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

215. Memorandum of Conversation¹

Washington, March 31, 1987, 5 p.m.

PARTICIPANTS

• France:

  • Prime Minister Chirac
  • Jean Raimond, Foreign Minister
  • Francois de l’Estang, Diplomatic Adviser
  • Emmanuel Rodocanachi, Economic Counselor
  • Emmanuel de Margerie, French Ambassador to the United States
  • M. Friedman, Chairman of Air France

• Treasury:

  • Secretary Baker
  • Deputy Secretary Darman
  • Assistant Secretary Mulford
  • U.S. Ambassador to France Joe Rodgers
  • Laurie Berger, French Desk Officer, as notetaker

SUBJECT

• The Louvre Agreement, U.S. trade and budget deficits, international debt

DISTRIBUTION

• Deputy Secretary Darman, Assistant Secretary Mulford; Deputy Assistant Secretaries Berger, Conrow, Cornell, Dallara; Messrs. Barreda, DeFalco, Fauver, Newman, Ms. Chaves and Ms. Wileden, Exec Sec

[Omitted here is discussion relating to economic issues other than the international debt situation.]

PRIME MINISTER CHIRAC brought up the international debt situation. The situation is getting worse and worse. Commercial banks are getting out of poor countries, aid is not increasing, development hopes are vanishing, debt can’t be repaid. For countries like France and the United States, with a shared history of concern for human rights, there is a moral obligation to do something. In a world where General Secretary Gorbachev is taking initiatives in this area, it is madness if we don’t do anything. In ten years, most of these countries will be Marxist/terrorist strongholds. SECRETARY BAKER asked the Prime Minister what his solution would be.² PRIME MINISTER CHIRAC said that President Reagan must take the initiative, and outlined a four-part plan. First, more money should be given to the IMF and the World Bank and more debt should be rescheduled (the Paris Club should be involved). Further, the constraints imposed by these two institutions on countries should be lowered because they are not politically acceptable at present. Second, it is important to encourage commercial banks to return to these countries and to put resources there. It is difficult, but the effort must be made. The American president of the World Bank and the European managing director of the IMF should meet with leading bankers and convince them to return. Third, developed countries must increase aid to debtor countries, in spite of budgetary problems. Fourth, commodity agreements should be revived in order to halt disastrous price fluctuations in key commodity markets (coffee, cocoa).³ He also indicated that the French propose to approach the Pope with this issue so as to mobilize spiritual leaders.⁴

PRIME MINISTER CHIRAC went on to propose a type of commodity agreement under which industrialized country producers would stop making below-cost sales of surplus products (butter for the EC, grain for the United States) to countries such as the Soviet Union and Saudi Arabia. Instead, there could be an agreement to sell surpluses to such countries at prices no lower than the cost of production, using the revenues generated by the agreement to sell additional amounts from surpluses to poor countries at low prices or at zero prices. It wouldn’t be free market policy, but it’s obvious what will happen in these countries (especially in Africa) if we do not look beyond the short-term. This issue was raised with President Reagan and with Secretary Shultz.⁵

SECRETARY BAKER responded that he didn’t disagree with the statement of the problem, but that there is a gap between the conception and implementation of the solution. The Administration does disagree with arrangements to cartelize world markets. Even if this objection could be overcome, such an agreement might not work. OPEC didn’t work in the long run, and that was a case of only a few producers and one commodity. In the case of agricultural products, many countries could become producers and undercut prices. PRIME MINISTER CHIRAC pointed out that this proposal was just one idea.

SECRETARY BAKER acknowledged that the debt problem is one of the biggest facing world leaders today. The trick is finding a solution that is not a Marshall Plan, the ideal solution. The resources simply aren’t there for a Marshall Plan. The toughest job the Secretary of the Treasury has is going to the Hill to get money for international institutions. Negotiations on IDA VIII have just been concluded, with the United States to contribute 25 percent, but we still need Congressional approval of supplemental funding for the MDB’s.⁶ It’s hard because there is no domestic political constituency in favor of giving money to these institutions. The Administration also doesn’t agree with the idea of lowering IMF conditionality.

PRIME MINISTER CHIRAC conceded that there are difficulties, that there are not resources to fund a Marshall Plan, but urged that there be some movement. A proposal to put this issue on the agenda for Venice had been presented to Secretary Shultz earlier in the day.⁷ Shultz didn’t say no; he instead raised the issue of terrorism in connection with the Venice agenda. In exchange, PRIME MINISTER CHIRAC said, he wants the debt issue on the Venice agenda, at least to give hope.⁸ SECRETARY BAKER asked whether the French proposals were directed to all debtor countries, noting that debtor countries such as Mexico, Brazil and Argentina have greater resources than some other LDCs. PRIME MINISTER CHIRAC said that while the problems of Argentina, Mexico and Brazil are important, he was referring to the UN’s list of 25 or so poorest countries (in terms of income per capita), particularly in Africa and Asia.

A brief general discussion of the definition and identity of the poorest countries ensued before the meeting ended.

1. Source: Reagan Library, Executive Secretariat, NSC Trip File, Venice Summit 1987—Policy Papers; NLR–755–26–29–4–0. Confidential. Prepared by Laurinda Berger; approved by Mulford. The meeting took place in Chirac’s suite at the Willard Hotel.
2. An unknown hand placed an asterisk in the right-hand margin next to this sentence.
3. An unknown hand underlined “commodity agreements should be revived” and placed an exclamation point in the right-hand margin next to this sentence.
4. An unknown hand underlined “approach the Pope.”
5. Chirac met with Reagan and Shultz in the morning.
6. See Document 352.
7. A reference to the Venice Economic Summit, which took place June 8–10.
8. An unknown hand bracketed “A proposal to put this issue on the agenda for Venice had been presented to Secretary Shultz earlier in the day. Shultz didn’t say no; he instead raised the issue of terrorism in connection with the Venice agenda. In exchange, PRIME MINISTER CHIRAC said, he wants the debt issue on the Venice” and placed an asterisk in the right-hand margin to the right of the bracketed sentences. An unknown hand underlined “In exchange” and “wants the debt issue on the Venice agenda, at least to.”