110. Memorandum From Ashley Hewitt of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1 2
SUBJECT:
- Situation and Outlook in Bolivia
General Haig asked for a study on the situation and outlook in Bolivia to ensure that we are doing all we reasonably can to be helpful to the Banzer Government and to protect our interests there. As you know, Colonel Banzer and his supporters ousted the leftist government of Juan Torres last August. Banzer purged the government of leftists, imprisoned some, and drove many more into exile in Chile and elsewhere. He also negotiated satisfactory settlements to several outstanding expropriation cases with U.S. firms. We moved quickly to support the Banzer Government granting early recognition and providing $2 million in immediate assistance to be devoted to impact-type projects.
Despite our early support, we have heard some complaints from the Bolivians that we are doing too little too late. Some of these complaints have been echoed by our Ambassador in La Paz, Ernest V. Siracusa. Banzer’s chief desire has been for direct budgetary support, but he has also been concerned about the pace of deliveries under the MAP program.
The study requested by General Haig has now been received (Tab B). In addition to summarizing the situation and outlook, it indicates several issues relating to our future efforts in both economic and military assistance and makes some recommendations.
Situation and Outlook
On the political side the study concludes that Banzer is likely to remain in control at least over the near term. He has no serious rival for control of the Armed Forces, and he has the firm support of Bolivia’s small private sector. While Banzer has not been able to convert the governing coalition, composed of the Armed Forces, the National Revolutionary Movement (MNR) and the Bolivian Falange (FSB), into a firm political foundation for his regime, the coalition has held together reasonably well against divisive impulses and influences. Students and organized labor remain strongly opposed to the Government. Banzer may have to face a showdown with them at some future date, but thus far he has been successful in isolating and neutralizing them.
[Page 2]There is a considerable number of Bolivian exiles in Chile, most of them plotting the overthrow of the Banzer Government in conjunction with others who remained underground in Bolivia. They have not received a great deal of support from Chile and Cuba, though some backing may have been provided. Recent reports indicate that some exiles may return to Bolivia shortly to mount a direct assault on the Banzer Government. The study concludes that the Bolivian Security Forces could probably suppress an isolated guerrilla operation (as they did in 1967) but would be hard pressed to cope with a well-planned and executed guerrilla campaign.
Bolivia’s major problems lie in the economic area. There have been some encouraging signs in agriculture and industry (especially petroleum), but Banzer faces serious long-run problems with which he has shown little disposition to grapple thus far. Basic problems include sluggish growth, lack of investor confidence, and chronic unemployment. However, most immediate challenges are:
- —a large fiscal deficit compounded by government inefficiency;
- —an overvalued exchange rate.
The budget deficit may be as much as $57 million this year. Previous experience suggests that much of this can be financed or overcome by other means, but about $20 million will probably remain. The GOB will probably press us for direct budgetary support.
U.S. Assistance
We provided $2 million in emergency economic assistance immediately following the inception of the Banzer Government and followed this up with an additional $20 million over the past six months. In addition, we have begun consideration of future projects totaling some $25 million, including a $6 million housing guarantee program and about the same amount in PL 480 wheat and oils.
Last year the President approved a 4–5 year grant MAP materiel program totaling about $7 million in FY 1971. Since the inception of the Banzer Government we have speeded up deliveries under this program, and a considerable amount of equipment was scheduled for arrival this month, including trucks and armored personnel carriers. Three C-54 aircraft are scheduled for mid-1972 delivery. The Bolivians are not dissatisfied with the general [Page 3] size and shape of our MAP program. However, they have asked for six A-37B jets and two C-130 transports to modernize the small but influential Air Force. They also want us to equip two out of an eventual five mobile infantry battalions in the near future (the armored personnel carriers are a start on this program).
Issues and Recommendations
There are no major political problems in our relationship with Bolivia at the present time.
On the economic side the issue is the probable 1972 revenue shortfall and the Banzer Government’s persistent desire for direct budgetary support which would permit it to evade rather than face up to hard economic realities. All the agencies agree that we should:
- —avoid being drawn into direct budgetary support; (It took us years to wean Bolivia from this before.)
- —put strong pressure on Banzer to take economic measures in his own best interests, including devaluation and an IMF standby;
- —provide up to $20 million from AID funds during 1972 to finance sound projects, provided Banzer accepts an IMF standby (which would mean a substantial devaluation).
There are two issues involved:
- —whether acceptance of an IMF standby should be made a condition precedent to granting any further assistance, or whether standby or similar measures should be an objective which we would try to achieve by using additional assistance as a lever;
- —whether we ultimately bail out Banzer if he fails to take adequate measures to restore budgetary and balance of payments equilibrium.
The study recommends that acceptance of an IMF standby should be made a condition of further assistance. I do not agree. We should by all means lean on Banzer to take the necessary steps, but to require a standby at this time would be to seek a showdown, given the strong aversion in Bolivia to devaluation.
[Page 4]An alternative option (not proposed in the study) would be a phased program in which we would press Banzer to take the proper steps and then reward each step in the right direction with an additional increment in the level of our assistance. I think such a step-by-step approach is much more likely to succeed than a showdown.
We need not decide the second issue now. The paper recommends that we regard a bail-out operation as a last resort, but does not exclude it. I agree on both counts.
On the military side, the issue is whether we should resist Bolivia’s desire to modernize its Air Force, and specifically to acquire jet aircraft, or whether we should be helpful in this regard. It is generally agreed that the aircraft Banzer has requested (A37-B’s and C-130’s) would be a burden on both Bolivia’s finances and its technical capacity. In strictly security terms, re-equipping the army should probably take precedence over modern aircraft. However, the requested aircraft are not inappropriate for Bolivian conditions and would make a positive contribution to security. More importantly, the Bolivians appear to have made a firm decision to move into the jet age, and if we are not helpful they will probably acquire modern aircraft elsewhere eventually.
Therefore, our alternatives are to meet Banzer’s request in a way which minimizes the burdens on Bolivia, or refuse to be involved. The study reports that the agencies are studying this issue and will make recommendations shortly. However, they have not yet done so, and I understand they are having a hard time reaching a firm conclusion.
I have prepared for your signature a NSDM to the Secretaries of State and Defense (Tab A) which:
- —approves the general approach to Bolivia described in the study;
- —specifically approves the use of up to $20 million in AID funds for additional assistance;
- —indicates that we should press Banzer to take the steps necessary to restore budgetary and balance of payments equilibrium, but that acceptance of an IMF standby should not be made a necessary precedent to further assistance;
- —calls for the development of a phased program under which increments in U.S. assistance are keyed to individual steps taken by the Banzer Government in the direction of equilibrium;
- —asks that recommendation on our response to Banzer’s request for A-37B and C-130 aircraft be submitted by March 15;
- —asks for a quarterly situation report.
RECOMMENDATION:
That you sign the NSDM to the Secretaries of State and Defense at Tab A.
- Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–232, NSDM Files, NSDM 160. Secret. Sent for action. Kennedy and Hormats concurred. Kissinger wrote “see notes, see me” on the first page. In the margin of the “Issues and Recommendations” section, Kissinger wrote, “Why are we always so tough with friends?” Next to the paragraph that begins, “The study recommends,” Kissinger wrote, “Within limits.” Attached but not published at Tab A is a proposed version of National Security Decision Memorandum 160 (Document 111) and at Tab B is the February 14 paper, “The Situation and Outlook in Bolivia.”↩
- Hewitt summarized a study of the situation in Bolivia to ensure that the United States was doing all it could to support new President Hugo Bánzer Suárez.↩