debtor threatens not to pay off and then the creditor
threatens to go to court and seize assets. Both threats are
dangerous because if the debtor defaults completely it will
lose so much standing in the international trading system that
its own economy will be severely damaged. If the creditor goes
to court there is certainly less collateral available for him
to seize than is owed to him in interest. And even a reduced
interest payment will be more than he can get in court. But as
things now stand, all it takes is one nervous bank president
to try and teach Brazil or Mexico a lesson and you have a huge
crisis.<

Once it's in an American court, it's almost impossible to
get it out. The government cannot go to the court and say
"Let's forget about this." So once it's in the court we have
a horrible mess; you will start seizing American assets, and
then we will be in a terrible situation. I think the interest
issue should be settled and very soon.<

As to new money, as I said before an international fund
should be created, capitalized at, say, $30 billion over five
or ten years, with half coming from the governments of
industrial democracies, one-quarter from banks, and
one-quarter from international institutions. Now $30 billion
may sound like a lot, but the banks are already lending more
than $7.5 billion just for interest payments. If $15 billion
is divided among industrial democracies, the United States
might have to contribute, say, $4 billion, but between Israel
and Egypt we already give more than that and Latin America is
at least as important to us as Israel and Egypt. What is
needed is imagination.<

Q: May I assume that in your opinion, multilateral institutions, like the International Monetary Fund or the World Bank, are definitely out of such broad solutions of the deficit crisis?<

A: You understand that I am speaking as a private citizen.
None of this reflects our government's view, nor does it
reflect the views of the banks.

The multilateral institutions are not necessarily out
altogether. But a small action committee will have to be
created to give the fund I outlined new impetus and to
distinguish it as a new effort to promote growth. Now, can the
IMF and the World Bank be used? I know this is a big issue in
Brazil and my personal view is that the question of the
IMF is for Brazil to decide, but I do not believe there is
anything magic about the IMF.<

The IMF got involved so that the banks could have an
excuse to lend new money because a third party had looked at
the program. The trouble is that the IMF was designed for
short-term emergencies, not for a permanent crisis.<

In a short-term emergency, you can make technical proposals
and they will either be accepted or not. But if they are
accepted, the government concerned looks at them as an
investment. A year later, the IMF is out of the picture.<

Q: At the economic summit in Venice, the industrialized
nations strongly supported the idea of a case-by-case approach
to the debt crisis in the framework of the existing

multilateral institutions. Are you prescribing a fundamental
change of strategy?<

A: Within the framework I outlined, you can still have a
case-by-case approach. You should make sums available not by
quota but tied to some economic achievement. If you do it by
quota, you will make a lot of terrible loans for purely
political reasons. I think the World Bank is better suited for
development projects than the IMF. But I think the economic
summit was a little bit behind the times. A new approach is
needed.<

Q: Would your international fund control the expenditures
of local governments?<

A: No. In the end, you cannot have international
institutions impose solutions on governments. The ideal would
be a negotiated solution in which governments state what their
objectives are so that you have some criteria to judge whether
they are fulfilled. In the Marshall Plan this did not turn out
to be a serious problem.<

Q: The Marshall Plan was a recovery program. In that plan
you had, not loans, but grants, as well as social programs.
And was there not in the Marshall plan a great intervention by
the United States?<

A: Some intervention is unavoidable. The question is
whether it reflects the wishes of the people affected. And
investment in social programs should be possible. The Marshall
Plan created counterpart funds so that repayments in local
currency were at the disposal of the local governments,
bringing about two funds with which to work. It seems to me
that if a decision is made to be creative about growing, then
formulas can be found to take care of these concerns. I think
the banks have not been unreasonable, but you can't expect
banks to conduct foreign policy. The banks have actually made
many concessions in terms of their profit, but they are not
political institutions, they are profit-making institutions.
I think one would need a very flexible approach to this issue.<

Q: I think that your program is too flexible. Don't you
need a promise to make investments as a counterpart?
Otherwise, I will take the money and spend it where I want to
because I am a sovereign state.<

A: It has to be negotiated. There has to be some agreed
program. Nobody gets free money in this world. The question is
whether reasonable people in Brazil can say this is really a
good program for economic growth. There may not be unanimity,
but Brazilians should be able to live with it.<

Q: Is not the American Congress a problem in this?<

A: At this moment, there is little support in our government
and no support in our country. But one has to ask what is the
duty of a political leader? I believe the political leader has
the duty to take his society from the familiar to where it has
not been. Too many leaders of democracies take public opinion
polls to see what people will support. The public opinion polls
will never support a proposal such as this. People will ask why
you should give money to Brazil when you have farm foreclosures
in the Middle West. But if there is a catastrophe, and five
years from now all of Latin America is anti-free market and

anti-United States, everybody will blame the government anyway,
even if it was carrying out the popular view. So the first
thing you need is an Administration dedication to this.
Then the way things work in America, one would create some sort
of committee to work on public opinion of leading citizens.
That, incidentally, is possible. I know enough leading
Americans who would have great prestige as members of a
committee that would support my ideas. That's the easiest
part.<

Q: Would you serve on such a committee? <

A: Absolutely. Then you have to convince the Congress. That
is not going to be at all easy. But when you look around the
Congress today, there are a number of good people, people like
Sen. Bill Bradley of New Jersey, for example, and you could
get ten or fifteen leaders from both parties to support this.
It would be a very bitter fight, harder than the Marshall Plan
because America has become more isolationist. Then the
political relations between the Latin American countries and
the United States would have to be also taken into account.
Quite frankly -- and Brazil is the least guilty of this
-- if these countries are entirely Third World and oppose
everything the United States does politically, it creates a
very difficult atmosphere. I'm not saying they have to support
everything but there has to be an attitude that we are living
in the same world, discussing common problems.<

Q: What are the solutions to America's debt problem, the farmers' problem and the United States deficit problem?<

A: America's problems have many similarities to Brazil's problems. We have consumed too much and we cannot solve our problems without reducing consumption. We have a very tricky period ahead of us. At the moment, our economy is flat, and yet everybody agrees that taxes should be raised to decrease the deficit. But if we raise taxes at the wrong moment with a flat economy we could go into a recession. If we go into a recession, it affects our ability to import and it affects your ability to export because we take 60% of the export of developing countries. We have a national debt of upwards of $2.3 trillion and that means spending nearly $200 billion a year on interest. Our trade deficit is in the range of $150 billion to $160 billion and we have to turn around our trade balance and go into surplus by that amount. To do that we must either import less or export a lot more. We have big problems ahead in the United States, independent of the problems we have been discussing. I pity the next president of the United States. He's got huge problems.<

Q: You have stressed the need for growth. Can you imagine headlines next Nov. 13, which is a Friday, that would talk of a trade war among Japan, Germany and the United States; another saying Congress had imposed more tariffs; and a third saying Brazil is near default?<

A: That could happen but it is unlikely. We are living in a
precarious world in which a lot of governments -- ours, maybe
yours -- have been avoiding difficult decisions because there's
always an election somewhere and they always have a tendency to
let the next man handle it. It could happen. If it does, it

would represent a total failure of Western leadership that
would lead to a huge crisis in all our countries. I think it is
my duty as an outsider to talk about a future we can achieve,
which is within our capabilities. If you ask me, (ital) will
(unital) it happen, well, you know, in Brazil, everybody tells
me that the Besser plan [drafted by Finance Minister Luiz
Carlos Besser of Brazil] can work only if everybody cooperates,
including the United States.<

