207. Memorandum Prepared by Cyrus Vance 1

[Omitted here is information unrelated to food policy.]

L. Economic Assistance.

Here again, the new Administration will be faced with immediate and difficult budgetary and political questions. As you know, economic or so-called development assistance falls into three categories: US bilateral economic development programs administered by AID and the Peace Corps, and multilateral development programs, which receive US funding through the World Bank, regional banks and various United Nations agencies. A second category is political economic assistance. A third category is straight humanitarian or relief assistance. There is also military assistance, which has often been bracketed with, but in fact is not, development assistance.

The first question is who should receive economic assistance. Here, I believe that we should continue to make economic assistance available to both the least-developed and the middle-level countries, as it is at present. I believe it would be unwise to adopt a rule that only very poor countries will receive US bilateral economic assistance. Not the least important of the several advantages favoring this suggestion is the fact that the other course of action would make most Latin American countries ineligible for development aid.

A second issue is whether economic assistance should be denied to countries that flagrantly violate human rights. Current aid legislation prohibits economic assistance to those who violate human rights, unless the President can demonstrate that such aid gets to the poorest [Page 644]people. The issue is whether this escape clause should be tightened.2 It would be a mistake, in my judgment, to do so. Conditioning economic assistance on such a policy would appear to be an intrusion into the internal affairs of the recipient countries. In addition, it would appear to be saying that in order to show our sympathy for the poor, we are withdrawing the aid designed to improve their wellbeing.

Another key question is whether economic assistance should be multilateral or bilateral, or both. I believe it should be both. We should provide capital aid increasingly through the regional development banks, while continuing to rely on bilateral channels for more technical assistance. The regional development banks are generally considered to be efficient in handling multilateral aid. However, assistance can be provided more efficiently on a bilateral basis.

Finally, I believe that economic assistance should be increased. There is an international target of .7% of GNP. Other countries are taking the target seriously and some have reached it. I am not suggesting we should attempt to go to .7%. We are currently at about .25% and should do more. Moreover, the capability of aid-delivering agencies to help host countries develop useful projects has improved over the years, while the amount of human deprivation has continued to increase.

Budgetary decisions will have to be made with respect to Fiscal 78 Budget on the funding of economic assistance programs for the next two years. The amounts involved are very large. I would recommend the so-called lower option (2-a) contained in the Development Assistance issues paper, which would provide for authorization of $3.65 billion, an appropriation of $1.26 to $1.87 billion. I think it would be impossible to get anything higher through the Congress, and even this option will be difficult to achieve. However, we must meet our obligations. Failure to do so in a responsible manner could shake the international institutions, resulting in setbacks to their current lending programs and projects. The critical item with the Congress will be the amount of the appropriation, rather than the authorization.

M. Relations with Developing Nations.

Whether we like it or not, one of the most important and difficult issues which will face the new Administration is the question of our relations with the developing nations. The developing nations have found that they can achieve political leverage by operating in concert and have made it a central focus of their foreign policies under the ru[Page 645]bric of a demand for “new international economic order.”3 The developing countries’ goals in this area affect trade, commodities, investment and technological transfer, monetary reform, and aid.

Our relations with the developing countries are important because without their participation and cooperation, we, as well as they, may find it most difficult to grow and prosper. They now constitute a majority in most international bodies in which global problems are dealt with. While the developing nations may not be able to force action, they can block it.

As you know, the current Administration had opposed requests from the developing countries for change in international economic systems for a number of years. This policy was changed in the speech of the Secretary of State at the 7th Special Session of the United Nations General Assembly in September 1974.4 Since then, however, little of significance has been accomplished, and we face the danger of increased tensions if the ongoing discussions and negotiations come to naught.

The current outlook is gloomy. The dialogue at CIEC appears to be going nowhere.5 The UNCTAD meeting last spring ended without [Page 646]important accomplishment6 and little progress is being made in other areas such as Law of the Sea, food, commodities, and debt rescheduling.

Insofar as the US public is concerned, surveys would indicate that the country is ambivalent. People feel that we should help the less fortunate, but they feel, at the same time, that our aid is not getting to the poor people who really need it, and that we are taxing the American people, including the poor, to assist the well-to-do and rich in other countries. I believe, however, that our people will support a policy which they feel is practical and is properly directed toward alleviating suffering and deprivation in the developing world. More public education is needed, and it will have to come in large measure through Presidential leadership.

Among the available options concerning our overall approach to the problem, selective functional cooperation with the developing nations makes the most sense. If we chose this course of action, the US would agree to discuss in good faith all the issues being raised, looking where possible to strike bargains where gains for both sides can be assured, but refusing to agree to proposals which we believe are economically unsound or politically unacceptable. This would serve to diffuse the danger of growing confrontation between the North and the South. It would also put the US in a position of leadership it has not had since the early 1960’s.

Turning briefly to specific issues, the first key issue is trade. What the next President does about the Tokyo Round7 is extremely important: If you follow the course of action suggested earlier in this paper, I believe you will be on solid ground. The problem of commodities is incredibly complex. The preferred solutions will vary among different commodities and positions will vary among the developing countries. The use of buffer stocks should be approached with caution. Perhaps more can be done quickly by increasing US strategic stockpiles in the metals area, than can be done by the use of buffer stocks. Attempts to hold prices on raw materials at artificially high levels do not make sense. But it is true that volatility of commodity prices is to many countries an obstacle to economic development.

