595. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon1 2
SUBJECT
- Status Report Economic Pressures on Peru
Situation in Peru
In the weeks before April 9 economic pressures were building up in Peru. Banking system deposits declined. Commercial credit was tight. Most banks were in deficit on reserve requirements and several had stopped making loans at all. Confidence in the currency of the country was low and pressure on the free exchange market was great.
The Government’s 1969 budget, although portrayed as a balanced one, quite evidently anticipates a large deficit. Moreover, the Government’s witch hunt among officials of the Central Bank and the Finance Ministry has resulted in the removal or resignation of most of the country’s experienced and capable financial managers, further reducing the confidence of foreign bankers and Peruvian private investors.
With the announcement on April 7 of the deferral of the Hickenlooper sanctions some pressure was relieved in Lima and the free market exchange rate strengthened slightly. However, it is too early to tell whether any of the accumulated pressures detected earlier have been substantially modified. The cost of living index for March showed an increase of 1.4%, the largest monthly increase in over a year. The Embassy reports that the public will soon become aware of the uncertainties associated with the deferral of the sanctions and that pressures on the economy can be expected to continue.
US Actions to Continue Economic Pressure
The State Department reports that immediately following the announcement of deferral of Hickenlooper sanctions, an extensive campaign was mounted to acquaint key people with our desire to maintain maximum pressure on Peru. Briefings, either frank or discreet, depending on the circumstances, have been given to:
[Page 2]- —senior officials of all US agencies concerned with economic and financial matters with Peru, including AID, Export-Import Bank, Treasury, and Commerce;
- —Embassies in Washington representing major industrial nations having economic and financial relations with Peru;
- —international lending agencies in Washington;
- —all private companies planning major new mining investments;
- —leading New York banks involved in an uncompleted $65 million standby arrangement with Peru; and
- —key members of the Peru-Ecuador Subcommittee of the Council for Latin America, the major organization of US businessmen concerned with Latin America.
In addition, the Embassy in Lima is planning an action program which includes large reductions in the staffs of all US agencies in Peru.
State reports that US private sector entities in every case clearly comprehended our policy and indicated a desire to cooperate with it. However, in some instances they indicated they were being exposed to pressure from the Peruvian Government. Banks are concerned that the Peruvian Government may remove deposits, and prospective investors in new mining activities are concerned about losing their concessions. As yet, none of the Peruvian Government pressures have been particularly strong, pointed, or hard to resist.
Impact
The direct economic impact of our actions in the next few months can only be limited. We cannot know or control all the flows from the numerous US private suppliers, small and medium size banks, whose actions will have a major economic impact in the short run.
Some observers feel the internal economic deterioration will continue no matter what outside influence is brought to bear because of a lack of confidence by Peruvian private investors, who are concerned by [Page 3] Marxist inroads in the Military Government, the destruction of Central Bank and other financial leaders, and the general atmosphere connected with the persecution of officials of the former Belaunde Administration.
However, the uncertainties created by the overhanging threat of the Hickenlooper sanctions and the hold-back by US public and private lending sources do contribute psychologically to the pressures on Peru.
Over the longer run, the refusal of US, international, and private agencies to go ahead with new sources of external capital will bring great economic pressure on Peru.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Box 795, Country Files, Latin America, Peru, IPC, Hickenlooper Amendment, April 1, 1969. Confidential. Sent for information. Nixon wrote on the top right-hand corner of the memorandum: “Keep the heat on and step it up—no compromises.” In the left-hand margin, next to the paragraph that begins, “In addition,” Nixon wrote: “good—cut by 75%.” At the top of the first page of the memorandum, an unknown hand wrote: “4/22 HAK sent memo to Sec State on this.” In an April 22 memorandum from Kissinger to Rogers, Kissinger summarized Nixon’s marginalia. (Ibid., RG 59, Deputy Assistant Secretary Subject and Country Files: Lot 73 D 353, Peru-Economic)↩
- Kissinger outlined United States efforts used to pressure Peru economically and argued the impact of the measures on Peru would be limited.↩