HENRY A. KISSINGER, 'ENERGY CRISIS: STRATEGY FOR COOPERATIVE ACTION.' BUREAU OF PUBLIC AFFAIRS, OFFICE OF MEDIA SERVICES, DEPARTME

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01194A000100470001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 40
• Document Creation Date: November 11, 2016
• Document Release Date: August 6, 1998
• Sequence Number: 1
• Publication Date: December 2, 1974
• Content Type: REPORT

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 Address *pwpyeA. F i Lease 1999/09/02 : CIA-RDP79-01194A000100470001-4
Chicago, Illinois November 14, 1974
Energy Crisis: -
Strategy for Cooperative Action
A generation ago the Western world faced an
historic crisis-the breakdown of international
order in the wake of world war. Threatened
by economic chaos and, political, upheaval, the
nations of the West built a system, of security
relations and cooperative institutions that have
nourished our safety, our prosperity, and our
freedom ever since. . A moment of grave crisis
was transformed into an act of lasting ere
ativity,
We face another such moment today. The
stakes are es- high as they were 25 years ago,
The challenge to our courage, our vision, and
our will is as profound.. And our opportunity
is :.-as great:
_What will be our response?
I speak, of course, of the energy crisis. To-
night I want to discuss how the administration
views this problem, what we have been doing
about it, and where we must now go. I will
stress two, themes that this government. has
emphasized for a year and a half:
First, the problem. is grave but it .is soluble.
taneously a slowdown.of production and a
speedup of an inflation that was already strain-
ing the ability of governments to control.
-The nations of the developing world face a
collective yearly deficit of $20 billion, over half
of which is due to increases in oil prices. The
rise in energy costs in fact roughly equals the
total flow of external aid. In other words, the
new oil bill threatens hopes for progress and
advancement and renders problematical the
ability to finance even basic human needs such
as food.
-The oil producers now enjoy a surplus of
$60 billion, far beyond their payments or
development needs and manifestly more than
they can invest. Enormous unabsorbed surplus
revenues now jeopardize the very functioning of
the international monetary system.
Yet this is only the first year of inflated oil
prices. The full brunt of the petrodollar flood
is yet to come. if current economic trends
continue, we face further and mounting world-
wide shortages, unemployment, poverty, and
huner. No nation, East or West, North or
South. consumer or producer, will be spared the
consequences.
Second, international collaboration, particularly
among the industrial nations of North America,
Western Europe, and Japan is an inescapable
necessity. .
The economic facts are stark. By 1973, world-
wide industrial expansion was outstripping
energy supply; the threat of shortages was al-
ready real. Then, without warning, we were
faced first with. a political embargo, followed
quickly by massive increases in the price of oil.
In the course of' a single year the price of the
world's most strategic commodity was raised
400 percent. The impact has been drastic
and global:
-The industrial nations now face a collective
payments deficit of $40 billion, the largest in
history, and beyond the. experience or capacity
of our financial institutions. We suffer simul-
An economic crisis of such magnitude would
inevitably produce dangerous political conse-
quences. Mounting inflation and recession-
broulght on by remote decisions over which
consumers have no influence-will fuel the
frustration of all whose hopes for economic
progress are suddenly and cruelly rebuffed. This
is fertile ground for social conflict and political
turmoil. 'Moderate governments and moderate
solutions will be under severe attack. Democratic
societies could become vulnerable to extremist
pressures from right or left to a degree not
experienced since the twenties and thirties. The
great achievements of this generation in preserv-
ing our institutions and constructing an inter-
national order will be imperiled.
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 The destixS3BSIiioyotiSuFn-qrs' ALef poedu 999/09/02
joined in the same global economic system, on
which the progress of both depends. If either
attempts to wield economic power aggressively,
both run grave risks. Political cooperation, the
prerequisite of a thriving international economy,
is shattered. New tensions will engulf the world
just when the antagonisms of two decades of
the cold war have begun to diminish.
The potentially most serious international conse-
quenoes could occur. in relations between North
America, Europe, and Japan. If the energy
crisis is permitted to continue unchecked, some
countries will be tempted to secure unilateral
benefit through separate arrangements with
producers at the expense of the collaboration
that offers the only hope for survival over the
long term. Such unilateral arrangements are
guaranteed to enshrine inflated prices, dilute the
bargaining power of the consumers, and perpe-
tuate the economic burden for all. The political
consequences of disarray would be pervasive.
Traditional patterns of policy may be abandoned
because of dependence on a strategic commodity.
Even the hopeful process of easing tensions with
our adversaries could suffer because it has
always presupposed the political unity of the
Atlantic nations and Japan.
The Need for Consumer Cooperation
This need not be our fate. On the contrary,
the. energy crisis should summon once again the
cooperative effort which sustained the policies
of North America, Western Europe, and Japan
for a quarter century. The Atlantic nations -
and Japan have the ability, if we have the will,
not only to master the energy crisis but to
shape from it a new era of creativity and common
progress.
In fact we have no other alternative.
