Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

10. Telegram From the Embassy in France to the Department of State¹

Paris, June 16, 1964, 7 p.m.

6156. From Secretary Dillon for Dillon, Ball, Heller, McGeorge Bundy, William McChesney Martin, Dale and Harley.

Subject: Group of Ten Ministerial meeting, afternoon session, June 15.²

1. Most of afternoon session of Group of Ten devoted to discussion of IMF quotas. Roosa, speaking as Chairman of Deputies, opened with resume of this section of Deputies report. Said Deputies had recognized not appropriate attempt reach detailed discussion on IMF quotas in Group of Ten but that they did note central position of IMF in monetary system. Thus saw our study would be incomplete if did not devote considerable attention to this matter. Outlined various points to be considered: (A) selective increases; (B) general increase, where Deputies report presents three alternatives; (C) special arrangements involving Fund: (I) GAB, where no particular recommendation, only that Deputies be asked study in 1965 in light decision on quotas; (II) differing views on size of gold payment. Deputies all hoped Ministers could reach common ground on Fund, before public learned of differences of view within group, and press followed its customary practice of trying to exploit such differences for manufacture of sensational news. Schweitzer (IMF) followed with argument in favor of substantial quota increases. Said relationship between quotas and criteria used to set original quotas (national income, foreign trade, etc.) had fallen from 100 to 35 for all Fund members in intervening period, to 31 for Ten and 45 for all others. Stressed that meeting of minds among Ten on issue of quota increase would be very helpful in quinquennial review.

2. Dillon pointed to improvement in US B/P DG 12 months ending next June 30: deficit down to about $1.8 billion on regular transactions, with every expectation improvement will continue; over-all deficit to be financed only $1.25 billion or less because of debt prepayments and advance payments for military equipment. Moreover, private foreign dollar holdings up $1.9 billion in last 18 months, and conversely official holdngs back to level at beginning 1963, down $700 million since first of year. Indication is that private demand for dollars will continue absorb official holdings. This indicates need for expanded IMF quotas.

3. Dillon said Ten, as countries with greatest responsibility for international monetary system should provide leadership on quota issue, which will arise in quinquennial review in any case. It not conceivable Ten could study monetary system for a whole year and pass over Fund. While it not necessary reach agreement now, or even prior to Tokyo, it should be done before Executive Directors begin their discussions and before world begins to think we cannot find an agreement among ourselves on this subject. At same time must be careful not create impression Ten have arrogated to themselves decision that properly belongs to Fund.

4. On substance, Dillon described US views as follows:

(A) Favor selective increases, particularly for certain countries that supply usable resources to Fund. These increases would be designed give members in question position within Fund more nearly commensurate with their present economic strength and would replenish Fund’s supply of usable currencies. Would also be reply to reports that circulate from time to time about disproportionate US influence in Fund. Recognize actual voting strength has never played important role in Fund’s operations, but for our part, would welcome adjustments making combined EEC quotas equal to US quota. Of course, this matter for EEC countries themselves to decide.

(B) On general increase, US favored 50 percent but realized this not supported by others around table whose views we value. Therefore in interest reaching agreement willing suggest range 30 to 35 percent. Believe this reduces difference among us to point where should be possible reach agreement. Would also be prepared agree to spacing of such an increase over time, say five years.

(C) Think it important in connection with quota increase to avoid gold drain from reserve centers into Fund. There are several ways achieve this, but we would suggest limiting gold payments to 5 percent of increase with limiting of gold [garble] drawing rights to amounts actually paid in gold.

(D) Should note that spreading out of actual payment of quotas over time would not solve gold drain problem. But it would moderate pace of LDC drawing on Fund. US believes IMF should remain purely monetary institution. Without quota increase more and more countries will inevitably move into upper credit tranches, and it will become increasingly difficult maintain proper discipline on such drawings.

5. Witteveen (Netherlands), taking familiar Dutch line, questioned that future liquidity needs were justification for quota increase, arguing that question of what these needs were had been referred to study group on reserve assets. In meantime IMF should be satisfied with increase of modest proportions. Dollar holdings in last five years had been too great and had caused inflation in Europe. Fact such holdings now being reduced to manageable proportions not argument for quota increase. Dillon pointed out requirements would increase over next five years and that expansion credit facilities to meet such requirements would not create inflation. Maudling (UK) commented that study group concerned with owned reserves only. Giscard d’Estaing (France) confirmed.

