MEETING WITH ACTING DEPUTY SECRETARY OF STATE AND DIRECTOR, INR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88G01117R000501300003-9
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 27
• Document Creation Date: December 22, 2016
• Document Release Date: August 24, 2011
• Sequence Number: 3
• Publication Date: April 24, 1986
• Content Type: MEMO

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24 April 1986
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
FROM: SA/DCI
SUBJECT: Meeting with Acting Deputy Secretary of State and
Director, INR
1. You are scheduled to meet with Acting Deputy Secretary Armacost
and D/INR Abramowitz at 1215 on 25 April 1986 at the State Department.
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TAB B Internal Situation in Libya. This TAB contains talking
points from DI/NESA re t e above subject. The situation in
Libya appears to be returning to normal, even though
Qadhafi's low profile suggests he continues to concentrate on
internal matters. The bleak economic outlook and signs of
growing West European solidarity with the U.S. with regard to
Libya will complicate the government's ability to focus
attention on the U.S. threat and rally popular support.
TAB C Syrian/Libyan Cooperation. This TAB contains talking points
from DI/NESA re the level of Syrian support to Libya in the
aftermath of the U.S. air strikes.
-- Syria is the only Arab state actively providing support
for Tripoli and has sent fighter pilots and air defense
technicians in recent weeks.
-- Syria appears to have been a silent partner in at least
the most recent terrorist actions supported/directed by
Libya.
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Mexican Economy. Attached are talking points from Acting
NIO/ECon on the Mexican financial situation. State indicated
an interest in reviewing this subject. In addition to the
talking points, I have included:
-- A 29 March special analysis from the NID;
-- A memo of 27 February from re
implications of Mexico's financial pro ems;
This material is provided to you for background inasmuch as
State was not explicit as to what specifically they wish to
discuss re the Mexican economic situation.
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^n r V fln" r i I
Talking Points for the DCI
24 April 1986
The Internal Situation in Libya
The situation in Libya appears to be returning to normal,
even though Qadhafi's low profile suggests he continues to
concentrate on internal matters. The bleak economic outlook and
signs of growing West European solidarity with the US with regard
to Libya will complicate the government's ability to focus
attention on the US threat and rally popular support.
Qadhafi continues to meet with foreign leaders and
delegations, although he has kept public appearances to
a minimum. There is little evidence that Qadhafi is
suffering physical or psychological distress.
Uncertainty within the regime also is reflected in its
treatment of foreign journalists and diplomats.
-- The government vacillated in following through on its
announcement to a gathering of about 300 foreign
journalists yesterday that they must leave the country
immediately.
Although the government has threatened to retaliate for
new restrictions on resident Libyans by EC governments,
it would not want to take actions which support
Washington's diplomatic efforts in Western Europe to
undercut Tripoli.
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Economic Update
US sanctions so far have had a varying impact on the Libyan
economy.
-- The freeze on Libyan financial assets has had the
greatest impact. Libya lost access to as much as S800
million of its $6.0 billion in foreign exchange
reserves. Remaining liquid reserves are sufficient to
cover 6 months of imports.
-- We estimate that Libya has boosted its crude oil exports
to 1.2 million barrels per day, slightly above the level
current in early January 1986. Domestic oil workers and
foreign workers probably can maintain production or even
increase oil production.
-- Qadhafi has taken no significant action against US or
British workers in response to US air strikes and has
attempted to dispell latent fears in the foreign
community to retain their badly needed expertise. US
service companies and most US technicians reportedly are
being replaced by firms and personnel from the United
Kingdom, Canada, France, and West Germany.
food lines are growing
longer and more contentious as people search for basic
staples. Hoarding has become a way of life for most and
a thriving black market has evolved, despite government
efforts to suppress such activity.
-- The quality of health care and education, hallmarks of
Qadhafi's revolution, has fallen off sharply leading
most Libyans to agree that Qadhafi's economic policies
are a failure. Radical changes in university
curriculums have recently resulted in student unrest at
some campuses.
-- The regime has consolidated its control over the economy
by reducing by half the number of government ministries-
-including the Petroleum Ministry--and transferring
thPs dutiPC to 1nva1_ thnunh less competent managers.
Soft oil market conditions pose the greatest threat to the
economy and probably the regime. Tripoli loses $440 million
annually for each one dollar decline in oil prices at current
export levels. Conversely, every 100,000-b/d drop in oil exports
cost the regime $730 million at a $2U per barrel price.
-- An average price of $15 per barrel would force Tripoli
to make difficult and risky political choices.
Necessary cuts in imports almost certainly would hit
both civilian consumer goods and military equipment as
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well as priority projects. Unconfirmed reports say the
regime may cut imports by half to conserve foreign
exchange.
