PERU: GOALS AND ACHIEVEMENTS OF THE MILITARY GOVERNMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A007400060002-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 20, 2016
• Document Release Date: April 21, 2006
• Sequence Number: 2
• Publication Date: November 14, 1969
• Content Type: REPORT

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Secret
DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
Peru: Goals and Achievements of the Military Government
Secret
N2 43
14 November 1969
No. 0396/69A
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PERU: GOALS AND ACHIEVEMENTS OF THE MILITARY GOVERNMENT
The military government installed by General Juan Velasco after the overthrow of
President Fernando Belaunde on 3 October 1968 came to power with a stated desire to
"revolutionize" Peruvian society and a plan the armed forces believed would achieve that
objective. There were several more immediate factors that precipitated the coup, however,
including the military's well-founded belief that their hated civilian rivals, APRA, would win
the up-coming presidential election. President Velasco made it clear soon after taking office
that his regime would not be a mere caretaker government and that the military intended to
stay in power as long as it took to effect a complete transformation of the country's
political, economic, and social structure.
The plan devised by the armed forces called for overturning a society in which most of
the wealth is controlled by a relatively few families. Asserting Peru's independence of US
influence was also an integral part of the plan. In order to accomplish these objectives and
to gain the support of the public, the Velasco government has relied heavily on anti-US
nationalism. The major acts of the government during its first year-expropriating the
International Petroleum Company (IPC) and instituting an agrarian reform program-were
particularly designed to appeal to and encourage greater nationalism among the people.
Revolutionary rhetoric abounded in the new government's first months and the
military seemed ready to carry out its "revolution" rapidly. The pace of the revolution
slowed substantially, however, soon after the agrarian reform law was promulgated in June
1969. Since mid-summer, President Velasco seems to have been concentrating on quieting
the fears of domestic and foreign businessmen. A more moderate approach to the revolution
now see
t
ms
o prevail among many of the cabinet mem-
bers as the government focuses on getting the economy
moving again. This it hopes to accomplish primarily
through attracting largeforeign investments and obtaining
the refinancing of its foreign debt.
In the next year or so the Velasco government will
concern itself mainly with strengthening the economy,
and is expected to move slowly on further reforms.
Although pressed by the leftist radical element in his
government, Velasco will probably try to avoid offending
the US during this period but will not give in on the issue
of providing compensation for the expropriated IPC
property. At the same time, the President will continue
to seek some concrete concession from the Soviet Union
and Eastern European countries to justify his rapid move
to establish relations and to further assert Peru's inde-
pendence of the US.
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BACKGROUND
The government installed after the military
deposed President Fernando Belaunde on 3 Octo-
ber 1968 reflects changes in the armed forces that
had been in process for some time. Several fac-
tors, some that developed over a long period and
others of more recent origin, united in 1968 to
produce the overthrow of Belaunde and the in-
stallation of a military government with a vastly
different view of its role from that of its
predecessors.
Since World War II, Peru's armed forces had
twice before taken over the government. Each
occasion had a traumatic effect on the military as
an institution. The takeover in 1948, led by Gen-
eral Manuel Odria, resulted in a personal dictator-
ship that in effect lasted for eight years, although
in 1950 Odria was elected to the presidency. The
more institutionalized coup d'etat of 1962
demonstrated the military's inability to govern
effectively, and was one of the factors that
prompted a return to civilian government after
only one year.
Following the "return to the barracks" in
1963, the military began to take a greater interest
in the tools of government-politics, economics,
and sociology. In addition, the influx of the
middle and lower middle classes into the officer
corps, which had been in process for decades,
began to make itself felt in the upper echelons of
the military, particularly in the army. As most of
the new generation of officers reached command
positions, they were required to study at least one
year at the Center of Advanced Military Studies
(CAEM) to achieve a broader understanding of
the country's problems and how they might be
solved. Classes in the problems of government
were frequently taught by leftists. This instruc-
tion, combined with the background of many of
the student officers, formed an officer cadre that
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was acutely conscious of the political and eco-
u o m i c injustices that characterize Peruvian
society.
