Foreign Relations of the United States, 1964–1968, Volume XXXI, South and Central America; Mexico

176. Information Memorandum From the President’s Special Assistant (Rostow) to President Johnson ¹

Washington, June 26, 1968, 18:20 p.m..

SUBJECT

• The Barrientos Visit and Economic Assistance

Bolivia had a $7 million deficit in 1967 and may have an additional $10 million in 1968. The deficits are due principally to a drop in tin prices, the cost of putting down the Guevara guerrillas, a decline in revenues from the nationalized mines, and delay in implementation of planned revenue measures.

The Bolivians asked us for budgetary help last year, and Covey Oliver reluctantly agreed to continue them on the dole (they were supposed to come off on January 1, 1968) provided they took self-help measures to cover part of the deficit. The deal worked out after months of negotiations has these elements:

1. The US would authorize a $4.5 million supporting assistance loan for budget support in 1968 and approve standby authority to use up to $9 million in 1969 and 1970 from PL 480 local currency generations.

2. The Bolivians would implement fiscal reform measures; increase revenues by 25% in 1968; reduce 1968 spending by 12% under planned levels; establish tighter controls over free spending autonomous agencies; and continue IMF drawing eligibility.

By late May, the loan was on the verge of being signed.² The Bolivians had taken all the self-help measures except the key revenue-raising 10% import surtax, but seemed ready to do that. Then President Barrientos ran into some political flak with students, teachers and military plotting. He did not want to increase political tensions with the surtax, so postponed action until he had the situation well in hand. But after taking care of his troubles, he continued to delay.

From some of our special intelligence, we have the distinct impression the delay is related to Barrientos’ visit to the Ranch. We suspect his advisers have told him that by talking to you, he can probably get the budget support money without imposing the surtax. He may also think he can get you to move three development loans (roads, community development, aviation) which AID is holding back until Bolivia gets its financial house in order because each calls for a sizeable local contribution.

AID has told the Bolivians that the FY 1968 SA money must be obligated by June 30 or it lapses, and the prospects for FY 1969 money are most uncertain. Ambassador Henderson reports that even these facts of life have not persuaded them to move on the surtax.

Unless the Bolivians have a change of heart between now and Sun-day,³ President Barrientos may try to use the Ranch visit to engage in substantive talks.⁴ We will try to discourage this.

In reviewing the background, Bill Bowdler concludes that AID’s insistence on self-help measures is justified from an economic standpoint, but it does not give due weight to political factors. Bill thinks we should hold firm on the import surtax, but be more forthcoming on the three development loans since they would help to sugar-coat the surtax for Bolivian public opinion.⁵

Walt

1. Source: Johnson Library, National Security File, Country File, Bolivia, President Barrientos Visit. Confidential. The memorandum indicates that President Johnson saw it.
2. Details of the proposed U.S. aid package to Bolivia were transmitted in telegram 167959 to La Paz, May 21. (National Archives and Records Administration, RG 59, Central Files 1967–69, AID (US) 10 BOL) Further negotiations in La Paz on the loan agreement were reported in telegram 5287 from La Paz, June 25. (Ibid.)
3. June 30.
4. According to the President’s Daily Diary of July 5, Johnson met with President Barrientos at the LBJ Ranch in Johnson City, Texas, from 1:23 to 2:29 p.m. A State luncheon followed. (Johnson Library) No memorandum of conversation of the Johnson– Barrientos meeting has been found. A White House press statement on July 5 indicates that in the discussion Barrientos “underlined the efforts that this government had made to create an environment of political and social stability as well as loyalty to democratic process.” (Ibid., National Security File, Country File, Bolivia, President Barrientos Visit)
5. On June 28 the President approved Oliver informing the Bolivian Finance Minister that if they put through the import surcharge, the United States “would move right” with budget support and project loans. The President would not raise the issue with Barrientos. (Ibid.)