723.56/3–2852
Memorandum of Conversation, by Charles W. Kempter of the Lend-Lease and Surplus Property Staff
Subject:
- Peru—Lend-Lease Settlement Negotiations.
- Participants: ARA—Mr. Thomas C. Mann
-
OSA—Mr. Maurice M. Bernbaum
- Mr. Robert J. Dorr
-
OFD—Mr. Francis T.
Murphy
- Mr. Charles W. Kempter
A meeting was held in room 4213 New State at 2:30 pm today to discuss the situation relating to lend-lease settlement negotiations with the Government of Peru. Mr. Mann wished to have a clear outline of the position of the office responsible for lend-lease matters in order that he might reply directly to Ambassador Tittmann’s telegraphic appeal to him for support in the Embassy’s urgent recommendation that the Department agree to accept the proposal of the Peruvian Government to pay in soles. The Embassy feels that this may be the last and only opportunity we may have for a long time to settle this long delinquent obligation.
Mr. Murphy said that we had made a very thorough examination of all the factors involved and had discussed salient points with Treasury as well as with our Foreign Buildings Division and Finance Division. It had been conclusively shown that, as the FBO appropriation has been used up, there will be no hope for new funds before July 1, 1953 and even that hope is speculative since no enabling legislation has as yet been assured. U.S. Government agency needs for soles, if maintained at present schedules, would require at least ten years to use approximately 45 million soles (estimated return from lend-lease at 15.-plus). Treasury and OFD objects to taking on any long position in soles.
The Peruvian suggestion of 6 years to pay was discussed and it was indicated that the Department would not accept anything over 5 years. It was generally agreed that the economic position of Peru is the best it has been for a long time and that there is no reason why Peru cannot pay the lend-lease account in dollars at this time. Mr. Mann said that President Odria had some unique ideas in respect to dollar payments in general and to the liquidation of the lend-lease account in particular. He asked if giving special consideration to Peru would be likely to have unfavorable repercussions from other countries which not yet have reached settlement terms. He was told that it probably would and that such an inadvisable course of action might unfavorably react against other settlement arrangements with certain of the American republics which are now “current” in their payments.
[Page 1498]The OFD position is that a counterproposal should be submitted to Peru by the Department on a “take it or leave it” basis and that it should be noted that such a counterproposal is not a starting bargaining point but is the maximum to which we will go to secure Peruvian concurrence. Such “last word” terms are:
1. The immediate transfer to the lend-lease account of the credit of $125,910.37 from interim-arms contracts.
2. Payment of the net obligation of $2,844,831.63 in semi-annual installments on the following schedule:
| June 30, 1952 | $244,831.63 in U.S. dollars |
| December 31, 1952 | 200,000.00 –do– |
| June 30, 1953 | 300,000.00 (see note below) |
| December 31, 1953 | 300,000.00 –do– |
| June 30, 1954 | 300,000.00 –do– |
| December 31, 1954 | 300,000.00 –do– |
| June 30, 1955 | 300,000.00 –do– |
| December 31, 1955 | 300,000.00 –do– |
| June 30, 1956 | 300,000.00 –do– |
| December 31, 1956 | 300,000.00 –do– |
Note: The agreement would be expressed in dollar terms, as is the usual practice, giving to the United States the usual option to draw local currency to meet any and all of its expenditures in Peru.
3. Peru could anticipate any payment and pay in advance in dollars at any time. The agreement would contain the usual exchange rate language which provides that each conversion shall be that rate most favorable to the U.S. which at the time of each such transaction, is available to any party provided that such rate is not unlawful and, if both countries have agreed par values established with the International Monetary Fund, such rate is not prohibited by the Articles of Agreement of the Fund.
4. Interest shall be paid in U.S. dollars at the fixed rate of 2⅜% per annum on the dollar amount of any installment payment not made by its scheduled due date; such interest shall begin at due date and continue to the date on which payment is made.
(Should Congress provide new funds for the buildings program by FY 1954 consideration would be given to taking proportional payments in soles to meet building program needs as well as administrative requirements not satisfied from other sources. However, no commitment of any kind can be made by the Department until such new funds are definitely provided.)
Mr. Mann went over these terms, one by one, and asked what would happen if the Peruvians did not accept them. He said that the friendly government officials now willing to come to terms for payment in soles might change and that there was no assurance that new officials would view the payment of the lend-lease accounts as a responsibility of the Government of Peru. Mr. Murphy said that that was something which had to be faced but that, so far as he was concerned, non-acceptance [Page 1499] of the foregoing terms of settlement would mean that eventual settlement would be put off for a while. He believed that circumstances dictated that, in the light of all of the factors involved, it is better to delay a settlement than to enter into one which we could not justify as being satisfactory from a financial standpoint either to ourselves or the Congress.
Mr. Mann said that he would send the Ambassador a telegram1 saying that a letter2 containing a full story of the lend-lease matter was being drafted and would soon be on its way to him via airmail. A copy of this letter will be furnished LL for its files.