591. Memorandum Prepared in the Central Intelligence Agency1 2

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  • Keeping Pressure on President Velasco of Peru

1. The question of maintaining maximum pressure on President Velasco of Peru must be considered in the context of the situation currently obtaining there and a number of factors bearing on that situation. Reporting from the Embassy, Ambassador Irwin, and our own sources presents the following picture as to the facts which pertain there currently:

With the forced resignations of General Valdivia as Minister of Finance and General Maldonado as Minister of Development on 1 March and the bringing into camp of General Benavides, Minister of Agriculture, and General Rodriguez Razzeto, third-ranking officer in the Peruvian Army, President Velasco has eliminated or neutralized the threats to his position from within the military establishment. General Montagne, Prime Minister and Minister of War, has found himself isolated by the foregoing developments and has abandoned for the present thoughts of unseating Velasco. As of mid-April there is no other military figure on the horizon who has either the following, initiative, or strength to take over the presidency.
The APRA Party (American Popular Revolutionary Alliance) represents the only significant civilian political force in Peru. During March Velasco successfully forestalled any active opposition from APRA through a combination of frequent public threats, occasional punitive [Page 2] measures, and a draft Presidential Decree which, if and when issued, outlaws the APRA Party and exiles its leaders. Outside of APRA there is no other civilian political entity which has the organization, power and support to challenge the military establishment for national leadership.
[text not declassified]–whoever succeeds him may find it just difficult to come to terms easily with the International Petroleum Company (IPC) issue, which is not only highly emotional but one that involves “national honor.” No strong, moderate civilian leadership is in the wings.
On 5 November the Velasco Government closed down two newspapers and a radio station for several days for publishing information against the national interest. On 11 February the Peruvian Government exiled a journalist and a civilian politician for the same offense and subsequently Minister of Government and Police Artola personally warned other prominent writers and publishers that further public opposition to government policies would be strictly dealt with. These measures have succeeded in silencing any serious criticism of Velasco in the Peruvian news media.
For at least the past month the Peruvian economy has suffered increasingly from inability to attract private investment and from a consequent drying up of international credit. This situation has resulted from uncertainty on all sides over the effects of potential U.S. sanctions, is steadily worsening, and currently represents the chief preoccupation of President Velasco in his talks with the U.S.
From all indications it appears that before 7 April the Peruvian Government expected either an invocation of the U.S. sanctions of the Hickenlooper Amendment and Sugar Act or a backing-down by the U.S. The U.S. decision to defer action took Velasco completely by surprise and his reaction for the first two days was one of disorganization and dismay. We should expect that Velasco and his advisors will soon regroup and mount new pressures of their own. For instance, on 8 April Velasco told Ambassador Irwin that as one facet of a new policy he might force U.S. owned companies in Peru to proceed with their investment in the country or face submission of their contracts to competitive bidding.

2. Accusations Against CIA: [text not declassified] there has possible role CIA might play in the U.S.-Peruvian crisis. This speculation was based on a Washington Post editorial of 26 March which warns against talk—and any planning—of a so-called “Iranian solution” engineered by the CIA. The editorial was cited by both Radio Moscow and President Velasco shortly after its appearance and has prompted Velasco to order an investigation of CIA personnel and activities in Peru. Additionally, Mr. Richard Goodwin, [text not declassified] told an Embassy officer in Lima that he had heard CIA was planning to use APRA to overthrow Velasco and warned that he would expose any such action CIA might take in Peru. This publicity has created a goldfish bowl atmosphere and, in addition to making Peruvians more suspicious and nervous than before, increases the chances of embarrassing backfires in attempts to deal with the situation.

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3. [text not declassified]

4. New Approaches: [text not declassified] Should our assessment of the political atmosphere in Peru in the next few weeks show that Velasco continues to hold the dominating position in the Peruvian Government and that he is in for a prolonged tenure, one possible step could be that already advanced by Ambassador Irwin and not rejected out of hand by the Peruvians: the buying out of IPC’s interests by a U.S. or internationally owned consortium which would pay off both the IPC and the Peruvians over a period of years. This approach was suggested in mid-March to Messrs. James Cannon and Richard Aldrich, [Page 5] members of Governor Nelson Rockefeller’s staff, by Major Carlos Velasco Alvarado, the brother of the president who is assigned to Washington, with the implication that the president would be interested in a private cash settlement for himself in any such arrangement. Thus, while Major Velasco may not really be speaking for his brother in this matter, this avenue to solving the IPC problem—i.e., payment of a personal bribe to President Velasco—should be explored. [text not declassified] Such actions, however, cannot in and of themselves create the pressure adequate to the situation unless they are taken in a broader context of a coordinated program. The following are specific overt actions which we would recommend in this context.

5. Economic Pressures: The action which is most likely to have a decisive effect on the Peruvian approach to the IPC problem is the maintenance of strong economic pressure by the United States through denial of international financing and simultaneous discouragement of private investment. The Velasco Government has stated that the threat of U.S. sanctions represents a “sword of Damocles” over Peru and, in all recent talks with Ambassador Irwin, Velasco has repeatedly claimed that effects of the sanctions, even though not yet invoked, are already strangling the Peruvian economy. Continuation of these pressures is considered to be the strongest weapon in U.S. hands and fundamental to any other action the U.S. might envisage.

6. Presentation of the U.S. Position: The United States should also undertake a coordinated campaign [text not declassified] designed to reduce support of the Peruvian position at home and abroad and to influence Velasco to moderate his presently inflexible approach towards resolution of the crisis. The principal themes of this campaign are:

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So far the United States, not Peru, has shown a desire to be reasonable.
Deferral of U.S. sanctions does not represent a Peruvian victory and the Damoclean sanctions still hang overhead.
Velasco’s present policy is the result of accepting advice from ideological extremists. It is ruining the Peruvian economy and weakening the country’s military posture vis-a-vis its neighbors.
Peruvian intransigence is discouraging badly needed international financing and private investment.
The Peruvian position on the IPC issue is prejudicing the attitude of both the U.S. Congress and private companies towards continued U.S. aid and investment in other Latin American countries.

[text not declassified]

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7. Diplomatic Initiatives: Faced with stalemated negotiations on the IPC case and a steadily worsening economic situation, the Peruvians can be expected to continue their present efforts to seek moral support from the rest of Latin America and economic and military aid, first from Western European, and then Soviet Bloc sources. To counter these moves the U.S. should ask the assistance of Argentina, Mexico and Brazil—countries which all have special influence with the Peruvians—to convince Peru that an accommodation with the United States is now reasonable and in the common interest. The Soviets signed a commercial agreement with the Peruvians on 17 February and shortly thereafter purchased alpaca wool worth $150,000 but until now they have shown no real inclination to fish in troubled waters. Should we obtain, however, any indication that they intend to provide either economic or military aid to Peru, a warning to the Soviet Government by the U.S. that this action seriously endangers U.S.-Soviet relations should be considered. [text not declassified]

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 794, Country Files, Latin America, Peru, IPC (DAD). Secret.
  2. This memorandum reviewed the recent U.S. pressure on the Government of Peru and different approaches to the conflict over the International Petroleum Company (IPC) expropriation.