Thus emerged a new breed of military of-
ficer, no longer the representative of the oligarchy
or Lima society, having a strong desire to change
Peruvian society and confident that at last he had
the knowledge and background to do so. On 3
October 1968, such a group of men used Presi-
dent Belaunde's unpopular settlement with the
US-owned International Petroleum Company as a
pretext for taking power. More traditional factors
determined the timing of the coup. There was
fear among the military that Haya de la Torre, the
leader of the American Popular Revolutionary
Alliance (APRA) and the army's traditional
enemy, would win the elections scheduled for
1969. Moreover, General Velasco, who initiated
the coup, was scheduled to retire from active
duty in January 1969 and would lose his power
base.
THE GOVERNMENT AND ITS OBJECTIVES
This time, the military took control of the
government with a well-conceived plan of action
that had been prepared at CAEM. The plan set
forth the military's objectives and suggested a
general strategy for achieving them. President
Velasco made it clear from the beginning that this
would not be a caretaker government that would
return the reins of government to what he termed
the old-style politicians and oligarchs after a brief
cooling off period.
There seemed to be no disagreement among
the top military officers that the "revolutionary
government" would be, first and foremost, "na-
tionalist." At the cabinet level, however, conflict
did surface over the pace of the revolution and
the timing of reforms. A moderate group stressed
that economic realities called for caution, while a
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more radical leftist group pressed for rapid imple-
mentation of the planned reforms. In the months
following the coup, some of the most cautious
moderates were maneuvered out of the govern-
ment by President Velasco, who appeared to be
siding with the radicals.
Velasco brought with him to the presidential
palace a group of "colonels" and some civilians
who were former professors at CAEM to act as
presidential advisers. The "colonels" were drawn
from the group that had prepared CAEM's plan of
action and were largely responsible for drafting
the government's manifesto and the "Statutes of
the Peruvian Revolution." Two of the original
group-Minister of Mines and Energy Fernandez
Maldonado and Minister of Transportation and
Communications Meza Cuadra-were promoted to
the rank of general and named to the cabinet.
They are now among the most influential and
radical members of the government. The others,
now collectively referred to as the Advisory Com-
mittee to the President, have gained official status
and considerable influence as the writers and co-
ordinators of legislation that has been initiated in
the various ministries.
The military's objectives, spelled out in the
Statutes of the Peruvian Revolution and ex-
panded in later pronouncements, briefly stated
are as follows: a) to improve the living standards
of the less favored sectors of the populace by
transforming the political, economic, social, and
cultural structures of the country; b) to reassert
Peru's national sovereignty and dignity vis-a-vis
the US; c) to restructure the governmental
machinery; d) to break the oligarchy's hold on
the country and integrate the Indians into the
nation's economy and society; and e) to promote
the rapid industrialization of Peru through gov-
ernmental guidance of the private sector.
President Velasco has stated that the armed
forces intend to remain in power until these
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objectives have been met or at least until they are
so firmly under way that the revolution cannot be
turned back. A new constitution is planned that
will incorporate the military's structural reforms
and ensure a change in the political system by
extending the vote to the illiterate peasants. The
earliest time mentioned for a return to civilian
government is the mid-1970s, but even this seems
unlikely.
To achieve these objectives, a general strat-
egy devised at CAEM is apparently followed by
the Velasco government most of the time. Na-
tionalism was seen as the most important tool
available to achieve the political support the gov-
ernment would need to carry out its program. It
was believed that pride in the "fatherland" would
have to be instilled in the leaders of the economic
and business community before they could be
persuaded to make the sacrifices necessary to
bring about the industrialization of Peru under a
system of social justice. Futhermore, the peasant
would have to be made more politically conscious
in order to bring more pressure on the oligarchy
to make the necessary changes.
A change was also envisioned in Peru's inter-
national stance. It was determined that the gov-
ernment must exert its "independence" of US
influence in the field of international relations
and within the Peruvian economy. This, it was
believed, would accomplish the military's primary
objectives of reasserting Peru's national sover-
eignty and, at the same time, help stimulate
nationalism in the Peruvian populace and gain
popular support for the military government.
