ARGENTINA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000500040001-4
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: June 28, 2010
• Sequence Number: 1
• Publication Date: October 18, 1983
• Content Type: REPORT

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OGI International Financial Situation Report #21
18 October 1983
ALA/SAD/R/
ARGENTINA
Buenos Aires suffered a major setback in its efforts to
resolve its debt problems last month. On 27 September, a
federal judge in a remote province declared the rescheduling
agreement for the state airline--a model for future
reschedulings and a prerequisite for immediate loan
disbursements--illegal citing violations of national
sovereignty. The judge's actions, which included the temporary
arrest and questioning of the central bank president, threw a
scare into international lenders. They also caused a delay in
disbursement of a $1.5 billion commercial bank medium-term
loan, necessary to repay a bridge loan arranged last
December. Although the Bignone government moved rapidly to
overturn the judge's ruling, the blow to banker confidence
increased pressure to delay further reschedulings until members
of the new government to be elected on 30 October can be
Meanwhile the Argentine economic team is struggling to
avert liquidity problems. The traditional fourth quarter
decline in exports is straining Buenos Aires' ability to meet
cash obligations. With its earnings slowed, Buenos Aires had
to draw down foreign reserves to near $200 million to bring
bank interest payments current as of 30 September required to
included in discussions with bankers.
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meet banker demands. The IMF, however, continues to withhold
some $320 million in standby funds, refusing to waive technical
issues, and will likely withhold a similar amount coming
available in late November. In turn, private banks are holding
up their loan disbursements because of Fund delays and the
government's postponement of a repayment against a $1.1 billion
bridge loan. Without the long-delayed IMF and bank funds,
Buenos Aires lacks the cash to satisfy banker demands.
We expect little progess in Argentina's debt talks in the
next month. there may still be a
disbursement of $500 million before the elections. Lenders
plan to revive talks with a newly-elected civilian government,
which may assume power as early as 5 December. If the new
regime--occupied with domestic affairs--is reluctant to move
rapidly to satisfy banker demands and come to an understanding
with the IMF, further payments extensions will be required and
Argentina may not see additional flows of foreign exchange
before February of next year.
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BRAZIL
Prospects for concluding an IMF accord recently have been
jeopardized by a rebellious Brazilian Congress that has
threatened to repeal a key wage restraint law (2045) which
limits wage hikes to 80 percent of the consumer price index.
According to the US Embassy, a rising tide of public protest
if against the wage law coupled with congressional rejection in
late September of a different but analogous decree have raised
the likelihood that a similar fate will befall decree-law
2045. Despite the congressional setback and strong prevailing
popular resentment against the policy dictates of the IMF, the
administration is mobilizing to meet its commitment to
legislate wage restraint. According to another US Embassy
report, decree-law 2045 will be withdrawn and replaced by a
broad-ranging new decree-law which covers virtually the gamut
of economic policy. The replacement would include wage control
provisions that would balance out essentially the same as 2045
but fall heavier on the upper income brackets than on those in
the lowest wage catagories. The government party has been
given a prominent role in seeking to negotiate such a broad
policy decree, has the power to keep the main lines of its wage
policy intact and, according to the US Embassy, will do so.
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Any delay in enacting the wage decree-law will also hinder
Brasilia's ability to obtain the an additional $16.5 billion in
loans that has been tentatively committed by international
creditors to meet its foreign financing through 1984. This new
arrangement includes: (a) an agreement by the foreign bank
advisory committee for $6.5 billion in new loans as well as
$5.5 billion of 1984 principal reschedulings; (b) tentative
pledges of $2 billion in rescheduled debt for foreign
governments in the Paris Club; and (c) $2.5 billion in loan
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guarantees from foreign official export credit agencies.
Moreover, the foreign bank financing package for the first time
offered Brazil some concessions on loan terms, perhaps auguring
additional debt relief needed to relax external constraints.
however, getting
commitments from many of the more than 800 Brazilian commercial
bank creditors will be extremely difficult. Many European and
Japanese banks believe that they are being asked to contribute
too much compared to assistance rendered by US banks and the US
Government.
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COLOMBIA
Despite difficulty in securing foreign funds in 1983,
Bogota is launching a major fund-raising drive for over $3
billion to finance development projects over the next four
years. The request for these funds will be presented at the
Consultative Group meeting in Paris from 17-19 October.
bankers remain concerned about increasing their
exposure in Colombia. They cite growing delays in meeting
payments and rapid foreign exchange drawdowns auguring the
possibility that Colombia will join other South American
countries in rescheduling its external debt under IMF auspices
next year. A failure to obtain credit for the development
projects would heighten prospects for a debt rescheduling in
coming months, and undermine Colombia's longer-term economic
development prospects.
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At present levels of spending, Caracas will
decisions on retrenchment.
run an estimated 5 percent deficit next year confronting the
new administration taking office in early 1984 with tough
grace period on the repayment of public debt principal.
Caracas is belatedly taking steps to clear past due
payments, another contentious issue with the IMF. Last month,
Venezuela's Council of Ministers established a committee which
would allow the Central Bank to release dollars at the
preferential rate for $400-600 million in overdue interest
payments on private debt. Because of this move, the bankers
have given Caracas another 30-day deferral on the repayment of
public debt principal. Bankers have stipulated that all
interest arrearages on private debt must be brought current by
31 October if Venezuela expects to receive an additional 90-day
This move, however, has not stilled criticism of the
6 government's handling of the current financial crisis. The
presence of Central Bank representatives on the committee and
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the requirement for vote unanimity in determining business
eligibility for preferential exchange rates has raised concern
about a frequent Central Bank veto. Businessmen fear a
continuation of the present administration's bias against
settling private obligations quickly and continued difficulty
in securing trade credits necessary to ensure vital imported
supplies. In the closing weeks of the campaign for December's
presidential election, this issue is taking on political
overtones. The national labor confederation and even the
governing party's presidential candidate Rafael Caldera are
openly siding with the private sector, while only the leftist
political parties are supporting the government on this
issue. The victorious candidate will need to accomodate the
private sector demands for the subsidized exchange rate if he
is to avoid strong criticism.
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