50. Memorandum From Secretary of the Treasury Blumenthal to President Carter1


  • Results of My Paris Trip (August 5–7)

I went to Paris last Friday and Saturday2 for two purposes: 1) for a meeting with German Finance Minister Apel to clear the air about recent exchange rate movements and to explain U.S. exchange rate policy, and 2) for a meeting with other industrial country and OPEC representatives to try to work out arrangements for supplementing the resources of the International Monetary Fund through the so-called “Witteveen Facility.”

Meeting on Exchange Rates

The meeting with the Germans on the exchange rate issue went extremely well. Over the past several weeks the dollar-DM rate has moved noticeably—though not as sharply as on a number of other occasions during the period of floating exchange rates since 1973. The German press had made a major issue of recent rate movements, claiming that the U.S. was acting irresponsibly, “manipulating” the exchange rate and trying to “talk the dollar down” for competitive and other reasons, and charging that the U.S. should intervene on the exchange markets to reverse the rate movement. The German official reaction to the rate movements had been much more restrained, though there was suspicion that the press comments were stimulated by government spokesmen.

I explained and reaffirmed our exchange rate policy to Minister Apel—that we support a floating exchange rate system; that our policy is that the dollar’s value should be determined by underlying economic and [Page 179] financial conditions; that we intervene in exchange markets only to counter disorderly exchange market conditions. I reiterated our view that a strong dollar is of major importance to the United States and the rest of the world; that the way to maintain a strong dollar is through a strong and non-inflationary economy; and that recent indicators show progress toward that objective.

Minister Apel agreed with everything I said, stressed that Germany fully supported the floating exchange rate system, and expressed regret for the German press comment. (The Germans also told us privately that they are now convinced they should take additional stimulus measures to increase their real growth rate, which is running at a very disappointing level. They will be telephoning us this week to tell us what the specific measures will be.)

Apel and I held a joint press conference to make clear that we understood and were in full agreement on these matters.3 I believe this will lay to rest the uncertainties and press speculation.

Witteveen Facility

We also succeeded in reaching agreement among the major industrial and OPEC countries on the main issues relating to establishing the “Witteveen Facility”, to supplement the resources of the IMF for the next two years or so. This reflects the successful culmination of follow-up to one of the most important items at the London Summit. The usable resources of the IMF are extremely low at present, and—given the large payments imbalances in a number of countries associated with increased oil costs and other factors—there is a need to supplement these resources and provide the needed assurance that official financing will be available in adequate amounts to assist countries while they implement needed adjustment programs and eliminate the need for financing.

While no one can be certain exactly how much is needed for the new facility, it has been our view that about $10 billion or more is required to assure the necessary credibility and confidence. The Paris meeting was designed to raise that amount, and to set financial terms and conditions.

While a couple of participants were unable to say precisely how much they might pledge until they return to their capitals, it looks as though the $10 billion or an amount very close to it will be raised. In Paris seven industrial countries pledged about $5.2 billion. Five OPEC countries pledged about $4.2 billion, and two others (Kuwait and Nigeria) are expected to add to that amount, so that the OPEC total would rise to about $4.4–4.9 billion. If the total falls slightly below $10 billion, there are other possibilities for “topping-up” the total.

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I regard this as a successful outcome. The total amount is adequate, and the balance between the industrial country group and the OPEC is reasonable. I believe Congress will react favorably to the rough equality between OPEC and industrial country participation—OPEC is providing almost half—since the lack of OPEC participation was one of the major objections to the financing proposal put forward by the previous Administration. The U.S. share (approximately $1.7 billion) is reasonable, and in line with that of other participants (for example, Saudi Arabia’s share is $2.5 billion; Germany’s share is $1.2 billion). Also, the interest rate is fair—we will receive the amount it costs Treasury to borrow for comparable maturities, which is an adequate return without being too severe on the borrowers. And the facility will help strengthen the international monetary system by encouraging those countries with large balance of payments problems to adopt the needed adjustment programs. Tony Solomon, my Under Secretary for Monetary Affairs, did most of the ground work in putting this arrangement together.

Assuming no further hitches develop, the IMF Executive Board will finalize the facility in the weeks ahead. We are planning to submit the necessary authorizing legislation to the Congress in the present session.

W. Michael Blumenthal4
  1. Source: Carter Library, Anthony Solomon Collection, 1977–1980, Chronological File, Box 2, 8/1/77–8/15/77. Confidential. Sent for information. Marked “FYI.” A stamped notation reads: “The President has seen,” and Carter wrote at the top of the page: “Mike—good job. J.C.”
  2. August 5 and 6.
  3. A report on the joint press conference appeared in the The New York Times on August 7. (“U.S. and Bonn Call Strong Dollar Economically Vital,” The New York Times, August 7, 1977, p. 3)
  4. Blumenthal signed “Mike” above this typed signature.