2. Memorandum from Schlesinger to Kennedy, March 31
SUBJECT
- The Crisis in Bolivia
Bolivia has, of course, been in a chronic state of mild crisis since at least 1943. There is reason to believe now, however, that it may be today on the brink of a serious political convulsion, and that the convulsion may lead to a Communist take-over. Because crisis is endemic in Bolivia and because Cuba, Brazil and Venezuela have been obvious claimants for priority attention, the Bolivian situation has probably not received full consideration in Washington. Ambassador Strom requested on February 24 that he be recalled to Washington for consultation. I agree with Ambassador Strom that a top-level review of our Bolivian policy is imperative.
I. Why the Crisis?
The immediate crisis is posed by the fact that the government apparently does not have the ready cash to meet the March 1 payrolls in the railroads and mines. If the workers are not paid, they will very likely go on strike, thereby paralyzing the economy. The government will be greatly tempted to turn to the printing-presses in order to meet its wage bills. This will mean a resumption of inflation. At the same time, the physical stock of the railroads has been deteriorating for some time; so that even without a strike, the railroad system is on the verge of collapse. The breakdown of the railroads would aggravate the inflation by leading to hoarding and speculation in foodstuffs. A further incentive toward inflation is the desire to relieve the heavy burden of internal debt. As troubles multiply, President Paz Estenssoro would probably resign, turning the government over to his Vice President, the left-wing opportunist Juan Lechin. With Lechin in control, Bolivia might well go the way of Cuba.
[Facsimile Page 2]The long-term crisis is caused by (a) Bolivia’s continuing economic stagnation and (b) the rise of Communist activity in the last two years and the penetration of the formerly anti-Communist governing party, the MNR, by Communists and fellow-travelers.
[Typeset Page 3]II. What should the United States do?
1. We can’t pull out of Bolivia. I understand that there is some low-level State Department sentiment in favor of handing the Bolivian mess over to Lechin and the USSR. It is said that the Bolivians have become so confident that we will bail them out whatever they do that they will never take the necessary measures for their own salvation. It is further contended that no underdeveloped country will ever take us seriously unless sometime, somewhere, we let a government go when it declines to follow our advice.
The objections to such a policy seem to me overwhelming. Letting nations go Communist in order to punish them may not necessarily work out as we expect. After Cuba, we simply cannot let another Latin American nation go Communist; if we should do so, the game would be up through a good deal of Latin America. Moreover, Bolivia, as a Communist enclave in the center of the continent, would be a base for subversion and revolution in Peru, Ecuador, Brazil, Chile and Paraguay. And the relinquishment of Bolivia to the Communists would of course lead to political clamor in the United States; one can already imagine the speeches in Congress on the theme “Who lost Bolivia?”
2. We can’t take over Bolivia. Bolivia is in a proud and nationalistic mood. Any attempt on the part of American officials to run the Bolivian government—even to the limited extent to which, say, we ran the Greek government in 1946–50—would probably encounter widespread hostility and stir anti-US feeling not only in Bolivia but through the continent.
3. The present government is not a reliable instrument of pro-democratic policy. President Paz Estenssoro in his private conversations with the Ambassador and myself has taken a strong anti-Communist line. This line is consistent with his past record and [Facsimile Page 3] with that of the MNR party. The MNR and the Communists have been traditional enemies; the Communists played a leading role in the agitation which led in 1946 to the overthrow and hanging of the first MNR President Villaroel. However, Paz has cut himself off (or allowed himself to be cut off) from the MNR moderates. He appears to have lost the energy and authority he displayed in his first term as President (1952–56). When he returned to office in 1960, he had the personal strength to consolidate a political base of his own, which might even have included previously anti-MNR groups. But he has allowed his potential strength to crumble away. Today he seems to be an unhappy prisoner of the MNR left wing and the left-wing trade unions. The political and economic measures which we consider necessary to save Bolivia would be resisted by these groups; and though Paz agrees intellectually with many of the proposed measures, he seems unwilling to back them publicly or practically. As for the MNR itself, it has changed from an idealistic national movement into a tough and often brutal political machine.
[Typeset Page 4]4. No more reliable instrument is in sight. The only alternative to Paz is Lechin, a personable demagogue of Troskyite background whose political tactic has always consisted of being farther to the left than anyone else. Lechin is not a Communist; no Communist would have visited Formosa, as Lechin recently did, and made complimentary remarks about Chiang Kai-shek. But he is a skilled anti-US agitator; his political base is on the extreme left; and he would put up less resistance than Paz to the Soviet embrace. As for the opposition to Paz on the right, it is demoralized and fragmented.
5. All choices are thus unappetizing. Yet the critical fact remains that the loss of Bolivia would be a catastrophe, and that the future of Bolivia may well determine whether the other Andean nations adopt the path of non-Communist or Communist revolution. The best hope, it seems to me, is for the US to attempt to create the conditions which would drive Paz to take an anti-Communist line and at the same time give him some confidence that an anti-Communist line would be successful. The key to this, I believe, lies in attempting what we have not thus far attempted in Bolivia—a serious effort at economic development—and combining this with a shrewd and tough politico-diplomatic offensive.
[Facsimile Page 4]III. Past US policy in Bolivia
During the fifties, the US gave more grant aid to Bolivia than to any other Latin American country—about $150 million (plus another $30 million of credits). However, this aid has not produced a great deal in the way of economic stimulus or even of visible result. A good deal of it—around $18 million a year—has had to go for direct budgetary support—that is, for paying the running expenses of the Bolivian government. The total Bolivian budget is about $35 million per annum (in other words, less than that of the University of California or of a good-sized American city); and of this the US in recent years has been paying about one-third.
