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 You are in: Under Secretary for Public Diplomacy and Public Affairs > Bureau of Public Affairs > Bureau of Public Affairs: Office of the Historian > Foreign Relations of the United States > Johnson Administration > Volume XXXI
Foreign Relations, 1964-1968, Volume XXXI, South and Central America; Mexico
Released by the Office of the Historian
Documents 470-498

Peru

 

470. Telegram From the Embassy in Peru to the Department of State/1/

 

Lima, January 15, 1964, 1 p.m.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, PET 6 PERU. Confidential; Limit Distribution.

 

829. For: Mann. IPC Case. Embtel 822./2/

 

/2/ In telegram 822 from Lima, January 14, the Embassy advocated a flexible "policy of restraint," i.e., linking the level of economic assistance to progress in the negotiations for an IPC settlement. (Ibid.) In approving the Embassy’s recommendations, the Department also provided the following guidance: "Peruvians can make own deductions to this effect, but link must not be obvious and must be denied if they ask. You will simply have to give bland explanation of further delays (i.e. on projects still frozen) by stating programs ‘being processed’ and that this taking longer than originally expected; part of blame could be placed on reorganization here." (Telegram 549 to Lima, January 22; ibid.)

 

Reference contains our recommendations for action immediate future subject case and related effect aid program. As you doubtless informed, since GOP broke off negotiations with IPC on October 28 and submitted an unsatisfactory draft bill to Congress we have been dragging our feet on implementing aid program and endeavoring by this means to influence GOP toward more sound and sober attitude this case.

 

Peculiarity situation is that in effect we have been applying Hickenlooper amendment/3/ without Peru as yet having taken specific acts which would legally warrant such course. This in part came about, ironically, through President Belaunde’s asking Moscoso last September if USG through AID might not facilitate solution with IPC./4/ What he actually had in mind was USG help for IPC to pay $50 million bonus GOP sought. While we of course could not do this, we were on the point of announcing a rather large AID package totaling some $64 million and I was instructed on the last critical weekend of October 28 to inform Belaunde that this amount was ready for announcement. The idea was that such an announcement might help to deflect any Peruvian public or congressional criticism from Belaunde administration-proposed settlement with the IPC.

 

/3/ Amendment to the Foreign Assistance Act of 1961 initially approved in August 1962 and subsequently revised in December 1963. Sponsored by Senators Bourke B. Hickenlooper (R–Iowa) and E. Ross Adair (R–Indiana), the amendment stipulated that the President suspend assistance to any country that expropriated the property of U.S. citizens or corporations without proper compensation. (76 Stat. 260)

 

/4/ Moscoso raised the issue with Belaúnde on August 28, 1963. For background information on the IPC case, see Document 478, and Foreign Relations, 1961–1963, vol XII, Document 432.

 

Since GOP took course it did notwithstanding this gesture, and there ensued press campaign here, principally through El Comercio, to demonstrate that Peru could do what it wanted with IPC without penalty, we took decision to hold back on these new programs in hopes of using this asset to influence a better course. In my opinion this was proper thing to do. It has had effect of sobering GOP attitude and, I hope, of increasing chances for satisfactory solution. Nevertheless, to use AID program at such a stage to influence the outcome of a particular problem is of course to tread on dangerous ground for obvious reasons. I earnestly hope, therefore, that we can resume a normal pace of operations at earliest possible moment consistent US interests. I believe this moment will have arrived when and if the executive branch is once again in negotiating contact with the IPC.

 

Once this has happened, we will have gone full circle and nothing concrete will have been changed with single exception of GOP’s laws nullifying arbitration awards which formed tax base for IPC operations. As to these acts, however, we have officially stated our reservations; IPC has declared its view that awards remain in full force and effect; and UK has now formally protested and, for its part, declared awards still to be valid.

 

As you are doubtless aware, this case, plus that of Peru telephone company which now seems to have a more hopeful aspect,/5/ constitute the only dark clouds on a rather encouraging situation here. A respectable, democratic and progressive regime is in office and it gives every evidence of a desire for close collaboration and warm friendship with US. The economy is sound, growing and diversified. While Peru has severe problems, it also has many elements of strength which should make it possible to achieve real progress here under Alliance for Progress. I hope you will agree with us as to the tactics to follow at this stage, and that you will be able promptly to impress on Peru’s new Ambassador, Celso Pastor,/6/ as we have tried to do, the importance of renewing actual negotiations as soon as possible and, eventually, of achieving bilateral solution of this problem./7/

 

/5/ The Peruvian Telephone Company, a subsidiary of the International Telegraph and Telephone Company, was engaged in negotiations to maintain its position in Peru. Documentation on these negotiations is in the National Archives and Records Administration, RG 59, Central Files 1964–66, TEL PERU; ibid., ARA/EP/P Files, 1955–1964: Lot 67 D 566, Perutelco—TEL 11; ibid., ARA/EP/P Files, 1963–1967: Lot 70 D 139, Telecommunications, IT & T Working File.

 

/6/ Mann met Ambassador Pastor and Peruvian Vice President Seone on January 30. (Telegram 575 to Lima, January 31; ibid., Central Files 1964–66, POL PERU–US)

 

/7/ President Johnson asked Mann about Peru on February 12. Mann replied: "I don’t think Peru is my main concern at the moment. I have a report that President Belaunde has a plan of a takeover [of IPC] in 30 years. There is a claim for back taxes of $50 million. I’m going to have to warn about expropriation and the Hickenlooper Amendment applies to this." (Memorandum of telephone conversation; Johnson Library, Papers of Thomas C. Mann, Telephone Conversations with LBJ, Jan. 14, 1964–April 30, 1965)

 

Jones

 

 

471. Editorial Note

 

In a June 27, 1964, letter to Ambassador Jones, the Peruvian Minister of Government and Police requested U.S. assistance to equip and maintain a Special Police Emergency Unit (SPEU). (Airgram A–020 from Lima, July 8; National Archives and Records Administration, RG 59, Central Files 1964–66, DEF 19 US–PERU) After considerable debate in Washington, the U.S. Government informed the Peruvian Government of its tentative support, citing the prospective role of the SPEU in dealing "with a variety of threats including riots, subversion, terrorism, demonstrations, land invasions, civil disobedience, and uprisings up to and including small-scale guerrilla activities." (Airgram A–294 from Lima, October 29; ibid., POL 23 PERU) The formal negotiations to establish the SPEU were conducted primarily through the Agency for International Development and complicated by competing interests of the Department of Defense and the Central Intelligence Agency. In a December 10 letter to Jones, Nicholas McCausland, the officer-in-charge of Peruvian affairs, reported that the JCS feared the SPEU was "a pilot project by which CIA plans to get its oar into operational activities in Latin America." (Ibid., Lima Embassy Files, Classified Personal Papers of Ambassador J. Wesley Jones: Lot 73 F 100, McCausland, Nicholas V.)

 

On April 8, 1965, the Special Group (CI) met to consider the counter-insurgency situation in Latin America, particularly in view of the SPEU proposal. According to the minutes of the meeting (Document 28), the participants "endorsed the CIA/AID proposal for a special airborne police unit to be tried on an experimental basis in Peru." The provisional agreement stipulating U.S. assistance for the SPEU was signed in Lima on June 26. In a memorandum to Secretary Rusk, August 18, Assistant Secretary Vaughn reiterated the importance of supporting the program: "the insurgency situation in Peru has shaken the Peruvian Government and we are now hearing reports of a possible military coup if President Belaunde does not deal with it effectively." "We believe that the correct way to deal with insurgency is first with civilian police forces [i.e. the SPEU]. When it escalates to the point where civilian police forces can no longer handle it, then it becomes a problem for the army." (National Archives and Records Administration, RG 59, ARA Files, 1967–1969: Lot 72 D 33, Special Group CI (1964–1966))

 

 

472. Letter From the Deputy Director of the Office of Ecuadorean-Peruvian Affairs (Barnebey) to the Ambassador to Peru (Jones)/1/

 

/1/ Source: National Archives and Records Administration, RG 59, ARA/EP/P Files, 1959–1968: Lot 72 D 101, PET 6 (IPC) 1965. Confidential.

 

Washington, September 30, 1965.

 

Dear Mr. Ambassador:

 

I want to report to you on the results of a meeting Jack Vaughn had last Friday/2/ with Tom Mann, with Rostow, Sayre, Johnston, and myself in attendance. The meeting covered Jack’s approach to date and proposed increased flexibility in our policy on the IPC negotiations.

 

/2/ September 24.

 

Let me stress at the outset that this is merely an advance notification of how Jack is thinking of handling the problem, and is subject to modification depending on the outcome of certain key conversations he will hold in coming days. Jack reviewed for Mann the results of his conversations with President Belaunde,/3/ concluding by saying that there seems to be little prospect for solution of the IPC case in the next year or so. Moreover, Jack is inclined toward the view that Belaunde may prefer to keep the IPC case around for resort to possible expropriation as and when the political going gets particularly rough.

 

/3/ Vaughn visited Lima in early-September as part of a 2-week trip to Latin America. An account of his meeting with Belaúnde is in telegram 347 from Lima, September 2. (National Archives and Records Administration, RG 59, Central Files 1964–66, ORG 7 VAUGHN)

 

Based upon Jack’s report, he and Mann discussed what would be the next appropriate step. Their conclusions were essentially as follows:

 

1. An assurance would be sought from Belaunde that he would not expropriate IPC during the remainder of his presidential term.

 

2. Subject to getting this assurance from Belaunde and further conversations as Jack deems necessary with Congressional leaders (notably Senator Hickenlooper) and the company, IDB soft loans to Peru would be resumed. The first such loan would be the $18 million Comunidades Indígenas loan to be approved in the course of the next few weeks. (Activity under this loan, to be administered by several ministries and Cooperación Popular, would be directed toward strengthening the legally recognized indigenous communities of the highlands; proceeds of the loan would be re-lent to the communities for agricultural improvement and community development projects.)

 

3. Until a satisfactory solution is achieved in the GOP–IPC negotiations, we would continue the policy of denying AID loans to Peru. Belaunde would be told that we recognize his political difficulties in settling the IPC case, but he would have to come to recognize U.S. domestic political considerations as a limitation on AID lending decisions.

 

During the conversation a great deal was said about Belaunde’s apparent weakness as a President and as a politician, as illustrated by his lack of determination to settle the IPC case. Mann called attention to the country’s economic problems, such as a potential inflationary spiral, the Government’s failure to put its fiscal house in order, and its failure to adopt progressive taxation which would work toward eliminating some of the greatest disparities in Peru’s income distribution. Mention was made, too, of the counter-insurgency campaign, with Ambassador Pastor having told Jack how seriously he views the problem and the new Foreign Minister apparently having told Reuters that communism is no problem in Peru. Dr. Rostow reiterated his view that we should approve specific development loans as a counter-insurgency move (a position not regarded as persuasive, particularly as to combatting insurgency on a short-term basis). On the other hand, Dr. Rostow’s statement in support of Belaunde’s efforts toward rural modernization and national integration was received rather better.

 

There was general agreement as to the disenchantment Mann, Vaughn and others have come to have regarding Ambassador Pastor’s contribution toward improving U.S.-Peruvian relations. The consensus seemed to be that Pastor has not been able to look beyond Peru’s boundaries during his service as Ambassador here, and apparently cannot see, let alone convey to his Government, a larger view of U.S. or free world interest in many of the issues confronting his and our Government.

 

In this regard Jack called attention to Ambassador Pastor’s latest offer to take a leading role in the IPC negotiations. During the September 22 conversation, Pastor mentioned seeking "plenipotentiary powers" from Belaunde to negotiate this dispute. Pastor also said he might ask that two or three Peruvian experts concerned with these negotiations come to Washington to join him in working out this matter. During the conversation Jack did not comment upon this possibility, but I would be interested in your views as to whether such a course of action would be useful.

 

I will keep you informed as to the progress of the impending policy change./4/

 

/4/ In a December 23 letter to Jones, Barnebey reported that Vaughn was seriously considering whether to modify the soft loan freeze policy, possibly as early as the end of January 1966. In reference to the possibility that APRA might obstruct a settlement in the IPC case, Barnebey also offered the following suggestion: "It occurs to me that given the excellent relations that another agency has with Aprista leaders in Lima, you might want to explore how some of these contacts can be used effectively in the event that an overt approach to Aprista leaders does not yield beneficial results." (Johnson Library, Papers of John Wesley Jones, Classified [Correspondence])

 

Sincerely,

 

M. R. Barnebey/5/

 

/5/ Printed from a copy that bears this typed signature.

