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

PE–44. Memorandum of Conversation, by the Officer in Charge of Peruvian Affairs (Poole)¹

Washington, June 21, 1960

SUBJECT

• Assistance for Prime Minister Beltran’s Program

PARTICIPANTS

• Pedro Beltran, Prime Minister and Minister of Finance of Peru
• Douglas Dillon, Under Secretary of State
• Theodore C. Achilles, Counselor of the Department of State
• Edwin M. Martin, Deputy Assistant Secretary for Economic Affairs
• Richard A. Poole, Officer-in-Charge of Peruvian Affairs, WST

Summary. Prime Minister Beltran explained that, having concentrated his first year in office on the re-establishment of financial stability, he was now turning to the urgent problem of developing programs which would bring direct benefit to the underprivileged people, especially in the fields of land and housing. In the former his principal emphasis was on the resettlement of new lands, which he described in some detail, although he was not opposed to breaking up unused or under-used large landholdings. He emphasized the urgency of the problem in the face of Castro and Communist agitation of discontent. He explained that his problem was to find financing for roads to resettlement areas, resettlement costs and housing, including the establishment of new savings and loan associations. Beltran said that the IBRD seemed very interested in studying ways of assisting, but that immediate financing was needed from U.S. sources, over the next six months—perhaps $20 million—with more during the next two years. Mr. Dillon replied that the atmosphere in Washington was receptive to more assistance in Latin America, including the fields of agrarian reform and housing, and he indicated that roads and savings and loan associations would seem to be particularly susceptible of U.S. assistance. He said that extra priority would be given to countries such as Peru which had done a conscientious job of helping themselves. He stated that our current thinking is along the lines of projects in which the DLF would meet local currency costs in conjunction with the Eximbank (rather than the IBRD) to meet dollar costs, with the IBRD operating independently. He emphasized the need for adequate planning and suggested that ICA could provide technical assistance in this regard. End Summary.

Prime Minister Beltran stated that, since becoming Prime Minister nearly a year ago, he had proceeded to set Peru’s financial house in order by attacking the problems of balancing the budget, foreign exchange, stabilization of the currency, and so forth. Now the question is, what next? The Government is expected to do something, as the people need help and want results. The principal sectors the Government must now attack are those of land and housing.

The land problem is one entailing the people’s desire to work their own lands. It is, however, not simply a matter of dividing existing large holdings in settled areas, as much of the settled land is the poorest—that is, the land in the high Sierras, at an average altitude of 12,000 feet, which has extremely poor soil. Much of this land, moreover, has been subdivided by the Indians into uneconomical, small holdings. The result is the Indians have begun to migrate to urban areas, forming squatters slums around the cities. Around Lima, for example, there are from 200 to 500 thousand squatters.

There is, however, marvelous land to the East of the Andes, in the Amazon basin. There are two types of jungle here, the low swamps and the upper jungle. In the latter, at between 2,000 and 3,500 feet, one can grow practically everything. One can, for instance, grow several crops of corn and cocoa a year. The soil is good, there are no seasons, there is adequate rain, it is not hot, and the climate is healthy. Some Indians have already migrated to this region and established their own farms. Clearing is no problem, as they can grow crops among the fallen logs. They build simple houses of natural materials. They find they need additional labor, so bring down other Indians from the highlands who eventually establish their own farms. The Indians who have migrated thus far, however, live at a very low economic level since they cannot market their crops.

What is needed to settle this region properly are penetration roads and feeder roads, which would facilitate settlement and provide access to markets. Also needed are community centers and experiment stations. This would then attract new generations of settlers and would satisfy large scale demands for land.

Mr. Dillon asked whether the Indians were willing to settle these regions.

Sr. Beltran replied in the affirmative, stating that many have already migrated. For example, from 20 to 25 thousand Indians from the Lake Titicaca region have migrated to the neighboring lowlands, perhaps 10 thousand of whom are permanent settlers. These settlers are making profits from their produce even though they have to carry it out on their own backs. With new highways a great many more people would be attracted to these new regions from both the mountains and the coast. Such an approach to the land problem would be different from the subdivision of large landholdings, since the land in these new regions does not belong to anyone.

Mr. Dillon asked whether it would not be quicker and easier to break up some of the large landholdings so as to settle people in that immediate vicinity, since the opening of new regions required new roads, new communities, new everything.

Sr. Beltran replied that, in his view, it would be easier to start on new lands since these are better and more productive lands. He said he is not opposed, however, to subdivision of large estates, particularly unworked or underworked landholdings. He recognized, additionally, the political and social need to deal with this aspect of the land problem.

Turning to urban problems, Sr. Beltran referred to the new Savings and Loan Association which would encourage both savings and low-cost, private housing on a long term loan basis. With the help of the DLF loan to the Association a start can now be made in housing in the Lima area, but new home loan banks are needed in other departments. Other approaches must also be developed.

