147. Memorandum From the Deputy to the Under Secretary of State for Economic Affairs (Morris) to the Under Secretary of State for Economic Affairs (Wallis)1
SUBJECT
- Future Issues
1. Issues Related to Summit Strategy
Our strategy paper has anticipated most of the major issues with which the London Summit will have to deal.2 Following is a summary:
[Omitted here is information on trade and monetary issues.]
f) Debt. The existing consensus on handling debt problems risks unravelling if any or a sufficient combination of several possible developments occur: A unilateral moratorium by a large borrower or a few by countries like Venezuela; continued evidence that net new lending is drying up (as we saw earlier this year); continued high interest rates; excessively onerous conditions attached to the IMF/GAB authorization or appropriation in Congress which either limit our ability to use the money or force the banks to withdraw or raise their charges even higher than now; failure to maintain a unified creditors’ position on a key country (e.g., Poland, but there may well be others); pressure from other governments or the private sector for radical new schemes; etc. This area is fraught with uncertainty over the next several months. [Page 379] In some countries (Mexico), the trend is definitely good; in others (Venezuela, Philippines, Brazil?), it is bad or doubtful.3
There is no practical prospect of getting money from Congress to finance any new debt relief schemes even if we thought they were desirable. The key, I believe, remains in getting more new lending from commercial banks (including a reflow of repatriated deposits). Use of guaranteed trade credit is neither sufficient nor right (i.e., it is provided whether a country has a sensible adjustment program or not). I would like to think that we could come up with some new ways to use GAB resources (once in place) to leverage more new lending from the banks, but I confess I don’t have any brilliant ideas. Still, I think it ought to be studied as a contingency against unravelling, should it threaten.
[Omitted here is information on other issues.]
- Source: Department of State, Bureau of Economic Affairs, Office of Economical and Agricultural Affairs Files, Official Economic Summit Files, 1975–1991, Lot 93D490: London Summit—August–December 1984. Confidential. Drafted by Morris on September 1. Printed from an uninitialed copy.↩
- Wallis forwarded a copy of the proposed strategy paper for the 1984 London Economic Summit to Clark under an August 30 covering memorandum. The covering memorandum and strategy paper are in the Reagan Library, Douglas McMinn Files, Economic Summit File, London—Preparatory.↩
- In an October 4 memorandum to Shultz, Bosworth provided a status report on high debt LDCs, including Mexico, Brazil, Venezuela, and the Philippines, among others. (Department of State, Executive Secretariat, S/P Records, Memoranda/Correspondence From the Director of the Policy Planning Staff to the Secretary and Other Seventh Floor Principals, Lot 89D149: October 1–15, 1983)↩