1942: Bolivia

The war brought boom conditions to Bolivia in 1942, since tin and other metals have been at a premium. This has meant a cash surplus in the budget and a chance to mend Bolivian finances, yet internal conditions have been bad. Living costs have been very high, and the end of the year saw a serious strike in some of the Patiño mines, resulting in a disturbance which led to the declaration of a nationwide state of siege on Dec. 14 and martial law in five principal tin-mining areas. Moreover, shipping difficulties have rendered deliveries to the United States increasingly difficult. The unbalanced economy of Bolivia, which is heavily dependent on a single commodity, tin, and the necessity for avoiding postwar chaos when the demand for Bolivian exports may be expected to slump, has led the Government to suggest the use of the 1941 Treasury surplus to reduce the outstanding debt and develop agricultural and manufacturing industries, thus diversifying economic activities and reducing the excessive dependence on imports.

A four-year contract, signed on Aug. 11, provides for a United States military mission to Bolivia. An agreement for expanded economic cooperation between the United States and Bolivia was concluded in the summer. This includes $25,000,000 in credits for the Bolivian Development Corporation, a joint United States-Bolivian company which will carry out a program recommended by a United States mission headed by Merwin Bohan. Three of the six directors will be named by the Export-Import Bank, which granted the loan on Jan. 28, the same day on which Bolivia severed relations with the Axis. The sum of $15,000,000 has already been made available for construction of the Cochabamba-Santa Cruz highway, linking Bolivia's agricultural and mining regions, and for establishing a national sugar industry. Of the balance $5,500,000 is to be used to stimulate petroleum production; $2,000,000 for stabilizing the boliviano; and another $2,000,000 to finance imports from the United States. A revised tin contract was signed at the same time with the Metals Reserve Company, by which Bolivia agrees to produce more tin for shipment to the United States to meet the more than trebled capacity of the Texas tin smelter. The price for United States-purchased tin was increased from 48½ to 60 cents per pound.

Bolivia is one of four signatories to an International Tin Agreement which, in September, practically raised the export quotas for tin areas still under United Nations' control. Since the revised agreement is to run till 1946 it will, presumably, impose basic restrictions on tin production and exports in the postwar period, which may be considered a violation of the fourth article of the Atlantic Charter. However, the loss of Far Eastern tin deposits means that the United Nations must keep production in the remaining fields at maximum to meet war requirements; hence the modification of export quotas. Bolivia's prewar quota was 46,490 tons annually, as compared with Malaya's 71,940 tons.

Like many other Latin American countries, Bolivia has agreed to sell its entire output of rubber to the United States, except for small amounts for local use and for neighboring republics. Earlier in the year Uruguay and Argentina were competing for Bolivia's exportable rubber. The nationalized Lloyd Aereo Boliviano is operating in one of the most productive rubber sections of the South American continent, the Beni and Northeast Colonial Territory of Bolivia. By unique methods of rubber collection and delivery it has found it possible to deliver shipments to the United States in under three weeks. In April, the United States signed an exclusive contract for the purchase of Bolivia's entire copper output, which is expected to total 6,500 tons annually.

Dispute over the agreement with the Export-Import Bank to establish a Bolivian Development Corporation caused a clash between President Peñaranda and the Bolivian Congress in October. The amount offered by the United States was considered insufficient for even partial solution of the country's problems and the terms were deemed unduly generous to the United States. Victor Paz Estenssoro, leader of the National Revolutionary party, was most outspoken in criticism. However, Congress finally accepted the economic agreements in November but with a shift in Cabinet as a result. The new Cabinet is more widely representative since it includes Liberals, Republican Socialists, Genuine Republicans, one independent and two Army generals. The railway agreement signed with Argentina in September, calling for the construction of railways, roads, and pipelines to link Bolivia's oil-producing region with its southern neighbor, has also been the subject of Congressional criticism and debate. Finally, the Government has been attacked for the agreement to settle the five-year old controversy with the Standard Oil Company of New Jersey by the payment of $1,750,000 to the company, in return for which Bolivia recovers unquestioned title to its oil fields. The payment was finally approved by the Bolivian Congress by a margin of one vote.

