Foreign Relations of the United States, 1958–1960, Western Europe, Volume VII, Part 2

115. Memorandum of Conversation⁰

May 22, 1959.

SUBJECT

• Talk with French Finance Minister about International Development Association and the deGaulle suggestion

PARTICIPANTS

• Secretary Anderson
• Under Secretary Baird
• Mr. Willis
• Acting Secretary Dillon
• Mr. Beigel, WE
• Mr. Glenn, LS
• Mr. Pinay
• Ambassador Alphand
• Mr. Raymond Arasse, Director of Cabinet for Mr. Pinay
• Mr. Cottier, French Financial Counselor

This meeting at the Treasury followed lunch at the President’s Guest House. Mr. Pinay began by sketching the recent economic reforms and their effects on the French economy. He indicated that the new economic policy has had no serious political or social ill-effects in France. Secretary Anderson agreed that there is frequently a public tendency to exaggerate the likely effects of economic changes, and that this has sometimes been the case here. He said that what disturbed people most in this country about the French situation had been the rapid turnover in French governments. Mr. Pinay said that the French had also severely criticized themselves for this and that France now has a stable government reinforced by the historic stability of the civil service. He said that in spite of wars in Indochina and Algeria and troubles in the Empire, France has shown that it has the resources and ability to reestablish stability, especially since the reform of political institutions. He said recent events have demonstrated the desire and ability of the French people to stabilize their situation.

Mr. Pinay said that he had been authorized to state on behalf of his government that US investors in France would have every assurance of being able to transfer their capital and profits, as well as to introduce US technicians into their plants in France, where necessary. Ambassador Alphand asked in this connection about the status of the negotiations in Paris regarding a bilateral Treaty of Friendship, Commerce and Navigation. Mr. Dillon said that we consider the negotiations to be going well. He said that the FCN treaty is very important to our own business community. Mr. Pinay agreed that the business community has a legitimate right to seek assurances in the form of treaty arrangements and not to rely solely upon the goodwill and vagaries of administrative practice. He said that in the past the unions in France and the Ministry of Labor had protested the arrival of US technicians to work there. He said the head of the government had indicated that he was opposed to such obstacles and they will now be removed.

Secretary Anderson said that many of us realize that France has a great variety of resources and in fact approaches self-sufficiency over a broad area. He said that we also admire the basic conservatism and solidarity of the French people, and realize that many French problems developed because of the nature of the political institutions. He said that we had not envisaged how constitutional reforms might be brought about to remedy this situation, but now that the new pattern of French institutions is quite clear, there has been a restoration of confidence in France and in its capacities. He said the result has been that in the past year many businessmen here have talked about investing in France. He said that he would agree that a new interest will be manifested in the association of French and US capital in a variety of business enterprises.

Mr. Pinay said that the French people were themselves showing a great confidence in the new political and economic regime in France. He said that the rapid subscription to bond flotations had demonstrated the strength of the capital market, and that on the external side almost a billion dollars in foreign exchange had returned to France in four months, in contrast with the loss of about two billion dollars over the preceding twenty-four months. He said in this connection that France would not ask for any additional delay in the sums to be repaid, for instance to the Export-Import Bank next month.

Mr. Pinay continued that he had also become quite convinced that the use of subsidies was highly undesirable either as economic doctrine or as public policy. Secretary Anderson said that we had also had considerable experience with subsidies. He said that he regarded the French program as a classic example of what a resilient government with resources, courage and good sense can achieve in the over-all economic field. He again expressed his pleasure that these changes had been brought about in France under deGaulle and Pinay. Mr. Pinay replied that these measures also had the support of the public and of the Parliament. He said that the constitutional reforms in France have brought about changes in the party composition in Parliament and have eliminated the problem of continuity in government. He said that under the present system it is likely that the government will remain in power for five years, and noted that the constitutional system in the countries around France provides at best for a continuity of only four years.

Ambassador Alphand pointed out and Mr. Pinay agreed that the French system is now much closer to the Dutch and American systems of government, with the members of the cabinet drawn from outside the Parliament and not obliged to seek the reaction and support of their Parliamentary groups. He said that the system of ministers coming from outside the Parliament is now demonstrating its advantages in France. In reply to a comment by Secretary Anderson, he said that there are only six Parliamentary committees under the present system. Ambassador Alphand noted that it is also unnecessary in France to seek Senate confirmation of presidential appointments. Mr. Pinay went on to say that he now felt much more independent when appearing before committees of Parliament than he did when he was himself a member of that body. He said that the members of Parliament on their side also show a realization of this in that they are now much softer in their questioning of ministers.

