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

329. Paper Prepared in the United States Agency for International Development¹

Washington, February 20, 1985

Strengthened State/AID impact on development issues in the MDBs

Current Situation

— The U.S. has important interests in the MDBs. Treasury is interested in safeguarding our economic and financial concerns, and views the MDBs as banks rather than as developmental/growth institutions. State focuses on foreign policy concerns and the MDBs’ global economic impact. Thus both Treasury and State look at the MDBs on a macro basis, appropriately given their missions. However, in my view we also need additional focus on developmental issues.

— Over the last several years the Treasury influence with the banks has become stronger, while that of State/AID has weakened. We do not dispute the importance of macro concerns, but we think that economic development concerns (especially as they affect small, poor countries) have not received adequate consideration in U.S. decision making. Further, we believe that we need greater ability to influence decisions at the sector and country economy level.

— AID has devoted much effort to coordinating our programs with the MDBs and Treasury. Treasury, however, does not have (nor should it have to develop) the capacity to advise under what circumstances we should proceed with a World Bank sewer project in Tegucigalpa. AID has developed a system of reviewing and commenting on MDB projects at various stages in their formulation; this scrutiny has improved the quality of MDB projects, made them more consistent with our views on development, and strengthened our substantive position in the banks. We could do much better, however, if we had a strong formal basis for what is now essentially a voluntary effort.

— We expect a number of significant development issues to be raised in the MDBs in coming months. These will include interest rates to ultimate borrowers of IDB loans (e.g., agriculture credit) where the IDB allows borrowers to pay less interest than the level of inflation. The IDB relationships to the parastatal forestry industry in Honduras is troublesome. The sectoral details of the World Bank’s policy dialogue with the Philippines is of great importance. There are issues such as these in country after country.

— The current procedure allows us to address these interests to a limited extent, but issues would certainly be far more effectively dealt with if we strengthened the approach. Too often State/AID’s development concerns have been raised with insufficient substantive content or in an uncoordinated fashion.

Proposed Change

— We think this problem could be addressed by the Secretary’s appointing one individual to serve as the State/AID spokesman on the MDB development issues.

— The designation of a Counselor or Special Representative or Coordinator for the Secretary on MDB Development Issues would result in more active coordination and more effective State/AID impact on developmental questions.

— In view of my background and interest in this area, I propose that I be given this responsibility. To avoid any possible bureaucratic concerns, I could be so named in a personal capacity, not as the AID Administrator.

— In this way I could speak for both State and AID on MDB development issues, and then our views on these issues would have greater impact than is currently the case.

— The change could be brought about with no real disruption to existing bureaucratic structures and relationships. Political and other issues usually focused on by State would continue to be dealt with in the offices that deal with them now. Treasury would continue with their current responsibilities and concerns, probably strengthened by greater substantive support.

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—Staff/Departmental 1982–1985. No classification marking. Wallis wrote at the top of the paper: “from Peter McPherson, 20 Feb 85, For AW only.” A stamped notation reads: “WAW Has Seen.”