Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

12. Memorandum From the Special Assistant to the Under Secretary of State for Economic Affairs (Rush) to the Director of the Office of Development Finance, Bureau of Economic and Business Affairs (Basora)¹

Washington, April 24, 1981

SUBJECT

• Comments on Synthesis Paper

I am troubled by this paper, which I believe is misleading to the reader in indicating that, in certain areas, there is a greater shift then in fact is taking place in our policy toward LDCs.² I have come to understand the urge in the new Administration to state that everything is new; however, it is also a theme of Secretary’s that US policy is to be steady and that changes will be evolutionary. It is not necessarily in our interests to attempt to show that everything is different when in fact only some things have changed.

In considering what is new from what is unchanged in our approach to LDCs, it might be useful to split our involvement with them into three areas: interests, tools to promote those interests, and the overall process.

Interests. I do not believe the IG has indicated sharp differences in the underlying interests the US has toward the LDCs. The synthesis paper states that the new Administration is interested in LDC economic development not just for humanitarian reasons, but also to promote stability, to encourage a more Western political orientation, to encourage supplies of energy, and strengthen trade and investment. These are identical to themes repeated constantly by the Carter Administration. What is different in this Administration’s approach is greater attention to security and political objectives in our approach to LDC economic policy. What this means in practice remains unclear. The IG itself has defined our strategic and political interest in LDCs to be virtually global (i.e., the number of countries which we aid for strictly humanitarian reasons is a very short list) and the reallocation process of nicking country A by a little bit to provide some more assistance to country B will continue pretty much as before. Large shifts in resources will be very difficult. Further, as many of us realize who were involved in the budget cutting exercise, many of the specific program increases that had been put into the Carter budget were in fact targeted to countries of major strategic importance.

Tools. Here, too, we should demonstrate consistency as well as innovation. In particular, it is not apparent that our trade policies toward LDCs will change significantly. The previous Administration worked hard for the MTN Agreement,³ and supported GSP. This Administration will also do what it can, given the opposition by domestic political interests, to open trade to LDC imports.

The extent to which our approach to the MDBs will change remain unclear and, as you note, we should properly wait for the conclusion of the Treasury Interagency Review to form any conclusions. My guess is that it is likely that there will be little change in the hard window lending of the banks, as this constitutes the major means by which we assist the NICs, countries clearly of major importance to us. Some reforms, however, will probably have to be considered for the soft window replenishments, particularly IDA.

Perhaps the greatest change of direction comes in emphasis on use of the private sector in becoming more involved in development. However, this statement conceals a philosophical split that it would be useful for the IG to explore. On one hand there is the view that the US should be encouraging a laissez faire international system in which choices are left to the private sector as much as possible. It is this view that argues for reduction in Exim and OPIC. The contrary view is that the US private sector itself is a means for extending US involvement and interests in LDCs, and that the USG should facilitate and encourage such involvement. There are no doubt ways that the private sector can be involved which do not have budgetary effects, such as reforming tax legislation regarding US nationals abroad. But other potential ways the government could support business certainly do cost money and may require subsidies. It is this view that argues for increased attention to such institutions such as Exim and OPIC.

Process. It is clearly desirable to reduce the level of rhetoric on North-South issues, a theme certainly common to the previous Administration as well as this one. The problem is that such rhetoric is not usually our call to decide. We almost inherently find ourselves in a reactive mode responding to a G–77 resolutions and conferences. What this Administration’s view toward an ongoing N-S dialogue will be had not been decided. On the face of it, it is not clear to me that there will be a great deal of difference from the Carter Administration. Skepticism about what can be accomplished in North-South fora is probably greater now. But this Administration will also come to feel the political pressures of our need to engage in discussion and to behave as an activist world power. It is, after all, this Administration; not the last, that has indicated willingness to participate in a North-South Summit.

1. Source: Department of State, Bureau of Economic Affairs, Office of Economical and Agricultural Affairs Files, Official Economic Summit Files, 1975–1991, Lot 93D490: 1981 Ottawa Summit N/S U.S. Position. No classification marking.
2. Two different versions of the synthesis paper are ibid. Another version of the synthesis paper is in the Reagan Library, Norman Bailey Files, International Economics File, “Ottawa Summit July 1981.”
3. Reference is to the multilateral trade agreements that were negotiated during the 1973–1979 Tokyo Round of GATT negotiations. See Foreign Relations, 1977–1980, vol. III, Foreign Economic Policy, Document 209.