The energy . crisis is not a problem of transitional
adjustment. Our financial institutions and mech-
anisms of cooperation were never designed to
handle so abrupt and artificially sustained a price
rise of so essential a commodity with such
massive economic and political ramifications. We
face a long-term drain which challenges us to
common action or dooms us to perpetual crisis.
The problem will not go away by permitting
inflation to proceed to redress the balance
between oil producers and producers of other.
CIA 79~-0.1194A0Q0100470001-4
s. n ion is a most grotesque kind
of adjustment, in which all elements in the
domestic structure are upset in an attempt to
balance one-the oil bill. In any event,. the
producers could and would respond by raising.
prices, thereby accelerating all the political
and social dangers I have described.
Nor can consumers finance their oil bill by
going into debt to the producers without making
their domestic structure hostage to the decisions
of others. Already, producers have the power
to cause major financial upheavals simply by
shifting investment funds from one country to
another or even from one institution to another.
The political implications are ominous and
unpredictable. Those who wield fnan i
e power
would sooner or later seek to dictate thal polit-
ical terms of the new relationships.
Finally, price reductions will not be bro Ight
about by consumer/producer dialogue alone.
The price of oil will come down. only when.
objective conditions for a reduction are created
and not before. Today the producers ar able
to manipulate prices at will and with apparent
impunity. They are not persuaded by our
protestations of damage to our societies nd
economies, because we have taken scant action
to defend them ourselves. They are not moved
.by our alarms about the health of the Western
%`,rld which never included and sometimes
exploited them. And, even if the producers
learn eventually that their long-term interest
requires a cooperative adjustment of the rice
structure, it would be foolhardy to count on it
or passively wait for it.
We agree that a consumer/producer dia.loa a is
essential. But it must be accompanied by the
elaboration of greater consumer solidarity. The
heart of our approach must be collaborati n
among the consuming nations. No one el$e will
do the job for us.
A Strategy for Consumer Cooperation
Consumer cooperation has been the centr
element of U.S. policy for the past year and a
half.
In April 1973 the United States warned that
energy was becoming a problem of unprec dent-
ed proportions and that collaboration amo g the
nations of the West and Japan was essential.
In December of the same year, we proposed a
program of collective action. This led tote L.
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Washington Energy Conference in February 1974,
at which the major consumers established new
machinery for consultation, with a mandate to
create, as soon-as possible, institutions for the
pooling of effort, risk, and technology.
In April 1974 and then again this fall before
the- U.N. General Assembly, President Ford and
I reiterated the American philosophy that global
cooperation offered the only long-term solution
.and that our efforts with fellow consumers were
designed to pave the way for constructive dia-
logue with the producers. In September 1974
we convened a meeting of the Foreign and
Finance Ministers of the United Kingdom, Japan,
the Federal Republic of Germany, France, and
the United States to consider further measures
of consumer cooperation. And last month
President Ford announced a long-term national
policy of conservation and development to
reinforce our international efforts to meet the
energy challenge.
In our view, a concerted consumer strategy has
two basic elements:
First; we must create the objective conditions,
necessary to bring about lower oil prices. Since
the industrialized nations are the principal con-
sumers, their actions can have a decisive impact.
Determined national action, reinforced by collec-
tive efforts, can transform the market by reducing
our consumption of oil and accelerating develop-
ment of new sources of energy. Over time this
will create a powerful pressure on prices.
Second, in the interim we must protect the
vitality of our economies. Effective action on
conservation will require months; development
of alternative sources will take years. In the
meantime, we will face two great dangers. One is the threat of a new embargo. The other is
that our financial system may be unable to
manage chronic deficits and to recycle the huge
flows of oil dollars that producers will invest
each year in our economies. A financial collapse-
or the threat of it-somewhere in the system
could result in restrictive monetary, fiscal, and
trade measures and a downward spiral of income
and jobs.
The consumers have taken two major steps to
safeguard themselves against these dangers by
collaborative action.
One of the results of the.Washington Energy
Conference was a new permanent institution for
consumer energy cooperation-the. International
Energy Agency [IEA] . This agency will oversee
a comprehensive common effort-in conservation,
cooperative research and development, broad new
action 'in nuclear enrichment, investment in new
energy supplies, 'and the elaboration of consumer
positions 'for the consumer/producer dialogue.
Equally significant is the unprecedented' agreement
to share oil supplies among principal consumers
in the - event of another crisis. The International
Energy Program that grew out of the Washington
Energy Conference and that we shall formally
adopt next week is an' historic step toward consume2
solidarity. It provides a detailed blueprint ' for
common action should either a general or selective
embargo occur. It is a defensive arrangement,
not a challenge to producers. But producing
countries must know. that it expresses the deter-
mination of the consumers to shape their own
future and not to remain vulnerable to out-
side pressures.
The International Energy Agency and the inter-
national Energy Program are the first fruits of
our efforts. But they are only foundations. We .
must now bring, our blueprint to life.
The Five Action Areas
To carry through the overall design, ..he consum-
ing countries must act in five interrelated areas.
