BL–13. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Under Secretary of State for Economic Affairs (Dillon)1
SUBJECT
- Status of Stabilization Program in Bolivia
The Government of Bolivia and a mission from the IMF reached agreement on a new stabilization program recently with the details contained in a letter dated October 4, 1958 to the Managing Director of the IMF.2 This letter was signed by the Finance Minister3 and the President of the Central Bank.4 It sets forth the stabilization policies and performance levels the government proposes to implement. It also requests reinstatement of Bolivia’s drawing rights under its stand-by agreement with the Fund.5
[Typeset Page 169]To date, the ICA has advanced $500,000 to the Bolivia Government out of U.S. special assistance for fiscal 1959. The agreement represented by the October 4 letter would limit U.S. cash grants and drawings from the IMF to $1 million by the end of October, $2 million by the end of November and $3 million by the end of December, 1958, except in “unusual circumstances” and after agreement with the fund. Nevertheless, on October 16 the Foreign Minister made a request to Ambassador Bonsal for $1.5 million additional to be advanced from fiscal 1959 cash grants, “due to an abnormally high demand for dollars.”
The dollar drain has continued heavy in spite of an increase in the exchange rate to 11,600 on October 16. The Bolivian government has allowed the exchange rate to depreciate but apparently not enough thus far to meet the high level of demand of the moment. Ambassador Bonsal and the Acting Director of the USOM in Bolivia are concerned that the request of the Bolivian Government implies a desire to keep the exchange rate from moving in accordance with market forces. The Embassy-USOM and IMF representative also consider the current dollar demand to be abnormal. In their opinion it reflects general belief in Bolivia that there will be a further serious devaluation due to the deterioration of the economic situation, and the belief that the Government will not maintain its stated positions on such matters as credit policy, restriction of budget deficit, and wage control.
The Department, with the concurrence of Treasury, plans to instruct the Embassy to inform the Bolivian Government that the U.S. would consider an additional drawing at this time if the IMF is satisfied with Bolivian performance on the exchange rate and recommends the drawing. We believe the ICA should be prepared to advance $500,000 now, and as it is understood there have been several heavy non-recurrent exchange requirements during this month, consideration might be given to an advance of [Facsimile Page 2] another $500,000 before the end of the month, if Bolivian performance is satisfactory.
There has been some speculation in Bolivia on the possibility of instituting selective exchange controls but the Department is strongly opposing this and has informed Embassy La Paz we do not believe there is any effective alternative for Bolivia to maintenance of a free exchange system. Furthermore, we propose to instruct the Embassy to encourage the Bolivian government to take a firm stand now on wage and other stabilization issues, since it appears that a “show down” on issues of inflation is inevitable, and the present moment may be the most propitious for a show down.
- Source: Department of State, Rubottom Files, Lot 60 D 553, “Bolivia 1958.” Confidential. Drafted by Henry L. Pitts of the Office of West Coast Affairs. The source text is an unsigned carbon copy.↩
- A copy of the reference letter, addressed to Per Jacobson of the IMF, is attached to despatch 281 from La Paz, October 7, 1958. (398.14/10–758)↩
- Eufronio Hinojosa.↩
- Luis Penaloza.↩
- With respect to the Bolivian request, despatch 281 read in part as follows: “It is understood that, on the basis of this letter [of October 4], the IMF mission plans to recommend that the Board of the Fund act favorably on the Government’s request.” (398.14/7–1054)↩