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December 20, 2016
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September 6, 1974
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Approved For Release 2006/11/06: CIA-RDP85T00875R001000070020-8 Secret No Foreign Dissem meekly Review Special Report Peru: The Revolution Moves On ~s. :P se 2,0;4 Secret N2 424 September 6, 1974 SC No. 00776/74A Approved For Release 2006/11/06: CIA-RDP85T00875R001000070020-8 Classified by 005827 Exempt from general declassification schedule of E. 0. 11652, exemption category: ? 5B (1), (2), and (3) Automatically declassified on: Date impossible to Determine SECRET SPECIAL REPORTS are supplements to the Current Inteili- gence Weeklies issued by the Office of Current Intelligence. The Special Reports are published separately to permit more comprehensive treatment of a subject. They are prepared by the Office of Current Intelligence, the Office of Economic Research, the Office of Strategic Research, and the Direc- torate of Science and Technology. Special Reports are co- ordinated as appropriate among the Directorates of CIA but, except for the normal substantive exchange with other agencies at the working level, have not been coordinated outside CIA unless specifically indicated. Additional Warning NATIONAL SECURITY INFORMATION Unauthorized Disclosure Subject to Criminal Sanctions SECRET Approved For Release 2006/11/06: CIA-RDP85T00875R001000070020-8 SECRET No Foreign Dissent PERU The Revolution Moves On "It is absolutely indispensable to re-orient and re- build all of the state apparatus. A new socio-economic order, a new system of ownership, in a word, a new society, calls for a new type of government structure. The revolution of the armed forces will carry our a process of change in the economic, social, political, and cultural structures in order to attain a new society in which the Peruvian man and woman can live in freedom and justice. The armed forces, as promoters and principal supporters of the Peruvian revolution, will conduct the process of change until it has become irreversible." (emphasis added). President Juan Velasco Alvarado, July 28, 1974. Approved For 85T00875R001000070020-8 SECRET No Foreign Dissem Summary When the Peruvian armed forces, led by army General Velasco, took power from the duly elected president, Fernando Belaunde Terry, on October 3, 1968, most observers branded it simply another "palace coup" by pro-Western reaction- aries. Within da', s, however, it became apparent that what was happening was more than a traditional military golpe perpetrated by disgruntled, status quo - oriented generals. Starting with the take-over of the large, US-owned International Petroleum Company refineries on October 9, 1968, and continuing through a series of agrarian, labor, and peasant reforms, the Velasco government has engaged in a wide-ranging process designed to re-orient Peruvian society completely away from the oligarchs and "foreign influences." Now, six years later, this process continues at an even faster rate, despite the fact that the military is still viewed with suspicion-if not hostility-by most Peruvians. President Velasco has consistently and proudly maintained that the Peruvian revolution is "neither capitalist nor communist." Clearly, however, the emphasis has been on expanding state control of the economy and denying virtually any popular participation in the decision-making process. The timetable for instituting reforms remains purposely vague, but government leaders mince no words in telling the country that the "participatory democracy" so loudly touted by Velasco is still far from fruition. The military-led revolution that began in 1968 strongly reflects President Velasco's views. He has been the most dynamic force behind the extensive program of domestic reform and foreign policy independence. Even though Velasco may be nearing the end of his tenure as chief execu- tive, the revolution has been sufficiently insti- tutionalized that the process will continue to mirror his attitudes after he leaves office. Velasco is fully aware of the key role he has played in shaping the military-led revolution, but he knows he must step down eventually. He sur- vived a near-fatal ruptured abdominal aneurysm in 1973 that cost him one of his legs. Although Velasco is active and dynamic at present, con- tinuing medical problems could lead to a worsen- ing of his condition at any time. It is a foregone conclusion that his successor will be another army general-either a "radical" Special Report SECRET September 6, 1974 (i.e., one favoring a strongly nationalistic foreign policy and an accelerated program of domestic radicalization) or a "moderate" (i.e., one more amenable to compromising with the L'S in foreign policy and favoring a slower and more deliberate approach to domestic reforms). Whoever succeeds Velasco, however, is not likely to alter the basic thrust of Peru's nationalistic and socialistic revolutionary experiment. Although it will be the revolutionary junta- consisting of the chiefs of the three services-and not Velasco who will choose a new president, Velasco's views will weigh heavily in any de- liberations. His present inclination is to name General Jose Graham Hurtado, who heads the influential Presidential Advisory Committee. Graham shares the President's radical views, but Velasco may still harbor reservations about his ability to carry out further revolutionary reforms. This concern for deepening the revolution has in turn prompted Velasco to name the army chief of staff, Francisco Morales Bermudez Cerrutti, to R Approved For Release 2006/11/06: CIA-RDP85T00875R001000070020-8 SECRET No Foreign Dissc'm become prime minister and minister of war next January. Morales Bermudez, who served as minister of economy and finance from 1959 to 1973, is a leading moderate and has