"Masterminding the Mini-Market: U.S. Aid to the Central American Common Market,"
Bodenheimer), Susanne Jonas (
To the average North American or Latin American taxpayer, the nature and workings of U.S. foreign aid programs remain a mystery, conducted behind closed doors. Although we pay for the show,...
...This arrangement gives ROCAP considerable indirect influence...
...really represented a series of stopgap measures, of non-structural responses to structural problems...
...4 " Even more important, as we shall see, the realities of Central American integration have shown in practice the fallacies of the U.S...
...The last-minute efforts to "save" the CACM in the early 1970s were wrecked by the coalition within Central America which the U.S...
...desire to counter CEPAL's influence in Central America...
...conversely, El Salvador's willingness to say "no" openly enabled the Guatemalan government to achieve its aims without looking like a spoiler...
...AID document cited in Cochrane, The Politics..., p. 210...
...First, most CEPAL functionaries and CEPAL as an institution did not stick to their original principles as forcefully as would have been necessary to pose a serious alternative to the U.S...
...1969, p. 669...
...Latin America, Oct...
...Fagan, op...
...corporations...
...these discussions were somewhat academic, however, since there was no clear indication as to where the funds would come from...
...In terms of both new industrial investment and trade creation, the overwhelming bulk of the gains had gone to El Salvador and Guatemala, and Honduras' disadvantage was getting worse...
...Feasibility Studies Industrial Projects Industrial Projects Telecommunications Industrial Projects Industry, Studies, Services Services, Goods & Ships Cap...
...Susanne Jonas (Bodenheimer) CACM Re-coup-eration...
...LAI/18 Second, even if CEPAL had retained its original stand, and even if that strategy had prevailed, it too contained fundamental contradictions...
...cit., p. 31 (my emphasis...
...intervention, since U.S...
...serious...
...objectives, and in the process, imposed on Central America a form of economic integration that was unviable...
...4 2 But the price has been high...
...Torres Rivas, Interpretaci6n del Desarrollo Social Centroamericano (San Josd, CR: EDUCA, 1971...
...aid" in the formative stage of the CACM...
...We make recommendations about infrastructure improvements needed to develop a new market, and arrange BCIE loans [to the Central American governments for the needed infrastructure...
...At the most obvious level, this is a, story of U.S...
...Washington was especially concerned about certain social conditions (such as the serious "overpopulation" problem in El Salvador) which might make Central America more susceptible to Commu- nist influence...
...Robert Denham, "The Role of the U.S...
...Department of State documents...
...business, especially U.S...
...We did this, for example, with International Nickel in Guatemala...
...In addition, the push for re-integration has been supported by the region's military leaders, who (especially since the Honduran coup) are seeking to form a central American military-ideological "community" (see "Integrating the Big Guns," below...
...aid to the CACM...
...Consequently, CEPAL understood that such integration would have to be implemented by the elites already in power within each Central American country...
...opposition and the lengths to which U.S...
...objective, the contradic- tions are even clearer...
...interviews...
...control in exchange for a few hundred million dollars...
...First, it stressed "gradual" integration, rather than immediate or total trade liberalization among the Central American countries: integration had to be carried out in such a way as to minimize "disturbances" to the national economies (e.g., "disturbances" resulting from suddenly exposing national producers to new competitors, or losing government revenues from import duties...
...According to one account, Lemus came to Wash- ington seeking U.S...
...Business Why did the U.S...
...government opposed the scheme on broader philosophical grounds: any mechanism which limited a corporation's right or opportunities to invest or its freedom of choice on location, or which restricted free trade, represented an undue and unnecessary interference with the "free play of market forces...
...Carfas and Slutzky (eds...
...If the governments were to promote legal regional monopolies, however, they also had to wield a strong hand in regulating their operations, to protect consumers and the national economies from the potentially harmful effects of monopolies...
...support, have created conditions which in the long run limited their own expansion in Central America...
...The best class analyses include: Edelberto Torres Rivas and Vinicio Gonzalez, "Naturaleza y crisis del poder en Centroamerica," Estudios Sociales Centroamericanos (Costa Rica) no...
...Fagan, op...
...and in Central America, and move the BCIE Board of Directors into action (in approving loans, etc...
...This study is based largely on interviews conducted in Washington and Central America, mainly In 1970 and 1971, and on unclassified documents...
...These examples are taken from AID loan agreements with BCIE and other institutions...
...and "international" aid agencies exerting U.S...
...And in fact the Bank has functioned this way: as one study summarizes the situation, As of April 1969, the Bank's overall resources amounted to $250 million, of which $215 million (or 86 percent) came from foreign sources-about three fourths from the United States and the biter-American Development Bank [BID], where the United States has decisive influence, and the other fourth from suppliers' credits granted by some Western Euro- pean countries and Mexico...
...various writings by Miguel Wionczek...
...cit., Project Analysis and Annex 1. 23...
...discussions, in order to preserve the CACM...
...Agency for International Development (AID), Regional Office for Central America and Panama (ROCAP), "A Report on Central America's Common Market and Its Economic Integration Movement," reprinted in U.S...
...and the withdrawal of Honduras from the CACM was a result of the failure to resolve the problems of unbalanced development, the U.S...
...By 1968, Guatemala contributed 34.2 percent of regional value added in manufacturing and El Salvador 23.8 percent, as compared with Honduras' 7.7 percent...
...Cochrane, The Politics . ., p. 220...
...Rather than avoiding intra-CACM imbalances, the U.S...
...influence, BCIE has followed a policy of "non-discrimination" against foreign capital in granting industrial loans...
...to channel U.S...
...Fagan, op...
...Home Loan Bk...
...pressured BCIE not to finance integration industries, even out of non-U.S...
...It would provide special protection for certain industries, but without setting up legal monopolies and without subjecting the plants covered to "rigid" controls...
...But despite the public stance of deploring the war, and washing its hands of all responsibility, the U.S...
...See Business Latin America (BLA), July 4, 1968, p. 209...
...could give to integration...
...Econ...
...But even this Protocol implementing the RII contained provisions which further emasculated it.* Moreover, the U.S...
...also Cochrane, "U.S...
...Assurances about "reciprocal benefits" or "balanced development" were necessary because of the historical imbalances within the region...
...4, 1966 (Washington: General Printing Office (GPO), 1966...
...These facts come from: Carras, op...
...investors in Central America...
...AID, "Summary Report of the Task Force on Central American Integration," in Marget et...
...Natl...
...68 ff...
...cit., pp...
...thus, Cruz had been regarded as the major stumbling block to normalizing CACM and CONDECA operations...
...CEPAL's exclusion left the way clear for a decisive role by the U.S...
...to support Central American integration, but there would also be an interruption on the part of the US...
...cit., p. 113...
...On the one hand, the U.S...
...Dell, A Latin American Common Market?, p. 66...
...See, for example, Wionczek, "The Rise and the Decline of Latin American Economic Integration," Journal of Common Market Studies, Sept...
...4. This account of U.S...
...Permanent Secretariat for Central American Economic Integration (SIECA) Within ten blocks of the ROCAP office in Guatemala City lie the offices of SIECA, the Permanent Secretariat for Central American Economic Integration...
...continued its campaign by other means...
...press opinion unfavorable to this economic policy might influence U.S...
...Congress of loan repayment), most Central Americans regarded it also as a bid to establish political control over BCIE's future operations, or feared that such control would be the effect of the clause...
...needed an institutional liaison...
...SIECA, El Desarrollo Integrado . ., p. 31...
...In the early years, when CEPAL was the intellectual leader of Central American integration, a number of SIECA officials (including the first two heads of SIECA) had been associated with or influenced by CEPAL...
...Rather, once the Central American governments had contributed their $4 million apiece to its capitalization, the Bank was to be primarily a magnet for attracting international funds to Central America...
...aid simul- taneously set in motion the forces that were to destroy it...
...We shall focus here on ROCAP influence in the two principal Central American integration agencies: SIECA and BCIE...
...There were equally important external pres- sures: specifically, the post-war need of the industrial corporations based in the advanced capitalist nations to expand and open up new markets for investment...
...investment...
...and its allies...
...In order to begin implementing the RII and to elaborate specific projects, the Central American governments called a meeting in Managua for * Most written accounts and U.S...
...THE U.S...
...Roque Dalton, "Notas sobre el Sistema Imperialista de Dominaci6n y Explotaci6n en Centroam6rica," OCLAE (Cuba) no...
...Moreover, Central America had not followed the example of the larger Latin American coun- tries, which took advantage of the Depression and World War II, and the consequent decline in U.S...
...Through SIECA-sponsored regional meetings of Ministers or lower government officials, as one ex-ROCAP officer with close ties to SIECA explained to me, ROCAP gains intelligence on who in each government is sympathetic and hostile to U.S...
...has aligned itself with a coalition of forces in Central America, in which the Salvadoran government and bourgeoisie were key...
...investment and aid (both of which CEPAL accepted as necessary...
...For these corporations too, Central America had to develop a larger market in order to be a worthwhile investment...
...Source: U.S...
...Although including CEPAL in the negotiations, the General Treaty followed closely the approach of the Tripartite Agreement, with one major exception: it formal- ly reincorporated the Agreement on Integration Industries...
...We must rely on information handed down from the public relations division of the official aid agencies, which projects a humanitarian image of aid as an example of the United States "helping" the "less developed nations...
...At the end of 1972 there were moves to change the situation...
...11, 1970 and Dec...
...cit., p. 37...
...98-9, June 10, 1971, pp...
...And the reliance on imports has increased (despite the shift in the composition of those imports), creating serious balance of payments and fiscal problems...
...s Worst of all, Honduras charged, the industries being subsidized were not really regional, insofar as a high proportion were assembly industries (usually U.S.-owned) using Guatemala, El Salvador, or Costa Rica as a base for putting together components imported duty-free from abroad...
...policy-makers to specific U.S...
...was well aware of the coming armed clash...
...Through these more subtle means, ROCAP has maneuvered SIECA into acceptable positions...
...In a 1966 meeting of the CACM Economic Council, Honduras secured passage of a few measures granting preferential treatment...
...At this meeting, CEPAL officials presented a series of projects, and each of the four delegations present selected one integration industry...
...March, 1963, pp...
...The crisis stimulated regional discussions during 1967 and 1968, which resulted in the adoption of the San Jos6 Protocol...
...agreements, and hoped to get Guatemala to go along with that position...
...a very shallow approach to preserving social stability...
...policy also reflected an aversion to the economic nationalism and protectionism inherent within CEPAL's formula for import-substitution, insofar as these violated orthodox notions of free trade...
...Cable, op...
...AID's penetration of SIECA and BCIE, as described above, was not accidental but deliberate, as revealed in an early AID Task Force Report: The U.S...
...3 6 Initially the U.S...
...The loan had already been approved by the BCIE Directors (one Director for each country, elected by the Board of Governors...
...This loan was a $5 million credit line, to be used by BCIE for relending to private industrial investors in Central America...
...8-11, 1970 (Guatemala: SIECA, 1970...
...See discussion in Hansen, op...
...Hegemony in BCIE Having become the main sponsor of BCIE, the U.S...
...technical experts and advisers from AID and the newly-created BID, even in such sensitive areas as selection of personnel...
...Fagan, op...
...one Central American company imports screws without indentations, puts the indentations in, and sells these as Central American...
...the mild and seemingly reasonable position of "opposing" integration industries, of discouraging participation of U.S...
...Moreover, this kind of industrialization has led directly to the withdrawal of Honduras in 1970 and the collapse of the CACM as a free-trade area.* Thus, the multinational corporations, with official U.S...
...In its formative stage, during 1961, the Bank relied heavily on foreign (U.S...
...Yet there is a fundamental contradiction in the U.S...
...The least acceptable aspect of this proposal to the region's industrialists was that it would curtail the freedom of private investors and allow the inter-governmental Economic Council to make decisions without consulting the private sector...
...Unfortunately, the U.S...
...The negotiations broke down because a coalition of powerful interests that had benefited from Central American integration during the first ten years insisted on preserving those privileges and refused to allow even the mildest reforms...
...conception of BCIE...
...Moreover, the structure of the Central American economies has barely changed...
...1 3 This Regional Office of AID for Central America and Panama, ROCAP, was established in Guatemala in July, 1962...
...Attitudes...
...This brought two results...
...was also maneuvering to consolidate its hegemony in BCIE by appointing a BCIE Executive Vice President (similar to the one in BID, who has veto power over BID operations whenever he chooses to exercise it...
