FOLLOWING ARE COMMENTS ON RANGE OF ISSUES LISTED IN
REFTEL. MATERIAL IN REPLY TO EACH SPECIFIC QUESTION
IS GROUPED UNDER SAME PARAGRAPH NUMBER AS THAT
ASSIGNED TO QUESTION IN REFTEL.
1. FRENCH EXCHANGE RATE POLICY UNDERWENT MAJOR
CHANGE IN JANUARY, WHEN FRANCE DECIDED WITHDRAW FROM
EUROPEAN MONETARY "SNAKE" AND ALLOW FRANC TO FLOAT
INDEPENDENTLY FOR PERIOD OF SIX MONTHS. PARIS 1654,
PARIS 1928, PARIS 1998, PARIS 2757, PARIS A-70, PARIS
3283, PARIS 3412, PARIS 3609 AND PARIS A-96 ARE ALL
ADDRESSED, EITHER WHOLLY OR IN PART, TO THIS DECISION,
ITS ORIGINS AND ITS LIKELY CONSEQUENCES. THERE IS
SOME AMBIGUITY IN FRENCH GOVT'S EXPLANATIONS OF WHAT IT HOPES TO ACCOMPLISH THROUGH INDEPENDENT FLAT. ON
THE ONE HAND, OFFICIAL SPOKESMEN HAVE STATED THAT
FLOAT WOULD PROMOTE HIGH PRIORITY OBJECTIVE OF MAXI-
MIZING EXPORTS; YET THIS RESULT COULD COME ABOUT ONLY
IF FLOAT LED TO SOME SIGNIFICANT DEGREE OF DEPRECI-
ATION OF FRENCH FRANC AGAINST CURRENCIES OF FRANCE'S
MAJOR TRADING PARTNERS. ON THE OTHER HAND, OFFICIAL
SPOKESMEN HAVE DENIED THAT FLOAT WAS DESIGNED TO BRING
ABOUT DISGUISED DEVALUATION OR ACHIEVE TRADE ADVANTAGE
THROUGH EXCHANGE RATE MANIPULATION. MOREOVER, THIS
POINT HAS BEEN MORE HEAVILY STRESSED THAN MATTER OF
EXPORTS, THUS, FRENCH SEEM TO BE SAYING THAT THEY
WOULD BE SATISIFIED WITH A RATE STRUCTURE FOR FLOATING
FRANC THAT WAS SIMILAR TO THE ONE PREVAILING ON EVE
OF FLOAT DECISION, PROVIDED THIS
STRUCTURE DID NOT HAVE TO BE MAINTAINED AT COST OF
HEAVY RESERVE LOSSES. INDEED, FINANCE MINISTER HAS,
IN SEVERAL RECENT PUBLIC STATEMENTS, POINTED WITH
SATISFACTION TO RECENT APPRECIATION OF FRANC AGAINST
DOLLAR. ONE IMPORTANT CONSIDERATION HERE IS THE
EFFECT SUCH APPRECIATION HAS OF HOLDING DOWN FRANC
VALUE OF DOLLAR-DENOMINATED OIL IMPORT BILL. ON THE
DOWNSIDE, BOTH FRENCH TREASURY AND BANK OF FRANCE
OFFICIALS HAVE INDICATED TO US AWARENESS THAT TOO
SHARP A DEPRECIATION OF FRANC WOULD PRODUCE POLITI-
CALLY, ECONOMICALLY AND SOCIALLY UNACCEPTABLE CONSE-
QUENCES IN FRANCE.
2. DEPARTURE OF FRENCH FROM "SNAKE" SIGNIFIES
THAT FRENCH AUTHORITIES ARE NOT WILLING, IN FACE OF
UNDERTAIN PAYMENTS OUTLOOK, TO GO ON SPENDING RESERVES
TO MAINTAIN PUBLICLY SPECIFIED FIXED RATE RELATION-
SHIP, EVEN BETWEEN FRANC AND LIMITED NUMBER OF
CURRENCIES. FINANCE MINISTER HAS STATED THAT THEY
WOULD INTERVENE, HOWEVER, TO MAINTAIN ORDERLY MARKET
CONDITIONS, AND DURING FIRST WEEK OF INDEPENDENT FLOAT
(JAN 21-25) THEY FED AN ESTIMATED $450 OR $500 MILLION
INTO MARKET FOR THAT PURPOSE. IF TRADE AND CURRENT
ACCOUNT DEFICITS DEVELOP IN 1974 ON SCALE NOW EXPECTED,
OFFICIAL INTERVENTION WILL DOUBTLESS BE NECESSARY FROM
TIME TO TIME TO ASSURE MARKET EQUILIBRIUM. FOR THIS, MONETARY AUTHORITIES WILL CERTAINLY DRAW FIRST UPON
"BORROWED RESERVES," SUCH AS PROCEEDS OF RECENT 1.5
BILLION EURO-DOLLAR BORROWING BY FRENCH TREASURY.
