470. Telegram From the Embassy in Peru to the Department of State1

829. For: Mann. IPC Case. Embtel 822.2

Reference contains our recommendations for action immediate future subject case and related effect aid program. As you doubtless informed, since GOP broke off negotiations with IPC on October 28 and submitted an unsatisfactory draft bill to Congress we have been dragging our feet on implementing aid program and endeavoring by this means to influence GOP toward more sound and sober attitude this case.

Peculiarity situation is that in effect we have been applying Hickenlooper amendment3 without Peru as yet having taken specific acts which would legally warrant such course. This in part came about, ironically, through President Belaunde’s asking Moscoso last September if USG through AID might not facilitate solution with IPC.4 What he actually had in mind was USG help for IPC to pay $50 million bonus GOP sought. While we of course could not do this, we were on the point of announcing a rather large AID package totaling some $64 million and I was instructed on the last critical weekend of October 28 to inform Belaunde that this amount was ready for announcement. The idea was that such an announcement might help to deflect any Peruvian public or congressional criticism from Belaunde administration-proposed settlement with the IPC.

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Since GOP took course it did notwithstanding this gesture, and there ensued press campaign here, principally through El Comercio, to demonstrate that Peru could do what it wanted with IPC without penalty, we took decision to hold back on these new programs in hopes of using this asset to influence a better course. In my opinion this was proper thing to do. It has had effect of sobering GOP attitude and, I hope, of increasing chances for satisfactory solution. Nevertheless, to use AID program at such a stage to influence the outcome of a particular problem is of course to tread on dangerous ground for obvious reasons. I earnestly hope, therefore, that we can resume a normal pace of operations at earliest possible moment consistent US interests. I believe this moment will have arrived when and if the executive branch is once again in negotiating contact with the IPC.

Once this has happened, we will have gone full circle and nothing concrete will have been changed with single exception of GOP’s laws nullifying arbitration awards which formed tax base for IPC operations. As to these acts, however, we have officially stated our reservations; IPC has declared its view that awards remain in full force and effect; and UK has now formally protested and, for its part, declared awards still to be valid.

As you are doubtless aware, this case, plus that of Peru telephone company which now seems to have a more hopeful aspect,5 constitute the only dark clouds on a rather encouraging situation here. A respectable, democratic and progressive regime is in office and it gives every evidence of a desire for close collaboration and warm friendship with US. The economy is sound, growing and diversified. While Peru has severe problems, it also has many elements of strength which should make it possible to achieve real progress here under Alliance for Progress. I hope you will agree with us as to the tactics to follow at this stage, and that you will be able promptly to impress on Peru’s new Ambassador, Celso Pastor,6 as we have tried to do, the importance of renewing actual negotiations as soon as possible and, eventually, of achieving bilateral solution of this problem.7

  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, PET 6 PERU. Confidential; Limit Distribution.
  2. In telegram 822 from Lima, January 14, the Embassy advocated a flexible “policy of restraint,” i.e., linking the level of economic assistance to progress in the negotiations for an IPC settlement. (Ibid.) In approving the Embassy’s recommendations, the Department also provided the following guidance: “Peruvians can make own deductions to this effect, but link must not be obvious and must be denied if they ask. You will simply have to give bland explanation of further delays (i.e. on projects still frozen) by stating programs ‘being processed’ and that this taking longer than originally expected; part of blame could be placed on reorganization here.” (Telegram 549 to Lima, January 22; ibid.)
  3. Amendment to the Foreign Assistance Act of 1961 initially approved in August 1962 and subsequently revised in December 1963. Sponsored by Senators Bourke B. Hickenlooper (R–Iowa) and E. Ross Adair (R–Indiana), the amendment stipulated that the President suspend assistance to any country that expropriated the property of U.S. citizens or corporations without proper compensation. (76 Stat. 260)
  4. Moscoso raised the issue with Belaúnde on August 28, 1963. For background information on the IPC case, see Document 478, and Foreign Relations, 1961–1963, vol XII, Document 432.
  5. The Peruvian Telephone Company, a subsidiary of the International Telegraph and Telephone Company, was engaged in negotiations to maintain its position in Peru. Documentation on these negotiations is in the National Archives and Records Administration, RG 59, Central Files 1964–66, TEL PERU; ibid., ARA/EP/P Files, 1955–1964: Lot 67 D 566, Perutelco—TEL 11; ibid., ARA/EP/P Files, 1963–1967: Lot 70 D 139, Telecommunications, IT & T Working File.
  6. Mann met Ambassador Pastor and Peruvian Vice President Seone on January 30. (Telegram 575 to Lima, January 31; ibid., Central Files 1964–66, POL PERU–US)
  7. President Johnson asked Mann about Peru on February 12. Mann replied: “I don’t think Peru is my main concern at the moment. I have a report that President Belaunde has a plan of a takeover [of IPC] in 30 years. There is a claim for back taxes of $50 million. I’m going to have to warn about expropriation and the Hickenlooper Amendment applies to this.” (Memorandum of telephone conversation; Johnson Library, Papers of Thomas C. Mann, Telephone Conversations with LBJ, Jan. 14, 1964–April 30, 1965)