18. Briefing Memorandum From the Deputy Assistant Secretary of State for International Monetary Affairs (Weintraub) to the Assistant Secretary of State for Economic Affairs (Trezise)1

SUBJECT

  • Meeting of study group on SDR-Aid link, December 16

We have put together some comments—brief, since you know the issue—on the questions circulated by Brookings2 for discussion on SDR-Aid link proposals. I also have attached a copy of the paper we did for Ambassador Korry.3

1.
Would the link of SDRs to development finance impair their usefulness as an international reserve?
  • —The extent to which a donor country would incur permanent loss of liquidity would depend on its share of procurement from SDR-generated aid. Countries with recurring inflation and balance of payments deficits might want the right to “opt-out” from a link agreement.
  • —Threat of over-creation of SDRs because of LDC pressure does not seem to us to be very serious, but there is concern among various rich countries about overissue; and this could slow down consideration of establishing a link.
  • —It is clearly the feeling of a good many developed countries and that of the U.S. Treasury as well, that we should go slowly on the link until the SDRs do prove themselves. We do not see why this need be so; but since it is a strongly felt position of many, it does have considerable force.
2.
Is it proper for the President to ask Congress for authority to provide U.S. resources to the developing countries without going through the appropriation process?
  • —One might rephrase this question to ask if it is realistic to ask Congress for such authority. Aid based on SDRs would still involve transfers of real resources or net payments outflows and I doubt that Congress would take a more relaxed view of this kind of aid than it [Page 46]does on direct contributions to international development institutions. I doubt that the Fried approach of seeking Congressional authority before negotiating with other countries would be successful.
3.
Would a link lead to a net addition to total aid or would it merely substitute for other forms of aid?
  • —Part of the answer to this is the judgment of how much aid would be forthcoming without the link—a diminishing amount we think. If this judgment is accurate, a link might permit more regular aid flows and in the long run might result in considerable additionality in spite of a large element of substitution.
  • —If there were international agreement for an informal link, I think the same consideration that pertains to us would pertain to other developed countries. My own overall guess is that a link would probably result in more total aid from all sources than is likely to be the case without a link.
  • —The experience of the Third IDA Replenishment negotiation will be a telling factor in considering eventual adoption of SDR-aid linkage, and also in reaching some judgment of Congressional support for aid via multilateral institutions.
4.
Would other industrial countries agree?
  • —Bill Dale and some people at Treasury feel strongly that rejection of an organic link during SDR negotiations was quite important for the EEC countries and that most, if not all, are still opposed. We will have an opportunity to test European attitudes over the next year or so in such places as UNCTAD, where the question of a link will receive increasing attention.
  • —Burden sharing based on IMF quotas would more closely approximate our present view of aid-giving capacity than rough formulations such as the 40-60 sharing that we now have in IDA.
  • —A link might complicate future decisions on SDR creation and may make it more difficult to get agreement on the amounts we think necessary for liquidity purposes—but we doubt this will be overly serious.
  • —The main attraction of a link is that it would institutionalize a particular method for multilateral aid-giving within the structure of a working system with the rules of procedure and participation already set up by the prospective donor countries.
  • —Getting an agreement to amend IMF articles for an organic link would be far more difficult than negotiating a voluntary link with other IDA Part I countries; but it might be that only a formal link would establish a permanent mechanism for IDA replenishment. This is no moment, however, to seek a formal link even if we later might wish one.
  • —Unilateral implementation of a link is certainly possible, but we doubt that it is the best way to proceed at this point.
  1. Source: National Archives, RG 59, Central Files 1967-69, FN 10 IMF. No classification marking. Drafted by Weintraub and Frank Vaznaugh (E/OMA/FOD).
  2. Not further identified.
  3. Not printed. Entitled “A Link Between SDRs and Aid,” undated. For documentation on SDR activation, see Foreign Relations, 1969-1976, vol. III, Documents 119 ff. Edward M. Korry, Ambassador to Chile, had been tapped by Under Secretary Richardson for temporary duty in Washington to prepare an in-house assessment of U.S. foreign assistance programs. See Document 124.