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

258. Memorandum From the Assistant Secretary of the Treasury for International Affairs-Designate (Bergsten) to Secretary of the Treasury Blumenthal¹

Washington, February 28, 1977

SUBJECT

• My IDA V Negotiations in Paris

There were five noteworthy results of my negotiations in Paris last Friday:²

1. The technical details surrounding the IDA V replenishment were resolved to the satisfaction of most, but not all, of the other donor countries. The meeting was proposed by McNamara because of our decision to seek Congressional authorizations of future U.S. contributions “subject to appropriations,”³ and the resulting uneasiness of some other donor countries that the U.S. pledge would hence be “conditional”. Most of the group accepted our proposal to leave the IDA resolution unchanged, with clear language in the accompanying report which recognizes the “new” U.S. practice. However, the Germans have not yet committed themselves to the proposed approach—and the Japanese, French and Swedes are hiding behind the Germans. It still seems likely that the agreement can be finalized at Vienna on March 14–15, as scheduled, but it is not certain.⁴

2. We agreed that the IDA V replenishment would become active only upon appropriation of the first annual U.S. tranche (as well as the three-year authorization); the donors would meet to reconsider the situation if there is any slippage.⁵ This will place maximum pressure on the Congress to come through, but is fully consistent with all of our understandings with them. In addition, any cuts in the IDA appropriation can be attributed to our (delayed) contribution to IDA IV—so the Administration maintains great flexibility domestically. (Needless to say, this latter possibility must be held extremely closely.)

3. For its part, the IDA management agreed—for the first time—to stop committing U.S. capital before it is appropriated. I regard this as a major step forward. Current IDA practice is both fiscally imprudent and extremely damaging to our position with the Congress, which is just getting on to the fact that its appropriation prerogatives have been badly undermined by such advance commitments.

4. The other donors, with varying degrees of enthusiasm, appeared to accept our call for a thorough review of the future allocation of IDA lending—hopefully leading to a much lower share for India (now getting 40 percent) with more going to Egypt, Africa and perhaps others.⁶ They recognized that there has been no such review since mid-1973, despite massive changes in the world economic situation. We should pursue this initiative through the Executive Board at the World Bank, and I raised the issue with McNamara today. DELIVERY ON THIS ISSUE WILL, IN MY JUDGMENT, GO FARTHER THAN ANY OTHER SINGLE STEP TO RESTORE CONGRESSIONAL SUPPORT FOR OUR IDA, AND PERHAPS OVERALL IFI, REQUESTS—and it makes sense in both economic and international political terms as well.

5. Most important of all, the session began a process—which will necessarily be slow—of restoring others’ faith in U.S. policy in this area. Several speakers candidly said that they distrusted the last Administration, or at least did not know where it stood. They believe that we are sincere, are working hard, and may be able to deliver. Last Wednesday’s⁷ approval by the House Appropriations Subcommittee of our long-outstanding $55 million contribution to the first (FY 1976) tranche of IDA IV was of great help. But there is still much skepticism, and our policies will have to be credible at every step of the way if we are to restore full confidence.

1. Source: National Archives, RG 56, Records of Assistant Secretary of the Treasury for International Affairs C. Fred Bergsten, 1977–1979, Box 1, DA–7–1–2 International Development Association (IDA). No classification marking. Reviewed by Godley on March 2 and Hessler on March 3. Copies were sent to Solomon and Deputy Assistant Secretary of State for Economic and Business Affairs Paul Boeker. A stamped notation at the top of the page reads: “Noted by W.M.B.”
2. February 25.
3. In a February 24 memorandum to Blumenthal on his upcoming meeting with the IDA Deputies, Bergsten noted this decision was “required by the Budget Act. My position, and that of the World Bank, is that this ‘change’ is simply an explicit recognition of the de facto situation and that existing Bank practices can continue, unaltered.” (National Archives, RG 56, Records of Assistant Secretary of the Treasury for International Affairs C. Fred Bergsten, 1977–1979, Box 1, DA–7–1–2 International Development Association (IDA))
4. On March 15 in Vienna, the IDA Deputies agreed on the terms of the fifth IDA replenishment, totaling $7.6 billion; the U.S. contribution would be $2.4 billion. (Telegram 2052 from Vienna, March 16; National Archives, RG 59, Central Foreign Policy File, D770090–0515)
5. The terms of the replenishment included “a procedure whereby the United States in signing up for IDA V must make an unqualified commitment for the first installment of $800 million and may make a qualified commitment (subject to appropriations from the Congress) for the second and third installments.” The rules governing the activation of the second and third installments were structured so as “to require a full appropriation of the US share each year for the replenishment to proceed as planned.” If need be, the IDA Deputies could convene in order “to consider what steps to take to obtain the necessary commitments.” (Ibid.)
6. In his February 24 memorandum to Blumenthal (see footnote 3 above), Bergsten noted that he intended “to begin the process of seeking support from other donors for cutting India’s share of IDA lending (now 40 percent) and raising the share of Egypt, several African countries and perhaps several in the Far East. Such a shift is necessary on equity and economic grounds, as well [as] in response to intense Congressional pressure. State fully agrees with us, and indeed is calling in the Indians today to inform them of our new posture.”
7. February 23.