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-
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. A.I.D.
..... 1.5 1.5
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
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
.... 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
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.
MNR Period
. ...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-
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
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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