received credit for keeping Peru's economy afloat during these years. By keeping Morales Bermudez in a high govern- ment post, Velasco apparently hopes to take advantage of his proven pragmatism and his ability to get the job done, despite basic ideo- logical differences between the two men. Al- though the prime ministership would seem to be the stepping stone to the presidency, Velasco now appears less willing to allow a moderate to suc- ceed him than previously. The extent of General Graham's support among key military leaders is not clear, but he is a loyal velasquista and prohably could count on the support of most, if not all, of the army troop commanders. Important troop commands are in the hands of officers personally loyal to Velasco. More moderate military leaders, including Morales Bermudez and Interior Minster Pedro Richter Prada, are in a weaker position now than a year ago. Under present circumstances, the moderates probably would be neither able nor willing to risk a decisive confrontation with the radicals to dispute the accession of Graham to the presidency. The navy-traditionally the most con- servative service-is inferior to the army in both military and political power, and its current Special Report -3- SECRET minister, Admiral Jose Arce Larco, has sold out to Velasco in spite of traditionally strong animosities between the two services. General Rolando Gilardi Rodriguez, chief of the air force, also is in general agreement with Velasco's pol,cies; he would probably support the Presi- dent's choice of a successor unless it appeared that this would severely damage armed forces unity and effectiveness. One objection that might be raised by Peruvian officers-who are great respecters of seniority when it comes to filling high government posts-is that Graham is junior to Morales Bermudez. At this point, however, Velasco appears intent on radicalizing the revolu- tion and thus would rather support Graham than Morales Bermudez. In the unlikely event that Velasco %-,/ere forced from office, the scenario would become more complicated, with additional generals probably contending for the presidency. Lack of popular support, especially in the past year, seems to have prompted Velasco to become even more high-handed and to accelerate the revolutionary process. This in turn has brought increasingly authoritarian measures, such as the forced resignation of a group of high-level naval officers and the expropriation of the country's major daily newspaper in July. These recent authoritarian moves reflect the President's personal sensitivity to criticism from any quarter; there is also a sincere belief among top military leaders that they as a group know what is best for Peru and are uniquely qualified to carry out the essential changes. Both of these events have brought major issues to the fore. The ousting of Vice Admiral Vargas as navy minister last May made public the most serious inter-service split since the military took power. The press take-over sparked three days of anti-government demonstrations, which for the first time were led by middle-class activists in Lima. As the middle class Lecomes more actively involved in opposition activities, possibly including terrorism, support for Velasco by moderate military leaders could begin to erode. By using such tactics, businessmen and civilian political groups may try to convince military September 6, 1974 Approved, For Release 2006/11/06 ; CIA-RDP85T00875R001000070020-8 Approved P85T00875R001000070020-81 SECRET No Foreign Dissem leaders that a continuation of Velasco's radical policies would bring chaos to the country. If such denionsfrations recur, and if the opposition becomes more violent, moderate military leaders may come to believe the pace of socialization must be slowed if any semblance of national unity is to be maintained. Although President Velasco frequently asserts that his government is establishing a "participatory democracy," he apparently does not intend to allow the "people" to assist the armed forces in setting national policies for the foreseeable future. The government has made some effort, however, to allow the working class and peasantry to participate in implementing these reforms through organizations such as social property enterprises and the ubiquitous National System of Support for Social Mobilization (SINAMOS), an organization designed to create popular support for the revolution. In addition, the government maintains contact with the Peruvian Communist Party. The dialog between the military and the Communist Party does not reflect any govern- ment affinity with the party or its ideology, althouch some government officials do sympa- thize with its goals. Velasco and most of his associates, however, view the party as a channel of communication with the lower class and as a consistent supporter of government programs. Also, the President has tried to use the party to help suppress anti-government demonstrations, with little success. The dialog is likely to con- tinue. Contacts between the military and the mass- based opposition American Popular Revolution- ary Alliance (APRA) wax and wane, and are clouded by 40 years of animosity. Still, there are those within the government who see in APRA, with its tradition of advocating non-Marxist eco- nomic reforms, a means of gaining more perma- nent and widespread support for the govern- ment's programs. Others, including Velasco, remain deeply suspicious of any civilian political organization and mwy lean toward eventually forming a separate, government-controlled party. Special Report SECRET There are a large number of civilian experts serving in the military government, but only a handful really participate in the high-level decision-making process. This reflects the mili- tary's disdain for civilians as well as the general lack of rapport between these two groups. If, as