Foreign Relations of the United States, 1950, The United Nations; The Western Hemisphere, Volume II

824.00/8–1150

Memorandum of Conversation, by Mr. Spencer M. King of the Office of North and West Coast Affairs

secret

[Washington,] August 11, 1950.

Subject: Economic Assistance to Bolivia

Participants:	E—Mr. O’Gara, Acting Assistant Secretary for Economic Affairs
	E—Mr. J. Schaetzel
	ED—Mr. Malenbaum
	ER—Mr. Bramble
	OFD—Mr. Spiegel
	ARA/E—Mr. White, Mr. Cady1
	NWC—Mr. King

Mr. Schaetzel opened the meeting by saying that it had been called as an experiment. He said Bolivia had been undergoing an economic crisis earlier this year, pleading for US aid and apparently needing it. Now, with the Korean situation and the resulting increases in prices of strategic commodities, especially tin, Bolivia seemed to be out of the woods.² This salvation, however, would be only temporary. Unless advantage is taken of the opportunity offered, we will have the same problems to face again later on. He then asked Mr. Bramble to summarize the world tin situation, this being Bolivia’s most important export.

Mr. Bramble gave a brief summary of the statistical picture in tin, with comments on consumption, supply, stock pile and price. In the course of considerable discussion the following was developed. Consumption in tin is relatively inelastic—it will not decrease appreciably if the price is high and it will not expand to any extent either if the price is low or if complete wartime conditions exist. We got along during the last war with as little as 40,000 tons a year, although normal US consumption is about 60,000. The major use of tin is in making tin plate and this industry has been operating near capacity for some time. Consequently, even war will not increase the output of tin plate, although it may be destined for different uses. The supply of tin comes chiefly from the Dutch, British, Belgian and Bolivian producers. The Bolivians cannot compete under normal conditions in the world’s markets due to their higher production and transportation costs and the lower grade of their concentrates. The stock pile objective is 280,000 tons, of which about 100,000 tons were on hand at the end of the last fiscal year not including FRC stocks. These must be maintained at a minimum of 20,000 tons since the Department of Commerce has not removed tin from its list of items in short supply for general consumption. The stock pile can be expected to be filled in 1952 after which time demand will drop off sharply, creating surplus conditions. Recent price increases have been due to speculation on the loss of access to Far Eastern mines rather than to any feeling that production throughout the world cannot keep pace with demand. The British Ministry of Supply today announced it had no tin for sale—this does not mean it has no tin but only that it is not offering it for sale. This will no doubt force the price on up. Bolivia is benefitting handsomely by the higher prices, being back to the bonanza days of 1948–49. This situation will not last indefinitely, of course. Consequently, the producers are still anxious to conclude an intergovernmental tin agreement, with the Dutch and British producers probably willing to accept a price lower than the present market in the hope of forcing some of Bolivia’s mines out of business. Bolivia, on the other hand, would consider any agreement that limited rather than supported prices as worse than nothing. It was also agreed that it was impossible to establish just what might be a “fair price” for Bolivian tin.

Mr. O’Gara then asked if the increased exchange receipts resulting from higher prices would allow Bolivia to finance a development program which would preclude another crisis when prices again break. Mr. King said he did not think so—that Bolivia had asked the US to lend it approximately one year’s imports of basic foodstuffs and equipment,³ having a value of about $18,000,000 and that the estimated $10,000,000 to $14,000,000 extra to be received this year would merely allow the country to operate with a smaller deficit. He also said that Bolivia probably had the resources to carry out a modest but effective development program if it would undertake a number of basic reforms, especially in the fields of taxation, budgetary practices, public administration and trade controls. Mr. King added that it was hoped that the United Nations Technical Assistance Mission now concluding its studies in Bolivia would make sound recommendations for reform. Some discussion then followed as to the proposal to appoint UN administrators to work in the various Bolivian ministries with real authority, there being general agreement that, although a novel idea, it might work out and was worth trying since it probably was the only way to force the Bolivians to take the necessary measures to put the country on a sound economic and political basis.⁴

In this connection, Mr. O’Gara commented on Mr. White’s statement that the Bolivians needed an incentive—what Mr. Malenbaum called “a carrot”—asking if the prospects of future prosperity and well-being were not sufficient incentive to a country to bring about effective reform. Mr. White said he doubted it, especially in the case of Bolivia, and that, although it is US policy to insist on self-help, the US realizes that throughout Latin America it probably has to help the countries help themselves. Unless the US is prepared to hold out the hope of additional large-scale financial assistance, it will be difficult to put pressure on most Latin American states to straighten out their internal affairs.

