Foreign Relations of the United States, 1969–1976, Volume E–10, Documents on American Republics, 1969–1972

611. Memorandum From Viron P. Vaky of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹ ²

Washington, December 29, 1969

SUBJECT:

• Peru—Status Report

Our basic objective in Peru has been to establish a viable relationship with, and to seek to influence constructively, a difficult government which is military, authoritarian, nationalistic, subject to leftist influence, suspicious of and sometimes hostile to the U.S. and its interests, and at least partially dedicated to social and economic reform.

This broad objective has been complicated by the IPC case which has forced us to adopt a somewhat contradictory and shorter-run goal of obtaining in some way compensation for the expropriated properties. This short-run goal, in turn, has been complicated by the Hickenlooper amendments with its built-in time-bomb feature; the desire—incompatible with strict interpretation of the amendments—to avoid a confrontation with the GOP because of its almost certain negative effect on the internal dynamics of Peru as well as our relations in the hemisphere—and hence on our basic objectives; and our interest, essentially independent of the IPC case, in working out a solution to the serious fisheries problem.

U.S. strategy to achieve those objectives, as set forth in NSDM 21 issued on July 22, has taken three principle lines:

• —continue to maintain non-overt economic pressures on Peru to provide a framework for settlement and constructive change;
• —defer applying the Hickenlooper Amendment so long as any plausible basis to do so can be found;
• —actively seek a basis for such a deferral even beyond the end of the administrative appeal process.

We have been able thus far to maintain a plausible basis for continuing to defer the Hickenlooper Amendments, but our ability to continue to do so has been narrowed to the somewhat tenuous prospect of a renewal of the talks. Although there is virtually no pressure now, the IPC/Hickenlooper issue will probably “surface” again because of the Gulf Oil problem in Bolivia, which technically comes to a Hickenlooper trigger-point in April.

Deferral of Hickenlooper has permitted us to avoid a break in US-Peruvian relations, which in turn has helped prevent the otherwise certain ascendancy of the radicals in the GOP and the coalescence of anti-US nationalism throughout Latin America. A dialogue on IPC has been maintained with Peru and, in fact, the atmosphere of our relations with Peru has improved since last April. We have gained credit in the hemisphere for our policy of restraint and have avoided damaging the climate during the formative period of our policy approach to Latin America. We have not made any substantive progress in achieving compensation for IPC, but we have at least kept alive the hope for eventual compensation which application of the amendments would have killed.

With regard to non-overt economic pressure, we have not made any new AID loans, investment guarantees, or PL 480 agreements. AID and Military Mission personnel have been reduced sharply. Ex-Im Bank has made no new loans for investments. The World Bank has suspended its loan activities to Peru in accordance with its policy on expropriation situations. In the private sector, US Government agencies have discreetly discouraged major new US investments and have made known to foreign inquirers our negative assessment of the investment climate in Peru.

It is difficult to measure with any precision the effects of our policy of economic pressures. A variety of factors—including uncertainties caused by the GOP’s own actions and proclamations—have disturbed investor confidence. However, our pressures undoubtedly contribute to the continued stagnation of the Peruvian economy.

Our policy of economic pressure will not bring about the collapse of the Peruvian economy nor is it likely in the next few months to force the GOP to do an about-face on the question of compensating IPC. Yet the GOP has become increasingly concerned by the drying up of public and private capital inflows. It realizes that lack of capital and delays in both private and foreign investment will make it extremely difficult to accomplish promised reforms. Our policy, therefore, appears to have contributed to the GOP’s relative restraint on issues other American companies than IPC (e.g., ITT, Grace and Southern Peru Copper), and on the fisheries issue.

The signing of the Cuajone copper investment contract by a U.S. company, under the threat of losing its concession, was an important development for the GOP which is trying to attract an inflow of capital, but this is not the breach it appears to be at first glance. Several factors indicate the contract is unlikely to produce any significant increase in capital flows in the immediate future or restore investor confidence in the non-mining sectors (See attached Summary, item 3). In particular, it should be noted that no financing has been assured for the Cuajone project, and the US company may be unable to perform under its contract.

Thus, while our policy has not produced any forward movement on compensation for IPC, it has met our broad objectives. Specifically, it has:

• —kept alive the possibility of an eventual settlement on IPC;
• —had some effect in restraining the GOP’s actions toward other US companies and US interests;
• —helped to sustain the influence of the “moderates” within the GOP and to prevent greater radicalization of that nation’s course;
• —at least prevented serious deterioration in, and possibly improved the climate for, US-Peruvian relations and US-Hemisphere relations;
• —improved the prospects for a settlement: of the thorny fisheries issue.

We now face some difficult issues, however. The adequacy of fig leaf of Irwin talks will not continue indefinitely. The desire to retain its concession will cause Southern Peru Copper to try very hard to find the necessary financing for its investment. Other investors see opportunities in Peru they are not willing to give up to Europeans and the Japanese. The GOP is not to accept indefinitely without reaction the economic pressures it is very much aware we are exerting; if the copper contract falls through for lack of financing, a radicalization of the GOP is almost certain. In short:

• —Do we seek a change in the Hickenlooper Amendment to eliminate the automatic trigger? If not, do we apply it when and if the last “fig leaf” falls?
• —Are there any other plausible bases for deferral which we can construct to replace the tenuous Irwin mission?
• —Can we continue the economic pressure indefinitely without either becoming overt or reaching a point of diminishing returns to our own overall interests? To what end?
• —In present circumstances, how can we best support the moderate trend in the GOP—by the carrot or the stick?

A separate memo discusses these issues, and Secretary Rogers has in preparation a series of tactical recommendations to the President dealing with some of these points.

The attached summary of the situation deals with various aspects in greater detail, particularly the economic pressure and the Cuajone contract, as well as the internal situation.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 792, Country Files, Latin America, Peru, Vol. 1, Through June 1970. Secret. Sent for information. The attachment, “Summary of Peruvian Situation,” is not published. NSDM 21 is Document 607.
2. Vaky provided a status report on U.S. objectives toward Peru. Some of the results of U.S. policy included Peru’s softening of its negotiating stance on the expropriation of U.S.-owned companies and the fisheries dispute. Vaky was uncertain that U.S. negotiators could pursue U.S. interests by continuing economic pressure.