TOWARD A MILITARY GOVERNMENT IN PERU

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R002000150008-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 12, 2016
• Document Release Date: January 3, 2002
• Sequence Number: 8
• Publication Date: October 28, 1967
• Content Type: MEMO

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SPECIAL
MEMORANDUM
BOARD OF
NATIONAL ESTIMATES
TOWARD A MILITARY GOVERNMENT IN PERU?
Secret
28 October 1967
No. 8-67
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28 Octob..r 1967
SPECIAL MEMORANDUM NO. 8-67
SUBJECT: Toward a Military Government in Peru?
The Belaunde administration, long considered one of the
model governments in Latin America, has come upon difficult
times. During the past few months, it has Len faced with a
legislative crisis, a growing inflation, signs of unrest in
several towns, acute budgetary and balance of payments problems,
and the need to acquiesce in a devaluation of the sol. In view
of his weakened political base and growing economic troubles,
Belaunde obviously feels that he must give high priority to
maintaining good relations with Peru's military leaders. This,
in addition to his own conviction that Peru must now begin to
replace its antiquated military holdings, lies behind the ar-
rangement for purchase of supersonic Mirage 5 aircraft from
France -- and behind Belaunde's refusal to abrogate it.
This memorandum was produced solely by CIA. It was prepared
by the Office of National Estimates, coordinated with the
Office of Economic Research and discussed with the Office of
Current Intelligence.
Group 1
Excluded from auto:eatic
downgrading and
declassification
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Belaunde's relationship with the US has already come under
strain; the emergence of a new irritant in the long-standing
dispute between, the Peruvian government and the US-owned Inter-
national Petroleum Company is adding to this strain; and re-
lations will worsen further if the US Government proceeds with
a major cut in economic aid.
We sea some danger that BelaInde might be overthrown within
the next few weeks, and we believe that the chances of a military
take-over will subsequently increase. Whether or not the gov-
ernment of Peru comes under the acknowledged control of the
military establishment, its policy is likely to include two of
that establishment's firm resolves: (1) to carry out its program
of modernization -- i.e. procurement of advanced military equip-
mfnt abroad -- impervious to argument, pressure or reprisal,
and (2) to maintain public order no matter what disgruntlement
the country's economic troubles produce.
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1. Time was when Peruvian military leaders needed little
or no pretext to intervene politically. In fact, during Peru's
century and a half of independence, three-fifths of the preAi-
dents have been military men or men of recent military background.
Only since World War II has there been a significant change of
attitude among military men -- change which involves a growing
respect for constitutional procedures, for civilian rule, for
social progress. The last military seizure of power -- in 1962
was designed to prevent the election to the presidency of Victor
Raul Haya de la Torre, who did not receive enough votes to be
elected outright, but who would have gained control of the Exec-
utive if Congress had been allowed to choose. Most of the military
leaders honestly thought Haya's program would be a calamity for
the country as well as for their interests. They sanctioned new
elections for the following year, and, with their blessing, a
fragile party coalition, and a smattering of Communist support,
Fernando Belaunde Terry won some 39 percent of the vote and a
six-year term as president.
2. Under the Peruvian constitution, a plurality of more than
one-third of the popular vote suffices to elect the President.
Belaunde has been a minority president from the beginnir?; and
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sorn:I, two-thirds of the members of Congress belong to the two
pies whose leaders he defeated in 1963: the A ristas (Haya
d.c. la Torre's American Popular Revolutionary Alliance - APRA)
V.'-1,d the Odriistas (the party of the former president and dictator
Manuel Odria -- National Union of Odriistas -- UNO). When
Belax~nde won, the populist APRA and the conservative UNO formed
an oppositicn coalition whi-h was none too constructive in the
beginning and has become more and more obstructive over time.
The government coalition of Belaunde's Popular Action Party (AP)
and the small Christian Democratic Party (PDC) is far less pow-
erful. Belaunde has managed to put through the Congress a number
of bills in keeping with his moderate reform program, but the
cumulative effect of trying to deal with the opposition majority
has caused him increasing frustration and brought him close to
despair.
