The Chargé in Bolivia (Dawson) to the Secretary of State

No. 1326

Sir: I have the honor to summarize below the Legation’s general impressions concerning the program for economic cooperation between the United States and Bolivia, and the Bolivian attitude thereto. Some of these facts and considerations have been reported to the Department in a wide number of despatches under different headings while others are presented for the first time. It seems well, with the advent close at hand of the full personnel of the economic mission which is to study the possibilities of economic cooperation, to bring together in one despatch all pertinent information which has a direct bearing on the situation.

The basis for the proposed economic cooperation between the two countries is, of course, contained in the memorandum handed by the Department to the Bolivian Minister in Washington on August 1, [Page 447] 1941, and quoted in the Department’s telegram No. 127 of August 1, 3 p.m., to the Legation. This memorandum was carefully worded to make it clear that the Government of the United States was prepared to have surveys made by competent experts and engineers of the needs of Bolivia for economic assistance as regards (a) improvement of communications, (b) expansion and diversification of agricultural production, (c) stimulation of mineral production by small miners and (d) stabilization of the Bolivian currency. It was clear from the memorandum to anyone who could read plain language (1) that no advance commitment was made to any specific project or for the loaning of any specific amount, (2) that the surveys would be the basis of recommendations as to individual projects by the mission proposed in the memorandum, and (3) that the United States would be prepared to extend financial and technical assistance only “for the execution of individual projects which are considered desirable, useful and practicable by both the Bolivian and United States Governments”.

Bolivian Misinterpretation of Program of Economic Cooperation.

Unfortunately, nobody in Bolivia, even among the Cabinet officers, seems to have taken the trouble at the time to study the careful wording of the memorandum. All that was in the mind of anybody then was that the United States was ready to lend money to Bolivia and that bonanza was at hand. A Cabinet committee composed of the Ministers of Finance, National Economy, National Defense, Public Works and Labor was immediately formed to make plans for asking for a definite loan in short order instead of awaiting the surveys of the United States Economic Mission being sent to Bolivia in keeping with the Bolivian Government’s acceptance of the program outlined in the memorandum. This committee got to work with a promptness almost unprecedented in Bolivian public affairs and presented a report to the full Cabinet on August 20, 1941.

The report suggested that a loan of $80,000,000 be requested from the United States, $30,000,000 of this amount to be made available in 1941 and $25,000,000 each in 1942 and 1943. The Cabinet committee earmarked the proposed loan as follows:

  • $50,000,000 for the construction of railroads and highways throughout Bolivia.
  • $6,000,000 for assistance to agriculture and irrigation.
  • $2,000,000 for assistance in colonization.
  • $6,000,000 for industrial development.
  • $3,000,000 for assistance to small miners.
  • $1,000,000 for the establishment of an Agricultural Bank.
  • $5,000,000 for the establishment or extension of water systems and electric light plants in various cities.
  • $2,000,000 for a campaign against malaria and tuberculosis.
  • $5,000,000 for monetary stabilization.

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The question of service of the proposed loan was disposed of neatly by the recommendation that the so-called additional tax on the exportation of minerals be hypothecated for this purpose. That this tax is almost half of Bolivia’s total revenues and that its normal budget would thus be thrown out of kilter was brushed aside in the enthusiasm of the moment. While the recommendations of the Cabinet committee were supposedly confidential, the authors and their Cabinet colleagues were so excited at the auto-imagined prospects of real money to spend instead of Bolivia’s annual budget of $12,000,000 to $15,000,000 that the whole plan was spread out in detail in the press on the following day.

It was apparently the intention to present this ready-made plan to the Economic Mission on its arrival which was then confidently expected at any moment. That the Mission is to be a technical one and not one empowered to decide upon the amount of possible loans was conveniently disregarded. The program was outlined in general terms to the Chamber of Deputies and Senate in secret sessions. When the Economic Mission did not immediately arrive, opposition members threw cold water upon the whole idea that the United States would lend Bolivia any such sum as was suggested by the Cabinet committee (Mr. Carlos Salamanca, member of the Chamber of Deputies had in the meantime written his opposition colleagues from the United States giving a more realistic picture of the possibilities of economic cooperation based on his conversations with Messrs. Sumner Welles, Laurence Duggan and other officials of the Department). It was this situation which appears to have largely caused the anxiety of the then Minister of Foreign Affairs, Dr. Alberto Ostria Gutiérrez, and his insistence that the Economic Mission be despatched post-haste (the Legation’s telegram No. 225 of August 28, 11 a.m. [3 p.m.] et seq.).

A further example of the … tendency to jump at the slightest of possibilities and consider them as certainties occurred in connection with the memorandum concerning a possible survey of potential highways in Bolivia75 which was handed to the Bolivian Minister in Washington at the same time as the covering memorandum of August 1, 1941, concerning economic and financial cooperative measures in general. It will be recalled that the highway memorandum was based on suggestions of the Bolivian Government for the survey and construction or reconstruction of something over 11,400 kilometers of road network in Bolivia. The memorandum, prepared by experts of the Public Roads Administration, detailed the 11,400 kilometers of roads for which a survey was requested but commented upon the excessive cost thereof and recommended that the plan be substantially reduced to be “more in line with the possibilities for financing over a reasonable [Page 449] period of years in the near future.” As might have been expected, the Bolivian authorities overlooked these recommendations, concentrated on the fact that the memorandum discussed the whole 11,400 kilometers, and spread the word that the United States was agreeing to finance the whole roads program. It was partly from this source that the idea of a $200,000,000 loan in lieu of an $80,000,000 one, discussed below, got its start.

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

Repercussions of Bolivian Misinterpretation.

