Foreign Relations of the United States, 1951, The United Nations; The Western Hemisphere, Volume II

824.00/4–551

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

confidential

[Washington,] April 5, 1951.

Subject: Bolivian Request for Further Economic Assistance

Participants:	Pedro Zilveti Arce, Foreign Minister of Bolivia
	Ricardo Martinez Vargas, Ambassador of Bolivia
	Jose Romero Loza, Member of Bolivian Delegation to IAM
	ARA—Mr. Miller1
	OSA—Mr. Atwood2
	OSA—Mr. Hudson

Sr. Zilveti Arce began the conversation by pointing out that Bolivia had cooperated in the “spiritual” aspects of the IAM conference³ without getting much in return in the way of satisfaction of her material needs. For the psychological effect in Bolivia he planned to remain in the United States for a week or so after the conclusion of the conference, and he hoped that at the end of that time he would have something to take home to show his people that consideration was being given to Bolivia’s economic problems.⁴

He outlined these problems as follows:

(1) The Banco Minero. In order to increase tin production and thus increase reserves of foreign exchange needed to finance economic development projects, it was desirable to expand the capital and activities of this Government-owned bank. If the Bank could give more effective assistance to small and medium miners, the bases of production could be broadened, and dependence on the large mining companies could be reduced. The Government was thinking of converting the Bank into a mixed society, with participation by private capital.

(2) Agricultural Development. The Cochabamba-Santa Cruz highway would soon be completed, but little provision was being made for utilizing the regions to which it would provide access. The whole purpose of the highway would be defeated unless such provision were made.

(3) Petroleum Production. Sr. Zilveti Arce felt that Bolivia’s oil reserves had a strategic importance because of their location in the heart of the South American continent; Bolivian oil could be supplied to all of Bolivia’s neighbors which needed it. He referred to his statement in the April 2 plenary session of IAM^* and said that this announcement had been made with the full concurrence of the Bolivian Cabinet. Bolivia’s immediate need, he said, was to increase YPFB production sufficiently to operate the new refineries and satisfy domestic requirements.

(4) Military Needs. Bolivia proposed to create two Army divisions of war strength (14,800 men each), one for internal security (to protect against sabotage of mining and related installations, put down strikes, etc.) and one for use in the common defense effort either within the Western Hemisphere or outside it. However, the Bolivian Army has for some time been very low on weapons, and would hope that the United States would equip these divisions.

Mr. Miller responded that the Department of State was in many respects only a switchboard operator; its power to assist the Bolivians in attacking their economic problems was limited, since many of the means for doing this rested in the hands of other Government agencies or even of private agencies. As examples he cited the tin price and the general problem of tin production, the latter of which was to a large degree dependent on private companies.

Mr. Miller spoke at length of United States petroleum policy. The Export–Import Bank and the International Bank for Reconstruction and Development both had policies prohibiting loans to State agencies for petroleum development. He could think of only two or three deviations from this policy, including the case of Bolivia, where the deviation occurred under very special circumstances. Actual practice formed the foundation of this policy: all countries where State agencies were charged with petroleum production were net importers of petroleum products, and all in which production was in private hands were net exporters. He suggested that Guillermo Mariaca, the general manager of YPFB, who is now in the United States trying to solve YPFB’s production problem, be sent to look for a private company to operate YPFB.

Mr. Miller recalled having flown over the Santa Cruz region and said that he had personal knowledge both of its potential richness and of the difficulties of exploiting it. We were trying to help overcome these difficulties.

With regard to Bolivia’s military problem, Mr. Miller thought that the policy of the Department of Defense was to supply weapons only for specific purposes or operations, but he asked Mr. Atwood to talk with Mr. White⁵ (AR), who would talk with our military people about this problem, in preparation for talks with Bolivian representatives. The latter, he felt, should include one civilian.

