LETTER TO MAURICE ERNST (SANITIZED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00363R000100160005-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 3
• Document Creation Date: December 20, 2016
• Document Release Date: July 25, 2007
• Sequence Number: 5
• Publication Date: June 8, 1983
• Content Type: LETTER

Approved For Release 2007/07/25: CIA-RDP85M00363R000100160005-3
June 8, 1983
Mr. Maurice Ernst
N.I.O. - Economics
Central Intelligence Agency
Washington, D.C., 20505
Our meeting on Friday, June 3, concentrated on
Brazil and Nigeria, as you had requested. I thought
it would be most useful if you had an opportunity to
interact with staff people who are concerned
with those areas and hence arranged their presence at
lunch. It may be of interest, however, if I set forth
a few items here.
I. With regard to Brazil, I should reiterate
that the major banks plan to arrange a new loan and
the target figure is $3 billion. This would be de-
signed to:
a) make up part of the shortfall on interbank
deposits;
b) fill in any gap that mey arise as a result
of a smaller trade surplus than targeted; and
c) perhaps provide some funds toward Brazil's
1984 need (although it seems doubtful funds
would be available for this.)
The banks also would begin planning for resched--
uling debt principal due in 1984. Moreover, to accom-
plish the foregoing, a larger bank advisory committee
would be established, presumably including foreign
creditor banks as well as American. Even so, I agree
fully with the judgement that Brazil's position re-
mains highly uncertain, depending in part on political
developments as well as world economic recovery.
2. On Mexico, the feeling at the moment is too
euphoric. Progress has been realized, but the gains
will not be as great as the year unfolds or indeed in
1984. The reduction in government expenditures (which
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is helping Mexico meet its IMF target on the public
sector deficit) probably can not be maintained at the
same level, inasmuch as the cutback to some degree re-
flects the transition to the new government which has
not yet had time to put in place its own programs.
Similarly, imports are expected to rise from the ex-
tremely low volume of the first quarter, while exports,
dominated by oil, will not increase greatly. The cur-
rent account deficit in 1984 will be larger than in
1983. Meanwhile, inflation is exceeding the target and
may be as much as 100% for 1983. Without indexation
living standards are being squeezed and the basis laid
for political unrest. th the financial side, banks are
working on plans to convert private sector short-term
debt into longer maturities (6 to 8 years) in accor-
dance with the program announced by the government.
3. Perhaps I should repeat on Nigeria that short-
term arrears are estimated to be $6 billion, with about
half owed to banks and much of the rest trade paper
held by merchants and others. It is expected that the
banks will reschedule $1 1/2 billion or more for three
years and also provide a grace period on interest.
Nigeria also seeks about $200 million of new money.
As you heard, with the demand for oil picking up some-
what, the medium term outlook for Nigeria is not too
gloomy.
4. A plan for rescheduling Venezuela's public
sector debt due this year, as well as part of the 1984
debt, has now been presented. But the banks will in-
sist on some agreement between Venezuela and the IMF,
and this could cause trouble. Even if a compensatory
financing facility is arranged, the IMF is thought
likely to insist on some conditionality. Thus, it is
believed the IMF will seek a unification of the exist-
ing multiple exchange rate and that Venezuela will op-
pose this. Venezuela also is unlikely to agree to a
reduction in the public sector deficit of the magni-
tude believed necessary by the IMF. Meanwhile, the
banks are expected to extend the existing roll-over
on the debt for another 90 days and would probably ex-
tend it further if necessary. They will examine the
conditionality attached to any compensatory financing
arrangement, and if not satisfied may seek to have
Venezuela enter into a standby arrangement with the
Fund. All this will require time, so that the re-
scheduling may not occur until late this year.
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5. Chile is progressing better than, expected and
at this stage it appears the Country may be able to
meet the IMF targets in accordance with the revised
time-table. The $1.3 billion new loan is lining up,
but with regional bank participants laggards. They
are concerned about the political outlook. The re-
gionals also are reluctant to reschedule short-term
debt as is needed.
6:. Peru is faring less well at the moment. In-
flation is greatly exceeding the target and there is a
shortfall in oil revenue because of problems with the
pipeline. Peru seems unlikely to meet its IMF targets,
including the reduction of the public sector deficit
to 3.8% of GDP (from a revised 8.8% in 1982). The
$450 million of new money from foreign banks for 1983
has been oversubscribed. However, the weak link in
Peru's financing plan may be failixe to receive all
the refinancing of amortization and interest being
asked of the Paris Club ($340 million), socialist
countries ($125 million) and suppliers (amortization
of $70 million).
7. Columbia apparently is running into difficulty
as a result of a decline in exports, especially to
Venezuela and Ecuador, and will try to raise new money
through normal market channels. However, it is doubt-
ful that the market will be receptive under current
conditions. In such an event, the banks will form a
committee to arrange the financing effort.
8. The Philippines are current in debt service
and a number of banks have increased their exposure.
Improvement in commodity prices is helping the Philip-
pines. No rescheduling of debt is believed at this
time to be required.
Sincerely,
STA
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