 

 

473. Memorandum of Conversation/1/

 

Sec/MC/21

 

Rio de Janeiro, November 17, 1965, 3 p.m.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, PET 6 PERU. Confidential. Drafted by Neil A. Seidenman in LS and H. W. Baker, labor attaché at the Embassy in Brazil, on November 19 and approved in S on January 20, 1966. The meeting was held at the Hotel Gloria. The memorandum is part III of III. A draft memorandum of the entire conversation is ibid., ARA/EP/P Files, 1967: Lot 70 D 139, POL 3 OAS—General. Rusk was in Rio de Janeiro November 16–24 for the Second Special Inter-American Conference.

 

SUBJECT
Relationship of International Petroleum Company and U.S. Loan Policy

 

PARTICIPANTS

 

U.S.

The Secretary

Walt W. Rostow, Counselor, Dept. of State, and Chairman Policy Planning Council

Jack Hood Vaughn (Coordinator), Assistant Secretary of State for Inter-American Affairs

Neil A. Seidenman, OPR/LS, Reporting Officer

H. W. Baker, American Embassy Rio de Janeiro

 

Peru

Jorge Vasquez Salas, Foreign Minister of Peru

 

The Secretary said that this was a problem that was making our lives very complex, and Presidents Kennedy and Johnson had made special efforts to move resources into Latin America and specifically into Peru in support of the Belaunde Government. However, legislation on foreign investments has been passed by the United States Congress./2/ Specifically, foreign assistance legislation has provisions limiting appropriation of funds for countries whose governments confiscate investments or property of American enterprises./3/ The Secretary said he was not here to negotiate on the IPC problem and reiterated our commitment to support the prosperity and independence of Peru.

 

/2/ The phrase, "which is the source of [the] problem," concluded the sentence in the draft memorandum, but was subsequently removed in S.

 

/3/ The final version of the memorandum also eliminated the following sentence at this point: "The Secretary said he had testified against this legislation but it was passed, and we have it."

 

The Foreign Minister expressed his appreciation for the Secretary’s concern over this problem. "My government," he said, "shares this concern." This was a matter that has been the subject of serious, earnest, concentrated study by the Peruvian Government. He said the Peruvian Government has never expected and does not expect or intend to confiscate or seize any property or infringe on the rights of any individual or company within the territorial bounds of its country. Peru simply desires to be in a position where it can control and manage the natural wealth of the country. In the process of implementing the laws and regulations applicable to this area in Peru, he said, Peruvian authorities have no intention of subjecting any party to discrimination but rather adhere to the principle that non-national interests certainly should not be allowed to enjoy greater benefits than Peruvian nationals; that all should have equal status under the laws of the country. To proceed otherwise would be tantamount to going back to the practices of extraterritoriality. The Foreign Minister said he hoped the United States would realize a country must be in a position to dispose of its own wealth and resources, not with a view to punishing any one, but in a way that parties concerned will be justly compensated. Peru has undertaken a program of land distribution. To carry out this reform it is necessary to expropriate to progress toward an equitable redistribution of the national landed estate. However, Peru lacks adequate financial resources to pay for all of this property and must compensate former owners with long-term bonds which the GOP intends to make fully redeemable within the prescribed period. If it is legal to make compensation for expropriated property in the form of bonds, certainly this should be acceptable to foreign property owners as well. This is not a plan for confiscating property.

 

The Secretary said that he would like to have some time to review the Minister’s remarks and talk again while they are still here together. The Secretary said that perhaps it would be desirable to have further discussions between the governments, since previously there had only been contacts of the company involved with the Peruvian Government.

 

The Foreign Minister said he believed the problem was a matter of national jurisdiction, not subject to handling on a government-to-government basis. In the view of the GOP it would be a great mistake to transfer this problem to the realm of diplomacy which would simply mean repeating an historic error committed by Peru at a time when it allowed important property within its territory to remain under the ownership of British interests.

 

The Secretary stated that this was a decision to be made by the Peruvian Government; the Peruvian Government makes its decisions and the American Government makes its decisions, so these decisions should be balanced. The Secretary said we are only asking that due consideration be given to the factors involved in the hope that both parties can adjust their respective interests. On our side, the Secretary said, it is a matter of our being able to tell the American taxpayers what we are doing with their tax money and that it is worthwhile.

 

 

474. Editorial Note

 

In early January 1966 Ambassador Jones suggested a plan for "political action" to resolve the status of the International Petroleum Company (IPC) in Peru. In a January 4 message, Jones explained that President Belaúnde could not submit an IPC settlement to Congress without the tacit support of the American Popular Revolutionary Alliance (APRA). There was, however, a problem: "A decision of such importance to APRA can only be made by party leader [Victor] Haya De La Torre who is at present in Europe." Jones, therefore, recommended that a U.S. official approach Haya in Europe in an attempt "to persuade him to send assurances to President Belaunde that the Apristas will make no trouble over the issue and urge him [Belaunde] to act now." (Memorandum from Broe to Vaughn, January 4; Department of State, INR/IL Historical Files, Latin America Country File, Peru, 1961–1964)

 

[text not declassified]

 

At a meeting with a U.S. official in Hamburg, January 16, Haya agreed to support a fair settlement of the IPC case and acknowledged that Belaúnde’s latest proposal, as outlined by the officer, was, in fact, reasonable. According to a subsequent report: "No financial or other commitments were made, nor were any requested by Haya." (Memorandum to the 303 Committee, January 17; ibid., 303 Committee Special Files, January–June 1966)

 

 

475. Memorandum From the Ambassador to Brazil (Gordon) to President Johnson/1/

 

Washington, January 29, 1966.

 

/1/ Source: Johnson Library, National Security File, Special Head of State Correspondence, Peru—Belaunde Correspondence. Confidential. Another copy indicates that Bowdler drafted the memorandum. (Ibid., Memos to the President, McGeorge Bundy, Vol. 19) Gordon was in Washington for his Senate confirmation as Assistant Secretary of State for Inter-American Affairs; he did not formally assume his new responsibilities until March 9. In a memorandum to the President, January 27, Bundy explained that Gordon "will bring cool good sense" to the IPC case—a case on which, he admitted, "we have been a shade rigid." (Ibid.)

 

SUBJECT
Letter to Peruvian President Belaunde

 

In a recent conversation with Ambassador Jones, President Belaunde expressed deep frustration over Peru’s failure to obtain major concessional assistance from the U.S. which he attributes to the fact that he has not yet reached an agreement with the ESSO-owned International Petroleum Company (IPC) on the basis for its continued operations./2/ Belaunde is under strong political pressure to expropriate the IPC holdings, which he does not want to do. On the other hand, he has not been able to accept a satisfactory settlement with the Company because he assesses the political risks to himself and his party as too high. The Company has made several reasonable proposals during the past two years. A fuller description of the issues involved in the IPC case is at Tab C./3/

 

/2/ Belaúnde summoned Jones on January 20, declaring that "he would never sign an agreement [with IPC] under pressure, that US aid policy must first return to normal before he could conclude an agreement." In reporting the conversation, Jones suggested that "a promise of additional aid now might be an important element in support of those other factors which the Department is aware now working toward a settlement." (Telegram 1036 from Lima, January 21; National Archives and Records Administration, RG 59, Central Files 1964–66, PET 6 PERU)

 

/3/ Dated January 29; attached but not printed.

 

Walt Rostow, Tom Mann and I have been reexamining our position on the IPC case in the light of the Belaunde–Jones conversation. We have reached the conclusion that the conversation opens the door for a new effort to work out a basis for more effective cooperation with Peru’s development plans and a simultaneous understanding on the IPC case. We have decided that Walt Rostow, under the cover of a CIAP mission to discuss multinational projects for opening the South American heartland, should go to Lima next week to discuss with Belaunde:

 

1. Peru’s economic, financial and reform performance and prospects, including their relation to possible increased USG and multilateral assistance to Peru.

 

2. His willingness and ability either to reach a mutually satisfactory settlement with the Company or, at least, to give assurances that the status of IPC will not be changed for the duration of his term (3 years) except as mutually agreed by Peru and the Company. The present operating conditions are not unsatisfactory to the Company.

 

Tentative guidelines for Rostow’s talks with Belaunde are at Tab B./4/

 

/4/ Dated January 28; attached but not printed.

 

Walt Rostow’s hand would be greatly strengthened if he were to carry a personal letter from you to Belaunde. Based on previous conversations with Belaunde, we believe that having the letter may well spell the difference between success and failure of his mission. The thrust of the letter would be your interest in seeing Belaunde carry forward his economic and social development plans on the basis of a strong self-help program backed by well-organized and sustained external support and in clearing the path of misunderstandings and obstacles which impede full cooperation between our two governments. The obstacles refer not only to the IPC case, but also to Belaunde’s public criticism of the Alliance and the need for better management of the Peruvian economy and greater effort in basic reforms. The text of a suggested letter is at Tab A./5/

 

/5/ Dated January 29; attached but not printed. The final version of the letter is in the Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67.

 

The way this letter is phrased and the CIAP cover which Rostow would use in making the trip (one of many he has made to Peru in recent years) reduces the risk of disclosure of the purpose of the visit and places us in a good position publicly to refute charges, should they be made, that the Rostow visit is a pressure move on the IPC case.

 

I think we should take advantage of this opportunity to seek a solution to this knotty problem which, if left unsettled, poses a serious threat to US–Peruvian relations and to our Alliance image. Another consideration is that aspects of the Belaunde program are designed to bring the long neglected Indian population into the mainstream of national life, thereby countering communist efforts to use Indian discontent to launch a guerrilla movement. Much stands to be gained by the Rostow trip, and the risks are minimal.

 

I recommend that you send the suggested letter./6/

 

/6/ Bundy forwarded the proposal under the cover of a memorandum to the President, January 29, on which he wrote the following parenthetical comment: "a good bargain with Belaunde will help us on all fronts & Walt is a good bargainer." Johnson indicated that he would "prefer not to send the letter," but "let’s discuss [the issue] further." (Ibid., Special Head of State Correspondence, Peru—Belaunde Correspondence) The President discussed the letter, as well as the "overt and covert purposes" of Rostow’s trip to Peru, at a February 3 meeting in the Oval Office. (Johnson Library, President’s Daily Diary) After minor revisions, Johnson signed the letter and directed Rostow to deliver it to Belaúnde. (Note from Marie Fehmer to Juanita Roberts, February 3; ibid.)

 

Lincoln Gordon

 

 

476. Memorandum From the Counselor and Chairman of the Policy Planning Council (Rostow) to President Johnson/1/

 

Washington, February 10, 1966.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Secret; Eyes Only. The President also received an advance report on the Rostow mission from Bromley Smith on February 9. (Ibid., Memos to the President, McGeorge Bundy, Vol. 20)

 

You have the cabled reports of my mission to Peru plus the Washington instructions I followed./2/

 

/2/ Rostow’s instructions were attached as Tab B to Document 475. Bowdler forwarded the "cabled reports" to the President under the cover of a February 10 memorandum. (Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67) These were telegrams 1107 and 1114 from Lima, both February 5. (Also in National Archives and Records Administration, RG 59, Central Files 1964–66, PET 6 PERU and POL 29 PERU, respectively) Rostow delivered the letter in a meeting with Belaúnde on February 4. A detailed account of the meeting is in airgram A–450 from Lima, February 9. (Ibid., POL PERU–US)

 

The facts are:

 

1. Belaunde fully met the condition we laid down; namely, that he give to you personally his assurance that the status of IPC would not be impaired in the lifetime of his administration.

 

2. He subsequently confirmed his verbal message to me in a conversation with Ambassador Jones. He knows I reported in writing; he knows you have that report; and he has confirmed its accuracy./3/

 

/3/ In telegram 1124 from Lima, February 8. (Ibid., POL PERU–US)

 

3. What he permitted me to communicate to you, he has often said to some of our officials. But this time he knew he was making a most solemn and personal political deal. It could be explosive for him if it is known. He has put his political life in your hands. That is why I asked my cables to be handled with such special care.

 

4. Before I left, Linc Gordon cleared the deal with Senator Hickenlooper. As you know, I was recruited for this job by all three of my Latino pals: Tom Mann, Jack Vaughn, and Gordon.

 

5. As the attached cable/4/ indicates, there is some irony in all this: Belaunde is the most pro-U.S. business President in Latin America. IPC is simply an inherited political problem peculiarly difficult for his rickety coalition. His campaign speeches and subsequent dilatory tactics have not helped. But basically he wants a settlement if he can swing it: he doesn’t want to nationalize: if he breaks his word to you, the Hickenlooper Amendment is there, and he knows it.

 

/4/ Telegram 1138 from Lima, February 10; attached but not printed.

 

6. I recommend that we proceed promptly with the $15–20 million A.I.D. package as promised.

 

7. Sometime at your leisure and convenience, I’d like to tell you what the east slopes of the Andes look like. The last real frontier. Real nice place to bring up kids.

 

Walt

 

 

477. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Komer) to President Johnson/1/

 

Washington, February 15, 1966, 5:30 p.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Confidential.