Concluding his response to Sr. Zilveti’s statement, Mr. Miller agreed that discussion of Bolivian economic problems as a unit or “package” should take place, and he asked Mr. Atwood to arrange this. He pointed out that nothing concrete could be expected to emerge promptly, but he felt that some general announcement might be made within the time which Sr. Zilveti had indicated to be desirable.⁶

Ambassador Martinez Vargas brought the discussion back to the petroleum problem, saying that Bolivia very urgently needed a small amount of money (US $3,500,000 if his memory served) in order to do the drilling and repairing of wells required to bring YPFB production up immediately. He pointed out the urgency of this problem in relation to the construction of the Cochabamba-Santa Cruz highway and the servicing of Eximbank loans. He said that some discussion of an additional loan to YPFB had already taken place with Eximbank officials,⁷ and that their reaction had been favorable. Such a loan, he contended, would not be a violation of general U.S. petroleum policy because it would be merely an extension of assistance already given to develop Camiri and exploit its production. The new loan would merely be used to complete the original program.

Mr. Miller agreed with this contention and said that the Department of State would not oppose such a new loan on policy grounds.

Speaking of the tin price, Ambassador Martinez Vargas pointed out that previous Bolivian contracts with the RFC had been based on the New York price. Now, however, since RFC was controlling the latter price, Bolivia could not accept a contract based on it.⁸

Mr. Atwood suggested that the Bolivians approach the RFC on the subject again.

Mr. Miller said that he strongly shared the Bolivian hope that the contract could be signed at an early date.

1. Edward G. Miller, Jr., Assistant Secretary of State for Inter-American Affairs.
2. Rollin S. Atwood, Deputy Director, Office of South American Affairs.
3. Reference is to the Fourth Meeting of Consultation of Ministers of Foreign Affairs of American States, which met at Washington, March 26–April 7, 1951; documentation relating to the meeting may be found on pp. 925 ff.
4. The Bolivian Government described its economic needs in greater detail in a memorandum dated April 13, 1951, which was delivered to the Department of State on the same date. The original copy of the memorandum could not be located in Department of State files, but a translation is attached to a memorandum dated April 25 (824.00/4–2551).
5. [“Retaining the autonomous agency which now has charge of the management of this industry, our Government plans to issue dispositions which will liberally open the door to the foreign investor. New recently discovered petroleum horizons make it possible to surpass the most optimistic calculations.”] [Footnote in the source text.]
5. Ivan B. White, Director, Office of Regional American Affairs.
6. On April 23, 1951, the Department of State announced the formation of a United States-Bolivian Joint Economic Committee to study economic problems of mutual interest to the two governments. The first round of meetings took place during late April and May, another series began in October. Documents pertaining to the work of the committee are in Department of State decimal files 824.00, 824.00–TA, 824.10, and 824.2553. For the press release announcing the formation of the committee, see Department of State Bulletin, May 7, 1951, p. 748.
7. Reference is to Bolivia’s application to the Export–Import Bank for a $3,000,000 credit to finance the cost of machinery, equipment, and services purchased in the United States for drilling additional wells in the Camiri oilfield. In a memorandum dated August 7, 1951, Mr. Jerome J. Stenger, Department of State liaison officer with the Export–Import Bank, stated in part that “ARA is most anxious to have this loan approved to compensate [Bolivia] for the low price of tin”, but “the Bank is not convinced that there is enough petroleum to support this extended drilling program.” (103–XMB/8–751) Although the loan application remained under consideration by the bank until mid-1952, it was not approved.
8. A long-term contract for the purchase of tin concentrates by the Reconstruction Finance Corporation (RFC) which was signed with Bolivian producers in mid-June 1950, terminated on December 31, 1950. At the request of the Bolivian Government, it was extended for an additional 2 months, pending the conclusion of a new long-term contract. Intermittent negotiations between Bolivian representatives and the RFC took place during late February and early March, but disagreement over price prevented early signature of a new contract. Pertinent documents are in decimal file 824.2544.