The Ambassador in Bolivia (Flack) to the Secretary of State
Sir: I have the honor to refer to the Embassy’s despatch No. 1666 of August 28, 1947,71 and to other communications between the Embassy and the Department concerning difficulties over the Panagra contract with the Bolivian Government, and in this connection to forward the Embassy’s translation of a letter to Panagra from the Minister of Defense,71 Eduardo Montes, authorizing Panagra to suspend for a period of 90 days its flight along the “diagonal” route La Paz–Oruro–Uyuni–Salta. Mr. Ernesto Aranibar, manager of Grace and Company which represents Panagra in Bolivia, confidentially gave me a copy of the original letter in Spanish.
It is the Embassy’s understanding that despite previous indications to the contrary, Capt. Germán Pol, Director of Civil Aeronautics in the Ministry of Defense, has maintained strong influence with, as well as the support of Minister Montes and of President Hertzog himself in connection with matters of Bolivian civil aviation and aviation policy. Captain Pol’s policy in connection with Panagra’s operation contract has evidently received approval from his superiors in the Bolivian Government. That policy is to force an issue in the dispute over Panagra’s contract in order to cause the cancellation or modification thereof. Apparently the Ministry of Defense will insist after the termination of the 90–day period referred to in Minister Montes’s letter that Panagra reduce the frequency of several of its routes and reinstate the Uyuni diagonal route, in accordance with that Ministry’s interpretation of the wording of the Panagra contract.* If Panagra should be willing to amend the contract to clarify the wording of the clauses whose interpretation is in dispute, the Ministry would use that opportunity to demand revision of other important clauses such as those affecting Panagra’s cabotage rights and governmental subsidy. If Panagra should decline to agree to modification of the contract and should continue to follow its own interpretation of the contract by not [Page 373] reducing its frequencies and by not reinstating the Uyuni route, the Ministry of Defense would carry the matter to the Bolivian Supreme Court claiming violation of the contract by Panagra and perhaps demanding cancellation of the same. Mr. Douglas Campbell, Vice-president of Panagra, who has recently been visiting La Paz, informed me prior to his departure on September 6 for New York that he would not be opposed to such a course, but would study it further.
There is also indication that the Government desires to take over Panagra’s airport installations and facilities in the near future to be operated by a government controlled airport administration company for the use of all airlines. In this connection, another desirable amendment in the Panagra contract from the Ministry of Defense point of view would be the inclusion of a stipulation to the effect that the Government may take over these facilities from Panagra at any time it so desires, rather than at the contract’s termination in 1967, as is presently provided for. Bolivian officials are careful to point out that the matter of Panagra’s facilities will be dealt with within the frame of the law, and Panagra would be rendered due compensation should the transfer occur. However, it appears doubtful that the Bolivian Government has the financial resources or the technicians with which to be able to take over Panagra’s facilities in the near future.
Mr. Aranibar and Mr. Douglas Campbell have kept the Embassy closely informed on the status of the situation and on their viewpoint. They have indicated that it will be Panagra’s policy to resist any moves for the modification of the contract, to accept the change authorized for the 90–day period by Minister Montes, thus suspending the Uyuni flight and continuing with present frequencies, but at the end of that time to continue without further change, hoping that the natural inertia of events and that hesitation on the part of the Bolivian Government to take opposing action will serve to allow Panagra to continue more or less permanently its service as during the 90–day period. If the Ministry of Defense continues to press the issue, however, Mr. Aranibar informed the Embassy that he would prefer to have the whole matter brought before the Supreme Court, feeling that there was a good possibility that the Court would support Panagra’s point of view and the Panagra interpretation of the contract. Concerning modification of the contract itself, Mr. Aranibar stated that it was undesirable to encourage or cooperate with such a step, as among other reasons, it would establish a bad precedent by which each new political regime in Bolivia would feel justified in seeking further changes in the contract according to its own point of view, which would destroy the sense of the contract’s legality and permanency, and would cause the present difficulties to be endured all over again in the future.[Page 374]
Panagra officials have informed the Embassy that the Uyuni diagonal flight will be discontinued in the near future and that in its place direct service along the route La Paz–Arica–Antofagasta will be instituted, with passengers for Buenos Aires continuing there via Santiago, although later on an Antofagasta–Salta–Buenos Aires flight may be commenced. The new route represents a slight departure from the route authorized in the Minister’s letter for the 90–day period, inasmuch as Oruro is omitted, although Panagra will continue to serve the latter point on its flight to Santa Cruz and eastern Bolivia.