288. Telegram 129032 From the Department of State to the Embassy in Peru1
129032. Subject: Greene Mission; IFI Loans. Eyes Only for Ambassador Belcher.
1. Special group established pursuant NSDM 199/CIEPDM A7 has reviewed status of Greene negotiations and also considered position USG should adopt on loans for Peru expected to come to vote in IBRD and IDB in near future. As a result, you should make a private approach [Page 771] to President Velasco or, if it is not possible to see him, you should seek to reach Velasco through Prime Minister Mercado. In addition, you should see Foreign Minister de la Flor since he has been a major advocate of a good faith gesture by the US through IFI lending. In these meetings, you should make the following points:
A. Peru has requested US support for Penrong IFI loans on the grounds that it would be helpful in providing positive impetus toward early resolution of pending investment disputes through Greene negotiations.
B. US prepared to give tangible evidence of our good will and confidence in Peru by supporting presentation to IBRD and IDB boards and positive vote on three loans at this time, as follows: (1) dols 25 million in IBRD for agricultural and livestock credit, (2) dols 6 million animal health program, and (3) dols 6.2 million (approximately) National Health Institute (both are IDB FSO), provided GOP understands the following:
(I) U.S. domestic law (Gonzalez amendment) prohibits our supporting IFI loans to countries which have expropriated without compensation unless the president determines that any one of the following conditions are met:
—An arrangement for prompt, adequate, and effective compensation has been made.
—The parties have submitted the dispute to arbitration under ICSID or other arbitration rules.
—Good faith negotiations are in progress aimed at providing prompt, adequate, and effective compensation under the applicable principles of international law.
It follows from our vote that we will have to explain publicly when asked, that “good faith” negotiations to arrive at a just settlement are in progress with Peru, and thus we see as essential that GOP agree or be prepared themselves to confirm existence of such good faith negotiations. We believe that best way to handle this would be for GOP to agree to issuance of a mutually satisfactory press release along lines suggested para 4 below.
(II) US support for loans on basis of “good faith” negotiations also implies that, although parties may be far apart at present time, negotiations are expected to reach a successful conclusion within a reasonable period of time, and in fact we are not prepared to engage in long drawn out negotiations and expect finalization in the next few months. Because Mr. Greene is a special emissary of the president and because prestige and credibility of USG would be publicly committed to success of negotiations, their collapse or failure would be a severe blow to US-Peruvian relations. We would almost certainly be required to revert to a negative position with respect to assistance to Peru:
[Page 772]Damage might not be limited to economic sphere but could also spill over into other areas (FYI military credits, for example, end fyi). In our view, GOP at highest levels must acknowledge their understanding of this now, and see what is at stake, before asking that we go ahead and support these loans.
2. You should make clear that we are not urging this course on GOP, that decision is one for GOP itself to make; and our strong preference would be to defer consideration of these loans until negotiations with Greene are farther along, such as after August visit.
3. It is essential that you carry out foregoing instructions precisely. Even a slight misunderstanding on GOP’s part now could have the most serious consequences later if Greene negotiations were to fail.
4. Suggested text for possible press statement follows:
A. Quote: President Velasco of Peru, Prime Minister Mercado and other members of the revolutionary government of the armed forces have held exploratory conversations with a special emissary of President Nixon. The meeting focused on a broad review of United States investments in Peru with particular reference to a number of current investment disputes, the resolution of which would eliminate a source of friction between the two governments and enhance the traditionally close and friendly relations between Peru and the United States.
B. In the discussions, President Velasco made clear the view of the government of Peru that, while it fully shared President Nixon’s desire for a mutually satisfactory settlement of investment issues this could, in no way, entail any change in the position of Peru with respect to IPC. As far as the government of Peru is concerned, the IPC case is settled. President Nixon’s special emissary acknowledged this to be the position of the government of Peru on this matter.
C. The two presidents are agreed that resolution of outstanding investment issues would greatly facilitate the achievement of the more cordial and productive relationship that both governments desire, and it is anticipated that further discussions will be held in Lima in the near future. End quote.
5. Since IPC matter not brought up by Greene we do not wish you to discuss IPC other than to answer if they ask that our public reply will not go beyond language of communiqué.
6. Imperative we receive answer by COB Tuesday.
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Summary: The Department informed the Ambassador that the Peruvian Government needed to publicly announce the existence of discussions to resolve investment disputes before the U.S. Government could set forth criteria for supporting IFI loans to Peru.
Source: National Archives, Nixon Presidential Materials, NSC Files, Country Files, Box 793, Latin America, Peru, Vol. 3, January 1972–December 31, 1973. Secret; Immediate; Nodis. Drafted by Pringle and Kubisch; cleared by Hinton, Hennessy, Jorden, and Rush. NSDM 199/CIEPDM, December 26, 1972, is Document 640 in Foreign Relations, 1969–1976, vol. E–10, Documents on American Republics, 1969–1972. In telegram 4584 from Lima, July 3, Belcher informed the Department that he was not able to discuss the Department’s proposal with Velasco, but did discuss it with de la Flor on July 2, in which he and de la Flor discussed the risks involved if the talks, after made public, failed. (Ibid., P840114–1800) In telegram 4661 from Lima, July 5, Belcher informed the Department that de la Flor had told him that he discussed the U.S. Government proposal with Velasco. (Ibid., P840114–1796)
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