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

192. Information Memorandum From the Acting Assistant Secretary of State for Economic and Business Affairs (Lamb) to Secretary of State Shultz¹

Washington, October 8, 1985

SUBJECT

• Secretary Baker’s Speech to IMF/IBRD Annual Meeting

Summary

In his much-awaited address to the Board of Governors this morning, Secretary Baker outlined “phase 2” of our debt strategy with its increased emphasis on growth-oriented policies designed to promote structural adjustment in debtor countries (copy attached).² The main points of his remarks are recapped below. Preliminary reaction to the speech has been cautious but positive. Baker’s proposal has focused attention on the need to foster growth through increased emphasis on market-oriented policies. His address also served to send a clear signal that the United States is prepared to play a more active role in resolving global debt problems.

The major points made by Secretary Baker in his keynote address to the joint IMF/IBRD Board of Governors are as follows:

— The international debt strategy pursued since 1982 has worked remarkably well, but recent setbacks in key debtor countries indicate a need to build upon the existing case-by-case strategy in order to improve the prospects for growth. The underlying theme of his remarks is the need to place increased emphasis on achieving renewed and sustainable growth in debtor countries through adoption of market-oriented policies and increased financial flows.

— The USG “Program for Sustained Growth” was described as consisting of three mutually reinforcing elements:

(1) adoption of appropriate macroeconomic and structural policies by the debtor countries;

(2) a continued central role for the IMF, in conjunction with increased structural adjustment lending by MDBs, in support of market-oriented policies for growth; and

(3) increased commercial bank lending in support of adjustment programs. To this end, Baker called upon the banking community to publicly pledge some $20 billion of net new lending over the next 3 years.

— To bolster the effectiveness of the IFIs, he called on the Fund to give higher priority to tax reform, market-oriented pricing, and the reduction of labor-market rigidities and barriers to foreign trade and investment. For its part, the World Bank should expand its fast-disbursing lending and, as a result, act as a catalyst for commercial bank lending. Baker did not, as some expected, recommend World Bank guarantees for commercial bank lending.

— Baker sought support for establishment of the recently negotiated MIGA as an effective means to attract non-debt capital flows as well as technological and managerial resources.³

— Turning to the poorest countries, Baker urged further consideration of his proposal to use the Trust Fund reflows in a larger joint Fund/Bank facility.⁴

1. Source: Department of State, Bureau of Economic and Business Affairs, Files of the Planning and Economic Analysis Staff, Lot 87D73: ORG 12–1 Taskers 1985. Confidential. Drafted by Michael Glover (EB/EFD/OMA); cleared in EB/IFD/OMA and EB/EFD.
2. A copy of Baker’s speech, printed on “Treasury News” letterhead, is attached but not printed.
3. For documentation on MIGA, see the Foreign Assistance; International Financial Institutions; Commodity Policy compilation of this volume.
4. See Documents 183, 188, 189, 190, and 191.