Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

824.00/6–353

Memorandum of Conversation, by William P. Hudson of the Office of South American Affairs ¹

confidential

[ Washington ,] June 3, 1953.

Subject:

• The Bolivian Problem

• Participants: Treasury: Assistant Secretary Overby, Mr. de Beers ²
• Export-Import Bank: General Edgerton, Mr. Sauer,³ Mr. Stambaugh ⁴
• RFC: Mr. Cravens, Mr. McKinnon
• International Monetary Fund: Mr. Southard,⁵ United States representative
• Department of State: Assistant Secretaries Cabot and Waugh,
• OFD—Mr. Corbett, OMP—Mr. Bramble, OSA—Mr. Atwood, Mr. Hudson

This meeting was called by Mr. Cabot in pursuance of authorization granted him by the Acting Secretary⁶ to consult other agencies of the United States Government regarding a program to forestall an economic collapse and undesirable political developments in Bolivia. The representatives of the other agencies had previously received copies of a memorandum⁷ setting forth the program which the Department of State believed should be implemented for this purpose. This program is described in a memorandum sent by Mr. Cabot to the Acting Secretary on May 18, 1953.⁸

Mr. Cabot opened the meeting with a brief outline of the dangers of the Bolivian situation and a statement that the program proposed by the Department of State was a carefully integrated one designed both to meet the immediate economic crisis in Bolivia and to provide a stimulus to economic diversification, which appears to be the only long-run solution for the basic Bolivian problem. He then called on the representatives of the other agencies for comments on the program and its feasibility.

In general Mr. Overby and Mr. Southard appeared to question whether there was an immediate crisis in Bolivia, but the arguments which they subsequently developed to support their opposition to parts of the Department’s program indicated that they considered the situation in Bolivia to be almost hopelessly bad.

Mr. Overby began by raising the policy question of the implications of the Bolivian program for our relations with other countries. He asked whether the United States was prepared to offset in countries all over the world foreign exchange “losses” resulting from the decline of commodity prices from the high levels reached immediately after the outbreak of the Korean War. He cited figures indicating that Bolivia’s exchange receipts even at present tin prices would be higher than her receipts in most recent years. Without questioning the fact that the poverty of Bolivia was undesirable he wondered whether the assistance proposed for Bolivia was not designed rather to maintain a standard of living than to meet an immediate emergency.

Mr. Cabot explained that, while Bolivia’s exchange earnings had been rising, the foolish policies of Bolivian governments had been resulting in a progressive decline of agricultural production. He feared that there might actually be a shortage of food in Bolivia in the fairly near future. The present government, he said, had taken courageous action to reverse the trend of recent years, but it would need help from the United States in order to succeed.

Mr. Southard also questioned whether there was a foreign exchange crisis in Bolivia. He said that the Fund’s figures did not show this. The Fund understood that Bolivia had received or would shortly receive nine million dollars from the Williams Harvey smelter and 7.5 million dollars from the RFC. Offsetting Bolivia’s liabilities against these receipts, the Fund calculated that Bolivia’s net gold and foreign exchange holdings would shortly be in the neighborhood of 16 million dollars. Regarding food, he understood that Bolivia had used part of its gold tranche drawing to buy wheat, and that the supply of this commodity was assured through the third quarter of this year.

Mr. Atwood agreed that Bolivia was not yet bankrupt, but stated that trouble could be anticipated within a few months, when the effects of the tin price decrease and the tin production decrease began to be felt. When Mr. Overby inquired whether it might not be better to wait until an emergency actually arose and supply food if there was a threat of famine Mr. Atwood replied that if we waited that long the damage would already have been done and that what the Department of State proposed was to head it off. In the Department’s view it was essential to anticipate the payments emergency and also to get started immediately on a food production program.

