PRESIDENT'S FOREIGN INTELLIGENCE ADVISORY BOARD ECONOMIC TASK FORCE REPORT 28 JANUARY 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00363R001102380033-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: November 4, 2010
• Sequence Number: 33
• Publication Date: January 28, 1983
• Content Type: REPORT

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R., . u
WASHINGTON
PRESIDENT'S FOREIGN INTELLIGENCE ADGISORY BOARD
Economic Task Force P.eport
28 January 1983
INTELLIGENCE IMPLICATIONS OF TN,.E INTERNATIONAL BA,ICiNG AND FINANCIAL PROBLEM
In PFIAB's experience during the last 10 years, we have faced no problem
as complicated and involving so many government agencies as that of the
current international financial crisis. The agencies involved in the decision-
making apparatus differ in their needs, interests, and backgrounds and
training, thus complicating enormously the intelligence requirements which
need to be met.
Although this report addresses the-intelligence implications which flow
from existing and impending international bank and financial problem, the
focus of the observations which follow is almost entirely on the particular
problems deriving from the inability of the Less Developed Countries.(LDCs)
to meet their debt obligations. Certain Soviet Bloc countries are also
experiencing economic difficulties. In some measure, the-findings and
recommendations in this report regarding LDCs are relevant to the countries
of Eastern Europe. Yet there are significant differences-w~Yich lead us to
conclude that our observations might be helpful if we restrict them~to a set
of nations which differ in one vital respect--their problems are not further
complicated by an institutional relationship with the Soviet Union.
The Treasury Department, the Federal P,eserve System, the Comptroller
of the Currenc3, and the agencies involved in assuring the safety of U.S.
banks view the debt 'repayment problems as overwhelmingly financial and banking
in nature.. ~ _
The Cammerce Department and Council of Economic Advisors (CEA) have
major concern with the economic impact of the repayment problems. The Commerce
Department, in particular, is concerned with the-impact on the U.S. economy
of reduced imports by debtor nations, the rising threat .of a protectionist
contagion, and the serious impediments these may present to the recovery and
growth of the U.S. economy.
The State Department and the Assistant to the President for P~ational
Security Affairs, while concerned with the facets of the problem already
mentioned, have another level of interest. Debtor nations may suffer political
consequences from their financial and trade difficulties as well as from
International Monetary Fund (IMF)-imposed austerity measures. Reduced imports
by particular debtor nations, significant contraction in government spending,
and imposed economic austerity are measures which threaten the stability of
the very nations already enfeebled by the economic events of the last several
years. Intelligence must be alert to all such disruptive developmants and
their consequences. To satisfy these U.S. policy needs, the Intelligence
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Community must be able to provide virtually continuous assessment of risks
that flow from measures intended to ir~.prove the liquidity of the debtor
nations. Unintended consequences of ostensibly helpful r.~easures may nudge
them from the financial .frying pan into the political fire.
There is virtual agreement among the government agencies involved that
the one major remedy to Lhe difficulties encountered by the major LDG debtors
is a resumption of significant economic growth by the U.S, and the other
major industrial nations. This increases the need for accurate, current
,economic projections and assessments in order to make those judgments as
useful to policy formation as is possible.
ANALYSIS OF T1iE CU?~RENT STATE OF INTELLIGENCE DIRECTED TO THE LDC DEBT
PROBLEMS, WITH RECO:~iENDATIONS FOR IMPROVELfENT
1. The possibility of international crisis places a premium on speed
and accuracy of intelligence acquisition. It also requires timely absorp-
tion of that intelligence by the policy-ma'~cing entities of government..
The tasking and monitoring of needed information and intelligence
involves a very wide .spectrum of government activity. These not only make
coordination absolutely essential, but also place a high gremium on the
continuous joint participation of the agencies involved.
These imperatives warrant the establishment of an active coordinating
~eechanism that will:
. ~_
?
a. be capable of~~centralizing the acquisition of financial
intelligence and making it available to those. who will have to act on it; and
b. be able to coordinate the active responses which particular
contingencies will require.
~`
W.e believe the SIG-IEP, which is chaired by the Secretary of the
Treasury-, prcvides the appropriate intergovernmental framework for this
.purpose. However, no Senior Interdepartmental Group, including SIG-IEP, is
designed to assure continuous and timely attention.
We therefore recommend that a small, full-time staff, representative
of the responsibilities of the various key agencies, be established to'serve
under the Secretary of SIG-IEP (who is also a key economic specialist on the
NSC staff) for the duration of the crisis period so that they may carry that
continuing responsibility needed to serve the Chairman and the members of the
Senior Interdepartmental Group.
2. An excellent cooperative relationship exists among the government
elements dealing with the financial aspects of the LDC debt. Inadequacies
remain:
a. essential data involving financial transactions, especially
the scope and direction of electronic bank flows, are incomplete; and
b. financial data are often months old.
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A Treasury Department study states the problem in stark terms:
"These is coon for :aassive improv2meat; we do not know who owes what to wt~o:n."
In ordeic to identify problems as they develop and b?fore they reach
crisis proportions, we recommend that data on total financial lending to
specific countries must be made available in a concise format and with minimum
time delay (reporting currently Lags up to sis months).
3. Among the many sources of information, one of the most important is
the Federal .Reserve System. While taking into account the need to preserve
the Fed's independence and integrity, we recommend that a means be devised
that will allow other members of the coordinating mechanism to have access to
the unique and valuable information acquired by the Fed.
We further recommend that a fully informed Fed staff member be a
regular participant in the functioning of the SIG-IEP or any other management
mechanism which may be established.
