SENIOR INTERDEPARTMENTAL GROUP ON INTERNATIONAL ECONOMIC POLICY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000200220004-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 57
• Document Creation Date: December 22, 2016
• Document Release Date: September 3, 2010
• Sequence Number: 4
• Publication Date: August 10, 1983
• Content Type: MEMO

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r7tt 1 NG 1 NF DIRMAT I ON
SUBJECT : Meetings
ES/hiI ~ 349
9 August 1983.
Type of Meeting
Date
Time
Place
Chaired By
Principal Only?
Subject/Agenda
(1)
Pipe layer exports
(2)
IG Working Group on Export Credits
and Guarantees
(3)
Polish Update
5 Report on UNCPAD VI ~
Will aLvise
Time Info Received Per So ya, Dept, of Treasury, 4:40 p.m.
~~
Distribution:
0/DCI
-0/DDC
ExDir
DDI
Chm N
DDO
SA/IA
OCO/S00
ES
D/ES
25X1
i
I
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 / [TNCT.ASSI[FIED
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TH F. SECRETARY OF TH~ TREASURY
'!lAS HINGI'ON 2 220
MEMORANDUM FOR THE VICE PRESIDEN
THE SECRETARY OF TATE rascutivs Aaptrsp ~
THE SECRETARY OF EFENSE
THE SECRETARY OF GRICULTURE
THE SECRETARY OF OMMERCE
THE DIRECTOR, OFF CE OF MANAGEMENT ,.~~ ~~
~ AND BUDGET ST.--~~
r/ DIRECTOR~OF CENT L INTELLIGENCE DDI- i
UNITED STATES TRA E REPRESENTATIVE
CHAIRMAN, COUNCIL OF ECONOMIC ADVISORS
ASSISTANT TO THE RESIDENT FOR
NATIONAL SECURI Y AFFAIRS
ASSISTANT TO THE RESIDENT FOR
POLICY DEVELOPM NT
C;EtALkMAN, EXPORT- MPORT BANK
ADMINISTRATOR, AG NCY FOR INTERNATIONAL ,
DEVELOPMENT
SUBJECT Senior Interdepar mental Group on
International Eco omic Policy (SIG-IEP)
A meeting of the SIG-IEP is cheduled for Thursday,
August 11, at 4:30 p.m., in the I dian Treaty Room (Room
474, Old Executive Office Buildin ). The agenda is as
follows:
1. Pipelayer Exports;
2. Report of IG Working Gro p on the Role of the U.S.
Government on Export C edits and Guarantees in
Responding to the Inte national Debt Problem;
3. Update on Polish Resched ling; t .
4. East-West Public Informs ion Strategy; and
5. Report on UNCTAD VI.
Papers on agenda items 2 and 4 are attached; items 1
and 3 will be oral reports. The aper on item 5 was circu-
lated prior to last week's meetin -
The paper for item 2 is a di cussion paper which has been
drafted by an IG-IEP working grou The paper raises a number
of complex issues and is not bein circulated for a final
decision at this time, but rather as background for a pre-
liminary SIG-IEP discussion which will help focus any further
SIG work on outstanding issues.
UNCLAtiSIFIED
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.~.._ 1
RULE OF U.S. GOVERNMENT GUARANTE
IN RESPONDING TO INTERN
ANll TRADE FINANCE PROGRAMS
TIONAL DEBT ISSUES
Scope of the Study
This study was undertaken to d termine the role that certain
U.S. Government trade finance progr ms might play in responding
to countries experiencing extraordi ary liquidity problems. It
examines existing programs of the E port-Import Bank, Commodity
Credit Corporation (CCC), the Econo is Support Fund (ESF), and
the Foreign Military Sales Program FMS) to determine how they
can be adapted to offer assistance hat would address LDC debt
problems. The study emphasizes way to build on these programs
and improve their effectiveness, in luding the allocation of
resources, and analyzes the costs a d benefits of the proposed
increase in resources. i
The aim has been to develop a omprehensive approach should
the U.S. Government be called upon o assist LDCs with adjustment
programs, rather than to relieve th m of the burden of adjustment
and the disciplinary pressure invol ed. Official export support
programs can be adapted so as to ca alyze U.S. private sector
participation rather than relieve b nkers and exporters of reason-
able and appropriate levels of risk and should not distort normal
credit patterns, The facilities sh uld be used to help reestablish
private trade finance activities. he special programs so designed
should have sunset provisions, Thi study also considers burden-
sharing with other major countries nd what the U.S. Government's
position should be in its absence.
There is a strong presumption hat the necessary "trigger"
for the extraordinary use of a U.S. trade finance program is the
existence of an IMF monetary stabil'zation program and successful
imple,nentation of i?s conditionalit requirements. The application
of each specific program would be t ilored to specific debtor
needs and U.S. objectives.
The focus of this analysis is o determine the adequacy of
Eximbank's and CCC's budget authori y for PY 83 and FY 84, if
these agencies are called upon to p ovide extraordinary financing
in response to the international de t problem through the end of
FY 84. For the purpose of this pap r, extraordinary financing
refers to special trade finance fac lities established as part
of a broader package of U.S. Gower ent, foreign government,
private sector, and international a ency financing relief efforts
for a country experiencing a severe liquidity crisis.
...,;: ~z ~..~~~
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Congress authorized FY 83 Exi bank program limits of 54.4
billion in direct credits and 59.0 billion in guarantees and
insurance. For FY 84, the Adminis ration is requesting program
limits of 53.8 billion in direct c edits and $10.0 billion in
yuarantees and insurance. The req ested increase in guarantee
and insurance authority was design d to encourage the continued
availability of credit for U.S. ex orts in the face of the ongoing
indebtedness problems in developin countries.
Eximbank has enough excess gu
for FY 83 and FY 84 to provide ext
to the debt crisis. If direct cre
purpose, Eximbank has sufficient d'
83, but the Administration may hav
direct credit authority for FY 84.
authority is estimated to be 57.0
yuarantees and insurance (of which
and 53.0 billion for FY 84) and $2.
(FY 83 only).
Based on an evaluation of ind'
rough estimates of the maximum ext
over and above FY 82 Eximbank auth
2.0 billion, if one major country
need extraordinary financing; (2) 5
countries and four medium-sized co
finance; and (3) 53.0-3 .6 billion,
six medium-sized countries need ex
Eximbank could deliver extrao
current FY 83-84 budget either by
authority to establish Mexico-type
using direct credit authority to p
loans. Either mechanism can be st
liquidity support. The debtor cou
loans in advance of actual purchas
liquidity financing. Insurance fa
generate additional liquidity if b
is contingent upon the banks' part'
share in new lending to each count
be implemented rapidly, although di
proceed more quickly under an Exim
It is recommended that general
extraordinary Eximbank financing b
and guarantee facilities rather th
use of insurance facilities is con
Eximbank bud yet policy to place mo
rantee and insurance authority
aordinary financing to respond
it authority is used for this
rect credit authority for FY
to request supplemental
Eximbank's excess program
illion: 55.0 billion in
$2.0 billion remain for FY 83
0 billion in direct credits
cative country trade accounts,
aordinary financing requirements
rization levels are (1) 51.0-
nd two medium-sized countries
2.0-3.0 billion, if two mayor
ntries need extraordinary
if three major countries and
raordinary finance.
