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

23. Briefing Memorandum From the Under Secretary of the Treasury for Monetary Affairs (Solomon) to Secretary of the Treasury Blumenthal¹

Washington, April 21, 1977

SUBJECT

• Supplementary Briefing for the G–5 Meetings This Weekend²

I think our objective for this meeting should be to get firm agreement among the “Five” to press hard for the Witteveen facility,³ and to avoid letting action on this get cluttered up or side-tracked by discussions of a further increase in IMF quotas or SDR allocations. We have placed fairly heavy bets on the Witteveen proposal and we need to see that it gets a strong push. This will involve a clear statement from you not only that we support Witteveen’s proposal and will participate on a significant scale—on the order of SDR 2½ billion—but that we will drop the OECD Financial Support Fund⁴ alternative if Witteveen’s proposal flies. Burns is pressing for us to go even further and drop the FSF now, but he accepted my view that this was the farthest we could go now—where the FSF is, at least theoretically, a fallback. We have kept the Support Fund alternative open for very good reasons while assessing the prospects for the Witteveen proposal, but we need to remove any doubts the others may have about where our preferences lie.

A second main point we need to nail down relates to the broad character of the Witteveen facility—i.e., that it will be available to countries only on the basis of effective policy conditionality comparable to that applied by the IMF in the higher credit tranches. The British will try to weaken this point and they will get support from the LDCs in the IMF. You will probably get strong support from the Germans, French, and Japanese.

I talked to Witteveen last night, and there is still no clear response from the Saudis. The Finance Minister, Aba al-Khail (to whom you wrote) will be in London for the next few days.⁵ Witteveen plans to call him and may go to London to meet with him. There may be a need for you or me to see Aba al-Khail while we are in Europe, which I will explain verbally.

Also, in my discussion with Witteveen last night, he and Bill Dale referred to the possibility of large market borrowings by the IMF. They have been told by Eugene Black, Jr.⁶ that they could borrow $10 billion at the prime rate. I have major doubts about the IMF’s real prospects for borrowing in the markets on this large a scale. If this question arises this weekend (which it shouldn’t since I doubt Witteveen has told anyone else) I would suggest that you take the position

—that this idea represents a real fork in the road in terms of the character of the IMF and must be given a great deal more thought;

—that any indication that people are thinking in terms of this approach will take the Saudis completely off the hook and destroy any chances for the Witteveen facility.

This is a possibility that we should study and an alternative to keep in our pockets if the Witteveen facility fails, but if it is brought out now it will side track the whole effort.

On the other main points to be covered this weekend in the monetary area—a further quota increase and the possibility of SDR allocations—I recommend the following:

1. We believe a quota increase will be needed but we don’t have to decide now on the amount or the distribution. We should keep an open mind even though other G–10 countries are falling into either the “modest” (25–30%) increase adherents vs the “substantial” (50%) adherents. The target date for completion of the quota review is February 1978 and we can let this be discussed in the Executive Board. We should concentrate now on the Witteveen proposal.

2. On SDR allocations, we don’t believe there is a need this year, but we do not need to foreclose the possibility for the next several years. We would be willing to look at the question again next year.

I briefed Burns at his and your request this morning for two hours,⁷ especially on last night’s conversation with Witteveen. Since you don’t have free time today I will brief you Saturday⁸ morning at the Embassy Residence.

1. Source: Carter Library, Anthony Solomon Collection, 1977–1980, Chronological File, Box 1, 4/18/77–4/30/77. Confidential. Drafted by Leddy and reviewed by Hessler and Jeanne Davis of the Executive Secretariat. A typed notation reads: “Noted by W.M.B.”
2. For Blumenthal’s report to Carter on the April 23 meeting of G–5 financial officials, see Document 24.
3. See footnote 3, Document 21.
4. See Document 6.
5. No memorandum of conversation of Solomon’s discussion with Witteveen was found. On April 13, Blumenthal approved transmission of a letter from him to Saudi Minister of Finance and National Economy Mohammad Aba al-Khail, in which he discussed the merits of the Witteveen initiative as well as the need for swift action on it. (Memorandum from Solomon to Blumenthal, April 12; Carter Library, Anthony Solomon Collection, 1977–1980, Chronological File, Box 1, 4/1/77–4/18/77)
6. Eugene R. Black, Jr. was an investment banker with Lazard Frères & Company.
7. No record of this briefing was found.
8. April 23.