...Beyond the immediate problem of this particular loan, ROCAP felt that "effective control of [BCIE] must be placed in the hands of its Directors...
...From the Tripartite Agreement, it was only a small step to the General Treaty of Economic Integration, signed in December, 1960...
...In fact, this was not true, since the Central Americans had actually approved several protocols at the meeting...
...This article is a summarized version of a much longer and more detailed study of U.S...
...The leader of the coup and new President of Honduras, General Oswaldo L6pez Arrellano, was much more cooperative and "flexible" on these questions...
...aid as a means of manipulating people and governments in Central America to suit the particular needs and whims of U.S...
...Second, they attribute to the U.S...
...but, with U.S...
...In practice, BCIE has left the initiative in the hands of the private sector, responding on a firm-by-firm basis to loan requests, and, as the 1970 World Bank mission pointed out, analyzing those loan requests from the standpoint of the firm, rather than in terms of the firm's contribution to the national or regional economy...
...But even though signing separate trade agreements with Guatemala, Costa Rica, and Nicaragua in the summer of 1971, Honduras remained firmly outside the CACM...
...aid, designed to make direct military intervention in Central America unnecessary, may well fail to do so...
...firms, and this naturally is not well received in the U.S...
...Agency for International Development (AID) recommended that a new AID office be set up in Central America, with the following functions: to regionalize AID efforts...
...But despite the outward appearance of good will, there is substantial evidence that the Guatemalan government covertly shared the positions being voiced publicly by El Salvador...
...Boston Fed...
...18, 1970...
...funds from the program...
...interests were being represented by the privileged groups in Central America...
...For example, in the only major policy dispute between the U.S...
...aid to the region if the integration industries scheme was pursued any further.* A February, 1962 memo from the U.S...
...cit., pp...
...operations throughout the Third World, interviews, poetry and music...
...The ruling class in each country had attempted to use the integration movement as a way of dealing with basic problems without making the necessary social reforms...
...maintains its supervision of BCIE on a regular basis, with several ROCAP officials flying to Tegucigalpa for at least a couple of days each week.-Foreian Loans to BCIE through Seitember.1972 a" - Source of Loan To BCIE Ordinary Fund AID-598-001 AID-596-002 AID-596-004 AID-596-010 BID-33/SF-CA BID-50/SF-CA BID-93/SF-CA BID-152/OC-CA Banco de Mexico Dollar Bonds, 1976 Consortium of Italian Banks Netherlands Investment Bank Bank of America Bank of America Bank of America Bk...
...had projected a low-profile image...
...and we recommend strongly that the influence of our government continue to be thrown in that direction in the handling of whatever further consequences may be found to follow from the Managua meeting...
...Its sophistication and subtlety notwithstanding, the U.S...
...Those social classes which were to have been incorporated within the national market have been marginalized...
...Moreover, ROCAP financial contributions and influence have shifted over the years from strictly "technical" to increasingly "political" areas--to "straight budget support...
...See Marco Virgilio Carias, "Analisis sobre el Conflicto Honduras-El Salvador," in Marco Virgilio Carras and Daniel Slutzky (eds...
...see also SIECA, Acta Final de la Tercera Reunibn de Ministros de Economia de Centroamkrica, Dec...
...In May, 1962, recognizing AID's intransigence on the matter and BCIE's financial dependence on AID, BCIE Directors recommended that the Governors approve the loan on AID's terms...
...s Much of this money is used to contract experts to do studies in specific fields: all experts contracted with funds from ROCAP and the Inter-Ameri- can Development Bank (Banco Interamericano de Desarrollo, BID) must be approved by those agencies...
...Second, apologists for the U.S...
...also Molina Chocano, Integraci6n Centroamericana . ., pp...
...See, for example, BLA, April 1, 1971, pp...
...pressure through BID, BCIE had to sign a secret memo (which was not included in the public loan agreement) promising not to use BID resources "to finance any industry which constitutes a monopoly...
...The function of the Central American state, and of the intergovernmental integration institutions, meanwhile, has been "reduced...
...2 6 Mrst, they minimize the role of the U.S...
...Joseph Grunwald, Miguel Wionczek, and Martin Carnoy, Latin American Economic Integration and U.S...
...spent several hundred million dollars by 1970...
...Interviews with ex-ROCAP and -BCIE officials...
...position on "balance" was only one aspect of a larger strategy for industrialization, which we shall examine briefly...
...producers...
...Schmitter, op...
...investors, most of the Central American private sector (minus that of Honduras), and the governments of El Salvador and Guatemala...
...8, 1972...
...indicated a curtailment of Alliance for Progress funds in the area...
...From this perspec- tive, the struggle between the U.S...
...Even if there was no explicit agreement between the two countries about not signing the m. o., in practice, strong support from Guatemala enabled El Salvador not to sign...
...6 2 Second, despite protestations of neutrality, the U.S...
...strategy...
...Bennaton, op...
...objectives: first, to promote the interests of U.S...
...It provided that a plant in certain industries which required access to the entire regional market in order to operate "economically" would be designated an "integration industry" and would enjoy several economic benefits and protections for ten years-the primary benefit being that the products of the designated plant would enjoy free access to the entire market, while competing goods would remain subject to national tariffs...
...firms...
...al., op...
...Economic Commission for Latin America, representing the interests of the less privileged sectors of the Central American business community and of the technocrats, those sectors which for reasons of self interest were temporarily in conflict with the narrow objectives of the U.S...
...intervention unnecessary...
...Strategy But the attempt to preserve the dependent capitalist system is inherently contradictory...
...What did the U.S...
...to the creation of favorable conditions for private enterprises and the protection of a process of dependent industrialization...
...To summarize, We identify new projects (i.e., new market possibilities, waiting to be developed...
...Without assurances about equal distribution of the benefits of integration, it would be difficult to convince the relatively less developed nations, Honduras and Nicraragua, that the CACM was worth the sacrifices it entailed...
...11, 1970, on m.o...
...officials were enraged by this meeting, referring to it privately as the "crime of Managua," and deploring the subservience of Central American officials (especially in SIECA) to CEPAL...
...cit., passim, David Tobis, "The Central American Common Market," NACLA Newsletter, Jan...
...In addition, CEPAL would have had to make a total break with the U.S., and thus to reject U.S...
...Moreover, SIECA has not challenged U.S...
...What does this story mean to the majority of Central Americans who have been paying the bill, but who have not benefited from the hundreds of millions of dollars of U.S...
...No one who has visited Central America in the late 1960s or early 1970s could seriously argue that the "threat" of internal revolution or class conflict has declined since 1960...
...These difficulties were compounded by the unregulated proliferation of assembly industries, which generated large, inflexible import requirements...
...was forced upon Central America by U.S...
...Border incidents continued sporadically throughout 1970 and 1971...
...The real reasons are diffi- cult to detect, because they are hidden behind a facade of stated justifications and rationalizations.* The real concern focused on the effects of the scheme on U.S...
...AID, "Summary Report...," p. 21...
...1970, pp...
...In response, during the next couple of weeks, Honduras repeatedly threatened to pull out of the CACM, but few believed it could afford to do so...
...would channel its aid funds, and which would give preferential treatment to the less developed nations...
...10-11...
...It soon became clear that international financing was not to be a subordinate or "complementary" source for BCIE funds...
...prevented other international lending agencies, especially BID, from lending directly or indirectly to integration industries...
...s If El Salvador openly took a hard line, Guatemala played a double game during the negotiations...
...El Salvador's population density in 1969 was over 380 persons per square mile, as compared with 57 persons per square mile in Honduras...
...strategy for Central American integration...
...in the area...
...funds through BCIE until December, 1963, by which time the U.S...
...and "the enthusiasm of foreign business interests (together with their Central American business associates) which have been the main beneficiaries to date" are attempting to put the CACM back together and to restore "stability" there.' The international aid agencies, including the World Bank, have been offering new loans as an incentive...
...policy in Central America...
...2 Thus, to be a corrective influence, according to CEPAL, integration must be based on regional planning and on mechanisms specifically designed to insure a "fair distribution" of the gains from integration among all member countries...
...In the following weeks, diplomatic relations were broken off, both governments geared up their armed forces, and the tension level rose...
...El Grdfico, Nov...
...9. J. Abraham Bennaton, El Mercado Comun Centroamericano: Su Evoluci6n y Perspectivas (thesis) (Tegucigalpa: Universidad Nacional Aut6noma de Honduras, 1964), p. 101...
...THANK YOU TIO SAM We took their fish and left them bones took their copper and left them stones took their fruit took their oil took their lumber stripped their soil made them grow coffee instead of corn so their children starved before they were born we took their cattle, took their meat left their people with nothing to eat built roads and ports to rob them faster (Gringo aid is a national disaster) and now we all wonder and brood at Latin America's ingratitude...
...newspapers, as compiled by Information Services on Latin America (Box 4267, Berkeley, CA 94704), a monthly clipping service of eight major U.S...
...Reciprocity and the desire not to benefit some nations at the expense of others implied a third principle, namely that industrial investment should be based on some form of regional planning...
...It reveals how, in the very process of building an institution, U.S...
...2 " BCIE officials spent the next several months attempting to renegotiate the loan to meet the Governors' objections, but without success...
...Hansen, op...
...Specifically, the RII provided that each nation must receive one integration industry before any nation could receive a second one...
...5, 1970 and Nov...
...Cable, "The Football War and the CACM," Internafional Affairs, Oct...
...From this general concern evolved the idea of amending the BCIE Charter, to provide that the Governors delegate the right to approve future loan agreements to the Direc- tors...
...allowed the Salvadoran ruling class to wage this war, in order to preserve the escape valve of Salvadoran migration to Honduras...
...But the U.S...
...to succeed, since the U.S...
...policy in any basic way...
...These principles were reflected in the two integration treaties signed in 1958...
...562, March, 1967, pp...
...Now that they are in a financial bind, we are getting into other areas...
...Honduras was suffering from diminished fiscal revenues as a result of the exportation by the ,more developed members of the CACM of their pseudoCentral American products to Honduras exempt from tariffs...
...assistance funds.96 Lured by the $100 million bait, the governments of El Salvador, Honduras, and Guatemala began a series of discussions...
...Molina Chocano...
...Somehow, it seems, the U.S...
...3 3 Furthermore, "the possibility of U.S...
...Here ROCAP can, and we intend to, exercise more over-all strategic leverage-by ear- marking funds for specific tasks and insisting on their setting priorities...
...5 6 Nevertheless, although the measures under discussion were vastly inadequate to the basic problems, the m.o...
...officials charged), but to imperfections in its application...
...see also Banco Centroamericano de Integraci6n Econ6mica (BCIE), Informe de la Primera Reuni6n de la Asemblea de Gobernadores, May 30-June 1, 1961 (Tegulcigalpa: BCIE, 1961) (BCIE/AG/1), p. 16...
...THE CACM IN (PERMANENT) CRISIS Although it was only one manifestation of Central American underdevelopment, the issue of regional imbalance became the main impetus propelling the CACM toward its dissolution...
...nonetheless insisted that it was com- mitted to "balanced development," to be achieved through different mechanisms...
...representative Marget restated the U.S...
...177-9, Aug...
...Attitudes...
...1950s, culminating in the U.S.-sponsored ouster of Arbenz in 1954...
...In short, CEPAL would have had to address not only the intra- regional disparities, but also the disparities stemming from the class structure of dependent capitalism...
...Second, and closely related, was the principle of "reciprocal industrialization," i.e., the effort to assure all of the Central American nations of an equal opportunity to industrialize...
...had no policy: It is understood-from very well informed Washington sources -that the U.S...
...The gaps in income distribution have widened steadily...
...of El Salvador's President Jos6 Maria Lemus...
...Meanwhile, the lack of an agrarian reform has created increasing impoverishment in the countryside...
...opposition to the integration industries scheme crystallized early: according to one high ex-CEPAL official, the Guatemalan government came to Tegucigalpa in June, 1958, under pressure from the U.S...
...remained basically hostile, attempted to squelch all CEPAL-inspired proposals in inter-American meetings, and regarded CEPAL as a rival and a nuisance because it raised embarrassing questions about U.S.-Latin American relations.6 Beyond the competition for power and influence lay a profound philosophical/political dispute between the U.S...
...Thus, in the very process of incorporating the RII, the General Treaty "virtually nullified" its impact, in the words of a State Department analyst...
...companies, such as John Deere and Ford...
...24-5...
...3 0 The first, and most crisis-ridden, stage of the integration industries battle more or less ended with the adoption of the Protocol in January, 1963...
