Office of the Historian

253. Memorandum of Conversation1

Washington, November 18, 1988, 7:30–8:30 a.m.

SUBJECT

  • International Economic Policy Breakfast

PARTICIPANTS

  • George P. Shultz, Secretary of State
  • Nicholas F. Brady, Secretary of the Treasury
  • John C. Whitehead, Deputy Secretary of State
  • M. Peter McPherson, Deputy Secretary of the Treasury
  • Colin L. Powell, Assistant to the President for National Security Affairs
  • Ambassador Alan Woods, Administrator, Agency for International Development
  • Allen Wallis, Under Secretary of State for Economic Affairs
  • Ambassador Max Kampelman, Counselor, Department of State
  • Eugene McAllister, Assistant Secretary of State for Economic and Business Affairs
  • Charles Dallara, Assistant Secretary of the Treasury for Policy
  • Stephen P. Farrar, NSC Staff

[Omitted here is discussion of Mexico, Canada, and the foreign exchange market.]

International Affairs Funding

Peter McPherson opened the discussion by noting the tightness of the FY 1990 budget and the desirability of State and Treasury working together during the upcoming appeals process. He then urged support for a Treasury proposal to fund a U.S. contribution to the Enhanced Structural Adjustment Fund (ESAF), an $8 billion concessional loan window of the IMF. In his view, U.S. participation is essential if the ESAF is to be helpful in eliminating the problem of the $3 billion arrears owed by developing countries to the IMF. Some countries, such as Sudan and Liberia, have arrears so large that refinancing is necessary in order to normalize relations with the IMF. (C)

Secretary Shultz opined that the U.S. should not support taxpayer bailouts through the IMF. He also questioned Treasury’s assertion that the U.S. has an obligation to help the IMF since we pushed the Fund reluctantly into bad programs with U.S. clients. Finally, he observed that even $15 million per year is big money in the Function 150 account, and that he would need to think hard before supporting the ESAF [Page 647] proposal. He said that he understood that OMB would propose to cut the Function 150 request by at least $1 billion and, while he sympathized with OMB’s problem, he would go to the President to press his budget request. (C)

It was agreed that State and Treasury would work together on the budget appeal for Function 150. (C)

  1. Source: Reagan Library, Stephen Farrar Files, Chronological File, Farrar Chron November 1988; NLR–177–9–3–2–1. Confidential. No drafting information appears on the memorandum. The meeting took place at the Department of State. Sent under a November 18 covering memorandum from Farrar to Stevens, in which Farrar recommended that Stevens approve the memorandum.↩