Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

197. Memorandum From the Deputy Assistant Secretary of State for International Organization Affairs (Gardner) to the Assistant Secretary of State for International Organization Affairs (Cleveland)⁰

Washington, April 16, 1962.

SUBJECT

• Luncheon Conversation with John Leddy

I had a long overdue luncheon today with John Leddy, Assistant Secretary of the Treasury for International Affairs. We covered the following subjects of current interest to IO:

1. Senior appointments in IMF and IBRD . The most immediate problem here is the retirement of H. Merle Cochran, the American who is the number 2 man in the IMF. This job is part administrative, part substantive. Frank Southard, the agreed Treasury-State choice to succeed Cochran, indicated reservations about taking the assignment and Jacobsson also suggested that someone else would be desirable. Leddy said that two “banker-types” from within the Federal Reserve system had been suggested but that he thought the number 2 man in the Fund should be a person of broader background, sympathetic to the needs of less developed countries. Ambassador Riddleberger suggested on a recent visit to Washington that he would be interested in the job. Treasury is favorable to this idea. I agreed with Leddy that the number 2 man should be more than a financial technician and that Riddleberger might fill the bill.¹

Our conversation then turned to the top jobs in the IMF and IBRD. Leddy apparently had not considered George Ball’s interesting suggestion that the United States might vary the traditional formula and seek to have an American as Managing Director of the IMF and a European as President of the IBRD. This turnabout would constitute recognition of the increasing US interest in IMF as a supplement to our weakening Reserve position and the European increased ability to mobilize capital for the IBRD. Leddy pointed out that the decision on Cochran’s replacement was tied up with this problem because the US could not have the number 1 and number 2 man in the IMF. He suggested that Cochran’s replacement should not be given the normal long-term appointment but should be appointed only until the end of Jacobsson’s term (two years) in order to take care of this problem.

Concerning the top job in the IMF, I suggested that Jacobsson’s successor should be someone a good deal more flexible and sympathetic to new devices to deal with the free world liquidity problem. I suggested that this problem was not yet acute but that it could become difficult later on in this decade if gold production continued to lag substantially behind the growth in world trade. I pointed out further that Britain’s entry into the Common Market would aggravate the liquidity problem by weakening and perhaps eventually destroying the sterling area, so that the overseas members of the area would gradually transfer their sterling balances into other currencies. In short, we face a prospect of an aggravation of the British payments problem as well as the prospect of a long term US payments problem and some means might have to be found to take pressure off the dollar and sterling as the two reserve currencies of the free world by some institutional innovation beyond the recent Vienna agreement which would provide real “collective security” in free world financing. Leddy said that the Treasury did not think there was a liquidity problem now but agreed there might well be one as the decade proceeds. I suggested that someone like Sir Oliver Franks, who appears to be impressed with the liquidity problem, might be the sort of person who should succeed Jacobsson at the Fund. Leddy said Franks’ name had come up in connection with the Bank and was regarded in some circles as “too unorthodox” on monetary matters.

As for the IBRD, Leddy indicated that Black’s recent medical reports had been good and that no information had come to him which would indicate that Black would leave the IBRD before the end of his term in 1963 to take up a post as “Finance Minister” at the UN. Leddy mentioned Malagoddi as an able Italian banker who might be considered for the IBRD job.

2. UN Development Decade. Late in February I sent Leddy copies of the circular telegram we sent to US missions to specialized agencies urging them to take up with members of the Secretariats possible ways in which the agencies could implement the development decade.² I asked Leddy just how the financial agencies (IMF, IBRD,IDA, IFC) might fit into the development decade concept.

In the course of our conversation the following principal points emerged:

a. The activities of IDA might be expanded. IBRD officials are already taking soundings about increasing the capital of IDA from $1 billion to $4 billion. They would like to get this proposal approved in principle in the next Board of Governors meeting in September. The practical case for doing this now is that most of the IDA’s loanable capital is already committed so that the agency will run out of useable funds within another year or so. I observed that there were good political reasons for moving this year on an increase in IDA’s resources—it could be billed as a measure to advance the Development Decade and help forestall any further attempt to press the UN capital fund idea. We also agreed that if IDA resources could be expanded to $4 billion the agency could take a more sympathetic view than it now takes toward projects in the field of social infra-structure, e.g., education, housing, and health.

b. The IBRD development advisory services might be related to the Development Decade. I suggested that we might find some way in which the expansion of this effort might be linked with similar efforts on the part of the Special Fund and the regional commissions and presented as part of progress in the Development Decade.

c. Consideration might be given to ways in which the UN financial agencies could be integrated in the field more effectively with other UN agencies. I emphasized that the US was trying to use the weight of the Development Decade concept to influence the Specialized Agencies to relate their efforts in the field more effectively in support of total country programs and in this connection to make greater use of the resident representatives. So far, however, all the talk about coordination did not appear to apply to the financial agencies. Leddy seemed rather vague about all the UN efforts which had recently been taken in the direction of greater coordination but promised to have his staff look into this question.

d. The Bank might place further emphasis on loans for research and demonstration projects in areas of science and technology which promise special benefits for less-developed countries. I asked Leddy if he might look into the possibility of having the Bank put greater emphasis on projects in fields like desalinization, solar energy, etc., pursuant to that part of the Development Decade resolution which emphasized the importance of possible scientific breakthroughs.

In conclusion I noted that it might be advisable for Leddy to identify a member of his staff who could work closely with us in implementing the Development Decade. At this point I have the feeling that no one in his shop is really interested, which is unfortunate, since Treasury will have a lot to say when US position papers are drafted which have financial implications. Leddy said he would have his deputy, John Bullitt, take charge of the subject and that further down the line we could look to a Mr. Hirschtritt as a point of contact.

0. Source: Department of State, Central Files, 398.13/4-1662. Limited Official Use. Drafted by Gardner. Attached to the source text is an April 19 note from Cleveland to Ball, remarking that Gardner’s memorandum was worth reading and suggesting a meeting among Dillon, Leddy, and Ball on the Bank and Fund leadership question after Ball returned from abroad the first week in May.
1. In the margin next to this sentence is a question mark, presumably written by Cleveland.
2. This circular telegram has not been further identified.