is likely, middle-class opposition to the government increases, this group's access to top military leaders will be even more restricted. Civilians of more radical persuasions, on the other hand, may gain entree to the government. Those few civilians who have access to Velasco's inner circle have a long association with the President personally, and appear to share his vie,vs on domestic and foreign policy. Personal ambition may play a more important role than ideology in determining what line these civilians are willing to support. The military's low regard for civilian politi- cians has been repeatedly demonstrated. In May, the government outlawed the Popular Action Party of former president Belaunde, and early in August, following the anti-government disturb- ances, arrested several of its officials. The one party that the regime has not moved against decisively, however, is APRA, led by its still-popular 79-year-old founder, Victor Raul Haya de la Torre. One explanation may be Haya's continuing ability to draw large crowds whenever he makes a public address. Also, APRA has been able to attract the support of large numbers of young people, a feat that has eluded the military government. The government would like to counter APRA's still widespi'ead popularity, but its efforts thus far have been less than successful. The regime has used its own labor organization and SINAMOS to try to dilute APRA support among the peasants and lower class city dwellers. At the same time, lack of expertise and inter-service rivalries have hampered any moves by the govern- ment to establish its own political party. The government has made repeated attempts to gain the support of organized labor by offering compromise wage settlements and by appealing to workers' "revolutionary instincts." Nevertheless, individual labor groups have often opposed the September 6, 1974 rec an ing prc put pl is hoe nui grog fore mor into the any owr apps deci rune prise systi coot Approved For Release 2006/11/06: CIA-RDP85T00875R001000070020-8 SECRET No Foreign Dissent regime when it has failed to satisfy their bread- and-butter demands. The Regime's Programs Probably the most important and far-reach- ing plan of action yet instituted is the social property program, begun last May after a year of public scrutiny and criticism. Through a com- plicated bureaucratic mechanism, the government hopes eventually to transfer control of large numbers of businesses to worker-dominated groups. The "social property enterprises" thus formed, at least initially with government seed money, will in turn channel profits or "surpluses" into a fund for other enterprises. According to the decree law, every worker who participates in any social property enterprise will be a part owner of all others. At all times, however, it ~:opears that the government will maintain a derisive-if camouflaged-voice in establishing, running, and, if necessary, terminating each enter- prise. At least some of the theory behind this system derived from a study of the Yugoslav cooperatives. The government has also developed two other mechanisms through which it intends to shift most economic power away from the oligarchs and private investors, and place it in the hands of the workers and the state. These are "industrial communities" and "basic industries." The government has allowed private individuals to maintain control of the smaller firms, at least for the time being. Notwithstanding these restrictive measures, some private businesses continue to make substantial profits. As outlined in the so-called Inca Plan made public by President Velasco on July 28, the mili- tary envisages additional restructuring of virtually every phase of Peruvian life, including education, transportation, housing, and the judicial system. Although the plan-which Velasco claims was formulated prior to the 1968 take-over-is notice- ably vague, the regime already has nationalized the important fishmeal and cement industries, begun a wide-ranging program of 1grarian reform, and severely restricted or eradicated foreign in- vestment in many areas heretofore heavily sup- ported by outside capital. Indeed, the first major Signing compensation agreement Special Report SECRET September 6, 1974 TQp:8.7~RQ01,Q00070020-8 Approved For Release 2006/11/06: CIA-RDP85T00875R001000070020-8 SECRET No Foreign Dissent step taken by the military government was the expropriation of the US-owned International Petroleum Company. And, on January 1, 1974, the government nationalized the huge, US-owned Cerro de Pasco mining complex. This concern for "Peruvianizing" the nation's economy, however, has been tempered by the realization that Peru needs foreign loans and investment. This is particularly so in the exploitation of natural resources. Thus, foreign private investment is welcomed in certain in- stances, with restrictions that are somewhat more stringent than those adopted by the Andean Group. The government has just reached an agree- ment with a number of foreign investors to ensure the development of the large Cuajone copper reserves in the souih, and it has obtained a sub- stantial Japanese loan to construct an oil pipeline across the Andes. It was this concern for continued investment that prompted Peru's leaders to reach a com- promise with US negotiators last spring, whereby Peru agreed to pay $150 million in compensation for all US-owned businesses that had been nation- alized since 1968. This removed the major irritant in US-Peruvian relations and has made subsequent talks on Eximbank loans and possible weapons purchases more cordial. The prospect of further nationalization of US-owned companies, such as Marcona Mining, is slight at present, but the pos- sibility remains. Lima at any time may decide that the risks of another chill in relations with Washington are worthwhile if the political gains and the