Binary finance within its
sing guarantee and insurance
lines of insured credit or by
ovide balance of payments
uctured to provide additional
try could draw down extraordinary
s to be used as short-term
ilities could be used to
nk access to the facilities
cipating up to their fair
y. Both mechanisms Can also
sbursements could probably
ank direct credit.
ly the delivery mechanism for
through the special insurance
n direct credits, because (1)
istent with the Administration's
e emphasis on guarantees and
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insurance; (2) insurance facilities
of existing Eximbank insurance and
designed as multipurpose lines) and
changes required to use the direct
facilities would have considerably
larly since Eximbank has considerab
insurance authority than direct cre
lead to supplemental direct credit
and (4) insurance facilities could
commercial bank role in responding
theless, direct credits may be need
to provide a quick infusion of fund
fall within the parameters
uarantee programs (already _
would not require the policy
redit mechanism; (3) insurance
ess budget impact, particu-
y more excess guarantee and
it authority and would not
udget reyuests for FY 84;
e used to encourage a greater
o liquidity problems. None-
d in certain spacial cases
Commodity Credit Corporation
CCC currently has no yuarantee authority remaining in its
FY 83 54.8 billion ceiling. Theref re, it would need to repro-
gram underutilized yuarantee lines r request an increase in its
ceiling, if prest~i~a~i with requests for extraordinary financing
in the remaining two months of this fiscal year.
CC C's FY 84 guarantee ceiling f $3.0 billion. may be inade-
quate to respond to potential deman for extraordinary financing.
The 53.0 billion ceiling reflects d mand for CCC guarantees (1)
to meet subsidized competition ($40 million), and (2) to develop,
maintain, and expand export markets ($2 .6 billion). In setting
this ceiling, OMB did not specifica ly take into account demand
for CCC guarantees to deal with the ongoing problem of illiquidity
in many developing countries. Howe er, since many countries
which are traditional users of CCC uarantees are those experienc-
iny serious debt problems, the curr nt 53.0 billion ceiling
could accommodate some portion of t e demand for CCC guarantees
Directly related to debt problems.
Treasury has also identified a yht countries that might
require extraordinary CCC financing in FY 84 of such a large
volume that it could not be met wit in CCC's existing authority.
Treasury has made a rough estimate hat these eight countries
might require $3.0 billion of addit onal CCC guarantees in FY 84
in order to maintain imports of U.S agricultural products at
normal levels. Prior to FY 83, CCC had authorized about $600
million annually to this group. Th s, we estimate that roughly
52.4 billion of this potential requ rement might be considered
extraordinary. A portion of this a traordinary financing might
* OMB does not believe that Eximban direct credits are the
appropriate mechanism to use to pro ide a quick infusion of funds.
Such short-term liquidity problems re better addressed by
mechanisms such as the Exchange Sta ilization Fund.
CONFI DEN'~'IAL
it
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CONFIDENTIAL '
be accomodated within CCC's current
as well.**
Any CCC resources earmarked fo use in responding to extra-
ordinary debt situations should be eld in reserve subject to a
decision by the SIG-IEP (or a group designated by the SIG-IEP)
to release them.
The Economic Support Fund (ESF
Sales (FMS) credit programs are als
debt crisis. Where the ESF is used
debt problems, there .are no obstacL
fast disbursi^~; ~r>~ist~rcc linked t
the Congress, however, may object t
debt relief.
The FMS credit programs -- whi
have become part of the debt proble.
The role of Military Assistance Cre
in a separate but related exercise.
Conclusions
Both Eximbank and CCC programs
in extending extraordinary financin
Crisis. The IMF cannot remedy the
country governments and private fin
cooperate with the IMF in providing
seeking debt relief.
The major benefits of a coordi
ordinary financing arrangement are
credit for the debtor country so it
goods, (2) attracts additional comm.
(3) assists successful implementati~
programs.
** Agriculture disagrees with this
any of its FY 84 53.0 billion ceili
ordinary purposes related to intern
it estimates that the FY 84 ceiling
as S4.8 billion based on its countr
for credit. OMB believes that the
available in Eximbank's programs co
tural exports, thereby reducing dem
and the Foreign Military
involved in the international
in countries facing serious
s to using it as short-term,
policy reform or IMF programs;
the use of the Fund for
h are large and growing --
in some debtor countries.
it Programs should be reviwed
should continue to be used
to respond to the LDC debt
DC debt crisis alone. Creditor
ncial institutions should
new credit to countries
ated and comprehensive extra-
hat it (1) assures access to
can continue to import priority
rcial bank financing, and
n of domestic adjustment
nalysis. It does not think
~g should be used for extra-
tional debt problems. Instead
should be increased by as much
-by-country analysis of demand
ubstantial excess capacity
ld be used to support agricul-
nd for additional CCC authority.
CONFIDENTIAL
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We should take precautions to
programs are not financially underm
both Eximbank and CCC must be satis
ensure that Eximbank and CCC
fined. Unlike aid programs,
fied that there is a reasonable
assurance of repayment before appr my a transaction. To ensure
that the debtor country is taking steps to improve its economic
situation, thereby maximizing prosp
of these extraordinary financing fa
a number of explicit, but flexible
individual country circumstances.
cts for repayment, the provision
ilities should be linked to
(1) The government of the rec
its full and credit guarantee.
(2) The ?aci.lities should be specifically linked to continued
commercial bank financing and fight be used as an incentive
for commercial banks to parti ipate in their fair share in
new lending to each country.****
(3) Other governments should
the increase in U.S. credits
the financing burden.
provide new credits along with
o assure equitable sharing of
(4) The new credits should b
with IMF stabilization progra
with them.
(5) Any pending or impending
would normally form an integr
financing.
**** The facilities should be lin
continued commercial bank finance.
banks to reduce their unguaranteed
induce additionality by the carrot
appropriate, access might be provi
commercial banks that are particip
new lending to debtor countries.
There is no intention that U.
would pressure individual U.S, ban
decisions. However, in major debt
IMF programs, there have been spec
banks should increase their exposu
or maintain trade and interbank li
given date in the past. The borro
lists of how individual banks have
preferential basis might allow ban
to obtain prior access to the extr
before offering them to banks whic
their exposure.
provided only to countries
s and which stay in compliance
debt rescheduling arrangements
1 part of such extraordinary
ed to the extent possible to
The .program should not enable
exposure, but rather should
rather than the stick. As
ed on a preferential basis to
ting up to their fair snare in
. authorities or agencies
s to make specific lending
r countries with significant
fic proposals that commercial
e by a particular percentage
es at levels reflecting a
my countries have their own
performed; the borrowers on a
s that have met the criteria
ordinary financing guarantees
have not maintained or increased
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- 6 -~
Reserve Fund? While it is tr a that the volume of risky
guarantees is likely to increase i FY 84, there is no real advan-
tage for either Eximbank or CCC to create a reserve fund. When --
Eximbank faces an extraordinary cl ims situation, as it did in
Mexico, claims would likely be put on the books as purchases of
assets, and have no impact on the ank's capital and reserves.
