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Originally Processed With FOIA(s): FOIA Number: 2015-0017-S 2015-0017-S FOIA MARKER This is not a textual record. This is used as an administrative marker by the George Bush Presidential Library Staff. Record Group/Collection: George H.W. Bush Presidential Records Collection/Office of Origin: National Security Council Series: Latin American Affairs Directorate Files Subseries: Subject Files 1989 OA/ID Number: CF00194 Folder ID Number: CF00194-017 Folder Title: Economic Sanctions - January 20, 1989-December 31, 1989 [1] Stack: Row: Section: Shelf: Position: V 8 5 7 5 Withdrawal/Redaction Sheet (George Bush Library) Doc. No. / Type Subject/Title Date Restriction Classification 01. Memorandum To: Philip Hughes From: Deane Hoffmann 6/23/89 (b)(1) S Re: Summary of International Economic Policy Review Breakfast (1 pp.) Page 1 of 1 Collection: Record Group: Bush Presidential Records Office: National Security Council Series: Latin American Affairs Directorate Files Subseries: Subject File 1989 WHORM Cat.: File Location: Economic Sanctions - January 20, 1989-December 31, 1989 [1] Pinksheet Number: MB8151 OA/ID Number: CF00194-017 Date Closed: 12/4/2014 FOIA/Sys Case #: 2015-0017-S Re-review Case #: P-2/P-5 Review Case #: UNCLASSIFIED RECORD ID: 8910033 NSC/S PROFILE RECEIVED: 13 DEC 89 17 TO: SCOWCROFT 7 Ecnd FROM: PACELLI DOC DATE: 18 DEC 89 PRYCE SOURCE REF: KEYWORDS: LATIN AMERICA ECONOMICS ANSA PERSONS: SCHAEFER, PETER SUBJECT: FAIRBANKS REQUEST FOR MTG ACTION: SCOWCROFT DISAPPROVED RECOM DUE DATE: 16 DEC 89 STATUS: C STAFF OFFICER: PACELLI LOGREF: FILES: WH NSCP: CODES: DOCUMENT DISTRIBUTION FOR ACTION FOR CONCURRENCE FOR INFO PACELLI PRYCE COMMENTS: DISPATCHED BY DATE BY HAND W/ATTCH OPENED BY: NSJWD CLOSED BY: NSJRP DOC 2 OF 2 UNCLASSIFIED 10033 NATIONAL SECURITY COUNCIL WASHINGTON. D.C. 20506 December 18, 1989 Nati Sec Advisor has seen ACTION MEMORANDUM FOR BRENT SCOWCROFT ) no fr THROUGH: WILLIAM T. PRYCE I will him 15 min see AP FROM: DAVID A. PACELLI DAF SUBJECT: Richard Fairbanks' Request for a Meeting with You Richard Fairbanks has requested that you meet with him and Peter Schaefer, a consultant to the AID Administrator, to discuss ways to unleash the forces of capitalism in Latin America (Tab II). We recommend that you refer him to Tim Deal/Eric Melby and Bill Pryce, and have prepared a reply for your signature to that effect. Concurrence by: Tim Deal RECOMMENDATION That you sign the reply to Fairbanks at Tab I. Attachment Tab I Scowcroft Reply to Fairbanks Tab II Fairbanks Letter to Scowcroft 10033 1050 CONNECTICUT AVENUE, N.W. TWELFTH FLOOR state WASHINGTON, D. C. 20036 TELEPHONE (202) 223-9000 December 8, 1989 PERSONAL Honorable Brent Scowcroft The National Security Adviser The White House Washington, DC 20500 Dear Brent: Attached is a letter to the editor from the local newspaper from a friend of mine named Peter Schaefer. It refers to Hernando De Soto, the Latin American author of "The Other Path," of which I hope you have heard. Schaefer is presently a Counselor to the Administrator at AID. I would appreciate it very much if you could find 15 minutes to talk to Peter and me about how we might more effectively unleash the forces of true capitalism and the market system in that region. I look forward to seeing you at your convenience. With my thanks and kind regards, Cordially, Did Richard Fairbanks Attachment Washington Times WEDNESDAY, DECEMBER 6, 1989 / PAGE F5 ited proving journalism, 66 years to sponsor such a survey. Capitalism untried in Latin America LOREN GHIGLIONE ves similar Editor, The News of subsidies who run Latin Amer- J eremiah O'Leary's Nov. 8 col- explained, Southbridge, Mass. umn, "Bolivar could have ica. Once elected, officials learn that SS tends to President, written the script," asks why the institutions they have inherited le, and for American Society of Newspaper Editors. Latin American history seems lack the means of allowing the elec- e men and Note: In response to Mr. Ghiglione's to be a pendulum swinging between torate to participate in decisions. So :0 hand-in- letter, the Los Angeles Times Syn- the extremes of oppressive military the voice of the people is mute ex- leve non- hinority." dicate retransmitted the original col- dictatorships and the anarchy that cept on election day or when they umn so readers could have the lan- inevitably attends the interjunta pe- are cheering the new junta. riods of civilian rule. irvey of gay guage of both before them. The True democracies succeed be- nay benefit paragraph in Mr. Thomas' column A good question that he answers himself, at least in part, when he cause there is constant two-way traf- :s who are a referring to "bomb-throwers in Bei- fic in opinions, desires and ideas. notes that the poor can ascend the Kinsey In- rut and self-flagellating crazies in But in Latin America this traffic is es that 10 Iran" reads as follows: ladder of success only by gaining only one-way; rulers thus are de- "importance and power in the armed e gay or les- "Churchgoers are tired of seeing prived of feedback on their perform- then one in people who take their faith seriously forces." There isn't, as he notes, a ance. Not surprisingly, their rule be- secure middle class to buffer the ex- ell as one in labeled as 'fundamentalists' by re- comes increasingly more detached porters, who also use the term to de- cesses of the rich, ruling elites. With scribe bomb-throwers in Beirut and no safety valve for poverty, anarchy from the daily life of the people. Cap- tured by an essentially selfish and decay are inevitable. hard to see" self-flagellating crazies in Iran. Will oligarchy and labor union elites, a journalism. an ASNE survey be conducted to But in noting only that there is a breakdown ensues. tand why it document the sensibilities of such "lopsided distribution of wealth," we Mr. De Soto has used a study of the about im- persons?" beg the question. Why do demo- underground or what he calls "infor- cratic political systems based on mal" economy to chart this failure of mixed economies fail when they pe- the Peruvian system. The popularity riodically have their turn at govern- of his book throughout Latin Amer- ADERS' ing? Why are they simply unable to ica, and now Africa, suggests the rel- create stable systems that can resist evance of his insights well beyond military adventures or stave off the Peru. sort of anarchy that invites military intervention? If democracy and cap- As the developed countries pro- italism are so good, why have they mote a process of reform, we are RUM failed so miserably in Latin Amer- obliged to see our efforts in a new ica? light. The chaos we see reflects the Hernando De Soto, author of "The bankruptcy of the present economic Other Path" (Harper & Row, 1989), system and the present generation clearly documents a startlingly sim- of leaders who often understand ple answer: Capitalism has not failed their task as only making the pre- in Latin America, it has never really sent system work better. Before the y childhood that our future, our children, are at been tried. Moreover, elections West sinks billions into fine-tuning 1 within our stake? there are only a means by which dic- workable systems, we must recog- self-worth, I have heard children cry because tators are chosen. This is a harsh nize that success within the current skills neces- of scraped knees and squabbles. But indictment. But as one reconsiders economic structures is impossible it potential. the wailing of those young children post-World War II Latin-American and we must recognize that our ef- reflects the true tragedy of drugs, history in light of Mr. De Soto's re- fort must foster the transition from on final ac- which shakes the foundation of our search in Peru, the chaos of this his- one system to an altogether new one. Care Act and society and should, in turn, move us tory makes more sense. veto it. to action. Their cries are the cries of Essentially, the economies of PETER SCHAEFER nd South Af- fear and shattered dreams. Latin America are classic Iberian Washington ial countries BOBBI BLOK mercantilist, not capitalist. It is the ational child Executive Director, economic oligarchs - those who (Editor's Note: Peter Schaefer is a h longer will Washington Child Development Council seek, and pay for, such privilege as consultant on international business 'als to realize Washington monopolies, tariffs, and a vast array and on foreign aid.] opriate. If a account that the term "light truck" sented evidence demonstrating that light-duty trucks as passenger vehi- S custom- also includes vocational, work- the accident or injury rate for these cles. Now, however, when NHTSA is ecific work- related vehicles such as dump vehicles warrants the extension of beginning to address that issue, they iket applica- trucks, utility trucks, ambulances, automobile safety standards that in- fail to address the circumstances of ards is not tow trucks or refrigerated delivery volve crash testing. commercial light trucks that are trucks that are not used for personal Recently, the NHTSA failed to produced in two or more stages by ansportation. These vehi- reasonably apply two safety stan- two or more manufacturers, even to light-duty trucks. These two though NHTSA recognized more than 10 vears ago that multi-stage- THE WHITE HOUSE WASHINGTON Dear Dick: Thanks very much for your recent note concerning finding ways to stimulate the market system in Latin America. My staff is on the lookout for new ideas on that subject. I suggest you contact Tim Deal, my Senior Director for International Economic Affairs and Bill Pryce, the Senior Director for Latin American Affairs. It was good to hear from you, and I'll be looking forward to their report on your meeting. Sincerely, Brent Scowcroft Mr. Richard Fairbanks 1050 Connecticut Avenue, N.W. Twelfth Floor Washington, D.C. 20036 File Economics President Bush Current Policy Freedom and World No. 1210 Prosperity United States Department of State Bureau of Public Affairs Washington, D.C. Following is an address by President Bush and political freedom are essential and in- economy. I have said many times-and I at the World Bank/International Monetary separable companions on the road to na- want to repeat it here today-that I want to Fund (IMF) annual meeting, Washington, tional prosperity. see perestroika succeed. A more open and D.C., September 27, 1989. The jury is no longer out. Look at the humane Soviet Union can only be in the two economic systems and see which has best interest of the West. And as we see We in the United States are keenly aware prospered and which has struggled. Let's the evidence of that reform, we can match of these annual gatherings, the impor- put an end to this economic experiment, be- it with steps of our own. tance of them-which drive the work of cause