chances for other foreign investment out- weigh any adverse economic effects. Foreign Policy The basic thrust of Peru's foreign policy since 1968 has been and is likely to remain strongly nationalistic and identified with the non- aligned movement. The tenor of US-Peruvian relations, however, would probably become more strained if a radical such as General Graham were to succeed Velasco. General Morales Bermudez, on the other hand, could be expected to follow a more friendly path in relations with Washington. At the same time, if serious snags develop in particular bilateral negotiations, such as arms sales or restructuring the OAS, Lima would probably not hesitate to risk yet another round of strained relations to assert its independent foreign policy stance. Although Allende's ouster in Chile has made the Peruvian government stand out as the most radical in South America-causing some concern in Lima-Peru's nonaligned rhetoric and espousal of Third Woild unity has not wavered. Lima has been in the forefront of those less-developed countries advocating economic unity against the super powers and has taken the lead in calling for changes in the inter-American system to lessen US influence and incorporate the concept of "eco- nomic aggression" into the OAS charter. These policies are sure to continue after Velasco's de- parture, although the tone will vary depending on who succeeds him. Special Report SECRET Contacts with Cuba, which have developed rapidly since diplomatic and trade relations were September 6, 1974 ` Q07.5ROQ1OQQ070Q2Q-.$:, Approved For Release 2006/11/06: CIA-RDP85T00875R001000070020-8 SECRET No Foreign Disse,n re-established in July 1972, can be expected to become even more prominent if Graham becomes president, but will remain an important element of Lima's policies regardless of Velasco's suc- cessor. Several top military leaders maintain close ties with their Cuban counterparts and would like to see these contacts expanded. Relations with the Soviet Union, China, and Eastern Europe have also moved forward under Velasco's leadership, primarily as a means of asserting Peru's independence. Along these same lines, in international forums Peru has supported representatives from "liberation" movements in the less-developed countries of Asia and Africa. Aside from political considerations, Peru has derived some tangible economic benefits from its association with the Communist countries- credits, fisheries cooperation, and port construc- tion. In the case of the Soviet Union, however, Peruvian leaders resent what they view as foot- dragging by Moscow in matters of economic assistance. The best example concerns Soviet assistance in developing the giant Olmos River hydro-electric project. Several feasibility studies have been completed in the last five years but credits for construction have not been advanced. In fact, most Peruvian leaders remain sus- picious of Soviet motives and are reluctant to allow more than a minimal number of advisers cod technicians into the country. For instance, although Peru has accepted some 14 Soviet tank instructors, it reportedly has balked at allowing 250 Soviet technicians to enter the country to conduct yet another feasibility study of the Olmos project. The Velasco government has been willing to accept Soviet offers whenever they appeared to be the most-or only-viable economic alterna- tive, as when Lima purchased an estimated 150 or more T-55 medium tanks. The first tanks arrived late last year, and as many as 120 may now be in Peru. President Velasco decided to accept the long-standing Soviet offer after extensive study made it apparent that sufficient numbers of comparable US cr European tanks were not available. While the Peruvians reportedly have Special Report Soviet-built T-S5 tanks on parade September 6, 1974 SECRET .~x'r4+ Sp 20.45 1106;.) ~.P5T0g875R001.000070020-8 experienced some problems in learning to operate the tanks, they are considering other Soviet offers, including patrol boats and surface-to-air missiles. Arms procurement has become an important facet of Peru's foreign policy and is likely to remain so. In addition to the Soviet tanks, Peru has accepted delivery of 65 105-mm. towed howitzers from Yugoslavia. Lima also is awaiting delivery of additional Mirage jets from France and assorted ground, air, and naval weapons from other West3rn suppliers. The country's military leaders feel a genuine need to modernize and expand their forces as well as a desire to maintain them as one of Latin America's best-equipped. Also of considerable importance to Peru is the rossibility of a conflict with Chile. Peruvian military doctrine traditionally has called for a war with Chile to regain territories lost in the War of the Pacific (1879-83). Revan- chist sentiments have become more pronounced since the military took power in Chile IastCPYRGHT September. Some leaders in Lima apparently fear that Chile under military rule will be able to narrow the "arms gap," which now favors Peru, long before 1979-the centenary of the war and the date by which the Peruvian military believes the "disgrace" of the last century must be Approved For Release 2006/11/06: CIA-RDP85T00875R001000070020-8 SECRET No Foreign Dissem corrected. Also, some top Peruvian officers re- portedly fear that Chile may provoke a conflict with Peru in order to relieve domestic pressures being exerted on that regime. Both Peru and Chile have noted publicly that bilateral relations are "normal" and that any talk of hostilities is '.infounded. Despite such maneuvering, and despite the fact that chances of deliberate hostilities in the next year or two are not great, Peru will press ahead with its arms pro- curement program and plans to upgrade its mili- tary posture. Already, a large number of the Special Report -8 SECRET September 6, 1974 -V_ prgy~,c :Q, Release 200 4 11/061:_ cI , R