SIG-IEP MEETING ON THURSDAY APRIL 14 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000200270003-4
• Release Decision: RIFPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 21, 2016
• Document Release Date: October 24, 2008
• Sequence Number: 3
• Publication Date: April 12, 1983
• Content Type: MEMO

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THE SECRETARY OF THE TREASURY
WASHINGTON 20220
UNCLASSIFIED
(With Confidential Attachments)
MEMORANDUM FOR THE VICE PRESIDENT
THE SECRETARY OF STATE
THE SECRETARY OF DEFENSE
THE SECRETARY OF AGRICULTURE
THE SECRETARY OF COMMERCE
THE DIRECTOR, OFFICE OF MANAGEMENT
AND BUDGET
CHAIRMAN, COUNCIL OF ECONOMIC ADVISORS
ASSISTANT TO THE PRESIDENT FOR
NATIONAL SECURITY AFFAIRS
ASSISTANT TO THE PRESIDENT FOR
POLICY DEVELOPMENT
UNITED STATES TRADE REPRESENTATIVE
DIRECTOR OF CENTRAL INTELLIGENCE
SUBJECT SIG-IEP Meeting on Thursday,
April 14, at 5:00 p.m.
A meeting of the SIG-IEP is scheduled for Thursday,
April 14, at 5:00 p.m., in the Roosevelt Room. The agenda
is as follows:
1. Long-Term Grain Agreement; and
2. Debt Issues -- Update on Brazil, Argentina, Mexico,
Venezuela, Nigeria, Yugoslavia, and Poland.
Background papers are attached.
Attendance is principal, plus one.
2
Donald T. Regan
UNCLASSIFIED
(With Confidential Attachments)
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CONFIDENTIAL
SENIOR INTERAGENCY GROUP
April 14, 1983
MEXICO
o Secretaries Shultz, Regan and Baldrige will be in Mexico on
April 18 and 19 for a meeting of the U.S.-Mexico Binational
Commission.
00 Discussions will include the current Mexican economic
situation, future economic prospects, the effect of the
drop in oil prices and bilateral trade relations, among
other topics.
o The GOM is interested in a rescheduling of official direct
and guaranteed credits to the private Mexican sector. The
GOM does not appear to be interested in a rescheduling of
public sector debt, but that point will have to be clarified.
The GOM does not want the rescheduling to take place
within the Paris Club. The Mexicans appear to be concerned
about the negative domestic political connotations of a
Paris Club rescheduling and possible adverse effects on
their creditworthiness in private markets.
The GOM would like to work out a rescheduling arrange-
ment with the USG and then have the USG sell it to
other Paris Club creditors. This does not conform to
usual USG or Paris Club practices.
This issue will be under consideration over the next
few weeks.
o On March 3, the Government of Mexico and over 530 commercial
banks signed the $5 billion loan for Mexico.
o Now that the $5 billion loan has been signed, the GOM and the
banks have turned their attention to the debt restructuring
which covers all debt coming due between August 23, 1982 and
December 31, 1984 -- about $20 billion.
o Mexico lowered the price of its oil by an average $2.75 per
barrel, retroactive to February 1, 1983.
At recent average export levels of 1.5 million b/d, Mexico
would lose approximately $1.3 billion in oil revenues in
the remaining 10 months of the year on top of a loss of about
$400 million in February alone from a 600,000 barrels per day
decline in oil exports due to the uncertainty over what the
Mexican price would be.
Thus, oil export levels would drop from slightly more than
the projected $16 billion to around $15 billion for 1983.
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00 Public sector debt amounted to 70% of the total -- $57
billion -- of which $48 billion was medium and long term
and $9 billion short-term.
?O BIS bank exposure totalled $64 billion as of end-June
1982, $25 billion of which is U.S. bank exposure.
BRAZIL
o Brazil received the first $2.5 billion disbursement from the
commercial banks and its initial disbursements from the IMF
in March and has repaid all outstanding swaps to the U.S.
Treasury as well as the first installment on its BIS loan.
o Brazil's major problem appears to be a failure of needed
private capital reflows to materialize on schedule.
00 Interbank deposits with Brazilian agency banks are $2
billion below the mid-1982 level while availability of
short-term trade finance continues to fall $1.5 billion
short of Brazilian expectations.
