NSC MEETING ON SOUTH AMERICA DEMOCRACY 13 MARCH 1987

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00224R000501830002-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 4
• Document Creation Date: December 27, 2016
• Document Release Date: September 20, 2011
• Sequence Number: 2
• Publication Date: March 13, 1987
• Content Type: MISC

Declassified in Part - Sanitized Copy Approved for Release 2013/07/31 : CIA-RDP89B00224R000501830002-8
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NSC MEETING ON SOUTH AMERICA DEMOCRACY
13 March 1987
The recent decision by Brazil to suspend payments on its foreign debt
is a reminder that one of the most serious problems facing democratic
governments in South America is the debt issue. Sense of victimizing by
industrial nations runs deep. Brazil $110 billion; Mexico $104 billion;
Argentina $50 billion.
In many cases, such as in Brazil and Argentina, the massive
foreign debts of these countries were incurred under previous
military regimes.
As a result, the general public is often unwilling to accept
harsh economic austerity measures to meet debt payments, and the
democratically elected governments are increasingly reluctant to
impose them.
Thus, these and other governments are advocating economic growth
rather than austerity as the best prescription to promote
long-term prosperity and meet their foreign debt obligations.
Furthermore, and importantly, they see the debt issue as a
political as much as an economic problem, and they are looking to
the US and Western Europe for a political solution to the problem
in the long run.
In Brazil the economic situation continues to deteriorate.
import reductions (lack of foreign exchange) affecting business
opportunities.
seaman's strike brought foreign trade to a halt.
Army occupation -- 9 refineries used to preempt oil industry
strike.
-- spreading labor unrest.
-- Sarney recovering politically but not capit on rebound to
implement economic adjustment.
Major Latin American debtors are watching the Brazilian situation
closely to see how it is resolved. Brazil's action enhances the
legitimacy of radical action against creditors. Economic policymakers
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respected; Sarney regarded as moderate, pro-Western. Backed by
military. While several debtors have expressed support for Brazil's
actions, none except Cuba have pushed for joint action or a debtors
cartel.
Nevertheless, the long term environment for substantial debt
repayment by most South American debtors shows little sign of
improvement.
As a result of poor export performance due primarily to weak
commodity prices, the current account balance of the major Latin
American debtors deteriorated dramatically last year. Slight
surplus in 85 to $12 billion deficit in 86.
Their collective financial position was further weakened by the
increasing reluctance of foreign commercial banks to make large
new loan commitments.
With little prospect of substantial improvement over the next few
years, we believe there is an escalating risk of serious
confrontations between the region's governments and their
international creditors.
We have good evidence from a wide variety of sources that Soviet
Secretary Gorbachev is planning an unprecedented visit to South America
within the next year.
The Soviet leader may attempt to link the visit with a potential
US summit meeting later this year, and then go on to Mexico,
Peru, Argentina, Brazil and Uruguay, with possible stops in
Nicaragua and Cuba as well.
Under General Secretary Gorbachev's leadership Soviet diplomacy has
been increasingly active throughout the Third World. Gorbachev's
proposed visit follows an unprecedented series of exchanges between high
level Soviet and Latin American officials in the past 18 months.
Argentine President Aflonsin visited Moscow in late 1986 and
Presidents Sanguinetti of Uruguay and de la Madrid of Mexico are
on the agenda this year.
In the last year and a half the Foreign Ministers of Uruguay,
Brazil, and Argentina visited the USSR.
Mexico's Foreign Minister Sepulveda is reportedly scheduled to go
in April and, according to a generally reliable source, Peruvian
Foreign Minister Wagner will also make the journey to the Soviet
Union this spring.
Foreign Minister Shevardnadze visited Mexico last October and is
reportedly scheduled to visit Brasilia, Montevideo, and possibly
Lima this fall.
-- Moscow appears to be conscientiously laying the groundwork to
reap maximum benefit from Gorbachev's visit to Latin America.
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Gorbachev probably contemplates significant political payoffs -- both
regional and international -- for a small expenditure in expanding
contact with Latin America. He is attempting to increase
anti-Americanism and neutralize US political clout in the area.
Moreover, he is hoping to use his presence to gain greater political
access and better trade terms from the Latin Americans. Among other
gains he probably seeks are:
Acknowledging the legitimacy of the USSR as an actor in Western
Hemispheric affairs; furthering the assault on the Monroe
Doctrine.
Drawing US attention away from areas, such as the Middle East, of
more importance to the USSR, and possibly recalling increasing US
military and economic resources back to this hemisphere.
Aiding the consolidation of the Sandinista regime by playing on
regional concerns about US military support for the Nicaraguan
insurgents and portraying himself as supportive of regional peace
initiatives in order to gain a reputation as a peacemaker in the
hemisphere.
Hoping to project this image into international fora and increase
his support in groups such as the UN or the NAM. Gorbachev also
hopes to enlist regional support for Soviet positions on
disarmament issues such as SDI.
Although Moscow will be more interested in political gain in its
competition with the United States, the Latins hope the visit will foster
long-term trade expansion with the USSR. They are likely, however, to be
disappointed. The Latin Americans will probably continue to find
standard Soviet trade terms -- countertrade or barter and insistence on
greater balance -- unattractive and the Soviet trade bureaucracy
unresponsive. Nonetheless, trip likely will be a political and
propaganda success.
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