With these programs, Sr. Beltran stated, he hoped to win over the vast majority of the common people from the appeal and influence of Communism. He emphasized the very real danger of Communist agitation amongst the masses, such as the recent riots in Tokyo² and the terrible riots (“Bogotazo”) in Bogotá twelve years ago.³ He mentioned that Fidel Castro had been involved in those riots and alluded to the fact that, when an American plane evacuated wives and children of Cuban officials, Castro and another agitator made their escape as stowaways. Castro is now intensifying his agitation throughout Latin America. There is less and less outwardly Communist agitation and more and more Fidel, with his claims of being the standard-bearer of economic independence, non-intervention and the welfare of the masses. In fact, however, he is serving the purpose of Communism and it matters little whether or not he himself is an actual Communist. Che Guevara’s recent speech is additional evidence that the Cuban Government’s philosophy is Communist.⁴ The Communists are ready for new Bogotazos and we therefore must act fast.

Sr. Beltran said he had talked to Mr. Black,⁵ (IBRD), who was very interested in his program—in fact, he had never seen him so sincere. Mr. Black said he would be prepared to send a delegation to Lima to study ways of helping, but that this could probably not be organized before January of next year. Sr. Beltran said he was delighted at the prospect, but that, because of the urgency of making a start on both resettlement and housing in order to rally the hopes of the under-privileged, something had to be done during the intervening six months. A great deal more financing would be needed for these programs. Addressing Mr. Dillon, Sr. Beltran asked “Can you help us tide over this period?”—adding that a further problem was IBRD’s restriction confining its loans to foreign exchange needs.

Mr. Dillon replied that the Bank could get over this restriction if it wished.

Sr. Beltran agreed that Mr. Black should find a way of getting around this restriction. He then said that during his stay in New York he had explored the possibility of obtaining loans from various private banks, mentioning in particular Morgan Stanley. The bankers he spoke to, however, had not been optimistic over floating a loan at this early stage in Beltran’s program. This avenue did not therefore appear very hopeful unless Peru had the good fortune of landing the counterpart of the $100 million Prudential loan to Mexico! When Mr. Achilles asked whether there had been any talk of a mixed IBRD-private bank loan, Sr. Beltran replied that he had discussed this with Morgan Stanley, who had not been encouraging except for the possibility of small amounts from private banks.

Mr. Dillon asked what chances there were of more effort, particularly more taxes, on the Peruvian side, as there is an impression that the few very wealthy in Peru don’t contribute enough. Mr. Achilles mentioned that Beltran had done a good deal in the field of tax collection, which he asked Beltran to explain more fully.

Sr. Beltran then explained that through Mr. Black he had engaged a Dutch tax expert by the name of Lieftinck and two assistants to reorganize the tax collection system. Among other measures the banks are now required to report interest paid. All foreign banks and one Peruvian bank have so far complied, but Beltran is insisting under threat of fine, which he thinks will now make it easier for local banks to comply in the face of their clients’ displeasure. Beltran had also launched a local bond issue as a new experiment which, despite pessimistic forecasts by many, was a great success. The issue raised 250 million soles and was 63% oversubscribed. Additionally, taxes have been increased.

Mr. Dillon then emphasized the need for adequate planning. He asked what specific plans had been made for Beltran’s program, whether goals had been set on resettlement, whether roads had been planned, and so forth.

Sr. Beltran replied that a start must be made gradually. He has engaged an Italian firm, Italconsult, to take charge of planning and directing the resettlement program and which would work closely with the World Bank. This firm can draw on its considerable experience in land reform in Italy as well as abroad. He was also making arrangements on other aspects of his program with the firm Arthur B. Little of New Haven and with a Canadian firm, which would start next week. Beltran explained that the planning of roads was not so difficult and that he already had two principal areas in mind where roads had been started but had stalled—that is, in the North and South where the best colonization areas were to be found. In answer to a further question from Mr. Dillon, Sr. Beltran said these roads were distinct from the Aguaytia-Pucallpa road for which a DLF loan had been approved and which his predecessors had promoted primarily as the only road connection to an Amazon port, although it did pass through some areas suitable for colonization.

Mr. Dillon then remarked that the discussion seemed to point to roads as the main field in which the United States might be of assistance in resettlement.

Sr. Beltran replied that although Peruvian companies could build the roads, Peru needs local currency for this purpose which is not available locally and hence must seek foreign currency for conversion. Funds are also needed for foreign exchange costs of road construction, particularly machinery. In addition to roads, the Government will need funds to finance actual resettlement, including payment for land. It is contemplated that the settlers will eventually repay the Government for the land, following a period of grace of from one to three years, at a rate set by the value of crops, e.g. 20%, which would thus gear payment to good and bad yields. Nevertheless, the Government does not really expect to get all its money back for resettlement costs.

Mr. Dillon remarked that the big problem seemed to be time. We had already approved loans for the Savings and Loan Association and for one road, and we could find other projects. We could possibly help in land reform, which is a necessary thing and which would seem to be easier in some ways than the opening of new lands. However, this is a complex problem which we have not gotten into before and which is largely for the country itself to handle. Hence, we don’t know yet what we can do in this field.