6. In following discussion all delegations indicated support for some kind of action on IMF quotas. Gordon (Canada), Maudling (UK), Wickman (Sweden) and Ishino (Japan) all spoke in favor of substantial general increase, as well as selective increases, using arguments similar to those put forward by Dillon. Colombo (Italy), Blessing (Germany) and Witteveen (Netherlands) supported “modest” or “moderate” general increase, which some of them quantified as 15–20 percent, plus selective increases. Dequae (Belgium) argued no need for general increase but could see justification for selective increases in order realign quota structure in conformity with present economic strength of various members. In subsequent intervention, said would not make oppositign to general increase matter of principle. Giscard made statement in which he suggested over-all increase of 15 percent plus selective increases, or perhaps in monetary terms only slightly more than $2 billion, with total all increases perhaps reaching 20 percent.

7. Germany, Canada and Japan were only countries to indicate they they would be interested in selective increase in their own quota. (In subsequent Deputies’ meeting Emminger indicated for planning purposes Germany would not want see own quota increased beyond $1.2 billion as combined result selective and general increase.) Colombo (Italy) made statement that Italy could not envisage selective increase at this time because of unfavorable B/P position. Such increase would be misunderstood by public opinion in Italy.

8. On problem of size of gold payment, Belgium, France, Italy, Netherlands and Germany all spoke in favor maintaining 25 percent requirement, using familiar argument that this necessary keep lid on LDC’s and that in any event basic rules of IMF should not be changed prior to completion Ossola study. Dillon and Maudling argued necessity find method keep gold payments from creating drain on reserve centers. Dillon underlined particular US interest in this point, emphasizing dollar is only currency fully and legally convertible into gold; moreover, in view key position dollar in monetary system, we believe this concerns not only US but all countries. Schweitzer said this very complex and technical problem with many possible variations, which should appropriately be left for study and decision in IMF Board.

9. Holtrop (Netherlands) noted two main tendencies within group, one which said general quota increase should be no higher than 20 percent and another which said it should be no lower than 30 percent. Noted that percentage decided on for general increase would affect countries’ attitudes about selective increases. Suggested Deputies should be asked prepare some figures that Ministers could look at in June 16 meeting. This suggestion adopted and further discussion quota problem put over until next day.

Institutional Problems.

10. Giscard explained he must excuse himself for other business. Asked Dillon chair discussion institutional problems.

11. Taking up renewal of GAB first, Dillon said no need discuss now. Deputies should be asked take up after Tokyo, working closely with IMF management. This agreed.

12. Agreement was rapidly reached that Ministers should have continuing roles in studying over-all monetary system including functioning adjustment process and multilateral surveillance. Such role strongly urged by France as of key importance and readily accepted by all others.

13. Once this established, Dillon pointed out that role of group significantly changed from original concept of supervision of GAB. Would seem necessary to keep strict limit on size of group and to assure that membership of Ministerial group and WP-3 be identical. Agreement readily reached on this point.

Kristensen pointed out this meant Japanese entry into WP-3, which would [could?] not be further enlarged. Expressed view this could readily be accomplished. Van Lennep as Chairman of WP-3, said essential in interest effective work limit WP-3 to membership of Group of Ten. De Lattre and Kristensen said Deputies could develop some role for EMA, which would be used to satisfy Austrians and others who would be denied entry into Group of Ten and WP-3.

14. Thus as by-product of meeting, US achieved without argument long sought twin objectives of Japanese membership in WP-3 and agreement on Ministerial level meetings for WP-3, which now identical to Group of Ten but which it understood will take place more frequently in future and will review work of WP-3. After close of meeting Japanese effusively thanked Dillon for decision on WP-3.

15. Next meeting of Ministers set for Tokyo on Monday,³ following opening speeches and preceding call on Emperor. Japanese to give working luncheon for Group of Ten Ministers.

16. As to chairmanship, it decided that alphabetical rotation should commence at Tokyo using French language and starting with Italy, which follows France. Italians then suggested they cede Tokyo chairmanship to Japanese, which agreed on understanding Italy would chair December meeting. Meeting then adjourned.

17. Informal agreement reached with France, UK and Germany on US suggestion that next year’s chairman of Deputies be Emminger with Plumptre as Deputy. Formal decision left for Tokyo meeting.

Bohlen

1. Source: Department of State, Central Files, FN 10. Confidential; Exdis.
2. For a report of the morning session, see Document 9.
3. June 22; no documentation on this meeting has been found.