BOLIVIA: THE ECONOMY FROM OVANDO TO TORRES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030152-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 22, 2016
• Document Release Date: October 28, 2011
• Sequence Number: 152
• Publication Date: October 1, 1970
• Content Type: IM

 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030152-0 1
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Bolivia: The Economy' From Ovando To Torres
-Secret
October 1970
ER IM 70-151
,Copy No,
v
LDeclassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
Etduded ham oulomolic
downgruling and
dedwiMcotlon
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
SECRET
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
16 October 1970
INTELLIGENCE MEMORANDUM
Bolivia: The Economy From Oyando To Torres
Introduction
Bolivia's economy fared a little better during
President Ovando's twelve-month administration
than many observers had predicted. Moreover,
Ovando's September agreement to compensate Gulf
Oil for nationalizing its properties promised an
early return to normal oil exports. The economic
outlook, however, has been clouded again by General
Juan Jose Torres' seizure of power on 7 October.
Torres has acquired a repu~ation as a far leftist
in recent years, but he says that he will honor the
Gulf compensation agreement and has taken some
initial actions as President, that have tempered this
image. This memorandum outlines recent economic
developments insofar as the very scanty data permit
and discusses the options open to the new government.
Course of Economic Policy under Ovando
1. After ousting the moderate Siles government
in September 1969, General Ovando adopted a far
leftist stance. His first moves as president were
intended to negate his reputation as a rightist
"gorilla" in the pay of the Bolivian Gulf Oil Company
and to establish a civilian base for his government
among students and labor. Twenty-one days after
taking power, he seized Bolivian Gulf, by far the
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
Intelligence.
SECRET
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
SECRET
largest foreign investment in Bolivia, and
threatened to nationalize other :oreign-owned firms.
:n the financial panic that followed, he declared
a bank holiday and established strict controls. A
month later, he ordered COMIBOL, the state mining
company, to rehire 200 troublemakers discharged
during the Barrientos administration (1964-69) and
promised broad wage inc.--eases. From October through
December, Ovando took little new economic action,
relying primarily on rhetoric in his efforts to builel
popular support,.
2. In the early months of 1970 the Ovando
government began a gradual shift to the right. Far
leftists applauded the Gulf seizure but prog':essively
withdrew their support, while civilian and military
moderates exerted growing influence. Ovando re-
treated in public statements from his former revo-
lutionary rhetoric; moreover, his attacks on the
United States and on d,)mestic businessmen became
less frequent. He no longer talked of new nationalii
'nations, and his government pushed its plans for
fiscal and monetary austerity. By May the moderates
within the military establishment were confident
enough to force the resignation of the most radical
cabinet member, Marcelo Quiroga Santa Cruz, the
Minister of Energy and Hydrocarbons. The most recent
indication of the government's moderation was the
amicable agreement with Gulf.
Ovando's Settlement with Bolivian Gulf
3. President O'rando seized Bolivian Gulf's
assets without a clear idea of the problems that
would follow.* Petroleum was Bolivia's fastest
growing sector, having accounted for 17% of exports
in 19}8. After futile attempts to sell oil to
Communist countries, Rhodesia, and Latin American
nations, the regime undertook serious negotiations
with Bolivian Gulf's parent company. As in the
nationalization itself, the leaders' political image
was a very important factor in these early negotia-
tions. For this reason, complicated arrangements
involving forming a Spanish state-owned company to
- 2 -
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
SECRET
exploit the properties and compensate Gulf were
proposed. However, as the government took a more
moderate position, the need for such face-saving
complexities lessened.
4. on 10 September 1970 the Ovando government
announced a settlement with Gulf that seemed rela-
tively favorable to Bolivia. Indemnification was
set at $78.7 million, plus $14 million to $15 mil-
lion in repayment of debts that the government owed
the company. Gulf accepted the offer even though
the amount was $22 million less than the book value
of the nationalized properties as calculated by
Geopetrol, a French company. Payments are tc con-
sist of 25% of the gross receipts of crude petroleum
exports from the former Gulf concessions but are to
cease in 20 years even if the entire indemnity has
not been paid. Furthermore, Gulf will help finance
an important gas pipeline to Argentina -- a $46 mil-
lion project suspended after nationalization. Even
so, some leftist elements denounced the a5,reement.
Recent Economic Trends
5. The Gulf nationalization did not have the
serious economic consequences that initially seemed
likely -- mainly because world prices for tin,
antimony, and most other Bolivian metals exports
reached record levels. Also, a 20% increase in
overland oil exports to Argentina partly off sat
the ending of pipeline shipments to the Chilean
port of Arica. Despite a 75% reduction in
petroleum deliveries, total export values in the
fourth quarter of 1969 and the f3.rst quarter of
1970 were 50% and 35%, respectively, above the
corresponding periods of the previous year. Recent
data are unavailable, but sharply increased customs
collections suggest that imports also have risen
appreciably. Bolivia':.. foreign exchange position
nevertheless weakened only slightly in late 1969
and improved markedl', in the first half of 1970
(see the chart). Reserves benefited from the
receipt of nearly $5 million in Special Drawing
Rights in February as well as high export earnings.
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030152-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
SECRET
BOLIVIA
Net Foreign Exchange Reserves
6. Under the stimulus of increasing foreign
exchange income, there probably was some growth in
total output, b)at the gain was well below ".,he average
5% rate of the 196Cs. Petroleum production declined,
although not as much as expected, and construction
activity probably fell. The volume of tin output,
however, rose 3% in the first half of 1970 compared
with a year earlier, and production of antimony and
tungsten (the next most important minerals) apparently
was maintained u expanded. Manufacturing output
probably rose, judging from the fact that electric
power production in La Paz reached a new high in
July 1970. Agricultural output apparently also
grew somewhat.