Mr. Southard then went specifically to the point of the proposed Bolivian Fund drawing of 7½ million dollars. Such a drawing, he said, would be more difficult from the standpoint of United States policy than a similar drawing by any other country in the world except Iran and Paraguay. Whereas usually other countries were favorable or at least neutral regarding requests for assistance from the Fund, there was here the unusual case of opposition to the Bolivian request by countries other than the United States. He had been informed by the British representative that Great Britain considered the proposed Bolivian drawing to be as inappropriate as any he had ever heard of. Other directors of the Fund thought that the Bolivian monetary stabilization program was very thin and ill-founded. They had no confidence that the new exchange rates could be maintained, that further wage increases could be prevented, that the Bolivian budget could be balanced, or that the normal economic readjustment contemplated in the Bolivian Government’s program could be effected. Thus the waiver requested by Bolivia did not appear to be desirable.

Mr. Overby supported Mr. Southard by stating that if Bolivia were allowed to draw without putting up gold collateral there would be no excuse for denying the same privilege to all the other countries in the world, and the 3.2 billion dollars now in the Fund would evaporate. In summary, he said, the Fund would be making a loan which would not be paid back and it would be corrupting all its principles.

As to the possibility of a drawing against gold collateral, Mr. Southard said that there was conflicting testimony as to the Bolivian Government’s attitude. While the President of the Central Bank had indicated a possibility that as a last resort Bolivia would be willing to put gold collateral in a satisfactory depository bank, a Cabinet Minister had informed our Ambassador that this would be politically impossible. He was inclined to believe that the Cabinet Minister was right, and he also wondered whether from the United States viewpoint it would be politically desirable to require Bolivia to ship her gold out of the country.

Aside from the question of Fund principles, Mr. Southard also doubted the wisdom of allowing Bolivia to draw the remainder of her quota now, because he feared that it would be spent foolishly. He did not consider it proper for Bolivia’s Fund resources to be used in a short-term loan for the purchase of food. Even if the difficulties of principle could be resolved, he would therefore recommend that Bolivia not be allowed to draw more than an additional 25% of her quota, and he felt that any such drawing should be made against gold collateral.

Mr. Cabot then inquired about the RFC’s attitude toward the proposed three-year market-price tin contract. Mr. Cravens replied that the RFC would be perfectly agreeable to making such a contract provided satisfactory answers could be found for two questions: (1) Was the operation of the Texas City tin smelter to be continued? and (2) How could RFC market the tin obtained under the contract? He realized the truth of Mr. Cabot’s statement that a refusal to purchase Bolivia’s tin would be equivalent to “cutting Bolivia’s throat,” but he was answering the question purely from RFC’s standpoint, without reference to considerations of foreign policy or national security. On this basis he believed that the RFC would have to recommend to the President, and probably to the Congress, that the tin smelter be shut down.

Mr. Cabot inquired whether RFC would make the contract if it received a Presidential directive, or whether it would be necessary to obtain authorization from Congress. Mr. McKinnon pointed out that authority already existed for operating the smelter through June 30, 1956, but said that there was some question about appropriations for this purpose.

General Edgerton was then called on to express the views of the Export–Import Bank regarding the proposed loan for agricultural development. He said that the Bank’s charter provided no basis for loans except on a project basis, and he thought that it would require a considerable period of time to work out appropriate projects. He indicated further that the Bank was rather cool toward the general idea of making any further loans to Bolivia.

1. Another memorandum of this conversation, drafted by Mr. Bramble, dated June 3, is in file 824.10/6–353.
2. John S. DeBeers, Chief, Latin American Division, Office of International Finance.
3. Walter C. Sauer, Vice President.
4. Lynn U. Stambaugh, Vice Chairman, Board of Directors.
5. Frank A. Southard, Jr.
6. Walter B. Smith.
7. Not found in Department of State files.
8. An unsigned draft of the reference memorandum is in file 824.00/5–1853. In it Mr. Cabot recommended the following four-point program for Bolivia: (1) A three-year contract at market prices by the RFC for the purchase of Bolivian tin; (2) an increase of Point IV funds from $1.5 million to $3.5 million for an emergency food program; (3) Export–Import Bank loans up to a total of $10 million to finance projects developed for emergency food production; and (4) U.S. support for Bolivia’s request to draw on the International Monetary Fund beyond the gold tranche, up to $7.5 million.