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

247. Telegram From the Department of State to All Diplomatic and Consular Posts¹

Washington, July 9, 1980, 2239Z

180781. Subject: Highlights of Venice Summit, June 22–23, and Follow-Up Action.² Ref: (A) Secto 04021, (B) State 177830.³

1. The Venice Summit was a well-prepared, highly successful, and harmonious event. The sessions were marked by a strong sense of unity—“we are all in the same gondola”, as the Japanese Foreign Minister said—and an awareness that the difficult decisions that will need to be taken in the period ahead will be less difficult if the industrial democracies act together. Energy dominated the economic discussions and Afghanistan the political. Participants reached a common assessment of the strategic importance of these and related challenges facing the Western world, as the communiques make clear. Their language is strong, forthright, and unambiguous; the positions and decisions are fully consistent with, and indeed supportive of, US policies. Whether the long-term goals the principals endorsed at Venice will be given effect will depend on sustained follow-up action by all the Summit countries.

2. The communiqués are being repeated to all diplomatic and consular posts: the “Declaration of the Venice Summit”, which is the major statement on key economic issues;⁴ the separate political communique on Afghanistan, Secto 04021; the statements on hijacking, and on refugees.⁵ Posts have already received the Summit declaration on the taking of hostages, State 177830.

3. For the first time since the economic summits were initiated in 1975, one of the main sessions in the two-day period was set aside for political discussion. The other two sessions were devoted to the economic agenda. In addition, the participants took their meals together, the Heads of Government in one group, the Foreign Ministers in another, and the Finance and Energy Ministers in a third group, at all of which there were useful wide-ranging informal discussions. The Summit also provided opportunities for bilateral meetings. President Carter met separately with each of the Heads of Government and with the President of the EEC Commission. Thus the value of the Summit meeting lies not only in the decisions reached but also, and equally important, in the expanded contacts and understanding among national leaders that the two-day meeting encouraged. It lies also in the benefits derived from the preparatory process and follow-up. The work of preparing this Summit began in February and served not only to resolve contentious issues which would otherwise have required the attention of Heads of Government, but also gave impetus and direction to other international activities, particularly the IEA and OECD Ministerials.⁶ As a result, Summit participants were free to spend a larger part of their limited time together discussing broad policy issues. Further, the preparatory process involved frequent discussions among a range of officials from the Summit countries covering all of the issues covered in the communiqué. This process fosters a higher level of mutual understanding and compromise than would be the case without the Summit. Organized follow-up is also an integral part of the Summit process, helping to assure that commitments undertaken by Heads of Government are pursued. The Summit series will continue with the seventh Summit meeting scheduled to take place in Canada in 1981.

4. Political discussion. The introduction of a separate political discussion at the Economic Summit was natural, given the strategic importance of the Soviet invasion of Afghanistan and the opportunity the Venice Summit offered the Heads of Government to share their assessments of this event face to face. The principals confirmed the strong Western reaction to the Soviet aggression. The advance work on the political agenda and communiqué prepared the leaders to deal promptly and directly with the Soviet ploy in announcing the withdrawal of some troops from Afghanistan on the eve of the Summit. The result was solid Summit unity in calling for complete Soviet withdrawal from Afghanistan.

5. Economic discussions. Energy was clearly the central issue. As the President said on arriving at Andrews Air Force Base, “The one word that permeated all of the discussions was oil.”⁷ It occupied more than 75 percent of the time devoted to the economic agenda. “Unless we can deal with the problems of energy, we cannot cope with other problems” says the Summit Declaration in its opening paragraph. It recognizes OPEC’s responsibility for exacerbating inflation, recession, and unemployment in the industrialized world, and undermining and in some cases destroying the prospects for growth in the developing countries. The Declaration lays out at some length the essential elements of a strategy agreed among the seven nations to free themselves from their excessive dependence on imported oil within this decade. The main elements are conservation of oil in all sectors of their economies where substantial savings in the use of oil are possible, and reliance on fuels other than oil to meet the energy needs of the future—coal, nuclear, synthetics, and renewable sources—whose potential to increase supply is estimated at the equivalent of 15–20 million barrels daily of oil by 1990. By carrying out the agreed strategy, the participants expect that the share of oil in total energy demand will be reduced in the Summit countries from 53 percent now to about 40 percent by 1990, that collective energy use will increase only 60 percent as fast as GNP (the ratio used to be one to one), and that collective oil consumption in 1990 will be significantly below present levels. The Declaration notes the mutual dependence of the industrialized democracies, the oil exporting countries, and the non-oil developing countries for the realization of their economic aspirations, and adds, as the Western countries have said many times before, that the participants “would welcome a constructive dialogue . . . between energy producers and consumers in order to improve the coherence of their policies.”

