158. Briefing Memorandum from the Acting Assistant Secretary of State for Economic and Business Affairs (Constable) to Secretary of State Shultz1
SUBJECT
- Your Breakfast with National Security Advisor McFarlane and Treasury Secretary Regan on International Debt Management, Monday, April 2
We understand the meeting will focus on the substance of the US debt strategy and on how we are organized to formulate policy in this area. In particular, there is a growing concern among the NSC staff that the debt strategy as presently structured does not give adequate attention to the medium-term dimension of the debt problem or to the political and foreign policy problems associated with economic adjustment over the medium term. From a bureaucratic standpoint, form is substance in the NSC view. They believe the Treasury-led process gives insufficient relative weight to foreign policy considerations in developing debt management policy. The NSC staff has expressed these concerns to McFarlane in writing; McFarlane has apparently decided that the matter deserves further high level consideration.
It has been nearly a year since the SIG/IEP produced the 5-point strategy which continues to guide our actions on debt.2 While the strategy appears fundamentally sound, a stock-taking is in order. In particular it would be appropriate to review the actual evolution of industrialized country growth (including near-term forecasts), trade policy/protectionism, and commercial and official lending, as compared to the assumptions which underpin the strategy. At present, lending to the LDCs and growth in the OECD area appear to be adequate to validate the present strategy, but with virtually no room for error. Further analytic work here would be appropriate. More important, more attention to the medium term aspects of the debt management would highly desirable. We need to reassure ourselves that we will not be trying to manage tomorrow’s problems with yesterday’s strategy.
On process, the organizational structures for developing overall debt policy, together with the informal channels of communication, [Page 406] probably give us adequate scope to advance our foreign policy concerns as they relate to debt management. In addition, State has the leading role in negotiating official debt reschedulings in the Paris Club. However, there are serious problems on the implementation side where Treasury has institutional dominance. With the important exceptions of Poland and Yugoslavia where the State Department has the lead, Treasury has usually managed to run one agency shows in mounting the assistance efforts. Sometimes this has worked out well (Mexico); at other times Treasury has lurched from one mistake to another (Argentina), with adverse foreign policy consequences. Moreover, our foreign policy considerations rarely penetrate more byzantine finance ministry clubs such as the G–5 in the newly emergent Debt Deputies group. Better, more effective coordination is essential across the board.
A fact sheet on the organization and substance of US debt management strategy is attached at Tab A. Talking Points are at Tab B.3
- Source: Department of State, Files of the Under Secretary of State for Economic Affairs, W. Allen Wallis, Chrons; Memo to the Secretary/Staff and Departmental/Other Agencies; Memos to the Files; White House Correspondence, 1987–1987, Lot 89D378: Chron File—March 15–April 30, 1984. Confidential. Drafted by McGonagle; cleared in E. Sent through Wallis. Hill initialed the memorandum on March 29.↩
- See footnote 3, Document 131.↩
- Tab A, “Debt Management Fact Sheet,” and Tab B, “Talking Points,” are attached but not printed.↩