ECONOMIC POLICYMAKER CHANGES IN THE THIRD WORLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R001403440019-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 4
• Document Creation Date: December 20, 2016
• Document Release Date: April 20, 2007
• Sequence Number: 19
• Publication Date: September 1, 1982
• Content Type: REPORT

Approved For Release 2007/ I R~4B00049R001403440019-1
Central Intelligence Agency
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ECONOMIC POLICYMAKER CHANGES IN THE THIRD WORLD
Summary
Available evidence does not indicate that recent changes in senior economic
policy positions in key L D Cs such as Mexico and Argentina, for exam ple, are designed to
pull LDC debtor nations into a confrontational guru . In reaching this judgment we
have examined the full range of Embassy reporting 25X1
The resignations over the past several weeks of economic policymakers in
Argentina, Mexico, Chle, and Egypt largely reflect domestic political concerns such as
the desire of heads of state or government to appoint officials who are philosophically
agreeable. They also indicate the inevitable dichotomy between tough policies needed to
put problem economies back on track and the desire to maintain the political backing of
powerful constituencies. These sorts of changes among palicymaking positions are likely
to persist so long as countries' international and domestic economic roblem erode
popular expectations of ever-increasing living standards. 25X1
This memorandum was prepared by Office of Global issues. 25X1
Information available as of 6 September has been used. Comments and queries are
welcome and may be addressed to the Third World Issues Branch, Economics Division,
GI M 82-10190
September 198
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Introduction
The past several weeks have witnessed changes in key economic policymaking
positions in a number of less developed countries.
o Argentina's economy minister and the central bank president both
resigned.
o Mexico's central bank director resigned.
o The Egyptian government eliminated the position of Deputy Prime
Minister for Economic Affairs.
o Chile combined the ministries of finance and economy into one and the
president of the central bank resigned.
While these changes are striking in their immediacy and their concurrence, they do not
impress us as unusual. They probably reflect the continuing inability of governments in
less developed and industrial countries alike to find politically acceptable solutions to
deep-seated economic problems. Indeed, the spate of resignations, while related to
political circumstances in' specific indication of the
deteriorating state of LDC economies. 25X1
The LDCs are going through tough economic times. The effort on. the part of
many LDC leaders to insulate their economies from the cumulative impact of global
recession and two oil price crises has finally caught up with them. Over much of the past
decade LDCs attempted to stimulate and borrow their way out of oil-price-induced
downturns while simultaneously adjusting their economies to higher import costs and
international payments deficits. With fiscal and monetary expansion proving far easier
than tough adjustment, LDCs in general have fallen victim to accelerating inflation that
undermined competitiveness and weakened exports and negative interest rates that
eroded incentives to save and encouraged capital flight. In addition, unexpected events
such as war (Argentina) and a falloff in oil revenues (Mexico) have added to countries'
economic management woes. 25X1
Country Situations
We have looked at the changes that have taken place over the last several months
at the economic policymaking level in a number of countries. Nearly all appear to have
been stimulated by domestic conditions and to have been implemented for political
rather than economic reasons. 25X1
Mexico
The resignation last week of the head of the Bank of Mexico, Miguel Mancera,
apparently was in protest over President Lopez-Portillo's nationalization of banks and the
tightening of exchange controls. Next to go could be Finance Minister Silva-Herzog
because his position is undermined by the appointment to the bank of Carlos Tello, who
like Lopez-Portillo favors deeper government involvement in the economy. Both
Mancera and Silva-Herzog are the architects of Mexico's current debt relief efforts and
have established credibility with the IMF and international bankers. Ironically, both were
named to their posts in February when their predecessors were forced out as scapegoats
for Mexico's devaluation at the time. If Silva-Herzog is forced from the cabinet it would
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be a clear indication the Lopez-Portillo is unwilling to implement austerity needed to
