Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

3. Notes of a Meeting¹

London, February 18, 1981

NOTES FROM THE SHERPAS MEETING

The meeting was chaired by Allan Gotlieb, Canada.

North/South²

Canada: Our main concern is to prepare for a successful summit. The obligation of the Personal Representatives, i.e., the mandate we received from Venice, was to study and report conclusions on aid and other contributions to the LDCs.³ North/South has always been on the agenda, and the communique has always given it more attention, perhaps even more attention than it deserved from the actual discussions that had taken place. This time the heads of government wanted more analysis and conclusions done at the working level. There were now some particular concerns on this subject: (a) other groups, namely CEMA and OPEC should become more involved; (b) development measures needed to be more effective; (c) the North deserved more credit for what it was actually doing; and (d) North/South is an important element in the management of international problems. However, Canada did not see this as separate from other issues. North/South is simply a dimension of the macro-financial, trade and other issues to be dealt with at the Summit. The Personal Reps as a group were asked to do the follow-up and they had decided to make a report on their own. The process they had agreed on was to define a number of questions and to use this as a mechanism to bring out some of their views. It was for this reason that the Canadians had circulated the twenty-one questions and were now circulating a composite of the replies that had been received.⁴ This composite did not contain views from the U.S. since the U.S. had not circulated its answers; nor from the French since they had only been received that very morning, in French.

FRG: Economic and political issues can not be separated. Our own security and prospects for the future will depend on our general relationship with the South. The role of the Third World on such issues as Afghanistan and Iran/Iraq was evidence of the increasing political role the South plays. The conclusion we have drawn is that it is highly desirable to recognize the independence and non-alignment of the Third World.⁵ We should thus try to work with them on the basis of equality.⁶ We should try to promote regional cooperation in the Third World. Nevertheless, the multilateral character of the relationship should be maintained. A shift of emphasis to bilateralism is not likely to produce the right results. In addition, we should deal with all developing countries irrespective of their particular policies and whether or not they are in line with our own. Our relationships should not be based on size. Small countries can exert de-stabilizing influences just as much as larger ones.

Since the major objective is to help the developing countries strengthen their economies, this implies we can only support the efforts which they themselves are undertaking. Our support should be directed to those who are most willing to undertake these efforts. While it is true that our room for maneuver is limited, this does not imply that we should lessen our efforts. We must recognize that the economic world today is different from ten to twenty years ago when many of our own ideas on how to deal with the South were formulated.

Given the constraints on our resources, we must make it clear to the South that there are other ways than ODA to help them.⁷ Examples are cooperation in efforts to save energy and to develop alternative sources of energy and efforts to keep our markets open to their exports. We must stress the role that trade has to play in development of the South. This is often underestimated, along with the role of private direct investment. In our discussions with the South it is necessary to point out the order of magnitude between the impact of oil price increases on them versus the total of our ODA. From this one can then draw the clear implication that others should share a greater part of the common responsibility (OPEC and CEMA). With respect to OPEC this then implies in turn that we must develop a partnership and division of labor with them.⁸ This will be a difficult process. We should start this by working with those who have demonstrated the greatest responsibility in the past, for example, Saudi Arabia.

With respect to the sectoral approach, the FRG agrees that in the first instance we should focus on food, energy and population. There is certainly room for much more coordination and harmonization of ODA.⁹ An additional point to add is a concern for the maintenance of the global resource base. On this point,¹⁰ the FRG would like to know whether the USA plans to put forward some of the ideas in Global 2000.¹¹ These ideas are important and relevant to the deliberations of our Heads of State. As to energy, we must give serious consideration to the pledge at Venice to create an energy affiliate of the IBRD. The IBRD should be enabled to play a major role in the energy field.

