Alliance for Power: U.S. Aid to Bolivia Under Banzer

September 25, 2007

In June 1972 John Connally, President Nixon's personal emissary to Latin America, relayed the administration's "warmest wishes" to Bolivian President Hugo Banzer Suarez, praising the dictator's "great courage" and promising him full cooperation and aid in the future. Connally's trip to La Paz confirmed a basic U.S. policy orientation toward Bolivia which was adopted after the right-wing military seized power in August 1971. Since that time the United States has propped up Banzer with ex- tensive military and economic aid in amounts far surpassing those logically dictated by the country's size, resources and population. But Bolivia's strategic location in the heart of South America made it a top U.S. priority, particularly in the 1970's. As that decade began, progressive forces in Latin America forced U.S. imperialism into a corner. Not only was Cuba flourishing, but Bolivia, Peru and Chile definitely advanced to the left, Panama and Ecuador were swaying, and even Argentina and Uruguay were unsteady allies. Furthermore, the Andean Pact nations had just drafted some important limitations to foreign investments into their basic charter. Thus, the United States saw the strategic need of a foothold in the South American continent, especially to the west of the Andes, providing economic, political and military access to these nations. Bolivia's relations with the United States since the 1952 revolution (see "Bolivia: The War Goes On" in this issue), and its relationship to Brazil (See "Bolivia: Brazil's Geopolitical Prisoner" in this issue) made it the logical choice. The high level of military and economic aid which the United States has pumped into Bolivia since the 1971 coup only confirms this choice. Military Aid: The Coup and After. North American businessmen and government officials had grown particularly critical of the course of events in Bolivia since the death of General Rene Barrientos, a close friend of Lyndon Johnson. The military leaders who followed Barrientos to office saw nationalistic policies as a means of rallying support behind the military institution. General Ovando, for example, nationalized Gulf Oil. But the realignment of the governing coalition under General Juan Jose Torres and the creation of the Popular Assembly seriously threatened U.S. interests. During his short term in office, Torres nationalized both the Matilde Mines (owned by U.S. Steel, Phillips Brothers Ore Corporation, and Englehard Minerals and Chemicals Corporation) and the properties of the Dallas-based International Metals Processing Company. But, unlike Ovando, his government increasingly favored labor organizations, and allowed the left more freedom than it had enjoyed since 1964. If the United States could put up with Ovando's brand of nationalism, it clearly could not accept Torres' since, ob- jectively, this implied an opening towards socialism. With this in mind, the United States and its allies acted. U.S. participation in the coup which toppled Torres is unquestionable. The U.S. Embassy knew of the preparations for the coup quite early and warned its staff to stock up on food supplies two days prior to the take-over. Secondly, U.S.-trained Rangers maintained a high level of activity in La Paz throughout the pre-coup period. Third, Banzer's contacts with the U.S. military--which dated back to his training days at Fort Bragg, North Carolina-clearly served him well. His close association with U.S. Air Force Major Robert J. Lundin proved particularly useful when the golpistas' internal communications had broken down. Lundin quickly lent them a U.S. Air Force radio receiver. Broadcasts over this radio helped disorganize and demoralize the supporters of General Torres while strengthening the confidence and coordination of the Banzer forces.1 U.S. policy adopted immediately after the military uprising bears further witness to North American backing for Banzer. The keystone of this policy was military support for a president who clearly lacked popular support and could not defend himself from a "hostile" population. During Senate hearings before the Appropriations Com- mittee, Senator Proxmire noted that "the biggest beneficiary (of military aid) in South America is Bolivia." Bolivia's military appropriation skyrocketed from $1.7 million in 1971 to $3.3 million in 1972. The following year, the Pentagon's spokesman to the committee, General Seignious, requested $4.8 million. "Recently," he noted, "when the President of Bolivia requested assistance from the U.S. Government to . .. ward off an insurgency threat, it was determined that we could, in effect, at relatively nominal cost, help her improve her mobility and com- munications capability to ward off this insurgency." 