Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

BL–1. National Intelligence Estimate¹

NIE 92–58

Washington, January 7, 1958

THE OUTLOOK FOR BOLIVIA

THE PROBLEM

To estimate the outlook in Bolivia, with special reference to the prospects for domestic stability.

SUMMARY

1. In the last five years Bolivia has undergone political revolution and severe economic decline. U.S. economic assistance, totaling over $70 million since 1953, has prevented a complete collapse of the economy and during the last year has made possible modest progress under a program of economic stabilization. Bolivia has some potential for development, particularly of petroleum resources, but it faces formidable obstacles—including relative inaccessibility of large areas of the country, the illiteracy of most of its people, and the deterrence which political instability poses to private investment. Consequently, continuation of the presently favorable economic trend will require substantial foreign assistance for a number of years.

2. The recent improvement in the economic situation has depended in large part on the effective leadership of President Siles, the moderate leader of the dominant party in Bolivia. Although he enjoys widespread approval, his authority rests heavily on organized labor—a vociferous minority which has been the standard bearer and principal beneficiary of social and political change. Siles has demonstrated considerable skill in consolidating his position by taking advantage of the struggle for control of the labor movement between rival leftist labor leaders Lechin and Sanjines, with the latter providing influential support for Siles. However, Sanjines’ checkered and opportunistic background, including past associations with Communism, gives cause for some concern as to the reliability of his support. Further, some of Siles’ labor support will almost certainly be lost as he proceeds to apply the austerity measures necessary to his program. Nevertheless, we believe that with continued U.S. aid the chances are somewhat better than even that the present moderate regime will, barring Siles’ death or resignation, survive until the expiration of his term in 1960. The chief threat to the regime is the possible loss of Siles’ leadership since there is no indication of a strong moderate MNR successor.

3. Either a deterioration in the economic situation or too severe austerity would probably unite the labor movement against Siles. If labor unrest led to riots and violence on a large scale, the government probably could not preserve order. In any case, the resulting political turmoil would greatly improve the prospects for the assumption of control by a leftist labor regime and would enhance the influence of the small but militant Communist groups.

DISCUSSION

BACKGROUND

4. Bolivia has some potential for agricultural development and possesses sizeable petroleum resources which are beginning to be exploited. However, development has been and will continue to be hampered by great social and geographical obstacles. Hence Bolivia is today an exceedingly poor country; its standard of living is the lowest in Latin America, except for Haiti. Mining, principally of tin, is still the backbone of Bolivia’s money economy and provides the bulk of foreign exchange. Most of Bolivia’s three and one-half million people are Indians. They are largely illiterate and are engaged in subsistence agriculture.²

5. The dominant political force in Bolivia is the government party, the Nationalist Revolutionary Movement (MNR), which came to power in 1952 through a revolution. The new regime under the presidency of Victor Paz Estenssoro stripped the old ruling group of power in favor of labor and middle class groups. The principal tin mines were nationalized and large landholdings expropriated. Civilian militias were organized as a counterbalance to the army, the political role of which was sharply diminished. The decisive victory of the MNR in the June 1956 elections reflects the extent of its political control and the appeal of its program. The leader of the moderate sector of the MNR and former Vice-President, Hernan Siles Zuazo, was elected President. His principal task has been to deal with the critical economic problems that beset the country.

ECONOMIC SITUATION

6. The ambitious reforms of the Paz regime, including large wage and social benefits, resulted in substantial government deficits. At the same time production declined both in mining and agriculture. In addition, falling world prices for metals reduced foreign exchange earnings. The result was a serious inflation, with the cost-of-living index (1953 = 100) soaring from an average of 50 in 1952 to 2,805 in December 1956; depreciation of the free market exchange rate for the boliviano was almost as great. In the period 1953–1957 the U.S. provided over $70 million in economic assistance. Nevertheless, in late 1956 economic deterioration reached critical proportions.

