242. Memorandum From Secretary of the Treasury Shultz to President Nixon 1

SUBJECT

  • U.S. Position on International Development Association and Asian Bank Funding

I would like to confirm with you an approach to further funding for the International Development Association and the Asian Development Bank that has been agreed to by the National Advisory Council.2

Decisions are needed this summer on the next three-year replenishment of the International Development Association (IDA)—the World Bank’s soft loan organization. The U.S. is now contributing 40 percent to IDA, $320 million per year in FY 1973–75. Our first appropriation for the next replenishment will not be until FY 76, but we must make a firm commitment in principle this summer so that legislative actions to authorize the replenishment can be completed by July of next year when IDA will need to start committing the new funds.

The main issues on our contribution are:

  • U.S. share—we apparently have convinced McNamara and can get agreement from the other donors that the U.S. share of IDA financing should drop from 40 percent to one-third.
  • LevelMcNamara wants a major expansion of IDA from about $800 million to about $1.5 billion per year; other countries appear willing to support this higher level if the U.S. provides one-third.
  • Policy Shifts—we should agree to a substantial increase in our IDA contribution only if we get policy assurances from McNamara on several operational issues.
  • Congressional—we also need to consult with key Congressional chairmen to bring them along in the decision process and improve the chances for eventual appropriation action.

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What We Want from IDA

In exchange for a U.S. commitment to fund IDA at substantially above the current level we want McNamara to agree:

  • —to reprogram IDA lending so as to provide about $100 million per year from IDA for Indo-China (mainly South Vietnam) beginning in 1974, plus some ordinary World Bank funding when feasible and a leadership role on international assistance for Indo-China;
  • —to take further steps toward a more independent audit system consistent with the intent of GAO’s recommendations;
  • —to tighten up some of the Bank’s policies such as on expropriation.

Relationship to Other Assistance

Assurance of a substantial IDA role in Indo-China, which will reduce the requirement for bilateral assistance by about the same amount as we increase IDA funding, would mean we can afford the increase in IDA without increasing our total foreign assistance budget. The substantial increase in IDA flows financed by contributions from others—for every U.S. dollar IDA will get two more dollars from others—might also relieve our bilateral requirements in such countries as Indonesia and Pakistan.

Our review in the National Advisory Council indicates that appropriations for the various international financial institutions should level out at about the FY 74 level over the next four years even with higher IDA requirements (Tab A),3 primarily because the rapid economic development of such Latin American countries as Brazil means that less soft loan-type funding is needed for the Inter-American Bank.

Asian Development Bank (ADB) Special Funds

Also related to financing for South Indo-China is the replenishment of the Asian Development Bank’s soft loan funds (special funds). We have not yet contributed to these, but others have put in about $250 million, which is now almost fully committed. ADB lending in South Indo-China of as much as $50 million a year would, as in the IDA case, reduce demands on us.

An attractive special funds replenishment development is available to us. We would put up the same tied $100 million contribution that has been pending in Congress. This "double duty" contribution, plus a new $50 million in FY 1975, would be matched by a new $375 million contribution by others. This would give us a cumulative share of 20 percent, compared to the one-third others had previously sought from us.

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Decision

Before we take a final decision on the level of our IDA commitment we need to see what can be worked out with McNamara and what the Congressional reaction to an increase in the U.S. IDA contribution would be. If we can get satisfaction from McNamara on issues like those listed above and Congressional reaction is not too hostile, we would be prepared to go up to a U.S. contribution of $500 million a year beginning in FY 76.

As with IDA, we need to determine congressional willingness to go along with the ADB special funds proposal. But we also need to decide that we can and will apply enough effort to get the $100 million for ADB special funds that is in the FY 1974 budget, and around which the whole scheme is built. If we are satisfied on these two aspects, we should proceed to wrap up the package with other donors later this summer.

It will be important in terms of successful legislative follow-up to the above decisions to give special attention to Mr. Passman and convince him and other Congressional leaders that you fully support these proposals. I will also be coming to you later in the summer for help with Mr. Passman and others on the pending FY 1974 appropriations for these institutions. Still later in the year, I intend to being you up to date on lesser proposals involving the African Development Bank and the International Finance Corporation. Illustrative funding for these in FY 75 and later is included in Tab A.

Recommendation: That you concur with the above action program for IDA and ADB replenishment, and authorize me (a) to seek congressional support for it, and (b) to negotiate with other donor countries and the bank managements.4

George P. Shultz
  1. Source: Ford Library, National Security Adviser, Scowcroft Daily Work Files, Box 3, 6/22–26/73. Confidential.
  2. Administration officials had been considering and negotiating with World Bank President Robert McNamara the U.S. contribution to the fourth replenishment of the International Development Association for several months. Documentation is in the National Archives, RG 56, Office of the Under Secretary of the Treasury, Files of Under Secretary Volcker, 1969–1974, Accession 59–79–15, Box 2, IDA; and ibid., Box 3, International Financial Institutions. A June 8 summary of the National Advisory Council "Report on U.S. Role in Multilateral Development Assistance" is ibid.
  3. Attached but not printed is an undated chart, "Illustrative Future Appropriations Request Levels for International Financial Institutions."
  4. The President did not indicate his approval or disapproval of the recommendation. On July 5, Kissinger forwarded Shultz’s memorandum to the President and recommended approval of the proposed funding increases. Kissinger noted that increased funding for the IDA would permit it "to play a significant role in helping finance reconstruction requirements in Indochina. I am working with Secretary Shultz to assure maximum support from the World Bank for these needs, and we would not go forward with the increased funding recommended for IDA unless we are assured that such support will be adequate. If we are successful in inducing IDA to play a substantial role in Indochina, that would also help to get other countries to provide substantial assistance of their own on a timely basis." He also observed that the possibility of annual $50 million ADB reconstruction loans to Indochina represented "an attractive proposition." The President initialed his approval of Shultz’s proposals on Kissinger’s July 5 memorandum. (National Archives, Nixon Presidential Materials, NSC Files, Box 333, Subject Files, Inter-American Development Bank (IADB) (April 1969–August 1973))