740.00112A European War 1939/27812: Airgram
The Secretary of State to the Ambassador in Bolivia (Boal)
A–427. Your A–228, March 19,30 which was not received in the Department until March 30, and Department’s telegram no. 535, April 10.
1. Upon the basis of the information set forth in your airgram we are in complete agreement that Proclaimed List firms in Bolivia cannot be eliminated solely through competition by desirable firms and that the cooperation of the Bolivian Government is a sina qua non to achieving our ultimate objective. You are, therefore, authorized to maintain the position that we are not interested in financing a replacement program unless such cooperation is forthcoming. We believe that as a minimum this cooperation should be evidenced by the following: (a) the enforcement and (to the extent necessary) the amendment of existing decrees against the sale of foreign exchange to Proclaimed List firms so as to guarantee that no Proclaimed List firms either within or without Bolivia will obtain any such exchange for any purpose whatsoever; (b) the promulgation of a decree prohibiting all transport over Bolivian railroads of goods consigned to or by Proclaimed List firms or persons acting therefor; (c) the promulgation of a decree providing for the forced transfer or liquidation of Proclaimed List firms within a period not to exceed 6 months, and providing for the appointment of interventors, with full powers to effect such liquidation or forced sale, to supervise and manage the activities of the firms during the interim period, to discharge undesirable employees, etc.; (d) amendment to the existing freezing controls so as effectively to freeze the present assets of the Proclaimed List firms, the proceeds of liquidation or forced sale and the personal assets of the individual undesirable owners of such firms; and (e) the effective enforcement of the foregoing provisions. We recognize that for the time being exceptions from the foreign exchange and transportation decrees may have to be made to enable certain essential supplies to be imported from Argentina (e.g. drugs) where the sole source of such supplies is Proclaimed List firms. We believe, however, that any decision on this latter point should be reserved until further survey of the Argentine supply situation has been made.
2. As pointed out in our telegram, the Department and Export-Import Bank approve your suggestion that the Bolivian Development Corporation operating through a subsidiary should be a part of the plan which you propose to the Bolivian Government for its consideration. [Page 587] In this connection we assume that the only objection to the Development Corporation’s participation would arise from the possibility that the public might assume that credits established for development purposes were being diverted to finance the replacement program and that this objection will be met by establishing a subsidiary with a supplementary line of credit. If you believe that popular opposition on any other basis might be anticipated, please advise us.
As pointed out in our telegram, we feel strongly that the subsidiary should not be called the “bank” and that its functions should be limited to those specified in our telegram.
We also believe it is important that the subsidiary be designated as the agency charged with full responsibility for administering the replacement program and that it be given full power to force the transfer or liquidation of the Proclaimed List firms and to appoint and supervise the interventors. We believe that unless the administration of the replacement program is handled by the subsidiary the probabilities are that the program will fail.
3. The Department and the Export-Import Bank agree that the financing of the replacement program should take the form of a new agreement for a supplemental credit rather than an amendment to the existing agreement which would provide for rotating credit. In view of the fact that your suggested figure of $4,000,000 to $5,000,000 appears to be based upon preliminary estimates only, we would prefer that the initial credit be in the sum of $2,000,000 with the understanding that this will be increased if future circumstances so require. We believe that the theory that a $4,000,000 or $5,000,000 credit would give the subsidiary “stability” is related to a desire on the part of Crespo31 to see an institution established which would perform regular commercial banking functions. As we have already indicated, we believe that the establishment of such an institution financed by United States Government funds would be extremely unpopular and therefore politically inexpedient. Accordingly, to counteract any possible intentions along these lines on the part of Crespo we believe that the credit should bear some reasonable relationship to the probable demands in connection with the replacement of Proclaimed List firms.
An appropriate agreement to provide for this credit can be arranged so as to permit the full utilization of the funds made available.
4. As we understand it, under the plan which will be proposed to the Bolivian Government, the subsidiary will be organized and we will agree to establish the credit before the necessary action by the [Page 588] Bolivian Government is taken. The actual establishment of the credit and the making of funds available thereunder would, however, not take place until the Bolivian Government had taken such action.
