11. Memorandum From Secretary of the Treasury Dillon to President Johnson1
SUBJECT
- Paris Meeting of Finance Ministers of the Group of Ten on the International Monetary System
The two-day meeting in Paris, June 15 and 16, on the international monetary system went as well as could be expected. Full and acceptable agreements were reached on all phases of the past year’s work, except for the exact size of the quota increase to be supported next year in the International Monetary Fund. Ground was laid for an acceptable compromise on this issue within the next month.
A number of institutional changes were approved to further regularize and strengthen cooperation among our governments on international [Page 24] monetary problems. As an important by-product, we obtained, without even trying, two objectives which we have sought in vain over the past two years. One was Japanese entry into Working Party III of the OECD, the restricted group which considers balance of payments and international monetary problems. Second, was an agreement to hold regular ministerial meetings of Finance Ministers to oversee the work of Working Party III. This has seemed particularly important to us because it institutionalizes in solid form the less formal arrangements we have had to date on international monetary cooperation.
Another plus out of the year’s work and the decisions of the Ministers was the satisfaction expressed in the present workings of the international monetary system and the agreement that any changes in the future should be evolutionary in nature and not revolutionary. The more extreme suggestions of some, and in particular the main thrust of the French attack on the dollar, have been permanently sidetracked.
Certain possible improvements in the system, of a less radical nature, have been assigned to a working level group for about nine months further study designed not to reach conclusions, but to clearly specify how the various alternatives would work, and what the advantages and disadvantages of each would be, including their effect on the present working of the international monetary system. This will enable the Ministers’ Deputies to consider these questions substantively next spring and summer and report to the Ministers prior to the 1966 meeting of the International Monetary Fund.
The major discussion centered around the size and form of the increase in the International Monetary Fund which the representatives of the Ten would support next year when a regular five-year review of IMF operations is scheduled to take place. The United States, supported by the United Kingdom, had originally felt that quotas in the Fund should be increased by as much as 50% with some additional increases for certain countries, in particular Germany, whose quotas do not adequately reflect their present economic strength. We realized from the first that this position was somewhat extreme and would probably have to be compromised. On the other side, the French, the Dutch and the Belgians started out believing that there should be no increase at all in the quotas of the Monetary Fund. The Deputies, during their ten months’ work, were unable to make any progress in compromising these extreme positions.
During the meeting we proposed as a compromise an increase of somewhere between 30 and 35% plus further selected increases for certain countries, such as Germany. The Common Market countries, on the other hand, for the first time all accepted the principle of an increase. They presented a united front which stopped at a total of 20%, including special increases for certain countries.
[Page 25]After a clear impasse was reached, the French Finance Minister adjourned the conference briefly for private talks with a few leading Ministers. At that time I told him that as a rock bottom we would accept a 25% increase plus selected increases for Germany and certain other members. I said that if this was not acceptable, we would be forced to carry the argument to the International Monetary Fund Executive Board during their regularly scheduled review next year, and at that time we would naturally return to our original 50% position and all others would be free to do likewise. The Common Market Ministers were extremely agitated by this thought, since it would be far more difficult for them to maintain their extreme position in the IMF forum where the underdeveloped countries, all of whom want large increases, are represented. The Managing Director of the Fund, Mr. Schweitzer, a Frenchman, who was present at our meetings, was very helpful since he stated that a 25% general increase was the smallest that he could in good conscience recommend.
Accordingly, the matter was put over for further consideration next month after the Common Market Ministers have another chance to meet together in one of their regularly scheduled meetings. It was clear that all of them will recommend acceptance of our proposal rather than risk moving the argument into the IMF forum. Our final proposal is also acceptable to the U.K.
It was obvious that at this meeting the EEC Ministers were operating under strict directives from higher authority, de Gaulle in the case of the French, which did not permit them to agree to any compromise that went beyond their proposal. Since the further increase we are asking of them is not really very great, and since they are extremely anxious to avoid the consequences of a public split within the IMF, I am reasonably confident that they will accede to our compromise in the course of the next month. Such a compromise would represent achievement of the minimum position which had been agreed upon here on an inter-agency basis before the Paris meeting.