7. With U.S. and International Monetary Fund backing, President Siles introduced a comprehensive monetary stabilization program in December 1956. The program aims to encourage private incentive and investment and to balance the government’s foreign exchange and national budgets. Backed by a $25 million stabilization fund,³ the government undertook to reduce monetary circulation and to increase government revenues by tax and banking reforms. Chief among these measures was a one-year wage freeze. Other steps included establishment of a single exchange rate and a reduction of subsidies and foreign trade controls. Direct efforts were intensified to increase production and to improve basic facilities, such as transport and power. In addition, the Siles administration is trying to attract foreign capital and has begun repayments to many foreign bondholders and commercial creditors.

8. In its first year, the stabilization program made some progress in arresting economic decline. Agricultural output increased, black market operations were eliminated, and the real income of farmers improved. At the same time, food prices gradually declined. The cost-of-living index fell from 2,805 in December 1956 to 2,220 in September 1957. Banknote circulation, which rose by 277 percent between 1955 and 1956, increased only 15 percent from 18 December 1956 to 21 September 1957. During the first year of stabilization, the external value of the boliviano depreciated only about 11 percent from the initial value set on 15 December 1956; it was relatively stable during the last half of 1957.

Much of this improvement reflected the relative success of measures to balance national and foreign exchange budgets. U.S. aid was still needed to cover a budget deficit estimated at $13 million in 1957. Nevertheless, the government was able to limit borrowings from the Central Bank to about one percent of the money supply in the first nine months of 1957 as compared to 150 percent the same period of 1956. Bolivia’s balance of payments deficit in 1957 is expected to be less than half the level of 1956, and will be covered almost entirely by U.S. aid. Continued deficits through 1958 are expected to require about $22 million in U.S. aid funds.⁴

10. Despite this progress, serious problems affecting the stabilization goals remain. In the mining industry, although incentives for production were increased, these as yet have had little effect and the problems of obsolete facilities, high costs, and surplus labor remain acute. A serious reduction of export income from the mines accounted for much of the pressure on the exchange rate in 1957, and a further decline in this source of income is expected in 1958. The relatively small manufacturing industry—employing 55,000—is still in a distressed condition. Throughout the economy high wage costs and the inability of employers to dismiss excess workers is a continuing difficulty.

11. The rate of capital investment is not adequate to maintain present per capita consumption levels at current rates of population growth. A program to raise per capita consumption one percent a year in 1958–1967 and to absorb the estimated increase in labor force of 26,000 per annum would probably require an annual investment of $80 million. Average annual investment in the 1950–1955 period was only $37 million. Bolivia’s ability to obtain foreign loans and investment will continue to be adversely affected as long as the problem of settling claims of former owners of the nationalized mining properties remains open. However, with the curbing of inflation there may be a better use of available resources and U.S. aid will be channeled more directly to development needs than in the past.

12. Economic Prospects. Agricultural development depends to a great extent on substantial improvement in farming techniques, on the solution of the difficult problem of relocating labor, and on the development of adequate means of bulk delivery from farm to market. Efforts to relocate a surplus labor force of 10,000 to 18,000—primarily from mining—have only begun. The fertile lowlands of eastern Bolivia are almost unexploited, but resettlement from the highlands is difficult for physiological reasons. However, the long-term potential for increased agricultural production is good.

13. While metal production in the private mines has been expanding, total metal production has been declining, chiefly as a result of difficulties in the nationalized mines which account for about 70 percent of total output.⁵ Efficient operation of the nationalized mines is hampered by the high cost of social benefits and of surplus labor, and it will be politically difficult to eliminate or reduce these problems. Accordingly, the best short-term prospect for increased metal production may be through additional investment in the private mines. However, because of world oversupply, expansion of tin production would not provide any substantial increase in revenues. Export quotas, imposed by the International Tin Council, will limit Bolivia’s exports in the first quarter of 1958 to about 5,500 long tons—a drop of almost 20 percent from the average quarterly level of exports in 1956. Further, the threat of increased U.S. tariffs on lead and zinc, combined with falling demand for metals generally, will tend to retard foreign capital investment.