Declining oil revenues will hinder Tripoli's ability to
repay some $4 billion in arrears owed to major trade
partners in Western Europe and to maintain 1.ibva's oi1-
for-arms barter arrangement with the USSR.
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Talking Points for the DCI
23 April 1986
Syria-Libya: Cooperation Following US Airstrikes
Syria has offered Tripoli military assistance following the
US attack, but its diplomatic efforts on Libya's behalf have been
minimal. There are no indications that the attack has disrupted
normal US diplomatic relations with the Syrian regime, nor have
the Syrians been prepared to actively back Libyan demands that an
Arab summit be convened to address the US action.
Expanded Military Assistance
Since the US airstrikes against Libya, Damascus has quietly
provided military assistance, but little diplomatic support, to
Tripoli. Syria's recent commitment of technically-skilled
personnel to Libya suggests closer solidarity between the two
countries than previously existed.
Syria is the only Arab state providing active support for
Tripoli and reportedly has sent an undetermined number of fighter
pilots and air defense technicians in recent weeks.
-- The Syrian military probably could ill-afford losing
skilled personnel at this time: it has been on
heightened alert since late March, probably fearing an
Israeli attack, but also possibly due to uncertainty
about US retaliatory actions in the event Damascus was
linked with terorrist incidents.
Syria's donation of valuable, trained personnel underscores
its concern about the failure of Libyan air defense systems--
which are similar to Syria's--to counter US airstrikes. Damascus
is particularly concerned that Israel may obtain sensitive
information from the United States on the systems' capabilities.
Whatever their numbers, we believe Syrian pilots and
technicians in Libya will take a more active role in training
Libyans and may become directly involved in any future clashes
with US forces.
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We do not have conclusive evidence of terrorist between
Syria is a major practitioner and patron o
Syrian President Assad is on record vowing retaliation for
Israel's interception of a Libyan jet on 4 February which was
carrying Syrian Ba'th Party officials.
-- At the time Assad indicated Syrian revenge would not be
directed at civilian targets which, he said, would make
Syrians no better than the Israelis whom he accused of
air piracy and international terrorism.
Syria uses terrorism to maintain Syrian dominance in
Lebanon, thwart movement toward peace negotiations between
moderate Arabs and Israel, extract financial support from certain
Arab states in the form of "protection money," and eliminate
Syrian dissidents.
-- Syria has never been directly implicated in acts of
gratuitous violence against non-Arab civilians in
Europe.
-- Syrian complicity in the El Al bombing would suggest a
shift in its guidelines for the use of terrorism or that
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its extensive security apparatus is running amok.l 25X1
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The Director of Central Intelligence
r?
Wsshingtoa. D.C. 20505
National Intelligence Council
NIC 02067-86
23 April 1986
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
THROUGH: Acting Chairman, National Intelligence Council
FROM: Acting National Intelligence Officer for Economics
SUBJECT: Background Material for DCI Meeting with Admiral
Poindexter
Attached are talking points on the Mexican financial situation for
your Thursday meeting with Admiral Poindexter. Among the attachments are
an update of the financial situation and a note I sent to you in late
February suggesting that the NSC review the Mexican situation.
Attachments:
1. Talking Points
2. Update on the Mexican Financial Situation
3. 29 March 86 NID: "Mexico: Problems Likely in Debt Negotiations"
4. 27 February Memorandum to the DCI: Implications of Mexico's
Financia
SECRET
CL BY SIGNER
DECL OADR
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23 April 1936
Mexican Situation
Talking Points
The Mexican financial situation is unfolding about as we had
anticipated.
Mexico has indicated that
In discussions with the U.S. Treasury,
it will need only $4 billion in "new money" this year, but
internal working documents show a need for $6.5 billion even
using some optimistic assumptions about trade and capital flight.
-- Even with an infusion of funds, te economy will contract this
year, with per capita
The budget is under severe pressure from lower oil prices--the ch, and oil average price for Meear?hassbeen runningr20 to 40rpercent below
export volume this y
normal levels.
Mexico has been able to stay current on its foreign interest payments,
perhaps because tight domestic credit is forcing some firms to repatriate
capital to meet expenses.
helping Mexico out financially should
I think that any decisionon
encompass issues beyond
Financial concessions granted to Mexico will spill over into
other Latin countries, most of which have done more to improve
their domestic conditions than Mexico.
The full cabinet should decide what price Mexico should pay for
a bailout, including policy toward Nicaragua, drug issues,
economic reform, etc. If we target everything, past experience
shows we will get nothing.
We might also want to consider whether the best way to get long-term
economic refof'm is to tell Mexico to work out its problems with private
creditors.
_ S as action would entail some short-term costs to the Mexican
eCOSoiq and the political relationship.
