249. Letter From Secretary of the Treasury Brady to Secretary of State Shultz1
I have been thinking a lot about our discussion Sunday night concerning what place the United States will have in the world economic scene in the future.2 Naturally, this depends on a lot of things. Perhaps [Page 636] the linchpins are the World Bank and the International Monetary Fund (IMF) and our roles in them.
We have long been able to shape the overall thrust of these organizations in a way which serves our long-range financial and foreign policy interests. As you know, however, our involvement in these organizations is under attack, both from inside and outside the United States. Inside, many Congressmen and Senators question the usefulness of the multilateral institutions. Although they voice different concerns about these organizations, one of the most vocal groups of critics are conservatives who do not want us lending to communist/socialist countries. Others—in fact I would say most—do not want us making loans which have little or no chance of being repaid.
The fight over GCI was hard, and we barely won the battle. In the end, we got only $50 million of the $70 million increase to which we had agreed internationally. In the final days of debate, I told many Senators and Congressmen that if they supported the multilaterals by providing the necessary funds, we would make sure that only sound loans are made. The battle over an increase in IMF quotas, although not yet on us, is looking enormously difficult. In 1983, we just barely got the last IMF funding increase passed, by a margin of 217–211 in the House.3 This time it will be even more difficult, in part because of the Fund’s growing arrears problem.
This brings me back to our discussion about Poland, where the short-run foreign policy objectives are totally clear and admirable.4 How best to achieve our long-term interests are less clear because the resources we have for solving these problems are finite. Thus, we must not only pursue our vital interests in Poland, but also preserve our leadership role in the international financial institutions. We cannot do this unless we are able to obtain funding for the organizations when needed, and unless we maintain our credibility within them. As you know, we face a severe challenge to our leadership in both international organizations from Japan, which others in Europe seem fully to support.
We have put enormous pressure on the IMF to clear up the arrears problem. This problem is now near $3 billion and growing. [Page 637] Unfortunately, over half of the arrears involves clients of the United States where we pushed the IMF to make loans to countries in spite of the absence of a continuing commitment to credible economic reform. If our strategy is to work, we cannot push countries into standby programs that lay the basis for further arrears in the IMF. We will need a strong IMF in the 1990s to support U.S. foreign policy objectives.
In Berlin, in the G–5, G–7, G–10, and Interim Committee meetings, and even more forcefully in my annual meeting address, I stated our strong conviction that ignoring the arrears problem would foretell the decline and fall of the IMF. I believe this is correct. The IMF has, with strong U.S. support, developed an approach that could provide a real breakthrough on the arrears problem. However, if we were to support IMF financing for Poland now on foreign policy grounds alone, our credibility and ability to implement this approach would be seriously compromised.
We have a problem, and I have asked Peter McPherson to work with John Whitehead on Poland to do our best. But if the Treasury is to stand down on our basic philosophy in regard to multilateral institutions, it won’t be long before we lose our influence, and after that the Fund will degenerate to a foreign aid organization dominated by other countries.
Sincerely,
- Source: Reagan Library, George Shultz Papers, Executive Secretariat Sensitive (10/01/1988–10/15/1988); NLR–775–17–61–6–0. No classification marking.↩
- October 2. No record of this meeting has been found.↩
- For documentation on the IMF funding increase of 1983, see the Foreign Assistance; International Financial Institutions; Commodity Policy compilation in this volume. Documentation is also scheduled for publication in Foreign Relations, 1981–1988, vol. XXXVI, Trade; Monetary Policy; Industrialized Country Cooperation, 1981–1984.↩
- Documentation on this is scheduled for publication in Foreign Relations, 1981–1988, vol. IX, Poland, 1982–1988. The situation in Poland was discussed in the October 4 IEP breakfast meeting. Part of the readout of the meeting, which does not include the discussion on Poland, is printed as Document 247.↩
- Brady signed “Nick” above his typed signature.↩