Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

229. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, December 18, 1979

SUBJECT

• Upcoming Decisions (U)

Decisions you make in your next few weeks will have a significant effect on the international economic scene between now and the Venice Summit. (C)

1. Energy. In the wake of the December 10 IEA Ministerial meeting we have a fair chance to bring the world oil price escalator under control—by continuously adjusting the industrial countries’ oil import ceilings to changing oil availabilities.² Other IEA governments will need a lot of convincing, however, before they agree to the import cuts needed to put this system into effect. They are unpersuaded that cuts are necessary; and they believe that it will be politically difficult to convince their people that they should use less oil, so long as US gasoline consumption continues to be relatively unrestrained by taxes comparable to those in most other industrial countries. (C)

A clear statement soon that you were prepared to impose a petroleum import fee if US imports and consumption do not decline by appropriate amounts would strengthen our influence in pressing for import cuts in the IEA negotiations. Making the scale and timing of the US fee dependent, in some degree, on the outcome of these negotiations would further enhance the likelihood of a favorable outcome. (C)

If we can make the system set up at the December 10 IEA meeting work, we will both reduce pressure on oil prices and encourage the moderate OPEC countries to follow sensible production policies. This would be a notable success for US policy in the first half of 1980. It might set the stage for a major effort at and after the Venice Sum-mit to seek a long-term agreement with the more moderate OPEC countries. (C)

2. The Dollar. The dollar’s strength between now and Venice will depend partly on how foreign countries see US energy and anti-inflation policies. Energy is treated above. Their view of our anti-inflation policies will hinge, in some measure, on your FY 1981 budget. In Paris last week, the question I was asked repeatedly was whether you would hold to tight fiscal policies in an election year. Skepticism on this point increases pressure on the dollar. (C)

Many Europeans believe that we have repeatedly under-estimated the strength of the US economy and that current US inflation is due partly to excessive US stimulus in 1976, 1977, and 1978. A tight budget (reserving a decision about stimulus until we can see whether it is actually needed later in the spring) would be a clear and welcome signal to them that you still consider inflation the main threat and mean to act accordingly. (C)

This would help the dollar in a crucial period: Our negotiating position at the Venice Summit, in giving a push to the substitution account and in debating the international monetary reform that Giscard intends to propose, will be stronger if the dollar is in good shape. If we can get agreement on the kind of substitution account we favor, this will be a major step toward a more effective international monetary system—one that will reduce the continuing pressure on the dollar that has been a major source of political tension and economic instability in the industrial world. (C)

3. War on Hunger. Your urging, at the Tokyo Summit, that countries increase aid for LDC food production has borne some fruit. Germany and Japan are increasing their aid substantially, despite virtually static budgets. Italy has pledged to double its aid, and to give first priority to increasing food production. Member countries have recently agreed to double the resources of the World Bank’s Consultative Group on International Agricultural Research (from $100 million to $200 million annually). (C)

Against this background, the Venice Summit could be the occasion for a major push to eliminate hunger by the year 2000, as proposed by your Hunger Commission.³ Whether we can seize this occasion will depend partly on decisions you will soon make about FY 1981 Development Assistance and PL–480. If our program for next year does not provide for substantial food aid and a modest increase in aid for food production, we will not be taken seriously by our allies when we ask them to step up the war on hunger. (C)

If our allies do take the proposal seriously, it is possible that agreement might be reached on setting up an international consortium, perhaps under IBRD auspices, to mount a coordinated program of worldwide assistance for increased food output. This would not only help millions of poor people; it would also reduce the likelihood of higher global food prices, and hence future US inflation. (C)

4. Conclusion. We have some chance in the next few months of registering economic successes on the international economic front—in energy, monetary affairs, and the war on hunger. The decisions that you soon make—on an import fee, FY 1981 fiscal policy, and aid for food production in LDCs—will have some bearing on the outcome. (C)

1. Source: Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 160. Confidential. Sent for information.
2. The IEA Governing Board met in Paris on December 10. For more information on the meeting, see Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980, Document 251.
3. The Presidential Commission on World Hunger released its preliminary report on December 10. (Seth S. King, “U.S. Panel Asks Doubling of Aid to Food-Short Lands,” The New York Times, December 11, 1979, p. A11) See Document 337. Substantial portions of the Commission’s preliminary report are printed in Foreign Relations, 1977–1980, vol. II, Human Rights and Humanitarian Affairs, Document 263.