Office of the Historian

254. Letter From Secretary of State Shultz to Secretary of the Treasury Brady1

Washington, December 2, 1988
Dear Nick:

I wanted to share with you some of my thoughts regarding a possible US contribution to the IMF’s Enhanced Structural Adjustment Facility (ESAF). I remain concerned with an ESAF focused on clearing arrears rather than structural adjustment. This does not appear to be the best use of our very scarce economic support funds.

As I understand it, you are suggesting that our contribution would help us to redirect the ESAF to clear up the IMF’s arrears problem.2 The ESAF was established a year ago, but only two programs (Bolivia and Malawi) are in place and only three more (Senegal, Gambia and Ghana) are in preparation.

I question whether the ESAF can accomplish the actual clearance of IMF arrears. Four countries—Liberia, Peru, Sudan and Zambia—account for 80 percent of this total. Peru is not eligible for the ESAF. For the remaining three countries, the amounts available under the ESAF are insufficient to cover arrears already accumulated. I take IMF arrears problems very seriously, but am inclined to think that the ESAF should [Page 648] concentrate on helping those countries who can to move forward, not on dealing with the results of past mistakes.

IMF management and other donors are clearly reluctant to redirect the use of ESAF resources for the clearance of arrears. I fear that “buying a seat at the table” will not shift donor views significantly on the issue of ESAF resources. The intended participants may also balk at the proposal, particularly when their arrears exceed the level of resources that could be available to them.

We need to consider alternative approaches to solving the IMF’s arrears problem and assess a full range of possible options. We may want to undertake such consideration in the context of a broader examination of the role the IMF should play in the world economy of the 1990s and the 21st century. I look forward to further discussions on this matter.

With warm personal regards,

Sincerely yours,

George P. Shultz3
  1. Source: Reagan Library, George Shultz Papers, Official Memoranda (12/02/1988–12/05/1988); NLR–775–59–3–2–2. No classification marking. Drafted by Maureen Quinn (EB/IFD/ODF) on November 21; cleared in EB/IFD/ODF, EB/IFD/OMA, EB/PAS, E, and EB, and in substance in D/P&R. The words “Orig ltr to addressee by courier” are typed at the top of the memorandum.↩
  2. In an October 18 letter to Wright, Brady outlined Treasury’s request “to provide for a U.S. contribution of $150 million” to fund the ESAF, stating: “The ESAF is a critical element in international efforts to deal with the serious economic problems confronting the poorest countries.” (Department of State, Executive Secretariat, S/S Files, 1988–1989 Official Office Files for (E) Economic Affairs Allen Wallis, Lot 89D154: Through Memoranda November 1988)↩
  3. Shultz signed “George” above his typed signature.↩