1942: Peru

Severing Relations with Axis.

Peru led the Latin American republics in severing relations with the Axis powers on Jan. 24, but not until April 16 was a ban placed on all types of commercial and financial operations with the Axis. This latter action was taken on the eve of a comprehensive economic agreement with the United States. On April 22 several United States-Peruvian agreements were signed covering the disposal of Peru's surplus cotton, the purchase and development of Peruvian rubber, the advance of $25,000,000 in Export-Import Bank credits to assist in constructing public works and agricultural, mining and industrial development, and the resumption of negotiations for an early settlement of the dollar debt. On May 7 a reciprocal trade pact was signed with the United States, granting mutual tariff concessions on a long list of items, representing 26 per cent of Peru's total trade. Lend-lease aid of an unannounced amount was granted on Mar. 11. As a result of this last, at least fifty planes and possibly other war material have already reached Peru, along with United States military personnel for training purposes.

Commerce and Trade.

The loss of the Japanese market after Pearl Harbor created a serious economic problem for this West Coast nation, since over 60 per cent of its cotton exports in 1941 went to Japan. The agreement of the United States to purchase, through the Commodity Credit Corporation, for the duration of the war, the unmarketable surplus, up to a maximum of 200,000 bales annually, whether or not it could be shipped, met a grave difficulty, therefore. By a program of crop control the Peruvian Government will now try to effect a reduction in the area planted to cotton and a shift to flax, rice, beans and other food crops. The favorable trade balance of 136,300,000 soles at the end of 1941 was due to the increased cotton exports, due to heavy Japanese buying, as well as to improved sugar and petroleum shipments. Trade figures in 1942 show little change from the previous year.

Peru profited by the cutting off of the Philippines sugar supply and its initial basic quota of 5,748 tons was revised to over 150,000 tons. With the elimination of quota limits this year, it may be able to ship 175,000 to 200,000 tons, provided shipping space can be found, but with the ceiling price on sugar and the United States duty of 1.875 cents a pound, little profit is left. A 50 per cent cut in the tariff on Peruvian sugar has been urged, therefore, on the Federal Committee for Reciprocity Information.

By the rubber agreement with the United States, similar to one already concluded with Brazil and subsequent pacts with other Latin American countries, the United States Rubber Reserve Company, a subsidiary of the Reconstruction Finance Corporation, will purchase for five years all Peru's exportable rubber. Moreover, the sum of $1,125,000 will be advanced for increased production and gathering of wild rubber in the Amazon region. For this purpose a Peruvian-Amazonian Corporation is to be established. The United States will also assist in the establishment of an agricultural experiment station at Tingo María, on the eastern slope of the Andes, in ideal rubber-growing country but situated on the Central Highway of Peru and, therefore, connected by good road with the Pacific.

United States Financial and Technical Aid.

At the close of the year it was reported that the Tingo María project was well under way. It is one of a series of such agricultural experiment stations being established throughout the American tropics, through United States financial and technical aid, to encourage the production, not only of rubber, but of other products formerly obtained from the Far East, such as quinine, which is native to South America, abacá and other fibers for rope, trees yielding vegetable oils, kapok, tea, mandioca and certain hard woods. The other countries in which similar stations are being started are San Salvador, Nicaragua and Ecuador. A general training and research center, a Tropical Institute of Agriculture, is being established in Costa Rica.

Industrialization will be stimulated by the establishment of a steel project, to cost $15,000,000 and to be financed out of the $25,000,000 Export-Import Bank credit already granted. The formal contract for this industry, the largest industrial undertaking in Peruvian history, was signed on Sept. 4, with the North American firm of H. A. Brassert and Company. The plant will probably be operated by the Peruvian Government. The project calls for the exploitation of rich iron ore deposits south of Lima and of coal deposits to the north. It is expected to have an annual steel output of 100,000 tons; coal production is estimated at 200,000 tons a year, half to be used by the steel mill, half to be exported to other South American countries. Peru has the largest coal reserves in South America. Manganese ore, which is indispensable in the iron and steel industry, must be imported.

