ECONOMIC INTELLIGENCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88G01116R000700790014-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 22, 2016
• Document Release Date: June 30, 2011
• Sequence Number: 14
• Publication Date: February 28, 1986
• Content Type: MEMO

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EXECUTIVE SECRETARIAT
ROUTING SLIP
18 Mar 86
Date
Remarks
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estimate for completion,
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28 February 1986
MEMORANDUM -FOR : ~Dl!e~puty yD~i rector for._:InteJ ] i gencQ ~ ~ _
~.1; . '!y .?~-'y .?;. ~'Or .'~. f1S~,~ b~C~e' h2pt11~! ~ ~:; 1'.:. -i+.~?: ?i s' ..
vi recto, ui t i ce of r,i r i can ana Lat i n ,;r~er~ can r~ttai rs, Gi
Director, Office of Global Issues, DI
FROM: Director of Central Intelligence
SUBJECT: Economic Intelligence
1. At the Intelligence Community Senior Management Conference
this week, Bob Gates made a presentation on economic intelligence. ~It was
full of important ideas and the five of us should examine it to determine
what follow-up work is indicated.
2. I would like to give first priority to a comprehensive analysis of
the instabilities and exposure of selected Third World governments from the
failure of centralist economic management in various places around the world
and the opportunities this creates for US leverage and influence in offsetting
potential instabilities, gaining influence in those countries, and by example
elsewhere in the world, and out-competing the largely military assistance, the
marginal aid, and the inade uate market offered by the Soviets and their allies.
You will recall, with nd Herb Meyer playing the leading roles,
that we did something o a in in 1984 in a special assessment entitled
Economic Forces for Chan a in the Third World. That was a reasonably good job
but I think we shou d undertake something deeper and more specific.
3. I visualize that this project would look not only at the economic
situation and the movement away from central economic management as the 1984
project did, but I would also look at the amounts and the nature of assistance
provided by AID, the World Bank, OPIC, and economic assistance from other
countries. It should look at the kind of projects financed, how they are
allocated between agriculture, capital projects, small ventures, infrastructure,
etc. It should look at the private flows of investment, technology, and
management. It should look around for the types of this kind of flow which
appear to have high economic leverage. for example, I came across a finished
process for a boiler to generate power which is being used in Jordan with shale,
in Jamaica with bagasse, and it burned almost anything. The results appear to
be extraordinary with the replacement of oil imports very high in relation to
capital investment. This technology has apparently been applied in well over
15 countries with the assistance of the World Bank and AID. I can get you more
information on this and I will. An intelligence assessment showing what is
happening out there in the Third World can be a strong stimulus to developing
an effective policy to use our economic assets to enhance our security and
political influence there.
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JCMRGI
4. I note that there is currently going on a three-day session on
privatisation sponsored by AID as reported in this warning's newspapers.
5. I would suggest that you consul. on this, In hi ate ~~,,,
~...., ,?,,he?.:s'tf11,~~s~s~~l? b~.p~3oi6finc~`t ~ ;'?? :~;;:?? `, ?? ?~,,- .~ ;,~...;.? -.... ,;
6. I attach an interesting paper by Bob Keating, our Ambassador to
Madagascar, who had interested McFarlane and Poindexter in this question
and who had been slated to be nominated as US Director at the World Bank.
G
William J. Casey
Attachments
2
SECRET
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11 Jnly 1985
INTERNATION~IL PRIVATE ENTERPRISE:.
~?; -~`.:Y~?}~''i~fd,-?!YgL :~1-~'c~f~T~Qq ?!$G~1~2.`~ _=, t:' ,~s
The Challenge
Economic policies in the Third World (and industrial nations) are shifting
toward market-oriented approaches. Many of these countries are just beginning
to initiate practical policies which will gain momentum over the next 10
years. The President's goals as spelled out at Cancun and Williamsburg thus
were timely and have the potential of delivering international economic growth
through the stimulation of private enterprise. The strategy and mechanisms
for carrying out the goals are, however, flawed. Thus, the challenge of
implementing the President's program remains unfullfilled.
The Opportunities
This changing climate presents significant economic opportunities for the
United States: ~
-- To increase the promotion of small-scale enterprises within LDCs and
the acceptance of new technologies.
-- To enlarge the flow of foreign direct investment, and to help state
enterprises to become more efficient and find ways to relinquish some
functions to the private sector.
-- To strengthen-its trade, finance, and investment links with LDCs based
upon a growing mutuality of economic interest.
Developing countries have finally perceived tbat the Soviet IInion and its
client states represent dismal examples of economic and industrial
productivity. In addition, Soviet domestic economic and foreign financial
constraints over the next 10 years will make Koscow even less able to compete
in non-military sectors. Thus:
-- the changing climate should strengthen the West's position relative to
that of the Soviet Union if we take advantage of it, and
-- in specific countries US security interests will often coincide with
opportunities for economic support and can be mutually reinforcing.
The Obstacles
The growing American economy is an irresistible example impelling change
in the economies of both the industrial and Third World countries. Although
the richer LDCs have been able to advance economically by exporting, the
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poorer LDCs will have to depend on the emergence of small-scale,
domestically-oriented enterprises as their main engine of growth.
-- These poorer countries are groping with new approaches because they
,.... '' :.have~i~ep ~.?irpii ';s~e:i~l'is~-~~Cx~'i1~.net}:"e~c7si4'a~. ?~iofie?fes~~fa~f1~~'aAd .?.~?~~~` ?~
~C3:.~2 ~^~'~' .. .: .. .. .._ d~_?C:.`.:iE}'i:.LC?fi O~ .^.c~~1C~_..~ ?~O'e~i'i;.~GC:~
bureaucracies and ponderous state enterprises.
-- They have also seen how price incentives in China and elsewhere
have boosted agricultural production and general economic growth.
But many Third World leaders are moving slowly because they feel
threatened by a loss of political control caused by the diffusion of
economic power.
-- How does the US encourage a tilt toward free-market policies while
helping reduce the fears as to political instability?
AID is not the solution. In fact, it is part of the problem. Western
countries have built ponderous bureaucracies of their own which for the
most part administer security assistance and welfare without contributing
to economic growth.
-- Bureaucratically, AID opposes new initiatives to address this issue
which are beyond its control, as a matter of turf.
