Created: 3/6/1969

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Elements of Friction With the











To assessesequences of the controversy aver the property of the International Petroleum Company (LTC) with respect to the prospects for Peru under the military regime. Its relation* with the US, and the implications of developments In Peru for US relations In Latin America generally.


A. Because the issue is now caught up in highly emotional nationalism, the military regime in Peru will almost certainly not meet the requirements of US law for compensation of the IPC for it3 expropriated assets. Thus, if all the forces now In train

continue, the crisis with Peru over the IPC vlUajor oneperhaps disastrous for Peru and far LB-Peruvian relations.

the initial economic Impact of theSugar Act amendments by themselves would not be severe,reduction of International lending and privatedirectly or indirectly because of US actionwouldconsequences for Peru. Over the long run Peru wouldface severe eccecalc strains. At worst, theby US sanctions could lead thedrastic Improvisations*

application of US legislation even in therequired would provoke sharply anti-US soot lire etaPeruvian Government and society. This would beIf President Velaaco renins In office (as we believeaanctlcns went beyond what the amendments require,would deteriorate drastically. Under Velasco,eight coma to Include expropriation of otherreak In diplomatic relations.

Velasco's personal entourage, apart freethe cabinet who support him, ic composed of sen whooe political

continue, the crlols vith Peru over the IPC willajor oneperhaps disastrous for Peru and for OS-Peruvian relations.

the Initial economic impact of theSugar Act amendments by themselves would not be severe,reduction of international lending and private investmentdirectly or Indirectly because of US actionwouldconsequences for Peru. Over the long run Peru wouldface severe economic strains. At worst, theby US sanctions could lead the militarydrastic Improvisations.

application of US legislation even in therequired would provoke sharply anti-US sentimentsPeruvian Government and society. This would beif President Velasco remains in office (as we believesanctions went beyond what the amendments require,would deteriorate drastically. Under Velasco,might come to Include expropriation ofreak in diplomatic relations.

Velaeco's personal entourage, apart fromthe cabinet who support him, is composed of men whose political


views cover the spectrum from extreme right to extreme left. All appear to be ultranatlonallstlo and anti-American. We have noto Indicate that the advisers on the political left have influence on Velasco which Is different from or greater than that of the other ultranmtlcnallsts.

E. If President Velasco should be removed from officeroup of relatively moderate generals, either before or after US sanctions were Invoked, actions against the U3 would probably be less extreme; they might be confined to such comparatively short-term reprisals as preventing the remittance of profits by US But no one could hold office in Peru's present and prospective climate who appeared to give way on the IPC issue or failed to assert strong independence of US influence.

7* Peru's recent eoves to establish diplomatic and ccencode relations with the ISSR and other European Communist countries, which were begun last year under President Belounde, probably arehow of Independence from the US (and an effort to expand markets)erious Intention toirm and close relationship. We doubt that either side will be anxious to move rapidly in that direction, though Peru may entertain hopes (in our view unrealistic) of important economic benefits.

G. Is Latin America the public reaction to US actionsbe generally acrimonious, and will teed to harden Peru'sthat lte cause Is Just. The danger Is not so much that other governments will officially Join with Peru In condemning LC policy, by such means as votes In the Organization of American States, as that they will be stimulatedeneral sharpening of resentments they already feel, especially In the sphere of economic relationships. Overumber of countries will probably try harder to broaden their foreign economic and cultural relationsrotection against dependence upon the US and they may care much leas about how the US views the propriety of these new relationships.



1. Inhe military establishment in Peru threw out the government of President Fernando Belaunde Terry, whose election it had supported The military leaders deplored

the chaotic state of civilian politics and vere eoDcemed about growing economic strains. Moreover, they feared that the political and economic malaise would favor the election to the presidency9 of their archenemy, Victor Raul Bays de la Torre.

A military coup had been undertaken2 to forestall Raya's election; the ruling Junta at that time acted only as acaretakeroalition of political parties strong enough to elect Belaunde could be formed. By the time of8 coup, however, the military leaders were convinced that constructive representative government was beyond Peru's ken. They have made it clear that they intend to retain direct control of the governmentong time, In order, they say, to right the centuries-old wrongs in Peru's political, economic, and social structure.

