INR ANALYSIS: INTER-AMERICAN HIGHLIGHTS:

S E C R E T STATE 324006

E.O. 12356: DECL: OADR
TAGS: XT PINR
SUBJECT: INR ANALYSIS: INTER-AMERICAN HIGHLIGHTS:
SEPTEMBER 30, 1992

SECRET/NOFORN/NOCONTRACT (NOT RELEASABLE TO FOREIGN
NATIONALS)

TABLE OF CONTENTS

PERU: FUJIMORI GAINS STRENGTH
EL SALVADOR-HONDURAS: SOLOMONIC BORDER RULING
NICARAGUA: POLICE AND PROPERTY REFORMS...ALMOST
MEXICO: LABOR PROBLEMS
ECUADOR: ECONOMIC REFORM ADVANCES DESPITE PROTESTS


--PERU: FUJIMORI GAINS STRENGTH

IN THE SIX MONTHS SINCE THE APRIL 5 CIVIL-MILITARY COUP.
PRESIDENT ALBERTO FUJIMORI HAS OUTMANEUVERED THE
OPPOSITION, PLACATED THE OAS. AND WON A STUNNING VICTORY
IN THE BATTLE WITH THE SHINING PATH (SL) BY CAPTURING
ABIMAEL GUZMAN, ITS FOUNDER AND LEADER. ALTHOUGH PERU
HAS ONE OF THE MOST STRINGENT AUSTERITY PROGRAMS IN
LATIN AMERICA. FUJIMORI.S POPULARITY RATING IS CLOSE TO
75 PERCENT IN THE WAKE OF THE SEPTEMBER 12 CAPTURE, AND
NOMINALLY INDEPENDENT PARTIES LOYAL TO THE PRESIDENT
APPEAR POISED TO WIN A MAJORITY IN THE NOVEMBER 22
DEMOCRATIC CONSTITUENT CONGRESS (CCD) ELECTIONS.

THE NEW CONSTITUTION PROBABLY WILL STRENGTHEN THE POWERS
OF THE PRESIDENCY AND UNDERCUT THE DOMINANCE OF THE
TRADITIONAL POLITICAL PARTIES. FUJIMORI.S AUTOCRATIC
AND SECRETIVE MODUS OPERANDI ULTIMATELY MAY UNDERMINE
HIS EFFORTS. HOWEVER. (C)

DEAD END FOR SHINING PATH? THE PRESIDENT'S PLEDGE TO
WIPE OUT TERRORISM BY 1995 GAINED SUBSTANTIALLY IN
CREDIBILITY WITH GUZMAN.S ARREST' PARTICULARLY BECAUSE
IT FOLLOWED THE JUNE CAPTURE OF MRTA LEADER VICTOR
POLAY. GUZMAN'S DETENTION COULD NOT HAVE COME AT A
BETTER TIME FOR FUJIMORI, IN VIEW OF THE NOVEMBER CCD
ELECTIONS. THE EUPHORIA IN LIMA IS PALPABLE, THOUGH
ACCOMPANIED BY FEAR OF NEAR-TERM SL RETALIATION. (C)

IT REMAINS UNCLEAR WHETHER SL CAN REGROUP UNDER NEW
LEADERSHIP. THERE IS LITTLE REASON TO EXPECT A
SHORT-TERM COLLAPSE, BUT SL'S LONG-TERM PROSPECTS APPEAR
DIMMER. THE OUTCOME OF GUZMAN'S MILITARY TRIAL IS NOT
IN DOUBT, THOUGH THE SCHEDULED OCTOBER 27 ANNOUNCEMENT
OF THE VERDICT AND SENTENCE IS LIKELY TO PROVOKE A
VIOLENT SL RESPONSE, ESPECIALLY IF FUJIMORI FINDS A WAY
TO JUSTIFY THE DEATH PENALTY. (C)