Firs :, we must accelerate our national programs
of energy conservation, and we must coordinate
them to insure their effectiveness.
Second, we must press on with the development
of new supplies of oil and alternative sources
of energy.
Third, we must strengthen economic security-
to protect against oil emergencies and to safeguard
the international financial system.
Fourth, we must assist the poor nations whose
hopes and efforts for progress have been cruelly
blunted by the oil price rises of the past year.
Fifth, on the basis of consumer solidarity we
should enter a dialogue ' with the producers to
establish, a fair and durable long-term relationship.
Let me deal with each of these points in turn.
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common goals and an overall design. The efore,
Conservation
Conservation. and the development of new
sources of energy are basic to the solution: The
industrialized countries as a whole now import
nearly two-thirds of their oil and over one-third
of their total energy. Over the next decade we
must conserve enough oil and develop sufficient
alternative supplies to reduce these imports to
no more than one-fifth of the total energy con-
sumption. This requires that the industrialized
countries manage the growth of their economies
without increasing the volume of their oil
imports.
The effect of this reduced dependence will be
crucial. If it succeeds, the demand of the
industrialized countries for imported. oil will
remain static, while new sources of energy will
become available both inside and outside of
OPEC [Organization of Petroleum Exporting
Countries]. OPEC may attempt to offset
efforts to strengthen conservation and develop
alternative sources by deeper and deeper cuts
in production, reducing the income of producers
who seek greater revenues for their development.
The majority of producers will then see their
interest in expanding supply and seeking a new
equilibrium between supply and demand at a.
fair price.
Limiting oil imports in;:o industrial countries to
a roughly constant figure is an extremely
demanding goal requiring discipline for conser-
vation and investment for the development of
new energy sources. The United States, which
now imports a third of its oil and a sixth of
its total energy, will have to become largely
self-sufficient. Specifically we shall set as a
target that we reduce our imports over the next.
decade from 7 million barrels .a. day to no more
than I million barrels or less than 2 percent of
our total energy consumption.
Conservation is, of course, the most immediate
road to relief. President Ford has stated that
the United States will reduce oil imports by 1
million barrels per day by the end of 1975-a
15 percent reduction.
But one country's reduction in consumption can
be negated if other major consumers do not
follow suit. Fortunately, other nations have
begun conservation programs of. their own.
What is needed now is to relate these programs to
the nited States proposes an international agree-
ment to set consumption goals. The United
States is prepared to join an international on-
nervation agreement that would lead to, systematic-
and long-term savings on an equitable basis.
As part of such a program, we propose that by
the end of 1975 the industrialized countri s
reduce their consumption of oil by 3 millin
barrels a day over what it would be oche
a reduction of approximately. 1.0 percent o
total imports of the group. This reductio
be carried out without prejudice to econo
growth and jobs by cutting back on waste
and inefficient uses of energy both in pers
consumption and in industry. The United
is prepared to assume a fair share of the t
reduction.
The principal consumer nations should me
.each year to determine appropriate annual
Alternative Energy Sources
uT
t
target
Conservation measures will be effective to the
extent that they are part of a dynamic pram
o -
for the development of alternative energy sources.
All countries must make a major shift tow - d
nuclear power, coal, gas, and other sourced
If we are to assure substantial amounts of new
energy in the l980's we must start now.
the industrialized nations take the steps whifch.
are within their power, they will be able t
transform energy shortages into energy surpluses
Project Independence is the American cont4ibution
to this effort. It represents the. investment of
hundreds of billions of dollars, public and
private-dwarfing our moon-landing. program and
the Manhattan Project, two previous examp es
of American technology mobilized for a gr at
goal. Project Independence demonstrates t at
the United States will. never permit itself t be
held hostage to a strategic commodity.
Project Independence will be complemented by
an active policy of supporting cooperative
projects with other consumers. The Intern
tional Energy Agency to be established nex
week is well designed to launch and coordi: ate
such programs. Plans are already drawn up for
joint projects in coal technology and solar
.energy. The United States is prepared to a paced
these collective activities substantially to inc u
such fields as uranium enrichment.
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The 'area of controlled -thermonuclear fusion is
particularly promising for joint ventures for it
would make available abundant energy from.
virtually inexhaustible resources. The United
States is prepared to join with other lEA
members in a broad program of joint planning,
exchange of' scientific personnel, shared use of
national facilities, and the development of joint
facilities to accelerate the advent of fusion power.
Finally, we shall recommend to the IEA that it
create -a common fund to finance or guarantee
investment in promising energy projects, in
participating countries and in those ready to
cooperate with the IEA on a long-term basis.
Financial Solidarity
The most -serious immediate problem facing the
consuming countries is the economic and
financial strain resulting from high oil prices.
Producer revenues will inevitably be reinvested
in the industrialized world; there is no other
outlet. But they will not necessarily flow back
to the countries whose balance-of-payments
problems are most acute. Thus many countries
will remain unable to finance their deficits and
all will be vulnerable to massive sudden with-
drawals.
