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

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

Washington, March 24, 1978

SUBJECT

• Secretary Blumenthal’s Memo to You Regarding IFI Replenishments

1. Purpose. In the attached memorandum (Tab A),² Secretary Blumenthal:

a. discusses his general strategy regarding IFI replenishments, for your background information;

b. recommends specific replenishments for the Asian and African development banks.

My memorandum defines alternative responses for your consideration, and records the views of other agencies.

I. General Strategy

2. Overall Level. Treasury describes three overall strategies regarding IFI replenishment, and favors the middle option: that the IFIs should be replenished at a rate that would increase their real lending resources by an average of 3–5% annually. The upper end of this range would be consistent with your November decision that there should be a substantial increase in multilateral aid between now and 1982³ (as would the high option: 7–9% real annual growth). Treasury is not now asking you to choose among these options.

3. World Bank and Inter-American Development Bank. This average conceals a marked divergence between what Treasury believes should be done to replenish individual IFIs. For example:

a. Treasury favors a larger percentage increase for the World Bank’s soft loan window (IDA) than for the World Bank, since it considers that soft lending is more needed than hard lending in most developing areas.

b. Treasury favors a substantial increase for the Inter-American Development Bank’s hard lending window, and a cut in its soft lending window, since it considers that there is little need for soft lending in Latin America.

Treasury is not now making recommendations regarding either of these banks, since the staff work and international negotiations are not sufficiently advanced. Treasury says that its recommendations on the World Bank Group and the Inter-American Development Bank will come to us in July or later. Some idea of the magnitudes involved can be gained from this range of rounded annual appropriations, which would have to be secured in FY 1982 for the World Bank and Inter-American Development Bank under the high and low strategies described by Treasury:

	Low	||	High
World Bank Hard Lending	$1.4	–	$1.6 billion
World Bank Soft Lending	$0.9	–	$1.4 billion
Inter-American Bank Hard Lending	$0.4	–	$0.7 billion
Inter-American Bank Soft Lending	$0.1	–	$0.2 billion
	$2.8	–	$3.9 billion

II. Specific Recommendations

4. Timing. Treasury recommends that you now make decisions concerning replenishment of two smaller banks:

a. The Asian Development Fund, on which we need to make our decision known at a Board meeting April 22.

b. The African Development Fund, on which a decision is required before April 30. You may wish to make our decision known during your African trip.⁴ Nigeria is the Fund’s strongest supporter in Africa and you may have an opportunity to meet briefly with Kwame Fordwor, President of the African Development Bank, in Lagos.

Treasury will carry forward Congressional consultation about each of these replenishments as soon as you have made your decisions. Treasury is confident that, by phoning and meeting members during the recess, it could complete the African Fund consultation in time to permit you to announce this decision while you are in Africa. The Asian Fund consultation will take longer, since a good deal more money is involved and there has been less preparatory Congressional consultation; if we begin immediately, Treasury indicates that we will be able to meet the April 22 deadline.

OMB recommends in a memo at Tab B that you not make decisions on these two banks until Treasury can develop fuller alternative strategies for the IFIs as a whole, which you can review upon your return.⁵

Cy Vance, Mike Blumenthal, and I recommend that you make this decision now. While the discussion of alternative strategies in Treasury’s memo could be amplified, I doubt this would contribute greatly to your decision since the differences among options that you will be reviewing in these two cases are not so large as to hinge on later decisions you will be making regarding much larger World Bank and Inter-American Development Bank replenishments. Delay would prevent you from announcing the African Fund decision during your trip and could make it difficult to complete Congressional and international consultation regarding the Asian Bank before the April 22 Board Meeting.

I share, however, OMB’s desire to secure early Treasury recommendations concerning the general magnitude of World Bank and Inter-American Development Bank replenishments. I recommend that you authorize us to indicate to Treasury that you wish its recommendations on these two larger banks to be submitted in time to be considered during OMB’s mid-May budget reviews.

Defer decision on Asian and African Development Funds. (OMB)

Decision on these Funds, as indicated below (Vance, Blumenthal, Owen) and request Treasury to prepare strategy and recommendations on World Bank and Inter-American Bank before spring budget review.⁶

5. Asian Development Fund

a. Treasury recommends US support for a four-year $1.8 billion overall replenishment, requiring annual US appropriation requests of $100 million for each of the fiscal years 1980–83, inclusive. Treasury believes that this option strikes the best balance between international and Congressional concerns.

b. The Vice President (who is interested because of his forthcoming Asian trip),⁷ State, AID, and I recommend authority to agree to a four-year replenishment of up to $2 billion, which would imply an annual US appropriation request of $111 million annually. This course would be more responsive to the desire of other donor countries (Japan, Germany, UK, and Australia), who favor the $2.15 billion ADB replenishment recommended by its management, which is efficient and could put the money to good use. The difference between $100 and $111 million annually would not be of great amount [account?] on the Hill, where we have been told that any increase over the $60 million annual level will cause problems.⁸

6. African Development Fund

a. Treasury and I recommend that the US offer a three-year contribution of $125 million toward a three-year replenishment of $625–750 million. This is larger than the overall 5% IFI replenishment rate discussed under I, above, or than suggested by a sense of the Senate resolution, which called for a US contribution of 10.6% to this Bank. Treasury believes the money can be well spent and is needed, since the Bank is new; it also believes that the Congress will be receptive, since the Black Caucus and other House and Senate supporters of aid to Africa are favorable. My reason for opposing the larger US contribution suggested below is that I am not clear more money could be put to good use.⁹

b. State and AID recommend that the US offer to take a 20% share of any replenishment of up to $750 million, which would result in a US three-year contribution of up to $150 million. They support this option because it would be more responsive to other countries’ desires and would assure a US share roughly equivalent to that in other multilateral banks.

In case you make decisions on the Asian and African Development Funds now, OMB has no preference among or objection to any of the above options, all of which it considers consistent with a middle-of-the-road strategy.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 24, Financial Support Fund (FSF): 2/77–4/78. Confidential. Sent for action. Carter initialed “C” at the top of the page.
2. Tab A, attached but not printed, is a March 16 memorandum from Blumenthal to Carter.
3. See the Attachment to Document 282.
4. Carter visited Nigeria and Liberia March 31–April 3.
5. Tab B, attached but not printed, is a March 24 memorandum from McIntyre to Carter which reads: “Given the other replenishment decisions pending, I have strong reservations about your making these two decisions in a piecemeal fashion. The entire group of IFI decisions raises the fundamental problem with foreign development assistance. On the one hand, you have indicated your desire for U.S. leadership in foreign aid with substantial increases in the more effective programs, such as the IFIs. On the other, Congress has shown strong hostility toward large foreign aid budget increases, particularly for the IFIs, and may undercut your initiatives. Given this major dilemma, these IFI replenishment decisions deserve your most careful consideration as a package with the implications for bilateral aid also taken into account.”
6. Carter indicated his approval of both actions in this option.
7. Mondale visited the Pacific and Southeast Asia May 2–10.
8. Carter indicated his approval of this recommendation.
9. Carter indicated his approval of this recommendation.