UK: The UK agrees that the communique of Venice did not fully reflect the full scale of discussions.¹² The UK also shares the view of the relative contributions various groups should make and also shares the view that food, energy and population and the problems of the least developed should be the focus of the North/South discussions. Our leaders in Venice, having grown weary of more kicks than kudos,¹³ wanted to come out with a better political balance and encouraging greater OPEC involvement. The impression of Venice was that we should be shifting more emphasis to the bilateral and most of the answers to the Canadian questions reflected this shift. But the UK believes that this should be a gradual process so as not to diminish the value of the IFIs. We should seek to find areas where we agree and where differences remain and then let heads of government address themselves to the differences.¹⁴

France: We must enter the dialogue with neither an inferiority or superiority complex.¹⁵ We should approach it with as little bias as possible. We must explain our own position and how and why it has changed both in capacity for aid and in finding who can contribute. The economic situation in the world now is largely a consequence of the oil shocks. We need to prepare our arguments and reinforce our bargaining position. It is clear that the energy field is the main one.¹⁶ Until we reduce dependence it is clear that we will have less leverage. We must, therefore, develop energy independence as rapidly as possible.

The modalities of ODA. Since many of our countries can no longer increase ODA, we must consider how to apply it with maximum efficiency. The trade-off between multilateral and bilateral aid is open for discussion. It is perhaps, therefore, important to discuss the issue of the bilateral share in ODA—it is not self-evident that the multilateral is the best way to proceed. ODA is not, however, the only way. We need to encourage, through various means, private capital flows. The percentage of capital from private sources is increasing. As part of this discussion, we need to answer how we can channel as much as possible of the OPEC surplus to the LDCs. The OPEC surplus must be channeled into creating real resources rather than simply into the western banking system.¹⁷

Japan. We by and large share the FRG’s views. In the report of the Sherpas, we should start with analyzing the general state of affairs in the North/South situation. We should not construe the mandate too narrowly. We need to cover the underlying philosophies. We must develop a consensus on the present state of affairs. A huge change has taken place in the transfer of resources between North and South which limits aid capabilities. All of us are under fiscal constraints.¹⁸ What is the guiding philosophy of the North/South issue? (1) There is a mutuality of interest, i.e., interdependence; and (2) aid is not productive without self-help measures within the LDCs.¹⁹ The responsibility basically lies with them. There are certain practical principles we should follow, particularly with respect to aid problems: (1) Although we have had great fiscal constraints, we can not afford to diminish our ODA either qualitatively or quantitatively. We must focus on priority sectors. We must stick with our original efforts to expand ODA and not give the impression that we have reneged on our pledge.²⁰ (2) The most important element should be to help the LDCs develop their own human resources. (3) In priority sectors, we should stick with the three (food, energy, population) but put more relative importance on food. Food aid itself should only be supplementary to food production.

Italy. We need to relate our own stability and security to that of the South and this is what we need to achieve at Ottawa. Do we have any alternative to the North/South dialogue? We must bring out interdependence even more, but efforts must be shared. As to ODA, multilateral aid must be the pillar. We must support the IFIs. Multilateral aid is more neutral and while this has been criticized, we must look carefully and constructively at the multilateral versus the bilateral approach.

Our own difficulties can not be used as an alibi for a reduced role even though we insist that others play a more important role.

EC Commission. We, too, support the views put forward by the FRG. As to our political objectives, we must insist that our actions be better received by the South, i.e., they should turn away from their constant criticism.²¹ In addition, we must mobilize our own public opinion behind what we are trying to do.²² We must take a look at the relationships we are trying to develop. We do not want to take a unilateral approach, but rather an integrated approach. What we have in mind is developing programs along mutually interesting lines, rather than just along the interests of the North. In addition, we must try to strengthen the Bretton Woods institutions. The Summit should be as concrete as it can. This makes it more credible and helps to form the basis for developing public support in our own countries.²³

EC Council of Ministers. Two elements play a key role in the genesis of the discussions on the North/South issue. (1) Continuous criticism of the North in world fora. This is leading to increasing irritation and impatience in the North towards North/South discussions.²⁴ (2) The North economic situation, i.e., fiscal constraints. We must defend our record and make it clear that we object to being constantly put in the dock.²⁵ There must be a recognition that fundamental changes are underway in the world. Political weight is shifting, and we must recognize that this is a reality. The tone of the Summit report should reflect some focus on new areas of action, for example, an energy affiliate, sector-specific measures (food strategy) and greater attention to the problems of the least developed.

