GLOBAL NEGOTIATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000200260014-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: December 20, 2016
• Document Release Date: June 4, 2007
• Sequence Number: 14
• Publication Date: December 7, 1981
• Content Type: MEMO

Approved For Release 2007/001 DENXIRDP84BOO049ROO0200260014-2
MEMORANDUM FOR: Director of Central Intelligence
SUBJECT : Global Negotiations
We do not know precisely what has motivated the NSC to put this issue on
the agenda for this morning's meeting.
There appears to be some concern in the Administration that Jeane Kirkpatrick
may be leaning too far in the direction of being forthcomming and receptive to
G-77 views on "global negotiations."
-- Chuck Meissner, from Paris, reports on European
confusion about the posy ion the U.S. seems to be taking
at the UN on this issue--they see it as inconsistent with
the Cancun statements.
-- Secretary Regan has sent a circular telegram to U.S. posts
abroad, reaffirming the strong line on global negotiations
the U.S. has taken at Cancun.
The attached paper, done by OGI, is a useful rundown on the state of G-77
efforts to "reform" the International Financial Institutions, and the limitations
on those efforts.
CONFIDENTIAL
roved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
(b)
 Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
National Foreign Assessment Center
Impact of Global Negotiations in the UN
on International. Financial Institution, 25X1
Summary
At the Cancun Summit in October leaders of 22 industrialized and developing
countries agreed to renew attempts to launch a process of Global Negotiations in the
United Nations. The Third World appears ready to compromise utopian plans for
restructuring the world economy and accept negotiations that would provide procedural
protection for the competence of the World Bank and the International Monetary Fund.
Global Negotiations in the UN will provide the Third World political leverage to
accelerate evolutionary change in the international financial institutions but will not
damage their independent legal status or autonomous decisionmaking.
This memorandum was prepared by
Office of Global Issues, at the request. of Ambassador Jeane J. Kirkpatrick, Permanent
Representative to the United Nations. It has been coordinated with the Office of East
Asian Analysis and the Office of European Affairs within NFAC. Information available
as of 2 December 1981 has been used. Comments and queries are welcome and may be
addresseP to Chief, Third World Issues Branch, Economics Division, Office of Global
Issues 01 1
GI-M-81-10244
December 1981
Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
 Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
CONFIDENTIAL
Impact of Global Negotiations in the UN
on International Financial Institution
The Global Negotiations Debate
The ambiguous final report issued at Cancun did not set any time frame or
mechanism to begin Global Negotiations. To keep the process alive the UN General
Assembly must pass a resolution before its current session ends in late December.
However, the United States and the LDCs' caucus, the Group of 77 (G-77), maintain quite
different concepts of Global Negotiations.=
The G-77 wants Global Negotiations based on General Assembly Resolution
34/138. In 1979 the General Assembly decided to launch a round of global and sustained
negotiations to restructure "international economic relations on the basis of the
principles of justice and equality." Negotiations were to take place within the UN
system on such topics as raw materials, energy, trade, development, and money and
finance. The General Assembly was given a central role to ensure a coherent and
integrated approach involving the simultaneous participation of the specialized
agencies
The United States now rejects 34/138 and will seek new language compatible with
the four "understandings" it advanced at Cancun. The US insists that Global
Negotiations:
o Deal with specific, identifiable obstacles to development.
o Not create new institutions or weaken the power of specialized agencies
such as the IMF and World Bank.
o Focus on international growth and development that is mutually
beneficial to both industrialized states and LDCs.
o Take place in a cooperative, nonpolemic atmosphere.
The President of the General Assembly, Ismat Kittani, is consulting with UN
delegations in an attempt to reach a consensus solution. He probably will be able to
achieve an ambiguous new resolution that launches Global Negotiations, but without
- 2 -
CONFIDENTIAL
Approved For Release 2007/06/04: CIA-RDP84B00049R0002002
 Approved For Release 2007( ffl41: 14' 84B00049R000200260014-2
making Resolution 34/138 the basis for the negotiations. If such a solution is accepted,
Global Negotiations could begin in early 1982.F--] 25X1
The UN and the Specialized Agencies
The UN and the International Monetary Fund and International Bank for
Reconstruction and Development (World Bank) are distinct international organizations
that derive their power from separate treaties. While the General Assembly has the
power to discuss and make recommendations, it has no control over the Fund or the
Bank. The General Assembly by passing a resolution cannot alter the basic allocation of
legal powers in the UN Charter and transform itself into a decisionmaking body or
change the nature of the relationship with specialized agencies. The formal mechanism
of interaction between the agencies and the UN is a process of consultation and
recommendation. Each organization is required to "consider" proposals or
recommendations of the other, but there is no commitment to act. The founding
agreements also provide for reciprocal representation, exchange of information, and
various liaison functions
The link between the United Nations and the international financial institutions is
defined in the UN Charter, the Articles of Agreement of the IMF and the World Bank,
and separate agreements that brought the specialized agencies into relationship with the
United Nations. It is important to note that the IMF and the World Bank may terminate
their relationship with the UN upon six months' written notice
According to the Charter, the General Assembly may make recommendations
concerning international economic cooperation. It has broad powers to discuss any
question or matter relating to the powers and function of the specialized agencies and
may make recommendations for the coordination of the policies and activities of these
agencies
The UN Charter indicates that the specialized agencies are established by
- 3 -
CONFIDENTIAL
Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
 Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
CONFIDENTIAL
intergovernmental agreements and that their wide international responsibilities are
defined in their own founding instruments. The UN Economic and Social Council is the
body that is authorized to enter into agreements with specialized agencies that
determine their relationship with the United Nations, subject to approval by the General
Assembly
The Articles of Agreement for the World Bank and the IMF authorize cooperation
with other international organizations. Any arrangement for cooperation that involves a
modification of any provision of the Articles is subject to an amendment procedure. This
requires the approval of the Board of Governors where weighted voting applies and
acceptance by three-fifths of the members with four-fifths of the voting power. As a
practical matter, the US currently can veto any amendment because of its voting
strength
The agreements that brought the IMF and the World Bank into relationship with
the UN specifically acknowledged the autonomous nature of these financial institutions.
