9. Memorandum from Hansen (BOB) to Dungan, July 191
SUBJECT
- Bolivian Aid Commitment
1. The proposed $80 million commitment to Bolivia should be viewed as a “test” of whether:
a. The Bolivian Government is capable of effectively utilizing a higher level of grant and loan funds to deal with current and pressing economic and political problems;
b. The Bolivian Government is able to take the prerequisite steps to create within this 2½-year period the conditions for a substantial step-up in development financing; and
c. The U.S. can responsibly commit itself and invest its funds in Bolivia without making a mockery of the development concepts of the Alliance for Progress.
2. The hard facts of the Bolivian situation indicate that this commitment is a high-risk undertaking.
Paz Estenssoro evidently lays complete reliance on a U.S. commitment of this nature to bolster his attempt to achieve effective control [Typeset Page 20] of the MNR—a party which has become so institutionalized in the government structure that it has a vested interest in the major malfunctions which meaningful reforms must eradicate—a party which is increasingly repressing those few remaining elements in the country upon which progress may ultimately depend.
Economically, the ineffectiveness of the government is apparent; it has not developed a capacity to absorb and follow through on the technical assistance made available; political interference with the economic mechanism is rampant; and hostility to development of the private sector is pervasive. Nonetheless, some changes in the COMIPOL, railroads and utility price sectors are slowly and painfully being pursued.
The breaking of the vicious circle of political fragmentation and economic stagnation by means of the $80 million commitment and import aid is being looked to by the Estenssoro MNR group and U.S. and international agencies as the chief means of altering the situation favorably.
[Facsimile Page 2]3. With this political and economic situation as background, the question will be whether this additional U.S. aid will provide the leverage to Paz to gain sufficient party control and general political initiative to move toward the realignments and reforms he professes to seek, or whether in spite of his efforts and our commitment and immediate financial support he is only able or willing to use this support to finance the status quo.
4. To make this a credible test of both Bolivian capabilities and the effectiveness of our own actions, it is essential that we have some agreed set of standards by which to measure performance in both areas. The presently contemplated “conditions” are not specific or sufficiently detailed to provide a yardstick to determine whether the Bolivian Government is taking actions adequate to merit accelerated inputs of development resources, and, on our part, we have not adequately spelled out the uses to which our financial assistance will be put or the targets we seek.
5. With regard to the U.S.-IDB commitments:
a. The IDB does not have detailed and specific conditions for the elements of its $21.4 million commitment.
b. Neither the U.S. nor the Bolivians have any concrete projects investigated or enumerated for the $3 million grant for public works. We do not know whether the public works program will be additive to the current public works projects in the national budget nor whether these projects will be designed for termination.
c. The commitment of unspecified budget support is not based upon any general understandings with regard to budgetary ceilings and relationships to expected sources and magnitudes of receipts.
[Typeset Page 21]d. The development loan of $6 million for feasibility studies does not contain a determination of the priorities of studies—nor is its use linked to supplying services to the domestic lending institutions we are financing with other portions of the commitment.
e. With regard to the $10.4 million in loans to the existing three government banks, plus the unspecified funds to the proposed development bank, neither the “Wise Men” report nor the Tannenbaum report set forth the specific reforms required before these institutions may receive support, nor is there an agreed mechanism or chosen instrument for determining the actions which must be taken to make these institutions eligible.
6. With regard to the Bolivian undertakings:
a. The confidential Bolivian letter does not indicate a timetable for actions to be taken, and the “Economic Policy” paper attached [Facsimile Page 3] thereto describes virtually no tangible undertakings of policy or programs which will form a basis for judgment as to Bolivian performance, e.g., magnitude and scope of customs and tax reform, support of private sector, etc.
7. Moreover, the current memorandum of understanding does not touch upon three specific matters which are being pressed currently in La Paz by Ambassador Stephansky: (a) the chartering of the proposed industrial bank (awaiting Presidential signature for six months and a crucial element in private investor confidence); (b) acceptance by the Bolivians of the customs improvement plan proposed by the UK expert (which is conceived to bring forth increased receipts which could offset external budget support); and (c) more specific undertakings in regard to public utility rates so that a constructive plan of power capacity expansion can go forward, with special attention to the current emergency power shortage in La Paz.
CONCLUSIONS AND RECOMMENDATIONS
8. The current agreement is so “open-ended” on both sides that unless a major effort is made to follow up with specific requirements and agreed upon programs, this commitment will be subject to charges of bad faith on both sides.
9. A major negotiation should be undertaken in La Paz immediately to provide a program basis of immediate action on an agreed timetable.
10. As an instrument to effectuate this procedure, it is recommended that with Presidential approval of this commitment a special letter be sent from the President, to be delivered by the Ambassador, to the President of Bolivia (draft attached) which would provide more specific terms of reference for the ensuing negotiation and provide [Typeset Page 22] leverage for the Ambassador in extracting specific undertakings from the President of Bolivia.
Attachment
- Concerns about the Bolivian aid commitment. Confidential. 3 pp. Kennedy Library, National Security Files, Brubeck Series, Bolivia, 1961–1962.↩