The industrialized nations, acting together, can
correct this imbalance r:-id reduce.their vulner-
ability. Just as producers are free to choose
where. they place their funds,. so the consumers
must be free to redistribute these funds to
meet their own needs and those of the develop-
ing countries.
Private financial institutions are -already deeply
involved in this process. To buttress their
efforts, central banks are assuring that necessary
support is available to the private institutions-
particularly since so much of the oil money has
been invested in relatively short-term obligations.
Private institutions should not bear all the risks
indefinitely, however. We cannot afford to test
the limits of their capacity.
institution to be funded by additional taxes. It
will be a mechanism for recycling, at commercial
interest rates,. funds flowing back to the indus-
trial world from the oil producers. Support
from the facility would not be automatic, but
contingent on full resort to private financing
and on reasonable self-help measures. No country
should expect financial assistance that is not
moving effectively to lessen its dependence on
imported oil.
Such a facility will help assure the stability of
the entire financial system and the creditworthi-
ness of participating governments; in the long
run it would reduce the need for official
financing. If implemented rapidly it would:
-Protect financial institutions from the
excessive risks posed by an enormous
volume of funds. beyond their control or
capacity;
Insure that no nation is forced to pursue
disruptive and restrictive policies for lack
of adequate financing;
-Assure that no consuming country will be
compelled to accept financing on intolerable
political or economic terms; and
-Enable each participating country to
demonstrate to people that efforts and
sacrifices are being shared equitably-that
the national survival is buttressed by
consumer solidarity.
We have already begun discussion of this proposal;
it was a principal focus of the meeting of the
Finance and Foreign Ministers of the Federal
Republic of Germany, the United States, Japan,
the United Kingdom, and France in September
in Washington.
The Developing World
strategy I have outlined here is also
essential to ease the serious plight of many
developing countries. All consuming nations
are in need of relief from excessive oil prices,
Therefore, the governments of Western Europe, but the developing world cannot wait for the
North America, and Japan should move now to process to unfold For them, the oil crisis has
put in place a system of mutual support that pap roduced an emergency. The oil bill
will augment and buttress private channels already out the external assistance of the
whenever necessary. The United States proposes has wiped n halted agricultural
that a common loan and guarantee facility b~ and inoorer,d deveustrilaolpid eelopment; countries; and inflated the
created to provide for redistributing up to $:.5 prices for their most fundamental needs,
billion in 1975, and as much again the next Yearpmciudin food. Unlike the industrial nations,
if necessary. The facility will not be a new aid g
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 developing countries do not have many options
of self-help; their margin for reducing energy
consumption is limited; they have little
capacity to develop alternative sources.
For both 'moral and practical reasons, we
cannot permit hopes for development to die,
or cut ourselves off from the political and
economic needs of so great a part of mankind.
At the very least, the industrial nations must
maintain the present level of their aid. to the
developing world and take special account of
its needs in the multilateral trade negotiations.
We must also look for ways to help in the
critical area of food.. At the World Food
Conference I outlined a strategy for meeting
the food and agricultural needs of the least
developed countries. The United States is
uniquely equipped to make a contribution in
this field and will make a contribution worthy
of its special strength.
A major responsibility must rest with those oil
producers whose actions aggravated the problems
of the developing countries and who because of
their new-found wealth now have greatly
increased resources for assistance.
But even after all presently available resources
have been drawn upon, an unfinanced payment
of deficit of between $1 and $2 billion will
remain for the 25 or 3.0 countries most
seriously affected by high oil prices. It could
grow in 19 7 6.
We need new international mechanisms to meet
.this deficit. One possibility would be to supple-
ment regular International Monetary Fund (IMF)
facilities by the creation of a separate trust fund
managed by the IMF to lend at interest rates re-
cipient countries could afford. Funds would be
provided by national contributions from interested
countries, including especially oil producers. The
IMF itself could contribute the profits from IMF
gold sales undertaken for this purpose. We urge
the Interim Committee of the IMF and the joint
IMF/IBRD Development Committee to examine
this proposal on an urgent basis.
Relations With Producers
When the consumers have taken some collective
steps toward a durable solution- that is, meas-
ures to further conservation and the development
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of new supplies - and for our interim protection
through emergency planning and financial soli- -
darity, the conditions for a constructive dialogue
with
d
pro
ucers will have been created.
We do not see consumer cooperation as antag-
onistic to consumer/producer cooperation. Rather,
we view it as a necessary prerequisite to a con-
structive dialogue as do many of the producers
themselves who have urged the consumes to
curb inflation, conserve energy, and preserve
international financial stability. .
A dialogue that is not carefully prepared will
compound the problems which it is suppo ed to
solve. Until the consumers develop a coh rent
approach to their own problems, discussions with
the producers will only repeat in a multila eral
forum the many bilateral exchanges which are
already taking place. When consumer soli arity
has been developed and there are realistic ros.-
pects for significant progress, the United States
is prepared to participate in a consumer/p oducer
meeting.
