824.77/331

The Minister in Bolivia (Jenkins) to the Secretary of State

[Extracts]
No. 562

Sir: I have the honor to refer to my despatch No. 524, of December 13, 1940,34 concerning the financing of the Vila Vila–Santa Cruz section of the so-called Santos–Arica railway, and to inform the Department that the Legation has had an opportunity to examine carefully the preliminary report of Captain Leroy Bartlett, Jr., and Lieutenant Irwin M. Parry, of the United States Corps of Engineers, as to the feasibility of completing the construction of this line.35 Very properly, the report of the two Army engineers is devoted primarily to questions of the cost and possible revenues, but various other matters are also considered in the document.

Strategic Value.

The engineers raise the question of the strategic value of the railway which was suggested in the resolution adopted at the Habana conference expressing the interest of all the American Republics in the completion of the line. In this connection the report states:

“It is the personal opinion of this Commission that a completed railroad between Arica and Santos would not be of great strategic value to the United States for the following reasons:

a)
Being of meter gauge with 3% gradient and 75-meter radius curves, the daily tonnage which could be transported over this railroad would be insufficient to supply an army of any size.
b)
Due to numerous bridges, tunnels and cuts, the railroad cannot be protected against sabotage, and its interruption for a considerable period of time could be easily accomplished by an individual or by air bombardment.
c)
The terrain which it traverses is probably beyond the limit to which the United States would be willing to lend assistance in the form of a military expedition.”

The Commission recognizes that the railroad might have real strategic importance to the major South American countries in [Page 554]enabling transcontinental troop movements. The first two factors mentioned above would, however, operate as effectively in such a case as in one of assistance from the United States.

Construction Costs.

The report, as shown to the Legation, is of course a rough draft but will probably not be changed materially before presentation to the Export-Import Bank. In this connection, Captain Bartlett said in his covering letter to the Legation:

“I should like to emphasize again that some of the cost data will be subject to revision in the office of the Chief of Engineers, but I do not believe such revision will affect the costs more than 5%, plus or minus.”

The Commission’s preliminary estimate of the cost of the railroad from Vila Vila to Santa Cruz is $29,009,526 …

. . . . . . . . . . . . . .

The Commission’s cost estimates appear to be conservative despite the Bolivian officials’ idea that the railroad could be built for $20,000,000 to $23,000,000.…

. . . . . . . . . . . . . .

Net Revenues.

The net indicated maximum annual revenues after five years of operation would thus be:

Gross annual revenues $2,131,200
Annual costs 1,496,176
Net annual profits $635,024

This profit would be less than 2.2% of the cost of construction as estimated by the Commission which would obviously be insufficient to pay interest and amortization on a loan for the construction. Funds for the purpose would thus have to come in greater part from other sources.

Possible Additional Revenues.

In the past various revenues of the Bolivian Government have been allocated to the construction of the Cochabamba–Santa Cruz Railroad and have actually been used in part for the construction as far as Vila Vila.…

. . . . . . . . . . . . . .

At the present time, the only one of these taxes which has not been diverted to other uses is the tobacco tax. Revenues from this for the year 1940 are estimated at about $85,000. Those from the other taxes originally earmarked for the railroad but now diverted are estimated [Page 555]at about $78,000 for 1940. Thus, if all of these funds were again allocated to the railroad there might be another $163,000 available to add to the possible net profits for interest and amortization purposes but this would still leave the total below 3% of the necessary capital investment.

There has, of course, been some talk in Bolivian circles of using future petroleum revenues for the Vila Vila–Santa Cruz Railroad but (a) this is entirely potential and (b) revenues from production south of the Parapetí River are pledged for the Yacuiba–Camiri Railroad supposedly to be built by Argentina while those from north of there are pledged to the continuation of the Corumbá–Santa Cruz Railroad already begun with Brazilian assistance.

Money for servicing a loan for the Vila Vila–Santa Cruz Railroad could hardly come from the ordinary revenues of the Bolivian Government since the budget is just about balanced and there is, if anything, a need for more funds for more vital public works and services. While additional Government funds might be secured by new internal taxation, this would be a most unpopular move politically. All in all, the chances of raising sufficient funds to service a loan of the size necessary to construct the Vila Vila–Santa Cruz Railroad appear slim.

. . . . . . . . . . . . . .

Possibility of Road Instead of Railroad.

Having reached the conclusion that the construction of a railroad from Vila Vila to Santa Cruz was probably not economically feasible, the Commission had a report on a possible alternative highway prepared by Lieutenant Parry as an annex to the general report on the railroad. Lieutenant Parry had not completed this at the time of his departure although he had finished estimates that the cost of a road 454.6 kilometers long, between Vila Vila and Santa Cruz, with a surfaced width of 6 meters and a 2½ inch penetration bituminous top capable of a traffic of 800 vehicles daily would be $6,982,660 as compared with the $29,009,526 estimated for the railroad. The road report will recommend cost plus construction contracts, if a road is to be considered, with the Bolivian Government purchasing the machinery.

Lieutenant Parry was convinced of the advantages of a road over a railroad and intended to include the following arguments therefor in the road report:

1.
Shorter distance because greater grades cut distance.
2.
Lesser cost per kilometer because smaller quantities of earth would have to be moved and less material used.
3.
More labor available for road than railroad construction and less total labor needed, important in view of shortage of labor in country.
4.
Lack of trained personnel to manage and operate railroad whereas there are plenty of truck drivers.
5.
Cheaper transportation.
6.
Continuous two-way traffic.
7.
Greater carrying capacity with truck fleet than with freight trains.
8.
Trucking encourages local industry.
9.
Road might help to develop gasoline industry from nearby deposits.
10.
Less and easier maintenance; machinery used to build road could be utilized for maintenance.
11.
Revenue to repay loan could be better assured by gasoline and toll taxes.
12.
Highway is faster than railroad.
13.
Less time to construct (three years for road as compared with at least four to six for railroad).