 

SUBJECT
Peruvian President’s Reply to Your Letter

 

I received the Peruvian Ambassador this afternoon who wanted to deliver President Belaunde’s reply to the letter which you sent to him via Walt Rostow./2/

 

/2/ The letter from Belaúnde to Johnson, dated February 10, included an English translation. (Ibid., Special Head of State Correspondence, Peru—Belaunde Correspondence)

 

The reply is in Spanish and I have sent it to State for translation. The principal points are:

 

1. He is profoundly grateful for your letter.

 

2. The conversations with Walt Rostow permitted a fruitful exchange of constructive ideas. Before replying to you, he wanted to talk first with Ambassador Jones.

 

3. The opening of the eastern slopes of the Andes offers a new frontier for colonization which will help win the battle over hunger and poverty. U.S. help in the initial phase of feasibility studies, as well as the new phase of actual work, will be of inestimable importance.

 

4. The cordial relations between our two countries is reflected in the growing participation of U.S. private capital in Peru. The contribution of these companies is much appreciated.

 

5. The only point that causes "certain preoccupation" is the "notorious difference" between the loan assistance given by "Official Institutions" to Peru in comparison to other countries. From his conversations with Rostow he gathers that there is the intention to "balance the flow of assistance" under the Alliance.

 

6. There is no reason for concern over the activities of U.S. businesses in Peru, which throughout the history of the country have never been the victims of arbitrariness or unjust treatment. Where problems have arisen, they have been discussed with a high sense of responsibility and without precipitous action. He is confident that the few cases pending solution will be resolved by harmonious agreement.

 

7. He greatly appreciates your personal support for his "Cooperacion Popular" program designed to bring the Indian communities into the mainstream of Peruvian life.

 

8. He has sent through Ambassador Jones his pledge of support for the Pope’s peace efforts in Vietnam.

 

The letter in tone and content is friendly and forthcoming. Point 2 is his way of referring to his understanding with Walt Rostow on the IPC case (Tab A). His reference to wanting to talk to Ambassador Jones before replying to you refers to his desire to review the memorandum of understanding which Walt prepared. Points 4, 6 and 7 are designed to provide additional reassurance./3/

 

/3/ The President wrote the following instruction at the end of the memorandum: "Bob see me." For an explanation of what Johnson may have had on his mind, see footnotes 2 and 3, Document 479.

 

RWK

 

 

Tab A

 

Memorandum of Understanding Prepared by Walt Rostow and Shown to President Belaunde by Ambassador Jones

 

The following memorandum will be the basis of my report to President Johnson:

 

(1) President Belaunde wishes President Johnson to understand that he will try to settle within the next year the IPC case.

 

(2) Under no circumstances does President Belaunde intend to confiscate IPC. (Ambassador Jones will say that he presumes that this is in response to the formula which we reiterated three times yesterday that the status of IPC "would in no way be further impaired.")

 

(3) It is President Belaunde’s judgment that his political possibilities for settling the IPC case would be improved by a resumption of normal aid relations with the U.S. along the lines of the sequence presented to him on Friday afternoon.

 

(4) With respect to Viet-Nam President Belaunde wishes President Johnson to know that he will continue to support the peace initiatives of the Vatican.

 

 

478. Memorandum From the Under Secretary of State for Economic Affairs (Mann) to President Johnson/1/

 

Washington, February 19, 1966.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1964–66, PET 6 PERU. Confidential; Nodis. In an attached transmittal note to the President, Mann explained that the IPC problem was a "case study on the difficulties of (a) using aid as a lever to further the national interests and (b), without going into detail, getting the Inter-American Bank to play an effective role in promoting self-help." The memorandum was forwarded under the cover of a February 21 memorandum from Komer to the President. (Johnson Library, White House Central Files, Confidential File, Co 234)

 

AID TO PERU AND THE IPC PROBLEM

 

The La Brea y Parinas oil field in Peru (which is only part of the IPC’s holdings) was the subject of a dispute between the United Kingdom and Peru in the early part of this century. In 1918 the Peruvian Congress authorized its Foreign Minister to arbitrate. An arbitration award was handed down in 1922 which established a tax regime for this particular oil field. In 1924 the IPC, now but not then a subsidiary of Standard Oil of New Jersey, bought this oil field from the British owners. As far as I know, it is undisputed that the American company bought in good faith reliance on the award.

 

The Miro Quesada family, which owns the largest Lima newspaper, El Comercio, has conducted for many years a newspaper campaign for nationalization of the entire oil industry in Peru. In addition, this newspaper asserts that the award was not valid and hence, under its tax calculations, IPC owes Peru more than the approximately $70 million dollars at which the company values its assets in La Brea y Parinas.

 

Like Illia in Argentina, Belaunde, who depended on El Comercio’s support in his campaign, promised to settle the IPC problem. In his inaugural address on July 28, 1963 Belaunde stated that he would settle it within 90 days.

 

In August 1963 Mr. Moscoso went to Lima and discussed with Belaunde the possibility of announcing a large aid package in order to provide a better atmosphere in Peru for a settlement. Active negotiations between Peru and IPC were going on at that time and when it appeared, near the end of the 90-day period, that a solution was imminent, our Ambassador was instructed to offer a $64 million dollar aid package to Belaunde. Two days after this offer was officially made, Belaunde broke off negotiations with the company and submitted two options to the Peruvian Congress. One was nationalization. The other was a contract under which, according to the company, IPC would have been obliged to pay more than 100% of its net earnings and which it therefore considered confiscatory.

 

The Peruvian Congress did not follow either option recommended by Belaunde. Instead, it passed two other laws; one nullifying the 1918 Act which had authorized the arbitration and the other declaring the arbitration award null and void.

 

At this point, in the first week of November 1963, it was decided not to go ahead with the $64 million dollar aid package previously promised with the aim of encouraging the Peruvian government to resume negotiations with IPC. The Peruvian government was not officially informed of this decision.

 

In February 1964 the Peruvian Congress passed another law, in essence authorizing the President to negotiate with IPC and to submit the negotiated solution to Congress for approval. This was part of the "buck-passing" between Belaunde and the opposition-controlled Congress which has recently complicated the problem.

 

In 1964 and 1965 I and various Department officers talked with Belaunde, urging him to reach agreement with the company or, in the alternative, to agree to submit the legal issue of the validity of the award, which underlies the problem, to the International Court or to arbitration. Belaunde says in essence that domestic political pressures are too great to permit agreement on what the company regards as fair terms. He refuses to go to the World Court or to arbitration because he knows he will almost certainly lose.

 

He talks, instead, of the dangers of communism if we do not increase aid levels. He has made several public statements criticizing the sluggish AID procedures; and his Ambassador to Washington (and his brother-in-law) and others conducted a campaign consisting of complaints about our alleged attempts to influence internal Peruvian policy. Meanwhile, El Comercio has stepped up its attacks against IPC. Its line was to urge the President to nationalize, arguing that the U.S. would not react.

 

Certain elements in our Congress and press have spoken about my "hard line" policy and about the big U.S. jumping on poor, defenseless, democratic Peru in order to increase the profits of oil companies. These sources do not mention the United States’ stake in opposing widespread disregard of contracts in the contract society in which we live. Nor do they mention the importance to the success of the Alliance of the private sector, whose participation on an adequate scale depends on observance of contracts.

 

In spite of these criticisms, I believe the policy has been successful in achieving its principal objective, i.e., deterring confiscatory action by Belaunde.

 

The tactic has been not to cut off, but to cut back, aid without specifically admitting to Belaunde that we were doing so. Our premise was that our relations with Peru would in the long run be better if we deterred confiscation than if Belaunde were lulled into a sense of security leading to confiscatory action which would then oblige us to apply rigidly the Hickenlooper-Adair Amendment. During calendar year 1964 we authorized road loans of $39 million dollars through AID and Eximbank; agricultural credit of $8 million dollars, and a labor housing cooperative loan of $6 million dollars. These were made on Ambassador Pastor’s oral assurances to me on three separate occasions that the IPC case would soon be settled.

 

In 1965 we made a $2 million dollar project loan for an agricultural university and continued our Peace Corps, technical assistance and military aid programs which total about $26 million dollars a year. In addition, Peru continued to receive substantial loans from the Inter-American Bank and other international institutions. In 1966 the Inter-American Bank made a $20 million dollar soft loan which, like its loans in 1965, were almost wholly from U.S. funds.

 

During 1964 the company, incidentally, offered to give up its title to the oil and gas in place and to accept in lieu thereof an operating contract to terminate in twenty-five years. In September 1964 the company thought it had reached an understanding, which had been reduced to writing and orally agreed upon by two representatives of Belaunde, only to have it rejected by the President a few months later who claimed throughout that he was under irresistible domestic pressures. One principal issue remaining is whether the total "tax take" of Peru will be 85% or a smaller figure in the range of 65–75% which the company wants. The company considers this precedent important to its efforts to hold the present world tax split. They tell me they would prefer nationalization and loss of this investment to agreeing to a bad tax split precedent.

 

Mr. Gordon proposed the recent Rostow Mission to Peru. As near as I can make out, Mr. Belaunde has committed himself not to "confiscate" the IPC property during his term of office. In his letter to you, President Belaunde states:

 

"The misinformed and irresponsible statements made in recent years by certain organs of the foreign press about the intended confiscation of foreign companies established in this country are completely groundless and are disproven by facts in a nation whose acts conform faithfully to its constitution and laws."

 

The question is whether, despite the undertaking not to confiscate, Belaunde may take other action such as increasing taxes which might be tantamount to confiscation. On this I understand we have Belaunde’s oral assurances to Rostow and Jones that he will take no action which will further impair the company’s position. The majority opinion here is that Belaunde will probably not take any precipitate action during his term of office against the company but will leave the problem for his successor. Belaunde is not a decisive person and if he is not misled into thinking that the United States will continue a large aid program regardless of his actions, I think we could afford to take this chance. Belaunde is a weak man, but he has his good points. I concurred in the Rostow Mission and in view of Mr. Gordon’s feeling on the matter, I concur in the following recommendations:/2/

 

/2/ According to a letter from Barnebey to Jones, March 4, the White House informed the Department on February 26 that the President approved these recommendations. Barnebey remarked: "In view of all the current interest in assistance to Peru on the 5th, 6th, and 7th floors of this building, not to exclude that of the White House, we should strike while the iron is hot." (National Archives and Records Administration, RG 59, Lima Embassy Files, 1966: Lot 69 F 191, PER Jones)

 

1. We make additional project loans to Peru as follows:

 

$9 million dollars agricultural credit loan, part of which would be funded with P.L. 480 local currency; $2 million dollar loan for community development (Cooperacion Popular); $3 million dollars for feasibility studies of new projects; $11⁄2 million dollars for civic action training and $4 million for road construction.

 

2. That no additional project or program loans be made from AID funds without your approval until we have negotiated with Peru a realistic self-help program comparable to those already negotiated with Brazil, Chile and Colombia. The self-help negotiations can best be conducted under the leadership of the World Bank, which is interested in playing this role, and with the cooperation of the International Monetary Fund.

 

Inflation in Peru was at a 15% rate in 1965 as compared with 10% in 1964 and 6% in prior years. The inflation is in part due to budgetary deficits and the inadequacy of Belaunde’s agricultural policies.

 

3. Belaunde should be told orally, when the project loans are signed, that self-help is essential; that we will be obliged under the Hickenlooper–Adair Amendment to stop disbursements on all outstanding loans if confiscatory action is taken; that our ability to extend large scale loans on soft, concessional terms is limited both by our own balance of payments and budgetary problems and by the relatively strong position of the Peruvian economy; and that we expect Peru to be more forthcoming and consistent in dealing with the threat of communism to the hemisphere.

 

Finally, I should add that our tactics in dealing with Belaunde have been influenced by large U.S. private investments in Peru, particularly in mining.

 

Thomas C. Mann/3/

 

/3/ Printed from a copy that bears this typed signature.

 

 

479. Memorandum From the Under Secretary of State for Economic Affairs (Mann) to President Johnson/1/

 

Washington, February 22, 1966.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Secret. A notation on the memorandum indicates that the President saw it.

 

SUBJECT
Allegations About Change in Our Aid Policy for Peru

 

Mr. Komer has a summary of the facts regarding the IPC problem as it affected our aid program in Peru. I hope you will have a chance to read it./2/

 

/2/ At 11 a.m., Mann called the President to ask if he had seen the memorandum on the "IPC–Peruvian matter." (Document 478) Johnson admitted he had not, but instructed his staff to "get him an announcement that balanced this thing." He told Mann "to get it on paper but to make sure that the President was not announcing that we have back-tracked and made a bad mistake and Bobby Kennedy had forced him to change it." The President further stated that "he did not object to the deal made" but "does object to announcing both deals which says that the Mann–Johnson policy has been abandoned and we are going to sit back and let them confiscate." (Johnson Library, Papers of Thomas C. Mann, Telephone Conversations with LBJ, May 2, 1965–June 2, 1966)

 

From the beginning, our objective has been to prevent a confiscatory-type action. The record does not show any difference of objective or tactic between the Kennedy Policy in late 1963 and our policy in 1964–66.