INTERESTED PARTIES. FUJIMORI JUST1FIED HIS APRIL 5
DISSOLUTION OF CONGRESS PARTLY ON GROUNDS THAT AN
ANTIDEMOCRATIC "PARTYOCRACY" DEPRIVED THE PEOPLE OF
"REAL DEMOCRACY." PROCEEDING ON THIS PREMISE, FUJIMORI
HAS TRIED TO DIFFUSE THE POWER OF THE TRADITIONAL
PARTIES. WHICH CONSTITUTE HIS MAIN OPPOSITION. BOWING
TO PRESSURE FROM THE OAS FUJIMORI AGREED TO A NATIONAL
DIALOGUE AS A PRELUDE TO CCD ELECTIONS. BUT THE
FRACTIOUS PARTIES LARGELY BOYCOTTED THE PROCEEDINGS.
ALLOWING THE PRESIDENT TO WRITE HIS OWN ELECTORAL
RULES. (C)

BEFORE GUZMAN'S CAPTURE, MOST PARTIES FEARED THAT
ENTERING THE CCD CONTESTS WOULD LEGITIMIZE A FUJIMORI
DICTATORSHIP AND HOPED THAT INTERNATIONAL PRESSURE WOULD
FORCE CONCESSIONS. SOME OF THESE PARTIES NOW APPEAR TO
BE LEANING TOWARD PARTICIPATION IN THE ELECTIONS. THE
POPULAR CHRISTIAN PARTY HAS OPTED TO ENTER. EXILED
FORMER PRESIDENT GARCIA.S APRA, HOWEVER, HAS DECIDED TO
BOYCOTT. PERHAPS FEARING AN EMBARRASSINGLY POOR
SHOWING. FORMER PRESIDENT BELAUNDE'S POPULAR ACTION HAS
DECIDED TO FORGO THE CCD CONTESTS BUT TO RUN IN NEXT
JANUARY.S MUNICIPAL ELECTIONS. SMALLER PARTIES ARE
GATHERING SIGNATURES OR FORMING COALITIONS TO QUALIFY
FOR REGISTRATION BY OCTOBER 8. (C)

WHILE THE TRADITIONAL PARTIES BICKER INTERNALLY ABOUT
WHETHER TO PARTICIPATE IN THE ELECTIONS, FUJIMORI'S
CAMPAIGN IS ALREADY UNDER WAY. POLLS REFLECT
WIDESPREAD REJECTION OF THE TRADITIONAL PARTIES AND AN
OVERWHELMING VOTER PREFERENCE FOR NOMINALLY INDEPENDENT
CANDIDATES. FUJIMORI IS OFFERING SUPPORTERS THREE
BRANDS OF THE SAME BASIC PRODUCT: HIS 1990 ELECTORAL
VEHICLE CHANGE 90; THE RECENTLY FORMED NEW MAJORITY
MOVEMENT, HEADED BY HIS FORMER ENERGY MINISTER AND
CONFIDANT JAIME YOSHIYAMA; AND, ACCORDING TO A PRESS
REPORT, AN "INDEPENDENT" PARTY HEADED BY FORMER FOREIGN
MINISTER CARLOS TORRES. (C)

IF THE ELECTION WERE HELD TODAY, FUJIMORI LOYALISTS
WOULD CLEARLY WIN A MAJORITY. ASSUMING THEY DO SO IN
NOVEMBER, THE NEW CCD PROBABLY WILL DRAFT A
CONSTITUTION TAILORMADE FOR FUJIMORI, POSSIBLY
INCLUDING NEW FROVISIONS ALLOWING FOR REELECTION OF AN
INCUMBENT PRESIDENT. (C)

FUJIOCRACY. FUJIMORI SEEMS TO BE GETTING AWAY WITH HIS
UNUSUAL CIVIL-MILITARY COUP. HE CONTINUES TO ENJOY THE
SUPPORT OF THE ARMED FORCES WHICH, DESPITE SOME
RUMBLINGS IN THE RANKS, ARE PROBABLY DISINCLINED TO
TAKE POWER THEMSELVES OR RETURN IT TO THE DISCREDITED
PARTIES. THE RECENT SACKING OF AIR FORCE COMMANDER
VELARDE UNDERSCORES FUJIMORI.S SELF-CONFIDENCE
VIS-A-VIS THE TOP BRASS. HIS TIMETABLE AND GROUND
RULES FOR RESTORATION OF DEMOCRATIC INSTITUTIONS HAVE
PLACATED THE OAS, AND THE PUBLIC SEEMS UNMOVED BY THE
PARTIES' COMPLAINTS ABOUT FUJIMORI'S MANIPULATION OF
THE PROCESS. (C)

