BL–20. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Under Secretary of State for Economic Affairs (Dillon)1
SUBJECT
- Bolivia/IMF Standby Agreement
As you know, the former GOB/IMF standby agreement expired on February 28. The recently negotiated new agreement has not been recommended to the Fund Board because of failure of the GOB thus far to live up to the terms offered in its Letter of Intent on the crucial miners wage/commissary price issue.2 In the absence of an agreement [Typeset Page 180] with the Fund, we have been withholding payments to the GOB. The last payment was made on February 4.
It has long been our policy to stand behind the Fund on matters of these kinds so as to avoid placing ourselves in the position of dictating economic terms which have major domestic political implications in foreign countries. We have supported the Fund on this issue because we have felt it crucial to the success of the stabilization program this year. Nevertheless, the situation has changed drastically because of recent developments in Bolivia and as of today, the possibility that the GOB would be able to obtain agreement with the miners on terms satisfactory to the Fund appears remote indeed. The Government is not only facing a miners’ strike but the possibility of a general strike in sympathy with the miners. This whole situation is fraught with danger and could very well jeopardize the lives of Americans in Bolivia.
It is my firm belief that the GOB has made a maximum reasonable effort to obtain terms acceptable to the Fund and that we cannot expect it to do more than this. I think, therefore, we should endeavour to induce the Fund to agree to accept the last offer made by the GOB (20% wage increase plus phasing out of commissary subsidies over 120 days), if this is attainable, or the best possible terms on which the GOB can achieve a settlement with the miners. This should reduce the tension in the country and allow us opportunity for a calm evaluation of the effects of such a settlement on the stabilization effort and on [Facsimile Page 2] the future conduct of our program. Needless to say, it might also allow a breathing space in which we could make personnel adjustments so as to reduce U.S. exposure in the country. I believe, therefore, that it would be highly advisable for you to counsel the Fund to take action along these lines and not to throw in the sponge and withdraw their association with the Bolivian Government.
The withdrawal of IMF participation in the over-all Bolivian program would have repercussions far beyond the boundaries of that country and might, especially if the United States decides that it must continue the aid program, encourage other countries to take a harder line with the IMF (and the United States) every time a financial crisis occurs, hoping to by-pass the IMF and deal with the United States directly.3
- Source: Department of State, Central Files, 398.13/3–1359. Confidential. Drafted by Siracusa.↩
- After problems arose between the Bolivian Government and the IMF relating to the provision of the Government’s Letter of Intent of October 4, 1958, Bolivia submitted a new Letter of Intent, dated January 26, but actually signed on January 27, 1959. A photostatic copy of the new Letter was transmitted to the Department of State under cover of despatch 644 from La Paz, January 23, 1959, not printed; 398.13/1–2859.↩
- On March 13, the Bolivian Government promulgated a Supreme Resolution incorporating IMF terms, which called for unfreezing of mineral commissary prices. Renewal of the Stand-by Agreement and U.S. cash grant aid was dependent upon the Government’s ability to force the striking miners to accept the Supreme Resolution. By mid-May, the Government was successful; it put the miners back to work and announced the renewal of the Stand-by Agreement. Additional documentation is in files 724.00 and 824.10.↩