445. Memorandum From the Under Secretary of the Treasury for Monetary Affairs (Volcker) and the Deputy Under Secretary of State for Economic Affairs (Samuels) to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • Participation of Republic of China in the International Financial Institutions (IFI’s)

ISSUE

  • What should the U.S. position be on Chinese participation in the IFI’s?
  • Specifically, should the United States press to retain Taiwan in the IMF, World Bank Group and ADB—and if so, how hard—and how should the question of PRC entry be handled in this connection?
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Because of the importance of the IFI’s to development and to international monetary stability, and because of our own interest in Taiwan’s economic well-being, we wish to encourage an equitable and internationally acceptable settlement of the Chinese representation issue in those institutions. ROC exclusion from the IFI’s would probably jeopardize continued major U.S. support for the institutions. Moreover, entry of the PRC could create important operational and political problems for the IFI’s, which would have to be carefully addressed.

Exclusion of the ROC would clearly be inequitable to a functioning economy and to a member in good standing of the institutions. Exclusion would cut the ROC off from IMF support as well as from important development financing from the World Bank Group and the ADB, could also damage the climate for private investment in Taiwan, and could give rise to additional financial demands on the United States to support Taiwan’s economic viability. In addition, ROC exit from the IFI’s could result in its virtually complete isolation from international organizations.

U.S. tactics in support of the ROC would have to be very carefully formulated, since if the issue were forced to a vote and if countries voted as they did in the UN, Taiwan might well be excluded in spite of the weighted voting system.

Options: Against this background, our broad options are:

1.
Remain silent as long as possible, on the theories that the issue may simply recede with time, and that any positive action on the part of the United States may trigger a reaction. Although U Thant has called the UN China decision to the attention of the Fund and Bank by telegram, no member has yet indicated a desire to precipitate the issue in these organizations. This option appears inadvisable, however, because the lack of a clearly stated U.S. position could be interpreted by other governments, as well as Taipei, as an absence of U.S. concern.
2.
Make a serious effort to retain the ROC , but not by a major diplomatic campaign as we mounted in the UN. If the PRC wishes to join, raise questions only of a technical nature concerning fulfillment of the obligations of membership (e.g., avoidance of discriminatory currency practices), applying the same standards we would to the membership application of any other Communist country. This is the favored option.
3.
Make an all-out effort to retain the ROC , which may involve opposing PRC membership as incompatible with the objectives of the institutions. This alternative is considered inadvisable because defeat of an all-out effort would have far graver consequences for the IFI’s themselves as well as for U.S. public and Congressional support for them than any other option.

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Recommended Position: As noted, we recommend option 2. The specific tactics which we intend to initiate at once in support of this option are detailed in the Tab.2

Our intention would be to keep the primary focus of our activities on this issue within the framework of the institutions themselves, utilizing our IMF Executive Director as a principal channel of communication.3 As necessary, we would also make selected diplomatic contacts. At the same time, we would be exploring with the ROC various ways to adjust its position in the IFI’s to reflect the size of its economy.

Our strategy on this issue in the Asian Development Bank should be similar to that for the IMF and World Bank Group.4

Paul A. Volcker Nathaniel Samuels
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 302, Agency Files, USUN, Vol. VIII. Confidential. An attached transmittal memorandum from Marshall Wright to Kissinger, dated November 19, asking Kissinger to approve the VolckerSamuels positions, bears Kissinger’s handwritten note: “I agree but should we trigger the fight? HK.” Another, undated, memorandum from Kissinger to Volcker and Samuels, in which he concurred with their recommendations, was not sent.
  2. The attachments, none printed, are as follows: Tab: “U.S. Strategy for Continued ROC Membership in the IFI’s”; Annex A: “Current Situation”; Annex B: “Foreign Policy Analysis in Support of the U.S. Strategy” (prepared by the Department of State); Annex C: “Background, Analysis and Options” (prepared by the Treasury Department); Annex D: “IMF and IBRD Staff Background Papers.”
  3. Membership in IMF is a prerequisite to membership in the World Bank Group. It is assumed, therefore, that the IMF will be the principal forum for resolution of this issue. [Footnote in the source text.]
  4. The principal difference in the factual situation regarding ADB is that, when ADB was established in 1966, the ROC became a member on the basis of the Taiwan economy only. [Footnote in the source text.]