THE CARTAGENA CONFERENCE OF LATIN AMERICAN DEBTORS: DYNAMICS AND FALLOUT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00367R000100350001-4
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 14
• Document Creation Date: December 22, 2016
• Document Release Date: March 30, 2010
• Sequence Number: 1
• Publication Date: July 12, 1984
• Content Type: REPORT

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Central Intelligence Agency
Directorate of Intelligence
12 July 1984
The Cartagena Conference of Latin American Debtors:
Dynamics and Fallout
Summary
In late June eleven Latin American debtors met in
Cartagena, Colombia to discuss a unified approach to
their financial situation. Reporting before, during,
and after the meeting points to lack of real agreement
except at the lowest common denominator. Most specific
proposals were watered down into general statements of
unified concern. We believe the flavor and results of
the meeting suggest that the key Latin debtors support
joint action as long as it does not threaten their
ability to deal unilaterally with banks and creditor
While all of the participants at Cartagena see
benefit in coordinated positions, the general nature of
the final communique points to a continued belief that
each country's situation is unique and an unwillingness
to buck the system at this point. The existence of a
debtors "secretariat", however, will help push
This memorandum was requested by the Secretary of State. It was prepared
by analysts in the Office of African and Latin American Analysis with a
contribution from the Office of Global Issues. This analysis is based on
information as of 5 July 1984. Comments and queries may be directed to the
Chief, South America Division, ALA,
ALA-M-84-10066C
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individual countries in the direction of a more unified
front. Whether this occurs and how quickly will depend
on: 1) creditors' reactions to concerns expressed at
Cartagena, 2) whether interest rates rise further, and
3) progress in Argentina's and Mexico's debt
negotiations.
Latin Objectives at Cartagena
In response to a call by Argentine President Alfonsin,
Latin American foreign and finance ministers met on 21-22 June
in Cartagena to discuss their common concerns on international
debt questions. The participants had different motives for
attending:
the
Argentines wanted to exert combined political pressure
on creditors to obtain easier IMF programs and better
repayment terms on bank debt for Latin countries.
Mexican President de la Madrid hoped to find pragmatic
solutions to regional financial problems and believed
that consultations would provide important leverage in
future talks with international bankers.
Brazil, which reluctantly participated to strengthen
its relations with Argentina, nevertheless wanted an
opportunity to voice concern over higher US interest
rates, an objective shared by Colombia, Peru, and
Chile.
- Venezuela lacked enthusiasm for the Carta n
initiative
- Bolivia hoped the meeting would enable it to garner
support for its decision unilaterally to suspend
payments to bankers.
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Ecuador and the Dominican Republic) 25X1
hoped that the conference would 25X1
in negotiations with
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Prior to the meeting, the major Latin American debtors
voiced reservations that the gathering might be seen as an
effort to form a debtors' cartel.
the Presidents of Mexico, Brazi , and Venezuela opposed 'a
cartel because it might jeopardize their individual financial
negotiations and future access to external funds. For example,
Mexican officials announced in press conferences before the
Cartagena conference that they would not support a debt
cartel. Instead, Mexico committed itself to a negotiating
process for resolving Latin debt problems on an individual
US Embassies throughout Latin America indicated that the
participants agreed that additional steps by creditors were
necessary to alleviate the debt burden. They hoped that the
Cartagena conference would dramatize the Latin debt repayment
plight and their willingness to use political pressure to
obtain longer repayment periods and limits on debt servicing
payments from private lenders. The delegates also hoped to
sensitize the IMF to the need to ease austerity programs to
avert political instability. Moreover, they wanted to press
Washington and other industrial country governments to lower
interest rates and resist protectionist pressures.
The Dynamics of the Conference
After two days of lower-level preparatory meetings,
Colombian President Betancur gave the opening address on 21
June. Although generally moderate in tone, he mentioned the
United States repeatedly in an exposition on the "largely
external" causes of Latin. America's crisis. The US Embassy in
Bogota reported that late that evening delegates drafted the 15
points that later became the Cartagena Consensus. The
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participants made a concerted effort to draft a responsible
statement aimed at convincing world opinion that "we all are
going to survive or fall together", the US Embassy in Bogota
reported.
