180. Letter From the Administrator of the United States Agency for International Development (McPherson) to the Under Secretary of the Treasury for Monetary Affairs (Sprinkel)1
As you know, the Agency for International Development is administering a large and growing volume of balance of payments assistance. When such assistance is provided as cash grants or in the form of commodity import programs, this funding often involves macroeconomic and other conditionality designed to maximize prospects that stabilization and adjustment objectives will be achieved. In other cases, ESF [Page 471] conditionality concentrates on sectoral objectives; but, in these instances as well, achievement of sectoral aims is usually connected with macroeconomic policy considerations.
Until recently, A.I.D. agreements providing for balance of payments financing often cited the need for the country to come to agreement with the IMF or to adhere to the provisions of an existing agreement. The U.S. will still decide to impose policy conditions such as the IMF might require in appropriate circumstances, but passage of the Kemp-Kasten amendment has altered the situation in some respects.2 We in the Agency feel that it is more important than ever to coordinate closely with the IMF to make certain that we understand the reasoning behind the provisions in their objectives and to work jointly with the Fund, the Bank, and other donors towards achieving the best possible results. We are concerned with short term stabilization and are also anxious that policy reforms and other measures be designed to promote sound economic growth over the medium and longer term. Since Fund programs increasingly take the medium and long term into consideration, there is a growing need for coordination with the Bank and major donors.
All of this raises two issues that have troubled us for some time and that now have become more acute; namely, A.I.D.’s restricted access to the IMF and our limited role in U.S.G. deliberations regarding IMF programs.
In the field, our Mission personnel often have excellent relations with IMF representatives, but Fund teams are by no means always prepared to make contact. Here in Washington, my people feel that there are unnecessary barriers placed in the way of their contacts with IMF counterparts.
Given our responsibilities in designing conditions and in administering balance of payments programs, I feel strongly that our relationship with the Fund needs to be further strengthened and regularized. This should be helpful to the Fund and to other U.S.G. agencies as well as to us. If nothing else, a more systematic and timely exchange of information would be of value. I consider it essential to the improvement of coordination between A.I.D. and the Fund that key members of my [Page 472] staff be permitted informal access to their technical counterparts in the Fund. I will make certain that this privilege is used with discretion and will not result in any pressure or interference with the work of the Fund staff.
It is also true that A.I.D. has often had little more than a perfunctory role to perform in U.S.G. deliberations on IMF programs here in Washington, even in the case of countries where there are significant A.I.D. programs. The principal difficulty in this respect is that A.I.D. representatives gain access to relevant deliberations too late to be able to make the useful contributions their experience would sometimes make possible.
I think it would be worthwhile for all concerned to involve A.I.D. more systematically in U.S.G. consideration of IMF programs for certain countries. This would contribute to A.I.D.’s ability to determine the optimal amounts of BOP assistance and to design appropriate conditionality for our programs. It also would improve our ability to judge the relationship and compatibility of A.I.D., other U.S.G., and IMF programs with respect to resource transfers and conditionality packages. Further, I believe that given greater opportunity we can make suggestions that will result in improvements in IMF agreements.
Perhaps we could add this to our list of topics for discussion the next time we get together. Meanwhile, Dick Derham will be sending a copy to Dave Mulford and may follow up with preliminary talks since their offices would have the principal action on coordination.
Sincerely,
- 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: Memos—to other Agencies. No classification marking. Copies were sent to Wallis, McCormack, and Mulford. A stamped notation at the top of the memorandum reads: “WAW HAS SEEN.” A different stamped notation at the top of the memorandum reads: “Received Under Secretary’s Office February 12, 1985.”↩
- The FY 1984 foreign assistance supplemental and the Foreign Operations Appropriation for FY 1985 included an amendment specifying that assistance could not be withheld “solely” on the basis of the policies of international financial institutions. The amendment was known as the Kemp-Kasten amendment for Representative Jack Kemp (R–NY) and Senator Robert Kasten (R–WI). In a September 26, 1984, letter to Shultz, Kemp and Kasten explained that the amendment was “aimed at preventing appropriated economic assistance from being denied because a nation has not reached an agreement with the International Monetary Fund.” (Department of State, Files of the Under Secretary of State for Economic Affairs, W. Allen Wallis, Lot 89D378: State-Treasury Lunches)↩
- McPherson signed “MP McPherson” above his typed signature.↩