811.20 Defense (M) Bolivia/46
The Chargé in Bolivia (Dawson) to the Secretary of State
[Received January 12.]
Sir: I have the honor to report that one of the first and most widespread of Bolivian reactions after the formal entrance of the United States into the War was that, with the possibility of its being cut off from Malayan tin and Chinese tungsten, there was a wonderful opportunity for Bolivia to get higher prices for its tin and tungsten [Page 537] despite the stipulation as to prices in the respective contracts with the Metals Reserve Company.46
There has been for the past four weeks a marked campaign in the local press to this end. The campaign has been indulged in not only by the ultra-nationalistic newspapers and those under some degree of German influence, such as La Galle, La Noche and El Diario, but also by Ultima Hora, normally entirely friendly to the United States and the Allied cause. …
La Razón, the sole newspaper maintaining the thesis that the present agreements should be honored to the letter, has pointed out that a contract is a contract and that, if the War were over, the United States would keep its word and continue to buy Bolivian tin and tungsten at what would then be prices far higher than the prevailing world ones. It has been met by its journalistic rivals with hoots of derision and the claim that of course the United States would not be foolish enough to do any such thing as well as the always clinching argument that La Razón has sold out to foreign “imperialism”.
The newspaper campaign and analogous talk by the man in the street was to be expected but it is rather disappointing that Cabinet officers have taken a similar stand in conversations with me. Both the Minister of Foreign Affairs, Dr. Eduardo Anze Matienzo, and the Minister of Economy, Mr. Alberto Crespo … have on several occasions expressed to me the hope that the Metals Reserve Company would be willing to consider an “adjustment” of the tin and tungsten contracts to provide for higher sales prices. They have based their arguments on slightly different grounds than the newspaper campaign, alleging that costs have risen greatly since the two contracts were entered into whereas the tungsten contract calls for a fixed price and the tin contract practically does so.
I have replied to them that it seems to me there may be some merit in their argument as regards tin but that the contract covering that provides for the possibility of adjusting prices in clause (a) under the heading “Price”. I have suggested that the Bolivian Government, with the assistance of the principal mining companies, might compile figures as to costs for submission to the Metals Reserve Company as the basis for a request that the buying price of tin of the Metals Reserve Company be raised. So far as I have been able to ascertain, nothing has yet been done in this regard.
The Department and the Metals Reserve Company are, of course, aware that one of the major reasons for increased costs of mining in Bolivia is the extremely burdensome tax structure in the form of huge [Page 538] export and so-called additional taxes as well as taxes on profits and the provision whereby mining companies turn over a large share of their foreign exchange to the Government. These taxes are on a sliding scale so that as prices received by the companies for their minerals rise, a greater and greater share is taken by the Government. If it is shown that Bolivian mining costs have risen materially since the tin contract was signed, which there is reason to believe is the case (wages have been increased considerably, supplies and equipment from the United States are generally more expensive and prices for imported foodstuffs, necessary for the functioning of the mines, have risen), it is to be hoped that it will be possible to secure some form of a standstill or freezing agreement from the Bolivian Government covering the tax structure so as to ensure that the bulk of any increase in prices will go to the companies to make up for their higher costs rather than into the coffers of the Bolivian Government.
As regards the tungsten contract, I have taken a different stand with the Bolivian authorities who have mentioned it informally to me. From information from the tungsten producers themselves, it is obvious that the price now being received is adequate for an excellent profit in almost all cases. There is a general scurry among the larger mine owners to take up options on small tungsten properties and to find new opportunities for investment in the field. This would hardly be the case if the price of $21 per unit contained in the present three-year contract were not a fully adequate one.
Consequently, in my conversations with the Ministers of Foreign Affairs and Economy and the Manager of the Banco Minero, Mr. Santiago Schulze, I have pointed out (1) that the tungsten contract is a fixed price one with no provisions for adjustment of the price, (2) that the price is obviously a good one, (3) that the Bolivians have already received a marked rise in the price in the change from a price of $17 to one of $21 after agreement had been reached on the first, (4) that the tungsten contract is only six months old so that there has been no marked increase in costs since it was signed and (5) that the Peruvian and Argentine producers have recently signed contracts47 at a $21 price showing that it is still adequate.
Interestingly enough, the press campaign for revision of the contracts with the Metals Reserve Company has centered largely on the tungsten rather than the tin contract. In none of it has there been the slightest indication of a conception that, if the United States and [Page 539] Great Britain need Bolivian tin and tungsten, they are the only buyers to whom Bolivia can sell nor of the fact that Bolivian desire for a change in prices is futile unless the Metals Reserve Company is agreeable. Furthermore, there has been no consideration of the fact that were prices to be raised it would be natural for the term to be made indeterminate instead of fixed, as at present. … they want every advantage, both higher prices and that of security in the event of an early termination of the War. I have, however, pointed out to the Bolivian authorities with whom I have talked that they could hardly expect to have both advantages. This plus the arguments outlined in the preceding paragraph seem to have been moderately effective and I have heard nothing from them as to a desire for amendment of the tungsten contract for some days.
The press campaign as to revision of the tungsten contract has been based on the falsest premises imaginable. Assertions have been made, for example, that the United States is buying tungsten from Peru, Mexico and Argentina for $30 per unit and more. These allegations having gone without answer, I addressed a note to the Foreign Office on December 11, 1941, pointing out that the Metals Reserve Company actually had contracts with Peruvian and Argentine producers at $21 per unit and that we were buying from Mexican producers at the same price. The substance of this was furnished to the press two days later by the Foreign Office. Thereafter, the attacks on the contract mostly took another form, concentrating on the idea that no contract should have been made at all and that Bolivia would have been far better off to sell its tungsten on the open market and take advantage of rising prices, ignoring the fact that there are no rising prices, the market being controlled by the United States and Great Britain.
It is of interest in this general connection, that the tungsten producers themselves have had several meetings to discuss the situation and that it was the general consensus of opinion among them that they did not desire an increase in price but would like an extension of the term of the contract at the present, or an even lower, price so as to give them security for further capital investments. If the parties to a contract are satisfied with it there would seem to be no valid reason for objection on the part of uninvolved bystanders but logic is, of course, not a factor in this situation.
The only defenses of the tungsten contract which had been published were editorials and articles in La Razón written by staff members ignorant in mineral matters and two articles by Senator Edmundo Vasquez, who was Minister of Economy when the tungsten contract was signed; his statements were largely apologia for himself. I consequently thought it advisable to get some of the facts before the public and encouraged the publication of the enclosed article,48 written by [Page 540] “An Old Miner”, in La Razón on January 4, 1942. While the article has its flaws, it was naturally written in a vein and style to make it comprehensible to the average Bolivian reading it. It at least presents certain facts which have not previously been aired in public. A more technical or scholarly expose would have been ineffective.
Respectfully yours,
- An instrumentality of the Reconstruction Finance Corporation under the Federal Loan Agency; for correspondence concerning these contracts, see Foreign Relations, 1940, vol. v, pp. 524 ff., and ibid., 1941, vol. vi, section under Bolivia entitled “Negotiations for the purchase by the United States of strategic metals from Bolivia.”↩
- For correspondence on the purchase of Peruvian exportable metals by the Metals Reserve Company and the acquisition of strategic goods from Argentina by the United States, see Foreign Relations, 1941, vol. vii, section under Peru entitled “Agreement between the Metals Reserve Company and Peru …” and ibid., vol. vi, section under Argentina entitled “Negotiations for an agreement on the purchase of exportable surpluses of strategic materials from Argentina.”↩
- Not reprinted.↩