3. Belaunde's program of reform and development has tended
to be over-ambitious in terms of Peru's financial resources, but
clearly responsive to some of Peru's most urgent needs. In
pressing it, he has posed a challenge to strongly entrenched
economic interests. Despite the repeated opposition and inter-
ference from Congress, his administration managed to accomplish
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a good deal. Yet all along Belaunde has had much more success
in expanding the spending side of the budget than in expanding
revenues. This is but one of the practical difficulties which
are now catching up with him.
Th;a Pattern of Economic Strains
4. The Peruvian economy was booming when Belaunde came to
power and the boom continued until 1966. During 1961-1966 Peruvian
gross national product increased at an average annual rate of over
6 percent, the highest in South America. Rapid economic growth was
based on a rapid expansion of exports, especially of fishmeal
and copper, each of which now accounts for about one-quarter of
Peruvian exports. Since 1963, however, production in these fields
has stagnated, and the increase in export earnings came from the
favorable prices which prevailed until the latter part of 1966.
The Belaunde government used much of these earnings for economic
development, government investment in infrastructure rose rapidly,
and there was also substantial private investment, both domestic
and foreign. With these investments Peru took considerable
strides in modernization and developed new export and import
replacement industries. The economic advance, however, was rapid
enough to cause growing strain. Imports grew faster than exports
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imports more t;ian 100 percent between 1960-1966, exports about
75 percent. With incomes rising and population growing some 3.5
percent a year, consumer demand rose faster than the supply of
goods available and prices increased steadily, although inflation
was kept under control. The lack of responsiveness of food pro-
duction, a result of both physical and institutional limitations,
was one cause of the inflation. The increasing government budget
deficit was another. The inflation, coupled with a fixed foreign
exchange rate, slowly eroded Peru's competitive position in the
world market. Growing trade deficits were covered thanks to
rising assistance from the US which reached large proportions
in 1965-1966.
5. Peru's economic boom came to an end as a result of a
sharp decline in the world market prices of fishmeal and copper
in late 1966. As the trade deficit continued to grow, capital
flight reached a high level in anticipation of a devaluation, and
official reserves declined in spite of emergency assistance from
foreign banks and the IMF. Devaluation was undertaken on
1 September. With its foreign exchange earnings reduced and its
foreign indebtedness increased, Peru has had to curtail imports.
In turn this has forced a deline in consumption and investment.
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Devaluation, by raising import prices sharply, also brought a cut
in real wages and a lessening of public confidence in the govern-
ment. Demands by the military both for modern weapons and for a
balanced budget will require a cutback in Belaunde's development
program -- and this will add to unemployment. Thus the economic
problems are creating multiple political strains.
6. Moreover, these problems will almost certainly persist
for some time. At best, imports will have to be held down for a
year or so. If the US cuts its aid to Peru; imports will fall
further and the effect on the economy will be severe. If the
government balances the budget, many Peruvians will be hurt
either by growing unemployment or by increased taxes. If, on
the other hand, large deficit spending continues, real incomes will
be further eroded by inflation. In any case, the conflicts of
interest between consumers, investors, and the military are bound to
become increasingly acute during the next year or so. The devalu-
ation will probably have the effect of stimulating exports,
especially of fishrnal, and over time a broader economic recovery
seems likely. But economic growth is unlikely to be nearly as
rapid as in the first half of the 1960's. This will be the case
whether or not the military comes to power. The speed of the recov-
ery, and the subsequent growth of the economy will, moreover, be
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influenced by US actions affecting the level of official aid, as
well as by the degree of confidence of foreign private investors
in the Peruvian government.*
7. Since the election of 1963 there has been a splintering
tendency within each of the major political parties and coalitions.
Belaunde's support has become less cohesive, and the APRA-UNO
coalition, which was willing to go along with a limited social
reform program early in the Belaunde administration, has become
increasingly obstreperous. Thus, in July 1967, Belaunde tried a
show of strength to bring the Congress more under his control.
After his supporters were declared losers in the election of new
Senate leadership, he ordered the members of the AP-PDC alliance
to boycott the session until the Senate President-elect, Julio
de la Piedra (UNO), agreed not to serve. The boycott prevented
a quorum for 39 days, and encouraged in tb,~ public a growing
lack of confidence in both the legislative and executive branches
One unsettling factor here could be the emergence of a new
irritant in the long-standing dispute between the Belaunde gov-
ernment and the US-owned International Petroleum Company. The
new matter of disagreement concerns prices the company may charge,
post-devaluation.
