Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

83. Memorandum From Secretary of the Treasury Simon to President Ford¹

Washington, January 18, 1975.

SUBJECT

• Results of International Meetings this Week on Monetary and Development Issues

We made major progress this week in resolving a number of key international financial issues in meetings of the Group of 10 Finance Ministers, the IMF “Interim Committee” and IMF/IBRD “Development Committee.”²

I believe we reached agreement on a package of measures which will help restore confidence on the world economic scene, and is fully consistent with U.S. objectives in the financial and energy fields. I am extremely pleased by the breadth and depth of the agreement. The main points are as follows:

1. Safety Net.³ Agreement was reached among the major OECD countries to implement our proposal for a $25 billion “safety net,” and that a new Solidarity Fund to do this should be established at the earliest possible date. Membership will be open to any OECD country following cooperative economic and energy policies. Detailed preparatory work is to be completed in time to permit signature by governments of a specific agreement, the main lines of which are now set, by the end of February 1975.

2. IMF Oil Facility. Agreement was reached among IMF countries that the IMF Oil Facility should be continued for 1975, but on a much more limited basis than had been proposed by the Europeans and others. At our insistence, borrowing from oil producers and others for this Oil Facility will be limited to about $6 billion (or 5 billion SDR’s). Others had favored an open-ended Oil Facility which might borrow 7 to 14 billion or more from these sources in 1975.

There was widespread support for a provision to seek contributions from oil producers and industrial countries to subsidize interest costs of the IMF Oil Facility for poor developing countries. I made clear in various discussions that the U.S. could not be counted on for a budgetary contribution to such a subsidy, though I left open the possibility that some financing might be available for this purpose by a sale by the IMF of a small portion of its present gold holdings.

In response to the U.S. view that the IMF Oil Facility and special borrowing from oil producers should be phased out, and emphasis shifted back to traditional forms of IMF financing, it was agreed that the policies, practices and resources of the IMF will be reviewed to make possible increased use during 1975 of the Fund’s ordinary holdings of currencies to meet the needs of nations in difficulty.

3. IMF Quotas. Agreement was reached in principle to increase IMF quotas of member countries by a total of approximately 32.5 percent. The oil producers’ share of the total IMF quotas will be doubled in order to call for greater participation and a greater voice for these countries in the activities of the International Monetary Fund. Details of this quota increase are to be worked out later, but I made clear that the U.S. could agree to the increase only if our present voting share in the IMF is retained. The U.S. now has a veto over certain IMF activities and we do not want to give up that veto. I believe the proposed total increase in quotas is justified by developments in the world economy since the last increase five years ago. When final agreement is reached in the fall, we will have to seek Congressional approval of the quota increase.

4. IMF Amendments. Agreement was reached on the general lines of a number of amendments to the IMF Articles, with the particulars to be worked out over the months ahead. The amendments are designed to improve the structure of the IMF and bring it more in line with current realities. One amendment supported by the U.S. would provide that member countries can float their currencies in particular situations—a practice which is not now legally permissible under the IMF Articles. Another would reduce the role of gold in the IMF.

5. Gold. Considerable progress was made with the French and others to narrow our differences with respect to the broader question of gold and its role in the international monetary system. However, further negotiations will be necessary before we can reach an acceptable solution to the gold question. Our aim is to arrive at a workable solution which will take gold out of the center of the international monetary system and reduce its importance as a monetary asset, while allowing countries greater freedom in being able to utilize their gold holdings.

6. Support to the Poorest Developing Countries. The developing countries did not give strong support to our proposal for a trust fund to provide additional funds for the poorest countries to be financed by profits from the sale of IMF gold and by loans from OPEC and other countries.⁴ The Germans, French and Dutch strongly opposed creation of a working group to study our proposal. The developing countries generally supported a World Bank proposal for a “third window” with subsidized interest rates. Some developing countries supported an Iranian proposal for a new fund for financing development projects. It was finally agreed that the Boards of the Fund and Bank would study both the “third window” and the U.S. Trust Fund. This is an area where forward movement isn’t going to be easy. My announcement of our ratification of our IDA pledge helped a great deal, however, in maintaining a constructive atmosphere.

7. Comment. The Interim Committee and the Development Committee were both established a few months ago largely at the U.S. initiative. I believe that bringing together finance ministers from time to time in these forums is a useful way of getting decisions on difficult and technically complex financial issues. I am very encouraged by the results of the meetings we have just completed. They show that misguided press reports to the contrary, the Administration is playing an important leadership role on these matters, and is getting the international community to come to grips with critical financial and energy issues.

William E. Simon

1. Source: Ford Library, L. William Seidman Papers, Box 206, Name Files, Simon, Wm., 1/18–31/75. No classification marking. Initialed by Seidman.
2. The G–10 met at the Ministerial level in Washington on January 14 and 16. The IMF Interim Committee and IMF/IBRD Development Committee had been established and held their inaugural meetings in October 1974. The Interim Committee (formally known as the Interim Committee of the Board of Governors on the International Monetary System) succeeded the Committee of 20 as the primary international monetary reform group, while the Development Committee (formally known as the Joint Ministerial Committee of the Boards of Governors of the World Bank and the Fund on the Transfer of Real Resources to Developing Countries) addressed the problems of developing countries. The Interim Committee met in Washington on January 15 and 16. The Development Committee met in Washington on January 17.
3. In a November 14, 1974, speech before the University of Chicago Board of Trustees entitled “The Energy Crisis: Strategy for Cooperative Action,” Kissinger proposed the creation of a financial solidarity fund within the OECD to assist oil-consuming countries beset by large balance-of-payments deficits resulting from the rapid increase in oil prices. Asserting that private lenders alone should not have to meet the needs of such countries, Kissinger suggested that “the governments of Western Europe, North America, and Japan should move now to put in place a system of mutual support that will augment and buttress private channels whenever necessary. The United States proposes that a common loan and guarantee facility be created to provide for redistributing up to $25 billion in 1975, and as much again the next year if necessary.” For the text of Kissinger’s speech, see Department of State Bulletin, December 2, 1974, pp. 749–756.
4. In Kissinger’s November 14, 1974, address to the University of Chicago Board of Trustees, he also proposed the creation of a special trust fund to assist the 25 to 30 developing countries most seriously affected by the rapid increase in oil prices. Kissinger called for “the creation of a separate trust fund managed by the IMF to lend at interest rates recipient countries could afford. Funds would be provided by national contributions from interested countries, including especially oil producers. The IMF itself could contribute the profits from IMF gold sales undertaken for this purpose.”