FUJIMORI IS MORE IN TOUCH WITH HIS PREDOMINANTLY
MESTIZO AND INDIAN COUNTRYMEN THAN THE LIMA ELITE EVER
WAS. THE PROBLEM WITH THE "NEW PERU" UNDER
CONSTRUCTION IS THAT IT COULD BE TOO BASED ON FUJIMORI
TO OUTLAST HIM. THE PRESIDENT REMAINS SKEPTICAL OF
INSTITUTIONS, DISTRUSTFUL OF ALL BUT A HANDFUL OF
CONFIDANTS, AND DRIVEN BY A POTENTIALLY
SELF-DESTRUCTIVE MESSIANIC ZEAL. HE MAY WELL ATTEMPT
TO ENGINEER HIS OWN REELECTION IN 1995, THEREBY
FULFILLING HIS 1991 OFF-HAND REMARK THAT PERU "NEEDS AN
EMPEROR FOR 10 YEARS." HIS DEPARTURE FROM THE SCENE.
WILLINGLY OR OTHERWISE, COULD LEAVE A VACUUM THAT THE
TRADITIONAL PARTIES AND ARMED FORCES WOULD VIE TO
FILL. (C) (DRAFTED BY JAMES ALLEN)

--EL SALVADOR-HONDURAS: SOLOMONIC BORDER RULING

THE INTERNATIONAL COURT OF JUSTICE (ICJ) ON SEFTEMBER
11 RENDERED A LENGTHY AND COMPLICATED DECISION ON THE
LONGSTANDING SALVADOR-HONDURAS BORDER DISPUTE, AWARDING
ROUGHLY TWO-THIRDS OF THE LAND AREAS (BOLSONES) IN
QUESTION TO HONDURAS. EL SALVADOR RECEIVED THE TWO
LARGEST ISLANDS IN THE GULF OF FONSECA--MEANGUERA AND
MEANGUERITA--WHILE EL TIGRE ISLAND WENT TO HONDURAS,
WHICH WAS GUARANTEED ACCESS TO THE PACIFIC. THE ICJ
ALSO GRANTED EL SALVADOR, HONDURAS, AND NICARAGUA JOINT
SOVEREIGNTY OVER THE GULF BEYOND 3 NAUTICAL MILES FROM
THEIR RESPECTIVE SHORES. (C)

SALVADORANS STUNNED. PRIOR TO THE DECISION,
CONVENTIONAL WISDOM IN BOTH COUNTRIES WAS THAT
LAND-POOR EL SALVADOR WOULD BE AWARDED THE BOLSONES.
THE DECISION GIVING THE MAJOR PORTION TO HONDURAS WAS A
BITTER DISAPPOINTMENT, BUT PUBL1CLY AT LEAST MOST
SALVADORANS TRIED TO PUT THE BEST FACE ON THE OUTCOME.
PRIVATELY. THERE WERE MUTTERINGS THAT CRISTIANI HAD
FAILED TO PREPARE THE POPULATION FOR AN ADVERSE
OUTCOME AND HIS ARENA PARTY WOULD SUFFER FOR IT. (S)

DEMILITARIZED ZONE? THE FMLN, MEANWHILE, CLAIMED
CRISTIANI WAS NOT SUFFICIENTLY CONCERNED ABOUT THE
BOLSONES BECAUSE THEY WERE POPULATED PRIMARILY BY "ITS"
PEOPLE. ALTHOUGH THE DISPUTED AREAS ARE NOT HEAVILY
POPULATED (ABOUT 25,000). 10,000-15,000 ARE FMLN
SUPPORTERS OR SYMPATHIZERS WITH THEIR OWN CIVIC AND
ECONOMIC ORGANIZATIONS. HAVING OPERATED INDEPENDENTLY
OF THE GOVERNMENT FOR YEARS, THESE CADRE DO NOT WELCOME
A HONDURAN PRESENCE NOW. (S)

THE FMLN HAS PROPOSED DEMILITARIZING THE AREAS OR
TURNING THEM INTO A FREE-TRADE ZONE AND GIVING
RESIDENTS DUAL CITIZENSHIP. THE FMLN ALSO WANTS
REPRESENTATION ON THE BINATIONAL COMMISSION ESTABLISHED
BY PRESIDENTS CRISTIANI AND CALLEJAS TO IMPLEMENT THE
ICJ DECISION AND IS REQUESTING A UN OBSERVER MISSION TO
PROTECT BOLSONES INHABITANTS FROM BOTH COUNTRIES'
MILITARIES. (S)