history has decided. The rediscovery of these basic truths all of us in maintaining a strong interna- It is not climate, natural resources, or in the East has been matched by a recom- tional economic and financial system. cultural traditions that make the difference. mitment to them in the West. Today, the This is my first opportunity to speak I said it in my own inaugural address: "We members of the European Community are to you as President of the United States. know what works. Freedom works. We dedicated to eliminating internal barriers to But I've followed the activities of the know how to secure a more just and prosper- economic activity by the end of 1992. Eu- International Monetary Fund and the ous life for man on earth-through free mar- rope's leaders assure me that this will not World Bank throughout my years of pub- kets, free speech, free elections, and the ex- be at the cost of new external barriers to lic service. I have visited many of your ercise of free will unhampered by the state." trade with the European Community. homelands and seen firsthand the prob- In Latin America, Africa, and Mexico, The Peruvian economist, Hernando de lems created by inadequate growth and courageous leaders are turning away from Soto, has helped us understand a world- development, problems that your two dis- state control of their economies. Economic wide economic phenomenon. By walking tinguished institutions are working hard restructuring and deregulation are opening the streets of Lima, not analyzing official to solve. the door to private initiative. Already they're statistics, he found that the poor of Latin We've witnessed a dramatic shift over seeing results. America-who have never read Jefferson the past few years in the debate over how Even more stunning is the transforma- or Adam Smith-ran their affairs demo- to achieve sustained growth and develop- tion in thinking in the communist coun- cratically, outside the formal economy, or- ment. All across the world, there's been tries-in both the Soviet Union and in East- ganizing their private, parallel economy in an almost simultaneous rediscovery of ern Europe. During my recent travels in Po- a free and unregulated manner. De Soto's the power created when individuals are land and Hungary, I was impressed by the great contribution has been to point out given the freedom to act in their own best people; but also impressed by the almost what, in retrospect, may seem obvious: interests. universal acceptance of the free market as People everywhere want the same things. the best hope-indeed, the only hope-for When left alone by government, people Economic and Political Freedoms: reversing the economic fortunes of these everywhere organize their lives in re- Inseparable Companions two proud countries. markably similar ways. We will welcome the efforts of the Soviet De Soto's prescription offers a clear True, we're here today mainly to discuss Union to liberalize and decentralize their and promising alternative to economic economic freedom. But make no mis- stagnation in Latin America and other parts take; in the end, both economic freedom of the world. Governments must bring the "informal" workers into the regular econ- This agreement underscores the bene- Addressing the Challenges omy and then get out of the way and let in- fits other debtor countries stand to realize of the 1980s dividual enterprise flourish. from this approach. Mexico's savings from this package will free resources for produc- Development and Environmental tive use in the economy, leading to in- Efforts. Also, to address the significant Coordinating Economic Policies creased investment, leading to improved problems of the poorest countries, the In- We each must do our part. Yes, the indus- growth. What Mexico has done is not a ternational Development Association, IDA, trial countries have a special responsibility. miracle. It's a product of hard work and was established and will continue to have We must coordinate economic policies to sustained commitment. the support of the United States. help provide sustained growth with low in- The strengthened debt strategy is flex- We have also learned, as I emphasized flation, reduced trade imbalances, and ible enough to address the unique needs of Monday at the United Nations and last greater stability in exchange markets. We each country. But the strategy will not summer at the Paris summit, that environ- in the United States are working especially work without sound economic policies in mental destruction knows no borders. To hard to reduce our own Federal budget the debtor countries. Inefficient, unrealis- make growth truly sustainable, we must deficit and to increase our national savings tic, growth-stifling policies simply must go. weigh environmental considerations more rate. Benefits are available to a broad range of heavily as we make economic decisions. All our nations have a responsibility to other countries that pursue economic re- We must also find ways to strengthen our ensure a fair and open trading system. We forms. Several are now actively engaged, I environmental and development efforts, have a tremendous opportunity to advance am told, with the IMF and World Bank and through innovative thinking such as the that cause now, by making success of this with the banking community itself. "debt for nature transactions." all-important Uruguay Round of trade ne- Commercial banks have a special role Over the years-as we've come to gotiations. Making the political commit- in making this process work. And they understand the effect of environmental de- ments necessary to ensure a success- must follow through on efforts made with struction on the long-term growth of devel- look, they will not be easy, but we must Mexico and the Philippines and broaden oping countries-the World Bank has in- strengthen the GATT [General Agreement their efforts with other countries. We en- creased the priority it assigns to environ- on Tariffs and Trade] and allow our courage these steps not as self-sacrifice but mental concerns. We applaud those ef- markets to open in a mutual, step-by-step self-interest. True, success not only will forts. But there is more to be done. We fashion. help the debtor nations, but it will also need to work more cooperatively to de- As we seek to extend and expand strengthen the banks by putting their own velop constructive solutions to global growth in the world economy, the debt portfolios on a sounder basis. One of the warming, including measures to promote problems faced by developing countries lessons of the 1980s, especially the debt energy efficiency and conservation and are central to the agendas of the IMF and crisis, is that we're all in this together. greater protection of forest resources. the World Bank. Over the past year, the When we cooperate, we all come out international community's strengthened winners. Drug Trafficking and Money Laun- approach to these problems has provided The IMF and the World Bank are at dering. In addressing the challenges of -truly provided-a new hope for the the crossroads of our cooperative efforts. the 1980s, we have come to a deeper debtor nations. America's Secretary of the The IMF must continue to foster the sound understanding of the importance of cooper- Treasury, Nick Brady, has helped direct economic policies necessary for sustained ating as a community of nations to address the focus on debt reduction as a comple- growth. As part of that responsibility, the common problems. I can think of no better ment to continued new lending-bringing Fund has assumed an important and very current example than the need to work to- developing nations and commercial banks welcome role in the strengthened debt gether to deal with international drug traf- back to where they belong: back to the strategy. ficking and money laundering. It is a negotiating table. The United States recognizes that the worldwide problem. Drug money under- Quick action by both the IMF and the IMF must have adequate resources to ful- mines honest businesses, corrupts political World Bank has given this new strategy vi- fill its critical role. We will continue to institutions, and even threatens the secu- tal support. By making clear the terms un- work with other members, in the hope of rity of nations. To conceal their obscene der which they will support the reduction reaching a decision on the quota question profits, drug barons must wash their of debt burdens-and by working with by the end of the year. The United States money by cycling it through financial insti- countries to develop the necessary eco- has always supported the IMF, and we will tutions and illegitimate shell corporations. nomic reform programs-these institutions continue to do so. The United States renews its call upon have made it possible to reduce debt bur- We will all look to the World Bank to all countries to ratify the UN Vienna con- dens and provide a solid foundation for help build the foundation for a future vention and make money laundering a growth. global prosperity that reaches all peoples. criminal and extraditable offense. We need Thanks to these initiatives, Mexico Its efforts to promote structural reform and tough measures to crack down and track reached an agreement with its creditor development are absolutely crucial to re- down and confiscate the profits of drug- solving debt problems. The Bank's deci- related crimes. I am encouraged by the banks enabling Mexico to make enormous G-7 democracies interested in this coordi- progress in reducing its debt burden. It sions to take on new responsibilities on the also helped restore-almost instantly- debt front are very welcome. nated response to the money laundering confidence in the Mexican economy. It's menace. But I urge everyone to join with already resulted in a return of capital and us to explore new ways to stop money laun- new foreign investment. dering in its tracks. 2 Poland. There may be no greater op- I call on the IMF and the World Bank This is a lesson that we must carry with portunity before us-all of us-today than to work rapidly with Poland to develop us into the 1990s if we are to pass on to fu- the challenge of Poland; and then on the such a program and ensure its successful ture generations a global economy that is broader landscape Eastern Europe-the implementation. For its part, the United strong and resilient and able to provide for entire Eastern Europe-where countries States intends to be out in front of this ef- the aspirations of the citizens of all our are in the throes of dramatic political and fort, to take advantage of this historic de- countries. economic change. velopment, and to ensure its success. Thank you very much for your hard The United States and its international work. Thank you for your service. Thank partners have already undertaken new ini- Facing the Issues Together you for your commitment. God bless you tiatives toward Poland. But now, in the and the nations that you represent. light of clearly growing needs, the recent Today, our mutual efforts to improve global accession of a Solidarity-led government, growth, to ease the burdens of developing Published by the United States Department and our self-evident stake in its success, we countries-their indebtedness-and to of State Burea of Public Affairs must do more. We understand the Polish open markets for trade have demonstrated Office of Public Communication Editorial Government has under consideration a anew that progress is best achieved by fac- Division Washington, D.C. October 1989 bold plan for economic recovery. Editor: Sharon R. Haynes This material is in ing pressing issues together. the public domain and may be reprinted without permission; citation of this source is appreciated. 