7. The Ovando government generally followed
cautious monetary policies, and budget performance
was excellent by Bolivian standards. During the
first eight months of 1970, central government
revenues increased 24% over the comparable 1969
period, reflecting both rising foreign trade taxes
and improved collection. Expenditures grew less
rapidly, permitting a substantially reduced budget
deficit. Overall credit expansion remained well
- 4 -
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
SECRET
within the limits set by the International Monetary
Fund (IMF).* By August, commercial bank deposits had
recovered fully from their losses at the tir'ie of the
Gulf nationalization, and commercial bank loans were
up 15% from the 7rnvious year.
Possible Economic Developments Under Torres
8. President Torres has expressed an intention
of gradually nationalizing foreign investment and
may -- as did Ovando -- do so early in his adminis-
tration to win popular support. There are reasons
to doubt, however, that the new regime -- if it
lasts long enough to have much impact -- will prove
signi`icantly more revolutionary than Ovando's.
Most observers characterize Torres as intelligent
and pragmatic, not strongly anti-American, a
convert to the extreme left in recent years but
not a Communist. He was ousted as chief of the
armed forces in July 1970 because of pressure from
the right rather than for policy differences with
Ovando, and his takeover was provoked by the rightist
coup that brought General Miranda to power for one
day. Torres hopes that "four columns" -- the army,
peasants, students, and labor -- will support his
government. But the army and the peasants are
basically conservative, and an army unit clashed
with students shortly after Torres' takeover.
Moreover, university leaders have refused to partici-
pate in the government, and some labor leaders
such as Juan Lechin are toc, ambitious and opportunis-
tic to be relied upon. Whatever personal aims Torres
may have, his inability to win full support fro;,,
the left and continuing pressures from the right
seem likely to keep economic policy on a moderate
course.
9. Although disavowal of the Gulf settlement
was one of the demands presented by the Bolivian
labor federation, Torres stated that the agreement
must be observed to preserve the nation's honor
and international credit standing. Considering
* The IMF standby agreement expired in mid-
January, and the government's continuing compliance
with the IMF ceilings is a measure of its restrictive
monetary policy.
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
SECRET
Torres' friendship with Ovando -- who considers
the agreement one of his administration's principal
accomplishments -- and the fact that the settlement
seems about at:, favorable as any Gulf would likely
accept, Torres would undoubtedly prefer to let it
stand.
10. US-owned enterprises remaining in Bolivia
are now few and relatively small, with a total book
value of probably between $25 million and $50 mil-
lion. The most important is the Matilde Mining
Corporation, a zinc-producing subsidiary of Engel-
hard Mining and Chemicals and US Steel that has
invested about $12 million. Others are the principal
sulfur producer, Sociedad L3.pez P4inera e Industrial
(SOLMIN), which is owned by Deering-Millikan of New
York, and Estanos Aluviales S.A. (ESTALSA), a tin-
dredging operation owned largely by the Chase Man-
1;attan Bank. W.R. Grace has investments of $8 mil-.,
lion to $10 million, including a flour mill, cement
plant, and part ownership in ESTALSA. South
American Placers, Inc., a small US-owned gold-
dredging firm that was recently attacked by guer-
rillas, might be a tempting target for expropria-
tion, offering large political gains for little
economic cost. Since foreign investment climate is
already extremely unfavorable, one or more additional
nationalizations could hardly make it worse,. but
disputes over compensation could raise problems with
the United States,
11. The Torres government probably will attempt
to maintain the conservative monetary and fiscal.
policies of Presidents Ovando, Siles, and Barrientos.
General Torres already has publicly endorsed such
policies, and his retention of the conservative
Antonio Sanchez de Lozada as Minister of Finance is a sign that for now he means what he says.
Although the radical faction in the government will
undoubtedly push for increased employment and higher
wages, the cabinet's moderate majority should be
able to make its views dominant.
12. Torres' statements shortly after the coup
suggesting that he planned to improve the people's
welfare co,:aiderably reflected unrealistic hopes as.
well as the usual political rhetoric. Bolivia
remains an impoverished, politically unstable country
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0
SECRET
with poor prospects for economic development. The
main mineral and fuel resources already have been
nationalized, and a drastic land reform took place
in the early 1950s. Commercial farms in the east
could be a target for further land reform, but the
essential fact is that the country has little wealth
to redistribute.
Conclusions
13. Economic progress under Ovando was better
than expected after the nationalization of Bolivian
Gulf. Production and exports held up well because
of high international mineral prices, and Bolivia's
net foreign exchange position improved during the
period. The Ovando government, which shifted its
glance from the left to the moderate right during
its year in power, continued sound monetary and
fiscal policies and reached an agreement with Gulf
on compensation for its Bolivian properties.
14. The new government of General Torres, des-
pite its leftist image, may follow much the same
economic policies as its predecessor. Although
new nationalizations are probable -- the $12 million
Matilde mine being a likely target -- the government
probably will follow conservative fiscal and monetary
policies and is unlikely to make immediate changes
in the Gulf agreement. Despite demagogic utterances,
the Torres government can do little in the short run
to improve the very poor living conditions of most
Bolivians.
7 -
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030152-0