The April 22 agreements included a provision for the resumption of negotiations for an early settlement of the dollar debt. The par value of all Peruvian bonds outstanding (national, provincial and municipal) totals $85,656,500. Unpaid interest equals about 62 per cent of the principal. A new interest in the New York market in low-priced Latin American dollar bonds has sent the prices up. The market value of the total of outstanding Peruvian dollar obligations recovered to about $13,000,000 from a low of $2,569,700 following the 1929 crash.

In August Panagra (Pan American Grace Airways, Inc.) established the first regularly scheduled commercial all-cargo service to be set up by an international air carrier. 'Box cars of the air' will make two round trips per week between Lima, Peru and Balboa in the Canal Zone, calling en route at the principal Peruvian, Ecuadorean and Colombian cities. Furthermore, service via the West Coast of South America between the Canal Zone and Buenos Aires has been increased from 4 to 7 flights a week. Through the achievement of these two goals Panagra is now firmly entrenched in the place formerly held by the German airlines, such as Lufthansa. (See ECUADOR for settlement of the Peruvian-Ecuadorean boundary dispute.)

1941: Peru

Anti-Axis Moves.

The most significant move taken during the year to weaken Nazi activity in Peru was the elimination, in April, of Lufthansa, established in that Republic in 1938 and an important link in the network of German air lines in South America. This line, which connected with Lloyd Aéro Boliviano (in turn, nationalized a few weeks later by the Bolivian Government) and, thence, with Condor in Brazil, has had its contract revoked and its funds confiscated. The German news-service, Transocean, was also shut down during the past year, and two Italian Fascist papers, Unit and Italia Nuova, have been closed. On June 1 the Government formally took possession of the Italian Caproni airplane plant in Lima.

Relations with the United States.

In spite of a strong pro-Axis influence in business and the press, and the existence of active Nazi and Fascist colonies, the majority of the Peruvians seem to be pro-United States, and the President, Dr. Manuel Prado, has given assurance of Peru's cooperation with the United States. Following the United States' entry into the War, the Government froze all Japanese assets and banned the importation of Japanese merchandise without special permits, thus giving tangible expression to its reaffirmation of Pan American solidarity. The influential El Comercio has urged a joint Pan American declaration granting the United States non-belligerent status in the present War.

Commerce and Trade.

In February 1941, Chile and Peru signed agreements coordinating their foreign and defense problems and setting up machinery for the negotiation of a bilateral trade agreement. The trend in Peru's foreign trade during the first seven months of 1941 was satisfactory, with an export balance totaling 107,941,000 soles, an increase of 68,582,000 soles over the corresponding 1940 period. The change is due to a marked increase in export values and to a small decline in imports, owing chiefly to the United States' priority system. The United States is Peru's chief customer, taking about 40 per cent of the Republic's exports. Some 20 per cent of the total represents shipments to neighboring states. The outstanding trade development of the year was the phenomenal increase in Japanese purchases, especially of cotton, 65 per cent of Peruvian cotton shipments in 1941 going to Japan. That country also took the entire output of molybdenum, a mineral vital in steel making. Peru will be more affected than most Latin American countries, therefore, by the War in the Pacific, and cotton, the commodity that accounted principally for the favorable trade balance, becomes the chief marketing concern of the Republic. In October the United States signed an agreement with Peru whereby all the exportable surplus of certain strategic materials would be reserved for the exclusive use of Western Hemisphere countries. Copper, lead, tungsten, vanadium, zinc and antimony are the principal metals included. The Republic has never drawn on the $10,000,000 loan from the Export-Import Bank, which was awarded to steady the national currency. The operation of the United States' priority system has cut off the material and equipment needed to launch a national steel industry, a project which is the key to Peru's industrial program. By expanding the operations of the Banco Industrial del Per£, the government has, this year, created machinery to finance other new industries, such as cement manufacturing, basic chemicals and the generation of low-cost electric power.