Secretary Anderson said that he would like to explain our basic thinking on the International Development Association¹ that Mr. Baird had earlier discussed with Mr. Pinay in Paris.² He said that we must all now realize that the peoples of the world have shown a greater drive toward economic development since World War II than they did before the war and that this tendency is more likely to accentuate than diminish in coming years. He said that international organizations such as the United Nations are now thinking in economic terms, just as a few years ago thinking was largely confined to political and security terms. He said that the recent effort to establish SUNFED was a notable manifestation of this change in thinking. He said that it would be unfortunate, however, if we tried to bring about the economic development of underdeveloped peoples, and develop their economic institutions, within the context of an organization whose purpose is essentially political. He said that this seems especially to be a problem when the United Nations embodies both the countries of the Free World and those behind the Iron Curtain, and when it includes a veto power that can be exercised by the large powers.

Secretary Anderson went on to say that we recognize that the Iron Curtain countries also have certain advantages in their ability to barter commodities arbitrarily. Mr. Pinay commented that they also have no internal opposition and can readily impose their political viewpoint on their own peoples. Secretary Anderson continued that the Iron Curtain countries are also able to lend their money on arbitrary terms since there is no international market in their currencies, and that their money when made available abroad must invariably be spent in their countries. He said that the Iron Curtain countries in addition do not have the same internal problems as the free countries would face if they overextend themselves in the field of foreign assistance, and that they can deal with problems of inflation through such methods as suspending internal payments. He said that on the other hand the Western nations have certain great advantages. He said that Mr. Dillon and he had discussed this subject with many of the neutral nations who were all opposed to becoming business associates of the Soviets on any kind of equity basis, since the Soviet government while holding such equity interests would seek immunity from all recourse against it in connection with investment projects in third countries, in which it might be a participant. He said that most nations seem to welcome foreign investment provided the foreign investors abide by the laws of the land. He said that these nations are also coming to realize more fully the advantages of competition and of shopping around for foreign goods and technical services on a comparative price basis.

Secretary Anderson said that in the context of this philosophy we believe the nations of the Free World should, if possible, within the framework of existing financial institutions, undertake a joint effort in this direction. He said we believe we should stay within the framework of the IBRD which has sixty-eight members, and to which any nation can adhere so long as it is within the orbit of free countries. He went on to say that the US more than any other country is generating non-convertible currencies from such sources as³ sales of surplus agricultural commodities. He said that one of our interests is to identify any organization that would make use of these currencies, for economic development purposes, with all of the free nations and not merely with the US. We believe the IBRD has this broadly based identification in the minds of other countries. He said that because the IDA would in our concept deal with soft loans and non-convertible currencies it is also most important that it be administered within the framework of a stable and capable institution, thereby avoiding competition between soundly-based hard loan and soft loan institutions. Our thinking is that when a country approaches either the IBRD, the IFC or the IDA, all three doors would lead to the same board of directors and the same management. He said that this would avoid competition and would instead allow hard loans and soft loans to complement each other.

Secretary Anderson said that in our concept capital would be contributed to the IDA on the same basis as the IBRD, with the capacity remaining to readjust national quotas as the financial status of member countries might change, as was the case in the recent readjustment and enlargement of IBRD quotas. He said that those countries such as the US that generate non-convertible currencies would not increase their ownership or management interest in the institution because of the use of such currencies.