3 PA/OAP, Rm. 5815A BULK RATE United States Department of State POSTAGE & FEES PAID Washington, D.C. 20520-6810 U.S. Department of State Permit No. G-130 OFFICIAL BUSINESS PENALTY FOR PRIVATE USE $300 Address Correction Requested DAP EVERETTE E BRIGGS 58616 SPEC ASST PRES NATIONAL SECURITY COUNCIL ROOM 351 OLD EXECUTIVE OFFICE BLDG WASHINGTON DC 20506 NATIONAL SECURITY COUNCIL wip DAP July 19, 1989 20 con TO: ROBERT BLACKWILL EVERETT BRIGGS DAVID HAASS KARL JACKSON ARNOLD KANTER VIRGINIA LAMPLEY DAVID MILLER PETER RODMAN NICHOLAS ROSTOW WILLIAM WORKING FROM: ERIC MELBY Attached for your information are the declarations issued at the Paris Economic Summit. Attachments SUMMIT OF THE ARCH 10.10 JULY 1989 16 July 1989 ECONOMIC DECLARATION 1) We, the Heads of State or Government of seven major industrial nations and the President of the Commission of the European Communities, have met in Paris for the fifteenth annual Economic Summit. The Summit of the Arch initiates a new round of Summits to succeed those begun at Rambouillet in 1975 and at Versailles in 1982. The round beginning in 1982 has seen one of the longest periods of sustained growth since the Second World War. These Summits have permitted effective consultations and offered the opportunity to launch initiatives and to strengthen international cooperation. 2) This year's world economic situation presents three main challenges: - The choice and the implementation of measures needed to maintain balanced and sustained growth, counter inflation, create jobs and promote social justice. These measures should also facilitate the adjustment of external imbalances, promote international trade and investment, and improve the economic situation of developing countries. - 2 - - The development and the further integration of developing countries into the world economy. Whilst there has been substantial progress in many developing countries, particularly those implementing sound economic policies, the debt burden and the persistence of poverty, often made worse by natural disasters affecting hundreds of millions of people, are problems of deep concern which we must continue to face in a spirit of solidarity. - The urgent need to safeguard the environment for future generations. Scientific studies have revealed the existence of serious threats to our environment such as the depletion of the stratospheric ozone layer and excessive emissions of carbon dioxide and other greenhouse gases which could lead to future climate changes. Protecting the environment calls for a determined and concerted international response and for the early adoption, worldwide, of policies based on sustainable development. INTERNATIONAL ECONOMIC SITUATION 3) Growth has been sustained by focusing policies on improving the efficiency and flexibility of our economies and by strengthening our cooperative efforts and the coordination process. In the medium term, the current buoyant investment seen during this period should pave the way for an increased supply of goods and services and help reduce the dangers of inflation. The outlook is not, however, without risks. 4) Until now, the threat of inflation in many countries has been contained, thanks to the concerted efforts of governments and monetary authorities. But continued vigilance is required and inflation, where it has increased, - 3 - will continue to receive a firm policy response so that it will be put on a downward path. 5) While some progress has been made in reducing external imbalances, the momentum of adjustment has recently weakened markedly. There needs to be further progress in adjusting external imbalances through cooperation. 6) In countries with fiscal and current account deficits, including the United States of America, Canada and Italy, further reductions in budget deficits are needed. Action will be taken to bring them down. This may help reduce the saving-investment gap and external imbalances, contribute to countering inflation and encourage greater exchange rate stability in a context of decreasing interest rates. 7) Countries with external surpluses, including Japan and Germany, should continue to pursue appropriate macroeconomic policies and structural reforms that will encourage non-inflationary growth of domestic demand and facilitate external adjustment. 8) All our countries share the responsibility for the sound development of the world economy. Over the medium term, deficit countries have to play a key role in global adjustment through their external adjustment and increased exports; surplus countries have to contribute to sustaining global expansion through policies providing favourable conditions for growth of domestic demand and imports. 9) The emergence of the newly industrializing economies and the initiation of a dialogue with them are welcome. We call on those with substantial surpluses to contribute to the adjustment of external imbalances and the open trade and payments system. To that end, they should - 4 - permit exchange rates to reflect their competitive position, implement GATT commitments and reduce trade barriers. INTERNATIONAL MONETARY DEVELOPMENTS AND COORDINATION 10) Under the Plaza and Louvre agreements, our countries agreed to pursue, in a mutually reinforcing way, policies of surveillance and coordination aimed at improving their economic fundamentals and at fostering stability of exchange rates consistent with those economic fundamentals. There has been progress in the multilateral surveillance and coordination of economic policies with a view to ensuring internal consistency of domestic policies and their international compatibility. The procedures to be used have been more clearly defined and improved in cooperation with the International Monetary Fund. 11) The coordination process has made a positive contribution to world economic development and it has also contributed greatly to improving the functioning of the International Monetary System. There has also been continued cooperation in exchange markets. It is important to continue, and where appropriate, to develop this cooperative and flexible approach to improve the functioning and the stability of the International Monetary System in a manner consistent with economic fundamentals. We therefore ask the Finance Ministers to continue to keep under review possible steps that could be taken to improve the coordination process, exchange market cooperation, and the functioning of the International Monetary System. - 5 - 12) We welcome the decision to complete the work on the ninth review of the International Monetary Fund quotas with a view to a decision on this matter before the end of the year. We note that the question of a resumption of S.D.R. allocation remains under consideration in the Executive Board of the International Monetary Fund. 13) Within the European Community, the European Monetary System has contributed to a significant degree of economic policy convergence and monetary stability. IMPROVING ECONOMIC EFFICIENCY 14) We will continue to promote measures in order to remove inefficiencies in our economies. These inefficiencies affect many aspects of economic activity, reduce potential growth rates and the prospects for job creation, diminish the effectiveness of macroeconomic policies and impede the external adjustment process. In this context, tax reforms, modernization of financial markets, strengthening of competition policies and reducing rigidities in all sectors including energy, industry and agriculture are necessary. So are the improvement of education and vocational training, transportation and distribution systems and further policies aimed at giving more flexibility and mobility to the labour market and reducing unemployment. Within the European Community, the steady progress towards the completion by the end of 1992 of the program contained in the Single Act has already given a strong momentum to economic efficiency. 15) The decline of saving in some of our countries in this decade is a cause for concern. This lower level of - 6 - saving can contribute to high real interest rates and therefore hamper growth. Inadequate saving and large fiscal deficits are associated with large external deficits. We recommend, within the framework of policy coordination, policies to encourage saving and remove hindrances where they exist. 16) Financial activities are being increasingly carried out with new techniques on a worldwide basis. As regards insider trading, which could hamper the credibility of financial markets, regulations vary greatly among our countries. These regulations have been recently, or are in the process of being, strengthened. International cooperation should be pursued and enhanced. TRADE ISSUES 17) World trade developed rapidly last year. Yet protectionism remains a real threat. We strongly reaffirm our determination to fight it in all its forms. We shall fulfill the Punta del Este standstill and rollback commitments which, inter alia, require the avoidance of any trade restrictive or distorting measure inconsistent with the provisions of the General Agreement and its instruments. We agree to make effective use of the improved GATT dispute settlement mechanism and to make progress in negotiations for further improvements. We will avoid any discriminatory or autonomous actions, which undermine the principles of the GATT and the integrity of the multilateral trading system. We also are pledged to oppose the tendency towards unilateralism, bilateralism, sectoralism and managed trade which threatens to undermine the multilateral system and the Uruguay Round negotiations. - 7 - 18) The successful negotiation of the Trade Negotiations Committee of the Uruguay Round in Geneva last April, thereby completing the mid-term review, is a very important achievement. It gives a clear framework for future work in all sectors including the pursuit of agricultural reform in the short term as well as in the long term. It also gives the necessary framework for substantive negotiations in important sectors not yet fully included in GATT disciplines, such as services, trade-related investment measures and intellectual property. Developing countries participated actively in these negotiations and contributed to this success. All countries should make their most constructive contribution possible. We express our full commitment to making further substantive progress in the Uruguay Round in order to complete it by the end of 1990. 