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Latin American perspectives a program of comment and analysis about current Latin American problems and their historical setting. The commentator for these programs is Dr. C. Harvey Gardner research professor of history at Southern Illinois University. Here now is Dr. Gardner. The Spanish term love brain means tar or pitch. In Los Angeles the L'Abri a tar pit is a tourist attraction in Peru. LA Brayer is an international headache. It is of the latter I would speak today. There is in Peru in the form of an affiliate of Standard Oil Company an organization known as the International Petroleum Company popular referred to as I see it has been there for a long time. But now over the political barrel The question is how much longer can it stay in the South American nation. We have in this the pressure of a major American corporation by a prominent Latin American government yet

another of the problems that relate to our economic problems of the day to the matter of security and invitation for foreign capital abroad and a great deal more that makes of this a very complex diplomatic and international episode. The fact of the matter is that the background to the IPC problem goes as far back as does indeed the independence of Peru shortly after that country became independent in the 1820s. Certain bit of land which had tar and pitch on the surface of it was given to a prominent Peruvian because he had in turn paid for certain supplies used by the Peruvian Patriots in the War of Independence. That Peruvian Jose Antonio de King Tun kept the property for a long time owning it as a private property in

1863 just four years after the first oil well was completed in the United States. The first oil well in South America was drilled and drilled on the pitch deposits known as La Brey are owned by this man. I'll say I'm twenty they can turn up. There was no question about the status of the property about the relationship of it to the government until Peru passed some new laws in 1873 and again in 1877 and began a program of advanced taxation against this new development. The Peruvian owner at that time claimed exemptions and had sufficient political influence that he was able to salvage his private interests and continue until a moment when he saw it quite profitable to sell out to a British interest to British citizens then came upon the scene in 1880s

abought Libre and as the British were wont to do developed it producing a great deal more oil than had ever been the case in Peruvian hands. Incidentally the government at once tried to increase the taxes on the land about four thousand times the amount previously had been. Needless to say the British government complained bitterly backing its citizens and their property interests in Peru. The result was an IM or national arbitration award which settled the tax rates on labor a on not only as of that moment in the late 19th century but indeed for the future down through nineteen seventy two. We are now getting close enough to that critical date in 1972 that the tempest in the teapot of the present day promises to be bigger before it can possibly become smaller. In due time though the British interest that

where that's less secured by an arbitration award and a tax pattern settlement is transferred to American interests when in the 1920s IPC entered the picture. If IPCC or international petroleum company is rather meaningless to you let me remind you that it is. It is an affiliate of the jersey standard. Indeed a jersey standard owns nine hundred nine and nine tenths percent of PC and so it is indeed an overseas operation of one of our major oil companies. Again we have with a change of foreign ownership a great shot in the arm as it were for production because the new American aggregation quadrupled the output that had previously been the record of the British. But in time there was this problem of Peruvian hostility that had once been generated by

the British owners being transferred to the new American ownership. With the passage of years there were offers made by the IPCC to take the same kind of concession grant that Peru was in later years according to other oil interests. This would have taken the oil company out of the private category and put it in under a new government program of concessions. However the government of Peru itself refused this idea for the simple reason that it would have lowered its taxes on the land it would have decreased its income from the American government. And so from the American companies so it preferred to keep the PC in this special and tantalizing category. To bring this whole problem down to our own day and time because the American company has persisted from the 1000 20s to the president. It might be remembered that

when the present president of Peru below one day Terry ran for that office in one thousand sixty two three in his effort to win the support of certain groups and Peru Like many countries in South America has so many political parties that you can't win with one backing you alone. He made certain promises one of which was that he would resolve the status of the problem and that he would negotiate a settlement within 90 days after taking office. Well President Bill and Terry took office July twenty eight thousand nine hundred sixty three. And many more days than 90 have long since passed and he has not been able to effect a settlement with the company. There was an offer of 65 percent of the profits going to the Peruvian government. This was an offer made by the company. The government declined this and came back

with a counteroffer suggesting that it the government of Peru received 90 percent of the profits. This became a standoff issue with the company and time went on. Finally the government announced its intention to sue the company for the not inconsiderable sum of slightly more than one hundred forty four minute dollars which it considered to do it over the period of the last 15 years. As far back as the law will permit the pursuit of old taxes and old claims under the statute of limitations in Peru. Needless to say if Peru were to seize the company outright and it is now somewhat boxed itself in and has only this prospect ahead of it unless it is going to reach a reasonable and somewhat equitable balance settlement with the company. If the country does expropriate the oil

operation it is going to lose Peru's biggest tax payer because IPCC currently pays about 1 1/2 million dollars a week in taxes to the government I mean a sum that is in excess of twenty six million dollars a year and not inconsiderable for a government such as that of Peru. The oil production of Peru has been declining in recent years. There was a time when it was the tenth largest oil producer in the world. It is now slipped to twenty seventh. Some of this is because of uncertainty related to the brain operation. Some of it is due to the fact that the oil fields are known to exist in other zones foreign capital will not come in and develop them and to the Peruvian state oil operation has not proved as efficient as it was hoped by the government that it would be there for the goose that is laying the golden age. The

private company that's paying the big tax could effectively be killed off and the oil industry of Peru given a damaging blow at precisely a moment when the Peruvian government not only needs funds for other projects of which I shall speak in a moment but also at a moment when Peru is itself increasingly coming into the automobile age and needs the oil. Incidentally is not only the greatest producer of crude oil in Peru it has the only significant refinery in Peru. And so it has. A more strategic or key role to play in the developing Peruvian economy than might at first glance seem to be the case. I spoke of the need for fun. The need for revenue by the Peruvian government President below and it Terry inaugurated a popular cooperation program of social reform. When he came into power

this is a self help program that is aiming at more schools bigger and better community centers health stations and many other socially desirable undertakings in Peru. Some of the backing for this is from the export import back Bank which is to say American capital in part Our government is now so sympathetic to the position of the oil company in its fight with the proven government that it has in recent months and years come to look dimly upon the. Prospect of more loans more financial aid to the Peruvian government. In fact we have what is known in this country as the Hickenlooper Amendment which states that if a foreign company cuts off an American investment by a proper x appropriation that our government

cannot provide aid to that company. Therefore Peru will not only lose the income that is the tax from the private company but will lose the prospect of further aid and assistance from the United States government. The latter incidentally is not a trifling sum. Over the last seven years Peru has average receiving aid from the United States more than 55 million dollars a year or twice as much as the tax received from the company and the two are aid and the company have given Peru more than 80 million dollars assistance and Italy. We have then what the Wall Street Journal has referred to as the tiger in the tank of Peruvian fields. We have what the diplomats would call the unwanted headache. We have what in terms of the Alliance for

Progress seems to be a roadblock against the future development. The happy the harmonious relations that we would like to have with a Latin American state of Peru. This was Latin American perspectives with Dr. C. Harvey Gardner research professor of history at Southern Illinois University. Join us for our next program on Dr. Gardner We'll examine another aspect of life in Latin America. Latin American perspectives is produced and recorded by station ws IUF Pham at Southern Illinois University and is distributed by the national educational radio network.