198. Memorandum of Conversation1
PARTICIPANTS:
Development Committee:
- Chairman Ghulam Ishaq Khan
- Fritz Fischer, Executive Secretary Development Committee
- Moiuddin Baqui, Adviser to Chairman Khan
- D. R. Clarke, Development Committee Staff
Treasury:
- Secretary Baker
- Assistant Secretary Mulford
- Deputy Assistant Secretary Conrow
- Rhonda Bresnick, notetaker
CHAIRMAN KHAN opened the meeting with the subject of arrangements for the Development and the Interim Committee meetings in April 1986. He told the Secretary that, after discussions with Chairman Ruding, it was decided that the three day meetings will be split equally between the two Committees, with the Interim Committee meeting on April 9th at 9:00 a.m. and ending with a press conference on April 10th just prior to a joint luncheon. The Development Committee will begin at 3:00 p.m. on that day, with formal statements. He and Chairman Ruding agreed there would be only limited discussion in the Development Committee on the world economic situation, since that subject will be discussed in detail in the Interim Committee. On April 11th, there will be a restricted session in which the draft communique is discussed, and following lunch there will be final consideration of the communique.
SECRETARY BAKER said that while these plans are acceptable, he hoped in the future the meetings could be held to two full days instead of three. In addition, he said that he found last year’s informal discussions very functional and if the polemics are held to a minimum two days of meetings would seem sufficient for the business at hand. CHAIRMAN KHAN agreed the polemics should be held down and assured the Secretary the meetings will be conducted in a businesslike way. He agreed the meetings could be shorter but said it was not possible to change the plans for the April meeting.
CHAIRMAN KHAN outlined the items on the agenda as: (1) achievement of sustained growth in developing countries (including [Page 519] a discussion of the Baker debt strategy); (2) the resource problems of Sub-Saharan Africa; (3) reports to the Committee. CHAIRMAN KHAN said the question of a General Capital Increase (GCI) for the World Bank had been in the last five Development Committee communiques and he is concerned there will be some criticism that, due to the lack of progress on this issue, the World Bank has not complied with the directives in the communique. He would like to preempt any embarrassment on this issue during the meetings. In addition, he said, there is doubt whether the U.S. is willing to provide the necessary resources to the Bank while at the same time the Baker debt initiative is calling for a more active role for the Bank. SECRETARY BAKER pointed out that currently the Bank has underutilized capacity. He noted that if the debt initiative were in fact embraced by everyone we would then have to look at the question of a GCI. He also said at a time of draconian budget cuts in the United States, that he could not breathe a word on a GCI if we were also talking about an IDA replenishment, particularly until we can prove the need. CHAIRMAN KHAN raised the subject of the wording of agenda item one and proposed language which would not draw attention to the question of a GCI. The proposed language is as follows: “achievement of sustained growth in the middle income countries encountering debt service difficulties and its impact on the World Bank’s overall lending program and its future resource requirements.” SECRETARY BAKER agreed with the proposed language.
MR. FISCHER pointed out that one result of the Development Committee meeting should be to give a signal to the commercial banks that the IBRD is in a position to provide additional financing. CHAIRMAN KHAN noted he had met with Mr. Stern and the commercial banks are looking for the IBRD to come up with their share of what is expected. SECRETARY BAKER responded by saying there is a need to get into detailed discussions about changing the lending procedures of the World Bank. Long time delays are inconsistent with our debt initiative which calls for more fast disbursing loans. He said that he had met with Mr. Clausen on this subject. MR. CONROW said it may be a subject to raise with the new President of the Bank and then perhaps at the fall meeting of the Development Committee. CHAIRMAN KHAN offered to mention this in his statement at the April meeting and to suggest that it be put on the agenda for the meeting in the fall.
SECRETARY BAKER said he wanted to take the opportunity while talking about our debt strategy, to stress that our initiative contemplates a continued central role for the IMF as well as a central role and opportunity for the IBRD. There is some sensitivity, he noted, on the part of the IMF that their continuing role is not recognized. SECRETARY BAKER noted that an example of the roles of the two institutions can be seen in the case of Ecuador where the type of policy reforms we have [Page 520] been supporting have been made and the results have been successful. Recently, Ecuador signed a sector loan agreement with the IBRD. They are also in the process of negotiating a new stand-by agreement with the IMF. In combination with these agreements, they have received a rescheduling of their commercial bank loans and a new financing package.
CHAIRMAN KHAN noted that optics are very important with respect to the debt initiative and the United States must be seen to be doing something. SECRETARY BAKER said that in our presentation at the Development Committee we will be outlining what has been accomplished thus far. This includes: a joint statement by the Bank and Fund on the debt initiative, written support and pledges of participation from virtually every quarter, and an increase in sector loans.
CHAIRMAN KHAN said that while the debt strategy is seen to be addressing the problems of the middle income debtors and the African countries, there is one group—Asian countries—which appear to be left out. The Asian countries will be looking to IDA VIII and in this regard, he noted, they would be watching carefully the replenishment negotiations for the Inter-American Development Bank. MR. CONROW noted that there are different budget issues to be addressed in the IDA replenishment and the IDB replenishment. The IDB replenishment is callable capital while in the case of IDA there is a budget outlay. Thus, countries should not be looking at the two replenishments in the same light.
CHAIRMAN KHAN raised the matter of the G–10 and G–24 reports, saying he believes that the major themes in these reports should be given more serious consideration than they can be given at the Interim Committee meeting. The Fund staff should do more work on such subjects as the future role of the SDR, surveillance and the creation of a compensatory financing facility and the IMF Board should discuss these issues in detail. This would show that the Fund is taking these reports seriously and not simply noting them for the record. SECRETARY BAKER said that it is up to those people in the Interim Committee sponsoring the reports to make this suggestion, however the idea seemed acceptable to him. It was agreed that the issues in the G–10 and G–24 reports should not be discussed in great detail in the Interim Committee. On the subject of a compensatory financing facility, he noted that while we agree that there is a problem for developing countries whose adjustment efforts have been frustrated by the decline in commodity prices, we do not agree with the proposed solution to create a facility. He said the biggest drop in commodity prices has been in oil and that has been because of the existence of a cartel. We are philosophically opposed to cartels and believe that a creation of a [Page 521] compensatory facility would just be creating another cartel. MR.2 noted the answer in the longer run is export diversification not subsidies.
MR. FISCHER said that it was very helpful last year for the Chairman to have met with Secretary Baker prior to the start of the meetings. It was agreed that Secretary Baker would meet with Chairman Khan before the start of the meetings in April.
- Source: National Archives, RG 56, Records of the Office of the Secretary of the Treasury, Correspondence Files, 1986, UD–13W, 56–89–13, Box 38, Memcons ’86. No classification marking. The meeting took place in the Secretary’s conference room at the Department of the Treasury. Prepared by Ronda Bresnick on January 22. Conrow signed the memorandum.↩
- Omission is in the original.↩