19) We note with satisfaction the entry into force of the Free Trade Agreement between Canada and the US, as well as more recent initiatives to intensify the close economic relations between the European Community and EFTA countries. It remains our policy that these and other developments in regional cooperation, should be trade-creating and complementary to the multilateral liberalization process. 20) It is the firm intention of the European Community that the trade aspects of the single market program should also be trade-creating and complementary to the multilateral liberalization process. 21) We note with satisfaction the progress that has been made in strengthening the multilateral disciplines on trade and aid distorting export credit subsidies. This effort - 8 - must be pursued actively and completed in the competent bodies of the OECD with a view to improving present guidelines at the earliest possible date. GENERAL PROBLEMS OF DEVELOPMENT 22) Development is a shared global challenge. We shall help developing countries by opening the world trading system and by supporting their structural adjustment. We shall encourage too economic diversification in commodity dependent countries and the creation of a favourable environment for transfers of technology and capital flows. We underline the continuing importance of official development assistance and welcome the increased efforts of Summit participants in this respect. We note the targets already established by international organizations for the future level of official development assistance and stress the importance of overall financial flows to development. We underline simultaneously the importance attached to the quality of the aid and to the evaluation of the projects and the programs financed. 23) We urge developing countries to implement sound economic policies. A vital factor will be the adoption of financial and fiscal policies which attract inward investment and encourage growth and the return of flight capital. 24) We note with satisfaction that there has been substantial progress in the multilateral aid initiative for the Philippines that was given special attention in the Toronto economic declaration. - 9 - 25) Faced with the worrying economic situation of Yugoslavia, we encourage its government to implement a strong economic reform program that can command bilateral and multilateral support. THE SITUATION IN THE POOREST COUNTRIES 26) The enhancement of the International Monetary Fund Structural Adjustment Facility, the World Bank special program of assistance for the poorest and most indebted countries and the fifth replenishment of the African Development Fund are all important measures benefiting those countries having embarked upon an adjustment process. We stress the importance attached to a substantial replenishment of International Development Association resources. 27) As we urged last year in TORONTO, the Paris Club reached a consensus in September 1988 on the conditions of implementation of significant reduction of debt service payments for the poorest countries. Thirteen countries have already benefitted by this decision. 28) We welcome the increasing grant element in the development assistance as well as the steps taken to convert loans into grants and we urge further steps to this end. Flexibility in development aid as much as in debt rescheduling is required. 29) We attach great importance to the efficient and successful preparation of the next general conference of the United Nations on the least developed countries, which will take place in Paris in 1990. STRENGTHENED DEBT STRATEGY FOR THE HEAVILY INDEBTED COUNTRIES - 10 - 30) Our approach to the debt problems has produced significant results, but serious challenges remain: in many countries the ratio of debt service to exports remains high, financing for growth promoting investment is scarce, and capital flight is a key problem. An improvement in the investment climate must be a critical part of efforts to achieve a sustainable level of growth without excessive levels of debt. These improvements of the current situation depend above all on sustained and effective adjustment policies in the debtor countries. 31) To address these challenges, we are strongly committed to the strengthened debt strategy. This will rely, on a case-by-case basis, on the following actions: - borrowing countries should implement, with the assistance of the Fund and the Bank, sound economic policies, particularly designed to mobilize savings, stimulate investment and reverse capital flight; - banks should increasingly focus on voluntary, market-based debt and debt service reduction operations, as a 1 complement to new lending; - the International Monetary Fund and World Bank will support significant debt reduction by setting aside a portion of policy-based loans; - limited interest support will be provided, through additional financing by the International Monetary Fund and the World Bank, for transactions involving significant debt and debt service reduction. For that purpose the use of escrow accounts is agreed; - 11 - - continued Paris Club rescheduling and flexibility of export-credit agencies; - strengthening of the international financial institutions capability for supporting medium-term macroeconomic and structural adjustment programs and for compensating the negative effects of export shortfalls and external shocks. 32) In the framework of this strategy: - we welcome the recent decisions taken by the two institutions to encourage debt and debt service reduction which provide adequate resources for these purposes; - we urge debtor countries to move ahead promptly to develop strong economic reform programs that may lead to debt and debt service reductions in accordance with the guidelines defined by the two Bretton Woods institutions; - we urge banks to take realistic and constructive approaches in their negotiations with the debtor countries and to move promptly to conclude agreements on financial packages including debt reduction, debt service reduction and new money. We stress that official creditors should not substitute for private lenders. Our governments are prepared to consider as appropriate tax, regulatory and accounting practices with a view to eliminating_unnecessary-obstacles to debt and debt service reductions. - 12 - ENVIRONMENT 33) There is growing awareness throughout the world of the necessity to preserve better the global ecological balance. This includes serious threats to the atmosphere, which could lead to future climate changes. We note with great concern the growing pollution of air, lakes, rivers, oceans and seas; acid rain, dangerous substances; and the rapid desertification and deforestation. Such environmental degradation endangers species and undermines the well-being of individuals and societies. Decisive action is urgently needed to understand and protect the earth's ecological balance. We will work together to achieve the common goals of preserving a healthy and balanced global environment in order to meet shared economic and social objectives and to carry out obligations to future generations. 34) We urge all countries to give further impetus to scientific research on environmental issues, to develop necessary technologies and to make clear evaluations of the economic costs and benefits of environmental policies. The persisting uncertainty on some of these issues should not unduly delay our action. In this connection, we ask all countries to combine their efforts in order to improve observation and monitoring on a global scale. 35) We believe that international cooperation also needs to be enhanced in the field of technology and technology transfer in order to reduce pollution or provide alternative solutions. - 13 - 36) We believe that industry has a crucial role in preventing pollution at source, in waste minimization, in energy conservation, and in the design and marketing of cost-effective clean technologies. The agricultural sector must also contribute to tackling problems such as water pollution, soil erosion and desertification. 37) Environmental protection is integral to issues such as trade, development, energy, transport, agriculture and economic planning. Therefore, environmental considerations must be taken into account in economic decision-making. In fact good economic policies and good environmental policies are mutually reinforcing. In order to achieve sustainable development, we shall ensure the compatibility of economic growth and development with the protection of the environment. Environmental protection and related investment should contribute to economic growth. In this respect, intensified efforts for technological breakthrough are important to reconcile economic growth and environmental policies. Clear assessments of the costs, benefits and resource implications of environmental protection should help governments to take the necessary decisions on the mix of price signals (e.g., taxes or expenditures) and regulatory actions, reflecting where possible the full value of natural resources. - 14 - We encourage the World Bank and regional development banks to integrate environmental considerations into their activities. International organizations such as the OECD and the United Nations and its affiliated organizations, will be asked to develop further techniques of analysis which would help governments assess appropriate economic measures to promote the quality of the environment. We ask the OECD, within the context of its work on integrating environment and economic decision-making, to examine how selected environmental indicators could be developed. We expect the 1992 UN Conference on Environment and Development to give additional momentum to the protection of the global environment. 38) To help developing countries deal with past damage and to encourage them to take environmentally desirable action, economic incentives may include the use of aid mechanisms and specific transfer of technology. In special cases, ODA debt forgiveness and debt for nature swaps can play a useful role in environmental protection. We also emphasize the necessity to take into account the interests and needs of developing countries in sustaining the growth of their economies and the financial and technological requirements to meet environmental challenges. 