The United States and the Peruvian Challenge, 1968–1975

On 2 October 1968, General Juan Velasco Alvarado seized power in Peru, ushering in a new era in Peruvian foreign policy. Between 1968 and 1975 (when Velasco was himself toppled in a coup), the military government took numerous steps to assert Peru's diplomatic and economic independence of the United States, sought a leading role in Third World forums, and consistently challenged United States hegemony in Latin America. This stance earned Lima the enmity of American officials, and the United States–Peruvian relationship under Velasco was frequently a rocky one.

Historians have often emphasized the antagonistic nature of United States–Peruvian affairs under Velasco, particularly with respect to the junta's expropriation of the American-owned International Petroleum Company (IPC).Footnote ¹ This being the case, what else is there to say about Velasco's foreign policy and relations with the United States? Three things, I think. First, United States–Peruvian affairs were more complex than most historians have recognized. Whilst the IPC dispute has generally dominated analyses of the relationship, this conflict was but one aspect of a multifaceted association. The United States and Peru engaged one another in multiple arenas under Velasco, contesting—and occasionally cooperating on—military, economic, diplomatic, and political issues. In the same vein, United States–Peruvian affairs were more ambiguous than is often thought. Peruvian and North American officials had fundamentally divergent preferences for United States–Peruvian and United States–Latin American relations, and rarely hesitated to undermine each other's policies. Even as they did so, however, a degree of civility and caution prevailed. American officials put diplomatic and economic pressure on Lima, but were careful not to force an open break that might poison Washington's relations with the rest of the hemisphere. Their Peruvian counterparts waged a struggle against “Yankee imperialism,” but kept the lines of communication to the White House open and at crucial junctures moderated their hostility to United States policies. It was a contentious relationship, but one that remained within bounds.

Second, Peruvian statecraft was more sophisticated and successful than most writers have recognized. Though on paper Lima was badly outmatched in any conceivable confrontation with Washington, Velasco and his diplomats often frustrated American initiatives and forced the White House onto the defensive. Matching its policies to the overall climate of inter-American affairs, the junta repeatedly out-manoeuvred Washington on political and economic issues, greatly increased Lima's diplomatic flexibility, and made Peru a prominent player in regional and Third World affairs. Richard Nixon and Henry Kissinger never cracked the Peruvian riddle, and the United States had to wait for a change of government in Lima to regain some of the influence it had lost.

Third, United States–Peruvian relations must be seen against the backdrop of a shifting inter-American system. The Peruvian revolution occurred amid a broader regional alienation from American power, and neither Peruvian nor North American officials were blind to this reality. As it turned out, Lima's initiatives proved compatible with the prevailing winds, while Washington struggled to manage the Peruvian challenge without exacerbating the ongoing crisis of American influence in the region. This dynamic increased Peru's freedom of action, undermined traditional sources of United States leverage, and went far in determining the shape of United States–Peruvian relations.

The Peruvian revolution occurred at a time of ferment in both Latin American politics and United States–Latin American relations. During the early 1960s, American policy toward the region was dominated by the need to avert “a second Cuba,” that is, to prevent additional Marxist guerrilla or political movements from coming to power. Direct military intervention in Panama and the Dominican Republic, covert meddling in British Guiana and elsewhere, and counter-insurgency programs across the region were part of a United States effort to weaken the radical Left. Support for economic development and social reform—embodied in the Alliance for Progress—was meant to inoculate the region against leftist upheaval. Most Latin American governments accepted the need to contain a Cuban government that was sponsoring insurgent groups throughout the region, and the result was the anti-Cuba coalition that took shape in the Organization of American States (OAS) beginning in 1962.

By mid-decade, however, this consensus had begun to fray. When the Johnson administration took unilateral military action in the Panama Canal Zone in 1964 and the Dominican Republic in 1965, mainstream Latin American politicians found United States policy impossible to defend. Colombian demonstrators invaded the American embassy and chanted “Down with Yankee imperialism!” Chilean diplomat Radomiro Tomic noted that Washington's policy was “pregnant with the worst threats for the Inter-American System.”Footnote ² By the latter part of the 1960s Washington was diplomatically isolated within Latin America and seeking to deal with a rising tide of anti-American sentiment.

United States intervention was not the only source of conflict in inter-American affairs. As the Alliance for Progress failed to produce rapid economic development, it discredited the intellectual paradigm—modernization theory—that had inspired this ambitious project. The resulting ideological vacuum opened the door to dependency theory, a body of ideas which held that international economic relations were inherently unequal and that Latin America's ties to the United States were thus inherently exploitive. Dependency theory swept Latin America in the mid-1960s, gaining prominence in universities, reports issued by the UN Economic Commission for Latin America, and broader popular discourse.Footnote ³

The mid-1960s also saw a dimming of hopes for democratic reform. In many cases, Alliance for Progress reforms were stymied by conservative elites and the sheer scale of Latin America's poverty and inequality. Amid the instability and insurgency that characterized this period, military establishments in Guatemala, the Dominican Republic, Argentina, Brazil, and elsewhere decided that preventing radical change required strong, authoritarian leadership. This mindset was evident in the rise of National Security Doctrine, a body of ideas centered on the need for a centralized, integrated approach to fighting subversion. National Security Doctrine held that the Cold War was a state of “permanent war” between Communism and the West, and that Moscow and its allies sought to subvert their enemies through insurgency and “ideological penetration.” In these circumstances, it was necessary to act preventively to ensure that this penetration did not eat away at the state, and to integrate all aspects of statecraft into the struggle for internal security. National Security Doctrine figured prominently in the wave of military takeovers that occurred during the 1960s and 1970s.Footnote ⁴