Despite this prevailing sentiment, press reports indicated
that Argentina, then locked in a confrontation with the IMF, 25X1
argued that the communique should take a tough stand against
creditors. A well informed source of the US Embassy in Quito
was particularly struck by Buenos Aires' radical attitude. He
noted the Argentines were insistent that the delegates should
press the IMF for concessions. This position was generally
supported by Ecuador, Bolivia, and the Dominican Republic. As
a result, Argentina managed to insert into the Cartagena
Consensus a demand that the IMF give priority to economic
growth and employment over debt repayment. The Mexican and
Brazilian delegations, however, were highly critical in private
of Argentina's refusal to accept IMF au y, according to
press reporting.
Argentina also took a more aggressive attitude toward
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For example, Argentine delegates raised the idea 25X1
for a moratorium. They also were strong proponents of a
proposal to limit debt payments to a specific percentage of
export earnings. A proposal of this t e was included in the
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The Argentine performance was in keepin with Buenos
Aires' overall approach to the debt issue.
The well informed source of the US Embassy in Quito also
indicated, based on reports of conversations among the
delegates, that bitterness toward foreign banks surfaced during
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the sessions. For example, Ecuador criticized its foreign bank
steering committee for charging over $10,000 in fees for
courier services for the dissemination of the refinancing
documents. The Brazilians were particularly incensed by the
"exorbitant" fees charged by its industrial country bankers for
arranging refinancing packages. Bolivian Foreign Minister
Fernandez stated on his return from Cartagena that his
delegation had received strong support from most other debtors
for La Paz' decision to suspend payments to private banks. F_
Results. In assessing the conference an Ecuadorean
Finance Ministry official told US Embassy personnel that
Bolivia, Argentina, and Colombia took positions advocating a
get-tough approach to foreign. bankers at Cartagena while
Mexico, Brazil, and Venezuela were moderate. In general, this
is consistent with pre-Cartagena reporting, except that
Colombia appeared on the eve of the meetings to be in the
moderate camp.
To some extent the meetings were probably tempered by the
realization that more drastic action would threaten debtor
cohesion and undercut the Latins' credibility. Bolivia came
prepared to push for the establishment of a negotiating
commission, for example, but only a consulting mechanism was
formed. According to press reports, one delegate stated that
the idea of a commission was not feasible because it came too
close to a debtor's clan. Any real push to demand lower
interest rates was also probably tempered by reality. One
inside source told the press that the delegates realized that
interest rates result from numerous economic and monetary
conditions and as such cannot be changed by a wave of the
Argentina's initial tough stand against foreign bankers at
Cartagena was probably toned down by its interaction with the
other major debtors, like Brazil and Mexico, who potentially
had a great deal to lose if the banks viewed Cartagena as a
challenge.
Brazil worke behind the scenes at Cartagena urging both
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Argentina and Venezuela to reach an accord with their creditors
in order to avoid having their loans fall into non-performing
status. Brazil was concerned that such a development could
lead to a sharp cut in trade credits to all Latin debtors
regardless of their willingness to make internal adjustments.
The communique--which was generally moderate in tone despite
heavy political rhetoric--and the mechanism for intra-regional
consultations demonstrate that the spirit of Latin cooperation
was maintained while disagreements over a path of action were
The Latins' Post-Cartagena Assessments
Although numerous public statements by the attendees
describe the conference in positive terms, the private reaction
of the delegates has been harder to discern.
IUS Embassy
personnel have received only selective feedback. We believe
the accumulated evidence suggests that debtors perceive the
conference as having advanced their efforts to obtain easier
repayment terms, but creditors believe the situation remains
essentially unchanged.
The Moderates. Since Cartagena, Mexican officials have
stressed the non-revolutionary nature of the conference,
according to US Embassy and press reports. Finance Minister
Silva Herzog told the Latin press that Cartagena did not
attempt to press Western bankers, but instead represented an
effort to diagnose Latin economic problems and identify areas
to be addressed in the future. In an informal post-conference
briefing, Mexican foreign ministry officials emphasized the co-
responsibility of debtor and creditor countries to resolve
financial problems and chided the developed nations for
increasing roadblocks to Third World trade.
Brazilian Foreign Minister Guerreiro, who led his
country's delegation, said Cartagena heightened awareness of
the debt plight. A high-level Finance Ministry official, who
also attended the conference, claimed that a second major
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achievement was the rejection of radical proposals, accordin
to the US Embassy.
We judge that Venezuela--believing it will renegotiate its
debt without involving the IMF--feels the conference did not
further its interests. Press reports indicate that Foreign
Minister Morales Paul criticized the recent rise of interest
rates as retaliation against the Cartagena Consensus. At this
juncture, however, Caracas is providing little more than
rhetorical support for the Cartagena document.
