619. Telegram 5850 From the Embassy in Peru to the Department of State1 2

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  • Two Years of Peru’s “Peruvian” Revolution

1. Introduction:

On taking power Oct 3, 1968, MilGov began establishing framework for transforming Peru’s economic institutions, power structure, and relationship with U.S. resulting strongly nationalistic program blends communitarianism (viz. industrial communities) with mixed economy: this pattern, MilGov insists, is distinctively Peruvian, “neither capitalist nor communist.” Following is Country Team’s review and assessment of total process after two years.

2. Score card of major acts and policies:

A. Reducing “dependence” on U.S.: Nationalistic objective being reached with still uncertain consequences. IPC takeover, MilGov’s opener, brought U.S. and Peru dangerously close to collision over possible application Hickenlooper sanctions. Crisis averted by Irwin Mission but, since IPC not yet compensated, economic assistance impeded and future relations clouded (although earthquake relief and Mrs. Nixon’s visit lowered tensions). Role of private investors also affected: new investment scared off while reforms removing several U.S. concerns and causing others serious problems. U.S. military assistance still sought although substantial mil presence now reduced to small MAAG administering FMS and training. MilGov’s search for substitutes for U.S. capital—international agencies, Europe, Japan, the East—not very productive. Improved relations with communist countries (dip rels with USSR and six EE governments including Yugoslavia) could yield economic benefits but not on scale to compete with U.S. established trade patterns and cultural influences favor U.S. However, diversification of relations expected continue, given new impetus by Peru’s campaign for Third World UNGA votes on Law of Sea (which highlighted by FonMin’s attendance at Lusaka Conference). Peru at forefront effort for LA solidarity, pushing for shared position on Law of Sea [Page 3] and active in embryonic and Andean Pact. Warmest relations seem to be with Argentina.

B. Economic and social reforms (following selected as most important):

(1) Agrarian reform (June 1969): Along with water law abolishing private water rights, agrarian reform has significantly weakened and probably broken power of land-owning oligarchy. Many of largest and most productive estates already expropriated: delivery of major sugar complexes to be completed Oct 3. APRA’s sugar workers unions also dealt crippling blow. MinAg has announced reform will be completed in 1974; campesinos want even more rapid reform. No evidence yet of serious production drops, and some crops (such as sugar, rice) have increased due new seeds and end of drought. But dimension of bureaucratic task plus need for credit and inputs, coupled with shortage capable managerial personnel, augur serious difficulties soon in areas already affected. Expectation of profit sharing and worker participation accelerating disinvestment in farms not yet expropriated. Deleterious effects latter situation difficult to forecast but bound be significant in years ahead.

(2) Industrial law (July 1970): Measure greatly increases state control and influence over manufacturing and is slanted against foreign control. Most revolutionary feature is compulsory worker participation scheme designed to spread ownership and promote cooperative system through “industrial communities”. Administration will be major problem. Law’s communitarian and participatory concepts set pattern for other sectors. Major purpose this law as well as many others is spur investment to achieve “permanent and self-sustained industrial development”.

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(3) Foreign exchange control (May 1970): Another blow at wealthier class was elimination of free draft market plus forced conversion foreign currencies and repatriation overseas deposits. Resulting improvement foreign exchange position by trade surplus. New impediments to out flows have continuing effect of increasing money supply and, with present lack of investment, excess liquidity.

(4) Mining: Series of laws designed to force large concessionaires (all U.S.) into joint ventures with state comprise major mining reform to date, though further reform drawing on industrial law concepts expected soon. Higher taxes and eventual state marketing of minerals already decreed. Result so far has been reversion of one large copper concession to state and uncertainty over future of several others, leaving potentially huge copper investment largely in abeyance. Petroleum development at standstill pending issuance code which will not allow more concessions but could allow reasonably attractive operating contracts with state.

(5) Fishing: State has assumed all marketing of fishmeal and oil (in which Peru’s production leads world). Broader reform expected, include industrial community concept.

