Foreign Relations of the United States, 1964–1968, Volume XXXI, South and Central America; Mexico

475. Memorandum From the Ambassador to Brazil (Gordon) to President Johnson¹

Washington, January 29, 1966.

SUBJECT

• Letter to Peruvian President Belaunde

In a recent conversation with Ambassador Jones, President Belaunde expressed deep frustration over Peru’s failure to obtain major concessional assistance from the U.S. which he attributes to the fact that he has not yet reached an agreement with the ESSO-owned International Petroleum Company (IPC) on the basis for its continued operations.² Belaunde is under strong political pressure to expropriate the IPC holdings, which he does not want to do. On the other hand, he has not been able to accept a satisfactory settlement with the Company because he assesses the political risks to himself and his party as too high. The Company has made several reasonable proposals during the past two years. A fuller description of the issues involved in the IPC case is at Tab C.³

Walt Rostow, Tom Mann and I have been reexamining our position on the IPC case in the light of the Belaunde–Jones conversation. We have reached the conclusion that the conversation opens the door for a new effort to work out a basis for more effective cooperation with Peru’s development plans and a simultaneous understanding on the IPC case. We have decided that Walt Rostow, under the cover of a CIAP mission to discuss multinational projects for opening the South American heartland, should go to Lima next week to discuss with Belaunde:

1. Peru’s economic, financial and reform performance and prospects, including their relation to possible increased USG and multilateral assistance to Peru.

2. His willingness and ability either to reach a mutually satisfactory settlement with the Company or, at least, to give assurances that the status of IPC will not be changed for the duration of his term (3 years) except as mutually agreed by Peru and the Company. The present operating conditions are not unsatisfactory to the Company.

Tentative guidelines for Rostow’s talks with Belaunde are at Tab B.⁴

Walt Rostow’s hand would be greatly strengthened if he were to carry a personal letter from you to Belaunde. Based on previous conversations with Belaunde, we believe that having the letter may well spell the difference between success and failure of his mission. The thrust of the letter would be your interest in seeing Belaunde carry forward his economic and social development plans on the basis of a strong self-help program backed by well-organized and sustained external support and in clearing the path of misunderstandings and obstacles which impede full cooperation between our two governments. The obstacles refer not only to the IPC case, but also to Belaunde’s public criticism of the Alliance and the need for better management of the Peruvian economy and greater effort in basic reforms. The text of a suggested letter is at Tab A.⁵

The way this letter is phrased and the CIAP cover which Rostow would use in making the trip (one of many he has made to Peru in recent years) reduces the risk of disclosure of the purpose of the visit and places us in a good position publicly to refute charges, should they be made, that the Rostow visit is a pressure move on the IPC case.

I think we should take advantage of this opportunity to seek a solution to this knotty problem which, if left unsettled, poses a serious threat to US–Peruvian relations and to our Alliance image. Another consideration is that aspects of the Belaunde program are designed to bring the long neglected Indian population into the mainstream of national life, thereby countering communist efforts to use Indian discontent to launch a guerrilla movement. Much stands to be gained by the Rostow trip, and the risks are minimal.

I recommend that you send the suggested letter.⁶

Lincoln Gordon

1. Source: Johnson Library, National Security File, Special Head of State Correspondence, Peru—Belaunde Correspondence. Confidential. Another copy indicates that Bowdler drafted the memorandum. (Ibid., Memos to the President, McGeorge Bundy, Vol. 19) Gordon was in Washington for his Senate confirmation as Assistant Secretary of State for Inter-American Affairs; he did not formally assume his new responsibilities until March 9. In a memorandum to the President, January 27, Bundy explained that Gordon “will bring cool good sense” to the IPC case—a case on which, he admitted, “we have been a shade rigid.” (Ibid.)
2. Belaúnde summoned Jones on January 20, declaring that “he would never sign an agreement [with IPC] under pressure, that US aid policy must first return to normal before he could conclude an agreement.” In reporting the conversation, Jones suggested that “a promise of additional aid now might be an important element in support of those other factors which the Department is aware now working toward a settlement.” (Telegram 1036 from Lima, January 21; National Archives and Records Administration, RG 59, Central Files 1964–66, PET 6 PERU)
3. Dated January 29; attached but not printed.
4. Dated January 28; attached but not printed.
5. Dated January 29; attached but not printed. The final version of the letter is in the Johnson Library, National Security File, Country File, Peru, Vol. II, 1/66–10/67.
6. Bundy forwarded the proposal under the cover of a memorandum to the President, January 29, on which he wrote the following parenthetical comment: “a good bargain with Belaunde will help us on all fronts & Walt is a good bargainer.” Johnson indicated that he would “prefer not to send the letter,” but “let’s discuss [the issue] further.” (Ibid., Special Head of State Correspondence, Peru—Belaunde Correspondence) The President discussed the letter, as well as the “overt and covert purposes” of Rostow’s trip to Peru, at a February 3 meeting in the Oval Office. (Johnson Library, President’s Daily Diary) After minor revisions, Johnson signed the letter and directed Rostow to deliver it to Belaúnde. (Note from Marie Fehmer to Juanita Roberts, February 3; ibid.)