This year the United States diplomatic mission in Bolivia was elevated to the rank of embassy, action based on 'the steady strengthening of the bonds of friendship, culture and commerce.'

1941: Bolivia

Loss of access to Far Eastern sources of tin, from which, in the last two years, the United States has drawn 90 per cent of its supply, testifies to the prudent foresight of the United States in concluding an agreement last year for Bolivian tin concentrate. In accordance with the terms of that agreement, a smelter, built at Texas City, Tex., with funds advanced by the Reconstruction Finance Corporation, will process 25,000 tons a year, thus supplying about one-quarter of the nation's requirements. A later agreement to purchase the entire Bolivian tungsten output for the next three years, with an option on the following two years, represented a triumph over a Japanese bid at a considerably higher price. Hitherto nearly three-fifths of the United States' imports of tungsten were supplied by the Far East. Further evidence of the piece-meal procedure followed in the case of Bolivia's strategic minerals, which contrasts with the inclusive agreement for the purchase of Brazil's and Mexico's critical raw materials, is seen in the deals in October for Bolivian lead and zinc. Antimony and copper have not yet been covered by agreement with the United States. As late as October, Japan was still taking a share of the Republic's copper and was bidding up the price on other Bolivian minerals.

The United States Economic Defense Board has allocated some 218,600 metric tons of tin plate to the nations south of the Rio Grande in the year starting Dec. 15, 1941, which represents a decrease of only ten per cent in total Latin American tinplate imports in 1940. Tin is, thus, the first commodity to be put under an export allocations plan which will attempt to lessen the inconveniences to the southern republics incidental to the United States' priority system. Such measures are recognized as necessary to bolster the internal economies of the Latin American nations and cement Western Hemisphere solidarity. The International Tin Committee, a cartel controlled by British and Dutch interests, on Dec. 1 signed a five-year extension of the quota plan for tin production. The agreement was accepted by Bolivia, the Belgian Congo, the Netherlands East Indies, Nigeria and Malaya, but Thailand, the fourth largest tin producer, refused to sign.

The foreign policy of the Peñaranda administration has been firmly pro-United States and the President, Enrique Peñaranda del Castillo, in his message to the Bolivian people at the close of the year, asked for nation-wide cooperation in upholding the principles of democracy. Bolivia has been one of the chief targets of Nazi propaganda. An alleged Nazi plot for a coup d'état in July, revealed in a letter of the Military Attaché in Berlin, Major Elías Belmonte, to the German Minister to Bolivia, Ernst Wendler, led to the declaration of a 'state of siege,' since suspended. Although the German Government denounced the letter as a forgery, Bolivia declared the German Minister persona non grata for engaging in subversive activities; suspended several publications; and arrested a number of suspects, among them high ranking Bolivian military officers. The United States Government firmly indicated that it would support Bolivia if expulsion of Herr Wendler led to international complications. Since the United States entry into the War, the Minister of the Interior has reported the Bolivian police as taking measures to prevent a methodical plan by the Axis powers to sabotage the mining industry.

The expropriation, in May, of the Lloyd Aéreo Boliviano, a Lufthansa line which had had an exclusive franchise for air service within Bolivia, removed one of the three links in a chain of German lines running across the southern continent. One-half of the enterprise has been assigned to a reorganized Lloyd Aéreo Boliviano, under control of the Bolivian Government; the other half went to Panagra (Pan American Grace Airways).

Closer relations with the United States during the year are indicated in the dispatch of a United States army aviation mission to Bolivia, significant because Bolivia was the last of the Latin American countries to retain Axis military advisers; in the technical assistance offered in connection with agricultural development, mining and highway construction; and in negotiations for an Export-Import Bank loan, not yet concluded. A lend-lease agreement was signed Dec. 6, of undetermined amount, the funds to be used for road construction and to assist agricultural and small mining enterprises.