Q: Would your plan apply to the Socialist countries that are debtors?<

A: Not as I see it because that probably cannot be done domestically. On a case-by-case basis, one can make special arrangements, but if you make it all-inclusive, which countries would be debtors?<

Q: What you are describing is a world crisis. Will it include the Soviet Union?<

A: Yes, but with the Soviet Union we have a difference. First of all, I have very serious doubts that the Soviet Union can solve its domestic problems without some structural changes. You cannot have a totally planned economy because you get such collusion between the politicians and the managers that you have no incentive for high technology, no incentive for quality and you have total confusion about demand. It is a supply-driven economy. The manager becomes a politician, not an entrepreneur. And so they need structural changes. Now, should we help them if they make structural changes? Yes, if they change their foreign policy to be less aggressive. But if all we're doing is financing their military establishment indirectly by freeing resources, then it becomes a very grave foreign policy question. I have always favored support for China, for example, which is not conducting an aggressive foreign policy. So I believe that if we could come to a political understanding with the Soviet Union about restraint in foreign policy, there could also be an economic component.<

Q: In a recent article for Newsweek, you said reform is in the air in the Soviet Union, but the purpose of that reform is not to achieve democracy or freedom and that even if the reform program does succeed, it does not automatically guarantee a more benign Soviet foreign policy. Is that not too pessimistic.?<

A: If the Soviet Union conducts the same foreign policy, it will then be stronger. Everybody talks as if Gorbachev wants to change the communist system. If you have spent all your career in an organization which you joined voluntarily and in which promotion is by accommodation at each level, is it probable that you want to change that system? Why is it necessarily true that a richer Soviet Union will be easier to deal with? Soviet foreign policy does not change. Look at the current situation. Moscow is spending $3 billion to $4 billion a year in Cuba. It is spending $1 billion in Nicaragua and another $1 billion in Angola. It is spending $3 billion to $4 billion in Vietnam and I don't know how much in Afghanistan. We're talking about $10 billion to $15 billion on foreign adventures in countries where Russia has had no historic interest and in which its major role is military. It isn't

contributing to the development of these countries.<

So I'm not asking for the Soviet Union to do anything except stay in its own territory, which is so large that there are eleven time zones. The distance from Leningrad to Vladivostok is greater than the distance from Vladivostok to Seattle, or from Leningrad to New York. I even accept the fact that in Eastern Europe they have special security concerns that we should respect. But there is no law of nature that they have to be active in Central America and Angola and always in a military manner. That is what has to be ended.<

Q: Are the recent proposals from Mr. Gorbachev concerning the arms talks and reduction on short-range and middle-range missiles a change in his foreign policy or is the Soviet Union preparing a trap?<

A: I believe that the present proposals, unfortunately, are objectively a trap. They do not improve the military situation in any significant way but they are creating in western Europe a new form of anti-Americanism and neutralism. You have been in Germany. You know what it has done to the CDU (Christian Democratic Party) in Germany. When the CDU starts questioning, then the Socialists move further to the neutralist side. So we have paid a huge price in the internal structure of German politics for a minimum gain. Now, what makes it worse is that Gorbachev accepted our proposal, so you can't really blame Gorbachev. It's a pity because Gorbachev is a highly intelligent man and the new leaders are more flexible than any I have seen. I wish we had a fundamental dialogue with them. I don't know what the answer would be if we had a fundamental dialogue or whether it would succeed. But you cannot tell from the present position what his ultimate objectives are in foreign policy. And I would like to see it tested; it would be interesting.<

Q: This situation leads to the combination of world politics and world economy. Would your plan enlist, let us say, world politics and democracy and serve the same function as the Marshall Plan?<

A: As I said before, it is the duty of leaders to set the course, even if they should fail. But it may be easier to do one big thing than ten little things because if you do a lot of little things, you exhaust your energy in endless technical discussions, which is one of my concerns with these arms control proposals. I don't think there are two hundred people in America who understand the numbers being discussed in arms control and I don't know how many people in Brazil can follow them. It's become an esoteric subject for experts on which experts are divided. So it's much better to have a big political objective. Now, is it possible to enlist the Third World? Yes, that's the point of the exercise, to make at least the responsible developing countries feel that they are part of the system. They don't have to agree with every direction. But they have to feel that they are living in a world in which they can benefit from progress, not in a divided world in which only one group dictates policy. When you look at history, the periods that have been peaceful have been those in which the major countries felt that they had more to gain from

7.

maintaining the system than overthrowing it. That didn't mean they wouldn't make adjustments.<

You can't have every last country agree. But if the major countries agree, and I would include Brazil as a major country, each of them has enough influence on other countries, so that the vast majority of countries will then agree. In Europe in the 19th century, when there was more or less peace, and progress, I don't know any country that was so dissatisfied that it preferred to go to war.<

Q: And the situation in the Middle East?<

A: It is unprecedented that you have to conduct foreign policy with 150 nations simultaneously. You have to set some priorities and it's obviously easier for the United States to do that in the Western hemisphere. But I don't think you can solve the problems in the Middle East with this sort of a plan because in the Middle East you have Moslem fundamentalists, you have Arabs and Israelis, you have the Soviets, you have every current conflict coming together. So I don't think there is an economic plan that can solve the Middle East problem. I believe the world will be regionalized in the next fifteen or twenty years and that the United States should give very high priority to the Western hemisphere, not to the exclusion of all other countries, but still a high priority.<

Q: Your idea is regarded as radical because, as you stated, the United States is in a highly nationalistic mood and its attention is on the Far East, not Latin America.<

A: But that's a purely commercial thing. I mean, what structure can be built in the Pacific? Of course, the Pacific becomes very important, but if the Western Hemisphere, particularly Mexico, were to blow up, our frontier would be on the Rio Grande and you would quickly see America gather resources for the challenge from both the Atlantic and the Pacific. But the art of foreign policy is to do things before they are critical.<

Q: I assume other countries such as Japan and Germany would contribute to your international fund. But based on the standing of the banks and the surpluses of various countries, it would seem that Japan must contribute more than the United States and so must Germany. Is that possible without a reform of the international monetary system?<

A: One of the problems is that the international political system and the international economic system are essentially out of balance with each other. The flexible exchange system isn't working and we need something along the lines of Bretton Woods but brought up to date because economic conditions have changed so much since the 1940s. That will require the industrial democracies to get together and I hope that at some economic summit they do something besides taking photographs and a successor to Bretton Woods will be a good topic for them. I don't think the existing arrangements are very satisfactory.<

Q: Many, many commentators are very concerned with the relationship between economic stabilization and military intervention in politics in Latin America, which is one of the main historical characteristics of the subcontinent. Could

your fund help avoid the military's coming back to power in huge countries like Brazil and Argentina?<

A: I have a personal preference for democracy. I would far prefer democratic governments and I think there should be a bias toward democratic governments. Still, I am very leary of the United States getting mixed up in the domestic politics of every country in the world which we don't understand.<

Q: You would break your traditions?<

A: Not my personal traditions. I think we have enough trouble conducting our own foreign policy. Essentially, whether the military comes back to control government or not, depends on how strong the democratic tradition is in the country concerned. If the economy is well off and if a democratic government has achieved that, democracy will be strengthened and in that sense I favor it. What I don't like is the United States mixing, either on the left or on the right, in the day-to-day political management of countries because we don't understand it well enough.<

Q: If you regionalize the international politics of the United States, would not the economic issues compel you to intervene against leftists, against anti-market policies?<