To create immediate popular support for their regime, they seized upon the most nationalistic issue availableustification for the coup: condemnation of Belaundeerms of settlementongstanding dispute with the US-owned IPC, which were widely regarded in Peru ss being too favorable to the company. They then proceeded toajor part of IPC's assets. The ramifications of this action now threaten not only to strain

gravely Peru's relations vith the US, but also to compound the difficulty of the tasks the regime has set for itself within Peru. These developments in turn could focus the attention of other Latin American governments upon their own growing objectionsariety of US policies.

Elements of Friction With the US

The expropriation took placaackground of long-smouldering general resentment toward the US on the IPC and other Issuesesentment steaming in large part from Peru's heavy economic dependence on the US. US firms dominate many of the country's export industries (especially mineral exports) and have been increasing their Influence in the domestic economy as well. Per several yoars the US has purchased more than hO percent of Peru's exports and furnished nearly ho percent of Peru's Imports.

5. In addition to the direct effects of its official loans and aid, the overall Impact of the US upon the Peruvian economy is significantly Increased because Peru receives large amounts

of capital from private and International lending seencies with

which the US has greateneficial though thishas been, it haseruvian ambivalence between gratitude on the one hand and the resentment of debtors toward their creditors on the other. Thus, Peruvian nationalists have claimed not only that the US and US business exploit Peru'sbut also that the US has not been sufficiently generous with its aid to Peru.

6. For most Peruviansespecially the militaryapparent or real challenges to national sovereignty take on grave Importance. Thus, in addition to their general feeling of subordinationuperpower, Peruvian military leaders have more specific grounds for their attitude. The members of the military junta2 believed that their coup waa In the best Interests of both Peru and the US, since in their view the election of Haya would also have threatened the goals of the Alliance for Progress. They were shocked when the US suspended diplomatic relations and aid pro-grama until they promised to hold elections. Thenfter

-7 he US authorized for Peru0 million in economic assistance andillion in military aid. Of this,illion was grant assistance, and5 Billion was in the form of loans. Peru also benefits from its US sugar quota. he value of its sugar exports to the US wasillion, of which about million represented the premium price paid by the US. In addition, Peru hasI received0 million in credit authorizations from international lending agencies in which theas Influence.

the US bad balked atighter aircraft to Peru, the Peruvian military decided to purchase Jet aircraft fromnly to see the US try to prevent the transaction. Because the passage by the US Congress of the Conte-Long and Symingtonto the US foreign aid bill coincided with Peru's purchase of the Jets, Peruvians of all persuasions have felt that their country's action was the specific occasion for the US legislation.^/

7. Although the US tempered its reaction to the couphe members of tba current Junta evidently expected theirto power to cause difficulties in Peruvian-US relations. Their belief was hardened by warnings that US legislation will require suspension of aid to Peruancellation of Peru's sugar quota unless appropriate steps are taken within six months toward compensation for the expropriated IPC property. In the case of US aid the six months will expirepril; in the case

economic aid from countries in an amount equivalent to the amount spent by them for "sophisticated weaponso terminate economic aid to countries if they divert US aid or an unnecessarily large portion of their own resources to military expenditures; and to use the US voting power In the Inter-Anerlean Development Bonk to disapprove any loan from the Bank's Fund for Special Operations which might assist in the acquisition of "sophisticated or heavy" military equipment.

of the sugar quota,pril. nevertheless,of the members of tbs regime apparently refuse to believe that the US President

is required by lav to proceed in this matter without the traditional flexibility of diplomacy.

6. Under the leadership of President Juan Velasco Alvarado, the now retired general who led the October ooup, the military regime has responded to preliminary US pressure with anInflexible position on the matter of compensation to IPC for its expropriated property. Velasco has declared that the matter will be decided in Peru's courtshere it is highly unlikely that the IPC couldatisfactory decision. As if to foreclose negotiations, the regime has asserted the existence ofdebt owed by IPC toof0 million (accumulated

1/ Under the Hlckenlooper amendment to US foreign aid legislation, US economic aid Is to be suspendedecipient country nationalizes the propertyS-owned firs, or "has taken steps to repudiate or nullify existing contracts ornd falls within six months to "take appropriate steps, which may include arbitration, to discharge its obligations under iDternatlonal law towardntity, including speedy compensation for such property in convertible foreign exchange, equivalent to the full value" The date from which this grace period runshen Peru nullified the August agreements between the Belaunde government and the IPC. In addition, the U5 Sugar Act8 (as amended) provides for the cancellationountry's sugar quota in circumstances similar to those described in the Hlckenlooper amendment. The date from which this grace period runsctober, when Peru seized IPC's Tslara refinery.

