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

324. Memorandum From David Wigg of the National Security Council Staff to the President’s Assistant for National Security Affairs (McFarlane)¹

Washington, November 27, 1984

SUBJECT

• Report of the President’s Task Force on International Private Enterprise

The President’s Task Force on International Private Enterprise will present its findings to the President at a White House luncheon on December 4th or 5th (Tab II).² The group was tasked by the President in 1982 to identify ways to strengthen the economies of LDCs through better use of U.S. foreign assistance to stimulate private enterprise and to promote trade and investment with the Third World. As a result of a meeting with the President in August 1983, this original mandate was broadened to include a study of foreign assistance program management and policymaking relating to international economic issues. The result is a report that is dizzying in its scope and revolutionary in some of its recommendations. The final report apparently has been withheld from the NSC for reasons discussed later in this memo. However, the principal recommendations as presented in a September 1984 draft (Tab I),³ which we received on a bootleg basis, are broken into the five categories of U.S. Economic Policy Organization, Private Enterprise and Investment, Foreign Assistance Programs, Trade and Food Assistance. They are as follows:

U.S. Economic Policy Organization

○ The President should establish an Economic Security Council (ESC) to coordinate domestic and international economic policy. Under the leadership of an “Assistant to the President for Economic Affairs”, the ESC would parallel the NSC (in terms of authority) in advising the President on all aspects of domestic and international economic policy; oversee the formulation, coordination and implementation of U.S. economic policy, including technology transfer matters and serve as the focal point for economic policy decision-making.

○ As proposed, the ESC would absorb the functions of NSC’s International Economic Affairs Directorate as well as those of the Cabinet Councils on Economic Affairs and Commerce and Trade. In addition, it would have the Trade Policy Committee reporting to it and its functions would obviate the need for the SIG–IEP. The ESC would also absorb some of the functions and authority of various Cabinet and sub-Cabinet agencies including Treasury, Commerce, USTR, State and even Eximbank.

Private Enterprise and Investment

○ The U.S., working with other governments and public and private sector entities, should establish a Private Enterprise Institute to advise LDCs on means to attract investment and foster trade.

○ The U.S. should support a World Bank-sponsored investment guarantee program, and establish a $500 million Private Sector Loan Fund; and OPIC funding and insurance capabilities should be increased.

Foreign Assistance Programs

○ An in-depth management study should be commissioned to review the present foreign assistance programs and recommend appropriate changes to better distinguish between priorities and raise the effectiveness of those programs.

— AID’s Congressional mandate, its policies, programs and organization must be revised to reflect greater private sector emphasis, including increased support for various links with private business, private voluntary organizations and intermediate credit institutions.

Trade

○ The U.S. must develop an aggressive, consistent trade policy that mixes aid and trade resources to better enable U.S. firms to compete in world markets.

○ The U.S. should continue to press for a new round of multilateral trade negotiations, and U.S. private sector countertrade should be facilitated when in “the best interest of the United States”.

○ The United States should assign highest priority to negotiations directed at stopping foreign governments from using unfair methods of subsidizing export finance. The mixed credits authority of the Export-Import Bank should be exercised by establishing a $1 billion mixed credit fund.

Food Assistance

○ The United States must better integrate its agricultural trade, food aid and domestic farm policies, and a much larger share of total foreign assistance should be food assistance.

— Food aid should be at least doubled to help avert starvation, expand developing country agricultural markets, and support private sector growth.

— Agricultural export credit programs should be significantly increased.

— U.S. food assistance should be used as an incentive for LDCs to increase agricultural production through reliance on market forces.

