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

BL–12. Memorandum of Conversation, by the Counselor of the Embassy in Bolivia (Coerr)¹

La Paz, September 18, 1958

PARTICIPANTS

• Hermán SILES Suazo, President of Bolivia
• Walter GUEVARA Arze, Minister of Government and Acting Minister for Foreign Affairs
• Philip W. Bonsal
• Wymberley D.R. Coerr
• Date: September 18, 1958

After consulting with representatives of the International Monetary Fund (IMF)² and the Acting Director of USOM, Ambassador Bonsal called on President Siles at his home at 10:30 a.m., September 18, to inform him of the levels U.S. economic aid in FY 1959, pursuant to ICATO 156.³ The President was accompanied by Walter Guevara Arze, newly appointed Minister of Government and Acting Minister for Foreign Affairs, and the Ambassador by an Embassy officer. On the previous day, at the suggestion of IMF representatives, the GOB had decided to suspend dollar sales by the Central Bank preparatory to reworking the Stabilization Program.

The Ambassador said he was authorized to state that $17 million would be available for Special Assistance, plus a reserve of $6 million as and if required in the opinion of the U.S. Government as a result of “actual implementation” of the agreement to be reached between the GOB and the IMF on terms the continuation of the Stabilization Program. Although the conversation was in Spanish, Minister Guevara repeated “actual implementation” in both language interpolating the comment that this $6 million was “conditional”, and President Siles declared that he understood the phrase clearly. The Ambassador added that he believed Technical Assistance would continue at about the current level above $3 million. Both the President and Guevara expressed their pleasure at the inclusive total of $26 million.

The Ambassador said also that DLF would be prepared to consider loan applications within available funds and on the basis of well prepared projects. He noted that although the possibility of DLF loans had been known to the GOB for several months, only two applications, those of Carlos Peña⁴ and the Gasser Brothers,⁵ had been submitted so far. In reply to Guevara’s question as to whether the DLF would consider both state and private projects, the Ambassador said that during his recent visit to Washington he had found interest in the possibility of a project to improve La Paz’ El Alto Airport, which would be a state undertaking. He again emphasized the advisability of speed and thoroughness in submitting loan applications.

Guevara said that at this point he would like to give the Ambassador his frank opinion, admittedly formed only two days after his return to La Paz, of the Stabilization Program. The Program, he declared, had failed, because it had erroneously concentrated on stabilization instead of production. Instead of conceiving of stabilization as the first step and of production as the second, stabilization and production should have been given parallel emphasis. The great effort and courage with which President Siles had supported the program had been in vain because of this basic error. Guevara recognized that the Stabilization Program’s “failure” had also been caused by other factors, both internal and external, such as inefficiency of Comibol and the drop in the world metals market.

President Siles commented parenthetically that he had received a mildly encouraging note from Foreign Minister Andrade in Washington indicating that some favorable attention was being given to the possibility of purchases of Bolivian tin through Philipp Brothers, Inc., under an agricultural barter agreement with the provision that Bolivia would receive not dollars but pound sterling. It was agreed generally that this would be most beneficial if it could be achieved.

Guevara continued that he had some views to express regarding Latin American and Bolivian attitudes toward the U.S. Citing the Nixon incidents in Lima and Caracas, he thought they has been incited by a few communist organizers but declared that they reflected a basic resentment of U.S. policies, which, as in the Bolivian Stabilization Program, has denied U.S. help in promoting economic production in Latin America. He said he was deeply pleased that, in addition to establishing the DLF, the U.S. had “finally” changed its policy in this respect by supporting the creation of an Inter-American development agency. As for the local scene, Guevara declared that during the short period of his return to Bolivia he had been amazed at the number of complaints he had received against the U.S. Aid Program here. He reflected that it was ironic that U.S. programs designed to help Bolivia should be reaping more resentment than appreciation.