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, which IPC denies in Its entirety. What Isecent decree apparently requires IPC to deposit0 million vith the government before the courts will hear either its claims for title to subsurface mineral rights or its counterarguments to the allegation of debt. Finally, since the government has moved against IPC's remaining assetsincluding Its distribution system for refined productsthe chance that any way will be found to meet the requirements of US legislation is diminished still further.

Now still another Peruvian grievance against the US has intruded Itself into the already troubled reUtionshlp. On lberuvian gunboat fired on one US fishingand forced another to land andine for unlicensed fishing withinlla territorial waters which Peru has


claimed Peruvians maintain that by not recognizing this claim the US encourages its fishing boats to infringe upon Peru's control of one of its major resources, even though the US boats fish for tuna while the Peruvian flahing and flshsaalare based so far on the anchovy. The US Congress has

57 six other countries claim as ouch, at least for fishing rights. They are Argentina, Chile, Ecuador, El Salvador, Nicaragua, and Panama. Costa Rica claims special competence overiles. And three others are considering the assertion of some kindile claim: Brazil, Colombia, and Uruguay.

established penalties to be imposed against countries which interfere with US fishing vessels operatingoile fishing limit; these Include suspension of military sales and the recall of ships on loan. The existence of these penalties, and the fact that US boats have continued to fishiles, have added to the regime's hostility toward the US. The recent challenge by the Peruvian gunbcet was the most vigorous to date. Although the regime has played down the Incident, the issue of fishing rights is likely to flare again.


10. The Peruvian Government Is currently made up of the President, selectedunta composed of the commanders of the armed forces,abinet made up of generals and admirals. This group, and the entire officer corps, are united at mlnlsum by strong feelings about morality in government and nationalso important in the rationale for their coup. So far they have bad strong public supportbased especially on their nationalistic posture toward IPC. arge portion of the population accepted the military takeover on the grounds that strongwas necessary to rectify the damage done to Peru by theand chaos of the deposed civilian government. In fact, even

Baya da la Torre's APRA party has so far been relatively quiet, partly out of recognition that its interests would not be served byegis* which has so completely wrapped Itself in the Peruvian flag.

H. The naln thrust of the regime's short-run domestic program Is to achieve financial stabilization. For the long term, according to various published plans and statements, the regime will probably try to expend state controls over the economy and increase public Investment. The new leaders talk of attempting to Impose larger direct taxes on property, personal income, and business profitswhere few now exist. The regime is likely also to move to expand the Peruvian share, public and private, in the ownership and profits of foreign-owned businesses. Plana apparently call for proceeding gradually with these measures and with such costly social reforms as distribution of Land to the peasants. These plans stress increased production and exports, as well as more equal distribution of Income.

12. In foreign affairs, the regime has already undertaken to alter Peru's close alignment with It accelerated Be laffort to establish diplomatic and trade relations with the Soviet Union and other Communist countries. But so far much

of this has probably been for showpart of the general nationalistic striving for independence.-^ Peruvian leadersalso hope for increased Investment and assistance from West Europeparticularly Francend from Japan. Evenay vera found to mend US-Peruvian relations soon, the regime would try to develop its ties with both Communist and ncn-Communlst countries in the hope that these would reduce Peru's future economic dependence upon the US.

13* Although the members of the regime apparently are united on most fundamental goals,arge extent the stridency of their current nationalism is the creation of President Velssco. Be has mode some efforts to offset his ultranationalism bythe point that Peru's main difficulty is with IPC alone. At the same time it seems clear that his attitude toward the US has become more antagonistic since he took office.

lfc. Velasco's motives are far from clear. Be aeema toan caught up in the action-reaction cycle initiated by his

^ For example, the recent trade agreement with the Soviet Union provides for moat-favored nation treatment end an exchange of commercial representatives, but specifies that goods will be paid for in convertible currencies. Peru restricted the number of the Soviet representatives to seven, and limited their So far there is no provision for Soviet aid. Theisirst step and possibly lays the basis far more detailed negotiations later.

sponsorship of the IPC expropriation. He seeks advice where he can also find personal support, and he uses nationalism demagogically, to perpetuate his cwn position. His personal entourage isof men whose views cover the political spectrum from extreme right to extreme left, but all appear to be ultranationalietic and anti-American. They are civiliansncluding the owners and the editor of the anti-IPC newspaper El Comerclo on the right, and the dean of the Lima Bar Association on the leftand they are military men whose political inexperience and ambition lead then to supportolicy of confrontation with the US.

