WARNING MEETING ON LATIN AMERICAN DEBT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92T00533R000100090001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 3
• Document Creation Date: December 20, 2016
• Document Release Date: January 30, 2008
• Sequence Number: 1
• Publication Date: October 20, 1988
• Content Type: MEMO

Approved For Release 2008/01/30: CIA-RDP92TOO533ROO0100090001-1
SECRET
The Director of Central Intelligence
Washington, D.C. 20505
National Intelligence Council
MEMORANDUM FOR: See Distribution
NIC 03202-88
20 October 1988
FROM: Deane E. Hoffmann
National Intelligence Officer for Economics
SUBJECT: Warning Meeting on Latin American Debt
1. Intelligence Community representatives met on 12 October 1988 to
discuss economic problems and foreign debt developments in Argentina, Mexico,
Chile, and Brazil. Discussion also focused on the prospects for economic
structural adjustment to alleviate the debt burden and attract fresh capital
to debtor countries.
2. Argentina. Argentina currently is the most troubled debtor. Buenos
Aires wants commercial banks to agree to interest capitalization, repayment in
local currency, or forgiveness of debt. Banks will try to avoid such
unprecedented relief because other debtors, particularly Mexico and Brazil
would demand similar treatment.
3. Analysts were convinced that reform had progressed as far as could be
expected given the political horizon. The political future in Argentina is
not conducive to economic reform. Analysts believe Peronist Carlos Menem will
win the presidential election. Menem, a populist who advocates protectionism
and high wages and has favored a debt moratorium, currently has the backing of
labor and the financially pressed middle class, groups that are fed up with
President Alfonsin's failed economic policies.
4. Mexico. Representatives expressed concern about President-elect
Salinas's ability to ease wage, price, and exchange rate controls without
re-igniting high inflation. There was a divergence of views over the,
political pressure Salinas faces and whether it limits his latitude.
would drive a hard bargain in debt negotiations.
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5. Analysts agreed that Salinas was committed to economic reform, but
differed in their assessments of the impact opposition forces would have on
policymaking.
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6. The key short-term concern is the dwindling level of Mexican foreign
exchange reserves--especially as oil prices remain depressed and the peso
becomes increasingly overvalued.
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7. Chile. Between now and the elections scheduled for 1990, economic
policies are unlikely to change but uncertainty over Pinochet's willingness to
step down and allow elections will dampen foreign investment and lead to some
capital flight. Pinochet's opposition has only vague claims of alternative
economic policies. Although the opposition will focus on political rather
than economic reform, analysts assume that an opposition victory would lead to
more socially-oriented policies and, perhaps, a modification of Chile's
current cooperative debt policy.
8. Brazil. Brazil will register a record trade surplus this year which,
coupled with a capital account surplus, will allow it to significantly build
reserves. Having secured a commercial bank agreement, policymakers now are
focusing on the politically volatile problem of runaway inflation.
9. Brasilia has implemented little structural reform, although there has
been much rhetoric regarding trade liberalization and privatization. Although
these reforms can permanently reduce inflation over the longer term, progress
will be slow given policymakers' short-term focus and the immediacy of the
problem. Gaining support for reform will be even more difficult, given the
new constitution which gives congress a more extensive economic policymaking
role and takes away the President's decree law power
SECRET
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