2 U.S. military support of Banzer's shaky domain is so blatant, in fact, that even the Pentagon's masters of double- talk cannot hide its true purpose. During the same Senate hearings, Proxmire read a letter from General Seignious to Senator Ellender into the record. The letter, dated April 14, 1972, stated: "The general rationale for these (military aid) programs is that although militarily the threat of external attack from outside the hemisphere or Cuba has diminished, the violent extremism remains a disruptive force to economic and social progress with active28 movements existing in Bolivia, Guatemala, and Uruguay and potential insurgencies in several other countries." Proxmire then questioned the witness, Secretary of Defense Melvin Laird, "Does that mean that the United States is supporting incumbent regimes in Latin America against purely domestic attack, or even the mere threat of domestic insurgency? Have we used military assistance in such a way that we are deciding who should rule Latin American countries?" "Secretary LAIRD: No, it does not. "Senator PROXMIRE: Why, then, are we providing this kind of assistance? "Secretary LAIRD: As far as South America is con- cerned, the major portion of the aid goes to one particular country and, of course, that is Bolivia. "3 Total U.S. "Security Assistance" to Bolivia continues to demonstrate Washington's concern for this strategic area. It has risen dramatically from $2.8 million in Fiscal Year (FY) 1971, to $5.5 million in FY 1972 and $5.7 million in FY 1973. The proposed allocation for FY 1974 nearly doubles this amount to $10 million, including $4 million in Foreign Military Credit Sales. 4 Within this total, training programs for the military are increasing significant. The U.S. allocation for Bolivian Military Assistance Advisory Groups rose from $759,000 in FY 1972 to $969,000 during FY 1973. This increase represents more than half the total rise in allocations for military training in all of Latin America for that year.5 For FY 1974 an additional "Military Education and Training Program" has been proposed, budgeted at $454,000. In sum, the direct Grant Military Assistance to Bolivia during Fiscal Years 1973 and 1974 is slightly more than three times the amount the United States has given any other Latin American country. During FY 1973 more than half such grants for the entire continent went to Bolivia alone. 6 Economic Props for the Bolivian Bourgeoisie. U.S. support of the Banzer regime has necessitated more than military investments. Economic grants, credits and loans have been used to squelch the growing pressure from the workers while attempting to patch up serious splits in the bourgeoisie. At the same time, such "aid" helps prepare the ground for both local and foreign private investments. Economic backing for the regime was not long in coming. Only six days after Banzer took power, the United States offered a $2.5 million loan for cotton agriculture-directly favoring the Santa Cruz bourgeoisie who had mastermined the coup. By November 1971, the United States had ex- tended a total of $20 million in credits to the Banzer dic- tatorship in addition to a direct grant of $2 million for the country's "Plan de Emergencia. " 7 *On December 8, 1971 the U.S. Foreign Trade Council announced that the Alliance for Progress planned to loan Bolivia $45 million for a roads project-one of the largest grants in Bolivia's history. 