I have already commented on the question of development assistance and it need only be noted further that after trade, concessional aid [Page 647]is the single most important issue you will have to address from an economic standpoint in the North-South relations.8

Space does not permit adequate discussion of international debt service by developing countries. Suffice it to say that the better-off developed countries do not need it and fear that it would jeopardize their credit standing. The debt issue, thus, comes down to the poor countries. Of the total amount owed, two-thirds is owed by India, Pakistan and Egypt.

With respect to monetary reform, the issue concerns the developing nation claim that they do not receive a fair deal from the IMF because of their lack of voting weight. This in turn relates to the question of special drawing rights, which are allocated on the basis of IMF quotas, which are in turn a rough indicator of the financial importance of the member country in the world economy, and thus of each member country’s need for international reserves. In this connection, consideration should be given to the possibility of permitting raw materials such as copper, tin, etc., to be used as reserve currencies.

Further with respect to the question of the oceans, we have the problem of the stalled Law of the Sea Conference. It is currently stalemated primarily on the issue of deep sea mining. Here I believe that we must take a new initiative if we want to restore vitality to the negotiations. A possibility worth pursuing is a fleshed-out version of Secretary Kissinger’s most recent suggestion, i.e., a two-track approach involving mining by both private interests and the public “Enterprise.” Under this approach, the US and other individual countries would provide the necessary technology and know-how to the Enterprise.

With respect to food, the basic answer is increased food production in the developing countries themselves. Accordingly, there should be increased emphasis in both bilateral and multilateral efforts on increasing the developing countries’ production of food. It will, however, take many years to increase food production in the poor countries. Therefore, in the meantime, it will be important to establish and maintain sufficient grain reserves in the developed countries to meet recurring needs in the developing countries.

Finally, we must continue to work on the population problem, which is inextricably linked with the problem of food and social and economic progress.

In light of the foregoing, the first and most critical task is to develop a coordinated strategy for dealing with the various issues presented. They cannot be dealt with on a piecemeal basis. Therefore, as [Page 648]soon as key appointments have been made, a task force should be formed to develop such an integrated strategy under a tight time schedule—two to three months. This should be done in coordination with key members of the Congress.

[Omitted here is information unrelated to food policy.]

  1. Source: Department of State, Office of the Secretariat Staff, Records of Cyrus Vance, Secretary of State, 1977–1980, Lot 84D241, Odds & Ends From the Transition. Sensitive. Sent to Jack Watson under an October 24 covering memorandum, in which Vance commented: “I am sure that never before has there been so much excellent work done in advance of the election. In the meantime, we are all hoping and praying that things will come out the right way on November 2.” (Ibid.) According to his memoirs, Vance prepared the memorandum at Carter’s request, noting that it “was to become a kind of foreign policy road map and a standard against which I measured our success and failure in attaining the goals we ultimately set for ourselves.” (Vance, Hard Choices, pp. 29–30) The complete memorandum is printed in Hard Choices as Appendix I, pp. 441–462 and is scheduled for publication in Foreign Relations, 1977–1980, volume I, Foundations of Foreign Policy.
  2. Presumable reference to the International Development and Food Assistance Act of 1975 (P.L. 94–161); see footnote 4, Document 1.
  3. The Sixth Special Session of the United Nations General Assembly met in New York from April 9 to May 2, 1974. On May 1, the General Assembly adopted a Declaration and a Programme of Action for the Establishment of a New International Economic Order (A/RES/S–6/3201). The Declaration expressed the UN General Assembly’s “united determination to work urgently for the establishment of a new international economic order based on equity, sovereign equality, interdependence, common interest and co-operation among all States, irrespective of their economic and social systems which shall correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations.” (Yearbook of the United Nations, 1974, p. 324) For information concerning the planning for and U.S. participation in the Special Session, see Foreign Relations, 1969–1976, volume XXXI, Foreign Economic Policy, 1973–1976, Document 257. Kissinger’s April 15 address to the General Assembly, entitled “The Challenge of Interdependence,” is printed ibid., volume XXXVIII, Part 1, Foundations of Foreign Policy, 1973–1976, Document 32.
  4. The Seventh Special Session took place in New York, September 1–16, 1975, and focused upon development and international economic cooperation, including food assistance. For additional information, see Foreign Relations, 1969–1976, volume E–14, Part 1, Documents on the United Nations, 1973–1976, Documents 27 29 and ibid., volume XXXI, Foreign Economic Policy, 1973–1976, Documents 117, 286, and 295 299. Kissinger’s speech, entitled “Global Consensus and Economic Development,” was delivered by U.S. Ambassador to the United Nations Daniel Patrick Moynihan; Kissinger was in Israel witnessing the signing of the second Israeli-Egyptian disengagement agreement. For the text of Kissinger’s speech, see Department of State Bulletin, September 22, 1975, pp. 425–441.
  5. The Conference on International Economic Cooperation (CIEC) first convened in Paris in December 1975. See Foreign Relations, 1969–1976, volume XXXI, Foreign Economic Policy, 1973–1976, Document 300. It met last in June 1977; see footnote 4, Document 214.
  6. The fourth UN Conference for Trade and Development (UNCTAD IV) took place in Nairobi, Kenya, May 3–28, 1976. For additional information, see Foreign Relations, 1969–1976, volume XXXI, Foreign Economic Policy, 1973–1976, Documents 301 306.
  7. Reference is to the Tokyo Round of multilateral trade negotiations (1973–1979), held in Geneva, Switzerland.
  8. In an earlier section of the paper, Vance noted that a new administration would need to determine the position the United States would take with regard to GATT and listed several options. He indicated that he favored the middle ground: “i.e., aim for an early 1977 agreement on relatively non-controversial items.”