SENIOR INTERDEPARTMENTAL GROUP ON INTERNATIONAL ECONOMIC POLICY (SIG-IEP)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R000500620008-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 20
• Document Creation Date: December 22, 2016
• Document Release Date: May 28, 2009
• Sequence Number: 8
• Publication Date: May 11, 1983
• Content Type: MEMO

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NSC Review Completed as Redacted.
Secretary
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OFFICE OF THE SECRETARY OF THE TREASURY
WASHINGTON. D.C. 20220
May 11, 1983
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 ECQNOMIC ADVISORS
ASSISTANT TO THE PRESIDENT FOR
. NATIONAL SECURITY AFFAIRS
ASSISTANT TO THE PRESIDENT FOR POLICY DEVELOPMENT
UNITED STATES TRADE REPRESENTATIVE
ARECTOR OF CENTRAL INTELLIGENCE
SUBJECT Senior Interdepartmental Group on International
Economic Policy (SIG-IEP)
Attached are background papers on Korea and Nigeria
Agricultural Credits and an Update on Country Debt Issues for
the SIG-IEP meeting to be held on Friday, May 13, at 3:00 p.m.,
in the Roosevelt Room.
David E: Pickfor
Executive Secretary
UNCLASSIFIED
(With Confidential Attachments)
Z5,2o2
46
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CONFIDENTIAL
SENIOR INTERAGENCY GROUP
May 13, 1983
ARGENTINA
o There has been no further progress in settling the dispute
between Argentina and the U.K. over blocked payments of profits
and dividends to U.K. firms in Argentina.
o Nor has there been any progress on finalizing the $1.5 billion
syndicated loan agreement and the associated rescheduling of
public sector debt.
o Economic indicators, however, appear to have improved slightly
during April.
00 Inflation slowed to 10.3% in April compared to an average
monthly pace of 12.8% during the first quarter. Inflation
for the first four months was still equivalent to an
annual rate of nearly 300%.
00 The GOA appears to be maintaining an appropriate pace of
exchange rate adjustments and is also keeping prices for
public goods at appropriate levels.
Nonetheless, it is too soon to tell if Argentina is in compli-
ance with its IMF quantitative performance requirements as
required for its next disbursement after May 20.
The IMF team returned to Buenos Aires on May 10 to get the
final data.
The greatest area of concern is that Argentina may have
exceeded the ceiling on net.domestic assets of the Central
Bank.
BRAZIL
o Brazil's group of liaison.banks have followed up on the meeting
in London on April 18 to find ways to restore the immediate
shortfalls of about $1.5 billion in Brazil's financial pro-
gram.
U.S. banks met in New York on April 26 to discuss restoring
interbank deposit levels and many of the regional banks
indicated a preference for extending trade finance in lieu
of interbank short-term deposits.
The 18 coordinating banks met again on May 9 and a sugges-
tion that Projects III (trade finance). and IV (interbank
funding) be combined was rejected by coordinators from the
U.K., Japan, and Germany as inequitable to banks already
at their "fair share" in the interbank market since trade
finance is generally more profitable and attractive.
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o A routine visit by a member of the IMF staff to Brazil triggered
vehement public attacks against the GOB's efforts to comply with
the program.
O? Most observers believe that while Brazil is implementing the
balance of payments portion of the program on target, severe
slippage has occurred in domestic economic policy.
?? While it is too soon to talk about Brazil's being formally
out of compliance, there is little question that Brazil
was slow to implement a number of policy adjustments and
still needs to make several changes if it is to meet its
overall fiscal and monetary targets this year.
o At present, Brazil's Central Bank owes about $770 million in
foreign exchange to its commercial banks, petroleum suppliers,
and others.
No formal "arrearages" exist, however, just "slow-payments"
15-25 days past due.
CHILE
o The GOC and its 12-bank Advisory Commitee have agreed upon a
financing plan which has been telexed to Chile's 550 foreign
bank creditors.
o Responses from creditor banks are not expected until end-May.