5. In its broad outline, the financial pattern which you describe seems satisfactory. However, we would like you to detail the manner in which necessary imports into Bolivia, which are presently handled by Proclaimed List firms, are going to be financed during the transition period. In this connection, we understand that while existing stocks in the hands of Proclaimed List firms may be sufficient to take care of the consumer needs during the transition period, the flow of imported goods into Bolivia must be maintained at normal levels in order to protect the Bolivian economy and to provide an adequate supply when the transition period is ended. Several possible alternatives suggest themselves:
- (a)
- Since your replacement program calls for prohibiting the granting of foreign exchange to Proclaimed List firms, we gather that you contemplate that desirable firms will take up the slack in imports. One way this could be accomplished is by the expansion of W. R. Grace and Company in the import field. As subsequently noted we are opposed to this course; we believe that the assumption by W. R. Grace and Company of a position of major importance in the import field would render us particularly vulnerable to charges of imperialism because of the potential power that can be exercised by any firm which dominates the Bolivian import picture. Another way is to have desirable Bolivian firms do the necessary importing. In view of the apparent lack of financial resources this would presumably require financing on our part. However, as we indicated in our telegram, we have some doubts as to whether such a procedure would be advisable. In the first place, it seems to us that it will be impossible to be absolutely certain which desirable firms will replace which Proclaimed List firms. As a result, we might find ourselves financing imports by desirable firms who may never replace any Axis firm. Added to this is the fact that in some cases we might be called upon to finance imports by two competing desirable firms both claiming (possibly with some degree of plausibility) that the imports were necessary to maintain the economy of a particular area in Bolivia. In the second place, we understand that there are some areas in Bolivia where the Proclaimed List firms are the only firms doing business. If our financing is confined to the desirable firms who are going to replace such Proclaimed List firms, such desirable firms either must find other warehouse facilities in the area which they will subsequently take over or store the imports in other places where they are presently operating and reship the goods into the area in question at a later date. The [Page 589] first alternative may be impossible of achievement because of the lack of warehouse facilities; the second alternative seems to us to create not only warehousing problems but transportation problems which may be insurmountable in view of the congested state of the Bolivian railways. In the third place, financing of desirable firms, if widespread, may deter the transfer of the intervened firms to desirable purchasers. Desirable firms might figure that with credit facilities to finance imports so readily available there is little advantage in assuming the long-term obligations that will necessarily be involved in taking over the Proclaimed List firms.
- (b)
- The interventors of the Proclaimed List firms could be allowed to import the supplies necessary to maintain the Bolivian stock pile under appropriate licenses. We recognize that this would require a relaxation of the proposed ban on the sale of foreign exchange to Proclaimed List firms and that, if the licenses were to be issued by the Banco Central, it would probably be difficult to keep the number of licenses down to a minimum. However, it would seem that the exercise of appropriate control by the subsidiary over the interventors would minimize any problem in this latter connection. We also recognize that the ability to import would increase the authority of the interventors and, by enabling them to replenish depleted stocks, increase their desire to postpone the day of final liquidation or forced sale and that due to the probable scarcity of reliable interventors you believe it advisable to limit their authority as much as possible. However, if the subsidiary exercises the contemplated control over the interventors, the difficulties on this score should not be insurmountable.
If the interventors are permitted to import, the problem arises as to how these imports will be financed. If the interventors are given custody of the cash assets as well as the physical assets of the Proclaimed List firms, the cash assets could be used for this purpose and no financing on our part would appear necessary. If, however, title to physical assets only is transferred to the interventor, as agent for the subsidiary, and notes for the value of such physical assets are issued at the time the intervention starts, presumably financing from Export-Import Bank funds will be necessary. Under this latter procedure, the cash assets of the Proclaimed List firms would presumably be completely immobilized until the end of the war. In this connection, we believe that it would be preferable to have such cash assets put to use and would appreciate your views as to the manner in which it is contemplated that this problem would be handled.