4. .In major U.S. missions overseas, much is lost because of lack of
cooperation between-the Financial Attache and the CIA economic specialist
assigned to those embassies. We urge that the Secretary of the Treasury and
the Director of Central Intelligence undertake to improve this relationship
in a manner that will enrich intelligence and not handicap the Financial
Attache. -
S. Although each major potential debt default may be successfully
averted, each success may have serious consequences to the U.S. and other
industrial economies. We urge that those often unintended consequences be
given adequate attention. ~?.
6. The CEA, a key participant in all areas of economic policymaking, is
not completely aware of and does not have full access to the complete
information resources available within the Intelligence Cor.~munity. This gap
is especially pronoq~ced in the international economic area where much critical
information is obtainable only. from intelligence sources.
CEA must strengthen its relationship with the Intelligence Community.
We recommend that a CEA staff member, with full clearances and access, should
be designated as liaison to the Intelligence Community and serve as a conduit
for.all.available intelligence material which. relates to the Council's .area
of responsibility.
~7. The"Treasury.Department, the Federal Reserve System, and a community
of agencies are concerned with the integrity of U.S. banking and with the
need to maintain confidence in U.S. banks.` The necessity to reinforce banking
confidence must not, however, be permitted.to skew the intelligence information
or analysis, or judgments which emanate from these agencies.
THE INTELLIGENCE CONTRIBUTION OF THE CIA AND RECONi-iENDATIONS FOR THE
Et.THANCEi?1ENT OF TF3AT CONTRIBUTION
The major reorganization of the C L~ analytic process initiated~hy the
f
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DCI more than a year ago is especially well-suited to meet the analytic needs
generated by the present "crisis." In addition, the creation of a new office
in the CIA, the Office of Global Issues with its Third World Issues Branch,
adds further to the structural capability needed.
1. The CIA does not presently have sufficient staff members with
backgrounds adequate to the requirements for sophisticated financial analysis,
Severe, perhaps insoluble difficulties exist in recruiting the kind of expert
financial personnel required to meet the CIA's needs durin; this period.
Although we are encouraged by the extent of the CIA's effort to benefit from
knowledge uniquely held by the private sector, still more effort is needed.
The CIA should make every effort to recruit additional competent
staff. In addition, in order to meet an overwhelming need to gain access to
the informed judgments available in the private community, we recommend that,
where possible, consulting arrangements should be made. Where not possible,
other cooperating relationships must be cultivated.
2. The Directorate of Intelligence has prepared a well-designed and
ambitious schedule of studies for completion by the end of the year. We iio
not recommend an arbitrary speeding up of the process. In our opinion, the
completion of able analysis in the fields projected within the time period
specified will itself be a significant accomplishment. A number of those
issues, however, have the potential to become major problems in the short term.
We recommend that CIA should closely monitor developments in the
areas for which analysis is. incomplete in order to be able ~o provide abrupt
assessment even as the sche~,ule of work progresses.
3. One of the major vulnerabilities of the intelligence-process in
dealing with the financial issues is that speed and .accuracy are required to
detect and react to specific indications of economic and political trouble.
.~ _
We recommend that the Intelligence Community devise a set of indica-
tions and warning criteria for economic and political issues which will alert
analysts and policymakers to developing or potential problems in particular ,
countries. To the extent that it is possible, we believe such a warning
mechanism should identify related and escalating contingencies in each of the
problem areas: international finance, banking, trade, economic, and political.
4. k'e had previously suggested that the political consequences which
may flow from the present situation may be potentially at least. as dangerous
as the financial aspects of the LDC problems. Much of-that intelligence and
virtually all of the useful analysis of it will depend on staff located in
Washington. Some, however, and by definition the most sensitive part, rest
on the political capability of the CIA within the problem countries. A recent
PFIAB study reached the conclusion that that capability in Mexico was deficient.
That study was conducted prior to the maturing of the debt problem in Mexico.
We recommend that the .political intelligence capability in each of
the problem geographic areas be reviewed to assure that needed information
will be forthcoming in an adequate. and timely fashion, especially since those
staffs now carry a more demanding intelligence role than has previously been
the case.
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5. Difficulties within the particular debtor nations a:e the object of
analytic concern. We believe, however, that largely neglected is the impact
of debtor country difficulty upon other less-developed countries with which
that debtor country maintains political or economic relations. We urge that
these and othzr secondary consequences engage the attention of the Co,.uaunity.
6. Two of the key government officials involved in the international
financial area have indicated to us the importance of timely forewarning of
the plans and intentions of foreign governments and financial ministries, as
well as their reactions to major economic events.
Relevant elements of the Intelligence Community must obtain complete,.
prompt, and authoritative knowledge of strategies concerning the management
of debt problems that are being contemplated or adopted by officials of the
major debt countries, acting alone .or in concert.
We close with three observations. First, we would like to commend the
Commerce Department's International Trade Administration for their active anti
thorough response to this challenging issue. They have taken the lead in
attempting to analyze and address some of the more difficult aspects of this
problem. Secondly,.DCI Casey's professional and governmental activities over
the years: have obviously .played a salutary role in redirecting the work of
the Community to more adequately meet the new critical economic intelligence
responsibilities. Finally,_we regret that the public cannot see the nature,
scope, and depth of the intelligence response to these problems. Within
weeks of the first evidence. of the LDC debt problem, the IriLelligence Community
was producing broad spectruei intelligence and analysis of exceedingly high
quality. In our opinion, a more widespread awareness would change the
distorted view of tie function of intelligence and persuade the skeptical of
its essentiality.
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