The U.S., Bolivia, and Dependency

November 5, 2007

Much to the chagrin of the Bush administration, Bolivian president Evo
Morales has been going to great lengths to separate his country from
its economic dependence on the United States. His efforts to strengthen
the Andean Community of Nations and the recent signing of a “People’s
Trade Treaty” with Venezuela, Nicaragua, and Cuba indicate the desire
of Bolivia’s Movement Toward Socialism (MAS) party government to stand
up to Washington by strengthening working economic and political
alliances outside of direct U.S. influence.

Bolivia currently receives $120 million in aid annually from the United
States, an important supplement for a country of nine million with a
per capita income of barely $1,000 annually. Presidential Minister Juan
Ramon Quintana has charged the U.S. Agency for International
Development with using some of this money to support prominent
conservative opposition leaders, as part of a “democracy initiative”
through the consulting firm Chemonics International.

A cable from the U.S. Embassy in Bolivia was recently revealed which
described a USAID-sponsored “political party reform project” to “help
build moderate, pro-democracy political parties that can serve as a
counterweight to the radical MAS or its successors.” Quintana warned
that “if U.S. cooperation does not adjust itself to the politics of the
Bolivian state, the door is open” for them to leave the country.

To understand Bolivian sensitivities to U.S. aid and its conditions, it
is important to look back to what happened to a previous leftist
government in that country which instead adjusted its politics to the
politics of U.S. cooperation.

The MNR Revolution

In January 1954, while United States officials in Washington were
developing plans to overthrow a left-leaning nationalist government in
Guatemala, a very different policy had been developing toward the
leftist Movimiento Nacionalista Revolucionario (MNR) then ruling
Bolivia. U.S. officials acknowledged that some level of radical reform
was necessary in that country which might require challenging certain
elite interests that had been on good terms with the U.S. government.

At first glance, it could appear that the approach the Truman and
Eisenhower administrations took in handling Bolivia’s revolutionary
government represented an unusually enlightened episode in a history of
unwarranted U.S. intervention against nationalist movements in the
hemisphere. Indeed, it is sometimes cited as a positive manifestation
of the Good Neighbor Policy, which respected the national integrity of
Latin American nations and pledged to resolve differences without use
of military force.

On closer examination, however, the U.S. policy toward the MNR
government appears to be simply an alternative form of intervention.
The United States demonstrated its ability to profoundly influence the
policies of the ruling party in Bolivia, manipulate the republic’s
balance of forces, and take advantage of the economic relationship
between the two countries as a means of achieving U.S. foreign policy
goals short of a direct overthrow of the government.

The U.S. government’s relative tolerance of the Bolivian revolution was
made possible in part by a realization that the United States might be
able to steer the revolution away from a more radical direction due to
Bolivia’s extreme economic dependency on the United States and other
outside powers. State Department officials also judged that the balance
of forces within the factionalized MNR could be co-opted in the
direction of U.S. strategic and economic interests.

Bolivia during the 1950s demonstrated how such dependency could
determine the success or failure of a revolution. Perhaps most
significantly, U.S. policy toward Bolivia in that period served as an
important precedent for future policy by the United States, other
Western powers, and their allied international financial institutions
to ensure that Latin American and other Third World nations pursue
foreign policies and domestic economic priorities in line with Western
interests.

The U.S. Response to the Revolution

When the MNR came to power in a bloody uprising in April of 1952, some
alarm bells went off in Washington. Of particular concern was the
ideological orientation of the party, which was explicitly
revolutionary and nationalist and contained an influential left wing.
In addition, there was the fear among U.S. policy makers that heavily
armed peasant and worker militias, subjected to strong Marxist
influence, could end up controlling the country by force.

The popularity of the MNR government, the systematic dismantling of the
armed forces, and the eroded political power of the oligarchs gave the
United States little leverage with which to build an alliance with
traditionally conservative political forces to compel a change in
government, which was how the United States had frequently dealt with
other Latin American countries undergoing nationalist upheavals and
leftist challenges.