AID has an important role as part of the process. It can use its
programs to create leverage for policy change and the dismantling of state
enterprises. However, it has neither the philosophy nor the capability to
promote private enterprise.
Thus, we are at a stalemate. The mechanism does not exist to pull
together security, welfare, trade liberalization, and economic interests
for the constructive promotion of private economic development in a country
or region abroad.
The Crucial Questions
-- Is the Administration willing to commit the political capital
necessary to address this issue through legislative change?
-- Is the President aware that, despite the positive climate for
change, his program to encourage economic growth and more open
societies through the stimulation of private enterprise remains
unfilfilled?
-- is the Administration satisfied with the current means of
coordination of US policy for foreign assistance, trade and
security assistance to key countries and regions?
-- Are we going to depend upon AID and its staff to promote
international private enterprise, or is there a better way?
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M7 VAAf[tii.. Y Nr~NiAC.7 aMn Ai.w, n.~~ n~sn~?n~~~? v avvvv
TQ DEPT OF STATE, ANOXE, RM 5240
FOIL THE HONORABLE ROBERT B. KEATI N8
1. YE HAVE RECEIVED THE FOLLOYINO IN THE JULY 8 POUCH AND
ARE HOLDI N6 THE OR 6I NAL AT POST ~ .
? ,. .... - THE W.H I TE HOUSE
wasxiNC~ca
JUNE 24, 1985
DEAR 608:
I YA NT T 0 THANK YOU FOR ALL YOUR VOR K TO IMPROVE
U. S. FOOD ASSISTANCE I N BOTH EMERGENCY AND
NON-EMERGENCY SITUATIONS. AS CHAIRMAN OF THE
NATIONAL SECURITY COUNCIL STUDY ON HUNGER RELIEF
aSSiSTANCE iN THE THIRD YoRLD, You DEVELOPED
INNOVATIVE PROPOSALS TO FEED THE VORLD'S HUNGRY.
YOUR RECOMMEPDATIONS ON SPEEDI NG UP EMERGENCY
FOOD ASSISTANCE YILL HELP ENSURE THAT CRISES .
LIKE ETHIOPIA DO NOT AGAIN TAKE PLACE. AS A
LONGER-TERM SOLUTION TO FOOD PRODUCTION PROBLEMS
IN DEVEIOPI NG COUNTRIES; YOUR "FOOD FOR
PR OGRESS" PROGRAM YILL FORM THE CORE OF OUR
NATION'S EFFORTS TO FOCUS OUR F000 AIO AS A
MEANS TO INCREASE RATHER THAN DECP.EASE ESSENTIAL
FOOD PRODUCTION IN COQ1~lTRIES VHERE MANY GO HUNGRY.
I COULD GO ON RECOUNTING YOUR ACHIEVEMENTS IN
THIS AREA, BUI PERHAPS THE MOST IMPRESSIVE
ASPECT OF YOUR ACHIEVEMENTS IS THAT YOU
ACCOMPLISHED THESE REFORMS WHILE STILL CARRYING
OUT YOUR CRUCIAL RESPONSIBILITIES AS OUR ENVOY
TO MADAGASCAR AND THE COMOROS. MANY COUNTRIES
IN THE YORLD YILL BENEFIT-- IN THE FUTURE--FROM
YOUR EFFORTS AND INNOVATIONS.
SINCERELY,
RONALD REAGAN
THE HONORABLE. ROBERT KEATING
AMBASSADOR T 0 THE DEM OCR AT I C
REPUBLIC OF MADAGASCAR AND
THE FEDERAL AND tSLAMIC
REPUBLIC OF THE COMOROS
ANTANANARIVO
2. CONGRATULATIONS AND BEST REGARDS,
ceM ace
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. ~~~?..~F.,AS :Al~tBAS~~Ct}R.. RJAER,I.,~{~-; ;_K~:Q?i;~.l~~.., .At~~.Z+Sf1NAt:iAaR~uG .~4~k2 ~}'CTIuN 1 GF 3
TO. !'~~`n~ C. 'Y ~~,,"f~~~. ~Q ~:G ~ ! {.?'r wt-~?. ... !'~~,I~C~~'~t''l/N .t~. "i.~ ''.' '4 :/: w-. ''~? ti':.L
VADM JOHf: M. rUINCEXTER
T0: ROBERT C. MCFARLAA'E, IHt WHITE HOUSc
VADM JOHN M. POI NDtXT~:R
FROM : AMBASSADOR ROBERT B. KEATI NG
SUBJECT : THE REAGAN REVOLUTION I N DEVELOPMENT ASSISTANCE
THE FOLLOWING EVALUATION IS IN~ RESULT OF OVEk Two DECADES
OF CLOSE ENCOUNTERS OVERSEAS WITH AID PROGRAMS WN,OSi: LARGE
OVERHEAD COSTS AND IMPRECISE RESULTS WITH RESPECI TO U.S.
OBJECTIVES OFTEN PUZZLED AND CONCERNED ME. I HAVE OBSERVED
AND INTERACTED WITH THESE PROGRAMS IN THE COURSE OF EXTe.NSIVE
EXPERIENCE GRAPPLING WITH THIRD WORLD DEVELOPMENT PROBLEMS aS:~
STAFF ENGINEER WITH THE WORLD BANK; DIRECTOR OF THE CHILE-
CALIFORNIA PROGRAM; SENIOR ADVISOR TO THE INTER-AMERICAN
DEVELOPMENT BANK; DIRECTOR GENERAL OF THE MINISTRY OF PUBLIC
WOR KS I N ZAIRE; SENIOR CONSULTANT TO U. S. INDUS?RTES I N AFRICA,
LATIN a'~ERICAN AND SOUTHEAST ASIA; U.S. AMBASSADOR TO MADAGASCAR
AND THE COMOROS, AND. CHAIRMAN OF THE NSC-DIRECTED THIRD WORLD
HUNGER STUDY. )
IN THE PAST TEN YEARS, CHANGING CIRCUMSTANCES IW'THE
THIRD WORLD HAVE CREATED A NEW CONTEXT FOR ECONOMIC AND
POLITICAL RELATIONS AND NEW OPPORTUNITIES FOR U.S. FOREIGN POLICY.
