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

2397. Ref: Lima’s 2347.2

President received me at noon today and was with him almost an hour. I reminded him I had been in Washington for week’s consultation since we had last met and felt he would be interested in report of my activities there. Said I had found in Washington great interest in Peru and sincere desire to help Belaunde administration in these present difficult moments. I was received by President Johnson same day I arrived and during subsequent days my Washington sojourn I had interviews with Secretary of State,3 Under Secretary Katzenbach and of course Assistant Secretary Oliver. All I had found very preoccupied by situation in Peru and especially concerned that Belaunde administration continue until end its term in July 1969 and that there be no interruption of constitutional government in Peru. As President Belaunde was aware from conversations over past nine months principal obstacle to US financial assistance had been acquisition of supersonic fighter [Page 1043] aircraft. While I was in Washington there had been serious effort to find way to overcome this obstacle and I had been encouraged by progress made. Unfortunately almost at end of my consultations news had arrived of Peruvian government’s action on November 10 against IPC. This news was so unexpected and for me inexplicable that I had asked permission return to Peru to investigate new situation thereby created. To me it seemed I concluded that position of company had drastically worsened and that government had taken new tack in its policy La Brea y Parinas.
Belaunde replied that recent actions involving IPC had been taken as result of moves made by opposition back in July to force his hand on this issue. He recalled that law 16674 which expropriated the La Brea y Parinas reserves, (Lima’s 133)4 had cancelled previous law giving him carte blanche to settle petroleum issue in any way he thought best. This law sponsored by opposition had for first time mentioned debts owed by company. Since these had to be determined he had referred matter to fiscal tribunal which was appropriate authority to determine what if any debts were owed state. From tribunal would go to courts where it would undoubtedly result in long drawn-out legal case. Issue is now in courts where it belongs and IPC can defend its position there. Company claims no back debts owed while tribunal has estimated sum to be collected. Courts will have to decide. Action of tribunal is not final verdict. This can only be made by courts, he explained.
As further explanation government’s action against company November 10 Belaunde referred to recent by-elections Lima and Trujillo and said that while elections had been clean and accepted verdict of voters in electing opposition candidate, they had nevertheless dragged petroleum issue into elections. On November 9 Andres Townsend, Aprista congressman, had in electoral speech on TV charged Belaunde administration with having done nothing to resolve IPC problem (finding of tribunal against IPC was actually dated November 2 although not published until November 11). Finally, President said, IPC mixed too much in local politics; that it had some kind of relationship with Pedro Beltran, publisher of opposition newspaper La Prensa, and that it also was among those along with Marcona Mining Company that supported Ravines weekly television program which had consistently attacked Belaunde administration and had done so much damage to country. These people would probably like to see someone else in palace to resolve IPC issue in hurry, Belaunde said with some bitterness, adding that perhaps they should bring back General Odria to do it. I expressed surprise at these charges against [Page 1044] IPC and said my knowledge of its extra-commercial activities in country in support of Peruvian culture had been favorable. Belaunde admitted that company worked efficiently and had excellent labor relations. Nevertheless during first 20 years of exploitation of La Brea y Parinas Peru had been badly cheated. I also remonstrated over Belaunde’s inference that IPC and perhaps even we would prefer military dictatorship to resolve La Brea y Parinas. I assured him again of deep interest in Washington in democratic constitutional government throughout hemisphere and particularly of genuine concern that his administration survive to end its term as one of principal objectives of our policies. Belaunde said if anything happened to interrupt his tenure of office before July 1969 he would, unless they shot him, never give a moment’s peace to interloper in palace since he would consider himself until mid-1969 Peru’s legally elected chief of state. Should he be exiled he would station himself as near Peruvian border as possible to make life difficult for incumbent until next elections.
In response my repeated request for assurances that IPC’s position had not been impaired by this recent action, Belaunde replied that he did not feel company’s position had changed; that it had always been bad, and that he did not see that it had worsened. In response my reference to constant unfavorable publicity since government action November 10, including $150 million worth of so-called debts and almost daily speeches in Congress against company as evidence that its position had indeed deteriorated, President said people already knew that IPC had been reason for hold-up on aid to Peru which he estimated had cost country $100 million.
In response my question President said reference of tax and debt matter to tribunal had not shut door to continued negotiations with company. He felt settlement could still be found through direct talks even while case is in courts. Should additional debts eventually be confirmed by court verdict company could add some of its installations or other fixed assets over years to make up difference. He did not anticipate much change in company’s position either through early conclusion to negotiations or through court action. Since company had its authority to continue operating under petroleum director’s resolution (Lima’s 647)5 he felt things would continue as they were and that whole issue would continue to remain unresolved and “somewhat on the shelf.” There would certainly be no conclusion by end of year as opposition congressman had suggested last night (Lima’s 2390).6
In response another question Belaunde said he was of course willing continue negotiations with company and to resume conversation [Page 1045] with Espinosa, adding he would telephone to invite him to palace when company manager had returned from States. He explained had not seen him before his departure because had been very busy in those days and because he had new Min of Development (Carriquiri) whom he wished to introduce into and make familiar with this old problem. (When Espinosa tried see Belaunde following decrees of November 10 he passed him off on Carriquiri.)
Supersonic issue came into conversation incidentally on several occasions during our long meeting. At one point Belaunde said laughingly he kept hoping Dessault Manufacturing Company might fail so Mirage would never arrive. In next breath he said whole issue was so unimportant in relation to Peru’s needs and our assistance program. (I took some time to explain temper of US Congress on this issue which I had been able observe first-hand during my recent consultations.) I said of course supersonic issue had been thoroughly discussed in Washington and that I would hope sometime within next few weeks to go see him again to discuss its relationship with our desire to help Belaunde administration. I repeated again evident concern and willingness to help his government survive through its constitutional period which I had found at all levels in Washington. President replied with laugh that what he needed was “supersonic program assistance” or aid at supersonic speed.
In general I found Belaunde in good humor; even made few jokes and our personal relationship seemed unimpaired by recent events. However on occasion he spoke of “many, many problems” besetting him, of his many enemies in country and somewhat wistfully of final months of his term of office as period preparing to leave things in good order for his successor.
While assurances on IPC not very satisfactory I interpreted President’s explanation of recent events as motivated by domestic political objectives and that continued negotiations are still possible. I believe it clear President has no intention of resolving La Brea y Parinas problem during his tenure in office and that he will accept any tactic that drags issue out over next 20 months. If, as he says, IPC can continue to operate as usual and take all legal steps to defend itself in courts, company’s position may well continue to be tenable during rest of Belaunde administration. It then certain, however, to be hot issue in 1969 campaign. Consequently I believe press campaign by company either in US or in Lima at this time not advisable although no objection certainly to company restating its position regarding validity its titles and lack of debt GOP in press releases or advertisements and taking whatever vigorous action is open to it in local courts or eventually through British government in International Court of Justice.
  1. Source: National Archives and Records Administration, RG 59, Central Files 1967–69, PET 6 PERU. Confidential; Immediate; Limdis.
  2. See footnote 2, Document 500.
  3. According to the Secretary’s Appointment Book Jones met Rusk at 11:45 a.m. on November 13; the Secretary’s next appointment was scheduled for 12:30 p.m. (Johnson Library) No substantive record of the meeting has been found.
  4. Dated July 8. (National Archives and Records Administration, RG 59, Central Files 1967–69, PET 6 PERU)
  5. Dated August 10. (Ibid.)
  6. Dated November 22. (Ibid.)