The latest census gives Peru 7,023,111 inhabitants, making it thus the fifth nation in Latin America as regards population.

For boundary dispute with Ecuador, see ECUADOR.

1940: Peru

Economic Condition.

A credit of $10,000,000 was granted by the Export-Import Bank to the Central Reserve Bank of Peru in December, to cover purchases in the United States. This may aid in the disposal of unsold surpluses of Peruvian cotton and sugar. For the last fifteen years Peru has maintained an average annual export surplus of some 110,000,000 soles, which in 1939 reached a high of 125,634,000 soles. This satisfactory trade balance is due chiefly to the fact that Peru is not heavily dependent on a single commodity, as are many Latin American countries. The fact that, except for gold, its mineral resources, petroleum, silver and copper, are exploited by foreign capital makes the export surplus misleading, however, since profits paid to foreign shareholders are an invisible drain on the country. Moreover, the value of metal and oil exports in 1939 was over double that of animal and vegetable shipments. The livelihood of 85 per cent of the population depends on agriculture, however, principally long-staple cotton, the bulk of which goes to England, and sugar, of which, with sheep's wool, Great Britain is the chief purchaser. The fact that in 1939 Germany and Great Britain combined took 30 per cent of Peru's exports (11 and 19 per cent respectively), as against 26 per cent to the United States, makes the War's inroads on the European market a matter of serious consequence to Peru. The United States is the principal market for Peru's metals, silver constituting almost one-half of total exports to the northern republic in 1939. The 1941 budget estimates revenues at 250,000,000 soles, compared with 216,000,000 in 1940. The close of the fiscal year reveals a deficit of 5,081,000 soles, as against a surplus in 1938 of 1,015,000 soles.

Political Matters.

Very little in the way of political developments has occurred since Manuel Prado assumed the presidency in December 1939. Without debate the Chamber of Deputies approved a law amending the Constitution so as to provide a six-year term for the entire Chamber and the election of all Deputies at the same time as the President. The lavish public works program of the Benavides administration has been radically cut, in view of the uncertain economic outlook, but the ambitious three-year highway program is about completed. In spite of the political disadvantage created by this inability to maintain the public works program. President Prado's personal popularity is increasing. Important pending legislation has made necessary extra sessions of Congress, one completed Dec. 31; another convoked for January 1941.

No reconciliation between the government and APRA is in sight. The point of view of Aprismo towards the United States has altered in the face of the fear of totalitarianism, and a reorientation towards cooperation with 'the United States of Franklin Delano Roosevelt,' in the form of an alliance with equals, has replaced earlier 'Yankee-baiting.' Anti-Nazi sentiment was indicated by a unanimous motion in the Senate, in March, condemning the intervention of foreign diplomats (the German Legation) in motion-picture censorship. The Minister of Education has refused a request of the German School in Lima to have its curriculum geared into the secondary school plan of the Reich. The plant of the Italian-operated Caproni factory in Lima has been nationalized, and the contract of the Italian military mission has been cancelled. The chief of Aeronautics, Col. Federíco Recavarren, who has been strongly suspected of Fascist tendencies, has been dismissed, and much of his work may be taken over by the United States air mission to Peru.

Social Security.

An Inter-American Social Security Gathering, held in Peru Dec. 8-11, was jointly sponsored by the government and by the Director of the International Labour Office, as a step towards better social conditions in the Western Hemisphere. The Peruvian Social Security Act of 1936 was to go into full operation at that time. This plan, financed by workers' and employers' contributions and a State subsidy, institutes compulsory insurance against old age, invalidity, illness and maternity disability. Hospitals and clinics conforming to North American standards are at the disposal of Peruvian workers.

1939: Peru

Constitutional Changes.

