GOVERNMENTS v. BUSINESS ABROAD

The growth of government power over the private economy is a reality that businessmen have to cope with in many nations. Last week, in different ways, three disparate governments expressed and expanded their influence. Their actions upset some plans and led to new alignments of power.

Peru: Oilfields Seized

When International Petroleum Co., a subsidiary of Standard Oil (N.J.), agreed to turn over its La Brea y Parinas oilfields to the Peruvian government two months ago, it appeared to be assuaging one of the deepest grievances of Peru's nationalists. As things turned out, the deal did not go nearly far enough for the country's military leaders, who used it as the prime pretext for overthrowing President Fernando Belaunde Terry (TIME, Oct. 11). Last week, having peremptorily canceled Belaunde's agreement with IPC, Peru s new junta took a different approach. Rifle-toting infantrymen seized the disputed oilfields, a nearby refinery and other company property worth about $90 million.

This time there was serious question as to what kind of deal IPC would receive. The government announced that IPC would get some compensation but implied that it would be offered on a take-it-or-leave-it basis.

Promise and Backdown. The La Brea y Parinas basin has long troubled Peruvian pride. IPC, owner of the fields since 1924, has tried to appease various governments by agreeing to several tax increases. It now is the country's No. 1 taxpayer.

Peruvians continued to be rankled because the Yanqui company owned the fields instead of merely operating them under a government concession. In his 1963 presidential campaign, Belaunde promised to expropriate the fields but backed down after his victory. A year ago, his government began claiming that IPC owed $144 million in back taxes, the total amount of profits that the company earned in Peru during the previous 15 years. Then the two sides struck the August compromise: Peru would take ownership of the fields, but IPC would help operate them under contract. Simultaneously, the government scrubbed its $144 million claim and gave IPC the right to expand its operations elsewhere. That was hardly the sort of get-tough deal favored by the rebellious military men--or by Peruvians in general.

Political Points. By playing on jingoism, the junta also seemed to be playing with the country's present economic wellbeing. The expropriation threatened to frighten off foreign investors. The U.S. could always cut off economic aid if the Jersey Standard subsidiary does not receive satisfactory compensation. Washington is also in a position to suspend purchases of Peruvian sugar, some $40 million a year.

Jersey Standard routinely labeled the seizure "a clear violation of international law" and asked the State Department to refrain from stepping in actively. One reason for the company's restraint was that Peru accounts for less than 1% of its total crude-oil production. The company also figures that Peru, which has to import oil to meet its needs, can ill afford to tamper with domestic oil sources. For the moment, Peru's militarists were in no mood to yield. But there is at least a chance that the junta, having scored a few political points, may eventually offer IPC a contract to run the oilfields, much as it has been doing for 44 years.

Italy: Company Taken

Italy's state-run enterprises, which already dominate a sizable amount of the country's business, last week pulled a stunning coup. With a stealth that would have impressed Machiavelli, they gained virtual control of the biggest Italian private company, Montecatini-Edison, a widely diversified manufacturer of chemicals and many other basic products. The maneuver was accomplished through an unprecedented joint assault by the government's two largest industrial complexes, ENI and I.R.I., which between them have substantial interests in 275 firms and control all or most of Italy's steel, oil, shipbuilding, aviation and banking. The government's new stake in "Montedison," whose sales exceed $2 billion, puts it in command of about one-fourth of Italian industry.

More than Equal. Montedison was formed in early 1966 by a merger between Montecatini, a chemical-minerals complex, and the Edison Group,* a private power company that wisely had begun branching into chemicals, steel and other goods before Italy nationalized power in 1962. Soon after the merger, I.R.I. and ENI began secretly buying Montedison stock. By last week they had accumulated at least 15% of the stock, making the government the firm's largest single shareholder. The state-run corporations set UD a new shareholders' syndicate, in which ENI-I.R.I. will have an equal voice with a group of private holding companies. "Let's face it," said a major shareholder, "the state group is more equal than the private group."

The government victory was a sharp setback for Montedison President Giorgio Valerio, 64, who as head of the Edison Group had engineered the 1966 merger. That alliance had been seen as a way of helping Italy's chemical industry to compete in world markets. But Valerio had trouble welding the staffs of the two companies, and the new combine was troubled by runaway costs. Profits declined by 7.4% last year to a reported $75 million.

The Ghost. Montedison's stagnation is not the only reason that ENI and I.R.I, moved in. Another factor was last May's general elections, which resulted in a shift to the left and new government pressures for greater program-mazione, or central economic planning. What promoted the move more than anything else was a feud between Montedison's Valerio and Eugenio Cefis, 47, boss of ENI. Cefis was convinced that Italian firms, in order to fare better in foreign markets, had to "coordinate" their sales abroad in a kind of cartel arrangement. Valerio seemed more interested in competing. Cefis, whose obsessive secrecy has won him the appellation "the Ghost," decided to team up with I.R.I, and go after Montedison. His decision had the government's enthusiastic support.

Now Cefis' ENI, Italy's petrochemical giant, will indeed "coordinate" with chemical-making Montedison, and the two may unite to form Europe's third biggest industrial company. One change that ENI and I.R.I, appear to have in mind for the future at Montedison is the replacement of its boss with somebody more to the government's liking. Valerio is resigned to that. Government leaders, he admits, seem to be in a position "to do as they like."

France: Deal Stalled

To keep France French, Charles de Gaulle has assumed the right to pass the final word on certain business deals. He must, for example, approve any arrangement that would deliver more than 20% of a French company into foreign hands. Last week De Gaulle used his veto to upset a planned union of France's troubled Citroen auto firm with

Italy's prosperous Fiat (TIME, Oct. 11). Fiat had hoped to buy more than a 30% share of France's second-biggest carmaker and then try to revive its sinking health.

De Gaulle's ruling on the deal was a somewhat ambiguous "No, but yes." No, Fiat could not buy the Citroen shares from the tire-making Michelin family. But yes, Fiat and Citroen could cooperate, so long as their mutual dealings did not affect "conditions of employment" and the "equilibrium of the auto market in France," That means that little, if anything, can be salvaged from the original deal, The two companies had intended to share manufacturing plants and probably to channel more Citroen work to Italy's lower-wage labor market, They also had planned to give Fiat access to Citroen's dealer network in France.

With its lagging sales and debts of at least $100 million, Citroen is eager to hitch up with another auto manufacturer. Charles de Gaulle would like a purely French solution: perhaps a merger of the three major French carmakers, to be called Automobile de France. If that happens, Fiat may be sorely tempted to woo Germany's Volkswagen. Such a combine would dwarf anything that France could put together.

* Named after Thomas Edison, whose patents it used in Italy.

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