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

155. Memorandum From the Under Secretary of the Treasury for Monetary Policy (Sprinkel) to Secretary of the Treasury Regan¹

Washington, December 22, 1983

SUBJECT

• Trade and Finance Policy Proposal

I. Summary

This proposal arises from an attempt to rethink our trade/finance link initiative. We have looked at both the substance and the process of our efforts to push the trade and financial policy communities toward an effective approach to protectionism and the international debt problem. The result of our efforts is a proposal that aims to:

a) ease and promote the medium term adjustment of the high debt LDCs while spurring private sector development in these countries by increasing direct investment flows into the LDC’s;

b) attack protectionism and barriers to investment, especially in the most protected countries (the LDC debtors);

c) help resolve the LDC debt problem in the medium and long term by reducing the need for “extraordinary” financing of debtor countries and accelerating progress towards a return to more stable trade and financial relationships;

d) enlarge markets for industrial country exports, including service exports.

The proposal would create a series of trade agreements between each of the major LDC debtors and their principal creditors. These negotiations will focus on mutual trade concessions, but will also—for the first time—try to remove barriers to direct investment in LDC’s, and include export credits from participating developed countries (to be used only when needed to balance the trade and investment concession packages.) The agreements would be structured to increase debt service capacity and to open overprotected LDC markets whose import growth is now blocked by balance of-payments constraints and inefficient resource allocation.

All this would happen in a two-step process. After an adjustment program is worked out with the IMF and debt rescheduling and/or new credits are agreed on to fill the financing gap, a second negotiation (not necessarily involving the same developed country participants) would begin, with the objective of finding trade and investment concessions of interest that would be extended preferentially for a limited period. These concessions would subsequently be made multilateral, so that all countries would share in them. To carry out this proposal we would need:

a) legislation to obtain new trade negotiating authority;

b) sufficient export credit commitment authority; and

c) a minimum number of developed country partners sufficient to give the concept “critical mass”.

If you approve of the approach as outlined in detail in the rest of this memo, we will need not only to do further work on the many remaining questions that have been flagged but also to begin immediately to seek an interagency consensus. Ultimately, this will be an issue for the SIG–IEP, but it makes no sense to proceed in that direction until Ambassador Brock has accepted the basic idea. This will be largely a Treasury/USTR operation if it gets underway, and our two agencies must be in full accord on it. Hence, with your approval, we would like next to approach Bill Brock and his key people for their reactions.

Approve; see Brock and report results _________

Disapprove _________

Other _________²

[Omitted here is a more detailed description of the proposal.]

1. Source: National Archives, RG 56, Records of the Office of the Under Secretary for Monetary Affairs, Subject Files relating to Meetings, Working Groups, Trips, Summits, and Currency Talks, 1/1/1981–12/31/1985, UD–13W105, 56–89–45, Box 4, BWS Chron: Dec 15–31, 1983. Confidential. A handwritten note on the memorandum reads: “Orig. del 12/28.” Sprinkel wrote at the top of the memorandum: “Another excellent response to your request for new ideas, I like it! It puts ‘meat’ on our trade finance initiative. However—many problems.”
2. Regan initialed the “Approve” option on December 23.