HONDURANS CAUTIOUS. MILITARY AND CIVILIAN LEADERSHIP
BOTH APPEARED PLEASANTLY SURPRISED BY THE RULING AND
ALERT TO THE SENSITIVITY OF UPROOTING OR RELOCATING
BOLSONES RESIDENTS. GENERAL DISCUA AND OTHERS
REPORTEDLY HAVE ADVISED CALLEJAS TO PROCEED WITH
CAUTION AND WITHOUT ARROGANCE. NEVERTHELESS HONDURAS
IS NOT LIKELY TO ALLOW THE FMLN TO REMAIN IN CONTROL IN
HONDURAN TERRITORY. NEITHER IS GENERAL DISCUA LIKELY
TO ACQUIESCE IN A DEMILITARIZED ZONE ON THE HONDURAN
BORDER. BOTH COUNTRIES SAY THEY WILL RELY ON THE
BINATIONAL COMMISSION TO RESOLVE DIFFICULT HUMAN RIGHTS
ISSUES. (S)

CALLEJAS WILL LEAD A LARGE DELEGATION TO SAN SALVADOR
FOR CONSULTATIONS AT THE END OF SEPTEMBER THUS
BEGINNING THE THREE-MONTH PERIOD OF BILATERAL
DISCUSSIONS BEFORE DEMARCATION OF THE NEW BORDERS. THE
ICJ RULING APPARENTLY REQUIRES ALL THREE RIFARIAN
COUNTRIES--HONDURAS, EL SALVADOR, AND NICARAGUA--TO
WORK OUT ISSUES OF ACCESS AND ECONOMIC RIGHTS EXTENDING
FROM THE GULF OF FONSECA INTO THE PACIFIC. AT THE
MOMENT, NO ONE APPEARS EAGER TO ENGAGE FORMALLY WITH
NICARAGUA ON THIS ISSUE. (C) (DRAFTED BY VIVIAN
GILLESPIE)

-- NICARAGUA: POLICE AND PROPERTY REFORMS...ALMOST

RECENT PERSONNEL CHANGES AND A NEW "ORGANIC" LAW APPEAR
TO MAKE ONLY SUPERFICIAL CHANGES IN THE
SANDINISTA-DOMINATED POLICE. THE PROGRESS OF THE
CHAMORRO GOVERNMENT'S EFFORTS IN POLICE REFORM,
INVESTIGATION OF ANTI-CONTRA VIOLENCE, AND PROPERTY
SETTLEMENT REMAINS GLACIALLY INCREMENTAL. (C)

THE ORGANIC POLICE LAW PUBLISHED SEPTEMBER 11 SETS
TERMS OF OFFICE AND PERMITS DISMISSAL FOR CAUSE. BUT IT
ALSO ENSURES CONTINUED SANDINISTA LEADERSHIP IN TOP
JOBS BY PROMOTION FROM WITHIN. MOREOVER, IT DOES NOT
APPEAR TO GIVE THE NEW CIVILIAN VICE MINISTER OF
GOVERNMENT. ROLAND AVILES. CONTROL OVER PERSONNEL
ASSIGNMENTS AND, HENCE. PROMOTION. AVILES IS DESCRIBED
AS STRIDENTLY ANTI-SANDINISTA, BUT VERY CLOSE TO
PRESIDENCY MINISTER LACAYO AND MORE OF AN IMPLEMENTER
THAN AN INITIATOR. (S)

REACTION TO POLICE CHANGES. REACTION AMONG
NON-SANDINISTAS TO THE APPOINTMENT OF FERNANDO CALDERA
TO REPLACE RENE VIVAS AS POLICE CHIEF HAS BEEN
NEGATIVE, ACCORDING TO EMBASSY MANAGUA. NICARAGUAN
HUMAN RIGHTS ORGANIZATIONS DESCRIBE CALDERA AS
"DANGEROUS" AND A "COMMITTED SANDINISTA." THE BISHOP
OF CHONTALES, WHO CLASHED WITH CALDERA IN YEARS PAST,
SAID HE WAS "AMAZED" BY THE APPOINTMENT. THE BISHOP
AND OTHERS CITED RAMPANT HUMAN RIGHTS ABUSES AND BAD
PRISON CONDITIONS UNDER CALDERA.S TENURE AS A REGIONAL
POLICE CHIEF IN THE EARLY-TO-MID 1980S. (C)