00 Despite a disappointing first quarter trade performance
Brazil still has a fairly good chance of meeting its goal
of cutting the current account deficit from $14.5 billion
to $7 billion in 1983, with a trade surplus of about
$6.0 billion.
o Brazil has again accumulated arrears (about $800 million)
because of these problems and plans to meet with major commer-
cial banks in London on April 18 to discuss means of improving
financial flows.
?O A variety of options are under consideration to recapture
the shortfalls in trade credit and interbank deposits.
o Brazil is implementing its IMF-backed stabilization program
and is not in any immediate danger of being out of compliance.
00 Brazil still needs to implement additional corrective
measures relating to prices, wages, and credit policy.
00 Failure to do so will erode monetary and fiscal discipline.
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VENEZUELA
o on March 27, the Government of Venezuela (GOV) modified the
three-tier exchange rate system to provide coverage of most
private sector external debt, including that of multinational
corporations, at the preferential rate of Bs 4.3/$l.
o The GOV has deferred until July 1, 1983, payment of principal
on financial and nonfinancial public sector short and medium-
term external debt.
00 The GOV hopes that by July 1, 1983, the program for
refinancing short-term public external debt will be in
place.
00 In addition, the GOV intends to pay trade-related debt, on
the condition that lines of credit be maintained.
o Negotiations between the GOV and the banks will be arduous.
00 Banks are concerned that Venezuela's oil export earnings are
likely to fall at least $2 billion in 1983 to $13.5 billion.
00 However, banks are encouraged by the GOV's recent steps to
limit 1983 imports and its decision to expand private
sector access to the preferential exchange rate for external
debt service.
o Foreign reserves have continued to dwindle, adding greater
urgency to successful negotiations with the banks.
00 As of end-March, total Venezuelan reserves were reportedly
$12.7 billion, including gold.
o Article IV consultations with the IMF appear to have been
completed.
00 Venezuela will probably use its SDR holdings ($427 million)
and IMF reserve tranche ($817 million) shortly.
00 Finance Minister Sosa has intimated that Venezuela will
seek a stand-by program with the IMF this year.
o Treasury has advised the Chileans that the Exchange Stabiliza-
tion Fund (ESF) credit is not possible at this time as discuss-
ed at a recent SIG meeting.
o Chile is seeking financing from the CCC and the EXIM Bank.
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GUWr1 UtLT IAL
- 4 -
o The GOC announced an emergency economic program on March 22 to
arrest the continuing decline of GDP, stabilize the private
sector's financial position, improve the public sector's
fiscal position, and enhance Chile's international
competitiveness.
o Chile's relations with the commercial banks have improved and
progress is being made in negotiations concerning refinancing
maturing 1983 and 1984 obligations and provision of $1.47
billion in new money.
00 The principal factor responsible for the renewed momentum
was the GOC's decision td make $50 million in lines of
credit available to private companies to enable them to
avoid bankruptcy proceedings and regain the confidence of
external creditors.
00 Chile's $1.47 billion request for new money includes $560
million to offset the run-off of short-term trade and
financial credits which occurred in the first quarter, as
well as medium-term amortization payments made in January.
o Treasury has advised the Peruvians that ESF credit is not
possible at this time as discussed at a recent SIG meeting.
o Peru is seeking financing from the CCC and the EXIM Bank.
o The GOP's talks with commercial banks appear to be proceeding
well.
00 Peru's good relations with the IMF are a principal factor
in banks' general receptivity to Peru's request for the
$900 million financing package.
o The GOA is in serious danger of being out of compliance with
its IMF program by mid-year.
00 Argentina has now adopted a system of "voluntary" price
controls which includes subsidized credit to firms that
agree to submit to government guidelines.
o These Argentine measures promise to undercut the fiscal and
monetary discipline required under the GOA's agreement with
the IMF.
o Argentina's recent actions could jeopardize its negotiations
for a $1.5 billion medium-term loan agreement with commercial
banks and could undercut efforts to reschedule maturing obliga-
tions.
 NIGERIA
o Nigeria's economic and financial situation continues to be
extremely precarious, despite some rebound of oil production
following mid-February price cuts.
o Nigeria still has not made fundamental policy adjustments,
preferring to tighten administrative restrictions on imports
and foreign exchange.
00 Import levels evidently have adjusted to about $900 million
per month, the amount of foreign exchange being disbursed
monthly by the Central Bank. Underlying import demand
continues to be quite high, probably at least $1.2 billion
per month.