A: I believe that we should oppose governments that cause us trouble in foreign policy, that's where our interest is. I think recent history shows that planned economies cannot work because they lead to stagnation. That's not an ideological preference, that is what experience shows. I was struck when I was last in the Soviet Union by the fact that when the Soviet leaders from Gorbachev down, explained their economy to us they were critical of a state enterprise managing, colluding with, the ministers. They can't even find out what the real statistics are and they have no market to tell them what is happening because they have no incentive for innovation. So in this sense I think you need a market economy and you need incentives. But Japan and Korea have shown that with the right relationship between the government and the private sector you can have an industrial policy that is very creative and which does not exclude the government. Now, of course, when you start moving funds around you are intervening. But what I oppose is management of political affairs in foreign countries by the United States on behalf of either the right or the left. I don't think we understand these countries well enough to manage their domestic affairs.<

Q: In the Conference of Mexico in 1973, the New Dialogue meeting in Tlatelolco, you asked the Latin American countries to enact statutes for trans-national companies in ways that would not affect the international policies of the United States.<

A: In the end, the largest amount of free capital is in the multinational companies, more so than in government. With all due respect, I have not understood the Latin American concern on this issue because I think the strongest multinational company is less strong politically than the weakest government. Any smart multinational company must want to coexist with local political conditions, so I have always felt that multinational companies are a lot safer to have in a country

than government loans. They have to be profit oriented, and if
they're profit oriented, their operations have to benefit the
country where they are, if the country has sensible
legislation. What I had in mind then was to set up some code
that would make operating conditions in the hemisphere
predictable so that more funds would be available for
investment in Latin America. I would have absolute no objection
to a code that prohibits multinationals from interfering in
political affairs. I think that would be desirable. My personal
view is that if a multinational company is smart, it will not
risk itself on politics. And my experience with chief executive
officers of companies has been that they don't understand
politics anyway.<

Q: Do you believe that we have a big enough economic or
political crisis to justify a summit meeting between the
developing nations to discuss this kind of fund?<

A: I know some serious people who support the idea. The
crisis is severe enough, but I don't think one should call such
a conference unless one is sure of the outcome. It would be
better to have no conference than to have a conference which
leads to disappointing results.<

Q: Do you believe you have enough support from the
countries in Latin America to discuss this issue or do you
still need more support?<

A: Well the countries I know best are Mexico, Brazil, and
Argentina. I think it would be possible with those three
countries to do it. I think the other countries would then
join.<

Q: Have you discussed the idea of this plan with [Brazilian]
President Jose Sarney?<

A: Yes, I mentioned it. But I have taken the position that
if the Brazilian leaders to whom I spoke want to say what we
discussed they are perfectly free to do it but I don't think I
should come to Brasilia and then hold press conferences about
what your leaders have said to me.<

Q: What kind of impression of Brazil have you formed? And
if you could elaborate, what impression do you have on the
political prospects of Argentina and Mexico? Do you think
these three big countries, which are at the same time the
three biggest indebted countries, are on the brink of
political turmoil or do you see a brighter future?<

A: I actually will leave with a more optimistic feeling
about Brazil than I had when I arrived. You have huge
problems, but when I have listened to Brazilian leaders talk
to each other, I had the sense that there is nobody who would
rather defeat his political enemies than make progress for
Brazil. There is an atmosphere here that I find very
seductive. One important question is whether the Besser plan
will succeed. It has a chance. And as long as it keeps getting
adjusted, I don't believe that there will be social chaos
here.<

There is a danger here but if I had to bet, I would bet
that you will solve it in the peculiarly Brazilian manner.
Brazil is working its way through its difficulties and becoming
more responsible. How that is done I don't quite understand,

but it happens. So on the whole I am very optimistic. I think Alfonsin has done a lot for Argentina and De la Madrid has been very responsible. Now each country has huge social problems. Is it possible that one of them will explode? Yes it is possible. That's why we have to act, to give some hope. But I think we have basically good governments now in the key countries.<

Q: Do you think that the big companies, which are getting bigger and bigger, or the small companies will be the most important part of the world economy?<

A: Well, among the established companies in the United States, there is an unfortunate tendency toward merging and fiscal operations which absorb too much of the talent in unproductive enterprises and so there is a tendency for them to become bigger. But if you look in the areas of innovation, in the high-tech industries, there has been a lot of room for smaller companies and some of the most creative work has been done by the smaller companies. I believe that the high-tech area is the area of the greatest promise. I think there's a great future for medium-sized companies that have a lot of imagination. That was certainly true in the previous days of the technological revolution. But among the existing companies there is, in the United States at least, a tendency toward mergers, not all of which are favorable.<

Q: The Marshall Plan was an initiative of your government. Who would take the initiative on your plan?<

A: That has to be done by the United States, Japan and the European community. An American president could preside over it, but he would have to consult with the European communities and, of course, many other governments. But it can be done. In fact, I think it will be done. The only question is will it be done in time or will it come too late. And, of course, without it, there will be a systemic crisis and that's why I don't want it perceived as an act of charity or as an act of unilateral self-interest. The big problem is to create an international system which, hopefully, will engage the whole of whole of humanity, but certainly the majority of humanity and that is a problem that must be solved. If it isn't solved, there will be constant conflict.

Q: Thank you very much.

(CAUTION: This material is strictly embargoed. Its use is authorized
only by subscribers of the HENRY KISSINGER column. With the exception
of these paid subscribers, its contents must not under any
circumstances be quoted, excerpted, summarized, paraphrased, or in any
way published, in whole or in part. Precautions should be taken to
prevent the disclosure of the contents of this material to third
parties prior to publication.)

Kissinger interview with O Estado De Sao Paulo and Jornal Do Brasil, conducted on June 24, 1987, in Sao Paulo, Brazil, by Oliveira S. Ferrara, Robert Appy, and Celso Ming of O Estado and William Waack of Jornal Do Brasil.

HENRY KISSINGER

For release Sunday, July 5, 1987

By Henry Kissinger

(c) 1987, Los Angeles Times Syndicate

Q: We would like to start with your plan for dealing with the problem of debt in Latin American countries.

A: Fundamentally what is needed in the Western hemisphere is economic growth. The United States needs growth in Latin America, too, because recessions in developing countries reduce America's export potential. So philosophically, I would like to change the debate from how much interest on debt we can extract in each year to how much these countries can grow.

Let's take Brazil. It is impossible for Brazil to service its debt when that service consumes such a large percentage of its export income and of its gross national product and when all the new money it gets has to be repaid in the form of interest. So we are in a complicated period of what you could call interest capitalization, lending new money that then comes back in the form of interest, all the time making debt go up. The debt service must be made more predictable and more sustainable and for this reason I have suggested that we set an interest ceiling on debt, say 6% related to the growth rate of Brazil. Hopefully, the interest rate will be more or less the same as the growth rate.

Then we have the problem of how to bridge the difference between 6% and the market rate. The best approach is to establish an international fund to which the banks contribute one-quarter, international institutions one-quarter and governments one-half. Or each could contribute one-third. The banks would not get the full benefit of interest because of their own contribution, but at least then there would be an international system. The governments have a stake in keeping the interest rates low because that reduces their own need to contribute. In this manner we can have a system by which a sustainable interest rate is paid over a predictable future and by which we can avoid confrontation.