One reason why US aid to Bolivia has produced so little economic development is because the State Department in the fifties was under the spell of the International Monetary Fund and accepted its view that stable prices were more important than economic growth. No doubt the ruinous Bolivian inflation of 1953–56 had to be stopped. But deflation is not necessarily the sovereign tonic for economic development. If the IMF had controlled US economic policy in the 19th century, our economic growth would have been materially slowed down. Brazil, fortunately from the viewpoint of its economic growth, was able to defy IMF pressure for deflation in those years. Bolivia was too weak and too ignorant to do so. The result was a policy—insisted upon by the US as well as by the IMF—which stopped both inflation and growth. As Assistant Secretary of State Rubottom told the House Foreign Affairs [Typeset Page 5] Committee, “We had to tell the Bolivian Government that they couldn’t put their money into it (the development program) and we weren’t going to put ours into it.”2
Because of this decision to pursue stabilization at the expense of development (and also because of the decline in her own tin production and in world tin prices), Bolivia has remained in a condition of economic stagnation. Its economic base is entirely inadequate, not only for the structure of social welfare erected by the Revolution, but even [Facsimile Page 5] for tolerable living. Just before my visit, Paz responded to a teachers’ strike by declaring a state of siege. I inquired what teachers were being paid. The pay per month of school teachers in Bolivia, depending on their category, ranges from $21.20 to $33.28—out of which they have not only to feed and clothe their families but even buy textbooks.
During these years, in other words, American assistance to Bolivia has been mainly consumed in keeping the drowning government’s head above water without enabling it to make much progress toward the shore. As President Siles, who faithfully carried out the stabilization program in 1956–60, put it, “The United States has given me just enough rope to hang myself.” To this day, the Bolivian government does not have a comprehensive plan for economic development.
However, a Planning Commission has been established; and, in collaboration with the Economic Commission for Latin America (ECLA—headed by Raul Prebisch, the most eminent Latin American economist), it is preparing a general development plan. I understand that the first draft will be ready in April and that they hope to have a final version by July.
This plan could provide what has been lacking for so long—a framework of action in which the US, instead of dribbling away its aid in meeting the daily expenses of government, could begin to contribute to economic growth. This plan seems to me the key to our future policy. If the proposed plan is not adequate, we should try to help the Bolivians draft a workable plan. If the plan is adequate, then we should back it—and we should back it generously enough to do the job.
The situation is further complicated by the fact that the USSR has offered Bolivia credits up to $150 million for development projects. For years, for example, Bolivians have wanted a tin smelter. Such a tin smelter would be uneconomic for a number of reasons, but it would satisfy national pride, and the USSR is ready to provide one.
[Facsimile Page 6]Paz told me that he would turn down the Soviet proposal if there were political strings attached, but that he could not do so if it came [Typeset Page 6] without political conditions. If the Soviet loan should go through, then the USSR will get credit for a series of visible economic monuments, while we have gotten very little credit for our invisible support of the Bolivian budget.
IV. Recommendations
1. We should send to La Paz as quickly as possible a top US development economist to vet the Bolivian plan and forecast the relations between US aid and the Bolivian economy for the duration of the plan. Someone like Edward S. Mason or Lincoln Gordon of Harvard, or someone on Al Wolf’s Ford Foundation staff, should be asked to undertake this job. The result should be a realistic plan which would give some hope of ending the present state of stagnation.
2. We should be prepared to back the plan sufficiently to make it work. If in 1952 we had decided to invest $150 million in Bolivian development instead of using the same amount of money over the next eight years to keep Bolivia on the dole, the Bolivian situation would undoubtedly be much more manageable today. The sums required for Bolivian development are not great, especially when compared to the amounts we have poured into Asian countries less immediately essential to our security. Probably $125–150 million would be sufficient to do the job of modernizing the mines and railroads, improving the transport system, and inducing a migration of peasants from the high plain to the more fertile lowlands.
3. The plan should be designed so that our assistance would be tied to performance in various sectors. Of course this raises the old question: Suppose they fail to perform, do we pull out? The only answer to this is a major political and diplomatic effort to make sure they perform. What we really require is a combined politico-economic plan, with explicit economic conditions and implicit political conditions, reinforced by a stern and resourceful diplomatic determination to see that our conditions are met. The success of such a plan obviously requires an adroit and aggressive Ambassador.
[Facsimile Page 7]I understand that Ben Stephansky is scheduled for the assignment. From everything I hear, Stephansky sounds excellent. As a liberal opponent of Communists and fellow-travelers, Stephansky could talk to Paz in Paz’s own language and help serve him to bolder action. At the same time Latin American political leaders with whom Paz has had fraternal relations—like Betancourt of Venezuela and Haya de la Torre of Peru—should also be encouraged to persuade him to take stronger positions.
(I might add a word about our present Ambassador, Dr. Carl Strom. He is 61 years old and, as befits a former Professor of Mathematics, his manner is old-fashioned and academic. However, this is deceptive. [Typeset Page 7] He is shrewd, canny and subtle; and the fact that he has served successively in Korea, Cambodia and Bolivia shows the confidence the State Department has had in him. I would hope that he might be transferred to a more tranquil post.)
4. We should negotiate a military assistance agreement with the Bolivian Army. In the main, such agreements seem to me bad in Latin America; but in this particular case an agreement would strengthen the government against the possibility of a revolt by the armed miners. I believe it would help Paz to recover his freedom of action.
5. Much of the success of this operation would depend on skilled and tactful technical assistance on the local level. Bolivia might well be a place where the Peace Corps could make an important and early contribution (assuming careful screening and training of the young people sent to Bolivia).
6. Above all, the US Government must confront the problem of Bolivia and, if it decides (as it must) that Bolivia must be saved, think through with care and precision the requirements of salvation.