Memorandum of Conversation, by the Assistant Secretary of State for Inter-American Affairs (Miller)


Subject: Bolivian Exchange Decree of August 11, 1950

Participants: Mr. Paul Linz, Assistant to Dr. Mauricio Hochschild, South American Minerals and Merchandise Corporation
Assistant Secretary Miller
Mr. King—NWC

Mr. Linz said he had already discussed with Messrs. Atwood1 and King the problems of the Hochschild company and the mining industry in general in Bolivia resulting from the exchange decree of [Page 751] August 11,2 but he wished to emphasize to me the unfortunate repercussions which could be expected from this confiscatory measure. He said the mining industry just could not continue operations at the present level of production with the little bit of foreign exchange allocated to it to meet operating expenses; much less could it expand production as had been contemplated in view of increased minerals prices. Referring specifically to tin, Mr. Linz said Hochschild had two choices: the company could cut operations by about 50 percent, using inefficient hand labor to a greater extent and less mechanization to strip the mines of the richer ores, thus depleting them in four or five years, or it could cease operations entirely. The danger of the latter course, and possibly the real objective of the drafters of the decree, would be that if industry attempts to close down properties the government will nationalize them, obviously paying inadequate, if any, compensation to the owners.

Mr. Linz emphasized that private capital could no longer operate In the Bolivian mining industry, at least not under the August 11 decree. He said his company had plans to develop the Bolsa Negra mine and possibly the Matilde mine, the latter in collaboration with the American Smelting and Refining Company3 and the Export-Import Bank, which had shown a real interest in the proposition. Obviously, these plans have been abandoned until the exchange decree is modified.

In going over the requirements of the industry for foreign exchange, Mr. Linz mentioned that Hochschild had spent over $1,000,000 on the unsuccessful Tainton process experimental plant at Potosi. Each year, he spends considerable sums for research here in the States, including a monthly retainer to the Dorr Laboratories. Bolivian engineers are brought to this county for training. Such activities all require foreign exchange and will have to be suspended. Not only this, but these very facts disprove the statement of Dr. Keenleyside, head of the United Nations Technical Commission which recently visited Bolivia, to the effect that the mining industry took out all the dollars they could and put nothing back. Mr. Linz admitted that the industry possibly has taken out more dollars than it might have, but certainly [Page 752] not “all it could”. He then offered to give instructions that Hochschild’s books be thrown open for examination by a designated official of our Embassy in La Paz in order to prove his arguments on exchange requirements.

Mr. Linz then launched on a rather bitter attack on the United Nations Technical Commission, or at least on individual members of the group. He said that the Bolivian Government claimed its exchange decree was based on the recommendations of the mission, whereas the mission was still at Lake Success preparing its report. Actually, the two mining experts on the mission, Messrs. Seldenrath, a Dutchman, and Monture, a Canadian, had informed him at lunch that they were “horrified” by the decree. But other members of the group reportedly favored nationalization of the mines and had made incidental and derogatory remarks about the industry at cocktail parties which were used by the Bolivian Government as the basis for the exchange decree. Mr. Linz added that the rumor was current in Bolivia that one member of the UN Mission actually drafted the text of the decree.

Some discussion as to the interests of the US in Bolivia and the extent to which it could become embroiled in a domestic matter followed, with Mr. Linz insisting that there was a real interest for strategic reasons which overrode the subtleties of diplomacy. Furthermore, he said that as long as the US was spending public funds to bolster the Bolivian economy he thought it had a right to indicate an interest in measures tending to cause economic deterioration.

I told Mr. Linz we would discuss this problem with the Bolivian Ambassador, perhaps suggesting that a delay in enactment of the decree into law would be advisable to allow time for further study and consideration of the integrated plan to be presented by the United Nations later this year.

  1. Rollin S. Atwood, Acting Director of the Office of North and West Coast Affairs.
  2. In telegram 67 from La Paz, August 14, 1950, Ambassador Florman had reported in part that the August 11 decree required tin producers to surrender virtually all of their foreign exchange receipts to the Central Bank, which was then to return them exchange worth no more than 28 percent of a tin “base price” (itself below market price) for production costs, capital equipment, and capital service. (824.131/8–1450)

    The Department had stated in part in telegram 40 to La Paz, August 21: “Dept will not become involved in controversy arising from new exchange decrees … considering this domestic Bol matter.” (824.2544/8–2150)

  3. In another memorandum of conversation dated August 24, Mr. Miller reported in part being informed by Mr. Oscar S. Straus, Treasurer of the American Smelting & Refining Company (Bolivia’s largest copper producer), that his firm considered the August 11 decree confiscatory. (824.131/8–2450)