TNAG-1942-FCO40-2768-Internal-economic-situation-in-Hong-Kong-1989 — Page 77

PERSONAL & CONFIDENTIAL

The Role of Governments and the IFIS

11.

away.

Nevertheless, the middle income debt problem will not go

At a recent meeting in the Treasury Nicholas Bayne explained why:

(a) the perception that a lot had been done for Africa, and it was now Latin America's turn;

(b) impending elections in many Latin American countries, the outcome of which might well be less well-disposed governments where debt was concerned. Carlos Andres Perez of Venezuela already intends to turn his inauguration into a "debt event".

(c) from the creditors' point of view, the increase in the public sector's share of middle income debt (see paragraph 10 of my letter of 14 November);

(d) the Japanese and French proposals (paragraphs 6-7 of my letter), and French intentions of claiming credit for new initiatives at this July's Paris Economic Summit;

(e) the probability of a policy review by the new US Administration, which would in any case come under pressure, as in the past, to do something for Mexico and other Latin Americans;

(E) tensions from time to time between the Fund and the world Bank over their respective roles in the debt strategy (see paragraph 11 of my last letter on Argentina).

We

12. It has to be said at once that we are not pressing for a major new British initiative on middle income debt reduction. do not have the locus in Latin America that we had in Africa. Our more modest objective is to persuade the Treasury, first, to devise a set of proposals that can be used in G7, Fund or Summit meetings to show that we are addressing the issue in a constructive way; and second, to avoid the Chancellor painting the UK publicly into the corner of outright resistance to each and every initiative that other western countries take. In practice, we all recognise that the US is the key player, and US views are still uncertain. Treasury officials have agreed not to block solutions at forthcoming international meetings, but to adopt a questioning and sceptical attitude. Presentationally, this is probably as much as we can hope for at this stage, given the Chancellor's known opposition to a role for the public sector in assisting the reduction of commercial bank debt. In substance, we and the Treasury are still quite far apart Treasury officials are by no means monolithic.

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though

13. The FCO has argued that debt reduction is not entirely unrequited if it increases the debtor's ability to repay the

SS1AKR

PERSONAL & CONFIDENTIAL