Any claims not booked as purchases of assets can be paid by
drawing on capital and reserves, w ich currently amount to almost
S3.0 billion. Ultimate claims rec very is difficult to estimate
and is tied to country economic im rovement: For CCC, the "reserve
fund" is infinite since CCC has un invited borrowing authority
from Treasury. However, since CCC s outstanding borrowings are
limited to S25 billion, pay-outs n t written off as losses (i.e.,
Congress has not appropriated new unds to enable CCC to repay
Treasury), diminish CCC's borrowin ability for other purposes
mandated by CCC's Charter.
Claims arising from extraordi ary financing have a high
probability of recovery, since the should be backed by the
full faith and credit guarantee of the debtor country. Special
reserve funds are a bit of a delus on, giving false comfort to
those facing the decision of wheth r or not the financing is
structured so as to provide a reas nable assurance of repayment.
Burdenshariny. The U.S. Gove nment is currently gathering
information about the capabilities and policies of foreign creditor
countries to give us a stronger po ition in negotiating burden-
sharing options with other credito s, Burdenshariny formulas
could, for example, be based on tr de patterns or bank exposure,
taking trade policy issues into ac ount.
Action Program. A permanent AC working group under @he aegis
of the SIG-IEP to determine when d btor country conditions warrant
the provision of extraordinary Exi bank and CCC financing.
Guidelines for this group could in Jude:
(1) The provision of extraor inary financing facilities
should be linked to a number of ex licit, but flexible? conditions,
according to individual country ci cumstances;
(2) The group should coordin to the actions of Eximbank,
CCC, and other agencies which can ontribute resources to an
integrated U.S. Government approac and
(3) The group and appropriate agencies should judge whether
there is a reasonable assurance of repayment of extraordinary
financing.
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 IN RESPONDING TO INTERNI~TIONAL DEBT ISSUES
CONEYbENTIAL
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 August 9, 1983
ROLE OF UIN.RESPONDINGTTO INTERNA I
D TRADE FINANCE PROGRAMS
NAL DEBT ISSUES
Executive S
rmine the role that certain
might play in responding
-
V.J? Vv.~r.....~--- -
to countries experiencing extraordina
examines existing programs of the Ex
Credit Corporation. {CCC)r the_ECOnom~
LL)C ivaca7.? ??
can be adapted to offer assistance th
problems. The study emphasizes ways
resources,eandeanalyzestthencostsland
increase in resources.
The aim has been to develop a c
the U.S. Government be called upon to
programs, rather than^to relieve them
_
rt-Import Sank, Commodity
Support Fund (ESF), and
S) to determine how they
t would address LDC debt
o build on these programs
ding the allocation of
benefits of the proposed
prehensive approach should
assist LDCs with adjustment
of the burden of adjustment
Official export support
yze U.S. private sector____
_
auu Luc ,.~___r-__
programs can be adapted so as to cat
elieve ba
participation rather than r
able and appropriate levels of risk
atterns. The facilities sho
dit
p
cre
private trade finance activities. T
ld have sunset provisions. This
shou
sharing with other major countries a
position should be in its absence.
There is a strong presumption t
for the extraordinary use of a U.S.
existence of an IMF monetary stabili
lementation of its conditionality
im
p
of each specific program would be to
needs and U.S. objectives.
nd should not distort normal
eV special programs so designed
study also considers burden-
'
s
d what the U.S. Govern~ept
at the necessary "trigger"
rade finance program is the
ation program and successful
i
on
requirements. The applicat
lored to specific debtor
The focus of this analysis is t determine the adequacy of
Eximbank's and CCC's budget authorit for FY 83 and FY 84, if
these agencies are called upon to pr vide extraordinary financing
in response to the international de r,pextraordinaryhfinancing f
FY 84. For the purpose of this pap
refers to special trade finance facilities established as part
of a broader package of U.S. Gower ent, foreign government,
private sector, and international a ency financing relief efforts
for a country experiencing a severe liquidity crisis.
OON FIDEN'~I AL
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CONFIDENTIAL ~
1. Eximbank
Congress authorized FY 83 Eximb nk program limits of S4.4
billion in direct credits and 59.0 b llion in guarantees and
insurance. For FY 84, the Administr tion.is requesting program
limits of 53.8 billion in direct cre its and 510.0 billion in
guarantees and insurance. The reque ted increase in .guarantee
and insurance authority was designed to encourage the continued
availability of credit for U.S. expo is in the face of the ongoing
indebtedness problems in developing ountries.
Eximbank has enough excess guar ntee and insurance authority
for FY 83 and FY 84 to provide extra rdinary financing to respond
to the debt crisis. If direct credi authority is used for this
purpose, Eximbank has sufficient dir ct credit authority for FY
83, but the Administration may have o request supplemental
direct credit authority for FY 84. ximbank's excess program
authority is estimated to be 57.0 bi lion: 55.0 billion in .
guarantees and insurance (of which $ .0 billion remain for FY 83
and S3.0 billion for FY 84) and 52.0 billion in direct credits
(FY 83 only).
Based on an evaluation of Indic tive country trade accounts,
rough estimates of the maximum extra rdinary financing requirements
over and above FY 82 Eximban author'zation levels are (1) $1.0-
2.0 billion, if one major country an two medium-sized countries
need extraordinary financing; (2) 52.0-3.0 billion, if two major
countries and four medium-sized coun ties need extraordinary
finance; and (3) 53.0-3.6 billion, i three major countries and
six medium-sized countries need extr ordinary finance.
t~
Eximbank could deliver extraordinary finance within its
current FY 83-84 budget either by using guarantee and insurance
authority to establish Mexico-type lines of insured credit or by
using direct credit authority to pro ide balance of payments
loans. Either mechanism can be stru tured to provide additional
liquidity support. The debtor count y could draw down extraordinary
loans in advance of actual purchases to be used as short-term
liquidity financing. Insurance facilities could be used to
generate additional liquidity if ba access to the facilities
is contingent upon the banks' participating up to their fair
share in new lending to each count Both mechanisms can also
be implemented rapidly, although dis ursements could probably
proceed more quickly under an Eximb nk direct credit.
It is recommended that general the delivery mechanism for
extraordinary Eximbank financing be through the special insurance
and guarantee facilities rather tha direct credits, because (1)
use of insurance facilities is cons'stent with the Administration's
Eximbank budget policy to place mot emphasis on guarantees and
CONFI DEN7~IAL
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CONFIDENT$AL
insurance; (2) insurance facilities all within the parameters
of existing Eximbank insurance and g arantee programs (already
designed as multipurpose lines) and ould not require the policy
changes, required to use the direct c edit mechanism; (3) insurance
facilities would have considerably 1 ss budget impact, particu-
larly since Eximbank has considerabl more excess guarantee and
insurance authority than direct cred t authority and would not
lead to supplemental direct credit b dget requests for FY 84;
and (4) insurance facilities could b used to encourage a greater
commercial bank role in responding t liquidity problems. None-
theless, direct credits may be neede in certain special cases
to provide a quick infusion of funds
2. Commodit Credit Cor ratio
CCC currently has no guarantee uthority remaining in its
FY 83 54.8 billion ceiling. Therefo e, it would need to repro-
gram underutilized guarantee lines o request an increase in its
ceiling, if presented with requests or extraordinary financing
in the remaining two months of this fiscal year.
CCC's FY 84 guarantee ceiling o 53.0 billion may be inade-
quate to respond to potential demand for extraordinary financing.
