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

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

Washington, March 30, 1984

SUBJECT

• Your Monday² Breakfast Meeting with Secretaries Regan and Shultz on Debt Crisis Management

Attached (Tab I) are talking points for your Monday breakfast meeting with Secretaries Regan and Shultz.³ At this writing, Secretary Regan will be accompanied by David Mulford (a positive sign), and Allen Wallis will accompany Secretary Shultz. The points are crafted for the purpose of gaining Treasury’s concurrence for shared management of the debt crisis and establishing an enduring State/Treasury/NSC consensus on a national plan of action (including contingencies). Attached (Tab II) are talking points for your phone call in advance of the Monday meeting to Secretary Shultz, bringing him on board with our strategy and requesting his intervention regarding potential political/military quids to extract for our increasingly intense funding efforts on behalf of LDC debtors.⁴ The focus of this meeting is therefore to establish a process by which we can manage the debt crisis effectively and which takes into account the need for secrecy, responsiveness and the attention of our best talent. Basically, the argument for sharing responsibility for this problem centers around the expanded zone of potential damage flowing from the debt crisis which now extends beyond Treasury’s portfolio as well as the crucial need to maintain control over a situation which, left to its own devices, could catalyze a global economic debacle. The recommended changes in process focus upon:

○ Creation of a small and discreet Cabinet-level group chaired by you, to deal with the debt crisis, which would include Treasury, State, Commerce, and CIA (with others including Paul Volcker engaged as warranted).

○ Creation of a sub-Cabinet group under the auspices of the SIG–IEP to be co-chaired by Dave Mulford and myself. Mulford and I have already discussed the need to work as “partners” on this issue.

We believe it would be counterproductive to go into substance regarding “solutions” in this first session as it could blur the focus on critical changes in process. Nevertheless, we are looking to include the following elements in the plan we are presently formulating:

○ Extended grace periods

○ Lowering of interest rates

○ Some shift of the focus in debtor-creditor negotiations to the debtor country ability to pay (foreign exchange earnings)

○ Regulatory adjustments, including more flexibility concerning commercial bank loan loss provisions

○ Negotiation of LDC political/military quids

○ Multilateral trading activities and countertrade to offset some LDC arrearages and the insulation of self-liquidating trade credits from future rescheduling activities

○ Considerably closer coordination of U.S.-European-Japanese financial policies with regard to the debt crisis

○ Accelerated flow of Government and international agency credits to debtor nations as an increasingly necessary element in their funding packages (due to more rigid commercial bank constraints)

In addition, we have initiated preparation of a presentation on the present dimensions of the debt crisis to bring other key Administration players up to speed (eventually involving a video if deemed useful by you). This approach would be similar to our successful strategy on Iran-Iraq energy/economics, and would incorporate the key elements of a national plan of action (including contingencies). If you concur with the talking points and are able to successfully implement these recommendations, you will have taken the first major step in coordinating Cabinet and sub-Cabinet involvement under a “national security” umbrella. You will recall that our proposal for a small Cabinet-level body has been introduced approximately three or four times in the past (including preparation of a draft NSDD after a meeting with the President) but each time was derailed by Secretary Regan.⁵ We also intend to immediately intensify our coordination on this side of the street—with Don on the political/military component; Bob Sims, Karna Small and Steve Steiner on the public affairs side; Rich Beal and Bill Martin on strategy process, and crisis management; and our various regional Directorates as deemed necessary. These are preliminary thoughts concerning our internal NSC process, but we think they represent a solid start in gearing up to meet this worsening situation.

As you know, we carefully tracked and offered recommendations concerning the Argentine situation (per my presentation to the President this morning)⁶ and have already implemented strict press and public announcement coordination between State, Treasury, NSC and Eximbank. We may well narrowly avert a serious erosion of the Argentine situation with its damaging spillover, but we must keep in mind that this latest flare-up is merely a symptom of where we are headed.

RECOMMENDATIONS:

1. That you approve the strategy and objectives for the breakfast meeting.⁷

2. That you approve “in principle” our internal NSC strategy involving a division of responsibilities and the engagement of our crisis management facility (to be refined as it evolves).⁸

3. That you agree with a plan to send out action notices from you to the bureaucracy (in the same or different memos) as a follow-on to the breakfast meeting that will encompass:

— formation of a small Cabinet-level group⁹

— formation of a SIG–IEP working group (Mulford/Robinson co-chair) to support the Cabinet group and Room 208¹⁰

— guidance to the Cabinet concerning all future press announcements and any other late breaking developments requiring prior clearance with the NSC or Cabinet-level group (if time permits) so we are able to coordinate in advance of their being made public.¹¹

4. That you meet briefly with Dave and me (time permitting) to discuss this memo prior to the breakfast meeting.¹²

1. Source: Reagan Library, Roger Robinson Files, Chronological File, Robinson Chron March 1984; NLR–487–10–32–14–0. Secret. Sent for action. Copies were sent to Fortier, Martin, and Beal. A stamped notation on the memorandum reads: “RCM Has Seen.”
2. April 2.
3. Tab I, “Talking Points for Breakfast Meeting,” is attached but not printed.
4. Tab II, “Talking Points for Telephone Call,” is attached but not printed.
5. See footnote 2, Document 150.
6. A March 23 memorandum from Robinson and Wigg to McFarlane bore the subject: “The Argentine Arrearage Problem: Symptom of a Growing National Security Threat Requiring a New Policy Approach.” Robinson and Wigg outlined their concerns with the Argentine arrearage situation which they argued demonstrated the need for a new U.S. policy approach to the international debt problem. (Reagan Library, Roger Robinson Files, Subject File, International Finance: 04/24/1984–08/14/1984) According to the President’s Daily Diary, Reagan met with Bush, McFarlane, Poindexter, Robinson, Baker, and Deaver on March 30 from 9:20 to 9:50 a.m. for a national security briefing. (Reagan Library)
7. McFarlane initialed the “Approve” option.
8. McFarlane wrote “quietly” at the end of the sentence and initialed the “Approve” option.
9. McFarlane wrote in the right-hand margin “informal at first” next to this point.
10. McFarlane wrote in the right-hand margin “quietly” next to this point.
11. McFarlane did not indicate his approval or disapproval of the recommendation.
12. McFarlane did not indicate his approval or disapproval of the recommendation.