15. There is no evidence so far that the advice or support of the Peruvian Communist parties has been important to Velasco. They are weak in leadership and organization, andolitical force are probably unable to react quickly enough In the fast-breaking atmosphere of current Peruvian politics to gain influence with any faction of the regime. In fact, though many of the officers now in the regime mayeformlat bent, and all may have been caught upave of nationalism, they also haveanti-Communist backgrounds. umber are even concerned that the regime moved too quickly to establish diplomatic relations with the Soviet Union.

Peruvian societyhole, extreme leftistwhether specifically Communist or generallyad effective appeal. he strongest party andwith the widest popular base, has beenforIt controls most of the labor unions and haseven the slightest inroads into Later by theIntellectuals in Peru, as elsewhere In Latin America,Communists and other Marxists; this is especially theeconomists and historians, whose *anti-Imperialist"been evident for many years. y leftists teach In theand some even lecture In the Center for Higher But what appears to give leftists influence withtheir ultranationalism rather than any loyalty to aor interest. We have no evidence that their influence

on Velasco la different from or greater then that of other ultra-nationalist radicals all along the spectrum.

la clear that Velasco does not have the loyaltyhis cabinet ministers, particularly insofar as hison the IPC Issue threaten Peru's economic development asIts general relationship with the US. Motivations of thosefrom his leadershipknown to US observersre also mixed. They Include personal ambition.


The Military assumed controlime of economic uncertainty which was. In good pert, the result of the political malaiae which characterized the last years of the Belaunde regime. Duringa anda the Peruvian gross domestic product grew at an average annual rate of nearly six percent. This growth resulted mainly from the expansion of exportsparticularly ofew product which now sccounta for one quarter of Peru's export earnings. Increased foreignwas also en important factor in some sectors of manufacturing and export. Yet despite the growth of output and investment, poverty in Peru Is still widespread, and about half the population lives only on the fringes of the money economy.

Startingeru began to have increased difficulty both with budget deficits and with the balance of payments. idening government deficit, reduction in export earnings, the growing burden of payments on foreign debt, and flight of capital broughtinancial crisisajor devaluation.

For political reasons, the President and the legislature could not agreetabilization program which would clear the way for renewed growth. Instead, matters worsened, and the failure


of the government to adoptcoherent economic policy further eroded the confidence of Peruvian businessmen. Finally, several months before hla removal, Belaunde vaa granted special decree powers, under which heromising stabilization program that has been continued and In some respects expanded by thegovernment.

Whatever its successes in trimming expenditures and otherwise reducing financial pressures in the short term, the ability of the military regime to carryong-term program of reform and development will depend both on Its acquisition ofdomestic revenues and upon its ability to stimulate even greater foreign investment than in the past. Thus, even with continued IB economicajor question for thewould he whether it can transform Peru's economic and social structure without driving foreign and domestic investors away. Tfce military regime has yet to confront the traditional social and economic elite, and that group is unlikely to go along easily with stringent fiscal and tax measures.

Furthermore, the objectives of making existing industry and agriculture more efficient, and of expanding and diversifying the export sector, will take not only large financial resources,

but aloo time, technleelnot yet available from the educational system, and sophisticated planning. The process of getting underway on these projects has barely started, and It may be some time until the power structure of this government shakes down enough to make substantial progress.


83. The US has not authorized any new development loans for Peru sincen effect because of reru's purchase of Mirage Jet aircraft from Prance and the subsequent passage of the Symington and Conte-tong amendments. illion In loans remains In the pipeline, and technical assistancehe other component of AID's program for Peruas continued despite the strain in US-Peruvian relations. Peru's basic export quota of sugar for the US market9 wouldrospective subsidy ofillion. By the datehich US sanctions may be imposed, Peru probably will have shipped aboutercent of Its annual quota; thus Peru stands to loseillion9esult of Its reduced sugar exports to the US.