It should be noted that the highway report contemplates only a road only from Vila Vila to Santa Cruz and not from Cochabamba to Santa Cruz. The reason for this is the belief that a highway all the way from Cochabamba to Santa Cruz would kill practically all traffic on the completed Cochabamba–Vila Vila Railroad. While Lieutenant Parry recognizes that the use of a highway all the way would be more economic for shippers than transshipment from road to railroad or vice versa at Vila Vila, he is of the opinion that the Bolivian Government would be averse to losing the large investment which has already been made in the Cochabamba–Vila Vila Railroad. From the point of view of Bolivia’s future, a road all the way from Cochabamba to Santa Cruz would appear to be advisable regardless of losses on present railroad investments.

Recapitulation.

I am very much in favor of the present policy of our Government to lend assistance wherever possible in the development of the industries and natural resources of the South American Republics and I would gladly recommend that aid be extended the Bolivian Government to complete the Vila Vila–Santa Cruz Railroad if the project appeared at all feasible. As an ordinary layman, however, I must confess it seems to me the expense of finishing this work would be out of all proportion to any return that may be expected, financially or otherwise. Besides the entire project would appear to be far beyond the resources of Bolivia when the present financial condition of the country is considered.

As the Legation has previously pointed out, President Peñaranda, Minister of Foreign Affairs Ostria Gutiérrez and other high officials in Bolivia are deeply interested in the completion of this railroad. Unfortunately, the impression has been unjustifiably created in Bolivia that financing by the United States is almost a foregone conclusion. There will consequently be great disappointment in the [Page 557]country if it is learned that the United States Government is not prepared to lend money to finish the work.

Various factors enter into the Bolivian officials’ interest in completing the railroad from the plateau to Santa Cruz. In the first place, they are naturally concerned both for economic and internal political reasons with improving communications to that potentially important section of Bolivia which under proper development might become the major agricultural section of the country and with which the existing means of communication are by airplane or by a bad road which can be used only in favorable weather. Being railroad-conscious, they have set their hearts on a railroad without considering adequately the economic feasibility of such a transportation system or the relative advantages and feasibility of a good highway. As indicated in the highway supplement to the Commission’s report, It is estimated that an automobile road of first rate modern construction would cost about $7,000,000 as compared with nearly $30,000,000 for the railroad and would be as useful, if not more so, than the railroad under the present state of development of the country.

Another factor leading to the preoccupation with the completion of the Vila Vila–Santa Cruz Railroad is that, by arrangements with the Brazilian and Argentine Governments, construction of railroads from the Brazilian and Argentine borders into Bolivia from the east and south has been agreed upon. In the first case, construction is already well under way while in the second the arrangements are still tentative. Unless good means of communication from the plateau to the Santa Cruz region are completed, portions of these outlying areas will find themselves in closer relations with Brazil and Argentina than with the plateau and population centers of Bolivia. That this situation has arisen … does not alter the fact that the need for a railroad or good highway connection with Santa Cruz is acute and that if it is not supplied in the near future the consequences to Bolivia may be unfortunate. There has been much criticism of the Bolivian Government for entering into these agreements with Brazil and Argentina and the Government naturally wishes to overcome this criticism by linking Santa Cruz with the center of the country. Since a railroad is being built from Corumbá toward Santa Cruz, a railroad from Vila Vila to Santa Cruz rather than a highway would be most effective in satisfying domestic critics.

. . . . . . . . . . . . . .

When the report is handed to the Minister of Foreign Affairs, I imagine the Department will not wish to raise the question of whether the United States Government would be willing to assist in financing the proposed railroad, merely transmitting the non-confidential report for the Bolivian Government’s information as a cooperative gesture [Page 558]under the Habana Resolution. Should the Bolivian Government then make a request for financial assistance, it might at that time be possible and appropriate to say quite frankly that the cost of a railroad would be out of proportion to possible income but that our Government would consider the possibility of lending assistance to the construction of a highway for motor traffic under satisfactory conditions of amortization on the basis of toll or other taxes.

In this general connection, I might say that I think other impartial non-Bolivian observers and more enlightened Bolivians who have not allowed political considerations to warp their thoughts share my feeling that Bolivia’s transportation problem as a whole can be more effectively and cheaply solved by the building up of highways, possibly in connection with the extension of the Pan American Highway, than by expansion of the present railway system.

If financing of a highway from Vila Vila or Cochabamba to Santa Cruz is considered, it seems to me advisable that arrangements be made for the actual construction work to be carried on under the direction and control of American engineers and that provision should also be made for the purchase of road machinery and other supplies not available in Bolivia from the United States in keeping with the general policy of the Export-Import Bank in previous highway loans in Latin America. In addition, the fact should not be overlooked that the Bolivian Government has still failed to take any steps toward settling the Standard Oil case.36 I am still of the opinion that no loans should be made to this country until the Standard Oil matter has been satisfactorily adjusted.

Respectfully yours,

Douglas Jenkins
  1. Not printed.
  2. Copies of the final report were submitted by Lieut. Parry to Mr. William Franklin Busser of the Division of the American Republics with a letter of January 28, 1941. (824.77/334, 348.)
  3. See pp. 513 ff.