Foreign Relations of the United States, 1969–1976, Volume XVII, China, 1969–1972

237. Memorandum From John Holdridge, Mel Levin, and Robert Hormats of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, June 30, 1972.

SUBJECT

• Chinese Representation in the International Financial Institutions

The immediate policy problem is trying to preserve continued participation by the Republic of China in the International Financial Institutions (IFI’s) through avoiding or parrying a challenge to its position in the IFI’s at the annual meeting of the World Bank and International Monetary Fund late next September.²

Under Secretary Johnson and Treasury Under Secretary Volcker sent you a memorandum³ recommending (a) that we support World Bank President McNamara’s study committee proposal on this question, and (b) that you approve detailed strategy and tactics covering contingencies both under which the study committee was formed and under which it was not formed. The McNamara proposal would create a Study Group in the Bank’s Executive Board of Directors within the next month to study the Chirep question in the Bank and the Fund. Prior to broaching his proposal formally in the Board, McNamara would (a) canvass its members to be sure he had the requisite support, and (b) attempt to secure IMF Managing Director Schweitzer’s agreement to the proposal.

Attitudes Toward Continued ROC Participation in the IFI’s

McNamara . McNamara’s principal concern is that of the prudent banker: he feels vulnerable to criticism that on his own responsibility he has been continuing disbursements on outstanding loans to the ROC. He would therefore like to clarify the ROC’s status, but believes this should not be left to the highly political atmosphere of the September meeting.

IFI Members. All of the 20 key members whom we have recently surveyed strongly hope that a public debate and a vote on the ROC question can be avoided.

ROC Position. Taipei has decided to go along with the McNamara proposal, although it is motivated in part by a reluctance to oppose Mr. McNamara.

PRC . Peking has expressed no interest in assuming the obligations of membership in the IFI’s, which would include the free convertibility of its currency, something it is most unlikely to accept. Its objective in seeing the issue raised would therefore be to see the ROC expelled. Peking so far has not indicated it will mount an effort in this direction. That it did not try to stimulate a challenge in last April’s Asian Development Bank meeting is encouraging, but gives no assurance as regards its intentions toward the September meeting.

Our Recommendations

1. McNamara proposal. Given the real chance of a challenge to the ROC position at the September meeting, we believe we should support the McNamara Study Group proposal as involving fewer risks than trying to counter a challenge if it arose at the meeting or shortly before. The Study Group once formed should help deter a challenge and meet any challenge procedurally and substantively that might be raised. It is also low-profile and unprovocative as regards the PRC and its supporters, both in the manner of its being established and in that it does not outwardly prejudge the outcome. We believe that we will be able to influence the Study Group toward a favorable report, as well as the IFI’s toward a satisfactory disposition of the report.

2. Detailed strategy and tactical guidance for the September meeting. We do not believe that a need exists at this point for such detailed guidance, the annual meeting still being three months off. Further, we do not believe that the situation we will face in September is now sufficiently clear to chart such strategy and tactics in detail. We would suggest that State and Treasury come back with further recommendations in August, by which time we will know the fate of the McNamara proposal, which in itself will have a substantial bearing on the situation in September.

The urgency in a decision on this matter results from Marshall Green’s wanting to discuss the question with ROC officials in Taipei July 4,⁴ and from Mr. Volcker’s wanting to give Mr. McNamara a response following up the preliminary views given McNamara by Marshall Green on June 15.

At Tab A is a proposed memorandum from you to Under Secretaries Volcker and Johnson embodying our recommendations as stated above.⁵

Recommendation

That you sign the memorandum to Under Secretaries Volcker and Johnson at Tab A.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 523, Country Files, Far East, China, Vol. X. Secret. Sent for action.
2. This issue was discussed briefly in NSSM 141. See Documents 171 and 175. In December 1971 the Departments of State and Treasury provided Embassies in the capitals of major U.S. allies background information on the U.S. position on Chinese participation in IFIs to enable them to respond to inquiries on U.S. policy. The message instructed diplomats to “undertake no initiative unless further instructed.” (Telegram 225181 to selected diplomatic posts, December 15, 1971, approved by Hormats and Holdridge; National Archives, Nixon Presidential Materials, NSC Files, Box 523, Country Files, Far East, China, Vol. X) On January 22, 1972, Samuels and Volcker sent a memorandum to Haig requesting approval of instructions to selected diplomatic posts on supporting the ROC’s continued membership in IFIs. (Ibid.) On the first page of a summary of this February 11 memorandum prepared by Wright and Holdridge, Kissinger wrote: “Take up as soon after we return as possible. HAK.” (Ibid.) On March 1 Wright asked Kissinger to clear the telegram, noting that “the attached cable for which your approval is being sought, is addressed only to those three organizations [IBRD, IMF, and ADB], and does nothing but authorize our Embassies quietly and in a non-pressuring way to ascertain views of the principal member governments of those organizations.” Wright concluded, “the attached cable is nothing but an authorization for our Embassies to enter into quiet palaver.” (Ibid.) Kissinger approved the draft telegram. (Ibid.)
3. Attached but not printed is the June 23 memorandum.
4. Green met with Foreign Minister Shen and Vice President Yen on July 4. (Reported in telegrams 3369, 3436, and 3472 from Taipei, July 5, 7, and 10; National Archives, RG 59, Central Files 1970–73, ORG 7 EA) Green and Chiang Ching-Kuo met on the morning of July 5 to discuss the ROC’s military equipment requirements, U.S. policy toward East Asia, tensions on the Korean Peninsula, and Taiwan’s economic development. Green noted that ROC “attendance at meeting late this year in U.S. on foregoing subject [wildlife conservation and endangered species] could well result in key countries like Kenya and Tanzania deciding not to attend which would undermine the conference and GRC would be blamed.” According to a report on the meeting, “On the other hand, Green reiterated our strong desire to do that which was effective in retaining GRC membership in international financial institutions. This was obviously far more important to GRC and its friends than an issue like participation in conservation of wildlife and endangered species issues. CCK nodded understanding but made no comment.” (Telegram 3434 from Taipei, July 7; ibid., POL 15–1 CHINAT)
5. According to a July 10 memorandum to Kennedy from Davis, Kissinger sent the drafts back from San Clemente. (Ibid., Nixon Presidential Materials, NSC Files, Box 523, Country Files, Far East, China, Vol. X) The final memorandum to Johnson and Volcker, signed by Kissinger on July 11, reflected the recommendations detailed in this memorandum. (Ibid.)