177. Memorandum From the President’s Assistant for National Security Affairs (Scowcroft) to President Ford1
SUBJECT
- Emergency Balance of Payments Assistance for Portugal
Secretary of State Kissinger has written at Tab A requesting that you approve a three stage financial assistance package for Portugal. Secretary of the Treasury Simon concurs in this request (Tab B).
The Portuguese balance of payments ran a $1.1 billion deficit in 1975 and a $1.4 billion deficit is expected in 1976. Disposable foreign exchange reserves will be exhausted by the end of November. Secretary Kissinger concludes that the Portuguese success story threatens to un [Page 580] ravel within weeks unless the recently installed democratic government receives prompt assurances of balance of payments assistance.
The first stage of the proposed assistance package would offer a six month $300 million gold loan from the Exchange Stabilization Fund (a “gold swap”) to be implemented this year. The second stage is a U.S. contribution of $550 million to a $1.5 billion US/European/Japanese medium-term market rate balance of payments loan to be disbursed over a three-year period, with the IMF monitoring Portuguese compliance with the conditions of the loan. The third stage consists of full reliance on normal sources of private capital and if necessary an IMF standby agreement. The Portuguese Government will be expected to develop satisfactory and increasingly tough stabilization programs during each stage of the assistance package.
Secretaries Kissinger and Simon request your consent to consult immediately with key Congressmen concerning U.S. contributions to the second stage of the program. Discussions with other potential donors would begin after initial contacts with the Congress. Discussions with the Portuguese would be held prior to November 15, when their 1977 budget is presented, and the entire package would be announced during the week of November 22.
The urgency of the Portuguese situation requires action prior to your FY 1978 budget review of U.S. foreign assistance programs, now scheduled for late November. It should be noted that your approval of the Portuguese package will increase the difficulty of meeting other priority aid requirements within budgetary constraints. A favorable decision on this proposal does not constitute approval of other assistance programs to Portugal, which will be reviewed in light of pending Azores base negotiations during the regular budget review process. Budgetary details of the financial aid package will be developed by concerned agencies in cooperation with OMB.
OMB concurs in the recommendations of the Secretaries of State and Treasury to provide $550 million to Portugal as part of a consortium loan to be disbursed as follows: $300 million in the current fiscal year, $130 million in FY 1978, and $120 million in FY 1979 (see Tab C).
OMB has reservations concerning the economic reform program that Portugal will be asked to adopt to qualify for the consortium loan. OMB believes that greater IMF participation and more stringent austerity measures during the second stage will be necessary to make Portuguese economic reforms successful since:
—the longer the new Socialist Government delays reforms the more they will be faulted for the pain of severe measures;
—politically it does not make sense to heighten psychological apprehensions by proposing increasingly drastic austerity measures; and
[Page 581]—Portuguese President Eanes is pressing Prime Minister Soares for rapid economic reforms.
State and Treasury believe that the proposed plan provides maximum feasible economic reform at this time considering Portugal’s political situation since:
—negotiations with the IMF could delay needed economic assistance; and
—the stringent reforms required by the IMF for Portugal’s socialist oriented economy would be politically unacceptable unless they are phased in more slowly.
I concur with the State/Treasury view.
Recommendation:
That you approve U.S. participation in the aid package to Portugal as proposed by State and Treasury and authorize consultation with Congress concerning legislative aspects of the program.
Or, alternatively,
That you approve U.S. participation but with the proviso that every effort should be made to reach agreement with the IMF in the second stage of Portugal’s economic reform program (OMB view).
- Summary: Scowcroft sought Ford’s approval of emergency
balance of payments assistance for Portugal.
Source: Ford Library, National Security Adviser, Presidential Country Files for Europe and Canada, Box 10, Portugal (12). Secret. Sent for action. Attached but not published is Tab A, a November 1 memorandum from Kissinger to Ford; and Tab B, an undated memorandum from Simon to Ford. A stamped notation on Scowcroft’s memorandum indicates the President saw it. Ford initialed his approval of Scowcroft’s first recommendation. Yeo described the proposed emergency balance of payments assistance package for Portugal in an October 28 meeting with Kissinger and other U.S. officials. (Memorandum of conversation, October 28; National Archives, RG 59, Records of the Office of the Counselor, Helmut C. Sonnenfeldt, 1955–1977, Entry 5339, Box 10, POL 2 Portugal)
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