...To the lives of these people, the ups and downs of the CACM have made little apparent difference...
...In interviews, de Beausset demystified the concept of promotion" by giving me examples of his work...
...employed a subtler long-range strategy, of encouraging dependent industrialization (which allowed maximum freedom for U.S...
...Hansen, op...
...and "international" aid agencies at work...
...in addition, several U.S...
...government was committed to protect...
...45 ff...
...wanted the m.o...
...Agency for International Development : BCIE: Banco Centroamericano de Integraci6n Econ6mica (Central American Bank for Economic SIntegration) BID: Banco Interamericano de Desarrollo (InterAmerican Development Bank) CACM: Central American Common Market CEPAL: U.N...
...would tolerate no restrictions on the access of foreign (primarily U.S...
...3) Regional Industrial Policy: In a quasi-revival of the integration industries scheme, this industrial policy would promote certain basic industries and would simultaneously further balanced development, by permitting only one plant in these industries and having the CACM Economic Council determine its location (giving preference to Honduras...
...established certain power relations within Central America which would make overt U.S...
...Although U.S...
...Guatemalan and Salvadoran newspapers...
...Despite announced SIECA policy that foreign budgetary assistance should not amount to more than the total paid by the five Central American governments, in fact the U.S...
...negotiations broke down in the end was a kind of backhanded tribute to those limited advances, an indication that someone's interests were being threatened...
...cit., pp...
...Although we pay for the show, we seldom see it...
...By the 1950s, the region remained economically dependent on a few agricultural exports, such as coffee and bananas, whose prices in the world market fluctuated greatly and constantly...
...hoped for a favorable outcome of the m.o...
...Under this agreement, which resulted from direct U.S...
...6 1 The U.S...
...cit., p. 24...
...The relative absence of overt political friction is also the outgrowth of a style which almost precludes policy clashes-a style based partly on personal friendships between high SIECA and ROCAP officials...
...and provision would be made for two funds to finance the integration projects...
...In this way too, the CACM has been used as a substitute for structural reform...
...and these problems were compounded by the fierce U.S...
...has promoted in Central America a policy of non-regulation of private (mainly U.S...
...would not go so far as to suspend all U.S...
...sought to institutionalize its influence in two ways...
...watched the movement for Central American integration from the sidelines...
...It would have had to push for a redistribution of resources within each country...
...We find local partners for foreign investors and convince foreign investors of the political advantages of working with a local partner...
...interest...
...cit., p. 55...
...The very need for a serious restructuring such as was discussed during the m.o...
...Trade, p...
...flag vessels, U.S...
...5 9 Moreover, Guatemala actually supported El Salvador at crucial moments during the negotiations, particularly at the end...
...Even after World War II, this situation had not changed...
...subsidiary was designated an integration industry, a competing U.S...
...SIECA is empowered to formulate proposals which serve as the basis for inter-governmental negotiations, to supervise implementation of the integra- tion treaties, and to serve as troubleshooter in disputes and crises...
...Attitudes...
...officials went to thwart the RII...
...The promise of U.S...
...corporations) in Central America, and of building a coalition with the most privileged sectors of the local bourgeoisie, which would then act to promote U.S...
...Eximbank (Coop...
...During the soccer war too, the U.S...
...Marc Herold, Industrial Development in the Central American Common Market (manuscript) (Berkeley: Univ...
...policy-a very weak and limited challenge-came from the U.N...
...cit., pp...
...Further- more, the government of Nicaragua agreed in writing not to oppose the establishment of a similar caustic soda plant in Central America, enjoying equal trade privileges...
...8. ROCAP, op...
...This clause required prior approval by AID of further borrowing by BCIE and gave AID "the occasion to require subordination of later loans if [AID's] position appeared to be jeopardized...
...cit., p. 68, and Dell, Trade Blocs and Common Markets (NY: Knopf, 1963), pp...
...Fulbright, quoted in New York Times, July 24, 1969...
...The question arose as to whether this aid cut-off should include AID funds channeled through BCIE...
...That same narrow definition of U.S...
...officials realized that if they allowed the movement to continue in the same direction, it could produce "undesirable" results...
...government until the Central American governments decided what policy to follow...
...5. Isaac Cohen, Regional Integration in Central America (Lexington, Mass.: Heath, 1972), pp...
...interests...
...Ramsett, op...
...began to mold it to suit U.S...
...By 1968, Honduras and Nicaragua were accumulating substantial trade deficits with their CACM partners...
...4 3 In response to public criticism, BCIE has curbed lending to wholly-owned subsidiaries of foreign corporations...
...This was the essential irrationality of the U.S...
...The total effect of * Marget, a former high functionary of the U.S...
...as an External Actor in the Integration of Latin America," Journal of Common Market Studies, March, 1969, p. 200...
...correspondingly, Honduras' position has worsened...
...in areas of policy initiative...
...in February, 1960, the three signed the Tripartite Agreement of Economic Association, establishing the basis for immediate free trade for almost all commodities originating in member nations, and, in principle, the free movement of capital and people...
...It reveals the workings of the aid agencies, both directly through manipulation, and indirectly through their allies in Central America...
...From the beginning, CEPAL viewed regional integration as a way of modernizing the Central American economies within the capitalist system...
...Thus, the fact remains that U.S...
...60-1...
...In one of his famous outbursts, in a March, 1962 meeting, Arthur Marget implied that U.S...
...newspapers...
...would contribute as much as $100 million to a Fund for integration...
...In short, balanced development was a secondary objective...
...What were those objectives...
...corporations and a broader threat to the interests of the capitalist system, which CEPAL did not present...
...corporations...
...Second, the U.S...
...The Salvadoran daily, El Diario de Hoy, editorialized that U.S...
...SIECA is a principal agency of the CACM: although it has no ultimate policy-making authority (this authority remains in the hands of the five governments), SIECA enjoys considerable prestige by virtue of its concentration of technical exper- tise and information...
...41-3...
...This article is an attempt to peep through that keyhole...
...had recognized the new Honduran government...
...interests would be adversely affected by a collapse of the CACM, the U.S.-unlike its allies in Central America-apparently was willing to accept certain limited reforms, to avoid such a collapse...
...Certainly the facts substantiated this assertion.* The serious disparities revealed that Honduras had been adversely affected by the very policiespromoted by the U.S.-which benefited the private sector in El Salvador and Guatemala...
...Home Ln...
...aid helped create-and destroy-the Central American Common Market (CACM...
...Such a situation actually did arise in the mid-1960s, in the dispute between GINSA in Guatemala (which at the time had technical assistance from and minority stock ownership by General Tire) and Firestone in Costa Rica, putting the U.S...
...Whatever the legalities of the U.S...
...And in fact, ROCAP, having learned the advantages of presenting a low profile in public, has seldom exerted direct and overt pressure on SIECA...
...Lea and Perrins imports Worcestershire sauce in bulk, bottles it in small bottles, and sells this as Worcestershire sauce "made in El Salvador...
...The meeting resulted in a joint Lemus-Eisenhower communi- qu6, calling for the "establishment of an economically sound system for the integration of the economies of the Central American Republics...
...hegemony, CEPAL officials "gave up their role as agents of change and became agents of the status quo...
...As a result, the region's balance of payments deficit with the rest of the world more than doubled between 1963 and 1968.49 By early 1967, the balance of payments situation became critical, especially in Costa Rica and Nicaragua...
...and second, to stabilize the potentially explosive situation in the region, defend it against the internal "Communist" threat, and reduce class conflict, thereby strengthening capitalism...
...Mary Mackey December, 1961...
...But this is also a story of contradictions, a demonstra- tion that the mechanisms of capitalism sometimes do break down almost of their own accord, or as a result of conflicts among the dominant groups...
...7. Cited in Cohen, op...
...In fact, representatives of U.S...
...On the one hand, "outside political pressure" (i.e., from the U.S...
...BLA, July 17, 1969, p. 226...
...The entire process was engineered independently of CEPAL-even "in defiance of it...
...also interviews and general reading...
...Second, even if it had been signed, the m.o...
...once CEPAL's existence was an accomplished fact, the U.S...
...Pennsalt-A Caustic Story One of the most blatant instances of U.S...
...81-4...
...But in fact, the integration process has changed the conditions of their struggle for survival--and for liberation...
...and Guillermo Molina Chocano, Integraci6n Centroamericana y Dominaci6n Internacional (San Jos4, CR: EDUCA, 1971...
...In short, having strengthened the position of its allies, the U.S...
...exerted direct control over the CACM, by penetrating the principal CACM institutions, and by intervening decisively and strategically in the controversy over integration industries...
...A new impetus for concrete discussions was the hint by the 1959 Frank-Turkel mission that the U.S...
...Moreover, if it is properly carried out, it can serve many interests of the U.S...
...Banana Republic Splits In the aftermath of the war, Honduras used this opportunity to insist on a general restructuring of the CACM...
...also Cochrane, "U.S...
...Cochrane, The Politics...
...No investor can ever be sure that designation of an industry related to his...
...Some of the working meetings were held in Washington...
...officials hoped, moreover, to weaken forever the influence of CEPAL's Mexico office...
...14, 1969, p. 257 and Jan...
...was interested in opening up Central America for trade and investment by U.S...
...6 7 As a result, socio-economic conditions within each country for the majority of the population have worsened.** This, in turn, has sharpened social tensions...
...The Directors, feeling their direct responsibility to the Bank, took a "pragmatic" view of the need to accept AID conditions in order to get the funds to start Bank operations...
...New York Times, July 22, 1969...
...During the m.o...
...In all the decisive debates in the early stages of the CACM (the Tripartite Treaty, integration industries, etc...
...prodding and financing, the Bank has continued to spend a considerable portion of its institutional energy and resources on programs to stimulate foreign investment...
...as a source of information...
...The Governors, on the other hand, being Ministers of Economy and heads of Central Banks in each country, were under political pressures of nationalistic sentiments in their countries...
...investors, it could have accepted a degree of planning...
...But even more important, the Salvadoran government and business community never accepted the overall objectives of achieving balanced development through restrictions on private investment (such as the restrictions implicit in the industrial policy) or of restructuring the CACM along the lines demanded by Honduras...
...Development Loan Fund (DLF) (precursor of AID), Proposal and Recommendations of the Managing Director, Loan Paper for Loan DLF-210 (A-001) to Central American Bank for Economic Integration (P-266/2) (Washington: DLF, 1961), Project Analysis, p. 7. 21...
...Third, the U.S...
...cit., p. 19...
...The price of U.S...
...By the 1950s, according to certain general economic indicators, Honduras and Nicaragua were relatively less developed than their neighbors and growing more slowly...
...Miguel Wionczek, "Latin American Integration and U.S...
...Thus, despite the low U.S...
...Private (especially foreign) investors, for example, have always favored the areas of relatively greater development-in this case, El Salvador and Guatemala...
...Hispanic American Report (HAR) (Stanford, Calif...
...was to articulate its interests through its Central American allies...
...2 0 The implication was that AID could suspend disbursements on the loan if it did not approve of a subsequent debt incurred by BCIE...
...Throughout the 1950s at CEPAL-sponsored meetings, there were discussions of a Fund to minimize dislocations and finance industrial expansion...
...cit., p. 83...
...The effect of this threat was not immediately clear...
...Thus, the strong pressures from the U.S., from Central American economic interests that have benefited from the CACM, and from regional military leaders, plus the recent change of government in Honduras, may produce a CACM settlement within the next few years...
...cit., pp...
...interviews...
...2. Keith Griffin, Underdevelopment in Spanish America (London: Allen & Unwin, 1969), p. 272...
...had been less concerned about protecting the absolute freedom of U.S...
...Thus, the Treaties of 1960 did not represent, as is generally claimed, an "acceleration" of the integration process...
...The business communities voiced strong opposition to it, with the result that only Nicaragua ratified it immediately...
...Feasibility Studies Industrial Projects Export & Tourism Industries Industry, Infrastructure Industry, Infrastructure Preinvestment Studies Industry, Telecommunications Industry Economic Development Industrial Development Industry Industry Industry, Tourism, Exports Industry, Tourism, Exports Industry Industry Industrial Projects Industrial Projects Industrial Projects Industrial Projects Ind...
...94701...
...was designed to normalize, not to restructure, the CACM...
...s To this end, then, the U.S...
...Related to these economic pressures was an important political consideration: the desire by U.S...
...and Philippe Schmitter, Autonomy or Dependence as Regional Integration Outcomes: Central America (Berkeley: University of California, Berkeley, Institute of International Studies, 1972...
