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

360. Memorandum From David Wigg of the National Security Council Staff to the President’s Assistant for National Security Affairs (Poindexter)¹

Washington, March 28, 1986

SUBJECT

• OPIC Management of New PL–480 Private Sector Program

Section 1111 of the Food Security Act of 1985 outlines a program of private sector stimulation through a new use of Title I, PL–480 funds. Title I food will be sold for local currencies. These currencies will then be lent by the U.S. to in-country financial intermediaries who will on-lend them to local private businesses.² This concept came from S–616 which was substantially incorporated into the Farm Bill by the Senate Agricultural Committee. The bill states that “the President is authorized to negotiate and carry out agreements with friendly countries” for this program. The Senate originally designated USDA to manage the effort, but they did not feel³ able to take the lead on implementation, so management options are now being evaluated for the President by a subcommittee of the Development Coordinating Committee (DCC). By statute, at least $100 million⁴ must be moved through this conduit to Third-World private sector companies, and not more than $500 million. As you can see, this has the potential to serve critical function in support of our development/security interests.

The Alternatives

There are three alternatives being discussed within the DCC subcommittee chaired by George Pope, which plans to meet Tuesday, April 1 to reach a consensus:

○ Program administration by AID as they are proposing to do in consultation and cooperation with other agencies

○ Administration by OPIC in cooperation with other interested agencies

○ Administration by private commercial banks in developing countries as is being proposed by OMB⁵

Peter McPherson is playing a very heavy-handed role in trying to secure this program for AID. Even though he fought bitterly⁶ to block it from becoming a reality, he now realizes he can only control it by absorbing it into his monolith organization.⁷ Although OPIC was put forward as a logical and efficient management option, McPherson, as Chairman of the OPIC Board, ordered OPIC President Craig Nalen to stand down and not to further pursue discussions nor make recommendations on how they would manage the program (rather blatant conflict of interest). There are many reasons why AID should not be given this program under any circumstances:

○ AID has proposed a committee system for approval of the country programs and wants to delegate selection of the Financial intermediaries to the “country team” (mainly AID and State). This is a cumbersome, and typically bureaucratic approach.

○ This program is aimed at the private sector and needs to be administered in a business-like fashion. AID is incapable of doing so.

○ AID has not widely demonstrated the ability to field mission officials who are either knowledgeable of or sympathetic to commercial concerns (as of the fall of 1985, only 3 of the 72 overseas missions had submitted the requested private sector strategy statements). Who in AID is qualified to run this program?

○ It is a conflict of interest to have AID personnel working this program when it has the potential to run amuck of traditional AID programs and is the antithesis of AID’s approach to development assistance.

OMB’s idea to use commercial banks to resale the local funds is flawed in as much as the banks have demonstrated only mixed success in effectively moving funds into private sector hands that are maximally utilized to build a developmental base. Instead, the banks tend to focus on relatively short-term turnaround of funds and large, established customers with whom they are used to dealing. The use of banks alone would thus tend to defeat the intent of the bill which is to provide broad-based financing to the widest possible range of indigenous entrepreneurs.

There are good arguments for allowing OPIC to manage the program.

○ The program must be administered with an eye to both commercial viability and developmental impact. OPIC appears to provide the best institutional balance of small and large, developmental and commercial.

○ Using the IFC/World Bank/CDC management model, a handful of OPIC loan officers could identify, review and qualify financial intermediaries in each country who wished to borrow the funds. These field officers⁸ could forward their recommendations to OPIC headquarters for final review and selection. OPIC could work closely with concerned agencies, but the final decisions would be their own.

○ Since OPIC is already a financial intermediary, they could directly retail funds to projects as well.⁹

○ This approach puts the program in a small, business-oriented institution which is not heavily bureaucratic. They can coordinate within the bureaucracy but would not be held up in an interagency or intraagency process.

○ OPIC would have the latitude to lend to AID-supported financial institutions and U.S. commercial banks, depending on qualifications. Indeed, OPIC might earmark a substantial portion of the funds specifically for AID and the banks.

○ The OPIC mandate would need minor tinkering¹⁰ to enable them to perform the functions outlined above, and this could be done by Executive Order.¹¹ Making these changes and establishing OPIC as the manager of this program would appear to offer the best chance for the program’s success and to meaningfully contribute to the President’s goal of helping to privatize Third World economies.

We need to intervene in this process by Tuesday morning (April 1) or AID is assured of getting its way. As you will note in the recommendation, an informal Presidential decision to have OPIC manage the program is my preferred solution. We cannot, in good conscience, let AID take over this innovative program. You will be hearing from both Bob Keating and Senator Helms on this matter in the next few days. If you need to reach me to discuss this matter I will be in New Jersey [phone number not declassified] until Monday noon.

REOMMENDATION

That you discuss this matter with the President informally and then call Peter McPherson [phone number not declassified] in his capacity as Chairman of the OPIC Board and inform him that the President has decided that OPIC will administer this program in coordination with AID and other relevant agencies, and ask him to advise Craig Nalen that he should come up with the necessary changes in OPIC’s authority and a game plan ASAP to launch the program.¹²

Raymond Burghardt and Ollie North concur.¹³

1. Source: Reagan Library, Stephen Farrar Files, 1986–1987 File, Subject File, PL–480 1986; NLR–177–1B–41–12–4. Confidential. Sent for action.
2. Poindexter underlined “lent by the U.S. to in-country financial intermediaries who will on-lend them to local private businesses.”
3. Poindexter underlined “they did not feel” and placed a question mark in the right-hand margin.
4. Poindexter underlined “$100 million” and wrote “per yr?” in the right-hand margin.
5. Poindexter wrote in the left-hand margin: “[illegible] couldn’t manage—no staff.”
6. Poindexter underlined “he fought bitterly” and wrote “Admin opposed” in the left-hand margin.
7. Poindexter underlined “monolith organization” and wrote “Official—skepticism—worked w/ [illegible]” in the left-hand margin.
8. Poindexter underlined “field officers” and placed a question mark in the right-hand margin.
9. Poindexter underlined “already a financial intermediary” and “retail funds to projects” and placed a question mark in the right-hand margin.
10. Poindexter underlined “OPIC mandate would need minor tinkering” and placed an exclamation point in the right-hand margin.
11. Poindexter underlined “could be done by Executive Order” and placed a question mark in the right-hand margin.
12. Poindexter did not approve or disapprove the recommendation. In a June 16 letter to Helms, Poindexter explained that the administration decided to “focus decision-making for this program on the U.S. Embassy country team in the recipient country, expanded to include economic and commercial counselors.” The letter is printed as Document 365.
13. An unknown hand wrote “not available” above Burghardt’s name.