14. The government is placing great hope on the exploitation of petroleum resources as an eventual means of increasing foreign exchange earnings. Petroleum output has gradually risen to over 3 million barrels of crude in 1956 and Bolivia is now a small net exporter. Refinery capacity has increased to about 12,000 barrels per day. The government petroleum agency (YPFB), entirely responsible to date for this development, lacks sufficient capital to increase production substantially. However, the Bolivian government is encouraging foreign private investment under the 1955 petroleum code,⁶ which is considered to be as favorable to private capital as any in Latin America. Foreign oil companies, including Gulf and Shell, are active in exploration YPFB, partly with Gulf financing, is constructing a pipeline through Chile to the Pacific Coast which may be in operation in late 1958. While these developments may contribute greatly to the country’s eventual foreign exchange earnings, production on a large scale cannot be expected for perhaps five years. YPFB has so far cooperated fully with foreign private firms, but its future attitude may be conditioned by prospects for maintaining a satisfactory level in its own operations, which will in turn require additional financing.

POLITICAL TRENDS

The Regime and its Support

15. The austerity measures adopted by the government under the stabilization program and the emphasis on a freer economy were opposed by the leftist factions of the MNR and the labor movement, led by Juan Lechin, Executive Secretary of the Bolivian Workers Federation (COB), and by Vice-President Nuflo Chavez. Their challenge was accepted by President Siles, whose reputation for selfless dedication to duty had won for him and his program considerable popular support. The attempt to call a general strike of the COB in mid-1957 failed because of this support and a split in the COB leadership. The emergence of a pro-Siles faction, headed by railroad federation leader Juan Sanjines, subsequently led to the ouster of Lechin from the Senate presidency and to congressional acceptance of the resignation of Vice-President Chavez.

16. Siles has consolidated his position in the party and in the government. Lechin and Chavez have been ousted from the MNR national political committee and replaced by labor leaders who support Siles. Paz, who has been Ambassador to Great Britain since late 1956, has refused periodic appeals primarily from the labor-left for his return. In the 86 member legislative branch, the President commands a large working majority. Labor politicians responsive to Sanjines’ leadership, as well as moderate members of the worker-peasant bloc which formerly dominated Congress, have aligned with pro-Siles moderates.⁷ In opposition are nine pro-Lechin labor leaders, several pro-Paz politicians, and a few die-hard leftist supporters of former Vice-President Chavez.

17. Despite these gains, the effectiveness of the Siles regime is still hampered by MNR factionalism. Although the potential of Lechin and Chavez for challenging the regime has been reduced, many of their adherents continue to hold party and government posts in the departments. In Congress, the pro-Lechin minority has lost its battle against the extension of the emergency powers which permit Siles to continue the wage freeze. However, this minority may obtain greater support from other labor groups for wage increases on the basis of claims that workers are bearing the brunt of austerity measures. Other party differences revolve around labor-left demands for increased participation in the government, for strengthening worker and peasant paramilitary forces, and for an acceleration of agrarian reform.

18. A threat to Siles’ position and to the effectiveness of his program is his dependence on the support of Juan Sanjines, who represents a somewhat unstable influence. Sanjines presently heads the majority pro-Siles labor segment in the COB. Prior to joining the MNR in October 1954, Sanjines was closely associated with both the pro-Communist Revolutionary Left Party and with the orthodox Bolivian Communist Party. Substantial numbers of orthodox Communists, Trotskyites, and their sympathies belong to the railroad federation he heads. Thus far Sanjines appears to be primarily interested in enhancing his own position and does not seem to be exploiting his now political prominence for Communist ends. We do not know whether he has in fact split with the Communist movement.

19. Labor support for the regime derives from the COB—comprising about 250,000 members in mining, industrial, and white collar unions as well as rural workers—which is split into pro-Lechin and pro-Sanjines factions. The basis of the Lechin support is the 60,000-man Mineworkers Federation and other groups hard hit by austerity measures. The federation, formerly the most powerful COB affiliate, is presently weakened by disunity among the rank and file. The COB faction headed by Sanjines is numerically stronger but contains elements of diverse orientation. For example, the factory and petroleum workers and the urban transport workers have generally responded to moderate MNR leadership, while the construction and particularly the railroad workers have been infiltrated by Communist and pro-Communist elements.