 

This policy has been successful. We will have our maximum chance of ultimate success if we follow the three recommendations made in my memorandum of February 19. However, if the Peruvian press were to report Belaunde’s promise not to confiscate, Belaunde would be charged with having "sold out" the national patrimony. The danger is that Belaunde would then feel obliged to prove his "patriotism" by moving against the IPC property. This could, in turn, bring into operation the Hickenlooper–Adair Amendment, relations between the U.S. and Peru would then be in open crisis. And we would have failed to obtain our objective.

 

The proposed AID loans to Peru do not represent a change in policy or tactic. From the beginning we have been granting or withholding soft loans depending on whether we thought it would help us achieve our objective. In 1964, for example, we made larger loans than those now proposed.

 

The investor agrees with our tactic. Yesterday the highest officials of the IPC volunteered to me their appreciation. They expressed agreement with the tactics which have been recommended. Their hope is that they can go quietly to work and reach some kind of a modus vivendi which will postpone the problem of this particular oil field while enabling them to get on with improvements they wish to make in other properties. I do not, therefore, expect any dissent from Senator Hickenlooper or from the private sector.

 

The Eder article is therefore incorrect in its major premise./3/ But I do not think it follows from this that we help ourselves by debating details of delicate foreign policy issues in the press because, given Latin American realities, this would make it impossible to achieve our foreign policy objectives.

 

/3/ In an article attributed to Richard G. Eder, February 10, The New York Times disclosed that the United States had quietly reversed its policy of restricting economic assistance to Peru as a means to force a favorable settlement in the IPC case. President Johnson’s reaction was twofold: he demanded an investigation of the leak and instructed that "no new loans are to be made to Peru without [his] prior approval." (Memorandum from Bowdler to the President, February 10; ibid., National Security File, Country File, Peru, Vol. II, 1/66–10/67) In a February 21 letter to Jones, Cutter explained: "The spate of newspaper articles concerning our AID policy in Peru caused considerable worry here coming as it did with the Viet Nam debates and other Senate criticism of our policies and the President became personally involved. In view of this high level interest, no decision could be made until fully cleared with the White House. The receipt of Belaunde’s letter has now made it possible to move ahead with recommendations to the White House." (National Archives and Records Administration, RG 59, Lima Embassy Files: Lot 73 F 100, Cutter, Curtis C.)

 

The difficulty we are having with press treatment of our Latin American policy stems from the fact that the other side has preempted the field. No knowledgeable person outside of government is willing and able to take them on and to counterattack by dealing with the real, and not the phony, issues. I have already spoken with you about my suggestions on how to deal with this. I expect to have something concrete on this soon.

 

Thomas C. Mann

 

 

480. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Komer) to President Johnson/1/

 

Washington, February 23, 1966, 5 p.m.

 

/1/ Source: Johnson Library, National Security File, Memos to the President, McGeorge Bundy, Vol. 19. Secret. A notation on the memorandum indicates the President saw it.

 

The Peru Matter. After further checking, I feel obligated to report back honestly my private feeling that countering the unfortunate news leak runs too much risk of stirring up even more trouble—and of a setback to the promising course set in train by Rostow’s successful visit:

 

1. Disturbing as such leaks are, this one was a two-day wonder unnoticed in the country at large. But if we leak a counter-story, even as mild a one as Walt Rostow reluctantly suggests, we may open the whole issue up again. Will smart-aleck reporters like Kurzman/2/ and Eder settle for the Rostow line or start digging again? Our quiet deal with Belaunde also undermined Bobby Kennedy and others, who were planning to speak out on Peru—we might stir them up again.

 

/2/ Dan Kurzman, foreign correspondent for The Washington Post.

 

2. On the merits, we got the maximum politically possible from Belaunde on the IPC case. Moreover, things are going our way in Peru. Stirring up the IPC case again might put us right back in an impasse again.

 

3. Should we penalize Belaunde, who acted in good faith? We still want to be tough with Peru, but (as Tom Mann proposes) it’s better to shift the argument to the much firmer ground of needed self-help and anti-inflation measures. If we press hard on these lines, no one can legitimately complain.

 

4. We could keep Peru on a short rein by stretching out the four small loans (actually totalling only $15 million, since the rest is local currency), and saying that any help beyond this would depend on adequate self-help. Putting out this story 4–5 weeks from now when the first loan was ready for signature would create no problems.

 

5. Then in six months or so, if all goes well, we’ll have ample opportunity to correct the record by demonstrating how the hard line on aid has paid off in such countries as Pakistan, India, Turkey, Colombia, Brazil, and Peru.

 

I have no special axe to grind on this Peruvian affair, and I fully realize the problems created by loose talk. It doesn’t come from over here. But in this case correcting the record may hit the wrong culprits./3/

 

/3/ The President wrote the following note at the end of the memorandum: "I agree—go ahead." In telegram 854 to Lima, March 9, the Department instructed Jones to tell Belaúnde his assurances that IPC would not be "further impaired" were satisfactory; and the U.S. Government would consider individual AID project loans "on their merits," including the Cooperación Popular community development loan of $2.1 million. (Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67) Jones relayed this message to Belaúnde on March 17. (Telegram 1303 from Lima, March 10; ibid.)

 

R. W. Komer

 

 

481. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, May 27, 1966, 8 p.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Confidential. Earlier in the day Rostow received a memorandum from Read which, "in view of the President’s interest in this particular problem," requested White House concurrence for the loan. (Ibid.)

 

SUBJECT
Loan to Peru for COOPOP/2/

 

/2/ Cooperación Popular.

 

Last February you authorized resumption of significant concessional lending to Peru, provided President Belaunde agreed to solve, or maintain the status quo on, the International Petroleum Company (IPC) case and take effective self-help measures. You told Bill Bowdler that you did not want the loans to be authorized without your prior approval.

 

The first loan is now ready. It is a good loan—$2.1 million for community development programs in Indian villages. Belaunde has kept his word on IPC and is working out in a highly satisfactory manner with us and the World Bank a development program based on sound self-help measures. All interested agencies, including Treasury, have approved the loan.

 

I recommend that you authorize us to go ahead.

 

Walt

 

Approve/3/
Disapprove
See me

 

/3/ This option is checked. A notation by Bromley Smith indicates that S/S and Bowdler were informed on May 28.

 

 

482. Memorandum for the Record

 

Washington, May 8, 1967.

 

[Source: Department of State, INR/IL Historical Files, 303 Committee Files, c. 51, May 5, 1967. Secret. 3 pages of source text not declassified.]

 

 

483. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, May 19, 1967.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Confidential.

 

SUBJECT
Program Loan for Peru

 

The attached memoranda contain a request by Bill Gaud for authorization to negotiate a $40 million program loan with Peru, and concurrences by Charlie Schultze and Joe Fowler./2/

 

/2/ Attached but none printed.

 

Need for the Loan. Since he took office in 1963, President Belaunde has pressed a development program targeted largely toward opening the interior of Peru. Public investment has outstripped revenues and led to inflationary pressures and a foreign exchange drain which now threaten financial stability. The program loan—part of a joint program worked out with the IBRD and the IMF totalling $175 million—is designed to permit Belaunde to correct his financial difficulties while continuing a reasonable development effort.

 

Conditions for the Loan. Belaunde’s budgetary deficit for the year starting July 1, 1967 is expected to run up to $186 million if remedial action is not taken. Exchange reserves dropped nearly $30 million during the first quarter of 1967.

 

The proposed loan would be negotiated if:

 

—The Peruvian Congress authorizes new revenue measures which will net $116 million.
—The government cuts back expenditures by $15 million.
—Belaunde turns down the military’s bid to spend some $30 million on supersonic jet aircraft.
—Peru negotiates a satisfactory standby agreement with the IMF.

 

These conditions involve tough decisions from which Belaunde has until recently shied away. But on May 8 he asked the Congress for authority to raise revenues and cut expenditures in the amounts indicated above. The loan will be contingent on his getting this authority and accepting the other conditions.

 

The loan would be disbursed in three installments, each contingent on compliance with the terms agreed upon.

 

Funding the Loan. Funds are presently available from the FY 1967 appropriation to cover the loan. If there is a long delay in the negotiations it will have to be funded in FY 1968.

 

Other related considerations. Together with Frei, Lleras and Leoni, Belaunde represents a new generation of political leaders of democratic bent, deeply interested in modernizing their countries. We have a stake in seeing Belaunde and his program succeed.

 

Belaunde has stuck faithfully to his promise not to impair the position of the International Petroleum Company. IPC continues to operate under the same conditions that existed when Belaunde took office. Negotiations between IPC and government continue. Differences have been narrowed, but a final settlement has not been reached.

 

In the past we have had trouble with Peru over seizure of our tuna boats. There have been no recent incidents. We have proposed negotiations on a conservation agreement and are awaiting Peru’s response./3/

 

/3/ On October 2, 1966, three U.S.-owned tuna clippers were detained for operating within the 200-mile fisheries jurisdiction claimed by Peru. The boats were released on October 6. Memoranda on the tuna boat incident from Rostow to the President, October 4, 6, and 7, are in the Johnson Library, National Security File, Country File, Peru, 1/66–10/67. Documentation on the incident and the controversy over the legal limit of Peru’s territorial waters is in the National Archives and Records Administration, RG 59, Central Files 1967–69, POL 33–4 PERU.

 

Recommendation

 

I joined Fowler and Schultze in recommending authorization to negotiate the loan subject to the conditions stated and to further consultation with you prior to signature of the loan agreement.

 

Walt

 

Approve
Disapprove
See me/4/

 

/4/ The President checked this option and wrote: "What does [Lincoln] Gordon & [Sol] Linowitz do or say on these loans? They should be in on them. L."

 

 

484. Telegram From the President’s Special Assistant (Rostow) to President Johnson in Texas/1/

 

Washington, May 29, 1967, 1648Z.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Confidential.

 

CAP 67481. Peru Program Loan.

 

On May 19 I sent you a memorandum transmitting a request from Bill Gaud for authorization to negotiate a $40 million program loan with Peru./2/ The loan is designed to help Belaunde correct inflationary and balance of payments problems while continuing his development efforts. Joe Fowler, Charlie Schultze and I concurred in the request.

 

/2/ Document 483.

 

The loan was to be tied to four self-help conditions. These conditions represent tough political decisions for Belaunde, but are essential to any stabilization program. I noted that we did not know whether Belaunde would be willing to make these decisions and get Congress to act on additional revenue measures.

 

You sent the memo back to me inquiring whether Secretary Rusk and Linc Gordon had endorsed Gaud’s request. It has the full endorsement of Gordon who originated the authorization request.

 

Since Bill Gaud acts as Secretary Rusk’s agent in these matters, the loan authorization was not submitted to him. I am confident, however, that he would go along with the Gaud–Gordon recommendation.

 

Since I forwarded the memorandum to you, President Belaunde has acted—successfully—on one of the four conditions: a cutback in government expenditures. He has had partial success in a second: substantial additional revenues via new import duties and internal taxes.

 

It is important that we be in a position to tell Belaunde that we are prepared to help him if he is willing to take strong self-help action. He may be unwilling to meet all our conditions or, accepting them, unable to get the Congress to enact new taxes. In either case, the responsibility would be his and not our unwillingness to help as we have in the case of his principal neighbors: Brazil, Chile and Colombia.

 

With the clarification on Linc Gordon’s endorsement of the loan, may we proceed with the negotiations subject to the stipulated conditions?

 

Yes/3/
No
See me

 

/3/ The President dictated the following instructions: "Walt: I don’t want Gaud making loans to South America without consulting with our Latin America men. You might talk to Oliver about this when he gets back." (Note from the President to Rostow, May 29; Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67) Jim Jones, Assistant to the President, subsequently reported: "Walt Rostow said Covey Oliver has now reviewed the Peru loan and agrees with the necessity of going ahead. Does the President approve?" Jones informed Rostow of the President’s approval on May 30. (Note from Jones to the President, undated; ibid.) According to a memorandum from Rostow to Gaud, May 31, President Johnson authorized the negotiations "in the understanding that the agreement reached with Peru will be submitted to him for review prior to signature." (Ibid.)

 

 

485. Telegram From the Department of State to the Embassy in Peru/1/

 

Washington, June 17, 1967, 8:01 p.m.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, DEF 12–5, PERU. Confidential; Immediate. Drafted by Sayre, cleared by Vance, and approved by the Secretary.

