Policy Statement Prepared in the Department of State



a. objectives

The basic immediate objectives of the United States in Bolivia are: (1) to promote sufficient economic and political stability to prevent that country from becoming the subject of penetration by its neighbors, [Page 1167] a focal point of international rivalry, or the victim of communist; inroads which would constitute threats to Bolivian sovereignty and the peace and security of the hemisphere, and (2) to insure in time of international emergency maximum Bolivian production of strategic materials, especially tin, tungsten and antimony and continued access to these materials. In so doing, the US wishes to promote conditions in Bolivia favorable to US private capital, the maintenance of law and order, and fair and equitable treatment for foreigners. A secondary US objective is to retain the cooperation of Bolivia in support of our hemispheric and world policies.

We hope that, in the long run, the attainment of our basic immediate objectives will raise the standard of living of the Bolivian populace and pave the way towards the establishment of a stable and effective democracy in that country.

b. policies

General Background. Bolivia, a country of 420,000 square miles with a population of only 3,019,000, some 80% of whom are illiterate, is a remote, land-locked country of great contrasts. There are vast areas of great potential which are underpopulated and undeveloped, while the majority of the population and the nation’s economic life are concentrated on the harsh and barren altiplano, some 13,000 feet above the sea. There the Indian, apathetic to the point of numbness, lives much as did his ancestors, scraping a subsistence from exhausted fields by primitive methods and contributing little to internal trade. The 30 percent of mixed blood and the less than 15 percent who are white live for the most part in the principal cities, controlling the political and economic life of the country.

Traditionally Bolivia has been a mining country, dependent upon its export of minerals, especially tin, for its receipts of foreign exchange and government revenue and using large proportions of its foreign exchange receipts for the import of foodstuffs and other materials which could be produced domestically. Between 1940 and 1948, over 94 percent of all exports by value were minerals, with tin alone representing about 70 percent of the total. Although the industry indirectly employs only a small part of the population, a large part of the country’s economic activity can be traced directly or indirectly to mining.

Obviously, changes in world conditions have a tremendous impact on such an unbalanced economy. Bolivian producers of tin cannot, on the whole, compete with Far Eastern producers because of their higher costs, remote locations, and poorer deposits. So long as world tensions continue and US consumption and stockpiling of tin help keep demand in line with supply, Bolivia is relatively prosperous. However, since the Bolivian mines are generally marginal high-cost producers, they must curtail their production when the price of tin falls, as it did in late 1949 and early 1950, while Far Eastern producers can still operate at [Page 1168] a profit. When the tin price is depressed, the country as a whole suffers severe economic hardship—reduced foreign exchange receipts, lower government revenues, decreased employment and national income, and general economic stagnation.

Equally ominous is the fact that known Bolivian reserves of tin ores which can be worked economically by present methods and within the price ranges of recent years are nearing exhaustion.

The development of other resources to complement and perhaps eventually replace mining as the basis of the national economy has been severely hampered by many factors and is proceeding too slowly. The rich agricultural lands and forests of Bolivia’s eastern tropical regions cannot be exploited adequately until economical transport facilities are available, substantial migration or immigration has taken place, and problems of health, agricultural techniques, land tenure patterns, etc., have been solved. Prior to recent Bolivian legislation and Government announcements which opened certain areas to oil development by private enterprise, development of petroleum resources for export purposes had been blocked by a nationalistic policy which since 1936 had kept foreign oil capital out of Bolivia, and in the brief interval since the recent change in petroleum policy foreign capital has shown almost no interest in Bolivian investments.

Bolivia’s history has been one of cruel tyrannies, bloody revolutions, and violent upheavals, often put down with unspeakable brutality, with only brief periods of relative tranquility and constitutional administration. Governments generally have been composed of venal and selfish administrators, lacking the education, experience, and background of responsibility needed for efficient administration.

Between 1936 and 1946, Bolivia was ruled by a succession of Army officers who, with one exception, took office as a result of coups d’état. In December 1943, following a coup engineered by a minority group of young army officers and the Movimiento Nacionalista Revolucionario (MNR), a national socialist party closely allied with Nazism and the “Colonels’ Clique” in Argentina, Major Gualberto Villarroel was installed as President. This administration was nationalistic, authoritarian, and antagonistic to vested interests, and it used labor, especially mine labor, as a political tool and weapon. It maintained itself in power by exercising a virtual reign of terror in which its opponents were kidnapped, imprisoned, assaulted, and assassinated without any pretense of legal proceedings. Freedom of speech, freedom of the press, and other civil liberties were seldom known. Although many members of this administration were definitely anti-US in sympathy, they realized that Bolivia had no other recourse but to take its place on the side of the democratic nations. Consequently, strategic materials such as rubber, quinine, tin, and tungsten were provided for the allied war effort and periodic lip service was paid to democratic principles. Tired [Page 1169] of the excesses of this regime, the Bolivian populace revolted in July 1946 and, in a bloody and vengeful uprising, ejected Villarroel and his followers, substituting for them a temporary junta of outstanding citizens which organized free elections. President Enrique Hertzog was inaugurated in March 1947 as the first nonmilitary chief of state since 1936.

