In writing this paper strict adherence to facts high-lighted by the
records may put a friendly nation in an unfavorable light. There has
been no intention to derogate but simply to point up situations as they
actually occurred and to reflect interpretations of those situations
arrived at both in and out of the Department. Together our comments may
contribute to a better appreciation of things which, otherwise, could
very easily be misconstrued.
[Annex]
Peru—Position Paper on Lend-Lease
Obligation
Origin of Program.
Under the authority of the Act of March 11, 1941,1 there was
signed in Washington on March 11, 1942, by the United States and
Peru, a formal Lend-Lease Agreement.2 Under its
terms the United States agreed to furnish Peru, under stipulated
conditions, defense aid (no civilian) having a cost value to the
United States of not more than $29 million. A discount of 58.62%
against the value of the aid furnished was extended to Peru and
payments were scheduled over a period of years with a final payment due on March 1, 1948.
[Page 1523]
Implementation of the Lend-Lease Program.
Under the Lend-Lease Agreement of March 11, 1942, (generally known as
the “Treaty Agreement”) aid was furnished at a cost to the United
States Government of $16,633,423.50 upon which Peru was charged at
41.38% of that cost or $6,882,910.64. During the late war years Peru
deposited in a Lima bank soles which eventually were converted to
dollars and a payment of $4 million thus was made on “treaty
account” leaving due $2,882,910.64.
Other program accounts were:
A Pipeline Account (undelivered
lend-lease materials on V–J Day) representing a cost value
of $36,122.30. Under an exchange of letters between the
Department (OFLC) and the Peruvian Embassy it was agreed
that these goods would be delivered and charged for as
though they were within the “treaty account”. As a result
Peru was billed in the sum of $14,947.41 and, in spite of
the fact that payment was promised within a period of 60
days, the account remains long past due.
Cash Accounts representing an
aggregate value of $615,762.69 based upon their cost to the
United States were facilitated in order that Peru might
acquire needed equipment which was not eligible under
“treaty terms”. These accounts were repayable at full value
(100%) and a total amount of $542,878.74 has been repaid
leaving a net sum still due of $72,883.95. (Actual figures
show $76,647.84 as due and a credit
item of $3,763.89.)
A Ships’ Account covered the disposal
of 12 ships furnished under lend-lease (Charter Party).
Valued at $1,381,000 these ships were offered to and
purchased for cash by Peru at a price of $68,000 or at 4.9%
of value. (Equivalent to a discount of over 95%.)
Recapitulation of Accounts
|
Cost
|
Charged
|
Payments
|
Balance Due
|
| “Treaty” |
$16,633,423.50*
|
$6,882,910.64 |
$4,000,000.00 |
$2,882,910.64 |
| Pipeline |
36,122.30 |
14,947.41 |
|
14,947.41 |
| Cash |
615,762.69 |
614,762.69 |
539,114.85 |
76,647.84 |
|
|
|
|
3,763.89-Cr. |
| Ships |
1,381,000.00 |
68,000.00 |
68,000.00 |
|
| Totals |
$18,666,308.49*
|
$7,581,620.74 |
$4,607,114.85 |
$2,970,742.00 |
Negotiations Undertaken for a Settlement
As stated, the Lend-Lease Agreement with Peru provided for the full
and final payment of the “treaty account” by March 1, 1948. Although
reminded both through billings and discreet references made [Page 1524] by the Department that
account, as well as the pipeline and cash accounts, remained
unsettled at the date set for payment and became “past-due”.
Formal negotiations began on March 3, 1948, when Ambassador
Ferreyros was asked to come in for a
preliminary discussion. During 1948 and 1949 a total of 10 meetings
were held with various Peruvian Government officials, a number of
formal notes were sent to the Peruvian Embassy and briefing talks
were held with Ambassador Tittmann during a visit to Washington.