In the meantime, the GOC has requested a second 90-day stand-
still through July 31 on principal payments by public and
private sector borrowers.
o The plan calls for:
00 $1.3 billion in new loans, repayable over seven years,
including four years' grace;
rescheduling over eight years,
with four years' grace, of:
$1.1 billion of medium and long-term principal payments
by public sector and private financial sector borrowers
which fall due in February-December 1983 and an ad-
ditional $1 billion falling due in 1984;
00 maintenance of short-term trade-related credits at the end-
January level of about $1.2 billion.
o Banks are asked to participate in the new money facility on
the basis of 11.25% of their end-January 1983 exposure.
o Disbursements under'the new money facility will be subject to
Chile's progress toward getting back into compliance with its
IMF program.
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JAMAICA
o Jamaica is currently out of compliance with its Fund program.
o The shape of the third and final year of its Extended Fund
Facility arrangement is still under negotiation.
The first disbursement of the third year, estimated at $40
million, will be delayed until negotiations are successful-
ly completed.
Substantial agreement has been reached on a number of
difficult issues, in particular, the size of the Central
Government budget deficit, now slated to be cut to 12.3%
of GDP. Some other issues remain to be negotiated.
MEXICO
o A rescheduling of official (including Eximbank) direct and
guaranteed credits to Mexican private sector borrowers will
be discussed informally amoung creditors at the Paris Club
meeting on May 17.
U.S.G. officials have had a number of meetings with GOM
officials and also met with other creditor countries in
Washington on April 29 on the fringes of the Development
Committee meeting to exchange views on such a rescheduling.
o The Mexicans have indicated their preference for rescheduling
outside the Paris Club, but have agreed to pursue a multilateral
approach.
o Creditors have agreed to proceed as rapidly as possible and
should be able to complete the rescheduling in the next 2-3
.months.
VENEZUELA
o Agreement between the GOV and its 13-bank Advisory Committee
on the principles for rescheduling public debt is no where
in sight.
The Committee is dissatisfied with adjustment measures
taken by the GOV and reportedly decided unanimously that
an IMF stand-by program would be a requirement for any
refinancing.
The Advisory Committee is projecting a 1983 current account
deficit of $2 billion, double the GOV's current estimate.
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00 The Advisory Committee is recommending that the GOV in-
crease domestic interest rates to dampen capital flight
and lure Venezuelan capital home, eliminate subsidies on
goods and services to ease fiscal strains, rationalize
the exchange rate system, and provide for servicing of
private sector external debt.
00 The Embassy's assessment is that the GOV will be extremely
reluctant to swallow an IMF program during the election
year and that refinancing talks will continue to flounder.
00 The GOV reportedly met with the Advisory Committee on May 9
to discuss its economic policies.
o Revised balance of payments figures for 1982 show a current
account deficit of $3.5 billion, compared with the preliminary
estimate of $2.2 billion and the surplus of $4 billion in 1981.
PERU
o On May 5, the GOP formally requested a Paris Club rescheduling
of its public sector debt to official creditors.
00 Preliminary indications are that the GOP wishes to re-
schedule over $1 billion of debt falling due from may 1,
1983, to February 28, 1985.
00 Payments covered under the 1978 rescheduling agreement would
not be rescheduled again.
0 The GOP's decision to request a Paris Club rescheduling was
motivated by:
o A recent GOP projection anticipates 1983 exports of less than
$3 billion, compared with the original 1983 projection of $3.5
billion and estimated 1982 exports of $3.2 billion.
Factors accounting for the large increase in the estimated
size of the 1982 deficit are higher interest payments and
tourism expenditures abroad.
Even the revised data appear to underestimate total in-
terest payments and the 1982 deficit could eventually
prove to be as much as $4.2 billion.
the impact of the continuing natural disasters on-'expected
exports; and
the short-fall in the foreign bank refinancing package.
In view of this, the GOP envisions trimming imports to
$3.0 billion, compared with the original 1983 projection
of $3.2 billion and estimated 1982 imports of $3.5 billion.
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CONFIDENTIAL
Allowing for some positive offsets in net services and
transfers, the current account deficit may total $1.2
billion, rather than the $900 million that the,GOP had
originally projected for 1983 (vice $1.4 billion in-1982).
0 The GOP has completed a financing package of $770 million from
the foreign banks which:
00 provides $450 million in "new" money, including $130
million to replace short-term debt run off in January-
February; and
refinances $320 million of medium-term debt maturing from
March 1983 to march 1984.
o The GOP had originally sought $880 million from the foreign
banks.