2a. The minimum sanctions required by the Hlckenlooper and Sugar Act amendments would be the suspension of all loans and


from AID, of Peru's sugar quote, and of all ollltary assistance. Theae suspensions by themselves would not Intlallyevere economic Impact on Peru. But US legislation also requires that the US use Its veto power in the Inter-Aaerlcan Development Bank to prevent new loans to Peru from the Bank's special funds (though not from Its regular resources). Any Important decline In receipts of capital would probably also create conditions which would prevent Peru from meeting the financial requirements necessary to permit further drawings against Its standby credit with the International Monetary Fund. The effect of all these actions would probablyoss to Peru of atillion

25. Also Important Is the prospect that the Brport-Import Bank, which has loaned0 million to Peruould delay new loans for Peruvian development If US sanctions are imposed, Peru has counted upon future assistance from this agency to help finance0 million copper expansloo program of US-owned companies over the next several years. Similarly, US influence In the International Bank for Reconstruction and Development (IBRD) la such that Its developmentillion- might also be affected.

In any case, the IBRDong-established policy of deferring action on loan applicationsember engaged in an Important financial dispute with another member; thus. It probably vould not authorize new loans to Feru unless the US stated It had no objection.

26. If the US and the International lending agencies held up their programs for Peru, toe Inflows of private foreign capital, which had been expected to average0 million annually over the next five years, would probably also be sharply curtailedat least for the next year or so. Even If the only sanctions imposed were those required by the Hickenlooper and Sugar Act amendments, there would probablyonsiderable reduction In foreign Investment. Private investment by US enterprises has already been delayed as luvestors await the outcome of tho US-Peruvian Imbroglio.

27- Velasco has come only slowly to believe that the warning of OS sanctions is moreluff. Be Is known to have doubted that the OS law would be Invoked If it directlyS Interestn this case R. Grace and Company, which accounts for about one-fifth of Peru's sugar production. Even If the US tried to limit the number and severity of Its sanctions, Velasco's Immediate reaction would probably be vehement. If on the other

hand an Institution like the IBRD suspended its assistance, he would probably view it as an additional direct and hostile US action.

28. One response by Peru to the minimum US sanctions might be to restrict the remittance of profits by US and other foreign businesses. This would be effective temporarily: Peru couldstem that outflowillion annually)to fully offset the prospective decline In receipts of capital from official sources. But the net effect oftep would be to discourage new foreign investment and to compound Peru's economic troubles over the long term. If Itider variety of sources of assistance, the Peruvian Government might respond emotionally and take the extrone step of expropriating much or all of the remaining US Investments in Peru. arket value of5 billion and are located in all sectors of the economyining, sericulture, manufacturing, shipping, commerce, communications, and banking.^

6/ In addition to W. R. Grace and Company (sugar, textiles,

chemicals, banking, andhe more importantare those of the Cerro Corporation (copper) and Southern Peru Copper Company, the Belco Petroleum Corporation, and the International Telephone and Telegraph Company. Peru and the USagreement under which the UShrantees US investors that their profits earned in Peru will be convertible Into dollars, but it does not guarantee them against losses from expropriation.


v. curxocK

short, If all the forces now In train continue,with Peru over the IPC case willajoror Peru and for US-Peruvian relatione. For thefuture we believe it is unlikely that any Peruvianits private disposition toward the US, will be ablesufficiently on the IPC case to satisfy fully theUS law. eruvian leader who attempted this would beselling out to the US, end would surely come under attack from

s large coalition of popular and military forces united mainly In their nationalism. Although the economic consequences for Peru would almost certainly bepecially insofar as anticipated foreign Investment and lending are lost, such considerations would probably be subordinated to the more irrational and emotional matter of national pride.

believe the chances are better than even thatretain power at least through early April. It is nothe willay to avoid the application of UShis personal position stands to be made stronger whether orUS invokes the amendments. His response once sanctionswould probably behe more so if the US invoked

sanctions in addition to the Hickenlooper and Sugar Act amendments. He would probably send home the US Ambassador, the USAID mission, and the military missions, but he might allow some lower level US diplomatic personnel to remain. His reaction toward US businesses would probably be punitive, including some further expropriations or confiscation of property, if only to prove that he had not been intimidated. Under extreme conditions be might break diplomatic relations with the US, and the damage would not be easily repaired.

is not clear whether the moderate group In theexert restrainteries of emotional countermoves The danger is that Velasco so far has been moreIn rallying fellow nationalists than the moderates have been

in restraining his impulses. And popular reaction throughout Latin America against US sanctions would tend to make Velasco feel even stronger.

