June 19, 1976

TO: The Secretary

FROM: D - Charles W. Robinson

SUBJECT: Nine-Point Action Plan for International Aidto Zaire

We have drawn up and have commenced initiation ofthe attached nine-point action plan for mobilizingbroad international economic assistance for Zaire. Thisplan is adapted largely from an excellent memorandumprepared by AF and EB. I have also added severalspecifics, including measures to increase copper andagricultural production.

The action plan fixes responsibilities for eachstep. I am asking Schaufele to assume overallmanagement responsibility, in consultation with E, T,EB and AID, with Bill Rogers to arrange for periodicreviews of progress and problems.

Attachment:Nine-point action plan

cc: E - Mr. RogersAID - Mr. ParkerT - Mr. Maw

AF- Mr. Schaufele

D:RMPoats 6/18/76

ACTION PLAN: International Aid to Zaire

Objective

To organize a coordinated international effortto overcome Zaire's critical foreign exchange deficit,to establish the basis for early resumption of mediumand long term development, to increase assistance frommultilateral agencies and national aid donors, tomaximize Zairian self-help, to encourage privatefinancial institutions to restore both short andlonger term credits to Zaire, and to lay the ground-work for a later request to Congress for a possiblesupplemental authorization.

Background/Analysis

The rationale for the separate and interrelatedactions outlined below is contained in an AF-EBbriefing memorandum of June 11 on "Dealing with. Zaire'sFinancial Problems."

Since preparation of that memorandum, the ParisClub has concluded its meeting with an ad referendum agreement outlining the terms fora rescheduling program.The US was alone in entering . a reservation regardingthe plan to reschedule interest payments for 1977 untilwe are able to reexamine Zaire's economic prospectsin the fall. We also continue to have doubts aboutZaire's ability to meet the obligations it will assumeunder this agreement without the input of additionalresources by the donor states. The Paris Club didnot, unfortunately, make a serious effort to identifythe magnitude of the balance of payments (B/P) gapl

Two points not covered in the earlier memorandumconcern the ability of Zaire to maximize its long-termdevelopmental potential in the lagging mineral andagricultural production fields. Copper remains thekey to Zaire's developmental plans. Failure to arrestthe decline in copper production would render uselessall other economic assistance to Zaire. The immediatereasons why production may fall well short of 400,000 MTthis year (compared to an original IMF assumption of500,000 MT) are easily identifiable: shortage of or.failure to allocate required foreign exchange to importessential equipment and supplies (coal, fuel, chemicals,etc.), and transport bottlenecks. A collective

approach could help overcome these bott lenecks butmight also identify other ways in which the copperindustry could increase efficiency to take fulleradvantage of any increase in the price of copper.Both an immediate transfusion of cash and mediumterm investment measures are required.

The following actions, listed in rough sequence,represent a refinement of the program outlined inthe June 11 memorandum of AF and BB. They aredesigned to meet Zaire's immediate B/P problems andits longer-term developmental needs.

Action Sequence and Responsibility:

1. USG Recommendations to Mobutu: InstructAmbassador Cutler to outline to Mobutu and othersof the GOZ this action plan (outlined below), ourappraisal of the economic situation Zaire facesas brought out in the Paris Club meeting, and ourwillingness to encourage other countries to helpfill the resource gap if the Government of Zaireimproves its own economic performance. Specifically,Ambassador Cutler will urge President Mobutu to:

(a) ask the IMF to work with the GOZ in re-formulating the stabilization program to take intoaccount the substantial deterioration in the B/Foutlook, and

(b) request that the IBRD constitute theConsultative Group on aid to Zaire to deal with bothimmediate financial assistance and long-term .develop-men measures.

ACTION: AF with Embassy

2. Paris Club Rescheduling: Use the creditorclub to develop a better awareness on the part ofboth creditors and GOZ of the depth of Zaire's B/Pproblem and to coordinate economic performancecriteria established under the rescheduling agreementwith those under a revised IMF standby.

ACTION: EB/AF

3. USG Consultations with IMF: Assure tothe maximum extent possible that. and USG appraisals

of Zaire's economic situation are consistent;encourage IMF to be responsive to a GOZ requestthatanew stabilization agreement be negotiated,permitting it to draw both the first and secondtranches, within the context of stricter performancecriteria.

ACTION: AF, EB and Embassy

4. USG consultations with IBRD: DeputySecretary Robinson will urge McNamara to: (a)respond favorably to an anticipated request fromthe GOZ to reconstitute the Consultative Group;(b) include short-term B/P aid in the fund-raisingfunctions of the Consultative Group; (c) begin workpromptly with the IMF and GOZ on an assessment ofZaire's 1976-77 B/P deficit, as a basis for budgetary/parliamentary actions by donor countries and supplementalaid budget action by the USG; and (d) assist in long-term development planning (see 5 below). Departmentofficials will follow up with IBRD at the workinglevel.

ACTION: Deputy Secretary, AF and AID 5. Joint Emergency Measures to Restore Copper

Production: Urge GOZ and IMF to agree to earmarkall or substantial part of the pending first tranche($50 million) of the IMF standby credit to meet Gecaminesimmediate foreign exchange requirements. Simultaneously,assist the GOZ in employing an international groupof mining consultants to make urgent recommendationson technical and financial measures to raise copper.production and exports. Additional, medium-termfinancing might be raised by the sale of copper bondsguaranteed against political risk... OPIC and similarnational insurance agencies acting in tandem. (Thelatter approach would require consultation withexisting international creditors who look to Zaire'scopper earnings as the basis of their credit security.)

ACTION: AF with Embassy and IMF

6. Focus on Long: Term Development Priorities:In consultation with IBRD and GOZ, stimulate actionby IBRD staff to prepare an agenda and analyticalpapers for consideration and action at one of thefirst of the Consultative Group meetings, withconcentration on two key factors :

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(a) maximizing Zairian mineral productionand exports.

(b) reducing bottlenecks to early expansion ofagricultural and domestic marketing through anintegrated reform program derived from existingand additional expert analysis (e.g. AID-fundedagricultural sector survey).

ACTION: AID with AF

7. USG Bilateral Consultation with Donor Countries: Through use of an emissary and Embassyapproaches to host governments, make the case forexpanded assistance to Zaire and the need for betterZairian performance in . Ottawa, Brussels, Paris,London, Bonn, Tokyo, Jidda, Abu Dhabi, The Hague,Rome and Kuwait. We should take the opportunityto explain our views on the need for better co-ordination on longer term development assistance,specifically:

-- implementation of a major USG plannedagricultural sector survey.

-- major infrastructure needs.ACTION: AF

8. USG Promotion of AID to . Zaire in Multi-lateral Meetings: Incorporate talking points foruse by the Secretary in papers being prepared forthe OECD Ministerial meetings, the Puerto RicoSummit Conference and subsequent gatherings ofmajor country foreign and finance ministers.

ACTION: AF with EUR, C

9. Military Aid: Quite apart from the inter-national economic program, we should follow upthe Secretary's discussions in the security fieldby examining with the GOZ and very discreetly withselected European governments thepossibility of coordinating a multilateral military assistanceProgram for Zaire to supplement our bilateralefforts.

ACTION: AF, PM

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D:RMPoats:AF/C:TRBuchanan:AF/C:EMarks :sjc

CLEARANCE: EB/OMA-Mr. CroweAF - Mr. BlakeT - Mr. MawE - Mr. Frank