BAP Lobo / Dos de Mayo

There was an inevitable tendency, particularly on the part of the numerous military governments in Latin America, to procure military equipment not for hemisphere defense, but simply because their leaders like to have it around for display purposes and in order to appear strong in relation to their neighbors.

Peru has an extensive history of submarine operation. They initially contracted for two submarines in April of 1924 which included in the contract equipment for the establishment of a small submarine base. The first two submarines were completed and delivered in 1926. The contract was then extended for two additional submarines which were delivered in 1928. These four boats were built by the Electric Boat Company of Groton, Connecticut, and were of the 450 ton R-class submarines. The total cost of these four submarines was approximately $6 million and were financed through arrangements with the Electric Boat Company during the course of construction. The period of payment extended during the course of construction plus several years. By 1955 these four boats were still operational; however, they were limited to the depth they can dive due to their age. In 1950 Peru contracted with the Electric Boat Company for the overhaul of these submarines and at that time it was estimated by the company officials that the boats had approximately five years of service life before they should be decommissioned for safety reasons. As a matter of interest, Peru utilized these submarines during World War II in the protection of sea lanes along the Peruvian Coast in coordination with our own Navy.

Looking forward to the eventual replacement of these submarines, the Peruvian Government contracted in July 1951 with the Electric Boat Company for the construction of two new submarines. These two were delivered on 1 March 1954 and 14 June 1954, respectively. They were of about 1,000 ton displacement and had considerable operational capability. In fact, they were approximately two-thirds of the tonnage of the US Navy fleet type submarines. The purchase price of these two submarines was approximately $15 million which the Peruvians paid during the period of construction.

It is of interest to note that Peru equipped the two submarines delivered in 1954 with U.S. Navy-type equipment which was not readily available from commercial sources such as periscopes, fire control equipment, etc. This equipment was purchased from the U.S. Navy at a cost of approximately $350,000 per boat.

During the construction period, our Navy and the Electric Boat Company provided training for the submarine crews. Peru is also furnished officer spaces in the regular U.S. submarine school. With this and previous training, the Peruvians developed considerable proficiency in the operation and maintenance of submarines and have established in Peru a rather complete submarine base, including a small training school.

The Peruvians then broached the Electric Boat Company about the possibility of purchasing on credit two additional subs to allow them to decommission their old submarines. In the Peruvians’ approach to the Electric Boat Company in 1955 for two additional submarines, they indicated a desire to purchase the boats on extended terms of repayment. The company was unable to handle this matter, either through their own resources or through commercial banks, and informally approached the Department of Defense in an attempt to determine if some other means of financing were available. The Electric Boat Company representative was advised that under existing legislation, th government could not directly loan money to the Peruvian Navy for the purchase of these subs with from the Electric Boat Company.

By 1955, the US Defense Department was in favor of the plan for a 7-year credit to be extended for the purchase by Peru of 2 submarines from the Electric Boat Company at an estimated total cost of $15 million. Defense’s concern over extensive purchases of military equipment often on credit terms by Latin American governments from non-U.S. sources led to the proposal of National Security Council policy of favoring credit which was approved; the JCS have indicated that Peru’s acquisition of the submarines would contribute to hemisphere defense; the submarine was a type of military equipment which is least likely to be used for any aggressive purpose; the building and sale of these submarines by a U.S. firm was preferable to similar sale from a European source; the credit would be available under the provision of the present legislation which requires utilization of $200,000,000 of MSP funds for loans.

The borrowing capacity of every Latin American country is limited; and the extent to which that borrowing capacity is utilized for the purchase of military equipment reduces in proportion the amount which can be used for borrowing for purposes which will contribute to the economic well-being and strength of the country. The granting of long-term credit to Peru for military purchases in this specific case would inevitably mean that other Latin American governments, many of them in a much less favorable economic position even than Peru, will desire similar credit for military purchases. These requests might be difficult, if not impossible, to refuse, even though in most cases they could not begin to be justified on economic grounds.

There was a fundamental difference of view between State and Defense on this matter. State's basic reasons for opposing long-term credit for this sale wss that long-term credit to Latin American countries for the procurement of military equipment would inevitably decrease the dollar borrowing capacity of these countries for constructive economic development purposes; that because of the Latin American preference for U.S. arms, increasing U.S. sales through long-term credit would bring more arms into the area than would result if long-term credit purchases were made from other than U.S. sources; and that the sale to Peru, which might be more justifiable on economic grounds than similar sales to other governments, would create extremely difficult continuous political and economic problems with other Latin American countries desiring that similar arrangements be made for them.

The State Department’s note of 15 June 1955 conveyed a favorable reply to Peru’s request for a loan for the construction of two submarines. In Groton, Conn. two sleek, new submarines for the Peruvian navy slid down the ways in a dramatic double launching in February 1957, and a watching crowd cheered. In Lima, a sour official communiqué suggested that the new government would have been just as happy if the submarines had never been ordered. The subs were the second pair of four ordered between 1952 and 1955 by Vice Admiral Roque Saldias, the Navy Minister. The reputed cost was $32 million, payable over five years, a heavy drain for a nation whose record navy budget was only $13 million, but no complaint was heard.