The transportation issue revolves around the choice between a highway connecting Cochabamba with Corumbá on the Brazilian frontier or a railway, which would constitute the Bolivian link in a transcontinental railway project. The survey of United States Army engineers indicated the impracticability of a railway, estimated to cost between $33,000,000 and $40,000,000, whereas the highway would cost only $8,000,000. Hence financial cooperation from the United States for the railway seems unlikely. The Bolivian Government has declared it will continue the construction of the Cochabamba-Santa Cruz Railway with its own funds (Bs. 14,000,000 have been allocated in the 1942 budget to this end and a gift tax of Bs. 35,000,000 from the distribution of the Patiño properties is to be diverted to such a purpose).

For the second time in recent years Bolivian gold and foreign exchange holdings have been revalued and the official par value of the boliviano fixed at 46 to the U.S. dollar (or 0.0217 cents). This is a preliminary move towards ultimate stabilization of the national currency. The outstanding dollar debt of $59,422,000 is in total default.

A non-aggression pact was signed on Jan. 16 between Bolivia and Chile and adherence to Pan American principles of peace, conciliation and friendship reiterated. A mixed commission to study a trade pact was agreed upon at the same time.

The Government took drastic measures in October to suppress a threatened railway strike (which would block tin transport), called as a result of the Senate's refusal to approve a special bonus for railway workers designed to meet the sharply increased living costs. On Oct. 31 the Chamber of Deputies gave the administration a vote of confidence on its handling of the strike. See also PAN-AMERICAN AFFAIRS.

1940: Bolivia

The war in Europe has given the United States a particular interest in Bolivia as a source of two essential raw materials, one actual, the other potential. The United States Department of Agriculture is investigating the possibility of growing rubber in northeastern Bolivia in order to reduce North American dependence on the Far East for this commodity (see COSTA RICA). So far as the other raw material lack, tin, is concerned, Bolivia is at present the world's third producer and the United States the leading consumer. Again to lessen the difficulties that would result from loss of access to British Malaya and other Far Eastern sources, an agreement was concluded in the fall between the Metal Reserves Company, a subsidiary of the Reconstruction Finance Corporation, and a number of Bolivian producers for the purchase annually, over a five-year period, of sufficient tin concentrate to smelt 18,000 tons of fine tin, in smelters to be established in the United States by the RFC. Medium-sized producers or small miners with limited outside contacts are included in the contract but not the large Patiño interests, which are under contract with the British for most of their output. Bolivian tin ores have normally been smelted in England or Continental Europe. Two major smelters were operated in the United States during the first World War, but high wage rates in the United States and the complex structure of the Bolivian ores, which improved smelting methods now make less of an obstacle, made domestic smelting impractical on a commercial basis. The direct United States market which this agreement provides will give Bolivia a new source of dollar exchange, which is much needed since the bulk of Bolivian imports come from the United States. The country has been seriously affected by the depreciation of £ sterling and the recent British practice of conducting Latin American trade in 'blocked' sterling. The budget for 1940 provided for balanced receipts and expenditures estimated at 627,000,000 Bolivianos.

Tin normally accounts for over 70 per cent of Bolivia's export values and supplies, directly or indirectly, over 60 per cent of government revenues. The output in recent years has been restricted because of high production costs and excessive taxation and, although the quota plan established ten years ago by the International Tin Committee, to run until June 1941, was beneficial to Bolivian tin interests, production has lagged behind the allotted quotas in all years except 1938. Foreign mine-owners, who operated under the disadvantageous mining law of June 1930, are now finding the government more conciliatory toward foreign capital. For example, a decree of the Peñaranda government removes all limits from the amount of dividends which can be paid in foreign currencies, restricted by the above law to five per cent. This modification, combined with the European war, points in all probability to a period of increased exploitation not only of tin but of certain other Bolivian minerals, such as tungsten, wolfram and antimony.

