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

606. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon¹ ²

Washington, July 12, 1969

SUBJECT:

• Peru—Status Report

The promulgation of a far-reaching agrarian reform law last month will probably be followed by other sweeping reform measures designed to transform the political, social and economic structure of Peru. The military government has thus begun to concentrate on its internal objective—a social revolution. This appears to have generated an increasing awareness within the military government—even among some of the President’s more radical advisers—that the external resources necessary to carry out a drastic reform program will not be forthcoming while the economic uncertainties deriving from its unresolved problems with the US persist.

We have had several recent indications and reports that the Peruvian military government wants to improve relations with the US. The recent lifting of the ban on military sales and the popularity of the agrarian reform decree appear to be creating a political climate in which the government will be freer to negotiate with us. Thus, there has been a growing interest, centered around the Foreign Minister, General Mercado, in seeking settlement of outstanding issues.

Fisheries

As you know, we have been in discussion with the Peruvians on an agreement under which they would accept our invitation to a fisheries conference if we lift the suspension of foreign military sales. An agreement has been reached with Peru, Ecuador and Chile on such an arrangement. We announced the lifting of the FMS ban on July 3 and they announced acceptance of a fisheries conference on July 8. The conference will begin on July 30 in Buenos Aires.

By agreement, the conference will not deal with the juridical position of either side on the question of extent of the territorial seas but rather will focus on practical solutions based on conservation of marine resources. The State Department is coordinating the preparation of position papers for the conference.

IPC

In the past few weeks, as agreement on a fisheries conference developed, the Peruvian government has shown increasing interest in renewing talks on IPC. In response to their approaches, we indicated that we were prepared to resume talks without preconditions on either side. We understand that the Peruvian Foreign Office has begun to draft a letter to you for President Velasco’s signature to suggest renewal of the talks.

In other recent IPC developments:

• —Foreign Minister Mercado showed interest in some illustrative proposals Ambassador Irwin had previously suggested for scaling down the IPC’s alleged debt so that net compensation would result.
• —Philips Petroleum Company is attempting to negotiate a buy-out/joint venture project with Peru involving former IPC properties; this is the most serious third party proposal thus far.
• —IPC and Standard Oil officials told State that they now want a prolonged deferral of Hickenlooper so they can have time to resolve this issue; they expressed interest in considering buy-out proposals.
• —The Peruvian Minister of Mines announced that the administrative appeal submitted by IPC on April 22 had been rejected. IPC is preparing to submit another appeal to President Velasco which will stress its good faith operation over the years.

Under Peruvian regulations the entire appeal process must be completed by August 6, but there appear to be loopholes under which Peru can extend the administrative process if it so desires.

Embassy Lima has been authorized to approach the Peruvians on the possibility of extending the administrative appeal process beyond August 6 and scheduling renewed talks in Lima in September, following the fisheries conference.

Implications of Recent Developments

Recent developments indicate that we have been on the right track with our policies thus far:

• —By avoiding a confrontation on the Hickenlooper amendment we bought time which has permitted us to reach a state where substantive negotiations on our major problems are now possible.
• —The application of non-overt economic pressures has helped to maintain a climate of economic uncertainty which, in turn, has kept new investment and credit from coming to Peru. The pressures have not caused serious economic or political problems in Peru thus far, but the threat of their continuation—which would have serious effects over the long run—probably has played a part in persuading the military government to seek improved relations with the US.

As the military government begins its attempt at internal structural reform, it is realizing that a continuing flow of foreign capital would help greatly in effectively implementing programs such as the agrarian reform program; it also appears to realize that a resolution of its problems with the US would open the way for attracting foreign financing.

As the government and the nation focus attention on their internal revolution, the nationalistic fervor that surrounded the IPC issue may begin to diminish. Thus, the Velasco government may be more willing to seek solutions that will enable Peru to avoid further sanctions at a time when it seriously wants outside financing. Because the military’s justification for existing is no longer dependent on the IPC issue, it is in a better position to negotiate the problem seriously.

It should be noted that recent progress has been in relation to the forms and timing of negotiations, not on substance. They are important steps, but we still have a long way to go before the problems are resolved. However, if we can continue to buy time while quietly maintaining pressures, time may be on our side.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 795, Country Files, Latin America, Peru–IPC–Hickenlooper Amendment, Vol. 2. Secret. Sent for information. A stamped notation on the memorandum indicates that the President saw it. Nixon wrote in the top right hand corner: “K Don’t be too nice too soon—Let them stew some more.” In the margin in the section “Implications of Recent Developments,” next to the paragraph on non-overt economic pressures, Nixon wrote: “note.” In a July 22 memorandum to Nixon, Kissinger concluded that the agrarian reform would have a limited impact on U.S. economic interests in Peru and it would bolster Velasco’s political position. (Ibid.)
2. Kissinger updated President Nixon on the passage of a far reaching agrarian reform law passed in Peru the previous month and noted the possible effect the law would have on the political, social, and economic structure of Peru. Kissinger then discussed the fisheries situation, the IPC, and the overall implications of recent developments on U.S. policies. He concluded that U.S. economic sanctions had most likely played a part in convincing the Velasco government to seek better relations with the United States. As such, the U.S. Government should maintain the pressure, while continuing to negotiate.