Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

157. Memorandum From Roger Robinson of the National Security Council Staff to the President’s Assistant for National Security Affairs (McFarlane)¹

Washington, March 6, 1984

SUBJECT

• LDC Debt Update

Dave Wigg and I have put together the following update on the status of key debtors.

Overview

During the past year and a half, rescue packages coordinated by the IMF have forestalled default or open-ended moratoria by debt-troubled LDCs and have averted a major disruption of the international financial and banking systems. The IMF, commercial banks, industrialized countries and LDC debtor governments are currently negotiating 1984 debt relief packages. Again the strategy depends heavily on the cooperation and burden-sharing of all players and confidence that the ability of LDCs to service debt is improving. Interest rates, bankers fees, and IMF conditionality are the major issues in the current negotiations. An increasing number of debtor countries are seeking easier terms on new and restructured loans from banks. The IMF must establish revised economic targets, if it is to avoid the loss of cooperation of those debtors which already judge IMF conditionality as too harsh and likely to spur unrest.

While most observers believe that 1984 LDC financing packages will be completed, the longer-term and more difficult aspects of the debt crisis remain (including changes in LDC development policies and ensuring world economic recovery). For some debtors, only a fundamental restructuring of domestic markets can ensure long-term growth and financial viability, but such a restructuring will involve very difficult social and political decisions.

Major Latin American debtors are in the early stages of a coordinated effort to test creditors for signs of softening that could lead to debt renegotiations on substantially easier terms (i.e. lower spreads and fees as well as longer maturities and grace periods).

— According to press reports, on February 5, Presidents Betancur of Colombia and Alfonsin of Argentina jointly stressed the need for a frank dialogue with creditors to work out affordable debt repayment terms. Both leaders indicated that the current loan terms are detrimental to prospects for development and political stability in Latin America.

— According to an Embassy report, Alfonsin—while in Caracas attending the inauguration of President Lusinchi—called for common financial policies among Latin American countries to strengthen their international position.² Alfonsin and Lusinchi stated jointly that the necessary austerity and rationalization measures must not significantly affect economic development plans.

There is as yet no reason to believe that these countries will seek to jointly renegotiate their debts, but several of them may band together in proposing that creditors ease loan terms, substantially beyond those recently provided to Mexico, Brazil, Peru, and Ecuador.

[Omitted here are updates on specific countries.]

1. Source: Reagan Library, Executive Secretariat, NSC Subject File, International Debt Situation (October 1983–January 1985); NLR–753–42–2–7–6. Secret. Sent for information. David Wigg initialed for Robinson. McFarlane wrote in the top right-hand corner of the memorandum: “Many thanks. Pls update periodically (quarterly).”
2. In telegram 1047 from Caracas, February 3, the Embassy reported on a February 1 press conference given by Alfonsin, in which he called for “Latin American integration, a common financial policy and increased trade, using the area’s buying power to strengthen its international position.” (Department of State, Central Foreign Policy File, Electronic Telegrams, D840077–0340)