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

219. Memorandum From Secretary of State Shultz and Secretary of the Treasury Baker to President Reagan¹

Washington, May 26, 1987

SUBJECT

• Venice Economic Summit—Scope Paper

I. YOUR OBJECTIVES

1. To obtain support for U.S. initiatives and leadership in addressing major international economic issues, including specifically:

— strengthening prospects for increased growth, reduced trade imbalances, and greater exchange rate stability, through closer coordination of economic policies;

— taking a decisive step forward on agricultural policy reform;

— the strengthened debt strategy, including a menu approach to new financing options by banks, as the best means for managing international debt problems, with more generous “Paris Club” debt rescheduling terms for the poorest countries;

— fighting protectionism and moving forward on the new round of multilateral trade negotiations.

2. To strengthen cooperation among Summit countries in meeting challenges to security of our citizens and of the world, with a particular focus on East-West relations, regional challenges and combatting terrorism.

[Omitted here are a description of the setting for the Venice Summit and information on economic issues other than debt.]

D. Problems of Debt and Development

The international community has made considerable progress since adopting the U.S. initiative on debt outlined by Secretary Baker in October, 1985. Many debtor countries are now making market-oriented policy changes to promote growth, and average growth in the major debtor countries has strengthened, with reduced inflation and return of flight capital in some countries. The IMF and the World Bank have provided important assistance to these reform efforts, and additional official support has come through Paris Club debt rescheduling.² Commercial bank financing will be substantial in 1987, with welcome signs of greater flexibility and innovation in bank financing arrangements appearing in recent months. At the latest IMF/World Bank meetings this spring, the basic Baker approach was reaffirmed, and will be at the Summit.³

Nevertheless, additional efforts are needed to ensure sustained economic growth. Several commercial bank negotiations have been difficult and prolonged and political pressures for debt relief are increasing. Our efforts to encourage the commercial banks to develop a “menu” of alternative financing options is designed to facilitate the completion of commercial bank financial packages and ensure continued support for debtor reforms. We hope the Summit will endorse these efforts.

Summit participants will probably highlight the severe economic plight of a number of the poorest countries, largely in Sub-Saharan Africa. A good many of these countries have recognized the imperative of economic reform, and have taken courageous corrective measures. The Summit leaders can endorse several current initiatives to support these efforts, including better Paris Club terms, use of financing from the higher-than-expected IDA replenishment, better coordinated with lending from bilateral donors and the IMF Structural Adjustment Facility. We will have to remain alert to unsound or unrealistic proposals from the French or others.

[Omitted here is information on topics not focused on debt.]

1. Source: Department of State, Bureau of Economic Affairs, Office of Economical and Agricultural Affairs Files, Official Economic Summit Files, 1975–1991, Lot 93D490: The Participation of President Reagan in the Venice Economic Summit, June 8–11, 1987. Confidential.
2. In an April 28 memorandum to Wallis, Lamb reported on a “special, technical-level Paris Club meeting” on April 24 to “discuss the possibility of according enhanced debt relief in the context of official debt reschedulings for the poorest and most indebted countries.” Lamb noted that “an informal consensus emerged to provide longer repayment terms for the poorest and most indebted countries undertaking major reform programs.” Lamb attached to the memorandum the Paris Club Chairman’s summary of the proceedings of the meeting. (Department of State, Executive Secretariat, S/S Files, 1987 Official Office Files for (E) Economic Affairs Allen Wallis, Lot 89D155: Briefing/Information Memoranda April 1987)
3. See footnote 2, Document 217. In his report on the third Venice Summit preparatory meeting, April 30–May 2 in Porto Cervo, Wallis communicated that the Sherpas endorsed “as the only acceptable approach” to the debt problem “the growth-oriented strategy launched by the U.S. in October 1985.” (Department of State, Executive Secretariat, S/S Files, 1987 Official Office Files for (E) Economic Affairs Allen Wallis, Lot 89D155: Memoranda for the Secretary April/May/June 1987)