175. Letter From the Ambassador to Bolivia (Henderson) to the Assistant Secretary of State for Inter-American Affairs (Oliver)1

Dear Covey:

As you know from your discussions with Bolivian Foreign Minister Guevara Arce and Foreign Minister Romero Loza, the GOB [Page 389]budget problem threatens the capacity of Bolivia to resist extremist subversion and move the country forward on its longer term development effort which I see as the best insurance against successful future subversion.

My approach to the threat of subversion has been the policy spelled out in our meetings last July. Acting on the understanding reached in our discussion at the White House with Walt Rostow, I have taken those measures which were necessary to insure the stability and continuance of the Barrientos Administration. At the same time, I have avoided precipitous, unnecessary military and/or financial aid which would have tended to reduce pressure on the GOB to look primarily to its own resources for dealing with the guerrilla/subversion threat.

Within this approach, I have carefully weighed the desirability and timing of extraordinary aid. As we agreed last July, when I felt the time had come for such aid, I would so advise you. I am convinced that this time has now come and request your support in obtaining immediate approval for $5,000,000 in supporting or similar aid for meeting this budget crisis.

Throughout the struggle against Che Guevara and his guerrilla movement, this Mission has used its influence and resources to eliminate this threat to Bolivia and hemisphere-wide stability. The immediate success of this policy is apparent, but it has left the GOB with a legacy of problems which I consider we must help the GOB resolve. The budget crisis is part of the legacy.

At the beginning of 1967, the GOB faced an uncovered budget deficit, after permissible borrowing from the Central Bank under the IMF ceiling, of about $7,000,000. My Country Team and I felt that this deficit was manageable by the GOB itself and put pressure on the GOB to accelerate measures for generating new revenues and for basic institutional reforms in its fiscal and budgetary practices. However, the injection of Che and his guerrillas changed this picture radically: Not only did the uncovered deficit double largely because of direct and indirect GOB expenditures required to meet the threat but revenue generating and reform measures were postponed in large part to avoid disaffecting key political groups.

Today, the Bolivian Government faces an uncovered deficit of between $12,000,000 and $15,000,000 which, under the IMF ceiling, cannot be met through borrowing from the Central Bank. Bolivia has pursued a policy of monetary stabilization since 1956 and has accepted the guidance of the IMF in carrying out this policy. Without raising questions here about the appropriateness of some IMF guidelines, I am convinced that violating the IMF ceiling and suspending the stand-by would create a most serious crisis in confidence and could lead to [Page 390]political and economic consequences which could pose as immediate a threat to Bolivian stability as Che did.

It seems to me to be incumbent upon us to take those actions, through financial and other assistance, which will prevent the emergence of conditions propitious to extremist subversion, particularly since some Cuban Communist elements and organized supporters still survive and there are, as you know, credible if inconclusive reports of guerrilla planning and training by pro-Chinese Communists.

In seeking this $5,000,000 aid—preferably in the form of Supporting Assistance, given the underlying political reasons for the problem itself and for responding to it—I am asking for an extraordinary injection of resources above the presently planned level of project spending. I continue to endorse the development strategy spelled out in our program documents, but I recognize that this strategy is seriously endangered if the recurring imbalance in GOB revenues and expenditures is not overcome.

As a result, this $5,000,000 request is not intended to be a one-shot palliative but part of a long-term strategy to help the GOB develop and install sound fiscal policies and institutional competence to administer these policies. The Country Team has been working on this approach for several years and on the basis of experience gained, can be expected to continue to press effectively for performance.

In view of the magnitude of the Bolivian problem and the need for sufficient leverage to accomplish the results we have in mind, we are developing a package of additional assistance over three years of about $7–$8 million beyond the $5 million now requested. We are satisfied that funding for this package can be provided from future PL 480 generations rather than additional dollar inputs. Our analysis of existing project commitments plus permissible counterpart drawdowns under the IMF ceiling have convinced us that the initial $5 million needed now cannot be provided from local currencies at our disposal.

The strategy will be presented to Mr. Richard Richardson for his analysis and evaluation when he arrives in mid-January. My Country Team and I are looking forward to discussions with him which can facilitate my negotiating with the Bolivians and expedite the processing of this extraordinary aid package.

Let me reiterate my concern for immediate action. In the framework of our discussions last July, this extraordinary $5,000,000 aid is required now to bolster the capability of the GOB to meet the aftereffects of the anti-guerrilla operation and to insure its capacity to move forward sound fiscal and development policies. The political climate, as reflected already to you by Ministers Guevara and Romero, requires prompt response by us if we are to retain our capacity to influence the course of political, military and economic events here, and not piddle [Page 391]away the goodwill we might have generated—and then later have to do the operation at greater cost.2

With best personal regards and my best wishes for 1968.

Sincerely,

Doug
  1. Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 23–7 BOL. Confidential; Official–Informal.
  2. In a January 10 response to Henderson, Oliver stated that Henderson had “definitely corroborated my hunches.” Oliver indicated that “once decisions are made we ought to move very fast.” (Ibid.)