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

BL–33. Despatch from the Ambassador in Bolivia (Strom) to the Department of State¹

No. 70

La Paz, August 16, 1960

SUBJECT

• COMIBOL: Dilemma for the United States

It is accepted that basic to any solution of Bolivia’s economic malaise is increased production of minerals, principally tin, at lower cost of production. Even should petroleum or natural gas be discovered in commercial quantities, it is the consensus that this development, should it eventuate, will have no perceptible effect on the general economy for five or ten years. The Embassy has transmitted numerous reports concerning the critical condition of Comibol, the State-owned company which manages and operates all the former mines and holdings of PATIÑO, ARAMAYO and HOCHSCHILD, and which currently operates at a net loss of $500,000 per month. The Department and other interested agencies are informed of the reasons for its losses. In essence, the reasons are: (1) serious de-capitalization; (2) worn out or obsolete machinery and equipment; (3) depletion of existing ore deposits and a lowering of the grade of ore; (4) the lack of an efficient exploration program; (5) an over-supply of workers (estimated at 6,000) who draw pay but produce nothing and an excess of surface workers (65 percent of Comibol employees work above ground); (6) shortage of operating supplies such as dynamite, drill bits, picks, and shovels; (7) the high cost of operating mine commissaries; (8) maladministration, both at the head office and at the individual Comibol mines; (9) the cost to the Corporation of excessive social benefits provided by the labor laws; and, finally, (10) the force of Bolivian politics which has impeded or blocked those reforms which are necessary if Comibol is to become a paying proposition.

I have already reported that Dr. Victor PAZ Estenssoro in his inaugural address on August 6 termed Comibol the major economic problem of Bolivia,² a proposition which should be evident to anyone who cares to know. I think it possible that my many talks with him helped to make him alert to the problem. However that may be, there is no doubt that the Government is fully aware of the Comibol problem and prepared to make some decisions about it. If I did not credit the possibility that Dr. Paz intends seriously to address himself to Comibol and did not believe that he is the only one who can do anything about it, if he has the will, this despatch would not be written. Two changes have occurred in recent weeks: (1) there is widespread apprehension concerning Comibol’s drain on the nation’s economy, and (2) there is recognition in high quarters of the Government that something must be done about it. There is an added element of great importance: President Paz’ recent election gives him and his Government a greater freedom of action than Dr. Siles had in the closing stages of his administration.

I believe that the rehabilitation of Comibol is the key to any early economic improvement in Bolivia. I regard it as highly unlikely that there will be, during the foreseeable future, any serious disposition on the part of Government leaders to return Comibol mines and holdings to private enterprise. Indeed, I suspect that the former owners of Comibol mines themselves have no serious interest in returning to Bolivia. No Bolivian with any political responsibility has even hinted to me that Comibol should be liquidated and that its assets be offered to private investors. President Paz told me that such a step would be “political suicide”. The nationalization of the great mining companies was and remains a major tenet of the Bolivian Revolution. Comibol is the chief economic symbol of the Revolution.

Given that Comibol is the key to any improvement in the economy of Bolivia, it would seem that the United States is confronted by a most serious dilemma.

Although no specific position in this regard has been taken at the highest levels of our Government, our policy has been not to consider United States Government aid or to encourage American private assistance to Comibol until the Government of Bolivia has reached a final settlement with the former owners of Comibol’s holdings. A considerable percentage of the stock of Patiño Mines is held by American citizens or by persons who are at least resident in the United States. I understand that this is not so in the case of Aramayo and Hochschild. The Government of Bolivia has been paying “retentions” to the former mine owners and, according to the Embassy’s information, the sum of retentions already paid has now reached over $17 million. Recent discussions were held between representatives of the Patiño group and the Government of Bolivia in Montreal, with a view toward a final settlement of the amount to be paid to the Patiño group in accordance with the Government of Bolivia’s commitment to compensate the former mine owners. In essence, the Patiño group asked a sum double that which the Government of Bolivia was prepared to give. To the Embassy’s knowledge the discussions ended without agreement and no further discussions have been held. The Government of Bolivia considers that it has already paid to the former mine owners sums in the form of retentions approaching the book value of the holdings which were nationalized in 1953. (Mine owners dispute this claim on grounds “book value” set was erroneous.) The former owners would appear to have little motive, for purely financial reasons, to want to reach a final settlement so long as they continue to receive with each shipment of tin ore to the smelters in England a portion of the value of the smeltered ore. It would seem likely that they would be content to continue indefinitely receiving these retentions.