The Argentines. President Alfonsin commented
that Cartagena was a political victory for
Argentine diplomacy,
but he failed to discuss specifics. Foreign Minister Caputo
also called the Cartagena m ng
details, He
also told US Embassy officials he was pleased with the
Caputo has indicated that the temporary Secretariat
position should have a very important rnnrriinatina function,
He already
the most recent rise in the US prime rate. according to US
Embassy and press reports.
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The Smaller Debtors. We concur with the US Embassy that
Bolivian Foreign Minister Fernandez' public statements
indicating widespread support at Cartagena for his country are
overstated and designed to try to strengthen Bolivia's position
in coming talks with foreign banks. Bolivian Finance Minister
Bonifaz, by contrast, has publicly stated that none of the
participants favored joint action to solve the foreign debt
problem. He regretted that viewpoint prevailed and noted the
countries must not beg creditors for more flexible repayment
terms. The US Embassy reports that government and private
sources believe Bolivia received considerable sympathy, but
little tangible support for, its position to postpone debt
payments to private banks.
Chilean Foreign Minister del Valle said publicly that the
Cartagena Consensus strengthened the political resolve among
Latin countries to obtain concrete solutions to debt
problems. He also pointed out, press reports indicate, that
industrial nations should contribute to the solution of the
debt problem by lowering interest rates and lifting
protectionist measures and that commercial creditors should
grant longer repayment terms and agree to limit interest
payments to a set percentage of exports. Moreover, he noted
that the problem ahead is how to engage creditors in a
constructive dialogue.
Dominican Republic President Jorge Blanco and Foreign.
Secretary Vega have not commented on the meeting. Instead,
they have emphasized their intention to reopen formal
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negotiations with the IMF to resolve their debt difficulties,
according to the US Embassy. The conference was a success from
Ecuador's point of view because the communique advanced the
Quito Declaration's proposals a 'step further, according to
Embassy reporting.
Complications Posed by Rising Interest Rates
The half point rise that occurred in the prime rate just
after the conference ended provoked a flurry of criticism from
Latin America, especially in the press, but to date has led to
no concrete moves of a joint nature. The most strident
official comment came from Mexico's Finance Minister Silva
Herzog, who termed the action a reprisal for convoking the
meeting at Cartagena. An Ecuadorean official took the rate
hike as a "provocation," and Venezuelan President Lusinchi
called it an assault on the debtor countries. The official
comment of the Chileans, Bolivians, Argentines, and Brazilians
Latin officials privately indicated the timing of the
increase was regrettable, and some speculated to US officials
that the hike could move debtors toward a less moderate
course. Moreover, they have stated that the recent increase
makes it more imperative for the debtors to remain united,
because interest rate hikes are undermining the adjustment
process and the ability to service debts. The Peruvians
specifically stated that higher debt costs threatened their
compliance with their IMF program.
According to press reports, Ecuadorean Foreign Minister
Valencia is calling for a new meeting of Latin leaders to
discuss the rise in the US prime rate and he has asked
Argentine Foreign Minister Caputo--as coordinating secretary of
the Cartagena countries--to move forward the date of the next
meeting. A well-informed US Embassy source says Quito is also
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consulting with its Andean neighbors to gain support for this
proposal, but that logistic problems may prevent another
session before August. Peruvian Prime Minister Mariategui has
publicly indicated that his country is willing to attend such a
meeting.
Implications
The Cartagena Conference established a permanent political
forum to voice Latin concerns, but it did little else to unify
the debtors immediately. The conference did not change the
current approach of negotiating with creditors on a bilateral
basis. As far as actions were concerned, no consensus was
reached on radical proposals such as the creation of a debtors'
cartel or a unilateral moratorium on interest payments.
Indeed, the conference, by limiting itself to the lowest common
denominator, helped to reinforce the moderate position taken by
Brazil, Mexico, and Venezuela.
We believe the flavor and results of the conference
suggest that Latin debtors will support joint action as long as
it does not threaten their ability to negotiate individually
with commercial banks and creditor governments. While many of
the participants of Cartagena apparently believe there is at
least cosmetic benefit in coordinated positions, the final
communique indicates an unwillingness to buck the system at
this time. How long this feeling persists probably will depend
on a number of developments:
-- The Cartagena participants are waiting for a response
from creditors to the concerns they have expressed in
the communique. They are asking for more concessions
from commercial banks and a dialogue with
industrialized countries.
