Czechoslovak Embassy in La Paz to Ministry of Foreign Affairs, Economic Policy Report

Legation of the
Czechloslovak Socialist Republic
La Paz

Ref. 091/62

La Paz, 24 July 1962
Courier
Secret

Ministry of Foreign Affairs – 6/2

P r a g u e    .

Re: Economic policy report for the first half of 1962.

       The economic situation of Bolivia in the first half of 1962 shows a more pronounced dependence on the United States of America, and the Bolivian government’s continued inability to find alternative solutions to receiving additional loans granted by North America. The current government’s position is justified by Bolivia’s inland location, surrounded by neighboring states, which are able to impose an economic embargo if instructed to do so by the United States of America.

       The main purpose of this thesis is to emphasize Bolivia’s inability to accept loans offered by both the Union of Soviet Socialist Republics (USSR) and camp of Socialist Countries. Although the Czechoslovak Socialist Republic (ČSSR) is among a few socialist countries which somewhat possesses an exemption to offering Bolivia economic help, the US ambassador exerts all possible pressure in order to prevent any further significant contract agreements with both the ČSSR as well as Yugoslavia.  The latest event which caused an outcry from the Americans was a Technoexport’s contract agreement regarding the construction of an antimony smelter facility in Oruro, Bolivia.  [The US Ambassador] Ben S. Stephansky tried to persuade President Victor Paz to back out of an already agreed upon contract.  Apparently, the United States of America are willing to construct the smelter free of charge.  However, according to the latest information, the Bolivian President announced that they will continue to adhere to obligations consequent upon prior contractual agreements.

       Also, the conclusion of an agreement between Bolivia and Yugoslavia concerning the supply of agricultural plows faced strong opposition from the United States.

Bolivian – USA Relations :

Bolivian negotiations of the loans continue to drag on. Promises made by the United States of America that Bolivia would receive $40 million under the “Alianza para el progreso” agreement by the end of June 1962, still remain unfulfilled.  A government delegation led by Rural Affairs Minister Jordan Pando and the Economic Minister Gumucio has dealt with the USA for more than two months with no particular results in sight.  It is generally believed that the delegation remains in the USA in order to negotiate financing details. Both ministers have recently come back which led to an agreement and consequently to funding of $60 million by AID (Agencia Interamericána para Desarollo [sic]) and $20 million by BID (Banco Interamericano para Desarollo).

       However, up to now, it remains unclear when previously agreed upon loans are to be made available to Bolivia because the country is required to present detailed records about fund usage.  This condition exists despite the fact that Bolivia had previously put forward a proposal concerning its 10-year economic plan which had already been examined by economists led by Prebisch.

       The United States of America are trying to implement the following by prolonging the negotiations:

a)      A complete break in commercial intercourse with Cuba and the commencement of a strong opposition strategy against the labor movement.

b)      Take necessary steps and changes in fields such as tax system, private business support, financial reform etc.

c)    The USA operates in a manner of dirty politics by keeping foreign governments in the dark while mobilizing the army, perhaps to seize power by force later on.

However, financial aid provided by the United States accounts for only 2.5% of annual growth which might be considered minute in comparison to the anticipated 5%.  It can be concluded that Bolivia will not be able to divest itself of underdevelopment.

Compared to the lengthy negotiation on material assistance, the United States quickly granted the ‘Cuerpo de Paz’ first aid volunteers, whose mission is not in doubt.  They will further bolster US interests and support Point IV activities.

Nearly every single industry sector is facing economic difficulties, and this can can be observed through a detailed analysis that revolutionary steps, i.e., mine nationalization and land reform, did not help at all.

Mines that passed into the hands of the state were charged with the responsibility to ensure the extraction of minerals, but mineral sales contracts remained with the very same companies that had previously owned the mines.  Bolivia has no control over its ore wealth and is therefore absolutely dependent on foreign buyers.  Similarly, none of its current customers has any interest in Bolivia having its own independent smelting facilities.  Insufficient financial resources allow American and British companies to continue to take advantage of Bolivia’s helpless situation.  This not only allows these companies to control prices, but also deepens Bolivian dependence even more. These factors, combined with the imminent threat imposed by the USA on selling its tin ore surpluses could mean irrecoverable losses resulting in mine closures.

The agreement in Prague regarding the construction of an antimony smelter facility provided Bolivia the breakthrough it needed to keep its status as a mineral supplier. The reaction from the USA regarding this agreement was significant again and is set to continue in the future.  This deprived the USA and other countries of the often used argument that Bolivia was not suitable for building smelting facilities, but instead will try if necessary to build a smelter at their own expense to gain maximum control and even sales.

