Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

185. Memorandum From the President’s Assistant for International Economic Affairs (Peterson) to Secretary of the Treasury Connally¹

Washington, October 26, 1971.

SUBJECT

• Negotiating the New Economic Policy Abroad—Work Group

You will remember our meeting in your apartment prior to the IMF meetings when I gave you a brief progress report on the staff work on this project.² The work is now much further along and ready for your review. I have talked to Rose about seeing you very briefly on a couple of delicate personal items relating to the planning for these negotiations.

I know the tremendous pressure you are under prior to leaving for Japan and think we can limit our time to several issues that are now outstanding.³

On the trade and defense side, there seems to be a large measure of agreement on the specific concessions and objectives we are after. State may still have a couple of reservations. But I’m not sure.

There are, however, several issues where there are differences of view, or at least questions:

1. Lifting the surcharge reasonably soon (next few months) vs. waiting. A particular question is the LDC’s and Latin America where the President has some specific concerns.⁴

2. Changing the Price of Gold as part of an exchange rate realignment. If we get an average realignment of say 10-11% with a gold price change and 5-6% without it, are the benefits of the larger exchange rate realignment worth the costs of a gold price change? Can we devise ways of affecting a gold price change that minimize the costs and risks (political, implied movement toward gold and convertibility?)

3. Convertibility during the interim period? How much or little? How do you limit it? What are its implications? (Most agree there should be very little or none but some disagreement about how little and how.)

4. Capital controls? Take off very soon, i.e. now or with surcharge removal, or, take off as a goal in Phase II or, cut them back administratively and in a low profile way? What about interest equalization tax? What should we do about this?

I would propose getting the Quadriad together tomorrow (with Paul Volcker and anyone else you want, of course) but without the President. I see no point to bother him unless there are major differences of view. The meeting could be held at Treasury.

At that meeting, we would summarize briefly the outstanding issues and various approaches that have been discussed.

Then, depending upon the outcome, we could arrive at a set of marching orders on who does what while you are in Japan, vis-à-vis Canada, Europe, etc.

The attached paper has been given to Quadriad members only and has been read by them.⁵ Obviously, Paul Volcker and John Petty have been deeply involved in all this and very helpful.

1. Source: Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, CIEP—Peterson. Confidential; Eyes Only.
2. This meeting has not been further identified.
3. Secretary Connally traveled to Asia October 28-November 14.
4. As soon as the New Economic Policy was announced on August 15 there were calls for special treatment for Latin America and/or developing countries. The September 12 State Department report to Kissinger on “Foreign Reactions to the President’s Economic Program” contains the following: “The Latin American countries protested US economic measures in a Manifesto issued following a meeting of the Special Commission for Latin American Coordination (CECLA) on September 3 and 4 in Buenos Aires. The Manifesto called on the United States to exempt developing countries from the 10 percent import surcharge and reverse its decision to reduce the level of foreign economic aid. The meeting was called at the request of the Argentines, who along with the Mexicans and Chileans, were the most outspoken critics of the new economic measures, particularly the import surcharge.” (National Archives, RG 59, Central Files 1970-73, E 1 US)
5. Not printed; see Document 186. The Quadriad comprised Connally, Burns, McCracken, and Shultz. No record of a Quadriad meeting on October 27 has been found, but President Nixon met with the Economic Quadriad the next day; see Document 187.