...285, 291-2...
...CEPAL This diction U.S...
...6. Cohen, op...
...Even in October, 1963, Central American economists feared that the unfavorable reaction reported in the U.S...
...We have worked out seven major industries which are needed in each country, and which are priorities for BCIE loans...
...Manufacturers Hanover Trust Manufacturers Hanover Trust Wells Fargo Bank Cent...
...This coalition included: U.S...
...position, however, it seems quite plausible that the U.S...
...companies, as well as the Central American economies, were hurt by the collapse of the CACM...
...but that if the U.S...
...71 ff...
...Roy McVicker, Aug...
...To summarize briefly: the CEPAL-inspired Treaties of 1958 implied gradual integration, minimizing the "disturbances" to the national economies caused by integration, and, above all, stressed balanced growth among the countries, through regional planning and coordination...
...28-9, 39...
...Fagan, op...
...AID could prevent its credit lines to BCIE from going to integration industries, since all BCIE sub-loans using more than $500,000 of AID funds required direct AID approval...
...for an evaluation, see Dell, op...
...The U.S...
...The Hard Liners Carry The Day Specifically, which interests were responsible for torpedoing the negotiations...
...support...
...Goods, Pub.& Pr...
...supported El Salvador, both directly and indirectly...
...hoped to stabilize the soeio-economic system in Central America, but without making the necessary reforms...
...Recognizing that U.S...
...Most important, as the price for implementing the RI (which El Salvador had always opposed), El Salvador proposed a "Special System" which was to serve as a substitute for the RII...
...We work with local investors to get them into new fields, to find them a "technical partner" [a U.S...
...Senate, Joint Economic Committee, Latin American Development and...
...A New Direction for the CACM Thus, by the late 1950s, the U.S...
...2 2 In addition, the U.S...
...policy...
...support for Central American integration was acceptance of that shift in orientation, and exclusion of CEPAL as a primary actor...
...International Bank for Reconstruction and Development (World Bank), Report of the Industrial Finance Mission to Central America, Annex (Washington: World Bank, 1971), Table 78...
...PENETRATION OF CENTRAL AMERICAN INTEGRATION INSTITUTIONS Once having got its foot in the door of Central American integration, the U.S...
...Within the context of industrial planning, the RII implied the recognition of "natural monopolies" in certain sectors, particularly for a market as small as the Central American...
...SIECA is also useful to the U.S...
...Throughout the first ten years of the17 CACM, the U.S...
...Cohen, op...
...investment...
...But the measures advocated by the U.S...
...But General Somoza, President of Nicaragua, is also President of my country...
...corporate interests, and to keep the region safe for U.S...
...If Arbenz' reforms were unacceptable, some alternative would have to be found...
...2) Origin of Products: In response to complaints by the less industrialized countries, especially Honduras, that they were being forced to subsidize industrialization in Guatemala and El Salvador and that this industrialization was not even legitimately "Central American," the five governments drew up an agreement to help determine the origin of goods "produced in Central America...
...13-14...
...and interviews...
...2 4 In addition, the U.S...
...Clearly, a major objective of the scheme was to stimulate the establishment of large-scale, basic industries...
...see also Nye, op...
...The longer version of this article contains an extensive analysis of the m.o...
...This tendency has been institutionalized and rewarded through subsequent policies and incentives...
...In the final negotiations, this change was made...
...Programs provide background and analysis of current events in Latin America, discussions of U.S...
...Senate, Joint Economic Committee, Subcommittee on Inter-American Economic Relationships (Washington: GPO, 1963), p. 26...
...Thus, during the 1950s, CEPAL worked closely with Central American business leaders...
...was not able to distinguish between CEPAL's challenge to the narrow interests of U.S...
...bid for control over BCIE's operations came during the negotiations for the first AID loan to BCIE...
...aM for U.S route fb This qu of CEPR the mo headed many t tions, tl stages), after th other g terests policy...
...cit., p. 37...
...Herold, op...
...Attitudes toward Central American Economic Integration," Inter-American Economic Affairs, Autumn, 1964, pp...
...A further result of permissiveness toward foreign investors and giveaway incentive programs has been to encourage "industrias de fantasma"-phantom industries, i.e., those which assemble, mix, or re-package imported components, and thus contribute little to the Central American economy...
...Because they were dependent-because they were controlled by foreign corporations and adapted to imported, capital-intensive technology-industrialization and integration did not alleviate urban unemployment...
...Wionczek, "The Rise...," p. 57...
...THE BEGINNINGS OF THE CACM Since the sixteenth century, capitalist underdevelop- ment and foreign domination have been more pronounced in Central America than in any other part of the hemisphere...
...Simultaneously the U.S...
...Clearly, the State Department knew what it wanted...
...c) Figure not exact due to rounding...
...During the negotiations a clear difference had emerged between the Directors and the Governors of BCIE...
...The U.S.-inspired Treaties of 1960, on the other hand, eliminated the mechanisms for regional planning, and subordinated balanced growth to immediate and unrestricted free trade...
...Coop...
...In many respects, then, the ROCAP-SIECA relationship has been less painful than most donor-recipient relationships in the foreign aid game...
...see also NACLA, Yanqui Dollar (Berkeley: NACLA, 1971), pp...
...Washington voiced its positions indirectly through El Salvador, as well as directly...
...For one thing, as was pointed out by Senator J. William Fulbright, U.S...
...objectives is taken from James Cochrane, The Politics of Regional Integration: The Central American Case (New Orleans: Tulane University, 1969) pp...
...representative, Arthur Marget, and as confirmed by others) Marget drafted a communique, which the State Department issued to the Central American Embassies in Washington, threatening a weakening of overall U.S...
...investment alone amounted to nearly $.5 billion...
...profile during the events of 1969-70, we cannot accept the view that the U.S...
...On the other hand, the basic problems leading to the dissolution of the CACM have not been resolved...
...Contradictions of the U.S...
...Economic Policies," in Robert Gregg (ed...
...Union Bank of Switzerland Consortium of Swiss Banks Syndicate of Belgian Banks Bk of London & So...
...1963 Housing Program 1970 Housing Program 1970 Housing Yes 40 2.5% Yes 40 2.5% Yes 40 2.5% Yes 50 1.25 + .75% Yes 30 3.25 + .75% Yes 30 3.25 + .75% Total Integration Fund Yes 40 .75% No 24.5 8.125% No 25 8.125% Total Housing Fund Total All Funds Amount of Loan ($ millions) 5 2.5 10 30 6 8.2 3 10 5 1 0.225 1.3 1.35 5 2 2 1.43 3 1.74 4.6 5 7.2 1.5 2 6.4 5 1.3 3 3.3 3 1 5 1 148c 35 20 30 2.6 11.f 20 119c 10 5 5 2 0c 287c a) This chart does not include technical assistance grants to BCIE or to other CACM agencies such as SIECA...
...26-7...
...authority in shaping the CACM than the controversy, at times battle, over integration industries.* The integration industries scheme (RII) was a CEPAL-inspired mechanism to insure balanced industrialization in Central America...
...negotiations, the U.S...
...But the strategy of dependent industrialization, which made the CACM a virtual playground of the U.S...
...Industrialists in Honduras later c' arged that "the accelerated pace of economic integration...
...Unfortunately, the clearest formulations of U.S...
...but we seldom if ever get to peep through the keyhole of the closed doors, to see the U.S...
...4) Fund for Agricultural and Industrial Development: As a final gesture toward correcting imbalances within the CACM, the governments resolved to create a new Fund, which would provide loans on easy terms, giving preference to enterprises in the relatively less developed countries...
...p. 83 and in Cochrane, The Politics...
...Other sources for this box include: other issues of Latin America...
...As stated in inter, views, both parties realized that their public image would be ruined if the relationship became too visible to outsid- ers, and recognized the importance of being discreet...
...objective was stabilization of the potentially explosive situation in Central America and defense against the "internal Communist threat...
...AID Regional Office for Central : America and Panama : SIECA: Secretaria Permanente del Tratado General : de Integraci6n Econ6mica Centroamericana (Per- manent Secretariat for Central American Economic Integration) list over a period of ten years...
...BCIE, Informe de la Primera Reuni6n Extraordinaria de la Asemblea de Gobernadores, March 12-13, 1962 (Tegucigalpa: BCIE, 1962...
...But the signing of the CEPAL-inspired Treaties in 1958 made clear that the Central Americans were moving ahead with their plans for economic integration and awakened U.S...
...26, March-April 1972, p. 52...
...In addition, Honduras was subsidizing industrial development in these countries, at great cost to all sectors in Honduras (i.e., higher prices and lower quality for Honduran consumers, negative trade balances, loss of government revenues, and industrial unemployment...
...This account is taken primarily from interviews...
...After the signing of the 1960 General Treaty, CEPAL's in- fluence in SIECA, as throughout Central America, de- clined greatly, and was replaced by U.S...
...The U.S...
...2 9 After making this open threat, Marget questioned the validity of Article 17 of the General Treaty (which formally incorporated the RII...
...Contributions to the Fund would also be proportional, with the countries enjoying the greatest benefits from the CACM paying a larger share...
...The U.S...
...cit., p. 19...
...by the end of the 1960s, largely as a result of ROCAP prodding, informal and formal channels for SIECA consultation with the private sector were well developed and integral to CACM functioning...
...This conclusion is based on interviews with participants and newspaper accounts...
...The only significant shift in class structure during the 1960s was the incorpora- tion of new groups, mainly industrialists, into the ruling class, 6 6 solidifying the alliance with foreign capital...
...According to several accounts, BID initially approved the loan, but subsequently reversed its position, after the U.S...
...But in the long run, the internal contradictions of the CACM may well prove greater than the will of the United States...
...But CEPAL's commitment to planning should not obscure certain realities about CEPAL and its strategy...
...Export Bank of Japan Export Bank of Japan Spain, Dollar Bonds Tecniberia (Spain) Kreditanstalt Bank (Germ...
...Especially since BCIE is located in Honduras, BCIE officials feared that such a move would put BCIE in an "unbearable" position...
...this would have permitted greater balance within Central America, hence a more stable CACM, and more effective stop-gap reforms within each country...
...Specifically, this article* tells the story of how U.S...
...officials (in interviews) have distorted the story of this controversy in several ways...
...CEPAL had always been persona non grata in official Washington circles...
...Stuart Fagan, Central American Economic Integration: The Politics of Unequal Benefits (Berkeley: University of California, Institute of International Studies, 1970), p. 8. 41...
...ROCAP, op...
...Internally, the only alternative to total dependence on unstable agricultural exports was "import substitution" (industrialization within the region, to produce the goods previously imported...
...Secretaria Permanente del Tratado General de Integraci6n Economics Centroamericana (SIECA), Presupuesto de Ingresos y Egresos para el Aio 1970 (Budget for 1970) (Guatemala: SIECA, 1970), p. 9; and interviews with SIECA officials...
...position on integration industries...
...3 ' This was an early example of how the U.S...
...341 ff...
...Once it became clear that the RII would not necessarily be used to exclude U.S...
...Cochrane, The Politics..., p. 212...
...This has limited the expansion of the domestic market, which is necessary for increased foreign investment in Central America...
...Martha Griffiths, Economic Policies and Programs in Middle America, Report for U.S...
...Rather than undertaking an agrarian reform to provide the people with land and jobs, the Salvadoran ruling class (particularly the 1 percent of the population that owns 40 percent of the nation's arable land) has insisted that El Salvador needs an escape valve, an outlet for the large mass of landless rural and urban unemployed, i.e., through migration to neighboring countries, especially Honduras.s" And when this escape valve was closed off-that is, when Honduras refused to permit its land to be used as Salvadoran lebensraum and threatened to expel Salvadoran migrants--the Salvadoran ruling class resorted to war to preserve this outlet...
...But the more immediate consequence was the collapse of the CACM in the late 1960s...
...Finally, what was the role of the U.S...
...aid funds to the new military government...
...As BCIE President Ortez put it to me, "We have no prejudices against foreign capital...
...2 3 ROCAP has also kept close control over BCIE through a series of "precedent conditions," accompanying loan agreements, which BCIE must fulfill before receiving loan funds...
...Statement by Guatemalan Minister of Economy, El Grdfico, Dec...
...The first public signs of a more active interest came with the 1958 state visit to the U.S...
...Ibid., p. 218...
...in reality, according to observers with reliable inside information, El Salvador never had any intention of signing the m.o...
...cit., p. 24...
