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

PE–23. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Under Secretary of State (Dillon)¹

Washington, June 29, 1959

SUBJECT

• Peruvian DLF Loan Application

Background:

The Peruvian Government has applied for a $4.1 million DLF loan to cover most of the local currency costs of the $9 million Aguaytía-Pucallpa road project. The IBRD gives the project its highest priority in Peru and is prepared to finance the $4 million foreign currency costs. The Peruvian Government, which is suffering serious economic and financial difficulties, will provide the remaining $900,000 in local currency. The project is considered an excellent one from the standpoint of economic development. It would improve a very inadequate existing road to the head-waters of navigation of the Amazon-Ucayali Rivers at Pucallpa, thus opening up promising areas for settlement and providing an all-weather route for transporting products from the trans-Andean area to Lima.

The Peruvian application has been discussed by the DLF Board, where it not a cold reception. There has been some opposition to the loan because it is for local currency costs, while Mr. Waugh is understood to oppose any DLF loan to Peru at the present time. Various alternative methods of financing were discussed by the Board, i.e. utilizing the “sterilized” local currency proceeds of the Eximbank’s $40 million line of credit to Peru or inducing the IBRD to finance the local as well as foreign currency costs. I understand that both of these ideas have been abandoned and that prospects are for further inconclusive consideration by the DLF.

I believe it is important that the DLF grant this loan promptly. It is a meritorious one from the standpoint of economic development, and there are certain political considerations which make its approval of great importance.

1. Our relations with Peru have been under a strain for some time, to a large degree as a result of commodity problems with that country. Our establishment last September of quotas on lead and zinc, Peru’s second most important export, was the severest blow to U.S.-Peruvian relations in years, but cotton and sugar problems have also contributed their share to the strain. Cotton is Peru’s most important export, and the Peruvian Government has repeatedly expressed grave concern over our upland cotton export program for the 1959–60 marketing year. This program, which will lower by five cents per pound the price of U.S. cotton after August 1, has been characterized by Peru as “dumping” and “economic aggression.” Peru is similarly concerned over the current Tariff Commission investigation to determine whether our long staple cotton import quota should be reduced. I believe that the granting of a DLF loan for the Aguaytía-Pucallpa road would tend to ease some of the present strain and would have a beneficial effect on our overall relations with Peru.

2. The Prado Government is in such financial difficulties that it has been able to undertake almost no economic development projects and desperately needs for internal political reasons to be able to point its finger at some worth-while project it has initiated. Despite some of its obvious weaknesses, the Prado Administration was democratically elected and is trying to give Peru democratic Government. I believe it would be in the United States’ interest to strengthen it by granting the loan.

3. Having embarked upon a stabilization program, the Government has expected that as a consequence it would be eligible for loans from the U.S. for economic development. It has complained that such loans have not materialized; the Aguaytía-Pucallpa loan application offers the opportunity to grant a sound loan and to overcome those complaints.

4. Although the Peruvian Government did not formally present the application to the DLF until May 19, 1959, it was long under the mistaken impression that it had done so as of late January 1959. Peruvian officials have been extremely displeased over the delay resulting from this unfortunate misunderstanding, especially since they understand that the IBRD had been prepared for some time to finance the foreign currency costs of the road, providing that Peru could arrange the local currency financing.

Request for Action:²

In view of the urgent political considerations in favor of this loan and of the difficulties which have so far beset the Peruvian application, I would greatly appreciate anything which you may be able to do to assure favorable consideration of the Peruvian request by the DLF Board as soon as possible.

1. Source: Department of State, Rubottom Files, Lot 61 D 279, “Peru 1959.” Official Use Only. Drafted by Pringle; the source text is an unsigned carbon copy. Pringle had written a similar memorandum, June 26, which was addressed from Silberstein to Rubottom and is filed with the source text.
2. There is no indication on the source text of Under Secretary Dillon’s action on this request. The Development Loan Fund signed a $4.5 million loan agreement with the Government of Peru on December 19, 1960, for improvement of the Aguaytía-Pucallpa road; and a $1.8 million loan agreement on September 8, 1961, for penetration roads. For further information, see agency for International Developments, Status of Loan Agreements as of March 31, 1964 (Washington, 1964), p. 26.