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of government, as evidenced by an increased drain on Peru's
foreign exchange reserves. Three days before the legislative
crisis was ended, with foreign exchange reserves nearly exhausted,
the Central Bank withdrew its support of the Peruvian sol, allow-
ing it to seek its own value in open trading.
8. Throughout the legislative crisis Belaunde publicly
took the stance of a disinterested executive
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It is not clear
whether he took any action to resolve the problem other than to
encourage rumors that there would be a military coup if the
legislature did not convene. These rumors gained impetus when
the long-expected devaluation took place. They undoubtedly had
some impact, and new Senate leadership, which included AP-PDC
representation, was chosen.
9. In spite of his success in preventing a legislative
quorum, there was to be no clear victory for Belaunde. To avoid
legislative censure over the de facto devaluation and the pro-
posed unbalanced budget for 1968, his cabinet resigned. Belaunde
then appointed Edgardo Seoane Corrales, who is his chief rival
within his own party alliance and a presidential aspirant for
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1969, to be prime minister and foreign minister of the new cabinet.
This was a maneuver to maintain the AP-PDC alliance while exposing
Seoane to a share of the difficulties and criticisms which the
government is sure to experience in coming months. The new
cabinet already includes strong military figures, at least one of
whom asserts that Seoane's tenure will be brief.
10. However that may be, the new cabinet has emphasized the
need for new taxes and stricter collection of revenue as the neces-
sary means to finance government expenditures and promote fiscal
stability. The APRA-UNO opposition, although more conciliatory
on this issue than before the legislative crisis, would much
prefer to cut spending. Business interests, too, are opposed
tc additional taxation; indeed for a brief period in September,
Peruvian exporters actually refused to export their products
and thus forced Belaunde to withdraw his proposal for a tax on
such windfall profits as they would gain from the devaluation.
Belaunde's effort to improve the overall political climate by
means of occasional meetings with the top opposition figures,
Odria and Haya de la Torre, does not seem likely to gain him
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Present Military Attitudes
11. The composition of the Peruvian military establishment
has been changing markedly. Increasingly it has become a vehicle
by which members of the lower-middle class can advance socially.
More and more cadets in the service academies core from the
lower-middle class and from the families of laborers and peasants.
It should also be noted, however, that views of the wealthy clads
are still strongly represented in the command structure, particu-
larly by some naval and air force officers. In addition, there
are, of course, military officers who have personal political
ambitions.
12. More enlightened in many ways than it used to be, the
military remains determined that no government which would sub-
stantially diminish its role can be allowed to come to power.
It is in this context that the military has felt compelled to
keep the presidency from the control of Haya de la Torre. While
APRA in general is remembered for its attack upon the military
garrison at Trujillo in 1933, and for its involvement in the
Callao naval mutiny in 1948, Victor Had Haya de la Torre is the
specific focus of military hatred. It is possible that APRA will
be allowed to win the presidency when Haya is no longer its
candidate.
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13. The policies pursued by Belaunde and the AP-PDC Alliance
have actually been akin to APRA's traditional demands for social
reform; the military has accepted Belaunde because he has not
tried to decrease the importance of the military establishment.
In fact, the military forces have been an active participant in
the Prosident's social and economic development programs, build-
ing roads, bridges, and irrigation projects. They have also par-
ticipated in a colonization scheme which jcins members of the
military and civilians in an effort to open up new agricultural
lands in the interior.
Arms Purchases
14. Recognizing his need for continued military support
and aware of the military establishment's requirement for new
equipment, Belaunde has approved the purchase from France of 12
Mirage 5 supersonic jets and several jet trainers. Th? cost of
the jets, including spare parts and trainers, is estimated to
be $25-30 million. Negotiations are underway for 100 light tanks,
anti-aircraft equipment, and rocketry. Delivery of the jets and
perhaps of the tanks is to begin before the end of 1967. A
French training mission will probably arrive with the first ship-
ments. The decision to purchase French supersonic jets was made
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when it seemed clear to the Peruvian military that the US would
not make its F-5 aircraft available for sale to Peru before
1969-1970 at the earliest.