It's very important to avoid these confrontations for two reasons. They create a very bad psychological and political framework. It is a bad thing for developing countries to begin to think of themselves as mere exporters of capital. The methodology of the confrontations is dangerous because the debtor threatens not to pay off and then the

07:59 06.06.87

FROM 7914

ISSINGER 7/05/87

PAGE 2

creditor threatens to go to court and seize assets. Both threats are
angero us because if the debtor defaults completely it will lose so
uch standing in the international trading system that its own economy
will be severely damaged. If the creditor goes to court there is
certainly less collateral available for him to seize than is owed to
im in interest. And even a reduced interest payment will be more then
e can get in court. But as things now stand, all it takes is one
ervous bank president to try and teach Brazil or Mexico a lesson and
ou have a huge crisis.

Once it is in an American court, it is almost impossible to get it
ut. The government cannot go to the court and say "Let's forget about
his." Once it's in the court we have a horrible mess. I think the
nterest issue should be settled and very soon.

As to new money, as I said before an international fund should be
created, capitalized at, say, $30 billion over five or ten years, with
alf coming from the governments of industrial democracies, one-quarter
rom banks, and one-quarter from international institutions. Now $30
lion may sound like a lot, but the banks are already lending more
han $7.5 billion just for interest payments. If $15 billion is divided
mong industrial democracies, the United States might have to
ontribute, say, $4 billion, but between Israel and Egypt we already
e more than that and Latin America is as important to us. What is
eeded is imagination.

A: No. In the end, you cannot have international institutions impose
olutions on governments. The ideal would be a negotiated solution in
which governments state what their objectives are so that you have some
riteria to judge whether they are fulfilled. In the Marshall Plan this
id not turn out to be a serious problem.

A: What I have described has, at this moment, little support in our
government and no support in our country. But one has to ask what is
the duty of a political leader? I believe the political leader has the
duty to take his society from the familiar to where it has not been.
so many leaders of democracies, including in our own country, take
ublic opinion polls to see what people will support. The public
inion polls will never support a proposal such as outlined here.
people will ask why you should give money to Brazil when you have farm
reclosures in the Middle West. But if there is a catastrophe, and
ive years from now all of Latin America is anti-tree market and
Ali-United States, everybody will blame the government anyway, even if
t was carrying out the popular view.

So the first requirement is an Administration dedicated to helping
Latin America grow. Then the way things work in America, one would
create some sort of committee to work on public opinion of leading
litizens. That, incidentally, is possible. I know enough leading
nericans who would have great prestige as members of a committee that
uld support my ideas. That's the easiest part.

Then you have to convince the Congress. That is not going to be at
easy. But when you look around the Congress today, there are a
mber of good people, and you could get ten or fifteen leaders from
oth parties to support this. It would be a very bitter fight, harder
an the Marshall Plan because America has become more isolationist.

KISSINGER 7/05/87

Then the political relations between the Latin American countries and the United States would have to be also taken into account because, quite frankly and Brazil is the least guilty of this if these countries are entirely Third World and oppose everything the United States does politically, it creates a very difficult atmosphere. I'm not saying they have to support everything but there has to be an attitude that we are living in the same world, discussing common problems.

A: That could happen, but I consider it extremely unlikely. We are living in a precarious world in which a lot of governments have been avoiding difficult decisions because there's always an election somewhere and they always have a tendency to let the next man handle it. If a trade war breaks out, it would represent a total failure of Western leadership that would lead to a huge crisis in all our countries. I think it is my duty as an outsider to talk about a future we can achieve, which is within our capabilities. If you ask me, will it happen, well, you know, in Brazil, everybody tells me that the Besser plan [drafted by Finance Minister Luiz Carlos Besser of Brazil] can work only if everybody cooperates, including the United States.

A: Not as I see it because that probably cannot be done. On a case-by-case basis, one can make special arrangements, but if you make it all-inclusive, you destroy the domestic basis for it in the United States.

A: If the Soviet Union conducts the same foreign policy, it will then be stronger. Everybody talks as if Gorbachev wants to change the Communist system. If you have spent all your career in an organization which you joined voluntarily and in which promotion is by accommodation at each level, is it probable that you want to change that system? If so, why is it necessarily true that if the Soviet Union is richer that it will be easier to deal with unless it changes its foreign policy? Look at the current situation. It is spending $3 billion to $4 billion a year in Cuba. It is spending $1 billion in Nicaragua and another $1 billion in Angola. It is spending $3 billion to $4 billion in Vietnam and I don't know how much in Afghanistan. We're talking about $10 billion to $15 billion on foreign adventures in countries where Russia has had no historic interest and in which its major role is military. It isn't contributing to the development of these countries.

So I'm not asking for the Soviet Union to do anything except stay in its own territory, which is so large that there are eleven time zones within the Soviet Union. The distance from Leningrad to Vladivostok is greater than the distance from Vladivostok to Seattle, or from Leningrad to New York. I even accept the fact that in Eastern Europe they have special security concerns that we should respect. But there is no law of nature that they have to be active in Central America and

Angola and always in a military manner. That is what has to be ended.
Q: Are the recent proposals from Mr. Gorbachev concerning the arms

talks and reduction on short-range and middle-range missiles a change
in his foreign policy or is the Soviet Union preparing a trap?
A: I believe that the present proposals, unfortunately, are

A: I believe that the present proposals, unfortunately, are objectively a trap. They do not improve the military situation in any significant way but they are creating in western Europe a new form of anti-Americanism and neutralism. You have been in Germany. You know what it has done to the CDU [Christian Democratic Party] in Germany. When the CDU stops being a pro-American party or moves to the nationalist/neutralist side, then the Socialists move even further in that direction. So we have paid a huge price in the internal structure of German politics for a minimum gain. Now, what makes it worse is that Gorbachev accepted our proposal, so you can't really blame Gorbachev; our government is more to blame than he is. It's a pity because Gorbachev is a highly intelligent man and the new leaders are more flexible than any I have seen. I wish we had a fundamental dialogue with them. I don't know whether a fundamental dialogue would succeed. But you cannot tell from the present position what Gorbachev's ultimate objectives are in foreign policy. And I would like to test it, it would be interesting.
Q: I assume other countries such as Japan and Germany would

Q: I assume other countries such as Japan and Germany would contribute to your international fund. But based on the standing of the banks and the surpluses of various countries, it would seem that Japan must contribute more than the United States and so would Germany. Is that possible without a reform of the international monetary system?
A: One of the problems is that the international political system

A: One of the problems is that the international political system and the international economic system are essentially out of balance with each other. The flexible exchange system isn't working and we need something along the lines of Bretton Woods but brought up to date because economic conditions have changed so much since the 1940s. That will require the industrial democracies to get together and I hope that at some economic summit a successor to Bretton Woods will emerge. I don't think the existing arrangements are very satisfactory.
Q: If you regionalize the international politics of the United

Q: If you regionalize the international politics of the United States, would not the economic issues compel you to intervene against leftists, against anti-market policies?
A: I believe that we should oppose

leftists, against anti-market policies?
A: I believe that we should oppose governments that cause us trouble in foreign policy, because that's where our interest is. I think recent history shows that planned economies cannot work because they lead to stagnation. That's not an ideological preference, that is what experience shows. I was struck when I was last in the Soviet Union by the fact that when the Soviet leaders, from Gorbachev down, explained their economy to us they were as critical as the most conservative American could be of the results of state enterprise managers colluding with the ministers. They can't even find out what the real statistics are and they have no market to tell them what is happening because they have no incentive for innovation. So in this sense I think you need a market economy and you need incentives. But Japan and Korea have shown that with the right relationship between the government and the private sector you can have an industrial policy that is very creative and which does not exclude the government. Now, of course, when you start moving funds around you are intervening. But what I oppose is management of political affairs in foreign countries by the United

FROM 7914

PAGE 5

A: The crisis is severe enough, but I don't think one should call such a conference unless one is sure of the outcome. It would be better to have no conference than to have a conference which leads to disappointing results.

