Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

824.2544/12–1752

Memorandum by the Deputy Assistant Secretary of State for Inter-American Affairs (Mann) to the Under Secretary of State (Bruce)¹

confidential

[Washington,] December 17, 1952.

Subject:

• Agreement to Negotiate Compensation Arrangement and Tin Purchasing Contract with Bolivia.

Political power in Bolivia traditionally has rested in alliances between the armed forces and the three wealthy tin-producing families of the country—Hochschild (naturalized Argentine citizen) and Patiño and Aramayo (Bolivian nationals).

Rightly or wrongly, the great majority of the Bolivian people attribute their incredibly low living standards to their alleged exploitation, over a period of many years, by the three families. Similarly, the people of Bolivia cordially dislike the armed forces because they regard them as the instrument of the tin producers and responsible for excesses against the people.

In May 1951 the MNR party, then in opposition to the government, obtained a plurality of the votes in a national election but was prevented from taking control of the government; in April 1952, the MNR, assisted by the police, led a successful revolution in which armed civilians defeated the army. One of the first measures of the MNR was to reorganize and reduce to impotence the armed forces and the police so that armed civilians, including especially the miners, now represent the principal military force in the country.

Simultaneously, the MNR regime announced its intention of nationalizing the various mining companies controlled by Hochschild, Patiño and Aramayo. In the months that followed the Department made consistent efforts to persuade the Bolivian Government to consider carefully the effect which nationalization would have on the Bolivian economy and people. We pointed out that the mining companies constituted Bolivia’s only important industry; that the country was dependent on sales of tin and other minerals for nearly all of the foreign exchange required to purchase imports, including mining machinery and 40% of the food consumed by the people; that the ability of the government to continue to produce tin (including the problems of maintaining discipline in the mines and obtaining technical and managerial skills and capital equipment) should be carefully considered; that the removal of the companies would create serious problems of lack of capital and of replacing the company “pipelines” through which important quantities of food and machinery were imported; and that nationalization would invite litigation which would create serious marketing problems. With equal vigor we raised the problem of prompt, adequate and effective compensation, especially for American shareholders.

However, so strong were the internal pressures that the government proceeded on October 31, 1952, to nationalize the various companies referred to, although we were successful to the extent that the nationalization decree recognized in principle the obligation to compensate shareholders and earmarked 2% of the proceeds of the sale of minerals as a fund out of which payments would be made. The price which we paid for our strong representations was a suspicion, voiced in the United Nations and elsewhere, that we were prepared to impose economic sanctions against Bolivia in retaliation for nationalization—that the United States had constituted itself the protector of all the mining shareholders, regardless of their nationality.

On December 9 the Bolivian Ambassador informed the Department that the Bolivian people, uncertain of the future, were hoarding food with the result that there was insufficient food to meet the demand. He requested that a 12-month tin purchase contract, at the same price fixed in similar contracts with Indonesia and Belgium, be signed before Christmas. He said that such a contract would have great psychological significance for the Bolivian people.

The Ambassador also indicated that in the event (and only in the event) we were willing to sign such a contract the Bolivians might be willing to agree to arbitration of the claims of American shareholders and to the constitution of a fund with which to pay American claims out of a percentage of the RFC tin purchase price.

The arguments in favor of such a package deal (assuming the Bolivian Ambassador can carry out his suggestions, which is not certain) are:

1. This may be our best chance of obtaining compensation for American shareholders on reasonably favorable terms.

2. This may be our best chance to set a precedent of compensation to American shareholders, something of considerable importance in other Latin American countries where large, strategic industries are largely or wholly American owned.

3. Since we are in any case prepared to make spot purchases of tin, we suffer only a measurable loss in bargaining power for a twelve month period by agreeing to a “long term” contract. In exchange we minimize the risk that we will be accused of economic aggression; of defending the excesses of Patiño, Hochschild and Aramayo; and of causing the economic plight of Bolivia.

4. A collapse of the Bolivian economy might lead to the seizure of power in Bolivia by persons of extreme anti-United States orientation: Our information is that there is currently no hope of the present regime being replaced by more moderate elements.

The principal objections to this course of action are:

(1) Any term contract might well strengthen the hands of Bolivia in dealing with other stockholders. It could not only be interpreted as taking sides in favor of Bolivia but could actually affect the bargaining position of the nationalized companies.

(2) It could be interpreted as showing that the United States was not taking a sufficiently strong attitude against nationalization in general.

(3) The existence of a one-year contract would not in itself prevent a serious deterioration in Bolivia resulting from nationalization and Government operation of nationalized mining industries.

The arguments advanced by Senator Tydings (who represents foreign shareholders) in opposition to such a package deal are:

(1) The United States should continue to apply pressure on Bolivia until a settlement is made of the claims of all shareholders, including Bolivian and other non-American owners; otherwise the RFC, even in making spot purchases, is a “fence” for “stolen” property. (This overlooks, in our opinion, that we have no legal right to represent foreign shareholders; that there is a clear conflict of interest between American and other shareholders in so far as compensation is concerned since to put Americans in the same boat with Bolivians and others would greatly reduce the chance that we can collect for Americans; only a small proportion of the stock is owned by Americans; the importance of setting a precedent for payment to American shareholders; and our overall responsibility for maintaining hemisphere solidarity in the face of the threat represented by the Soviet bloc. It is possible, however, that the Tydings clients may be agreeable to the package deal provided we continue to help them in a more limited manner.)

(2) The precedent for payment to American nationals is of little value to us unless all Bolivian and foreign shareholders are compensated. (We do not agree. We do agree, however, that we should continue to urge compensation for all to the extent that this can be done without injury to U.S. national interests.)

(3) We are not in immediate need of Bolivian tin. (This is true. However, we will need Bolivian tin within the year.)

Recommendation:

(1) That an exchange of notes be arranged wherein the Bolivian Government agrees to submit the settlement of prompt, adequate and effective compensation for bona fide US stockholders in nationalized Bolivian mining companies to a joint arbitration commission.

(2) That following the exchange of notes described in (1) above, the US Government shall agree to negotiate a 12-months contract to purchase Bolivian tin concentrates in amounts comparable to those under previous contracts with Bolivia and under conditions comparable to those of existing contracts with other countries. A percentage of payments for such concentrates would be reserved in a special fund to be used in payment of agreed compensation to US stockholders under (1) above.

(3) That to the extent it can be done without injury to our interests, we continue to recommend to Bolivia payment of all other shareholders. Irrespective, however of whether we are successful in this (and success is doubtful because of the hatred which the Bolivian people and government have for the three principal shareholders) we should proceed to deal as outlined above.

Clearances:

The above recommendation has been approved by Mr. Linder, E, and McDonald, RFC.²

1. Drafted by Director of the Office of South American Affairs Atwood.
2. There is no indication on the source text that Mr. Bruce approved the recommendation, but see Mr. Mann’s letter to Mr. McDonald, dated Dec. 30, 1952, p. 519.