The agreement with the Bank provides that "by reason of the nature of its international
responsibilities and the terms of its Articles of Agreement, the Bank is, and is required
to function as, an independent organization." With respect to the sensitive issue of loans,
for example, the UN explicitly recognizes that "action to be taken by the Bank on any
loan is a matter to be determined by the independent exercise of the Bank's own
judgment." The UN also recognizes that "it would be sound policy to refrain from making
recommendations to the Bank with respect to particular loans or with respect to terms or
conditions of financing by the Bank."
G-77 Demands for Change in the Specialized Agencies
As long as the process of Global Negotiations is kept within the UN framework the
General Assembly can do nothing more than make recommendations to the international
financial institutions. Any change will have to be made from within the organizations
- 4 -
CONFIDENTIAL
 Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
CONFIDENTIAL
themselves according to their rules of procedure. Thus, progress toward Third World
demands depends on the G-77's ability to use the General Assembly to apply political
pressure on the internal decisionmaking processes of the specialized agencies
The G-77 wants the IMF and the World Bank to serve as agents for Third World
development. The industrial nations created the international financial institutions
before most Third World nations achieved independence, and the G-77 claims that the
structure and the objectives of the Bank and the Fund need to be "modernized" in order
to meet the needs of the contemporary international economy. It wants to:
o Expand resources available for lending to the LDCs by permitting the
World Bank to guarantee and the IMF to co-finance private bank loans.
o Link creation and allocation of Special Drawing Rights (SDRs) to LDC
development needs.
o Increase availability of IMF resources to LDCs by easing the
conditionality requirement that a government implement deflationary
economic policies in order to qualify for loans.
o Increase LDC participation in Bank and Fund decisionmaking by
modifying the existing system of tying a country's voting strength to its
financial contribution.
o Create a World Bank affiliate to provide concessional financing for LDC
energy projects
II
Receptivity to Reform
There is virtually unanimous support among industrialized countries to maintain
the existing voting structure in the IMF and the World Bank. They see weighted voting as
the key to preserving the financial integrity of the Bank and the Fund. However, most
industrial countries are to varying degrees willing to consider marginal reforms
II
Their receptivity is based on several factors. Practically all believe poverty
nourishes political instability and invites Soviet meddling, and see industrialized
countries' generosity as stability-enhancing. Several think increasing the volume of
North-to-South resource transfers will increase the Third World's purchasing power, and
hence its demand for industrialized countries' exports. Most believe effective
- 5 -
CONFIDENTIAL
Approved For Release 2007/06/04: CIA-R DP84B00049R000200260014
 Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
CONFIDENTIAL
management of the international monetary system requires greater Third World
cooperation. Many have profitable political and economic relationships with Third World
countries, and are anxious to appear conciliatory to the G-77. F]
Thus far, most industrial nations have given the G-77 political support but have
maintained basically conservative positions in the international financial institutions.
Global Negotiations could be the catalyst that impels industrialized countries to make a
political decision on whether they wish to transform their reformist sentiment into
II
Diplomatic Pressure
The G-77 will use Global Negotiations to pursue its strategy of making reform of
the international financial institutions a political as much as an economic question. Most
UN members envisage Global Negotiations in three phases. In the first phase the General
Assembly will issue guidelines and recommendations to the specialized agencies. The G-
77 will use this segment to dramatize and politicize its demands by packaging them into
a "world economic development plan." It will then press the industrialized countries to
commit themselves before the onset of the second phase to reform the financial
institutions. In the second phase the specialized agencies will consider the General
Assembly's suggestions, make their decisions on development policy, and report back. In
the third phase, the General Assembly will assess the work of the specialized agencies.
There are incentives for most industrialized countries to acquiesce to the
principle of reform. Domestic political and economic conditions inhibit them from
making significant concessions to the G-77 on trade and aid. The industrialized countries
view marginal reform in the financial institutions as a relatively low-cost method of
pursuing their higher priority objective of maintaining good political and economic
relations with the Third World.1I
- 6 -
CONFIDENTIAL
Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
 Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
CONFIDENTIAL
A few industrial countries, such as France and Canada, will take the lead in
mobilizing the latent support for reform. If they construct a position that incorporates
some G-77 demands but appears to preserve the integrity of the financial institutions,
they will attempt to nudge other developed countries toward a consensus position within
the EEC and the OECD favoring reform
Prospects
Consensus on proposals in the General Assembly will not translate directly into
specific decisions within the financial institutions. The finance ministries of major
industrial nations have a strong voice in their government's policies within the IMF and
the World Bank and will resist change. During the complex technical negotiations within
the financial institutions, vague generalities will emerge as watered down concrete
actions. The professional staffs of the financial institutions favor decisions based on
economic rather than political criteria. Nonetheless, the international financial
institutions are increasingly sensitive to LDC requests for concessional development
Global Negotiations in the UN are likely to moderately accelerate the process of
evolutionary change within the international financial institutions. The independent
nature of the financial institutions and the power of weighted voting give the United
States a veto and the ability to control the pace of change. Political and economic
incentives for Western Europe and Japan to lend support to Third World proposals mean,
however, that the United States may have to act alone to ensure autonomy and financial
discipline of the IMF and the World Bank
- 7 -
CONFIDENTIAL
 Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2
(b)
Approved For Release 2007/06/04: CIA-RDP84B00049R000200260014-2