The 53.0 billion ceiling reflects de and for CCC guarantees (1)
to meet subsidized competition (5400 million), and (2) to develop,
maintain, and expand export markets (52.6 billion). In setting
this ceiling, OMB did not specifically take into account demand
for CCC guarantees to deal with the ngoing problem of illiquidity
in many developing countries. gowev r, since many countries
which are traditional users of CCC guarantees are those experienc-
ing serious debt problems, the current 53.0 billion ceiling
could accommodate some portion of t e demand for CCC guarantees
directly related to debt problems.
Treasury has also identified eight countries that might
require extraordinary CCC financing in FY 84 of such a large
volume that it could not be met within CCC's ~:~i~=:r,q authority.
Treasury has made a rough estimate hat these eight countries
might require S3.Oybillion of addit'onal CCC guarantees, in FY 84
OMB does not believe that Eximban
appropriate mechanism to use to pro
Such short-term liquidity problems
mechanisms such as the Exchange Sta
s, we estimate that roughly
rement might be considered
traordinary financing might
direct credits are the
fide a quick infusion of funds.
re better addressed by
ilization Fund.
CONFIDENTIAL
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CONFI DENT~LAL
be accomodated within CCC`s current
as well.**
Any CCC resources earmarked for
ordinary debt situations should be h
decision by the SIG-IEP (or a group
to release them.
3. Other programs
The Economic Support Fund (ESF)
Sales (FMS) credit programs are als
debt crisis. Where the ESF is used
debt problems, there are no obstacl
fast disbursing assistance linked t
the Congress, however, may object t
debt relief.
The FMS credit programs -- whi
have become part of the debt proble
The role of Military Assistance Cre
in a separate but related exercise.
4. Conditionality
The provision of these extraor
for both CCC and Eximbank should be
but flexible, conditions, according
stance. These include:
(1) The government of the rec
its full faith and credit. guar
(2) The facilities should be
ued commercial bank financing
** Agriculture disagrees with this
any of its FY 84 53.0 billion ceili
ordinary purposes related to intern
as S4.8 billion based on its count
for credit.
use in responding to extra-
ld in reserve subject to a
esignated by the SIG-IEP)
and the Foreign Military
involved in the international
in countries facing serious
s to using it as short-term,
policy reform or IMF programs;
the use of the Fund for
h are large and growing --
in some debtor countries.
it Programs should be reviwed
linked to a number of explicit,
to individual country circum-
pient country should provide
ntee. ~
pacifically linked to contin-
nd might be used as an incentive
nalysis. It does not think
g should be used for extra-
tional debt problems. Instead
should be increased by as much
-by-country analysis of demand
CONFI DEt~TIAL
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CONFIDENTIAL '
for commercial banks to partici ate in their fair share in
new lending to each country.*'*
(3) Other governments should p ovide new credits along with
the increase in U.S. credits to assure equitable sharing of
the financing burden.
(4) The extraordinary credits hould be provided only to
countries with IMF stabilizatio programs and which stay in
compliance with them.
(5) Any pending or impending de t rescheduling arrangements
would normally form an integral part of such extraordinary
financing.
Th~acilities should be linked
continued commercial bank finance.
banks to reduce their unguaranteed e
induce additionality by the carrot r
appropriate, access might be provide
commercial banks that are participat
new lending to debtor countries.
to the extent possible to
he program should not enable
posure, but rather should
they than the stick. As
o~ a preze:sncial aasis to
'ng up to their fair share in
There is no intention that U.S.
would pressure individual U.S. bank
decisions. However, in major debto
IMF programs, there have been spec if
banks should increase their exposur
or maintain trade and interbank lin
given date in the past. The borrow'
lists of horl individual banks have
preferential basis might allow bank
authorities or agencies
to make specific lending
countries with significant
is proposals that commercial
by a particular percentage
s at levels reflecting a
ng countries have their own
erformed; the borrowers on a
that have met the criteria
rdinary financing guarantees
before offering them to banks which have not maintained or increased
their exposure. i
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? CONFIDENTIAL t
August 5, 1963
ROLE OF U.S. GOVERNMENT GUARANTE AND TRADE FINANCE PROGRAMS
IN RESPONDING TO INTERN TIONAL DEBT ISSUES
i. Scope of the Problem
'Successful management of the debt problem will require
flexible responses, tailored to th circumstances of the
individual cases, among which is:
'encouragement to private mar ets to provide prudent
levels of financing to borrow'ng countries in the process
of implementing IMF-supported adjustment Programs"
The current debt problems of DCs are the result of more
than a decade of events and polici s reflecting, in part, con-
ditions in the industrial market a onomies, and also weaknesses
in their own domestic management. There is clearly a need for
concerted international action to aintain both trade and
capital flows.
Some LDCs which borrowed heavily -- especially Latin
American countries -- are now facing a problem of severe
illiquidity, albeit not insolvenc Their ability to service
2. a decline in zeal interea
3. a conscientious effort b;
domestic economies, through !
4. continued external finan~
Ad hoc debt restructurings w.
problems of some countries. Them
between creditor governments, cre~
facilitate adjustment over the men
Unfortunately, private banki;
more difficult for LDCs to arrange
a voluntary nature. Most recent
bank lending show a very sharp dr
1982 in new lending to Latin Amer
at constant exchange rates] in th
lending to Latin America totaled
marked withdrawal of short-term c
t rates; ~ i ?
LDCs to restructure their
etter management; and
itor banks, and the IMF to
ium term.
g flows have become much
and often they are not of
ata on BIS area commercial
p between the two halves of
ca (from S14.5 to S4.7 billion
second half of 1961, new
23.3 billion).. There was a
edits.
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I 1
First quarter 1983 SIS data (f om a different data base)
6how a continuing decline in the gr wth of bank lending, due
both to expected seasonal factors ( first quarter aggregates
normally show relatively little gro th) and slower underlying
extension of credit= most of the ne lending to Latin America
in the first quarter went to Mexico and Brazil, in parallel
with drawings on the IMF.
The effort of this Working Gr up has been to examine
possible trade financing actions b the U.S. Government, if
possible with appropriate burdensh ing, to complement estab-
lished IMF programs. The Group fo used on the adequacy of
existing U.S. Government programs o respond to extraordinary
financing requirements which may arise ~in some debtor countries
by the end of FY 84.
A point to bead in mind is th t if additional trade financ-
ing is not available from U.S. Gov rnment guarantee facilities,
the funds required to provide tem racy adjustment assistance
to major developing country tradin partners will either have
to come from other sources (possib y from competitors), or the
countries concerned will be forced to adjust still further,
with concomitant reductions in U.S exports.
II. U.S. Strategy
Current U.S. strategy is desi ned to deal with international
debt problems in a flexible manner It is based on expectations
of effective adjustment by the deb or countries, reasonable
economic growth in the industrial ations, and an adequate level
of financing which allows orderly djustment and avoids trigger-
ing polnt;cal Problems that could amage U.S, interests. There
are five elements in this strategy
1. Primary responsibility mu t rest with the debtor countries
to undertake adequate adjustor nt measures. _
2. The IMF should play a key role in providing official
medium-term assistance to tro bled borrowers with adjustment
programs, and its resources s ould be increased.
3. Commercial banks must mai twin and increase their own
lending in the borrowing countries which are following
appropriate adjustment progr s.