National Security Doctrine is often treated as a monolithic influence on Latin American politics, but the way these ideas played out was highly dependent on the national context. Military regimes in Brazil and Argentina took a conservative, highly repressive approach to internal security, and generally aligned with the United States. Elsewhere, National Security Doctrine took on a more progressive, nationalistic tone. The Peruvian revolution fit within this latter context. Until the mid-1960s, United States influence in Peru was pervasive. American officers oversaw counter-insurgency operations in the countryside; United States–owned companies dominated Peru's extractive industries. Following Castro's revolution, Peruvian governments followed Washington's examples on issues like Cuba and hemispheric security. In 1964, the United States embassy characterized Peru's policy as one of “close collaboration and warm friendship” with Washington.Footnote ⁵

The outlook began to darken at mid-decade. President Fernando Belaúnde Terry was unable to resolve a tax and land-rights dispute with IPC, which led the White House to withhold development assistance to Peru between 1964 and 1966. In 1967, the United States Congress refused to sell Peru F-5 fighter jets to upgrade its dilapidated air force. The incident annoyed Belaúnde and his generals (“You want us to keep a 1960 Cadillac rather than get a 1967 Cadillac,” the president complained), who subsequently turned to a French supplier.Footnote ⁶ Peruvian politics were also changing. The end of the Odría dictatorship in 1956 set off considerable changes on the country's political scene. Victor Haya de la Torre's American Popular Revolutionary Alliance (APRA) moved substantially to the right in exchange for a return to legality, alienating many of Haya's erstwhile supporters. Hugo Blanco led an exodus of left-wing apristas, organizing more than 300,000 peasants into campesino leagues and leading a wave of land seizures. Following the Cuban revolution, other ex-apristas constituted APRA-rebelde, a splinter group that turned to guerrilla violence.

Though the military quickly dealt with the guerrillas, the insurgency nonetheless had a transformative impact on Peruvian politics. Peru's military had long shown a proclivity for intervention in the political process. During the 1950s and 1960s, though, the Cuban revolution and the emergence of National Security Doctrine added new elements to military ideology. In the Consejo de Altos Estudios Militares, Peruvian officers took courses not simply in military strategy, but also in geopolitics, economics, development, and social issues. This broadened focus combined with the effect of the Cuban revolution to make many officers aware of the incendiary potential of Peruvian underdevelopment. Yet unlike in most of Latin America, where such fears produced highly repressive regimes, in Peru the lower- and middle-class origins of many officers gave National Security Doctrine a progressive feel. The idea that, as one officer put it, that “there is no defense without development,” informed the decision to launch an agrarian reform after the military seized power in 1962.Footnote ⁷ When Haya and Peruvian conservatives stymied the reform program of Belaúnde's government at mid-decade, many military observers resolved that a more forceful approach was needed to keep the country's social tensions from exploding. After the IPC dispute and an economic crisis discredited Belaúnde in 1967–68, Velasco and his supporters deposed the president.Footnote ⁸

The United States embassy deplored this episode as an “old-fashioned palace coup,” but the reality was different.Footnote ⁹ Whilst Velasco jailed opponents and shut down the electoral system, the junta was hardly a “typical” Latin American military regime. Velasco nationalized industries, expropriated large estates, and pledged to overturn Peru's “unjust social order.” One Ford Foundation associate in Lima commented that the junta's programs “represent many of the major promises which progressive politicians in Peru have been unable to put into practice over the years.”Footnote ¹⁰

The military government was also notable for its strongly nationalistic diplomacy. Before taking power, Velasco said that Peru “must stop being a colony of the United States.” Once in office, he quickly expropriated IPC's holdings. The junta promised the “definitive emancipation of our homeland,” pledging to take a “nationalist” and “independent” attitude toward the United States government and American organs in Peru.Footnote ¹¹ In some sense, this stance reflected domestic political imperatives. Velasco's tenure featured major disagreements amongst the various armed services, especially the Army and Navy, over foreign policy and the pace of social and economic reform. To protect his own position within this volatile situation, and to win support amongst Peruvians more generally, Velasco turned to what he saw as a sure political winner: a more nationalistic foreign policy. Twitting the United States was broadly popular with Peruvians, especially amongst key domestic groups, such as students and intellectuals, whose backing Velasco cultivated.Footnote ¹² Just as important, the increased public backing that Velasco garnered through these policies would help him solidify his standing amongst the armed services and push ahead with his reform program. Edgardo Mercado Jarrín, who as foreign minister and later prime minister under Velasco exerted considerable influence over Peruvian foreign policy, later acknowledged that the junta's anti-United States program had allowed it to overcome what was initially a “very difficult” internal situation.Footnote ¹³

