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

332. Memorandum From the Assistant Secretary of the Treasury for International Affairs (Mulford) to Secretary of the Treasury Baker¹

Washington, April 8, 1985

SUBJECT

• The World Bank’s Multilateral Investment Guarantee Agency: The Next Step

For the past couple of years the World Bank has been working on a proposal for a multilateral investment insurance entity which would insure investors against non-commercial risks such as currency transfer risk, expropriation, and war. Following extensive discussions in the Executive Board and consultations with member countries, the Bank has drafted articles of agreement for a Multilateral Investment Guarantee Agency (MIGA) and is requesting the Executive Board to consider on April 9 whether to proceed with formal negotiations to establish the MIGA. We recommend that Treasury seek SIG–IEP agreement that the United States proceed to negotiations.

Rationale for a MIGA: The United States believes that in the long run direct investment can make an important contribution to the development process and has urged developing countries to be open to private flows. Secretaries Regan and Shultz have supported World Bank efforts to develop a MIGA proposal because the concept is consistent with the Administration’s private sector approach to development.

The potential benefits of a MIGA cannot be fully quantified in advance. Nonetheless, a well-constructed MIGA that is financially sound, leads to policy reform in LDCs, and facilitates investment protection and dispute settlement could be a positive force in facilitating foreign direct investment flows to developing countries.

U.S. objectives: For the United States a well structured MIGA would include the following important features: a clear mandate to encourage policy reform in developing countries; a close link with the World Bank; a dispute settlement system with automatic subrogation and arbitration; a conservative financial structure; a decision making structure relating votes to financial contributions; and limitation of insurance coverage to foreign direct investment and to investments in developing countries. It will be very difficult to achieve these objectives; many LDCs may find our terms unacceptable.

Entering negotiations does not obligate us to participate in a MIGA. There is, however, a strong presumption that if we do successfully negotiate our basic objectives we will seek Congressional authorization and funding. The cost could range from $20 to 50 million paid in and $150 to $180 million in contingent guarantees.

Interagency Clearance. While generally supportive of moving to negotiations, other interested U.S. agencies—State, AID, STR, OMB, Commerce, and FRB—have requested that the issue be reviewed at the Cabinet level before the United States takes a formal position. With your concurrence, we will schedule a SIG–IEP meeting, preferably prior to the April 18–19 Development Committee meeting. If the SIG–IEP agrees, you could announce at the Development Committee that the U.S. is prepared to enter into negotiations on the MIGA. (Otherwise we would offer our usual general expressions of support for the MIGA.)

Recommendation: That you seek, through the SIG–IEP process, agreement from other agency heads that the United States should enter into negotiations on the MIGA with other interested countries.²

1. Source: National Archives, RG 56, Records of the Office of the Secretary of the Treasury, Official Files of the Executive Secretariat, 1985, UD–11W, 56–88–79, Jan–Apr ’85. No classification marking. Sent for action. Sent through Sprinkel, who did not initial the memorandum.
2. Baker approved the recommendation. Minutes of this SIG–IEP meeting, scheduled for April 15 at 5 p.m., were not found. Briefing materials for the meeting are in the Washington National Records Center, RG 56, Records of the Office of the Assistant Secretary for International Affairs, 1950–1985, Meeting and Policy Files, 1979–1992, 56–10–60, Box 1, SIG–IEP Meeting—April 15, 1985. A typed note at the bottom of the page reads: “NOTE FOR SECRETARY BAKER: Should you approve a SIG–IEP on MIGA, you have from 4:00 p.m. to 5:00 p.m. free on Monday, April 15. Ed Stucky.” Stucky signed “Ed” over his typed signature.