00 On the basis of current trends, the 1983 current account
deficit would be about $5 billion. However, new financing
is unlikely to exceed $2-3 billion.
o External debt is estimated at about $14.5 billion at the end
of 1982, including up to $6 billion in short-term trade credits
in arrears.
00 BIS-bank exposure was about $6.7 billion as of end-June,
of which $1.3 billion was U.S. bank exposure and $1.5
billion was U.K. bank exposure.
o The Government is seeking $1-2 billion from commercial banks
for balance of payments support -- partly to refinance short-
term arrears.
00 U.S. bankers have agreed among themselves not to respond
until Nigeria moved closer to an agreement with the IMF.
European and U.S. bankers were to meet in London on April
11 to discuss Nigeria. No reports are available yet.
00 Most bankers are disappointed with the Lehman/Lazard/Warburg
financial advisors report issued in mid-March. Most do
not feel that it represents an honest acknowledgement of the
depth of Nigeria's current problems.
o An IMF team is in Lagos now, but there is no evidence that
serious negotiations have started. President Shagari again
in March publicly ruled out a devaluation, generally considered
to be an essential component of a credible stabilization
o
program.
Key Nigerian officials have hinted
that
they would
like
U.S.
financial assistance, such as was
given
to Mexico
and Brazil.
o state has formulated a proposal for SIG consideration involving
substantial USG financing. An initial $200 million in CCC
blended credits would be offered immediately.
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YUGOSLAVIA
o Yugoslavia ended last year with an immediate cash flow problem.
It had a large current account deficit for 1982, foreign
exchange reserves equal to less than one month's imports, and
strong inflationary pressures. Thus, it entered this year
with the need to finance its large deficit, roll over its
short-term debt, and meet existing amortization payments --
without enough resources to do so.
o over the past few months, a five-part package has been
assembled with the following major elements:
assistance from commercial banks consisting of an extension
of principal payments, rolling over of medium and long-term
loans, and new loans;
?O credits from governments; and
00 an IBRD structural adjustment loan. The IMF and other
creditors are stressing the need for economic structural
and policy changes in Yugoslavia.
o There are some points in the government and bank packages
that need to be clarified before the entire package can be
concluded. A meeting in Europe is being arranged.
POLAND
o When martial law was imposed in 1981, credit from the West
and talks on rescheduling 1982 debts were terminated. As a
result, in 1982 Poland's economic activity continued to decline.
There was a shortage of imports needed for production for
domestic use or export and Western creditors were not paid or
only partially paid.
o The Polish financial situation is not expected to change
significantly in 1983.
Poland is forecast to earn about $1 million net on
its trade and invisible account (excluding interest),
while facing payment obligations of $14.8 billion.
Commercial banks rescheduled the Poles' 1982 debt late in
the year and hope to conclude a rescheduling agreement on
1983 maturities, which could preempt the bulk of Poland's
hard currency earnings -- leaving little for other
creditors.
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CONFIDENTIAL
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o Creditor solidarity on not re-entering into debt rescheduling
discussion with Poland is beginning to show some signs of
strain.
?O The E.C. Political Ministers, who heretofore have supported
our position of "no discussions" indicated agreement with
their finance ministers who want to try and recapture
some portion of the money owed them through rescheduling.
o At the April 12 meeting of the Paris Club, the Polish debt
situation was reviewed. A working group to evaluate the 1981
rescheduling and the status of information on the Polish
economy will be formed. The working group will report to the
Paris Club in May.
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The current U.S.-USSR Grains Agreement will expire on
September 30, 1983. The Soviets claim that they are not
interested in further 1-year extensions. They have told us
that trade expansion is best facilitated by long-term
obligations and are ready to negotiate a new long-term
agreement with us. Both sides have indicated a desire to
work toward expansion of our grain trade. The Administration
must decide soon whether to initiate talks on a new LTA.
This is a politically sensitive domestic issue with important
foreign policy implications.
Options
Option 1: Allow the existing U.S.-USSR Grains Agreement
to expire without providing for any formal agricultural
Advantages:
- Would be consistent with the President's
Poland-related sanctions postponing negotiations on a new
long-term grain agreement.
- Could appeal to some as an Administration attempt to
reduce government intervention in the international marketing
of U.S. agricultural products.
- Would remove special supply assurance provided by the
Agreement. (However, trade would still be subject to
contract sanctity for 270-day period.)
