179. Memorandum From Secretary of the Treasury Blumenthal to President Carter1
SUBJECT
- Follow-up on Mrs. Carter’s Conversation with Prime Minister Manley
In response to the memo from Zbigniew Brzezinski concerning Mrs. Carter’s conversations with Jamaican Prime Minister Manley, I wanted to share with you some of my thoughts on this issue.2
Mr. Manley raised two points on donor efforts to assist Jamaica. The first dealt with the more general question of the conditions imposed on recipient countries by the International Monetary Fund (IMF) as a prerequisite to its loans. Mr. Manley considers this role of the IMF an infringement on the sovereignty of recipient nations.
[Page 439]On this general question, I believe it is essential that before donors commit large sums of money, recipient countries must agree to take measures to improve their economic situation. Self-help measures are the essence of effective assistance. In addition, in recent years, Congress has insisted that recipient nations accept the full share of the responsibility for resolving their own development problems.
IMF standby agreements often include conditions which, in many cases, recipients would otherwise not be willing to accept even though they continue to seek external assistance. Where the IMF suggests conditions which are appropriate the U.S. should stand behind the IMF. In most cases, the U.S. cannot muster sufficient resources on its own to meet the financial needs of the LDCs. Even if we were able to provide sufficient resources on our own the U.S. would be forced to get directly involved in the internal affairs of potential recipients. This approach has gotten us into problems in the past. For these reasons, the U.S. should, in general, rely on international financial institutions, other donor nations and commercial banks to join with us in our efforts once recipient countries have agreed to implement the self-help measures which the international financial community—normally led by the IMF—see as essential.
Mr. Manley’s second major point relates to his concern with the specific measures the IMF had requested of the Government of Jamaica and particularly the requirement that the Government reduce substantially the portion of the budget deficit to be financed by running the printing press. While these budget cuts are certainly politically difficult for Manley, the current Jamaican economic plight appears to stem primarily from the economic policies the government has taken over the past few years. The government’s policies have created uncertainty among the Jamaicans and have led to substantial flight of capital and trained labor from the island. Based on our analysis of the Jamaican situation, the economic measures being proposed by the IMF in these negotiations are necessary and reasonable. To provide assistance without an agreement would (a) not deal with the basic economic problems facing the economy, and (b) put the U.S. and other donors in the position of providing assistance over the long term at levels we are not likely to sustain.
One final issue in this situation concerns U.S. policy towards Jamaica. On economic grounds, our assistance efforts should be linked to an IMF-GOJ standby agreement for a number of reasons:
—the IMF can provide up to 36 million dollars over the next 9 months to help Jamaica fill its estimated $200 million foreign exchange gap,
—this link will help ensure that our assistance will be used effectively,
[Page 440]—psychologically, an IMF-GOJ agreement is likely to encourage the international financial institutions, the commercial banks and other governments to join us in supporting Jamaica.
In addition, the amount of aid we give the Jamaicans should be significant enough to have a real economic impact. At the same time we should not seek to fill Jamaica’s total foreign exchange needs but rather rely on other countries and the international financial institutions to join with us.
For your information, the IMF team returned to Jamaica on June 16 to resume negotiations on a standby agreement. The negotiations have stalled for the past few weeks as the Jamaicans had refused to make substantial cuts in their budget. With the return of the IMF, we are hopeful that the Jamaicans will agree to the necessary steps and an agreement will ensue.
In sum, Mr. President, I believe that we should link our assistance efforts to an IMF agreement with Jamaica on a standby and that the IMF is not out of line with the demands it is making on the Jamaicans at this time. I will continue to pay close attention to this issue.
- Source: National Archives, RG 59, Central Foreign Policy File, P770109–1671. Confidential. Copies were sent to Secretary Vance and Brzezinski.↩
- Brzezinski’s June 14 memorandum to Blumenthal discussed reviewing the adequacy of U.S. assistance to Jamaica, given Jamaica’s difficulties with the IMF. (National Archives, RG 59, Central Foreign Policy File, P850089–2531)↩
- Blumenthal signed “Mike” above this typed signature.↩