USA. We find this discussion reassuring and encouraging. The fact that we did not yet submit answers to the twenty-one questions does not reflect a lack of interest. It is important that we discuss North/South issues with candor and objectivity. We need clarity and understanding, and our own efforts in this area deserve better than the criticism that has marked previous North/South discussions. In our preparations for Ottawa, we should put focus on several areas—the centrality of the energy problem, the relative emphasis on trade, and the role of private investment. The US does not wish to dishonor its commitments or the role of its contribution to multilateral institutions.²⁶ But we are putting greater focus on the bilateral because we believe that the bilateral approach is more efficient. We do have political/economic objectives, and the bilateral approach provides for a greater focus as well as a better way of generating public support for development assistance. We must recognize that the North/South issue is not just a matter of ODA. We believe that we must bring our own house in order and this itself would be the greatest contribution we can make.

Chairman’s Summation. I do see a similarity of outlook. In preparing a report, we have several tasks: (a) analysis—our leaders will appreciate analyses of the various interests we have and the features of the international economic dialogue; (b) we must develop a longer term view of where we should be going—how our interests can be served over the longer period. We must look at the longer term process of where we want to go and how we get there. We need to look to the end of the decade and, perhaps, beyond; (c) at the same time we can not ignore the sense of commitment in the short term. We need several short term specific commitments to demonstrate to the public that our leaders are making a commitment to the South.²⁷ Secondly, we must look at the overall character of the questions before us. We must look at the political character of these issues, the role of the developing countries, their strengths and their political stability. Part of the political dimension is the responsibility of others—CEMA and OPEC and the burden which they must agree to share. Further, assistance must be looked at in the context of the significant transfer of wealth that has already occurred.²⁸ The LDCs must appreciate the economic situation of the North. Many in the North are capital importers and the economies are not as vigorous as before. The North/South issue must be seen as part of an entire agenda where the linkages of the North/South discussions with energy, macro-developments and so forth are recognized. Third, there is a stress on the mutuality of interest or interdependence. We need to try to integrate the countries of the South more into the world economy and emphasize that they have a stake in the system and a major role in it. As to the process, we need to take account of the political perceptions of the world. Global negotiations are one of those factors we must take into account, as well as a regard for the North/South Summit. Digressing for a moment to express the views of Canada, Canada may not like it but the South has made itself into a political alliance and this is a factor in the process. We should be sufficiently nuanced in our approach not to confront the South head on with the fact that they do not have complete commonality of interest, i.e., that there are differences amongst them.²⁹ They have determined that they do have sufficient commonality of interest to keep them together, and we need to advise our leaders on how they must deal with this fact.

There must be an emphasis on trade and the role of private enterprise. Similarly, there is a need for economic growth in the North. Here again, we can bring in the mutuality theme. As to the sectoral approach, most of the focus has been put on food. We need to pay particular attention to self-help—the capacity of the South to feed itself. Our leaders might address themselves to this point. As to energy, some have stressed the importance of the IBRD role and the world energy affiliate. Canada thinks this is a good idea. The Venice Summit gave it a boost. We should also not forget the need for development of human resources.

It is a fact that aid is not likely to increase so the focus must be on increasing effectiveness. The bilateral versus multilateral issue is an element on how we get the most for our money. Some of our leaders are looking for advice on this. Some of us feel that ODA is an important element. Continuity is important even if we can’t expand it. There must be a focus in ODA on the poorest because they are not in reality participating in trade or private capital flows.

