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

326. Action Memorandum From the Assistant Secretary of State for Economic and Business Affairs (McCormack) to the Deputy Secretary of State (Dam)¹

Washington, January 3, 1985

SUBJECT

• The Effect of the “Freeze Plus” Budget on Our Participation in the Multilateral Development Banks

Issue for Decision

Whether to call Secretary Regan regarding the Administration’s position on participation in future replenishments of the International Development Association (IDA), the Asian Development Fund (ADF), and the African Development Bank (AFDB) and Fund (AFDF)

Background

As you know, the “freeze plus” budget for 1986 and beyond, which the President presented to the Cabinet on December 5,² assumes that the U.S. will not participate in further replenishments of capital in most soft-loan affiliates of the multilateral development banks (MDBs) after our commitments under current replenishment agreements are met. While I recognize the primary importance of action to reduce our unsustainable budget deficit, I believe it would be a mistake to accept this decision as Administration policy without a thorough vetting of its potential impact on our conduct of foreign affairs.

You will recall the pronounced pressures we faced from the other major donors to these institutions when we made unilateral decisions on the appropriate timing of, and sizes for, replenishments, especially for the International Development Association (IDA). Our stretch-out of the previous Administration’s pledge under the sixth IDA replenishment, from three to four years, was a topic for discussion at the 1982 Versailles Summit,³ and led to a promise from the President that we would seek to contribute our full pledge in no more than four years. Likewise, our decision to limit our contribution to IDA’s seventh replenishment to $750 million per year over three years (vice our $1.06 billion/year unfulfilled pledge under IDA VI) led to numerous complaints from heads-of-state, and caused IDA to be a topic for consideration at the Williamsburg and London Summits.

I understand that either you or Secretary Shultz may be meeting with David Stockman some time in the next few days regarding the foreign assistance budget. I understand also that it has been suggested that you raise the MDB replenishment issue as one on which a final agreement should be put off until a later date. You should be aware that several events will arise in the next four to five months which will require that we address the question in depth:

— The World Bank/IMF Development Committee will meet in mid-April to discuss the critical issue of our medium- and long-term approach to the developing-country debt problem. What role the World Bank should play in addressing this issue will be of central concern. We can expect rather extreme recriminations, and charges of bad faith, if, as we expect, the U.S. decision to decline to participate in soft loan-facility replenishments is widely known by then.

— Congressional hearings on our proposed participation in the World Bank’s Selective Capital Increase (SCI) and in the fourth replenishment of African Development Fund resources (AFDF IV), both negotiated last year, will be held early in this session. As the “freeze plus” budget has been circulated on the Hill, we expect MDB supporters to press for an indication of our intentions.

— Replenishment discussions for two of the affected institutions, the Asian Development Fund and the African Development Bank, are expected to begin informally at their respective annual meetings in late April and early May.

Because we will need to address this issue early in the year, I suggest that either you or Secretary Shultz call Secretary Regan before you meet with Stockman. Regan’s position on the issue is unclear. On the one hand, he has told his staff that he favors reconsidering the question later in the year after the political dust has settled; on the other, he has also indicated his support for non-participation in replenishments and has characterized Secretary Shultz’ position as one of tacit support for the decision as well.

Recommendation:

That you call Secretary Regan to discuss the Administration’s position on future MDB replenishments.⁴

1. Source: Department of State, Files of the Under Secretary of State for Economic Affairs, W. Allen Wallis, Chrons; Memo to the Secretary/Staff and Departmental/Other Agencies; Memos to the Files; White House Correspondence, 1987–1987, Lot 89D378: Memos to the Secretary Jan–Apr 1985. Confidential. Sent through Wallis. Drafted by Charles English (EB/IFD/ODF) on December 31, 1984; cleared in EB/IFD/ODF, EB/IFD, and EB. Quinn also initialed the memorandum and wrote “1/3.” Sent under a handwritten January 4 covering note from Wallis to Dam, on which Wallis wrote: “KD, The memo we discussed on MDB’s. Before this came, I already was planning to suggest to Sprinkel that the whole issue of MDB funding be reviewed. I suspect that the OMB position has a lot (not 100%) of merit even if money were abundant. AW.” (Ibid.)
2. No minutes for this meeting have been found.
3. For documentation on the Versailles Economic Summit, which took place June 4–7, 1982, see the Global Negotiations compilation of this volume. Documentation on the Summit is also scheduled for publication in Foreign Relations, 1981–1988, vol. XXXVI, Trade; Monetary Policy; Industrialized Country Cooperation, 1981–1984.
4. Undated “Suggested Talking Points” are attached but not printed. Dam did not indicate his approval or disapproval of the recommendation.