The $110 million that is not being to refinanced consists
.of export credits guaranteed by foreign governments and
official agencies.
-- This amount will be covered by the Paris Club
rescheduling.
Notwithstanding this short-fall, Peru's requests were well
received and the new money portion of the package was
over-subscribed.
NIGERIA
Nigeria has decided to begin negotiations with the IMF for a
3-year extended arrangement..
00 Finance Ministry Permanent Secretary Alhaji told Assistant
Secretary Leland on April 29 that Nigeria wanted an
arrangement in place as quickly as possible.
00 Fund staff confirms this, and notes that Nigeria will
probably seek full access to Fund resources -- 150% of its
SDR 540 million quota each year for three years, or roughly
SDR 2.4 billion total.
Key policy areas to be addressed are the exchange rate,
trade regime, structure of relative prices, and fiscal
issues -- questions on which the Nigerians are the most
sensitive. Fund staff has cautioned that negotiations
ofa multi-year program could be a lengthy process.
o oil production is.up and could average 1.3 million b/d
(Nigeria's OPEC quota) in the second quarter, compared to
about 800,000 b/d in the first quarter.
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00 Despite a may production upsurge, overall oil revenues
are forecast at about $11 billion for 1983, compared to
$10.6 billion previously.
00 Output is expected to run at about the 1.3 million
b/d level for the remainder of the year.
o Discussions are continuing with Nigeria's 19 largest commercial
bank creditors on a refinancing of short-term arrears to
those banks.
00 Nigeria has proposed a rescheduling of $2 billion owed to
the 19. U.S. banks are reported to be concerned that
banks in addition to the 19 would not participate in this
initial operation.
00 A proposal was to be presented to Nigeria this week that
would establish a bank steering committee to determine
the amount of arrears.
POLAND
At the Paris Club next week, a working group will review
Polish adherence to the 1981 agreement, answers to a creditor
questionnaire of October, 1982, and the Polish foreign ex-
change situation for 1983.
00 This will be followed by a half-day's discussion by all
creditors.
00 The U.S. will seek a concerted effort to collect those
amounts due and unpaid under the 1981 rescheduling. Some
$28 million plus penalty. interest is due USG agencies;
about $14 million has already been collected.
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V JLYL" iL71a LY11L1W
CCC GUARANTEES FOR NIGERIA
Issue
Reduced oil earnings, compounded by poor economic management
have put Nigeria in the midst of a serious financial crisis.
With elections scheduled in August, the Government has relied
on import controls, rather than the fundamental structural
adjustments the economy needs. This situation raises the prospect
of food shortages and political unrest during the pre-election
period.
The issue to be considered by the SIG/IEP is should the
USG provide CCC guarantees to Nigeria, and if so, under what
conditions?
Background
At a SIG/IEP meeting on April 14, the Department of State
circulated a proposal to provide Nigeria with an immediate $200
million in CCC credits to reduce the risk of political instability
while opening a dialogue on the need for economic adjustment
supported by the IMF. This was to have been the initial step in
a larger strategy and financial package of up to $1 billion.
Since then, several developments have reduced the need to consider
the overall package now and the issue has been narrowed to only
the immediate question of whether or not to provide CCC guarantees.
o Nigerian oil production has increased recently to about 1.3
million b/d (its OPEC ceiling), from about one-third that
level prior to the price cut in February.
o Nigeria's discussions with commercial bank creditors have
progressed faster than anticipated, so that a refinancing of
at least a substantial portion of its short-term arrears is
under negotiation.
o Senior Nigerian Finance ministry officials have told us
and the IMF that they intend to begin negotiations immediately
for a 3-year extended fund facility arrangement.
Nigeria's situation is still very difficult, but the major
elements for a recovery program are beginning to-fall into place.
Nigeria's exchange rate is severely overvalued and underlying
import demand remains out of line with resources. The Government
continues to run large budget deficits. Accordingly, there are
still major hurdles to be overcome and agreement with the Fund
on an arrangement will require substantial concessions in these
areas about which Nigeria is extremely sensitive.
