1. SUMMARY. TREASATT SAW BANK OF ITALY VICE DIRECTOR
GENERAL OSSOLA JANUARY 27 TO DISCUSS FOLLOWING POINTS:
(1) RESULTS OF WASHINGTON MEETINGS OF G-10 AND IMF AND
(2) PROSPECTS FOR FINANCING ITALY'S EXPECTED 1975 BALANCE
OF PAYMENTS DEFICIT. END SUMMARY.
2. COLOMBO AND CARLI STATEMENTS ON SOLIDARITY FUND. FIRST
OF ALL, OSSOLA SAID THAT HE AND BOI GOVERNOR CARLI WERE
CHAGRINED BY PRESS REPORTS OF SOME RECENT STATEMENTS
ATTRIBUTED TO TREASURY MINISTER COLOMBO AND GOVERNOR CARLI
WHICH CONTAINED CRITICAL COMMENTS ON PROPOSED OECD SOLIDARITY
FUND (REFS A AND B). OSSOLA REGRETTED THAT THESE STATEMENTS
HAD BEEN TAKEN OUT OF CONTEXT AND HAD CAUSED SOME DIFFICULTIES
FOR ITALIAN DELEGATION DURING WASHINGTON MEETINGS.
3. IMF OIL FACILITY. OSSOLA WAS QUITE PLEASED WITH
WASHINGTON COMPROMISE ON IMF OIL FACILITY. HE COMMENTED THAT,
NOTWITHSTANDING EARLIER MEETING OF BIG FIVE MINISTERS, G-10
DEPUTIES HAD HAD TO SPEND 4-1/2
HOURS IN NEGOTIATING AGREEMENT ON G-10 COMMUNIQUE. OSSOLA THOUGHT
THAT 5 BILLION SDR AMOUND WAS RATHER SMALL BUT MIGHT BE ENOUGH
WHEN COMBINED WITH OTHER IMF RESOURCES. ALSO, DESPITE STATEMENT
BY IRAQI GOVERNOR WHICH SEEMED TO FAVOR IMF OIL FACILITY AS LARGE
AS $12 BILLION, OSSOLA WONDERED WHETHER OIL PRODUCERS WOULD REALLY
BE PREPARED TO CONTRIBUTE MORE THAN FINAL 5 BILLION SDR FIGURE.
4. OECD SOLIDARITY FUND. OSSOLA WAS PLEASED THAT G-10
MINISTERS HAD AGREED NOT TO PLACE RIGID LIMIT ON DRAWING
RIGHTS UNDER PROPOSED SOLIDARITY FUND. WHILE AGREEMENT HAD
NOT YET BEEN REACHED ON SOURCE OF FINANCING FOR THIS FUND,
OSSOLA WAS INCLINED TO THINK THAT AGREEMENT WOULD BE REACHED
FOR DIRECT CONTRIBUTIONS BY MOST COUNTRIES, WITH OTHER
COUNTRIES (E.G., GERMANY) CONTRIBUTING GUARANTEES FOR BIS
BORROWINGS IN MARKET. ITALIAN HAD BEEN SOMEWHAT DISAPPOINTED
AT EMPHASIS PLACED ON "LAST RESORT" NATURE OF DRAWINGS FOR
SOLIDARITY FUND FOR FEAR THAT ANY COUNTRY RESORTING TO FUND
WOULD IMMEDIATELY BE CLASSED AS VERGING ON BANKRUPTCY.
HOWEVER, THEY UNDERSTOOD REASONS FOR STRESSING THIS ASPECT OF
FUND FROM POINT OF VIEW OF POTENTIAL CREDITOR COUNTRIES.
5. IMF QUOTAS. OSSOLA WAS PLEASED THAT INTERIM COMMITTEE
HAD BEEN ABLE TO AGREE TO 32.5 PERCENT INCREASE IN IMF
QUOTAS. HOWEVER, HE WAS SOMEWHAT CONCERNED ABOUT PROSPECTS
FOR ALLOCATING QUOTA CUTS AMONG DEVELOPED COUNTRIES. AT
WASHINGTON MEETINGS, US, JAPAN AND GERMANY HAD ALL INDICATED
THAT THEY DID NOT WISH ANY CUT IN THEIR QUOTAS AND DUTCH THOUGHT THAT THEY DESERVED SOME INCREASE, AS AN ENERGY
EXPORTER. IT WAS RATHER DIFFICULT TO SEE WHICH COUNTRIES
WOULD BE WILLING TO ACCEPT NECESSARY CUTS IN QUOTAS. OSSOLA
ACKNOWLEDGED THAT ITALY MIGHT BE ABLE TO ACCEPT MODEST
REDUCTION BUT IT WISHED TO PRESERVE ITS RIGHT TO CHOOSE
ITS OWN EXECUTIVE DIRECTOR.