Velasco be replaced before early April, andmoderate regime agree to some form of negotiation, oron the IPC issue should be reduced by some otherregime would still continue to seek ways to demonstratefrom US economic and political influence. Ifcaught upeneral emotional reaction to widening US


sanctions,overnment of moderate officers might undertake some further moves against US businees. Particularly vulnerable if expropriation were contemplated either by Velasco or others would be US interests in communications, banking, and petroleum.

33- Assuming the present collision coursetdifficult to foresee the domestic political situation In Peru once US sanctions were imposed. It seems likely that as economic strains mounted, the regime and the populace would becomefrustrated and eootlonal. With Velasco in power, the regime could become more radical and begin attacking entrenched Peruvian economic interests, with the resultevolutionary situation could emerge. It is also possible that once anger against the IPC and the US had vented, the more moderate among the officers would decide that Velasco had come to the end of his usefulness. In suchew military administration might come to power and slowly try to pick up the pieces.

i^. We believe that In any case Peru would not turn rapidly or wholeheartedly to the Communist countrieseplacement for lost US aid and Investment. For their pert, the Soviets would probably be extremely cautious about undertaking any expensive ccmmitments to Peru, especially if the longevity of the


adolniBtration were in question. The Peruvians would be hard pressed to fill the economic void after their nationalistic blustering bad subsided. They might have some success in obtaining investment capital from France, Japan, and some others, but we doubt that all sources taken together would make up moreortion of Peru's loss of funds, directly end indirectly, from US sanctions.


35. We believe that the application ofinimum of economic sanctions sgainst Peru would precipitate widespread and vehement criticism of the US among numerous politically articulate groups in Latin America. They do not generally understand the facts of the case, or the way In which the US Government works. It is now conventional for most of them to describe as enany actionoreign power which affects the internal political, social, and economic developmentountry. And in this context, the US ia notoreign power, but rather the largest foreign investor, trading partner, and source of economic assistance for nearly all Latin American countriesa position which inspires, along with some gratitude, strong suspicion and resentment.


Latin Americanare alreadyUS aid and trade policies. Their principal complaints(a) US restrictions on lnports rear formidable barriersAmerica's exports; (b) US domestic policies haveeconomic developments because they have been aof fluctuations in vorld market prices for theexports and in the flow of private US capital to the(c) US economic assistance programs to Latin Americabeen meager, paternalistic, and self-serving, andto compensate the region adequately for the negativeother US policies, while many of these accusations are meant

to gloss over some of the endemic causes for Latin America's economic failures, they have wide appeal.

while the official reaction* of most Latinto US sanctions against Peru might not be severe,would become increasingly alarmed about theof US sanctions, now invokedriendlycountry for the first time. Seme would feeltheir own vulnerability Borne day to similar penalties,they might be responsiveequest by Peru to discuss the

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setter under Articlef the OASoat countries vculd not want to beoaltion of having to take aldee by voting, but if the full force of US sanctions were Imposed the official govenmental eupport for Peru Id Latin Aaerlca would probably be stronger and more immediate. Many would take the occasion to air their own bilateral grievances with US economic and assistance policies.

38. Of greater concern to the US than the likely immediate response among Latin American governments, however, is the way in which this application of US sanctions might come to be viewed as the most recent and threateningeries of US interventions over the past century. Many wouldarallel between US actions sgainst Peru and its earlier economic actions against Cuba. All would worry that the sanctions indicated that the new US Administration intended to follow harsher and less forthcoming policies than did its predecessors. The Hlckenlooper and Sugar Act amendments fit the Latin view that the US will go to great

Bo state may use or encourage the use of coercive measures of an economic or political character in order to force the sovereign will of another state and obtain from it advantages of any kind."

length* to protect US busloesa Interests abroad, and that other aspects of official US interest In the hemisphere cone second. Thus, we believeumber of countries will press harder than in the past to broaden their foreign economic and cultural relationseans of protecting themselves from hesvy dependence upon the USand they may care much less about how the US vievB the propriety of these new relationships.

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