297. Memorandum From the Deputy Secretary of the Treasury (Gardner) to Secretary of the Treasury Simon 1

SUBJECT

  • Kissinger Speech to U.N. Special Session (expected to be September 2)

Ed Yeo and I attended a meeting with Secretary Kissinger this morning to review the proposed outline of his speech.2 Jim Lynn, Mike Dunn, Paul MacAvoy, and Bob Hormats also attended. Present from State were Tom Enders and Chuck Robinson.

To summarize the discussion, the Secretary outlined the basic strategy he wishes to use in the preparation of the speech.

1.
The speech must represent positions we are agreed on in government and consistent with our domestic policies at home.
2.
It must be a platform for obtaining the support and agreement of the industrialized nations.
3.
It must appeal to the self-interests of the developing countries to permit them to move with us.

Kissinger said that any particular proposals in the outline were not necessarily key except three or four, but that he must have enough proposals to use as a basis for this strategy. He made it very clear that he wanted to go forward only with the solidified Administration positions. He said candidly that what he clearly wanted to do was make a speech that sounds responsive but would require the technical implementation to be referred to the usual international forums.

The strategy is to develop support and to help resolve what he considers to be the North-South problem so that we can get to the eventual resolution of the East-West problem. He wants to strengthen the community of interests among our trading partners and thinks the industrialized countries have no appetite for confrontation and will leave us if we adopt that course. He repeated the phrase I have heard him use before that foreign policy is fueled by economic issues. He said that if we make these [Page 1020]ideological issues they will be insoluble with the LDC’s, but he also thinks they will not be insoluble if they can be reduced to technical issues.

He made it very clear that he is very sensitive to the fact that our economic initiatives abroad must be rationalized with the economic and political domestic climate. Finally, he also said with great candor that we are getting so bloodied by the Congress with foreign aid proposals that he believes that foreign aid as it now stands is insupportable and we must find ways to link foreign aid with our own economic interests.

Jim Lynn immediately raised the impact on the budget of issues in the outline and said he saw maybe nine that could affect the budget. Kissinger said he had been told there was only one. So we went through, back and forth, the prospective budget impact of the outline.

Ed Yeo pointed out that the swap idea was impractical and that we would have to circle that one.3 Kissinger accepted this and then complimented Ed on the agreement that had been developed between State and Treasury on our compensatory financing mechanism position.4

MacAvoy took issue with practically all of the commodity proposals in the outline and the concept of participating actively with the presumption that price-fixing would be a key part of these agreements. Kissinger seemed to understand the difficulty and concurred that a more appropriate position for the U.S. would be that of supporting buffer stocks and reserves to even out shortages. MacAvoy then described a plan that is being analyzed for budget impact involving grain reserves and told Kissinger that of all the commodity ideas, this was the most promising. When Paul had finished, he had established substantial doubt that other commodity agreements should be brought into the speech, and the international food reserves working group analysis is to be accelerated.

Other items discussed in the outline included an international agreement to protect private investment, which may stay in in some [Page 1021]form. In addition, the sensitivity of the U.S. announcing that it would join a fifth replenishment of IDA in view of our lack of progress on the fourth replenishment was pointed out.

There are a number of other items touched on but the real consensus of the meeting was that Kissinger was leaving and he wanted to get some basis for his speech and strategy, and that basis would be fully staffed and agreed to by all of us, presumably. And finally, he promised me that he would circulate the final draft for editorial comments—a position he had absolutely rejected at the outset. He mentioned also at the beginning of the meeting that he expected to have the final clearance done by Seidman (EPB), Scowcroft, and Enders.

We will work on all of these issues with the appropriate task force and interagency groups.

G
  1. Source: National Archives, RG 56, Records of the Deputy Secretary of the Treasury, 1974–1976, Accession 56–80–8, Box 5, State Department. No classification marking. Copies were sent to Yeo, Cooper, and Parsky.
  2. The outline of Kissinger’s speech is attached but not printed. An August 20 memorandum from Treasury staff member Robert Vastine to Gardner and Yeo on the subject of this meeting notes: "The major difference between State and Treasury is one of approach. Do we clearly present at the U.N. our underlying, fundamental belief in the market-oriented system, or do we continue to attempt to meet the LDCs half-way, going as far as we can—often farther than we would like to go in terms of our own economic interests—in mollifying their demands?" (Ibid.)
  3. According to an undated memorandum provided by the Department of State to Gardner for this meeting, Kissinger would propose a "swap network for high-income LDC borrowers. This proposal would set up a network of 2 to 4 year swaps (offsetting loans of national currency) between financial institutions in LDCs, OPEC and DCs, to be drawn on in periods when high-borrowing LDCs are crowded out of international capital markets. Resources, perhaps up to $5 billion, would be provided in three equal parts by OECD members, OPEC surplus countries, and high-income LDCs that would have access to the facility. Alternatively, proposal for a semi-commercial bank with the same structure providing 2 to 4 year lines of credit. (Proposals are under discussion between State, Treasury and the Federal Reserve.)" (Ibid.)
  4. According to the undated memorandum provided by the Department of State to Gardner for this meeting, Kissinger proposed calling for "Substantial liberalization of IMF compensatory financing mechanism to help LDCs offset fluctuations in their export earnings. (State and Treasury are negotiating on this proposal, which will be referred to the International Monetary Group.)"