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

288. Memorandum of a Conversation Between President Siles Zuazo and the Ambassador in Bolivia (Bonsal), La Paz, June 1, 1957, 12:30 p.m.¹

La Paz, June 1, 1957, 12:30 p.m.

SUBJECTS

• Government’s Plans to Meet Demand for Wage Increase
• The COB Convention
• Rate of Exchange and Stabilization Fund
• Status of Mining Industry
• Advance Royalties from Oil Industry
• Supervised Credit

President Siles received me at 12:30. We talked about an hour and a half.

Governments Plans to Meet Demand for Wage Increase

In part confirming and in part adding to what had been told me on May 29 by the Ministers of Foreign Affairs and of Finance,² the President described the Government’s plans along the following lines:

(a) Reduction in Prices of Petroleum Products

A reduction at this time of about 50 Bolivianos per liter on the retail price of the major petroleum products is contemplated. At a later date a further 50 Bolivianos per liter might be cut from the prices. In the case of gasoline, currently priced at 400 Bolivianos per liter, this would mean a reduction of 12½% now and eventually 25% in total.

The President stated that YPFB is about the only profitable government agency and that it was therefore a highly delicate matter to take any step to affect its budget or to reduce its capacity for growth. He said it was highly important to maintain YPFB’s ability to supply the domestic market and to expand. He said that he believed, however, that the $2 million in advance royalties which he anticipated from the new holders of the ex-McCarthy contract plus the $5 million in advance royalties to be anticipated from the successful bidder for the Madrejones tract (most probably Gulf but certainly another “solid” company, according to the President) would relieve YPFB from the necessity of financing its growth and development from earnings and would hence enable it to make the reductions on its sales prices indicated above.

(Comment: It is interesting to note that the President did not mention the renegotiation and extension of YPFB’s supply contracts which had been indicated to me by the Foreign Minister as the basis for YPFB’s proposed reduction in the sales price of its products, nor did the Foreign Minister allude to the possibility of advance royalties as mentioned by the President.)

(b) Reduction in Food Prices

The President has in mind that the reduction in fuel prices plus various reductions to be introduced in food prices and possibly the prices of other products might produce a net reduction of 5 to 7% in the cost of living. He was not too specific here and our exchange of views centered mainly around American food prices and distribution.

The President said that he would like to be able to sell more American food in Bolivia at lower prices and that he would also like to avoid the growing budgetary deficit which results from the differential between American billings and the returns obtained by the Bolivian Government. I said that I thought the price at which American food products are billed to the Bolivian Government is fixed by law.

The President and I agreed that a return to the subsidized prices of former years must be avoided. We also agreed, however, that Bolivian distributors could hardly be expected to dispose of American food products at prices which failed to take into account such current market conditions as the price of local products and of products imported from the Argentine. (Although I did not mention it to the President, it also appears that American exporters are able to put down American food products in Bolivia at prices below those currently billed by ICA.) The President is aware of the problems being encountered by Bolivian distributors in certain areas in disposing of American products. I told the President, as I had the Ministers of Foreign Affairs and of Finance that I would be glad to look into this whole matter on the basis of specific information to be furnished by the Bolivian Government.

I took advantage of the opportunity to raise with the President the problem arising from the fact that many Bolivian distributors are much in arrears to the Bolivian Government for American products. I made clear to the President, as I had done on previous occasions that what we are worried about are not amounts representing inventories in the hands of distributors but amounts due on account of products which have long since reached the ultimate consumer. The President said he fully realized the implications of this matter, that he regarded it as of the same seriousness as the contraband problem which plagued us in past years and that he was squarely behind the efforts being made by the Minister of Economy³ to bring these accounts up to date. The President was most emphatic on this point.

(c) Increase in Wages

The President contemplates a wage increase of about 10% of local payrolls to be concentrated mainly on wages of less than 200,000 Bolivianos (less than $27) monthly. This is to be financed through a reduction from 30% to 20% in the social security payments due, and in some cases paid, by employers. (Workers pay 7½%). The President went on to say that if this reduction is to be achieved, it would be important for the United States in some fashion to lend $2 million to the Social Security Authority to complete a number of hospitals which it would be unable to finance if the reduction goes into effect.