Several inconsistencies and contradictions
were apparent in the government's objectives and
strategy as they were originally drawn up at
CAEM. President Velasco seems to have become
aware of these contradictions and in the past few
months has initiated steps to reconcile them. One
of the basic contradictions was the military's
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belief that it could attack certain members of the
oligarchy with impunity while others of the
wealthy class would continue and even increase
their investment in Peruvian industry. The govern-
ment also seemed to believe that it could per-
suade Peruvian businessmen to invest simply by
appealing to their patriotism and social con-
sciences while promising business reforms that
would give the government a greater voice in the
enterprises and the workers a share of the profits.
President Velasco now appears to have changed
his tactics and is combining his appeals to Peru-
vian patriotism with assurances of support for
those businessmen who are using their wealth for
the good of the nation. With such assurances,
businessmen appear increasingly willing to invest
their money in Peruvian industry.
Another basic contradiction was present in
the military's apparent belief that it could take
hostile actions against the US and apply restric-
tions to foreign businessmen and yet continue to
receive US financial assistance and foreign invest-
ment. Aware that outside financing is necessary if
the government is to accomplish its goal of rapid
industrialization, President Velasco has recently
begun to exercise restraint in his statements and
actions toward the US and US-owned companies.
THE MILITARY'S ACCOMPLISHMENTS
Most of Velasco's acts, both in the interna-
tional and domestic spheres, have been designed
to achieve maximum political impact as well as
progress toward restructuring the society.
Velasco's first major act, and the one that
has had the most far-reaching political impact,
was the expropriation of the International Petro-
leum Company. IPC's presence in Peru had been
an emotional issue for many years, and its ex-
propriation only six days after the coup brought
immediate support to the military government.
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The depth of feeling on the IPC issue is demon-
strated by the President's statement that the ex-
propriation was Peru's second declaration of
independence and that 9 October would hence-
forth be a national holiday known as the "Day of
National Dignity."
President Velasco's intransigent stand on the
IPC issue, even in the face of the possible invoca-
tion of the Hickenlooper Amendment, was seen
by most Peruvians as a justified exercise of Peru's
sovereignty. President Velasco may have over-
played his hand when he set IPC's alleged "debt"
to the state so high that it is almost impossible to
devise any scheme in government-to-government
negotiations that would ultimately result in
compensation to the company. So far, however,
he appears. to have the full support of the Peru-
vian people in the conflict that has arisen with the
US over the compensation issue. Velasco be-
lieves-probably correctly-that any sign of re-
treat would create a serious political setback for
himself and his government.
Seizures of US fishing boats within the
200-mile territorial waters limit claimed by Peru
have also been portrayed as a defense of "sover-
eignty." The government, however, sought to
play down the problems over the 200-mile limit
to avoid exacerbating the ill feeling between itself
and the US aroused by the IPC expropriation.
Nevertheless, Velasco scored a minor propaganda
victory last July when the US Government lifted
its ban on military sales. The ban, imposed in
February following the fishing boat seizures but
not made public until May, was lifted when Peru
consented to attend a fishing conference along
with Chile and Ecuador, which also claim a
200-mile limit.
From October 1968 to June 1969 the
Velasco government concentrated most of its
efforts on staking out an independent
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international position. Not only did it demon-
strate its "independence" from US influence
through the IPC and 200-mile-limit issues, but it
lost little time in opening diplomatic and com-
mercial relations with the Soviet Union and the
countries of Eastern Europe. The government
apparently is also eager to obtain some Soviet
financial assistance, particularly for a large irriga-
tion and hydroelectric project in the northern
part of the country. The Soviet Union has sent
well-qualified representatives to Peru but as yet
has made no commitments. The Soviet Union
appears nearly convinced, however, of the mili-
tary's sincerity in carrying out its revolution, and
may soon decide to go ahead with some form of
assistance as a concrete demonstration of its
support.