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The U.S. has a major political interest in Nigeria, which
has a quarter of Africa's population and one of the few functioning
democracies on the continent. A moderate and pragmatic Nigerian
Government has been cooperative in promoting a wide range of U.S.
bilateral and regional objectives. Often cast in the role of a
leader and spokesman for African moderates, Nigeria carries
considerable weight on the continent. It aspires to a major non-
aligned role and is active in most international fora. Nigeria
also plays a major role within OPEC, and currently chairs the
organization. For geographic and political reasons, Nigeria
generally is considered to be a more secure source of oil than
the Middle Eastern countries.
The political atmosphere in Nigeria has been aggravated by
economic tensions and growing social unease. The U.S. Embassy in
Lagos estimates that food imports in 1983 could be 20% below
1982 levels and 4.0% lower than in 1981. Food. shortages are a
possibility, which if they occur would raise the prospect of
food riots in major urban areas that would pose a grave threat
to the democratic. system. The Government gives a high priority
to dealing with food supplies and there is a report of a possible
oil for wheat barter of up to $150 million. .
As part of its effort to arrange food supplies, the
Government of Nigeria has formally requested $150 million in CCC
guarantees. (USDA proposed a $128 million blended credit for
Nigeria in February, but the proposal was withdrawn because of
creditworthiness concerns.) There are no uncommitted credit
guarantees remaining in the USDA's $5.2 billion FY 83 export
credit budget. USDA is preparing a proposal for a credit increase
to bring before the Budget Review Board, but there is no certainty
that it will be approved. Also, careful, assessment of relative
country priorities should be made,. both against U.S. commercial
and foreign debt strategy criteria.
Two of the options below propose moving forward now on
CCC guarantees of up to $150 million, provided new authority is
granted. (The composition of the commodities to be provided,
e.g. rice and wheat, would depend on Nigeria's anticipated needs
and U.S. commercial interests and could be worked out promptly.)
.The immediate question is whether to move forward now, either
unconditionally or with a clear written commitment by Nigeria to
negotiate an IMF arrangement (Options I and II), or whether to
provide financing only at a later date in conjunction with an
agreed IMF arrangement (Option III). Those favoring Option 'I
believe that'it is politically essential to move forward and
that Nigeria's economic and financial situation is improved
sufficiently so that the package does not constitute "extraordinary"
financing and does meet the criteria of the CCC program. Others
favoring Options II or III do not believe that the situation has
clarified sufficiently to draw that conclusion. They argue that,
in addition to decisions on overall CCC program levels and
commercial criteria, any USG financing must also be considered
in light of the Administration's agreed overall strategy on
dealing with debt problems of foreign countries.
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Option I: That, the USG offer an immediate CCC credit of up to
$150 million.
This option would be designed as a clear gesture of support
for Nigerian democracy by helping Nigeria to deal with immediate
food problems. At the same time, it would provide a vehicle
through which the USG could conduct a dialogue with Nigeria on
the need to conclude a strong IMF-supported program promptly.
Simultaneously, the USG could hold out the prospect of additional
financing later, probably in a multilateral context, conditional
on adoption of an economic adjustment program supported by the
IMF.
o Short-term food shortages would be alleviated expeditiously,
thus improving the prospects for political stability before
the elections.
o This would be up-front and unconditional evidence of U.S.
support of Nigeria's democratic system that could bolster USG
influence in urging the Government to adopt appropriate economic
policies.
o CCC guarantees would help to maintain U.S. agricultural exports
? to Nigeria, which have been declining substantially.
o USG financing in the absence of the firm prospect of meaningful
policy changes would be a departure from existing policies
for providing financial assistance to countries with debt
problems.
o USG financing prior to appropriate adjustment efforts and an
IMF agreement might tend t-o delay necessary policy changes,
increasing the risk of default.
o CCC has used its entire authority for FY 83. Without an
increase, this option would require a reallocation of already
committed guarantees.
Option II: That the USG provide up to $150 million in CCC,_
guarantees, but with the condition that Nigeria
provide a written commitment to the USG to have an
IMF arrangement in place within a specified period.
This option would be intended to achieve the same goal of
support for Nigerian democracy as option I, but we would explain
to the Nigerians that U.S. financial support must be. in support
of appropriate economic policies. A.confidential letter of
understanding would provide tangible evidence of Nigeria's
serious intent to implement meaningful economic reforms in an
acceptable time frame.
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This approach is more clearly consistent with the USG strategy
for providing financial support to countries with debt problems.