The Ambassador stated that it was probably as difficult, if not more so to give aid as to receive it. He recalled that the IMF and both governments had held considerable hopes for the Stabilization Program as recently as last June 13, as a result of the decisions the GOB had taken on that date, but the GOB’s apparent inability to carry out those decisions had contributed heavily to the present dollar crisis and had played into the hands of forces hostile to the present Bolivian Government and to the Aid Program. He stated that during the past few months all the dollar resources of Bolivia, including U.S. and IMF contributions, had gone primarily to permit speculation and capital export because of an unrealistic exchange rate. Bolivia’s friends could not be expected to continue to support such a situation. He added that it was not to Bolivia’s interest to maintain a rate so low that dollar resources which should be used for such purposes as the progress of YPFB and the Development Corporation were siphoned off by private speculators and people with no confidence in the country’s future.

Admitting that some of the causes of the Stabilization Program’s present plight had been internal, Guevara said that it was nevertheless a fact that the program had failed and that the people would take the suspension of dollar sales as evidence of this failure. He predicted a reaction of profound concern. The Ambassador, pointing out that all of Bolivia’s neighbors had suffered depreciation of their currencies in the past year, and several to a greater degree than Bolivia, admitted to the gravity of the present situation but said he thought it was more a matter of losing a battle, and not the war, on the stabilization front. He saw no reason why it would not be possible to look on the coming operation merely as a retreat to a more defensible position. This observation met an enthusiastic response, with Guevara agreeing heartily and Siles observing that the continuation of the struggle with hope is imperative.

At this point the President received a message that had originated in London bringing news that the International Tin Council (ITC) had just abandoned supporting the price of tin, while maintaining export quotas, and that the London price already had dropped heavily. Recovering from the gloom induced by this news, President Siles observed that it could be announced as the basis of the GOB’s action of suspending dollar sales by the Central Bank.

Guevara, anticipating that the break in the tin market, coming on top of the suspension of dollar sales, would cause panic and possibly worse if unaccompanied by some compensating cause for hope, asked if the Ambassador would concur in a release by the Foreign Minister of a statement summarizing for the public the information he had just given the President on the new level of U.S. aid. (While this proposal was under discussion, the President received a telephone call from the Ministry of Finance saying that the Central Bank had in fact stopped dollar sales at 11 o’clock.) The Ambassador agreed with the timeliness and potential value of the proposed release and it was decided that he, accompanied by the Acting Director of USOM, would call shortly after midday at Guevara’s office in the Foreign Ministry to see the proposed wording.⁶ (The ensuing communique, as reported in Embtel 155,⁷ appeared in the evening’s Ultima Hora and Saturday’s morning papers.)

Referring to the GOB–IMF discussions on reworking the Stabilization Program, Siles commented that some 70 percent of the nation’s workers had received an increase in compensation since stabilization and he had hoped, by finding a formula whereby future increase would be granted only to the remaining 30 percent, that it would be possible to restrict the depreciation of the Boliviano. He felt strongly that the fall in the Boliviano should be limited as much as possible, in order to limit the resultant social and economic reactions.

The Ambassador said it would appear desirable to him that any publicity issued by the GOB regarding the decision to suspend dollar sales should avoid attributing of this decision in any way to the IMF and should present the decision as one taken by the GOB entirely in its own judgement. To this, Guevara responded heartily, saying that any other course would expose the Government to the charge of being a mere “puppet”.

Throughout the conversation both the President and Guevara showed a consistent determination to attack Bolivia’s critical problems with vigor and courage.

1. Source: Department of State, Central Files, 824.10/9–2058. Confidential. Sent to the Department under cover of desp. 231 from La Paz, September 20, 1958.
2. Reference is to the resident IMF representative in La Paz, Herbert K. Zassenhaus, who served in this capacity from August 1957 to June 1959. Documentation relating to IMF activities during 1958 is located in ARA/WST Files, Lot 62 D 16, “Grant Aid.”
3. Not found in Department of State files.
4. Reference is to the loan application by the owner of a food processing plant, Fabrica de Conservas of Cochabamba, for purposes of expansion and modernization of facilities. (724.5-MSP/6-1458)
5. Reference is to the loan application of the owners of a sugar mill, Compania Azucarera La Belgica of Santa Cruz, for purposes of modernization and improving efficiency of sugar extraction. (724.5–MSP/6–1458)
6. The draft press release, also sent under cover of despatch 231, is not printed.
7. The reference telegram from La Paz, September 18, 1958, is not printed. (824.10/9–1858)