I personally think that if the Reagan administration wants to leave an historic mark it could do so in that field more easily than in arms control, where in two years nobody will understand what these numbers meant, but an economic conference could lead to historic change. In my view it will happen, but I can't tell you whether it will happen six years or two years from now. But the problem is serious enough. You cannot let a whole region of the world slide into a recession without being forced to do something.

There is a danger here but if I had to bet, I would bet that you will solve it in a manner that isn't perhaps evident to outsiders. Brazil is working its way through its difficulties and becoming more responsible. How that is done I don't quite understand, but it happens. So on the whole I am very optimistic.

A: That has to be done by the United States, Japan and the European community. An American president could preside over it, but he would have to consult with the European community and, of course, many other governments. But it can be done. In fact, I think it will be done. The only question is will it be done in time or will it come too late. And, of course, without it, there will be a systemic crisis and that's why I don't want it perceived as an act of charity or as an act of unilateral self-interest. The big problem is to create an international system which, hopefully, will engage the whole of humanity, but certainly the majority of humanity and that is a problem that must be solved. If it isn't solved, there will be constant conflict.

08:14 08:06 87

FROM 7914

[LC]

KISSINGER INTERVIEW WITH O ESTADO DE SAO PAULO AND JORNAL DO BRASIL (CONDUCTED ON JUNE 24, 1987, IN SAO PAULO, BRAZIL)

K: We were talking about the fact that I was made honorary citizen of the town in which I was born in Germany. It was a very nice ceremony and it meant a lot to my father, more, actually, to my father than to me. There was a lunch that the city gave to me, and my father, who was then already 87, decided to make a speech. It was his great opportunity. In fact, he gave a better speech than I.

No, you want the plan. Let me separate two things: One, my general philosophy; second, the specific plan. The reason I make a distinction is because the specific plan cannot work exactly as I put it forward. It's more intended as an illustration. But, the fundamental idea is this: We are now every year having some crisis with some Latin American country about ?????. It is already clear that the principal as such cannot be repaid. At least not in any short period of time. And so the only things to do about that is to delay it. Give a long grace period.

Next then, to other questions. One is interest and the second is new money. And, fundamentally what is needed in the Western hemisphere is that growth start again. That is also needed or the United States and indirectly we are affected by the recession in developing countries because it also reduces American exports. So, this is my basic philosophy.

I would like to change the debate from how much we can extract
in each year to how much can these countries grow. And once
these countries grow, they will have their selfish reasons to
service at least part of the debt in order to create the proper
confidence.

Now, they are two separate ideas but they can be merged. One is
about interest. The countries, let's take Brazil, it is
impossible for it to service its debt when that service
consumes such a large percentage of its export and of its gross
national product and when all the new money it gets has to be
repaid in the form of interest. So we are really in a period,
in effect, of interest capitalization. It's a complicated way
of capitalizing interest, lending new money that then comes
back. And so the debt goes up. So I think that the debt service
ought to be made more predictable and more sustainable. And for
this reason, I would have suggested that we set an interest
ceiling; let's say 6 per cent -- related to the growth rate of
Brazil. Hopefully, more or less the same as the growth rate.

And then we have the problem of what is done with the
difference between that percentage and the market rate. The
most, the best idea I think is to establish a ???? international
fund to which the banks contribute a quarter, the international
institution contribute a quarter and governments contribute
half. Or you can say a third, a third, and a third. The
proportions I don't feel strongly about. So the banks will not

3.

[LC]

get the full interest because of their own contribution, but at
least then there is an international system. The governments
have an interest to keep the interest rates low because that
reduces their own need to contribute. And I believe in this
manner we can have a system by which a sustainable interest
rate is paid over a predictable future and by which we can
avoid having a confrontation. And I think it's very important
to avoid a confrontation every year. Two reasons: one, I think
it creates a very bad psychological and political framework. If
every year it appears as how much money we can export from a
developing country then it begins to think of itself as a
capital exporter. Secondly, the methodology of this debate is
dangerous because the debtor threatens default. And the
creditor threatens also default. The debtor threatens that he
won't pay it off. The creditor threatens that he will go to
court and seize assets. Both threats are dangerous because if
the debtor defaults completely it will lose so much confidence
in the international trading system that its own economy will be
severely damaged. If the creditor goes to court there is
certainly less collateral available for him to seize than is
owed to him in interest. And even a reduced interest payment
will be more than he can get in court. But the problem is, all
it takes is one nervous bank president to try and teach Brazil
or Mexico a lesson...

Q: What about Mr. John Reid?

K: Well, he's too smart to do it. I think he's too smart to do

it but you know it takes some arrogant or nervous bank president and you have a huge crisis. And once it's in an American court, its almost impossible to get it out, the government cannot go to the court and say....once it's in the court we have a horrible mess; then you will start seizing American assets, and then we will be in a terrible situation. So I think the interest issue should be settled and hopefully very soon.

Now to the question of new money. I believe the same principle that I mentioned should be applied; namely an international fund sould be created. I have said, again this you can debate, thirty billion dollars a year for 5 or 10 years. Half of it from governments, from the industrial democracies, a quarter from banks, and a quarter from international institutions. Now thirty billion sounds like a lot but when you think about it, the banks are lending more than 7 1/2 billion out, just for interest payments. If 15 billion dollars is divided among industrial democracies, the United States might have to contribute say 4. (We give nearly that much to Israel.) Between Israel and Egypt, they give more than 4 billion dollars. So why should Latin America, it's as important to us as Israel and Egypt. So it takes imagination. And these are the ideas that I've tried to put forward here.

Q: May I put a more general question concerning your explanations? May I assume that in your opinion, multilateral institutions, like IMF or the World Bank, are definitely out of

5.

such broad solutions of the deficit crisis (?????).

K: You all understand that I am here as a private citizen?

O: Yeah.

K: None of this reflects our government's views.

O: I know.

K: Nor does it reflect the banks' views. I am not here as a representative of the banks either. But I will try to convince them of my views. Both the government and the banks.

Now, are multilateral institutions totally out. Not necessarily. But, if one creates this fund, a small action committee will have to be created to give the enterprise a new impetus. And to distinguish it as a new effort to promote growth. Now, can the IMF and the World Bank be used? I think the IMF, it's a big issue in Brazil, I know, and I keep getting asked, and I keep answering my personal view is that this is for Brazil to decide. There is no magic about the IMF. The reason the IMF got involved was so that the banks had an excuse to lend new money and they could say somebody else had looked at it. The trouble with the IMF was that it was designed for short-term emergencies. It was never designed to deal with a permanent crisis. When you look at a short-term emergency, then you can make technical proposals and these technical proposals will be accepted or not, but if they are accepted, the government concerned looks at them as an investment. And after a year, the IMF is out of the picture. I was involved in one

negotiation with Great Britain in 1976, and that was a three month negotiation, a one short affair. And actually the government in Britain wanted to use the IMF because it gave them an excuse for their own people to do measures they recognized as necessary but didn't want to take on their own. You can do that once, but if you do it year after year, then the IMF becomes almost the finance minister of the country. And that's unacceptable.