The Junta and Hertzog administrations restored civil liberties, maintained the social gains of the people, reorganized the army to take it out of politics, held honest and free elections, and attempted to rule according to constitutional and democratic principles and socialist philosophies. Hertzog, however, was soon under attack from both the right and the left and beset by labor difficulties, and he was forced to devote his energies to staying in office. On the one hand, the government faced the remnants of the MNR, aided by exiles residing in neighboring countries. On the other hand, it found itself under increasing pressure from the left as represented by the Partido de la Izquierda Revolucionaria (PIR), a leftist radical political party which in January 1951 came out wholly for the communist line. Hertzog turned to the US for support and assistance. The US responded by giving its sympathetic attention to Bolivian problems, extending economic assistance, offering appropriate counsel, and facilitating where possible the acquisition of arms and equipment needed to maintain internal order. However, Hertzog, tired, sick, disillusioned by the failure of his administration, faced with the necessity of adopting non-democratic methods to control the subversive opposition, and unable to cope with political pressures which blocked effective economic measures, resigned and was replaced constitutionally in October 1949 by the elected Vice President, Mamerto Urriolagoitia.

The new president attempted to follow the policies of Hertzog but, plagued by economic deterioration for which both administrations were largely responsible, had even less success in bringing stability to the country. His administration worried less about deviations from constitutional principles in its efforts to put down revolts and uprisings, being more prepared to meet force with force. Several bloody clashes between the armed forces and rebellious groups occurred during his tenure. The army regained much of its prestige and political power. Inflation, shortages of commodities, cutbacks in productive enterprises, the basic economic ills of the country, and the normal unhappy lot of the Bolivian masses resulted in growing social unrest which demagogues, agitators, and revolutionaries were quick to exploit. The Bolivian masses, largely unaware of the implications, again opposed the army and the government. Under these conditions the presidential election of May 6, 1951 (in which the polling was on the whole honestly supervised) resulted in a stunning defeat for Urriolagoitia’s party. Faced by five opposition candidates, the administration’s [Page 1170] nominee obtained only about 32% of the total vote; and his chief opponent, MNR leader Paz Estenssoro, even though still in exile, obtained about 43%. Since no candidate received an absolute majority, the election should then constitutionally have been referred to the new Congress, scheduled to convene August 6. However, on May 16, President Urriolagoitia resigned and handed the government over to a junta of anti-MNR army officers headed by General Hugo Ballivian; and the junta later decreed the annulment of the May 6 election and the cancellation of the mandates of all members of Congress. Thus Bolivia’s latest experiment with representative government appears to have failed and come full cycle back to military dictatorship. Further, the prospects of stability even under military rule are poor.

Economic Policy. Because of the complete dependence of Bolivia’s economy on mineral exports, and US interest in maximum production of and secure access to Bolivian strategic minerals, the principal immediate economic problems between the two countries concern minerals, especially tin.

