Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

178. Information Memorandum From Robert Hormats of the National Security Council Staff to the President’s Deputy Assistant for National Security Affairs (Haig)¹

Washington, June 23, 1972.

SUBJECT

• Expropriation Policy

Flanigan may speak to you about this today. As you will recall, the question of handling instructions to US representatives to the international financial institutions in expropriation situations has not yet been resolved. Attached is an earlier memorandum which I sent to HAK on this subject recommending that he indicate to Flanigan and Shultz his objection to delegating to the Secretary of the Treasury the Presidential power to make determinations on whether or not appropriate compensation was being paid.² I do not know whether HAK pursued this with Shultz and Flanigan but I have no indication that he did. I do know, however, that Shultz and Irwin have discussed this.³

Recently, precipitated by discussion of what policy the US should pursue with regard to a loan to Panama—which had intervened in an American company but has since agreed to amicably settle the issue, thereby obviating the necessity for us to vote negatively—before the Board of the Inter-American Development Bank,⁴ there has been renewed interest in getting out a memorandum to the Secretary of the Treasury. If my antennae serve me well, Flanigan is attempting to resolve this problem and may speak to you about it in the near future. If he does, I still feel that the President—not the Secretary of the Treasury—should have the final say on whether we vote negatively or not since there is an obvious foreign policy component in any such decision. And for purposes of consistency it is important that we not pursue one policy in the multilateral institutions and another with respect to bilateral aid. Giving the Secretary of the Treasury power to make this determination on votes in multilateral institutions runs this risk.

Flanigan, however, may feel that in order to avoid putting the direct pressure on the President to make determinations in expropriation situations it is preferable to delegate this power to the Secretary of the Treasury. And Shultz would be reluctant to cease fighting for authority to make this determination—since Connally and the Treasury bureaucracy have fought hard to get this authority.⁵ If this is the case, you might try to work an agreement whereby:

• —The determination power would be given to the Secretary of the Treasury.
• —Secretary Shultz would give private oral assurances to the Secretary of State that he will consult with him prior to directing our representatives to these institutions to cast a negative vote or abstain.
• —If the Secretary of State differs from the Secretary of the Treasury, the matter would be brought to the President for resolution. (At that time, HAK would have his say.)

This would take direct pressure off of the President, allow Shultz to work out a modus vivendi with Rogers without having to formally back down from Connally’s tough position, and allow HAK an input when State and Treasury differ (which, historically, is on about every major case).

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 219, CIEP. Confidential.
2. Document 177.
3. Not further identified.
4. On June 20 Carl F. Salans in the Office of the Legal Adviser of the State Department sent a memorandum to Assistant Secretary of State Armstrong informing him that on June 19 the CIEP Interagency Coordinating Group had concluded it was not possible at that time to determine whether good faith negotiations were in process to permit the United States to support a pending loan for Panama in the IDB. It was not clear if the Gonzalez Amendment was even applicable to the Panama dispute, as the U.S. company was not seeking compensation as a remedy for the taking. The Legal Adviser’s view was that even if the Gonzalez Amendment were applicable, sanctions were not appropriate under the “good faith negotiations” test or under the “reasonable steps” criteria in the President’s January 19 policy statement. (National Archives, RG 59, Central Files 1970-73, AID (IDB) 9 NAC)
5. A June 7 briefing memorandum from NSC Staff Secretary Davis to Kissinger for his June 8 meeting with Shultz included a section on General Expropriation Policy. It referred to Shultz’ April recommendation (see footnote 2, Document 177) that the Secretary of the Treasury make the determination that “appropriate” compensation arrangements had been made or were in process. The briefing memorandum argued that it was preferable to vest the authority with the President when there was interagency disagreement. The briefing memorandum also had a section on Peru/IPC, which asserted the Treasury Department’s intention to vote against loans to Peru in the IDB and to cut off U.S. humanitarian assistance. The memorandum cited the dangers in overt actions against Peru and suggested Kissinger remind Shultz of the foreign policy importance of not raising the emotional level of the IPC issue. It was also pointed out that the President had specifically directed that humanitarian assistance not be cut off under the same presumption that applied to bilateral assistance and IFI loans. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 290, Treasury, Volume III)