39) The depletion of the stratospheric ozone layer is alarming and calls for prompt action. - 15 - We welcome the HELSINKI conclusions related, among other issues, to the complete abandonment of the production and consumption of chloro-fluorocarbons covered by the MONTREAL protocol as soon as possible and not later than the end of the century. Specific attention must also be given to those ozone-depleting substances not covered by the Montreal protocol. We shall promote the development and use of suitable substitute substances and technologies. More emphasis should be placed on projects that provide alternatives to chloro-fluorocarbons. 40) We strongly advocate common efforts to limit emissions of carbon dioxide and other greenhouse gases, which threaten to induce climate change, endangering the environment and ultimately the economy. We strongly support the work undertaken by the Intergovernmental Panel on Climate Change, on this issue. We need to strengthen the worldwide network of observatories for greenhouse gases and support the World Meteorological Organisation initiative to establish a global climatological reference network to detect climate changes 41) We agree that increasing energy efficiency could make a substantial contribution to these goals. We urge international organizations concerned to encourage measures, including economic measures, to improve energy conservation and, more broadly, efficiency in the use of energy of all kinds and to promote relevant techniques and technologies. 16 1 I We are committed to maintaining the highest safety standards for nuclear power plants and to strengthening international cooperation in safe operation of power plants and waste management, and we recognize that nuclear power also plays an important role in limiting output of greenhouse gases. 42) Deforestation also damages the atmosphere and must be reversed. We call for the adoption of sustainable forest management practices, with a view to preserving the scale of world forests. The relevant international organizations will be asked to complete reports on the state of the world's forests by 1990. 43) Preserving the tropical forests is an urgent need for the world as a whole. While recognizing the sovereign rights of developing countries to make use of their natural resources, we encourage, through a sustainable use of tropical forests, the protection of all the species therein and the traditional rights to land and other resources of local communities. We welcome the German initiative in this field as a basis for progress. To this end, we give strong support to rapid implementation of the Tropical Forest Action Plan which was adopted in 1986 in the framework of the Food and Agricultural Organization. We appeal to both consumer and producer countries, which are united in the International Tropical Timber Organization, to join their efforts to ensure better conservation of the forests. We express our readiness to assist the efforts of nations with tropical forests through financial and technical cooperation, and in international organizations. - 17 - 44) Temperate forests, lakes and rivers must be protected against the effects of acid pollutants such as sulphur dioxide and nitrogen oxides. It is necessary to pursue actively the bilateral and multilateral efforts to this end. 45) The increasing complexity of the issues related to the protection of the atmosphere calls for innovative solutions. New instruments may be contemplated. We believe that the conclusion of a framework or umbrella convention on climate change to set out general principles or guidelines is urgently required to mobilize and rationalize the efforts made by the international community. We welcome the work under way by the United Nations Environment Program, in cooperation with the World Meteorological Organization, drawing on the work of the Intergovernmental Panel on Climate Change and the results of other international meetings. Specific protocols containing concrete commitments could be fitted into the framework as scientific evidence requires and permits. 46) We condemn indiscriminate use of oceans as dumping grounds for polluting waste. There is a particular problem with the deterioration of coastal waters. To ensure the sustainable management of the marine environment, we recognize the importance of international cooperation in preserving it and conserving the living resources of the sea. We call for relevant bodies of the United Nations to prepare a report on the state of the world's oceans. - 18 - We express our concern that national, regional and global capabilities to contain and alleviate the consequences of maritime oil spills be improved. We urge all countries to make better use of the latest monitoring and clean-up technologies. We ask all countries to adhere to and implement fully the international conventions for the prevention of oil pollution of the oceans. We also ask the International Maritime Organization to put forward proposals for further preventive action. 47) We are committed to ensuring full implementation of existing rules for the environment. In this respect, we note with interest the initiative of the Italian government to host in 1990 a forum on international law for the environment with scholars, scientific experts and officials, to consider the need for a digest of existing rules and to give in-depth consideration to the legal aspects of environment at the international level. 48) We advocate that existing environment institutions be strengthened within the United Nations system. In particular, the United Nations Environment Program urgently requires strengthening and increased financial support. Some of us have agreed that the establishment within the United Nations of a new institution may also be worth considering. 49) We have taken note of the report of the sixth conference on bioethics held in Brussels which examined the elaboration of a universal code of environmental ethics based upon the concept of the "human stewardship of nature". 50) It is a matter of international concern that Bangladesh, one of the poorest and most densely populated countries in the world, is periodically devastated by catastrophic floods. - 19 - We stress the urgent need for effective, coordinated action by the international community, in support of the Government of Bangladesh, in order to find solutions to this major problem which are technically, financially, economically and environmentally sound. In that spirit, and taking account of help already given, we take note of the different studies concerning flood alleviation, initiated by France, Japan, the US and the United Nations Development Program, which have been reviewed by experts from all our countries. We welcome the World Bank's agreement, following those studies, to coordinate the efforts of the international community so that a sound basis for achieving a real improvement in alleviating the effects of flood can be established. We also welcome the agreement of the World Bank to chair, by the end of the year, a meeting to be held in the United Kingdom by invitation of the Bangladesh Government, of the countries willing to take an active part in such a program. 51) We give political support to projects such as the joint project to set up an observatory of the Saharan areas, which answers the need to monitor the development of that rapidly deteriorating, fragile, arid region, in order to protect it more effectively. DRUG ISSUES 52) The drug problem has reached devastating proportions. We stress the urgent need for decisive action, both on a national and an international basis. We urge all countries, especially those where drug production, trading and consumption are large, to join our efforts to counter drug production, to reduce demand, and to carry forward the fight - 20 - against drug trafficking itself and the laundering of its proceeds. 53) Accordingly, we resolve to take the following measures within relevant fora: - Give greater emphasis on bilateral and United Nations programs for the conversion of illicit cultivation in the producer countries. The United Nations Fund for Drug Abuse Control (UNFDAC), and other United Nations and multilateral organizations should be supported, strengthened and made more effective. These efforts could include particular support for the implementation of effective programs to stop drug cultivation and trading as well as developmental and technical assistance. - Support the efforts of producing countries who ask for assistance to counter illegal production or trafficking. - Strengthen the role of the United Nations in the war against drugs through an increase in its resources and through reinforced effectiveness of its operation. - Intensify the exchange of information on the prevention of addiction, and rehabilitation of drug addicts. - Support the international conference planned for 1990 on cocaine and drug demand reduction. - Strengthen the efficiency of the cooperative and mutual assistance on these issues, the first steps being a prompt adhesion to, ratification and implementation of the Vienna Convention on illicit traffic in narcotic drugs and psychotropic substances. - 21 - Conclude further bilateral or multilateral agreements and support initiatives and cooperation, where appropriate, which include measures to facilitate the identification, tracing, freezing, seizure and forfeiture of drug crime proceeds. Convene a financial action task force from Summit Participants and other countries interested in these problems. Its mandate is to assess the results of cooperation already undertaken in order to prevent the utilization of the banking system and financial institutions for the purpose of money laundering, and to consider additional preventive efforts in this field, including the adaptation of the legal and regulatory systems so as to enhance multilateral judicial assistance. The first meeting of this task force will be called by France and its report will be completed by April 1990. 54) International cooperation against AIDS We take note of the creation of an International Ethics committee on AIDS which met in Paris in May 1989, as decided at the Summit of Venice (June 1987). It assembled the Summit Participants and the other members of the EC, together with the active participation of the World Health Organization. 