During and after World War II, Bolivia failed to take advantage of the relatively high prices of tin and other metals to stabilize its economy on a sound basis. When the inevitable post-war slump in mineral prices came at the end of 1949 and lasted until the unexpected outbreak of the Korean war, Bolivia had failed to prepare itself and expected the US to come to its assistance, professing that because of its contributions during World War II, its recent efforts to have a democratic administration, the importance to US security of its tin, and the aid given in the post-war period by the US to other competing countries, the US was obligated to render some form of special assistance to its tin industry, not so much to help the producers as to support the basic economy of Bolivia and in so doing to strengthen the political position of the administration. The US has continued in the post-war period to purchase tin concentrates from Bolivia for processing at the Texas City smelter, which was built during the war to process Bolivian and other foreign concentrates and which is operated by the RFC, but no special assistance to the Bolivian tin industry has been extended. Although during the recent war we relied heavily on imports of tin concentrates from Bolivia, the only source of this strategic material in commercial quantities in the hemisphere, US authorities charged with the responsibility of protecting US interests in strategic commodities have indicated an unwillingness to give any special consideration to Bolivia, feeling that the stockpile would provide ample protection in the event of emergency and would allow time for reopening of Bolivian mines were they forced to close prior to an emergency for economic reasons. In times of world crisis, of course, when the tin price tends to be very high, the question is not whether we will give special assistance to prevent Bolivian mines from closing but whether [Page 1171] we are willing to pay the high free-market price which Bolivia demands as one condition of contracts with our purchasing agencies. From the viewpoint of US-Bolivian relations alone, it would obviously be desirable to meet the free-market price and thus negate the Bolivian charge that we take full advantage of free-market conditions in times of depression but unjustly and inconsistently seek to impose controls on the tin price in boom times. However, our price policy toward Bolivia is only one aspect of our world tin price policy, which in turn in times of emergency like the present becomes part of an elaborate anti-inflationary mechanism. Recent experience has shown that conditions of world political emergency are likely to produce a conflict between the desirability of treating Bolivia generously and stimulating maximum Bolivian tin production, on the one hand, and the objective of driving the inflated world tin price down, on the other. The situation as of this writing is illustrative: price disagreement has prevented the signature of a long-term contract for sale of Bolivian concentrates to the RFC.

Under the Point IV program the Bureau of Mines is attempting to aid Bolivia through the development of processes to reduce the cost of recovery of tin and improve the characteristics of Bolivian exports of tin concentrates. In the latter connection, the Department’s policy is to support a plan to erect a tin ore benefication plant in Bolivia, provided a workable and technically sound project can be developed.

For years the Bolivian Government and the larger mining companies have been in conflict over the amount of foreign exchange earnings which the latter should be required to sell to the Government. The issue is of basic economic importance, and it creates high political passions. One party or the other, but usually the industry, attempts periodically to drag the US into the controversy. However, experience has shown that our intervention, no matter how well motivated, is too dangerous to be worth while, and present US policy is to stay clear of all negotiations on the subject. This position is particularly correct in view of the fact that none of the tin-producing enterprises, and only two of the other mining companies, are controlled by American capital.

The basic outline of US economic policy with respect to Bolivia was established by the US Economic Mission to Bolivia which surveyed that country’s economy and potentialities in 1941–42 and through an exchange of notes with Bolivia at the Rio de Janeiro Conference of Foreign Ministers in January 1942. The report of the mission, known as the Bohan Report, was adopted by the two governments as the basis for US economic assistance and mutual collaboration. The pattern of this plan, which is still valid today, provided for the development of internal communications in Bolivia and the diversification of that country’s economy through development of the agricultural and petroleum potentialities of the eastern lowlands to produce supplies [Page 1172] for domestic consumption and export. Such development would tend to raise living standards and correct the unfavorable balance of payments position of the country, lessening its dependence on tin exports. In this program, priority was given to construction of a highway connecting Cochabamba with Santa Cruz at the foot of the Andes, which is the gateway to the region selected for agricultural development. The US committed itself to considerable financial assistance to Bolivia during the period of development.

The history of the highway project, on which active construction was begun in 1945, was marked on both sides by errors, inefficiency, misunderstandings, and delays, all to the detriment of the Bolivian economy and US prestige. At times, these difficulties created serious political problems. These were resolved recently, however, through the extension of an additional Export-Import Bank credit to assist in completion of the road. American construction, engineering, and auditing firms have been engaged by the Bolivian Government, and it is hoped that the project can be brought to successful completion some time in 1954. US policy is to continue rendering such assistance as is appropriate to insure that the highway is completed.

The agricultural phase of the Bohan Plan has not been initiated except on a very small scale because of the long delay in completing the highway and Bolivian refusal to concentrate available resources on the development program. With the completion of the highway itself now apparently assured, the major problem in implementing the Bohan Report has become the necessity for rapid progress in preparations for exploitation of the Santa Cruz area. Bolivia has already indicated its desire to obtain loans from the Export-Import Bank for agricultural development as provided for in the Bohan Plan. Requests for financial assistance will be considered by US agencies on the criteria of economic justification and the availability of private capital. It is US policy to encourage the use of private capital for this and other development programs in Bolivia. Already some private capital, mostly domestic, has been invested in the Santa Cruz area. The US emphasizes the need for Bolivian assurances of just and nondiscriminatory treatment and the creation of conditions conducive to the investment of foreign private capital in the country. On the technical side a vigorous US contribution to the agricultural development of Bolivia is being made under the Point IV program through an agricultural mission operated in that country by the Department of Agriculture to develop suitable crops and methods for extensive production once the transportation problem is solved.