Disadvantages:
- Would lead to a lower level of U.S. grain exports, and
could virtually eliminate U.S. wheat exports to the USSR,
increasing the likelihood of mandatory U.S. production
controls in future years. Since Soviets orient purchases
towards those with whom they have long-term commitments, the
U.S. would be a supplier of last resort and competing
countries would be greatly encouraged to increase their
production still further.
- Could lead to disruption of the U.S. grain market if
the Soviets were to resume their erratic purchasing behavior
of the early 1970's.
CT 0 N
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,nt
T;
- U.S. farmers would view lack of an agreement as
significantly reducing their grain marketing opportunities in
the Soviet Union and as undermining the President's
commitment to help increase agricultural exports. This could
strengthen Congressional efforts to force renegotiation of
the agreement.
- Would eliminate one of the few remaining formal
U.S.-USSR ties.
Option 2: Begin negotiations on a new LTA as soon as
possible.
Advantages:
- Represents our best single hope for increasing the
level of our total grain exports and for reducing the
pressure for the imposition of mandatory U.S. production
controls.
- Although we generally do not favor LTA's, given Soviet
planning and purchasing practices, an LTA is necessary if the
U.S. is to maximize its grain exports to the USSR; it is
necessary if the U.S. is to have access to the Soviet market
equal to that of other exporters with whom the Soviets have
LTA's.
- Our postponement of negotiations has not prevented any
other suppliers from entering into new or expanded LTA's with
the Soviets.
- With a U.S.-USSR LTA, competitors would no longer have
the strong advantage of a preferred position in that market
and would have less incentive to increase production. The
farm community is convinced that a new LTA would encourage
the Soviets to expand their livestock and poultry industries,
and thus would tend to create greater USSR reliance on the
U.S. as a supplier.
- Would be enthusiastically welcomed by the
agricultural sector and their Congressional supporters.
Disadvantages:
- Would constitute a lifting of Poland-related sanction
postponing negotiations of a new grains agreement and
increase pressure for the lifting of other sanctions.
- Comes at a sensitive time in our efforts to develop a
stronger allied consensus on East-West trade.
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- Could open U.S. to charges from the Allies that we are
advancing our own economic interests while seeking to curtail
theirs.
Option 3: Seek extension of the existing agreement.
Advantages
- Would be consistent with the President's
Poland-related sanctions postponing negotiations on a new
long-term grain agreement.
- An extension would maintain the framework for
U.S.-USSR grain trade and might result in thier purchases
from the U.S. than under the no agreement option.
- Would provide less ground for criticism by the Allies
than renegotiation.
- The Soviets claim they do not want a 1-year extension.
(A multiyear extension would probably require negotiations.)
- Even if the Soviets agreed to an extension, they would
probably seek to keep purchases from the U.S. at the minimum
required by the agreement.
- The U.S. would forego the possibility of increasing
minimum purchase levels in a new agreement.
- A mere extension would be deeply disappointing to the
U.S. agricultural sector and its Congressional supporters and
would simply postpone the issue.
U. S.-USSR Grain Agreement in the Context of the World
Grain Market. It is quite likely that a long-term grain
agreement between the Soviet Union and the United States
would have an effect on the total volume of world grain
trade, and the proportion supplied by the U.S. in future
years, and perhaps even in the current marketing year.
Initiation of LTA talks alone would be an important positive
signal and could lead to significantly larger purchases of
U.S. corn for shipment in the remaining months of the current
LTA. Soviet buying in the past has frequently been
signal-oriented.
The Soviets do not look upon a one-year extension as a
long-term commitment, and have preferred to import increasing
amounts from those countries with whom they have LTAs.
Moreover, since those countries do not have the feed grain
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availability that the U.S. does, the Soviets have tended to
limit the expansion of their livestock industry (meat
consumption has been fairly stagnant for the past five years
or so) and draw upon their somewhat meager grain reserves.
They have clearly stated that they would like to expand
livestock production and reserves and that an LTA with the
U.S. would facilitate an expansion of our trade. If, by
failing to negotiate a long-term agreement, the Soviets were
further discouraged from satisfying their import demands in
the U.S. market, they would continue to seek alternative
sources of supply. The prospect of servicing a consistently
large buyer, such as the Soviet Union, would prompt other
exporting countries to further increase their production
while the U.S. is cutting back. (Since the 1980 Soviet grain
embargo, Canada has increased its grain production by more
than 50 percent while Argentina has increased its production
by more than 30 percent.) This increased production would
reduce the U.S. share of the growth in global grain trade.