55) We take note of the representations that we received from various Heads of State or Government and organizations and we will study them with interest. - 22 - 56) Next Economic Summit We have accepted the invitation of the President of the United States to meet next year in the United States of America. I SUMMIT OF THE ARCH 14.16 JULY 1989 DECLARATION ON CHINA We have already condemned the violent repression in China in defiance of human rights. We urge the Chinese authorities to cease action against those who have done no more than claim their legitimate rights to democracy and liberty. This repression has led. each of us to take appropriate measures to express our deep sense of condemnation to suspend bilateral Ministerial and high-level contacts, and also to suspend arms-trade with China, where it exists. Furthermore, each of us has agreed that, in view of current economic uncertainties , the examination of new loans by the World Bank be postponed. We have also decided to extend the stays of those Chinese students who so desire. We look to the Chinese authorities to create conditions which will avoid their isolation and provide for a return to cooperation based upon the resumption of movement towards political and economic reform, and openness. We understand and share the grave concern felt by the people of Hong Kong following these events. We call on the Government of the People's Republic of China to do what is necessary to restore confidence in Hong Kong. We recognize that the continuing - 2 - support of the international community will be an important element in the maintenance of confidence in Hong Kong. July 15, 1989 SUMMIT OF THE ARCH 14 10 JULY 1989 DECLARATION ON EAST-WEST RELATIONS 1. We, the leaders of our seven countries and the representatives of the European Community, reaffirm the universal and supreme importance which we attach to freedom, democracy and the promotion of human rights. 2. We see signs of this same desire for greater freedom and democracy in the East. The people there, including the young people, are reasserting these values and calling for a pluralist democratic society. Some of their leaders are aware of the positive contribution that greater freedom and democracy can make to the modernisation of their countries and are starting to make changes to their laws, practices and institutions. Others are still endeavouring to resist this movement by taking repressive measures which we strongly condemn. 3. We hope that freedom will be broadened and democracy strengthened and that they will form the basis, after decades of military confrontation, ideological antagonism and mistrust, - 2 - for increased dialogue and cooperation. We welcome the reforms underway and the prospects of lessening the division of Europe. 4. We call upon the Soviet Government to translate its new policies and pronouncements into further concrete action at home and abroad. Military imbalances favouring the Soviet Union, both in Europe and in Asia, remain an objective threat to each of us. Our Governments must therefore continue to be vigilant and maintain the strength of our countries. For the foreseeable future, there is no alternative for each of us, within existing alliances, to maintaining a strategy of deterence based upon an appropriate mix of adequate and effective nuclear and conventional forces. In order to hasten the advent of a world in which the weight of arms and military strength is reduced, we recommit ourselves to the urgent pursuit of a global ban on chemical weapons, a conventional forces balance in Europe at the lowest possible level consistent with our security requirements, and a substantial reduction in Soviet and American strategic nuclear arms. 5. We offer the countries of the East the opportunity to develop balanced economic cooperation on a sound commercial basis consistent with the security interests of each of our countries and with the general principles of international trade. We have noted developments of relations between the EEC and countries of the East, in particular the conclusion of an agreement with Hungary, the progress already achieved during 3 I 1 the current discussions with Poland and the opening of negotiations with the Soviet Union. 6. We welcome the process of reform underway in Poland and Hungary. We recognize that the political changes taking place in these countries will be difficult to sustain without economic progress. Each of us is prepared to support this process and to consider, as appropriate and in a coordinated fashion, economic assistance aimed at transforming and opening their economies in a durable manner. We believe that each of us should direct our assistance to these countries so as to sustain the momentum of reform through inward investment, joint ventures, transfer of managerial skills, professional training and other ventures which would help develop a more competitive economy. Each of us is developing concrete initiatives designed to encourage economic reforms, to promote more competitive economies and to provide new opportunities for trade. We agreed to work along with other interested countries and multilateral institutions to concert support for the process of reform underway in Hungary and Poland, in order to make our measures of support more effective and mutually reinforcing. We will encourage further creative efforts by interested governments and the public and private sectors in support of the reform process. Concerning concerted support for reform in Poland and Hungary, we call for a meeting with all interested countries - 4 - which will take place in the next few weeks. We underline, for Poland, the urgent need for food in present circumstances. To these ends, we ask the Commission of the European Communities to take the necessary initiatives in agreement with the other Member States of the Community, and to associate, besides the Summit participants, all interested countries. 7. We are in favour of an early conclusion of the negotiations between the IMF and Poland. The strengthened debt strategy is applicable to Poland, provided it meets the conditions. We are ready to support in the Paris Club the rescheduling of Polish debt expeditiously and in a flexible and forthcoming manner. 8. We see good opportunities for the countries of West and East to work together to find just solutions to conflicts around the world, to fight against under-development, to safeguard the resources and the environment and to build a freer and more open world. July 15, 1989 SUMMIT OF THE ARCH 14.16 JULY 1989 DECLARATION ON HUMAN RIGHTS In 1789, the rights of man and of the citizen were solemnly proclaimed. Just over forty years ago, the General Assembly of the United Nations adopted the Universal Declaration of Human Rights, which have been further developed and codified and are now embodied in the Covenants on Civil and Political Rights and on Economic, Social and Cultural Rights. We reaffirm our commitment to freedom, democratic principles and human rights. We reaffirm our belief in the rule of law which respects and protects without fear or favour the rights and liberties of every citizen, and provides the setting in which the human spirit can develop in freedom and diversity. Human rights are a matter of legitimate international concern. We commit ourselves again to encouraging and promoting universal respect for human rights and fundamental freedoms. Looking towards the future, we see opportunities as well as threats; this impels us to pledge our firm commitment to uphold international standards of human rights and to confirm our willingness to reaffirm them and to develop them further. 2 I I We stress the protection of freedom of thought, conscience and religion, and of freedom of opinion and expression; for without these freedoms, other rights cannot be fully realised. We stress also respect for the rule of law and the plurality of opinion, for without them there can be neither representative government nor democracy. We believe equally in freedom of association in a pluralist society. We hold that the right of each individual to physical integrity and dignity must be guaranteed. We abhorr and condemn torture in all its forms. We believe that all human beings must act towards each other in a spirit of fraternity. We believe that everyone has a right to equality of opportunity as well as to own property, alone or in association with others. Extreme poverty and exclusion from society violate the dignity of everyone enduring them. Those who suffer or are in need should be supported. We stress that the rights of the child, the disabled and the elderly require special protection. We consider that developments in the human sciences, for instance the progress achieved in genetics and organ 3 I I transplantation, must be applied in accordance with all human rights if the dignity of human beings is to be preserved. We, the present generation, have an obligation to ensure that future generations will inherit a healthy environment. We reaffirm our belief that these rights and freedoms cannot be properly safeguarded without the rule of law, impartial justice and genuine democratic institutions. July 15, 1989 SUMMIT OF THE ARCH 14.10 JULY 1989 DECLARATION ON TERRORISM 1 - We remain resolutely opposed to terrorism in all its forms. We confirm the commitment each of us has undertaken to the principle of making no concessions to terrorists or their sponsors and to cooperating, bilaterally and in all relevant international fora, in combatting terrorism. We reiterate our commitment to the policies agreed at previous summits; in particular we condemn state-sponsored terrorism. We are determined not to let terrorists remain unpunished, and to have them brought to justice within the framework of international law and in conformity with the rule of law. We call upon those states which have supported or encouraged terrorist acts to demonstrate by their actions that they have renounced such policies. We reaffirm in particular our absolute condemnation of the taking of hostages. We call on those holding hostages to release them immediately and unconditionally and on those with influence over hostage-takers to use it to this end. 2 - Deeply concerned for the safety of all travellers and outraged by the murderous attacks perpetrated against international civil aviation and the frequent threat to air transport safety from terrorist groups, we reaffirm our commitment to the fight against all forms of terrorism 2 affecting civil aviation. We reiterate our determination to contribute to reinforcing internationally agreed measures for protection against aircraft hijackings and sabotage. 3 - We particularly condemn the recent attack on an aircraft over Scotland, which killed 270 people. We have agreed to give priority to preventing such attacks by further strengthening security measures. We attach importance to the implementation of the work plan recently adopted by the ICAO Council for this purpose. 