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

35. Memorandum From the President’s Assistant for National Security Affairs (Allen) to the Counselor to the President (Meese), the White House Chief of Staff (Baker), and the White House Deputy Chief of Staff (Deaver)¹

Washington, August 20, 1981

SUBJECT

• Policy Action Requirements for President’s Participation in Cancun

In two and a half months, the President participates in the Cancun Summit. Until now, the Administration has not focused in depth or breadth on its policies toward the developing countries. The attached paper (Tab A) develops a framework of policy themes and an inventory of issue actions to initiate such a review. It can serve as an initial roadmap for our internal discussions and then for White House directives to the Cabinet Councils and the agencies to push forward various decisions and programs so the President can present at Cancun a philosophy and program totally consistent with his ideas (and not the ideas of his predecessors buried in the recesses of the bureaucracy).

I would recommend an early meeting to review this matter and to initiate the desired actions.

Tab A

Paper Prepared in the National Security Council²

Washington, undated

U.S. POLICY FRAMEWORK AND INVENTORY OF ISSUES FOR RELATIONS WITH LDCs

The President’s participation in the Cancun Summit offers an opportunity to put his imprint on the international development dialogue and on U.S. foreign assistance programs. This imprint should reflect an approach to international development and economic cooperation consistent with his domestic economic program and represent a bold and unconventional departure from the creeping statism, dirigisme and bureaucratization that has characterized so-called North-South relations over the past decade.

This memo sets out the themes of such an approach and inventories issues and actions that have been or should be taken in order to implement these themes in U.S. policies over the period ahead. It is designed to facilitate White House decisionmaking and direction to the agencies regarding Cancun preparations. It has been developed in consultation at the sub-Cabinet level with State, Treasury and AID.

The approach assumes that the President wants to take the lead in redirecting the substance and dialogue of relations between developed and developing countries. If another lower profile posture were adopted, only some of these themes and actions would be implemented. It further assumes that the more aggressive and positive the United States is in taking substantive initiatives, the better we will be able to resist or redirect troublesome procedural initiatives, such as the proposed Global Negotiations.

Some of the actions identified below are being studied intensively in the development of the proposed Caribbean Basin Plan. Where applicable, this is indicated. The purpose here is to place the specific Caribbean Basin activities into a broader policy framework.

Themes are underlined³ and the issues and actions listed as subtopics under each theme. The status of each issue or action is also indicated.

I. Development and growth are essentially national responsibilities and depend on sound domestic policies and a favorable climate for investment and other productive activities. Domestic commitments are the essential foundation of effective international cooperation.

A. Stress the decisive policies this Administration has implemented, at considerable short-term sacrifice on the part of the American people, to meet our own domestic economic responsibilities. (We not only preach the theme of domestic responsibility; we practice it.)—Much of the argumentation here has been developed in the preparations for the Ottawa Summit and should now be shifted to the Cancun setting.

B. Stress the responsibility of all countries, especially the developing countries, to pursue sound domestic policies. (The U.S. domestic recovery program gives us the political credibility to insist that other countries also meet their domestic responsibilities and subtly shifts the dialogue of the past decade away from the responsibilities of the international community to the responsibility of each of its members.)—No action yet, but may wish to ask CIA and other agencies to develop a concise comparison of the development policies that have failed and those that have succeeded in developing countries over the past two decades (e.g. Tanzania vs. Malaysia or Sri Lanka).

C. Show the benefits which the American economy provides for LDCs, to include the disproportionate share of LDC imports we absorb and LDC investment and financing needs we provide, and particularly the benefits to LDCs of renewed, non-inflationary growth in the U.S. market.—CIA has started some work in this area but might be asked to do more.

D. Review foreign assistance programs to establish more effective performance criteria for local government policy and action, such as a willingness to enhance the role of the indigenous private sector, the pursuit of a balanced strategy of agricultural and industrial development, budget policies to encourage savings and investment, serious local programs to deal with the poor, etc.—AID is doing this on a project basis and expects to develop more systematic policies which we can also advocate in multilateral development institutions such as the World Bank.