O: But at the last summit in (Venetia/Venice????), all the industrialized nations had strongly supported the idea of a case-by-case approach of the deficit???? crisis in the framework of the existing multilateral institutions. Are you prescribing a fundamental change of the strategy?

K: No, I think... Look, they are afraid of a debtor's cartel. Within the approach I outlined, you can still have a case-by-case approach. I don't think you should make sums available by quota, it should be tied to some economic achievement. Because if you do it by quota, the result would be that a lot of terrible loans will be made for purely political reasons. I think the World Bank is better suited for development projects than the IMF. But I think the economic summit was a little bit behind time, I think a new approach is needed. Also for psychological reasons.

O: In your opinion, this international fund will control the expenditures of local governments in ?????

K: No, in the end, you cannot have international institutions impose solutions on governments. What you really need is a ... To my mind, the ideal would be a negotiated solution in which governments state what their objectives are. And then you have some criteria by which they are fulfilled. In the Marshall Plan this did not turn out to be a bad problem.

O: But I think that we've a European recovery program. First, we have not long ???? grant. Secondly, we have compromise of a debtor to do investment and in your program you have not this compromise. (ANOTHER INTERVIEWER: You cannot invest your money in social problems.) There is, too, in the Marshall Plan a great intervention of a United??? state.

K: Some intervention is unavoidable. The question is does it reflect the wishes of the people concerned. And, I think investment in social programs should be possible. What they did in the Marshall Plan is they created counterpart funds, which meant that for every grant they repaid it in a way, in local currency, which was, however, at the disposal of those governments, so they actually got two funds with which to work. I haven't worked out all the details but it would seem to me if a decision is made, to be creative about growing, then I think formulas can be found to take care of these concerns. If you state that the problem is how to correct the balance sheets of banks every year, you have a different... I think the banks have not been unreasonable. You can't expect banks to conduct foreign policy. The banks have actually made many concessions

in terms of their profit. But beyond a certain point, they are
not political institutions, they are profit-making
institutions. But I understand your point. I think one would
need a very flexible approach to this issue.

O: I think that your program is too flexible. I think that we
must add a compromise to ??? investment ??? a counterpart.

K: Yes.

O: On the contract, I take the money, I spend the money where
I want because I am a sovereign state. The actors on this
scene, they are not so much trustful.

K: But it has to be negotiated. There has to be some agreed
program, otherwise nobody gets free money in this world. The
question is whether the program is designed, but if reasonable
people in Brazil or in Mexico, though in Brazil, we're here
now, can say this is really a good program for economic growth
there will be no unanimity but, the Brazilians can agree with
it.... If you have a plan now, lets say the pressure plan
works. You developed it yourself. There is no reason why the
IMF cannot certify it after the event.

O: But they are not a problem, Mr. Kissinger, the American
Congress.

K: Look, what I have described at this moment, has no support
in our government.

O: Yes, I know but...

K: And has no support in our country. One has to ask oneself,

O: This is the leader but not the congressman.

K: First you need the leader. Too many democratic leaders,
including in our own country, take public opinion polls and
ask what will you support? The public opinion polls will never
support such a thing. Why should you give money to Brazil when
you have farms paying for clothes in the Middle West? On the
other hand, if there is a catastrophe, say five years from now
all of Latin America is anti-market, anti-US, everybody will
blame the government anyway. Even for carrying out its
wishes. So the first thing you need is an administration that
is dedicated to this. Then the way things work in America, you
should create some sort of committee, one should create some
sort of committee to work on public opinion of leading
citizens. That, incidentally, is possible. I know enough
leading Americans who would support my ideas. Who would have
great prestige. That's the easiest part.

O: Would you take up that committee?

K: Would I serve on it? Absolutely. I'd be honored to serve
on it. I'd feel offended if I was not asked to serve on it.
Then you have to convince the Congress. That is not going to
be at all easy. But then, you look around the Congress today,
there are a number of good people, like Senator Bradley for

example, ...

O: Who is a presidential candidate as far as the Wall St. Journal is concerned.

K: Not really. Well, I know him very well. I would like him to be a candidate; he's a very good man. But, I think one could get ten or fifteen leaders from both parties to support this and then it would be a very bitter fight. But so was the Marshall Plan. This would be harder because America has become more isolationist. And frankly, the political relations between the Latin American countries and the United States would have to be also taken into account because, quite frankly, and Brazil is the least guilty of this, if these countries are entirely Third World and oppose everything the United States does politically, it creates a very difficult atmosphere. I'm not saying they have to support everything but there has to be an attitude that we are living in the same world, discussing common problems.

O: Mr. Kissinger, which are the solutions to the other problems, the other debt problems like America's debt problem, the farmers' problem and the deficit problem from the United States?

K: All of our countries...you see the funny thing is that thh American problems have many similarities to the Brazilian problems. We have consumed too much and basically we cannot solve our problems without reducing consumption. And we could have a very tricky period ahead of us because since our economy

is flat at this moment, and since everybody agrees that taxes
should be raised to decrease the deficit, if we raise taxes at
the wrong moment with a flat economy we could go into a
recession. If we go into a recession, it affects our ability
to do any of these things and it affects your ability to export
since we take 60% of the export, so secondly, we will soon have
a debt of 4500 billion dollars. It means we will have to
service 40 to 50 billion dollars a year in debt. As much as the
old debt of Argentina. Out trade deficit now is 150/160
billion, that means we have to turn around our trade balance by
200 billion dollars; we have to go into surplus by 200 billion
dollars, no, by 50 billion, but it means we have to turn it
around by 200. That means we either import less or export a
lot more. We have big problems ahead in the US independent of
this.

O: It is a problem for us, too.

K: I pity the next president of the United States. He's got
huge problems.

O: May I add at this point, you are so much stressing the
need of growth. Can you imagine the next Nov. 13 is a Friday,
87, the main headlines would be trade war between Japan,
Germay and the US. The Congress imposing more tariffs, it means
protectionism, and Brazil declaring a near default.

K: I can imagine it but why do you pick Nov. 13? Because it's
Friday the 13th? (laughter) I just thought you knew something.

12.

[cc]

That could happen. We are living in a precarious world in which a lot of governments, ours, maybe yours, a lot of governments have been avoiding difficult decisions because there's always an election somewhere. And they always have a tendency to let the next man handle it. It could happen. If it happens, it is a total failure of Western leadership which will lead to a huge crisis in all our countries. I think it is my duty as an outsider to talk about a future we can achieve, which is within our capabilities. If you ask me, will it happen? Well, you know, Brazil, everybody tells me that the pressure plan can work only if everybody cooperates.

O: Even the United States?

K: Yes. Now will everybody cooperate? You know that better than I.

O: A very important question: In your opinion or concept, did your plan apply to the Socialist countries that are debtors?

K: In my concept, no. Because that is probably undoable. But again, on a case-by-case basis, one can make special arrangements with them, but if you make it an all inclusive...which countries are debtors?

O: Poland? Rumania? Hungary?

K: No, you have to do it with them on a case-by-case basis.

O: But they are a member of IMF. But do you believe that the describe??? that you describe is a world crisis?

13.

K: Yes, it is world crisis.

O: Including the Soviet Union?