20. Among rural and middle class elements Siles and his stabilization program probably enjoy considerable support. However, these elements of the population are by no means as tightly organized as is labor, and are hence less effective on the rational scene. The peasants, moreover, are isolated and tend to distrust national politics.

The Opposition Parties

21. The right wing parties are incapable of offering more than a limited challenge to the MNR. The right-of-center Bolivian Socialist Falange failed to consolidate its gains after the 1956 elections when it polled 14 percent of the total vote and obtained five congressional seats. Its position has been weakened by an open split between moderate and extremist elements, despite their agreement on the objectives of limiting state intervention in the economy, reducing labor’s political influence, and re-establishing the traditional role of the army. The extreme rightist Republican Socialist Union Party—representing the old oligarchy of big business, large landholders, and former top army officers—is totally discredited. Its leaders both at home and in exile have persevered in their efforts to undermine the regime.

22. Communist Groups. The capabilities of the Communist parties, though much greater than their numbers indicate, are in general limited. In the 1956 elections, they polled only 14,000 votes (1.5 percent of these cast) and have no representation in Congress. The orthodox Communist Party (PCB) has a maximum membership of about 2,000; Trotskyite factions, most important of which is the Revolutionary Workers’ Party (POR), have a strength of 1,000 to 1,500. While the PCB provides conditional support for the regime, the Trotskyite POR maintains an uncompromising opposition. Despite probable support from the Czech Legation, the Communist movement is handicapped by chronic factional differences and financial difficulties. At the same time, however, the presence in government circles of such individuals as Juan Sanjines and Edwin Moller⁸ provides a potential channel for the extension of Communist influence. Three other labor leaders recently appointed to the MNR national political committee may still have ties with orthodox Communists.

Role of Military and Para Military Forces

23. The present estimated strength of the army is 6,500, mostly career soldiers. Its usable equipment, largely of European origin, consists primarily of light infantry weapons and miscellaneous light artillery. The air force has 454 men, 87 of them pilots; of its 42 aircraft only two-thirds are operational and most of these are trainers. While top officers and probably the majority of the personnel in the army and air force generally support the present MNR regime, political, personal, and service rivalries increased in early 1957. Substantial reductions in forces as part of the economies under the stabilization program contributed to this development. A recently decreed organization of the armed forces is probably designed to bring them more firmly under the government’s control. Siles’ recent request for U.S. military assistance was based not only on internal security needs but also on dissatisfaction among the military over the government’s inability to finance an increase in the strength and an improvement in the equipment and training of the services.

24. In contrast to the army, the Carabineros—a national police corps of about 6,700 organized along military lines—have maintained their strength, probably as a result of the government’s dependence on this force for internal security. The training and morale of the Carabineros are good by Bolivian standards, although their capabilities are limited by poor armament and lack of mobility. In addition, there are: (a) an MNR security force which is directly responsible to the party’s National Political Committee and which has about 1,500 members, two-thirds of whom are located in La Paz, (b) a workers’ militia roughly estimated to be 10,000 with primary loyalties to local labor unions, and (c) rural police forces which display considerable autonomy. Except for the MNR security force, these units are ill-disciplined and poorly equipped. They have been utilized by the government for demonstrations during national celebrations and periods of political tension. At the same time, however, the government has controlled these forces by failure to provide full equipment and to replace the reduction in numbers through normal attrition.

25. The bulk of the armed forces and Carabineros would probably support the Siles regime in the event of a serious struggle between MNR moderates and leftist elements. These forces could probably defend the government against attack by the workers’ militia. However, the security forces probably could not control a situation involving widespread labor unrest and violence, and in any case substantial defection from either the armed forces or the Carabineros would make the survival of the government doubtful. A rightist attempt to overthrow the Siles regime is unlikely; any such attempt would almost certainly be resisted by the workers’ militia and by sufficient elements of the armed forces and the Carabineros as virtually to insure the survival of the government.