 

212297. Ref: Embtel 5814./2/ For Ambassador.

 

/2/ Telegram 5814 from Lima, June 14, reported that Peru was considering the purchase of Mirage fighter aircraft from France. (Ibid.) In a June 15 memorandum to the Secretary, Oliver explained that "a contract between Peru and France on the Mirage seems imminent." He recommended that Rusk raise with McNamara a proposal to begin delivery of supersonic fighters to "the major South American countries" in 1969. In an attached note Rusk wrote that he would "like to speak to Covey Oliver on this." (Ibid., ARA Files, 1967–1969: Lot 72 D 33, Military Assistance Program) According to the Secretary’s Appointment Book Rusk met Oliver and Sayre on June 17 at 5:28 p.m. (Johnson Library) No substantive record of the meeting has been found.

 

1. You should seek immediate interview with President Belaunde regarding program loan and Peruvian plans purchase Mirage aircraft.

 

2. You should inform President you will receive instructions within a few days which will authorize you to discuss Peruvian Air Force requirements for F–5 aircraft. These instructions will define as specifically as possible at this time how we would propose to carry out our commitment to assist Latin Air Forces in obtaining suitable replacement jet fighter aircraft beginning in 1970. It should be made clear that financing would be on commercial basis outside MAP.

 

3. At the same time you should make clear that you cannot make specific commitment that this means delivery of F–5 aircraft to Peru could begin in 1969. This would depend on overall performance of Peruvian economy as set out in program loan negotiation paper.

 

4. We could not agree to be party to transaction which diverted substantial Peruvian resources from economic to military purposes when the latter purposes are of low priority.

 

5. You should also make clear that your instructions on the program loan specifically provide that diversion by Peru of substantial resources to low priority military requirements (read jet fighters from France) would preclude the negotiation of program loan.

 

6. We cannot of course tell Peru how to utilize its resources. We assume Peru is committed goals of Alliance as we are and that it wants to give highest priority to economic and social development. If Peru decides otherwise then U.S. must make its decision consistent with Charter of Punta del Este and Declaration of Presidents. We would regret our inability to help Peru in such circumstances but we would be left with no other alternative./3/

 

/3/ In a meeting with Jones on June 20 Belaúnde maintained that Peru needed supersonic fighters due to the "unsettled condition" of the world. Jones explained that the United States was reviewing its policy on supersonic aircraft in Latin America, but warned: "If GOP decided use its resources buy plane like Mirage, USG would feel it inappropriate use its resources for program loan." After arguing that the "two things should not be tied together," Belaúnde blamed the Department for its "uncompromising attitude toward Peruvian armed forces and suggested we adopt more understanding position of Pentagon." Jones reported: "I restrained myself." (Telegram 5881 from Lima, June 20; National Archives and Records Administration, RG 59, Central Files 1967–69, AID(US) 9 PERU)

 

Rusk

 

 

486. Editorial Note

 

On July 6, 1967, the Department instructed the Embassy to discuss the status of economic assistance with President Belaúnde, particularly in view of legislation before the Peruvian Congress to expropriate holdings of the International Petroleum Company. (Telegram 2229 to Lima; National Archives and Records Administration, RG 59, Central Files 1967–69, PET 6 PERU) In a meeting on July 10 Ambassador Jones recalled Belaúnde’s assurance to Walt Rostow in February 1966 that the IPC would not be "further impaired" during his administration. (Telegram 211 from Lima, July 12; ibid., DEF 19–8 US–PERU) Jones also warned of the "adverse effect this law would have, once promulgated, on US–Peruvian relations," referring to the penalties set by the Hickenlooper amendment. (Telegram 190 from Lima, July 11, ibid., PET 6 PERU) Belaúnde replied that he needed more time to resolve the IPC case and pleaded for action "this week" on the program loan. After a heated exchange concerning Peruvian efforts to purchase French aircraft, Belaúnde complained "with strong words about local forces conspiring against him to defeat his program of government and force devaluation." "I have seldom seen the President so distraught," Jones observed. "It was a stormy session." (Telegram 192 from Lima, July 11; ibid., DEF 19–8 US–PERU) Telegrams 190 and 192 from Lima were retyped and forwarded to President Johnson, with a note from Rostow on July 13. Marvin Watson recorded the President’s response: "Walt get this over to C[ovey] Oliver. Ask him to talk with T[ony] Solomon and Tom Mann about it. Oliver give the President a memo of recommendations." (Johnson Library, National Security File, Country File, Peru, Vol. II, 6/65–9/66)

 

 

487. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Oliver) to President Johnson/1/

 

Washington, July 15, 1967.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Secret.

 

SUBJECT
International Petroleum Company Case in Peru

 

The Peruvian Congress has adopted and sent to President Belaunde a law purporting to expropriate a portion of the properties of the International Petroleum Company (IPC). Belaunde must now decide (1) either to sign or act otherwise on this legislation, and (2) once the law is promulgated to take one of several alternative actions to carry out its terms. Our latest information indicates that Belaunde is trying to postpone signing the measure until late this month, in the hope that meanwhile he can work out an acceptable solution to this problem. We believe that the best such solution would be for Belaunde to conclude the long-pending negotiations with the company for a 25-year service contract—in return for the company’s ceding its claim to surface or sub-surface rights on its oil property in northern Peru.

 

We have had Ambassador Jones set out our views on this problem to President Belaunde and Foreign Minister Vasquez./2/ We have sent our Deputy Chief of Mission in Lima to London to talk with Haya de la Torre, leader of Belaunde’s political opposition, to urge him to take some of the pressure off Belaunde on the IPC issue./3/ We have also suggested following up your exchange of letters with Belaunde of February of last year by sending a letter to him from Walt Rostow urging a reasonable settlement./4/

 

/2/ Jones met the Foreign Minister on July 13 to discuss the issues raised in his meeting with Belaúnde, July 10. (Telegram 251 from Lima, July 13, National Archives and Records Administration, RG 59, Central Files 1967–69, PET 15–2 PERU)

 

/3/ Haya was visiting Oxford University. At the instigation of IPC representatives, Jones recommended Siracusa for an "urgent" mission to secure Haya’s support in the IPC case. (Telegram 231 from Lima, July 13; ibid., PET 6 PERU) The Department authorized Siracusa’s trip to London after consultation in Washington. (Telegram 6379 to Lima, July 13; ibid.)

 

/4/ Bowdler wrote the following note on the memorandum: "Walt Rostow has asked your views on whether to do this." Rostow also sought guidance in a July 15 memorandum to the President. The President decided that Rusk should write the letter; Read was so informed on July 17. (Ibid.) No evidence has been found that Rusk sent the letter to Belaúnde.

 

We are considering still further steps. Depending on developments, we could send a high-level emissary to Lima to urge Belaunde to reach a settlement with IPC. We are also trying to use our other assets to help Belaunde reach a reasonable decision, and our best means for this purpose would be the immediate approval and announcement of the pending $15 million program loan to his country. Our objectives are to convince Belaunde that the IPC decision is up to him, and him alone, and to use all the means available to us to persuade him to reach the right decision.

 

C.T.O.

 

 

488. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, July 15, 1967, 5 p.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Secret.

 

Mr. President:

 

President Belaunde faces probably the toughest situation of his three-year administration. He is engaged in three hard, interrelated fights:

 

—with his military on the acquisition of French supersonics and higher military expenditures.

 

—with his Congress on the IPC expropriation.

 

—with his Congress and business interests on higher import duties and taxes.

 

At the end of May, with your authorization, we offered to negotiate a $40 million program loan contingent on four conditions:

 

—an IMF standby agreement.

 

—$157 million in new revenue measures.

 

—$15 million cutback in expenditures.

 

—no French supersonic aircraft.

 

Belaunde made a good try to meet these conditions. He succeeded in:

 

—negotiating the IMF standby.

 

—raising at least $90 million of the $157 million of new revenue.

 

—making the expenditure cutback.

 

Because of his military and Congress, he fell short in:

 

—putting through new taxes.

 

—getting a commitment from the military not to buy French supersonics, although he has so far staved off their closing a deal.

 

Bill Gaud and Covey Oliver ask your approval (Tab A)/2/ for their negotiating a $15 million program loan—an amount equivalent to the first tranche of the $40 million package, with the balance to come later if he delivers on the original conditions. This would:

 

/2/ Tab A was memoranda to the President from Gaud and Schultze, July 12 and July 15; attached but not printed.

 

—acknowledge his self-help efforts to date.

 

—encourage him to press forward with the other tax measures.

 

—strengthen his hand with the Congress on IPC and the military on supersonics.

 

—ultimately, perhaps, save him from a political crisis in which he would quit or be toppled.

 

The $15 million would be conditioned on:

 

—drawing at least $21 million of the IMF standby.

 

—submitting new tax legislation to the Congress in August.

 

—holding the 1968 military budget to the 1967 level.

 

—agreeing not to buy supersonics until 1969–70 when we plan to make available F–5’s in Latin America.

 

—working out a satisfactory arrangement on IPC.

 

On the IPC problem, Covey Oliver describes the current situation and steps he has taken, and proposes to take, in the memo at Tab B./3/

 

/3/ Document 487.

 

In recommending approval of the $15 million program loan, Charlie Schultze includes a personal note on the F–5 issue (Tab C)./4/ The background to this problem is that in 1965, when the Latin Americans were pressing to acquire supersonic aircraft, Bob McNamara agreed to program F–5’s for delivery in 1969–70 to delay purchases. The military in Peru, and now in Brazil, impatient to acquire supersonics, have started negotiations with the French. If we are to head off these deals, we must:

 

/4/ Tab C was a memorandum from Schultze to the President, July 15; attached but not printed.

 

—renew our willingness to provide F–5’s.

 

—begin purchase talks with the interested countries toward the end of this year, with delivery date in late 1969 or 1970 (lead time is 20 months).

 

—use our economic assistance as a lever in getting these countries not to go supersonic until then.

 

I recommend that you approve the $15 million program loan with the five stipulated conditions.

 

Walt

 

Approve/5/
Disapprove
See me

 

/5/ None of the options is checked but the President wrote the following instructions for Rostow at the top of the first page of the memorandum: "get Bob Mc[Namara’s] opinion on plane deal & his judgment as well as Rusk on effect this will have in Congress on Hickenlooper et al. & call me."

 

 

489. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, July 18, 1967.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Confidential.

 

Mr. President:

 

I suggest we consider under the "Other" item of our "Tuesday Lunch"/2/ agenda the Peruvian program loan and the related issues of IPC and supersonic aircraft. Rusk and McNamara will come prepared to give you their views.

 

/2/ See Document 490.

 

Prospects on IPC

 

Belaunde told the IPC representative yesterday that he had four options for handling the IPC bill:

 

1. Form a dummy corporation with majority Peruvian capital and enter into an operating contract with it. (IPC won’t buy this formula.)

 

2. Veto the bill. (Politically Belaunde can’t afford to do this.)

 

3. Sign the bill and drag out implementation indefinitely.

 

4. Promulgate the law and send it back to Congress for clarification as to whether it permits him to enter into an operating contract with a foreign company.

 

He did not commit himself to which option he would follow. What scant evidence we have indicates that he would go for the fourth option if Haya de la Torre (head of the opposition APRA Party) will give assurances that APRA will not attack him if he makes an operating contract with IPC.

 

We have a man in London now talking to Haya de la Torre./3/ Haya returns to Peru this Thursday/4/ and, if he is so inclined, could reach an understanding with Belaunde in time for Belaunde to follow the fourth option. If Haya won’t play ball, the betting is that Belaunde will start with the fourth option and then slip into the third so as to maintain the "no impairment" agreement he has with you.

 

/3/ In a meeting at Oxford on July 18 Siracusa told Haya that the "highest levels of the United States Government" were closely monitoring the IPC case; the Department thought the case had reached a "critical and climactic moment" that could have "far reaching effects for better or for worse on US–Peruvian relations." Haya replied with the following "unequivocal" assurances: he was opposed to "petroleum exploitation by the state"; he would clarify his position in a public speech upon his return to Lima; and he would privately assure Belaúnde that APRA would not attack the government if it sought a negotiated contract with IPC. (Telegram 496 from London, July 19; National Archives and Records Administration, RG 59, Central Files 1967–69, PET 15 PERU) Rostow forwarded a copy of this telegram to the President under the cover of a memorandum dated July 20. (Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. 35)

 

/4/ July 20.

 

One related favorable development is that the Peruvian Government yesterday announced that agreement had been reached with ITT over the telephone system. Over a three-year period:

 

—ITT will make an immediate modest expansion of telephone facilities.

 

—Peruvian users will be able to "buy out" the company.

 

—A much larger expansion of service will follow, open to international bidding in which ITT can take part.

 

The Background on Supersonics

 

Beginning in 1963, the larger South American countries indicated their interest to go supersonic. To hold them off, McNamara agreed then to sell them F–5’s in 1969–70 if their economic position permitted.

 

Since 1965, Argentina, Chile and Venezuela have bought planes from us, the U.K. and West Germany, respectively—but they were all subsonic.

