Foreign Relations of the United States, 1969–1976, Volume E–10, Documents on American Republics, 1969–1972

27. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon¹ ²

Washington, April 13, 1970

SUBJECT:

• Inter-American Development Bank Replenishment

Secretary Kennedy requests your approval to support, at the April 20–22 meeting of the Inter-American Development Bank (IDB) Governors’ Meeting in Uruguay, a replenishment of the resources of the Bank which would involve US contributions of $1.7 billion over the next three years (Tab A). He proposes a commitment, subject to legislative authority, of:

• —$675 million for the Bank’s callable Ordinary Capital, which is not expected to result in any budgetary expenditures since it serves only to guarantee the Bank’s private market borrowing
• —$150 million for the Bank’s paid-in Ordinary Capital
• —$900 million to the Fund for Special Operations (FSO), the Bank’s concessional loan window.

The purpose of the replenishment is to support an expansion of the IDB’s lending operations by 50% over the next few years. This is specifically recommended by the Peterson Task Force, and is consistent with your policy of shifting to greater reliance on multilateral institutions. Secretary Kennedy believes that a 50% step-up in IDB lending operations would be both desirable and within the Bank’s capabilities. State, AID and BOB concur.

The increase in the Bank’s lending rate will be made possible primarily by increased contributions from the Latin members. The US contributions would maintain existing annual contribution levels for the United States, with the exception of the paid-in Ordinary Capital, which does represent an increase over the past replenishment period. However, Secretary Kennedy believes this increase is needed to support the Bank’s debt-equity ratio and allow it more flexibility in establishing its interest on loans.

If agreement is reached at the Uruguay meeting, Secretary Kennedy plans to seek authorizing legislation in the latter part of May. Chairman Patman of the House Banking and Currency Committee has promised to cooperate in scheduling consideration of the legislation. Kennedy believes the congressional environment is favorable—members of the House Committee will be part of our delegation to the IDB meeting, and the Senate has generally been favorable to increased support for multilateral institutions.

The proposed replenishment will require approximately $195 million more in budget authority than provided in the FY 1971 budget, but would increase budget outlays by no more than $10 million. Budget Director Mayo believes congressional cuts in the bilateral AID program will offset this increase and recommends that you approve Secretary Kennedy’s proposals (Tab B).

In connection with the replenishment, the US Delegation will seek agreement on several policy measures to strengthen the Bank’s capacity to effectively administer a larger program. The issue here is how far to insist upon these measures. However, Treasury, State, and AID are substantially in agreement that our principal objectives should be:

• —a new policy statement by the Bank that would give first priority on use of FSO Funds to least developed countries and limit, though not preclude, lending to the economically stronger members.
• —a change in the Bank’s charter to permit membership in the Bank by countries outside the OAS. As a minimum, we would expect the Latins to agree to open the membership to Canada and continue to consider changes which would permit membership by other developed countries.
• —a policy declaration committing the Bank to greater cooperation with other multilateral agencies (CLAP, IBRD, and IMF) on country analyses and performance.
• —a $600 million Latin contribution to the FSO (double the amount provided in the previous replenishment) with $450 million as a satisfactory fallback. (This would still permit a significant improvement in the ratio of US to Latin contributions from 3:1 to 2:1.)

In his memorandum Secretary Kennedy notes that there is a need for improvement in some of the Bank’s internal management operations, but that is a longer term problem which he will be taking up quietly but firmly with the other Governors and the Management of the Bank.

My own feeling is that the proposed replenishment plan would be a good follow-up action to your Latin American policy statement and the Peterson Report. I, therefore, concur in Secretary Kennedy’s proposal. Bill Timmons’ staff also concurs.

RECOMMENDATION

That you approve the funding levels and policy objectives proposed by Secretary Kennedy for the US position on replenishment of the resources of the Inter-American Development Bank.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files) Box H–215, NSDM files, NSDM 54. Confidential. Sent for action. Kissinger initialed approval for the President on April 15. Attached but not published are Tabs A and Tab B. Written under the recommendation was “CFB [C. Fred Bergsten] informed Treasury (Petty) orally 4/15, 2:30 p.m.” The replenishment of IDB, including NSDM 54, is discussed in Foreign Relations, vol. IV, 1969–1976, Foreign Assistance, International Development, and Trade Policies, 1969–1972, Document 25.
2. Kissinger recommended that the U.S. Government support a replenishment of the Inter-American Development Bank to assist the institution’s efforts to expand lending operations.