Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

151. Memorandum From the President’s Assistant for National Security Affairs (Scowcroft) to President Ford ¹

Washington, October 9, 1976.

SUBJECT

• Secretary Simon’s Meetings with Finance Ministers of France, Germany, and the UK

Bill Simon’s memorandum (Tab A) reports on his secret discussions on September 15 in Paris with his counterparts from France, Germany, and the UK.² The major subjects were:

• —Economic and financial conditions in the four countries. French Prime Minister/Finance Minister Barre outlined his stabilization program to deal with inflation. He described France’s rate of recovery as satisfactory, but described inflation, led by wage increases, as too high and past monetary policy as too expansionary. Healey described the UK’s efforts to stabilize its economy—efforts which Bill feels have been inadequate as reflected by the UK decision to negotiate a standby agreement with the IMF in order to repay swap loans extended this summer by the US and others.³
• —The overall pattern of world payments.⁴ The Ministers agreed that because of the magnitude and persistence of payments deficits in the non-OPEC world, and the continued high price of oil, more emphasis must be placed on domestic corrective actions to reduce payments imbalances.
• —Transitory financing for countries in the process of adjusting. The Ministers reiterated the Puerto Rico agreement that transitory financing could best be provided by the IMF and that this might require supplementing the IMF’s resources by activating the General Arrangements to Borrow (GAB), though they agreed not to make any announcement at this stage.⁵
• —North-South problems. The Ministers agreed that generalized debt rescheduling is unwise and would probably be damaging to most developing countries; Simon and the German Finance Minister also reaf-firmed their objection to the idea of a common fund for the financing of commodities but agreed to examine ways of dealing with the commodity problem in a way that would be satisfactory to the major industrialized countries, drawing those now in favor of a common fund away from that position.⁶

Simon’s meetings proved to be an opportunity for an extremely useful discussion of national problems, problems affecting the industrialized world, and North-South relations. While serious difficulties continue to confront individual nations and the world economy, high-level discussions of this type hold the greatest promise of ensuring a common industrialized nation attitude and firm cooperation consistent with the political impetus given such cooperation by the Rambouillet and Puerto Rico Summits.

1. Source: Ford Library, National Security Adviser, Presidential Agency Files, Box 18, Treasury Department, 5/24/76–10/27/76. Secret. A stamped notation indicates the President saw the memorandum, which he initialed. Sent under cover of an October 1 memorandum to Scowcroft from Hormats in which he notes: “The discussions reveal a number of significant problems facing the world economy, especially the massive debt positions of a number of nations and the still uncertain outlook for the current recovery. Both problems have come to worry me considerably over the last several months as the data on inflation, levels of unemployment, and debt of the industrialized democracies and major non-OPEC developing countries begins to come in. I am in the process of preparing a more detailed memo for you on this issue—but you should be aware of the very real risk that the international economy is in for a very rough period in coming months.”
2. Attached but not printed is an undated memorandum from Simon to Ford enclosing Simon’s summary of the discussions, which took place at Barre’s residence in Versailles on September 15 from 2 until 11 p.m.
3. See footnote 2, Document 146. On September 29, the British Government announced its intention to seek a $3.9 billion standby loan from the IMF.
4. In the summary of the discussions, Simon wrote: “I expressed my deep concern about the size of the prospective ’77 deficit in the non-OPEC world. We are back to ’74 oil crisis levels and the financing of this deficit is made difficult by the year after year large increments in debt of the developed countries as well as developing world. I don’t believe that this is a tenable situation and indicated as such. Raymond Barre agreed fully, Apel tentatively, and Healey, for understandable reasons, reluctantly.”
5. In the summary of the discussions, Simon wrote: “We agreed, given the prospects for heavy drawings (as outlined above [by the United Kingdom, Italy, and Mexico]) that we would activate the General Arrangements to Borrow (GAB), but not until after the IMF–World Bank meetings in Manila in early October.” Simon noted that they also “agreed to avoid emphasizing at Manila the extreme nature of the payments, debt, and adjustment problems. The fear, pressed hard by Apel, was that an aggressive description of our misgivings would serve at this stage for a sharp escalation in developing country demands for financial assistance—help that the IMF is not in a position to provide even if it were advisable.”
6. In the summary of the discussions, Simon wrote on the issue of commodities: “Barre reviewed the French position and did so in a way designed to open the door for an effort to develop areas of agreement. This was greeted by Apel with an affirmation of the U.S.-German opposition to the idea of a common fund for financing of commodities.” Commenting on the overall discussion of North-South issues, Simon continued: “In a sense it was an incomplete conversation, and yet I believe I discerned a willingness on the part of the French to compromise, to move away from their position, if we could agree on a list of commodities that would be satisfactory for the establishment of buffer stocks. The French proposed that such an examination be conducted among the four, (U.S., FRG, UK, France) and we agreed.”