6. On his return from the Summit, President Carter said of the energy talks, “We recognize that we must break the relationship between economic growth in the future and our dependence on energy; in other words, to have more growth for less energy . . . Obviously our over-dependence on foreign oil takes away our own basic security, the right that we have to make our own decisions . . . Oil politics is literally changing the interrelationship among nations. We must stand united, cooperate whenever we can, and meet a common challenge to the security and certainty of the future brought about by rapidly increasing uncontrollable prices of oil, and excess dependence by all of us on imports of oil.”

7. In addition to energy, the agenda covered macroeconomic issues (inflation and growth), monetary problems, trade, and relations with developing countries. The Heads of Government agreed that curbing inflation and breaking inflationary expectations is the immediate top macroeconomic priority. It requires restrained fiscal and monetary policies. None of the participants urged the US to abate recession by stimulating the US economy now; they recognized the danger of rekindling inflationary expectations nor were they persuaded that there was a trade-off between inflation and unemployment. Rather, the discussion focused on inflation as a cause of unemployment. In addition to short-run demand management, the principals agreed that parallel action on the supply side is necessary to encourage investment and innovation and increase productivity.

8. The discussion of international monetary questions at Venice was limited. There was general satisfaction with the current operation of the foreign exchange market, and the discussions focused primarily on recycling problems arising from the latest oil price increases. The Summit recognized that a combination of financing and adjustment was needed to deal with the large payments imbalances and that the private markets would again have to undertake the bulk of the recycling responsibility. Regarding the private markets, the Germans emphasized their concern about the safety and solvency of private financial institutions and suggested that the “safety net” which private banks in Germany have among themselves might be a useful example for the private sector to build on internationally. This gave rise to the favorable mention in the communiqué of BIS efforts to strengthen prudential aspects of banking operations, which could be supplemented by private bank efforts. The Summit made clear that in addition to recycling through the private market, OPEC should increase direct lending to countries with financial problems, and the international financial institutions—the IMF and World Bank—would have to play an expanded role. Several of the participants stressed the responsibility of OPEC to provide substantially increased grant aid to ease the burden on the developing countries that OPEC’s stunning oil price increases had caused. With regard to the IMF, the Summit pledged to implement the proposed quota increase,⁸ supported the Fund’s efforts to borrow additional resources, and encouraged the IMF to seek ways to make it more attractive for countries with financial problems to use its resources, including measures to reduce charges to low-income developing countries. The Summit also endorsed the World Bank’s new structural adjustment lending program and emphasized the importance of the IMF and World Bank working closely together. The French did not unveil a monetary “initiative,” as had been long rumored.

9. Participants agreed on the importance of strengthening the open world trading system and resisting protectionist pressures. They agreed to strengthen the international arrangement on export credits, and to work toward an agreement to prohibit illicit payments to foreign government officials in international business transactions. They urged “the more advanced of our developing partners gradually to open their markets over the coming decade.”

10. Relations with Developing Countries. In addition to the massive balance of payments deficits of the developing countries caused directly and indirectly by the recent more than doubling of the price of oil, the problems for LDCs to which the Summit participants called attention and on which they offered their cooperation included developing indigenous LDC energy resources, enhancing food security, and moderating population growth. The World Bank was asked to consider the possibility of a new affiliate or facility for LDC energy exploration, development, and production, “and to explore its findings with both oil-exporting and industrial countries.” To improve the ability of food-deficit LDCs to feed themselves, the Summit countries proposed to help LDCs prepare comprehensive long-term food strategies, to improve national and international research services, to support new IBRD and FAO programs to improve LDC grain storage and distribution systems, to provide increased food aid, and to replenish on an equitable basis the International Fund for Agricultural Development (which was initially to be financed half by OPEC countries and half by industrialized Western countries; the final division of the contributions to the one billion dollar fund was agreed at 43 percent OPEC, 57 percent Western countries).

11. With respect to aid to developing countries, the Declaration gives strong support to the replenishment of the multilateral development banks. It ends the North/South section with a strongly worded paragraph (no. 26) calling attention to the need for the oil-exporting and the industrialized Communist countries to share equitably with the industrial democratic countries the responsibility for aid and other contributions to LDCs.

