SOUTH AMERICA: GROWING OPPOSITION TO THE IMF

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000100350001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: January 21, 2010
• Sequence Number: 1
• Publication Date: July 16, 1985
• Content Type: REPORT

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
16 July 1985
South America: Growing Opposition To The IMF
Summary
Broadbased opposition to IMF-supported adjustment programs
is growing thoughout South America. Although we judge that
most South American debtors will agree to live with some kind
of Fund program over the near term, there is a risk that
Brazil, Argentina and Peru would seek out financial
alternatives--such as direct negotiation with creditors on a
"go it alone' strategy in a worst case scenario. Beyond the
immediate threat to debt repayments, a break by several of the
region's debtors with the Fund would undermine creditors'
willingness to provide continued financial support.
The Challenges to the IMF
As South America's debtors try to balance economic and political
realities, governments are increasing calling into question the utility of
rigid, IMF-supported adjustment programs. Based on a review of press and
diplomatic reporting anti-IMF sentiment is strongest in the Andean
countries. Peruvian President-elect Garcia has publicly indicated he will
bypass the Fund and negotiate directly with bankers. Colombian President
Betancur refuses to implement an IMF-supported stabilization program for
fear of the political consequences. Venezuela's Lusinchi has publicly
stated his pride at obtaining a multiyear rescheduling without IMF
conditions, thereby preserving Venezuela's "economic sovereignty."
Bolivia's President Siles has been adamant in his refusal to undertake a
Fund program, although Hugo Banzer, currently the leader in Bolivia's
This typescript memorandum was prepared for Mr. Ciro De Falco, Director
Office African and Latin American Analysis, South America Division.
ALA M 85-10077
State Dept. review completed
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presidential election race, indicates he will seek such a program.
Most of South America's other civilian presidents--the final arbiters
on debt policy--are generally taking tougher stances toward the IMF in the
face of popular demands for economic improvements but are continuing to 25X1
cooperate with the Fund on implementing stabilization programs:
According to the press) I Brazil's
Sarney feels increasing iwill toward the IM , which he describes
as "insensitive", but his financial team continues to negotiate for
a new agreement.
? Argentina's Alfonsin and Uruguay's Sanguinetti have recently
completed successful negotiations with the IMF but pushed hard for
and received more realistic targets.
0
Ecuadorean President Febres Cordero and Chile's Pinochet remain
publicly committed to their new IMF agreements.
Despite the willingness of most governments to cooperate, US Embassy
reports point to continuing difficulty in
meeting IMF performance criteria. Looking ahead, the principal challenges
to the stabilization programs, in our opinion, will come from an array of
domestic interest groups most affected by the adjustment measures and the
conflicting demands they make on the governments. Powerful labor unions
in Argentina and Uruguay for example are becoming strident in their
criticism of IMF recommendations that curb wage increases and raise the
cost of living by reducing consumer subsidies. Influential middle-class
constituents are questioning the advisability of IMF-recommended
adjustments that reduce living standards, slow economic growth, and
threaten social stability, according to public opinion polls. In Brazil,
for example, over half of those polled considered agreement with the IMF
harmful. The increasingly important democratic legislatures will likely
become more involved in financial matters; Brazil's Congress has already
served notice that it intends to scrutinize any new debt accords. Despite
their lack of influence, leftists--including radical factions in
Argentina, Brazil, Uruguay and Ecuador--are advocating repudiation of IMF
agreements to restore social spending and accelerate growth. Castro, in a
strat
hi
egy w
ch plays to public discontent, is strongly criticizing the
social costs imposed by IMF-supported economic stabilization programs.
In our judgment, government opposition to the IMF in South America
primarily reflects growing concern among Latin leaders about the political
costs of economic adjustment. These concerns are publicly manifest in
statements issued by the Cartagena group since 1984 appealing to the IMF
to ease its conditionality requirements to prevent political unrest in the
region. Although Latin debtors support easier terms, we have no evidence
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of the IMF's recommendations. Consequently, we believe most of the
that indicates that South American debtors are formally coordinating their
opposition to the IMF. F -1 25X1
Although we judge that most of the region's leaders recognize the
necessity of stabilization to retain the cooperation of creditors, they
also seem willing to take a tougher stand on the politically risky aspects
largest debtors will likely agree to new IMF programs but only after
several months of rancorous negotiations aimed at securing more lenient
performance targets. For example, while the Brazilian Central Bank and
Finance Ministry are negotiating seriously for a revised Fund agreement,
wrangling over the public
sector deficit, inflation figures, and elimination of subsidies will
impede quick Brazilian agreement on a revised program.
Financial Alternatives and the Consequences
If the Fund proves uncompromising in setting economic targets, we
believe there is a moderate chance that some South American debtors will
seek to bypass the IMF and negotiate directly with creditors.
o Brazil--which abrogated its 1962 Fund agreement--appears
increasingly unwilling to acquiesce to IMF demands for tough
austerity. If the Fund insists on measures Brasilia regards as
draconian in order to achieve a sharp cut in inflation, we judge
Sarney would abrogate relations and probably press foreign bankers
for a multiyear debt rescheduling without an IMF program.
o Argentina's self-sufficiency in food and fuel puts it in the
strongest position to repudiate its debt. If Buenos Aires's $4.2
billion foreign financial package falls through, it may again
consider plans to suspend interest oavments in an attempt to gain
A chance exists that one or more smaller debtors also may seek to "go
it alone." We believe that Peru will probably break relations with the
IMF temporarily and try to negotiate concessions directly with bankers, a
policy it attempted in 1976. We judge that Garcia's tougher line toward
the IMF is partially motivated by the need to gain domestic acquiescence
to additional belt-tightening measures. In that case, his tactic could
eventually set the stage for a self-imposed stabilization program
monitored by the Fund. More worrisome, however, is the prospect that
Garcia's anti-IMF stance could cause bankers to cease any new financial
support. If such a confrontation develops, we believe Lima will suspend
all commercial debt repayments and pursue oli achieving
economic and financial self-sufficiency.
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It is not only the debtor-IMF relationship that is in question. In
our judgment, commercial bankers may soon be forced to reassess their
partnership with the IMF. Should Brazil abrogate its agreement with the
Fund, we believe creditors may accede to a multiyear rescheduling but only
on the basis of a self-imposed stabilization program. We judge, however,
that Brasilia would encounter stiff banker resistance in putting together
any future new money facility, thereby remaining vulnerable to continuing
funding problems. On the basis of creditor reactions to date, we believe
several debtors breaking with Fund programs in quick succession would lead
to a near cessation of new credit to the region, which would immediately
strain repayment capabilities for many debtors. For the longer run, we
believe lending and repayment decisions would be more discretionary,
heightening both the potential for confrontation between creditors and
debtors and the risk of prolonged payments suspensions.
SECRET
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SUBJECT: South America: Growing Opposition To The IMF
Distribution:
1 - Ciro De Falco
Director Developing Nations Finance, Treasury
1 NIO/LA
1 NIC/AG
1 PDB Staff
1 C/DDI/PES
1 DDI/CPAS/ISS
1 D/ALA
2 ALA/PS
1 ALA Research Director
4 CPAS/IMC/CB
3 ALA/SAD
4 ALA/SAD/R 25X1
ALA/SAD/R
(16 July 1985)
S E C R E T
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