214. Letter From Secretary of the Treasury Baker to Representative Fernand St Germain1
I understand that the House Banking Committee plans to mark up legislation on March 25th that contains several provisions regarding international debt and monetary issues, for inclusion in H.R. 3, the House trade bill. On behalf of the Administration, I would like to express serious concerns about some of these provisions, which could have an adverse effect on: our efforts to improve growth in the debtor nations under the international debt strategy; cooperative efforts to improve international exchange market stability; and access for U.S. commercial banks and securities firms to foreign markets.
International Debt Facility
The proposed international debt facility in effect amounts to a clear bailout of commercial banks by the public sector, something which I have pledged to Congress that I would oppose. It could entail substantial Federal budget and tax revenue costs, as well as potential contingent liabilities for participating member governments in case of default on restructured or securitized debt by debtor nations. I do not believe Congress can adequately assess the U.S. national interest in establishing such a facility without a better understanding of these potential costs to the U.S. Government and U.S. taxpayers.
By raising expectations of debt forgiveness, the proposed legislation could also undermine efforts now underway within debtor countries to adopt reforms which are essential to stronger, sustained growth. Indeed, this approach would strengthen those within debtor nations who advocate unilateral efforts to limit debt service payments. Finally, by providing an easy “out” for commercial banks, and by increasing uncertainties about the value of outstanding loans to debtor nations, the proposed facility could also seriously impair debtors’ ability to obtain needed financing, including trade finance, in international markets. This would hamper, rather than help U.S. exports.
[Page 547]For all of these reasons, the Administration cannot support the requirement to initiate negotiations on such a facility.2
[Omitted here is information relating to other economic issues.]
U.S. Membership in MIGA and Merger of IDB Capital
We are pleased that the draft bill authorizes United States membership and our capital subscription for the Multilateral Investment Guarantee Agency. MIGA will have a clear mandate to work toward an open investment climate in developing countries, thereby promoting the role of the private sector and long-term economic growth and development. To effect U.S. membership in the MIGA,3 it is important that the bill authorize the United States to subscribe and pay for shares in the amounts requested without restrictions on budgetary outlays that would prevent us from making full payment.
We also welcome authorization for U.S. agreement to the merger of the “interregional” and “ordinary” capital resources of the Inter-American Development Bank. Merger of the interregional and ordinary capital windows of the IDB will result in easier access to financial markets on more advantageous terms without cost to the United States.
I look forward to working together to address the concerns I have raised.
Sincerely,
- Source: Reagan Library, Stephen Farrar Files, 1987–1988 International Economic Affairs Directorate Outline File, Reports and Plans 03/01/1987–06/30/1987; NLR–177–2–6–3–4. No classification marking.↩
- In a March 24 letter to St Germain, Volcker expressed similar concerns with the proposed legislation’s international debt management provisions. (Reagan Library, Stephen Farrar Files, 1987–1988 International Economic Affairs Directorate Outline File, Reports and Plans 03/01/1987–06/30/1987; NLR–177–2–6–6–1)↩
- For documentation on MIGA, see the Foreign Assistance; International Financial Institutions; Commodity Policy compilation of this volume.↩
- Baker signed “Jim Baker” above his typed signature.↩