WE HAVE SO FAR FAILED ?0 CAPITALIZE ON THE POTENTIAL OF IHESE
CHANGES. THEY CREATE AN UNPRECEDEN?ED OPPORTUNITY FOR THE
UNITED STATES ?0 BUILD TIES TO THE THIRD WORLD BASED ON EMERGING
MUTUALITY OF ECONOMIC INTERESTS. A REAG AN REVOLUTION I N DEVEI.OP-
MfNT ASSISTANCE IS NEEDED IF WE ARE ?0 MEET THESE CHALLENGES.
THE CHANGING ECONOMIC CIRCUMSTANCES
SOCIALIST SYSTEMS WHICH HAVE DOMINATED THE ECONOMIES OF
DEVELOPING COUNTRIES FOR SEVERAL DECADES HAVE FAILED TO ACHIEVE
ECONOMIC GROWTH. THEY HAVE EMPHASIZED URF AN DEVELOPMENT AT
THE EXPENSE OF THE COUNTRYSIDE AND ITS AGRICULTURE; DRIVING
FARMERS INTO MERE SUBSISTENCE. CEN?RAL PLANNERS SEI UP
INEFFICIENT STATE ENTERPRISES AT ENORMOUS COST, BANKRUPTING
THEIR ECONOMIES. TIMES GOT TOUGHER IN THE SEVENTIES. TWO OIL
HIKES, TWO RECESSIONS, ACCUMULATtD DEBT AND HIGH INIEREST RATES
ALL MADE DEVELOPMENT MORE DIFFICULT. WITH THE FAILURE OF
PRODUCER CARTELS AND OPEC'S CURRENT PROBLEMS, DEVELOPING COUNTRIES
A'OW REALIZE THEY HAVE LESS COLLECTIVE POWER THAN EARLIER IMAGINED.
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-: ? ?> = t_;413 }4 ~~NG ` ~ PQR ~`A~?Y:S- ?D l_} T -~[tr- -;' #t c l R.. ~.~ t}~i,C-sa i C~~:BI :~. Fi?~l_; L 3~If~S.?: ~A.N D.
tiJJ_ n~~v~`. ~J~ }',."..ter f:r.l?~'~ _~.,:~-:'~-: '~=_~J ~ ~=Wr:~f ~w ~~L~~~I~1~...
HAVEyFINALLY PERCEIVED THAT THt SOVItT UNION AND ITS. CLIENT
SPATES ARE DISMAL EXAMPLES OF AGRICULTURAL AND INDUSTRIAL
PRODUCTIVITY. UNABLE TO SUPPLY MUCH ECONOMIC ASSISTANCE, THE
~VIET UNION HAS HAO TO BIND THEM TO ITS SIDE WITH SUPPLIES OF
SURPLUS MILI?ARY EQUIPMENT. MEANWHILE, ~1ESTERN DEVELOPMENT
AGENCIES BUILT PONDEROUS BUREAUCRACIES AT HOME AND ABROAD TO
ADMINISTER RURAL WELFARE TO THE POOREST OF IH? POOR, WITHOUT
CONTRIBUTING TO ECONOMIC GROWTH.
IN THIS DARK LANDSCAPE, THERE IS LIGHT AND IT COMES FROM
AN EXPANDING AMERICAN EC040MY Mi;i:CH STANDS AS A MODEL AND
PULLING ENGINE FOR WORLD ECONOMIC GROiJTH. AMONG DEVELOPING
-COUNTRIES", THOSE WITH THE MOST OPEN ECONOMIES AND CLOSEST TIES
WITH THE UNITED STATES CE.G. , THE kSEAN COUNTRIES) HAVE MOST
EFFECTIVELY OVERCOME THE LAST DECADE'S ADVERSE ECONO;r1IC CIRCUM-
STANCES. T ECHNOLOG IES FROM U. S. -SPONSORED RESEARCH ARE OPENING
A NEW ERA OF PRODUCTIVITY FOR THIRD WORLD FARMERS. BECAUSE OF.
OIL CONSERVATION, OPEC'S CARTEL IS BROKEN WITH THE PROSPECT THA?
DEVELOPING COUNTRIES CAN NOW AFFORD PESTICIDES, FERTILIZERS AND
FUEL FOR IRRIGATION AND MACHINERY. UNDERNEATH THE SURFACE
OF STATE REGULATION, BURGEONI N3 SECOND ECONOMIES ARE BREAKING
OPEN OLD CONTROLS, CAUSING CENTRALLY-DIREC?ED ECONOMIES TU
CHANGE. THIRD WORLD LEADERS, ONCE ENAMORED OF SOCIALIST
MODELS, ARE NOW BETTING ON MARKET-ORIENTED POLICY CHANGcS IN
FOUR CRITICAL AREAS:
-- AGRICULTURAL PRICES
-- MARKETING REFORM AND LI3ERALIZATION
-- INPUT SUPPLY AND DISTRIBUTION
-- PRIVATE SECTOR INVOLVEMENT IN AGRICULTURE AND INDUSTRY
IMPLICATIONS FOR U. S. POLICY
THE GROWING AMERICAN ECON017Y IS AN IRRESISTABLE FORCE
IMPELLING CHANGE IN THE ECONOMIES of THE THIRD wORLp. IN A
SYSTEM OF FREE TRADE, THE UtaITED STATES AND DEVELOPING NATIONS
ARE INEXTRICABLY TIED TOGETHER BY THE MUTUALITY OF ECONOMIC
INTERESTS.
ALTHOUGH BUDGETARY CONSTR~-I NTS WILL REQUIRE CUTS I N OUR
DEVELOPMENT ASSISTANCE, ECONOMIC GROWTH IN THE UNITED STATES
AND THE FREE WORLD IS CHEATING PRIVATE INUESTi~1ENT CAPITAL THAT,
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. LF? PRQpERLY ENCOURAGED, COULD HELP TURN AROUNll THE ECONOMIES OF
' b ~t~EL' 0 PI NG ~ ~QtJt~f ~:PES~'~ ~ ~ ??TNI~{~.U? ~1?.R-i,p ? ~.EA~~~S, ARE .I NG$E~A s.I NG 1?Y
AWARE 0 S '~~ ~; ": ,-~ '^?' ~N~.R C~Uti;'~1ti' ~'~~':O~,iC %'. ,. :`?:..
SALVATION LIES IN THE WEST, WITH THE EASI PROVIDING LIIILE IN
THE WAY OF CREDIBLE NATION-BUILDING ALTERNATIUr.5.
