472. Letter From the Deputy Director of the Office of Ecuadorean-Peruvian Affairs (Barnebey) to the Ambassador to Peru (Jones)1

Dear Mr. Ambassador:

I want to report to you on the results of a meeting Jack Vaughn had last Friday2 with Tom Mann, with Rostow, Sayre, Johnston, and myself in attendance. The meeting covered Jack’s approach to date and proposed increased flexibility in our policy on the IPC negotiations.

Let me stress at the outset that this is merely an advance notification of how Jack is thinking of handling the problem, and is subject to modification depending on the outcome of certain key conversations he will hold in coming days. Jack reviewed for Mann the results of his conversations with President Belaunde,3 concluding by saying that there seems to be little prospect for solution of the IPC case in the next year or so. Moreover, Jack is inclined toward the view that Belaunde may prefer to keep the IPC case around for resort to possible expropriation as and when the political going gets particularly rough.

Based upon Jack’s report, he and Mann discussed what would be the next appropriate step. Their conclusions were essentially as follows:

1.
An assurance would be sought from Belaunde that he would not expropriate IPC during the remainder of his presidential term.
2.
Subject to getting this assurance from Belaunde and further conversations as Jack deems necessary with Congressional leaders (notably Senator Hickenlooper) and the company, IDB soft loans to Peru would be resumed. The first such loan would be the $18 million Comunidades Indígenas loan to be approved in the course of the next few weeks. (Activity under this loan, to be administered by several ministries and Cooperación Popular, would be directed toward strengthening the [Page 992]legally recognized indigenous communities of the highlands; proceeds of the loan would be re-lent to the communities for agricultural improvement and community development projects.)
3.
Until a satisfactory solution is achieved in the GOPIPC negotiations, we would continue the policy of denying AID loans to Peru. Belaunde would be told that we recognize his political difficulties in settling the IPC case, but he would have to come to recognize U.S. domestic political considerations as a limitation on AID lending decisions.

During the conversation a great deal was said about Belaunde’s apparent weakness as a President and as a politician, as illustrated by his lack of determination to settle the IPC case. Mann called attention to the country’s economic problems, such as a potential inflationary spiral, the Government’s failure to put its fiscal house in order, and its failure to adopt progressive taxation which would work toward eliminating some of the greatest disparities in Peru’s income distribution. Mention was made, too, of the counter-insurgency campaign, with Ambassador Pastor having told Jack how seriously he views the problem and the new Foreign Minister apparently having told Reuters that communism is no problem in Peru. Dr. Rostow reiterated his view that we should approve specific development loans as a counter-insurgency move (a position not regarded as persuasive, particularly as to combatting insurgency on a short-term basis). On the other hand, Dr. Rostow’s statement in support of Belaunde’s efforts toward rural modernization and national integration was received rather better.

There was general agreement as to the disenchantment Mann, Vaughn and others have come to have regarding Ambassador Pastor’s contribution toward improving U.S.-Peruvian relations. The consensus seemed to be that Pastor has not been able to look beyond Peru’s boundaries during his service as Ambassador here, and apparently cannot see, let alone convey to his Government, a larger view of U.S. or free world interest in many of the issues confronting his and our Government.

In this regard Jack called attention to Ambassador Pastor’s latest offer to take a leading role in the IPC negotiations. During the September 22 conversation, Pastor mentioned seeking “plenipotentiary powers” from Belaunde to negotiate this dispute. Pastor also said he might ask that two or three Peruvian experts concerned with these negotiations come to Washington to join him in working out this matter. During the conversation Jack did not comment upon this possibility, but I would be interested in your views as to whether such a course of action would be useful.

[Page 993]

I will keep you informed as to the progress of the impending policy change.4

Sincerely,

M. R. Barnebey 5
  1. Source: National Archives and Records Administration, RG 59, ARA/EP/P Files, 1959–1968: Lot 72 D 101, PET 6 (IPC) 1965. Confidential.
  2. September 24.
  3. Vaughn visited Lima in early-September as part of a 2-week trip to Latin America. An account of his meeting with Belaúnde is in telegram 347 from Lima, September 2. (National Archives and Records Administration, RG 59, Central Files 1964–66, ORG 7 vaughn)
  4. In a December 23 letter to Jones, Barnebey reported that Vaughn was seriously considering whether to modify the soft loan freeze policy, possibly as early as the end of January 1966. In reference to the possibility that APRA might obstruct a settlement in the IPC case, Barnebey also offered the following suggestion: “It occurs to me that given the excellent relations that another agency has with Aprista leaders in Lima, you might want to explore how some of these contacts can be used effectively in the event that an overt approach to Aprista leaders does not yield beneficial results.” (Johnson Library, Papers of John Wesley Jones, Classified [Correspondence])
  5. Printed from a copy that bears this typed signature.