Velasco's policies also reflected deeply held convictions about international and inter-American geopolitics. Velasco and Mercado took a dim view of Peru's traditional economic links to the United States. United States corporations, Velasco charged in 1969, repatriated profits reaped from exploiting Peru's natural resources, financing the “spectacular development” of the industrialized countries whilst ensuring Peru's continued impoverishment. In the same manner, the United States had used its position at the head of the Western bloc to maintain trade arrangements “notoriously disadvantageous” to the poor countries. Washington demanded that the underdeveloped nations lower tariffs to allow in United States goods, thereby preventing these countries from developing the industrial and export sectors needed to compete in the global economy. If Peru were to achieve greater prosperity, it would have to loosen the ties that bound it to the United States.Footnote ¹⁴

Mercado and Velasco also chafed at the strictures of United States–Peruvian diplomatic relations. During the early Cold War, Mercado believed, Washington had used the Soviet bogey to tighten its control over Latin America. As early as 1962, he argued that the anti-Soviet and anti-Cuban policies insisted upon by the White House unduly restricted Peru's political and commercial intercourse with these countries, and therefore reflected “subordination to the politics [of the United States]” rather than a true reading of Lima's interests. Mercado later issued a similar critique of the Rio Pact, charging that the treaty was aimed at ensuring that “Latin America be inflexibly associated with one of the great powers.”Footnote ¹⁵

From Mercado's perspective, a fundamental revision of Peruvian geopolitical strategy was therefore in order. Early in his tenure as foreign minister, Mercado concluded that Peru could no longer accept that the Cold War was the basic feature of world politics. The world was indeed “split in two,” but the divide was along North–South rather than East–West lines. To redress the inequities of the global economy, Peru must cast its lot with those Third World nations “united in hunger, misery, colonialist exploitation, [and] humiliation.” It was this confrontation between “the rich countries and the periphery,” not Cold War concerns, that must move to the forefront of Peruvian diplomacy.Footnote ¹⁶

In the aftermath of the coup, Mercado and Velasco proclaimed their intent to chart a new course in foreign relations. Velasco and several associates privately referred to themselves as “Nasseristas,” and resolved to open diplomatic relations with the Soviet Union and its allies. The general also demanded that the United States reduce tariffs on Latin American goods, announced plans to tighten Peruvian rules on foreign investment, and declared that the “economic emancipation” of the country was at hand.Footnote ¹⁷

These steps notwithstanding, the junta did not seek a total break with the United States. Peru required some degree of foreign investment and foreign lending to sustain its industries, and the deeply anti-communist Velasco had no plans to seek a military alliance with the Soviet Union. What the junta intended, rather, was to reduce United States influence while avoiding an outright rupture—as Mercado put it, to reach a “modus vivendi.”Footnote ¹⁸ Even so, Peruvian policies entailed considerable risk. Washington would presumably react unfavorably to the junta's program, and might deploy a number of countermeasures against Peru. The Hickenlooper Amendment allowed the United States to terminate economic assistance to Peru and block its access to World Bank, International Monetary Fund (IMF), and Inter-American Development Bank (IDB) loans if Lima did not compensate IPC within six months of the seizure. Washington could also reduce Peru's sugar quota or even seek to foster a counter-coup by cultivating disaffected military elements.

During late 1968 and 1969, Velasco and Mercado devised a strategy to guard against these dangers. To raise the economic costs of any hostile action by the United States, they obliquely threatened to seize other United States-owned companies if Nixon imposed sanctions.Footnote ¹⁹ They also implemented a “strategy of three concentric circles” aimed to strengthen the junta's diplomatic position. The first circle encompassed Peru's neighboring countries, the second comprised all of Latin America, and the third represented the underdeveloped world as a whole. Within each of these circles, Peru must build firm economic and political relations, so as to be sure of international support in any crisis with the United States.Footnote ²⁰

Following the coup, the junta enacted its plan. Fearing CIA intrigues, Velasco banished the United States military mission from the country. In February, Mercado established diplomatic relations and signed a trade pact with the Soviet Union.Footnote ²¹ Lima also considered establishing relations with Cuba, but held off after Fidel Castro warned that doing so would make it easier for Washington to isolate Peru diplomatically.Footnote ²² In mid-1969, the regime joined Bolivia, Chile, Ecuador, and Colombia in forming the Andean Pact, a trade bloc premised on the notion that only by combining their industrial and agricultural resources could Latin American countries negotiate with the United States on equal terms. The agreement, Velasco later explained, was a tool for overcoming “Peru's virtual subordination to the hegemonic centers of foreign power.”Footnote ²³

Lima became active in broader international forums as well. Peruvian efforts were integral to the shaping of the “consensus of Viña del Mar,” a document signed by 21 Latin American foreign ministers in June 1969. Later presented to Richard Nixon, the manifesto echoed Peruvian demands for an overhaul of the inter-American economic system.Footnote ²⁴ Velasco was similarly diligent in seeking the support of the non-aligned and underdeveloped countries. Peruvian officials touted their “independent foreign policy” and ascribed the plight of the underdeveloped states to the “structural disequilibria” of the world economy. Lima stepped up its participation in the Group of 77 and Non-Aligned Movement (NAM), and would eventually assume leading positions in both groups.Footnote ²⁵