THE SOVIE? BLOC HAS FEW REAL RESOURCES TO COUNTER IHE5E
ECONOMIC AND POLITICAL TRENDS. IT IS NO? ABLE TO PROVIDE MUCH
OF A GROWTH MARKET FOR THIRD WORLD EXPORTS. THE SUPPLY OF
SOVIET OIL TO FAVORED DEVELOPING COON?RTES WILL DIMINISH WITH
FAL?ERING DOMESTIC PRODUCTION AND INCREASING NEEDS AT HOME.
FAREIGN EXCHANGe. S?RINGENCIES WILL KEEP MOSCOW FROM PROVIDING
HARD CURRENCY LOANS. DOMESTIC SHORTAGES OF GOODS AND SKILLED
MANPOWER WILL LI;~IT COMMODITY AND PROJECT AID. I N SUM, SOVIe.T
DOMESTIC ECONOMIC AND FOREIGN FINANCIAL CO,ySTRAINT~ WILL MAKE
MOSCOW EVEN LESS INCLINED TO ACCEPT COSTLY NEW BURDENS LIKE
CUBA AND VIETNAM. IN TRIMMING OU?LAYS THROUGHOUT THEIR EMPIRE,
T?{EY ALSO MUST PARE ECONOMIC SUPPORI FOR CLIENT STATES.
AT THE SAME TIME, THIRD WORLD LEADERS AP.E UNEASY ABOUI
THEIR ABILITY TO STAY IN POWER DURING THE DIFFICULI PERIOt~ OF
?RANSITION TO A HEALTHIER ECONOMY. THIS GIVES GREATER EMPHASIS
TO SECURITY ISSUES IN EAST-WEST COMPETITION FOR THE THIRD WORLD.
MOSCOW WILL HAVE ?0 RELY MORE HEAVILY ON SHIPMENTS OF ARMS TO
SUSTAIN ITS INFLUENCE. THE UNITED STATES HAS A GREAT ADVANTAGE
IN SECURITY ASSISTANCE BECAUSE IT CAN TAILOR SUCH PROGRAMS TO
MEET REAL DEFENSE NEEDS. IF THE PRICE IS RIGHT, Tr;E WEST IS
PREFERRED FOR THIRD WORLD SECURITY ASSISTANCE.
THE CHALLENGE OF THE INTERIi9 PERIOD
THIRD WORLD GOVERNMENTS, ONCE DOMINATED B?i SOCIALIS?
ECONOMIC SYSTEMS, ARE NOW ATTEMPTING IO LIBERALIZE IHEIR
ECONOMIES AND MAKE THEM MORE EFFICIEN?. THEY HAVE AGREED TO
THE POLICY REFORMS STIPULATED BY IHE IMF, AND HAVE MADE PROGRESS
TOWARDS bCTTER ECONOMIC AND FINANCIAL MANAGEMENT. BUT RE-
STORING GROWTH TO STAGNAN? ECONOMIES IS A DIFFICULT AND LENGTHY
TASK. MOREOVER , THE ACTUAL IMPLEMENTATION 0 F CR I II CAL POLICY
MEASURES, LOANS AND PROJECTS HAS SLIPPED IN MANY OF THESE COON?RTES.
T~IIS MEANS THAT EVEN LONGER PERIODS OF ECONOMIC AUSIERI?Y MUST BE
ENDURED BEFORE HEALTHIER ECONOMIES CAN EVOLVE, I N SOME
INSTANCES UP TO FIVE YEARS.
WE MUST aLSO RECKON WITH THE POLITICAL vULNERABiLiTY OF
THIRD WORLD LEADERS WHO HAVE TAKEN THE HARD POLICY DECISIONS.
WHILE SETTING IN -~10TION NEW REFORM MEASURES WHICH WILL YIELD
POSITIVE RESULTS SEVERAL YEARS HENCE, THESE LEADERS MUST
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SIMULTANEOUSLY CONTEND WITH URGENT POLITICAL AND SOCIAL
PRESSURES EXERTED BY THE INTERIM PERI00 OF ECONOMIC HARDSHIP.
?..;:~;: NBT. HANDLED ;?cORR,ECTLY, S~CN.PRESSURES COULD DERAIL EFFOR?S
?0 ~ESTQRE E~O~lOM3~C C~Rfl`tii~i' AA1J '~f2E~t~E~..7~1E .KI~iC. O;F. f.NST~BI-1-~I.T1'?:.,,..: ?.
WHICH IHE SOVIETS SG Srii.Lr~LL~' iX~ ~~=
THE CHALIE NGE TO U. S. FOREIGN POLICY I S TO HAVE THESE
LEADERS STAY ON COURSE AND NOT YIELD IO SHORT-TERM POLIIICAL
EXPEDIENCY AT THE EXPENSE OF THEIR COUNTRIES' FU?URE ECONOMIC
INTERESTS. AT THIS POINT IN HISTORY, WE HAVE, IN MANY THIRD
WORLD COUNTRIES, A MAJOR SUNK INVESTi~1ENT IN THE FORM OF WORLD
BANK LOANS, IMF S?AND-8Y ARRANGEMENTS AND COMMERCIAL FINANCiNG
THAT WILL BE LOST IF POLICY CHANGES ARE NOT UPHELD AND ECONOMIC
GROWTH RENEWED. IN THIS CONTEXT, THE NEW tCONOMIC POLICY
INITIATIVE TO SUPPOR? POLICY REFORM Iti ScV?RAL AFRICAN
COUNTRIES OVER THE NEXT FIVE YEARS WILL HELP BRIDGE THE GAP
BETWEEN ECONOMIC STAGNATION AND RECOVERY. PLACED ALONGSIDE
THIS WILL BE THE KEATING-GROUP "FOOD FOR PROGRESS" PROPOSAL
WHEREBY USG-OWNED FOOD STOCKS WILL BE USED FOR A FOUR-YEAR
PERIOD TO REDUCE THE FOOD RISK TO THIRD WORLD GOVERNMENTS
UNDERTAKING AGRICULTURAL PRICE AND POLICY REFORM.
