Old pivot rod assembly, unsure how to remove
What you're looking at is corrosion, not a packing substance. You want to pull the rod out and if it's reusable clean it up with a decalcifying agent. Try vinegar but you might need something stronger like Kaboom or Limeaway. Since it's not engaging the stopper it might be beyond repair in which case you'll need to replace the rod assembly and depending what you find when you open the drain the entire stopper assembly might need replacing.