These changes did not sit well with Washington. Richard Nixon and his foreign policy team viewed Velasco with disdain, thinking him little more than an anti-American rabble-rouser motivated by a “compulsive and not particularly intelligent nationalism.”Footnote ²⁶ Other officials were suspicious of the junta's friendliness toward Moscow. “The Russians are starting to move in,” warned Secretary of State William Rogers.Footnote ²⁷

The situation in Peru seemed all the more troubling because it looked to be indicative of a broader challenge to United States interests in Latin America. In the first months of Nixon's presidency, the NSC was deeply concerned with an apparent spike of “radical” nationalism in the region. Desires for economic development, resentment at the power of American corporations and the failure of the Alliance for Progress, and anger at the heavy-handed interventionism of the 1960s had created a strong impetus for change, NSC analysts reported. One study predicted growing “self assertiveness” and “bitter anti-U.S. sentiment” amongst Latin Americans in the years to come. These pressures would likely erode the United States-led isolation of Cuba and, one adviser warned, “will almost surely create an environment hostile to American influence and to any indications of American commercial dominance.” Perhaps most troubling, a desire to break free of Washington's orbit might cause Latin American governments to turn to Moscow “as an alternative to Latin dependence on the U.S.” In 1969, Nixon told advisers that nationalism was the “main problem” in United States–Latin American affairs.Footnote ²⁸

Viewed from this angle, the Peruvian Revolution appeared an ominous portent. Kissinger worried that, if Peru's nationalist program proved successful, other Latin American countries might follow Lima's lead. “Peru or Velasco-type governments,” he told advisers, would probably try to “secure popular support through anti-American actions.”Footnote ²⁹ Nixon harbored the same fears. He predicted that Peruvian practices might spill over into other Andean countries, and instructed his advisers to consider the probability of a new military regime in Bolivia “following the path of Peru.”Footnote ³⁰

Within this context, some administration officials desired to take a hard line toward Peru. Kissinger and Nixon frankly acknowledged that United States policy toward Latin America must be “anti-nationalist,” and adviser J. Wesley Jones believed that the American response to the IPC expropriation must be sufficiently resolute “to preserve [the] credibility and integrity of U.S. position, not only in Peru but throughout Latin America.”Footnote ³¹ Congressional sentiment also overwhelmingly favored making an example of Velasco.Footnote ³² Yet there were also arguments against a confrontational policy. Chief amongst these was uncertainty as to the reaction that a hostile stance might elicit. After all, while the situation in Peru had turned disadvantageous to the United States, it could still get much worse. If Nixon pushed too hard, he perhaps risked driving Peru into a Soviet embrace and provoking additional seizures of United States companies. (Peruvian officials actively exploited these fears, with Mercado declaring, “We all remember what happened in Cuba.Footnote ³³ ) Accordingly, the Cuban example was never out of mind in Washington. “Maintaining credibility for the [United States] in Peru … is not a gain if in the process we create a hostile anti-U.S., Castroist regime where one does not now exist!” Kissinger told subordinates.Footnote ³⁴ Nixon also cautioned American officials not to do anything that might force Velasco to conclude that he had no alternative to an alliance with Moscow. “We cannot succumb to the Aswan syndrome where Peru is concerned,” he said.Footnote ³⁵

Moreover, a confrontation with Peru might have fallout throughout Latin America. As Velasco and Mercado had hoped, the junta's emphasis on economic development and its willingness to confront the United States played well in a region where many countries still resented the interventionism of the 1960s and were struggling with disappointing economic performance. Kissinger feared that the United States could not win a public confrontation with Velasco, and told Nixon that invoking the Hickenlooper Amendment would “surely precipitate widespread and vehement criticism of the US throughout Latin America.”Footnote ³⁶

Nixon tried to reconcile these divergent interests. He played for time, delaying action on Peru until mid-1969. United States representatives postponed an IDB vote on a $20 million road loan to Peru as long as they could quietly do so, then approved the project when further stalling threatened to cause controversy. When Nixon finally set his policy in July, he combined elements of the hard-line and conciliatory positions. The administration decided upon the “discreet application of maximum economic pressure against Peru,” resolving to delay IDB and World Bank loans until the junta made restitution to IPC. After Peru seized several American tuna boats alleged to be operating in Peruvian waters, Nixon also suspended military sales to Lima. At the same time, the president decided not to invoke Hickenlooper and thus avoided an immediate cut-off of existing aid projects. So long as there was “any plausible basis” to claim that Peru was committed to reaching an agreement on IPC, Nixon wrote, the United States would not enact Hickenlooper or reduce Lima's sugar quota. In essence, Nixon meant to pressure Peru without doing anything that could be viewed, in Lima or elsewhere in Latin America, as an undue provocation.Footnote ³⁷

The Peruvians reciprocated this ambivalent stance. The junta insisted that it would not negotiate on IPC, but Velasco took care not to goad the Nixon administration into more drastic action. He attributed United States–Peruvian difficulties to a “problem with one company, nothing more,” and held out the prospect of reconciliation, provided that Washington accepted his domestic and international policies.Footnote ³⁸ Through mid-1970, United States–Peruvian relations thus consisted of an odd mixture of politeness and hostility. Each government had resolved to challenge the policies and power of the other, but at the same time worked to keep the resulting confrontation within limits.