The original talk of an $80,000,000 loan on the part of Cabinet officers has already had serious political repercussions and will probably have more when the financial cooperation program is finally worked out and it is found, as will undoubtedly be the case, that credits to be advanced are much smaller than the Administration led the country to believe would be the case. There is no question in my mind but that the thought that a big loan was to be forthcoming from the United States has encouraged the political unrest which has been apparent in Bolivia for the past two months and, specifically, was one of the indirect causes of the recent wide-spread strike which, as explained in the despatches reporting on it, was fomented by interests anxious to cause disturbances in the country for political reasons. As one of the Independent Socialist deputies has told me frankly, “If a large loan is to be spent in Bolivia, we want to control the Government when it is disbursed.” Similar thoughts have undoubtedly prevailed among other political groups and among the Army elements which are always a danger to orderly government in Bolivia.

So far as the future is concerned, it can be imagined with what pleasure the opposition will attack the Government when it fails to produce the $80,000,000 total and the Cochabamba–Santa Cruz Railroad which it promised. The lines to be taken will doubtless include allegations that the Government has not made the most of the “offers” by the United States of credits, that the opposition would have been much more successful, etc., etc. The dilemma into which the Bolivian Government has fallen and which will probably become worse because of the ineptness with which it has managed presentation of the whole question of economic cooperation is no direct concern of the United States. However, stability of Government is a desideratum in Bolivia both for our own interests and for the welfare of the country itself. The sad political mistakes which have been made may increase the chronic unsettlement of Bolivia. On the other hand, any kind of financial help will be a fillip to Bolivian economy and may serve to counteract the political attacks on the Government which can be expected.

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Suggestions as to Program.

Before drawing this already lengthy despatch to a close, it seems well to make some comments on the actual administration of the program of economic cooperation when it finally gets into its stride. In the first place, the real need of Bolivia for financial assistance appears less than that of almost any other country in Latin America given the relative prosperity of the Government (the populace is, of course, poverty-stricken as it always has been) resulting from increased sales abroad at high prices of the minerals on which it depends for its revenues through taxation. However, it cannot be left out of the general program of continental economic cooperation for obvious international political reasons. Furthermore, a serious crisis will come to this improvident country after the War. The crisis will be of greater proportions than the present relative boom unless some steps are taken to cushion the lopsided economy of Bolivia by helping it to become more or less agriculturally self-sufficient instead of “eating its tin”. While Bolivia has the funds to make at least a start in this direction on its own, there is not adequate vision or initiative in the country to accomplish the task and help is necessary if the objective is to be reached.

It is generally recognized by everyone who has made a study of Bolivia that the country’s hope of escaping from its dependence on imports of food and other agricultural products, which would be endangered if its exports of minerals were to bring in substantially less cash than now, lies in the development of the subtropical eastern region of the country and specifically of the section around Santa Cruz. While there are other problems of grave importance involved in the opening up of eastern Bolivia, such as the obtaining of sufficient manpower for agricultural expansion, the main problem is that of communications with the region. Discarding the possibility of completing the Cochabamba–Santa Cruz Railroad at a cost of about $35,000,000 as uneconomic, there remains the desirable objective of building a satisfactory all-weather highway, at a cost of probably between $5,000,000 and $8,000,000, to replace the present dry season trail.

It is the Legation’s feeling that, if at all feasible, the Economic Mission should shortly after its constitution recommend the construction of this highway. Studies on which such a recommendation could be based exist in the reports of the United States Army engineers who were in Bolivia last year to study communications between Cochabamba and Santa Cruz and in surveys on which they in part based their work. The recommendation, a request by the Bolivian Government for the necessary credit and the granting of it by the Export-Import Bank would serve a number of purposes. The Bolivians are expecting some sort of financial aid from the United States in short [Page 451] order. The Cochabamba–Santa Cruz or an alternative highway is almost certainly one project which we will eventually approve even if we take similar action on no other proposal. It is the construction most needed in Bolivia. To push it through quickly would convince the Bolivians that the Economic Mission signifies economic cooperation instead of being merely a fact-finding expert appraisal with no results, as they consider was the case with the studies of the railroad engineers, the geological survey earlier this year, etc., all of which have made them sceptical of economic aid. I discussed this matter with Mr. Philip W. Bonsal, Acting Chief of the Division of the American Republics, during his recent visit to La Paz and he shared my feeling that approval of the Cochabamba–Santa Cruz highway should be the first step in effective economic cooperation.

Once a definite decision is made in this regard, it would probably be best for the Economic Mission to take all necessary time in making recommendations on other projects. The Bolivian Government and people have more than a tendency, as has been indicated in the first part of this despatch, to consider the program of economic cooperation as a unilateral one of assistance from the United States to Bolivia, forgetting that Bolivia has outstanding economic problems with the United States which it should do something to settle, … It might be well to make haste slowly and to utilize the interim to remind the Bolivian Government tactfully that we have taken one step and that it is only fair to expect them to take one in return before we give any more assistance.

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

There is one further point in connection with financial assistance for Bolivia which the Department and the Export-Import Bank probably have thoroughly in mind but which it may be worthwhile to mention nevertheless. It is to be sincerely hoped that any credits to be granted to the Bolivian Government or its entities will be doled out in small amounts month by month as work progresses and that, in the case of such projects as roads, arrangements will be included to have an American technical man in charge so as to make certain that the project is properly managed with a check on the handling of disbursements. Entirely aside from the fact that this system will ensure greater efficiency (it can be said without fear of contradiction that there are no Bolivian engineers competent to manage a large-scale project) and lessen the chances of waste of funds, it will reduce the incentive to potential trouble-makers to foster a revolution, which will always be present if there are loan funds to be freely disposed of.

Respectfully yours,

Allan Dawson
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