We strengthen the precedent of 'linking financilal.-assis-tanc'e
effective adjustment. policies.
o Requirement of a letter would probably delay and might preclude
provision of guarantees. It would jeopardize our.ability to
respond to a possible food shortage.
o This approach would. reduce our political influence with the
Nigerians and ability to encourage them to undertake the
necessary economic reforms.
CCC has used its entire authority for FY 83. Without an increase,
a reallocation of already committed guarantees would, be required.
option.IIL:
That the U.S.
but offer to
financing is
arrangement.
not provide 'CCC credits at this time,
review this position if additional
needed in conjunction with an IMF
If this option were adopted, we would express understanding
of -and- interest in Nigerian difficulties, but note that economic
reforms are the first step toward solving Nigeria's economic and
financial problems. We would encourage Nigeria to pursue nego
ti~ations promptly for IMF support. and point out that the combination
.of. IMF resources and commercial bank financing that would follow
makes bilateral official credits relatively unnecessary.- We
could offer to provide official credits in a multilateral context
in the event that a financing gap remained.
Pros
o This stance is consistent with existing policy not to provide
emergency financial assistance (e.g. ESF)..'in the absence of
an IMF-supported program..
.o Assuming.new CCC..-auth.prity is :,forthcoming, we would have more
resources available'to aid other "problem" countries that"have
adopted effective adjustment programs.
o t U. S. influence - to- urge . appropri'ate '.,economic reforms could -.be
reduced. Failure to approve~.a Nigerian 'request for what. it
.regards.as normal commercial guarantees could :strain long-term
bilateral relations.
o This does not provide 'immediate financing to deal with a
possible food shortage.
o The U.S. could lose a large agricultural market in Africa.
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BLENDED CREDIT FOR COTTON TO KOREA
USDA did not announce availability of the credits for soybeans, corn and wheat
because it believed the approval for these commodities was inconsistent with
rejection of the proposal for cotton. On April 29, the IG-IEP reviewed the
cotton proposal and recommended that it be reconsidered by the SIG=IEP..
1. Korea,-the second largest market for U.S. cotton, provides a unique
supplier-customer relationship. The U.S. proportion of Korea's cotton
imports has traditionally been about 95 percent, higher than in any other
significant market. This unusual situation directly reflects U.S.
Government and private industry market development efforts, credit
programs and strong political and economic ties. We should not alienate a
loyal customer.
2. There is a large surplus of cotton in the United States. Korean cotton
imports from the U.S. have declined recently from the traditional 95%
level to about 80% in early 1983. Fifty million dollars of. blended
credits to Korea are estimated to provide additional exports of 90,000
bales. We shall seek agreement with the Koreans that these additional
sales will not displace normal levels of imports from non subsidized
suppliers.
3. The proposal is cost effective. Loss of interest for 30 months on the $10
million direct credit portion of the loan would total about $I'.5-million.
The additional 90,000 bales of cotton that would be exported under the
proposal, if redeemed from loan stocks, would save CCC $26 to 29 million.
4. Blended credit is important to U.S. efforts to maintain the traditional
U.S. position in the Korean cotton import market. Without blended credit
and credit guarantees the U.S. position would likely trend downward toward
our proportion of the. cotton imported by Japan of 45 percent, Taiwan of 62
percent and Hong Kong of 34 percent.
Requests have been received from the Korea Flour Mills Industrial Association,
the Spinners and Weavers Association of Korea (SWAK), the Korean feed milling
industry and the Korean soybean processing industry for allocations under the
Blended Credit Program. A $130.0 million allocation is proposed for Korea.
The commodity breakdown is as follows: soybeans, 120,000 mt valued at $28.0
million; corn, 75,000 mt valued at $10.0 million; wheat, 250,000 mt valued at
$42.0 million; and, cotton, 143,000 bales valued at $50.0 million. The $130.0
million would be comprised. of $104.0 million in GSM-102 and $26.0 million in
GSM-5. Allocations of blended credit for soybeans, corn and wheat have been
favorably reviewed by the NAC; however, the proposal for cotton was referred
to the SIG-IEP. On March 17, the SIG-IEP rejected the $50 million blended
credit proposal for cotton.
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5. Extension of blended credits to Korea will not increase Korean textile
exports to the United States since they are limited by a bilateral
agreement under the Multi-Fiber Arrangement (MFA).
