Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

144. Memorandum From Secretary of the Treasury Kennedy to President Nixon¹

Washington, December 29, 1969.

SUBJECT

• Quota Increases in the International Monetary Fund

Following considerable informal negotiation, the Executive Directors of the Fund were formally charged at the Annual Governors’ Meeting early in October to complete a general review of Fund quotas by the end of December and to make recommendations for appropriate increases. The Directors completed this process on December 24. The Fund will probably announce the results tomorrow, for December 31 newspapers.

The over-all increase in quotas recommended will be approximately $7.6 billion, compared to present quotas of some $21.4 billion. The potential increase will thus be about 35 percent.

This proposed increase is consistent with our broad program for international monetary reform, as outlined to you last Summer.² It is a logical (but less important) complement to the activation of Special Drawing Rights. Larger quotas provide greater scope for balance of payments financing for all countries through the IMF more or less in line with the growth in the world economy.

The new quota recommended for the United States is $6,700 million, an increase by almost 30 percent from the present quota of $5,160 million. Since the U.S. quota will increase by a smaller than average proportion, the U.S. share of total Fund quotas will be modestly reduced, from the present 24.2 percent to 23.2 percent.

The share of the main industrial countries (the Group of Ten) in total quotas will be approximately the same in the future as now, approximately 61 percent. This reflects an increase in the weight of the Common Market countries. The quota share of the developing countries has been protected against much of a reduction, although the statistical calculations traditionally used by the Fund in determining quotas would have indicated a significant reduction. The share of developing countries will fall from 28.3 percent to about 27.3 percent.

Quota increases must normally be paid for 25 percent in gold and 75 percent in the member’s own currency. The U.S. quota increase will require a gold payment of $385 million and a payment in dollar instruments of $1,155 million. Many other countries, especially the larger industrial countries (except perhaps Japan), expect to make the required gold payment from their own holdings. However, a number of smaller countries would have to buy gold to make the payment, presumably from the United States. In order to mitigate the effect of such gold purchases on U.S. reserves, the Fund has worked out rather complex procedures to “steer” the gold back to where it was bought.³ These arrangements will avoid a fall in U.S. gold holdings of up to an estimated $600-$700 million, which would otherwise have occurred.

The U. S. quota increase in the Fund will require authorizing legislation in 1970. However, these operations are considered as an exchange of monetary assets and have no budgetary impact.

The established practice is that countries, especially the more developed countries, receiving quota increases in the Fund should increase their subscription to the capital of the World Bank by a corresponding amount. We believe this tradition should be maintained, in the light of our desire to strengthen multilateral lending institutions. This will require authorizing legislation and have a budget impact of $24.6 million in Fiscal 1971, corresponding to a 10 percent paid in portion of a $246.1 million capital subscription. Allowance has been made for this in your prospective 1971 budget.

With your approval, I plan to vote the United States in favor of the proposed increase in IMF quotas and to support corresponding selective increases in World Bank capital in forthcoming discussions in the World Bank.⁴

David M. Kennedy

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury, Volume I. Confidential. Attached to internal National Security Council memoranda and a transmittal memorandum to the President indicating that Kissinger approved Secretary Kennedy’s recommendation on the President’s behalf since the quota increase was consistent with policy decisions already taken.
2. Presumably a reference to the June 26 meeting with the President; see Documents 130, 131, and 140. An IMF quota increase would complement SDR activation in adding to the stock of international liquidity.
3. See Document 142 and footnote 6 thereto.
4. The memoranda attached to this memorandum (see footnote 1 above) indicate that Kissinger’s approval on the President’s behalf was being passed to Treasury by Robert D. Hormats on January 5, 1970, in time for a World Bank meeting on January 6.