6. GOLD. OSSOLA THOUGHT THAT SIGNIFICANT PROGRESS HAD BEEN
MADE ON FUTURE ROLE OF GOLD INCLUDING GENTLEMEN'S AGREEMENT
FOR INTERIM PERIOD AIMED AT AVOIDING NET INCREASES IN CENTRAL
BANK GOLD HOLDINGS. HE SAID THAT, WHILE FRENCH WOULD NOT
WANT TO OPENLY SUBSCRIBE TO SUCH AN AGREEMENT SO AS NOT TO
LOSE FACE, THEY WOULD VERY LIKELY ABIDE BY AGREEMENT, AS
HAD BEEN THE CASE WITH MARCH 1968 GOLD AGREEMENT.
7. FINANCING ITALY'S 1975 DEFICIT. OSSOLA SEEMED FAIRLY
OPTIMISTIC ABOUT ITALY'S ABILITY TO FINANCE ITS EXPECTED
1975 BLANCE OF PAYMENTS DEFICIT. HOWEVER, HE ACKNOWLEDGED
THAT THE BANK HAD NOT YET DRAWN UP A DETAILED FINANCING
PROGRAM FOR 1975. SOMEWHAT SURPRISINGLY, HE SAID THAT HE
WAS NOT IN FAVOR OF PROPOSED EC BORROWING FROM OIL PRODUCERS.
HE THOUGHT THAT THIS TECHNIQUE WAS INFERIOR TO BOTH IMF OIL
FACILITY AND TO SOLIDARITY FUND APPROACH. ITS WEAKNESS WAS
THAT CREDITORS WOULD KNOW WHICH COUNTRIES WERE TO BE ULTIMATE
BORROWERS. THIS COULD AFFECT TERMS OF LOAN AND HAVE
ADVERSE PSYCHOLOGICAL EFFECTS ON THESE BORROWERS. OSSOLA
THOUGHT THAT HE HAD DISCOURAGED GOVERNOR CARLI FROM THIS
SOURCE OF FINANCING, BUT RECOGNIZED THAT CARLI AND COLOMBO
HAD BOTH COMMITTED THEMSELVES, TO SOME EXTENT, TO USE OF
THIS FACILITY. PRESUMABLY SOME DECISION WOULD HAVE TO BE
MADE BY ITALIAN AUTHORITIES AS TO WHETHER OR NOT TO FORMALLY
ASK FOR EC BORROWING WHEN EC MINISTERS OF FINANCE CONVENED
ON FEBRUARY 17.
8. AS T USE OF EXPANDED IMF OIL FACILITY, OSSOLA NOTED
THAT IMF WAS CONTINUING TO USE DECLINE IN GROSS
RESERVES AS CRITERION OF ELIGIBILITY FOR BORROWING. BECAUSE
OF $2. BILLION GERMAN GOLD LOAN, BOI GROSS RESERVES WERE NOW
RATHER HIGH BUT OFFICIAL LIABILITIES WERE VERY LARGE AND
NET RESERVE POSITION WEAK. THEORETICALLY, ITALY MIGHT EVEN
BE ASKED TO MAKE REPAYMENTS ON 1974 OIL FACILITY DRAWINGS THIS YEAR. IN ANY CASE, OSSOLA INDICATED THAT ITALIANS SAW
IMF OIL FACILITY AS IMPORTANT POTENTIAL SOURCE OF ITALIAN
BORROWING IN 1975.
9. OSSOLA PROFESSED IGNORANCE ABOUT EXACT STATUS AND
PROSPECTS FOR DIRECT ITALAN BORROWING FROM IRAN AND SAUDI
ARABIA. HE SAID HE WAS NOT JUST BEING "RETICENT" BUT REALLY
DID NOT KNOW ABOUT THIS. HE PLANNED TO INQUIRE FURTHER
WITHIN BANK AND WITHIN GOI. HE HAD IMPRESSION THAT REPORTED
ADVANCE PAYMENTS OF $1. BILLION OR MORE FROM IRANIANS WAS
STILL ONLY VAGUE COMMITMENT (SEE REF C).
10. AS TO PROSPECTS FOR EUROMARKET BORROWING, OSSOLA SEEMED
TO CONTEMPLATE THAT 1972-1974 EUROMARKET TERM LOAN REPAYMENTS
WOULD BE MET ON SCHEDULE IN 1975. HE DID NOT COMPLETELY
EXCLUDE POSSIBILITY OF PARTIAL REFINANCING BY EUROBANKS, BUT
HAD EVIDENTLY NOT THOUGHT MUCH ABOUT THIS POSSIBILITY. HE
MENTIONED THAT $3 BILLION SWAP WITH FEDERAL RESERVE COULD
BE USED FOR "BRIDGE" FINANCING OF DEBT REPAYMENTS, IF THERE
WERE SHORT-TERM CASH FLOW PROBLEM. HE MENTIONED THAT BANK
OF ITALY MIGHT TERMINATE $500 MILLION SWAP LINE WITH BUNDESBANK,
SINCE SWAP WAS MAINLY FOR UNNECESSARY WINDOW DRESSING PURPOSES.
VOLPE
Source: https://www.wikileaks.org/plusd/cables/1975ROME01201_b.html
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