The main subject of such a dialogue must in-
evitably be price. Clearly the stability of he
system on which the economic health of e en
the producers depends requires a price reduction.
But an equitable solution must also take account
of the producers' need for long-term income.
security and economic growth. This we are pre-
pared to discuss sympathetically.
In the meantime the producers must recognize
that further increases in the prices while this
dialogue is being prepared, and when the sys-
tem, has not even absorbed the previous price
i
r
ses, would be disruptive and dangerous.
On this basis - consumer solidarity in cons~rva-
tio
h
n, t
e development of alternative supplie
and financial security, producer policies of
restraint and responsibility, and a mutual reog-
nition of interdependence and a long-term om-
that a consumer/producer dialogue will brin
an end to. the crisis that has shaken the word
to its economic foundations.
The Next Step
It is now a year and a month since the oil c isis
began. We have made a good beginning, bu the
major test is still ahead.
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fife United States in the immediate future intends
to make further proposals to implement the program
I have outlined.
Next week, we will propose to the new IEA -a
specific program for cooperative action in conser-
vation, the development of new supplies, nuclear
enrichment, and the preparation of consumer
positions for the eventual producer/consumer dia-
logue.
Simultaneously, Secretary Simon will spell out
our ideas for financial solidarity in detail, and
our representative at the Group of Ten will present
them to his colleagues.
We will, as well, ask the Chairman of the Interim
Committee of the IMF as well as the new joint
IMF/IBRD Development Committee to consider
an urgent program for concessional assistance to
the poorest countries.
Yesterday, Secretary Morton announced an accel-
erated program for domestic oil exploration and
exploitation.
President Ford will submit a detailed and compre-
hensive energy program to the new. Congress.
For more than a decade America has been torn by
war, social and generational turbulence, and con-
stitutional crisis. Yet the most striking lesson
from these events is our fundamental stability and
strength. During our upheavals, we still managed
to ease tensions around the globe. Our people
and our institutions have come through our do-
mestic travails with an extraordinary resiliency.
And now, once again, our leadership in technol-
ogy, agriculture, industry, and communications
has become vital to the world's recovery.
Woodrow Wilson once remarked that "wrapped
up with the liberty of the world is the continuous
perfection of that liberty by the concerted
powers of all civilized peoples.". That, in the
last analysis, is what the energy. crisis is all about.
For it is our liberty that in the end is at stake
and it is only through the concerted action of
the industrial democracies that it will be
maintained.
Conclusion
Let there be no doubt, the energy problem is
soluble. It will overwhelm us only if we retreat
from its reality. But there can be no solution
without the collective efforts of the nations of
North America, Western Europe, and-Japan - the
very nations .whose cooperation over the course of.
more than two decades has brought prosperity and
peace to the postwar world. Nor in the last analy-
sis can there be a solution without a dialogue with
the producers carried on in a spirit of recoincilia-
tion and compromise.
A great responsibility rests upon America, for
without our dedication and leadership no progress
is possible. This Nation, for many years, has carried
the major responsibility for maintaining the peace,
feeding the hungry, sustaining international economic
growth, and inspiring those who would be free. We
did not seek this heavy burden, and we have often
been tempted to put it down. But we have never
done so, and we cannot afford to do so now -
or the generations that follow us will pay the
price for our, self-indulgence.
The dangers that Woodrow Wilson and his genera-
tion faced were, by today's standards, relatively
simple and straightforward. The dangers we face
now are more subtle and more profound. The
context in which we act is more complex than
even the period following the Second World War-
Then we drew inspiration from stewardship,
now we must find it in partnership. Then
we and our allies were brought together by an
eternal threat, now we must find it in our devo-
tion to the political and economic institutions of
free peoples working together.for a common goal.
Our challenge is to maintain the cooperative spirit
among like-minded nations that has served us
so well for a generation and to prove, as Woodrow
Wilson . said in another time and place, that "the_ .
highest and best form of efficiency is the spon-
taneous cooperation of a free people.
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HSUi HUA DAILY BULLETIN >r
WORLDWIDE TREATMENT
OF CURRENT ISSUES
.TA JU
--President's Far East Trip I
--Kissinger Energy/Finance Plan
No. 136 November 18, 1974
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KISSINGER ENERGY/FINANCE PROPOSAL
Summary
Foreign media reaction to Secretary Kissinger's proposal of a new coordinated
effort by oil-consuming nations to lower their foreign-source energy require-
ments and to cope with the financial disruption caused by petrodollar concentra-
tion continued through the weekend and in today's press.
Some comment hailed the proposal as a bold stroke of. American leadership, but
the praise was salted with reservations about the plan's feasibility in the light of
Western disunity and about U. S. motives in advancing it.