Constitutional status was given the dictatorship of President Oscar R. Benavides when ten amendments to the Constitution of 1933, submitted to a national plebiscite on June 18, were approved. Although the amendments greatly strengthen the powers of the President at the expense of the Legislature, the Congress was restored and rule by decree abolished. According to these constitutional changes, the terms of the President and the Deputies are extended from five to six years; the executive alone is empowered to approve or suppress taxes, to approve customs and tariffs, and to increase or decrease the number of public employees; the presidential veto power is restored, with a three-fifths vote necessary to override it; the Congress is enabled, when it recesses, to give the executive full powers; the national budget is automatically enforced on Jan. 1, whether or not Congress has approved it; the premier shall not be compelled to go before Congress to make statements on executive policies, and Deputies and Senators, individually, may no longer request information from Government departments. An amendment repealing proportionate representation of the political minority in Congress was aimed at the APRA to prevent it from obtaining control of the government and interrupting the 'rising rhythm of national activity.'

Elections.

Presidential and general elections were held on Oct. 22. The final vote gave Manuel Prado, candidate of a coalition of twelve Rightist parties supporting the Benavides administration, a vote of 262,971 over his opponent, José Quesada, who polled 76,142 votes. Quesada represented the Revolutionary Union and, also, the Patriotic Front, a somewhat liberal organization opposed to the dictatorial methods of Benavides. The Aprista Party was forbidden to participate in the elections. Prado's inauguration on Dec. 8 gives Peru its first civilian president since 1930. The new president, a close friend of Benavides, promises a moderate régime.

Internal Affairs.

The most constructive work of the Benavides administration has been the road-building program, initiated in 1937 and rapidly pushed to completion. According to current estimates, by the end of 1939, 1,250 miles of asphalted road were completed at a cost of $20,000,000.

The world cotton situation and a poor crop in 1938 accounted for the decline in Peruvian exports in that year from 1937, but total imports for the year were well above all previous figures. Since Peru is not a single-commodity country, although cotton is the basis of its coastal economy, the economic progress of the Republic was not seriously affected by the decline in cotton.

The border dispute with Ecuador threatened to become active in September, but the incident was played down by both Governments. President Prado, in a campaign interview, promised to work for settlement of this controversy.

1938: Peru

Pan-American Conference at Lima.

The Eighth Pan-American Conference held its sessions in Lima on Dec. 9-27. The three main objectives set for the Conference by Secretary Hull were: (1) an affirmation of American solidarity in the face of the present world situation; (2) the perfection of consultative machinery provided for in the Buenos Aires peace treaties of two years ago; (3) an economic program designed to increase rather than restrict world trade.

Two important declarations and a trade resolution, unanimously adopted by the twenty-one American republics, constituted the achievement of these objectives. The first was realized in the Declaration of Lima, which reaffirmed continental solidarity resting on the spiritual unity of the peoples of America, and promised consultation in case any American nation should be threatened by foreign intervention or activity. Unanimous acceptance of the solidarity declaration was secured after Argentina, opposed to the original Hull proposal, was permitted to re-phrase it. An eight-point peace program, embodied in the Declaration of American Principles, provided adherence to Secretary Hull's second objective. The unanimous adoption of a trade resolution, favoring the reduction of barriers to international commerce as the basis for world reconstruction, and endorsing the negotiation of trade agreements embodying the principle of equality of treatment, brought fulfillment of the third.

In all, 110 resolutions, declarations and recommendations were adopted, by incorporation in a final act, covering a wide range of subjects of varying significance. The menace of totalitarianism was recognized in the unanimous agreement to recommend to all Latin American governments legislation denying special rights to minority groups or the exercise by foreigners of political rights conferred by countries of their origin, and in a declaration denouncing racial or religious persecution.

Important matters not acted on were the question of foreign property rights, the most pressing problem in United States-Latin American relations; the Cuban proposal of an offer of mediation in the civil war in Spain; the perfection and coordination of the eight existing inter-American peace treaties and conventions; and the proposal, sponsored by Colombia and the Dominican Republic, for an American League of Nations.