...For example, El Salvador has done this with regard to its "population problem," Honduras with its fiscal problems, and Costa Rica with its balance of payments problems...
...And the President of the United States is more President of my country than the President of my country, who, as I said, nowadays, is called Colonel Fidel Sanchez Hernandez...
...with Central Americans whose interests coincided with U.S...
...5 3 THE MODUS OPERANDI Because the modus operandi (m.o...
...Second, there were technical deficiencies of the scheme, which have been pointed out by "developmentalist" critics as well as by apologists for U.S...
...4 1 This strategy has achieved dramatic results in terms of new investment: the inflow of foreign capital more than tripled between 1960 and 1968, and by 1968 the book value of U.S...
...investors, the U.S...
...As the Honduran Minister of Economy stated in 1969, integration had brought Honduras fewer benefits and greater sacrifices than the other partners...
...Cohen, op...
...CEPAL, The Central American Common Market and Its Recent Problems (Santiago: CEPAL, 1971) (E/CN.12/885), pp...
...In many respects "promotion" is just a new name for the basic approach that the U.S...
...for an account of these initial steps, see also U.S...
...The triggering event was a series of soccer games between Honduras and El Salvador, which led to riots in Honduras and the expulsion of 11,000 of the 300,000 Salvadorans living in Honduras...
...In their private conver- sations with Central American Ministers, Frank and Turkel spelled out the principles underlying the U.S...
...Although Guatemala never stated openly that it would not go along with the Fund or the industrial policy, throughout the negotiations Guatemala and El Salvador were in agreement on all the major issues, including the view that the m.o...
...Thus, the RII provided for strict regulation of supply, prices, quality, and other aspects of the integration industries...
...pressure against it...
...The Salvadoran delegation received special attention from Thomas Mann, ex-Ambassador to El Salvador, and by 1959 Assistant Secretary of State for Inter-American Affairs...
...pressure," and that the first copy of the initial declaration among the three countries "was printed in English and had to be translated into Spanish...
...intended that the principal role in industry should be left to private initiative.4s As a consequence, BCIE has not attempted to set guidelines for private investors, nor to regulate the degree of penetration by foreign capital...
...2) a report on recent events in Chile, the Dominican Republic and Panama...
...Cohen, op...
...not finding such a person, Washington settled for a Central American, but retained the right of the U.S...
...wanted a specific commitment, through a treaty, to achieve a common market within a very short time (three years...
...interests...
...on most issues-specifically, the business community and those governments (El Salvador and Gua- temala) representing the most privileged business groups...
...Examples of these accounts are: Cochrane, "U.S...
...A third objective was the promotion of balanced development within the region...
...In the first half of 1969, Honduras suffered a trade deficit of nearly $5 million with El Salvador alone, and its imports from El Salvador amounted to 168 percent of its exports there...
...firm would doubtless exert great pressure on the State Department not to permit such favors to one corporation...
...we understand that big projects require foreign capital...
...pressure occurred in relation to the first Nicaraguan integration industry, Pennsalt, a caustic soda plant, and a direct subsidiary of Pennsalt Chemical Corporation in the U.S...
...company, and because the $600,000 would be used only to buy machinery, etc., from U.S...
...World Bank, op...
...In short, the U.S...
...Marget was attempting to force a reversal of these actions...
...3, 1969...
...In short, the commitment of U.S...
...p. 89...
...position maintain that the RII was badly designed, full of ambiguity and hence susceptible to political favoritism.35 Despite the grain of truth in these "technical" arguments, the principal motivations for U.S...
...15, 1970...
...2 8 At the March, 1962 Extraordinary Meeting of the BCIE9 Governors, U.S...
...officials fearing too much CEPAL influ- ence in SIECA, and SIECA officials complaining of the aggressiveness and rigidity with which U.S...
...Simultaneously, the U.S...
...has consistently refused to allow U.S...
...5 1.25% over Lon...
...Regional Economic Commissions and Integration in the Underdeveloped Regions," in Joseph Nye (ed...
...In order to qualify as "Central American" and hence to enjoy full free trade privileges, a product would have to contribute a certain minimum "regional value incorporated" or comply with certain standards of "minimum processing" in Central America...
...10 ff...
...cit., p. 59...
...CEPAL helped draft the BCIE Charter, but the basic concept was modified signifi- cantly from the earlier CEPAL-influenced notion of "balance": specifically, the BCIE Charter made no mention of a regionally planned list of priority industries or of the integration industries scheme...
...pp...
...0 First, and always foremost, the U.S...
...This is not to say that the RII could have resolved Central America's problems of underdevelopment...
...And finally, it remains to be seen whether and how Nicaragua's position is affected by the December, 1972 Managua earthquake...
...Thus, a 1961 Task Force report of the U.S...
...Finally, the U.S...
...Serv...
...op...
...The situation with regard to assembly industries is symptomatic of a more general characteristic of BCIE industrial lending under U.S...
...35-6, 40...
...The "benefits" from integration have all gone to the upper dass, particularly the industrialists...
...The President of my country nowadays is called Colonel Fidel Sanchez Hernandez...
...cit., pp...
...For all the emphasis on industrialization, the region has remained essentially dependent on a few traditional agricultural exports to the world market...
...henceforth the U.S...
...An institution that leaves the initiative with the private sector could hardly be expected to promote risky ventures in new fields...
...employed a subtler long- range strategy of allowing the process of dependent indus- trialization set in motion by 1963 to play itself out...
...Finding that no AID funds were available to an integration industry, they attempted to get BID funds channeled through BCIE (as an industrial relending credit line...
...did represent a clear acknowledgment of those problemsperhaps the first large-scale honest appraisal of the costs of Central American integration...
...STEPS IN Throughout the 1950s, the U.S...
...By setting up shop in Central America, U.S...
...agreements...
...cit., p. 151...
...This did not mean, however, that the U.S...
...DLF, op...
...Attitudes...
...But such industrialization required a larger market in the region-to be achieved either through far-reaching social reforms which would bring millions of new consumers into the market, or through a common market which would combine the small markets of the five countries...
...The need for this Fund, with its objective of promoting balanced development, evidenced the failure of BCIE, whose Charter had stated the same objective ten years earlier, and which had, in fact, allocated a higher proportion of its funds to Honduras and Nicaragua...
...First, the U.S...
...The fruit of this policy was a syndrome of dependent industrialization, which did not alleviate the general unemployment, balance of payments, and fiscal problems of all the Central American countries, and which aggravated the intra-regional disparities and imbalances.4 In the long run, this policy could not work, because it did not address the real problems of underdevelopment in the region...
...336-9...
...retaliation through a cut in its financial aid to the Bank is apparently sufficient to preclude Bank officials from ex- tending loans of less than $500,000 for 'integration indus- tries.' 34 Such retaliation was more than a remote threat: on one occasion in 1963 AID posed the possibility that the U.S...
...In short, Nicaragua agreed to give up its integration industry and all the attendant benefits from the Protocol of 1963...
...Task Force on Central American Integration stated, We therefore welcome wholeheartedly the joint AID/State Instruction sent to the Central American Embassies on integrated industries as a step indispensable in the interest of keeping the industrial development of Central America pointed in the right direction...
...Devel...
...In the words of the State Department Many private investors...
...16-19...
...A final, less overt, objective of the RII was to regulate the extent of foreign capital in these major industries, by stipulating a minimum percentage of local capital for each integration industry...
...20, 1970...
...By late 1970, it hardly mattered that the U.S...
...5, 1971, p. 244...
...Throughout the 1950s and 1960s, plans for Central American integration were linked with unifying the defense establishments of the five countries (see "Integrating the Big Guns," in this Report...
...foreign policy...
...Schmitter, op...
...A third concern about the RII was that private U.S...
...SIECA, El Desarrollo Integrado...
...Nevertheless, AID imposed its discipline on BCIE, preventing the disbursement to Hondurans of U.S...
...had good reason for wanting to preserve peace and stability in Central America and, after the war, to normalize the situation in each country and between the two...
...b) Tied to purchases from BID/IMPF members...
...International Organization in the Western Hemisphere (Syracuse, NY: Syracuse University Press, 1968), pp...
...assistance to push ahead with the integration program...
...37-52...
...26-9...
...became obsessed with preventing similar revolutions in other countries...
...It has encouraged duplication of investment-the most extreme example being petroleum refineries (of which there are six in the region, each owned by a foreign oil company) and auto assembly plants, of which there are six in Costa Rica alone...
...really objected more to the consumer protection regulations of the RH than to the existence of a monopoly per se...
...officials focuses on the monopolistic nature of the integration industries, and insists that U.S...
...BCIE, Informe de la Primera Reunibn Extraordinaria...
...A Central American free trade area, placing no restrictions on investment and offering proper investment incentives, would create a larger market and new opportunities for U.S...
...corporations to the Central American market...
...20, 1972 and Dec...
...This December, 1961 meeting prompted an overt power play by the U.S.: (as recounted by a high Central American official, who claims to have heard it directly from U.S...
...8-10, 1965) (Washington: GPO, 1965...
...In order to exert direct control over the daily operations of the CACM institutions, the U.S...
...Thus, CEPAL offered no serious alternative to the CACM...
...Eximbank 2653-CA U.S...
...was not made at the last minute...
...will not seriously affect his own business...
...Initially there was considerable distrust between the U.S...
...meanwhile, the costs of integration (e.g., the regressive sales taxes, to compensate for the governments' increasing fiscal problems) have been borne by the lower income groups...
...La Guerra Inutil (San Jose, CR: EDUCA, 1971), esp...
...Economic Commission for Latin America (Comisi6n Econ6mica para Am6rica Latina, CEPAL...
...campaign against the RII...
...Since no Communist or Castroist threat was apparent on either side, the U.S...
...Sources for this section include: ROCAP rhemos, Sept...
...For one thing, the scheme was designed only to preserve a balance among the underdeveloped countries of the region, not to improve living conditions for the lower classes or to alter the relations of power within each country...
...15, 1962 (Washington: AID, 1962), pp...
...If is little Re-cou...
...Through its financial leverage, the U.S...
...Fagan, op...
...share (directly and through international lending agencies) has been substantial: at the beginning it was over 50 percent, and by 1970 it remained as high as 40-48 percent (according to different estimates...
...After Nicaragua secured integration industry status in the January, 1963 Protocol and Pennsalt was ready to proceed with the investment, the principal backers of the project sought additional funds...
...The irony of this position is that, of the two existing integration industries, GINSA in Guatemala is now a subsidiary of Goodyear-in direct violation of the 1963 Protocol granting GINSA integration industry status...
...corporations were holding back their investment in Central America because of the RII-because the privileges given to integration industries "exclude the possibility of competition by other U.S...
...Moreover, Marget saw a favorable tendency in the U.S...
...firms, and of withholding U.S...
...Federal Reserve Bank, was a key figure in BCIE's formative months, holding the double title of Regional Representative of AID (before ROCAP existed) and Financial Adviser of BCIE.11 the meeting of Managua has been to delay support which the U.S...
...intervention and the direct imposition of U.S...
...What, specifically, does this approach entail...
...Roque Dalton (El Salvador)15 evicted the Salvadoran migrants...
...has imposed conditions specific to BCIE (e.g., requiring agency approval of how BCIE spends industrial relending credit lines from AID and BID-see below...
...Write to NACLA, Box 226, Berkeley, Ca...
...When a group of Guatemalans came to us with a project for a tractor assembly plant, we financed a feasibility study and tried to interest several U.S...
...p. 82...
...Ind., Ag., & Tourism Projs...
...But the underlying problems were left unresolved...
...In response to similar social tensions, in order to relieve pressure for land, the Honduran ruling class, in turn, O.A.S...
...Concretely, with the signing of the General Treaty of 1960 and the establishment of the Central American Bank for Economic Integration (Banco Centroamericana de Integra- ci6n Econ6mica, BCIE), the U.S...
...At their December, 1969 meeting, the five Foreign Ministers established a commission to study the total reorganization of the CACM and a forum for the Ministers of Economy to discuss a modus operandi-a temporary basis for holding the CACM together until a more permanent restructuring could be agreed on...
...go to such lengths to thwart the integration industries scheme...
...has been primarily responsible for the evolution of BCIE...
...Since each integration industry was to have a major impact on the economy of the host nation, the scheme could be used to prevent further concentration of industry in El Salvador and Guatemala...
...This measure, which Honduras justified as a way of correcting its severe economic problems caused by the CACM, amounted to a withdrawal from the CACM...
...1972...
...approach...
...have proven grossly inadequate...
