823.50/5–2848
Memorandum of Conversation, by the Assistant Chief of the Division of Investment and Economic Development (Cady)
Subject: Peru—Urgent Economic Problems
| Participants: | Senor Don Alfredo Ferreyros, Peruvian Ambassador |
| Mr. David Dasso, Technical Adviser to the Santa Corporation of Peru | |
| Mr. Willard Thorp, Assistant Secretary of State | |
| Mr. Havlik (OFD) | |
| Mr. Breithut (FN) | |
| Mr. Owen (NWC) | |
| Mr. Cady (ED) |
The Peruvian Ambassador opened the conversation by referring to Peru’s urgent need to maintain its export markets for cotton and sugar. With respect to cotton, Europe before the war took 80 percent of the exports. While there is increasing demand within Latin America for Peruvian cotton, it is necessary to maintain exports to Europe, which is difficult under present circumstances, because of the inconvertibility of sterling or francs. Peru hopes, therefore, that some arrangements can be made within the framework of EBP to obtain dollars for its sales to Europe.
Mr. Thorp and Mr. Breithut called attention to the difficult aspects of the problem, inasmuch as it is the hope of ECA that trade between Europe and Latin America may go forward on a basis which will keep the need for dollars to an absolute minimum, as it is obvious that ECA will not have enough dollars to completely finance such trade. The Peruvian Ambassador said in this connection that it would be the Peruvian desire to establish a balance of trade with Europe, but this does not appear feasible because Europe is able to supply only a small portion of Peruvian import requirements; that the pressing need is for such materials as agricultural machinery, tinplate and steel products, which can only be obtained from the United States. The Ambassador further indicated that it was not within Peru’s capacity to build up sterling or franc balances; that Peru was unfortunately in the position where it could not finance European purchases.
Mr. Thorp called attention to the difficulty of ECA in dealing with procurements because its appropriations had not as yet been authorized by Congress, and such appropriations as may be authorized could possibly carry criteria somewhat different than the enabling act.
Mr. Thorp then mentioned the desirability of achieving a settlement of the Lend-Lease account and surplus property credits. The [Page 729] Ambassador stated that he was presently in communication with his government on these matters and hopes the situation is working out in such a way that may promise a satisfactory settlement. Mr. Dasso advanced the suggestion that some publicity would be desirable because the Peruvian Government was hampered in its negotiations by strong local sentiment running along the line that Peru had already gone much farther in the settlement of Lend-Lease than other Latin American countries. Dasso urged that if the facts were brought out into the open through a proper public statement, such publicity would help the Peruvian Government to negotiate a satisfactory settlement. Mr. Thorp expressed the opinion that it was desirable for the Department to give consideration to the desirability of finding an appropriate medium of publicity, if such would have the beneficial effects indicated by the suggestion.
The next question brought up by the Ambassador was the need for Peru to receive a larger allocation of tinplate. The quota for the present three months is 1100 tons and the need is for 1750 tons by reason of the fact that the canning of fish (tuna and bonito) is a new and rapidly increasing industry in which much American capital is employed. Until recently Peru has been importing tin cans from the United States, but a local company has been established to make them. The Ambassador pointed out the beneficial effects of the industry upon Peru’s deteriorating foreign exchange position; that increased exportation of tinned fish will earn exchange and the domestic production of cans will save it. The Peruvian Embassy has been discussing the need for more tinplate with OIT without much encouragement. Mr. Thorp expressed the opinion that the Department would wish to communicate with OIT just to be sure that that office is fully informed of all the pertinent facts in this matter.
The meeting was then turned over to Mr. Dasso, who said he would speak of the needs of Santa Corporation for financial assistance from some agency in Washington. He spoke at some length of the desire of the Peruvian Government to achieve economic and political stability through economic expansion, which resulted some few years back in the establishment of the Santa Corporation by the Government for the purpose of development of the hydro-electric potential of the Santa Valley, as well as the exploitation of minerals and the development of industries. Power development was given priority and the construction of the Canon del Pato Dam is about 75 percent completed. The material for the construction of two generating units purchased in the United States was largely financed with Santa Corporation resources. The only foreign credit involved was a $450,000 Eximbank exporters credit arranged in 1945 in collaboration with Westinghouse.
[Page 730]The foreign exchange situation, however, has become such that the Corporation is unable to complete the project without outside financial assistance. It is estimated that $2.5 to $3 million will be required for United States purchases.
Upon being questioned by Mr. Havlik as to the market for the initial production of some 50,000 KW’s, Mr. Dasso spoke of plans’ to establish in the Valley a facility for the production of zinc, a byproduct of which would be ammonium sulphate; also a plant for the electric-smelting of iron ore. Both plants would be established by private capital and would have a beneficial effect upon Peru’s exchange situation. The zinc and iron smelters will require about 80 percent of the initial capacity of the hydro-electric project. The balance can be absorbed by other plants which already exist in the Chimbote area.
The desired financial assistance would be used for purchases in the United States such as material for the construction of transmission lines, control apparatus and fire protection equipment. The project itself has a much greater potential generating capacity, but it is not planned to install additional generating units until a market for the increased production becomes apparent. Canon del Pato will also supply power for pumping water in adjacent valley in which there are rich lands now unusable because of lack of needed irrigation.
Mr. Dasso directly raised the question whether it would be better to approach the International Bank with the proposition, or the Eximbank Mr. Thorp said he presumed that he would call upon Mr. McCloy,1 inasmuch as McCloy had visited Peru, but that he would suggest that the details of the proposition should be put before Eximbank because Eximbank already had a credit outstanding in connection with the project. Moreover, it had under consideration an application for the development of Chimbote coal resources with which the Santa Corporation was associated through its provision of transportation and port facilities. In reply to another question, Mr. Thorp assured the Ambassador and Mr. Dasso that the understanding had the friendly interest of the Department and that the ultimate judgment would rest upon the bank’s consideration of the economic soundness of the project.
Mr. Dasso made reference to the work of the Institute of Inter-American Affairs in most laudable terms. In speaking of the development of the Port of Chimbote by the Corporation, Mr. Dasso explained that this was only possible because one phase of the Institute’s work in Peru was to free Chimbote of malaria. Chimbote, he added, was once the malaria center of Peru, and, due to the Institute’s control [Page 731] program, new cases had been reduced to not more than two or three a month.
- John J. McCloy, President of the International Bank for Reconstruction and Development.↩