Like today, the gross inequality of Bolivian society had given rise to
influential and militant worker and peasant political movements. And,
also like today, the new government’s program was strongly nationalist,
particularly in regard to the country’s natural resources, in which
U.S. investors had substantial interests. Yet, it was not long before
the United States was able to force a dramatic shift in the regime’s
priorities.

With its landlocked position, dissipated gold reserves, increased costs
of production and imports, and huge trade deficits, Bolivia’s
revolutionary regime had little to counter the economic power of the
United States. From almost the beginning, the MNR’s pragmatic wing
recognized that no Bolivian revolution could alienate Washington. Their
fear stemmed not just from the threat of direct intervention, but also
from the fear of economic retaliation”not an unimportant concern given
Bolivia’s dependence on the United States to buy its tin and provide
needed imports. As a result, there was a lot of pressure from within
the MNR to moderate their policy and vigorously pursue reassuring the
United States through diplomatic channels.

Truman administration officials recognized Bolivia’s precarious
situation. Rollin Atwood, director of the State Department’s Office of
South American Affairs, noted how dependent “the politically articulate
portion of the population” was upon the mining industry, which was in
turn dependent on Great Britain and the United States.1 Unlike the
import of coffee from Guatemala, which was controlled by private
companies, purchases of Bolivian tin for the strategic stockpile came
directly from the U.S. government. This made the use of trade policies
as leverage in gaining political objectives all the easier.

The Compensation Issue and Dependence on Exports

The decision to expropriate, rather than confiscate, the mines”despite
immense pressure from the miners and other Bolivians for the latter
option”was directly related to concerns by the MNR that they had to
acknowledge that at least some form of compensation was necessary,
otherwise they feared that the United States would label them communist
and deny them foreign aid. Tin exports accounted for 70% of Bolivia’s
foreign exchange earnings and 90% of the government’s revenue and the
United States bought over half of Bolivia’s tin exports.2 As Assistant
Secretary of State for Economic Affairs Willard Thorp had initially
informed Acheson, the United States had enough of a stockpile to
outlast Bolivia should negotiations drag out and that no matter what
the price or arrangement for tin, “We will almost certainly get the
Bolivian tin eventually. They have no other place to sell it.”

Thorp acknowledged that leaving Bolivia with no other option was quite
deliberate: “By building the Texas City smelter and buying Bolivian tin
for many years, we have discouraged the Bolivians or any other country
from constructing a tin smelter to use the Bolivian concentrates. By
preventing private purchase in the United States and remaining out of
the market for so long, we have prevented competition from determining
the price of tin. We have, in effect, used our stockpile to force the
price down, since in the absence of the stockpile we could never have
held out as long as we did.”3

Based on this economic power, the United States forced Bolivia to the
negotiating table. Bolivian president Victor Paz Estenssoro announced
that “The United States told us that they could not buy tin from us on
a long-term basis unless we made an agreement with the North American
stockholders.” Given the nation’s dependency on tin sales, the new
government acceded.4

Unlike Chile’s copper or Venezuela’s oil during that period, Bolivia’s
leading natural resource was not directly controlled by some foreign
corporation. However, given that tin ores are worthless without tin
smelters, and since all such refineries were abroad, the level of
dependency was at least as serious.

Moreover, the United States was the only country capable of processing
Bolivian tin since Bolivia had no smelting capability of its own and
the only non-U.S. smelter capable of accepting the low-grade Bolivian
ore”located in Great Britain and partly owned by a former mine owner
whose mine had been seized”refused to accept it.5

Jose Nunez Rosales, as vice president of a government-run mining
company, stated that Bolivia agreed to compensate U.S. stockholders
“only because Bolivia had to eat.”6

The leading Bolivian left-wing party went on record to denounce the
agreement as “Yankee imperialism” which they argued was attempting to
“starve Bolivia into submission.”7 An important MNR ideologue, Carlos
Montenegro, publicly accused the United States in 1954 as attempting to
“foster the oligarchy and enslave the popular classes for the benefit
of Wall Street.”8

By conditioning foreign aid on compensation for tin mines, the U.S.
government forced the revolutionary leadership to give in to demands
that resulted in depleting government resources.9 At a critical point
in the nation’s effort to become more self-sufficient, the U.S.
government forced Bolivia to use its scarce capital not for its own
development, but to compensate the former mine owners and repay its
foreign debts.