As stated in our telegram, we are prepared to see a $500,000 credit established for the purpose of financing imports during the transition period. We feel that the term of this credit should be 6 months or [Page 590] some other short period, since the turnover of the imports should take place quickly. Also, it may be advisable to make the rate of interest on loans from this credit comparatively high so as to help keep the amount of funds advanced at a minimum. However, before a final decision is reached on this point or on the question of the manner in which these funds should be made available, we should appreciate receiving your comments on the various problems raised in this section.
6. We assume from your airgram that it will be necessary for the entire financing requirements of the program to be met from the new credit, and that the Bolivian Government’s participation will be limited to its guarantee of repayment. As you know, we prefer that purchasers under the plan make some cash investment of their own, and it might be desirable from the point of view of the Bolivian Government, since it sustains the entire risk of ultimate loss, to state as a general requirement that the prospective purchaser put up a certain percentage of the necessary capital. Such a requirement would, of course, have to be subject to waiver by the Development Corporation in cases where financing by the purchasing firm is impracticable for one reason or another.
7. We note that part of your program calls for a detailed analysis not only of the Proclaimed List firms to be liquidated or replaced, but also of the desirable Bolivian firms to be expanded and that you expect to enlist the aid of interested firms and business men in Bolivia in the preparation of such an analysis. We are sure that you realize the necessity of exercising extreme caution in working along these lines in order to avoid being subject to the charge that you are playing favorites among the desirable firms. If that eventuality should occur, you, of course, realize that it might cause the entire replacement program to backfire. Accordingly, we believe that in so far as possible you should let the Bolivians take the initiative in deciding which desirable Bolivian firms should replace which Proclaimed List firms. Especial care should be exercised, of course, in dealing with the problem of permitting W. E. Grace and Company, or any other American firm, to expand its operations into areas of trade now dominated by the Axis. The Bolivians would probably consider any large scale participation by American interests in the replacement program to be inconsistent with the Bolivian objective of restoring dominance of the Bolivian economy to Bolivians. Since we take it that the desirability of the replacement program from the Bolivian point of view will be urged on the basis of this nationalistic feeling, it will be necessary that Bolivian concurrence be gained for any American participation.
[Page 591]8. With respect to the type of controls which the Bolivian Government should be asked to promulgate, we are wondering whether it would be possible to obtain a decree requiring Proclaimed List nationals in Bolivia to repatriate their funds from Argentina. Such a decree could be justified by the fact that most if not all of the funds probably found their way to Argentina in violation of the existing Bolivian controls. Such a decree, if enforced, would have obvious advantages from our point of view and we would appreciate your comments as to the possibility of obtaining it.
9. Your proposal concerning the use of promissory notes, properly circumscribed, to pay for the assets of the Proclaimed List firms appears satisfactory, although there would seem to be one basic difficulty which you should bear in mind. As you point out, the use of such notes will make the amount of funds required from the Export-Import Bank credit practically negligible. On the other hand, the Bolivian Government may reason that they are passing decrees at our request, risking possible dislocation of the Bolivian economy by replacing established Proclaimed List firms with new or less well established firms, and assuming a substantial risk of loss, without gaining any compensating advantages. As a consequence, you may wish to explore the possibility of requiring the subsidiary to pay in cash for the assets of the Proclaimed List firms. The Bolivian Government could then issue a decree requiring the investment of these funds in a special issue of Government bonds which could be made subject to the same circumscribing conditions as the notes. This would give the Bolivian Government funds for use in expanding certain of its activities and might make the replacement program more attractive. This is merely a tentative suggestion on which the Department would appreciate your comments. Accordingly, you should not include such a procedure in any program you may evolve unless you have received further word from the Department on the subject.
Whether notes or bonds are used, we believe that provision should be made so that such notes and bonds should be held by the subsidiary in special custody accounts rather than delivered to the interventors or to Bolivian banks for custody. This would assure us that the blocking would be effective.
10. We see no objection to the deletion from the Proclaimed List of Bolivian employees of Proclaimed List firms, where the sympathies of such employees are unquestioned and when the firms have been liquidated or sold to desirable Bolivian nationals.
We will await further word from you concerning the details of your replacement plan before taking any further action.