The newly-installed President, General Enrique Peñaranda del Castillo, in his inaugural address of April 15, pledged an adjustment of the Republic's long-term dollar debt, and in October the government recommended to Congress the appropriation of funds for resumption of debt service. When President Peñaranda took office, following elections March 15 favorable to the moderates and rightists, his was the first government to assume control by constitutional methods since 1931. He has granted freedom of the press and has issued a decree of amnesty for all Bolivians accused or convicted of political offenses, including those implicated in the short-lived revolt on March 26 of some left-wing elements, which again in July caused minor political disturbances. The present Chief Executive has stressed faith in democracy and Pan-Americanism. A bill barring Jewish immigration has been passed in the face of an influx of over 10,000 Jews since the Nazi anti-Semitic drive began in Europe, but the measure reflects workmen's protests against Jewish competition rather than Nazi influence. Two United States Army engineers are studying problems of constructing the Bolivian sector of the transcontinental railway from Arica, Chile to Santos, Brazil, whose military importance was noted in a resolution of the Havana Conference (see CUBA). On April 2 a treaty was signed in Buenos Aires, whereby Argentina will finance construction of a 62-mile railway from its frontier to the Bolivian oilfields and accept Bolivian oil in exchange. This guarantees Bolivia an outlet for its petroleum and will provide rail connection between eastern Bolivia and the altiplano. Bolivia already has a similar treaty with Brazil.

At the invitation of the government in January two International Labour Office technicians made a survey of conditions regarding social security, wages and hours, miners' pensions, etc., and presented a report recommending certain permanent labor legislation.

1939: Bolivia

On April 24 President Germán Busch established a political and financial dictatorship when, by proclamation, he dissolved the Bolivian Congress, suspended the Constitution, abolished the courts and all existing laws, and declared that the critical economic condition of the country demanded a totalitarian régime. Absence of all connection with any European totalitarian state was specifically indicated, although rumors of German influence in the April coup were given some support by the announcement in May of a $15,000,000 barter deal, by which crude oil and petroleum products would be exchanged for pipelines and refinery equipment, and by reports the following month, later officially denied by the Bolivian Foreign Office, of a huge modern German air base to be constructed at Trinidad, in Eastern Bolivia, in return for assistance in completing the General Staff's two-year rearmament plan. The threatened bankruptcy of the Government, due to the prevailing low price of tin and to labor scarcity at the mines, gave some credibility to the alleged economic necessity for a dictatorial régime. Since Congressional elections were impending and the Government was threatened with a coalition of opposition parties, the coup might also have been politically motivated.

The Busch dictatorship was destined to be short-lived, however, and ended just four months later with the death, presumably suicide, of President Busch. General Carlos Quintanilla, chief of staff of the army, assumed the presidency. In keeping with his declared intent to 'seek the constitutional normality of the country,' on Oct. 6 he reestablished the 1938 Constitution and called general elections for March 1940. On Oct. 27 a state of siege was declared when younger elements of the army tried to foment a revolution. As a result, General Bernardino Bilbao Rioja, commander-in-chief of the army and a candidate for president, was expelled from the country. Four days later a second revolt, this time instigated by his brother, also failed. The candidacy of General Enriquez Penaranda, Minister of Defense and generalissimo in the Chaco War, was announced in December.

The nationalization program of the last two years, spectacularly initiated by the expropriation of the Standard Oil properties in 1937 was further realized in two important decrees in 1939: that of June 7, ordering all Bolivian mines to market their total output through the Central Bank; and the decree of Aug. 2, nationalizing the Banco Central. The first of these decrees has been attacked by the leading mining companies, on the ground that it is a step towards expropriation and that, by further raising production costs, already higher than those of the other major producers, British Malay and Nigeria, it endangers Bolivia's position in the world tin market. However, the move to keep tin profits within the country has been made a political issue, based on the slogan 'economic emancipation for Bolivia.' Whether or not the decree will be modified will depend on the extent to which the new régime will continue the Busch policies. The decree making the Government the sole shareholder in the Central Bank caused a Cabinet split in mid-summer, the Foreign Minister, Alberto Ostria Gutierrez, being replaced by the Minister of Mines, Dionisio Foianini, sponsor of the confiscation of the Standard Oil properties, and by some considered the master-mind of the Busch régime.

