Office of the Historian

330. Letter From Secretary of State Shultz to Secretary of the Treasury Baker1

Washington, March 16, 1985
Dear Jim:

State and Treasury have had a number of sharp disagreements on how to handle MDB loans. Your staff quite properly examines proposed loans from an economic perspective. We in State have a particular responsibility to look at foreign policy considerations as well.

From time to time these foreign policy considerations will clash with the economic merits of the loan. When this happens, we need to work together more effectively to develop an agreed U.S. position. In addition to the question of whether a particular loan should be opposed, the form of opposition, i.e., whether by an abstention or no vote, can have important foreign policy implications that have to be taken into account.

During my recent trip to Ecuador, for example, the newly elected President, Leon Febres-Cordero, expressed his concern to me over the negative U.S. vote on the Inter-American Development Bank loan for the Daule-Peripa energy and irrigation project.2 While State and Treasury agreed that the economics of the project were not sound and it did not merit our support, an abstention, rather than a no vote, might well have better served our interests. It would have shown a more positive attitude to constructive developments in Ecuador while still making clear we did not support that loan.

In that regard, I am encouraged by Treasury’s willingness to consider a multi-year rescheduling of government debt for Ecuador. This would be the first such multi-year arrangement by the Paris Club creditors and would reflect our shared view that Ecuador’s shift to an emphasis on the free enterprise economy should be encouraged.

We need to work together more closely to assure that we better integrate our economic and foreign policy interests in connection with MDB votes. I suggest we ask our staffs to consider ways in which this might be done more effectively.

Sincerely yours,

George P. Shultz3
  1. Source: Reagan Library, George Shultz Papers, Official Memoranda (03/16/1985); NLR–775–51–76–5–7. Confidential. Drafted by Harry Kopp (ARA) and Richard Smith (EB/IFD) on March 15.↩
  2. The Ecuador trip was discussed in a March 15 action memorandum from Constable and Michel to Shultz. (Reagan Library, George Shultz Papers, Official Memoranda (03/16/1985); NLR–775–51–76–6–6)↩
  3. Shultz signed “George” above his typed signature.↩