II. The present free world international economic system, based on maximum opportunity for private sector activities, has worked for all countries that have sought to use it, including developing ones, and has shown itself to be resilient, adaptable to change, and accommodating to the real needs of developing nations. We seek to expand this system, not restructure it, and stand ready to meet our obligations toward developing countries within this system as we look to them to assume their responsibilities.

A. The System As a Whole

1. The accomplishments under the evolving post-war system, especially in the last decade, are considerable and have been ignored for too long in the defensive, self-incriminating stance adopted by too many developed countries.—Ask CIA and other agencies to develop empirical data to show, for example, the number of countries with sizable trade today compared to 10 years ago, the growth and change in the character of private investment and of LDC policies toward private investment, the increase in IMF quotas and multilateral bank lending, etc.

2. The Global Dialogue—Make a decision whether we accept eventually under the proper terms a special forum in New York for global negotiations and, if so, under what terms, or if not, what alternatives do we propose (e.g. Cancun follow-up, etc.).⁴—Preliminary discussion in CCEA and State has started drafting a decision paper with various options.

B. Trade⁵

1. Multi-Fiber Agreement—Adopt as liberal a position as possible and aggressively compare U.S. position with more restrictive European position, pointing out that trade is the real “meat” of development ($90b./year of manufacturing exports by LDCs, $45b. of which are covered by MFA) while Global Negotiations, where Europeans are more enthusiastic than U.S. is mere “puff.”—USTR leads an interagency team to conduct the MFA negotiations. We may also wish to consider a Cabinet Council discussion of this issue.

2. Examine the Trade and Development Program with a view to its potential for enabling aid programs to involve the U.S. private sector more effectively in ongoing development activities in LDCs (TDP promotes U.S. private sector involvement in feasibility studies of development projects in developing countries with resultant benefits for U.S. exports and longer-term involvement of U.S. companies in these countries.)—Currently under IDCA, TDP is reviewing its own operations as well as developing TDP-type components in various aid projects within the regional bureaus of AID.

3. Weigh the advantages and disadvantages of a program of mixed credits whereby aid grants combine with commercial loans to yield subsidized export credits and consider appropriateness of this idea in multilateral as well as bilateral assistance (e.g. subsidized interest loans instead of grants in IDA).—Treasury leads an interagency team to negotiate an international agreement to restrict export credit subsidies, while AID and USTR are examining pilot programs for mixed credits to keep U.S. industry competitive if an international agreement is not concluded or is not sufficient.

4. Consider a review of Export-Import Bank financing with a view to increasing its lending for exports to targeted developing countries, such as the Caribbean Basin countries.—No action yet.

5. Examine opportunities for use of GSP, tariff authorities and other administrative measures to increase trade opportunities for LDCs in U.S. markets.—Being done for countries involved in proposed Caribbean Basin Plan.

C. Investment

1. Decide whether this Administration will adopt a neutral or an activist policy toward foreign direct investment in developing countries, reviewing a range of instruments (investment treaties, tax policies, etc.) in light of this decision. (If an activist approach were adopted, this might amount to a type of enterprise zone concept applied to impoverished areas internationally, i.e. certain LDCs).—No action yet, but expected that CCEA Working Group on Investment Policy may take up this as a matter of priority.

2. Review OPIC policies with a view toward expanding its insurance and perhaps loan guarantee activities and operating flexibility in developing countries.—Being done in Congress.

3. Develop an initiative supportive of private investment and present in the international dialogue as way of refurbishing image and acceptability of private investment over next decade and of counterbalancing current proposals detrimental to private investment (e.g. present investment and technology code negotiations).—Prototype investment charter and insurance scheme being studied (but reportedly not going anywhere) for countries involved in Caribbean Basin Plan.

4. Catalyze a voluntary initiative by multinational companies themselves to contribute more directly through their trade associations, etc. (e.g. Chamber of Commerce) to development assistance efforts in LDCs (e.g. training institutes run by Chamber of Commerce, etc.).—No action yet. Could be considered in connection with 1. above if, for example, tax benefits were granted to firms investing in these types of Chamber or other trade association activities.

D. Finance

1. Accelerate and complete formulation of U.S. policy toward the World Bank group, stressing co-financing, consortia arrangements, and the role of IFC in consideration of future replenishments.—Interagency study underway by Treasury.