OUR GUESS -- BUT IT IS ONLY A GUESS -- WOULD BE THAT
FRANCE WOULD BE QUITE READY TO ABSORB SIGNIFICANT
AMOUNTS OF RESERVES TO ARREST ANY SUSTAINED UPWARD
MOVEMENT OF FRANC, ESPECIALLY BEARING IN MIND SUB-
STANTIAL RESERVE LOSSES THEY HAVE SUFFERED SINCE
MID-1973 RESERVE PEAK (ABOUT $3.3 BILLION). IN
MONTHLY TV APPEARANCE IN MID-FEB, FINANCE MINISTERY
SAID THAT BANK OF FRANCE HAD BOUGHT ABOUT $60 MILLION
DURING LAST WEEK OF JAN AND FIRST HALF OF FEB. (SEE
ALSO PARAGRAPH 1 ABOVE.)
3. ALTHOUGH FINANCE MINISTER HAS SPOKEN
PUBLICLY AT GREAT LENGTH ON SEVERAL OCCASIONS IN
RECENT WEEKS ABOUT VARIOUS ASPECTS OF C-20
NEGOTIATIONS, WE DO NOT BELIEVE HE HAS EVEN TOUCHED ON
QUESTION OF INTERNATIONAL RULES FOR FLOATING. FRENCH
TREASURY DIRECTOR (WHO IS ALSO FRENCH C-20 DEPUTY)
HAS TOLD US PRIVATELY THAT DESPITE DECISION TO FLOAT
FRANC, FRENCH HOLD TO THEIR LONGSTANDING POSITION
THAT MONETARY REFORM SHOULD PROVIDE FOR MAXIMUM DEGREE
OF RATE STABILITY, WITH MINIMUM EMPHASIS ON FLOATING.
ON ACCASION OF THIS DISCUSSION, WE TRIED TO GET HIM
TO INDICATE FRENCH THINKING ABOUT WHAT WOULD BE APPRO-
PRIATE RULES FOR FLOATING, BUT HE DUCKED. THIS
PROBABLY MEANS THAT FRENCH HAVE NOT YET HAMMERED OUT
ANY WELL-DEFINED POSITION ON THE MATTER.
4. FRENCH MONETARY POLICY IS VERY TIGHT AND
LIKELY TO REMAIN SO FOR SOME TIME. FIRST, MONETARY
POLICY IS ONE OF PRINCIPAL INSTRUMENTS OF FRENCH
ANTI-INFLATIONARY PROGRAM. SECOND, FRENCH HOPE THAT
BY MAINTAINING TIGHT MONEY AND HIGH INTEREST RATES
IN FRANCE, THEY CAN ATTRACT CAPITAL INFLOWS TO HELP
OFFSET ANTICIPATED CURRENT ACCOUNT DEFICIT (SEE
PARIS A-70). THESE STRINGENT MONETARY CONDITIONS MAY
WELL SPUR FRENCH INDUSTRY TO LOOK FOR FUNDS OUTSIDE
FRANCE. HOWEVER, WE BELIEVE MAJOR PORTION OF EXTERNAL
BORROWING WILL BE ACCOMPLISHED THROUGH DIRECT ACTIONS
OF FRENCH TREASURY. THIS IS CASE OF 1.5 BILLION EURO-
DOLLAR BORROWING THAT HAS ALREADY TAKEN PLACE.
TREASURY IS ALSO "COUNSELING" LARGE NATIONALIZED ENTER-
PRISES TO BORROW ABROAD. DELOUVIER, HEAD OF ELECTRICITE
DE FRANCE, RECENTLY TOLD US THAT TREASURY WAS SO PRESS-
ING EDF, AND YESTERDAY IT WAS ANNOUNCED THAT EDF IS
CONTRACTING 500 MILLION EURO-DOLLAR BANK LOAN WITH
CONDITIONS VERY SIMILAR TO RECENT TREASURY OPERATION.
NATIONAL TELECOMMUNICATIONS FUND, WHICH FINANCES EXPAN-
SION OF FRENCH TELEPHONE NETWORK, AND SNCF (RAILROADS) ARE BOTH SEEKING TO FLOAT IN U.S. MARKET BOND ISSUES
CARRYING FRENCH GOVT GUARANTEE. APPARENTLY, ONE QUES-
TION WHICH THESE PROSPECTIVE BORROWERS HAVE RAISED
WITH FRENCH AUTHORITIES IS PROTECTION AGAINST EXCHANGE
RISKS ON THESE DOLLAR-DENOMINATED LIABILITIES.