Among the Peruvian officials with whom discussions were held in the
course of the negotiations were Ambassador Berckemeyer who succeeded Ambassador
Ferreyros, Senor Pedro
Beltran, then President of the Central Reserve Bank
of Peru, Senor Foley,3 Peruvian Comptroller
General, and a number of Embassy aides including Arturo
Garcia and Carlos Gibson,
Secretaries of Embassy. On the other side, in addition to talks with
our Ambassador, detailed discussions were held with
Charles Bridgett, Commercial Attaché at
Embassy, Lima, and with Gene Gilmore who
succeeded him in looking after our interest vis-à-vis the Peruvian
Government offices in Lima.
The Peruvian reaction in almost every instance seemed to follow a
predetermined formula or pattern. In our talks they generally
responded evasively, often indulging in overt inconsistencies.
Promises were made but never kept. Even our formal notes to the
Ambassador remained unanswered until the Embassy was “needled” into
action. Ambassador Berckemeyer, in his personal reactions, was mercurial
and frequently bored. While professing to be cooperative at one
time, he was cool and admittedly disinterested at others. He
confessed to disappointment in his Government and said that, despite
his efforts to get a settlement made, he was left “in the air”
without a sense of direction.
The series of talks held in 1948 and 1949 were continued at intervals
throughout the ensuing years. For political and economic reasons
there were periods of inactivity by the Department but it had been
made clear to Peru that the United States expected these war time
obligations to be settled and paid. The responsibilities vested in
the Department are clearly defined but, keeping within the terms of
reference, every effort was made to be lenient and considerate in
our efforts to reach a mutual settlement formula.
Throughout the earlier negotiations there was strong insistence by
Peru that the United States take soles and not dollars as a medium of payment. Unfortunately both the
Government of Peru and our Embassy seemed to have some misconception
concerning the policy limitations placed on the Department in
respect of foreign currency acquisitions. That policy, in brief,
limits the acquisition of such currencies [Page 1525] to actual needs of the United States in a
given country. The accumulation of foreign currencies for payment’s
sake constitutes a speculative risk and, as such, is almost
invariably avoided.
Attempts made to limit soles acquisitions to the defrayment of
operating expenses of the Embassy and to the financing of a
buildings program failed of realization as Peru did not wish to pay
any part of the lend-lease balance in dollars. (Later Peru, itself,
revived the buildings program matter but it was then too late for
FBO appropriations had been used
up or committed and prospects for new funds were almost negligible.)
The course of these talks was interspersed with requests for old
documents and copies of fiscal data which already had been furnished
long before.
In a gesture of “cooperation”, the motive for which is not clear,
Peru made an “offer” to settle the lend-lease obligations by making
small monthly soles deposits in a Lima bank over a period of time
almost too fantastic to calculate. Then, on March 5, 1952, our
Embassy, in its despatch No. 923 of March 3, 1952,4 transmitted to the Department a
new settlement proposal made by Finance Minister Dasso suggesting 6 annual payments,
the last to be in 1957, (or payments on a semi-annual basis if
desired) in soles but with the option
reserved by Peru to pay dollars instead of
soles whenever it felt like doing so! Of course, it wasn’t possible
to consider such terms and the discussions continued.
Meanwhile the Department was informed by one of its representatives
that the Klein Mission,5 then in Lima, had strongly urged
President Odria to expedite a settlement of the
lend-lease debt along the lines suggested by the Department. The
Mission viewed the delinquent status of the accounts as being
detrimental to Peru’s credit standing throughout the world.
Odria believed that Peru’s wartime
contribution to the Allies’ cause was sufficient repayment for the
defense aid Peru had received from the United States and apparently
thought that dilatory tactics would eventually lead to the
“forgiveness” of the obligation!