The Declarations of Solidarity and of American Principles have been interpreted in Europe, and in some American countries, as a Pan-American collective security pact, as well as a sort of multilateral Monroe Doctrine. They are a long way, however, from the inter-American military and naval alliance proposed early in the year by an important South American government, later officially denied, or from the Western Hemisphere defense aspirations accredited to President Roosevelt, following the Munich agreement and his warning of the threat of the totalitarian states to the democratic governments of this hemisphere. It is certain that the propaganda pressures of the Fascist countries of Europe were intensified during the Conference, and German and Italian radio and press criticisms were launched against the United States.

Fascist Propaganda.

The charges of censorship of official mail and of intimidation of the press during the Conference, brought against the Benavides government by a correspondent of The New York Times, indicate the dictatorial, if not Fascist tendencies of the present government of Peru. More to be feared than actual aggression from Europe is the growth of indigenous Nazi and Fascist movements within the Latin American countries, the ideological conversion of these countries to totalitarianism (see BRAZIL), following in the wake of foreign-promoted propaganda and German, Italian and Japanese commercial penetration. Italian influence is more powerful than German, in this west coast country, and the director of the Banco Italiano has been called 'the Viceroy of Peru.' The Italian propaganda bureau in Lima is the center for the spread of Fascism to Ecuador, Colombia and Chile.

Trade Practices.

A high-pressure campaign in the west coast countries, by both Fascists and Nazis, is to be expected, since the industrial materials so badly needed by Italy and Germany are found in this portion of the South American continent. The details of these propaganda methods, here and elsewhere in Latin America, are too numerous to be covered in this brief summary. In fact, the propaganda activities must never be dissociated from the pressure for trade expansion, on a bilateral and usually barter basis (see URUGUAY), which seriously threatens and hampers United States trade with South America, and is contrary to the Hull program for a multilateral system of trade and reciprocal agreements of the most-favored-nation type. In this, as well as along political and cultural lines, Germany is the most aggressive officially. So disorganizing to American commerce have been Germany's ruthless trade practices, that the United States Treasury is studying cooperative efforts between it and the Treasuries of South and Central American countries to promote trade relations and make available adequate exchange facilities. Germany continued to show trade gains in Peru in 1938. The country's foreign trade, on the whole, showed an adverse balance for the first quarter of the year.

Finance.

The budget for 1938 was the largest ever recorded, contemplating a balance of revenues and expenditures at 165,545,739 soles, or 8 per cent over the budget for the preceding year. Depreciation of the sol has led to a proposal for the reduction of the Peruvian foreign debt of approximately $85,000,000, on which Peru will resume service if reduction is accepted by the bondholders. 'The postponement of the fulfillment of Peru's loan obligations is a genuine right,' the Minister of Finance has declared. 'Depreciation of the currency must be taken into consideration, for 160,000,000 soles used to represent £16,000,000 and now stand for but £8,000,000. . . . To maintain the economic respectability of the State is a fundamental point and the first thing to do is to consider the modification of actual contracts in harmony with the economic capacity of the Treasury. The State's dilemma is evident. The Treasury has to meet two obligations: to solve the problem of unemployment and to meet the service on foreign obligations.' To prevent unemployment it has been found necessary to maintain 60,000 men on public works projects.

Political Situation.

The strict censorship exercised by the Benavides government may account, in part, for the scarcity of political news from Peru during 1938. Moreover, there have been no electoral contests nor governmental changes of importance to report. The leader of the revolutionary Aprista party, Victor Haya de la Torre, is still in hiding, and hundreds of Apristas are held in Peruvian prisons. An attempt to seize a cavalry barracks in the north was reported in October.

For Eighth Pan-American Conference see also PAN-AMERICAN UNION; for boundary dispute see also ECUADOR.