Secretary Anderson went on to say that we also realize that potential soft loan borrowers have an insatiable appetite for capital and that we must face the problem of how best to impress upon them and bring them around to accept the notion that there is a reasonable rate of growth to which they should adapt themselves. He said that we believe the best way to do this is to require that the potential borrowers also contribute in hard currencies to the initial capital of the IDA as well as to the replenishment of capital. He said that this should give such borrowers a greater sense of responsibility. All contributions therefore would be partly in hard currencies. He said that in those cases where the IBRD had need for non-convertible currencies held by such countries as the US, those countries could be compensated by sharing in the earnings generated. He said, for example, if the US makes Indian rupees available to the IDA it could then receive a percentage of the earnings in rupees for return to the US. He said that in connection with the use of soft currencies and the hiring of foreign technicians, it seemed to us quite important to keep Soviet technicians out of such a program since they would use their participation for purposes of subversion and propaganda. He said that we had also explored with a number of countries their willingness to cut loose the national controls over the use of non-convertible currencies in order to make them available to an IDA, and that they had indicated a willingness to do so. He said that the foregoing represents the skeleton of our thinking on the IDA.

Secretary Anderson said that our notion about the timing of developments with regard to the IDA contemplates that during the summer months we would encourage the IBRD to study the record of our conversations with other countries and to develop a paper for circulation to member countries, inviting their comments. The IBRD would then study these comments and work out some broad proposals for consideration at the September meeting of the governors of the Bank, and if the latter agree in principle the Executive Board could then work out the details in the same manner as they handled the increase in the Bank resources over the past year. He said that we realize every country has been burdened by the need to increase its contribution to the Bank this year and that we would expect to take this factor into consideration in working out the details for the establishment of the IDA.

Mr. Pinay said that his comments on this presentation would constitute his personal views only. He said that while the French Government had been seized with this question there had not yet been opportunity to formulate a government position. He said that he fully agreed with the philosophy expressed by Secretary Anderson regarding the approach to the economic development of the underdeveloped countries. He said that those countries that can should therefore help the others. The problem is how best to proceed while at the same time being careful to avoid giving any opening to the Soviets to subvert and propagandize under the pretext of rendering assistance. He said that with regard to the United Nations, it seems largely to represent the beneficiaries rather than the donors of assistance and is analogous to a railroad on which the passengers had the greater voice in determining the fares. He said that he failed to understand any proposal that would give an equal voice to aid-receiving countries.

Mr. Pinay reiterated that his comments were entirely his own since, he said, there are those who believe that if we were all associated together in such a scheme, the advantages of association between East and West would outweigh the drawbacks. He said that he did not share this view and that he agreed with the notion about using the IBRD machinery for this purpose. He said that the US must however proceed step by step, and must through diplomatic channels demonstrate to deGaulle that the idea of having both East and West associated in such an endeavor would present drawbacks far outweighing any advantages. He said that once this is done he could proceed to consider the modalities of the IDA. He said that the presentation to deGaulle should emphasize that the Soviets are prone to seize an occasion to associate themselves with others in such schemes in order to utilize such participation as a mask to carry out their own political purposes. He said that it should not be too difficult to convince deGaulle on this fundamental point, and that after this had been achieved he would proceed rapidly to consider the documents relating to the IDA.

Mr. Dillon said that, in this connection, we realize that deGaulle has suggested that the question of economic assistance to underdeveloped countries be put on the agenda for any summit meeting, and that he had apparently put forward this suggestion with the idea of offering a challenge to the Soviet Union to join us in projects for aiding the underdeveloped countries.⁴ He said that the possibility of including this item on the summit agenda was included in the report of the four-power Working Group that prepared for the present meeting of Foreign Ministers.⁵ He said that during the course of these preparations the US had focused on other aspects of the Working Group paper, and that the inclusion of this item had been agreed to in the Working Group before it had in fact been discussed generally within this government. He said that discussion of this item at the summit would be contrary to general US policy, and that Secretary Anderson had just described the reasons for our opposition to working with the Soviets in carrying out the development of the underdeveloped countries. He said that we would like to see this part of the Working Group report changed so that it would be understood that we do not wish to see this subject placed on the summit agenda.

Mr. Dillon went on to say that we understood deGaulle may believe that the Soviet Union would not accept such a proposal at the summit, and that it would consequently be to our propaganda advantage to make it. He said that our own estimate is just the contrary, that the Soviet Union would accept such a proposal and that we would have trouble thereafter. He said that the Soviets had demonstrated at the United Nations that they had been hopeful the SUNFED scheme would be adopted, in which they could carry out their own political purposes. He said that this concern would seem to be a matter of interest particularly to France, since one of the most dangerous places is Africa, where the Soviet Union has shown a great desire to engage in activities, especially in the newly independent countries such as Ghana, Guinea and the Sudan, and where it is having difficulty doing so. He said that under cover of any broad arrangement such as SUNFED, or the suggestion advanced by deGaulle, the Soviet Union would be able to go into all the African territories and would undoubtedly make a great effort to do so, in the guise of the legitimate effort to assist in economic development.