At one point in the discussion, Mr. O’Gara asked what Bolivia did before World War II for foreign exchange to meet the cost of its imports. Mr. King replied that, although the price of tin was relatively low by present-day standards, it was also stable due to the control of the Tin Cartel providing Bolivia with reasonable assurance of a steady income from its tin. Secondly, and of more importance, wartime prosperity brought about a change in the characteristics of Bolivian imports, with a trend towards higher unit cost items as well as greater volume being apparent. The higher cost of items was due to purchases of luxury and semi-luxury goods which increased the total value of imports at a rate greater than the increases due to general inflation throughout the world. The question was asked whether this reflected an increase in Bolivian standards of living and Mr. King replied that, although there may have been a slight general increase, it probably indicated an increase in the standards of the urban and monied classes rather than of the masses.

When the balance of payments problem was raised, Mr. King pointed out that whereas official Bolivian figures indicated a net deficit of almost $20,000,000 over the past ten years, a recent study by Embassy La Paz, in which corrections were applied, indicated a deficit for the period of only some $900,000.

Although no conclusions were reached as to how to solve the problem of Bolivia, it was generally accepted that further discussion would be had to ascertain what type of “carrot” might be effective in getting the Bolivians to take necessary internal measures to right the ills of the country.

1. J. Robert Schaetzel, Acting Staff Assistant to the Assistant Secretary for Economic Affairs; Wilfred Malenbaum, Chief of the Investment and Economic Development Staff; Harlan P. Bramble, Assistant Chief of the Economic Resources and Security Staff; Harold R. Spiegel, Deputy Director of the Office of Financial and Development Policy; Ivan B. White, Economic and Financial Adviser to the Assistant Secretary for Inter-American Affairs; and John C. Cady of Mr. White’s staff.
2. According to the Policy Statement for Bolivia dated August 7, 1950, a tin contract signed by the RFC and the Bolivian Government on August 1, 1950, provided for a price sharply higher than that prevailling before the Korean conflict. The contract covered delivery of roughly three-fourths of Bolivia’s annual production of tin concentrates for 1950. (611.24/8–750)

3. In instruction No. 30 to La Paz, September 11, 1950, the Department discussed its search for a way to meet a Bolivian request for aid of May 15, 1950, insofar as foodstuffs and commodities were concerned. In conversations with the Department, the Commodity Credit Corporation had reaffirmed its policy of not allowing wheat sales from government stocks on a credit or loan basis. Also, fulfillment of the Bolivian request would have resulted in virtual preemption by the United States of the Bolivian market for a number of products and would have thereby violated longstanding policies of the United States and of the FAO, of which the United States was a member. Nor was the Bolivian case covered by legislation that authorized donation, as emergency relief, of surplus U.S. food stocks by private charitable organizations.

   A monetary loan was not feasible because the Export-Import Bank did not make nondevelopmental loans. The Department was unable to ask Congress for special legislation for several reasons, among them the precedent involved.

   For these and other reasons, the Department had to refuse the Bolivian request. Ambassador Florman was asked, in informing Sr. Zilveti of the U.S. decision, to stress the factors mentioned above, the recent improvement in the price of tin, and the need of Bolivia to undertake a carefully planned long-range development program. (824.00/5–1550)

4. In telegram 81 to La Paz, September 29, 1950, the Department stated in part: “Dept most anxious avoid prejudicing success mission’s recommendations or on other hand of assuming responsibility for them.” (398.00–TA/9–2550) Other documents in files 398.00–TA and 824.00–TA for 1950 indicate that the Department’s attitude towards the UN Mission did not change during the remainder of the year.