The Bolivian Economy and the Impact of U.S. Foreign Aid

By January 1953, the British Embassy could report to the Foreign Office
that President Paz Estenssoro, “was getting a lot of help and advice
from the Americans and knew when to bend his knee.”10 Thus, it was
clear from an early stage of the revolution that the economic weakness
of Bolivia combined with the economic power of the United States
allowed the latter to establish clear parameters for the revolution.

U.S. influence over Bolivia was enhanced greatly when, between March
and July 1953, the price of tin dropped by one-third.11 The Bolivians
were desperate for large-scale financial assistance. In a memo to
President Dwight Eisenhower, Secretary of State John Foster Dulles
argued that additional loans for Bolivia should be further postponed
until there was a clearer view of the country’s political direction and
payments prospects.12

In preparation for a meeting with Bolivian Foreign Minister Walter
Guevera, Dulles was advised by Assistant Secretary of State for Latin
America John Moors Cabot that he let the foreign minister know that
Bolivia’s chances of receiving aid would be enhanced by carrying out
the following actions:

(a) To dispel strong suspicions, still held by some sectors of American
opinion, that the Bolivian Government is dominated by communist
influence;

(b) To reach a prompt and just final settlement of claims arising from
the nationalization of mining properties in which there is an American
interest;13

Following a U.S. threat to withhold further aid until perceived
radicals were removed from the government, Paz announced cabinet
changes in late October 1953, shifting the government’s ideological
composition to the right. As a result, a State Department official
observed that “the Embassy is under the definite impression that the
action of the United States Government in furnishing food grants to
Bolivia has begun to pay dividends.”14

Bolivian Minister Guevera confirmed to U.S. officials in Washington
that U.S. aid was responsible for placing pro-United States elements
“in a position of dominance.”15 Similarly, a National Intelligence
Estimate noted that the MNR government had become increasingly friendly
to the United States due to U.S. support of the regime.16

By this point, the Embassy could begin to influence some government
appointments, even for relatively minor posts. For example, by November
1953 the State Department could report that the appointment of an
alleged communist to teach at the newly-opened Military Academy was
canceled when the U.S. embassy voiced its objections.17 Assured of his
influence, Ambassador Edward J. Sparks could confidently predict that
“the Embassy expects the MNR Government progressively to limit the
opportunities for the Communist parties …”18

In addition to using the threat of aid withdrawal to push the Bolivian
government into taking a stronger anti-Communist stand and establishing
tentative compensation arrangements with former mine owners, the United
States also insisted that U.S. aid must be supervised by U.S. officials
at all levels.19

This aid was not enough to improve the standard of living in
Bolivia”then, as now, South America’s poorest country”but it made the
nation more dependent. A report of the Bolivian Planning Board noted
that “Rather than an impulse to improvement, the aid has represented a
means only of preventing worse deterioration in the situation as it
existed.”20

As a result, in subsequent years U.S. influence could be brought to
bear for greater economic concessions as well. For example, the
Petroleum Code of 1955, written by U.S. officials and enacted without
any public debate or alterations by Bolivian authorities, forced the
Bolivian government to forego its oil monopoly.21 Offers by the Soviet
Union to assist Bolivia with its nationalized oil industry were met by
a threatened withdrawal of U.S. aid.22 Similarly, the United States and
Bolivia signed an agreement in 1955 to encourage foreign investment.23
It was due only to this desperate need for foreign exchange and
pressure from the U.S. government that the once strongly nationalistic
MNR agreed to these concessions.24

