MEETING OF CABINET COUNCIL ON ECONOMIC AFFAIRS, 29 JANUARY 1982

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84T00109R000100040021-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 3
• Document Creation Date: December 20, 2016
• Document Release Date: July 25, 2007
• Sequence Number: 21
• Publication Date: February 1, 1982
• Content Type: MEMO

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1 February 1982
SUBJECT: Meeting of Cabinet Council on Economic Affairs,
29 January 1982
1. A meeting of the Cabinet Council on Economic Affairs on
29 January 1982 discussed papers prepared by Treasury and State
on Polish debt, Polish and Hungarian membership in the
International Monetary Fund (IMF), and multilateral development
banks.
2: Polish debt: Assistant Secretary Leland (Treasury)
emphasized that USG policy objectives with regard to the Polish
debt are to try to obtain maximum leverage over Warsaw by using
the threat of default and by continuing to maintain an atmosphere
of uncertainty. This will keep the Poles scrambling for funds to
cover their debt service obligations and will help to keep
bankers bearish about lending to all of Eastern Europe. He
stressed that this was a "tougher" position than declaring Poland
in default and thereby relieving them from their debt service
obligations. The USG will treat the Polish debt normally and
will keep the pressure on by continuing to urge the Poles to
repay debt service owed to their government creditors and to
complete the 1981 bank rescheduling. There is unanimity among
the Allies that 1982 rescheduling negotiations cannot begin -
unless these conditions are met and without some improvement in
the domestic political situation.
3. Vice President Bush emphasized the need to provide a
study very soon of the impact of invoking the tank clause and how
it would influence the international capital markets and West
European banks. He stressed that the President is definitely
going to do something more in the way of sanctions and probably
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soon. He suggested that a policy options paper be prepared,
explaining how additional USG measures could put pressure on the
USSR and the rest of CEMA.
4. In reporting on recent talks with the Allies, Assistant
Secretary Hormat (State) was encouraged that progress was being
made in bringing them closer to our views. The Allies have
agreed to provide only food credits for humanitarian needs, to
cut off credits on exports of manufactured goods to Poland, and
to insist that the 1981 bank rescheduling be completed before any
thought is given to discussions of rescheduling 1982 official
debt. There was some discussion of ways to make it harder and
more expensive for the Soviets to borrow. Some countries are
also thinking of ways to restrict the entry of Soviet exports
into European markets.
5. Undersecretary Ikle (DOD) suggested that a top priority
objective should be to reduce CEMA access to credit not just this
year but over the longer run in order to impair Soviet economic
capability. He said that the USG needs to focus on devising a
longer term strategy in order to undermine the Soviet economy.
Assistant Secretary Leland pointed out that the USG is not one of
the big players in the area of trade and financial relations with
Eastern Europe but, n any case, we can try to be spoilers. He
stressed that the real issue is what Western governments will do
since--according to his information--private banks are not
lending to Eastern Europe.
6. IMF Applications by Hungary and Poland: The Council
decided to try to pressure IMF management to delay the mission
planning to go to Warsaw in March to discuss membership
negotiations, and to delay a decision on whether USG pressure
should be brought to bear to try to keep Hungary out of the
IMF. On the present schedule, Hungary could join in three or
four months.
7. Multilateral Development Banks: Undersecretary Sprinkel
(Treasury) presented the main concl!.:sions of the Treasury paper
and the Council endorsed Treasury':- policy recommendations.
Budget appropriations for these in-.Ltutions (the World Bank
Group, the InterAmerican Development Bank, the Asian Development
Bank, and the African Development Bank) will be lowered and the
USG will encourage these banks 1) to foster the development of
free, open markets and reliance o-: the private sector; 2) to
emphasize countries who are helping themselves; 3) to rely more
on co-financing and participation by the private sector; 4) to
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insist on policy conditionality and closer cooperation with the
IMF; and 5) to pursue graduation policies in order to encourage
these countries to approach the private capital markets.
Chief, Regional Economics Branch
East European Division
Office of European Analysis
Distribution:
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EURA/EE/EW
DDI
ADDI
Ex/DDI
DDT. Registry
ANIO-USSR/EE
NIO for Economics
D/EURA
D/SOVA
EURA/EE
DDI/EURA/EE/EW,
(1 Feb 82)
All paragraphs in this memorandum are classified confidential.
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