MEETING OF SENATOR MAJORITY LEADER SENATOR BAKER AND SENATOR MATHIAS WITH CENTRAL BANK PRESIDENT GARCIA VAZQUEZ

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90B01370R000801120007-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 2
• Document Creation Date: December 22, 2016
• Document Release Date: November 30, 2010
• Sequence Number: 7
• Publication Date: January 21, 1984
• Content Type: CABLE

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TOR: 2102392 JAN 84
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R 1915312 JAN 84
FM AMEMBASSY BUENOS AIRES
TG SECSTATE W45HDC 0138
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C O N F I DENT I A L BUENOS AIRES 00434
E.O. 1.356: DECL:OADR ~
TAGS: PREL, EFIN, AR, OREP (BAKER AND MATHIAS)
SUBJECT: MEETING OF SENATOR MAJORITY LEADER SENATOR
-- BAKER AND SENATOR MATHIAS WITH CENTRAL BANK
-- PRESIDENT GARCIA VAZOUEZ
2. THE FOLLOWING MESSAGE WAS CLEARED BY SENATORS BAKER
AND MATHIAS (LIMA 684 NDTAL).
3. IN A FRIENDLY ANp OPEN EXCHANGE AT THE CENTRAL BANK
ON JANUARY 14, CENTRAL BANK PRESIDENT GARCIA VA20UEZ
AND TWO SENIOR ECONOMISTS SOMMER AND GAGA DESCRIBED
ARGENTINE ECONOMIC PROBLEMS AND PROGRAMS AND RESPONDED
TO QUESTIONS FROM SENATOR BAKER AND SENATOR MATHIAS.
4. IN DESCRIBING THE PROGRAM TH-c SET OF TARGETS WHICH
HAS BEEN MENTIONED BEFORE TO THE EMBASSY AND TO THE
TREASURY AND FED WAS REPEATED:
-- REDUCTION OF THE GOVERNMENT SECTOR DEFICIT FROM
THE CURRENT 14 PERCENT TO 4 PERCENT BY THE END OF 1984;
-- SHARP REDUCTIONS IN THE MILITARY BUDGET WITH
INCREASES IN EXPENDITURES FOR HEALTH, EDUCATION AND
HOUSING;
-- MAJOR TAX INCREASES THROUGH BOTH NEW TAXES AND
IMPROVED COLLECTIONS;
-- AN INCREASE IN REAL WAGES (AT .LEAST AT THE LOWER
PAID LEVELS) OF 8 PERCENT DURING 1984;
-- GDP GROWTH IN 1984 OF ABOUT 5 PERCENT;
-- A TIGHT MONEY PROGRAM WITH POSITIVE REAL INTEREST
RATES FOR SAVERS, AND A REDUCTION OF THE VELOCITY OF
MONETARY CIRCULATION; DIRECTION OF CREDIT TO NEW
OR IN:.REASED PRODUCTION.
5. GARCIA VA20UEZ ADDED THAT IN THE PAST FEW MONTHS
THE DEFICIT HAS ACTUALLY BEEN A80VE 14 PERCENT BECAUSE
THE GOVERNMENT WAS NDT PAYING MANY BILLS AND HE SAID
THE DEBT WAS ALSO LARGER THAN HAD PREVIOUSLY BEEN
ANNOUNCED BECAUSE ADDITIONAL MILITARY DEBT HAD BEEN
FOUND.
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25X1
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6. ON THE BALANCE OF PAYMENTS, SOMMER SAID THE TRADE
SURPLUS FOR 1983, TAKING EXPORTS FOB AND IMPORTS CIF,
WOULD BE ABOUT 3.3 BILLION DOLLARS BUT INTEREST ON
THE DEBT WAS ABOUT 5.3 BILLION LEAVING 2.0 BILLION FOR
NEW FINANCING. BOTH EXPORTS AND SMPORTS ARE EXPECTED
TO INCREASE MOpESTLY IN 1984, BUT THE TRADE SURPLUS
SHOULD BE ABOUT THE SAME. TO GET REAL LONG-TERM GROWTH
GOING A GREATER INCREASE IN IMPORTS IS NEEDED BUT THAT
WOULD REQUIRE INCREASED NEW FINANCING. ARREARS AT THE
END OF 1983 wERE ABOUT 2.5 BILLION DOLLARS.
7. IN RESPONSE TO SENATOR BAKER'S QUESTIONS, IT WAS
EXPLAINED THAT THERE WERE THREE MARKETS FOR CREDIT IN
ARGENTINA. THE OFFICIAL MARKET IN THE BANKING SYSTEM
WAS CONTROLLED BY THE CENTRAL BANK AND IN 1983 OFFERED
NEGATIVE REAL INTEREST RATES BUT LITTLE NEW CREDIT.
THERE WAS AL50 A FREE MARKET OR INTERCOMPANY LOAN MAR-
KET IN WHICH INTEREST RATES WERE MUCH HIGHER AND
POSITIVE. FINALLY, THERE IS A SMU1Ll INDEXED SYSTEM
IN THE BANKING SYSTEM WHERE LOANS AND DEPOSITS ARE
INDEXED TO INFLATION OR TO THE DOLLAR.
8. GARCIA VAZQUEZ SAID IT IS AN IMPORTANT OBJECTIVE
OF THE ECONQMIIC TEAM TO END THE INDEXATION SYSTEM. AT
ANY RATE VARIOUS VARIABLES WILL BE INDEXED TO FUTURE,
NOT TO PAST, INFLATION AND A GRADUALLY REDUCING PATTERN
OF INFLATION SHOULD THEREBY BE ESTABLISHED WITH INFLA-
TION COMING DOWN FROM 10-11 PERCENT PER MONTH IN JANUARY
TO 9-10 IN FEBRUARY, ETC.
9. GARCIA VAZQUE2 COMPLAINED BITTERLY ABOUT CERTAIN
CHARGES LEVIED BY THE NEW YORK BANKS WHICH WERE 50
UNREASONABLE THAT THEY COULD NOT BE EXPLAINED TO THE
ARGENTINE CONGRESS. THE SENATORS POINTED OUT THAT US
LEGISLATION HAD ENCOURAGED US BANKERS TO BE MORE REA-
SONABLE ON CHARGES.
10. THE CENTRAL BANK PRESIDENT ALSO SAID THE ARGENTINES
HOPE TO DEVELOP SOME SCHEME IN WHICH PAYMENTS OF INTER-
EST AND PERHAPS EVENTUALLY PRINCIPAL ON THE DEBT WILL
BE REWTED TO EXPORT EARNINGS. UNDER SUCH A SCHEME,
WHEN EXPORT EARNINGS INCREASED, MDRE WOULD BE PAID TO
THE BANKS BUT, SHOULD EXPORT EARNINGS FALL, LESS PAY-
MENT WOULD 8E REQUIRED. THE SENATORS INDICATED TWIT
THEY THOUGFIT THE BANKS WOULD HAVE GREAT DIFFICULTY WITH
E.O. 12356: DECL:OADR
TAGS: PREL, EFIN, AR, OREP (BAKER AND MATHIAS)
SUBJECT: MEETING OF SENATOR MAJORITY LEADER SENATOR
SENATOR MATHIAS SAID THAT THE SENATE INT__ERNATIQ~~~AAI
MIC POLICY COMMITTEE, OF WHICH~'CfGCIRpA~-
1 11Vt
~,~AND BE HELPFUL IF IT COULD BE. SUG-
GESTED THE ARGENTINE AMBASSADOR IN WASHINGTON KEEP
THEM INFORMED. ORTI2
END OF MESSAGE
CONFIDENTIAL
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