In June, Velasco turned his attention from
international affairs to the problem of imple-
menting his internal reforms. The first to be
announced, and the one with the greatest political
impact, was the Agrarian Reform Law. The major
differences between Velasco's agrarian reform and
those of his predecessors were the greater likeli-
hood that it would be carried out and the in-
clusion of the coastal agro-industries, principally
the large sugar plantations. There were at least
three reasons for including and putting priority
on the sugar plantations, which were probably the
most efficient agricultural producers in the coun-
try. First, the move would have great political
impact and help convince the peasant that this
was not to be just a repetition of earlier per-
formances in which agrarian reform was an-
nounced but never implemented. Secondly, it
would be a potent blow at the landed oligarchy
that Velasco was intent on destroying. Lastly,
transforming the sugar plantations into worker
cooperatives would serve to deprive APRA of a
major source of political and labor support. The
Aprista sugar unions were the only ones to de-
clare a strike in reaction to the military's over-
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throw of President Belaunde. Weakening APRA's
influence is probably a very important step in the
military's projected plan to transform the politi-
cal structure.
Since the initial intervention of the sugar
plantations, the government has moved slowly in
implementing its agrarian reforms. The law itself,
however, provides up to a year for private owners
to divest themselves of excess property. Approxi-
mately $125 million has been budgeted for
agrarian reform purposes in 1970, indicating that
the government intends to step up its implemen-
tation next year.
The government has also undertaken many
less-publicized actions and reforms. To comple-
ment its agrarian reforms, a water law was pro-
mulgated putting all water rights under govern-
ment control. A start has also been made at
reorganizing the government. In a few cases, func-
tions of separate ministries have been combined
in order to make them more efficient, and several
semiautonomous agencies have been brought
under the direct control of the central govern-
ment. There have also been some changes in bank-
ing, such as restrictions reducing the level of
foreign participation, increased state control of
the central bank, and greater emphasis on credit
to small businesses and cooperatives.
The military has been quite adept at keeping
its real and potential opposition off balance. The
extreme leftist and the Aprista student groups,
which could have caused trouble for the govern-
ment, were defused with the promulgation of
educational reforms that deprived the universities
of their autonomy and proscribed student politi-
cal activity. The oligarchy, which stands to be
hurt most by the government's reforms, was ef-
fectively split by Velasco's strategy of attacking
one group and helping another. Velasco has stated
in several speeches that those members of the
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economic elite who are using their wealth for the
benefit of Peru in business and industrial produc-
tion will go unharmed. Indeed, some of the
wealthiest families have been unaffected by re-
forms thus far and have even benefited by some
of the government's restrictions on foreign
businesses and imports.
APRA was in the best position to oppose the
military government because of its dominant role
in Peruvian labor. The leaders have been unable to
agree on just how the party should react to the
government, however, and consequently have
done little. The military, on the other hand, has
taken every opportunity to weaken APRA, most
effectively in the labor field. A Communist labor
confederation that had made very little headway
before the military took over has now become an
effective and dynamic rival of APRA and may
even gain the leading role in Peruvian labor. Its
increasing influence may be partially attributable
to some Soviet financing, and it has also been
aided from time to time by the Velasco
government.
In September, two of 14 unions at a US
mining company refused to accept a government
decree on a wage increase and started to march on
Lima in protest. The 12 unions that accepted the
increase and returned to work were Aprista-led,
and the two that rejected the increase were Com-
munist-led. Apparently seeing an opportunity to
undercut APRA, President Velasco granted the
Communist demands, and an added wage hike
was given to all the workers. The APRA union
leadership lost considerable prestige as a result of
this maneuver. The Communist labor confedera-
tion has also taken the lead in organizing coopera-
tives at the sugar plantations and is, thus, in-
creasing its influence at the very heart of APRA's
labor strength.
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When the military took over, Peru was faced
with severe internal economic problems, including
inflation, large budget and balance-of-payments
deficits, widespread capital flight, and growing
unemployment. The rapid economic growth
experienced in the early 1960s had slowed con-
siderably, and Peru was forced to devalue the sol
by 31 percent in September 1967. This, plus the
stablization program begun under Belaunde and
continued by the Velasco government, and a con-
tinuing high price for Peru's principal exports
have resulted in a favorable balance of trade. The
stabilization program also contained provisions
for strict control of credit and for holding down
wage increases, which along with government
steps to set prices on basic foodstuffs have en-
abled the military government during 1969 to
achieve the lowest inflationary rate in years.