WE NEED AS WELL EMERGENCY RECOVERY PROGRAMS DESIGNED TO
INCREASE PRODUCTION ON SMALLHOLDER FARMS CLOSE TO URBAN
CENTERS. RECORDS IN MANY COUNTRIES SHOW THAT SUCH AREAS HAVE,
L'~1 THE PAST, PRODUCED SIGNIFICANT QUANTITIES OF FOOD BY FARMERS
CAPABLE OF AUICK PRODUCTION RESPONSE IF GIVEN A FAIR PRICE FOR
THEIR PRODUCE. OUR AMBASSADORS IN THIRD WORLD COUNTRIES
SHOULD HAVE ?HE AUTHORITY TO DEVELOP AND FUND, IN CONSULTATION
WITH AID ?FANS, PRODUCTION IMPACT PROJECTS WHICH WOULD HELP
UNLEASH THIS PO?ENTIAL BY PROVIDING INFRASTRUCTURE REPAIR AND
FARMER SERVICES ACCORDING TO LOCALLY DETERMINED NEEDS. WHILE
LONGER-TERM AGRICULTURAL DEVELOPMENT EFFORTS MUST CERTAINLY BE
MADE, THE CRISIS OF THE INTERIM PERIOD DEMANDS EMERGENCY
PROGRAMS WHICH WOULD BOOST PER CAPITA AGRICULIURAL OUTPUI AS
QUICKLY AS POSSIBLE. UNFORTUNATELY, AID i5 NOT ALLOCATING
RESOURCES TO SUCH SHORT--TERM RECOVERY EFFORTS.
THE AFRICAN DILEMMA
THE LAND IS DYING IN MANY PARTS OF AFRICA. SOUTH OF THE
STEADILY ENCROACHING SAHARA DESERT, 29 OF THE WORLD'S
36 POOREST NAT IONS ARE APPEALING FOR EMERGENCY AID TO ,WARD OFF
FAMINE. HUNGER AND EXTREME MALNU?RITION NOW THREATEN ,OVER
14 MILLION PEOPLE THROUGH THE END 0 F i 985. A DROUG HT FAR
WORSE THAN ANYTHING HITHERTO EXPERIENCED IN THE REGION,
BLUS THE INSTABILITY OF REGIMES AND IHEIR ILL-ADVISED POLICIES,
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HAVE BADLY DAMAGED AGRICULTURAL SECTORS, DRIVING MANY FARMERS
INTO ;MERE .SUB"Si STE.NCE. ,_ DES~ER~TID,N. KAS ,CAUSED OVERPLANTI Nu
~At~I3 ~~OVERG~7~i~INU b'F'? t",ARGI'tiAL~'LA!~DS~: '?tASANTS' CZ; bCk'N "2'R~E~S~ " '
FGR MONaY' TO nUY FOOD, ucf'Lt.TIh~ FOncSIS AT Asti ALARi9ItiG RAID.
RAIN IS NO LONGER RECYCLED-, AND IRRIGATION IS DEIERIORATING.
MOREOVER, IN SPITE OF EPIDEMICS AND HIGH INFANT MORTALITY,
POPULATION PRESSURES ARE AMONG THE GREATEST IN IHE WORLD
WITH NET ANNUAL GAINS OF THREE PERCENT OR MORE, OR ABOUT
20 MILLION PEOPLE A YEAR.
WHAT TO DO? WE SHALL CONTINUE, OF COURSE, TO SEND FOOD TO
FEED THE STARVING. THE PRESIDENT LAST YEAR APPROVED THE
KEATING GROUPS'S TEN RECOMMENDATIONS FOR ACHIEVING MORE RAPID
RESPONSE TO THIRD WORLD FOOD CRISES, AND A TREMENDOUS OUT-
POURING OF ASSISTANCE HAS TAKcN PLACE. BUT TODAY'S FOOD
EMERGENCY REEMPHASIZES THE NEED TO TACKLE~THE UNDERLYING
STRUCTURAL PROBLEMS OF AGRICULTURAL STAGNATION. ARRESTING
AND REVERSING DECLINING FOOD PRODUCTION CAN ONLY HAPPEN
THROUGH FUNDAMENTAL CHANGES. IF THEY DO NOT TAKE PLACE,
T-HEN WE MUST BE PREPARED TO UNDERWRITE INDEFINITELY SUB-
SAHARAN AFRICA'S SURVIVAL WITH EVER INCREASING FOOD AID
PROGRAMS, KNOWING THAT MENDICANCY ?ENDS TO BECOME INSTITUTION-
ALIZ~D AND PERMANENT.
OBVIOUSLY, OUR BUDGET WILL NOT PERMIT US TO ADDRESS
PROBLEMS OF THIS MAGNITUDE WITH BROADLY-BASED DEVELOPMENT FROM
THE BOTTOM RUNG UP, IN THE MODE OF CURRENT AID POLICY.
HELPING THE LANDLESS POOR WITH HEALTH, EDUCATION OR OTHER
9DCIAL PROGRAMS, HOWEVEk LAUDABLE, WILL NOT PRODUCE BkDLY-
NEEDED ECONOMIC GROWTH, PARTICULARLY DURING THE TRANSITIONAL
PERIOD ?0 MORE MARKEI-ORIENTED ECONOMIES. WE MUST CONCEN?RATE
OUR RESOURCES INTO ?HE AREAS WHICH MATTER MOSI IF WE ARE TO
"TURN-AROUND" THE ECONOMIES OF KEY AFRICAN STATES. IRIS IS
POSSIBLE IF WE REALLOCATE OUR AVAILABLE RESOURCES TO
STRENGTHEN FOOD PRODUCING CAPACI~'Y, IF WE PUSH RIGOROUSLY
FOR AGRICULTURAL POLICY REFORM, AND IF WE HELP MOBILIZE THE
PRIVATE SECTOR TO PROVIDE AGRICULTURAL INPUTS, FOOD PRO-
CESSI NG , STORAGE AND MARKETING. AFRICA COLLECTIVELY HAS THE
GREATEST UNTAPPED AGRICULTURAL POTENTIAL IN THE WORLD.
SHARPLY FOCUSSED AND SKILLFULLY DIRECTED U.S. ASSISTANCE CAN
BRING THAT POTENTIAL TO FRUITION.
