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

180. Memorandum From Lawrence H. Berlin of the Program and Policy Coordination Staff, Agency for International Development, to the Assistant Administrator for Program and Policy Coordination (Stern)¹

Washington, September 24, 1971.

SUBJECT

• IBRD/IMF Annual meetings: Briefing of U.S. Delegation

The meeting of the U.S. delegation was chaired by Mr. Volcker, whose principal concern was with the questions likely to come up in corridor conversations among delegates concerning the new U.S. economic policies. He particularly stressed the danger that the press might be expecting some dramatic solution to the current world monetary crisis to come out of the Bank/Fund meetings, and will report failure when such a solution does not materialize. There is in fact no intention to seek answers to the monetary, trade, and defense burden-sharing issues next week; as always, the Bank/Fund meetings will be largely routine.

There will, of course, be side meetings of the Group of Ten, but this is purely incidental to the Bank/Fund meetings. Members of the U.S. delegation were specifically urged to express ignorance if any questions are asked by foreign delegates about the prospects for a resolution to be passed by the IMF Governors dealing with the international monetary system. (FYI: Such a resolution is expected, but the subject is highly sensitive; the resolution will in any case merely call for studies. End FYI)

Mr. Volcker stressed the official U.S. view that the balance of payments problem reflects not merely the need for changes in the international monetary system, but also foreign trade practices which are biased against the United States, and the U.S. defense burden. Fundamental rethinking of these issues is necessary, and while the U.S. Government has views, it is not deemed good tactics to propose a “U.S. solution” at this time, resistance to which might well kill off meritorious ideas prematurely. We seek solutions arrived at mutually, which accept the fact that the relative economic position of the United States in the world has changed even though we remain in a position of strength and leadership. We also wish to avoid a patchwork solution to the monetary problem alone which would leave other basic issues unresolved and could therefore prove unequal to the task of restoring basic equilibrium in our balance of payments. The result of such a failure could be demoralizing.

The following specific questions, which could come up at the meetings, were noted:

• 1—Were the recent European conferences of the Group of Ten² a failure? Answer: No; there was no expectation that broad solutions would be reached so soon. There was agreement for the first time that a fundamental realignment of currency values is necessary, and it was agreed that the OECD, the Group of Ten, and the IMF would initiate needed studies.
• 2—Does the United States have solutions to propose? Answer: No; we believe the problems are difficult and require solutions which are carefully evolved and not rushed. Our minds are open.
• 3—Why won’t the United States agree to increase the dollar price of gold? Answer: Our concern at this time, insofar as the monetary system is concerned, is with determining the magnitude of the changes in relative exchange rates which are required to re-establish monetary equilibrium, and with the basic direction of the international monetary system. We are also concerned about trade and about greater sharing of the defense burden. (FYI: Treasury, while recognizing that U.S. agreement to a token devaluation of the dollar at this time would ease the political problems of other countries in up-valuing their currencies, nevertheless believes such U.S devaluation could set a precedent and lead to demands for further devaluation of the dollar, if efforts to re-establish equilibrium are not successful. End FYI)
• 4—Why won’t the United States exempt LDCs from the 10 per cent surcharge? Answer: There has been no change in the basic U.S. position on trade policy, but we believe surcharge is required until the underlying issues are resolved in their totality and the prospects for the U.S. balance of payments have definitely improved. In the long run, the LDCs will be better off, since if satisfactory solutions are arrived at, the chances of a return to protectionism in world trade will be fewer. (FYI: Exempting LDCs from the surcharge would be interpreted by OECD as an indication that we intend to keep the surcharge indefinitely. End FYI)

Note: The U.S. delegation will have its offices in Room C-253 in the C Wing of the Sheraton Park. Delegates are asked to register there, on Monday morning, and AID officials who are not delegates can pick up badges at Room C-253 to permit them to attend sessions.

1. Source: Washington National Records Center, Agency for International Development, Office of the Administrator: FRC 286 75 13, Box 10, PRM 7-2 July 1971-October 1971 FY72. Confidential.
2. The G-10 Ministers met September 15-16; see Document 175.