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

136. Circular Telegram From the Department of State to Certain Posts¹

Washington, May 16, 1967, 3:59 p.m.

195187. Subject: IDA Replenishment.

1. IBRD VP Knapp chaired meeting Paris May 8–9 of IDA Part I donors all attending except Kuwait, South Africa. Assistant Secretary Treasury Knowlton led US delegation.

2. Documents at meeting included: a) Woods call July 14, 1966 for $3 billion IDA replenishment (RPL) over 3-year period;² b) Fowler letter to Woods March 31, 1967 on US proposal $2.4 billion over three years, i.e. $600 million in FY 1969; $800 million in 1970 and $1 billion in FY 1971.³ US share maximum 40 percent. RPL including balance of payments safeguards proposed by the US, retaining as central feature international competitive bidding. US proposal calls for 40 percent conditional and 60 percent unconditional commitment. In expenditures made under commitments, one-half procurement in contributing country would be financed from conditional tranche. Conditional tranche not usable otherwise except at option of contributing country, i.e. when in surplus. IDA could draw from unconditional tranche as at present except for country in balance of payments difficulty where call would be for remaining 50 cents per dollar of procurement in country. Any country in balance of payments difficulty could ask postponement of unconditional tranche not used for donor country procurement which would be granted for 3 years. c) Woods’ memo of April 12, 1967 transmitting Fowler letter to Executive Directors IDA, giving alternative method balance of payments protection and IDA analysis of impact of RPL on donors, donors’ economic capacity and IDA commitments and uncommitted funds (only $12 million) as of March 31, 1967⁴ (see para 4); d) IDA identified foreign procurement by country cumulative through CY 1966 and in years 1964, 1965 and 1966. All participants preferred no agreed minute but IDA staff preparing summary record of discussion without attribution and text of Knapp’s opening remarks and comments on Fowler proposal and US rep (Knowlton) comments.

3. Knapp opening statement emphasized his neutral role in leading negotiations among donors, delicacy of IDA position as potential recipient of funds. Spoke of three-fold role—a) facilitate RPL by orderly discussion issues; b) give facts on IDA operations; c) explain expected impact of proposals on IDA operations. Neutral posture carried throughout meeting prevented endorsement of Fowler proposal as result of extended discussions between USG and IDA management. Stressed urgent need RPL enable IDA make any new commitments especially meet pressing needs India, Pakistan consortia in 1967–1968. Striking feature only made clear in later discussion was IDA management request for funds in FY 1969 (beginning Nov. 1968) as opposed to original Woods’ proposal skip FY 1969 and have FY 1970 as first year of 3-year RPL.

4. Knapp comments on US proposal limited to effects on IDA operations. Clearly stated US plan would not require any change present IDA policies on allocation resources to borrowing countries or projects or on international competitive bidding. In analysis Knapp assumed IBRD able continue transfer $75 billion per year to IDA in FY 1967 through FY 1970, total $300 million. Concluded US proposal that 40 percent of $600, $800, $1,000 million RPL be “conditional” i.e., usable only to finance a portion of the procurement that results in the donor country from international bidding, would permit IDA commit “80 to 85 percent” of RPL funds. (Note—earlier Bank calculations showed 90 percent.) Pointed out no further limitation on IDA commitment capacity except that US provision unused contributions in donor’s unconditional 60 percent tranche be postponed 3 years at option donor if in balance of payments difficulties would “create such a degree of uncertainty in administration IDA’s finances that its capacity make firm commitments would in fact be very seriously curtailed.” Emphasized Woods counterproposal that all funds in RPL be available unconditionally with agreement IDA management “at request contributor in serious balance of payments difficulties would postpone, maximum extent permitted by disbursement, drawings on country’s contribution, above IDA-financed procurement in that country, until after contributions other donors used.” Later discussion emphasized differences Woods’ end-of-queue approach (drawing on countries not in balance of payments difficulties first) from US proposal 3-year postponement of unused unconditional tranche.