We also need to stress the importance of the functioning of the world capital markets and the role of the IFIs. Should this role be strengthened, and if so, how, particularly in helping the more rapidly developing LDCs.³⁰ We need to appreciate the role of new power centers (OPEC) in the IFIs.³¹

Finally, with regard to the emphasis on the role of public opinion.³² While much attention is on national problems, the public is aware of the problems of the South, and our leaders can give this public awareness a boost. We should not be on the defensive but try to point to some concrete steps. In looking to some new approaches, there are differences on the prospects for automaticity in aid flows. Trudeau would like at least to examine whether there are any possibilities. We should, in our report, point out where there is consensus and where there are differences, where priorities differ.

UK. The report should put one or two propositions up front. One, maintaining bank credit for the LDCs. The volume of this flow is very large and it is critical that this system continue to function effectively. Two, maintenance of the credit worthiness of the IFIs. For example, the changing of the gearing ratio is dependent on market perceptions of the support of governments for the institutions. This goes back to the role of others, for example, OPEC and how OPEC support along with continued Western support can provide the needed credit worthiness for the IFIs.

FRG. We support the need to maintain the credit worthiness of the IFIs. We do, however, differ on the issue of whether or not the gearing ratio should be changed. We are in favor of efficient institutions, not just the IFIs per se, and it in this regard that an energy affiliate of the IBRD could enable the IBRD to take a look at the overall situation and to develop more concrete projects.³³ If an energy window could be created, this would generate funding more likely than if energy support were buried within the IBRD as just another program.

Canada. We have thus raised another series of questions to be considered in our report. How can we enhance private capital flows? Is there a role for the IMF in this? What are the dangers to the system lurking beneath the surface? How do we meet the balance of payments needs of the least developed and mid-income countries? Is there any advice we can give on the new directions our leaders should take?

USA. What we are discussing has to do with a systemic problem, and what we have been discussing here can be covered in the macro and monetary papers which should take a look at current issues. This whole question of financial flows is part and parcel of the broader economic problem.

Canada. We agree that the monetary paper might be useful and that it might take a look at the longer term, i.e., not just financial problems up to the end of this year.

FRG. Another dimension is the energy problem of the oil importing LDCs. We will do an analytical paper on aid, North/South issues, and the energy context. This will look at ways to tackle the problem, including an energy affiliate. We want a specific focus so that the impact the Summit might have is not diluted.³⁴ Any failure to focus on this issue at the Summit would be perceived by our public as a de-emphasis of this problem.

EC Council of Ministers. We want to point out that preparations for the UN Conference on New and Renewable Sources of Energy will take place prior to the Summit and we may wish to draw on this work for our own report.³⁵

Canada. What we might wish to comment on at the Summit are the following:

1. Energy and the energy affiliate

2. Food and food production

3. Aid to the poorest countries

4. The workings of the international capital markets (Can we do anything which would renew confidence in them?)

UK. The point heads of government might wish to make is that credit worthiness is critical to the South and in the end it is very much up to them to preserve this in terms of how they act domestically and how they as the 77 act in the IFIs.³⁶

Italy. It seems that what we are leading toward is that ODA should be directed at the poorest and the proper functioning of the financial system at the NICs.

USA. Perhaps we need to address more directly what we do to get more direct involvement of the private sector. In addition, we should look at which of the two approaches, the bilateral or the multilateral route, would be more likely to generate OPEC funding. We may also want to look at the suggestions regarding regional approaches. How can we more closely focus our attention on Africa, or the African poorest areas, or ASEAN or the Caribbean? One approach is to coordinate our focus on key areas.³⁷ On a totally different point, we need some analysis of how our own efforts to hold down inflation and energy consumption can be used as selling points with the LDCs. For the benefit of our own leaders, we should give them an analysis of the impact on our own system of keeping the trading system open and developing energy in the LDCs. On the other hand, in terms of more involvement of other groups, we need to reassess how much we want CEMA to be involved.

Canada. There is another dimension to the issue of channeling OPEC funds—should we encourage them to use their own bilateral, or rather, multilateral channels? Do we want to bring them more into the international system?