Another phase of the Bohan Plan contemplated the development of Bolivian petroleum reserves to offset in part diminishing returns from the tin industry and to lessen the pressure on the nation’s foreign exchange availabilities for the importation of petroleum products. As [Page 1173] an exception to general petroleum loan policy, the US Government in 1945 permitted the use of Export-Import Bank funds, authorized in March 1942 for the economic development of Bolivia, to assist in financing further development of the petroleum industry by YPFB, a government monopoly which has controlled the Bolivian petroleum industry since expropriation of the Standard Oil Company holdings in 1937. An increase in the original allocation was authorized in 1947. Bolivia has carried out an overly-ambitious development program costing about $22,000,000 on a basis which has differed in important respects from the recommendations of the Bohan Mission. A pipe line from the Camiri field to Cochabamba with a spur line running to Sucre has been completed. A 5,000 B/D refinery has been erected at Cochabamba, and units of 1,000 B/D and 3,000 B/D at Sucre. Unfortunately, development of crude production in the Camiri field has not been carried out efficiently or as rapidly as required by the over-built refinery program, and an application has been made for additional Export-Import Bank funds for use in development drilling in the Camiri field.

The Department does not consider that there are any policy objections to consideration by the Export-Import Bank of a further small loan for petroleum development in the Camiri field, provided it can be determined that such a loan would be technically sound from an oil standpoint, and that the development would be managed efficiently, although it would be preferable for such development to be carried out either directly by private capital or by a satisfactory contractual arrangement between YPFB and private capital.

Bolivian petroleum legislation has recently been passed opening certain areas of the country to oil development by private enterprise or to joint operations with YPFB, and the Bolivian Government has announced that it is willing to enter into lease contracts for the exploitation of other areas where oil prospects are better. However, estimates of Bolivia’s oil resources and the political atmosphere within the country have not to date seemed sufficiently attractive to foreign oil companies to interest them in sizeable investment for Bolivian petroleum exploration and development.

One of the basic handicaps of the Bolivian economy is the deficiency of the Government’s health and education programs. For a number of years the Institute of Inter-American affairs has maintained missions in Bolivia which have made progress toward remedying this deficiency. It is US policy to continue this assistance under the Point IV program, expanding it in accordance with Bolivian ability and willingness to make matching financial contributions.

It is expected that, in the long run, the economic development of Bolivia under the diversification program will assist the country to [Page 1174] overcome its balance of payments difficulties, allowing it to relax its restrictive import controls, put a stop to its practice of resorting to barter agreements, and abolish its complex multiple exchange rate structure. The US seeks the eventual establishment of a single exchange rate in conformity with International Monetary Fund policies and, through its representation in the latter, has encouraged Bolivia to take the necessary measures to this end. While opposed on principle to Bolivian exchange and import controls, the US recognizes, however, that many of them cannot be eliminated without general economic improvement.

The US hopes that Bolivia will remedy its unsatisfactory economic and fiscal practices. In view of our obligation to refrain from intervening in the internal affairs of other countries, however, we hesitate to make direct efforts to rectify such internal conditions, although we do, through our representation in the UN, the IMF, and the IBRD, work toward this end. A UN economic mission which surveyed the Bolivian economy in 1950 recommended to the Bolivian Government at the end of that year a novel but fundamental program of administrative and fiscal reform. The mission’s report has been accepted in principle, and technical assistance agreements to implement most of its recommendations were signed October 1, 1951. While recognizing that ideally the UN’s recommendations might offer a solution to Bolivia’s basic governmental ills, which are also perhaps its most important economic and political ills, the US remains doubtful about the long-run acceptability of the UN proposals to the Bolivian people; and US policy has been neither to oppose Bolivian acceptance of the report nor to attempt to influence the Bolivians to adopt its recommendations.

The climate in Bolivia today is definitely not conducive to the investment of foreign private capital. Political instability and economic deterioration are two factors which make the country unattractive for investment. We hope that the success of our efforts to further political stability and economic diversification will help create conditions conducive to the investment of US private capital in Bolivia. Another deterrent is a traditional nationalism which causes foreign investment to be suspected of imperialistic motives. The US attempts to counter this sentiment whenever possible through the rendering of appropriate counsel, the demonstration of its good faith by its acts, and the educational publicity campaign of the USIE program in that country. Potential investors, however, are aware of the history of the Bolivian Government dealing with foreign private capital and are not convinced that there has been any real change in the attitude of Bolivian officials.