15. It is not only the President and the military forces in
Peru who feel that new military equipment is required. A supple-
mentary militar; budget of some $160 million was passed by the
Congress early in 1967 for arms purchases over the next few years.
The Peruvian public also seems generally to favor such purchases.
The press recently had a field day with headline allegations con-
cerning the threat posed by Chilean armamentismo, charging, in
particular, that Chile was acquiring guided missiles from both
the US and USSR. This fiction was so widely believed in Peru that
even Belaunde and Prime Minister Seoane thought it necessary to
query the US Ambassador about the extent of US arms support to
Chile, and the Armed Forces Ministers spcke for eight hours to a
closed session c: Congress about their need for modern arms to
counter the Chilean -threat.
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Outlook
16. Because the military does not pretend to have the
solutions to Peru's economic problems, it is doubtful that economic
issues alone would precipitate a coup. The military clearly will
not tolerate a cut in the military budget by the Congress or the
President. Its insistence upon more modern equipment may result
in the loss of a much needed program loan from the US. The
political opposition is unlikely to suggest a military budget
cut, but will insist upon other governmental austerity. Out-
side pressure on belaunde to resist military spending will only
intensify military influence in the government. There is no im-
portant participant in Peruvian politics who would publicly
attribute any part of Peru's economic difficulty to military
spending.
17. It is unlikely that the Peruvian Congress wall enact
important long-range economic measures during the remainder of
Belaunde's term. The President's spending for reform and devel-
opment will come under increasing attack as the cause of Peru's
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economic difficulty.
rective action will he to propose new tax measures to raise
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rove, uce and reduce imports, and perhaps to a+,4^mpt wage and
price controls. Such executive-legislative agreements as may be
reached will be intended as much to ward off possible military
takeover as to net things straight in Peru. The election of 1969
is already too close for the opposition parties to allow the
Belaunde administration any great success in solving current
problems. The military, under those conditions, might prefer
to remain as the threat, rather than intervene.
18. If prices rise but wages do not increase accordingly,
there will be agitation among the lower and lower-middle class
urban workers, and disorders will occur. Student groups will also
be involved. A general strike has already taken place in Arequipa,
and unrest is evident in other towns. Such developments increase
the likelihood that military leaders will insist at least upon
stronger participation in the government. In the event of wide-
spread discontent, incluiing rioting and effective mass strikes,
President Belau de would probably declare a state of siege and
call upon the military to support him; if he did not do so, the
military would likely move on its own, perhaps to govern by junta.
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19. The Argentine example has not been lost on Peruvian
military leaders. If they did take power, however, we think
that they would be less interested than the Argentine military in
retaining it indefinitely. They might even seek to conduct an
election close to the June 1969 schedule; however, they would went
to assure that the prospective new civilian leaoership had enough
strength to maintain political stability and to bagin an assault
upon some of Peru's enduring economic problems. Fining and
agreeing upon such civilian leadership would not be easy; once
having taken power, a military regime might find it hard to let go.
20. Instead of taking over the government overtly in the
traditional Latin &o] ,the military might try to manage Belaunde
from behind the scenes. They could rely on his agreement with
their principal objectives, but, given his deep sense of frus-
tration, such a tactic might merely induce him to abandon the
struggle and resign. Or the military might increase their already
heavy weight in the Cabinet and the administration. They will in
any case hold the keys to power and decision.
21. Whatever the outward forms of control, we believe that
Peruvian politics and foreign relations for some time to come
will evolve out of this dominance by the military. Peru is
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unlikely to devise and execute an economic program sufficiently
austere, comprehensive, long range, and vigorous to solve its
serious problems. With these problems continuing or growing worse,
the temptation will grow to blame the US for Peru's troubles, and
to loolt elsewhere in the Free World for sympathetic support.
Whether or not the government of Peru comes under the acknowledged
control of the military establishment, its policy is likely to
include two of that establishment's firm resolves: (1) to carry
out its program of "modernization" -- i.e. procurement of advanced
military equipment abroad -- impervious to argument, pressure, or
reprisal, and (2) to maintain public order no matter what dis-
gruntlement the country's economic troubles produce.
FOR THE BOARD OF NATIONAL ESTIMATES:
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SHERMAN KENT
Chairman
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