300. Memorandum From Secretary of the Treasury Regan to President Reagan1
SUBJECT
- Results of the 1983 World Bank/International Monetary Fund (IMF) Annual Meetings
The 1983 Annual Meetings of the World Bank and International Monetary Fund which concluded last week were highly successful, with the U.S. achieving its major objectives. The atmosphere at the meetings was much improved from last year, with greater confidence that global economic problems are manageable and that progress is [Page 745] being made in restoring a healthy world economy. Your welcoming address received widespread praise,2 and your strong, unequivocal endorsement of the IMF served to allay concerns about U.S. support for the institution. Your remarks should help provide the momentum necessary to obtain Congressional approval for the quota legislation.
The improved atmosphere at the meeting reflected broad recognition that the global economic recovery is underway, led by the strong U.S. expansion, and that progress is being made in resolving the debt and liquidity problems of developing countries.3 The indisputable evidence of a growing U.S. economy with low inflation provided an effective rebuttal to criticism of U.S. economic policies, although concerns remain that the size of our current and future budget deficit could push interest rates back up and threaten the recovery.
Our success in reviving the U.S. economy is giving others greater confidence that for them, too, increased reliance on market forces and disciplined economic policies are the only lasting solution to current difficulties. As a result, I sensed an increased determination on the part of other industrial and developing countries to undertake the difficult but necessary adjustment measures required to get their economic houses in order.
During the Annual Meetings, I met with the Finance Ministers of the major Summit countries and IMF Managing Director de Larosiere to follow-up on the Williamsburg Summit agreements to enhance economic convergence.4 Although de Larosiere shared the concerns of the others regarding the strong dollar and our budget deficits, he acknowledged that a major factor underlying the dollar’s strength was our success in getting inflation down and revitalizing the U.S. economy. I stressed that we were making every effort to reduce budgetary expenditures, and that raising taxes would run the risk of aborting the sustained recovery which we all desire. I also made them aware of the recent downward revisions in our projected deficits.
These consultations have proved to be useful in encouraging policies that reduce disparities in economic performance among the major industrial countries, and we are considering ways to develop this consultation process further. In addition, we had a very preliminary discussion on possible ways of improving the international monetary system, [Page 746] following-up on the Williamsburg discussions in this area. During the coming months we will be considering potential study topics in this area which might be pursued by the major industrial countries.
The decisions on major IMF policy issues reached by the Interim Committee are being interpreted widely as a major victory for the U.S. position on the need to conserve IMF resources. The Interim Committee compromise on the level of IMF lending in 1984 limits access to IMF funds next year for most countries at roughly current levels, while providing the possibility for somewhat larger amounts to countries experiencing serious economic difficulties and prepared to take strong corrective measures. I believe that this agreement will strengthen the revolving character of IMF financing, encourage increased prudence in IMF lending policies, and provide greater assurance to the Congress that U.S. funds are being used effectively and efficiently.
Issues dealing with the World Bank’s lending operations, particularly the Seventh Replenishment of the International Development Association (IDA VII), were also discussed thoroughly. There is still considerable international disappointment at the level of U.S. funding we envision for IDA VII, although other World Bank members now have a better appreciation of our budgetary and Congressional constraints. We underscored our willingness to continue working constructively with members on negotiation of a World Bank Selective Capital Increase, and on the International Finance Corporation’s funding requirements. More fundamentally, we reinforced the importance we attach to improving the quality of World Bank lending which we believe must be linked to sound, market-oriented domestic policies which encourage private enterprise.
On the margins of the Annual Meetings, there was significant progress in developing a financing package to support Brazil’s new adjustment program. We obtained agreement in principle from other major governments to join us in a $2.5 billion package of official trade credits and guarantees for Brazil. At the same time, Brazil’s commercial bank creditors have agreed in principle to a new $6.5 billion medium-term loan.5
- Source: Reagan Library, Roger Robinson Files, Chronological File, Robinson Chron 1983; NLR–487–10–4–11–4. Confidential.↩
- See footnote 5, Document 298.↩
- An unknown hand underlined the portion of this sentence beginning with “and” and ending with “countries.”↩
- The Williamsburg Summit took place May 28–30. For documentation on the Summit, see the International Debt compilation of this volume. Documentation is also scheduled for publication in Foreign Relations, 1981–1988, vol. XXXVI, Trade; Monetary Policy; Industrialized Country Cooperation, 1981–1984.↩
- An unknown hand highlighted this sentence in the left-hand margin.↩
- Regan signed “Don” above his typed signature.↩