2. Consider a review of long-term U.S. policy toward the IMF, linking issues of conditionality with consideration of future quota increases.—No action yet but expected that Executive Director for IMF and other Treasury officials are considering best way to proceed to interagency discussions.

3. Decide whether new initiatives, and if so, what types, are needed to deal with the problem of debt rescheduling in LDCs and more generally the role of commercial lending in developing countries.—No action yet but CCEA is about to initiate a study.

III. Concessional foreign assistance is vital to poorer elements in developing countries that do not yet participate in the domestic economy and to poorer developing countries as a whole that do not yet participate in the international economy.

A. Consider a major Administration effort to secure passage of FY82 foreign aid legislation which is currently stalled in Committee and unlikely to pass before the new fiscal year, requiring a continuing resolution at roughly 1979 levels (since there has been no aid bill for two years) and considerably lower military and economic support assistance than the Administration has requested.—No action yet.

B. Direct a broad review of U.S. development assistance programs with a view toward presenting new, comprehensive foreign aid legislation in FY83, featuring reorganization proposals for IDCA, a greater role for the private sector, and priority for agricultural, energy and manpower development (training, technical assistance, etc.).—No action yet, although the AID legislative review process which already exists could be used for this purpose.

C. Consider improved coordination for policymaking with respect to all forms of foreign assistance—bilateral and multilateral developmental assistance, economic support, and military assistance.—State, AID and Defense are working on an improved system.

D. Consider improved coordination for operation or implementation of all foreign assistance and other governmental programs facilitating the involvement of the private sector in developing countries—trade missions, bilateral economic commissions, joint business councils, commercial attache program, Trade and Development Program, OPIC, Export-Import Bank, Early Notice Program for Multilateral Bank-financed projects, etc. (Do we need to offer developing countries, like Jamaica, a central point of access to these programs and to the U.S. private sector?)—No action yet, although AID, Commerce and others coordinate on an ad hoc basis.

IV. Concessional aid can be justified only if it is aimed at eventually making the recipient self-sufficient (not feeding the poor but teaching them to feed themselves) and giving poor individuals and poor countries the opportunity to participate in the domestic and international economic systems where the big benefits are to be achieved.

A. Consider criteria for foreign assistance programs and perhaps even individual projects that require phaseout of concessional aid.—No action yet, although the concept of graduation or maturation of countries has been frequently studied and in the case of bilateral assistance applied to some countries, principally in Latin America.

B. Evaluate aid projects from standpoint of facilitating access by poor people to the domestic commercial market and poor countries to the international commercial market (e.g. place priority on basic human needs projects that eventually integrate poor into commercial market for sale of their products, new employment opportunities, obtaining credit, etc.).—No action yet.

C. Establish coordination between U.S. government activities to facilitate private sector involvement (see III.D. above) and U.S. basic human needs programs in order to ensure that basic human needs efforts acquire over time a self-sustaining character, giving poor the independence to fend for themselves in the commercial market.—TDP has begun this effort on a project basis but may want to consider a more systematic approach.

V. Development and growth offer an opportunity to use the unique quality and advantages of an area’s resources and environment to fulfill human needs (this theme counters in a positive way the notion that development is a threat to the environment or that the environment is a constraint on development).

A. Develop an international dimension to the Administration’s domestic environmental policy which addresses the interrelated problems of pollution, population, deforestation and water management.—No action yet.

1. Source: Reagan Library, Douglas McMinn Files, Economic Summit Files, Mexico—Policy; NLR–369–11–25–2–1. Confidential. McFarlane signed for Allen. Poindexter wrote at the top of the memorandum: “8/20 dispatched as cys to the addressees/JCP.” A copy was sent to Darman.
2. Confidential.
3. Printed here in italic type.
4. See Document 33.
5. Documentation on U.S. trade policy during the Reagan administration is scheduled for publication in Foreign Relations, 1981–1988, vol. XXXVI, Trade; Monetary Policy; Industrialized Country Cooperation, 1981–1984; and Foreign Relations, 1981–1988, vol. XXXVII, Trade; Monetary Policy; Industrialized Country Cooperation, 1985–1988.