Mr. Pinay agreed that it was inopportune to put this subject on the summit agenda and said that it could instead be discussed among the chiefs of state informally. He then reverted to the need for documentation setting forth the idea for the IDA. Secretary Anderson said that we had not wanted the idea for the IDA to emerge as only a US idea and for this reason we felt that any precise formulation for general circulation should be prepared by the IBRD staff. Mr. Pinay said that this matter involved a question of tactics. He said that one way of proceeding might be to arrange for Mr. Eugene Black to see President deGaulle to put forward these general considerations to him. Mr. Black might tell deGaulle that his original idea was a good one and that something was being done about it. He said Mr. Black could thereby take advantage of the deGaulle initiative by calling on him and making further suggestions by way of elaboration.

Ambassador Alphand said that the difficulty with such an approach is that Mr. Black would be talking about a proposal directly opposed in its approach to this question to the deGaulle suggestion. Mr. Pinay agreed and said that the approach would have to emphasize the dangers of having the Soviets associated with such an endeavor. He said that a way must be found to handle this discreetly with deGaulle through some diplomatic channel. Secretary Anderson said that we would be guided by this suggestion. He said that if Mr. Pinay would like any elaboration of his presentation today we would be glad to prepare responses to any specific points submitted to us by the French Embassy so that Mr. Pinay would have the answers before he returns to Paris. He said that we would also look into the idea of arranging for Mr. Black to discuss the IDA as the way of handling the idea put forward by deGaulle.

Mr. Pinay said that deGaulle believes that competition between East and West in the economic development of underdeveloped countries is a bad thing and that it leads to overbidding between East and West. He said that it is necessary to convince deGaulle that cooperation between East and West in such endeavors is an even greater danger, in that we would in effect be financing as well as facilitating Soviet penetration into such areas. Ambassador Alphand suggested that two documents must be prepared, one to bring out these dangers, and the other to describe the IDA as the way to bring about better cooperation among the free countries in this field. Mr. Pinay agreed that using the IBRD, as an anonymous or impersonal agency not identified with any one country, is a good idea and less dangerous than any other device. He said that the point could also be made with deGaulle that competition in assisting the underdeveloped countries might be eliminated to the extent it is put into the hands of the IBRD, which would thereby eliminate such competition with the Soviet Union on a national basis. Mr. Pinay said that deGaulle approaches this matter in the spirit of good will and even believes that we can improve the Soviets by bringing them into such an endeavor. He said that he believes this thinking to be incorrect, and that on the contrary, he considers that Soviet performance at all international conferences amply demonstrates that they continue to be steadfastly dedicated to the philosophy of world revolution.

Secretary Anderson again congratulated Mr. Pinay on the work deGaulle and he had carried out in France over the past year which, he said, sets an example for other countries in the Free World. Mr. Pinay said that France is herself again, that the French public is no longer interested and is in fact disgusted with the old politics, and that the old party system had disappeared in France.

0. Source: Department of State, Central Files, 398.10/5–2259. Confidential. Drafted by Beigel and approved for Dillon by Robert C. Brewster, his staff assistant, who initialed the source text on May 28. A handwritten note on the source text indicates it was cleared by George Willis, Director of International Finance at the Department of the Treasury, on May 26. The meeting was held at the Department of the Treasury.
1. The International Development Association, an international agency composed of 15 nations for financing economic growth in the less-developed nations, came into being on September 26, 1960, as an affiliate of the International Bank for Reconstruction and Development.
2. No record of the dates of Baird’s trip to Paris has been found.
3. On a note attached to the source text, dated May 26, McBride wrote in response to a question by Brown that the words “Marshall Plan reflows and” were deleted here by the Department of the Treasury as being incorrect.
4. de Gaulle’s initial suggestion was made at his March 25 press conference; see de Gaulle, Statements, pp. 41–51.
5. Documentation on the Report of the Four-Power Working Group at the Foreign Ministers Meeting at Geneva May 11–August 5 is in volume VIII.