8 By the middle of 1972, however, Washington seriously questioned Bolivia's economic stability. The country suf- fered from a high rate of inflation which fostered popular discontent. Furthermore, in the eyes of U.S. officials, the artificially high and rigid exchange rate of the Bolivian peso definitely discouraged international trade with the United States. Finally, the exaggerated foreign loans, grants, in- vestments and trade, coupled with Bolivia's diminishing production and a rapid increase in spending, left the country without a deficit of 134 million pesos by August 1972, nearly three times that of the previous year. This critically endangered the competitive position of Bolivian goods on the world market and discouraged foreign in- vestment. Consequently, the United States joined the International Monetary Fund and the World Bank in pressuring Bolivia to devalue its currency by 67 percent vis-a-vis the dollar, and to implement a strict economic stabilization program. This policy clamped a freeze on prices and wages (which never caught up with the runaway prices), implemented more stringent governmental control of labor, and provided added incentives for private enterprise. No sooner had Bolivia complied with the devaluation and stabilization programs than the United States once again opened its cash boxes to Banzer. On October 31, 1972, U.S. Ambassador Siracusa handed Banzer a check for $24 mil- lion. 9 In December the U.S. Department of Agriculture extended Bolivia a sales agreement worth $9.9 million (under Public Law 480) for the purchase of wheat and flour, tobacco and tobacco products. 10 Total U.S. "Development and Humanitarian Assistance" granted Bolivia for FY 1972 (Banzer's first year in government) swelled to $45.9 million as compared with $11.8 million for the previous year (during Torres' progressive government). The United States thus * The Plan de Emergencia was a program to build schools, hospitals and to improve communications and street repairs, while developing trade, small business and industry.29 lifted the "invisible blockade" which had worked so ef- fectively against both Torres and the neighboring Unidad Popular government in Chile. This aid policy is consistent with the so-called "New Policy Orientation for Latin America," recommended in June 1973 by Dr. Timothy W. Stanley, Executive Vice President of the International Economic Policy Association to the Senate Foreign Relations Committee on Foreign Assistance. The U.S. government-he suggested-should establish as a matter of policy that the priority in allocating limited government resources to assist Latin American development-over and above the minimum levels called for by U.S. national security con- siderations-will go to countries where such assistance can work effectively in partnership with private enterprise and capital ... they should seek to foster a climate which will encourage the influx of the external capital and technological resources needed to discourage self-destructive economic nationalism. 1 1 Foreign Investment: The Economic Pay-Off. From the start, the Banzer regime understood that its own survival was closely linked to the needs and desires of the U.S. government. Banzer's advisers knew that Washington and the U.S. business community were anxious to multiply the returns on their capital in Bolivia while expanding the internal Latin American market for U.S. goods.* In response to this pressure, Banzer immediately took the required steps. On September 15, 1971, the U.S. National Foreign Trade Council reported that "the new military regime is dusting off the red carpet for foreign investors." Teams of Bolivian government representatives rushed to the United States in an attempt to convince North American entrepreneurs to invest in Bolivian concerns. *Bolivian imports from the United States increased from 10.8 percent of total imports in 1970 to more than 30 percent by 1973. U.S. ECONOMIC AND MILITARY ASSISTANCE TO BOLIVIA (1949-1974) (IN MILLIONS OF DOLLARS) ECONOMIC ASSISTANCE U.S. A.I.D. LOANS GRANTS TOTAL ..... 1.5 1.5 FOOD FOR PEACE MILITARY ASSISTANCE LOANS GRANTS IME&TPa TOTAL .05 11.3 144.6 155.9 26.4 7.9 24.2 32.1 3.6 18.5 17.2 35.7 16.1 42.7 15.8 58.5 13.9 -6.0 8.4 2.4 21.8 5.7 27.5 10.9 3.4 14.3 4.5 3.3 7.8 3.9 3.6 1.5 5.2 5.1 2.9 8.0 15.4 -1.5 2.1 0.6 0.0 3.7 3.7 50.0 3.3 53.3 11.7 3.4 15.1 20.0 3.4 23.4 3.2 7.1 6.7 8.9 8.8 .... 1. 0.8 S..... 2.2 S..... 2.4 S..... 3.3 S..... 1.9 S..... 2.4 S..... 2.2 3.5 ...... 1.6 ...... 1.2 ...... 2.8 ...... 3.1 0.6 ..... 