reach an agreement with the IMF. 25X1
Argentina
The resignation in August of Economy Minister Dagnino Pastore and Central Bank
President Cavallo apparently were triggered by newly decreed wage increases, but also
reflects the serious economic and political turmoil that Argentina is going through in the
wake of its costly war with the United Kingdom. The new economic policymakers will
have tough sledding. Jorge Wehbe, the new Economy Minister, has promised seemingly
inconsistent policies for halting inflation and expanding public spending. In contrast,
Julio Gonzales del Solar, who now heads the Bank, favors reduced public expenditures and
tighter control over the money supply. Thus, President Bignone has now brought to
power an uncoordinated economic policy team unlikely or unable to ar a eff ctivel
against his growing use of populist remedies to assuage public discontent 25X1
Chile
Pinochet's cabinet shuffle last month was an attempt to regain political initiative
and stem a decline in public confidence. He combined the two ministries of finance and
economy, explaining that it was necessary to ensure coherent economic policy
formulation during Chile's current economic difficulties. The resignation on 2 September
of controversial Central Bank President Kast was probably intended so that the new
Minister of Finance and Economy, Rolf Luders, can appoint his own man. Luders is likely
to retain the government's commitment to a free market economy but will have to try to
accommodate pressures from Pinochet to reduce the impact of recession on workers in
the politically strong lower middle class. F- I 25X1
Panama
The forced resignation last July of left-of-center Aristides Royo as Panama's
President and his replacement by conservative banker Ricardo de la Espriella brought
wholesale cabinet changes, including new appointments to three economic posts. The
former Minister of Planning and Economic Policy owed his position to late President
Torrijos and had little political following. The former Minister of Agricultural
Development had resigned once before because of a family scandal. De la Espriella also
replaced the Minister of Commerce and Industry. Panama's economic po
machinery will probably not be hurt by the changes and may well be better off.II
Other Latin America
New governments were installed in Bolivia in Jul and in Colombia in August.
There have been no major economic policy changes as yet. 25X1
Egypt
President Mubarak's concern about growing domestic criticism of his failure to
deal effectively with Egypt's serious economic problems is reflected in the cabinet
changes he instituted this month. He dropped Deputy Prime Minister for Economic
Affairs Ibrahim and abolished the position. In his place, Mubarak created a Ministry of
International Investment and Cooperation and a Ministry of Economy and Foreign
Trade. The shift is designed to convince Egyptians that Mubarak plans to deal more
actively with economic problems and avoid excessive caution which Egyptians have
interpreted as indecisiveness.
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Zimbabwe
Minister of Financial and Economic Planning Chidzero threatened to resign
recently over Prime Minister Mugabe's reluctance to defend the Minister's moderate
economic policies against radical critics in the cabinet. Chidzero has been frustrated by
the lack of fiscal responsibility on the part of many of the ministers. Chidzero's
financial and economic expertise is unmatched anywhere in the government. While we
expect the moderates to prevail in the cabinet, we cannot dismiss the possibi
Chidzero may become miffed and resign in the face of rejections of his proposals. 25X1
Other Africa
The Angolan government shuffled the portfolios of key economic ministers in
August. Most . observers attribute the changes to an attempt to improve economic
management. The changes had been rumored for months because of the continued poor
performance of the Angolan economy. Other economic policymaking changes that have
occurred this year have been due to political rivalries (Kenya and Madagascar) new
governments (Mauritius) and blaming the messenger for the message (Liberia, where
Minister of Planning and Economic Affairs Byron Tarr consistently reached to Head
o
State Doe the unwelcome need for hard austerity measures). 25X1
Asia-Pacific
In the Philippines, Finance Minister Virata's position is currently firm. Constant
rumors of shifts among the Philippines economic technocrats are normal and appear to be
dying down. In India, Dr. Manmohan Singh will replace Dr. I.G. Patel as central bank
governor on 16 September. This is a routine change at the expiration of Patel's five-year
term and has no policy implications.