6. CCC credit programs are designed to move a country gradually from credit
sales to commercial sales, but in a manner which does not adversely
affect U.S. agricultural exports. While Korea is in a position to meet
its import needs through straight commercial financing, there is no
assurance that they would continue their purchases at the same level
from the United States.
7. Bank lending limits to Korea have been reached; therefore, CCC credit
programs allow larger Korean imports of U.S. agricultural products than
would otherwise be possible.
8. Korea has paid cash for about one-half of U.S. cotton imports in recent
years and the remainder has been on commercial credit terms at no cost
to the U.S. Government. It is in the U.S. interest to maintain this
low-risk credit market.
1. With its high credit rating, Korea has access to private capital
markets. For FY 83, CCC has already authorized $300 million in export
credit guarantees to Korea to finance U.S. cotton exports on 2-1/2 year
terms. This represents about one half of Korea's total annual cotton
imports.
2.' Some of the blended credit could. result in substitution of cash sales or
sales under the CCC credit guarantee program.
3. The Koreans would likely request additional blended credit next year.
4. Korea pays cash for the majority of its cotton imports from other
suppliers.
5. Extension of blended credit could weaken the U.S. Department of Treasury
led initiative to nove Korea to cash purchases or 1 year CCC-'credit
guarantee.
6. The cost to the U.S. Government of the blended credit proposal would be
the loss of the interest for 30 months on the $10 million direct credit
portion of the loan. This would total about $1.5 million.
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Options:
1. Approve $50 million blended credit for cotton, and require re a
within 30 months for all four commodities under blended credit.
Yment
2. Approve $80 million blended credit for all four commodities-- wheat and cotton. USDA to determine allocation. Terms
months. Termrmssto bens to be 30
3. Approve a quid pro quo arrangement. See separate paper prepared by
Commerce.
4. Approve blended credit proposed for cotton as amended by SIG-IEP.
5. Reject blended credit proposal for cotton.
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BLENDED CREDITS FOR COTTON EXPORTS
TO KOREA
The Commerce Department is prepared to endorse the grant of a blended cotton
credit to the Korean Government if consultations are held with the Korean
Government in an attempt to obtain better terms for the blended credit and
a better understanding on CCC credits in general. The Department of Commerce
believes that the term of the blended credit should be reduced from 36 months
to 30 months, consistent with the CCC credits for 1983. Further the Department
of Commerce believes that we should attempt to obtain the Korean Government's
commitment that a term for future CCC credits. shall be reduced to 12 months
over the next three years. If there is no hope of obtaining better terms for
both the blended credits and CCC credits, then the Department of Commerce
believes that in exchange for the granting of the blended credits of terms of
36 months the Korean Government should be requested to hold consultations
aimed at obtaining reduction of Korean NTB's in areas of export interest to
the United States, e.g., textiles and apparel.
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OFFICE OF THE SECRETARY OF THE TREASURY
WASHINGTON. D.C. 20220
May 10, 1983
UNCLASSIFIED
(With Confidential Attachment)
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
VIRECTOR OF CENTRAL INTELLIGENCE
SUBJECT Senior Interdepartmental Group on International
Economic Policy (SIG-IEP)
Attached are the minutes of.the SIG-IEP meeting held on
April 22, 1983.
UNCLASSIFIED
(With Confidential Attachment)
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CONFIDENTIAL
April 22, 1983
4:00 p.m.
Indian Treaty Room
Treasury
Secretary Regan
Beryl Sprinkel
Marc Leland
Office of Vice President
G. Philip Hughes
State
Kenneth Dam
Richard McCormack
Defense
Fred C. Ikle
Donald Goldstein
Agriculture
Alan Tracy
Commerce
Secretary Baldrige
Michael Liikala
CIA
Henry Rowen
OMB
Alton Keel
CEA
Martin Feldstein
USTR
Michael B..Smith
Harvey Bale
OPD
Roger Porter
NSC
Paula Dobrianskv
William Martin
Norman Bailey, Executive
Secretary
NSSD-3: Approach to International Debt
The Chairman opened the meeting by noting that while
everyone was probably not entirely happy with every part of the
debt report, a consensus had been reached on most of it. The
.discussion would focus on the two or three outstanding issues
where there were still major differences of view. Before
proceeding, the Chairman noted his unhappiness over the fact
.that a summary of this report had been leaked to the New York
Times.