Due to a lack of funds, the situation in the mines, whether nationalized or privately owned, remains not only critical but grows even more difficult.  Obsolete machinery, if any, does not allow for efficient extraction of the mineral sources. Consequently, productivity remains well behind the international average.

That is one of the reasons why Bolivian minerals have difficulty penetrating the international market and thus an inability to confront the stiff competition. This translated directly into mine closures, further raising unemployment rates.

A similar situation affects other industry sectors as well. The total count of active industrial plants dropped significantly from 1,600 in 1955, to only 898 in 1962. Workforce and industrial production recorded a significant decline of nearly 5000 jobs and 36%, respectively. Machinery facilities are believed to be utilized at only 46% of normal operation capacity. These facts indicate a critical industrial state of affairs.

Causes are as follows:

a) Low purchasing power where the majority of farming population are eliminated from the market.

b) Ineffective border control – the majority of goods are imported which directly impacts local business.

c) Inability to receive desperately needed credit for both modernization and development.

Existing attempts to help Bolivian industry seem to be inefficient. In addition to the current circumstances, Bolivia’s industry and entire national economy are facing another serious threat by LA [Latin American] countries, which are striving for the development of a common market.  Bolivia is currently pursuing an interest in the European Common Market.  State officials claim that LA’s common market format cannot harm the Bolivian market in any way. However, the majority of business circles along with national economy experts are aware that this action would not only mean an almost complete destruction of industry, but would also negatively impact agricultural production.

       Bolivian agriculture is suffering from stagnation.  Although agricultural reform provided land for almost 145,800 farmers and had recently been divided into 3,747 large farms, it has failed to ensure governmental assistance either through agricultural machinery, or loans for farmers.

       An agreement between the Minister of Agriculture and Yugoslavian Technoexport for delivery of 180,000 plows proves how insufficient this help is. Plows such as those provided are obsolete and hardly used anywhere else.

Another danger for agricultural production is the the use of Alliance for Progress, which provides food supplies.  Additionally, a recently concluded USA-Bolivia contract to supply $1.5 million of cotton represents a blow for the cultivation of that crop.

       So far the only crop that has recorded an increase in production this year is rice (from 21,000 tons in 1961 to 26,000 tons in 1962) as well as sugar cane production.  Domestic sugar production this year is supposed to reach ¾ of consumption.

       Despite the fact that Bolivia has all the necessary prerequisites for not only being an agriculturally self-sufficient country, but also has the capability to export part of their agricultural produce to make a profit, it has as yet failed to fulfill this potential.

If the government wishes to ensure commencement of that substantive reform, it needs to launch a new policy that provides financing.  If development does not advance through the creation of farms, then farmers will be forced to sell their land back to financially capable individuals from a lack of financial resources, machinery, and livestock.

       Moreover, the situation is also strained in other sectors such as oil extraction, where YPFB again does not have sufficient funds for competitive extraction.  This also means further indebtedness as AID is believed to provide loans of up to $4 million worth of industrial machinery and equipment. National oil production realizes only a minute amount of its potential production.  Furthermore, it is generally believed that American petrochemical companies not only inhibit production, but also sabotage research.

       The Soviet offer regarding mainly oil extraction was not accepted and due to Bolivian dependence on the USA, it will not be.

       The situation has been aggravated within the power industry as well.  Even through electric energy usage rose by more than 100%, the Canadian energy company, Bolivian Power, has intentionally ceased all development and growth.  The company’s reasons for doing so are purely financial as they can keep raising energy prices and so take full advantage of already high electricity demand.  Bolivian Power has been forced to adopt a more economical operation due to low water levels experienced recently.  This results in power outages for 3 full days in a week.

       Bolivia’s national economy reflects all these consequences, from its dependence on USA mineral purchasers to fluctuations international markets, causing major difficulties and the impossibility of successful solutions.  The relationship with the camp of socialist countries is very cautious, and no government official has yet dared to come up with a proposal to accept bids from the USSR or possibly other socialist camp countries.  USA threats to suspend aid are so effective that no one dares.

The whole political situation and problems associated with it were directly reflected in supplementary elections of June 3, 1962. Pre-election polls showed a certain divergence from MNR (the Revolutionary Nationalist Movement) and in fact, it was assumed that political parties such as PRA (Authentic Revolutionary Party) and FALANGE have a real chance of getting more votes. CP (Communist Party) anticipated both a voter increase and possibly two parliamentary seats.