Discussion

The Task Force Report contains some constructive new ideas and reiterates some existing thinking regarding the role of private sector involvement in trade and investment in the Third World. However, it strays far beyond its mandate and purview in aggressively pushing a major overhaul of the National Security apparatus and Cabinet structure to better “coordinate domestic and international economic policy”. Specifically:

○ The Task Force recommendation to form an Economic Security Council represents a move to scrap the present system of security-minded economic policy decision-making and replace it with a structure based on the primacy of business and trade. The authors do not give adequate justification for the need to form an ESC, and only tenuously link the proposal to their expressed concern for the state of U.S.-Third World relations (the entire focus of the study is on the narrow band of U.S. policy concerns relating to the Third World). In addition, their knowledge of the workings of the Executive economic policy bodies (especially the NSC and the SIG–IEP) and how they relate to the President appears to be woefully inadequate (they omit or misrepresent the roles and functions of numerous key players).

○ Virtually all of the line functions described as part of proposed ESC activities are already performed by various agencies and coordinated by the SIG–IEP. The proposed management, coordination and advisory functions are currently performed by the National Security Advisor and his staff and by the Cabinet Council apparatus. The suggested concentration of functions and power in the hands of an “Economic Security Advisor” is unprecedented (at least to my recollection) and, in the wrong hands, could disturb our hard-fought gains in the effort to balance economic goals and national security concerns.

○ The Task Force recommendation for a management study to review foreign assistance programs is consistent with an earlier NSC proposal and should be encouraged and possibly broadened to include all U.S. international financial and insurance programs. Perhaps we can use this initiative to have the President propose an NSSD on the subject and give credit to the Task Force.

○ Task Force suggestions to form a Private Enterprise Institute, to establish a Private Sector Loan Fund, to increase OPIC funding and to activate an Eximbank mixed-credit fund are all constructive suggestions that can be referenced when meeting with this group. However, their food assistance recommendations are consistent with—but overshadowed by—Bob Keating’s far more elaborate proposals.⁴

○ There is incontrovertible evidence that the Task Force has attempted to circumvent Cabinet-level and NSC review of its report (except for a few select individuals) prior to its being presented to the President. According to Task Force Executive Director, Christian Holmes (in a phone conversation with me last week) their goal was to keep it out of the hands of Treasury, most of the NSC and certain other SIG–IEP members in an attempt to deliver the report to the President unchallenged (perhaps hoping for another oral commitment from the President similar to the one they received in August 1983 expanding their mandate).

Conclusion

The Task Force Report contains a number of constructive recommendations for improving the effectiveness of U.S. aid, trade and investment activities in the Third World and increasing private sector involvement in U.S. policy implementation. In accepting the Report, the President may wish to reference some of these proposals in expressing his gratitude for the undertaking. We can subsequently fold some of these ideas into ongoing efforts to strengthen our international economic policy apparatus and programs. At the same time, the Task Force strayed far beyond its mandate and capabilities in proposing a major overhaul of key elements of the Executive Branch centered around the formation of an Economic Security Council, that could—if implemented—undermine the President’s stated National Security objectives. If pressed for a response concerning this segment of the report, we urge that the President merely express his appreciation for the creative effort and indicate that he will take it under advisement (I will prepare talking points for the President’s luncheon meeting if you deem appropriate).

Don Fortier, Roger Robinson and Doug McMinn concur.

RECOMMENDATIONS

1. That you agree with this assessment of the Report of the President’s Task Force on International Private Enterprise and approve of the suggested Presidential response to its upcoming presentation at the December luncheon meeting.

2. That you approve of the preparation of talking points for the President’s use during this meeting.⁵

1. Source: Reagan Library, David Wigg Files, Chronological File, November–December 1984. Confidential. Sent for action.
2. Tab II is not attached. Reagan met with the members of the President’s Task Force on International Private Enterprise on December 12. See Document 325.
3. Tab I, “The President’s Task Force on International Private Enterprise: Report to the President,” is not attached.
4. See footnote 2, Document 323.
5. McFarlane did not indicate his approval or disapproval of the recommendations. In a December 7 memorandum, McFarlane agreed to forward this memorandum and the Task Force report to Regan for his review. (Reagan Library, David Wigg Files, Chronological File, November–December 1984)