489. Memorandum From the President’s Special Assistant (Rostow) to President Johnson 1

Mr. President:

I suggest we consider under the “Other” item of our “Tuesday Lunch”2 agenda the Peruvian program loan and the related issues of IPC and supersonic aircraft. Rusk and McNamara will come prepared to give you their views.

Prospects on IPC

Belaunde told the IPC representative yesterday that he had four options for handling the IPC bill:

1.
Form a dummy corporation with majority Peruvian capital and enter into an operating contract with it. (IPC won’t buy this formula.)
2.
Veto the bill. (Politically Belaunde can’t afford to do this.)
3.
Sign the bill and drag out implementation indefinitely.
4.
Promulgate the law and send it back to Congress for clarification as to whether it permits him to enter into an operating contract with a foreign company.

He did not commit himself to which option he would follow. What scant evidence we have indicates that he would go for the fourth option if Haya De La Torre (head of the opposition APRA Party) will give assurances that APRA will not attack him if he makes an operating contract with IPC.

We have a man in London now talking to Haya De La Torre.3 4 and, if he is so inclined, could reach an understanding with Belaunde in time for Belaunde to follow the fourth option. If Haya won’t play ball, the betting is that Belaunde will start [Page 1019]with the fourth option and then slip into the third so as to maintain the “no impairment” agreement he has with you.

One related favorable development is that the Peruvian Government yesterday announced that agreement had been reached with ITT over the telephone system. Over a three-year period:

  • ITT will make an immediate modest expansion of telephone facilities.
  • —Peruvian users will be able to “buy out” the company.
  • —A much larger expansion of service will follow, open to international bidding in which ITT can take part.

The Background on Supersonics

Beginning in 1963, the larger South American countries indicated their interest to go supersonic. To hold them off, McNamara agreed then to sell them F–5’s in 1969–70 if their economic position permitted.

Since 1965, Argentina, Chile and Venezuela have bought planes from us, the U.K. and West Germany, respectively—but they were all subsonic.

Peru, and recently Brazil, have shown impatience over waiting until 1969–70 for F–5’s and have started negotiations with the French for Mirages.

The situation we now face is:

  • —We can’t make F–5’s available, or enter into negotiations, right away because of the adverse impact it would have in Congress on the Alliance and MAP.
  • —Unless we have an attractive alternative, Peru and Brazil will buy Mirages and the Congressional reaction will be just as severe.
  • —Our best strategy is to reiterate the McNamara pledge and tell them to be patient until later in the year on implementation.

Behind this strategy lie these considerations:

  • —Northrop could start talks in October or November after the Congress adjourns.
  • —The lead time for F–5’s is 20 months, which would place delivery in the time frame of 1969–70.

Walt

P.S.—I have just learned that the House Foreign Relations Committee has approved an amendment to the AID bill (Ross Adair introduced it) banning aid of any kind to any Alliance country that acquires supersonic military jet aircraft from any source or by any means.

This amendment is mischievous in the extreme, since some countries will obtain such aircraft whether we like it or not. To the proud Latins, sanctions of this nature produce the opposite effect of what they are intended to achieve.

I can see much of the good work of the Summit going down the drain if this amendment is maintained.

  1. Source: Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67. Confidential.
  2. See Document 490.
  3. In a meeting at Oxford on July 18 Siracusa told Haya that the “highest levels of the United States Government” were closely monitoring the IPC case; the Department thought the case had reached a “critical and climactic moment” that could have “far reaching effects for better or for worse on US–Peruvian relations.” Haya replied with the following “unequivocal” assurances: he was opposed to “petroleum exploitation by the state”; he would clarify his position in a public speech upon his return to Lima; and he would privately assure Belaúnde that APRA would not attack the government if it sought a negotiated contract with IPC. (Telegram 496 from London, July 19; National Archives and Records Administration, RG 59, Central Files 1967–69, PET 15 PERU) Rostow forwarded a copy of this telegram to the President under the cover of a memorandum dated July 20. (Johnson Library, National Security File, Memos to the President, Walt W. Rostow, Vol. 35)
  4. July 20.