In 1954, the United States took more direct authority over Bolivia’s
economy with the appointment of George Jackson Eder to take charge of
an economic stabilization program. Eder himself conceded that the MNR
government agreed to this decision “virtually under duress, and with
repeated hints of curtailment of U.S. aid.”25

Eder was executive director of the Stabilization Commission, every
member of which had to be ” persona grata to the U.S. embassy.”26 The
program, which bore striking resemblance to the Structural Adjustment
Programs which have since been imposed on dozens of debt-ridden
countries in Latin America and elsewhere, consisted of the devaluation
of the boliviano; an end to export/import controls, price controls, and
government subsidies on consumer goods; the freezing of wages and
salaries; major cutbacks in spending for education and social welfare;
and an end to efforts at industrial diversification.27

Assistant Secretary of State Richard Rubottom, in reference to a
Bolivian development plan supporting peasant farmers, said “We had to
tell the Bolivian Government that they couldn’t put their money into it
and we weren’t going to put ours into it.”28

Though nominally a technical adviser, Eder, a strong advocate of
monetarism, believed that Bolivia would be better off by leaving the
economy entirely in the hands of private enterprise. He was contracted
and paid by the U.S. government on the behest of the International
Monetary Fund to acquire direct administrative control of the
economy.29 This gave the U.S. government unprecedented power to control
the course of the Bolivian revolution.

Eder has written a detailed account of how he”as an agent of the U.S.
government”was able to implement a program that in his own words “meant
the repudiation, at least tacitly, of virtually everything that the
Revolutionary Government had done over the previous four years.” He
further described how his goal was to convince the new MNR
administration that stabilization would only be possible through a
total transition to a free market economy.30

Furthermore, Eder insisted that state-owned enterprises should be
returned to private hands, that compensation was to be guaranteed in
the event of any future nationalizations, and that all price controls
be repealed.31 His prescription for the favorable investment climate he
believed necessary was that the Bolivian government had to offer a
stable political environment, a strong currency, and labor conditions
that minimized the risks of any interference from labor or political
leaders.32

The effect of Eder’s prescriptions was not only to re-direct the
economic priorities of the revolution, particularly its efforts at
diversification of production, but to alter the revolution’s political
structure by effectively curbing the power of the trade unions and
displacing socialist-leaning leaders of the MNR. The MNR went so far as
to allow labor representatives into the government only if their unions
supported the stabilization program.33 Under the U.S.-encouraged and
subsidized reconstituted military, hostile union militias could by then
be neutralized.

The resulting split in the MNR dramatically reduced its mass base,
making the leadership even more dependent on U.S. financial and
political support.34 The MNR leadership, feeling threatened by the
movement’s left wing and facing resistance by the betrayed miners,
turned increasingly toward the resurrected military, and even sent an
elite army unit to the U.S. Army’s School of the Americas for
counterinsurgency training.

It became virtually impossible, then, for the MNR to balance its
independence, beliefs in the redistribution of wealth, and its
“anti-imperialist” rhetoric with the realities of dependency,
exacerbated by the economic crisis of 1956-57. The increasingly
alienated and apathetic peasantry, manipulated by competing political
factions, was too powerless to challenge this dramatic shift to the
right.

In addition to various programs in agricultural development,
construction, technical assistance, and food aid, the U.S. government
also provided direct financial support of the general budget. In less
than 10 years, Bolivia had gone from a threatening revolutionary regime
to “the model for the Alliance for Progress.”35 Indeed, by the end of
the decade, U.S. aid programs to Bolivia were the largest in Latin
America and the highest per capita in the world, growing from $1.5
million in 1953 to $22.7 million in 1959.

The Bolivian revolution turned to the right under the presidency of
Siles Zuazo from 1956-1960 and continued the pattern under Paz
Estenssoro’s second term beginning in 1960. The massive popular base of
support which had previously defended the MNR from right wing attacks
and traditional conservative elements evaporated. By the time the army
seized control in 1964, there was little to stop it.

