135. Memorandum From Secretary of the Treasury Regan to Multiple Recipients1
SUBJECT
- NSSD on Debt Strategy—Background for Our Breakfast Discussion Tomorrow2
The draft report for discussion by the SIG–IEP is being revised to incorporate agency comments received today and additional analytical work being prepared by OMB. A completed draft will be circulated shortly.3
The principal conclusions of the report are that:
- —
- the present five-point strategy has so far successfully contained debt problems;
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- its continued application in the short-term will be complicated (because of difficulties in meeting adjustment targets and political and social tensions associated with austerity), but has a reasonable chance for success;
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- in the medium term, the prospects are quite good, given expected recovery in industrial countries;
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- thus, there is no reason now to pursue alternative strategies such as generalized financing schemes, which in any event have for the most part fatal flaws (e.g., not country-specific, don’t encourage adjustment, administratively and politically infeasible);
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- however, several steps could be taken to strengthen the
application of the present strategy:
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- trade policy (maintain commitment to open markets while enforcing U.S. laws; encourage joint meetings of finance and trade officials);
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- strengthen forum and mechanics for dealing with individual problems (e.g., give G–10 deputies role in monitoring, discussing problem cases, regularizing approach to debt rescheduling issues);
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- improved data.
Reservations have been expressed on the following points:
- (a)
- Whether growth in the industrial countries will be as strong as projected over the medium-term (4 percent annually during 1985–87) and whether a somewhat lower rate would substantially alter the LDC debt outlook. OMB is modeling an alternative 3 percent growth scenario.
- (b)
- On the likelihood that the strategy will break down (e.g., because of failure of industrial recovery, a breakdown in the banking system, repudiation) and the intensity with which basically alternative strategies should be developed on a contingency basis. Language on this reservation, received today, has been circulated to the drafting group.
- (c)
- Whether some of the suggested improvements in the present strategy—particularly the suggested G–10 role in regularizing the approach to debt rescheduling, taking control out of the French Treasury—should be pursued.
Attached as additional background are executive summaries of the four subgroup reports, dealing with political and security considerations; alternative growth scenarios; trade policy implications of the debt situation; and alternative approaches to the debt problem.4
I have asked Paul Volcker to join our breakfast discussion tomorrow.
- Source: Washington National Records Center, RG 56, Executive Secretariat, Congressional Files, 1987, 56–90–29, Box 46, National Security Study Directives (NSSD) ’83. Secret. Sent to Shultz, Baldrige, Stockman, Feldstein, Harper, and Volcker. A stamped notation on the memorandum indicates that Regan initialed the original.↩
- April 12. No record of this meeting has been found.↩
- The draft report, “U.S. Approach to the International Debt Situation: A Policy Overview,” is attached but not printed.↩
- The executive summaries of the four subgroup reports are attached but not printed.↩