Memorandum of Conversation, by Mr. James Espy of the Division of North and West Coast Affairs

Participants: Hon. Victor Andrade, Bolivian Ambassador to U. S.
Mr. José Rovira, Bolivian Commercial Counselor
Mr. Wright, ARA
Mr. Espy, NWC

Ambassador Andrade said that he had called today to discuss two matters.

The first subject concerned the rubber purchase contract between the Bolivian Government and the Rubber Development Corporation. He said that as we knew by this contract the entire production of Bolivian Rubber is sold to the United States Government, but it is provided that 250 tons per year be allocated to the Bolivian Government for resale by it to its neighboring countries, principally Argentina. The Bolivian Government now desires to have this quota increased to, say, one thousand tons.

Ambassador Andrade explained that the smuggling of rubber to Argentina had increased enormously in recent months and that unfortunate as it was these contraband operations could not be controlled. He gave various reasons for this including the disbanding of the special rubber police (which was done as one measure in the curtailment of the Bolivian budget) and above all the very high prices paid for rubber in the black market. He said that the net result was that Argentina was getting the rubber from Bolivia while the Bolivian Government was losing the much needed revenues from the taxes of the rubber sales.

Ambassador Andrade said that as the war was now over, rubber would soon no longer be in short supply, and that as the United States was itself selling rubber products such as automobile tires to Argentina, he hoped that this Government would perceive no objection now to Bolivia also selling its rubber in larger quantities to Argentina63 and also some to Chile and Peru.

Mr. Wright said that we would discuss in the Department the Ambassador’s request and also would take it up with the Rubber Development [Page 375] Corporation. He then asked Ambassador Andrade whether the Bolivian Government had considered the desirability of cancelling the contract altogether and returning the production and sale of Bolivian rubber to its interests. Ambassador Andrade replied that he had received no instructions in this regard. Ambassador Andrade then said that he would submit the request with the explanations he had given therefor in a memorandum which he hoped could be delivered at the Department either this afternoon or tomorrow.

The other subject which Ambassador Andrade stated he wished to talk about was the question of tin. He again, as he had done in early December 1945, spoke of the possibility of the present tin contract being renegotiated in order that higher prices might be paid for Bolivian tin. He said that the situation in Bolivia was becoming critical as mines were now closing down and the Government was losing revenue from the reduction of the production of tin. He also again stressed the fact that Bolivian economy was dependent on the taxes realized from the production and export of minerals, principally tin, and that serious consequences would follow unless the Government is able to continue to receive sufficient income to meet its budget. He said that the budget had been curtailed this year and was now only approximately $25 million dollars.

Ambassador Andrade then said that he was somewhat at a loss to know with which agency of the Government he should deal in this matter. He said that since FEA had been dissolved and its personnel scattered throughout other agencies, he did not know whether he should go direct to the State Department or go to the agency which may have taken over FEA activities.

Mr. Wright informed the Ambassador that this question of the present tin contract had, and is continuing to be considered by our Government. He said that he and Mr. Kennedy64 had met the other day with Mr. Hochschild65 and that Mr. Kennedy was also now discussing the matter with the Metal Reserves Division of the Reconstruction Finance Corporation, the agency of the Government which is primarily concerned in the purchase of tin.

He assured Ambassador Andrade that the State Department was always interested in endeavoring to be as helpful as possible to Bolivia and he pointed out that it had with respect to the negotiation of the contracts acted figuratively as Bolivia’s attorney.

Mr. Wright then brought up the question of the Bolivian fiscal system. [Page 376] He noted that he had mentioned this matter on several previous occasions and he re-iterated that what he had to say was, of course, his purely personal opinion but that he did believe that the Bolivian taxation system should be reorganized and should be changed from that of collecting taxes on a production basis to collecting them on a profit basis. He said that it was obvious that if taxes are collected on the amounts of minerals produced, the revenue of the Government is subject to fluctuations of production and that this was naturally unsound. Instead, the Government should work out their tax collections on the profits made by the mining concerns which would permit it to be able to rely upon a fixed income in graduating the taxes according to the amount of funds it required.

Ambassador Andrade observed respecting these comments of Mr. Wright that he entirely agreed that the system which Mr. Wright had suggested was far better than the present Bolivian taxation system but that nevertheless, the Bolivian Government was confronted with great difficulties in putting such a system into effect, and that it had to face realities. He explained that it was next to impossible for the Government to ascertain the exact costs of production and profits made by the mining companies in order to arrive at a correct taxation basis. He mentioned parenthetically, that Mr. Hochschild had expressed to him great concern over the present provision in the Bolivian currency laws whereby the mining companies are only permitted to take out in foreign currency 40% of the value of their exports. He said that it was the belief of his Government that 40% was quite enough and allowed for equitable profit on the mining operations.

Ambassador Andrade then went on to say that he hoped serious and productive discussions could take place in the immediate future to resolve this tin problem not only with respect to the present contract but also as regards the future of Bolivian tin after the expiration of the contract on June 30th of this year. He wished that the negotiations could be deliberate, and thoroughly studied, with no pressure at this time brought to bear on the Bolivian companies and Government and that whatever is to be done should be accomplished before the 30th of June. He posed for the Department’s consideration, the two questions that he had raised in his conversation with Mr. Braden in early December 1945 of (a) whether there is to be an international agreement which would assign a definite quota for Bolivian tin and (b) whether this Government proposed to enter into another contract for the purchase of Bolivian tin.

  1. By a note of February 5, 1946, the Secretary of State advised the Bolivian Ambassador that it was not possible to increase the quota (824.6176/1–446).
  2. Donald D. Kennedy, Chief of the Division of International Resources.
  3. Mauricio Hochschild, head of a number of mining enterprises in Bolivia and other countries of Latin America.