(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000202250001-5
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 6
• Document Creation Date: January 12, 2017
• Document Release Date: April 26, 2010
• Sequence Number: 1
• Content Type: REPORT

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Hunq_ary
Following two years of relative success with IMF standby
programs, the Hungarians may not conclude a new agreement with
the Fund for 1985. The US Embassy reports that negotiations for
a $200-$300 million loan broke off in late 1984. Hungarian
bankers contend that after examining Budapest's improved
financial picture, the IMF Staff felt they would have difficulty
convincing the Fund's management of the need for another
standby. The IMF had indicated it might arrange a small standby
loan provided that Budapest was willing to implement structural
reforms and adjustment measures beyond those it was already
contemplating. The standby could only be drawn on in event of
extreme need. We believe that Budapest found the IMF's terms
unattractive given the limited prospect for new credits. The
Hungarians, nevertheless, want to maintain good .relations and
apparently have agreed to continue providing the IMF with all the
performance data that would normally be provided under a
standby. An IMF mission will return to Budapest later in the
year for further discussions on a standby program.
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Yugoslavia
In late December, Belgrade reached a ?framework agreement
with the IMF on a new one-year standby agreement for 1985,
according to US Embassy reporting. Specific terms and
performance criteria must still be worked out when an IMF
delegation returns to Belgrade in mid-February. Finance Minister
Klemencic hinted that the issue of establishing real positive
interest rates on domestic dinar deposits in 1985 is the key
sticking point to be resolved with the Fund, and that he had
proposed shifting the deadline for compliance from the end of
March 1985--as stipulated in the 1984 Fund standby agreement--to
the end of 1986.
Meetings over the past week between Yugoslavia and the.
International Coordinating Committee (ICC) representing Western
bank creditors bogged down over Belgrade's unyielding insistence
on a multiyear rescheduling. The Yugoslav delegation held to its
request for a one-time rescheduling covering 1985-88, despite the
ICUs rejection of the arrangement in earlier meetings. Finance
Minister Klemencic did not lead the Yugoslav delegation, and ICC
representatives interpreted his absence as a ploy, since the
Yugoslav delegation did not appear to have the authority to make
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decisions or to conclude an agreement.
The ICC came to .the meetings prepared to offer a compromise
solution that would reschedule maturities for two years, followed
by two single-year reschedulings. The banks did not offer their
proposal at the outset because of Yugoslav intransigence,~~
Other issues that the
ICC hoped to resolve at the meeting included the terms of
rescheduling"and the mechanism that will trigger closer IMF
involvement under the enhanced monitoring program to go into
effect after 1985. The ICC proposed that levels of reserves and
exports be established below which Yugoslavia would automatically
revert to closer IMF supervision.
Belgrade proposed a rate of 0.875 over LIBOR,
We believe that Belgrade is holding stubbornly to its demand
for a multiyear rescheduling in hopes that it can use concessions
by the banks t?o overcome the opposition of government creditors
to a multiyear arrangement. Klemencic and other key cabinet
officials may have backed thems,~lves into a corner and are
unwilling to admit to the Yugoslav Parliament--which is
increasingly critical of their handling of financial issues--that
with little progress on these issues.
with no prime option for subscribing banks. But the ICC was not
willing to consider a rate of less than 1.25 percent over LIBOR,
and more than half the ICC members are opposed to dropping the
prime option for Yugoslavia. The meeting broke up apparently
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they cannot deliver the multiyear arrangement they promised.
Unless compromise is arrived at quickly, however, formal signing
of a rescheduling agreement may be delayed beyond June, while the
costs of delay mount.
Poland '
The US Embassy .reports-that at a 15 January Paris Club
session, Warsaw and its official creditors initialled an
agreement rescheduling 1982-84 debts. The two sides agreed to
reschedule 100 percent of overdue principal and interest over 11
years with a 5-year grace period and to reschedule 50 percent of
the interest due on this agreement in 1985 over 10 years. with 6
As expected, the talks ran into difficulty when the
creditors objected to a letter submitted by Polish debt
negotiator Karcz suggesting Polish implementation of the
agreement would be contingent on its receipt of new credits.
After much discussion, the Polish delegation agreed to compromise
on a nonbinding side letter that urges Poland's creditors to
years grace, as agreed in principle in November.
grant new credits starting in 1985 and to support its application
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for membership in the IMF. But the' Poles are required to fulfill
all terms of the agreement regardless of the governments'
response to the letter.
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Karcz also told the US Embassy that he believes that Poland
will be accepted into the IMF by June of this year. A low-level
IMF team is expected to arrive in Warsaw on 7, February to renew
and update the technical and financial work which had begun in
1981. Furthermore, Karcz hoped to meet in Washington with IMF
officials in late February and expected a high-level delegation
to come to Warsaw in March.
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