Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

145. Memorandum From Secretary of the Treasury Fowler to President Johnson¹

Washington, October 6, 1967.

SUBJECT

• Report on the 22nd Annual International Monetary Fund and the International Bank for Reconstruction & Development Meeting in Rio de Janeiro, Brazil

The key decision taken at the Rio meeting was the adoption of the resolution approving the outline plan for a new international monetary asset—Special Drawing Rights in the Fund²—as originally agreed to in London by the Group of Ten.³ The fundamental importance of this new undertaking was recognized both by industrial and developing countries, and the resolution was approved without dissent. The action taken by the Governors at Rio initiates the next stage—the preparation of the formal legal text by the IMF Board of Executive Directors for final legislative action by all member countries. The resolution directs the Executive Directors to proceed with their work on the basis of the outline “in order to meet the need, if and when it arises, for a supplement to existing reserve assets,” and to submit their report to the Board of Governors as soon as possible but not later than March 31, 1968.

The resolution approved in Rio also provided for a parallel report by the Executive Directors on proposals for modification of the present IMF rules. This is an area where the clearest issue will shape up. While we go along with the parallel study of the present operations of the Fund, the study or the approval of the study’s recommendations, if any, cannot be a pre-condition to action on the Special Drawing Rights facility. My statement on this point is shown in the attached copy of my IMF speech.⁴ We will study new IMF reform proposals on their merits and I will consult with the Dillon Committee and members of Congress in the formulation of the U.S. position. We may have suggestions of our own. The fact that this parallel study is not a pre-condition to action on the SDR was clearly agreed to in London by the EEC countries. The Finance Minister of France took a different position, namely that “The parallel execution of these two reforms is, I would recall, one of the conditions of the agreement of the French Government.”⁵ Only time and future negotiations will reveal to what extent France or any of the other Common Market countries will hold to this position.

One of the important pieces of unfinished business at the Rio meeting on the World Bank side was IDA replenishment. George Woods⁶ and I made clear that there has not yet been a satisfactory response to the offer which you approved last March—to join with other developed countries in a very substantial increase in IDA under suitable balance-of-payments safeguards. There were a number of attempts, some inadvertent and some conscious, to imply that our balance-of-payments safeguards would subject IDA to tied procurement at the expense of the principle of international competitive bidding in the World Bank. I laid that to rest in my own statement and Mr. Woods did the same in his. In his concluding statement, Mr. Woods surfaced, for the first time officially, the size of the U.S. replenishment proposal. He also made it clear that the U.S. proposal was completely consistent with the operations of the Bank, including international competitive bidding. (Attached is an underscored copy of Mr. Woods’ concluding remarks.) In an effort to reach agreement on the replenishment he also called for a ministerial meeting of donor countries in the near future.

In addition to our primary mission in Rio which took place in the plenary sessions, I had the senior members of the delegation lead in bilateral meetings with over 40 countries. About half of these were requests to go over matters of mutual concern between our two countries and about half were designed for political good will, including meetings with almost all the Latin American countries in regional grouping and individually in cases such as Brazil, Argentina, and Mexico. In most of these sessions the Congressional members of our delegation were invited to participate, acting in an observer role generally, and participating helpfully on a number of occasions. These bilaterals provided the Congressional delegation with very useful background on the Special Drawing Rights plan, which will be submitted for Congressional action in the next session. It also afforded them an opportunity to see first hand a wide-range of our international financial problems—ranging from balance of payments cooperation and international financial policy, to multilateral and bilateral assistance problems.

Under Secretary Rostow, in addition to his work on the delegation, handled the launching of the Convention for the Settlement of Investment Disputes—the World Bank facility to promote arbitration and conciliation by private investors in their disputes with governments. He also participated actively in a series of bilaterals, especially with the Middle Eastern countries.

One potential disruptive feature at the plenary was the introduction by the French speaking African countries of a resolution dealing with the establishment of a mechanism for dealing with commodity price fluctuations. The proposal was handled by generalizing it and referring it to study by the IMF and the World Bank.

All in all the meeting was extremely gratifying, particularly the unanimous reception given by the non-Group of Ten to the Outline Plan for Special Drawing Rights. It was well understood and welcomed with enthusiasm by them. Only some of the less sophisticated expressed the hope that the SDR would be more generously allocated to the developing countries as an economic aid device. This was not a substantive issue, however, and even they wholeheartedly supported the proposal.

Henry H. Fowler

1. Source: Johnson Library, National Security File, Fried Files, Chron, September 1, 1967–November 20, 1967 [2 of 2], Box 2. Limited Official Use. Attached to the source text is a memorandum from Rostow to the President, October 9, summarizing Fowler’s memorandum.
2. For text of the September 29 resolution on Special Drawing Rights, see American Foreign Policy: Current Documents, 1967, pp. 189–193.
3. Regarding the London agreement, see Document 141.
4. None of the attachments is printed. An excerpt from Fowler’s September 26 speech at the meeting is printed in American Foreign Policy: Current Documents, 1967, pp. 186–189.
5. For an excerpt from Debre’s September 26 address, see ibid., pp. 182–186.
6. President of the International Bank for Reconstruction and Development.