-- Rising interest rates have a highly charged emotional
effect on Latin governments. A further increase in
the US prime rate and LIBOR will provide more of an
incentive for debtor countries to band together and
demand a solution to their high interest payment
burden.
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- The Argentine debt situation and the Mexican
negotiations with creditor banks will be closely
watched this summer by the debtors who attended
Cartagena. If sufficient progress has not been made
in these cases by September, the next Latin debtor
meeting in Buen ires could well be less moderate.
The unique and diverse financial situations of each debtor
country and continuing disagreement over how to resolve the
problems have combined to prevent a united Latin approach to
the debt issue. Bilateral leverage, coupled with the fear of
financial fallout from radical action, have contributed as well
and probably will continue to undercut Latin unity for some
time to come. A rapid rise in interest rates, however, and a
perceived lack of concern by the IMF, industrial country
governments, or commercial banks toward the Latin debtors'
plight could cause them to begin moving toward more
confrontational stances. Despite the conciliatory tone of the
Cartagena consensus, the creation of the consultative system is
the first concrete step in taking a unified stand on debt
issues. It will enable the Latin debtors to coordinate their
actions more effectively by sharing information on debt
negotiations. Moreover, it indicates a heightened political
willingness to press for financial reforms, which is confirmed
by the selection of Argentina as the first coordin g
secretary of the consultative mechanism.
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UNCLASSIV ItU
CONSENSUS OF CARTAGENA
SUMMARY OF PROPOSALS
1. Immediate and drastic reduction in nominal and real
interest rates (the fundamental objective to which the
creditor governments should give their best efforts)
2. Shift in the reference interest rate to one which does not
exceed banks' cost of funds and which is not based on an
"administered" rate (e.g., the US prime rate)
3. Minimal spreads and elimination of commissions and late
payment fees while negotiations are underway
4. Temporary mechanisms to attenuate the impact of high
interest rates, including:
-- a compensatory fund in the IMF
-- concessional official credits
-- extension of repayment periods
5. Improvement in repayment and grace periods based on:
-- the debtor's capacity for repayment and need for
economic recovery
-- multi-year reschedulings and capitalization of interest
where convenient to the debtor
6. Partial deferral of interest payments in the case of
countries that experience extreme balance of payments
problems (e.g., Bolivia)
7. Limitation of total debt service payments to a
"reasonable" percentage of export earnings compatible with
maintenance of domestic productive activity
8. Elimination of the requirement for the public sector to
assume private sector commercial risk
9. Elimination of regulatory rigidities which impede new
commercial bank loans, recognizing the creditworthiness of
sovereign debtors
10. Reactivation of capital flows, including renewal of short-
term trade finance
UNCLASSIFIED
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UNCLASSIFIED
11. Increase in the financial resources of the IMF, World
Bank, and IDB
12. A new distribution of SDRs compatible with the liquidity
needs of developing countries, longer terms for IMF
adjustment programs, and increased access to IMF resources
13. Revision of IMF conditionality to:
-- give priority to growth and employment creation
-- shield the borrower from increases in interest rates
14. Accelerated use of World Bank and IDB resources through:
-- an increase in program loans and in the maximum
allowable percentage of financing of total project
costs
-- accelerated disbursements of credits already contracted
-- a temporary but substantial reduction in local currency
counterpart requirements
-- elimination of graduation
15. Longer terms and lower interest rates for Paris Club
.reschedulings, accompanied by new lines of concessional
credit sufficient to prevent the interruption of imports
16. Immediate attention to the developing countries' appeals
for the stabilization of commodity prices at remunerative
levels
17. Rapid elimination of industrial countries' tariff and non-
tariff barriers for traditional and industrial products,
including high technology goods
UNCLASSIFIED
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SUBJECT: The Cartagena Conference of Latin American Debtors:
Dynamics and Fallout
Copy 1 - Schultz, Secretary of State
2 - McFarlane, NSC
3 - McNamar, Treasury
4 - Motley, State
5 - DDI
6 - NI0/LA
7 - NI0/ECO
8 - Executive Director
9 - NIC/AG
10 - C/DDI/PES
11 - D/ALA
12-13 - ALA/PS
14 - ALA/Research Director
15-18 - CPAS/IMC/CB
19-20 - ALA/SAD
21-25 - ALA/SAD/R
26 - ALA/SAD/E
27 - ALA/SAD/W
28 - OGI
29 -
30 -
31 -
32 -
33 -
DDI/ALA/SAD
(12 Jul 84)
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