The End of the Revolution … and the Beginnings of a New One

In the end, the United States was able to overthrow the Bolivian
revolution without having to overthrow the government. The nation’s
high level of dependency made it possible for the United States to
steer the course of the revolution in a direction more compatible to
U.S. interests in Bolivia and the hemisphere.

The move was facilitated by the predominantly middle-class orientation
of the MNR and the inability of its more radical factions to ever
completely dominate the party. While the revolution succeeded in
undermining much of the old order through its breakup of the hacienda
system and its nationalization of the tin mines, it never succeeded in
really developing a new order to take its place. This made it possible,
in the words of Anthony Freeman of the State Department’s Bolivia desk,
for the United States “to channel the revolution in constructive
directions.”36

The United States chose a path of influencing the direction of the MNR
through large-scale financial support to the revolutionary government.
Indeed, U.S. influence over the MNR was actually greater than prior to
the revolution, since the old ruling class”tied to the tin
barons”maintained conflicting interests with the United States over the
price of tin.37 The U.S. National Security Council saw the successful
handling of the Bolivian situation as a model for making support of the
United States a criterion for aid.38 The United States would exploit to
the fullest this model in its future relations with countries in Latin
America and elsewhere.

In many respects, U.S. policy toward Bolivia proved to be a harbinger
of contemporary U.S. policy toward Latin America in the present age of
globalization. The so-called “Washington consensus,” backed by
U.S.-supported International Financial Institutions, has served as the
axis to institutionalize economic leverage to the extent that more
overt forms of intervention to advance strategic or economic interests
are no longer necessary.

U.S. policy toward Bolivia in the 1950s has been considered a major
foreign policy success. And though the final outcome of United States
policy was not as dramatic as what transpired in Guatemala during that
same period, the impact on the people of Bolivia”in terms of the human
costs of living within a system where once-promised social, economic,
and political rights were subsequently denied to the majority of the
population”was no less severe.

With the globalization of the economy, most Latin American countries
now have as few choices in choosing their economic policies as did
Bolivia back then. Perhaps the greatest significance of the U.S. role
in the taming of the Bolivian revolution is that it proved a training
ground for developing the model for what was to come throughout the
hemisphere.

The government of Evo Morales, representing a popular mass base of
support from the country’s poor and indigenous majority, is very
different than the largely white, middle- class leadership of the MNR.
Similarly, economic support from oil-rich Venezuela and its efforts at
strengthening its economic relationships with its Latin American
neighbors and with Europe, also make it far less likely that today’s
government will buckle to the kind of pressure imposed by the United
States a half century earlier.

At the same time, unless and until Washington’s policies toward Latin
America are successfully challenged from within the United States,
there are real limits as to how much Bolivia’s government can improve
the economic conditions of its people.

End Notes

1. Memorandum by the director of the State Department’s Office of
South American Affairs (Atwood) to the Secretary of State NA
724.00/1-1453.

2. Stephen Rabe, Eisenhower and Latin America: The Foreign Policy of
Anticommunism, Chapel Hill: University of North Carolina Press, 1988,
p. 79.

3. Foreign Relations of the United States, 1952-1954, Volume IV: The
American Republics, p. 486.

4. Christopher Mitchell, The Legacy of Populism in Bolivia: From the
MNR to Military Rule, New York: Praeger, 1977, p. 55.

5. Rebecca Scott, “Economic Aid and Imperialism in Bolivia,” Monthly
Review, Volume 24; Number 1 (May 1972) p. 53.

6. Foreign Service Despatch, From: Rowell To: Department of State,
April 30, 1953 NA 724.00 (W)/4-3053.

7. Foreign Service Despatch, From: Rowell To: Department of State,
April 30, 1953 NA 724.00 (W)/4-3053.

8. Quoted in C. H. Weston, “An Ideology of Modernization: The Case of
the Bolivian MNR”, Journal of Inter-American Studies, Volume X, Number
1 (January 1968), p. 97.

9. Susan Eckstein, The Impact of Revolution: A Comparative Analysis of
Mexico and Bolivia, London: Sage Publications, 1975 p. 45.