TRENDS IN INTERNATIONAL RELATIONS

26. Bolivia’s foreign policy has traditionally been conditioned by its land-locked position. Under the MNR, policies have been increasingly concerned with the economic needs of the country. Bolivia maintains generally friendly relations with other Latin American states. There is occasional friction with Brazil and Argentina, in part because these countries wish to discourage foreign development of oil deposits in areas of Bolivia near their borders.

27. The trend in recent years toward closer relations with the U.S. has accelerated under Siles. The favorable policy toward the U.S. is primarily a result of the regime’s desire for continuing economic support; recognition of the need for this support has tended to inhibit even the labor-left from criticizing the U.S. In the UN and the OAS Bolivia continues to support the U.S. and the West on most important political issues. However, like the rest of Latin America, it often takes positions independent of the U.S. on economic and colonial questions. A major reduction in U.S. aid would almost certainly damage U.S.-Bolivian relations.

28. Except for diplomatic, commercial and cultural ties with Czechoslovakia, which maintains a legation in La Paz, Bolivia has little contact with the Soviet Bloc. So far it has not shown interest in strengthening ties with the Bloc, despite a few overtures from that direction, and has also indicated that it plans to curtail Czech Legation activities. Should the Bolivian government come to believe that the country’s economic outlook was worsening and should it be unable to count on effective U.S. assistance, strong pressure would be generated to expand its relations with the Bloc countries.

THE OUTLOOK

29. Bolivia’s future stability is greatly dependent on the success of the moderate MNR leadership in dealing with the country’s difficult economic problems. The Siles regime will probably retain a margin of support for the stabilization program at least for the next year, if it continues to obtain external assistance. Because of labor dissatisfaction, it is almost certain to encounter serious difficulties in maintaining this margin. However, we believe that the chances are somewhat better than even that Siles will remain in power until the expiration of his term in 1960,⁹ barring his death or resignation. In either event, Senate president Federico Alvarez Plata, an MNR moderate, probably would succeed as provided by law, but would be unable to provide as effective leadership as Siles, with consequent loss of strength by the moderate regime.

30. Siles’ ability to proceed with the stabilization program will depend on his success in retaining influential labor support. Some of this support will inevitably evaporate by the mere passage of time, and Lechin will seek to accelerate the process by calling for wage increases and other concessions. While Lechin will not hesitate to use any opportunities provided by labor discontent to move against Siles, his success will depend on the cooperation of labor groups associated with the rival leadership of Juan Sanjines.

31. We believe that Sanjines probably will continue to support the moderate leadership as long as his position in the labor movement is not threatened thereby. While agreement between him and Lechin does not appear likely, those two leaders might take parallel action against Siles and his program. The likelihood of such action would be increased by a sharp deterioration in the economic situation or even by the government’s inability to placate labor demands. Widespread labor unrest and violence threatening to exceed armed forces’ capabilities probably would lead to a modification of the stabilization program, and possibly to Siles’ resignation.

32. Sanjines appears to be motivated by an ambition to replace Lechin as COB Executive Secretary. If Sanjines gained a clear-cut ascendancy in the labor movement, his continuing support for moderate MNR leadership would be doubtful. Even in present circumstances, his past association with Communist groups may result in further Communist penetration of the party and government.

33. Given continued external assistance at approximately present levels, the short-term outlook is for slow improvement in the economic position of this impoverished country. Some increase in agricultural production is likely, and there may also be a reversal of the present downward trend in metal production. Only a major increase in foreign investment would lead to greater progress in economic development before the end of Siles’ term in 1960. Bolivia’s capacity to provide the stability necessary to attract foreign private investment will depend for some years upon U.S. assistance.

34. Nationalist and Communist propaganda attacks against U.S. private capital, especially in oil development, are likely to increase, but these attacks by themselves are not likely to affect foreign investment or over-all U.S. interests. Over the longer run, development of oil resources may lead to an improved economic condition. However, the modest economic progress we have estimated for the next few years will not necessarily assure the continuation of moderate MNR forces in control after 1960.