--The Times of London said the Secretary's speech was in the best traditions
of American leadership and vision and... should be given a quick and generous
response without tactical political reservations. " The Manchester Guardian,
though, said "his recipe for saving the Western world will be persuasive only
if President Ford takes a much more visible lead" and shows "the Administra-
tion's readiness to take its share of the burden and hardships involved. "
--Munich's Sueddeutsche Zeitung viewed realization of the proposal as "dubious"
because it "assumes a solidarity that is neither at hand nor visible on the horizon. "
--French media saw in the Kissinger speech opposition to the French approach to
energy and financial crisis, and Le. Monde argued that in his attitude toward the
producers it was "really a strategy of confrontation that Mr. Kissinger has de-
fined. . In his view, the OPEC has declared economic war on the rest of the world,
so he is.warning the turncoats.
--Japan's Nihon Keizai declared that "as long as the U. S. ignores the problem
of excess profits, its call on oil-consuming nations to cooperate in promoting
the U.S. -proposed international energy project cannot fully convince other
countries. "
--The Straits Times of Kuala Lumpur predicted: "There will be confrontation
before cooperation, "
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London: "Britain Should Support Kissinger Plan."
Several weekend British papers endorsed Secretary Kissinger's proposal for
dealing with petrodollar imbalance, but some reported strong reservations
in political and financial circles.
The independent Sunday Times urged: "Britain should give an immediate warm
response to the Kissinger plan, just as it has wisely supported the l6-patio
agreement on a new international energy agency for sharing supplies in emer-
gency.
"Those who react with. automatic anti-American suspicions,
as the French still do, might reflect that the lead for this,
too, came from the United States, yet the U. S. will by this
.plan easily sacrifice the most if the supply war erupts again.
"A capacity to recognize one's friends is not merely magnanimous;
it is a necessary condition of survival. "
"Ranks With Marshall Plan"
The. editorially separate Times of London said on Saturday that Mr. Kissing is
speech was "in the best traditions of American leadership and vision and des rves
to rank with other examples such as the Marshall Plan. It should be given a
quick and generous response without tactical political reservations of the typ
that greeted her well-intended but ill-considered call for a new Atlantic Char er.
"It is a bigger challenge and a bigger crisis that now faces the
Alliance. Failure to meet it could bring disasters as great as
war, or even war itself. Success could, as Dr. Kissinger
suggests, transform a moment of grave crisis into an act of
lasting creativity. "
The paper's U. S. economics correspondent, Frank Vogl, observed that "the basic
assumption--unlikely to be widely contested---in Dr. Kissinger's scheme is t at
the oil-producing countries have no alternative but to place their surplus fund
in some form in the developed industrial countries... The statement by Dr.
Kissinger is so important because it implies a willingness by the Americans to
be big contributors to such a central fund. "
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"Some Concerned by Hawkish Tone"
The liberal Guardian of Manchester and London on. Saturday carried a front-
page story by business editor John Palmer reporting a "mixed'reception" for
the Kissinger pro pDsal. He said that a number of governments supported the
Secretary's appeal for "energy saving and for the recycling of oil state money, "
but that they "were not disguising' concern at the hawkish tone of his remarks
about the pricing policies of the oil states. 11
The paper also carried a report by Washington corres pDndent Hella Pick of
"skepticism here over Dr. Kissinger's offer to lead the industrialized world
out of the energy crisis. "' She said "the reason is that nobody is sure to what
extent the Ford Administration, together with Congress, is willing to act on
the blueprint for energy conservation, development of new sources of energy,
and the recycling of oil money which Dr. Kissinger outlined in his Chicago
speech...
"His recipe for saving the Western world will be persuasive only
if President Ford takes a much more visible lead to impress
America's allies with the Administration's readiness to take its
share of the burden and hardships involved. "
In a similar tone, the paper's Saturday editorial on the financial aspect of the plan
declared, "If Dr. Kissinger's speech means the U. S. will now take the lead in
removing the worst uncertainties, then we can all look, forward more hopefully
to 1975. 1"
The conservative London Daily Telegraph on Saturday held that Mr. Kissinger
"was right to make again his plea for common action on oil among the nations
of the West and Japan... for without effective cooperation among these nations,
a worldwide economic disaster is more than possible...
"It is a pity (he) has had so little support from America's
European allies. "
The paper's diplomatic correspondent reported that "the British Government...
publicly welcomed the broad outline of Dr. Kissinger's plan" but "privately it
heaved a sigh at the monumental task of trying to coordinate the West's various,
and perhaps contradictory paper schemes. "
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"Signals Shift in Ford Policy"
Washington correspondent Stephen Barber saw the Secretary's; speech as signal
ling "a major shift in Ford Administration policy. The scheme' means that Ame
has officially given up hope that it can persuade Saudi Arabia's .King Feisal and
.the Shah of'Persia to take realistic action to reduce oil prices. "
The sister Sunday Telegraph carried the observation of columnist Peregrine
Worsthorne that "at the moment, the Arab oil monopoly, if applied would be
truly disastrous for the Western world, leading to impoverishment and, in all
probability, social convulsions and revolution...
"Deterring the Arabs today has to involve an absolute deter-
mination to strike the .oil weapon out of their hands, which
means envisaging, and planning for, the use of force not
only in defense of Israel but also against the Arabs. "
"Coolness in Financial Circles"
The independent London Financial Times reported on Saturday that the Kissing
proposal "has initially met with a rather cool reception in official financial
circles in London...
