Office of the Historian

247. Memorandum From Stephen Farrar of the National Security Council Staff to the President’s Assistant for National Security Affairs (Powell) and the President’s Deputy Assistant for National Security Affairs (Negroponte)1

Washington, October 4, 1988, 9:33 a.m.

SUBJECT

  • Readout on International Econ. Policy Breakfast

1. EVALUATION OF IMF/WORLD BANK ANNUAL MEETINGS

Japanese Debt Proposal. David Mulford reported that the U.S. was successful in persuading the Japanese to downplay the debt relief proposal it initially advanced at Toronto. The Japanese plan calls for debtor countries to create accounts held by the IMF that would be used to guarantee repayment of securities issued to refinance commercial debt. The problem with the proposal is that it assumes expanded lending from the IMF and World Bank in order to provide debtor countries with the foreign exchange to finance these new accounts. In [Page 633] effect, the risk of repayment gets shifted from the private sector to the public sector.2

G–7 Agreement. Mulford noted that the G–7 ministers agreed that they should examine structural impediments to growth (e.g., labor market flexibility, trade barriers) as part of their surveillance process, even though these issues raise jurisdictional problems in each country’s government.

IMF Quota Increase. Mulford reported that the U.S. successfully held back pressure, created by IMF Managing Director Camdessus, for a doubling of IMF quotas. While we have agreed to review the issue next spring, we have insisted that any decision will need to be linked to agreement on the IMF’s role in the 1990’s. The IMF needs to define that role. In the meantime, the IMF has adequate liquid reserves ($45 billion).

Debt Strategy. Gene McAllister reported that his analysis shows that the current debt strategy has been working, and we need to do more to get the message out. Treasury agreed.

Debt of Poorest Countries. Mulford observed that the agreement reached in the Paris Club the previous week on rescheduling debt to the poorest countries—mainly Sub-Saharan Africa—contributed to the positive atmosphere at Berlin.

[Omitted here is discussion of various countries’ situations and the European internal market.]

6. PARTICIPANTS

State: John Whitehead, Gene McAllister, Bill Milam

Treasury: Peter McPherson, David Mulford, David Malpass

NSC: John Negroponte, Steve Farrar

  1. Source: Reagan Library, Stephen Farrar Files, 1987–1988 International Economic Affairs Directorate Outline File, IEP Breakfasts 04/24/1987–11/18/1988; NLR–177–4–34–15–8. Confidential. Copies were sent to Nelson Ledsky, Rudolf Perina, James Kelly, Richard Childress, Cobb, Richard Saunders, Eric Melby, and Peter Rodman. Printed from an uninitialed copy.↩
  2. See Document 246. In an undated memorandum to McPherson, Mulford analyzed the two debt proposals announced by the Japanese at the IMF/World Bank meetings in Berlin. He attached texts of the two proposals to the memorandum. (National Archives, RG 56, Records of the Office of the Secretary of the Treasury, Congressional Correspondence, 1988, UD–10, 56–10–1, Box 44, Classified Memos to the Secretary, October ’88)↩