609. Telegram 7265 From the Embassy in Peru to the Department of State1 2

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Subj:

  • Preliminary Thoughts on SPCC and IT&T Developments

Ref:

  • Lima 7249, Lima 7251

1. With the announcement of an SPCC agreement and the signing of the IT&T buyout agreement, we believe new ball game has started in Peru, requiring new set of US signals and new diagrams for possible future plays to assure US remains in possession of ball at least part of time.

2. Both participants in SPCC negotiations emerge from long battles with pens and bottles (several all-night sessions) in state semi-euphoria. SPCC (Archibald) told me he is very pleased with terms. Velasco and Montagne said the same to me in Paracas Sunday. SPCC considers contract “bankable” even at EXIM and considers possibilities of GOP welching on deal once the complex is in operation as being very slim. SPCC believes they have five years to construct and begin produce and ten years investment recovery period during which contract will be secure. Company appears recognize there is good chance, the [garble] completed but considers such possibility much less likely under contract negotiated with military regime [Page 2] than under political one. They consider their contract “guaranteed” by Army in person of Montagne, Morales Bermudez, and Velasco, which would be defended by military as institution in event any succeeding political regime tried to tinker with contract before expiration of investment recovery period. In this connection we have had no follow-up approach to us by APRA leaders of several months ago warning us that APRA, once it regained legislative or achieved executive power would not feel bound by acts or contracts of de facto government.

3. Euphoria not confined to government and company. Press and general public also jubilant. More important is fact that foreign observers and Peruvian capitalist now speak of new situation, new tonic for ailing economy and of restoration of confidence. They note this investment is one of largest single investments made by US investors in recent times, that SPCC will be investing up to nearly 500 million dollars and that other mining contracts—for tens of millions of dollars more—are in early stages of negotiation. These prospective massive investments, according to most observers, indicate radical change in investment climate under way here. This judgment by these sectors could have considerable repercussion in international finance field now that banks can see good chance (assuming financing for this project—and others to follow it—can be found in 18 months period allowed in contract) that export earnings from new production can eventually finance rescheduled debts.

4. In political field there are some who see these contracts as victory for moderates (Montagne, Morales Bermudez, Mercado) over radicals (Fernandez Maldonado, Meza Cuadra) and as vital turning point for GOP policies. Validity this evaluation remains to be seen, although we believe there is good chance this is the case. We believe MilGov while undoubtedly still thinking in terms of greater state participation in industry must now at least bide its time and for immediate future seek create favorable climate for investments. Thus we believe there is good chance Peruvian “revolution” will undergo even more modifications.

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5. There is of course danger that disgruntled Fernandez Maldonado and/or his civilian advisers may attempt stir up problems with stories of sell-out. (Government did agree to SPCC using depletion and depreciation at Toquerala as tax-free reinvestment in Cuajone and to retention of foreign exchange earnings outside Peru.) Clever propaganda on left could damage government but do not believe this serious consideration at this stage.

6. Solution IT&T problem now will be treated as firm evidence GOP willing treat foreign private investors equitably and as proof GOP contention IPC was “special case.” This too bound to have its favorable repercussions on investment climate and general picture GOP presents to outside world as well as own investors.

7. Problem for USG in view these significant new developments is decide whether policy set forth on NSSM 42 still valid one. In face wave of expected optimism following SPCC and IT&T signatures, will US efforts maintain “tight screws” on credit continue be worth the candle, bearing in mind MilGov will soon have several ten of millions of dollars more of US investments as “hostage”, or should we accept fact MilGov or some variation of it will be around for some time to come and we have more to gain by eventual cooperation with US companies’ efforts to secure financing?

8. Above are preliminary thoughts which we shall amplify once we have better reading of local situation.

Belcher
  1. Source: National Archives, RG 59, Central Files 1967–69, INCO 15–2 PERU. Confidential; Priority. Crimmins sent a November 4 memorandum to Rogers detailing the SPCC-Peruvian Government accord. (Ibid., Bureau of Inter-American Affairs, Assistant Secretary and U.S. Coordinator, Alliance for Progress, Subject and Country Files, 1964–1975: Lot 74 D 467, CAM [Charles A. Meyer] Chronological File, November 1969)
  2. Ambassador Belcher provided his preliminary views on the salutary effects that the announcement of the Southern Peru Copper Company (SPCC) and International Telephone and Telegraph (IT&T) agreements would have on United States-Peruvian relations. The Ambassador concluded it might be necessary to reconsider NSSM 42—maintaining pressure on Peru while working with friendly governments in the region to ensure they do not lend support Peru in its conflict with the United States.