"There are two reasons... One is that the British, in common
with some other European governments, have never been
sympathetic to Dr. Kissinger's idea of a consumer cartel to
break the (OPEC) cartel...
"The second reason is that the U. K. Government has been
heavily backing the so-called 'Witteveen' IMF plan for a
multilateral facility... for rechannelling Arab and other oil
funds.
Munich: "Proposal Seems Dubious"
Independent-left Sueddeutsche Zeitung of Munich declared today:
"Only despair must have led Henry Kissinger to invest his already
diminished prestige where energy matters are concerned in a
project the realization of which must seem dubious. Restriction of
-ica
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current oil consumption in all industrial countries by 10 per
cent as well as the formations of a 'consumer cartel' assumes
a solidarity that is neither at hand nor visible on the horizon.
If Kissinger is building on such hopes, then he must have been
treated much worse by the Shah of Iran and by King Feisal
than has yet been made public...
A correspondent. for pro-Christian Democratic Rheiizische Post of Duesseldorf
reported from Chicago, "It is doubtful whether Kissinger's appeal to the Euro-
peans and Japanese for cooperation and solidarity will fall on fruitful soil... "
"Less Risky for Ti. S. Than for FRG"
A byliner for the independent Westdeutsche All- emeine of Essen wrote today that
not all the industrial countries "are sitting in the same boat, " since there are
the energy-rich countries and the "have-nots like the FRG.
"The U. S. is definitely among the winners in the oil crisis. It
has its own oil sources, unaffected .by OPEC's price rises...
"For the U. S. it is, therefore, less risky than it is for the
FRG, as one example, to steer a collision course.with the
oil countries... Expensive oil is better than no oil. If
Kissinger preaches teamwork, then the U. S. must be prepared
to share its wealth...
"Carries a Lot of Weight"
Pro-Social Democratic Neue Rhein Zeitung of Duesseldorf today carried this
comment by a byliner:
"No one who has read the signs of the past year can contradict
Kissinger's words about a challenge to the industrial countries
greater than any since 1945. It is high time to accept that
challenge. What the U. S. Secretary of State said carries a
lot of weight. A prerequisite though for any success is a
modicum of teamwork... If
The writer concluded, however, that the experience of the past year among
Europeans "give.s little reason to hope for future solidarity...
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Heinz Barth, Washington correspondent for right-center Die Welt of 1-iamburr
wrote today that the Secret:ary's global plan for "a joint energy-crisis manage,
ment is one that Europe and Japan "cannot reject without study...
"FRG Wishes to Avoid U. S.-French Confrontation"
The paper remarked Saturday that "Bonn quarters attach great significance to
Kissinger's proposals" but "Government reaction has been marked by restrai t"
because the FRG wishes to "avoid 'confrontation'. between the French and Ameri-
can views on this matter... "
Paris: "Kissinger vs. Giscard Approach''
French media interpreted the Kissinger speech as a rejection -more or less
direct and more or less aggressive--of the plan put forth by President Giscar
d'Estaing for a three-way conference of oil producers, industrialized nations
and developing countries.
Government-influenced first-network television saw "many points of agreement"
between the Giscard approach and Mr. Kissinger's proposal, despite "differences
in strategy." It concluded. that "there are no real contradictions but only dif-
ferent views of the best means to arrive at a dialogue with the oil-producing
countries. "
The second network said the U. S. did not "bluntly reject Giscard's proposal,
but it intends to head the negotiations. " A commentator declared, "The
Kissinger counterproposal is upsetting the French plan. He does not exactly
slam the door, but he poses a precondition, that of a consumer bloc animated
by the U. S.
"Stunning Blow to French Plan"
Right-center pro-Government Aurore of Paris called Mr. Kissinger's speech
decisive, stunning blow to the French plan for.an international conference on
energy.'.' It said "authorized circles in Paris have tried hard to minimize the
disagreement between the two approaches.
"But this commentary emanating from circles close to the
Government has not convinced international opinion, nor
even Paris political circles, where it is pointed out that the
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concerted action among consluners advocated by Mr. Kissinger
is very likely to be a fatal blow to the preferential relations
established. by France with some oil-producing nations. They
.also point to the imperative, even threatening tone employed by
the Secretary of State. "
Pro-Gaullist France-Soir today carried the observation of Washington corre-
spondent Adalbert de Segonzac that "it would be excessive to state that Mr.
Kissinger's aim was to block the French initiative, but that initiative certainly
had something to do with Mr. Kissinger's move last Thursday. "
"Enough to Make Dollar-Hunk Countries Pause"
Independent-left Le Monde of Paris headed 'its. editorial on the Kissinger speech,
"The Counterattack, " and asserted that he "has spoken, and once again has spoken
as though he were the master. !' It continued:
"To save face, Paris can of course claim that there. is only
a difference of time tables between Mr. Kissinger's strategy
and that of Mr. Giscard d'Estaing, with both aimed at the same
result, a dialogue with the.producer countries.