(6) Banking: GOP has brought out three large banks, eliminating foreign interest in two. Foreign branch banks under pressures and some think they will become more development in commercial banks.

7) Vehicle assembly: Ford and GM among others forced out in bid procedure designed to rationalize and Peruvianize vehicle industry. Bids being solicited for local production of motors in move toward goal of all Peruvian vehicles.

(8) Pueblos jovenes: State entity created to develop pueblos jovenes and law approved to eliminate windfall profits of land speculators on outskirts of cities.

(9) Education: University system reformed to [Page 6] curtail student power and disruptiveness. Fees for private schools frozen in apparent effort broaden base from which students drawn. Extensive changes in primary and secondary education based on draft law now circulating.

(10) Public administration: Autonomy of independent public sub-sector eliminated. Ministerial lineup also reorganized along probably more functional lines.

C. Internal political measures and policies:

(1) MilGov unity: Pres Velasco appears alert to opposition and is ruthless in forcing enemies out of govt. Cabinet divided between go-slow group and attack-minded. Velasco belongs to neither and gives fair hearing to both, although his decisions tend favor attack. Officers loyal to him command Lima garrison and hold most other key military commands throughout country; national intelligence service supports him by keeping potential enemies under surveillance. Under present political and economic circumstances appears unlikely he will be overthrown.

(2) Decision-making: Congress dissolved. Major reforms usually first staffed out by Ministries or Study Groups, next worked over by Advisory Council to Presidency, then passed as “decree-laws” by Cabinet (which all military). CAEM (Nat’l War Coll.) is most important Study Group. Superficial efforts at consultation with affected groups occasionally made. Majority civilian input comes from ministerial staffs and ideologically correct (left-of-center) advisors.

(3) Judicial: Court system potentially subject to complete control; all Supreme Court justices are new Cabinet appointees; lower court judges named by Cabinet-appointed council.

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(4) Relationship with governed: MilGov has established authority and made reforms stick but has not organized political base. It has shown that its public critics subject to expulsion or economic reprisals, political agitators get jailed, and hostile newspapers cooperativized or punished under press law. Quick to learn, Peruvians now nation of low profiles (with a few exceptions). Under circumstances, one can only speculate about mass attitudes: impersonal, institutional govt has acceptance but little love; on other hand, discontent does exist and hostility to MilGov endemic in some sectors but neither insurgency nor militancy has resulted. MilGov extremely sensitive to criticism, wants its reforms immortalized by popular adoption, and seems increasingly concerned with showing it has popular support. Basic psychological assets are program of mass appeal and armed forces’ traditional prestige. MilGov has propaganda vehicle, Expreso; more importantly, it has power as in press law to control information and indoctrinate. Radio and TV may be more tightly controlled. Forthcoming educational reform could be aimed at basic political reorientation. MilGov may also form own party out of new cooperatives, pro-govt unions, and “committees for defense revolution” to ensure election of successor govt that will carry on program.

(3) Non-Communist parties and other groups:

(A) Political parties allowed maintain existence but are treated as anachronisms which regime hopes will fade away as reforms take hold. APRA, largest and best-structured party, praises substance of reforms but criticizes authoritarianism, unemployment, and rising cost-of-living. Smaller parties quiescent; two (UNO and MDP) folding up.

(B) Armed forces and police forces have preserved basic loyalty to MilGov although there is growing concern over direction revolution taking under guidance of Velasco.

(C) Catholic Church has endorsed agrarian [Page 9] reform and industrial law and supports MilGov efforts achieve social justice.

(D) University youth tend support social reform but there some signs of impatience. Campuses now generally quiet and largely depoliticized.

(E) Some business groups, such as agrarian and industrial societies, oppose MilGov vociferously but ineffectually and with growing danger to themselves.