4 - We have also agreed on the need for improved methods of detecting explosives. We endorse efforts currently underway in ICAO to develop, as a matter of high priority, an appropriate international regime for the marking of plastic and sheet explosives for detection. July 15, 1989 Withdrawal/Redaction Sheet (George Bush Library) Document No. Subject/Title of Document Date Restriction Class. and Type 01. Memorandum To: Philip Hughes From: Deane Hoffmann 6/23/89 (b)(1) S Re: Summary of International Economic Policy Review Breakfast (1 pp.) Collection: Record Group: Bush Presidential Records Office: National Security Council Series: Latin American Affairs Directorate Files Subseries: Subject File 1989 WHORM Cat.: File Location: Economic Sanctions - January 20, 1989-December 31, 1989 [1] Date Closed: 12/4/2014 OA/ID Number: CF00194-017 FOIA/SYS Case #: 2015-0017-S Appeal Case #: Re-review Case #: Appeal Disposition: P-2/P-5 Review Case #: Disposition Date: AR Case #: MR Case #: AR Disposition: MR Disposition: AR Disposition Date: MR Disposition Date: RESTRICTION CODES Presidential Records Act - [44 U.S.C. 2204(a)] Freedom of Information Act - [5 U.S.C. 552(b)] P-1 National Security Classified Information [(a)(1) of the PRA] (b)(1) National security classified information [(b)(1) of the FOIA] P-2 Relating to the appointment to Federal office [(a)(2) of the PRA] (b)(2) Release would disclose internal personnel rules and practices of an P-3 Release would violate a Federal statute [(a)(3) of the PRA] agency [(b)(2) of the FOIA] P-4 Release would disclose trade secrets or confidential commercial or (b)(3) Release would violate a Federal statute [(b)(3) of the FOIA] financial information [(a)(4) of the PRA] (b)(4) Release would disclose trade secrets or confidential or financial P-5 Release would disclose confidential advice between the President information [(b)(4) of the FOIA] and his advisors, or between such advisors [a)(5) of the PRAJ (b)(6) Release would constitute a clearly unwarranted invasion of P-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA] personal privacy [(a)(6) of the PRAJ (b)(7) Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA] C. Closed in accordance with restrictions contained in donor's deed of (b)(8) Release would disclose information concerning the regulation of gift. financial institutions [(b)(8) of the FOIA] (b)(9) Release would disclose geological or geophysical information PRM. Removed as a personal record misfile File UNCLASSIFIED RECORD ID: 8904314 Econom NSC/S PROFILE RECEIVED: 05 JUN 89 15 TO: PRESIDENT FROM: LANGMORE, JOHN DOC DATE: 01 JUN 89 HERFKENS, EVELINE SOURCE REF: KEYWORDS: AUSTRALIA INTL FINANCE PERSONS: SUBJECT: LTR TO PRES FM PARLIAMENTARIAN GLOBAL ACTION RE THIRD WORLD DEBT ACTION: DRAFT REPLY FOR WH SIG DUE DATE: 08 JUN 89 STATUS: D STAFF OFFICER: STATE LOGREF: FILES: WH NSCIF: CODES: DOCUMENT DISTRIBUTION FOR ACTION FOR CONCURRENCE FOR INFO DEAL HOFFMANN JACKSON MANDEL PAAL PACELLI COMMENTS: DISPATCHED BY DATE BY HAND W/ATTCH OPENED BY: NSRSC CLOSED BY: DOC 1 OF 1 UNCLASSIFIED TELEPHONE: (202) 797-3000 TELEGRAPHIC ADDRESS: AUSTEMBA 1601 MASSACHUSETTS AVE. TELEX: W.U. 892621 WASHINGTON. D.C. 20036 TWX: 710-822-9295 EMBASSY OF AUSTRALIA IN REPLY QUOTE: 1940D 1 June 1989 Mr Douglas H Paal Director - Asian Affairs National Security Council Room 493, Old Executive Building Pennsylvania Ave WASHINGTON, D.C. 20506 Dear Mr Paal, We have been asked to forward the enclosed letter addressed to the President of the United States from Mr John Langmore, MP, writing on behalf of Parliamentarians Global Action concerning Third World debt and international financial reform. Yours sincerely, Caroline nullas (Caroline Millar) FIRST SECRETARY PARLIAMENTARIANS GLOBAL ACTION for Disarmament, Development and World Reform ACCION MUNDIAL DE AMENTARIOS para el Desarme. el Desarrollo y el Cambio Mundial ACTION MONDIALE DES PARLEMENTAIRES pour le Désarmement, le Développement et une Reforme Mondiale PRESIDENT AND CHAIRMAN OF THE EXECUTIVE COMMITTEE Dr. Claim Ragnar Grimsson, MA, Iceland 3 May 1989 PRESIDENTS Congressman Tom Downey, USA Senadora Silvia Hernandez, Mexico Digvijay Sinh, MP, India Relus ter Beck, Netherlands TREASURER Walter McLean, MP. Canada CHAIRMAN OF THE COUNCIL The Hon President George Bush Warren Alimand, MP, Canada VICE-CHAIRMEN OF THE COUNCIL Emma Bonino, Deputato, italy John Langmore, MP, Australia Congressman Jim Leach, USA Hon. Saihou S. Sabaliy, MP, The Gambia Marcelo Stubrin, Diputado, Argentina Dear President Bush COUNCILLORS The enclosed communique on Third World debt was Jorge Alegria Haya, Diputado, Peru Paddy Ashdown, MP, United Kingdom prepared by parliamentarians from most G10 Lasse Budtz. MF, Donmark countries who met in Amsterdam at the beginning of Herta Dilubier-Gmatin, MdB, April. Federal Republic of Germany George Foulkes, MP, United Kingdom Fernando Gasparian, Deputado, Brazil The agreements reached at the Toronto Summit and Eveline Herikens, Netherlands the proposals by Mr Nicholas Brady which are Carl Lowzow, Representant, Norway Hon. Meshack Maganga, MP, Tanzania currently being discussed, would, when implemented Richard Northey, MP, New Zealand make a significant contribution to easing the Heinrich Off. Counseiller National, Switzerland chronic Third World debt crisis. We consider, Yoshio Sakurauchi, Japan however, that considerably more will be required Michael Warnalwa. MP, Kenya before renewed, sustained growth in debtor Angel Zambrano, Diputado, Venezuela countries is firmly re-established and the debt SECRETARY-GENERAL crisis ended. Nicholas Dunlop We hope that the proposals outlined in the EXECUTIVE DIRECTOR Aaron Tovish Amsterdam Appeal will be seriously considered by the G7 leaders during the Paris Summit in July. EXECUTIVE POLITICAL OFFICERS This meeting could well be more influential in Regina Monticone Batsy Hurwitz setting conditions for improved living standards in poorer countries than any of the G7 Summits held so far. 211 East 43rd Street. Suite 1604, New York, New York 10017 Telephone: (212) 687-7755 MCI TLX 650-273-2938/ANSBK 650-273-2938MCI LW Talex- 4998460PWONV Fax: (212) 687.2400 - 2 - We wish you great wisdom in your difficult task. Yours sincerely John Jhon Langmore Leyana MP Eveline Inform Eveline Herfkens MP Chairman Convenor on behalf of: Hon W Allmand MP, Liberal Party, Canada Mr B Beumer MEP, Christian Democratic Group, The Netherlands Mr S Holland MP, Labour Party, United Kingdom Mr N Lammert MdB, Christian Democratic Party, FRG Mr J Lester MP, Conservative Party, United Kingdom Mr J Ramallo Massanet MP, Socialist Party, Spain Hon W McLean MP, Conservative Party, Canada Mr B Morrison Congressman, Democratic Party, US Mr M Pedine Senator, Christian Democratic Party, Italy Mr W Vergeer MEP, Christian Democratic Group, The Netherlands Mr B Wells MP, Conservative Party, United Kingdom PARLIAMENTARIANS GLOBAL ACTION for Disarmament. Development and World Reform ACCION MUNDIAL DE PARLAMENTARIOS para el Desarme. el Desarrollo y el Cambio Mundial ACTION MONDIALE DES PARLEMENTAIRES pour le Désarmement. le Développement et une Reforme Mondiale OFFICERS PRESIDENT AND CHAIRMAN OF THE EXECUTIVE COMMITTEE Dr. Olafur Ragnar Grimsson. MA, Iceland THE AMSTERDAM APPEAL PRESIDENTS Congressman Tom Downey. USA Senadora Silvia Hernandez. Mexico Dignijay Sinh. MP. India Relus ter Beek. Netherlands 1. Parliamentarians from the G10 countries met in Amsterdam on the eve of the spring sessions of the IMF and the World Bank to TREASURER Walter McLean. MP. Canada critically examine the Third World debt crisis and proposals for international financial reform. Legislators from different CHAIRMAN OF THE COUNCIL Warren Allmand. MP, Canada political parties, senior spokespersons on these issues, participated in this unprecedented two day conference organised by VICE-CHAIRMEN OF THE COUNCIL Parliamentarians Global Action. The parliamentarians were Emma Bonino. Deputato. Italy John Langmore. MP. Australia addressed by the Dutch Development Cooperation Minister and joined Congressman Jim Leach. USA by the President of the African Development Bank and other senior Hon. Saihou S. Sabally. MP. The Gambia Marceio Stubnn. Diputado. Argentina banking officials as well as experts from multi-lateral agencies and the academic research community. COUNCILLORS Jorge Alegna Haya. Diputado. Peru Herta Däubler-Gmelin. MdB. Federal Republic of Germany 2. We agreed that the recent new debt relief policies - although Ole Espersen. MF. Denmark George Foulkes. MP. United Kingdom moving in a more positive direction - are insufficient and need Fernando Gaspanan, Deputado. Brazil substantial extension. In fact, a new debt strategy requires a Eveline Hertkens. Netherlands Tom Kirt. MP. Ireland "Toronto plus" and a "Brady plus" approach. The debtor countries Carl Lowzow. Representant. Norway require both debt reduction and new concessional finance as a Meshack Maganga. MP, Tanzania precondition though not a substitute for valid and sound domestic Miran Mejak. Yugoslavia Opan Muchingun. MP. Zimbabwe economic policies. Funds for debt policies reduction should be Richard Northey. MP. New Zealand additional to those already allocated for aid. Heinnch Ott. Counseiller National, Switzerland Eduardo Pereva da Silva, Deputado. Portugal 3. The central objective of the strategy for containing the debt David Steel, MP. United Kingdom Mitsunon Ueki. MP, Japan. crisis 90 far has been to prevent rupture in creditor-debtor Michael Wamalwa. MP. Kenya relations. The successes of this strategy have been that an Angel Zambrano. Diputado. Venezuela international financial crisis has been averted, banks have SECRETARIAT: strengthened their position and defaults have been contained. The HEADQUARTERS fundamental flaws are that the costs have been borne by debtors, causing general deterioration or stagnation and growing SECRETARY-GENERAL impoverishment for large segments of their populations. After Dr. Kennedy Graham nearly seven years the strategy has failed not only to restore the EXECUTIVE DIRECTOR. conditions for development but also because many countries are no Aaron Tovish nearer having any capacity to repay their debts. INTERNATIONAL OFFICE INTERNATIONAL DIRECTOR Nicholas Dunlop 4. A key requirement for easing the crisis is that global interest rates be reduced. The current upward pressure on interest rates must be resisted. This would also contribute to sustaining steady Western economic growth, which is necessary for the increase of trade between the industrialised and developing world. This process must be supported by greater international monetary stability. This would contribute to sustaining investment and growth. Headquarters: 211 East 43rd Street, Suite 1604, New York, New York, 10017, USA. Telephone (212) 687-7755 Telex: 4998460 PWONY Telefax: (212) 687-8409. International Office: rue du Marché aux Poulets 30, 1000 Brussels, Belgium, Telephone: (32-2) 217-8225 2. Goals 5. An obvious minimal goal of a new debt strategy must be elimination of net financial transfers from debtor to creditor countries. While there is a net outflow of funds from developing countries of around $30 billion a year adequate investment for sustained growth is impossible. A second minimal goal must be to relate debt servicing obligations to capacity to pay. Commercial Debt : Brady Plus 6. The commercial debt crisis is now much less a crisis of risk to the creditor banks and much more a crisis of declining living standards in the debtor countries and lost jobs through lost trade by the creditor countries. Resolving this crisis requires that the debtor countries have available adequate funds for growth- promoting investment, a goal which is inconsistent with the current net negative financial transfer from these countries. The debt strategy should at least eliminate these negative transfers. 