I told the President that I would, of course, convey to the proper people in Washington his views on this subject, but that I felt I could not encourage him to expect a favorable reply. I mentioned our current appropriations situation, the need to use such United States funds as are available above and beyond support of the Bolivian budget for immediately productive purposes and the further fact that a Social Security Institute enjoying 27½% of the local payroll should be able to finance what local circumstances would justify. We discussed this matter inconclusively for some time.

Summing up, the President said that the above measures should result in a 15% increase in the purchasing power of Bolivian employees and laborers. The Labor Federation at its forthcoming convention (June 1–June 10) will probably demand a flat 30% increase in wages.

The COB Convention

The President gave me some information about the speech he intends to make before the Convention on June 3. He will stress the need for sacrifice, belt-tightening and productivity. He will describe other revolutions, including the Chinese. I suggested he might also refer to the war effort of American labor as illustrative of how a great labor movement acts in time of national crisis. He said he would adopt this suggestion. I did not gather that he expects to include any definite proposals in this speech.

The President said that we would hear “a lot of what the Argentines call ‘blah-blah’” during the labor conference but that the important thing would be the conclusions reached. He said he thought they would be such that the Government could handle them with the program described above and they would not imply a break between the Government and labor.…

. . . . . . .

The President’s manner in discussing the situation was confident and assured.

Rate of Exchange and Stabilization Fund

I raised this problem with the President pointing out that in the past month there had been a net excess of demand for dollars over supply of more than $2 million and that during the last few days the rate of loss was apparently moving sharply upward. I referred to my conversations on this subject on May 29 with the Foreign Minister and the Finance Minister and of May 31 with the Finance Minister in which, without proposing any specific solution, I had expressed serious concern and had stated again the position of the contributors to the Fund in the sense of not using their money in a vain effort to peg a rate inconsistent with market conditions. I recalled to the President that my observations and those of Mr. Ross Moore of USOM on the subject had been made in connection with the Central Bank’s request for an additional stabilization contribution of $500,000 from ICA upon which we had not yet found it possible to reach a decision.

The President said that he too was worried about this matter and was particularly concerned at anything which would further depreciate the Boliviano. He said that he was investigating the whole situation and would look forward to discussing it with me further on June 5.⁴

Status of Mining Industry

The President and I discussed the mining industry along familiar lines. He recognizes the need for some sort of a settlement with the former owners of the nationalized mines though he was highly critical of their attitude. He stated that at the same time the former owners are pressing for a maximum settlement they are doing everything in their power to see that Comibol gets no financial help from abroad. Without such help, it will not be possible to make a settlement. The President hopes IBRD will be able to help.

Advance Royalties from Oil

The President expressed a good deal of optimism about the possibility of advance royalties from the oil industry. He is apparently counting on $2 million from the new holders of the ex-McCarthy contract, $5 million from the successful bidder for the Madrejones tract (he expects it will be Gulf), and possibly other advances from Gulf and from the ex-McCarthy or Holland group. He is wondering whether it might not be possible in addition to get 7 million dollars from IBRD as financing for the proposed pipeline to Arica (to which Gulf is partly committed).

I did not feel called upon to comment on these various possibilities. I was struck by the fact that the President did not, in this connection, mention the various past due obligations which make the current financial situation of the Government, of the Central Bank and of Comibol among others so precarious.

Supervised Credit

The President stated that he expects shortly to set up the Institute of Supervised Credit. I said I hoped USOM would have some available funds for these general purposes but that this would of course depend on the rate of counterpart generation which in turn is largely dependent on collections by the Bolivian Government from distributors of United States aid foodstuffs.

Philip W. Bonsal

1. Source: Department of State, Central Files, 824.00/6–357. Confidential. Drafted by Bonsal. Transmitted in despatch 738 from La Paz, June 3.
2. The record of this conversation between Barrau; Hugo Moreno Cordova, Bolivian Minister of Finance; Ross Moore; and Bonsal on May 29, was transmitted in despatch 727 from La Paz, May 31. (Ibid., 411.2441/5–3157)
3. Jorge Tamayo Ramos.
4. No record of this meeting has been found in Department of State files.