3.3 0.8 4.0 4.2 0.5 aInternational proposed Military Education and Training Program Sources: U.S. House of Representatives. Foreign Affairs Committee, U.S. Overseas Loans and Grants . . . July 1, 1945 - June 30, 1970 (Washington, D.C.: USAID, 1971), 36; U.S. Senate, Appropriations Committee, Foreign Assistance and Related Programs Appropriations, FY 1973, 92nd Congress, 2nd Session (Washington, D.C.: U.S. Gov't. Printing Office, 1972), 1046; U.S. Senate Foreign Relations Committee, Foreign Military Sales and Assistance Act, 93rd Congress, Ist Session (Washington, D.C.: U.S. Gov't. Printing Office, 1973), 98; and, U.S. Senate. Approp- riations Committee, Foreign Assistance and Related Programs Appropriations, FY 1974, 93rd Congress, ist Session (Washington, D.C.: U.S. Gov't. Printing Office, 1973), 1341. GOVERNMENT IN POWER Pre-MNR MNR Period Barrientos [Siles] Ovando Torres Banzer YEARS 1949-52 1953-61 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974b 0.8 2.2 2.4 3.3 1.9 2.4 2.2 3.5 1.6 1.2 2.8 3.7 4.1 8.7 . ...30 Banzer's willingness to "compensate" U.S.-owned concerns for their previously nationalized properties set the tone for his future relations with Washington. He agreed to repay the International Metals Processing Company $1.5 million for their former holdings and, in December 1971, promised $13.5 milllion to the owners of the nationalized Matilde Mine. Banzer's need to please was obvious in this compensation for the mine whose value was estimated at only $12 million. The payment was to be financed by a loan from the Bank of America, First National City Bank, the Swiss Bank Corporation and the Overseas Private In- vestment Corporation (OPIC). 1 2 Finally, by early 1973, Banzer had agreed to compensate Gulf Oil for the 1970 nationalization to the tune of $100 million. 1 3 In addition to these measures, the Bolivian government decreed two new laws to encourage private enterprise. The Investment Law guaranteed private investors liberal tax exemptions, state lands, and the right to invest foreign capital directly in domestic enterprises. 1 4 The 1972 Hydrocarbons Law further opened Bolivian petroleum resources to foreign investments, prompting Business Latin America to remark: "Bolivia wants and needs foreign in- vestment, and is prepared to go the required lengths to get it." 1 5 One year later the new incentives began to produce results. On March 9, 1973 Union Oil of California became the first foreign firm to invest in Bolivian petroleum since the nationalization of Gulf.1 6 They have since signed a second contract with Bolivia for the exploration and ex- ploitation of its petroleum. Alliance for Power: The Price is Rising. U.S. aid, loans and credits so far have succeeded in propping up the weak regime. But Washington continues to gamble by paying an increasing price for backing General Banzer. It faces both economic and political dangers. First of all, the United States runs the risk of investing in a regime artificially supported by foreign aid which may fall as a result of economic problems and internal political opposition. During the past year these problems have become more evident. Bolivia's excessive sales of beef and coffee on foreign markets and speculation within the country have caused serious shortages, finally forcing the government to ban all exports of these products. 1 7 Fur- thermore, with the dramatic increase in foreign aid and other debts,* inflation has skyrocketed and prices con- tinued to soar. While the cost of living rose 31.9 percent from October 1972 to March 1973, the salaries of low-level wage earners increased by only 13 percent-an amount insufficient to meet the spiraling costs of essential com- modities. The resulting economic turmoil and the militant op- position of Bolivian workers forced Banzer to cancel his October 1973 trip to the United States. Resistance from the workers has steadily mounted since the first strikes and demonstrations following the 1972 devaluation. Strikes have continued, particularly by the COMIBOL tin miners, and in September 1973 workers reconstituted the Central Obrera Boliviana (COB) in an open challenge to the regime which had banned the organization in August 1971 and still refuses to recognize it.18 *According to Noticias (September 12, 1973), Bolivia's foreign debt jumped 15.2 percent in 1972 alone, reaching $680.8 million. The country's main creditors are USAID, the World Bank, the Inter- American Development Bank, and Gulf Oil. But opposition to Banzer is not limited to Bolivian workers and the left. Mounting dissatisfaction and dissention on the right threatens to tear apart the fragile coalition which has been the basis of the regime. Bolivian enterpreneurs, for example, have become alarmed by unresolved economic crises, by the militancy of labor organizations and by what they perceive as government concessions to the workers. Within his own ranks, Banzer has put down several attempted coups from the right, in- cluding the one by Col. Andres Selich, murdered by Bolivian political police last spring. Most recently, a series of cabinet changes by General Banzer failed to re-cement the original ruling coalition of the military, MNR and FSB. In November 1973, the MNR officially withdrew from the governing Frente Popular Nacionalista, and early this year its leader, Victor Paz Estenssoro, was exiled to Paraguay. Meanwhile, the current political crisis and pressure from the armed forces have influenced Banzer's decision to postpone his promised 1974 national elections until 1975, when a more "satisfactory political climate is obtained," 1 9 and the Bolivian right wing is in better shape to withstand the challenge. Given the opposition to the regime and the divisions within it, U.S. investors and policy makers are questioning whether the Banzer government can provide the base they seek for political security and profitable economic development. Washington also risks further sharpening the people's political consciousness-already heightened by Vietnam, Chile and Watergate--as it increases aid to a military dictatorship publically denounced for its states of siege, severe repression and torture. 2 0 Nonetheless, the United States continues to defend its uneasy alliance for power in the center of South America; but the stakes are high, and the price is rising. -Donna Katzin FOOTNOTES 1. Washington Post, August 28 and 29, 1971. 2. U.S. Senate, Committee on Appropriations, Hearings Before the Committee on Appropriations, Foreign Assistance and Related Programs, Appropriations, FY 1973, 92nd Congress, 2nd Session (Washington. D.C.: U.S. Government Printing Office, 1972), 928. 3. Ibid., 869-870. Emphasis added. 4. Ibid., 1046; and, U.S. Senate,committee on Aooropriations, Hearings Before the Committee on Appropriations, Foreign Assistance and Related Programs, Ap- propriations, FY 1974, 93rd Congress, 1st Session (Washington, D.C.: U.S. Govern. ment Printing Office, 1973), 1341. 5. Ibid., 1057. 6. U.S. Senate, Committee on Foreign Relations, Foreign Military sales and Assistance Act, 93rd Congress, Ist Session (Washington, D.C.: U.S. Government Printing Office, 1973), 98. 7. Los Tiempos (Cochabamba), March 23, 1972. 8. Noticias, Vol. XXVII, No.48 (December 8, 1971),3. 9. El Diario (La Paz), October 31, 1972. 10. Noticias, Vol.XXVII, No. 51 (December 27, 1972),2. 11. U.S. Senate, Committee on Foreign Relations, Foreign Economic Assistance, 1973, 93rd Congress, 1st Session (Washington, D.C.: U.S. Government Printing Office, 1973), 321-325. 12. Noticias. Vol. XXVII, No. 18 (May 16, 1971), 1. 13. Central Obrera Boliviana, "La Central Obrera Boliviana, Ante La Asamblea Sindical Mundial," (Santiago de Chile: np, April 10-15,1973),6. 14. Noticias, Vol. XXVIII, No. 10 (March 8, 1972), 3; United Nations, Comision economica para America Latina, esludio economico de America Latina-1971 (New York: United Nations, 1972), 88-89. 15. Business Latin America, January 20, 1972. 16. "Union Oil Venture in Bolivian Jungle is First Under New Hydrocarbons Law," Business Latin America, April 5, 1973, 112. 17. Noticias, Vol. XXIX, No. 22 (June6, 1973), 2-3. 18. Ibid., Vol. XXIX, No. 30 (August 1, 1973), 3; and Vol. XXIX, No. 37 (September 19, 1973), 3. 19. Ibid., Vol. XXIX, No.48 (December 19,1973),1. 20. Ibid., Vol. XXIX, No. 2 (June 6, 1973), 3; "Torturas y persecucion political en Bolivia," NADOC (Lima), No. 278 (November 29, 1972); and, Marvine Howe, "Bolivian Civil Rights Widely Violated," New York Times, December 26, 1973.

Tags: Bolivia, military aid, Hugo Bánzer, economic stabilization

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