This climate began to change in May 1970, when Peru suffered a devastating earthquake. The National Security Council (NSC), though cognizant that providing disaster relief would “cut across our policy of maintaining non-overt economic pressures on Peru,” acknowledged that “it would be indefensible to deny humanitarian aid in this tragic situation.” Washington released several million dollars in relief funds and scored some gratitude from Velasco.Footnote ³⁹ A harder shove toward better relations came in late 1970, when socialist Salvador Allende triumphed in Chile's presidential elections. For Peru, Allende's victory was a mixed blessing. On the plus side, it brought to power a leader who sympathized with Peru's revolution and offered full-throated support for Lima's struggle against the United States. Indeed, with strong encouragement from Cuba and the Kremlin, Allende moved to strengthen relations with Velasco.Footnote ⁴⁰ Chilean officials regularly praised Peruvian policies and, as part of a strategy aimed at breaking what Foreign Minister Clodomiro Almeyda termed “the doctrine … of ideological borders,” Lima and Santiago led an Andean Pact initiative that significantly tightened restrictions on foreign investment.Footnote ⁴¹

Yet Allende's triumph also represented a threat to the Velasco regime. Given the traditional antagonism between Peru and Chile, Allende's efforts to purchase Soviet arms could not fail to alarm Velasco and his generals.Footnote ⁴² Velasco believed that the emergence of new communist governments in Latin America posed a “serious danger” to hemispheric unity, as it would allow Washington to resurrect the red menace and distract regional leaders from the central task of challenging United States hegemony.Footnote ⁴³ Even more important, Velasco and Mercado feared that the rise of a communist regime in Chile might give encouragement to those who wished to push the Peruvian Revolution further to the left. This worry was particularly relevant in the early 1970s, as the disappointing pace of Velasco's agrarian reform prompted demands for a more radical approach to socio-economic issues. If Allende's program succeeded, Mercado remarked, it would have a “powerful demonstration effect.”Footnote ⁴⁴

Velasco and his advisers therefore played a double game in 1971–72. They cooperated with Allende on certain issues, but hedged their bets by simultaneously seeking greater understanding with the United States. Mercado called for United States–Peruvian cooperation “against the spread of Marxism in Latin America.” Velasco did the same, labeling Chilean communism “our common foe.”Footnote ⁴⁵ Nixon and Kissinger were an attentive audience for these overtures. As Nixon and Kissinger initiated various programs to destabilize Allende's government, they also reconsidered their policy toward Velasco. While revolutionary nationalism had earlier appeared to threaten United States interests, it now seemed a welcome alternative to Latin American communism. Additionally, with a new threat emerging in Chile, Nixon sought South American allies wherever he could find them. The United States embassy saw “strong currents of mutual self-interest” in Peruvian–United States relations, and called for “constructive and adaptive” support for Velasco.Footnote ⁴⁶

In 1971–72, Peru and the United States took several cautious steps toward one another. In April 1971, Nixon invited Velasco to visit the United States and approved a $12 billion road-building loan to Peru. Velasco agreed to begin secret negotiations on the IPC dispute and reached a settlement with other expropriated companies. When Mercado came to Washington in September 1971, he referred to the junta's third-way policies as “a bulwark against Peru's going communist” and appealed for United States aid. “If we fail,” he said, “it will only be worse for you.” Kissinger agreed, assuring Mercado of “our interest in the success of the Peruvian experiment.” When floods struck Peru in May 1972, the White House responded with $27.5 million in disaster relief. By mid-1972, Nixon had directed the NSC to study the possibility of a complete overhaul of United States policy toward Peru, and aide Alexander Haig termed United States–Peruvian relations “extremely satisfactory.”Footnote ⁴⁷

Yet this momentum toward rapprochement soon dissipated. In both countries, domestic opposition impeded further cooperation. In the United States, congressional and bureaucratic pressures constrained administration policy. In the late 1960s and early 1970s, there was a broad upsurge of economic nationalism in Latin America. A number of countries seized American-owned companies or restricted foreign ownership of certain industries. Guyana nationalized its bauxite industry, Allende seized United States copper and telecommunications companies, and even Mexico enacted stricter rules on outside investment.Footnote ⁴⁸ In 1971, OAS secretary-general Galo Plaza captured the general mood by demanding “the total exclusion of foreign capital from those sectors of vital national interest.”Footnote ⁴⁹

This rise in economic nationalism led a number of congressmen and United States officials to agitate for tougher policies against expropriating countries. Treasury Secretary John Connally warned of “snowballing expropriations” and urged Nixon to impose sanctions on governments that failed to make prompt and adequate compensation.Footnote ⁵⁰ Kissinger and the State Department opposed this position, fearing that it would antagonize Latin American governments and end any chance of a breakthrough with Peru.Footnote ⁵¹ Faced with strong domestic support for Connally's position, Nixon overruled his foreign policy advisers, and in early 1972 he announced that the United States would terminate aid and block loans to expropriating countries.Footnote ⁵² Over the next several months, Connally and the Treasury Department made a point of ensuring that this new policy hurt Peru, ordering United States representatives to veto Export-Import Bank loans to Lima.Footnote ⁵³ This hard-line stance produced a sharp backlash; Peruvian diplomats criticized Nixon's stance as an act of bad faith and rallied opposition in the OAS.Footnote ⁵⁴