So long as the problem of Comibol remains unsolved, the United States Government cannot expect that its economic and financial assistance to Bolivia will have any really significant effect in terms of improving the country’s economy. Indeed, in a sense, our cash grants are little more than an indirect subvention which serves to make up for Comibol’s losses.

It is understood that the Government of Bolivia will shortly announce agreed measures for the reform of Comibol. While the Embassy has no precise advance information concerning the nature of the measures which the Government will propose to take, it seems likely that they will include the dismissal of many Comibol supernumeraries, the closing of some unproductive mines, possibly a rationing system in the mine commissaries to reduce commissary losses, and some personnel changes. Such reforms, in themselves, however, will have little more effect than to cut Comibol losses.

A major difficulty is that even if the Government is determined to carry out these reforms it does not have the funds available to do so. It is estimated, for example, that the dismissal of 4,500 employees would cost around $2,500,000 in severance pay and other social welfare benefits, and because of the probable need to resettle the workers. This assumes that the Government would not have to pay any benefits in the case of about 1,500 of these workers who, although on Comibol’s payroll, have been drawing disability and regular retirement pensions from the social security system.

Furthermore the reforms mentioned, while they should cut Comibol losses considerably and perhaps even enable that entity to show small profits, would not constitute a long-term solution to Comibol’s problems. In other words, Comibol would almost surely be operating before very long at a deficit again unless other essential measures are also adopted. In short, Comibol will require new capital to replace worn and outmoded equipment, to carry out intensive exploration for new ore deposits, to install concentration plants to process low-grade ores, and for other improvements. Capital for these investments is not available in Bolivia; it is unlikely that private foreign capital would be forthcoming except on some basis whereby foreign investors have a share in the management of Comibol or of its individual mines, an arrangement which the Embassy believes the Government of Bolivia is loath to accept, given the political symbolism of Comibol, except possibly in the case of idle properties such as the Matilde Mine. Hence the Government of Bolivia will be looking abroad for public capital.

The Embassy anticipates that approaches will be made to the United States Government for substantial assistance to rationalize Comibol’s operations. It seems most probable that overtures will be made at the same time, also, to Iron Curtain countries for assistance and that, therefore, the United States Government will be in a squeeze, threatened with the prospect of important Czech or possibly Soviet Union economic (and political) inroads into this country, if we do not come to Comibol’s assistance. [text not declassified]

In summary, the problem which Comibol poses for the United States is as follows: Our substantial program of economic and financial assistance is designed to assist Bolivia in improving its economy, a condition, precedent to political stability, the introduction of a reign of law and order in the country, and the consolidation of a purely national revolution which has promise of being a most valuable counterweight to the Castro revolution in Cuba. Yet Comibol constitutes an enormous drain on the resources of the country and, to a large extent, vitiates progress in other sectors of the economy which is being made with our help. Comibol is the key to the economic health of Bolivia, yet our share in economic development here does not touch it. American public funds cannot accomplish all that is desired until a program of reform and recapitalization of Comibol is begun and carried through. The interests of a small number of investors in the United States, the holders of Patiño stock, which dictate that United States public funds not be made available to Comibol, appear, therefore, to conflict with the broader interests of the mass of American taxpayers whose money is not accomplishing, and not likely to accomplish, what is desired here so long as Comibol remains such a heavy drain on the country’s economy. I believe that the United States Government’s interest lies in assuring that the Bolivian Revolution remain a national one and that it succeed along the general lines which it has now taken.

I am confident that within a short time the Embassy will be asked what will be the nature and extent of United States cooperation with the Government of Bolivia in reorganizing and recapitalizing Comibol. I should, therefore, appreciate receiving promptly guidance from the Department concerning the nature of my response to this question.³

Carl W. Strom

1. Source: Department of State, Central Files, 824/10/8–1660. Secret.
2. Telegram 65 from La Paz, August 7, 1960, reported the highlight of the speech, which was primarily a review of the achievement and difficulties of the previous administration and a defense of the stabilization plan. (964.11/8–460)
3. Despatched telegram 60, August 29, 1960, stated that there was general reluctance within the U.S. Government to extend loans to nationalized industries, and that the outlook for U.S. credits and grants was negative until Comibol was completely reorganized and made more efficient. The Department agreed, “solution COMIBOL problem an important step to ultimate disengagement of Bolivia from U.S. grant aid and budget support. Desirable therefore that Paz administration without delay move ahead with meaningful and effective measures for reducing COMIBOL operating losses in order demonstrate with action rpt action its intention resolve COMIBOL problem.” (824.10/8–1660)