K: Yes, but with the Soviet Union we have a difference. First of all, I have very serious doubts that the Soviet Union can solve its problems without some structural changes. You cannot have in a totally planned economy, you get such a collusion between the politicians and the managers, that you can have, you have no incentive for high technology, no incentive for quality and you have total confusion about demand. It's a supply-driven economy. The manager becomes a politician, not an entrepreneur. And so, they need new structural changes. Now, should we help them if they make structural changes? Yes, if they change their foreign policy to be less aggressive. But if all we're doing is financing their military establishment indirectly by freeing resources, then it becomes a very great foreign policy question. I have always favored support for China, for example, which is not at this moment conducting an aggressive foreign policy. So I believe that if we could come to a political understanding with the Soviet Union about restraint in foreign policy, they should also be an economic ???.

O: In a recent article for Newsweek, you said "reform is in the air, but the purpose of that reform is not to spoil democracy or freedom. Even if the reform program does succeed, it does not automatically guarantee a more benign foreign policy." Is not too much pessimistic. Why do you believe

the Soviet Union is a better country to live in, yet to be the
worst country to deal with?

K: Because if it conducts the same foreign policy, it will then be stronger. Everybody talks as if Gorbachev wants to change the communist system. Off the record, now, is it likely that the Pope wants to overthrow the Catholic Church? If you have spent all your career in an organization which you joined voluntarily and in which promotion is by cohabitation (?) at each level, is it probable that you want to change that system?

If so, why is it necessarily true that if the Soviet Union is richer, that it will be easier to deal with, if it doesn't change its foreign policy? If it reduces its armed forces, if it... look at the current situation. It is spending $3 - $4 billion dollars a year in Cuba. It is spending a billion in Nicaragua. It is spending a billion dollars in Angola. It is spending $3 - $4 billion in Vietnam and I don't know how much in Afghanistan. We're talking about 10 - 15 billion dollars on foreign adventures in countries where Russia has had no historic interest. And in which its major role is military. It isn't contributing to the development of these countries. So I'm not asking for the Soviet Union to do anything except stay in its own territory. Which is so large that there are eleven time zones within the Soviet Union. The distance from Leningrad to Vladivostok is greater than the distance from Vladivostok to Seattle, or from Leningrad to New York. So I'm not asking...and I even accept the fact that in Eastern Europe they have special security concerns, that we should respect.

[cc]

15.

But there is no law of nature that they have to be active in
Central America and Angola and always in military manners.
That is what has to be ended.

O: Do you agree that the recent proposals from Mr. Gorbachev concerning the arms talks and reduction on short-range and middle-range missiles are a change in his foreign policy or is the ???? ???? preparing a trap?

K: No, I have stated my views on this. My view is this: It's a pity because Gorbachev is a highly intelligent man. And the new leaders are more flexible than any I have seen. And I wish we had a fundamental dialogue with them. What the answer would be I don't know if we had a fundamental dialogue, whether it would succeed. I believe that the present proposals, unfortunately, are objectively a trap. They do not improve the military situation in any significant way but they are creating in western Europe a new form of anti-Americanism and neutralism. And you have been in Germany. You know what it has done to the CDU in Germany. When the CDU starts being a pro-American party or moves to the left then the Socialists move further to the neutralist side. So we have paid a huge price in the internal structure of German politics for a minimum gain. Now, what makes it worse is that he accepted our proposal. So you can't even blame him. And I blame our government more than Gorbachev. But I'm saying you cannot tell from the present position, what his ultimate objectives are in foreign policy. And I would like to test it, it would be

[lc]

16.

interesting.

O: This situation leads to the combination of world politics and world economy.

K: Absolutely.

O: And your plan, do you believe that your plan, if feasible, could enlist, let us say, world politics and democracy? Would have the function as the Marshall Plan?

K: I think... first of all, to get back to the question of leadership, I believe that it is the duty of leaders to set the course, even if they should fail, but it may be easier to do one big thing than ten little things. Because if you do a lot of little things, you exhaust your energy in endless technical discussions. Which is one of my concerns with these arms control proposals. I don't think there are a hundred people, certainly not two hundred people, in America who understand the numbers. And I don't know how many people in Brazil can follow these numbers. It's become an esoteric subject for experts on which experts are divided. So it's much better to have a big objective. Now, is it possible to enlist the Third World? Yes, that's the point of the exercise. The point of the exercise is to make at least the responsible developing countries feel that they are part of the system. They don't have to agree with every direction. But they have to feel that they are living in a world in which they can benefit from progress, not in a divided world in which only one small group. When you look at history, the periods that have been

17.

[cc]

peaceful have been those in which the major countries felt that
they had more to gain from maintaining the system than
overthrowing it. That didn't mean they wouldn't make
adjustments.

O: The major countries.

K: You can't have every last country agree. But I consider
Brazil a major country. But if the major countries agree, each
of them has enough influence on other countries, so that the
vast majority of countries will then agree. In Europe in the
19th century, when there was more or less peace, and progress,
I don't know any country that was so dissatisfied that it
would rather go to war for our people.

O: And the situation in the Middle East; in this framework,
the Arabs are creditors in Brazil.

K: It is unprecedented that you have to conduct foreign
policy with 150 nations simultaneously. You have to make some
priority. It's obviously easier for the United States to do it
in the Western hemisphere. I don't think you can solve the
problems in the Middle East with this sort of a plan. Because
you have Moslem fundamentalists, you have Arab/Israelis, you
have the Soviets; you have every current coming together. So
I don't think there is an economic plan that can solve the
Middle East problem.

O: I agree with you.

18.

[cc]

K: My basic view is that I believe the world will be regionalized in the next fifteen or twenty years and that the United States should give very high priority first to the Western hemisphere. Not to the exclusion of all other countries. But it should give some priority...

O: Excuse me, no way you can make the first Roosevelt?????

K: Yes, there are no totally new ideas in this world. At least I can't think of one.

O: You are being a radical because the US first, as you stated, are in a high nationalistic mood and, second, is going to Pacific, they are going East.

K: Yes, but that's a purely commercial thing. I mean, what structure can be built in the Pacific? Japan will be more and more competitive. Of course, the Pacific becomes very important, but if the Western hemisphere blows up our frontier will be on the Rio Grande and all of our concerns, if Mexico were to blow up, you would quickly see how America ??? ships from both the Atlantic and the Pacific. But the art of foreign policy is to do things before they are critical. If my view is somewhat radical at this moment.

O: Would you invite other countries to join the front?

K: Certainly, Japan and Western Europe, absolutely.

O: But when you said half government and half banks...

K: But the government should include Western Europe and Japan.

O: Yes, but where is the difference between the outstanding of the banks and the surplus of the country? I think Japan must give more money than the States, that Germany must give more money than the States. Do you think it is possible without a reform of the international monetary system?

K: I think one of the problems is that the international political system and the international economic system are out of balance with each other. That's what I am going to talk about this evening in Rio. They're essentially out of balance with each other. I think the flexible exchange system isn't working. I think the ???? system isn't working, and I think we need some new Bretton Woods type, with something that follows Bretton Woods because economic conditions have changed so much since the 1940s. But that requires that the industrial democracies get together. I hope at some economic summit they will start taking photographs and do something, and I think that will be a good topic for them. I don't think the existing arrangements are very satisfactory.

O: Mr. Kissinger, many, many commentators are very, very concerned with the relationship between economic stabilization

and military intervention in politics in Latin America, which
is one of the main historical characteristics of the
subcontinent. Is your fund ready to avoid military coming
back to borrowing in big, huge countries like Brazil and
Argentina?

K: I have a personal preference for democracy. And I would
far prefer democratic governments and I think there should be
a bias to democratic governments. I am very leary of the United
States getting mixed up in the domestic politics of every
country in the world which we don't understand.

