167. Memorandum From Secretary of the Treasury Connally to President Nixon 1

SUBJECT

  • Expropriation Policy

We are all agreed that a clear and firmer policy is urgently needed and that continuation of the present expanding trend of expropriations presents us with a major threat to our foreign interests. A policy is needed that will help deter expropriations. This is the reason why we have all concurred in the recommendation that you make a public statement on the new policy.

The NSC options paper2 lists the Treasury as being in favor of Option 1—what I call the “presumption option.” I strongly favor this option because I believe it gives us the best chance of deterring future expropriations and achieving compensation where expropriations do occur. I firmly believe that deterrence is feasible and can be accomplished without confrontation. In fact, we owe it to the LDCs to tell them that there are economic costs involved in expropriation without [Page 436]compensation and they should know it before they get too far out on any political limb at home.

The World Bank has successfully implemented what I would call a presumption policy of immediately cutting off new loans on the occasion of expropriations for many years without causing confrontations with host governments.

However, the central element involved is the framework for implementing expropriation policy. There must be a presumption that aid will be cut off on the occasion of an expropriation unless the reasons of continuing aid are clearly overwhelming. If preferential benefits are to be automatically continued—as Option 2 would have it—unless a decision is made otherwise, I fear that it will be very difficult to make decisions to protect our interests overseas. Moreover, by adopting a clear and firm bilateral policy we will be in a better position to obtain support from other developed countries in multilateral forums.

Adopting the presumption policy will restore your option to act clearly (but carefully) in expropriation cases rather than continually postpone actions thus having circumstances narrow your options.

The new policy would provide a firm foundation for action against expropriations while giving you full flexibility, for example, to regard a particular expropriation as not significant, allow continued humanitarian assistance, or otherwise narrow the scope of the cutoff of new preferential benefits. This restores Presidential options for action that are now—in effect—foreclosed.

I attach great importance to the fact that this policy would be strongly supported by the Congress, by United States business leaders and by the general public. Indeed, it would also be supported by many—and respected by all—factions in the LDCs. The present trend can only lead to mandatory expropriation legislation going beyond Hickenlooper and to complete loss of support for aid programs.

The clearer, stronger policy I suggest would be complementary to your new economic policy overseas. Foreign countries have thus far restrained their response to this policy because they realize the basic equity of our position. I would expect the same results from a new expropriation policy.

I would like to register my strong opposition to one aspect of the NSC paper. That paper poses several options for voting on multilateral loans to expropriating countries.3 I do not believe it is feasible to have a separate multilateral expropriation policy. It is not viable from a Congressional viewpoint in the long term to let loans go forward to [Page 437]expropriating countries when we deny them bilaterally; and it is not viable internationally to expect to withhold loans multinationally while allowing them to go forward bilaterally. The presumption policy can and should be applied to both bilateral and multilateral programs.

I also strongly object to proposals to require the formal concurrence of the Secretary of State on voting “no” in multilateral institutions.4 As you well know, the Secretary of State has ample opportunity both through the National Advisory Council and in direct contacts with the President to make his views known on these issues. Moreover, the multilateral institutions have been regarded as essentially financial institutions and a requirement of concurrence by the Secretary of State would seem to inject a political element which would be inconsistent with your emphasis on multilateral institutions as the major vehicle for foreign assistance in the future.

John B. Connally
  1. Source: Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 A 15, NAC. Confidential.
  2. Not found, but see Document 166.
  3. See Document 165.
  4. See Documents 158 and 165.