488. Memorandum From the President’s Special Assistant (Rostow) to President Johnson1
President Belaunde faces probably the toughest situation of his three-year administration. He is engaged in three hard, interrelated fights:
- —with his military on the acquisition of French supersonics and higher military expenditures.
- —with his Congress on the IPC expropriation.
- —with his Congress and business interests on higher import duties and taxes.
At the end of May, with your authorization, we offered to negotiate a $40 million program loan contingent on four conditions:
- —an IMF standby agreement.
- —$157 million in new revenue measures.
- —$15 million cutback in expenditures.
- —no French supersonic aircraft.
Belaunde made a good try to meet these conditions. He succeeded in:
- —negotiating the IMF standby.
- —raising at least $90 million of the $157 million of new revenue.
- —making the expenditure cutback.
Because of his military and Congress, he fell short in:
- —putting through new taxes.
- —getting a commitment from the military not to buy French supersonics, although he has so far staved off their closing a deal.
Covey Oliver ask your approval (Tab A)2 for their negotiating a $15 million program loan—an amount equivalent to the first tranche of the $40 million package, with the balance to come later if he delivers on the original conditions. This would:
- —acknowledge his self-help efforts to date.
- —encourage him to press forward with the other tax measures.
- —strengthen his hand with the Congress on IPC and the military on supersonics.
- —ultimately, perhaps, save him from a political crisis in which he would quit or be toppled.
The $15 million would be conditioned on:
- —drawing at least $21 million of the IMF standby.
- —submitting new tax legislation to the Congress in August.
- —holding the 1968 military budget to the 1967 level.
- —agreeing not to buy supersonics until 1969–70 when we plan to make available F–5’s in Latin America.
- —working out a satisfactory arrangement on IPC.
On the IPC problem, Covey Oliver describes the current situation and steps he has taken, and proposes to take, in the memo at Tab B.3
In recommending approval of the $15 million program loan, Charlie Schultze includes a personal note on the F–5 issue (Tab C).4 The background to this problem is that in 1965, when the Latin Americans were pressing to acquire supersonic aircraft, Bob McNamara agreed to program F–5’s for delivery in 1969–70 to delay purchases. The military in Peru, and now in Brazil, impatient to acquire supersonics, have started negotiations with the French. If we are to head off these deals, we must:
- —renew our willingness to provide F–5’s.
- —begin purchase talks with the interested countries toward the end of this year, with delivery date in late 1969 or 1970 (lead time is 20 months).
- —use our economic assistance as a lever in getting these countries not to go supersonic until then.
I recommend that you approve the $15 million program loan with the five stipulated conditions.
- Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Secret.↩
- Tab A was memoranda to the President from Gaud and Schultze, July 12 and July 15; attached but not printed.↩
- Document 487.↩
- Tab C was a memorandum from Schultze to the President, July 15; attached but not printed.↩
- None of the options is checked but the President wrote the following instructions for Rostow at the top of the first page of the memorandum: “get Bob Mc[Namara’s] opinion on plane deal & his judgment as well as Rusk on effect this will have in Congress on Hickenlooper et al. & call me.”↩