The Velasco government is now basing its
hopes for getting the economy moving again on
obtaining large-scale foreign investment. Until re-
cently, the big US mining companies had held off
on planned investments because of uncertainty
over Velasco's intentions and contract con-
troversy over amortization rates and control of
exchange earnings. In an effort to get these
companies to take action on their planned invest-
ments, the government modified its mining regu-
lations to require concession holders to sign
investment contracts before 1 January 1970 or
lose their concessions. According to the new regu-
lations, actual investment must begin by May
1970 and mineral production must start within
five years.
President Velasco now has announced that
an agreement has been reached with the Southern
Peru Copper Company (SPCC) for an investment
of $350 to $500 million. Disagreements that have
arisen between the leftist radicals and the
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moderates in the cabinet have delayed the actual
signing of the contract. If the contract is con-
summated in essentially the form in which it was
announced, many of the other copper companies
operating in Peru are likely to agree to similar
terms. If all the companies agree to invest, the
total could run as high as $1.3 billion over the
next five years. Financing may cause some of the
companies some difficulty, but they are likely to
sign investment contracts anyway in an effort to
protect their holdings. The Peruvian Government
expects that agreements with the mining
companies will improve business confidence in
the country and strengthen its position in the
current debt refinancing negotiations with its
European, Japanese, and US creditors.
The military will now begin to feel greater
pressure to make some concrete progress in re-
juvenating the economy and in implementing
promised reforms. Revolutionary zeal and exag-
gerated nationalism are not likely to continue to
satisfy most Peruvians unless they begin to see
some actual improvements. The Velasco govern-
ment is currently concentrating most of its effort
on strengthening the economy.
Since the promulgation of the agrarian re-
form decree, the pace of the revolution has
slowed considerably. In his Independence Day
speech on 28 July, President Velasco talked of
further reforms, but little has been heard since.
Plans for reforms of the fishing industry
have been delayed, and representatives of the
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industry have been allowed to define what they
believe are needed and desirable changes. Business
enterprise reforms apparently were pushed even
further into the future following the immediate
and strongly negative reaction to Velasco's men-
tion of the reforms in his speech on 28 July.
Additional changes in the nation's banking laws
may be promulgated in the near future, but prob-
ably not until the foreign debt refinancing nego-
tiations are concluded. The banking reforms will
probably increase state control over banks and
might further limit foreign involvement in the
banking system.
Except for the unlikely possibility of a com-
plete breakdown in the economy or mass dissatis-
faction with the government's program, there is
little probability that Velasco will be removed
from office or that the armed forces will decide
to return to the barracks and leave the govern-
ment to civilians. The government has pre-empted
most of the reforms that leftists might use to
promote opposition to it, and the right has missed
every opportunity to unite and take effective
action. Thus, there seems to be little chance that
there will be a major change in the Peruvian
Government for at least the next year or two, or
that serious opposition will arise.
APRA too can find few substantive issues on
which to attack the Velasco government, inas-
much as the military is making into law most of
the changes advocated by the party for the last
three decades. APRA has been reduced to chal-
lenging the government for its unconstitutional
origins and failure to call elections. This tactic
finds few backers among the general public, most
of whom have never considered that democracy
offered them any real voice in the government. At
least one faction of APRA has been seeking some
accommodation with the military government,
which may eventually accept it in the hope of
eliminating or reducing the influence of APRA's
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top leadership. In the meantime, APRA will prob-
ably continue to decline from its position as the
strongest single political force in the country.
APRA's political decline in all probability
will be accompanied by a similar decline in its
influence in Peruvian labor. The Communist labor
confederation (CGTP) is continuing to make
rapid gains and may eventually rival APRA in
numbers and perhaps surpass it in influence. At
the same time, it seems less likely that Commu-
nist gains in labor will be matched by gains in the
political field. Many military leaders are sensitive
to the "Communist threat" and are likely to react
quickly if they believe the Communists are be-
coming too strong or too well entrenched. There
is a possibility, however, that the military will
overestimate the strength of APRA and in trying
to weaken it will destroy it, leaving only the
Communists to fill the vacuum.