Marc Leland introduced the paper, noting-that the document
would be transmitted to the NSC and the President, who would
.then issue an NSDD. Under Secretary Ikle noted that it is
important that our debt strategy help support our overall
security interests and that our adversaries should not benefit
from the help we are giving our .friends.
CONFIDENTIAL
Declassify on: OADR
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.The Chairman then asked Henry Rowen to clarify the Agency's
objections to the four percent real growth rate assumption.
Mr..Rowen noted that four percent was overly optimistic and that
even if such a rate was achieved, there would still be7some
countries who faced difficulties over the long term.
Mr. Feldstein shared this view and noted that unless European
recovery is more vigorous than presently predicted, the four
percent will not be achieved. However, OMB pointed out that
the economic fundamentals argue for a higher rate of growth:
four percent seemed about right -- it might even be low by
historical recovery standards. The Chairman closed the discus-
sion by suggesting that we agree to a range between three and
four percent.
The Chairman then turned to the second major problem area
-- that of the institutional arrangements for managing the debt
problem. The paper suggests the Group of Ten framework be
considered as the focus for creditor consultations and deci-
sion on key debt issues. However, Chairman Volcker argued that
such an approach would be rigid, slow and cumbersome. The
Federal Reserve has no objection to the use of the existing
G-10 framework as a means for review, but it would not be
prudent to expect. it to be operationally oriented. Mr. Volcker
noted that he would prefer using the IMF as the coordinating
body._ Dr. Sprinkel noted that he too would be more comfortable
with an IMF framework, but said that this approach may be
rejected by other nations. The Chairman concluded the discussion
by saying that the use of the IMF should be explored with the G-5
at next week's meeting, after which our position can be modified
as appropriate.
Secretary Baldrige, Norman Bailey and Fred Ikle all noted
that the study might-be too optimistic on the ability of the
overall system.to handle debt problems and that further steps
should be explored in the follow-up work. Secretary Baldrige
also noted that it is vitally important to monitor debtor
country export progress. Secretary Regan noted the contribu-
tion of the Department of Commerce to further studies and, said
that these would help form the basis of future work. In addition,
he agreed that further analytical work should be performed to
test the sensitivity of the system to much higher (six percent)
or lower (two percent) rates of real economic-growth.
The Chairman instructed Marc.Leland to make the appropriate
changes in the paper and forward it as soon as possible to the
President and the NSC for their review.
Long-Term Grain Agreement
The Chairman then called on Deputy Secretary Dam who
announced that the President had decided to offer to enter
into a long-term grain agreement with the Soviet Union. The
CONFIDENTIAL
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CONFIDENTIAL
United States extended the offer on April 7; to date, no reply
has been received from the USSR.
International Sugar Agreement
USTR Deputy Director Smith reported to the SIG that the
United States needs to decide whether we should participate in
the forthcoming meetings on an International Sugar Agreement.
USTR and State strongly urged participation noting that while
we are generally not favorably disposed to commodity agreements
(e.g., SIG-IEP conclusions on coffee agreement), we have little
to lose from entering into these discussions. By not partici-
pating, we give it higher visibility than if we do participate.
Furthermore, the EC is the real culprit and, some of the
criticism toward the EC's common agricultural policy might be
blunted if the United States were to become the scapegoat
by not taking part. State also noted that these negotiations
are viewed as very important by our Latin American friends.
The SIG-IEP concurred with the views of State and USTR, but the
Chairman did note that our general views. on the undesirability
of commodity agreements still holds.
Polish Debt Situation
-Marc Leland gave an update on the Polish debt situation.
The Paris Club met April 12, 1983, to discuss Polish debt.
The U.S. delegate reiterated our analysis that Poland would
not be able to pay what it owes, even assuming a reasonable
debt rescheduling. All the other creditors indicated that their
governments were under pressure to move forward toward re-
scheduling.
The NSC met on April 8 to discuss a State/NSC options paper
on Polish debt rescheduling. It was decided to work out a
phased step-by-step approach to rescheduling that would be
linked to political/human rights measures by the Polish
Government. Treasury, State and NSC staff are preparing a
paper which will suggest a possible proposal to discuss with our
allies in. the next few weeks.
Classified by MELeland
CONFIDENTIAL
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