526. Memorandum From Edgar L. McGinnis, Jr., of the Office of South American Affairs to the Director of the Office (Bernbaum)1


  • Summary of Holland Visit to Peru, November 22–25, 19552

Informal reports from Ambassador Briggs indicate that the Holland visit to Peru was successful in impressing upon the Peruvians the sincerity of our desire to help them and the genuineness of our friendship for Peru. Press notices regarding the trip were voluminous and uniformly favorable although some general criticism was expressed regarding United States cotton and sugar policies.

There were five principal problems discussed, namely: cotton, sugar, Eximbank loans, the unrecognized commercial debt, and the 200-mile limit. These questions are taken up below.

Cotton. Mr. Holland took the occasion to explain our cotton policy which has created considerable apprehension in Peru. Peru’s immediate concern was with the program to sell one million bales of surplus cotton on a bid basis next month. The Peruvian Embassy here had registered Peru’s deep concern regarding this disposal program earlier in the year. The program contemplates the sale on the world market of one million bales of lower quality, short staple cotton at competitive bid prices. Mr. Holland explained that the cotton in question is short staple, lower quality fiber not directly competitive with Peru’s long staple variety. He stated that it is our policy to guard against any action which will depress world cotton prices in carrying out the sale of this cotton.3

Sugar. Mr. Holland explained that pending sugar legislation here will, if passed, result in a doubling of Peru’s sugar quota within five years. While it appears that this statement was well received, Peruvian sugar producers are still apprehensive over the possibility that Peru may not be able to avail itself of an increased quota in the [Page 1057] United States market, because it is not a member of the International Sugar Agreement. It may be observed here also that the Peruvian press reported Mr. Holland as stating that the proposed legislation would triple Peru’s U.S. quota.

Loans. In connection with Peru’s application for a $15 million loan for the Marañon highway, the Peruvians were told that detailed cost data would be necessary before further consideration could be given to it. It was suggested that an engineering firm be hired by Peru to work up these estimates. Peru was likewise informed that the Eximbank would prefer that the construction contracts for the highway be placed upon a competitive bid basis instead of having the construction covered by a concession contract as it is at present. It was indicated that if these conditions were met, favorable consideration would be given to the loan application.

Since the return of the Holland group, the Export-Import Bank has prepared a letter to go forward to the Peruvians along the lines mentioned above. The letter will also state that the cost to the Peruvians of hiring an engineering firm to make cost estimates may be financed by a loan from the Bank.4

The Finance Minister, Guimoye, stated that the Peruvians needed a $9 million loan to complete the construction of the steel mill which was being financed by French interests. Guimoye was promised that this matter would be considered in Washington and the Peruvian Government given an answer thereon when the Holland group returned to the United States. In its analysis of this loan request, the Export-Import Bank has determined that the loan in question is sought to cover an operating deficit of the Santa Corporation which is in charge of constructing the steel mill. The proceeds of the $9 million loan would therefore go to the French creditors and would not result in any increase in United States export trade. Under the circumstances the Bank will inform the Peruvian Embassy here that it cannot give favorable consideration to this type of loan.

Unrecognized Commercial Debt. Mr. Holland took up with the Finance Minister the unsettled claims of a number of American firms against Peru for reimbursement for losses resulting from the termination of exchange controls in 1949. These claims amount to approximately $4 million. While their validity has been recognized by numerous high officials of Peru, they have not yet been settled. The Finance Minister informed Mr. Holland that negotiations were underway at present with the various creditors with a view to paying [Page 1058] this indebtedness in bonds. Guimoye said that he hoped the matter soon would be concluded.

The foregoing information is considered to be very encouraging, since Peru has made only fumbling efforts to liquidate these debts. However, Guimoye left office shortly after the departure of the Holland group and there is a possibility that this plan may lose headway as a result of his leaving. A report on this matter is now being awaited from Embassy Lima.5

200-Mile Limit. Mr. Holland discussed with President Odria our position regarding the territorial waters dispute. The President informed Mr. Holland that Peru seeks only assurances for the protection of marine resources off its coast. Odria suggested that the United States negotiate a bi-lateral conservation convention with Peru in terms permitting each country to maintain its position regarding the sovereignty issue. While recognizing the merits of the United States’ position based upon worldwide strategic responsibilities, Odria emphasized the emotional state of Peruvian public opinion on this issue and that time is therefore required for the gradual abandonment of claims of sovereignty.

Since the departure of the Holland group, Embassy Lima has been instructed, with respect to the Quito Fisheries Meeting of the CEP countries December 12, that it should endeavor to have Odria instruct the Peruvian delegation to avoid any commitments which would create difficulties for the negotiation of the agreement mentioned by Odria to Holland on November 24.

In subsequent discussions with the Peruvian Government, the Embassy was assured that the Quito meeting would be “exclusively technical” and would not affect the suggestion that Odria made to Holland regarding a possible bi-lateral agreement. Despite this, Ambassador Briggs anticipates that the Peruvian delegates might find it difficult to work out any agreement on a technical plane that ignores the sovereignty issue. He also reported that the Peruvians have not attempted to work out any basis for the bi-lateral agreement suggested by Odria. The Quito meeting is now in progress.

  1. Source: Department of State, Central Files, 110.15–HO/12–1955. Confidential. Copies were sent to Samuel Waugh, Atwood, Corbett, and Charles R. Harley of the Department of the Treasury.
  2. Holland, along with Bernbaum and Waugh, visited Peru as part of a general trip to five South American countries. In despatch 326 from Lima, December 7, the Embassy summarized the economic discussions which the Holland-Waugh party had during their visit. (Ibid., 033.1120/12–755) In a memorandum dated December 12, Holland briefly noted the problems which he encountered in Peru. (Ibid., 110.15–HO/12–1255)
  3. Documentation on U.S.-Peruvian relations regarding this matter is ibid., 411.2341.
  4. This letter was apparently transmitted to the Embassy in telegram 258 to Lima, December 27. (Department of State, Central Files, 103–XMB/12–2755) Additional documentation on this subject is ibid., 823.2612.
  5. Apparent reference to despatch 333 from Lima, December 13. (Ibid., 223.1141/12–1355)