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

231. Letter From Secretary of State Shultz to Secretary of the Treasury Baker¹

Washington, December 1, 1987

Dear Jim:

I strongly endorse your support for a General Capital Increase for the World Bank. I am sure that your announcement, coming as it did on the eve of the IMF/World Bank Annual Meetings, gave Barber Conable a boost both within the Bank and with other Bank members. In the coming months, I will make clear, in my discussions with members of Congress, that the GCI will serve very important U.S. foreign policy goals in addition to increasing the Bank’s impact on economic development. In this regard, I would like to share with you my views on the size and level of paid-in capital for the GCI.

I favor a substantial GCI. I believe, like you, that economic reform represents the only available means for many developing countries to achieve sustained economic growth. This requires adequate financing as well as thoughtful—and often acutely painful—policy adjustments. The World Bank has done a good job of providing advice on the latter. A substantial GCI would assure that when solid commitments to reform are present, seed capital for growth will not be wanting. A large GCI offers the additional advantage of postponing the time when the Congress will have to consider the next GCI request.

I am also concerned that Congress not come to view a large GCI as an unnecessary drain upon the budget at a time when our energies are, quite rightly, concentrated on reining in government spending. I realize that some of our fellow members at the World Bank favor a substantial paid-in of between 5 and 10%. Their arguments are often echoed by Bank staff and some members of the financial community.

However, I believe it would be unwise for the Administration to request from Congress what it is so unlikely to deliver. Backed by its member-nations, the World Bank can quite easily sustain a minimal level of paid-in capital without jeopardizing its access to capital markets on favorable terms. In fact, I am convinced that a hard-headed financial analysis shows this GCI could go forward with zero paid-in. However, I recognize negotiating realities may well force us to accept a paid-in above zero.

For the Administration, each dollar devoted to the World Bank is one dollar less for IDA, regional MDB accounts, and other high priority items in our 150 account. Each one percentage point increase in the paid-in portion of a $60 billion GCI translates into a $118 million commitment for the United States, biting deep into our Foreign Affairs budget.

Realizing this, I hope that you will press our partners at the World Bank hard and long for a substantial GCI, but one with the lowest possible paid-in portion. You can be assured of my full support in this endeavor.

With warm personal regards,

Sincerely yours,

George P. Shultz²

1. Source: National Archives, RG 56, Records of the Office of the Secretary of the Treasury, Congressional Correspondence, 1988, UD–10, 56–10–1, Box 33, Dept and Agency /S/ 88. No classification marking.
2. Shultz signed “George” above his typed signature. In a February 1 letter to Shultz, Baker expressed agreement with Shultz’s thoughts on the GCI. Baker wrote that Shultz’s “evaluation of the need for a relatively low paid-in portion for the GCI is right on the mark.” Baker believed “we could present this request to Congress without jeopardizing other foreign assistance priorities.” (National Archives, RG 56, Records of the Office of the Secretary of the Treasury, Congressional Correspondence, 1988, UD–10, 56–10–1, Box 33, Dept and Agency /S/ 88)