In Peru, too, domestic problems complicated relations with the United States. From a political standpoint, Velasco could not be too accommodating toward Washington without jeopardizing his internal position. The revolution was predicated upon economic and political nationalism, after all, and these sentiments were crucial to the popularity and cohesion of the military government. One Peruvian diplomat admitted as much, lamenting that “internal considerations” and the “need to retain an effective voice within the government” often compelled strong responses to perceived slights. When word leaked of the secret IPC negotiations in early 1972, Velasco was greatly embarrassed and promptly disavowed the talks.Footnote ⁵⁵

The fact that United States–Peruvian relations remained so precarious indicated a more fundamental issue between the two countries: that the rise of Allende had merely obscured, rather than assuaged or reconciled, their conflicting diplomatic aims. This much was clear from an essay that Mercado published in 1973, in which he affirmed the junta's foreign policy goals. The most salient issue in international affairs, he averred, was the “North–South conflict, between the rich countries and … the poor countries of the Third World.” Mercado advocated forming “a common economic front” against Washington and called for an end to the “special relationship” between Latin America and the United States. Events in Chile compelled a degree of cooperation between Washington and Lima, but they did not mean that Velasco and Mercado had abandoned their fiercely independent worldview.Footnote ⁵⁶

The same essential skepticism also figured in United States policy. Peru's “third way” might be more appealing than Cuban or Chilean communism, but it still worried Kissinger, who feared that Velasco's anti-hegemonic example might contribute to Latin America “sliding into the non-aligned bloc and compounding our problems all over the world.”Footnote ⁵⁷ As the administration made a concerted effort in 1973 to shore up the “special relationship” with Latin America, its basic philosophical disagreements with Peru became all the clearer. Haig put it best in late 1972. Try as Washington might to improve relations with governments like Peru's, he said, “the fundamental forces and factors that have caused the basic problems for many years are still there.”Footnote ⁵⁸

This conflict was evident throughout the early 1970s. In late 1971, Lima inked an economic-technological agreement with Moscow and requested Soviet support for an irrigation project in the Olmos desert. The accord furthered Velasco's efforts to diversify Peruvian trade and helped compensate for Lima's lack of access to AID and IDB funds.Footnote ⁵⁹ Along the same lines, in 1972 Velasco secured Japanese backing for expansion of the Peruvian telecommunications industry and the construction of a new fertilizer plant.Footnote ⁶⁰

Policy toward Cuba was another area of confrontation. In April 1972, Lima introduced an OAS resolution to lift the organization's ban on diplomatic relations with Havana. In part, this decision reflected the relative success of Cuban diplomacy over the past several years. Since Che Guevara's death in 1967, Castro had mended fences with a number of governments he had previously derided as American lackeys. Castro warmly praised non-communist reformers, calling Velasco “a man of the Left” and lauding the “courage” and “integrity” of the Peruvian junta.Footnote ⁶¹ This policy paid dividends in the early 1970s, as a number of governments concluded that Cuba was no longer the threat it had once been. One objective of Peru's opening was to put Lima at the head of this shift in opinion. In defending his Cuba policy, Velasco explained that it was “obvious” that there was no longer a “consensus in Latin America” in favor of shunning Castro.Footnote ⁶²

Peru's Cuba policy also served as a means of asserting Lima's ability to pursue its interests regardless of United States opposition. In 1971 and 1972, Nixon and Kissinger argued strongly against any relaxation of OAS policy toward Cuba. By playing the contrarian, Velasco could enhance his nationalist credentials. Peruvian diplomats admitted privately that there was a strong domestic political component to the policy, and Velasco proudly proclaimed that the endeavor was part and parcel of the junta's determination to realize the “full vindication of the exercise of our sovereignty.”Footnote ⁶³ Though Peru failed to muster the votes necessary to overturn OAS isolation of Cuba in early 1972, Velasco reestablished relations with Havana in June.

The Cuban question was only one of several on which Peru challenged Washington in the OAS. During 1972–73, Peruvian diplomats spearheaded efforts to reform the organization and make it less responsive to United States demands. They lobbied to move the OAS seat from Washington to a Latin American site. In response to Nixon's expropriations initiative, they led a campaign resulting in two OAS resolutions that criticized this policy of “economic aggression.” To make hay of Washington's continued ostracism of Cuba, Velasco issued calls for “political pluralism” in the hemisphere.Footnote ⁶⁴

Aside from their efforts to isolate the United States within Latin America, Peruvian officials continued to cultivate Third-World diplomatic alliances. Velasco called his revolution “part of the vast insurgency of the poor nations of the earth,” and Peru officially jointed the NAM and lent outspoken support to Third-World initiatives such as the UN Charter of Economic Rights and Duties of States and the New International Economic Order. In 1974, the junta affirmed that it stood with the developing nations rather than the now-crumbling inter-American community led by the United States, pledging to “participate actively in the ‘Third World’ group.”Footnote ⁶⁵