A problem in this connection, which affects any development program or investments requiring the residence of US citizens in Bolivia, [Page 1175] arises from Bolivia’s failure on numerous occasions to accord effective protection to foreigners, especially those residing in the isolated mining districts. The US has made repeated representations in this connection and, although privately recognizing the practical difficulties faced by the Bolivian Government in exercising its authority in remote regions, has insisted on recognition of the obligation of that Government to take the necessary measures to provide effective protection. Since the brutal slaying of two Americans in a mining camp during a labor disturbance in 1949,1 the US has followed closely the process of apprehension and trial of the perpetrators of the crimes, frequently reminding the Bolivian Government that we expect that justice will be done. US policy is to press this matter appropriately.

A bilateral air transport agreement of the Bermuda type was signed with Bolivia in 1948, but it has not yet been considered by the Bolivian Congress. It is US policy to press for ratification of this agreement as soon as possible. Meanwhile, two American carriers continue serving Bolivia, touching at La Paz, which is an intermediate point under the route pattern established for Latin America by the Civil Aeronautics Board. It is US policy to insure that American carriers continue adequate service to Bolivia. A CAA technical mission is rendering assistance to Bolivia to improve domestic and international aviation services and facilities. A US Air Force mission assists the Bolivian Air Force in its training, operating, and organizational programs.

Since 1931 Bolivia has been in default on its external debt of some $60 million in principal plus accrued interest. An agreement providing for resumption of service on this obligation was signed on the initiative of the Government of Bolivia with the Foreign Bondholders Protective Council in 1948, and was ratified by the Bolivian Congress in 1950. The US has consistently kept the Bolivian Government aware of its interest in this agreement, and it is the hope that Bolivian compliance with it will be satisfactory. Initial payments under the agreement were due in 1951, but the tin contract crisis caused the Bolivian Government to suspend plans for its implementation.2

An item of Bolivian debt owed directly to the United States Government is a World War II lend-lease account now amounting to about [Page 1176] US$494,000. It is US policy to press for early settlement of this obligation.3

Political Policy. During World War II, Bolivia turned from its traditional orientation towards Europe to the US. Although the US and Bolivia were not on the best of terms during the Villarroel administration, relations between the two countries have been generally good, especially since the fall of the Villarroel regime in mid-1946. The US has attempted to cooperate with and aid Bolivia to the maximum appropriate extent. This policy has been implemented largely through economic and financial assistance, technical aid, grants to enable Bolivian educators, students, and professional men to visit this country, military ground and air missions maintained by the Department of National Defense, and cooperation in the United Nations and the Organization of American States and their respective organs and specialized agencies. A regular cultural and information section operates in the US Embassy at La Paz to publicize the US and to expose communism for what it is.

This policy has resulted in general Bolivian support for US objectives in the OAS and the UN.

Among political problems between the US and Bolivia, one arises from Bolivia’s insistence that international communism is operating with special intensity in that country, causing strife and chaos in order eventually to obtain in Bolivia a pro-communist base of operations against the southern part of the continent, and even entering into pacts with the MNR for political domination of the country. The Bolivians have used their claim that they are a special object of Moscow’s attentions for every purpose from requests for financial assistance to attempts to entangle us in their domestic politics. While the US remains alert to the possibility of dangerous communist penetration of Bolivia, it also remains to be convinced that the problem is of the immediately serious proportions represented by the Bolivians, and it has refused to be drawn into Bolivian domestic affairs, or to take certain other steps suggested by Bolivian officials, on the basis of this pretext alone.

Although there has been some discussion of Bolivian participation in the Korean action, the Bolivian armed forces are not expected to make any appreciable contribution to the defense of the continent4 in the event of armed attack. Their principal role would be that of preserving internal order in Bolivia and protecting the country from a communist coup which might create a diversionary disturbance and [Page 1177] threaten US access to strategic materials. US air and ground military missions collaborate with Bolivia in order to create a pro-US orientation and to increase the efficiency and capabilities of the Bolivian armed forces, without, however, instigating desires for expensive and unwarranted amounts of modern military equipment. US policy has been to extend to Bolivia only the same assistance in purchasing arms and military equipment as is extended to other countries entitled to MDAP aid.

c. relations with other states

Claiming to have lost territory to each of its five neighbors, Bolivia is naturally suspicious and distrustful of others, and it is somewhat surprising that its relations with its neighbors are as good as they are. This is true especially in the case of Chile, Bolivia’s traditional enemy since the loss of its littoral in the War of the Pacific, and of Paraguay, its most recent enemy in armed conflict. Although there is little contact between Bolivia and Paraguay, the bitterness of the Chaco War seems to have faded and Bolivians in general accept their defeat and the loss of the Chaco.

