ATTACHED LETTER TO J. WILLIAM MIDDENDORF, II, DEPARTMENT OF STATE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00423R000400480007-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: March 27, 2009
• Sequence Number: 7
• Publication Date: November 9, 1984
• Content Type: MEMO

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 THE DIRECTOR OF
Approved For Release 2009/03/27 : CIA-RDP89B00423R000400480007-3
9 November 1984
FROM: David B. Low
NIO/AL
SUBJECT: Attached Letter to J. William
Middendorf, II, Department of
State
I received this letter, dated 16 October,
for action on 8 November. The Ambassador
requests the DCI's views prior to the next
OAS General Assembly, which begins Monday,
November 12 in Brasilia. Thus, to be timely
the attached should be signed and hand
delivered today.
 Approved For Release 2009/03/27 : CIA-RDP89B00423R000400480007-3 67' 9&79/I
The Honorable J. William Middendorf, II
Permanent Representative to Organization
of American States
U.S. Department of State
Washington, D. C. 20520
Dear Bill,
I read your letter of October 16, 1984 and the attached address on the'
private sector's role in Latin American development with great interest.
As you know, I concur strongly with the thrust of your comments.
I also have concluded that we have a "window of opportunity" at this
moment in history. And I, too, see a new willingness on the part of many
countries to face up to these issues. I have commissioned a study which I
expect to be completed during November on this very topic. In this study
we intend to develop the idea that there is good reason to believe that in
Third World countries the socialist model is increasingly being perceived
as having failed to generate real economic growth. There does indeed
appear to be a shift from the ideologically-inspired policies of the post-
colonial era to much more practical approaches.
The process of decolonization played into the hands of the socialist
countries. Many leaders of newly established Third World countries
perceived that the poverty of the Third World was either a legacy of the
colonial period or part of a continuing Western attempt to exploit the
.Third World through the capitalist international trading system. Moscow
exploited this feeling by offering an alternative which featured
centralized control and state domination, which was seen by LDC leaders as
essential. At the same time, much of Western developmental aid tended to
reinforce the value of central planning and the development of parastatals.
However, during the past decade the circumstances changed. The world
encountered tough economic times: two oil price hikes, two recessions,
higher interest rates, and massive debt. At the same time, other trends
began to develop:
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 -- A number of LDCs began to recognize that, in the context of
such external economic influences, LDC developmental policies,
with the emphasis on central planning, reduced incentives for
the farmer, etc., were not working.
-- Many LDCs began to realize that they had less global,
collective economic power than they perceived in the 1970s.
-- Expectations that the Soviets could provide economic
alternatives were reduced. Such countries as Cuba have
provided a dismal example of economic progress under Moscow's
tutelage. In addition, many LDCs have come to realize that
Communist countries provide only a meager amount of economic
aid and have been unable to provide significant alternative
markets for LDC goods.
Prospects for sizeable new amounts of Western foreign
assistance have dimmed, with aid increasingly going for
security assistance, humanitarian purposes and debt repayment. i
-- Continuing economic advances of many far East LDCs have
demonstrated that efficient domestic policies can overcome
adverse external economic circumstances.
Accordingly, we now see LDC governments increasingly willing to
contemplate and experiment with market-oriented approaches. Within certain
constraints, such as the need to maintain central government political
control, the private sector is being increasingly allowed to operate
independently. There are many examples of this, such as the one you noted
in Peru, but the most significant may be the PRC.
This changing climate presents significant economic opportunities for
the US:
to increase the promotion and development of small-scale
enterprises within LDCs and the acceptance of and adaptation
to new technologies, to enlarge the flow of foreign direct
investment, and to help state enterprises to become more
efficient and find ways to relinquish some functions to the
private sector; and
to strengthen its links with LDCs based upon a growing
mutuality of economic interest.
 These forces also have security implications. They should strengthen
the West's position in relation to that of the Soviet Union in LDCs.
Soviet domestic economic and foreign financial constraints over the next
ten years will make Moscow even less able to compete in non-military
sectors. Also, US security interests will often coincide with
opportunities for economic support, and security assistance can reinforce
the willingness of an LDC to make a change.
Personally, I am not convinced that the mechanisms necessary to take
advantage of these opportunities presently exist within the US Government.
Rather, I feel that some sort of legislative change will be required to
create the appropriate mechanisms to accomplish this critical task.