 

Peru, and recently Brazil, have shown impatience over waiting until 1969–70 for F–5’s and have started negotiations with the French for Mirages.

 

The situation we now face is:

 

—We can’t make F–5’s available, or enter into negotiations, right away because of the adverse impact it would have in Congress on the Alliance and MAP.

 

—Unless we have an attractive alternative, Peru and Brazil will buy Mirages and the Congressional reaction will be just as severe.

 

—Our best strategy is to reiterate the McNamara pledge and tell them to be patient until later in the year on implementation.

 

Behind this strategy lie these considerations:

 

—Northrop could start talks in October or November after the Congress adjourns.

 

—The lead time for F–5’s is 20 months, which would place delivery in the time frame of 1969–70.

 

Walt

 

P.S.—I have just learned that the House Foreign Relations Committee has approved an amendment to the AID bill (Ross Adair introduced it) banning aid of any kind to any Alliance country that acquires supersonic military jet aircraft from any source or by any means.

 

This amendment is mischievous in the extreme, since some countries will obtain such aircraft whether we like it or not. To the proud Latins, sanctions of this nature produce the opposite effect of what they are intended to achieve.

 

I can see much of the good work of the Summit going down the drain if this amendment is maintained.

 

 

490. Notes of Meeting/1/

 

Washington, July 18, 1967, 6:06–7:30 p.m.

 

/1/ Source: Johnson Library, Tom Johnson Meeting Notes. Literally Eyes Only. Drafted by Tom Johnson. The meeting was scheduled as a substitute for the Tuesday luncheon meeting. (Rostow to Rusk, July 18, 11:25 a.m.; National Archives and Records Administration, RG 59, Rusk Files: Lot 72 D 192, Telephone Calls 7/1/67–7/24/67)

 

NOTES OF THE PRESIDENT’S MEETING WITH

SECRETARY RUSK
SECRETARY McNAMARA
WALT ROSTOW
McGEORGE BUNDY
GEORGE CHRISTIAN

 

[Omitted here is discussion of other matters.]

 

On the subject of supplying supersonic fighters to Peru, it was agreed that the Peruvian government wanted these planes primarily for prestige value and not for any practical defense purposes. The President cited a ticker item which said Congress had proposed that the U.S. would not provide aid to any country with supersonic planes.

 

Secretary Rusk pointed out that the proportion of aid funds committed to defense has been steadily dropping in Latin American countries. The President said a briefing should be arranged on the subject, especially with the Congress in mind.

 

Secretary McNamara pointed out that the total number of tanks in Latin America is less than the number in Bulgaria alone. The Secretary said the number of aircraft in the 21 Latin American countries is less than the number operated by Sweden alone.

 

Secretary McNamara said that the politicians do, however, depend on the Army.

 

The President asked, "Isn’t there some way we can show the Congress what happened in Venezuela?" Secretary Rusk said that he and Secretary McNamara had talked to the Congress many times about this. Secretary Rusk said there is a very real guerrilla problem there.

 

The President said it seemed to him as though it would be a wise course to get out some of those old Cuba speeches and show the Congress what could happen if we aren’t able to help these countries. The President said there will be many other Cubas in Latin America unless we do. The President said Assistant Secretary Oliver thinks we should give the $15 million in aid to Peru.

 

Secretary McNamara said he would give the $15 million in aid if they met the conditions which have been set forth. Secretary Rusk said Peru would not buy the conditions.

 

The President said that Rusk and McNamara and Rostow should get together and clear up this matter and come back to him with a recommendation./2/

 

/2/ No evidence has been found that Rusk and McNamara submitted a written recommendation to the President.

 

[Omitted here is discussion of other matters.]

 

 

491. Telegram From the Embassy in Peru to the Department of State/1/

 

Lima, July 25, 1967, 2300Z.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Confidential; Priority. Forwarded to the President under the cover of a July 27 memorandum from Rostow. (Ibid.) Additional documentation on the meeting is in telegram 443 and airgram A–44 from Lima, both July 27. (National Archives and Records Administration, RG 59, Central Files 1967–69, PET 15–2 PERU and POL PERU–US, respectively)

 

432. Subject: Program Loan Negotiations and Military Spending. Ref: State 9115./2/

 

/2/ Telegram 9115 from Lima, July 19, contained the Department’s instructions on the program loan negotiations and military spending. (Ibid., AID(US) 9 PERU)

 

1. Stedman, Acting AID Mission Director, and I called on President this morning. Said we had come in response to his request made to Dentzer and me earlier this month (Lima 192)/3/ for emergency financial assistance; that we were instructed to leave a memorandum with him embodying offer and requirements accompanying it. However before going over memorandum I said I would like to make a few observations orally. Belaunde agreed and I proceeded as follows:

 

/3/ See Document 486.

 

(A) Program loan offered in memorandum was additional to regular program of project lending.

 

(B) All negotiations for program loan would be terminated if position of IPC was permitted to deteriorate. In view of pending legislation on expropriation and nationalization La Brea y Parinas and its anticipated promulgation into law USG could not continue negotiations on program loan or later conclude loan agreement or later disperse funds under it if position of IPC were impaired.

 

2. President interrupted me to explain that position of IPC would not be altered even with promulgation of new law which he said he was going to sign last possible moment (we assume July 26 or 27); otherwise Congress would promulgate law for him which was politically undesirable in light all his other problems with legislative body. He intends issue supreme decree at time of signing law providing for status quo at La Brea y Parinas until final solution its future operation can be worked out. While status of IPC would thus he said not be impaired, he expressed irritation at what he considered constant interference over the years of this company with his development program. He complained that company was stubborn and had refused to make concessions necessary for him politically to reach agreement. He referred again to formation of dummy corporation with majority Peruvian shareholders which he said would make it easy for him to sign operating contract immediately. Otherwise he implied negotiations would have to continue beyond 30-day period granted by pending bill.

 

3. My third observation on program loan, I continued, related to level of military expenditures. I explained that domestic political facts of life in US were such that it was not possible for US to provide program loan assistance to countries whose military expenditures were substantial. For example purchase of supersonic aircraft by Peru now would endanger Foreign Assistance Appropriation for this year not only for Peru but for all LA. To negotiate program loan we would require understanding with GOP that budget of armed forces next year would be no greater than this and of course that there be no purchase of supersonic fighters. President reacted violently to this point saying he could not limit Peruvian military in their defense requirements nor could he admit of any interferences in internal affairs of Peru for $15 million or $50 million or $100 million. Said he must make it absolutely clear that he would sign no document which limited sovereign powers of Peru. If this were our requirements he would forget about assistance from US and "seek other routes."

 

4. I explained again problems of administration in Washington with Congress over this sensitive issue and showed President copy of draft Congressional amendment to Foreign Aid act introduced into lower House committee making mandatory suspension of aid to countries that purchase supersonic aircraft. Said I understood similar amendment had also been introduced in US Senate. While administration was opposed to this kind of limitation and amendment to Foreign Aid bill it was reflective of attitude of Congress and of political problem which Department and White House had at moment in relation to our overall foreign aid program.

 

5. I handed President memorandum (section b of reftel with informal Spanish translation). He went through first paragraphs hurriedly until he came to $15 million figure where he expressed some disappointment that it was not $40 million figure originally discussed with him. I said lower figure might be considered "first tranche" and then if various steps outlined in memorandum were successfully completed we could begin next year discussion of remaining $25 million. I urged President to study memorandum carefully, discuss it with his advisors and, if he decided to proceed along these lines, to inform us when Stedman could begin negotiations with FinanceMin and President Central Reserve Bank. I said USG had no desire to limit Peruvian sovereignty as he had suggested but rather we hoped that with understanding of political problems in Washington, President would be willing in spirit of collaboration to work out with us various understandings necessary to proceed promptly with program loan. We spoke of relationship of this offer to IMF standby, to Peru’s self-help efforts and to our desire help Peru not only with its development but with its immediate financial problem. Because Belaunde had said earlier he would never put his signature to any agreement that mentioned military or limited their activities Stedman and I assured him that understanding on level of military expenditures would not need be reduced to written agreement.

 

6. Belaunde was obviously upset by various conditions regarding program loan offer, particularly those relating to limitations on military. He spoke of his happy relations with military which so essential to any regime in Peru and with some bitterness over what he felt USG was doing to weaken its relations with Peruvian military who were bulwark against Communist infiltration in this continent. We were together one hour and 10 minutes and I believe at end, although we left him somewhat dejected, he had decided to make effort to meet conditions surrounding program loan offer./4/

 

/4/ On August 3 the Peruvian Government informed the Embassy that the terms of the program loan were unacceptable; the amount of the loan was too small in relation to the severity of its conditions. The government also had "great problems" in discussing the aircraft issue, since military matters were secret and "not subject to negotiations with foreign governments." (Telegram 542 from Lima, August 4; National Archives and Records Administration, RG 59, Central Files 1967–69, AID(US) 9 PERU) The Embassy recommended shelving the program loan until developments allowed a more favorable opportunity for negotiation. The Embassy admitted, however, that a policy of withholding financial assistance could lead to "further cooling in US–Peru relations," which, by its own assessment, "have not been at such low ebb for several years." (Telegram 602 from Lima, August 8; ibid.) The Department concurred. (Telegram 18729 to Lima, August 10; ibid.)

 

Jones

 

 

492. Telegram From the Department of State to the Embassy in the United Kingdom/1/

 

Washington, July 28, 1967, 2113Z.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, DEF 12–5 PERU. Secret; Immediate; Nodis. Text received from the White House and approved by Francis Meehan (S/S). A draft message to Prime Minister Wilson that was nearly identical to the final version, was enclosed in a July 27 memorandum from Rusk to the President. (Ibid.) Rostow forwarded the draft to the President under the cover of a July 27 memorandum. A handwritten note indicates that Johnson returned this memorandum on July 28, evidently implying his approval of the message. (Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. 26)

 

13904. For Ambassador Only. Following message, dated July 28, 1967, from the President to the Prime Minister, sent by WH Private Channel, is for Embassy FYI only:

 

Begin Text

 

I have reviewed your request on the sale of Canberras to Peru with the greatest care./2/ I appreciate your consulting with us on this matter and the cooperation we have had from your Government on military sales to Latin America.

 

/2/ Rostow forwarded Wilson’s request under the cover of a memorandum to the President, July 26. Wilson acknowledged the "right of the U.S. government to withhold permission in this case, since these aircraft are partly M.D.A.P.-funded." The Prime Minister maintained, however, that the sale should be approved; Peru already had Canberra aircraft and could acquire "less suitable aircraft" from other sources, e.g. the French. "Indeed, in his present mood," Wilson argued, "De Gaulle might regard this as an excellent opportunity to make trouble for and between us; and, of course, between yourselves and the Peruvians." (Ibid.) Additional documentation on the Canberra issue is in the National Archives and Records Administration, RG 59, Central Files 1967–69, DEF 12–5 PERU.

 

Congressional feeling on the acquisition of unnecessary military equipment by under-developed countries receiving economic assist-ance from us has reached such a point that the whole foreign aid program is threatened.

 

Peru is at present seeking substantial economic assistance. Were they to use scarce foreign exchange on military procurement at a time when we are furnishing dollars to tide them over financial difficulties, the Congressional and public reaction would be so strong that our ability to continue supporting the Alliance for Progress would be seriously endangered. Earlier this week our Ambassador in Lima informed President Belaunde of our willingness to conclude a sizeable loan provided we could agree, among other things, on a total level of military spending, with special attention to costs of major equipment purchases such as aircraft.

 

President Belaunde understands that the purchase of French Mirage aircraft would make it impossible for us to go forward with the loan. Unfortunately the Canberras also fall within our general conditions to Peru about levels of military spending, and we could not successfully explain to Congress why under such circumstances we have given consent to sell Canberras to Peru.

 

I feel that I must do all that I can at this time to meet widely and deeply held Congressional objections to unnecessary arms expenditures by countries such as Peru. This includes equipment of United States origin. Certain influential Congressmen have for the moment expressed their concern about supersonic military aircraft, because it is the supersonic Mirage that has been the major problem. But I am sure that if I did consent to the sale of the sub-sonic but medium-range Canberra, Congressional reactions would be equally strong.

 

For these reasons, and with full understanding of the embarrassing position in which the British aircraft representatives in Lima will find themselves, I must conclude that we cannot alter the negative decision on the proposed sale.

 

I realize that the United Kingdom group will have to tell the Peruvians why the Canberra sale cannot go forward, and I have no objection to their doing so. While there is some added risk that the denial of Canberras might of itself trigger a Peruvian decision to spurn American assistance and buy Mirages, I have some doubt that this would occur. It seems to me that it is a risk which we will have to take, given our major problems with the Congress with our foreign aid programs. End text.

 

Rusk

 

 

493. Telegram From the Embassy in Peru to the Department of State/1/

 

Lima, September 27, 1967, 2246Z.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, DEF 12–5 PERU. Secret; Limdis; No Distribution Outside Department.