4. Central banks and treasuries must be willing to provide
short-term immediate liquidi support, when necessary, to aid
selected borrowers which are working out adjustment programs
with the IMF.
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 5. There must be a resumpti
Sion in the United States, E
to this,' protectionism must
find export markets for thei
The first phase of the inter
general been successfully contain
difficulties must be anticipated
to experience extraordinary liqui
policy choices -- perhaps even es
some cases -- may be required.
As noted, commercial banks h
or increase exposure in many coon
about the conditions that Congres
for authorizing the U.S. share of
increase. Congressional proposal
requirements on overdue debt may
international commercial lending.
Developments in debtor count
ties. There are some (e. g., Braz
maintain compliance with IMF prog
are also periodic calls (led by V
unilateral debt write-down by a g
The combination of internal
cial financing, both from banks a
suppliers, has caused a sizeable
imports and consequently of U.S.
must be seen in context (in some
increased imports from saarply re
impact in many LDC markets has be
major industrial countries from t
levels.
It appears that official len
provide a larger relative proport
A. Previous SIG-IEP Review
These issues were examined a
SIG-IEP review of the U.S. Approa
Problem (NSSD 3-83). The review
current strategy to changing circ
proceed' in the evolving economic
ope, and Japan. Concomitant
avoided so that LDCs can
products.
ational debt problem has in
d. Nevertheless, major
ity problems. Complex U.S.
ablishing new precedents in
ve been reluctant to maintain
ties. There is uncertainty
will impose as the price
the IMF's proposed quota
to impose onerous .reserve
dd additional impediments to
ies also add to the uncertain-
1) that have been unable to
am conditionality. There
nezuela) for some form of
oup of debtors.
djustment and loss of commen-
d directly from commercial
ontraction of debtor countries'
xports. While this statement
ases IMF programs have ~ '
uced levels), the overall
n a decline in imports from
eir previous unsustainable
ens will be called upon to
on of tot a2 finance. to LDCs
considerable length in the
to the International Debt
"in view of these uncertaini~es and the large U.S. economic,
political, and security interest at stake, the United States,
in cooperation with other major industrial countries, needs to
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I
closely monitor evolution of the in
The operation of the strategy in th
turbulent. It should be assessed o
adaptions made flexibly in light of
framework of the basic approach....
NSDD-96, which the President a
IG-I EP would explore, inter alias
Stabilization Fund, Export-I
Credit Corporation funds in
ernational debt problem.
near term is likely to be
a continuing basis, and
specific problems, in the
(NSSD 3-83i pp. ii-1ii.)
proved, mandated that an
'The adequacy of U.S.?resourc s for short-term bridge
financing and the extent to w~hach multilateral efforts
can be expected; and the appropriate use of^Exchange
__~. ~..
'The availability of private .
trade finance facilities -- ~
in supplier credits, bank co
whether improvements can be
for trade paper (i.e., disco
and whether Export-Import Ba
can play a greater role in f
transactions.'
B. The Special Role of Government
Programs
ending and the adequacy of
articularly developments
er and trade receivables;
,ade in secondary markets
inting of trade receivables);
ik, FCIA and private insurers
~cilitating short-term trade
The current exercise on the r le of U.S. Government pro-
grams in managing the debt problem focuses on trade finance
and exports rather than on the imm diate short-term Treasury and
Federal Reserve bridge financing n cessary to enable a borrower
to remain viable until it can nego iate an IMF program. Trade
finance programs can help develop arket confidence, promote
additional commercial bank lending, check the decline of U.S.
exports resulting from debt probie ~s, arlu fec.iil;:a:e LDC,
adjustment efforts. It focuses o the exceptional use of such
pr_odrams _in debtor countries experiencing major liquidity
problems. In considering program to finance U.S. exports, a
distinction is made between:
-- countries which are unabl to obtain financing from any
er
b
orrow
source, whereby U.S. guar ntees would help the
to maintain critical impo is from the United States and
to maintain the LDC's own exports (i. e., keeping the
client alive); and
providing financing to a orrowing country that it could
obtain from another sots c if not available from the
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CONFIDEN~ZAL ~
United States (i. e., financing in order not to lose
market share).
C, parameters of the Study
(1) The objective of the study is
?role of U.S. Government export creel
the debt crisis and then to assess
programs and funding levels, partic
Eximbank, to deal with the problem.
consideration is now until end-1984
(a) emphasizes ways to build
improve their effectiveness it
rather than creating new progt
(b) assesses various ways to
(c) analyzes the costs and be
in resources.
(2) The purpose is to recommend o~
necessary to address debt problems,
money' at the problems nor to recot
programs. Moreover, it is recogni;
finance support may be related to i
went might consider to assist a rep
overall liquidity and debt problem;
(3) Within the context of the exi
this study is to develop an approa
ment programs, rather than relievi
programs or removing the disciplin
(4) The study starts with the Fr e,
export support programs (and any i
will be designed to catalyze priva
exports, rather than relieve banke
and appropriate levels of risk."-
(5) The aim of the study is not t
ment' programs for LDCs end U.S. e
review provisions included in what
to determine the appropriate
it programs in responding to
the adequacy of existing
ularly those of CCC and
The time frame under
The review:
on existing pr ograms and to
extraordinary circumstances
ams or budgeting more resources;
ly the minimum allocations
We Propose neither to "throw
mend new export promotion
ed that extraordinary trade
ther measures the U.S. Govern-
ipient country in managing its
ting strategy, the aim of
h to assist LDCs with adjust-
g them of the burden of` such
ry pressures involved.
ise that the use of official
.crease in funding levels)
e sector financing and U.S.
sand exporters of reasonable
o create longer term 'entitle-
xporters; there will be sunset-
.ever recommendations are made.
D. What Tri ers a Pro ram, How s It Sha ed?
Existence of an IMF adjustme t program is generally considered
sufficient presumption that an ex raordinary trade-financing
pr ogram could be established. Th fact that an. IMF program is
CON FI D~N TI AL
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CONFIDENTIAL ~
in place is an indication that a c
deteriorating economic situation,
and has required and met the condi
program. The specifics of individ
i.e., delayed payments resulting f
exchange receipts and reserves tha
basic commodities and debt service
months' imports, ors cash flow insu
levels of international trade.
untry has been experiencing a
ossibly a liquidity crisis,
,ions for an IMF adjustment
al situations will differ;
om leads and lags, foreign
do not cover imports of
reserves of less than three
ficient to sustain minimal
I t is unlikely that the Unite
for extraordinary trade financing
by the borrower of an IMF program
and/or without successful maintena
?requirements. There must be a pre
d States would approve a request
assistance without establishment
(i. e., adjusting on its own)
nce of IMF conditionality
sumption against this possibility.
The actual shape of the extra rdinary U.S. trade financing
program, its contegts, and there pective roles of CCC and Eximbank
will depend on the specific needs f the borrower and the objec-
tives that the U.S. Government is attempting to achieve. These
could, inter alia, entail providi g foreign exchange and liquidity;
for the~onstration impact on financial market confidence; for
assistance in meeting a temporary liquidity runoff which could
precipitate a more serious cutoff in financing, attempting to
induce commercial banks and trade suppliers to provide more
unquaranteed credit than they oth rwise would; or to sustain
U.S. trade with recipient countri s. Other objectives could
include assuring the availability of vital inputs necessary for
exports, sustaining particular cr cial product sectors such as
fertilizers; or attempting to ins re that foreign private sector
firms as well as parastatal enter ises.receive a fair share of
available foreign exchange resour es.