The Bolivian Supreme Court, on March 8, dismissed the petition of the Standard Oil Company of New Jersey for restoration of its properties. The oil company has renewed its request to the United States State Department for diplomatic intervention, and demands either restoration or international arbitration of its claim, but diplomatic action has been postponed until all remedies within Bolivia have been exhausted. A Bolivian government investigation has begun of the Yacimientos Petroliferos Fiscales, the State monopoly which operates the confiscated properties.

By an ad referendum contract between Paraguay and Bolivia, negotiated in April. Paraguay granted its former enemy neighbor a thirty-year monopoly to refine crude oil and to supply all Paraguay's petroleum needs. The concession includes two free zones of 5,000 acres each on the west bank of the Paraguay River, a Chaco pipe-line, with a 325-foot right of way across the Chaco for this purpose, a refinery, to be completed in eighteen months, and exemption from export taxes on petroleum products shipped from the Bolivian refinery. Pending the completion of the pipeline, petroleum will be shipped by rail across Argentina to the Paraguayan refineries.

1938: Bolivia

Although 124 members were elected, on March 13, to a national convention which two months later was to choose a successor to President German Busch, this Chief of the General Staff, who a year and a half ago ousted the military regime of Colonel David Toro, still served as president of the Bolivian republic at the end of the year. Colonel Toro in April attempted to foment a revolution against the Busch government in the Chaco, but failed and fled to Argentina. On July 14 the Congress passed a law amending the Constitution of 1880 so as to grant the President power to suppress Rightist newspapers. The Cabinet appointed on Aug. 12 has been described as 'predominantly socialist,' although President Busch is said to have dropped the socialistic program of his predecessor. Reports of the political situation in Bolivia are very conflicting, however, as on Nov. 25 a state of siege was proclaimed, following the suppression of a revolt attributed to Leftist agitators.

In September Argentina and Bolivia ratified a treaty establishing the boundary between them. In accordance with a recent commercial treaty between Chile and Bolivia, providing mutual facilities to increase trade between them, the Bolivian Government has decided to establish its own custom officers at Arica, as well as a branch of the Bolivian central bank. Since Chile feels that it has made Arica substantially a free port for Bolivia it was irked when the question of an outlet to the Pacific was revived at the Lima Conference by the Bolivian Foreign Minister, Eduardo Diez de Medina.

In November 1937 Argentina agreed to permit Bolivia to ship petroleum across Argentine territory free of all taxes just so long as the Bolivian oil fields remain in the possession of the Government. The properties referred to in the new commercial treaty belonged to the Standard Oil Company of New Jersey until, through court order in March 1937, the concession was terminated. An appeal is still pending before the Supreme Court of Bolivia. The 'confiscated' properties represent an investment of $17,000,000. This situation, which was the precursor of the expropriation decree in Mexico, cannot now be adjusted without involving complications with both the Argentine and the Brazilian Governments. The oil industry of Bolivia has been nationalized, with an official petroleum board, created in 1937, and a government oil enterprise modeled after Argentina's, known as Yacimientos Petrolíferos Fiscales Bolivianos.

Bolivia's economic life centers in tin, which accounts for from 70 to 75 per cent of its total exports, but mine labor shortage due to the Chaco war continued to be reflected in a reduced output, and Bolivia again in 1938 was unable to meet the export quota granted by the International Tin Committee. At the end of 1937 it had produced under half of its allotment. Because of this fact it will not be affected by the reduction in the world production quota made by the Committee in February. Low tin quotations toward the end of 1937 reduced the amount of exchange available for imports, and fluctuating tin prices have created a very uncertain exchange situation. In December 1937 an Argentine company was granted exclusive rights to smelt tin in Bolivia. This arrangement, if made effective, would remove the disadvantage of shipment of ore abroad, especially to Great Britain, for smelting and then re-exporting to consuming countries.

The budget for 1938 provided for an increase of 37 per cent over the 1937 budget, and of almost 100 per cent over that for 1936. Revenues and expenditures are balanced at 274,123,000 bolivianos. (For the Chaco settlement see PARAGUAY.)