       Election results showed that elections were met with strong disapproval from citizens to the current political situation which served as a serious warning for the government. It was discovered and later on officially confirmed that more than 60% of residents did not vote in elections. The whole month of June was quiet until the final results were announced on July 4^th which were as follows:

       MNR…………….... 886,572

       PRA………………. 43,936

       FSB………………. 74,178

       PMNRA………….. 100

       PSC………………. 19,825

       PCB………………. 20,352

Void                            8,937

Blank                        11,943

Total voters                               1,066,120

[Half page of discussion regarding the electoral situation follows]

As already stated in the first section of this report, the USA utilized its influence through the manipulation of loans and term conditions. Dependence on the USA is so great, and the Bolivian economic situation so closely monitored by various American institutions that it would be very challenging to withstand this pressure.  It is now generally accepted and no secrets held within official circles about the reality that sooner or later Bolivia will have to comply with terms dictated by the United States. It is understandable that Paz is not inclined towards these types of policies, since they would mean the end of his public political career.

       It has not been ruled out that he might be forced to resign and make his seat available to right-wingers, so they could commence their anti-nationalist and pro-American policies. According to the latest news, Paz is seriously ill and will request longer leave of absence for medical treatment right after Congress reconvenes.

Another reason for the growing right wing trend is the new army situation. The army hasn’t played any major role since the revolution in 1952, and was poorly armed for one thing and inadequately trained for another. Moreover, they were unable to face either the riot police, or the militias. Recently, the United States of America has quietly started an important task not publicly discussed before.  They have started with all cadre levels training, with young commanding officers being of particular importance in training camps such as Panama, Peru, and Guatemala. Those officers were raised in the American spirit. Armament has advanced to such an extent that modern aircraft as well as helicopters are available to face guerillas, etc.

       The General of the Air Force, Barrientos, who is the main representative of pro-American interests has recently arrived from his trip to the United States and bases in Guatemala and Panama. The General admitted to being asked to stand as a candidate for the presidency in the 1964 elections. However, he categorically declined.

       The government seems to be quite tolerant of the fact that the army was armed by the US, with soldiers equipped and trained by US instructors. The combination of strengthening factors creates the perfect conditions for the army to turn from passive observers to active participants. By doing so, the army could seriously influence Bolivia’s internal affairs and interventions with demonstrations and strikes.

       The current political outlook and army interventions in Argentina, Peru, and Ecuador should serve as a warning and suggests towards a certain degree of army influence on political affairs in the future. The effects are beginning to be felt as military interventions had been obvious during credit negotiations with the United States. According to well informed agencies, the General Staff is currently engaged in monitoring the political turn of events and aim to influence President Paz. Vice President Lechin’s resignation appears to be army related.

This gives the United States an official who is willing to carry out and enforce pro-American and anti-nationalist politics.

Meanwhile, although all of the armed forces do not agree with the implementation of such policies, they are expected to play an increasingly powerful role in politics in the future.

[A section discusses Vice President Lechín]

Labor movement:

The united labor movement supported by farmers and led by the CP might play an important role with respect to both further coup attempts and the anti-national political mindset. However, unsynchronized action together with farmer’s attitudes indicates a lack of unity. The union leaders declared against US imperialism and governmental politics at the Second Trade Union Conference.

The conference passed a declaration, for example, in favor of establishing diplomatic relations and accepting credits from the USSR.  These actions and criticism of government policies, however, point to growth of class consciousness as well as alarming the government into facing up to measures in order to break the movement.

       It must also be taken into consideration that the aforementioned political situation is not apparent to the masses which have been influenced by the number of former political leaders throughout their lives. The by-elections held on 3 June 1962, where voter abstention reached a staggering 50% offer an example of a different political attitude among the population due to an as yet weak CP influence among the proletariat.

An analogous situation exists in mining areas such as Oruro where mine workers at the Siglo XX and Catavi mines are demanding better living conditions.  Leadership is also in the hands of the CP, but COMIBOL’s attempts to shatter this movement are imminent.  The press generally refers to communist actions in order to break the interests of the workers.  It is believed that movement suppression is going to be achieved through financial and supply cut-offs and by consequently causing hunger.  This procedure applies uniform suffering on miners only at Catavi, while secondary mines have yet to mount effective support actions.

       The decision to intervene in the labor movement, including the CP, gives the United States the opportunity to implement and secure their capital.

Even with weapons in their possession neither labor, nor farmers wield any significant power.  Not only do they lack training, their weapons are obsolete and they are in the hands of commanding officers who do not hesitate to incite riots between individual districts.  This situation has not been overcome after the fighting in Cliza.  It should be noted that some leaders of the peasants belong to the former guards and protectors of the landowners who are susceptible to bribery.