5. REFERENCES CITED IN PARAGRAPH 1 ABOVE CONTAIN
CONSIDERABLE MATERIAL RE FRENCH POSITION ON GOLD.
IN ADDITION, SEE PARIS 29343, PARIS 29366 AND PARIS
30004 FOR VIEWS EXPRESSED BY FRENCH OFFICIALS FOLLOW-
ING LAST NOVEMBER'S DECISION TO TERMINATE 1968 WASH-
INGTON GOLD AGREEMENT.
6. ON CONCRETE STEPS TAKEN OR CONTEMPLATED TO
REDUCE IMPACT OF OIL PRICE RISE ON CURRENCY AND TRADE
RELATIONSHIPS, FLOAT AND EXTERNAL BORROWING ARE DIS-
CUSSED ABOVE. IN ADDITION, FRENCH HAVE MADE OVERTURES
TO A NUMBER OF OIL -EXPORTING COUNTRIES WITH A VIEW TO
WORKING OUT BILATERAL DEALS WITH THEM. AS EXPLAINED
TO US BY DIRECTOR OF ECONOMIC AFFAIRS, MFA, PURPOSE OF
THESE EFFORTS IS NOT TO NAIL DOWN OIL SUPPLIES, BUT
RATHER TO SELL GOODS IN ORDER TO HELP PAY FOR OIL
(PARA 7, PARIS 4181). WITH EXCEPTION OF NEAR-TERM
CONTRACT WITH SAUDI ARABIA (30 MILLION TONS OVER
THREE YEARS), THESE ARRANGEMENTS ARE ALL STILL IN THE
"IN PRINCIPLE" STAGE. MOREOVER, THERE ARE REPORTS
THAT FINANCE MINISTER DISCARD D'ESTAING IS UNHAPPY
ABOUT BILATERAL APPROACH PUSHED BY FOREIGN MINISTER
JOBERT. GISCARD SUPPOSEDLY FEARS IT COULD COMMIT
TO BUYING OIL OVER CONSIDERABLE PERIOD AT
UNREASONABLE PRICES. SECOND, PRIME MINISTER HAS AN-
NOUNCED NEW STEPS WILL BE TAKEN IN MARCH TO ECONOMIZE
FRENCH CONSUMPTION OF ENERGY. FINALLY, FINANCE
MINISTER HAS SEVERAL TIMES SAID HE WOULD ANNOUNCE IN
LATE WINTER OR EARLY SPRING SERIES OF MEASURES TO
STIMULATE EXPORTS. SO FAR, ONLY STEP MENTIONED OFFI-
CIALLY IS SOME IMPROVEMENT IN EXPORT CREDIT INSURANCE
MECHANISM. PRESS REPORTS SAY THAT FINANCE MINISTRY
IS ALSO STUDYING POSSIBILITY OF ACCELERATED DEPRECI-
TION ALLOWANCE FOR FIRMS THAT ACHIEVE SPECIFIED EXPORT TARGETS. ON TRADE PROMOTION FRONT, MINISTER HAS SAID
IN SEVERAL RECENT PUBLIC STATEMENTS THAT IN ADDITION
TO MARKET OF OIL PRODUCERS, FRANCE SHOULD MAKE SPECIAL
EFFORT TO IMPROVE ITS POSITION IN U.S. AND OTHER NORTH
AMERICAN MARKETS AND IN MARKETS OF OTHER COUNTRIES
THAT ARE LARGE-SCALE EXPORTERS OF PRIMARY PRODUCTS.
7. IN THEIR NUMEROUS PUBLIC PRONOUNCEMENTS RE
INCIDENCE OF OIL PRICES ON WORLD PAYMENTS SITUATION,
FRENCH OFFICIAL SPOKESMEN HAVE CURIOUSLY NOT ADDRESSED
QUESTION OF RECYCLING OIL REVENUES AND SPECIAL FINAN-
CIAL ARRANGEMENTS TO MITIGATE IMPACT OF INCREASED OIL
PRICES ON LDCS. REPORT CIRCULATING IN PARIS AT TIME
OF C-20 MINISTERIAL MEETING IN ROME WERE TO EFFECT
THAT FINANCE MINISTER GISCARD D'ESTAING KEPT QUIET
DURING C-20 DISCUSSION OF THESE TOPICS.
IRWIN
Source: https://www.wikileaks.org/plusd/cables/1974PARIS04616_b.html
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