The dream of eventual access to the sea has motivated much of Bolivia’s foreign policy and has kept alive the resentment against Chile. Nevertheless, the relations between the two today are very good. They have for some years professed a common interest as democracies surrounded by military dictatorships and subjected to Argentine pressure and interference. Both Bolivia and Chile have from time to time claimed that the Peron5 Government is determined to achieve the overthrow of their democratic institutions and replace them with administrations of the Argentine type. This common fear of Argentina has overshadowed the traditional difficulties stemming from the port question. It can be expected, however, that Bolivia will continue to keep alive the issue of access to the sea. Although we have expressed our sympathy with the Bolivian aspiration and our interest in the economic problems which have been related to it, it is our policy to view this as a matter which must be resolved through friendly negotiations among the interested parties, and we are in no sense committed to the grand-scale Titicaca irrigation and hydroelectric scheme which has been advanced hypothetically as compensation to Chile and Peru for Bolivian access to the coast near Arica. The President of Chile6 not long ago expressed, informally, a willingness to consider the cession of a strip of territory along the Peruvian border which would enable Bolivia to control most of the Arica-La Paz railroad, a financial liability to Chile, and develop a small port just north of Arica. A solution of the port question through the cession of Chilean territory [Page 1178] along its northern border cannot be accomplished without the consent of Peru, according to the 1929 settlement of the Tacna-Arica dispute.7 Peruvian consent to the proposal of the Chilean President may prove difficult to obtain, although there are no special problems today between Bolivia and Peru and relations are generally good.

Bolivia’s most troublesome international problems arise from its proximity to Argentina and, until recently, its dependence on that country as a major source of supply, especially of foodstuffs. Following the overthrow of Villarroel, the Peron administration gave a number of clear indications that it preferred that totalitarian government to the more democratic administrations which succeeded it. Bolivian political exiles on occasion organized revolts from across the Argentine border. The Bolivian Government took these incidents and Argentine economic pressure as indicating that the official policy of the Argentine Government is to promote a successful revolution in Bolivia. US policy is to consider these incidents as possibly indicative of the sentiments of individual Argentine officials but, in the absence of more concrete evidence, not necessarily as proof of official Argentine policy. On the contrary, in more recent incidents, the Argentine Government took appropriate and correct measures, albeit at times belatedly, to control the movement and activities of the Bolivian exiles. Indications of the current Argentine attitude afforded by the May 1951 election and subsequent events have been inconclusive as regards Argentine support for any particular Bolivian faction, but there is no question of a lively continuing Argentine interest in Bolivian affairs, and the possibility of active Argentine intervention always exists.

Bolivia also fears Argentine interest and penetration in the eastern plains south of Santa Cruz, the petroleum region of Bolivia, where Argentina has agreed to invest over two hundred million Argentine pesos in the construction of railroads and highways. The Yacuiba-Santa Cruz railroad, on which slow progress is being made, cuts through the heart of this petroleum zone. The US considers that the Argentine-financed transportation projects cannot be justified economically and will add more dead weight to Bolivia’s staggering future debt burden; but the US has not attempted to persuade Bolivia to this view.

A comprehensive economic agreement was signed by Bolivia and Argentina in 1947 which, although not implemented to date, provides for preferential customs arrangements, extensive interchange of specified commodities, and large Argentine credits for public works, industrial development, and stabilization. There is a vociferous group in Bolivia which favors full implementation of this agreement and closer economic and political ties with Argentina in view of what it [Page 1179] considers a lack of progress under the existing policy of cooperation with the US. Since this agreement would if implemented tend to strengthen inter-American economic ties and encourage the expansion of trade and mutual economic development, the US does not oppose it so long as the arrangements are non-discriminatory, do not infringe on Bolivian political or economic sovereignty, and permit free access to Bolivian markets and products.

