Foreign Relations of the United States, 1969–1976, Volume E–11, Part 2, Documents on South America, 1973–1976

315. Memorandum From the Director of the Policy Planning Staff (Lord) to Secretary of State Kissinger¹

Washington, February 14, 1976.

Your Stop in Peru: The Marcona Dispute

The attached memorandum contains an analysis of the Marcona expropriation—an analysis Bob Ingersoll, with his extensive business background, explicitly commended—and reviews the latest round of the negotiations.

Because the issue currently dominates our bilateral relations—rather more than we would wish, though we have little room for maneuver—the Peruvians are certain to attempt to draw you into it. Familiarizing yourself with it will also tell you a great deal about Peru, and about why Latin Americans sometimes implicitly assume conflict with us. Finally, the case documents how—in the original spirit of Tlatelolco—we have recently tried to compose differences, and how, even so, a gap remains that could still trigger sanctions.

You noted on the margin of the ARA Scope Paper that it would help for you to know what our position was. The memorandum sets forth that position in detail. In brief, however, it is as follows:

The negotiations have reached a critical point. Three weeks remain to reach a final settlement in principle, if not in form.

Two ingredients will be necessary to any solution.

The first is Peruvian willingness to pay a substantial settlement. We cannot replicate the circumstances of the Greene settlement when a relatively small sum sufficed to compensate for all outstanding expropriation cases. This time we do not have five years of disrupted relations behind us—nor companies willing to settle for half a loaf.

The second ingredient is clarification of our own position on the sum actually required for settlement. Marcona is clearly worth more than Peru has yet been willing to concede. Our internal calculations suggest, however, that Marcona’s own estimates of its worth are somewhat inflated. But we will need an independent valuation if we are to be effective in persuading Marcona of that fact. Preliminary results of this independent valuation, which is being undertaken by the Stanford Research Institute, should be ready by February 23. Our negotiators will, therefore, be better armed in the next round to know what constitutes a feasible final range. [NB: we are also exploring what flexibility may be available to finance the settlement and thereby cushion its impact on the limping Peruvian economy.]

You can provide an impulse to closing the great gap that still remains on the amount of settlement by telling the Peruvians you recognize the enormous effort Peru has made, but that you are genuinely concerned lest the March 11 deadline expire without an agreement. The reality of our concern has already been conveyed accurately by an interagency decision to withhold $28 million in CCC credits pending progress toward a more relevant bottom line. You could also heighten Peruvian perceptions of our concern by explicitly designating Bill Rogers to lead the final round of negotiations (which have thus far been conducted by Al Fishlow, with support from Luigi Einaudi and an interagency team). An escalation to Rogers will indicate how seriously we take the matter; the flattery may partially offset our firmness.

To facilitate your perusal of the attached memorandum, which is extremely lengthy, an analytical table of contents is provided on the first page.

1. Summary: Lord summarized for Kissinger the necessary elements for a settlement of the Marcona expropriation.

   Source: National Archives, RG 59, Records of Henry Kissinger, Lot 91D414, Box 19, Nodis Briefing Memoranda, 1976. Confidential. Drafted by Einaudi and Fishlow. Tab 1, an undated paper entitled, “Expropriation Revisited: the Marcona Case in Peru,” is attached but not printed.