Office of the Historian

239. Information Memorandum From the Assistant Secretary of State for Economic and Business Affairs (McAllister) to Acting Secretary of State Whitehead1

Washington, April 22, 1988

SUBJECT

  • IMF/IBRD Spring Meetings: Surprising Harmony

SUMMARY AND INTRODUCTION

Despite mid-week jitters in the stock and foreign exchange markets, last week’s meetings in Washington of the G–7/10, Interim, and Development Committees were quiet and productive.2 Economic policy coordination and the twin problems of debt and poverty in the Third World remain high-profile issues. But G–7 members paid an indirect tribute to Treasury Secretary Baker by emphasizing the IBRD replenishment and the slow-but-steady progress achieved under the strengthened debt strategy. END SUMMARY AND INTRODUCTION

G–7 and 10

[Omitted here is reporting on discussion of exchange rates.]

[Page 614]

On the debt strategy, the seven attempted to preempt any dramatic proposals by issuing a strong endorsement of the case-by-case approach. The G–10 meeting was a bit spicier than usual as the new chairman, Swedish Finance Minister Feldt, was rebuffed in his attempts to initiate a new study of the international monetary system.

The Interim Committee

The Committee endorsed IMF staff’s cautious appraisal of the world economic outlook: steady, moderate growth with low inflation, less-than-certain prospects for further reductions in external imbalances (as deeper US fiscal deficit cuts and further structural reform in Europe and Japan come up against tougher political barriers), and considerable downside risks without much upside potential.

The committee endorsed a compromise forged by the Fund on reform of the Compensatory Financing Facility (CFF) and establishment of the Contingency Financing Facility proposed by Secretary Baker last September.3 The reformed facility (tentatively the CCFF or C2F2) will have tighter conditionality but greater flexibility than the old. A major victory for Secretary Baker, the facility could have a lasting impact on the financing of adjustment programs. The committee also gave encouragement to the Managing Director’s efforts to formulate longer term adjustment programs and to revitalize the Fund’s Extended Fund Facility which finances such programs.

On other issues, Treasury succeeded in focusing attention on the problem of growing arrears to the IMF and on the need for the newly industrialized economies to pursue more responsible exchange rate, trade, and domestic demand policies. The issue of a substantial quota increase, which only the US opposes, will be a pressing one at the September Annual Meetings,4 though a change in the US position is not expected soon.

The Development Committee

Two familiar issues dominated the April 15 Development Committee meeting: debt, and the adequacy of resource transfers to LDCs. Debt proved the most difficult, due in part to a World Bank background paper proposing an expanded role in facilitating voluntary debt reductions.5 Yet Secretary Baker and his G–7 colleagues argued convincingly that reform-oriented debtors are slowly turning the situation around. They dismissed global debt relief schemes and [Page 615] counseled reliance on sound economic reforms and the current debt strategy.

On the resource transfer side, donors emphasized several recent initiatives that have bolstered the lending capacity of the Bank and Fund:

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The World Bank has negotiated a $74.8 billion general capital increase, mobilized an estimated $6.4 billion in concessional cofinancing for Sub-Saharan Africa, and launched the Multilateral Investment Guarantee Agency (MIGA) to stimulate investment in the LDCs.
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The IMF trebled the resources available for concessional lending with its Enhanced Structural Adjustment Facility (ESAF).6

British Finance Minister Nigel Lawson renewed his appeal for increased aid to Sub-Saharan Africa. However, with optimism growing that multilateral and bilateral donors can meet Africa’s basic resource needs through 1990, there was a renewed sense that responsibility for development rests squarely with LDC governments.

There were also encouraging signs that after years of turgid speeches and stale debate, the Development Committee is making a comeback. Discussion this spring was lively but remarkably free of can’t. And with the communique completed over lunch (a first), the informal afternoon session kept the members’ attention focused squarely on the issues.

  1. Source: Department of State, Executive Secretariat, S/S Files, 1988–1989 Official Office Files for (E) Economic Affairs Allen Wallis, Lot 89D154: Through Memoranda April 1988. Confidential. Drafted by Seth Winnick (EB/IFD/OMA) and Jack Robinson (EB/EFD/ODF); cleared in EB/EFD and EB/IFD/OMA, and by Larson. Sent through Wallis. Larson also initialed the memorandum for McAllister. Shultz was in Moscow April 21–24 to discuss preparations for the upcoming summit meeting; Whitehead served as Acting Secretary.↩
  2. The Interim and Development Committees of the IMF and World Bank met April 14–15.↩
  3. See Document 228.↩
  4. See Documents 246 and 247.↩
  5. Not found.↩
  6. See Document 224.↩