12. Follow-up action. As hitherto, the Personal Representatives of the Heads of Government (Ambassador Owen for the US), will meet periodically to review actions necessary to give effect to the Declaration and to prepare for the next Summit meeting. The first such meeting after the Venice Summit will be in September. In addition, the Declaration itself sets up two groups for specific follow-on work. The first (para 16 of the Declaration) calls for “a high-level group of representatives of our countries and of the EEC Commission” to review periodically the results achieved in the energy area. The Tokyo Summit Declaration also set up such a group. This is necessary because France is not a member of the IEA. The second (para 26 of the Declaration) instructs the Personal Representatives to review aid policies, procedures, and other contributions to LDCs and report back their conclusions to the next Summit. With respect to the energy group, it will likely be at Assistant Secretary level; it will meet after the IEA Governing Board meeting in July, and then again in September in conjunction with the first meeting of the Personal Representatives on Summit follow-up action in general, and thereafter as necessary. The mission of the aid group (para 26) is really two-fold: to consider (i) what might be done to make the North-South dialogue a more useful process and (ii) how to get OPEC surplus countries to do more for the developing countries in view of the enormous burden their oil price policies have imposed and the income transfer from the oil-poor LDCs to the oil-rich they entail.

13. Further follow-up action. The Declaration refers in para 6 to the need to understand better the long-term effects (on the environment, the climate, and natural resources) of industrialization and economic development generally. “A study of trends in these areas is in hand” it adds. The reference here is to a soon to be completed US study, “Global 2000,”⁹ which we will review with the six countries. A report on the projections in the study and the future problems they raise will be brought to the attention of Summit ’81.

14. The energy section of the Declaration has quite specific targets for coal, nuclear, synthetic, and renewable fuel development. Within the US, we will prepare for the field an analysis of where we stand with respect to these targets and what further needs to be done. The posts will be able thereby to keep their host governments informed of US progress in meeting the energy commitments and to monitor and encourage progress in the host government.

Christopher

1. Source: National Archives, RG 59, Central Foreign Policy File, D800329–0967. Limited Official Use; Immediate. Drafted by Katz’s Special Assistant Ruth Gold; cleared by Hormats, DOE, Bergsten, EUR/RPE Director Robert Beaudry, EA/J Director Alan Romberg, Jenonne Walker (S/P), and Cooper’s Executive Assistant Edward Morse; and approved by Cooper.
2. No minutes of the economic discussions at the Venice G–7 Summit were found. A memorandum of conversation of the June 22 political discussion at the Summit is in the Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 38, Memcons: President: 6/80. Carter’s handwritten notes on the Summit are ibid. and in the Carter Library, Plains File, President’s Personal Foreign Affairs File, Box 4, Summit Meetings, 7/78–6/80.
3. Telegram Secto 4021 from Venice, June 22, transmitted the text of the G–7 communiqué on Afghanistan issued on June 22. Telegram 177830 to all diplomatic and consular posts, July 6, transmitted the text of the G–7 declaration on hostage-taking issued on June 22. (National Archives, RG 59, Central Foreign Policy File, D800303–0574 and D800324–0816, respectively) For the text of both statements, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book II, pp. 1170–1172.
4. Telegram 192218 to all diplomatic and consular posts, July 21, contains the text of the “Declaration of the Venice Summit” issued on June 23. (National Archives, RG 59, Central Foreign Policy File, D800349–0815) Documentation on the drafting of the Declaration, with particular emphasis on the economic portions, is in the Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 27, President, Europe, 6/19–26/80: Cables and Memos, 6/11–13/80; Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 28, President, Europe, 6/19–26/80: Cables and Memos, 6/19–20/80; and Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 28, President, Europe, 6/19–26/80: Cables and Memos, 6/21–22/80. For the text of the Declaration, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book II, pp. 1186–1191.
5. Telegram 184724 to all diplomatic and consular posts, July 13, contains the texts of the G–7 statements on hijacking and refugees, both issued on June 22. (National Archives, RG 59, Central Foreign Policy File, D800336–0955) For the texts of both statements, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book II, pp. 1172–1173.
6. The IEA met at the Ministerial level in Paris May 21–22; the OECD met at the Ministerial level in Paris June 3–4.
7. For the full text of his remarks on June 26, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book II, pp. 1234–1236.
8. IMF quotas were increased by 51 percent in November 1980. (Boughton, Silent Revolution, pp. 53, 854)
9. On July 24, the Department of State and the Council on Environmental Quality issued their joint report on environmental issues, “Global 2000 Report to the President.” (Joanne Omang, “Report to President Warns About Overcrowded Earth,” The Washington Post, July 25, 1980, p. A2) For the text of Carter’s July 24 statement on the report, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book II, pp. 1415–1416. Documentation on the report is in Foreign Relations, 1977–1980, vol. II, Human Rights and Humanitarian Affairs.