WEEKLY REVIEW SPECIAL REPORT PERU: THE REVOLUTION MOVES ON

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001000070020-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 20, 2016
• Document Release Date: October 19, 2006
• Sequence Number: 20
• Publication Date: September 6, 1974
• Content Type: REPORT

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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
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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
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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.
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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"
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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
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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
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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
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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.
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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
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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
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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.
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Contacts with Cuba, which have developed
rapidly since diplomatic and trade relations were
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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
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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
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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
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