(4) Labor: MilGov opposes trade unions, especially APRA-oriented CTP, but has marriage of convenience with still unrecognized Communist-dominated CGTP. MilGov has legitimated CGTP’s illegal strikes with pro-Communist mediation settlements. Apparently MilGov hopes unions will wither away and be replaced by industrial and agro-industrial communities.

(5) Relations with Communists: MilGov has full propaganda support pro-Soviet Communist Party (about 5,000 adherents) and labor affiliate, CGTP. Apparently support stems from Soviet doctrine that “intermediate revolutionary stage” needed in Latin America before Communist revolution. Thus MilGov free of terrorism or other harassment from this sector. It is opposed by both factions pro-Chinese CP and other small extremist groups. MilGov regularly avows it is anti-Communist. Furthermore, reform program described by Velasco and others as counter-insurgency exercise, a pre-emptive revolution undertaken to deprive Communists (and APRA, military’s traditional enemy) of grounds fomenting unrest. But unofficial MilGov organ Expreso regularly carries Soviet and Cuban propaganda, Communist books and pamphlets allowed circulate freely, and MilGov favors CGTP in labor disputes (see above). This back-scratching relationship seems underwritten by MilGov’s calm faith in ability to control Communists and its conviction real enemies are APRA and right.

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3. Overall appraisal:

A. MilGov has succeeded in controlling inflation, balancing budget, and accumulating foreign exchange. But private investors’ lack of confidence has taken heavy toll and economy has stagnated with consequent serious, unemployment. Some dislocation of course inevitable in restructuring and must be weighed against hoped-for long-term social and economic gains.

B. In first two years, favored by absence meaningful opposition, MilGov has successfully implanted beginnings of far-reaching change and created new interest groups. Pace of reforms now quickening and MilGov may be expected press ahead ambitiously on many fronts: commerce, fisheries, mining, petroleum, power, transportation, and tourism likely to feel impact state regulation and worker communities.

C. In next years, as theories become realities, MilGov may begin encountering serious difficulties in chewing all it has bitten off. By challenging more existing interests, it will create more opposition; by seeking extend state control, it almost certainly will exceed limits of its administrative capacity, with perhaps chaotic effects in some areas. If it prolongs current low level of investment, it will add to unemployment; alternatively, if it carries out plans for large scale public investment to replace private, it could easily overextend itself and produce inflation. In view money now available in Peru and failure attract private investment, state could be driven to impose some system of forced savings and investment.

D. However, barring assassinations and accidents, there seems little prospect within next year of change of govt or slowdown of reforms. If opposition mounts, MilGov may well become more oppressive.

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E. Formation of cooperatives is probably introducing healthy element info Peruvian life. Expanded agrarian reform, long called for, is no doubt stabilizing step of positive social value. Other social effects of reforms hard to judge yet.

F. We most concerned by two aspects:

(1) Pressures on U.S. businesses will no doubt continue and cause intergovernmental problems. We anticipate no let-up in hard-nosed aggressive tactics aimed at extracting more advantages from relationship with U.S.—relationship that may hold fewer and fewer advantages for our side. However, we believe Peruvians, as in ITT buyout settlement, will be careful not to exceed our maximum known tolerance levels.

(2) While political development atrophies, Communists are being strengthened and their opponents other than MilGov itself weakened.

  1. Source: National Archives, RG 59, Central Files 1970–73, POL 15 PERU. Confidential. Repeated to La Paz, Santiago, Quito, Buenos Aires, Asunción, Montevideo, Rio de Janeiro, Santo Domingo, Port au Prince, Bridgetown, Georgetown, Kingston, Port of Spain, San José, Managua, Guatemala City, San Salvador, Tegucigalpa, Mexico City, Bogotá, Caracas, Panamá, Moscow, and USCINCSO.
  2. Ambassador Belcher reviewed two years of Peruvian political, economic, and social developments, as well as U.S.-Peruvian relations, and concluded that Peruvian Government policy would harm U.S. businesses interests. Belcher feared that the communists were gaining strength within the government.