Foreign Relations of the United States, 1964–1968, Volume XXXI, South and Central America; Mexico

484. Telegram From the President’s Special Assistant (Rostow) to President Johnson in Texas¹

Washington, May 29, 1967, 1648Z.

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.

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?

Yes³

No

See me

1. Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Confidential.
2. Document 483.
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.)