Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

128. Briefing Paper Prepared by the Agency for International Development¹

OECD/CTP–2

Washington, November 15, 1966.

MULTILATERAL AID AND IDA REPLENISHMENT

Talking Points

1. The U.S. should express its confidence in the development assistance efforts of existing multilateral institutions and offer support for their continued work.

2. The U.S. is prepared to increase its contribution to IDA substantially, provided that: (a) other Part I members share appropriately in the replenishment, and (b) that satisfactory arrangements are devised to permit donors in balance of payments deficit to make their contributions without further unbalancing their external accounts. The U.S. is awaiting Bank proposals to this end.

3. The U.S. is considering the draft report and recommendations for increasing the resources of the Inter-American Development Bank,² realizing the vital role that institution should continue to play in furthering the goals of the Alliance for Progress.

4. The U.S. continues to support the recent initiatives in regional development exemplified by the newly created Asian and African Development Banks.

Background

Commitments to developing countries by multilateral assistance institutions were $1.9 billion in 1965, more than two and a half times larger than in 1960, and constituted almost 20 percent of the total aid effort compared to 8 percent in 1960. Assistance agencies in the multilateral field include the World Bank (IBRD), International Development Association (IDA), International Finance Corporation (IFC), Inter-American Development Bank (IDB), European Development Fund (EDF) and Investment Bank (EIB) of the European Economic Community, and United Nations technical assistance and relief agencies. The rise in disbursements, both absolutely and relatively, has been even more dramatic.

The rapid expansion of multilateral activity has been possible despite a substantial decline in official contributions by developed countries to finance the multilateral institutions. DAC member contributions to multilateral agencies decreased from about $660 million in 1962 to about $500 million in 1965. During the same period, however, net bilateral flows to consortia and consultative group countries increased from about $1.4 billion to $2.5 billion. Nevertheless, several multilateral agencies are in imminent need of fresh funds to meet increasing demands for assistance to developing countries.

The most urgent need is for the replenishment of usable resources for IDA, which by the end of October 1966 had fallen to $192 million. At the present rate of commitment, IDA’s resources will be exhausted before the end of the current fiscal year. In anticipation of this situation, IBRD/IDA President Woods has called for replenishment totalling $1 billion per year for the next three years compared to the first replenishment of $250 million per year. The U.S. position as stated by Under Secretary Ball is that the U.S. “is prepared to increase its contribution to IDA substantially provided that other Part I members agree to carry an appropriate share of the burden” and that the U.S. is assured that satisfactory arrangements will be devised to “permit donors in balance of payments deficit to make their proper contributions to IDA without further unbalancing their external accounts.”³

The IBRD, which relies on private capital markets for loan funds, anticipates difficulty in borrowing at existing higher interest rates while at the same time desiring to keep its interest rates for borrowers from the Bank as low as possible.

The International Finance Corporation has just made its first $100 million borrowing from the IBRD. An arrangement for the IFC to borrow from the IBRD was initiated in order to allow a higher level of the Corporation’s activities.

The IDB has requested that members consider a new replenishment of the resources of the Fund for Special Operations along lines similar to the last replenishment. The latter amounted to $900 million of which $750 million was to be contributed by the U.S. in three equal installments in 1964–1966. The expanded FSO will also assume the functions carried on by the U.S.-funded Social Progress Trust Fund, which is nearly all committed.

Several new regional development banks came into being during the past year. The Asian Development Bank is expected formally to commence operations on December 19, with a subscribed capital of $1 billion, half of which is payable and half callable. The U.S. share is 20 percent of each. The African Development Bank technically began operations on July 1, 1966.

In addition to direct contributions to multilateral agencies, a number of donor countries have channeled an increasing amount of development assistance finance through or in cooperation with multilateral agencies. The Social Progress Trust Fund was established with $525 million of U.S. funds for administration by the IDB within the framework of the Alliance for Progress. Canada, the Netherlands, Germany and Spain have entered into arrangements to channel some aid funds to Latin America in association with the IDB. The Asian and African Development Banks are also considering the use of special funds for administration separate from their regular capital resources.

1. Source: Washington National Records Center, RG 286, DAC Material: FRC 70 A 5922, Meetings—OECD Ministerial November 24–25, 1966. Limited Official Use. Drafted by Edward Zimmermann (AID/PC/FWA) and cleared by Saxe (AA/PC), William F. Courtney (E), Anthony C. Albrecht and Ruth H. Phillips (EUR/RPE), and Finkel (Treasury). The paper was one of several briefing papers prepared for the upcoming OECD Ministerial Meeting in Paris. Regarding this meeting, see Document 130.
2. The draft report and recommendations have not been further identified.
3. Statement of Under Secretary Ball at the 1966 Annual Meetings of the IMF and World Bank group. [Footnote in the source text.]