Carrying a Small Stick

Just as the U.S. has given up gunboat diplomacy in international politics, it is also setting aside the old big-stick approach in international economics. Until recently, when a foreign government nationalized U.S. companies, Washington retaliated by pressuring the World Bank, the International Monetary Fund and other agencies to withhold credits from the offending nation. This approach, known as the Connally Doctrine, after former Treasury Secretary John Connally, is being replaced by the ameliorative tactics of Secretary of State Henry Kissinger, who preaches negotiation instead of confrontation.

The shift became most visible after Peru's leftist military government on Jan. 1 seized the U.S.-owned Cerro de Pasco Corp. The U.S. Government's response to the takeover of the largest mining company in Peru was discreet silence. Instead, quiet negotiations over compensation are going on in Lima between U.S. and Peruvian government representatives.

The negotiator whom President Nixon sent to Peru is James R. Greene, a Manufacturers Hanover Trust Co. senior vice president who holds a Ph.D. in economics and has been a U.S. foreign service officer in Latin America. The talks that he has been involved in concern not only Cerro but units of at least ten other U.S. companies that either have been nationalized or stand to be. In separate meetings with Cerro, the Peruvians had offered the company only $12 million, though the firm's Peruvian unit had sales of $159 million and profits of $16.6 million from its copper, lead, silver and zinc mines for the first nine months of 1973. Provided that there is a sweetening of those terms, and terms for the other companies, Greene is said to have told the Peruvians that their applications for loans at the U.S. Export-Import Bank would be welcomed. Additionally, there are reports in Lima of U.S. banks' offering Peru a large ten-year credit line at 11% interest; Greene denies any connection with such an offer The betting in Peru is that President Juan Velasco Alvarado will accept some agreement in a month or so.

According to the usually reliable weekly Peruvian Times, Cerro will probably collect $65 or $70 million against its claims of $145 million. In addition, W.R. Grace & Co. is expected to get $35 million of the $65 million that it says its soon-to-be-nationalized paper and chemical plants are worth. Six companies that own fish-meal plants, among them Heinz and General Mills, are likely to divide a $24 million settlement on their total claim of $35 to $40 million. In all, Peru reportedly will pay U.S. companies some $130 million on claims of twice that amount, which amounts to a fat settlement by the usual standards of nationalization.

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