control over the insurgent groups. The URNG’s three basic proposals for the dialogue are to bring to trial the military officers responsible for the massacres, get the army out of the strategic hamlets and carry out real economic reforms.

What is new in the present situation is the revolutionary movement's shift to the political and the rise of grassroots movements in response to the economic crisis. This moves the focus from the military to the economic and political and opens up new challenges to all the social forces.

The Cerezo government has constantly proclaimed "active neutrality" in the Central American conflict as a formula to maintain its internal stability, but this is questioned by sectors of the armed forces. It is very probable that Guatemala would not remain neutral in case of a direct US intervention in Nicaragua or a conflict between Honduras and Nicaragua induced by the United States, but would play a rearguard role for the anti-Nicaraguan forces. The guerrilla organizations, which would not remain neutral either in such a case, have warned of increased Guatemalan military presence in the eastern triangle of the country, near the border with Honduras and El Salvador, in anticipation of a regionalization of the conflict. It must be kept in mind in any event that Cerezo's active neutrality is diplomatic and not ideological; the official Christian Democrat line is anti-Sandinista.

In the early days of the Christian Democratic government, Vice President Carpio Nicolle said of the neutrality policy, "Just as Nicaragua exports revolution, we will export democracy." This idea is also behind the creation of the Central American Parliament, seen by the Guatemalan Christian Democrats as a way to take the leadership in Central America and strengthen its influence with the Nicaraguan Social Christian Party, which it is already helping through economic support and leadership formation.

The US government, however, is not in agreement with this move for leadership or with these initiatives, which is why Cerezo's efforts are meeting with so many difficulties in the Reagan administration. "We don't understand the US," said a UCN congressman. "They wanted a democratic government, and now they want to make it part of their military strategy." Cerezo himself has said that his government is suffering more at the hands of the White House for what it is not doing than for what it is doing.

How do the various forces line up in this new situation? The rightwing sectors have taken advantage of the political space, overcome their differences and managed to strike an alliance with the new civilian government. The army has distanced itself from the government, restructured its internal organization and made new efforts at professionalization. But the army’s ideologues aren’t satisfied with the new situation: they feel that with smaller budgets they solved a series of minor social demands which the Christian Democrats are not able to resolve.

Guatemala has been overcoming its isolation in the international arena, and Cerezo is using this as a negotiating card in his dealings with the military and a power factor for his government.

As for the mass sectors, they are slowly gathering their forces. The picture has become more complex as the key element of the class struggle has shifted from military confrontation to the political and ideological struggle. The economic crisis and the land problem in particular is having the greatest impact, providing the dynamite for a powerful time bomb.

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Nicaragua at a Glance

El Salvador
Shifting Weight at the Two Poles

Economic Crisis: A Ticking Time Bomb

Chinks in the US Plan

Introductory Analysis: Central America's People Put to the Test

A Turn of the Kaleidoscope: Pieces in Motion

In Pursuit of Peace: New Victories, New Challenges
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