Needless to say, when we have completed our study we will share it
with you.
!s/ Bill
William J. Casey
Director of Central Intelligence
 Approved For Release 2009/03/27 : CIA-RDP89B00423R000400480007-3
SUBJECT: Letter to The Honorable J. William Middendorff II, Permanent
Representative to US Mission to the Organization of
American States from DCI
Original - A rdssee
1 - Executive Registry
1 - DCI
1 - DDCI
1 - Executive Director
1 - C/NIC
1 - VC/NIC
1 - NIO/LA
LODI Registry
1 - NIO/AL/DL
2 - NIO/AL/DL Files
 Approved For Release 2009/03/27 : CIA-RDP89B00423R000400480007-3 States Department of State
United States Permanent Mission to the
Organization of American States
Washington, D. C. 20520,
October 16, 1984 ' Executive P,eglstry
84.- 9579'
The economies of most Latin American countries have been in
a freefall. Despite some modest recent improvements in their
exports, primarily to the U.S. and helped along by our Pearran-
led recovery, as well as some indications of a very modest
resunntion of growth, full-recovery cannot be expected for
some time. Their debts are potentially overpowering and the
prosne-ts for early repayment without major capital infusions
are small. Furthermore, with these economies still being in
thr' doldrums, and with the people becoming restless, this
region, so strategically important to the United States,
remains a potential breeding ground for leftist adventurism.
All need not he lost. 'Their desperate capital needs can he
met -- not by more borrowing -- but rather by major infusions
of foreign direct investments, by reviving their relatively
dormant private sectors and by bringing into better balance the
private sector-public sector ratios now highly tilted toward
generally inefficient state enterprises. A fair number of the
countries owing the largest amounts of the $350 billions have,
nearly 75% of their Industrial production owned by the govern-
ment, with the energetic private sector being pushed aside.
Excessive printing of money, capital flight and, in some cases,
.corruption have been the result. As Senator Manuel Ulloa of
Peru has said, "Is it any wonder no one wants to invest in our
countries where.we.don't want to ourselves?" Just after World
War II, half of all U.S. investments overseas were in Latin
America - now only 5% of new investments, often bringing with
them needed technology and management skills, are going there.
Much of this, however, will require basic structural changes in
their economic approach, and as I travel in the region} I see a
y new willingness on the part of many countries to face up to
these issues.
Frankly, what is needed is a healthy dose of Feaganonics -
it works!
Durinq the week of Aunust 27-31, we had our Annual Meetinn
of the Inter-American Economic and Social. Council of the OAS in
Santiano, Chile. One of the matters we discussed was how to
promote a structural change in Latin America to bring about a
greater awareness of the political-economic benefits of a vital
private sector and a free market approach to the region's
economic problems. I strongly feel that a measure of success ` ter"
 in promoting this structural chancre could be the greatest legacy
leaders like you and those of us serving in positions which
influence economic thounht can leave to future generations. In
or.r Hemisphere at the present time, we have a "window" of oppor-
.tunity to stem the tide of socialist-statist philosophy and we
must take every opportunity to speak out against statist "non-
solutions" to the region's economic problems. These issues
directly effect our own.long term.survival in this hemisphere.
As Ben Franklin said, "We must all hang together or we will
surely all hang separately."
In the enclosed speech to the Chilean-American Chamber of
Commerce, I have directly confronted the sacred cows of the
Calvo Doctrine, Andean Pact Decision 721, and certain development
policies earlier inspired by Paul Prebisch, who himself has
modified many of his views, as Keynes did later in his life.
In this effort, the work of such researchers as Dr. Fernando de
Soto of Peru has provided us not only with valuable intellectual
ammunition, but also represents the spadework in preparing the
ground for a philosophical re-orientation in development
economics in T,atin America.
President Peanan addressed this o'hole issue in this speech
to the World Pank last month, calling for greater infusions of
foreirtn direct investments into a more hosnital investment
climate south of the border.
I hone that you, as a friend of the OMr, will find these
remarks of interest, and'we here at this Mission would very
much anpreoiate your input before we move to the next phase
in this battle in mid-November at our OAS General Assembly in
Rras,*lia. We need your help and counsel on this.
J. William Middendorf, II
Ambassador
Per'mmaar~ent Representative
Enclosure: As stated Oat at ? A
The Honorable
William Casey,
Director of CIA.
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