5. First day other donors critical IDA management call for quick action after taking 9 months negotiate with US and focused quickly on US proposal. Summary of positions: a) Amount RPL—Canada, and to an extent Sweden, Denmark, Norway supported US $2.4 billion. Netherlands, Australia commended US generosity but GOA said could not meet. Italy, Japan said too large, FRG and UK vague and France vague but negative. b) Tying all agreed undesirable. Dutch said US proposal “deception” for IDA tying. c) Balance of payments difficulties should not be excuse cut aid was criticism of FRG, Japan, Netherlands, Sweden, Denmark. Dutch and French cited para 60 OECD report on adjustment process this point.⁵ Canada sympathetic US but preferred end-of-queue relief and hoped conditionality could be confined to donors in balance of payments difficulty. In discussion on means and terms defining balance of payments difficulties French opposed IMF management role but inclined toward IMF Directors using position in IMF credit tranche as a test. Dutch also cited unpredictable “mischief” in allowing use of balance of payments difficulties as basis rescind international agreement. FRG stressed budgetary problem. d) Donors shares subject little discussion with no objections voiced US 40 percent. France said US postponement scheme merely way cut US share. e) Administration of IDA complimented by most except France critical overemphasis on south Asia, too rapid disbursement funds from first RPL and too much use IDA funds for recipient balance of payments support; Australia critical on Board’s control of disbursement; Japan critical on choice recipients. French pressed idea change allocation of IDA funds as condition of replenishment. f) Question legal form of RPL raised by FRG preferring subscription to contribution scheme of first RPL.

6. US rep (Knowlton) opened second day with strong explanation US proposal as requested by other countries. Said US motive was maximum replenishment at least cost in change IDA policies. Pointed out all countries including US have budgetary problems; some currently have or future may have balance of payments problems. Said US developed plan with cooperation IDA staff and in such discussions US made clear could not seek IDA RPL without balance of payments safeguards. Emphasized this was difficult budgetary year for US with many other requests appropriations for multilateral organizations. Pointed out conditionality in proposed safeguards would appeal Congress and other countries’ parliaments since enabled deficit countries make greater proportion of contribution in form real resources in form exports. Also discussed fact disbursements under second RPL would flow over extended period starting in 1968 in which US expected solve its current balance of payments problems. Even though US expected solve balance of payments problems safeguards required in order get Congressional support now; also expected safeguards would give beneficial relief other donors in future and recalled balance of payments considerations in 18 percent portion original IBRD subscriptions. Emphasized Knapp conclusion that US proposal would not force change IDA policies and gave US endorsement competitive bidding.

7. US statement well received. Meeting thereafter moved quickly to focus on real issues. Major donors reluctant go along with RPL level US proposal. French in devious mathematical exercise hinted at not going beyond level of first RPL and joined with FRG in pushing for commitments beginning FY 1969 (rather than as soon as replenishment agreed among Part I countries). French suggested Bank, not French, may want to propose alternative of one-year RPL but got no support. UK in between with effort to get US commit for reduced level unconditional RPL. Canada, Australia endorsed postponability of Woods’ end-of-queue scheme.

8. Knapp outlined IDA management bilateral discussions with most donors in following three weeks and emphasized desire get agreement on second RPL by IMF/IBRD Rio meeting in September. Review of legislative timetables showed most countries could not get parliamentary approval before then, some not until early 1968. Nonetheless Knapp emphasized urgent need work for intergovernmental agreement ad referendum. No decision requested on future meeting of donors.

9. Bilateral discussions after meeting emphasized a) FRG constrained by budgetary problems, offered hope that more for IDA possible if legislation generally successful in providing more assistance funds. b) Italy could support US proposal although was noncommittal at meeting.

10. Paris Herald Tribune May 10 reported some details of supposedly closed meeting, emphasizing EEC reluctance increase IDA contributions, UK objection to US tying efforts.

Rusk

1. Source: Department of State, Central Files, AID(IDA). Limited Official Use. Drafted by John C. Coleman (E/OMA) on May 15, cleared by Knowlton (Treasury) and E. Rice and Livingston T. Merchant (IBRD), and approved by John F. L. Ghiardi (E/IMA). Sent to all NATO capitals except Athens, Ankara, and Reykjavik, and to Canberra, Helsinki, Kuwait, Pretoria, Stockholm, Tokyo, Vienna, New Delhi, and Rawalpindi.
2. Not further identified.
3. Not found.
4. Neither Woods’ memorandum nor Fowler’s letter has been found.
5. Not further identified.