...Another force strongly backing the Salvadoran position was the business community in Central America (minus that of Honduras), particularly the organization of industrialists, FECAICA...
...Dalton, op...
...Comisi6n Econ6mica para America Latina (Economic Commission for Latin America) FECAICA: Federaci6n de Camaras y Asociaciones Industriales Centroamericanas (Federation of Central American Chambers of Industry) m.o.: modus operandi SRII: Regimen de Industrias de Integraci6n (Integration Industries System) * ROCAP: U.S...
...In addition, since Honduras' departure, Costa Rica's position has deteriorated to the point where President Figueres began threatening to formally withdraw from the CACM...
...J. Alan Brewster, "The Central American Program for Integrated Industrial Development," Public and International Affairs, Spring, 1966, pp...
...in response to the coup, the Kennedy Administration cut off all U.S...
...financial support was a "vital condition" enabling the three nations to move ahead, and determining the new direction of integration (allowing greater freedom for "market forces...
...Miguel Murillo, "El Nucleo de Contradicciones del Proceso Integracionista Centroamericano," Estudios Sociales Centroamericanos no...
...In order to assure regional "balance," the location of that plant would be determined by an inter-governmental regulation...
...Ibid., p. 23...
...strategy amounted to letting them grow, then correcting them through a special fund (which became the BCIE), through which the U.S...
...cit., p. 143...
...HAR, Oct., 1963, p. 948...
...Each half hour show is available on cassette tapes at $4.00 for individuals, and $8.00 for libraries and educational institutions...
...This ideology is so prevalent that even the progressive functionaries I interviewed at the Bank seemed to be seduced by it...
...auspices: the Bank's refusal or structural inability to develop a set of priorities for industrial lending...
...cit., pp...
...strategy was to cut off all available sources of funding, and thus to undermine the integration industries, which were by definition such large undertakings as to require outside funding...
...to use the Bank as an instrument of its foreign policy...
...BID funds ($1 million) were finally used to finance the BCIE loan to Pennsalt-but only after an agreement had been reached which effectively annulled Pennsalt's integration industry status...
...cit., pp...
...Herold, op...
...Once having accomplished its purpose of undermining the RII, AID subsequently (in 1967) allowed $600,000 of its own funds, through BCIE, to be used to finance Pennsalt, both because this operation would directly benefit a U.S...
...In this particular case, the contradictions did not remain implicit, but were actually played out in the late 1960s, through the collapse of the CACM...
...278-9...
...By the mid-1960s, all of the Central American countries were feeling the effects of a generalized balance of payments crisis, rooted primarily in the worsening position of the region's exports to the world market...
...policy during the...
...The U.S...
...p. 82...
...The implications of this story go far beyond Central America, and apply to hundreds of institutions in underdeveloped countries, which have felt the heavy hand of the U.S...
...economic interests crippled the U.S...
...The Arbenz experience in Guatemala demonstrated that Cen- tral America could not necessarily be taken for granted by the Western capitalist powers...
...The modus operandi discussions began seriously, after a six-month delay, in July, 1970, and continued until December, 1970, amid increasing pressures and hopes for a successful outcome...
...this treaty would establish low external tariffs and complete freedom of movement of goods, capital, and people within the common market...
...The result has been to aggravate inter-country tensions and hasten the collapse of the CACM...
...BASTA V A DO SQMPW20 References 1. See Roger Hansen, Central America: Regional Integration and Economic Development (Washington: National Planning Association, 1967), p. 66...
...33-4...
...s It soon became clear that their mandate went beyond fact-finding...
...The only challenge to U.S...
...3, Sept.-Dec...
...6 By the end of the 1960s CEPAL had lost its potential function as an outside critic or "conscience" of the CACM, and never seriously challenged the strategy imposed by the U.S...
...Jerome Jacobson, "Developing Policies and Programs for Central American Economic Integration," in Arthur Marget, et...
...Ind., Ag., & Tourism Projs...
...First and most obvious, the breakdown of the m.o...
...By imposing its strategy during the formative years of the CACM, the U.S...
...Soccer and Underdevelopment If any doubts remained as to the serious problems in the CACM, they were dispelled by the sequence of events beginning in June, 1969...
...investors would never embrace a scheme so full of regulations on price, quality, supply, and especially on the proportion of local capital...
...Aside from the 1-2,000 casualties and 100,000 refugees, the war caused a total disruption of CACM trade, particularly since Honduras closed its portion of the Pan American Highway to Salvadoran goods...
...SIECA, El Desarrollo Integrado de Centroamrrica en la Presente Decada (Guatemala: SIECA, 1972) (SIECA/72-VII6/36), p. 33, Tables 5, 13;El Grdfico (Guatemala), Feb...
...corporations investing in the region...
...Clearly, the study concludes, BCIE has been more success- ful in attracting foreign assistance than in mobilizing regional funds (see chart).8 Establishing U.S...
...The first to recognize regional economic integration as a strategy for avoiding a general social and economic crisis in Central America--as an alternative to basic change which required no real challenge to capitalism or to existing power relations in the region-was the U.N...
...This description obscures the full extent of U.S...
...Acosta speech, reprinted in Carfas, op...
...structure, timetable, institut- ions, and the like...
...managed to step in, once the groundwork for Central American integration had been laid, and to impose its own conditions...
...Even before the coup, L6pez had been meeting with Presidents Arana and Somoza of Guatemala and Nicaragua...
...With a population growth rate of 3.8 percent a year, El Salvador has 3.3 million persons squeezed into 8,000 square miles...
...Finally...
...But the class inequalities would not have been resolved...
...Salvadoran troops invaded Honduras on July 14, and only withdrew by the end of July in the face of heavy pressure from the OAS, which was attempting to mediate the conflict...
...corporations...
...4 And so on, ad infinitum...
...At the outset, for example, there was great antagonism between SIECA and various private sector organizations in Central America...
...Andrew Wardlaw, Achievements and Problems of the Central American Common Market (Washington: Dept...
...This time, Nicaragua was included, and the door was left open to Costa Rica (which finally joined in 1963...
...On every issue, important concessions were made to privileged business interests which had benefited from integration during the 1960s and wanted to preserve the status quo...
...and when the Central American Ministers of Economy met in January, 1963, to definitively approve and sign the first Protocol implementing the RH (granting the status to two plants), they did not know what to expect from the U.S...
...STRATEGY FOR DEPENDENT INDUSTRIALIZATION By winning on the RII issue, the U.S...
...corporations...
...Honduras was in effect subsidizing the industrial development of the other Central American states .. .. In order to correct these imbalances, Honduras needed preferential treatment and special privileges...
...Equally important, by 1963, the U.S...
...had set into motion and nourished those forces which finally destroyed the CACM...
...66, June 1972, pp...
...Cruz had been resisting pressures from the Presidents of Guatemala, Nicaragua, and El Salvador (and indirectly from the U.S...
...In our daily lives, both in the U.S...
...London: Oxford University Press, 1966), p. 55...
...The rationale was that in order to mobilize sizeable amounts of money from international financial agencies, BCIE had to look good to those agencies and conform to their standards...
...exerted direct pressure on BCIE...
...Molina Chocano, "Interdependence or Dependence," CERES (FAO), no...
...First, it revealed the problems inherent within Central American "development" during the 1960s--the problems of unequal benefits for some countries, of subsidies to private (mainly foreign) investors at high cost to consumers and state treasuries, of imported technology and raw materials, of16 industrialization based on the merging of five tiny upperand middle-class markets...
...For example, Castillo, op...
...Thus, we may speculate, if the original CEPAL strategy had prevailed, the crisis and collapse of the CACM might have been postponed, since the regional imbalances would not have escalated so rapidly to the critical point...
...Morgan Guaranty Trust Co...
...thus, as AID officials came to realize, the Governors could not be relied on to comply automatically with U.S...
...purposes...
...achieved a strategic victory over CEPAL and the CEPAL approach of planned industrialization...
...While AID officials insisted that this clause was strictly a banking measure (to reassure U.S...
...As noted even by a 1970 World Bank study mission, the indiscriminate application of the laws has led to a sharp loss of revenue (from import duties and taxes foregone) to the governments, and has rewarded the utilization of imported rather than regional raw materials...
...We have to do it that way-not because BCIE doesn't have the money, but because his full salary is $35,000 a year-more than Ortez [President of BCIE], and it would create a political scandal if de Beausset received that amount publicly from BCIE...
...could subsequently achieve its policy aims without resorting to the overt manipulation characteristic of the early years...
...firm...
...and other articles by Cochrane...
...Moreover, as an outgrowth of its concern since the early 1960s about the explosive potential of El Salvador's "population problem," some charge, the U.S...
...cit., p. 24...
...See, for example, documents cited in Cochrane, "U.S...
...had nothing to do with those events...
...technical and finan- cial assistance...
...Foreign investors should have absolute freedom to invest in any country (with no regard for regional balance) and in any sector (permitting even takeovers of locally-owned enterprises in traditional sectors, as well as total dominance in the newer and more modern industries), to use local credit resources, to import any technology (without concern for the effect on employment), and so on...
...Having managed to weaken but not totally destroy the RII through the 1960 Treaties, the U.S...
...had helped establish the dominance of those groups within Central America whose interests coincided with those of the U.S...
...and SIECA, with U.S...
...Wionczek, "Latin American Integration .," p. 127...
...In fact, the intra-regional imbalances are increasing: since the end of 1970, Guatemala's trade balance vis-a-vis its CACM partners has improved even more...
...yet AID, as well as the World Bank, has criticized BCIE for this failing...
...Quoted in ibid., p. 25...
...The end result of these cross-pressures, primarily from AID, is that BCIE is little more than a commercial bank with low interest rates, rather than a development bank.14 From the above, it is clear that the U.S...
...And General Stroessner, President of Paraguay, is also a little bit President of my country, though less than the President of Honduras, that is to say General Lopez Arellano, and more than the President of Haiti, Monsieur Duvalier...
...Hondurans and other observers doubt that El Salvador would have launched the war without a green light from Washington...
...If a (U.S...
...Second, the U.S...
...But these problems were not due to the basic premise of industrial planning (as U.S...
...AID, "Guatemala's Trade with Honduras" (Guatemala: AID, May 1971...
...BLA, Aug...
...210-11;also Rep...
...5 Finally, an important reason for its interest.at this particular time was the U.S...
...First, the other four countries were divided as to how to relate to Honduras, with Guatemala and El Salvador taking a hard line, of proceeding without Honduras-even if this involved the temporary loss of trade with Honduras...
...negotiations touched on all the exposed nerves of the ten-year-old integration process in Central America, it is worth mentioning briefly a few of the main substantive issues and the dynamics of the negotiations...
...Apparently the old fear persisted that business interests dictate U.S...
...approach has not worked out in practice...
...position that, in implementing the RII, the meeting in Managua represented a "step backward" from the 1960 Treaty, and that this "retroceso" was becoming an obstacle to U.S...
...and to make sure that integration did not take a direction detrimental to U.S...
...In its steadfast opposition to the integration industries scheme, the U.S...
...p. 85...
...Most of these plants employ fewer than 50 (of whom half are in executive or administrative positions), import everything but the water and air used in mixing, and enjoy full fiscal incentive benefits and unrestricted profit remittances...
...Aside from the concrete i Tblems the RII posed for private U.S...
...also regarded it as a "workable substitute" for the RU...
...The Treaty attempted to minimize the "disturbances" and dislocations in the national economies which could result from a more rapid liberalization of trade...
...Although used by local investors as well, in practice these laws have been designed largely to appeal to foreign corporations...
...What was the significance of the modus operandi...
...officials, who espoused free enterprise and free trade as absolute principles, regarded CEPAL's tenet that investment decisions should be based on planning as overly "statist," tending toward "socialism," hence dangerous...
...Aside from feeling that the private sector should be consulted on all CACM decisions and regarding as illegitimate any decision made without its approval, FECAICA held positions similar to those voiced by El Salvador...
...Programs now available include: 1) an interview with Jean Marc von der Weid, exiled former president of the student union of Brazil...
...One such incident followed the October 1963 overthrow of the constitutionally elected Villeda Morales government in Honduras...
...Moreover, the m.o...
...76 ff., based on U.S...
...Tegucigalpa: 1962), p. 18...
...as a result, U.S...
...hope to achieve through this power play, and how did it force an alteration of the Central American integration process...
...In the process of cooperat- ing with the U.S...
...military assistance had increased the influence of the military in both countries...
...Specifically, BCIE has failed to perform the promotional functions of a development bank...