FORMER RESISTANCE LEADER AND NOW SOCIAL CHRISTIAN
DEPUTY AZUCENA FERREY SAW ONE POSITIVE ASPECT: THAT
FORMER SANDINISTA INTERIOR MINISTER TOMAS BORGE WAS NOW
FINISHED" IN NICARAGUA BECAUSE THOSE DISMISSED WERE
FROM HIS WING OF THE FSLN. (C)

THE GOVERNMENT INSISTS THAT CALDERA WAS THE BEST CHOICE
OF THOSE ELIGIBLE FOR THE JOB. CALDERA, FOR HIS FART.
HAS PLEDGED TO IMPROVE POLICE BEHAVIOR AND INVESTIGATE
THE ASSASSINATIONS OF FORMER CONTRA LEADER ENRIQUE
BERMUDEZ AND OTHERS. (C)

ARCHBISHOP OBANDO Y BRAVO HAS AGREED IN PRINCIPAL TO
PARTICIPATE IN A TRIPARTITE COMMISSION. TOGETHER WITH
REPRESENTATIVES OF OAS/CIAV AND THE GOVERNMENT. TO LOOK
INTO KILLINGS OF MORE THAN 100 EX-CONTRAS SINCE 1990.
PLANS TO ESTABLISH THE COMMISSION FRAMEWORK APPEAR TO
BE MOVING AHEAD. (C)

PROPERTY DECREES ANNOUNCED. THE COMPLICATED PROCESS OF
UNTANGLING 10 YEARS OF SANDINISTA CONFISCATIONS AND
LAND REFORM IS INCHING FORWARD. ON SEPTEMBER 9 A
DECREE SIGNED BY CHAMORRO CREATED A PROPERTY ATTORNEY
TO HEAD A THREE-PERSON NATIONAL COMMISSION TO
INVESTIGATE AND RECOMMEND RETURN OF PROPERTY OR
COMPENSATION. THE REMAINDER OF THE PROPERTY
PACKAGE--AN OFFICE IN THE FINANCE MINISTRY TO DETERMINE
CLAIM VALUES AND TO ESTABLISH A COMPENSATION FUND AND
AN ARBITRATION MECHANISM--SHOULD BE ANNOUNCED LATER
THIS MONTH, ACCORDING TO EMBASSY MANAGUA. THIS
APPROACH LEAVES IN SANDINISTA POSSESSION PROPERTIES
SEIZED AFTER THE ELECTION, WHILE IT OBLIGATES THE
GOVERNMENT TO PROVIDE ANY COMPENSATION DUE THE ORIGINAL
OWNERS. (C)

THIS FAR AND NO FURTHER. THE CHAMORRO GOVERNMENT
EVIDENTLY HOPES THE CHANGES WILL BE SUFFICIENT FOR
RELEASE OF BADLY NEEDED US ASSISTANCE. FAILURE TO
RECEIVE THE US FUNDS PROBABLY WILL PUT NICARAGUA IN
NONCOMPLIANCE WITH ITS IMF PROGRAM AND WOULD ENDANGER
THE RELATIVELY SUCCESSFUL ECONOMIC PROGRAM. INCENSED
BY US PRESSURES, CHAMORRO NONETHELESS HAS WARNED SHE
WILL RESIGN RATHER THAN ACCEDE TO MORE DRASTIC US
DEMANDS, AND LACAYO SHOWS NO SIGN OF WILLINGNESS TO
CONSIDER FURTHER CHANGES IN THE POLICE OR ARMY
LEADERSHIP AT THIS TIME. (C) (DRAFTED BY VIVIAN
GILLESPIE)

-- MEXICO: LABOR PROBLEMS

ANTICIPATION OF THE NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA) IS BRINGING A WRENCHING ADJUSTMENT TO FIRMS IN
MEXICO. LABOR-MANAGEMENT RELATIONS ARE BEING REDEFINED
AS FIRMS SEEK TO INCREASE PRODUCTIVITY AND EFFICIENCY
BY INTRODUCING MORE FLEXIBLE WORK RULES AND NEW FORMS
OF MANUFACTURING AND INVENTORY CONTROL. THIS OFTEN
MEANS FEWER WORKERS AND LINKING WAGE HIKES TO
PRODUCTIVITY, THREATENING THE POWER OF TRADITIONAL
UNION BOSSES ACCUSTOMED TO DISPROPORTIONATE INFLUENCE
ON COMPANY OPERATIONS. (C)

