495. Telegram From the Department of State to the Embassy in Peru 1

55490. Subject: Authority to Negotiate Program Loan; Offer of F–5’s. Ref: State 55492.2 For Ambassador and AID Mission Director.

1.
You are authorized to open negotiations with GOP for $40 million program loan on terms and conditions set forth in AID Administrator’s [Page 1030]Memorandum for the President of October 4, 1967.3 You should keep Department informed of progress of negotiations. Agreements reached are subject to normal approval procedures in Washington. You should also inform Belaunde that USG has authorized Northrop to begin direct negotiations immediately with GOP for sale F–5 aircraft.
2.
In making your presentation to President Belaunde, you should inform him that President Johnson has approved loan offer and sale of F–5’s because of great importance he attaches to resolution of Peru’s current difficulties in a manner which will not jeopardize the United States’ ability to continue supporting Peru’s public investment program. President Johnson understands the expanded role which President Belaunde has charted for the Peruvian Government in creating the basis for a more diversified and equitable development of the economy and is anxious that USG be able to share in that effort through financial and technical assistance.
3.
Because of the high priority which USG gives to development task in Peru, we are deeply concerned how military spending situation in Peru will affect US assistance program. You should point out that the purchase of Mirage aircraft, and indeed the sharp increase in military expenditure authorizations in general over the past year, not only affect the possibility of a program loan but could jeopardize our ability to provide Peru with economic assistance in other forms as well. Long-standing USG concern in both Executive and Legislative branches that scarce resources needed for economic development not be diverted into unnecessary military expenditures has lately been heightened by reports of planned acquisitions by Latin military of expensive armaments. Seriousness with which Congress views these developments is reflected in proposed amendment to Senate version of FAA bill (the so-called “Symington Amendment”)4 now being considered by House-Senate Conference. This amendment (text of which pouched to Mission Director on October 10) would instruct President take into account the percentage of an aid-recipient’s budget devoted to military purposes and degree to which country is devoting foreign exchange to military purchases, and would require him to suspend economic assistance [Page 1031]including PL 480 sales when such assistance is “permitting the diversion of other resources to military expenditures to a degree which interferes with economic development.” You should also draw Belaunde’s attention to similar provision aimed specifically at “sophisticated or heavy military equipment” in law already approved by Congress replenishing Fund for Special Operations of IDB.5 It was because of this provision and its possible interpretations, for example, that USG has been uncertain as to what its reaction should be to proposed $10 million loan from IDB for Peru’s Industrial Bank.
4.
It is for foregoing reasons, and none other, that a condition of the loan is assurance by President Belaunde that Peru will not acquire supersonic aircraft from France or third countries.6 This means that Peru must cancel any arrangements it may have already made for acquisition of Mirage or similar aircraft.
5.
You should tell Belaunde that we are aware of his difficulties in convincing Peruvian military that they should forego all modernization, as illustrated particularly by Air Force’s desire to replace aging pre-Korean War aircraft, which becoming increasingly difficult to maintain in safe flying condition. For this reason, USG as long as two years ago promised to make F–5 aircraft available to certain LA countries in 1969–70 time frame. F–5 is relatively unsophisticated, light aircraft with much cheaper initial purchase price and maintenance cost than Mirage and more suited to Latin American Air Forces’ mission.
6.
Financing of F–5’s will have to be through commercial (non-U.S. Government) sources. Acquisition at present will be limited to one squadron (12–18 aircraft). Sale of F–5’s will also be conditioned on non-acquisition of Mirage or of similar aircraft elsewhere. You should also inform Belaunde in confidence that, in keeping with our commitments to supply these aircraft to certain other South American countries in 1969–1970 time frame, in addition to Peru we are authorizing Northrop to open negotiations with Brazil, and we are prepared to permit manufacturer to sell F–5’s to Argentina, Chile, and Venezuela.
7.
Report Belaunde’s reaction soonest.
Rusk
  1. Source: National Archives and Records Administration, RG 59, Central Files 1967–69, AID(US) 9 PERU. Secret; Immediate; Limdis. Repeated to USCINCSO, Sao Paulo, and Brasilia. Drafted by Bloomfield; cleared by Bowdler, Glaessner, Sharp, and Hartman; cleared in draft by Gaud, Lang, Fowler, Palmer, Sayre, Breen, and E. Jay Finkel at Treasury; and approved by Oliver.
  2. In telegram 55492 to Buenos Aires, Caracas, Lima, Rio de Janeiro, Santiago, Sao Paulo, and Brasilia, October 17, the Department reviewed U.S. policy toward the sale of F–5 aircraft to Latin America as “guidance for further discussions by addressee posts with host countries.” (Ibid., DEF 19–8 US–LA)
  3. Not printed. (Johnson Library, National Security File, Country File, Peru, Vol. III, 10/67–1/69)
  4. Reference is to an amendment to the Foreign Assistance Act of 1961, sponsored by Senator Stuart Symington (D–Missouri), which was approved on November 14. (81 Stat. 459) On January 8, 1968, Congress passed a related amendment to the FAA, sponsored by Representatives Silvio O. Conte (R–Massachusetts) and Clarence D. Long (D–Maryland), requiring the President to withhold economic assistance to any “underdeveloped country” that used military assistance to acquire sophisticated weapons systems. The provision did not apply to Greece, Turkey, Iran, Israel, Taiwan, the Philippines, Korea, or any country that the President exempted on national security grounds. (81 Stat. 937; 81 Stat. 940)
  5. Reference is to an amendment to the Inter-American Development Bank Act, approved September 22, 1967. (81 Stat. 227)
  6. In telegram 55520 to Lima, October 18, the Department corrected this sentence to read: “It is for foregoing reasons, and none other, that a condition of the loan is assurance by President Belaunde that Peru will not acquire Mirage aircraft from France or similar aircraft from third countries.” (National Archives and Records Administration, RG 59, Central Files 1967–69, AID(US) 9 PERU)