318. Memorandum From the Director of the Office of Management and Budget (McIntyre) and the Special Representative for Economic Summits (Owen) to President Carter1
- The Common Fund
1. State Proposal. In the attached memo (Tab A) Secretary Vance reports to you on the results of the Congressional consultations about the Common Fund that you directed, and seeks authority to take a new approach in the negotiations in Geneva. State would like to send out a telegram of instructions tomorrow (Thursday), since preliminary discussions will conclude shortly.
The Secretary reports that Congressional consultations produced a yellow light: Some members were skeptical, some friendly, and some in between. In light of these diverse reactions, and since a proposal for a Common Fund Treaty would not go to the Congress until the fall of 1979 or, more likely, early 1980, he concludes that it is impossible to predict how the Congress would respond. He is clear, however, on one point: The Congress would insist that a Common Fund only come into being when an adequate number of commodity agreements are in place and are working effectively. (This is not yet the case, but the US is working on it; it will take time.)
The Secretary concludes that the US can proceed with caution to the next step of negotiations. He recommends two changes in the US position: The US should be prepared to make a direct contribution of up to $60 million for the first window of the Fund, and should agree to creation of a narrowly circumscribed second window to which the US would not contribute, at least initially. Creation of the Fund should depend on participation of an adequate number of effective commodity agreements.[Page 1006]
2. Treasury View. Mike Blumenthal concurs (Tab B)2 with Secretary Vance’s recommendation, making clear that he only does so because (i) creation of the Common Fund is to be tied to the existence of four or five effective commodity agreements, and (ii) any direct contributions to the first window are only to be used to enhance the credit worthiness of the Common Fund. (He mentions using direct contributions as a contingency reserve, but agrees that this is only one of the ways in which the Fund’s credit worthiness could be enhanced.) He recommends further Congressional consultations as the negotiations evolve; and this is intended. He believes that the proposals that Secretary Vance is putting to you go to the limit of what would ultimately be supported by the Congress.
3. Our View. We also concur in Secretary Vance’s proposal.
Although there is always some risk that the tentative US commitment to a direct contribution would become only a first bargaining chip, to be followed by others, Secretary Vance clearly has this risk in mind: He indicates in his memo that he assumes there will be no further significant changes in the US negotiating position, and that he will conduct the negotiations accordingly. We agree with him on both points: The US should not go beyond this proposal, and this should be made clear to LDCs. It would be less than honest, however, not to point out that some risk of an unfavorable outcome to the negotiations is inherent in the course proposed in Tab A. There is also, of course, some risk of an eventual Congressional turn-down of a Common Fund proposal, even if the US does not go beyond Vance’s proposal.
While direct contributions to the Fund’s first window would not have great economic value, the developing countries will not set up a Common Fund without such contributions. And while the Fund is not essential from an economic standpoint, it would significantly assist the effective functioning of commodity agreements, which can be very useful in stabilizing prices. Moreover, the Fund has acquired great symbolic importance for LDCs. On balance, the advantages warrant proceeding.
4. Frank Moore concurs.
That you approve the proposals in the attached memorandum from Secretary Vance.3[Page 1007]
- Source: Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 107, 10/20/78. Confidential. Sent for information. Carter initialed “C” at the top of the page. Brzezinski also initialed the memorandum. An attached undated note from Hutcheson and “Bill” (not further identified) indicates that Schultze concurred with McIntyre and Owen.↩
- Tab B, attached but not printed, is an October 17 memorandum to Carter in which Blumenthal wrote that while he still harbored “serious reservations about the whole enterprise,” he could “generally concur” with the proposed amended Common Fund negotiating instructions.↩
- Brzezinski wrote at the bottom of the page: “I concur; this has become a test of our ability to fashion a forthcoming North/South economic policy, matching the political progress that you + Andy [Young] have made. ZB.”↩
- Confidential. Carter initialed “C” at the top of the page.↩
- See Document 314 ↩
- Carter indicated his approval of both recommendations and initialed “J” in the margin adjacent to each.↩