THE REAGAN REVOLUTION IN DEVELOPMENT ASSISTANCE
IN ITS FIRST TERM, THE REAGAN ADMINISTRATION MISSED AN
OPPORTUNITY TO MAKE AID AN EFFECTIVE i NSTRUMENT OF ADMINISTRA-
TION FOREIGN ASSISTANCE GOALS. HOWEVER, THE SUCCESS OF THE
ADMINISTRATION'S ECONOMIC POLICIES NOW ENHANCES ITS ABILITY TO
GENERATE A FOREIGN ASSISTANCE PROGRAM WHICH AMERICAN PEOPLE
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CAN UNDERSTAND AND THE AMERICAN CONGRESS CAN SUPPORT. AT
THE SAME TIME, A COMPLEX OF FACTORS HAS GIVEN US ANO?HER
CHANCE ?T0 ~PR0~90?E??~CANOM3?C? GRQWTk{ AND STR.EtZG~:HEN
POLIIIC-,L RELAii4t+S IN THE T}'IftD 'v~'ORLD. wi: CANNOT AFFORD
TO LET THE OCCASION SLIP BY AGAIN. IN SUM, I CONCLUDE THAI:
1. CHANGING ECONOMIC CIRCUMSTANCES GIVE US NEW
OPPORTUNITIES TO BUILD LASTING TIES TO THE DEVELOPING
WORLD.
2. WE MUST MAKE A SPECIAL EFFORT ?0 SUPPORT THIRD WORLD
COUN?RTES IN THEIR DIFFICULT TRANSITIONAL PERIODS IO MORE
MARKET-ORIENTED ECONOMIES.
3. WE CANN''T CCNTI NUE TO PLACE OUR AVAILABLE RESOURCES 0 N
UNPROD UCTIVe., AL6EIT WORTHY DEVELOPyENT PROJECTS. THEY
MUST BE REGROUPED INTO THE AREAS WHICH MATTER (90S T
AGRICUL?URAL DEVELOPMENT, POLICY REFORM AND PRIVATE SECTOR
INITIATIVES.
4. WE NEED A DISCIPLINED APPROACH TO DEVELOPMENI IMPLEMENTA-
TION. LOOKING AT AI-~, AS IT IS NOW CONSTITUTED, I FIND IT
EXCESSIVELY LAYERED WITH MINUTE SUBDIVISION OF LAf30R WHICH
DOES NOT RESUL? IN INCREASED PRODUCTIVITY. I ASK THE
FOLLOWING AUESTIONS:
A) ARE: THE "FOUR PILLARS" OF DEVELOPPiiNT, AS
INTERPRETED BY AID, THE RIGHT ONES?
8) ARE FINANCIAL RESOURCES TARGETED AI THE PRIORITY
AREAS OF OPPOR?UNITY?
C) ARE PERSONNEL RESOURCES DEPLOYED IN A RATIONAL
MANNER CONSISTENT WITH PRIORITY TASKS?
D) DOES CURREN? AID POLICY FORMULATION EFFECTIVELY
SUPPORT U.S. FOREIGN POLICY, NATIONAL SECURITY AND
TRADE INTERESTS, WHETHER BY REGION OR COUNTRY?
E) ARE AID PROGRAMS, OTHER IRAN EMERGENCY RELIEF,
COMPREHENSIBLE TO THE AMERICAN PU3LIC AND CONGRESS?
F) IS AID DECISION-i'7AKING PLUGGED INTO AN ANALYTICAL
FRAMEWORK WHICH EXAMINES ALL FOREIGN ASSISTANCE
INSTRUMENTALITIES IN TER~1S OF OBJECTIVES AND
TRADE-0 FFS? ?
G) HAS AID SUCCEEDED IN PROi~!0?LNG PRIVATE ENTERPRISE
IN THIRD WORLD NATIONS?
I CONCLUDE THAT THE ANSWER TO EACH OF THE ABOVE CRITICAL
AUESTIO NS IS IN LARGE PART " NO". AID MUST BE RESTRUCTURED IF
NEW OPPORTUNITIES ARE TO BE SEIZED AND THE GOALS OF THE REAGAN
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ADMINISTRATION REALIZED. TO IURN THE AGENCY AROUND, WE FIRSI
NEED TO REMOVE THE ORGANIZATIONI,rb DISTANCE BF:Tw'EEN Al D AND
STATE TO ENSURE THAT OUR FOREIGN POLICY, NATIOtdAL ScCURITY
AND TRADE INTERESTS ARE PROPERLY ~hEaHED. THEt~~ Wz P;uSI
STABILIZE AID AS AN OkGANIZATION BY FURiNER INTE~~RATI?+G IT
INTO THE FOREIGN SERVICE, CUTTING AWAY THE DEAD WOOD,
ATTRACTING NEW TALENT AND REWARDINu PRODUCTIVt WORK VITH
CAREER INCENTIVES. FINAILY~ AID PROGRAMS MUST BE DEVISED
?HAT ARE DEMONSTRABLY PRODUCTIVE AND MARKETABLE: TO THE AMERICAN
PEOPLE AND CONGRESS.
KE AT I NG
CO N F I D E N T I A L
8T
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Proposal for a Program of US-Third World Partnership
Since 1980, the Administration has focused on revitalizing the US
economy. The results to date have been impressive. Growth has increased and
millions of new jobs have been created. Unemployment has been driven down and
the back of inflation has been broken. At the same time, the United States
has been a major purchaser of goods from the rest of the world.
Simultaneously our defense buildup has helped increase the security of
both the United States and the free world. At the same time, country after
country in the Third World has turned more towards democracy. Uruguay,
Argentina, Brazil, Honduras, Guatemala and now the Philippines are examples of
this.
Taken together, all of these positive developments have helped slow the
pace of Soviet gains in the Third World. Increasingly the Kremlin's glamour
as an economic model has dimmed and rusted. Most of Moscow's links are now
through arm supply, internal security, military forces, and the like. While
the United States and the other countries of the Western Alliance have
maintained their commitment to development aid, the Soviet Union has done
little or nothing to help the economic well being of people throughout the
Third World.
As it is, numerous socialist countries have been tilting towards the West
because they can see what capitalism has to offer. In West Africa alone,
Guinea, Mali, Guinea-Bissau, the Congo, Cape Verde and Benin have begun to
moderate their socialist tendencies in an attempt to become more closely
linked with the economic vitality and advanced technology of the West.
From a Third World perspective, it is hard to ignore the lessons of what
is being referred to as Newly Industrialized Countries. Much of the surge in
their growth has rested on their outward looking export-led policies that are
capitalist in nature.
