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

No. 1959

Sir: With further reference to this Embassy’s various despatches concerning the construction of the Cochabamba–Santa Cruz highway, I have the honor to now report that on December 12 President of the [Page 360] Bolivian Development Corporation, Bernardino Bilbao Rioja, notified the McGraw–Warren Company that the BDC was exercising its right to cancel the contract between the two parties upon 90 days notice, and was hereby issuing that notice. A copy of the resolution issued by the Corporation in this connection is attached herewith.

In the preamble to the resolution it is stated that the Bolivian Development Corporation has satisfied all of the obligations agreed upon with McGraw–Warren Company, but that the contractor has not lived up to the stipulations of the contract signed July 16, 1945. The resolution further states that the contract is being rescinded for the following reasons: (1) because of reported violations by the contractor of the stipulations agreed on; (2) because the average cost per kilometer has exceeded the calculated cost in a very appreciable proportion; (3) because the time which the contractor has taken so far for the performance of work completed is excessive and progress is slow and absolutely unsatisfactory; and (4) the rate of progress of the company would not permit the termination of the highway within the 3-½ years period stipulated in the contract.

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The action of President Bilbao, therefore, on December 12, was surprising only because of the Government’s previous promise to withhold definitive action as above outlined. Construed by the Ex-Im Bank representatives here as a breach of the understanding between them and the Corporation, these representatives promptly protested the failure of the Corporation to consult with them.

When President Hertzog was queried on this point, he stated that he regretted the hasty action on the part of the Government and attributed it to a misunderstanding. The views on this development of Corporation Director, René Ballivian, however, are to the effect that the Government learned from supposedly trustworthy sources that the contractor had decided to issue, within the following 24 hours, a notice on the part of McGraw–Warren Company requesting a cancellation of the contract, supposedly because of ineffectual cooperation which the contractor was receiving in Bolivia. Ballivian indicated that such a measure on the part of the contractor, in view of the general opinion and criticism of the McGraw–Warren Company, would be most embarrassing to the Bolivian Government and lead uninformed people to believe that the major lack of performance was in reality attributable to the Government rather than to the contractor.

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Respectfully yours,

For the Chargé d’Affaires ad interim:
John A. E. Orloski

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