Sunday, August 6, 2023

(283) YOU ALSO CAN MAKE A NATIONAL IMPACT.........The 1968 Expropriation By Peru of Standard Oil's International Petroleum Company Subsidiary, Peru's Economic Development, and American Policy


Standard Oil's Subsidiarity, the International Petroleum Company in Talara, Peru in 1968

      In the 1968-69 Academic year I took a leave of absence my from my teaching in Peru to work on a Master's Degree in Business.  I was only 29 years old with a possible career ahead of me.  Peru had expropriated the assets of Standard Oil's subsidiary in Peru, the International Petroleum Company (IPC).  If the United States would apply the Hickenlooper Amendment, suspending all aid, Peru would be thrown into a severe recession. The poor would suffer the most.  There were daily articles in the national press on the situation, not to mention the prominent news magazines of the day. …..Time, Newsweek, U.S. New & World Report, etc.

       I had to do something.  Writing a term paper on the subject was not enough.  Even though I was only a graduate student, I had to do more than that.  Thus I sent in the article below to the Washington Post, the most prominent daily in Washington with a circulation of over 500,000 and read by the important figures in the Nixon Administration.   

My initial submission presented both sides of the controversy, but the editor restricted me to a maximum of 500 words.  I had no choice, but to give only the Peruvian side.  It was a challenge to say a lot with a few words while being accurate and fair to both sides.  

    A copy of the published article is below.  We'll see what influence the article had if any and what eventually happened.  This article does show what just one person can do......perhaps very little or who knows?.......perhaps very significant.



Published on the op-ed page of  the Washington Post July 29, 1969

    As a North American professor on leave from the Universidad de Santa Maria, may I introduce another side to the U.S.-Peru controversy? 

  Through a 1922 contract and arbitration award made under ambiguous circumstances, the International Petroleum Co. obtained a very favorable tax deal.  Although kind in giving information, IPC would not divulge past profits and taxes paid figures.  International Petroleum, which Peruvians can hardly pronounce (a Spanish name would have been a less conspicuous target), symbolizes exploitation. 

    IPC was the only company in Latin America to insist on subsoil ownership, which traditionally belongs to the nation.    When Peru demanded back taxes and the disputed land, IPC had U.S. support.    According to an article in the May 17 New Yorker, the Johnson Administration denied $150 million in promised aid as pressure.  This fund shortage led to a monetary devaluation, which contributed to Belaunde's overthrow.  The aid denied to Peru is probably enough to compensate IPC.  Thus Latins perceive aid as a means of keeping them in line.

   Business Week of February 15 quoted an industrialist:  “IPC ran its operation like a private fiefdom”.  The way their PR Director treated my 45 students during our visit supports IPC's reputation of arrogant public relations.  Why have some 200 U.S. companies had little or no difficulty in Peru? 

        IPC's 1925 refinery is outmoded.  It possesses only one major distillation tower and still uses the old thermal cracking process.  The refinery's assets should be almost completely depreciated. 

         According to the London Sunday Times, State Department and Standard Oil officials privately admit that the properties are insignificant.  Standard's assets still increased 11% to $17 billion while its $14 billion sales were over three times the national product of Peru.  Over the years Standard has taken enough money out of Peru to more than compensate its investment. 

      During the Roosevelt Administration's “Good Neighbor Policy”, Standard Oil got into trouble three times and expected the U.S. to bail it out.  Instead it was forced to accept token compensation. 

     The Hickenlooper Amendment places American policy at the mercy of any company whose actions could provoke expropriation and whose obstinacy, encouraged by U.S. protection, could prevent a settlement.  The embassy made no significant effort to investigate the facts, audit IPC records, act as an impartial mediator, or pressure IPC into a settlement.

     Presently, Peru has a recession because American companies suspended investment and credit until the situation is settled.  The Hickenlooper Amendment could cause a depression, if applied as scheduled on August 6.  Thus our generous “aid” would bring a nation to its knees.  With such dominance and dependence Latins feel controlled from the United States.   

       Latins would see the Alliance For Progress as a farce, were its ideals of development and social reform to take second place to U.S. Business interests.  Tragically, the helpless poor would suffer the most.  By declaring the dispute a special case and deducting token compensation from past aid suspended, we can give Peru and ourselves a way out. 

       Unless businesses follow the axiom of David Rockefeller and his Council For Latin America,  “Citizens first, businessmen second”, there will be repetitions of IPC.  

                                 What Ultimately Happened

    The Hickenlooper Amendment was never applied neither on August 6 the deadline or ever again.  Peru did pay token compensation a few months later and there was a reduction in aid for the time being.  However, relations eventually returned to normal.  The Peruvian Embassy was so happy with the article that it sent me a letter of thanks in Spanish.  

   What influence did my article have?  I don't know, but I like to think that it might have had an effect upon U.S. policy.  In any event when something must be done, it is better to try and fail than to not try at all.

      For more detail see the article published by the ADST (Association for Diplomatic Studies and Training) 

Also  file:///C:/Users/Paul%20Sebastian/Downloads/11_1_77%20(3).pdf -  The Hickenlooper Amendments: Peru’s Seizure of International Petroleum Company as a Test Case

     The Peruvian Debt Crisis in the mid 1970s.  A few years later in the mid 1970s another difficulty arose.  Peru overextended itself in drawing a large amount of loans for its economic development.  It was too much for Peru to keep up with the debt service requirements.  

    The International Monetary Fund (IMF) would try to help countries with severe debt problems with advice and imposing very stringent austerity measures (less spending on government programs to help the poor, less food subsidies for the people, higher internal interest rates, measures to stop inflation, etc,) to put the country’s national finances in order.  Although the IMF would grant an emergency loan to stabilize the national currency, the remedy was perhaps worse than the problem itself.  That would throw Peru into a severe recession since credit from the international banks and new private investment dried up until the country would agree to the austerity program.

    Again we had to do something.  I wrote up an appeal for leniency with refinancing and collected over 25 signatures of American business people and missionaries supporting Peru. We sent it to the IMF and the U.S. Government.  The nationally circulated El Comercio I believe or La Prensa of Lima, the capital featured our efforts on the front page.  Eventually, the crisis eased somewhat, but it would probably be presumptuous to believe we had a significant role.  In any event we may have made a positive contribution.

     Risk. In 1978 I was asked to comment in a radio interview on a Time Magazine article reprinted by La Prensa regarding the arms buildup along the border between Peru and Chile while both countries were in a severe economic crisis.  I mainly voiced Church teaching, but I probably looked like a Don Quixote chasing windmills.  Risky with a military dictatorship in power?  Of course.  

      But it was necessary to say something regarding an important moral issue when presented the opportunity.  I thought that I could get away with it.  Wrong!  Both the interviewer and the interviewee (me) ended up in jail for a week.  “You can’t win em all”.  We did make some impact, however.  The details will be the subject of a later blog article.  

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