135. Telegram From the Embassy in France to the Department of State 1
11295. From Under Secretary Volcker and Governor Daane for Treasury Secretary Kennedy, for Petty and Dale, US Executive Director, IMF, and to FedRes for Chairman Martin. Subject: Meeting of Deputies of G-10-July 23-24.
1. Deputies of Group of Ten carried on day and a half of hard bargaining over question SDR activation and IMF quota increases which ended in consensus on both matters, subject to Ministerial approval.
2. As summarized by Chairman (Ossola, Italy), agreement on SDRs is as follows:
- For first period of activation of three years global amount to be created of $9.5 billion, of which $3.5 billion in first year and $3.0 billion per year in second and third years.2
- Representatives of all countries having accepted amendment (this formulation designed exclude France, which did not associate itself with decision—see para 4 below) have declared their willingness strongly to recommend these figures to their authorities and to confirm Ministerial approval within one week.3
- Agreement will be considered to be in effect when approval received from all parties. At this point Ossola will notify participants [Page 364] and, with approval of German Economics Minister Schiller as Chairman of G-10 Ministers, will inform IMF Managing Director Schweitzer, who under SDR amendment to IMF articles makes formal proposal for activation after consultations, of which G-10 consensus is one element.
3. During negotiations leading up to consensus, Common Market (minus France) first put forward proposal for $2.5 billion per year for three years. U.S. pulled them up to $3 billion per year for three years and in final round of bargaining got first-year figure up to $3.5 billion in interest of psychological effect on exchange markets. While all nine parties to agreement will confirm Ministerial approval to Chairman Ossola, in fact only four are on ad referendum basis: U.S., Canada, Germany and Netherlands.
4. Strictly FYI: As indicated para 1 above, France did not associate itself with agreement. However, informal talks suggest French adherence in September, although agreement on figure which is relatively high by Common Market standards may introduce complication into this timetable.
5. Chairman proposed consensus along following lines. Members of G-10 will support an over-all increase in quotas in the order of magnitude of 30 percent (plus or minus three percentage points). This would support selective increases that would bring quotas more in line with the economic position of countries. Chairman said this consensus also implied (A) that quotas should be raised as soon as possible and that annual SDR allocations would then reflect the new quota distribution and (B) that the increase in quotas should not affect the General Arrangements to Borrow.
6. In discussion, Van Lennep (Netherlands) made effort to narrow the parenthetical range of 6 percent with 30 percent as center to range of $28.5 billion to $31.5 billion. Daane (U.S.) stressed need for wider 27-33 percent range to have needed flexibility to work out individual quotas in IMF executive board. Van Lennep accepted wider margin on interpretation by Morse (U.K.) that restraints to increases would increase as figure moved farther from 30 percent within 6 percent range.
7. De Strycker (Belgium) stressed that the consensus (A) did not imply any approval of the “split-level” method of general increase or any other formula for dividing total quota increases; (B) no understanding was implied as to any specific national quota increase and none was approved; and (C) no quantitative figure of any kind was being approved, except the 30 percent order of magnitude. Daane (U.S.) supported Belgians and entered reservation as to any sharp reduction [Page 365] in U.S. own relative share, such as that shown in some Fund tables that had been discussed on previous day. While we would accept the over-all 30 percent with its range, the only agreement on individual quotas that we would accept was that we would inform our Executive Director as to specific quantitative position on all figures. Larre (France) complained that G-10 should be more specific, and that increase of 33 percent was needed to reach over-all increase of $7 billion. Larre felt that consensus left too much flexibility. Chairman, nevertheless, concluded there was consensus on the flexible position he had outlined.
8. Chairman pointed out it would be impracticable expect that he and other Deputies could avoid saying anything to press re outcome of meeting. He therefore proposed common line, which was agreed as follows:
- No figures will be released either on amounts or time period, in deference to position of G-10 Ministers, who must approve Deputies’ consensus; IMF Managing Director, who must make formal proposal for activation; and non-G-10 members of Fund. (It was, of course, recognized figures will certainly become known to press.)
- It would be indicated simply that Deputies have reached consensus—subject to approval by Ministers—on SDR activation and on size of over-all increase in IMF quotas within framework of quinquennial review of quotas. After Ministerial approval, this consensus will be communicated to IMF Managing Director, and it will be for him to take into account within context of his world-wide consultations on activation.
- Would be indicated that “one country which has not accepted SDR agreement” (i.e., France) has not associated itself with consensus.
9. In view of fact that agreement has not yet been approved by Ministers, and sensitivity of Europeans on this point, it is extremely important that U.S. spokesmen not indulge in unauthorized release of figures.
10. Next meeting of Deputies scheduled take place in Washington on Sept 27 with following tentative agenda: (A) draft communique for meeting of G-10 Ministers and Governors; (B) election of new Chairman of Deputies; (C) brief discussion of future work program of Deputies. G-10 Ministerial meeting tentatively scheduled for afternoon October 1 in Washington.
- 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, Rome, Tokyo, and USOECD), and USEC.↩
- In a July 26 memorandum to the President, Acting Chairman of the Council of Economic Advisers Herbert Stein wrote: “While the agreement does not give as much as we wanted [see Document 133], it is nevertheless considerably better than anyone would have expected six months ago. This is due in large measure to European confidence that the U.S. will bring inflation under control. It also reflects the persistence and bargaining skill of Treasury Under Secretary Paul Volcker. With the SDR agreement the part of your April 4 call for international monetary reform [see footnote 5, Document 16] that deals with liquidity has been advanced decisively. The other part, improving the adjustment process, is as necessary as ever but has not yet been pushed. Now that the SDR question is settled and the markets are quiet it would be a suitable moment for Secretary Kennedy to make the speech on international monetary reform that was agreed upon at the meeting of June 26 [see Document 131].” The accompanying undated cover memorandum from Kissinger to President Nixon indicates that Stein’s memorandum did not go to the President. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 215, Council of Economic Advisers)↩
- Telegram 125335 to Rome, July 29, reported that Volcker confirmed to Ossola, on behalf of Secretary Kennedy, U.S. agreement to the consensus on SDRs and increases in IMF quotas. (Ibid., RG 59, Central Files 1967-69, FN 10)↩