Foreign Relations of the United States, 1961–1963, American Republics; Cuba 1961–1962; Cuban Missile Crisis and Aftermath, Volumes X/XI/XII, Microfiche Supplement

7. Memorandum from Hamilton (ICA) to Dungan, June 28¹

June 28, 1962

SUBJECT

• U.S. Assistance Commitment to Bolivia

The President’s approval of the attached memorandum is requested. It represents a joint commitment on the part of the United States Government and the Inter-American Development Bank to undertake an immediate program of development assistance for Bolivia. This proposed commitment is an outgrowth of the recent report of the OAS Wise Men entitled “Measures Designed to Speed Economic Development in Bolivia Under the Alliance for Progress”. The external financial assistance proposed, although somewhat less than that recommended by the Wise Men, is consistent with their recommendations.

The Wise Men conclude that while Bolivia currently lacks an adequate development plan, the urgent political and economic problems of Bolivia require an immediate program of positive and helpful action. In response to the Wise Men’s recommendations, the Bolivians have requested the Inter-American Development Bank to organize a consortium to provide the needed external financial assistance. The attached memorandum summarizes the negotiations and discussions with the Bolivian Ministers of Economy and Rural Affairs currently in Washington for this purpose, the Inter-American Development Bank and ourselves. As indicated in paragraph 4 of the attached memorandum, the Bolivian Government has accepted the self-help measures recommended by the Wise Men. Their intentions in carrying out the self-help measures are contained in a confidential letter which is attached, and will be made conditions of our assistance.

Economic development and growth will enable the Bolivian government to fulfill the promise of its 1952 Revolution which brought to power a political movement with broad support among the workers and peasants. The landed and feudal oligarchy was divested of power, land was distributed to the peasants, large estates eliminated, universal suffrage introduced, the army subordinated to the government, and the extreme contrast between wealth and poverty eliminated. Bolivia’s social reforms are far in advance of those of most Latin American countries although the people have yet to experience any significant economic advantage from those changes.

Despite prior U.S. aid of some $220 million, Bolivia has suffered economic stagnation since its revolution in 1952. The main reason why American aid has not shown a more favorable impact on the economy is that it was largely offset by the deficits of the central government and its state-owned enterprises. These deficits were partly the result of certain outside factors such as the large decline in mineral prices and export earnings following the end of the Korean war and the steady increase in the cost of imported equipment and materials. But these deficits were also the result of mismanagement by the Government as reflected in the retention of large numbers of workers in excess of production needs and the refusal of the Government to raise the prices of goods and services as in the cases of the state-owned petroleum entity, the state airline and the state railroads to cover rising costs.

The deficits that resulted were directly or indirectly covered by American aid and there was little left for new investment and development. Similarly, in the private sector the denial to employers of the right to fire excess employees created a climate which discouraged investment either foreign or domestic. Consequently American aid to date has been barely sufficient to keep the Bolivian economy from collapsing.

The approach proposed in the attached memorandum is aimed at overcoming these defects by continuing and expanding the attack started last year on some of these basic causes of economic stagnation. It is a concentrated effort to move away from primarily providing budget support for a stagnant economy to a dynamic development program. The key to this approach is the loan provided for studies which will lead to feasible and loanable economic development projects.

While certain aspects of the U.S. assistance commitment are yet to be determined, for example, the level of budget support in fiscal year 1963, the total U.S. commitment is estimated at $78 million. Of this sum, approximately $37 million will be spent for direct procurement in the United States. The balance of $41 million will be used for the purchase of Bolivian currency for local expenses. These dollars will be placed in a segregated account and used solely for the import of essential commodities from the United States. It is estimated that this $78 million will be disbursed over a period of approximately two and one-half years. An IDB commitment of $21.4 million of which $10 million is from the Social Progress Trust Fund is made for same period.

The announcement of a specific dollar commitment for development loans is a political and psychological necessity. Special Presidential missions by Messrs. Thorp and Egger, President Kennedy’s letter to President Paz of May, 1961 (copy attached), together with the Wise Men’s recommendations for commitments of $109 million have heightened Bolivian expectations of receiving substantial assistance from the United States. This is further complicated by June 4th La Paz press announcements of a new U.S. assistance commitment of $80 million. The frustration of these expectations by the lack of a specific U.S. dollar commitment would surely be interpreted by the Bolivians as a disavowal of previously expressed intentions. The specific commitment for development loans is tied to projects found feasible which provides safeguards for U.S. loan funds.

The political implications of not going forward with the proposed program would be serious indeed. The Bolivian situation continues to be extremely precarious. President Paz is under intense pressure from the Communists and the extreme left within and outside his MNR party to accept Bloc aid offers. His Government’s declining popular acceptance was demonstrated in the June 3rd congressional elections. In the circumstances President Paz and his ministers have suffered acute disappointment that the Alliance has not proved to be the rapid panacea they anticipated. The present mission to Washington of the Ministers who have negotiated the Joint AID-IDB Agreement was announced as intended to establish “whether the Alliance is fact or fiction”. The Ministers’ return empty-handed to Bolivia would be exploited by the Communists to claim the Alliance is long on words but short on deeds. Similar charges would probably be made by Paz’ own Ministers. This would not only be a severe political blow to Paz which would make his efforts to work with us more difficult but could undermine his confidence in President Kennedy’s May 14, 1961, pledge to support Bolivia’s long-range development.

The Bolivian Ministers have been in Washington since early May and hope to return to Bolivia on Friday. For this reason I hope this matter can be brought to the President’s attention today. Before any public announcement of this commitment is made, I will inform the appropriate Congressional committees.

Fowler Hamilton

Attachments:

1. Draft letter from Ministers of Economy and Rural Affairs, Government of Bolivia.

2. Letter from President Kennedy to President Paz dated May 14, 1961.

3. Draft Memorandum entitled “Measures to Speed Economic Development in Bolivia Under the Alliance for Progress” dated June 18, 1962.

1. Transmits for Kennedy’s approval a joint U.S.-IADB program of development assistance for Bolivia. Confidential. 3 pp. Kennedy Library, National Security Files, Brubeck Series, Box 32.