328. Information Memorandum From the Chairman of the Policy Planning Council (Rodman) to the Deputy Secretary of State (Dam)1
SUBJECT
- Proposed Areas of State/Treasury Cooperation
In response to your request the following checklist describes areas that would benefit from State/Treasury cooperation. Please note that in some cases we do not yet have an agreed upon position within the Department. This checklist draws on contributions from EB and the regional bureaus.
A. General Economic Issues
1. Dealing with Debtor Countries
It is important that debtor countries receive similar signals from State and Treasury on our response to LDC indebtedness. Collaboration will help to counter efforts to politicize LDC debt.
2. Conditionality of Economic Assistance and Credit Programs
State and Treasury often disagree over the conditions for the disbursal of aid, including the use of CCC and PL 480 funds, with State emphasizing political and security goals and Treasury emphasizing economic objectives. This is especially important in Central America where we must balance short-term security imperatives and longer-term [Page 805] economic and political stability. Improved collaboration between State and Treasury could move us away from a single-issue approach to foreign assistance and help us balance our objectives.
3. African Famine/Economic Development
African development has come to a halt. Per capita income is now lower than it was in 1970, and debt has risen to a level higher than many African countries can service. Recovery will require long-term structural reform which will at best take many years to achieve. There is consensus among most donors that the statist policies within Africa are the primary cause of the current economic conditions. However, cooperation is needed here to iron out a long-term and acceptable policy for providing humanitarian assistance and insuring that recipients continue with economic reform. This is especially important now because the resource flows to Africa are constricting. Issues of concern include supplemental lending to IBRD’s African facility, IMF lending, economic reform and conditionality.
4. Trade and Protectionism
We need a comprehensive strategy for sustaining our free trade policies and staving off protectionist pressures. Neither Treasury nor State is the lead agency on this issue, but a cooperative approach is essential if we are to sustain the world trading system and succeed in getting our trading partners to accept a new trade round.
5. Export Controls
Congress is continuing this year to write an Export Administration Act. We need to work closely with Treasury in ensuring that our security over defense-related technology and our ability to impose controls for various foreign policy reasons are not compromised, but at the same time assure that U.S. industry is not unreasonably penalized.
6. Collapse in Oil Prices
If world oil prices collapse we will need to review our current policy. Among other issues we will have to coordinate whether extra assistance is needed for oil-exporting countries such as Mexico, and whether we should attempt to raise the minimum selling price (MSP) for oil throughout the OECD. The current price is $7/bbl.
7. Role of Eximbank
Treasury currently is prepared to acquiesce in OMB’s desire to sharply curtail Exim activity. The Department has not taken a definitive position. This is another area where strict economic criteria must be balanced against foreign policy/security interests.
[Page 806]8. Commodity Agreements
There is general agreement that commodity agreements do not provide mutual benefits for consumers and producers. However, we are likely to face pressure to continue existing agreements (e.g., coffee) and take on new ones. State/Treasury need to coordinate on a long-term strategy, for transition away from commodity agreements, that will not create widespread economic instability for some important friendly countries.
B. Banking/IMF—Monetary Issues
1. Cooperation with Key European Allies
In recent years the U.S. and its European Allies have differed on a range of economic issues. We are, however, getting closer on such issues as exchange rate stabilization and Third World debt. We can expect the high value of the dollar and U.S. interest rates to be raised by allies at the Summit. Close State/Treasury coordination on these issues will continue to be very important.
2. Asian Development Bank
There is a long list of issues that need immediate attention and comprehensive coordination between State/Treasury. Among these are PRC membership, Indian access to the ADB, and the U.S. contribution. As you know, S/P is concerned about excessive Indian demands on ADB resources. NEA believes India should receive loans in the range of $100 million/yr. We will need to work closely with Treasury on PRC membership, which we favor, while ensuring that Taiwan does not lose its seat.
3. Polish IMF Application
State/Treasury agree that Poland’s IMF application must satisfy all economic obligations for membership. However, coordination is needed to ensure that our approach to Polish IMF membership also takes account of overall U.S. policy on Poland, including the risk of political backsliding. Treasury may be inclined to argue that traditional IMF membership criteria govern and that we avoid political concerns.
4. IMF/IBRD Quota Increase—MDB Lending
While no one expects major accomplishments at the Spring meetings of the IMF/World Bank Interim Committee, we will have to seek ways to respond to some LDC concerns to avoid adverse results to our foreign policy interests. We and our allies disagree over quota increases for the IMF and IBRD; this issue may surface again soon. We will face pressure to increase MDB non-project lending to assist major debtors in making the appropriate adjustments to service their debt and sustain economic growth. MDB budgetary levels also will come up. We need a political strategy for managing these issues.
[Omitted here is information on country-specific issues.]
- Source: Department of State, Bureau of Economic and Business Affairs, Files of the Planning and Economic Analysis Staff, Lot 87D73: PR 2–2 Secretary’s Breakfast Items 1985. Confidential. Copies were sent to Wallis and Armacost. Drafted by Lucian Pugliaresi (S/P), Boerner, and Barbara Griffiths (S/P); cleared in S/P. Quinn’s stamped initials appear on the memorandum.↩