During 1952, while the Government of Peru was completing negotiations
for resuming service on its government and government-guaranteed
debt, long in default to American and British bondholders, overtures
were made to both the EXIM Bank
and the World Bank for loans. In spite of the fact that some small
financial aid was given by the World Bank for certain specific
purposes there was strong indication that the continuing default of
the lend-lease obligation was considered [Page 1526] by the Bank in reviewing loan requests in the
fact that inquiries were made of the Department regarding the
lend-lease situation. Again, a Secretary of the Peruvian Embassy
informed us that, because the lend-lease matter hadn’t been taken
care of, the EXIM Bank had
given the Peruvians the brush-off! Concurrently, rumors reached us
that Peru was endeavoring to buy, either from the United States or
an European country, a number of jet and other type aircraft on
credit.
The general situation was discussed at intra-Departmental meetings
and the results communicated to our Mission which, in turn, renewed
its representations vis-à-vis the Peruvian Government. In a
communication dated April 28, 1952,6 the Embassy, Lima, informed the Department of
the acceptance by Peru of a United States payments formula calling
for 10 semi-annual installments of about $300,000 each, the first
($244,831.63) to be paid June 30, 1952, and the last ($300,000) to
be paid on or before December 31, 1956. All payments were to be in
dollars but with the United States holding the option to take enough
soles to defray any and all expenses of the United States in Peru.
Procedures covering exchange rates and interest on delinquent
payments were defined. It is interesting to note that, even before
receiving Peru’s acceptance of these terms, information was received
that funds for the first payments already had been approved and
appropriated by the Peruvian Congress. (As the settlement papers
continue unsigned it may be assumed that those funds were diverted
to other channels.)
On the strength of Peru’s definite acceptance of the United States
settlement terms there was prepared and sent to the Mission on May
13, 1952, an instruction6 under cover of which there were transmitted
drafts of notes to be signed by our Ambassador, acting for the
Department, and the Peruvian Government. Inasmuch as, at one time,
Finance Minister Dasso, had
himself suggested that a two year settlement
would be, in his opinion, a reasonable one, the Department believed
that the accepted terms would elicit an appreciative reaction from
the Peruvian Government.
Again there followed a series of delays of varying sorts occasioned,
in part, by visits made to the United States by Minister Dasso and Comptroller General
Foley. Assurances were abundant that the
settlement documents would be signed when both had returned to their
official duties in Peru. However, it was soon reported that, due to
failing health, Dasso was
resigning. It did not improve the prospects for the lend-lease
settlement when there was named as his successor Peru’s Ambassador
to Argentina, Romero.7 Whereas
Dasso, a pro-American,
had exerted his best effort to get a settlement finalized, Romero—said [Page 1527] to be anti-American in his
sentiments—was ready to adopt President Odria’s
thesis that Peru owed the United States nothing on World War II
account.
Minister Romero, during his
incumbency, may have felt encouraged to take this opposing position
as a matter of expediency. It was a simple matter to view the
consistently friendly consideration shown by the United States and
even the final comparatively lenient settlement terms as a mark of
“softness” on our part,—an imaginary weakness inviting requests for
still further concessions in those terms. That thinking may have
been abetted by the fact that the Department had, at times, closed
its eyes to purchases of military equipment in the United States and
abroad by Peru notwithstanding the fact that such practices were
contrary to the spirit of a long-standing policy. At any rate, our
objectives, in the post-Dasso period, became progressively less
promising of attainment.
On September 30, 1954, this matter remains exactly as it was when the
negotiations were started on March 3, 1948. Only one constructive
step, and that of a minor nature, has been taken. When it was found
that final accounting of Peru’s interim-arms program would show a
moderate refund due that country it was agreed that that money,
instead of being returned, would be sequestered in a Treasury
Department account and would be credited as part payment of the
first scheduled installment concurrently with the receipt of the
balance of that installment from Peru in dollars. This is covered in
the terms of the settlement notes.
The story throughout 1953 and the earlier part of this year has been
almost a repetition of 1952 and earlier years. Energetic
representations by our Mission, in an effort to bring matters to a
conclusion, have been unproductive. Another fairly long period of
inaction was considered advisable on account of the situation in
Guatemala.