E. Burdensharing
Some judgments are necessary on: the appropriate degree of
burdensharing with other major co ntries (especially in the
framework of Eximbank programs); he ability of other creditor
countries to respond; how strongl WG recommendations can be
advanced in the absence of agreem nt on such burdensharing, and
what the U.S. position should be f export financing agencies
of other countries refuse to coop rate.
F. Creditworthiness - Are We Goi to Get Paid BackT
Some of the countries in whi h CCC and Ezimbank have a
large exposure are experiencing s rious financial problems and
may have difficulty in making rep yments in a timely manner.
Moreovec, the existence of an IMF program and meeting its targets
could be taken as a good faith in ication that the borrower is
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- 7
making a genuine effort to redres
thus is creditworthy.
For example, during FY 84, t
anticipate will continue to need
ordinary levels of official finan
new or further repayment problems
Egypt, Mexico, Morocco, Nigeria,',
Sudan, Venezuela, Yugoslavia, and
most recent Treasury watch list.)
be made to traditional creditwort
to these extraordinary circumstan
G. WG-IEP Findings.
In determining the appropra
guarantee programs~of CCC, Eximba
agencies in responding to the deb
are addressed:
-- Should these programs be
having financing difficul
resources should we commi
end-19847
-- What is U.S. policy on of
(e.g., meeting subsidized
what level of resources s
tions?
-- Defining the risks of pro
tries with financing pcob
economic and financial co
should funds be appropria
tingent liabilities; what
creditworthiness might be
==What risks; both of- an ec
would be entailed in not
-- Should there be linkage i
factory compliance with I
-- The extent to which burde
or encouraged.
The following chapters analy
- programs (i. e., the State Departm
the DOD Foreign Military Sales Lo
the WG-I EP's overall policy findi
upon the judgments developed in t
e following countries, which we
oth normal and possibly extra-
ing support, may encounter
Argentina, Brazil, Chile,
eru, Philippines, Poland,
Zaire, (See Table 1, p. 14,
What changes, if any, should
iness criteria in responding
es?
e role for the credit and
k and other U.S. Government
crisis, the following topics
sed to aid countries which are
ies and, if so, what level of
for this purpose through
er uses of these guarantees
EC and other competition), and
ould be devoted to these func-
' ~,
iding these guarantees to coun-
,ems: k3:at are the potential
is to the U.S. Government;
ed for a reserve to cover con-
if any, special problems of
posed. by any of these countries?
~ndm i c-.and--pol i t ica3 'nature,
K oviding these guarantees?
i the U.S. programs to sati's-
IF adjustment Programs?
sharing might be considered
e CCC, Eximbank, and other
nt's Economic Support-Fund and
ns). A final chapter includes
gs and recommendations, building
e text on individual programs.
iv~wi et ntw1TT aT.
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CONPIDl~NTIAL ~
III. Commodity Credit Corporation CCC)
A. Methodology
The primary purpose of thi section is (1) to determine
whether and how CCC's GSM-102 xport Credit Guarantee Program
should be used to aid countrie facing a liquidity crisis which
might result in a declining ma ket for traditional U.S. agricultural
exports; (2) to determine whet er the proposed FY 84 GSM-102
guarantee ceiling is adequatel to respond to calls upon
it for extraordinary financing resulting from international
debt problems; and (3) if not, to estimate the level of
additional special resources C C may need to meet such
demands.
This analysis first descri es CCC's GSM-102 Export Credit
Guarantee program and its use hus far in response to inter-
national debt problems. It th n focuses on estimating (1) the
extent to which demands for CC guaranteed financing in FY
84 directly linked to debt pro lems can be acccomodated
within the existing FY 84 53.0 billion guarantee ceiling given
other program objectives; and 2) what additional resources
might be required. This paper is not intended to explore
legitimate goals and uses of C C guarantees beyond those
related to liquidity crises.
B. CCC Charter Authority
The primary purpose of CCC under its Charter is to 'sta-
bilize, support and protect fa m income and prices, assist
in maintenance of balanced and adequate supplies of agricul-
tural commodities and facilita a the orderly distribution
of agricultural commodities."
CCC's Charter places few r straints on CCC's activities
to promote agricultural export In providing CCC with
authority to provide credit to promote expcztc and aid in
the development of foreign mar ets"for U.S. agricultural ---
commodities, the CCC Charter gives it broad. powers to "deter- -
mine the character-of and the- ecessity?for-its-obligations
and expenditures and the manner in which they shall be
incurred, allowed and paid."
The Charter permits CCC ma imum flexibility to respond
to extraordinary situations, although statutory authority
establishing various CCC progr s (other than GSM-102) may
place limitations on their use.
Since CCC has exhausted its FY 1 83 guarantee authority, we
can assume that the FY 1983 ceiling is not adequate to meet
demands in response to debt proble s in the remaining two months
of FY 1983 without reprogramming o new authority.
I
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i i
1. Program Description
The primary role of GSM-
guarantee program, is to exp
products from the United Sta
as a replacement to the CCC
as part of an overall strate
agricultural trade on Federa
-role of private sector finan
nd Objectives
02, a commercial export credit
nd the demand for agricultural
es. The program was established
xport credit direct loan program
y to reduce the dependency of
Assistance and increase the
ing.
Operational since FY S1
- exporters of agricultural c
by the financing institution
small premium above LIBOR, o
Risk-sharing is an inte
protects the commercial qual
of the program. Participati
of principal and interest up
most recent 52-week Treasury
Mexico, has the coverage bee
The primary purpose of G
develop and maintain markets
in those countries where cre
GSM-102 is designed to assist U.S.
~modities in obtaining financing
~e years by providing a partial
Bering all risks, both commercial
rate on the credit is fixed
and is generally set at a
on occasion, U.S. Prime.
al feature of GSM-102 since it
ty and the financial integrity
g U.S. banks are expected to
The standard guarantee covers
p to eight percentage points
d to cover up to 100 percent
to the bond equivalent of the
bill auction average at~the
y two instances, Poland and
increased.)
SM-102 guarantee program is to
for U.S. agricultural exports
dit is necessary to make a
de in agriculture is usually
2 GSM-102 replaced GSM-101 Export Credit Assurance Program, operative
T979-1981, which only insured against non-commercial .risk.
3/ Only nations who have Most Fa red Nation status are considered
eligible (though countries not ac orded such treatment are not
legally precluded from participa ion). However, the Jackson-Vanik
_ amendment of the Trade Act of 1974 does apply.. Certain other
countries are barred by Executiv Order or Department of Commerce
regulations (e.g., Vietnam, Cuba )I.
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on a cash basis, GSM-102 is to geted to those countries
which (1) need financing to pu chase agricultural imports,
(2) need U.S. Government quara tees to secure commercial
financing of their imports, an (3) offer reasonable assurance
of repayment. GSM-102 guarant es are also intended to
provide U.S. exporters with th means to meet foreign compe-
tition financed with officiall supported credit.