USA. There is some risk in this bilateral approach in that this may simply split OPEC off. If we in the USA put more emphasis on the bilateral, it may be hard to draw OPEC more into the multilateral institutions.³⁸ If we take this approach, do we encourage more bilateralism on the part of OPEC? This is certainly an issue which we want to consider.

UK. It is hard to see where we should come out. There are two elements: (a) The Bank. The bank doesn’t require quite as much on behalf of governments, i.e., its resources, its activities can be expanded by changing the gearing ratio and by providing expanded funding with direct contributions.

(b) IFAD, IDA and others. These are more difficult to expand because you have direct contributions. And it is not clear what OPEC’s contributions will be. We should think about coordinated bilateral efforts which might include OPEC.³⁹ As to the energy affiliate, this may have to be run up the flag pole much as the Common Fund was years ago, but eventually, we are going to have to put our money where our mouth is no matter whether we support the new affiliate or not.

Japan. We should look at the demand side of energy use in the LDCs. For example, the large, heavy energy consumption projects such as those initiated by China should be discouraged. We should get the LDCs to focus on the most energy efficient technologies.

UK. We ought to address the question of how the health of the IFIs is in our mutual interest. We are in effect protecting access of the LDCs to resources.

Canada. On the question of food security and production, there are likely to be major food gaps in this decade. One of the problems is that it is difficult for the LDCs to get into the markets. We should examine carefully the whole question of additional food reserves, the amount that can be made available under ODA terms, and the amount under commercial terms. Our initial view is that a food reserve may in fact be something we can start on.

FRG. We are very distressed at the negligence of the LDCs in failing to emphasize food production. There has, for example, been an absolute decline in Africa. The focus has been put on other projects with very poor planning in the agricultural sector. The IBRD and others should really take the lead in discussing sound agricultural policies that we as bilateral donors can then support.

Note: This ended the morning session. One representative from each country was asked to participate in an afternoon meeting devoted exclusively to further followup on the Canadian twenty-one questions and the North/South issues.⁴⁰ The afternoon session turned to other issues.

[Omitted here is discussion of macroeconomic, monetary, trade, and energy issues.]

1. Source: Reagan Library, Douglas McMinn Files, Economic Summit Files, Ottawa—Preparatory Meetings. No classification marking. No drafting information appears on the notes.
2. An unknown hand added this heading in the left-hand margin.
3. See footnote 2, Document 2.
4. See footnote 3, Document 2.
5. An unknown hand placed a checkmark in the right-hand margin next to this sentence.
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9. An unknown hand wrote: “ODA” in a blank space after “harmonization of.”
10. An unknown hand changed “With respect to” to “On.”
11. For information on the study commissioned by President Carter in 1977 to assess the state of the world by the end of the 20th century, which became the Global 2000 study, see Foreign Relations, 1977–1980, vol. I, Foundations of Foreign Policy, Document 155, footnote 2; and Foreign Relations, 1977–1980, vol. II, Human Rights and Humanitarian Affairs, Documents 337, 343, 344, 346, 347, and 348. The Global 2000 study focused on projected changes in the world’s environment, natural resources, and population.
12. For the text of the declaration issued at the conclusion of the Venice Economic Summit, see Department of State Bulletin, August 1980, pp. 8–11.
13. An unknown hand wrote “kudos” in a blank after “more kicks than.”
14. An unknown hand changed the word “the” to “to” and the word “fine” to “find.”
15. An unknown hand wrote “an” between the words “neither” and “inferiority.”
16. An unknown hand placed a checkmark in the left-hand margin next to this sentence and circled “energy field is the main one.”
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24. An unknown hand placed a checkmark in the left-hand margin next to this sentence and underlined “criticism of the North in world fora. This is leading to increasing irritation and impatience in the North.”
25. An unknown hand underlined “we object to being constantly put in the dock.” The unknown hand also replaced the word “dark” with “dock.”
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34. An unknown hand changed the word “could” to “might” and “deluded” to “diluted.”
35. An unknown hand changed the word “proceed” to “take place.” The UN Conference on New and Renewable Sources of Energy took place August 10–21 in Nairobi.
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