Brazil has economic interest in the same regions of Bolivia which appeal to Argentina, especially the Santa Cruz area. It is rapidly completing the Corumba-Santa Cruz railroad, which skirts the Bolivian petroleum zone. Many Bolivians fear this penetration, but the majority do not consider Brazil a serious threat, and relations between the two countries have been generally good. Bolivia tends to look to Brazil as a counter-balance to Argentine penetration of its eastern zone. There is a danger, however, that the interests of these two powerful neighbors may clash, since their respective zones of activity, as delineated in agreements with Bolivia, overlap. Furthermore, there is little national sentiment in the eastern zone, which has practically no economic ties with the rest of the country, and separatist, pro-Argentina or pro-Brazil movements might easily be instigated. The US does not oppose Brazilian interest so long as it conforms to the same conditions established for Argentine activities. The US attempts to lessen the possibility of a separatist movement and/or a clash between Argentina and Brazil in eastern Bolivia by assisting Bolivia to strengthen the economic and political interdependence of the various regions of the country, orienting the eastern area toward the highland centers. The Cochabamba-Santa Cruz highway project and the agricultural and petroleum development programs are instruments of this policy.

Official relations between Bolivia and the USSR are non-existent for all intents and purposes; diplomatic representatives have not been exchanged in spite of mutual diplomatic recognition, communist activities in Bolivia were outlawed in April 1950,* and trade with the Soviet orbit is insignificant. Bolivia has evinced willingness to cooperate fully in the embargo of strategic materials to the USSR and its satellites.

While the United States has refused to give full credence to Bolivian Government claims of communist plotting for immediate access to power in that country, the United States does appreciate that communism has probably made some inroads in Bolivia recently. Such inroads are to be expected among a population so backward, poverty-stricken, and illiterate, especially in view of the social unrest created by recent economic difficulties and the weak, vacillating economic policy of the Hertzog-Urriolagoitia administrations. It is US policy [Page 1180] to view the communist problem in Bolivia as essentially a long-term one, and US countermeasures consist principally of assistance to the Bolivian economic development program, attacks on basic health problems and ignorance through the IIAA Health and Education Missions, and a vigorous USIE program.

d. policy evaluation

Progress toward attaining the basic US policy objectives outlined at the beginning of this statement is slow and uneven. Until Bolivia becomes a more stable political entity with a viable economy, the danger of penetration by its neighbors and a possible clash of their respective interests in Bolivia will continue, as will Bolivian vulnerability to the spread of communist or other totalitarian doctrines. The principal measure of the success of U.S. policy must therefore be the extent to which the political and economic structures of Bolivia have been strengthened.

With regard to political stability, the movement during the past year has actually been retrograde. The Urriolagoitia regime failed to carry the country successfully through the strains of national elections, and a de facto military government took over. The ability of the latter government to restore a measure of harmony in the Bolivian political family is problematical, and prospects for an early return to constitutional rule are indefinite.

Economically, there have been some bright spots. An American contracting company has renewed construction of the Cochabamba-Santa Cruz highway. A large part of the US Point IV program is being concentrated on development of the Santa Cruz region, and there are prospects of early substantial investments in that area. Increased international tension has created boom prices in world mineral markets. On the whole, however, progress toward economic stability has been unsatisfactorily slow.

The primary responsibility for Bolivia’s disappointing political and economic situation does not rest on the US, to be sure. Were the Bolivian Government to take measures within its power to eliminate inefficiency and corruption from public administration, revise the country’s tax and fiscal systems and general economic practices, and concentrate its efforts and resources on sensible, economically sound development projects, eliminating those carried on for purely political and regional purposes, much would be done to rectify the basic ills, both political and economic.

However, there has been some measure of US responsibility in that US implementation of policy has often vacillated between close and full cooperation and refusal to do anything at all. Thus, in 1949–50 the US granted the Bolivian request for an additional loan for the Cochabamba–Santa Cruz highway but at the same time was unable to [Page 1181] give any special assistance to the Bolivian tin industry, then in critical straits; and again in 1951, while preparing an expanded Bolivian Point IV program and giving sympathetic consideration to other Bolivian requests for additional economic development assistance, the US has not yet signed a long-term contract to buy Bolivian tin—a basic necessity for a certain measure of economic stability in that country. Thus too, US policy toward full-scale implementation of the Bohan Plan is ill-defined. The US has already contributed or promised for the Cochabamba-Santa Cruz highway far more than the entire amount originally estimated to be needed for the Bohan Plan, Bolivia’s fulfillment of her own obligations under the Plan has been questionable, and there is serious doubt as to her ability to assume further debt burdens. On the other hand, some further US Government investment in the Plan will probably be necessary to insure its success and make Bolivian repayment even theoretically possible. US attitudes on this problem vary from time to time, but Bolivia continually hopes that something will occur to loosen the purse strings of the US Treasury.

