The Minister in Bolivia (Dawson) to the Secretary of State
[Received 5:33 p.m.]
62. Department’s 31, September 25, 7 p.m. Bolivian exchange difficulties date back to about November 1937 and have only been aggravated by European war. In this period exchange needs have varied from 250,000 to 320,000 pounds per month with amount available ranging from 200,000 to 260,000 pounds. As a result reserves of Central Bank have been reduced some 500,000 pounds and backlog of about 800,000 pounds of commercial debts abroad has been built up, largely in the United States, for which exchange is not available. In other words, Bolivian exchange needs in approximately 20 months before outbreak of war exceeded exchange receipts by at least 1,000,000 pounds.
Because of difficulty of transportation of tin to Europe until convoy system is perfected and adequate shipping is available, Bolivian exchange receipts are expected to be below 100,000 pounds for the next 2 to 4 months and it is to make up the deficit in current needs that the advance of $2,000,000 is desired. There is no apparent idea in official circles that any of this would be used to reduce commercial backlog.
Minister of Finance estimates that, once tin shipments can be made under satisfactory conditions, Bolivian interests will be receiving 330,000 pounds of exchange per month from this source because of increase of tin quota to 100% and at least 70,000 pounds from other sources giving it considerable surplus over its present monthly needs of 320,000 pounds and enabling it easily to repay proposed advance. These optimistic calculations do not take into account possibilities of submarine warfare and other unforeseen war factors. Central Bank still has about 700,000 pounds of available reserves in gold and foreign exchange which could be used to tide over period in which exchange from tin will not be coming in if calculations are correct but the Bolivian Government would obviously rather take the gamble on funds secured from the United States than lower the bank’s present reserves to vanishing point.
Minister of Finance states that amount of antimony and wolfram ore acquired by Banco Minero is about 400 and that of tungsten about 50 tons per month and these estimates are checked by independent mining authorities. At current prices this would bring about $70,000 per month, totally inadequate security for repayment of contemplated installments of $200,000. Furthermore mining experts estimate that only about half of the ore is of a grade such that it would be acceptable to American importers under normal circumstances. Manager of the Banco Minero states that delivery of amounts indicated could begin in [Page 319]November if prices offered in the United States were satisfactory but the Department is in a better position than the Legation to judge whether there would be a sufficient market for them there.
If the proposed advance is to be seriously considered it is my opinion that more adequate security should be offered such as a lien on the first $200,000 of exchange accruing to the Bolivian Government each month from sales of all minerals abroad whether by the Banco Minero or the big mining groups, beginning 4 months after the advance.
I frankly do not see, however, why the Government of the United States should come to the assistance of the Bolivian Government in a situation which has arisen largely because of the latter’s bad financial management and extravagance especially in view of the record of the Bolivian Government in the recent past toward American interests. While the present regime is more amicably disposed than its predecessor it would only be good grace for it to take active measures toward the settlement of certain outstanding problems before asking for aid.