THE NEW MEXICO. TO INCREASE MEXICO.S ATTRACTIVENESS TO
FOREIGN INVESTORS, PRESIDENT SALINAS HAS TRIED STEADILY
TO TRIM UNION POWER YET NOT BREAK FAITH WITH THE
POWERFUL MEXICAN LABOR CONFEDERATION (CTM). A
TRADITIONAL, ALBEIT WANING, PILLAR OF THE RULING PRI
AND A MECHANISM FOR CONTROLLING LABOR. SINCE TAKING
OFFICE, SALINAS HAS ORDERED THE ARREST OF CORRUPT UNION
OFFICIALS, PROMOTED NEW LABOR LEADERS, AND USED THE
DECENTRALIZATION OF PARASTATALS (PEMEX. FOR EXAMPLE)
AND SUCH GOVERNMENT FUNCTIONS AS EDUCATION TO WEAKEN
CORPORATIST UNION POWER. BUT HE HAS BEEN UNWILLING TO
TAKE ON THE CTM AND ITS POWERFUL NONAGENARIAN LEADER.
FIDEL VELAZQUEZ, DIRECTLY BY ATTEMFTING TO REFORM
MEXICO.S RIGID, OUTDATED LABOR CODE. (C)

A TURNING POINT? THE SALINAS ADMINISTRATION SENT A
STRONG SIGNAL TO LABOR WHEN THE NATIONAL LABOR BOARD,
PROBABLY AT SALINAS'S BEHEST, RULED ON AUGUST 17 IN
FAVOR OF VOLKSWAGEN, MEXICO'S LARGEST CAR MAKER, IN ITS
DISPUTE WITH DISSIDENT UNIONISTS. IN EARLY JULY THE
DISSIDENTS LED A STRIKE OF 14,000 MEMBERS OF THE
INDEPENDENT AUTO WORKERS UNION AT VW.S PUEBLA PLANT,
WHICH MAKES MEXICO'S BEST-SELLING BEETLE, AND CARS FOR
EXPORT. THE STRIKERS CLAIMED THE ELECTED UNION
PRESIDENT HAD SIGNED A NEW CONTRACT--ACCEPTING
PROVISIONS TYING RAISES AND PROMOTIONS TO
PRODUCTIVITY--WITHOUT VETTING IT WITH THE RANK AND
FILE. (S)

VW RESPONDED BY VOIDING ITS OLD UNION CONTRACT. LOCKING
OUT STRIKERS, AND THREATENING TO LEAVE MEXICO--A
DEVELOPMENT THE GOVERNMENT FEARED COULD HAVE AN ADVERSE
EFFECT ON NAFTA AND POTENTIAL INVESTORS. THE LABOR
BOARD'S RULING WILL PERMIT THE COMPANY TO REHIRE MOST
OF THE WORKERS ON TERMS THAT ENSURE GREATER MANAGEMENT
FLEXIBILITY IN THE FUTURE. VW REPORTEDLY PLANS TO
BRING IN 40 GERMAN AUTO PARTS MANUFACTURERS TO ALLOW IT
TO MEET NAFTA CONTENT RULES. (S)

MEANWHILE. 20,000 TEXTILE WORKERS WENT ON A 58-DAY
STRIKE TO DEMAND HIGHER WAGES AND TO PROTEST WORK RULES
THAT MEANT FEWER JOBS. ACCORDING TO LOCAL PRESS
REPORTS MOST OF THE TROUBLE WAS IN NONCOMFETITIVE
FIRMS PRODUCING FOR THE DOMESTIC MARKET: MEXICAN
EXPORT COMPANIES ARE ALREADY MAKING THE CAPITAL
INVESTMENTS NEEDED TO COMPETE UNDER NAFTA. THE STRIKE.
WHICH WAS PUBLICLY SUPPORTED BY CTM LEADER VELAZQUEZ,
ENDED AMICABLY ON SEPTEMBER 4 WHEN GOVERNMENT. LABOR.
AND INDUSTRY LEADERS AGREED TO A 14-PERCENT WAGE HIKE
AND 50-PERCENT PAYMENT FOR LOST WAGES. (C)