...offer of $10 million to the proposed Bank-although the final amount of the loan was only $5 million...
...The negotiations broke down abruptly in December, 1970, just as they were apparently closest to reaching a successful conclusion: the government of El Salvador, under intense pressure from the Salvadoran private sector, refused to sign, claiming the agreements would give away too much to Honduras...
...As a result of the disruption of trade, new foreign investment in the region has fallen off markedly since the end of 1970...
...to coordi- nate U.S...
...Even by conservative (World Bank) estimates, by 1970, 32 percent of BCIE industrial loans had gone to foreign-controlled firms, and an additional 34 percent to regionally controlled firms with foreign equity or technical assistance partners...
...8, 1970, p. 16...
...policy created a context in which the RII could not be used toward its original objectives of planned industrialization and balanced development within the capitalist framework...
...The Tripartite Treaty of February, 1960, deliberately left out the RII and was incompatible with it...
...Central American Bank for Economic Integration (BCIE) If ROCAP's relation with SIECA resembles an illicit love affair, its relation with BCIE is more like a traditional marriage, with the economically and politically stronger partner (the U.S...
...investors in Central America...
...approval of all sub-contracts, no trade with socialist countries...
...all the SIECA Actas (Minutes) of the meetings of the Ministers of Economy during the second half of 1970, and the working papers prepared for those meetings...
...and CEPAL...
...Schmitter, "Central American Integration: Spill-over, Spill-around, or Encapsulation?," Journal of Common Market Studies, Sept...
...AID also learned another valuable lesson from this incident...
...If CEPAL had really wanted to follow through on its principles of planning and bal- ance, it would have had to challenge the power of the capitalist class within Central America, since this class would never accept intergovernmental planning (e.g., through the integration industries scheme) unless its sur- vival as a class was threatened...
...94-5...
...perceive CEPAL as a threat also gave the U.S...
...Carras, op...
...But CEPAL was not prepared to do this...
...To the U.S., then, balance was desirable-so long as it could be achieved without upsetting the free play of market forces and the freedom of firms to choose their investment location...
...opposed even the mildest forms of government planning until the "new look" of the Alliance for Progress brought a change of rhetoric in the early 1960s...
...But on December 31, 1970, Honduras issued Decree 97...
...had been working with and strengthening for ten years.4 i.e., another experience with a progressive, nationalist government, such as that of Jacobo Arbenz (1951-4), which dared to regulate the operations of U.S...
...This general Agreement was based on the idea that, for certain major industries, the Central American market could sustain only one plant...
...The U.S...
...cit., p. 42...
...208 ff.;.and Cochrane, "U.S...
...has certainly contributed to the conservativeness of the Bank's lending policy and the timidity with which it has dealt with the issue of "regional" loans going to predominantly extra-regional capitalists.4 On the other hand, this posture has also had its negative aspects, even from the standpoint of the U.S...
...companies closed down their Central American operations...
...dominating...
...Working in conjunction with certain groups in Central America during the 1950s, CEPAL presented economic integration as a necessary complement to import substitution, particularly for countries with tiny domestic consumer markets...
...was particularly interested in preventing a "security threat" in Central America, because of the region's strategic location as the gateway to the Panama Canal...
...But the internal and external pressures to industrialize were mounting...
...and interviews...
...With regard to the second U.S...
...corporations, a second problem arose: if a U.S...
...to "improve private investment" in Central America...
...AID loans, "AID-ROCAP funds even paid the Bank's administrative overhead...
...6 5 ** While the population grew at a rate of 3.2 percent a year and higher in the cities, urban unemployment and underemployment have risen, and industrial employment has declined as a percent of total employment...
...But this was part of the alliance being built up by the U.S...
...CEPAL's integration strategy was based on certain principles...
...See, for example, statement by Emilio Collado, Vice President and Director, Standard Oil of New Jersey, in U.S...
...THE CONTRADICTIONS OF DEPENDENT CAPITALIST INTEGRATION Once operant proved further during commo re-unifi tive...
...and other foreign corporations have been the main beneficiaries of Central American integration...
...to normalize relations with El Salvador and with the CACM, insisting on a prior settlement of the border dispute with El Salvador and a restructuring of the CACM...
...redirected it, Central American integration could be perfectly consistent with, and could be used to further, U.S...
...The only real alternative would have been a common market based on thorough structural reforms within each country and a radical change in the class basis of power, leading to a large-scale redistribution of income and a broad market incorporating the lower classes in each country...
...Examples from Levine, op...
...Similarly, if the U.S...
...company Is wavering as to whether or not to invest in Central America, we try to convince the sponsors to invest here, by offering loans and other incentives...
...and CEPAL, and between the two coalitions they represented, was a struggle within the dominant groups, a struggle between two different strategies for preserving the dependent capitalist system in Central America...
...Underlying the war were the same factors that had caused earlier CACM crises...
...4 First, the U.S...
...The main objections of the Governors centered on clause 6.09(c) of the draft loan agreement...
...Senate, Joint Economic Committee, Subcommittee on Inter-American Economic Relationships, Latin American Development and Western Hemisphere Trade (Sept...
...First, especially during the formative years of the CACM, from 1960 to 1963, the U.S...
...cit., pp...
...policy are contained in classified documents, to which I had no access...
...Just as the ties binding Central America to the capitalist system have shifted from the national to the regional level, so too, the resistance is being regionalized...
...has been pushing in Central America since the late 1950s, and whose product is dependent industrialization...
...Second, and closely related, the CACM structure has suffered because the response of each member to its deepening internal problems has been to project these onto the Central American stage, to avoid dealing with them nationally...
...interests in the region...
...also continued its campaign against the RII through financial leverage...
...in these cases, to avoid duplication and encourage efficiency, exclusive free trade privileges would be granted to one plant...
...Among the most important issues were the following: 5 5 1) San Josg Protocol: Final implementation of the Protocol (see above) had to be negotiated, specifically the stipulation of which industries would be exempt from the 30 percent import duty surcharge...
...corporation that comes in to provide technical expertiseusually paving the way for a takeover by the U.S...
...policy were not technical, but ideological and political, and responsive to U.S...
...cit., p. 85...
...19, 37 ff...
...effort * It is clear that U.S...
...These statistics are taken from: Christian Science Monitor, July 24, 1969...
...however, the gist of it is confirmed by Cochrane, "U.S...
...Meldon Levine, "The Private Sector and the Common Market" (mimeo...
...representatives pushed objectives of free market competition, development of the private sector, and foreign investment, and o p posed attempts at planning and extension of state controls.1 After 1962, these tensions were greatly eased, and the relationship between SIECA and ROCAP took on certain characteristics of an illicit love affair...
...must be concerned with [Central American integra- tion...
...A December 4, 1972 coup in Honduras ousted the elected government of Ramon Cruz...
...cit., p. 21 (my emphasis...
...3. Carlos Manuel Castillo, Growth and Integration in Central America (New York: Praeger, 1966), pp...
...and various issues of Business Latin America and SIECA, Carta Informativa...
...Robert Gregg, "The U.N...
...In addition, it has resulted in a "war" of fiscal incentives among the Central American countries, each trying to offer the best terms to foreign corporations...
...By promising $100 million, though without spending a cent (yet), the U.S...
...Meanwhile, pressures were building up from other directions...
...This account is based primarily on interviews...
...In order to attract foreign investors to the area, the Central American governments developed a network of incentive laws, granting generous fiscal incentives in the form of exemptions from income taxes and from duties on machinery and raw materials imports...
...House of Representatives, Committee on Foreign Affairs, Subcommittee on Inter-American Affairs, Central America: Some Observations on Its Common Market, Binational Centers, and Housing Programs, Report of Rep...
...objective, the protection of U.S...
...Tables 8, 17...
...Joseph Pincus, "Historical Background and Objectives of the CACM," presented to AID Mission Directors, July 6, 1962 (mimeo...
...al., Task Force Report on Economic Integration in Central America, Feb...
...The very emphasis on industrialization was evidence of this strategy, since it was the form of "development" which entailed the least possible challenge to vested interests, and which avoided or at least postponed the social upheaval that would necessarily accompany an agrarian reform.' Politically, the strategic decision not to require heavy sacrifices from existing private sector elites amounted to a tacit recognition that CEPAL's influence depended on cooperation from those elites...
...At the same time, efforts to resolve these problems continued through an inter-governmental "Normalization Commission" in 1971 and a special SIECA Commission in 1972...
...FECAICA statements, July 1970 and October 1970...
...corporations in Guatemala and to institute a serious agrarian reform...
...On paper, the General Treaty included the RII, despite U.S...
...13 De Beausset was the "idea man" who could make it happen-who could find funds, make all the necessary connections in the U.S...
...The Multilateral Treaty established free trade among the five countries for a limited number of products, and provided for the gradual expansion of that GLOSSARY AID: U.S...
...cit., p. 60...
...funds...
...have hesitated to invest in Central America because they fear possible discrimination under the Regime...
...Thus, if ROCAP has not generally attempted to dictate policy to SIECA, it is mainly because this has not been necessary...
...in the awkward position of having to balance out the pressures from two U.S...
...It is for this reason that U.S...
...interests and Central American elites to avoid "another Guatemala," Summary This article shows how the U.S., working directly through its own massive aid program, and working through its alliance with the most privileged sectors of the business community in Central America, took over a movement begun by others, redirected it to suit U.S...
...see also Vincent Cable, "Problems in Central American Common Market," BOLSA Review, June, 1969, pp...
...Most observers conclude that the U.S...
...235-6...
...Initially the U.S...
...to approve the candidate...
...This decree abrogated all regional agreements on trade and taxation, by reimposing duties on merchandise imported from other Central American countries, with exceptions for "essential" or "basic" items...
...Development Projects 1972 Econ...
...was proof of the failures of the past...
...1970, p. 55...
...As one7 ROCAP official described it, ROCAP gives money for, say, four new positions, and ROCAP and SIECA decide jointly what work should be done by these experts, and by whom...
...102-5, 13-14...
...position was not so simple...
...Thus, El Salvador's decision not to sign the m.o...
...after 1960 and adjusting to U.S...
...We are committed to aid the movement...
...not to sign the RII...
...corporations, was contradictory...
...what they are and how they operate...
...The very fact that the m.o...
...numerous other sources, including several SIECA studies, have demonstrated that the Special System is not really a "workable substitute" for the RII, in terms of the latter's initial objectives...
...CEPAL, by contrast, did not insist on these changes, and hence was willing to settle for balanced underdevelopment in Central America...
...Agency for International Development (AID) 9 10 THE BATTLE OF THE INTEGRATION INDUSTRIES There is no clearer example of decisive U.S...
...p. 25...
...6 0 Industrialists, at least in Guatemala and El Salvador, pressured their governments not to sign the m.o.-even if this meant losing the Honduran market...
...The companion to this Treaty was the Agreement on Integration Industries, often referred to as the "Rfgimen" ("System") of Integration Industries (RII...
...AID officials, who had expected 5 to 3 (or even 6 to 2) approval of the loan, were furious, and began an intensive campaign to lobby individual Governors, both through ROCAP and through the country Embassies...
...considered absolute freedom for private investors to be more important than equal development among the Central American countries, its strategy contained the seeds of increasing crisis and eventual breakdown of the CACM during the second part of the decade-specifically in the withdrawal of Honduras from the CACM, and the collapse of the CACM as it had existed...
...interviews...
...AID funds channeled through BCIE to be used for sub-loans to integration industries...
...The clearest example was the Salvadoran "population problem...
...The important thing, he concluded, was that they were all in agreement that no definite decisions had been made at the Managua meeting, and that discussions were only beginning...
...1, Jan.-April 1972...
...and indeed, as the main beneficiary of the soccer war and the subsequent disruption of trade between Honduras and El Salvador, 5 s Guatemala did have good reason to hold the CACM together and especially to keep Honduras in the CACM...
...Attitudes...
...trade and diplomatic relations had not been totally normalized even by the end of 1972...
...The 1958 Agreement did provide that a certain * The explanation most commonly given by U.S...
...Schmitter, op...
...In addition, Frank and Turkel had a concrete incentive for the Central Americans: an offer of $100 million in U.S...
...corporations, whose interests the U.S...
...the others retaliated with measures against Nicaraguan products' Finally, in the spring of 1969, both sides backed down, and the five Ministers of Economy agreed to begin discussions to reform the CACM and to prevent similar crises in the future...
...Morgan Guaranty Trust Co...
...as a military man, L6pez has been more amenable to dealing with the other military strongmen in Central America...
