Foreign Relations of the United States, 1955–1957, American Republics: Central and South America, Volume VII

287. Memorandum of a Conversation, Department of State, Washington, May 9, 1957¹

Washington, May 9, 1957

SUBJECT

• Current Bolivian Problems

PARTICIPANTS

• Bolivian Foreign Minister Manuel Barrau
• First Secretary of Bolivian Embassy Mario A. Montenegro
• ARA—Mr. Rubottom
• REA—Mr. Turkel
• OSA—Mr. Bernbaum
• OSA—Mr. Briggs

The Minister said that he had just received an urgent message asking him to mention to the Department several shipments of tungsten which have been made to GSA and which are below specifications. He said that the Bolivian Government, in order to speed payment for these shipments, would be willing to pay the costs of treatment necessary to remove the impurities from the material and thus bring it up to standard. He asked that the Department take the matter up with GSA in an effort to hasten a solution, in view of the immediate need of the GOB for the funds involved. Mr. Briggs replied that he had learned of the matter earlier that day and had already been in contact with GSA. He added that he would follow up this matter.

Mr. Rubottom mentioned Bolivia’s participation in the OAS Committee dealing with the Honduras–Nicaragua dispute² and asked whether the GOB might be able to detail two of its military officers, perhaps from Panama, to serve on the military advisor group. Minister Barrau said that several Bolivian officers are taking a U.S. Army training course in Panama and that he felt it would be possible to detail two of them.

The Minister said that he would leave for New York May 10 for a meeting with representatives of the Foreign Bondholders Protective Council,³ at which time he hopes to effect a settlement with the Council. He added that only a minor technical point remains to be ironed out in these negotiations. On May 11, he added, he plans to leave New York for La Paz.

Mr. Rubottom asked for the Minister’s opinions on the current situation in Bolivia and the latter gave a brief résumé of the stabilization picture, emphasizing difficulties suffered by business and industry through the loss of markets and difficulty of obtaining capital. He said that in respect to deposits of local currency for U.S. aid commodities he had just received a cable stating that investigations by the GOB have shown that the chief difficulty seems to be that aid commodities are not moving at retail and that consequently distributors are overstocked with goods but have not funds available for deposit. He said that the total outstanding is approximately thirty-two billion bolivianos and that efforts are being made by the GOB and USOM to stimulate sales and consequent deposits. Mr. Rubottom pointed out the extreme importance of these funds for budget support purposes, as well as for the initiation of the President’s supervised credit program.

Mr. Rubottom then asked whether labor and its leaders are cooperating with and supporting the President in his stabilization effort. The Minister replied that the situation is difficult because prices have not declined as much as had been hoped and the workers have suffered a loss of real wages as well as increasing unemployment. Mr. Rubottom wondered if much of the difficulty might not be due to the extremely heavy Social Security charges (35% of payroll) and to the inability of employers to discharge excess workers. The Minister assented, but said that some progress had been made on the first of these points, inasmuch as when the stabilization program was begun, the Social Security charges were cut from their previous level of 102% to the present figure. He said that the Government has not felt it urgent to move rapidly ahead on the question of discharges because most industrial employers have large cushions in the form of extremely high profits made during the pre-stabilization period and are therefore not yet really suffering. He said, however, that the Government plans to attack both of these problems as the political situation permits.

He then mentioned the demands of the construction workers for increased compensation, saying that the amount requested is only approximately 6¢ U.S. per day per worker and that the construction workers are probably the lowest paid group in the economy. Mr. Turkel pointed to the fact that the majority of these workers are Government employees and that increased compensation for them would inevitably lead to similar demands from other Government workers, which in turn would have a serious effect on the budget which is already running a deficit. Mr. Bernbaum questioned whether it might not be advisable to undertake a study of the overall wage situation with a view to determining whether inequities exist as regards comparative wage levels and expressed the thought that perhaps to ILO, which has recently had a Mission in Bolivia,⁴ might undertake such a study. Mr. Rubottom said that he was not sure that the ILO would be the best agency for the task and suggested that perhaps a competent technical firm might be more suitable. The Minister agreed with Mr. Rubottom, but said that the experiences of the GOB with the firm of Price, Waterhouse & Company⁵ had not been particularly fruitful. He went into this matter in some detail.

The Minister reverted to the employment situation, saying that the mining corporation plans to reduce its force by approximately five thousand and is already working in this direction by refusing to fill vacancies caused by attrition. He added that the Government is following a similar policy and the Development Corporation has already made extensive cuts, but that reductions in force, both by the GOB and private business, have been badly hampered by the fact that, due to the virtual stagnation of the economy, there is nowhere for displaced workers to find new employment. He said that the operations of the Development Corporation are now virtually at a standstill and that development work throughout the country has practically ceased. He reiterated that this situation makes it difficult for the Government to take some of the necessary measures under the stabilization program and expressed the hope that, in addition to foreign private investments which are being sought by Bolivia and possible future loans from the World Bank, the U.S. Government would lend a sympathetic ear to Bolivia’s needs.

Mr. Briggs interjected that, as the Minister might have noted, the present atmosphere in the U.S. on the part of the public, as well as the Congress, is not conducive to optimism with respect to aid programs in general.

Mr. Rubottom remarked on his experiences in 1956 in defending the aid program before the Congress. He added that he considers it fortunate that this year he will have some definite progress to report to the Congress because of the stabilization program, but cautioned the Minister of the importance of the negotiations with the Bondholders Council and the Patiño group in this respect. He once more emphasized the importance of local currency deposits by the GOB, which he regarded as the key to the budgetary problem. He said further that Bolivia’s needs for assistance would receive sympathetic consideration here.

1. Source: Department of State, Central Files, 824.10/5–957. Confidential. Drafted by William T. Briggs.
2. A long-standing border dispute was revived in early 1957 when Honduras established a new province which included some territory claimed by Nicaragua. Documentation is ibid., 615.17.
3. In a telephone conversation on May 13, Kenneth M. Spang, President of the Foreign Bondholders Protective Council, discussed the outcome of that meeting with Hamlin Robinson. Robinson’s memorandum of the conversation reported that Spang told him that Barrau was primarily concerned that Bolivia should have the right to retire its bonds through cash purchases after service was resumed. Spang assured him that this would be the case. (Ibid., 824.10/5–1357)
4. The mission of the International Labor Organization was invited by the Bolivian Government, at the suggestion of the U.N. mission, for the purpose of studying wage-price relationships in Bolivia. The mission was headed by Sir Arthur Tyndall, an engineer, and, since 1940, Judge of the Court of Labor Arbitration in New Zealand. The mission arrived on January 15, and departed a month later. Documentation is ibid., 398.06–ILO.
5. An accounting firm from the United States engaged in 1957 to audit the books of the YPFB, the government oil company.