The lack of coordinated implementation of US policy in Bolivia stems from administrative and statutory obstacles within the US Government and from conflicts with other policies, rather than from any lack of good will, but it contributes to the shortcomings of policy implementation. At the same time, the piece-meal approach to the problems of Bolivia encourages that country to rely on the US to solve its problems as they arise rather than to take effective local remedial measures within its power.

The US probably could count on access to Bolivian strategic materials and political support, at least from the present Bolivian administration, in the event of another world war. Again, however, a higher degree of political and economic stability and well-being would make such cooperation more certain and more effective, since domestic difficulties might well have an adverse effect on Bolivian production of strategic materials and since a successful revolution, a distinct possibility in view of the present situation of that country, conceivably might bring to office a government inclined to cooperate only grudgingly with the US. The attainment of maximum production of Bolivian strategic materials in time of emergency depends in part on US price policies and US willingness to enter into long-term contracts. Other objectives besides the stimulation of maximum Bolivian production, however, enter into the determination of the price and contract factors, and are sometimes, as at the present writing, in conflict with the production objective. Such conflict can, as at present, interfere with US policy toward Bolivian strategic materials by discouraging Bolivian plans for increased minerals production and even by posing some threat to the security of US access to Bolivian minerals.

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The US has been more successful in other aspects of policy with respect to Bolivia, such as enlisting that country’s support and cooperation in world affairs. The US practices of offering technical assistance, travel grants for study, an information program, political counsel, and general economic cooperation have been instrumental in increasing the bonds of friendship and understanding between the two countries. The USIE program has been successful in causing certain segments of the Bolivian population to look to the US as a cultured, progressive, benign, and cooperative friend without ulterior motives.

The US should continue its policy of aid to Bolivia, especially through the technical assistance program. The Point IV program in Bolivia should be expanded up to the maximum of Bolivia’s capacity for absorption. (In this respect, however, a major difficulty is Bolivia’s inability to undertake additional financial obligations, even for cooperative programs which would be of great benefit.) Bolivia’s requests for additional financial assistance for her economic development program should continue to be examined sympathetically on their own merits, but the major emphasis should be on the participation of private capital in Bolivia’s development. To this end the Bolivian Government should be encouraged to take measures, such as regular payments on the new bond settlement agreement, to restore the country’s international credit and make conditions within Bolivia more attractive to private investment.

An experiment in democracy has failed in Bolivia because of the lack of developed natural resources on which to base a sound and diversified economy, the poverty and ignorance of the masses, the weaknesses of Bolivian administrators, and traditions of political violence. The Bolivian experience should prove to us that we cannot export the US type of democracy to be superimposed on a backward country. Rather we must help Bolivia to create within that country economic conditions and educational levels which will allow the gradual development of democratic principles, traditions, and institutions under the leadership of capable and trained administrators. In the long run, this may occur in Bolivia. This is the ultimate objective of the US in Bolivia—to help create a healthy, prosperous, and stable democracy with satisfactory levels of living, education, and culture for the Bolivian people.

  1. Reference is to the so-called “Catavi massacre”, which had taken place in late May 1949. For further information on this subject, see Foreign Relations, 1949, vol. ii, p. 525; ibid., 1950, vol. ii, p. 746.
  2. In despatch 28, from La Paz, July 18, 1951, the Commercial Attaché (de Lima) had written in part the following: “Unless a long term RFC tin sales contract to Bolivia’s liking is entered into, it appears problematical that any future action will be taken with regard to the implementation of this agreement. Since Bolivia does not enjoy a commercial credit standing that could be jeopardized, it would otherwise appear that a determination as to what further action is to be taken with regard to the 1948 agreement … will be made in the light of the degree of likelihood that Bolivia estimates she has of obtaining a sizeable World Bank loan as a direct consequence of honoring this obligation”. (824.10/7–1851)
  3. On January 26, 1951, the Bolivian Government had completed its obligations under the terms of the Lend-Lease Settlement Arrangement of 1947. This arrangement, however, had not included so-called contingent lend-lease accounts, covering cash-reimbursable transactions amounting to $494,399.25. The Department’s efforts to negotiate a settlement of this amount proved abortive during 1951, primarily because of the financial exigencies confronting the Bolivian Government. Pertinent documents are in decimal file 724.56.
  4. For documentation concerning United States policy with respect to hemisphere defense and related matters, see pp. 985 ff.
  5. Juan Domingo Perón, President of Argentina.
  6. Gabriel González Videla.
  7. For documentation on the settlement, see Foreign Relations, 1929, vol. i, pp. 720 ff.
  8. A more stringent and detailed decree outlawing communist activities was issued by the Busch government in 1938. [Footnote in the source text.]