 

1469. For Oliver from Ambassador. Subj: Supersonic Aircraft and Peruvian Stability.

 

1. [less than 1 line of source text not declassified] of 24 and 26 September,/2/ cites parallel information from several good sources to effect that Peru has signed contract for twelve Mirage jets costing $28 million. While this is not documentary evidence of a purchase, we have long believed that some commitment to French company has been made and consider the sources good enough to constitute confirmation of purchase short of documentary evidence or official announcement./3/

 

/2/ Not found.

 

/3/ In telegram 1508 from Lima, September 29, the Embassy reported that Peru had agreed to purchase 14 Mirage fighters from France, including the delivery of two training aircraft, before the end of 1967. (National Archives and Records Administration, RG 59, Central Files 1967–69, DEF 12–5 PERU)

 

2. We have made abundantly clear in reporting recent developments our belief that a prompt negotiating of US program loan assistance will be an imperative element for the restoration of confidence so sorely needed if Peruvian situation is to be stabilized and economic recovery and continued progress thereafter initiated./4/ If this is not done, and unless there is a restoration of confidence in the next few months, it is our judgment that authoritarian intervention in one form or another is highly likely. Yesterday we reported General Doig’s remark that unless situation improved there would be no elections in 1969./5/

 

/4/ On July 27 the parliamentary coalition supporting the Belaúnde administration refused to attend sessions of Congress, citing the controversial election of an opposition candidate to the presidency of the Senate. The resulting constitutional crisis was further aggravated by a crisis in the government’s finances; a run on the foreign exchange reserve eventually forced the administration to devalue the currency on September 1. The immediate political effect of devaluation included: (a) the installation of the new Congress on September 4; and (b) the formation of a new Cabinet on September 7. An INR analysis of the crisis is in a memorandum from Denney to the Secretary, September 14; an Embassy assessment is in telegram 1359 from Lima, September 20. (Ibid., FN 17 PERU and POL 15–2 PERU, respectively)

 

/5/ As reported in telegram 1444 from Lima, September 26. (Ibid., POL 15–1 PERU) General Julio Doig Sanchez was the new Peruvian Minister of Defense.

 

3. Since we assume the single most inflexible impediment to our providing program loan assistance is the reported purchase of Mirages, I urge that every force be used at this time to achieve a decision permitting us promptly to make a firm and specific counter-offer of F–5’s. I cannot assure that such a counter-offer would be sufficient to undo what has probably already been done to acquire Mirages, since it is likely that a substantial down-payment has been made. However, unless we have authority to counter the French deal with a firm offer now and then go ahead with a program loan, it is our considered opinion that Peru’s fine democratic experience under President Belaunde is not likely to survive to end of his term. A military intervention in Peru would be such a blow to our general policies under the Alliance for Progress that an all-out effort to save the situation is now imperative.

 

4. I know you will do everything possible to obtain the kind of authority we request with regard to F–5’s and thus give us a chance to resume our constructive policies of support for Belaunde administration and Peru’s other democratic institutions.

 

Jones

 

 

494. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, October 5, 1967.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. III, 10/67–1/69. Secret.

 

SUBJECT
Latin American Purchase of Supersonic Aircraft

 

The Peruvians have contracted to buy French Mirages despite our repeated warnings of the consequences. The story broke publicly in the New York Times yesterday morning./2/

 

/2/ According to the article, written by Neil Sheehan, French aircraft industry sources confirmed that "Peru had signed a contract about two months ago to purchase approximately 12 Mirage V’s from Marcel Dassault General Aerodynamics, the French aircraft manufacturer."

 

Peru’s action—unless we can turn it around—threatens a supersonic aircraft race among the larger South American countries. It also means serious trouble for us with Congress on MAP and Alliance for Progress appropriations. For Peru it will result in no program assist-ance at a time when Belaunde is in critical need of help for his stabilization and development programs.

 

Belaunde finds himself in this bind because of his weak political position. The military looms large in the political structure and they have been pressing hard for modernization of old equipment. The opposition-controlled Congress has played politics by authorizing, on its own initiative, a substantial amount for military purchases. Belaunde was unable to block Congressional action, and he has not felt strong enough to order his military to drop the Mirage deal.

 

There is a possibility that we can turn this situation around if we do two things:

 

—renew our offer to negotiate a $40 million program loan which you authorized last May (Belaunde was then unable to meet our conditions. Now, with increased taxes, spending limitations, IMF standby and devaluation, he is close to doing so, provided he stops the Mirage deal.).

 

—tell Belaunde what we told Costa e Silva last July—that we would allow Northrop to sell them F–5’s for delivery in 1969–70.

 

Covey Oliver and Bill Gaud recommend that you approve negotiation of the program loan based on the substantial economic self-help measures taken by Belaunde since May (Tab A)./3/ On the basis of previous reviews of the loan package, BOB and Treasury have no problem with the substance of the proposal.

 

/3/ Tab A was a memorandum from Gaud to the President, October 4; attached but not printed.

 

A condition for the loan would continue to be no Mirages. I believe there is a chance of Belaunde making the military backtrack if he can:

 

—demonstrate that their action is depriving the nation of vital economic assistance.

 

—offer them the alternative of F–5’s by 1969/70.

 

Before proceeding further in our offer of F–5’s in Latin America, the SIG/4/ believes that we should touch base with Congress. SIG proposes:

 

/4/ Senior Interdepartment Group, Nick Katzenbach is chairman. [Footnote in the source text.]

 

—a frank discussion of our military policy toward Latin America.

 

—a detailed explanation of how little of Latin American military expenditures goes into hardware (most goes for salaries and allowances).

 

—the serious consequences for the Alliance for Progress if we do not provide a reasonable alternative to limited modernization of military equipment, specifically F–5’s.

 

SIG (Katzenbach, Nitze, Gaud and myself) has approved the scenario and talking points paper at Tab B for the handling of the F–5 issue./5/ Secretary McNamara and Secretary Rusk concur. Everyone recognizes that consultation on selling F–5’s may adversely affect foreign aid legislation while the bill is pending in Congress. However, the consequences of doing nothing about the Peruvian purchase, or offering our own supersonics behind Congress’s back are far more severe.

 

/5/ Both dated October 3; attached but not printed. The SIG discussed U.S. policy toward Latin American security forces, including F–5 aircraft, at its meeting on September 28; see Document 65.

 

I am convinced that unless we help Belaunde reverse the action taken by his military, we will be in deep trouble in Peru, and our ability to support for Alliance for Progress seriously weakened.

 

I strongly recommend that you authorize consultations with Congress along the lines of the scenario paper and that subject to the results of these talks, you approve renegotiation of the program loan on the basis of the conditions in the Gaud memo.

 

Walt

 

1. Approve consultation with Congress
Disapprove
See me

 

2. Approve program loan renegotiation, subject to Congressional talks/6/
Disapprove
See me

 

/6/ The President checked this option.

 

 

495. Telegram From the Department of State to the Embassy in Peru/1/

 

Washington, October 17, 1967, 2323Z.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, AID(US) 9 PERU. Secret; Immediate; Limdis. Repeated to USCINCSO, Sao Paulo, and Brasilia. Drafted by Bloomfield; cleared by Bowdler, Glaessner, Sharp, and Hartman; cleared in draft by Gaud, Lang, Fowler, Palmer, Sayre, Breen, and E. Jay Finkel at Treasury; and approved by Oliver.

 

55490. Subject: Authority to Negotiate Program Loan; Offer of F–5’s. Ref: State 55492./2/ For Ambassador and AID Mission Director.

 

/2/ In telegram 55492 to Buenos Aires, Caracas, Lima, Rio de Janeiro, Santiago, Sao Paulo, and Brasilia, October 17, the Department reviewed U.S. policy toward the sale of F–5 aircraft to Latin America as "guidance for further discussions by addressee posts with host countries." (Ibid., DEF 19–8 US–LA)

 

1. You are authorized to open negotiations with GOP for $40 million program loan on terms and conditions set forth in AID Administrator’s Memorandum for the President of October 4, 1967./3/ You should keep Department informed of progress of negotiations. Agreements reached are subject to normal approval procedures in Washington. You should also inform Belaunde that USG has authorized Northrop to begin direct negotiations immediately with GOP for sale F–5 aircraft.

 

/3/ Not printed. (Johnson Library, National Security File, Country File, Peru, Vol. III, 10/67–1/69)

 

2. In making your presentation to President Belaunde, you should inform him that President Johnson has approved loan offer and sale of F–5’s because of great importance he attaches to resolution of Peru’s current difficulties in a manner which will not jeopardize the United States’ ability to continue supporting Peru’s public investment program. President Johnson understands the expanded role which President Belaunde has charted for the Peruvian Government in creating the basis for a more diversified and equitable development of the economy and is anxious that USG be able to share in that effort through financial and technical assistance.

 

3. Because of the high priority which USG gives to development task in Peru, we are deeply concerned how military spending situation in Peru will affect US assistance program. You should point out that the purchase of Mirage aircraft, and indeed the sharp increase in military expenditure authorizations in general over the past year, not only affect the possibility of a program loan but could jeopardize our ability to provide Peru with economic assistance in other forms as well. Long-standing USG concern in both Executive and Legislative branches that scarce resources needed for economic development not be diverted into unnecessary military expenditures has lately been heightened by reports of planned acquisitions by Latin military of expensive armaments. Seriousness with which Congress views these developments is reflected in proposed amendment to Senate version of FAA bill (the so-called "Symington Amendment")/4/ now being considered by House-Senate Conference. This amendment (text of which pouched to Mission Director on October 10) would instruct President take into account the percentage of an aid-recipient’s budget devoted to military purposes and degree to which country is devoting foreign exchange to military purchases, and would require him to suspend economic assist-ance including PL 480 sales when such assistance is "permitting the diversion of other resources to military expenditures to a degree which interferes with economic development." You should also draw Belaunde’s attention to similar provision aimed specifically at "sophisticated or heavy military equipment" in law already approved by Congress replenishing Fund for Special Operations of IDB./5/ It was because of this provision and its possible interpretations, for example, that USG has been uncertain as to what its reaction should be to proposed $10 million loan from IDB for Peru’s Industrial Bank.

 

/4/ Reference is to an amendment to the Foreign Assistance Act of 1961, sponsored by Senator Stuart Symington (D–Missouri), which was approved on November 14. (81 Stat. 459) On January 8, 1968, Congress passed a related amendment to the FAA, sponsored by Representatives Silvio O. Conte (R–Massachusetts) and Clarence D. Long (D–Maryland), requiring the President to withhold economic assistance to any "under-developed country" that used military assistance to acquire sophisticated weapons systems. The provision did not apply to Greece, Turkey, Iran, Israel, Taiwan, the Philippines, Korea, or any country that the President exempted on national security grounds. (81 Stat. 937; 81 Stat. 940)

 

/5/ Reference is to an amendment to the Inter-American Development Bank Act, approved September 22, 1967. (81 Stat. 227)

 

4. It is for foregoing reasons, and none other, that a condition of the loan is assurance by President Belaunde that Peru will not acquire supersonic aircraft from France or third countries./6/ This means that Peru must cancel any arrangements it may have already made for acquisition of Mirage or similar aircraft.

 

/6/ In telegram 55520 to Lima, October 18, the Department corrected this sentence to read: "It is for foregoing reasons, and none other, that a condition of the loan is assurance by President Belaunde that Peru will not acquire Mirage aircraft from France or similar aircraft from third countries." (National Archives and Records Administration, RG 59, Central Files 1967–69, AID(US) 9 PERU)

 

5. You should tell Belaunde that we are aware of his difficulties in convincing Peruvian military that they should forego all modernization, as illustrated particularly by Air Force’s desire to replace aging pre-Korean War aircraft, which becoming increasingly difficult to maintain in safe flying condition. For this reason, USG as long as two years ago promised to make F–5 aircraft available to certain LA countries in 1969–70 time frame. F–5 is relatively unsophisticated, light aircraft with much cheaper initial purchase price and maintenance cost than Mirage and more suited to Latin American Air Forces’ mission.

 

6. Financing of F–5’s will have to be through commercial (non-U.S. Government) sources. Acquisition at present will be limited to one squadron (12–18 aircraft). Sale of F–5’s will also be conditioned on non-acquisition of Mirage or of similar aircraft elsewhere. You should also inform Belaunde in confidence that, in keeping with our commitments to supply these aircraft to certain other South American countries in 1969–1970 time frame, in addition to Peru we are authorizing Northrop to open negotiations with Brazil, and we are prepared to permit manufacturer to sell F–5’s to Argentina, Chile, and Venezuela.

 

7. Report Belaunde’s reaction soonest.

 

Rusk

 

 

496. Telegram From the Embassy in Peru to the Department of State/1/

 

Lima, October 24, 1967, 2254Z.