However, Mr. Dillon continued, Mr. Brand⁶ and the DLF are ready to look into new ways of assisting. We plan to be more active in Latin America next year and we must mobilize various different approaches. ICA can provide technical study. We are thinking of requesting additional funds for Latin America for this sort of thing, although it is too late for the coming fiscal year since requests must be made by November or December for the following fiscal year. Mr. Dillon thought Congress would be receptive if we could show ways the funds would be used. We must therefore show specific needs, e.g. land reform in Peru and Colombia and reconstruction in Chile. Mr. Dillon said the immediate problem in Peru seemed to be one of finding funds in the next three or four months, and that the DLF and the Export Import Bank to be the only sources for these funds. He referred again to the IBRD’s interest, adding that study should be made of the possibility that it supply funds for both local currency as well as foreign exchange needs.

Mr. Dillon then said there was a general feeling in U.S. Government circles that we should use DLF funds for local currency needs in conjunction with the Export-Import Bank, rather than with the IBRD, for foreign exchange requirements, as we had our own foreign exchange problem and preferred to finance our own exports. Other foreign exporters should provide their own financing. Mr. Dillon suggested that Prime Minister Beltran bear in mind in his talks with Mr. Brand and others that our preference in financing given projects is thus for the DLF to do the whole thing or in conjunction with the Export-Import Bank.

Mr. Dillon felt that Sr. Beltran would find a receptive attitude in the DLF toward an increased flow of funds to Latin America for such fields as land reform and housing, and that this reflected not only the attitude of Mr. Brand and his staff but also of those agencies which make up its Board of Directors, including Treasury, State, ICA and the Export-Import Bank. Mr. Dillon also pointed up the problem of worldwide priorities, saying that we took great satisfaction in helping Governments which do a conscientious job of helping themselves. He pointed to Peru’s record, which is hard to equal anywhere in the world, and stated that this gave Peru extra priority.

Reverting to the question of housing, Mr. Dillon said we wanted to help in this field, for example, through savings and loan associations. These seem to provide the right pattern, as we could of course provide only partial financing. We are giving study to further assistance through home loan agencies in different parts of the world, particularly in Latin America. For example, we are trying to work out some way of creating a joint agency to encourage and channel the investment of private capital in home loan agencies abroad. Mr. Dillon suggested that Sr. Beltran talk to Mr. Brand about this.

Sr. Beltran said he had seen Mr. Brand this morning and that the latter was planning to come to Lima. He had also seen Mr. Anderson of the Treasury, who called in Mr. Upton. He said Mr. Anderson and Mr. Upton had been very helpful and had indicated DLF as the principal source of the needed funds for local costs. Mr. Brand had also been most receptive and helpful, saying it was possible to start right away in housing and resettlement if ways could be found to provide such assistance. He had earlier seen Mr. Waugh of the Export-Import Bank, who was very sympathetic, and would be seeing him again.

Mr. Dillon said he was delighted that these talks had gone so well. He reverted to the need to work out a pattern for Beltran’s programs, since the law requires adequate plans in order for the DLF to make loans. He suggested that the ICA could provide technical assistance in working out such plans and in drawing up applications to the DLF. In addition to technical assistance, it is possible that ICA special funds could be used next year.

Sr. Beltran replied that this type of assistance would be most helpful and important. He mentioned, however, the livestock development program in which ICA had assisted in drawing up the program and the loan application, which had just been turned down by the DLF.

Sr. Beltran then reverted to his need for financing over the next six months. He said he had been mentioning $25 million for this period, although he actually thought that about $20 million would meet his needs. With this he could start on some projects right away, while others would take time to develop. He stressed again the need for speed in face of the threat of Castroism and Communism to aggravate an already unstable political and social situation.

1. Source: Department of State, Central Files, 823.16/6–2160. Confidential. The source text bears the notation: “Approved in U 7/9/60. OK. R[obert] C. B[rewster]” Briefing memoranda on this meeting for Under Secretary Dillon from Theodore C. Achilles, Counselor of the Department of State, June 17, and from Assistant Secretary Rubottom, June 20, are in Rubottom-Mann Files, Lot 62 D 418, “Peru 1960.”
2. Documentation on anti-U.S. demonstrations and the decision to cancel the projected visit of President Eisenhower to Japan in June 1960 is presented in Volume XV.
3. Reference is to the uprising after the assassination of Liberal Party leader Jorge E. Gaitan in Bogotá on April 9, 1948. For documentation, see Foreign Relations, 1948, vol. IX, The Western Hemisphere.
4. Reference presumably is to a speech by Ernesto Che’ Guevara Serna, Chief of the Industrial Department, National Institute of Agrarian Reform and President of the National Bank of Cuba, before an assembly of workers in Habána, June 18, 1960; for an English translation of the text, see John Gerassi, ed., Venceremos! The Speeches and Writings of Ernesto Che Guevara (New York, 1968), p. 92.
5. Eugene R. Black, President of the International Bank for Reconstruction and Development.
6. Managing Director, Development Loan Fund.