165. Action Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • U.S. Expropriation Policy in Multilateral Institutions

In a separate memorandum you considered the issue of general U.S. policy toward expropriations.2 A second issue relates to what policy the U.S. should take on the expropriation question in the multilateral development institutions. There are two options:

Option 1:

Adopt a policy of voting against any loan to a country that has expropriated a significant U.S. business interest without taking reasonable steps toward compensation or submitting the dispute to an impartial arbitration process. (There would thus be a presumption in favor of negative votes or abstentions unless decided otherwise.)

  • —This would put expropriating governments on notice that the U.S. would make it more difficult for them to obtain multilateral financing and reinforce USG efforts to strengthen the expropriation policy of the multilateral institutions.
  • —However, for the most part, our negative votes or abstentions merely annoy expropriating countries without having any economic effect on them; the overt nature of negative votes or abstentions could harden the expropriating country’s position; and by pursuing this policy the U.S. would, on numerous occasions, be voted down and isolated in the Boards of the institutions, thus diminishing the significance attached by other nations to our votes. (Only in the soft loan window of the Inter-American Development Bank would a U.S. negative vote or abstention block a loan.)

Option 2:

United States votes would be decided on a case-by-case basis. We would not abstain or vote negatively unless it is determined that it would promote the payments of satisfactory compensation and the effects of such action [Page 432]on other USG interests are fully considered. There would not be a presumption to abstain or vote against loans to these countries.

  • —This would preserve the greatest flexibility to consider various U.S. interests, and enable us to use our votes in the multilateral institutions as leverage when bilateral leverage seems insufficient, respect to a greater degree the multilateral character of these institutions, and, except for the soft window of the IDB, our negative votes or abstentions do not prevent loans from being approved anyway.
  • —However, it might accentuate the difference between our bilateral actions and our actions in multilateral institutions if bilateral loans were cut off and we vote in favor of multilateral institution loans.

All agencies agree that abstentions or negative votes are appropriate levers. However, Treasury and Commerce would like to have a presumption which would allow them to be used frequently in cases of expropriation and favors Option 1. Pete Peterson concurs.3

State argues for deciding votes in the multilateral institutions on a case-by-case basis with no presumptions (Option 2).

There is also a subsidiary question of whether the Secretary of State should have concurrence in instructions to our Directors on the Boards of these Banks to vote negatively or abstain. Under present arrangements, U.S. Directors are instructed on how to vote by the Secretary of the Treasury—with advice from the National Advisory Council on International Monetary and Financial Policy (NAC). Treasury is not required to follow the foreign policy advice of State, which sits on the NAC, although traditionally it has done so; and Secretary Connally on one occasion authorized a U.S. Director to vote in a manner to which the Secretary of State was opposed.

State believes that because of the major foreign policy importance of negative votes or abstentions it should have the right to concur in all such votes,4 with interagency differences brought to you for decision, and argues that this is consistent with the National Advisory Council Executive Order—which states that “nothing in this Order shall be deemed to derogate from the responsibilities of the Secretary of State with respect to the foreign policy of the U.S.” Treasury wants no change in the present arrangement.

Recommendation:

Because of political friction caused by public abstentions and negative votes in the multilateral development institutions, and the [Page 433]negligible economic effects of such votes on the expropriating nation, I do not believe that they constitute an effective lever against expropriations. However, there will be times when such votes will be a logical complement to our bilateral economic sanctions. Option 2 provides enough flexibility so that negative votes or abstentions in multilateral institutions can be considered in light of the full range of U.S. interests. No policy would be announced, but decisions would be made, without any presumptions, based on the circumstances of each loan.

Approve5

Prefer Option 1

On the subsidiary question of State concurrence, I recommend that, because of the foreign policy effect of U.S. votes, the Secretary of State be permitted to concur in negative votes or abstentions. (This could be handled delicately by indicating in the Decision Memorandum that the NAC continues to have responsibility for advising the Secretary of the Treasury on instructions for U.S. Directors, but it is understood that the Secretary of the Treasury will seek the concurrence of the Secretary of State on votes which will have a major foreign policy effect.) I therefore recommend that you approve Option 2, with the stipulation that the Secretary of State concur in negative votes or abstentions.

Approve

Prefer no State concurrence.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury, Volume II 1971. Confidential. Attached to an October 4 memorandum from Hormats to Kissinger.
  2. Not found.
  3. See Document 164.
  4. See Document 158.
  5. None of the options is checked or initialed.