SPOKESMEN FOR THE WORKERS CLAIM THE SETTLEMENT MEANS
THE INDUSTRY-WIDE COLLECTIVE CONTRACT, WHICH EXPIRED IN
JULY, REMAINS IN FORCE. MANY TEXTILE WORKERS HAD
PREVIOUSLY REACHED SEPARATE AGREEMENTS WITH THEIR
COMPANIES. HOWEVER; WORKERS IN MONTERREY'S HIGHLY
AUTOMATED PLANTS RECEIVED 30-PERCENT SALARY HIKES.
MOREOVER. DESPITE THE PRI.S PUBLIC SUPPORT FOR THE
STRIKERS. THE GOVERNMENT IN PRACTICE ALLOWED THE
COLLECTIVE LABOR LAW TO BE IGNORED. THEREBY SETTING A
PRECEDENT FOR RESOLVING FUTURE LABOR CONFLICTS. THIS
SETTLEMENT, LIKE THE ONE AT VOLKSWAGEN, REPRESENTS A
VICTORY FOR MANAGEMENT. (C)

NO PAIN, NO GAIN. EXPANDED TRADE SHOULD INCREASE REAL
WAGES FOR MOST MEXICAN WORKERS, BUT MANY OTHERS FACE
DISLOCATION AS COMPANIES RESTRUCTURE OR FOLD. LABOR
ACTIVISTS IN THREATENED AREAS SAY BUSINESSES ARE USING
NAFTA AS A PRETEXT TO WEAKEN THE UNIONS, INCREASING THE
POTENTIAL FOR LABOR-MANAGEMENT CONFLICT IN THE SHORT TO
MEDIUM TERM. GOVERNMENT OFFICIALS ARE WELL AWARE THAT
ONE DOWNSIDE OF NAFTA IS THAT AS LABOR POWER BECOMES
LESS CENTRALIZED. IT WILL BE MORE DIFFICULT TO CONTROL
THE UNIONS THROUGH TRADITIONAL POLITICAL PAYOFFS, AND
LABOR'S LOYALTY TO THE PRI MAY BE IMPERILED. (S)
(DRAFTED BY ANGELO IOFREDDA)

-- ECUADOR: ECONOMIC REFORM ADVANCES DESPITE PROTESTS

THE NEW PRESIDENT OF ECUADOR, FREE MARKET PROPONENT
SIXTO DURAN, IS IMPLEMENTING A SERIES OF SPENDING CUTS
AS THE FIRST STAGE OF A COMPREHENSIVE PROGRAM TO
LIBERALIZE AN ECONOMY MIRED IN RECESSION. (C)

AUSTERITY NOW, LIBERALIZATION SOON. AS HE PROMISED AT
HIS INAUGURATION. DURAN THIS MONTH OUTLINED A REFORM
PROGRAM INTENDED TO REVERSE SHARP ECONOMIC DECLINE.
THE GOVERNMENT DEVALUED THE SUCRE BY 28 PERCENT AND
RAISED THE SUBSIDIZED PRICES OF GASOLINE BY 125 PERCENT
AND ELECTRICITY BY AS MUCH AS 120 PERCENT. DURAN PLANS
TO CUT GOVERNMENT SPENDING BY 4 PERCENT ACROSS THE
BOARD, AND ALREADY HAS OBTAINED ASSURANCES FROM
COMMANDERS THAT THEY WILL NOT OPPOSE SIMILAR CUTS IN
THE MILITARY. TO FORESTALL POPULAR UNREST, THE
PRESIDENT HAS FROZEN PUBLIC TRANSPORT PRICES AND
PROMISED WAGE INCREASES. AT THE SAME TIME, ECUADOR
WILL LOWER TRADE BARRIERS WITH COLOMBIA. BOLIVIA. AND
VENEZUELA. (C)