10. British Foreign Office Records, Relations with Bolivia, Minutes FO
#AX1051/1, from Mr. Robinson, Jan. 8, 1953.

11. Report by Chief of Mission to Director of Mutual Security, Foreign
Service Despatch, From: Amb. Sparks To: Department of State, July 14,
1953 NA 724.5-MSP/7-1453.

12. Dulles papers, Eisenhower Library, October 13, 1953.

13. Memorandum, Cabot to Dulles, Subject: “Briefing for Call by
Bolivian Foreign Minister,” November 19, 1953 NA 724.5-MSP/11-1953.

14. Foreign Service Despatch, From: Rowell, American Embassy in La Paz,
To: Department of State in Washington, Nov. 4, 1953 NA 724.13/11-453.

15. Foreign Relations of the United States, 1952-1954, Volume IV: The
American Republics, p. 542.

16. Ibid.

17. Office Memorandum, From: OSA-W. Tapley Bennet, Jr. To: ARA-Mr.
Cabot Subject: “Evidence of Non-Communist Character of Bolivian
Government,” December 7, 1953 NA 724.00/12-753.

18. Foreign Service Despatch, From: Sparks, American Embassy in La Paz,
To: The Department of State in Washington, #258, Subject: “Opposition
Views on the MNR Government,” October 23, 1953 NA 724.00/10-2353.

19. Bernard Wood, “Foreign Aid and Revolutionary Development: The Case
of Bolivia, 1952-75,” Ottawa: School of International Affairs of
Carleton University, 1969, p. 10.

20. Cited in Wood, op. cit., p. 24.

21. Whitehead, Lawrence W. 1969. The United States and Bolivia: A Case
of Neo-Colonialism Oxford, U.K. Haslemere Group Publications, p. 11.

22. Scott, op. cit., p. 54.

23. Cole Blasier, The Hovering Giant: U.S. Response to Revolutionary
Change in Latin America 1910-1985, Pittsburgh: University of Pittsburgh
Press, 1985 p. 78.

24. Robert J. Alexander, The Bolivian National Revolution, New York:
Rutgers University Press, 1958 pp. 168-169.

25. George Jackson Eder. Inflation and Development in Latin America: A
Case History of Inflation and Stabilization in Bolivia, Ann Arbor:
Bureau of Business, Research Graduate School of Business
Administration, University of Michigan p. 479. He further described
himself as “an invited, but scarcely welcome, guest of the Bolivian
Government.” p. ix.

26. Ibid., p. 64.

27. Scott, op. cit., p. 55. As an example of Eder’s authority, no new
bank notes could be issue by the Central Bank and no credits could be
granted to the government or any government agency without Eder’s
consent. All bills of an economic nature passed by Congress had to be
turned over to the commission, who would decide whether or not the
president should veto it.

(Eder, op. cit., pp. 91-93, 95).

28. Hearings on Mutual Security Act of 1960, U.S. House of
Representatives, Committee on Foreign Affairs, 86th Congress, Second
Session, (1960), p. 847.

29. James Dunkerley, Rebellion in the Veins: Political Struggle in
Bolivia, 1952-82, Thetford: The Thetford Press, 1984 p. 86 .

30. Eder, op. cit., pp. 87-88.

31. Scott, op. cit., p. 55.

32. Eder, op. cit., p. 695.

33. Mitchell, op. cit., pp. 15-19.

34. Scott, op. cit., pp. 56-57.

35. Cole Blasier, “Introduction” to Victor Andrade, My Missions for
Revolutionary Bolivia, 1944-1962, Pittsburgh: University of Pittsburgh
Press, 1976 p. xv .

36. Scott, op. cit., p. 53.

37. Whitehead, op. cit.

38. OCB Central File 091.4 Latin America (File #3) (3), Feb. 3, 1955,
Progress Report on NSC 5432/1, “United States Objectives and Courses of
Action With Respect to Latin America,” p. 8.

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