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

9840. From Under Secretary Volcker and Governor Daane to Treasury Secretary Kennedy, for Petty and Dale, US Executive Director, IMF, and to FedRes for Chairman Martin. Section I of II.

Subject: Meeting of Deputies of G-10-SDR Activation, June 28.2

Outcome of first full day’s negotiations on SDR’s satisfactory, with a number of European delegations adopting initial negotiating position at somewhat higher level than anticipated.
Chairman (Ossola, Italy) summarized initial positions, characterizing them as not firm national positions, but indications of emerging national positions, as follows (amount per annum in billions of dollars, followed by number of years for first decision): [Page 354]
  • U.S.—4.5-5 years (strong presumption)
  • Netherlands—2.0-5 years (preferably with low first year)
  • Germany—3.0-2-3 years
  • Italy—3.0-3 years
  • Belgium—2-2-1/4-2 years
  • Japan—3-4-2 years
  • Sweden—3.0 plus-5 years (tolerate 3 years)
  • U.K.—middle figure-2-5 years (with large initial year)
  • Canada—upper range-5 years
  • France—not participating
  • Switzerland—not participating
Chairman stated general consensus in favor of activation around time of September annual meeting of IMF. This required Group of Ten to reach decision by end August to be communicated to Managing Director of IMF as part of consultations preceding his formal proposal. Either Deputies (acting for Ministers) or Ministers might have to meet in late August if matter not settled in July. Belgian Deputy entered only reservation among participants as to ability to commit his government within a few weeks. General preference for settling matter in Deputies if possible, with British and French making strong plea against Ministerial meeting. U.S. took position they strongly hoped Ministerial meeting could be avoided, but were fully prepared for such meeting if required to reach agreement.
For guidance U.S. Missions in discussions of subject with officials, our view is that satisfactory consensus can be reached in July, or latest in August. It is natural that initial discussion of activation amounts shows some range in initial positions. We continue to believe that $4.5 billion a year for five years is amount called for (a) to achieve reasonable reserve growth objectives of both industrial and developing countries, (b) to facilitate adjustment process, and (c) to assist in repayment of reserve credits extended in past five years. Further progress toward this view is needed, but seems achievable as various governments focus on arithmetic of reserve needs and its implications.
FYI: A number of delegations accepted $4.5 billion a year as amount of new reserves needed in all forms, but deducted anticipated net new reserve creation due to anticipated resumption U.S. official settlements deficits and possible net growth of reserve credit. This contrary to our projections, which imply net reductions in reserves on these two counts taken together. Further negotiations will explore these differences of view. At this point we believe that possibilities of agreement between present German-Italian $3 and $4-1/2 billion in early years are good, and that we can hope to reach some agreement for full period of five years. In latter connection Japanese have emphasized and we concur that it is important that legal staff of Fund produce promptly paper on options open to Fund to adjust allocations for later years to allow for subsequent selective quota increases. End FYI.
We understand Finance Ministers of European Community meet on July 21-22 prior to Deputies’ meeting July 23-24. U.S. Missions should bear in mind importance of meeting of the Six and our interests in avoiding inflexible EC group position. Believe Italians and Germans will be sympathetic to desirability of retaining flexible negotiating position at reasonable levels of SDR activation.
Section II will follow on subject of IMF quota increase.3
  1. Source: National Archives, RG 59, Central Files 1967-69, FN 10. Confidential; Priority; Limdis; Greenback. Repeated to the Embassies in G-10 capitals (sent to the Treasury representatives in Bonn, London, Rome, Tokyo, and USOECD in Paris) and to USEC.
  2. George H. Willis was a member of the U.S. delegation. His handwritten notes on the meeting are in the Washington National Records Center, Department of the Treasury, Deputy to the Assistant Secretary for International Affairs: FRC 56 83 26, Willis Notes. SDR activation was also discussed in the OECD’s WP-3 June 27-28. A report on the WP-3 meeting is in telegram 9836 from Paris, June 29. (National Archives, RG 59, Central Files 1967-69, FN 10 1 IMF)
  3. Section II was sent in telegram 9871 from Paris, June 30. Governor Daane reportedly argued “that issues involved in working out quota increase very complex and delicate, and should not be allowed intrude on priority business of SDR activation.” Paragraph 3 reports on a short discussion of Italian Minister Colombo’s proposal for an SDR-aid link. The Netherlands, Belgian, French, Canadian, Swedish, and Japanese representatives reportedly all said they had great conceptual difficulties with the link. Governor Daane shared their concern but felt “that in case of some donor countries voluntary pledges of type suggested by Colombo could be appropriate, and that Group should continue study how achieve without linking liquidity creation and capital requirements.” (Ibid., FN 10)