INTERNATIONAL OUTLOOK
The strains that developed over the IPC issue
appear to have eased somewhat in the last few
months, but there is little hope that the problems
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will be resolved in the near future. President
Velasco is maintaining his intransigent attitude
toward compensation for the IPC and the matter
of the company's alleged debts to the state. The
Peruvians have said almost every time the subject
has been mentioned that the problem can be
solved only by the Peruvian courts. Once in the
judicial system, of course, the whole question
could be left to languish, perhaps for years, and
Velasco probably hopes that this would enable his
government to normalize its relations with the US
and begin to attract the foreign finances needed
to implement his ambitious plans. At the same
time, if the courts were to allow part of IPC's
claim and grant the company some payment for
its expropriated property-which on the surface
seems highly unlikely-Velasco would be less
susceptible to the charge of selling out than if he
made the settlement himself.
The military government has given some in-
dication in recent months that it is trying to avoid
antagonizing the US further. President Velasco's
speech on 9 October, the anniversary of the IPC
takeover, was not vitriolic. Most of his remarks
were aimed at the politicians and oligarchs who
had aided IPC in achieving its formidable position
in Peru and at lauding those who had led the fight
to regain Peruvian "sovereignty." Peru's cautious
attitude toward General Alfredo Ovando's coup
in Bolivia and his subsequent expropriation of a
US oil company are further demonstrations of
Velasco's desire to ease the strain between his
government and the US. The events in Bolivia are
probably also seen as damaging to Peru's efforts
to regain investor confidence and attract foreign
money into the country.
The Peruvian military government has no
desire to pull completely away from the US, but
it will undoubtedly continue to flaunt its "inde-
pendence." Its courtship of the Soviet Union and
the East European countries has provided an
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opportunity to express this independence, but
thus far there have been no significant gains for
Peru. The Velasco government has been seeking
some Soviet financial assistance for months but so
far has achieved only the signing of a trade agree-
ment. Soviet technicians are currently in Peru to
make a feasibility study of a large irrigation and
hydroelectric project in northern Peru. The Peru-
vians are eager to receive Soviet aid on this
project and have agreed to pay the team's ex-
penses while it remains in Peru. The Soviets, how-
ever, have not yet committed themselves to
anything, although some financial support may
eventually be offered as a means of influencing a
country that is moving out from under the US
shadow. On the other hand, the Soviets probably
do not care to become too deeply involved in
Peru, and the Peruvian military has a strong inter-
est in limiting the USSR's influence in its
country.
Peru is also enjoying its new-found prestige
in Latin America. For a long time it was content
to be a follower, but the reforms being intro-
duced by the Velasco government have made
Peruvians the object of envy by many people in
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Latin America. This caused Peru some embarrass-
ment when General Ovando in Bolivia tried to
mimic the Peruvian experience by overthrowing
President Siles and calling for a union of sorts
with Peru. Consequently Peru hesitated on recog-
nition of Bolivia's new government and, contrary
to some expectations, has had very few favorable
words for the Ovando government. The Peruvians
believe that their nationalism is an example for all
of Latin America, but they go to great lengths to
explain that each country's circumstances are dif-
ferent and that Peru is not "exporting" its revolu-
tion. A renewal of economic, and possibly diplo-
matic, relations with Cuba is one way in which
Peru may try to exert its hemispheric leadership
role. It is likely to move slowly in this regard,
however, so as not to offend the investors and
foreign creditors whose help it needs right now.
If, on the other hand, some other country such as
Chile were to agree to go along with Peru or took
the step first, President Velasco probably would
jump on the "bandwagon." Fidel Castro has an-
nounced that if the Peruvians come to desire
relations with Cuba, they need only ask, but, he
added, they also must condemn the OAS resolu-
tions that have isolated Cuba within the hemi-
sphere.
_10- 14 November 1969
Approved For Release 2006/05/2
RDP79-00927A007400060002-5
SECR I'll'
 Approv d For Release 2006/05/24: CIA-RDP79-00927AO07400060002-5
'Secret
Secret
Approved For Release 2006/05/24: CIA-RDP79-00927AO07400060002-5