Foreign Relations of the United States: Diplomatic Papers, 1943, The American Republics, Volume V

740.00112A European War 1939/31550: Airgram

The Secretary of State to the Ambassador in Bolivia (Boal)

Washington, June 15, 1943—6:30 p.m.

A–545. Your despatch 1762 of May 25.⁴⁸ Statement page 4 enclosure no. 1, despatch under reference about use by Bolivian Government of portion of blocked accounts to be deposited in subsidiary in exchange for bonds implies subsidiary is to be a depositary of funds. This is not believed to be desirable.

In the first place, Department and Export-Import Bank are both opposed to commercial banking functions on the part of subsidiary; secondly, under the present set-up the interventors will be entirely free from even the indirect control over them by the subsidiary which earlier plans had contemplated. Under the proposed interventorship decree, the interventors seem to have the function of controlling operations involving cash and blocked accounts, with responsibility to the Superintendent of Banks. Accordingly, the Department is opposed to the administration of funds by the subsidiary.

Espada’s concern over immediate organization of subsidiary and use of blocked funds, as reported in despatch under reference, suggests that he contemplates that the subsidiary’s financing of the replacement program will create blocked funds which will be available to the Bolivian Government. Is it his thought that the subsidiary will advance funds to purchasers to enable them to buy Axis firms and that these funds will be deposited in blocked accounts and that the Bolivian Government, by appropriate decree or law, will force investment of those funds in Bolivian bonds?⁴⁹ When such a possibility was mentioned in the Department’s A–427 of April 16, it was merely a tentative suggestion made at a time when it was believed that the subsidiary would be the agency in charge of administering the replacement program and that it would therefore be in position to protect any cash it advanced. Under the present set-up this feature no longer prevails and the Department now sees political and fiscal dangers in creating funds which the Bolivians might use for purposes unrelated to the replacement program. Moreover, if payment in full from the purchasers would be required at the time of the transfer, the funds needed would be large in amount and would exceed $2,000,000 credit which the Export-Import Bank is willing to make available. This is the figure mentioned in the present draft of notes to be exchanged here with the Bolivians. Alternatively, to get the Bolivians to agree not to use funds in blocked accounts in the names of the former owners raises the following objections:

(1) Such demands would be politically embarrassing and would leave an unfavorable impression which might prejudice the replacement program;

(2) There is no assurance that complete immobilization would be observed by the Bolivians once the funds are in Bolivia;

(3) Complete freezing would in effect confer no further benefit on the Bolivians than a stand-by credit and therefore hardly constitutes an added inducement; and

(4) A frozen account in the name of Axis sellers creates an implication of definite, although not immediate, obligation to those Axis interests in the amount in question and has therefore greater credit potentialities for the former owner.

While an actual down payment by the purchasers at the time of transfer, not financed by the Export-Import Bank, is desirable, and even essential, in order to establish their good faith and stake in the enterprise and an incentive to prudent management, as well as to provide funds for necessary living expenses of displaced owners, the Department and the Bank feel that with respect to the balance of the purchase price transfers to purchasers can be made on the basis of credit extended by the Bolivian Government and that the latter in turn is not faced with the necessity of immediate payment of cash to the Axis firms. Therefore, the extent of financial assistance needed from the Bank is only a stand-by credit to meet eventual future payments to displaced owners not covered by payments theretofore made by the purchasers. The present draft of notes to be exchanged here with the Bolivians proceeds on the basis of a stand-by credit, under which arrangement, of course, no pool of blocked funds as conceivably contemplated by Espada will be created. Department appreciates that implications of stand-by credit in an exchange of notes might be misinterpreted and that Bolivian newspapers and possibly other circles will look upon the financial commitment as creating an immediate prospect of available funds.

The whole tenor of Espada’s remarks as reported in despatch under reference indicates a feeling on his part that adoption of the replacement program is a concession which this Government is asking of the Bolivians and for which this Government must pay a price, rather than appreciation on his part of the fact that this Government is willing to aid financially if the Bolivians sincerely want to effectuate a replacement program.

Any such belief that may have arisen in Espada’s mind should be dispelled, and it should be made clear that while the Development Corporation is making efforts to obtain the road and other equipment for its various projects for Bolivia, replacement of Axis firms is a wholly separate program entitled to stand or fall on its own merits.

Your views on these points would be appreciated.

Hull

48. Not printed.
49. In airgram No. A–516, July 16, the Chargé confirmed that this was Espada’s plan, but contended that the United States would not be involved in the moral problems implied. He observed that the intent was for the subsidiary to engage in investment, not commercial banking, and that there would be little for it to do if the Department contemplated affording it merely a stand-by credit. (740.00112A European War, 1939/34102)