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The United States, Bolivia, and Dependency

The United States, Bolivia, and Dependency

By Stephen Zunes

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.


Stephen Zunes is a professor of Politics at the University of San Francisco and a contributor to the CIP Americas Policy Program,

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