Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

PE–13. Memorandum of Conversation, by the Officer in Charge of West Coast Affairs (Silberstein)¹

Washington, June 24, 1958

SUBJECT

• Peru’s Financial Problems

PARTICIPANTS

• Sr. Pedro Beltran, Editor and Publisher of La Prensa, Lima
• W – Mr. Dillon
• OSA – Mr. Silberstein

Sr. Beltran referred to conversations he had been having with Mr. Waugh and his staff at the Export-Import Bank,² and also with Mr. Rubottom,³ concerning Peru’s financial problems. He said he was very encouraged by the reception he had had. He thanked Mr. Dillon for giving him the opportunity to acquaint him directly concerning these problems. Peru is now facing a critical balance of payments situation, similar to that of Colombia and some of the other Latin American countries. Colombia’s crisis came upon it rather precipitously, while Peru’s developed more gradually because of the substantial exchange reserves built up in 1956. However, as world prices of Peru’s raw materials exports declined, these reserves had been consumed during the last half of 1957, because of the mistaken policy of trying to hold the rate firm at 19 soles to the dollar. By February of this year the acuteness of Peru’s balance of payments problem had become evident. It is estimated that foreign exchange income this year only from lead, zinc, copper, cotton and sugar will be $85 million less than last year.

Sr. Beltran expressed appreciation of the constructive advice he had received at the Export-Import Bank. The Bank officials had carefully explained to him all the data which Peru would have to develop and present to document a request for a balance of payments loan. When he returned to Peru he would explain this to the Government.

The trouble with balance of payments loans, however, is that they are understood only by bankers and businessmen, and have no meaning for or impact on the people in general. Peru has two serious social problems, the critical need for housing, and the need to resettle Indians who live in the relatively crowded and unproductive altiplano and are a ripe target for Communist agitators. There is plenty of virgin cultivable land on the other side of the Andes, but funds are needed to build access roads and to clear the lands.

If the United States were to provide financial assistance for housing and resettlement, it would have an immediate impact on Peruvians all over the country and would make a great contribution toward countering the appeal of the Communists.

Sr. Beltran’s idea is to apply the soles obtained from selling the dollar exchange provided as balance of payments assistance to financing housing and resettlement projects. The Peruvian Government has an excellent housing program, drafted by experts provided through ICA, which could be quickly implemented if funds could be obtained in this way. The Government would not build houses itself, but would finance technical services and provide mortgage loans in the manner of the HOLC and Fanny May programs in the United States.

The United States need not fear it would be creating an uncomfortable precedent for itself by financing housing in this way, since it could be pointed out to other prospective borrowers that the loan to Peru was related to a balance of payments problem. Sr. Beltran emphasized that the financing needs for housing were large. He implied that the size of any loan the United States might make to Peru at this time should be measured by the extent of the housing problem rather than the balance of payments problem.

Mr. Dillon said he was not certain whether it would be feasible to arrange a loan in the way Sr. Beltran had suggested.⁴ He thanked Sr. Beltran for taking the time to fill him in on the situation on Peru.

1. Source: Department of State, Central Files, 823.10/6–2458. Official Use Only.
2. In telegram 697 to Lima, June 19, Waugh summarized Beltrán’s discussion with the Export-Import Bank of Washington regarding stabilization credits. (103.XMB/6–1958)
3. A memorandum of conversation between Beltrán and Rubottom, June 19, is in file 723.5–MSP/6–1958.
4. During calendar year 1960 the Development Loan Fund authorized a $25 million loan to the Government of Peru for housing, resettlement, and roads. For information, all Development Loan Fund, Report of Activities During Calendar Year 1960 (Washington, 1961), p. 3 (table).