BL–7. Letter from the Ambassador in Bolivia (Bonsal) to the Assistant Secretary of State for Inter-American Affairs (Rubottom)1
The Vice President’s visit here was a great success from all points of view, including the Bolivian. President Siles is very happy. He anticipates substantial additional aid in the very near future through the DLF mechanism. This would (a) relieve the pressure on the balance of [Typeset Page 157] payments resulting from declining revenues from the export of metals and (b) permit useful development projects to be initiated soon.
I hope that it will be possible to realize the President’s expectations, particularly as we may be confronted with a serious dollar crisis at any time in view of the very narrow margin on which we are operating. But what we know here of DLF’s terms of reference coupled with the serious problem of preparing bankable projects under conditions prevailing here leads me to confess that I don’t see clearly how we are going to make good on what the President believes was promised him by the Vice President, Mr. Waugh and yourself on May 6. I hope you will keep me closely informed so that I can pass any developments on to the President.
I assume from what was said at the time of your visit here that there is no chance, in the immediate future at least, to use DLF credits to YPFB or to COMIBOL as a means to pump dollars into the Central Bank Reserves.
Would it be possible for DLF to advance funds for general development purposes on the following basis: The dollars to be placed in the Central Bank’s reserves and the resulting bolivianos [Facsimile Page 2] to be placed in a special account either in the name of USOM/Bolivia or of the Central Bank to be disbursed as suitable projects are developed and approved? In order to develop such projects, we would, in my judgment, need to furnish special technical assistance to the Bolivian Government. (Our Bolivian friends are thinking along these lines as you will note from the account of the May 7 Stabilization Council meeting being forwarded in this pouch.)2
I am convinced that an immediate and substantial boost to the Central Bank’s reserves here would have economic and political consequences of real importance and would do much to maintain the confidence in Bolivia’s future which the Vice President’s visit did so much to strengthen.
There would, of course, be a definite risk in the procedure indicated above. As development projects were initiated, the Central Bank reserves would be called upon for the dollar component thereof and, of course, the level of reserves might be insufficient particularly if world metal markets continue in their present state. However, if the Vice President’s generally optimistic view of the prospects of the American economy is realized, the risk would be minimized. And the risk could be largely eliminated if there were deposited in the Central Bank at this time only the equivalent in dollars of the estimated boliviano [Typeset Page 158] component of expenditures under the credits DLF might be disposed to grant. Whether the resulting amount would be sufficient to meet the present situation is not clear to me at this time.
Sincerely,
P.S. I am sending you a first draft of the account of the May 7 Stabilization Council meeting since I am advised that the regular pouch copies may be delayed a few days. Please give this very limited distribution and return to me.
PWB