The methods of Peruvian diplomacy were on full display in a dispute over maritime rights and territorial waters in the early 1970s. Since 1969, Peru had claimed a 200-mile limit for its territorial waters in an effort to keep foreign fishing boats from exploiting fisheries off the Peruvian coast. The United States supported a 12-mile rule. The dispute sharpened between 1971 and 1973, as the Peruvian navy seized American-owned boats operating within the 200-mile zone. Velasco briefly called a halt to the seizures in early 1972, but resumed the practice in 1973. In the first few weeks of that year, Peru seized 33 American tuna boats, producing an outcry in Congress.Footnote ⁶⁶

As the confrontation escalated, Velasco bolstered Peru's position by involving as many third parties as possible. Mercado and Miguel Angel de la Flor (who became foreign minister in 1972) condemned United States “violations” of the 200-mile zone as contrary to OAS principles, and quickly lined up Latin American support for Peru's position. Lima forged a diplomatic alliance with Ecuador, which also claimed a 200-mile limit, agreeing not to negotiate the issue without one another. This posture, along with the decision to go to the OAS, made the confrontation a multilateral one, and significantly reduced United States leverage on either Peru or Ecuador. Most Latin American governments supported the 200-mile claim, and even those that did not could hardly back Washington without leaving themselves vulnerable to charges of undermining Latin American solidarity. By August 1973, NSC adviser Jack Kubisch saw no way for the United States to defend its position without risking a diplomatic backlash in Latin America, and he admitted that the fisheries disputes “adversely affect our relations in the Hemisphere.”Footnote ⁶⁷

Kubisch's lament was a common one during the early 1970s. On subjects ranging from maritime rights to expropriations policy to OAS reform, Peruvian diplomats succeeded in isolating Washington from Latin American opinion and rallying support for their own stance. The United States embassy reported that Velasco had perfected the art of placing Washington in an “unwinnable confrontation.” Only on the Cuban issue did Peru fail to win broad Latin American backing, and even here the military government garnered plaudits for its stance. (In fact, support for lifting the OAS ban soon strengthened enough for a similar measure to pass in December 1974.) By 1972, United States officials acknowledged that the junta had been strikingly effective in keeping Washington off-balance. Velasco, wrote one analyst, “has never engaged the United States in a dispute in which we had a chance of winning or even of retaliating without damaging our own interests.”Footnote ⁶⁸

As early as late 1972, it was obvious that Velasco was unlikely to change course in his relations with Washington. There remained a number of basic issues separating the two countries, and United States efforts to exert pressure on Peru had largely come to naught. In early 1973, the American embassy reported that Velasco not slackened his efforts to create an “anti-U.S. coalition” in Latin America, and admitted that attempts to induce greater cooperation from Peru had failed. “Rather than caving in,” the ambassador wrote, Peru “seems to be looking for safe ways to put pressure on the United State”Footnote ⁶⁹

United States exasperation only increased in 1973. In December, word leaked that Velasco had contracted to purchase two-dozen Soviet tanks. The deal, which initiated a decade-long military relationship between Lima and Moscow, reflected Peru's perceived regional security needs more than any desire for an alliance with the Kremlin. In September, a right-wing coup had toppled the Allende government in Chile. The new regime made clear its antipathy to the “Peruvian experiment,” and relations between the two countries soon deteriorated into talk of war. As Nixon enthusiastically backed Chile's military rulers, Velasco looked to strengthen his own position. Peru could not “wait with our hands in our pockets” as the Chilean threat grew, he explained. After it became clear that the United States Congress would not approve a tank sale to Lima, Velasco turned to the Kremlin.Footnote ⁷⁰

Though the tank deal had not originated as an anti-American maneuver, the arrival of Soviet heavy weapons in Peru caused much consternation in Washington. The United States embassy warned that Moscow “will have new opportunities to influence Peruvian officers who will be trained in operating and maintaining Soviet weaponry.” These concerns only increased when Lima subsequently purchased advanced artillery and anti-aircraft systems from Moscow.Footnote ⁷¹

Relations with Peru improved slightly in 1974, but even here the waning of United States influence was evident. The Peruvian economy had sputtered badly in 1973, forcing Velasco to look to the IDB for help. This, of course, required resolving outstanding expropriation disputes with the United States. In August, Peruvian diplomats indicated that they would consider compensating a number of expropriated United States companies. In Washington, these events raised hopes that Velasco might finally make restitution to IPC. These expectations were quickly dashed. The junta refused to include IPC in any settlement, or even to discuss the matter.Footnote ⁷²

Velasco could afford to take a hard line, because by early 1974 the NSC was desperate to reach any settlement on the expropriations issue. During 1972–73, opposition to Nixon's expropriations policy grew to the point that it posed a serious diplomatic problem for the United States. Kubisch warned Kissinger that the “denial of economic benefits” to expropriating countries had resulted in a widespread “alienation from U.S. leadership.” Many Latin American governments considered expropriation “an act of sovereignty,” and detested Nixon's policy as a result. Added to rumors that the United States had overthrown Allende in order to protect American corporations in Chile, these feelings created strong resentment of Washington's economic policies in Latin America.Footnote ⁷³

United States negotiators therefore treated the IPC issue with great delicacy, and when the two countries reached an agreement in February 1974, there was no mention of the company in the official text. Peru pledged to pay $150 million to the United States government, which would then distribute the money to 11 expropriated firms. In return, Washington organized $150 million in private loans to Peru and refrained from blocking future IDB loans. IPC eventually received some compensation from the United States government, but Velasco could and did claim that the junta had held firm.Footnote ⁷⁴