...has overtly manifested its implicit intention of making BCIE an instrument of U.S...
...aid to the CACM...
...did not use its influence to pressure El Salvador to sign the m.o...
...The first and most blatant U.S...
...According to a high ROCAP official interviewed in 1967, Formerly our assistance was confined to statistics and customs harmonization studies, and there was not much possibility for leverage in these areas...
...and in Latin America, we experience directly or indirectly the effects of U.S...
...33, 84...
...Finally, at their August meeting, the BCIE Governors approved the loan, with only a minor change in wording...
...Shortly thereafter, in March, 1959, the...
...These were the privileged sectors, which benefited the most and sacrificed the least for integration, and which refused to give up their privileges...
...To the extent that the breakdown of the m.o...
...Third, there was no agreement about the scheme within Central America: particularly those sectors which opposed governmental or intergovernmental planning and which stood to gain from unbalanced development (e.g., the government and the private sector of El Salvador) opposed the RII...
...policy and U.S...
...positions...
...Director of BID intervened directly to veto the loan...
...business interests in Central America.12 proportion of the capital of each integration industry must be of Central American origin...
...In regard to the serious budget problems plaguing all the governments, for example, the San Jos6 Protocol was an emergency measure, a substitute for, rather than a stimulus to, direct taxation and serious tax reform...
...With regard to the first, we have seen that the specific contours of the CACM were shaped in accordance with the changing needs of U.S...
...3 Shortly after the two Treaties were signed, CEPAL's role in Central American integration was reduced-primarily because of a sudden display of interest by another party, the government of the United States...
...position--all of which added up to a clear modification of the integra- tion process laid out in the 1958 Treaties, and the adop- tion of a new approach...
...interests that made the U.S...
...But the threat of suspending aid remained clear to Central Americans...
...recognized that it would have to take an active role in Central American integration in order' to prevent it from moving in "undesir- able" directions (i.e., too much government planning, too many restrictions on U.S...
...Clearly, there are strong pressures for and strong pressures against a re-integration of the CACM...
...State Department formally announced, in November, 1960, a U.S...
...has not yet articulated its own concept of integration...
...resulted from the determination of the Salvadoran private sector and the government it controlled not to make any concessions to Honduras, such as would have been implied by the Fund...
...The effect [of these problems] on potential investment from abroad is...
...and the Pennsalt/ Hercules complex in Nicaragua is owned by two U.S...
...another firm imports jumbo rolls of toilet paper, cuts them into smaller rolls, and sells them as Central American...
...Nye, "Central American Regional Integration," International Conciliation, no...
...government agencies to withhold development funds...
...interbank rate 5 1% " Total Ordinary Fund To BCIE Integration Fund (Infrastructure) AID-596-L-006 1965 Infrastructure Projects AID-596-L-007 1968 Infrastructure Projects AID-596-L-008 1969 Infrastructure Projects BID-8/CD-CA 1967 Infrastructure Projects BID-132/SF-CA 1967 Infrastructure Projects BID-284/SF-CA 1971 Infrastructure Projects To BCIE Housing Fund AID-596-L-003 Fed...
...was thinking of a "recognized expert in banking from the U.S...
...would not have resolved the fundamental conflicts between a tiny ruling class and the great majority of Central Americans, whose interests had never been considered at all...
...s2 But in addition to the class conflicts, the war was also caused by imbalances within the CACM...
...53-4...
...aid to Central American integration institutions over the RII issue...
...In short, AID had its way...
...Hearing that the integration move- ment was at an impasse ant, needed support, Mann is said to have proposed a "real Common Market," immediately reducing trade barriers on almost all commodities...
...Attitudes...," p. 90...
...Since Honduras' withdrawal at the end of 1970, the CACM crisis has deepened...
...These laws have been worded so as to permit an unending "chain" of incentives, since no one firm ever settles for fewer benefits than its competitors...
...supported and advocated independently the positions taken by this coalition of privileged groups...
...Hansen, opAcit., pp...
...funds could not be used to promote a scheme which violated US...
...Given the general tendency of capitalism toward uneven development, if abandoned to the "free play of market forces," these regional imbalances would be reinforced...
...One approach5 crucial elements of U.S...
...in the Alliance for Progress era came to support any movement-such as economic integration-which might strengthen the economies and defuse the social pressures in Central America...
...6 3 More important, ever since the earliest days of the CACM, the U.S...
...investors...
...It was an excuse for each ruling class to fortify itself militarily, to consolidate its power against political opposition, and to stave off profound class conflict...
...David Ramsett, Regional Industrial Development in Central America (New York: Praeger, 1969...
...had opposed even the creation of CEPAL in 1947...
...To cite some examples: - Driving out of Guatemala City on the Roosevelt Highway, one passes a string of shiny, modem "factories," mainly drug and chemical companies-Upjohn, Hoechst, Abbott, Miles Overseas, Eli Lilly, etc...
...These contradictions become concrete if we briefly recapitulate the two principal U.S...
...Nevertheless, in June, the Governors voted, 7 to 1, to reject the loan agreement, on the grounds that clause 6.09(c) was an infringement on their sovereignty...
...International Regionalism (Boston: Little Brown, 1968), p. 313...
...TUNE IN TO LATIN AMERICAN REPORT NOW...
...Since 1964, Honduras had expressed dissatisfaction with the CACM on the grounds that it was less developedthan its neighbors and that, since entering the CACM, the nation's economic position had further declined: its regional trade balance had become unfavorable, its regional terms of trade were deteriorating, its consumer prices were rising, and the number of its unemployed artisans was growing as a result of industrial competition from the other Common Market members...
...Bank Chicago Year 1962 1963 1964 1970 1963 1965 1966 1967 1966 1966 1967 1967 1966 1970 1972 1971 1966 1970 1967 1967 1968 1968 1970 1971 1969 1970 1966 1970 1970 1971 1972 1972 Use Industrial & Agric...
...Because the U.S...
...From the sketchy evidence available (not including clear policy statements, of which there were none), it seems that the U.S...
...maintained a low profile, stating only its willingness to respond to initiatives from the Central Americans...
...A second objective was to discourage duplication within certain industries...
...After two more weeks, on January 22, 1962, the Governors voted, four in favor, four expressing "basic reservations" about the loan...
...of Calif., Grad...
...Hence, the U.S...
...Nevertheless, the U.S...
...Sidney Dell, A Latin American Common Market...
...Throughout 1968 and early 1969, the Nicaraguan government attempted to force its partners to ratify it, by imposing taxes on imports from the other countries...
...The reason for his extraordinary influence throughout BCIE is simply that "promotion" has become synonymous with "development...
...After the Cuban Revolution in 1958-9, the U.S...
...School of Business Administration, 1970), pp...
...The U.S...
...policies and programs for Central American integration agencies...
...business expressed grave concerns about the RII,"9 which influenced and were reflected in the official U.S...
...Congress and press to their [integration] industries...
...In this sense, the Central Americans are now reaping the harvest of U.S...
...In addition, the Tripartite Agreement violated the CEPAL-influenced 1958 Treaties, by excluding the Agreement on Integration Industries...
...As one observer has pointed out, the close supervision by AID...
...Sources include: Torres Rivas, Interpretaci6n...
...First, the class structure of Central America remained that of dependent capitalism...
...819 at regional pacification...
...on the above assertion, see also Cable, "The Football War .. ," p. 661, Los Angeles Times, July 23, 1972, New York Times, Dec...
...In one swift move, then, AID not only pushed through the loan on AID's terms, but also achieved a permanent modification of BCIE's authority structure.* On some occasions the U.S...
...A second U.S...
...of Amer...
...Because it is under strong U.S...
...Central American wine" is made from an imported wine concentrate, using only local water...
...This should be done, be made known to the Central Americans, and an American presence and aid should be used to foster the developments we favor, to block the others...
...of State, Office of External Research, 1969), p. 33...
...Promotion: Attracting and Subsidizing Foreign Investment Perhaps the most influential--and the highest paidofficial of the BCIE as of 1970 was a North American, Val de Beausset.* What made him so valuable, in his position as Special Assistant to BCIE President Enrique Ortez, was his expertise in "promotion...
...Development Projects Repayment Annual Period Interest Tied (yrs) Rate Yes Yes Yes Yes Nob Nob Nob Nob Yes No Yes Yes No No No Yes No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No 15 4% 40 2% 40 2% 40 3% 20 4% 20 4% 20 4% 18 6.25% 10 6% 10 5% 8 5.9% 19 6.5% 2 & 5 6.5% 7 1% over prime 7 1% over prime 7 1% over prime 4.25 6.5% 4 1% over prime 9.5 7.25% 5,8 & 10 6.25-7.5% 3,5 & 7 6.2% 5 6 7 5.5 & 7% 7 6% 7 6% 15 6.5% 8 6.5% 8 5.75, 6.25 & 6% 3-8 7 & 7.5% 30 4 & 5.5% 4 1.5% over prime 4 1% over Eurdlr...
...trade and investment, to begin industrializing nationally...
...objectives and interests...
...has played a significant role in running SIECA...
...foreign assistance legislation, and legally binding on AID), such as "tying" of aid to goods and services purchased in the U.S., shipping these goods on U.S...
...In the Interest of U.S...
...is reported to have decided on a hands-off attitude...
...81-3, 144...
...The Role of the U.S...
...cit., p. 54...
...These include the usual conditions (written into U.S...
...In a sense, then, the war was the result of class-based cross pressures-both from dominant business groups and from the landless, unemployed masses-within each country...
...position...
...by acknowledging it as one factor among many which resulted in the failure of the RII as a developmental mechanism...
...But by granting immediate free trade to nearly all products originating in the region, the General Treaty effectively eliminated any special benefits to integration industries, hence any incentive for using the scheme...
...private investment in Central America...
...Second, throughout 1971 and 1972, the CACM was further debilitated by new problems, specifically Costa Rica's attempts to protect its national market and balance of payments by imposing tariffs on Central American imports...
...and some Central Americans, over the issue of integration industries (see below), SIECA has managed to avoid taking a strong political stand...
...To make matters worse, the governments could no longer meet balance of payments problems by limiting nonessential imports, because an increasing percent of these items were being imported from the rest of Central America and were therefore not subject to these restrictions...
...Policy (Washington: Brookings Institution, 1972), p. 47.21 43...
...3) a two part program on multinational corporations...
...Even then, the change did not go much beneath the rhetorical surface...
...cit., p. 24...
...cit., pp...
...151 ff...
...officials continued to voice a hard line, at this point it finally became evident that the U.S...
...and interview with ROCAP functionary...
...Further- more, throughout the Bank's formative years, in addition to U.S...
...also Cochrane, "U.S...
...Eisenhower Administration sent two State Department experts, Isaiah Frank and Harry Turkel, on a fact-finding mission to Central America, "to consider prospects for helping the movement to advance...
...As one ROCAP official explained it, "Val de Beausset gets half of his salary through BCIE, half directly through ROCAP...
...political control...
...Cohen, op...
...rather, they signified an abrupt shift in its direction...
...was concerned that the RH would be used to eclude, or at least regulate, foreign (U.S...
...Princeton: Woodrow Wilson School, Princeton University, 1965), p. 10...
...1970...
...conditions which hinted at U.S...
...pp...
...might make no further loans to BCIE (whether or not for integration industries) unless BCIE conformed to the U.S...
...In mid-December, 1961, AID sent the draft loan agreement to the BCIE Governors (the Minister of Economy and Central Bank President or Manager of each coun- try) with the request that they approve it within 15 days...
...could not have achieved its second objective, the stabilization of Central America, precisely because it was in contradiction with the first and narrower U.S...
...had a clear responsibility for those outcomes...
...cit., p. 33...
...set in motion a process which no longer required daily U.S...
...anti-trust laws...
...CEPAL, Economic Survey of Latin America, 1970, Part I (Santiago: CEPAL, 1971) (E/CN.12/868), p. 47 and CEPAL, The CACM and Its Recent Problems, p. 67...
...Far more than SIECA, BCIE owes its creation and continued existence to the U.S...
...All along, Guatemala posed as the champion of CACM unity...
...NACLA ON THE AIR Latin American Report--a biweekly radio program produced by NACLA--now offers copies of selected programs to our readers and interested groups...
...In the view of one expert, this provision "has allowed the U.S...
...This Protocol would impose an economic stabilization tax, in the form of a 30 percent duty surcharge on all imports from third countries, and a recommended sales tax on luxury goods...
Vol. 7 • May 1973 • No. 5