Now is the time to embark on anew program to solidify the gains that
have been made and to provide a base for future economic growth that would
enhance prospects for political stability throughout the Third World. To the
extent we succeed, we can help ensure that the freedom numbing influence of
Communist expansion is checked and indeed is reversed.
From a Third World perspective, now is the time to act. In recent years
the Third World has been buffeted by low commodity prices, weakened export
sales to Western markets hit by recession, and a growing debt burden. From an
LDC perspective, this is only the first wave of economic problems. Unless
things begin to change, these difficulties will be joined further down the
road by the impact of the high technology revolution, continued population
growth, and a host of food, water, and other resource problems.
To meet these challenges, the United States is embarking on a new Program
of Partnership with the developing world. Seen in its totality, this program
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consists of bureaucratic changes and new funding mechanisms coupled with hard
hitting programs to be aimed at directly meeting local development needs.
Bureaucratic Changes
To help begin implementing this program, a special interagency task force
will be established that will coordinate US policy towards the Third World and
monitor its implementation. This group will be chaired by the NSC to stress
the fact that Third World economic developments directly and indirectly affect
the national security interests of the United States.
This task force will draw together the relevent elements of the
Department of Commerce, State, and Treasury, as well as key elements elsewhere
in the Executive Branch--such as the EXIM Bank, AID and the like--that have
resources which can be brought to bear in a systematic manner.
The group will be tasked with laying out the specifics of a plan of
action to offer development help and funds, and at the same time mobilize
private sector involvement in Third World countries willing to move toward a
capitalist model of development and growth. The group will also help set up
regional based institutes to tackle longer term issues, such as infrastructure
integration, food development and the like.
Looking at the aggregate level, the goals will basically be to redirect
aid to where host government response is positive and at the same time ensure
our government departments and agencies are finding creative ways to not only
capitalize on private sector expertise, but to ensure a broader regional
perspective in implementing development planning.
Carrying out these changes:
o The EXIM Bank will place highest priority on backing trade between US
business and foreign companies that have been "privatized". This
will help provide even greater incentive for foreign governments to
eliminate wasteful and inefficient state-owned enterprises.
o AID will be expected to develop a parallel strategy. In the future
each AID proposal will be expected to fully explain up front, how our
AID dollars will be linked with the private sector and at the same
time how the funds will be used to strengthen the private sector and
middle class elements of the AID recipients.
Moving beyond the bilateral arena, the task force will be expected to
establish regional development centers throughout the Third World. In
establishing these centers, the United States will provide the funding and
expertise while the host governments will be expected to come forth with the
land, building, and the like that will be needed.
These regional centers will serve as clearinghouses for economic and
technical information and at the same time will be expected to zero in on
problems particular to a given region of the world. For example, in West
Africa the success of a program in Kenya could be quickly explained to
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officials in Somalia through such a regional device. Likewise, the regional
center could be working on longer-term issues for that part of the world.
Again using the East African example, food might be the focus. In this case,
the center could provide a catalyst for drawing together private sector
expertise in the area of bio-technology and genetic engineering. Here the
goal would be to help develop drought-resistent, disease-immune seed types
that are adaptable to the climatic conditions of the region. These centers
could also help provide advice on the best ways to establish manpower training
centers that could help bolster the skill of local work forces. Because of
the interconnecting nature of these regional centers, the experience and
approaches used in the Far East for example could be modified and adapted to
Latin American and African experiences.
Funding Mechanisms
Embarking on this new program and partnership will not be costless.
Moreover, it comes at a time of budgetary tightness in the United States.
In order to ensure the needed funds, a number of special funding
mechanisms will be established:
o A special $1 per barrel oil import tax will be established. The
revenues from this scheme will go into a Third World Development
Trust Fund that will be earmarked for our Program in Partnership. In
effect what we are doing is helping ensure that a small portion of
the oil price decline dividend is directed at pro-Western Third World
states. In a period of falling oil prices, such a tax will bearly
make a dent from the standpoint of the consumer but will generate
enough revenue to be extremely meaningful to the nations of the Third
World.
o US firms that join in this effort by purchasing special classes of
non-traditional LDC exports, providing technical assistance to the
regional centers and private LDC companies and making investments in
LDCs as part of this new joint US-private sector effort, will be able
to enjoy special tax considerations. To ensure that a f air and
equitable incentive system is created, a special blue ribbon
commission will be established. This commission will seek not only
the advice of experts in the private sector, but also the relevant
agencies in the special interagency task force.
Meeting Local Needs
The goal of this overall program is to help ensure that our efforts are
directed in a coherent manner at the right areas. This is why government and
private sector expertise must be linked together.
In zeroing in on local needs, the task force will be expected to develop
a plan which builds up from the country through the regional and into the
global level. This will help ensure that proposals for individual countries
are consistent from a bigger picture perspective.
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At each level the plan should carefully pinpoint where aid and private
sector involvement can make a diff erence--both individually and together.
Such a plan could look at elements like rail and road development and
maintenance as well as public health facilities, all of which impact the
productive capability of a country. The plan could also, for example, call
for a resource base review to help catalogue and indeed in some cases set the
stage for exploring areas of mineral and agricultural potential which have
never been tapped. The plan could also draw on the advice of private sector
businessmen in an attempt to focus on real impediments to investment.
The plan would also pinpoint those areas and countries where
entrepreneurial talent is now flourishing. Specific industries and sectors
would be reviewed with an eye towards places where US funding and private
sector expertise could help develop a more vigorous middle class.
The regional centers would help provide an institution for looking at the
consistency of the individual country plans while the NSC-chaired oversight
committee would help ensure that efforts in one part of the world were not at
odds with those in other areas.
Some Added Incentives
Obviously the most difficult part of this program for partnership will be
getting it off the ground. Nothing succeeds like success and because of this
we will be paying particular attention to countries and areas where the
program can make the biggest diff erence in the shortest period of time. In
this regard it is absolutely critical that foreign governments are committed
to working together with the United States to make a diff erence.
In an effort to ensure active Third World participation, the United
States government stands ready to wave debt repayments on official loans to
any Third World country willing to step forward and join us in this
endeavor. Because of the long-run nature of this program, the loans and
associated interest will be frozen in place and in effect a special grace
period will be instituted so that debt servicing responsibility does not kick
in until the year 2000. Moreover, agencies that manage US government
stockpiles will be expected to give the highest priority to countries which
have joined us in this program.
