171. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter 1
- Summit Follow Up and Preparations
1. Bonn Follow-Up. In one sense, the Bonn strategy seems to be working: The Germans and Japanese have both taken stimulus action;2 the US emphasis is shifting to fighting inflation; and Japan and the US are taking actions to promote exports and imports, respectively. If continued, as the IMF Managing Director’s annual report makes clear,3 these trends point the way to a gradual reduction of external imbalances and strengthening of the dollar. There are two flaws in this prospect, however:
1) The foreign exchange markets don’t believe that the US will accept the tight fiscal and monetary discipline that Germany, Japan, and others have found necessary to bring inflation under control. So long as this view prevails abroad, the dollar will continue to decline.
2) Japan, the UK, and France lag in fulfillment of their Bonn trade commitments. This blunts the effect of domestic policies in the main industrial countries in reducing the US external deficit and the Japanese external surplus.
We can do something about both these problems:
—The Europeans and Japanese can be convinced that the US is serious in tackling inflation if we make clear that the FY 1980 budget expenditure and deficit levels will be substantially below those now generally assumed. Hard budget target figures may persuade them (where [Page 525]rhetoric has not) that we are ready to accept the same temporary slow-down of growth that they did to reduce inflation. If so, the dollar should begin to rise.
—The Japanese will be more likely to follow sensible trade policies if we can make clear to them that this will have an important bearing on whether your pre-Summit trip to Japan next year is a success. (This may mean delaying your answer to the Japanese invitation for a while.) The French and British are more likely to be forthcoming on MTN if they feel pressure from the Germans, as well as us. Schmidt will be hitting Callaghan on this point when they meet this week, and we’ve asked him to hit Giscard too.4
2. Preparations for Tokyo. The Japanese are proposing a Summit, with a preceding bilateral visit by you, in the last week of June.
The two most promising items for this Summit will be energy, in which Fukuda has a special interest, and North-South relations, which the Japanese think is especially appropriate for the first Summit to be held in Asia.
On energy, the most actionable items seem to be (i) a fund for aiding LDCs to produce and conserve energy, which may be proposed by the World Bank as a result of the study they were asked to undertake by the Bonn Summit, and (ii) multilateralizing the arrangement for joint energy research and development that is now being negotiated by the US and Japan. The Summit will also presumably commend the US for fulfilling its energy commitment—assuming that we follow the 1978 legislation5 by 1979 legislation or administrative action to raise US prices to world levels, as pledged at Bonn.
On North-South relations, I have asked people in the executive branch, the World Bank, and Sol Linowitz’s Hunger Commission6 to [Page 526]start thinking of what new initiatives could be surfaced, besides the energy fund for LDCs mentioned above. I am attracted by the possibility of an international effort to increase research in LDCs regarding agriculture. The Foundation for International Technical Cooperation7 that we expect to propose to the Congress next year could play a substantial part in such an effort.
As work progresses, I will submit specific proposals for your review.
- Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 64, Summits: 1/78–8/79. Confidential. Sent for information. Carter and Brzezinski both initialed at the top of the page. An attached October 18 note from Owen to Brzezinski reads: “You asked me to postpone putting in this memo until after Camp David. I’ve brought it up to date. I’d like to get it in tonight, since part of it bears on the decisions he will be making tomorrow about his anti-inflation program.” Two previous memoranda from Owen to Carter on Summit follow-up and preparation, August 11 and August 16, are ibid.↩
- The West German 12.25 billion mark economic stimulus package was announced on July 28. (John Vinocur, “Stimulus, Tax Cuts Announced in Bonn,” The New York Times, July 29, 1978, p. 25) The Japanese 2.5 trillion yen economic stimulus package was adopted on September 2; see Document 160.↩
- Apparently a reference to the IMF Annual Report of the Executive Board, published immediately before the IMF annual meeting. A story on the 1978 report was published in the September 18 edition of The Wall Street Journal. (Richard J. Levine, “Dollar’s Weakness on Currency Markets Seen to Be Beyond Quick or Easy Remedy,” The Wall Street Journal, September 18, 1978, p. 5)↩
- During an October 5 telephone conversation, Carter urged Schmidt “to work with Prime Minister Callaghan and President Giscard to ensure a constructive outcome of the MTN.” Citing the “strong protectionist pressures” under which he labored, Carter said that should the MTN fail, “it would be very difficult for him to resist these pressures.” Schmidt replied that he had asked Brzezinski “to send him a paper on the real facts of this matter and how he (the Chancellor) could be of help.” Carter offered “that Giscard and Callaghan would listen to” Schmidt. (Memorandum of conversation, October 5; Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 36, Memcons: President: 10/78) For the paper that Brzezinski sent, see Document 169.↩
- On October 15, Congress passed five bills that together established the nation’s energy policy; Carter signed the bills into law on November 9. See Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980, Document 164. For Carter’s remarks on signing the bills, see Public Papers of the Presidents of the United States: Jimmy Carter, 1978, Book II, pp. 1978–1985.↩
- On September 5, Carter established a Presidential Commission on World Hunger; a week later, on September 12, he named the 14 members of the commission, including Sol Linowitz as chairman. For Carter’s approval of the creation of the commission, see Document 298. Documentation on the commission’s work and final report is in Foreign Relations, 1977–1980, vol. II, Human Rights and Humanitarian Affairs.↩
- See Document 311.↩