It ml * however, offer the best prospect for spurring
loft-WU economic reform.
It tklso show other creditors such as Brazil and Argentina
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1l be willing to help them only i
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 CCi'DCT
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23 April 1986
Update on the Mexican Financial Situation
Mexico, the US Government, and the IMF are still discussing Mexico's
financial "needs" for 1986.
Mexico estimates it needs around $6.5 billion in "new" money
including $3.5 billion from commercial banks, $2 billion in
bilateral credits, and $1 billion in multilateral assistance.
The estimate assumes the roughly $4 billion in principal due
this year will be postponed.
Treasury and the IMF are holding out for an austerity package,
including limits on the government deficit and structural
changes aimed at reducing the role of government.
Treasury wants the World Bank to monitor compliance and to
disburse Bank lending in increments pegged to performance.
Treasury also would like to get commercial banks to link their
disbursements to the World Bank increments.
The government is now projecting a 4 percent decline in GNP this
year, even assuming it obtains new funds. Hence, an optimistic
assessment is for a 5 to 10 percent decline in per capita income, with a
much larger decline should the peso fall sharply absent a substantial
infusion of foreign funds.
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The DireaoCk n ijcnce
National Intelligence Council
NIC #01000-86
27 February 1986
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
VIA: Harold P. Ford
Vice Chairman, National Intelligence Council
FROM:
Acting National Intelligence Officer for Economics
SUBJECT: Implications of Mexico's Financial Problems
1. I believe a decision to deal. with Mexico's financial problems is
properly a national security issue and should be discussed before the full
Cabinet at an early NSC meeting. My concern is that if Treasury alone has the
action, domestic financial equities and wishful thinking on the degree of US
leverage will result in a decision that, in effect, perpetuates the status
quo. The decision as to how to proceed with Mexico is one of substantial
importance to various entities of the USG additional to Treasury.
Any bailout will spill over into other Latin countries, some of which
(Ecuador, Chile, Argentina) will argue--correctly--that they have
done more to get their domestic houses in order than has Mexico.
Secondly, the full Cabinet should decide what specific price Mexico
should pay for a bailout: whether primarily Nicaragua policy, drug
traffic, economic reform, etc. (Past experience indicates that if we
target all, or too generally, we get none.)
Lastly, the Cabinet should discuss the option of offering no bailout,
singling out Mexico among the major debtors as having behaved
particularly poorly.
2. In my view, a strong argument can be made that we should cut the
Mexicans off.
-- Clearly, the post-1982 bailout has given us no leverage over Mexico
concerning Central American policy, drug traffic, or economic reform.
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-- Worse, the bailout conditioned the Mexicans to believe that we so
feared the effects of a default that we would put up funds in
exchange for hollow promises.
3. 1 believe that if we tell Mexico City to deal directly with its
private creditors and continue our efforts to work with countries such as
Argentina and Ecuador, we would reinforce proper economic adjustment
programs. Furthermore, such an action would send a message to countries such
as Brazil that we do not stand ready to pay for populist economic programs.
-- A cutoff of Mexico would also help set the stage for the PRI to
consider its political future given the realities of oil prices,
Mexican oil reserves, and the prospect for not getting several
billion dollars in new loans which, in effect, amounts to campaign
financing.
4. A major risk, of course, is that a cutoff may strengthen the more
radical, leftist elements in the ruling party who will want to put all the
blame on the US and who would oppose any reforms that favor free enterprise.
-- The US would also suffer from a substantial increase in illegal
immigration.
-- Other debtors could see the US is inflexible, although I believe this
can be handled if we treat each individually and on the basis of
merit rather than domestic financial exigencies.
5. At a minimum, I think we should take the time to debate these issues,
gauge to what extent the risks may only be short-term and whether on balance
the bilateral relationship and Mexico itself would benefit in the long run.
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The Director of Central Intelligence
26 February 1986
MEMORANDUM FOR: VADM John M. Poindexter
Assistant to the President for National
Security Affairs
SUBJECT: Mexican Financial Problems
The attached Estimate on implications of Mexico's financial and
economic difficulties paints a bleak picture indeed. Even a substantial
financial bailout by the international community is only likely to buy
the Mexican government more time. Without a decision by the PRI to
undertake massive economic reform, which is unlikely, I fear the
political situation in Mexico will deterioriate badly over the next 2 to
3 years with major implications for a wide variety of US concerns ranging
from narcotics traffic, to illegal migration, to'the very stability of
the Mexican government itself. Furthermore, if other LDC debtors come to
feel that Mexico is getting a bailout with little genuine reform or, for
that matter, is able to take unilateral action without apparent serious
penalty, some will likely attempt to follow suit. -
CL BY Signer
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