7. The Brady initiative endorses the case for acceptance of debt reduction as the prime tool to end the negative resource transfer problem. But a major scale of debt reduction is essential for success. To this end, we recommend 50% as a guideline for the amount of debt stock reduction needed overall, with appropriate variation country-by-country depending on ability to pay as measured by export earnings and volume of debt. 8. The cost of servicing the remaining 50% of debt should be further reduced to eliminate net cash outflow. This should include measures to: 1) reschedule repayments of principal; 2) adjust interest rates to a standard such as the historical real interest rate of 1-2%; and 3) recycle repayments of allowing local currency repayment into reinvestment funds with repatriation constraints (in order to provide investment resources for developing countries as well as limiting outflows). These steps are appropriate to complement the Brady initiative and should be supported by the necessary regulatory and tax treatment to permit and induce banks to participate and to give priority to participating banks over non-participating ones. 9. Overall management of debt reduction and adjusting the debt service structure cannot be left to the private sector alone. Public sector resources will be required to support guarantees of claims remaining after adequate debt reduction. Coordination is required to ensure that the scale of debt reduction, reduction of resource transfers and accompanying debtor country policies are sufficient to make payments on these guarantees unlikely. Movement towards those goals would be greatly assisted by either the French proposal to use an SDR facility through the IMF, Japanese support for an independent debt management authority or the U.S. Congressional mandate to the Treasury to study and negotiate for such an authority. A facility of the World Bank would be an appropriate vehicle to perform these functions. 3. 10. The Brady initiative relies heavily on appropriate debtor country economic policies to reverse capital flight from debtor countries as a necessary condition for success of the approach. Reduction of capital flight is certainly a substantial potential source of additional investment. But this cannot be achieved until the investment environment in the debtor countries is attractive. Policies to achieve this goal should be part of the economic reforms which accompany debt reduction schemes. When such changes are being implemented by debtor countries it could be appropriate for the industrialised countries to assist the process by cooperative steps including: disclosure by tax authorities in the countries concerned; disincentives to capital flight such as taxation in the country of inflow; and recycling of at least a share of the funds to developing countries. Official Debt in sub-Saharan and Other Low Income Countries : Toronto Plus 11. Low income African countries face uniquely difficult economic development problems. Their human resources and their frequently fragile physical environments remain in peril. Their development in the near future depends more upon official than upon private external finance, and their external debts are primarily to governments. 12. The Toronto summit set an important precedent by authorizing debt reduction in connection with rescheduling in the Paris club. The need of African and other low income countries for external resource flows and debt reduction has not yet, however, been adequately addressed. For most of these countries recovery has yet to begin. 13. For these countries we therefore recommend: a write down of a significant portion of the Paris club debt; a moratorium of ten years on all official interest and principal payment obligations; the use of International Development Association rescheduled terms of these payments; that the budgetary costs of these debt reductions be added to aid donor commitments and not be taken from existing aid allocations; that aid donors who have not already done 90 plan now a program of cancellation of their aid-related debts; significant expansion of concessional resource flows; the development of improved means of encouraging the restoration of eligibility for those countries in arrears to the IMF; and that the IMF consider the sale of a portion of its gold holdings to. finance additional multilateral concessional lending to low-income debt-distressed countries. 4. Conditionality 14. The proposals above require sharply increased resources. As with all financial-flows creditor nations and international institutions must continue to exercise appropriate financial management to assure that the funds will contribute to equitable and sustainable growth. Such financial management should form part of an International Development Contract in which the partnership between the industrialised and developing countries is clearly recognized. This must include a more balanced approach to conditionality in which the partners have shared responsibility in both national and international policies. We strongly support the UNICEF strategy of "adjustment with a human face" which aims at appropriately changing productive structures while also emphasizing: more expansionary macro-economic policies; concentrating sectoral policy on employment and income earning areas including small farming and informal activities; greater equity as well as cost effectiveness in incomes policies and social programs; compensatory programs to protect health and nutrition of the poor during restructuring; closer monitoring of major aspects of living standards, so as to respond more quickly to deprivation; ecological responsibility; and democratic control of economic policy-making. 15. Many components of these conditions deal with critical policy decisions which will shape the future fabric of the societies in the debtor countries for many years to come. Such decisions should form part of a process of democratic consultations. As parliamentarians we are worried that rigid conditionality will hamper and frustrate the democratic process of decision making. We suggest therefore that parliamentarians of G10 countries in their respective parliaments encourage an investigation into, and seek to influence the functioning of the international financial institutions with respect to the effects of conditionality on democratic policy making. Such national inquiries could well lead to an international inquiry by parliamentarians into the role of the international financial institutions. As long as international economic and monetary issues are seen as only technical and abstract subjects which should be left to officials and bankers, some of the most important economic issues which affect the lives of all people are removed from the area of public debate. Greater political involvement of parliamentarians as well as international coordination of parliamentary action is a high priority in this respect. 16. These specific recommendations should not neglect wider issues of development strategy which must be addressed by the international community. They include: 1) an increase in concessional aid flows so that the ratio of overseas development assistance to GNP moves closer to the UN target of 0.7% of GNP; 2). approval of the World Bank's general capital increase; 5. 3) a major increase in IMF quotas; and 4) similar expansions in the capital base of the regional development banks and of the International Fund for Agricultural Development. The Japanese Government is already making an important contribution through rapid increases in bilateral aid flows and capital for the interantional financial institutions. 17. The current interim committee and G10 meeting in Washington and the meeting of G7 leaders in Paris in July offer the opportunity for a substantial major step forward. The major Western industrialised countries have the capacity to restore or prevent growth in the developing countries. The developing countries have control of their own internal affairs and through responsible economic policies can create the conditions for sustainable growth. But the most powerful external constraints on them originate in the G7 countries. The living standards of hundreds of millions of people depend on the decisions taken in Washington and Paris. We will advocate the policies outlined in this statement in our parliaments and to our governments and do all that we can to influence the outcome of these and other relevant meetings. I April 89 Hon W. Allmand, MP, Liberal Party. Canada Mr B. Beumer, MEP, Christian Democratic Group. The Netherlands Mrs E. Herfkens, MP, Labour Party. The Netherlands Mr S. Holland, MP, Labour Party. United Kingdom Mr N. Lammert, MdB, Christian Democratic Party. Federal Republic of Germany. Mr J. Langmore, MP, Labor Party. Australia Mr J. Lester, MP, Conservative Party. United Kingdom Mr J. Ramallo Massanet, MP, Socialist Party. Spain Hon W. McLean, MP, Conservative Party. Canada Mr B. Morrison, Congressman, Democratic Party. United States Mr M. Pedini, Senator, Christian Democratic Party. Italy Mr W. Vergeer, MEP, Christian Democratic Group. The Netherlands Mr B. Wells, MP, Conservative Party. United Kingdom 6. ADVISORS Dr B. N'Diaye, President, African Development Bank Dr D. Rwegasira, Deputy Director, Development Research and Policy, African Development Bank Dr L. Emmerij, President, OECD Development Centre, Paris Mme Chedeville-Murray, Ministere des Affairs Etrangeres, Centre d'Analyse et de Prevision, Paris Dr S. Griffith-Jones, University of Sussex Professor G. Helleiner, University of Toronto Dr R. van der Hoeven, UNICEF OBSERVER Mr Yasuaki Mori, First Secretary (Economics), Embassy of Japan, The Hague PARLIAMENTARIANS GLOBAL ACTION Mr N. Dunlop, International Director Dr K. Graham, Secretary-General PROJECT DIRECTOR Dr A. Koenders, Dutch Labour Party NATIONAL SECURITY COUNCIL ID 8904314 REFERRAL DATE: 05 JUN 89 MEMORANDUM FOR: STATE SECRETARIAT DEPARTMENT OF STATE DOCUMENT DESCRIPTION: TO: PRESIDENT SOURCE: LANGMORE, JOHN DATE: 01 JUN 89 SUBJ: LTR TO PRES FM PARLIAMENTARIAN GLOBAL ACTION RE THIRD WORLD DEBT REQUIRED ACTION: DRAFT REPLY FOR WH SIG DUEDATE: COMMENT: Mohat A Call FOR GEORGE VAN ERON DIRECTOR NSC SECRETARIAT