The same perception of isolation that produced the expropriations settlement soon moved Nixon and Kissinger to liquidate the territorial waters dispute. Through early 1974, the United States and Peru had been deadlocked on this question, and the Nixon administration found itself under heavy criticism in the OAS. In mid-1974, Kissinger gave up on reaching a bilateral settlement with Peru, and offered to leave the issue to the ongoing International Law of the Sea conference. Velasco's negotiators agreed, calculating that Peru would receive a sympathetic hearing in a forum populated with other underdeveloped countries.Footnote ⁷⁵

By the end of 1974, it had become clear that Velasco's occasional cooperation with Washington represented tactical accommodations to difficult circumstances rather than any substantive revision of his foreign policy. The Peruvian regime continued to keep its distance from Washington, identify with the Third World, and seek ways of bounding United States influence in Latin America. In December, the American ambassador reported that the Peruvian challenge had not abated and predicted “continual strains” in the relationship over the coming year.Footnote ⁷⁶

Ultimately, it was not diplomatic pressure but rather economic crisis and regime change that altered Peru's stance toward the United States. By 1975, the economic pillars of Velasco's experiment were giving way. The national debt had skyrocketed, fueled by rising oil prices and promiscuous borrowing, and the economic situation had become quite dire. Velasco had maneuvered out of such crises before, but this time his health failed him. He had suffered an embolism and lost a leg in 1973, and his condition worsened thereafter. By early 1975, he had begun to slur his speech at public appearances. The perpetual fractiousness within the ruling clique metastasized, and in August a group of officers deposed Velasco, unseating him just as Peru hosted the conference of the NAM.

Velasco's successors initially proclaimed their rule the “second phase” of the Peruvian revolution, but economic realities soon forced them to modify his policies. They continued to buy weapons from Moscow, but entertained greater cooperation with Washington and the international financial institutions. The junta pledged that there would be no additional expropriations, and it eventually agreed to roll back interventionist economic policies in return for economic assistance from the United States and the IMF. Though independence and autonomy were still keywords of Peruvian political discourse, relations with the United States gradually improved.Footnote ⁷⁷

Recent scholarship on the Cold War has emphasized the degree to which small and medium Powers exploited the dynamics of the United States–Soviet contest to achieve a surprising degree of autonomy within the bipolar context of postwar geopolitics.Footnote ⁷⁸ The case studied here indicates both the strengths and the limitations of that analytical framework. As the policies of Velasco's successors showed, Peru remained part of an international economic system dominated by the West, and creative diplomacy could not allow that country to escape the structural constraints of underdevelopment and United States hegemony.

Yet what is also remarkable about this period is the fact that Lima acquitted itself so well in Velasco's numerous diplomatic endeavors. By 1975, Peru had won recognition as a leader of the nationalist movement in Latin America and gained a substantial voice in Third World gatherings, as evidenced by its hosting of the NAM conference in August 1975 (just as Velasco was toppled, ironically). Velasco had established military, diplomatic, and economic ties with the Soviet bloc and China, thereby achieving a modest broadening of Peru's economic opportunities and improving its diplomatic flexibility. He had reduced foreign influence in Peru's extractive industries and driven a hard bargain in negotiating expropriation disputes. Not least of all, the military government had several times outmaneuvered Kissinger and Nixon, getting the best of Washington in various diplomatic tangles.

The United States, on the other hand, was constantly on the defensive in dealing with Velasco. Nixon and Kissinger had inherited a difficult situation in Peru, and actually did fairly well in minimizing a number of crises that might have turned into full-scale blow-ups. But despite the fact that they wielded economic and diplomatic power far greater than that of Peru, United States officials never devised an effective policy for either pressuring or enticing the Velasco government to change course.

In one sense, this outcome owed to astute Peruvian diplomacy. Velasco and Mercado designed a workable program for isolating the United States and depriving it of options for combating Peruvian nationalism. They picked their battles well, and with few exceptions contested issues on which they were sure to have substantial Latin American backing. Even as it confronted Washington, however, the junta was careful not to go too far. During the crucial period of 1970–72, the Peruvians made the right noises and thereby capitalized on Washington's hostility to Allende. In all, Peruvian foreign policy during the Velasco years provides a clear example of how a comparatively weak nation can successfully navigate a confrontation with a vastly more powerful opponent.

Skillful though Peruvian diplomacy was, however, the contours of Lima's relationship with the United States also reflected forces beyond Velasco's control. During the late 1960s and 1970s, United States influence in Latin America had come under fire. Washington was struggling to deal with ascendant economic nationalism and the blowback from its own policies; the “special relationship” was breaking down. While this deterioration of the American position led Nixon to use harsh measures against Allende's government, it also made North American officials wary of doing anything to exacerbate this predicament. The United States still possessed preponderant power in the hemisphere, but the very use of that power threatened to be counterproductive. The caution this reality induced created leeway for countries like Peru, allowing them to issue challenges that were difficult for the White House to answer. As much as the successes of Peruvian diplomacy stemmed from the skill of its practitioners, they also reflected this changing regional context. With the United States in retreat, the door was open to the Peruvian challenge.