Some Concluding Thoughts
In essence we are calling, quite simply, for a program of partnership.
The United States stands ready to provide the funds and the technical
expertise that are needed as our part of the commitment. What we require from
Third World countries is their active commitment to moving towards a
capitalist market-oriented economic structure, a dedication to outward looking
and open market policies, and a firm desire for economic development and
political freedom.
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MEMORANDUM FOR: Director of Central Intelligence
FROM: Robert M. Gates
Deputy Director for Intelligence
SUBJECT: Economic Intelligence
1. After reading your memorandum of 28 February 1986, I fully agree that
we should push ahead along the lines you outlined. The effort will not be
costless and it will have to take on amulti-office and multi-directorate
flavor. Even so I fully believe the investment is well worth the costs of the
endeavor.
2. As I see it, the product we should shoot for would have a general
overview which lays out in both broad and narrowly defined terms the issues at
hand. This overview section which might end up running 15 or 20 pages would
be supported by two sets of annexes. The first annex grouping would focus on
a handful of Communist client states. The second set would zero in on some
strategically placed Third World countries which have pro-Western tendencies.
3. The way I see it, the overview should start off briefly summarizing
the thrust of the earlier study you mentioned in your memorandum. It would
quickly run through the broad historical shifts in East/West balance in the
Third World, move on to explore current and future pressures on the LOCs and
finally highlight the lessons of the market-oriented country strategies. At
this point, a new section would be introduced where we would focus in on the
insights that have been learned from the failure of centralist economic
management. The essence of this portion of the report would draw from the
annexes on Communist client states. There we would have a detailed run-down
of Nicaragua, Cuba, Angola, Ethiopia, Viet Nam, North Korea and perhaps other
appropriate Soviet clients. These annexes will provide a contrast with the
annexes on the more pro-Western oriented states, while at the same time making
it clear in at least a number of cases--such as Angola--the Western linkages
that exist are about the only things propping up the regimes from an economic
standpoint.
4. After we march through this material, the paper will then turn to the
heart of the analysis--a look at strategically placed pro-Western LOCs. The
goal will not be to include every single LDC, but rather to focus in on a
handful of about 15 countries which capture the essence of the Third World
problem from the US perspective. This section of the report will also draw on
annex material which will be provided on each of the 15 countries. The
section as I see it will take a look at the aid, trade, technology, and
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investment flows, linkages with the West, and what they imply for Third World
countries. The section will not only look at aggregate numbers, but will also
zero in on specific examples of where Western input has made a real difference
and contrast that to the shortfalls experienced by the Soviet clients. The
final section of the overview will then turn and look at areas of untapped
potential in these countries. This final section will try to draw out both
generic opportunities as well as some specific case studies for individual
countries.
5. After the overview section, the paper will then unfold into the two
sets of annexes. The annexes on the pro-Western states would consist of brief
country studies on Honduras, Guatemala, E1 Salvador, Peru, Chile, Zaire,
Senegal, Somalia, Kenya, Morocco, Egypt, Jordan, Pakistan, Philippines, and
South Korea. At the beginning of each of the country sections, there will be
a brief description of the country's economic situation and an explanation in
general terms of how it has unfolded over the past few years. Each country
study would then go on to explore policy shif is which have occurred in the
specific country. Here the emphasis will be to lay out steps individual
governments have taken to adapt amore pro-Western approach to economic
lif e. In this material, we will focus not only on general policy steps but
also the specific implementation in individual sectors and the opportunities
they have generated.
6. Next the country sections will take an across-the-board look at both
East and West linkages. Here we can look at aggregate trade, aid, loans,
technology transfer, investment, managerial input, economic advisors, and
military sales. As I envision it, this could be presented partially in a
matrix form. For each country we could march down each of these elements and
show linkages from both an Eastern and Western perspective. Taking this type
of approach would make clear where the economic benefits are coming from and
where they are falling well short of what anyone would think is reasonable.
The annex would then march on to another section which would look in detail at
trade, aid, loans, and technology transfer lined up against the sectors in the
economy. Here the emphasis would be on the specific sector, the jobs
generated, the incomes earned, new products that are created, and spillover
effects through other sectors of the economy. Finally the annex would march
down and look at untapped potential in agriculture, minerals, fuel, and the
like. Here we would emphasize the roadblocks and impediments that exist in
tapping this potential. In this regard, we would take a look at policies,
such as pricing, trade restrictions, and investment barriers as well as the
impact of state owned enterprises. This final section would also look at the
infrastructure shortages which make it exceedingly difficult to capitalize on
the resources a country has at hand.
7. As far as the logistics are concerned, I would envision that this
paper would basically be a team approach. As I see it, ho is 25X1
presently the Acting Deputy Director of OGI will oversee ~s a ort. Carol
could devote herself to this endeavor full time 25X1
In the interim, I would think someone i -w o ~ e 25X1
work on newly industrialized countries you liked so much--cou oversee the
2
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beginnings of the effort. Probably the best way to proceed would be to
commission a number of the annexes. The idea would be take a quick look
across the board to determine which countries provide the most readily
available database. We would then focus on these countries to ensure that we
had good role models for the other annexes that would follow. In putting
together the annex I would envison a team approach that would draw on analysts
from both OGI and the regional offices responsible for the country in
question. Their efforts would be supplemented by tapping into OCR's
biographical/bibliographical files. Moreover, I would expect OSWR to provide
some serious input on the technology issue.
11. As far as the timing issue is concerned, the scope of the endeavor
that we are undertaking makes precise estimation extremely difficult. Rather
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than picking a date out of the air, I would suggest that we first do a number
of country annex studies. Once we have that material in hand, I believe we
can more effectively assess the timing of a final intelligence product.
12. Finally as far as the pap g sent you, I think you'll
find that the short think piece tha did helps focus in on the
general issue. Obviously, that piece is a irs step but I believe it is
moving us in the right direction.
13. If you find it useful, we might pull a team of people together and
sit down a are taking. John Helgerson and myself
as well as are certainly ready to explore the ideas
raised in this note and think about other concepts that might help flesh out a
final report.
This memorandum is classified
Secret in its entirety.
Distribution:
Orig. ~ 1 -- Addressee
1--ER
1 -- DDI
1 -- ADDI
1 -- DDI Registry
1 -- D/OGI
1 -- D/ALA
DDI/ALA
(4 March 1986)
4
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