       The overwhelming majority of farmers have no awareness of the situation as they are mostly illiterate.  Their needs were satisfied by redistributing the land under the land reform policy.  However, the question “what next?” yet remains unanswered.

       This brief outline implies that Party would need to make a lot of effort if they were to strive for the leadership position. The aforementioned could be achieved through farmer support of the labor movement, which would consequently play a paramount role in opposing coup attempts. This possible scenario is in the distant future and bears no reality to the present situation.

Militias:

       Laborers, mine-workers, farmers, and MNR representatives were all part of the militias serving as an opposition force against Putchists. Since 1952, the militias have played an important role in numerous coup attempts. However, the situation is constantly changing as already stated in previous reports. It appears that the militias are being overlooked by the government, by inhibiting their training to diminish the strength that used to pose a threat for the government. It is the army that currently represents the dominant force as the skill and organization of the militias starts to deteriorate.

[…]

[One-and-a-half pages of discussion regarding the militias and Bolivian foreign policy follows]

[…]

Attitude toward Czechoslovakia:

If we were to evaluate Bolivian – Czechoslovak relations, one must acknowledge that they are not bad at all. Especially these last couple of years which have both reinforced and broadened cultural and commercial activities. Additional government officials’ meetings representing both Bolivia and Czechoslovakia proved to be beneficial in terms of getting to know each country which consequently led to improved mutual cooperation. The Czechoslovak position might be considered outstanding when compared to other socialist countries. The latest agreement regarding the construction of antimony smelter facility solidifies the position even more. The previously stated agreement is not considered so significant from a commercial aspect as much as from the economic aid offered to an underdeveloped country.  This project embodies and simultaneously serves as a prerequisite for the existence of the Office for Foreign Relations in Bolivia.  However, the pressure exerted by the United States is immense and the US ambassador tries his best to either block or make any other efforts to close other deals virtually impossible. In any case, this way of penetrating the Bolivian market while deepening arguments between the United States and other capitalist countries is the only effective way which might eventually help to gain economic independence for Bolivia. For the time being, these are just the first steps that cannot radically change the situation but at least influence it to a certain measure. This achievement would not have been possible had tight cooperation between Czechoslovakia and the socialist countries not existed.

       It should be noted that Bolivia advances very cautiously and tries to virtually eliminate any public action towards the socialist countries such that it is neither penalized, nor criticized by the United States. Due to this fact, it might be beneficial to approach Bolivia with our own initiative. In this case, Bolivia would most likely accept the aid offered, for instance hydrological research and power station construction even if it meant a critical power supply situation for La Paz…

…

Conclusions:

       The sequence of events in the past 6 months revealed that the economic-political situation acquires a severe outlook. Methods used by the government to calm the situation will gradually become inefficient. A strengthening labor movement, accompanied by a growing sense of awareness and dissatisfaction among the general public poses a serious threat for the government’s policies. Low labor productivity, a decline in living standards, and a subverted economy which is fully dependent on credit contingencies does not offer bright economic prospects. Previously agreed upon credit agreements extended to Bolivia will not improve the current situation in any way but rather amplify Bolivia’s dependence on the USA.

       Agrarian and labor movements are disunited and do not sufficiently restrain rightist tendencies which have started to appear. Pro-American and anti-nationalist soldiers represent the typical example. It is evident that under the prevailing state, a military coup is becoming inevitable.  Examples of the case and experience offered by Argentina and Peru give added encouragement for these inclinations.

In the period after 6 August, after the inauguration of the new Congress the onset of harsher policies can be expected against the workers’ movement, the progressive forces and the CP.

A cornerstone in US-Bolivian relations will be a response regarding a changing attitude toward Cuba.

It is not inconceivable that this new situation may affect relations with the camp of socialist countries, although we are not thus far counting on a harsher position.  It would therefore be appropriate to consider promoting both legations to Embassies and sending someone strong to head up the Embassy.  Taking the initiative in this sense could be beneficial to us.

We will advance very carefully, while still aggressively exploiting every opportunity to deepen divisions between Bolivia and the capitalist states led by the USA and strengthening our relations and helping to forge ties with the USSR.

In order to further consolidate relations and given this analysis of the economic situation, we recommend these actions:

a) Prepare and send as soon as possible a head of embassy in Bolivia and immediately begin negotiations for promotion of both legations to a embassies,

b) Respond to Bolivian position for advice from ČSSR – to begin in August,

c) Involve the new embassy head in Prague in economic cooperation, and possibly coordinate our Party actions between Prague and La Paz,

d) Make the most of the anticipated visit to Erben in Bolivia and possibly sign an interagency cooperation agreement.

Chargé d’affaires a.i.

[signed]