Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

388. Action Memorandum From the Acting Assistant Secretary of State for Economic and Business Affairs (Larson) to Secretary of State Shultz¹

Washington, January 12, 1988

SUBJECT

• Presidential Certification Required to Authorize Payments to Multilateral Development Banks and International Organizations and Programs

ISSUE FOR DECISION

Whether to ask the President to certify, as he did last year,² that it is contrary to the national interest to prevent the USG from making payments to international institutions, due under agreed arrangements, since they cannot give advance assurance that our payments will not “indirectly” assist Angola, Cambodia, Cuba, Iraq, Vietnam, South Yemen, Libya or Syria.

ESSENTIAL FACTORS

A provision in the foreign assistance portion of this year’s Continuing Resolution (Section 554) prohibits the use of appropriated funds to finance “indirectly” any assistance to Angola, Cambodia, Cuba, Iraq, Vietnam, South Yemen, Libya or Syria unless the President certifies that withholding such funds is “contrary to the national interest.” This section was first inserted in the FY ’87 Continuing Resolution at the insistence of Congressman Obey, who was criticized during the 1986 election campaign for supporting multilateral development bank (MDB) loans to countries opposed to U.S. foreign policies.

This provision is of particular concern to Treasury and us because, absent the presidential waiver authorized by the provision, the USG can contribute to the MDBs only by “earmarking” funds such that they could not be used for the listed countries. The MDBs, however, have determined that “earmarking” is contrary to their charters; Treasury’s General Counsel concurs with this view. For this reason, the MDBs have indicated that they would not accept contributions containing any “earmarking” provisions.

Treasury and we therefore strongly urge expeditious use of the waiver authority necessary to obligate MDB funds. Failure to make payment would jeopardize the financial viability of the MDBs and their role in debt management strategy by leading to reduced payments by others concerned about equitable burden-sharing, and sharp reductions in the lending programs of those institutions. The credit markets, which lend the MDBs upwards of $90 billion, would perceive a failure to make payments as a withdrawal of USG support for the institutions; MDB credit standing would be severely affected.

Moreover, the provision is basically political in nature. None of the MDBs has lent to Cambodia, Iraq, Libya or Vietnam in recent years; Cuba is not even a member. Lending to the others over the last five years has only amounted to a quarter of one percent of total MDB lending, and only modest levels of lending are likely in the future.

In addition to the problems caused with the MDBs, the limitation will also apply to the U.S. contributions to multilateral programs under the Foreign Assistance Act’s International Organizations and Programs (IO and P) account. During FY 1988, this account will fund such UN-supported (and Congressionally-earmarked) programs as the UNDP, UNICEF, IFAD, and the IAEA, which cost the USG less than $250 million annually. They focus to a large extent on such humanitarian activities as immunization of children and famine relief as well as IAEA nuclear safeguards programs. Although exact amounts of such indirect assistance to the listed countries are not available, the total for FY 1988 could be significant. We believe that the impact on the IO and P account would be similarly detrimental, since these institutions also have concluded that they cannot accept “earmarked” contributions.

RECOMMENDATION

That you sign the memorandum to the President (Tab A),³ which recommends that he certify that withholding of funds to multilateral development banks and other international organizations and programs pursuant to the limitation in Section 554 of the 1988 Continuing Resolution is contrary to the national interest.⁴

1. Source: Department of State, Executive Secretariat, S/S Files, 1988–1989 Official Office Files for (E) Economic Affairs Allen Wallis, Through Memoranda January 1988. Unclassified. Sent through Wallis and Armacost. A stamped notation reading “GPS” appears on the memorandum, indicating Shultz saw it.
2. See Document 371.
3. Attached but not printed. In a January 25 memorandum to Reagan, Powell recommended that the President sign the Presidential Certification waiving the prohibition on the indirect use of U.S. funds contained in the FY 1988 Continuing Resolution. Reagan initialed the “OK” option. (Reagan Library, Stephen Farrar Files, Chronological File, Farrar Chron January 1988) On October 20, Reagan signed Presidential Determination 89–4 certifying, as recommended by Shultz, that withholding funds to MDBs and other international organizations and programs pursuant to the limitation in Section 550 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1989, was contrary to the public interest. (Reagan Library, Stephen Farrar Files, Chronological File, Farrar Chron October 1988)
4. Shultz initialed the “Approve” option.