 

/1/ Source: National Archives and Records Administration, RG 59, Central Files 1967–69, AID(US) 9 PERU. Secret; Priority; Limdis. Repeated to USCINCSO for POLAD.

 

1949. Subject: Program Loan and F–5’s. Ref: Lima 1886./2/

 

/2/ In telegram 1886 from Lima, October 20, Jones reported waiting for confirmation of his appointment with Belaúnde. (Ibid.)

 

1. President received me this morning. I thanked him for having seen Siracusa during my absence in Trujillo last week to discuss new offer of program loan and sale of F–5’s./3/ I had received full account of their conversation and of President’s reaction to terms and conditions of our two offers. Nevertheless, Washington had instructed me to follow up Siracusa’s presentation and to seek with President solution to present impasse./4/ I admitted that our offer of F–5’s had arrived late and that if it had come earlier we might have avoided present situation. Unhappily this had not been possible for reasons which Belaunde was aware and I referred to harsh press and Congressional criticism directed at Department since announcement of its decision to make F–5’s available to Peru and Brazil. I referred to desire of President Johnson and his government in Washington to assist Belaunde administration, particularly in its present financial difficulties but reaffirmed that purchase of French fighters would make this impossible. USG could not be put in position of appearing to finance with large program loan Peruvian purchase of expensive supersonic aircraft in third country such as France.

 

/3/ Judging it important to move "with greatest speed if Mirage purchase to be forestalled," Siracusa requested and received an appointment with Belaúnde on October 19. (Telegram 1852 from Lima, October 19; ibid.)

 

/4/ The Department instructed Jones to return to Lima immediately and "follow up with Belaunde in order to emphasize great importance USG at highest level attaches to our proposal." (Telegram 56485 to Lima, October 19; ibid.)

 

2. Belaunde interrupted about this point to say emphatically that what had been done was done and could not be changed. He said was waste of time to discuss Mirage deal further—that it was closed issue. If he were not absolutely frank with me [we] could pretend there were possibilities of reversing GOP position but this is not case and USG had best accept this as basis for future relations with Peru. If, Belaunde continued, this means end of economic relations between Peru and US, sooner he knew this the better.

 

3. I said I hoped that over past few days he had given consideration to serious problem which had arisen between us and might have some suggestions to offer for mutually agreeable solution. I said I had come as old friend and personal admirer of Belaunde to see if there were not some way of circumventing or avoiding Mirage problem and of getting his government and mine off this particular hook. I suggested that General Porter, CINCSO, might come to Lima to discuss possible solution directly with Peruvian military. Belaunde said this would be waste of time. I then suggested that French military might use Peruvian commitment and downpayment, if any, as credit against other military purchases in France, such as Allouette helicopters, as means of withdrawing from Mirage deal. Belaunde rejected this too as impossible, saying such action would only replace one problem with another, this time in ranks of the military. He said it would create "national scandal" if GOP should now cancel Mirage deal and not one Peruvian could be counted upon to approve such reversal of policy which would be made to appear as undermining of national defense.

 

4. There then ensued long discourse on Peruvian armed forces’ responsibility to nation; to Peru’s disastrous experience in last century when she cancelled some arms purchases in England and subsequently lost war to Chile and rich potassium nitrate possessions in south. Peru is rich in natural resources and will defend them; he said and even referred to proximity of Toquepala (Southern Peru Copper Corporation) to Chilean border. He lamented fact that so many US Senators were ignorant of Peruvian history and public sentiment.

 

5. I asked President for his suggestions as way out. He replied we should divorce French Mirage from program loan and go ahead with latter "quietly and without publicity" or that we might extend amount of some of our present loans such as one to CORPAC (Exim Bank loan for airports) for which GOP is having difficulty financing its counterpart.

 

6. Belaunde seemed harassed by countless urgent problems arising from generally tense situation in country and specifically from yesterday’s disturbances Lima–Callao and to general strike in Arequipa which he fears might proceed to Puno and Cuzco. He complained of sleepless nights, of wrestling with salary tables when he should be working on new road projects, and of Communist agitators taking advantage of situation. He told me again that his refusal to appear on national television to explain present crisis to people was because, if he did, he would have to implicate US Government which had failed to support him in time of need. (He referred directly to program loan which he believes would have averted present financial crises.)

 

7. On this second try I believe we must accept Belaunde’s rejection of Mirage cancellation as final within limits his capability and authority. I still think worthwhile Northrop representative come Lima and make direct contact with PAF in effort persuade them of superiority Northrop product and terms.

 

Jones

 

 

497. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, October 31, 1967, 12:30 p.m.

 

/1/ Source: Johnson Library, National Security File, Country File, Peru, Vol. III, 10/67–1/69. Secret. Apparently drafted by Bowdler and based on an October 27 memorandum from Oliver to Rusk. (National Archives and Records Administration, RG 59, ARA/EP/P Files, 1967: Lot 70 D 139, POL 1 Plans) Bowdler forwarded the Oliver memorandum, and two intelligence reports (see footnote 2 below), to Rostow under the cover of an October 31 note. Bowdler remarked that Oliver had apparently recovered from the "passive attitude" reflected in his memorandum, i.e., that "the U.S. can probably do little to influence the situation." (Johnson Library, National Security File, Country File, Peru, Vol. III, 10/67–1/69)

 

SUBJECT
Tuesday Luncheon: Peru

 

At today’s luncheon Secretary Rusk may raise the problem of the deteriorating political and economic situation in Peru and what we can do about it. Both State’s Intelligence Bureau and CIA see the possibility of a military takeover in the next few weeks if Belaunde continues his do-nothing attitude and public confidence in him keeps on slipping./2/

 

/2/ The INR assessment is Intelligence Note No. 857, October 27. (National Archives and Records Administration, RG 59, Central Files 1967–69, POL PERU) The CIA estimate is Special Memorandum No. 8–67, October 28. (Johnson Library, National Security File, Country File, Peru, Vol. III, 10/67–1/69)

 

How Peru got into this Situation

 

During the past 18 months, increasing Government budget deficits and excessive use of foreign credits by both the public and private sectors accelerated the underlying inflationary tendencies and triggered mounting speculation against the Peruvian currency. These economic difficulties were intensified by a breakdown in the tenuous political relationship between the opposition-controlled Congress and the Executive, leading to an impasse that prevented Congress from meeting for 39 days in August and September.

 

The Government finally was forced to allow a devaluation on September 1. This devaluation of nearly 50% could provide a basis for certain beneficial adjustments to take place in the economy. However, because of the Government’s inability to put into effect necessary economic and financial measures to complement the devaluation and cope with its effects, a general atmosphere of drift in national leadership has developed. This has produced a crisis of confidence between the Government and the Peruvian people which is aggravated by a sudden rise in the cost of living.

 

The military is increasingly nervous over this drift and deterioration. We are getting more frequent reports that the military is ready to oust Belaunde in order to introduce a strong economic recovery program and prevent public unrest from snowballing.

 

What We Have Tried to Do

 

We have been urging Belaunde to take corrective fiscal and budgetary measures for the past 18 months. You will recall that we offered him a $40 million program loan last May, conditioned on certain self-help actions. At that time, the Mirage question was only a cloud on the horizon, but we warned him about it. He found our conditions too stiff; in fact they were not any more onerous than those accepted by Chile, Colombia and Brazil for program assistance.

 

Belaunde by July had taken sufficient self-help measures for us to offer him $15 million, with the remaining $25 million of our original offer to come after he had met the pending conditions. In the meantime, our information on Peru’s Mirage acquisition had hardened, so we were more precise in making this a condition. Belaunde’s reaction to this offer was that the conditions were too steep for the amount of money involved.

 

Early this month we made a third offer to Belaunde: $40 million based on virtually the same economic conditions and no Mirages. This time Belaunde said that the Mirage deal was a fact and not subject to change. If we made it a condition, then Peru would forego the program loan.

 

Where We Go From Here

 

If we allow matters to drift, we can expect a military coup in Peru. This would trigger a series of reactions—e.g., holding up aid to Peru, Peruvian military intransigence on Mirages, Brazilian military pressure to acquire Mirages, and sharp Congressional reaction—which could seriously undermine your Alliance for Progress effort.

 

The key issue at this stage is the Mirages. If we can devise some way for Peru to cancel the contract or resell the aircraft to a third country, the road is open to give Belaunde the aid he needs. This kind of support from us translates itself into public confidence which can enable Belaunde to climb out of the present quagmire.

 

What I find disturbing is that neither our Embassy nor State are applying imagination and energy to finding a formula for heading off the catastrophe. We need to be doing two things:

 

—contact key political and military leaders in Peru to urge patience and flexibility and asking them for their views on how to get around the impasse.

 

—develop formulas to offer the Peruvians to get them to cancel the Mirage contract or resell the Mirages to a third country.

 

We have urged Covey Oliver to work along these lines (Bill Bowdler has given him two possible formulas)./3/

 

/3/ The President wrote the following instruction on the memorandum: "Walt—Let’s meet on this." A note on the memorandum indicates that Johnson did not receive it until 7:35 p.m. on October 31. According to the President’s Daily Diary the Tuesday luncheon group met on October 31 from 1:57 to 4:10 p.m. (Johnson Library) A handwritten note by Rostow explains that the subject was "important, but not discussed at lunch." Another note on the memorandum indicates Bowdler was notified on November 1.

 

Walt

 

 

498. Memorandum From the President’s Special Assistant (Rostow) to President Johnson/1/

 

Washington, November 6, 1967.

 

/1/ Source: Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. 49. Secret. According to the President’s Daily Diary the "off record" meeting was held in the Cabinet Room, 11:35–11:55 a.m. (Johnson Library) Sayre was added to Rostow’s list of attendees. No other record of the meeting has been found.

 

SUBJECT
Your 11:30 Meeting Today on Peru

 

The purpose of the meeting is to review the modalities of the proposal (Tab A) for persuading Peru to drop the Mirage deal./2/

 

/2/ Not attached. Reference is probably to a paper drafted by Bowdler and forwarded to the President under the cover of a November 2 memorandum from Rostow. Rostow presented Johnson with two alternatives: (a) send a high-level representative to Lima—a man "who would carry more punch"—to determine whether Belaúnde and the Peruvian military were willing to negotiate; or (b) send a lower-level official "who could make the same soundings with less risk of publicity." The President indicated he would "prefer to have [a] meeting first" with representatives from DOD, State and CIA. (Ibid., National Security File, Country File, Peru, Vol. III, 10/67–1/69)

 

Those attending will be:

 

State: Secretary Rusk, Covey Oliver
DOD: Paul Nitze, Paul Warnke
CIA: Dick Helms
WH: Rostow, Bowdler

 

I suggest you follow this agenda:

 

1. Workability of the Proposal.

 

Comment: Covey Oliver has been checking with Northrop on the availability of F–5’s, commercial credit for their financing and the training of Peruvian pilots. You might ask him to report on his findings.

 

2. Your Emissary to Peru.

 

Comment: Dr. Eisenhower told Covey Oliver last Friday/3/ that he could not undertake the assignment until after Friday. Covey was getting in touch with him again to establish how soon after Friday he would be available.

 

/3/ November 3. Johnson also raised the idea with former President Eisenhower: "[Belaúnde] is insisting on buying all these French planes, and we’re in a hell of a mess, his country is in bad shape, and I thought he [Milton Eisenhower] could go down there" and give them "a fair evaluation of the problem." Eisenhower thought his brother "might be susceptive" to the idea. (Ibid., Recordings and Transcripts, Recording of telephone conversation between President Johnson and Eisenhower, November 4, 1967, 10 a.m., Tape F67.14, Side B, PNO 3) An informal transcript of the conversation is ibid., Chron Series.

 

Others who might do the job are listed at Tab B./4/

 

/4/ Not attached. Reference is probably to a memorandum from Rostow to the President, November 4, which contains a list of possible high-level envoys, including: Cyrus Vance, George Ball, Henry Cabot Lodge, William Scranton, Clark Clifford, and Lincoln Gordon. Johnson approved the recommendation to schedule a meeting at 11:30 a.m., November 6, without indicating his preference as emissary. (Ibid., National Security File, Country File, Peru, Vol. III, 10/67–1/69)

 

An essential element of the approach to Peru is to make it as free from publicity as possible.

 

3. Advisability of Using Brazil to Help with Peru.

 

Comment: I sent you a CIA report on Saturday from a reliable source that President Costa e Silva had decided not to purchase Mirages./5/ We have not been officially informed of this decision. You might ask Secretary Rusk and Dick Helms how we might get the Brazilians to so notify us so that we in turn could ask President Costa e Silva if he would help in persuading President Belaunde not to go through with the Mirage deal.

 

/5/ [text not declassified] (Ibid., Brazil, Vol. VII, 3/67–11/68)

 

W. W. Rostow/6/

 

/6/ Printed from a copy that bears this typed signature.

 


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