178. Letter From President Reagan to French President Mitterrand1
Thank you for your recent letter concerning the question of a possible allocation of Special Drawing Rights (SDR’s) by the International Monetary Fund.2 I understand that Don Regan, George Shultz and Bud McFarlane discussed this and other international financial issues with your Special Counselor, Jacques Attali, during his recent visit here.3 Mr. Attali’s thoughtful presentation of your views was much appreciated.
The United States shares your concerns regarding the economic hardships which many less developed countries have recently experienced. We also agree that those countries which are implementing difficult economic adjustment programs merit our support. However, [Page 467] we do not believe that an SDR allocation would be an appropriate or effective means of providing support or helping those countries deal with their economic difficulties.4
Clearly, a number of developing countries have experienced severe financial constraints and reduced access to private credit. In our view, this does not reflect a long-term global need for international reserves, which is the requirement for an SDR allocation. Rather, there has been a loss of private market creditworthiness, due in part to a lack of confidence in their past policies. Indeed, international reserves as a whole have increased substantially since the onset of the debt problem in 1982, and a further global increase is projected for next year.
As you know, the cooperative debt strategy which all of us endorsed at Williamsburg in 1983 includes as one of its principal elements the need for debtor countries to adopt effective economic adjustment measures. Recent developments indicate that this approach is bearing fruit and is the key to rebuilding the reserves of developing countries. Many countries are implementing sound economic policies, with the support of the International Monetary Fund, and are gradually regaining their access to private credit markets and official assistance, thus improving their prospects for growth and development.
Rather than supporting and encouraging these efforts, an SDR allocation could actually undermine the adjustment process since SDR’s would go to all members of the IMF, not just those implementing comprehensive economic programs. Additionally, despite considerable progress in the industrial countries, inflation remains a serious problem in many LDC’s, and we are concerned that an allocation could erode their willingness to face up to this problem.
Because the bulk of any SDR allocation would go to the industrial and oil-exporting countries, we would also question whether an allocation would significantly benefit either the major debtors or the poorest developing countries. For example, from an allocation of SDR 10 billion, Brazil would receive SDR 160 million while Chad would receive only SDR 3 million. I understand that your proposal for SDR lending by financially strong countries is designed to address this particular drawback to an SDR allocation. However, for us, conceptual and legislative problems would remain. First, the recent increase in IMF resources—an increase I strongly supported—provides the IMF with adequate funds to meet official balance of payments financing [Page 468] for the foreseeable future.5 Supplementing these funds is, in my view, unnecessary and inconsistent with the 1983 agreement to increase the IMF’s resources. Moreover, we would be unlikely to obtain the legally necessary Congressional support for such lending, following the $8.5 billion provided recently to the IMF in the face of severe budget constraints.
We are making significant strides in resolving the debt problem through a combination of strong economic recovery in many industrial countries, effective economic adjustment by the debtors, and appropriate official and private financing. I am confident that the approach we have adopted, and which was endorsed at the London Summit, will succeed. You may be sure that the United States will continue to work closely with France in this effort.
Sincerely,
- Source: Reagan Library, Roger Robinson Files, Chronological File, Robinson Chron September 1984–October 1984; NLR–487–11–18–4–6. No classification marking.↩
- A copy of the September 6 letter from Mitterrand to Reagan is in the Reagan Library, Roger Robinson Files, Chronological File, Robinson Chron September 1984–October 1984; NLR–487–11–18–5–5.↩
- No record of this meeting has been found.↩
- In a September 18 memorandum to McFarlane, Robinson explained that he brokered the interagency response to Mitterrand’s September 6 letter, which was accepted by both the Departments of State and the Treasury, and that Reagan’s letter in response thus represented the U.S. position on an SDR allocation “going into the IMF/World Bank meetings.” (Reagan Library, Roger Robinson Files, Chronological File, Robinson Chron September 1984–October 1984; NLR–487–11–18–2–8)↩
- See footnote 5, Document 302.↩