LATIN AMERICA'S PROSPECTS FOR MANAGING ITS INTERNATIONAL DEBT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP94T00766R000400080001-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 23, 2016
• Document Release Date: March 18, 2014
• Sequence Number: 1
• Publication Date: April 1, 1989
• Content Type: NIE

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WHITE KEY JUDGMENTS
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Declassified in Part - Sanitized Copy Approved for Release 2014/03/18: CIA-RDP94T00766R000400080001-9
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Latin America's Prospects
for Managing Its
International Debt
National Intelligence Estimate
Key Judgments
These Key Judgments represent the views
of the Director of Central Intelligence
with the advice and assistance of the
US Intelligence Community.
Sccrct
NIE 8019013-89W
April 1989
Copy 5Q
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The following intelligence organizations participated
in the preparation of these Key Judgments:
The Central Intelligence Agency
The Defense Intelligence Agency
The National Security Agency
The Bureau of Intelligence and Research, Department of State
The Office of Intelligence Support, Department of Treasury
also participating:
The Deputy Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The National Foreign Intelligence Board concurs,
except as noted in the text.
The full text of this National Intelligence Estimate is being published
separately with regular distribution.
Warning Notice
Intelligence Sources
or Methods Involved
(WNINTEL)
National Security Unauthorized Disclosure
Information Subject to Criminal Sanctions
Dissemination Control
Abbreviations
NOFORN (NF) Not releasable to foreign nationals
NOCONTRACT (NC) Not releasable to contractors or contractor/consultants
PROM (PR) Caution?proprietary information involved
ORCON (OC) Dissemination and extraction of information
controlled by originator
REL... This information has been authorized for release to...
WN WNINTEL?Intelligence sources or methods involved
STAT
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Key Judgments
This Estimate assesses the prospects over the next two years for managing
the debt of Latin America's largest borrowers. Since the Intelligence
Community last addressed the debt issue in NIE 80/90/3-85, economic
and social conditions have worsened in most Latin American countries.
Growth in the region has been insufficient to absorb new workers and meet
debt-servicing obligations. Living standards have deteriorated significantly,
and investment is too low for healthy economic development.
Efforts to link financing to economic reform have had only limited success,
mainly because the political commitment to reform in debtor countries has
been lacking. Latin leaders have acknowledged the need for change but
have been unwilling to challenge the entrenched interest groups that
have benefited from past policies. The stronger governments?Chile and
Mexico?have posted the best records. Some of the more recently restored
civilian governments?including Argentina and Peru?are less able to
form the consensus required to undertake tough reforms.
Throughout much of the region the ascendancy of populist leaders signals
significant economic policy shifts and increases the possibility for radical
action on the debt. Front-runners in coming Latin American elections are a
particular cause for concern. Some leaders, increasingly using the debt
issue as a scapegoat for economic mismanagement, unrealistically raise
public expectations at home by promising to restore economic health
through debt reduction?ignoring the long delays involved and, more
important, the fact that tough reforms are also needed for lasting economic
improvement. Others who have managed their economies more responsibly
have been unhappy with the lack of rewards from commercial creditors.
Debtors see the new initiative on international debt launched by US
Treasury Secretary Brady as a major step, but private creditors so far are
less enthusiastic. We expect difficult negotiations as creditors and debtors
seek to mold the Brady initiative into a working plan. From the Latin
American perspective, even if debt reduction occurs, a key element of the
plan will be the willingness of commercial banks to provide new funds to
support economic reform and to allow for improved economic conditions.
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We are concerned by the wide gap between the expectations of Latin
countries for debt reduction and new money and the willingness of
commercial banks to provide them. For countries such as Argentina,
Brazil, Ecuador, and Peru, where there is political uncertainty and an
unwillingness or an inability to undertake economic reform, commercial
banks will probably resist funding the Brady initiative.' In any case, we be-
lieve neither commercial lending nor the pace of reform will be sufficient to
improve social conditions significantly in these countries over the two-year
time frame of this Estimate.
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Despite the general populist shift among Latin governments, most leaders
still recognize that economic reform is necessary. We believe the pace of
reform will be dictated more by the strength and commitment of individual
governments than by the promise of new money or debt reduction and
external pressures such as IMF programs. We expect the current leaders of
Mexico, Colombia, and Chile will remain strongly committed to reforms
and they will most likely stay the course. Venezuela has undertaken
impressive reform in the few months that Perez has been in power, but
financial assistance and popular support for these efforts in the short term
probably will be needed for Caracas to stay on this path. Argentina, Brazil,
and Ecuador, in contrast, lack the political stability and consensus
necessary to undertake significant reforms, although their leaders would
like to move in that direction. The Government in Peru will probably have
to change before there is a credible commitment to reform. Because of
uncertain economic and political conditions, we expect capital flight to
remain a serious problem for most of the region. 25X1
Over the next several months, it remains unlikely that the Latin American
countries will collude to obtain more favorable terms. Nevertheless, if a
few countries such as Mexico obtain significant debt reduction, but others
do not, we foresee a sharp increase in the risk of a simultaneous?if not co-
ordinated?debt payment suspension by other debtors, notably Argentina
and Brazil. Argentina may well expand its payments suspension to include
official creditors, and Brazil may again declare a moratorium. In countries
that fail to qualify for debt reduction the consequent economic hardship
will add to internal political turmoil. Debt will be only a contributing factor
to the political problems within the Latin debtor countries, however, and
debt reduction will not be a panacea for their economic problems.
Reducing even large portions of the debt cannot ensure democracy or
stability.
' The Department of the Treasury disputes the grouping of Argentina, Brazil, Ecuador, and
Peru. It is too early to conclude that these countries will be unwilling or unable to
undertake economic reforms sufficient to attract new commercial bank lending.
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