GSM-102 is not generally intended for use by countries
460) is more appropriate; or ('
the program, would purchase U.
practice, this has meant that
belong to the middle and upper
corresponding to the Category
Countries which no longer fit
GNF requirements for P.L. 480
particularly appropriate as ar
financial position warrants "g
programs.
which, in the aosence of
. commodities for cash. In
~he recipients of GSM-102
ranks of the LDCs (roughly
I countries in the Arrangement).
he generally agreed per capita
financing are considered
countries whose improved
actuation" from food aid
In FY 83, GSM-102 guarantees were used as part of blended.
credit packages designed to coouunter subsidized competition.
2. Program Implementation
OMB sets an annual fiscal ear ceiling on the amount of
guarantees CCC can authorize nder GSM-102. Within that
ceiling, CCC has full respons'bility for developing individual
guarantee programs. USDA/FAS identifies countries which
offer the best opportunities or expanding U.S. agricultural
exports and meet the criteria mentioned above, e.g., market
development, foreign competition and creditworthiness. CCC
is not required to determine he allocation of its entire
guarantee authority (or a lar a percentage) at the beginning
of a fiscal year. Though a global 5~~d^,_*_, why^h sets priorit-
ies and estimates prtiobable an ual demands for. guarantees,
is prepared for internal use, authorizations are made
piecemeal throughout the year
In establishing annual pr gram levels, CCC does not
establish a country limitatio schedule. However, it does
place a ceiling on the cumula five exposure of individual
foreign banks (which are requ red by CCC to issue an irrevoc-
able letter of credit coverin the port value (F.O.B.) of
the commodity exported). In ffect, this sets an upper
boundary on the amount of gua antees that can be extended
to any one country, as well a CCC's exposure in that country.
However, CCC has discretion t increase these amounts by
(1) approving new banks; (2) rising the ceiling on already
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approved banks; (3) requestint
permits individual banks to e;
waiving bank limits entirely.
All proposed guarantee tr
and/or having a maturity over
National Advisory Council on
Financial Policies (NAC)4 cha
to ensure that each guarantee
cial and international econom
country meets standards of cr
terms of the transaction are
ing liquidity problems; (2) i
lines to these traditional cu
to accommodate such demands.
a government guarantee which
teed limitations; or (4)
nsactions above S4 million
360 days are. reviewed by the
nternational Monetary and
red by the Treasury Department,
is consistent with U.S. finan-
c objectives, that the recipient
ditworthiness, and that the
ppropriate.
ngs: (1) continued to authorize
102 customers .rho are experienc-
-- CCC authorized S1 bill
for Mexico in response to its
August 1982.5 Mexico, a majo
exports, had not previously u
to raise CCC's FY 83 guarante
since it could not be accommo
without foregoing other antic
Due to the nature and siz
exceeded the aggregate amount
banks could guarantee), CCC r
antee of the Mexican governme
refused to participate unless
on of three-year guarantees
severe liquidity crunch in
purchaser of U.S. agricultural
,ed CCC's programs. OMB agreed
ceiling by S1 billion
lated within the existing ceiling
pated aliocat;ons. _ _
of this-pragi:am-(S1 billion
of credit CCC-approved Mexican
quested and was given the guar-
~t. When the commercial banks
their risk was decreased, CCC
4 NAC mem ership consists of Trea ury, State, Commerce, Eximbank,
IDCA, the Federal Reserve and USTR.
5/ Mexico did not have an IMF prog am in place at the time, but
Mexican agreement to such a progra was expected shortly thereafter.
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I 1
agreed, as a special exceptic
of principal and the maximum
CCC authorized an additic
to Mexico for FY 83 and 5500
by Treasury to increase the 1
additional S500 million this
consideration.
-- In the fall of 1982, ~
guarantees as a portion of tl
-response to Yu oslavia's ser
part of a mu ti atera finan
=United States-and Yugoslavia
n, to guarantee 100 percent
eligible interest.6
nal $200 million of guarantees
million for FY 64. A.request
Y 83 amount to Mexico by an
fiscal year is currently under
CC authorized 5175 million of
e U.S. Government's financial
ous debt problems. This was
:ial pzckage put together by the
s other major creditor countries.
_- CCC increased-its..gua
this fiscal year. In the ca
Club rescheduling.
antes program to Peru and Brazil
e of Peru, CCC cont nued to
arantee line even after it
onpayment from commercial banks
s an3 Peru undertook a Paris
when these countries no long r had foreign exchange a a lable
to purchase U.S. agricultural exports.
-- A request for 5150 million of CCC guarantees for
fi
was approved for Nigeria.fo
IMF-supported adjustment pr
debt problems. Because the
nancial
riorating economic and
of only unlikely but also that
foreign policy reasons, ouL is
that Nigeria would receive no
a minimum-,. it-has: adopted an
C's guarantee program should be
CC's response to international
6 CCC as raised its guarantee
Principal coverage was increased
coverage was dropped to six perc
When banks refused to pick up so
allowed Poland to prepay its ung
transactions virtually risk-free
overage only one other time.
to 100 percent and interest
nt on.guarantee lines for Poland.
e of the guarantee line, CCC
~aranteed interest, making the
for the banks.
nnw~ CTf1FNTT AT.
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Ct31^3ST~2~'S"A
s
fay 4 ~a~
s~a~r~ t
~0
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ears es~ ; a~~~f'i t~e%,L _~I~ef could
-lead ~o explicit Congressional prohibitions. Moreover, extension
of Fund assistance to countries that are. not recipients of tradi-
tiortal U-:S'.' bilaterai`aid could undermine current U.5 development
policy (e.g. maturation/ graduation).
B. Military Assistance Programs
The Foreign Military Sales (FMS) credit programs are large
and growing. The interest rates are the cost of money to the
U.S. Treasury plus 1/8 percent. These relatively hard loan
terms, as well as the large and growing levels of debt incurred.
by many countries to buy military equipment, are an increasingly
significant part of the problem in some debtor countries.
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Section 1 of the Arms Export Control Act mandates that
activities undertaken under the Act should not cause undue
burden on recipient country economies. This mandate has been
used by the Executive Branch as the basis for seeking greater
concessionality in FMS programs, e.g. lower interest rates, longer
repayment periods, etc.
The security assistance of the United States and its friends
and allies will continue to require extention of FMS guarantees
and_credits,_as-well-as-Military Assistance Programs-(MAP},- To
the=extent-more-concessionality can be introduced in FMS programs
financed on relatively hard- loan- terms, it sfiaul.d. be actia~ea~--
- considered in a separate but-related exercise. _-----------
VI. Burdensharing--_- ,
Some countries_-`have more flexibility in responding to
debt problems in the methods in which relief can be offered,
as well as-the. timing of the response. Therefore, we are
gathering=-intelligence-on the programs available and the con-
strarots present.- ire-major foreign creditor countries,- in- order-
to-be in a stronger position-when negotiating-burdensharing --
options with other creditor countries.
A country's contribution should be viewed as a a total
package and-not segmented by .capital goods, agricultural goods,
etc:-;=3n an attempt to achieve: comparability on-a program-hy
program basis: In-some instances the United States may respond
with both Eximbank and CCC support, while in other instances,
solely-with one or the other,-but in any case it is the total
xelief-which is important.