Hoping that the current visit of Secretary Holland to the South American
countries might create an atmosphere favorable to the mention of the
lend-lease matter in Peru he was provided by OSA with briefing notes for that purpose. Whether or
not related, some encouragement may be taken from the recent series
of conversations held with Ambassador Berckemeyer by ARA
officers. It is regretted that the Ambassador’s talks with President
Odria in Lima last August resulted only in
an expression of hope that those settlement terms already accepted
by Peru would be revised so that payments would be extended, more
local currency taken and the principal amount of the obligation
written down.
Even with a very deep sense of understanding of the importance of
fostering friendly relations with all of the other American
republics it is difficult to find rationalization in Peru’s
aspirations in respect of the lend-lease indebtedness. The
negotiations since 1948 have been [Page 1528] conducted by the Department with patient
understanding and a degree of leniency never accorded so extensively
to other Latin countries with which settlements have been made and
all of the others have settled their “treaty” accounts leaving Peru
the sole exception. (Ecuador and Bolivia owe moderate balances on
their “contingent” lend-lease accounts.)
The Department’s standing policy has been to maintain the integrity
of international agreements and to insist, after due consideration
of political and economic factors, that obligations assumed under
such agreements be discharged in accordance with their terms.
Furthermore, any action taken with respect to Peru would, in this
instance, have to be viewed in the light of the non-discriminatory
treatment already applied in reaching settlements with other
American republics. Any question of writing down the Peruvian debt
would be contrary to the Department’s past practice and probably
would involve the winning over of the Treasury Department and
consultations with the Bureau of the Budget, the Comptroller General
and possibly even the Congress. It may be desirable to find other
means than debt reduction to assist a friendly country financially
or economically.
Department Circular No. 25 of May 15, 1953, made mandatory the
securing of the approval of the Secretary of State to any new
Executive Agreement. Such approval was given to the Peru Settlement
Arrangement on the basis of the draft notes prepared within the
Department and sent to the Mission in Lima for formal signature. Any
relaxation in the terms would necessitate again bringing the matter
before the Secretary with supporting argument.
Thinking that perhaps a way might be found, without changing a single word of the proposed settlement
notes (except payment dates), by means of which the Department might
partially alleviate Peru’s concern over the foreign currency angle,
an effort has been made to canvass other offices in order to
determine, if possible, their projected needs for Peruvian soles so
that, if the idea were found acceptable to all concerned, the
Department might privately inform the Government of Peru of the
minimum number of soles it would be prepared to draw down each year
of the life of the payments schedule. The results have not been
encouraging. Due to a lack of appropriated money some earlier plans
for programs in Peru are in suspense with the result that the
Department could not now safely assume a responsibility to draw
soles for anything other than to defray the normal average operating
expenses of the Embassy in Lima which represent a minimum
requirement of about $150,000 a year after allowing for consular
fees and other normal income.
Perhaps unfortunately, it seems necessary to discard such thinking
for, according to present indications, a transaction between Peru
and [Page 1529] the United States
involving wheat appears to be coming to a head. If consummated there
will accrue to the United States a vast supply of soles sufficient,
if not used for some other directed purpose, to satisfy any and all
needs of this Government for soles for a long time to come. In the
meantime, and until Peru is ready to establish with the IMF a par value for the sol, the
Department would be even less disposed than ever to engage in a
commitment to take soles on lend-lease account.
In a conversation held on September 27, 1954,8
Ambassador Berckemeyer
stressed the fact that his Government regarded the lend-lease debt
as a valid obligation. As he was returning to Lima the next day he
would take the matter up with President Odria
again in the hope that he would be authorized to offer a settlement
with payments to begin in 18 months or earlier and in dollars.
While the Department is constrained to stand upon the status quo of the settlement terms
consideration would, of course, be given to a rational request for a
modest and reasonable modification of the terms if it were found
that to grant them would be in our national interest.
Good will should not be unilateral. Where it exists and people strive
earnestly and realistically, a way usually can be found, with honor
and fairness, to compose differences in a constructive and
statesmanlike spirit.9