The Soviets do not regard the existing 270-day contract
sanctity provision as adequate since their economic plans run
five years in length. With erratic grain crops, they seek
assurance far into the future that grain supplies will be
available for them to expand their livestock herds and meet
their domestic consumption targets. Hence, the importance
they place on LTAS.
While LTAS are normally counter to the Administration's
philosophy of government non-interference and the market, it
is generally accepted that an LTA with the Soviets is
desirable from an economic point of view. The Soviets are
planners who need to work with long-term commitments, and
their market has a critical bearing on U.S. export expansion
and domestic policy. An LTA also provides for an exchange of
information with a country that publishes very little
otherwise, and it reduces Soviet capability for disrupting
the market.
U.S. Foreign Policy Considerations. The U.S. views
trade with the Soviet Union in the context of our overall
bilateral relationship. In recent years, these relations
have been soured by the continuing Soviet military buildup,
Soviet behavior on regional issues (such as Afghanistan and
Poland) and bilateral concerns (such as human rights). As a
result of Soviet involvement in the imposition of martial law
in Poland, the President in December 1981 implemented a
sanction postponing renegotiation of a new LTA. However,
the U.S. proposed extension of the agreement for 1 year, to
which the Soviets agreed, making it possible to maintain the
formal framework for the grains trade, and offered access to
23 million tons of grain in the current agreement year. This
was consistent with the policy of supporting non-strategic
mutually beneficial trade with the USSR, while opposing
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subsidized trade and trade which contributes to the Soviet
military buildup.
Negotiation of a new LTA with the Soviets would
constitute a lifting of this Poland-related sanction and
increase pressures for the lifting of other sanctions. It
would also come at a sensitive time in our effort to complete
the various East-West trade studies with our Allies in order
to develop a stronger consensus between now and the
Williamsburg Summit.
Although the Allies have not refrained from entering
LTA's with, or expanding grain sales to the USSR, we would
still face the charge that we are pursuing the advancement of
our own economic interest in agricultural trade while seeking
restraint to their industrial and energy trade.
U.S. Domestic Considerations. The LTA is the most
politically sensitive issue in the agricultural sector and
the one which has drawn most criticism of the Administration
from farm groups. There are strong Congressional pressures
for a new LTA. Failure to begin negotiations could result in
a serious confrontation with Congress over the issue.
The U.S. farm sector is experiencing serious economic
hardships due to over-abundant grain supplies, high interest
rates, and a cost/price squeeze. In fact, despite the U.S.
preference to expand exports, the situation has become so
dire as to necessitate dramatic domestic action to cut
production through the payment-in-kind (PIK) program.
Further measures might be necessary in the near future if
U.S. exports do not resume growth and other exporting
countries increase their production even more. Our trade
with the Soviet Union could be an important factor in
determining what these policy decisions will be.
USDA believes that an increase in U.S. agricultural
exports to the East Bloc alone might be enough to make the
difference between chronic surplus and a healthy farm economy
in the U.S. in the years ahead. If our yearly Soviet trade
had continued to grow from the 15 million ton pre-embargo
level rather than fall to the 6 million tons expected this
year, we would have achieved record grain exports and might
not have needed production cutbacks.
All of our domestic support programs entail substantial
budget outlays and lead to increased government interference
in agriculture. The negotiation of a new long-term U.S.-USSR
grain agreement is virtually the only cost-free,
market-oriented step the Administration can take to help the
farm community. It is also consistent with the central
feature of the Administration's farm policy -- increasing
agricultural exports.
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VVlil
ENL_Ib III IL
Total USSR
Grain Imports
(mmt)
US Grain
Exports to
USSR
US Share of Total
USSR Grain Imports
(%)
FY 1973
22.5
(mmt)
14.1
63
FY 1974
5.7
4.5
79
FY 1975
7.7
3.2
42
FY 1976
25.6
14.9
58
FY 1977
8.4
6.1
73
FY 1978
22.5
14.6
65
FY 1979
19.6
15.3
78
FY 1980
27.0
8.3
31
FY 1981
39.0
9.5
24
FY 1982
39.0
13.9
36
FY 1983
34.0
7.0
21
(projected)
CONFIDENTIAL