Once-we=have a-better-understanding of the=?oreigil creditor
countries' debt relief capabilities and policies, the'SIG will
be-in-a better position to discuss and uecide on a burdensharing
formula to-apportion-debt relief responsibility,among:=the creditor
countries. Such a formula-could be based on, for example, a "'
combiaativn of-trade patterns-and-governmeni~bank exposare,-=--_-~=
Trade policy factors will have to be addressed in determining
a burdensharing formula. For example, if it makes more sense
for the United States to offer agricultural support to country
x, given our own comparative advantage, would we be putting our
share of the capital goods market in that country at risk by
allowing a foreign government to capture the market through
extraordinary financing? On the other hand;-there may be instances
of extraordinary financing when we would welcome .expanded financing
of manufactured goods by other countries and we would do our
share by financing agricultural goods.
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CONFIDENTIAL ~
VII. Conclusions
Hoth Eximbank and CCC programs should continue to be used
in extending extraordinary financing to respond to the LDC debt
crisis. The IMF cannot remedy the LDC debt crisis alone. Creditor
country governments and private financial institutions should
cooperate with the IMF in providing new credit to countries
seeking debt relief.
- - - -_ - - -
Capabilities and Constraints. Eximbank and CCC can provide-
extraordinary finance, either by using guarantee and insurance -
authority to establish Mexico-type lines of insured/guaranteed
credit;-or by=using=direct credit authority, which can each -
provide balance of payments benefits. Although both the direct
credit and guarantee mechanisms can be structured to provide
additional liquidity support, it is recommended that extraordinary
financing generally be delivered through special insurance faci-
Where the-Economic Support Fund (ESF) is used in countries
facii'tg=serious= debt-- problems,- there -are no obstacles- to using
it as-short-term, fast:disbnrsng assistance linked to policy
reform or IMF programs: Congress, however, may object to the
use of the Fund for debt relief. The Foreign Military Sales
programs, which are large and growing, have become part of the
debt problem in some debtor countries. The role of these credit
programs should be reviewed in a separate ,-but related exercise.
While Eximbank appears to have adequate guarantee/insurance
authority over the FY 83-84 period, CCC is facing budget restraints.
Eximbank has an estimated S7 billion in_excess program authority
over this period: S5 billion in guarantees (S2.0 billion in FY
83 and 53.0 billion in FY 84) and 52.0 billion in direct credits
(FY 83 only). If extraordinary direct credit financing is used-.
extensively, however, the Administration may have to seek supple-
. mental. direct credit authority_ in. FY 84.- LCi.'s ~ Z04, $3.O. billion
guarantee-ce-itng may=nat be adequate-to=me et anticipated--demands--
for extraordinary financing.. However, its specific-export.
financing program-budget level can be adjusted by Administration-
action. Rough estimates -- based on past years' experience and
projected demands from countries experiencing serious financial
problems -- indicate that extraordinary demand for CCC guarantees,
might be S2.4 billion, some portion of which could be accomodated
within CCC's current 53.0 billion ceiling.l5
15 OMB elieves that the substantial-excess capacity available '
in Eximbank's programs could be used to support agricultural
exports, thereby reducing demand for additional CCC authority.
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CONFIDENTIAL 1
Cost/Benefit. The major cost of using Eximbank and CCC
programs to offer debt relief is that it tends to undermine the
commercial nature of these programs. Moreover, unlike aid pro-
grams, both Eximbank and CCC must be satisfied that there is a
reasonable assurance of repayment before approving a transaction.
To ensure that the debtor country is taking steps to improve its
economic situation, thereby maximizing prospects for repayment,
the provision of these extraordinary financing facilities should
be linked to a number of explicit, but flexible conditions,
according to~ individual-country circumstances.-These: include: ---
--33}, The-government-of the-recipient.:eountry-should provide
-~ ==-its fitly-and-eredi~guaranteeY =---= --- _=-=- ----- - __ _ _
-'-32~k The facilities should be-specifically--linked'to-continued
__commer~ial bank financing and.might-be-uses as ah,incentive:
-- for commercial-banks to participate in their fair share in
t3)-__Other governments should provide new credits along-with
--=-the--increase--in-U-.S.- c[ed-its-,to- assure._equitaRle:sharini~:_ of
- --~ -
? the--financing burden,, _ "'--- "-~
(4) The new credits should be provided only to countries
with IMF stabilization programs and which stay in compliance
- with them. - - - - -
(5) Any pending or impending debt r'eschedulirg arrangements
would normally form an integral part of such.extraordinary-
financing. - - --
.-.-- The:. valor -benefits of- a coordinated: and ~ ccinprQhensive:: eztt3-
ordirrarg-f~na_ncing.arrangement,are-that it (1) assures-access to
credit,for.the debtor country so: it~cari continue to imporf priority
goads;_.(.2}_attracts additional commercial bank financing, and .
(.3~},assisf ---successful -implementation c_' 3o~^estfc sdjustmenX_~ r,T
. -. _.4 "c - o r -.. ._ -~-..-. _-. .-_._. tl" w
-.The Tr-igger and-,Shape-.of -the -Program. 3'T~e, tr_gger_._presump-
tion must-be that an IMF ad,~ustment program_is in_place, that its
condit_ionality requirements are-being met; or, if-not ,: that there
is an exceptional reason why not, and that extraordinary O.S. _
trade finance assistance is justified in the circumstances. -.
The shape of the extraordinary U.S.-assistance package
cannot be prejudged, but must reflect a decision on the specific
needs of the country-and the precise U.S. objectives for under-
taking the program.. They. could, for example, include announce-
ment of a program to reestablish financial market confidence,
to target assistance to specific debtor country industrial
product sectors, to provide vital agricultural inputs (su?h as
CONFIDENTIAL
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,. ~
CONFIDENTIAL
-42-
feedgrains or fertilizer), or to stimulate additionality in
overall commercial bank lending in harmony with an IMF program.
Reserve Fund. While it is true that the volume of risky
guarantee- s is-Ii~cely to increase in FY 84, there is no real advan-
tage for either Eximbank or CCC to create a reserve fund. When
Eximbank faces an extraordinary claims situation, as it did in
Mexico, claims would likely be put on the books as purchases of
assets, and have no impact on the Bank's capital-and reserves.
Any claims not booked-as purchases of assets can be-pa'id by
drawing on capital and reserves, which currently amount to almost
53.0 billion.=,Ultimate-claims recovery is difficult to estimate
and is-tied to-country-economic -improvement. For CCC, the "reserve
fund" is infinite since CCC has unlimited borrowing authority _ _
from Treasury. ..However, since CCC's outstanding borrowings-are
limited to S25 billion, pay-outs not written off as losses (i:e.,
Congress has not appropriated-new funds to-enable CCC to repay
Treasury) diminish CCC's borrowing ability for other purposes
mandated by CCC's Charter.
Claims arising from extraordinary ?inancing have a high-
probability of recovery, since they should be backed by the
full faith and credit guarantee of the debtor country. Special
reserve funds are a bit of a delusion, giving false comfort to
those facing the decision of whether or not the financing is
structured sous to provide a reasonable assurance of repayment.
Burdensharing. The U.S. Government is currently gathering
information about the capabilities and policies of foreign creditor
countries to give us a stronger position in negotiating burden-
sharing options with other creditors. Burdensharing formulas-
could, for exafnple,-be based on trade patterns or bank exposure,
taking trade policy issues into account..
CONFIDENTIAL
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