Foreign Relations of the United States, 1977–1980, Volume XIX, South Asia

470. Memorandum From the Director of the Office of Management and Budget (McIntyre) and the Ambassador at Large and Coordinator for Economic Summit Affairs (Owen) to President Carter¹

Washington, December 8, 1980

SUBJECT

• Pakistan Debt Rescheduling (U)

When President Zia was here and asked you for a three-year debt rescheduling you asked Owen for a memo on this issue.² The Finance Minister of Pakistan informed us October 9 that a three-year IMF agreement had been reached, and formally requested a three-year rescheduling.³ This memorandum seeks your decision, for the guidance of US officials in the negotiations which are scheduled for the week of December 15.⁴ (C)

Zia requested rescheduling over a three-year period, and your advisers have given this proposal serious consideration and decided not to recommend it to you. State and Treasury are concerned that our position on debt rescheduling not be eroded. They fear that this would occur if we promised relief to Pakistan for more than 18 months. They are concerned that in this event other countries now in difficulty would seek to obtain the same treatment, especially since their economic difficulties are more severe than those of Pakistan. They are also concerned about Congressional reaction to any debt relief for more than 18 months. You are, therefore, now being presented with two options:

1. Stick to the one-year rescheduling which you have already approved. This would provide about $75 million in relief, and it would increase budget outlays by a like amount. (OMB recommends.) (C)

2. Extend the rescheduling to 18 months, providing about $109 million; include in the record of the meeting, if necessary to conclude the negotiations satisfactorily, a statement by the Chairman that creditor countries would carefully consider any request for further debt relief (or equivalent measures) in light of circumstances at the time of the request; and similarly we could indicate privately to the GOP that we would recommend to the incoming Administration that it seriously consider a one-year extension, after the initial 18 months, if the GOP is then in compliance with its IMF agreement. (State, Treasury, NSC Staff, and Owen recommend.) (C)

OMB believes that no commitment on debt rescheduling beyond 1981 should be made now. In the OMB view, any aid beyond the one-year debt rescheduling that you have already approved should be provided through the appropriations process. Whether this “front door” approach is feasible depends upon the attitude of the new Congress toward modification of the Glenn/Symington amendment (which currently prevents us from providing aid to Pakistan). OMB points out that Pakistan does not face imminent default, and that any extension beyond one-year rescheduling could cause a backlash from Congress against back-door financing, in addition to setting a bad precedent for other countries. (C)

State and Treasury share some of these concerns but feel that a package that does not go beyond eighteen months and about $100 million in total cost would not set a bad precedent for other countries and would not require additional Congressional consultation. They agree that a statement by the Chairman could be included in the record of the meeting—that creditor countries would carefully consider requests for further debt relief. State and Treasury further believe that if such a statement is made, a private US indication to the Government of Pakistan that we will recommend to the succeding Administration that it seriously consider a one-year extension, if Pakistan seeks such an extension and is in compliance with its IMF agreement, would be consistent with that statement. Owen favors this option, and believes, as does State, that anything less would be seen by the GOP as unresponsive to its concerns. (C)

YOUR DECISION:

Alternative #1

Stick to a one-year rescheduling. (OMB recommends.) (U)

Alternative #2

Extend the rescheduling to cover an eighteen-month period; include in the record of the meeting, if necessary to conclude the negotiations satisfactorily, a statement by the Chairman that creditor countries would carefully consider any request for further debt relief (or equivalent measures) in light of circumstances at the time of the request; and if such a statement is made by the Chairman we would indicate privately to the GOP that we would recommend to the incoming Administration that it seriously⁵ consider a one-year extension, after the initial eighteen months, if the GOP is then in compliance with its IMF agreement. (State, Treasury, NSC Staff, and Owen recommend.)⁶ (C)

1. Source: Carter Library, National Security Affairs, Staff Material, Office, Outside the System File, Box 60, Chron: 12/7–9/80. Confidential. Sent for action. In the upper right-hand corner of the memorandum, Brzezinski initialed “ZB” and Carter initialed “C.” A typed note at the top of the page reads: “Latest action date: Friday, December 12.”
2. See Document 466.
3. In telegram 10490 from Islamabad, October 8, the Embassy reported that Pakistani Finance Minister Ghulam Ishaq and IMF Director de Larosière had agreed on an IMF assistance package. (National Archives, RG 59, Central Foreign Policy File, D800481–0027)
4. In telegram 335572 to Islamabad, December 20, the Department indicated that the negotiations were rescheduled for January 13–14, 1981. (National Archives, RG 59, Central Foreign Policy File, D800605–0570)
5. Carter crossed out the words: “recommend to the incoming Administration that it seriously.”
6. Carter checked the Approve option, to the right of which he initialed “J.” In telegram 1284 from Paris, January 15, 1981, the Embassy reported that a “two-day special Pakistan Consortium meeting on debt ended January 14 with an agreement by the Consortium countries to reschedule 90 percent of ODA principle and interest—falling due between January 15, 1981 and July 14, 1982. These debt service payments will be rescheduled, refinanced or offset by other equivalent measures at terms providing at least 55 percent grant element. Total amount rescheduled is estimated by World Bank at $233 million with the US share $116.7 million.” The Embassy also reported that Pakistani representatives expressed “deep dissatisfaction” that a greater amount was not rescheduled. (National Archives, RG 59, Central Foreign Policy File, D810021–1167)