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

BL–15. Paper Prepared in the Department of State¹

Washington, November 3, 1958

CONCLUSIONS AND RECOMMENDATIONS REGARDING BOLIVIAN PROGRAM

I. General

A. Our primary objective in Bolivia remains the maintenance of relative political stability in order to forestall a serious politico-social upheaval. This will be difficult to achieve unless the Bolivian economy can be stabilized and economic progress can be made. To realize our objective we are prepared to support any Bolivian government which can satisfy two basic criteria:

1. Freedom from Communist influence;

2. Ability and disposition to carry out an effective stabilization program.
In our economic policy toward Bolivia, the primary emphasis must still be on stabilization. There should also be increased support for development.

B. The sharp drop in Bolivian export earnings in the past two years because of the declining world metals market and the need to show economic progress in Bolivia in order to retain popular support for the stabilization program cause a need for United States aid to Bolivia in FY 1959 above the $17 million already requested of the Congress.

C. A longer-run economic purpose remains the achievement of economic viability and strength which will, in turn, permit the termination of emergency aid to Bolivia.

D. Bolivian performance in the stabilization program has been less satisfactory this year than in 1957. The United States should take a firmer stand on the points discussed in Part II below.

II. Performance in the Stabilization Program

A. If the stabilization program in Bolivia is to be successful, the principle of flexibility of the exchange rate to follow market forces must be maintained and implemented. The U.S. should be firm in supporting the IMF in insistence on exchange rate flexibility. We should depend upon the IMF to take the lead in judging the specific rate of exchange which is appropriate and in counseling the Bolivian Government on rate policies. We should inform the Bolivian Government that utilization of the FY 1959 balance of payments special assistance will be predicated upon enforcement by it, in accordance with the stand-by agreement with the IMF, of policies necessary to keep open the free dollar market at a rate of exchange requisite to achieve at least an overall balance between demand for and supply of dollars.

B. Acceptable progress on the collection of counterpart should be a condition of use of United States balance of payments assistance in FY 1959.

C. We should attempt to obtain Bolivian agreement to legislation permitting the dismissal of surplus labor. If legislation is found politically impractical, we should continue to explore with the Bolivian Government other means of achieving displacement of surplus labor.

D. We should begin now to recruit a top-grade fiscal expert for the financial mission to Bolivia, to serve as an assistant to the head of the mission (who is also Executive Director of the Stabilization Council) and to replace him during periods of absence.

E. Although petroleum development offers the best long-term prospect for Bolivian economic progress, mining will continue to be the country’s principal export producer for the immediate future and must also continue to play a major role in the economy in the long run. Reorganization, rationalization and re-capitalization of this industry are therefore urgently needed. As the government mining corporation, COMIBOL, constitutes by far the major portion of the industry, and as its present inefficient operations are a chief source of Bolivia’s deficits we should strongly urge the Bolivian Government to implement the recommendations already made in this regard, including negotiation of a final settlement on compensation for the nationalized properties. The possibility of a management contract for COMIBOL with private mining interests might also be explored.

III. Additional Assistance for Bolivia

A. The full $17 million FY 1959 special assistance program contemplated in the Congressional presentation should be made available to Bolivia. In view of the decline in Bolivia’s export earnings and the commitment to help Bolivia meet its balance-of-payments problem made at the time of the Vice President’s visit, an additional $6 million from ICA special assistance funds should be provided in FY 1959 on a grant basis, contingent on satisfactory Bolivian performance under the stabilization program.
To assure the greatest flexibility in meeting balance-of-payments emergences and to make special assistance immediately available, such assistance should be furnished on a cash basis to the extent that PAs are not readily usable.

B. The Bolivian Government should be informed that DLF will give prompt attention to development project loan applications for Bolivia which meet DLF criteria.

C. The Bolivian Government petroleum agency, YPFB, offers the only immediate source of increased Bolivian export production. Moreover, its well-being and progress will help to protect the interests and investments of private U. S. oil companies now in Bolivia. In view of YPFB’s acute need of capital, the U. S. Government should attempt to influence U. S. private oil companies to provide this financing on a basis which would be acceptable to YPFB and to the Bolivian Government. Pending further clarification of U. S. policy on the petroleum industry, this Government should defer consideration of financing YPFB from U.S. Government sources.

IV. Administrative Procedures for Extending Aid

Use of the cash grant technique should be continued to meet the needs of the stabilization program. Use of counterpart for projects is subordinate to the objectives of stabilization and continuance of the free exchange system.

V. Other

The internal security program begun in 1957 should be continued as rapidly as political circumstance in Bolivia permit.

1. Source: Department of State, Central Files, 724.5-MSP/11–358. Secret. This paper was prepared by Samuel D. Eaton of the Office of International Finance and Development, and cleared with the Treasury Department, ICA, and the IMF. It was transmitted to the Embassy at La Paz under cover of Department of State Instruction A–66, November 3, 1958.