DURAN INTENDS TO FOLLOW THIS INITIAL ROUND OF MEASURES
BY FREEING INTEREST RATES AND SUBMITTING TO CONGRESS
BILLS ON CAPITAL MARKET REFORM AND PRIVATIZATION. THE
GOVERNMENT PLANS TO BEGIN PRIVATIZING THE HUGE STATE
SECTOR BY FIRST LEGALIZING PRIVATE COMPETITION TO
GOVERNMENT MONOPOLIES AND THEN SELLING ITS HOLDINGS IN
PRIVATE CORPORATIONS. UNDER THIS CAUTIOUS APPROACH,
THE PRIVATIZATION OF LARGE STATE COMPANIES WILL
FOLLOW. (C)

ECONOMY IN DOLDRUMS. DURAN.S IMMEDIATE PRIORITY IS TO
REDUCE INFLATION BY CUTTING EXPENDITURES AND INCREASING
TAX REVENUES. DURAN'S TEAM OF FREE MARKETEERS IS
HEADED BY HIS VICE PRESIDENT. PRINCETON-EDUCATED

LIBERALIZATION LED THE OPPOSITION TO CALL HIM AN
"ECONOMIC TERRORIST." EIGHT OF 14 CABINET MEMBERS ARE
BUSINESS EXECUTIVES, INCLUDING THE MINISTERS OF
FINANCE. INDUSTRY. AND ENERGY. (C)

DURAN INHERITED AN ECONOMY BESET BY STAGNATION,
50-PERCENT INFLATION, A BUDGET DEFICIT OF 7 PERCENT OF
GDF AND OVERRELIANCE ON OIL INCOME. OIL NOW ACCOUNTS
FOR HALF OF GOVERNMENT INCOME AND 40 PERCENT OF
EXPORTS. BUT RESERVES ARE EXPECTED TO BE DEPLETED
WITHIN 12 YEARS. NEGOTIATIONS WITH CREDITORS ON
ECUADOR.S ALMOST US DOLS 13 BILLION FOREIGN DEBT ARE
STALLED. UNDEREMFLOYMENT IS ESTIMATED AT 50 PERCENT.
DEMAND FOR LABOR IS HELD DOWN BY A LABOR CODE OF MORE
THAN 600 ARTICLES THAT REGULATES ALMOST EVERY ASPECT OF
EMPLOYMENT EFFECTIVELY PROHIBITING MANAGEMENT FROM
FIRING OR LAYING OFF WORKERS. CONGRESS REFORMED THE
CODE SLIGHTLY LAST YEAR, BUT MANAGERS STILL REGARD
HIRING NEW WORKERS AS A LAST RESORT. (C)

WEAK PROTESTS AGAINST REFORM. THE LARGEST LABOR GROUP,
THE UNITED WORKERS FRONT, THREATENED TO CALL FOR
NATIONWIDE CIVIL UNREST IF THE PRESIDENT WENT AHEAD
WITH HIS PLANS, AND THE HEAD OF THE PUBLIC EMFLOYEES
UNION LABELED THE REFORMS "NEFARIOUS." PROPAGANDA
SUPFORTING PERU.S SENDERO LUMINOSO TERRORISTS HAS NOW
APPEARED IN SEVERAL CITIES ANTICIPATING A REACTION TO
HIS SEPTEMBER 4 ANNOUNCEMENT OF THE AUSTERITY PACKAGE.
THE PRESIDENT AUTHORIZED DEPLOYMENT OF THE ARMED
FORCES, AND TROOPS WERE ORDERED INTO THE STREETS ON
SEPTEMBER 7 AFTER FOUR SMALL BOMBS EXPLODED AT
GOVERNMENT BUILDINGS. (C)

SO FAR THE PROTESTS HAVE HAD NO EFFECT. A RESOUNDING
REJECTION BY THE ELECTORATE OF THE FAILED STATIST
POLICIES OF THE PAST HAS GIVEN THE DURAN ADMINISTRATION
A CLEAR MANDATE TO IMFLEMENT ITS SWIFT AND FAR-REACHING
ECONOMIC REFORM AGENDA. IN THE FIRST ROUND OF
PRESIDENTIAL BALLOTING, DURAN AND HIS LIKE-MINDED CHIEF
OPPONENT RECEIVED 55 PERCENT OF THE VOTE AND THE THREE
CENTER-RIGHT PARTIES IN COALITION WITH THE NEW
PRESIDENT HOLD 39 OF THE 77 SEATS IN THE UNICAMERAL
LEGISLATURE.


(C) (DRAFTED BY MICHAEL ZAK) KANTER


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