O: You would break your traditions?

K: Not my personal traditions. I think we have enough
trouble conducting our own foreign policy. Essentially,
whether the military come back to government or not, depends
on how strong the democratic tradition is in the country
concerned.

21. [cc]

K: Of course, if the economy is well off and if a democratic government has achieved that, that will be strengthening democracy and in that sense I favor it. What I don't like is the US mixing in, either on the left or on the right, the day-to-day political management of countries because we don't understand it well enough.

O: But if you regionalize the international politics of the US, in a way, the ??? issues will compel you to intervene against leftists, against anti-market policies.

K: I believe that we should oppose governments that cause us trouble in foreign policy. Because that's where our interest is. I think recent history shows that planned economies cannot work because they lead to stagnation. That's not an ideological preference, that is what experience shows. I was struck when I was in the Soviet Union, when the Soviet leaders, from Gorbachev down, explained their economy to us, what they described was more critical than the most conservative American could come up with about what happens when you have a state enterprise managing, colluding with, the minister so that you can't even find out what the last statistics are and you have no market to tell what is happening and when you have no incentive for innovation. So in this sense I think you need a market economy and you need incentives. But Japan and Korea have shown that with the right relationship between the government and the private

sector you can have an industrial policy that is very
creative. And which does not exclude the government. Now, of
course, when you start moving funds around you are intervening.

But what I oppose is the macro-management of political
affairs in foreign countries by the US, either on the right or
the left. I don't think we understand these countries well
enough to manage their domestic affairs.

O: I remember in the conference of Mexico in 1973, the new
dialogue, you asked the Latin American countries to make an
institute for transnational companies. We saw transnational
companies in a way could not affect the international policy of
the US.

K: I think that, in the end, the largest amount of free
capital is in the multinational companies, more so than in
government. Secondly, with all due respect, I have not
understood the Latin American concern on this issue because I
think the strongest multinational company is less strong than
the weakest government. So any smart multinational company
must want to coexist with local conditions. So I have always
felt that multinational companies are a lot safer to have than
government loans. Secondly they have to be profit oriented,
and if they're profit oriented, it has to benefit the country
where they are, if the country has any sensible legislation.
And what I had in mind then was to set up some code that would
make it predictable... which prohibited...I would have

23.

LCC

absolutely no objection to a code that prohibits multinationals from interfering in political affairs. I think that would be desirable. I must tell you frankly, my personal view is that if a multinational company is smart, it will not risk itself on politics. And my experience with Chief Executive officers of companies has been that they don't understand politics anyway. So that's what I had in mind at La ?????. I wanted to free funds for investment in Latin America.

O: Do you believe that we have a big enough economic or political crisis to justify a summit meeting between the developing nations to discuss this kind of fund?

K: You know, I have been talking to some friends in Germany especially, whether it would be desirable to call a conference to discuss the international debt problem. And I have some leading people who are supporting it. I think the crisis is severe enough but one shouldn't call such a conference unless one is sure of the outcome. Because to call a conference which then leads to disappointing results... I personally think that if the Reagan administration wants to leave an historic mark it could do so in that field more easily than in arms control where in two years nobody will understand what these numbers meant, but it would be an historic change. In my view it will happen, but will it happen six years or two years from now I can't tell you. But the problem is serious enough. You cannot let a whole region of the world slide into a recession

O: You believe you have enough support from the countries in Latin America to discuss this issue or do you still need more support?

K: Well the countries I know best are Mexico first, probably, then Brazil, then Argentina. I think it would be possible with those three countries to do it. And then who would not join? I think the major countries will join.

O: I will make a provocation that is not a question. What about the quality of leadership in those three countries right now?

K: I think that Madrid has been very courageous in Mexico. But, of course, the government is changing in Mexico next year so one has to see who the new president will be, but I think that Madrid has been very courageous. I think Alfonsin has been very courageous. And I think here you've had a totally unexpected tragedy that the man... considering the limitations, I think your government has, it has made mistakes, but it has also in its complex Brazilian way gradually moved in the right direction. Yes I think there is enough quality of leadership in Latin America to support it.

O: Have you discussed the idea of this plan with President ????.

K: Yes, I mentioned it. But I have taken the position that the Brazilian ministers to whom I spoke, if they want to say what we discussed they are perfectly free to do it but I don't think I should go to Brazil and then hold press conferences about what your leaders have said to me.

O: We have been told that you have learned a lot during your trip.

K: Yes.

O: You've had a lot of interesting talks and conversations

K: Yes.

O: What kind of impression will you have when you leave Brazil and, if you could elaborate on that, what kind of impression do you have on the political prospects of Argentina and Mexico as well? Do you think these three big countries, which are at the same time the three biggest indebted countries, are they on the brink of political turmoil or in talking of political prospects, do you see a brighter future?

K: Last night I don't know whether any of you... well your publisher was there...and I can repeat what I said last night at the dinner ??? so kindly gave for me: I actually leave with a more optimistic feeling about Brazil. Because you have

[L]

26-

huge problems, but when I have seen Brazilian leaders talk to
each other in my presence anyway, I have the sense that there
is nobody who would rather defeat his enemies than make
progress for Brazil. There is an atmosphere here that I find
maybe seductive. So I look at the problem not "will the
pressure plan succeed?" - it has a chance - but as long as
it keeps getting adjusted, I believe, I don't believe that
there will be social chaos here. There is a danger here but if
I had to bet, I would bet that you will solve it in a manner
which, as I said yesterday, to outsiders isn't so evident but
when you look at...when I was in the US various banks and
institutions sent me various provisions proposed for the
constitution. And yet as they work their way through they are
becoming more responsible. How that is done I don't quite
understand but it happens. So on the whole I am very
optimistic. I think Alfonsin has done a lot for Argentina. And
I think that Madrid has been very responsible. Now each
country has huge social problems and is it possible that one of
them explodes? Yes it is possible. That's why we have to act,
to give some hope. But I think we have basically good
governments now in the key countries.

[L.C]

27.

O (JORNAL DO BRASIL): Do you think that the big companies are getting bigger or as bigger or the economy...the small companies, the small enterprises will be the most important part of the world economy, like Mr. ???? and the ????

K: Mr. who? Oh, ???? Well, in the United States, among the established companies, there is, in my view, an unfortunate tendency toward merging and fiscal operations which absorb too much of the talent in unproductive enterprises and so there is a tendency for them to become bigger. But if you look in the areas of innovation, in the high-tech industries, there has been a lot of room for smaller companies and some of the most creative work has been done by the smaller companies. I believe that the high-tech area is the area of the greatest promise. I think there's a great fear available for medium-sized companies that have a lot of the imagination. This was certainly true in the previous days of the technological revolution. But among the existing companies there is, in the United States at least, a tendency towards merging, not all of which are favored.

O: The merger ... the ????... of one government who can decide about your plan?.

K: I think it has to be done by the United States, Japan and the European community. And I think an American president could preside over it and he would have to consult the other two groups and the European communities and, of course, many governments. But I think it can be done. In fact, I think it

will be done. The only question is will it be done in time or
too late. And, of course, without it, there will be a systemic
crisis and that's why I don't want it conceived as an act of
charity or as an act of unilateral ????.... The big problem is
to create an international system which will engage the
majority -- and hopefully all of humanity -- but certainly the
majority of humanity and that is a problem that must be solved.
If it isn't solved, there will be constant conflict.

O: Thank you very much.