Foreign Relations of the United States, 1969–1976, Volume E–15, Part 2, Documents on Western Europe, 1973–1976

170. Memorandum From the President’s Assistant for National Security Affairs (Scowcroft) to President Ford¹

Washington, February 9, 1976.

SUBJECT

• Portuguese Economic Situation

The Portuguese economy is in serious condition following the political instability of the past year. While the Portuguese are now announcing a variety of austerity measures, none are likely to remedy the enormous problems over the short term.

The United States provided $25 million to Portugal in FY 1975; $65 million is programmed for FY 1976. The EC–9 in October announced a modest program of economic assistance for Portugal which includes $175 million in European Investment Bank loans (10 years at 6.5 percent annual interest), an “inventory” of Members’ bilateral assistance programs for the purpose of identifying areas where individual nations could increase their help, and support for Portuguese requests to the IMF for balance of payments assistance. European nations have individually pledged approximately $326 million in various types of aid over the next several years. Most observers believe that more aid is needed in the near term. The Azevedo government has made clear that the Portuguese economy is Lisbon’s number one problem this year. It believes that economic disaster would surely strengthen the hand of the leftist forces which were badly weakened and discredited following their abortive coup attempt last November.

Against this background, I requested an interagency assessment of the current economic situation in Portugal, taking into account present and projected political developments to determine the extent of the problem and the possibilities of providing greater assistance.

The assessment (text at Tab A) was done by the Department of State in coordination with Treasury, Agriculture, AID and the Federal Reserve Board. It confirms our earlier judgment that Portugal is threatened by adverse economic conditions which, if not addressed before the April 1976 parliamentary elections, will diminish prospects for continued Portuguese political evolution along moderate lines.

Portugal is currently experiencing:

—a declining GNP;

—serious unemployment and underemployment;

—runaway inflation; and

—shortages of housing, health and educational facilities.

In addition, depletion of foreign exchange holdings has resulted in a serious temporary shortage of internationally liquid assets.

The assessment concludes that:

—The possibility of additional U.S. assistance (AID, PL 480) is poor, given current pressures on the budget.

—The most likely source of U.S. short-term credit is Agriculture’s Commodity Credit Corporation.

—Strong U.S. support for a multilateral consultative group within the OECD would be beneficial for the politically crucial near term. Assuming reasonable political stability is maintained, Portugal can look to the World Bank, the European Investment Bank and other multilateral finance organizations to finance viable development projects.

At the suggestion of Portuguese Foreign Minister Melo Antunes, an informal US-Portuguese joint economic commission has been established to review programs for assistance to Portugal. Ambassador Carlucci heads the U.S. delegation. As the commission’s findings emerge, we will develop a more detailed picture of Portuguese requirements, matching these against our own capabilities.

In a recent development, Mario Soares, the leader of the Portuguese Socialist Party, met with Secretary Kissinger in Washington on January 26 and praised the United States for “tact and understanding” in dealing with Portugal. At his suggestion, the Portuguese Finance Minister will visit Washington in mid-March to discuss assistance programs with Administration officials.

We will hope to be in position by the time of his visit to reach agreement on further U.S. assistance to Portugal.

This memorandum is provided for your information. No action is required on your part at this time.

1. Summary: Scowcroft briefed Ford on the Portuguese economic situation.

   Source: Ford Library, National Security Adviser, Presidential Country Files for Europe and Canada, Box 10, Portugal (8). Secret. Sent for information. Attached but not published is Tab A, an undated memorandum entitled, “Assessment of the Portuguese Economic Situation.” A stamped notation on the memorandum indicates the President saw it. Ford initialed the memorandum. On March 16, Zenha told Kissinger that “while we have won the political battle, we can only hope that we can have equal success on the economic side.” Zenha and Portuguese Secretary of State for Budget and Planning Vitor Constancio described Portugal’s aid requests from the United States as AID, PL 480, and Commodity Credit Corporation aid; designation as a GSP beneficiary; and eventual balance of payments assistance. Kissinger promised to give them “all the support I can.” (Memorandum of conversation, March 16; National Archives, RG 59, Records of the Office of the Counselor, Helmut C. Sonnenfeldt, 1955–1977, Entry 5339, Box 10, POL 2 Portugal)