35. A serious deterioration in the economic situation would greatly weaken moderate leadership in the MNR. The otherwise poor prospects for the parties in opposition to the MNR, both rightist and Communist, would be enhanced. The resulting political instability would probably bring a leftist MNR regime to power and involve some increase in Communist influence. Such a regime would be weak and disorganized.¹⁰

[ANNEX]

Table

Washington, undated

Production and Exports of Principal Metals

1956–1957

A. Production (in thousands of fine metric tons)
	National Mines		Private Mines		Total
	1956	19571	1956	19571	1956	19571
Tin	23.0	21.1	4.1	4.5	27.1	25.6
Tungsten	1.6	1.1	0.8	0.9	2.4	2.0
Lead	9.0	7.8	12.3	13.0	21.3	20.8
Copper	4.0	3.0	0.6	0.6	4.6	3.6
Zinc	21.1	16.5	0	0	21.1	16.5
Antimony	0	0	5.2	6.2	5.2	6.2
Silver	0.2	0.1	0	0	0.2	0.1
Total	58.9	49.6	23.0	25.2	81.9	74.8
Gold2	0	0	1.1	0.9	1.1	0.9
B. EXPORTS (millions of U.S. dollars)
Tin	—	—	—	—	59.3	54.6
Tungsten	—	—	—	—	14.4	7.5
Lead	—	—	—	—	7.6	7.8
Copper	—	—	—	—	4.1	2.9
Zinc	—	—	—	—	5.0	8.6
Antimony	—	—	—	—	1.5	2.0
Silver	—	—	—	—	6.7	4.2
Other	—	—	—	—	1.7	0.5
Total	74.5	60.53	26.0	17.23	100.5	77.73
1 Production and export of individual metals in 1957 based on data for first seven months. 2 In thousands of kilograms. 3 Total exports of all metals in 1957 based on data for first nine months.

1. Source: Department of State, INR Files. Secret. According to a note on the cover sheet, this estimate was submitted by the Director of Central Intelligence, and the following intelligence organizations participated in its preparation: The Central Intelligence Agency and the intelligence organizations of the Department of State, the Army, the Navy, the Air Force, and the Joint Staff. The members of the Intelligence Advisory Committee concurred in the estimate on January 7, 1958, with the exception of the representative of the Atomic Energy Commission and the Director of the Federal Bureau of Investigation, who abstained, “the subject being outside of their jurisdiction.”
2. Agriculture and cattle raising employ about 64 percent of the population but contribute only slightly over 27 percent of GNP. [Footnote in the source text.]
3. This included a one-year IMF standby agreement under which Bolivia could purchase foreign currencies equivalent to U.S. $7.5 million, a U.S. Treasury exchange agreement providing that Bolivia may request the U.S. Exchange Stabilization Fund to purchase bolivianos amounting to U.S. $7.5 million, and an additional $10 million from ICA. Thus far about $12.5 million from these sources have been used (IMF—$4 million, and ICA—$3.5 million). [Footnote in the source text.]
4. According to present estimates, the U.S. will furnish 34 percent of Bolivia’s government budget and 20 percent of its foreign exchange budget in 1958. [Footnote in the source text.]
5. See Annex for Table on Production and Export of Principal Metals. [Footnote is in the source text.]
6. Under the terms of the code, Bolivia excludes foreign government enterprises. Because of this provision, Brazil’s petroleum monopoly cannot participate in exploitation of a large and promising area in Bolivia now covered by a joint concession under a 1938 agreement between the Bolivian and Brazilian governments. [Footnote is in the source text.]
7. Federico Alvarez Plata, a trustworthy moderate, is President of the Senate and therefore successor to the presidency. Juan Sanjines, Chamber of Deputies President, is second in line for the presidency. Almost all of the congressional committees are controlled by representatives who appear to support Siles.
8. Edwin Moller, long a Trotskyite, joined the MNR in 1954. Although he was recently ousted from the party by Siles because of his oppositionist activities against stabilization, he still retains his seat in the Chamber of Deputies. [Footnote is in the source text.]
9. Under the Constitution, Siles is not eligible for re-election in 1960. [Footnote is in the source text.]
10. A map showing the outline of Bolivia’s strategic mineral resources is not printed.