"That would be actually minimizing the disagreement. What
Mr. Ki~singer is proposing is .really a council of consumer
countries. To make his proposal more attractive, he matches
it with a 25-billion-dollar plan for recycling petrodollars.
Never had such a huge figure been cited--enough to make dollar-
hungry countries pause to ponder, even when they are tempted to
rebel against Washington's will for power. Thus it is to be feared
that France may lose a good many of her allies of the moment.."
The paper said President Giscard had hoped with his three-way' conference pro-
posal to "extricate himself from an impasse into which he had been propelled by
'Jobertism'--refusing to join Mr. Kissinger's international energy agency--which,
?deep in his heart, he had never really approved.
"But now, by his public opposition, Kissinger is driving Giscard
into a corner and compelling him to take sides in a more definite
manner. In the final analysis, it is really a strategy of confronta-
tion that Mr. Kissinger has defined. In his view, the OPEC has
declared economic war on the rest of the world, so he is warning
the turncoats.
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'At this point, can France afford to keep a foot in both camps?
And what will'be the weight of the friendships she has won in
the third world, in the face of such an exercise of American
power?
Turin: "A Domestic Political. Move?
The economics editor of center-left La Starnpa of Turin remarked yesterday
that "it remains to be seen whether Kissinger's initiative is a domestic political
move or one based on the firm principles of trade and economics. This does not
rule, obviously, that his initiative. may meet the aims of both.
"Probably in Earnest"
A New York correspondent for center-left Il Giorno of Milan observed Satur ay
that "it is too early to say to what extent Kissinger's speech... provides a basis
for further action from the industrial bloc and to what extent it is a bluff to
threaten the Arabs. Probably Kissinger is in earnest. "
Pro-Communist Paper: "Objective--Hegemony"
The foreign affairs editor of pro-Communist Paese Sera of Rome observed
Saturday:
"Just a few days before the Vladivostok summit, with an even
more complicated and delicate situation in the Middle East and
with a U. S. domestic situation still marked by low White l:-louse
prestige, Henry Kissinger is back again on the old. road of his
energy strategy. His Chicago address seeks once more to give
the U. S. a role in a situation where there are ideological and
pragmatic rifts in the EEC. The hegen-ionic objective of the
Kissinger plan is clear as are the dangers that threaten any
solution to the Israeli-Arab conflict. Israeli hawks can continue
to hope... "
Copenhagen: "Brass Knuckles in the Glove"
The independent conservative Berlingske Tidende of Copenhagen today warned
that. "despite the gentleness of Kissinger's presentation.. there were brass
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knuckles hidden in the glove. The oil-producing countries are earnestly cautioned
not to' increase oil prices further while efforts are being made to carry out this
great program of conciliation. If they should, they would themselves be looking
for danger.-"
The paper pointed out that "the U. S. initiative follows closely along lines of
thought also advanced in Common Market circles..
"But the Common Market has acted too late and done too little.
It should now with all its might--and without misdirected concern
for prestige--support this U. S. attempt to save the world from
the oil crisis.
"It is still too early to 'judge whether Kissinger's grand design
will succeed... but he is right in all the main lines he has drawn
on the energy question.
Tokyo TV: "Expect U. S. Demands"
Japan's commercial NTV said yesterday that Mr. Kissinger was expected to
seek Japan's cooperation at the Ford-Tanaka talks on the U. S. oil strategy as
outlined by the Secretary in Chicago.. On Saturday publicly financed NHK televi-
sion stated that "there is a tense atmosphere in the Foreign Ministry as a result
of the Kissinger speech because the U. S. is expected to make demands on Japan
in regard to the energy problem. " It contended that the U. S. would ask Japan
during the summit talks to reduce oil consumption.
"
"What About Oil Company Profits?
Business-oriented Nihon Keizai asserted yesterday that Mr. Kissinger was
silent about major international oil companies' excess profits. It added, "As
long as the U. S. ignores the problem of excess profits, its call on oil-consuming
nations to cooperate in promoting the U. S.-proposed international energy project
cannot fully convince other countries. "
The paper also expressed its concern over the Kissinger plan in that he called
on the advanced nations to organize an international petrodollar redistribution sys=
tem but did not ask the OPEC nations to cooperate in this system. The paper
-stressed that the problem of recycling petrodollars should be solved. on the
basis of full cooperation by all countries concerned, including the OPEC countries.
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"French Conference Plan Seems More Adequate''
Moderately conservative Sankei held yesterday that concerted' action by oil-
consuming nations to reduce their oil imports by approximately 10 per cent
by the end of 1975 would offend the oil-producing nations.
It recommended instead that the advanced nations "seek a dialogue with the
oil producers with .a view to bringing down oil prices, " adding, "The French-
proposed international petroleum conference... seems more adequate than the
U. S. policy of strength to 'drag' the oil-producing nations into a dialogue wi h
oil-consuming nations. The paper also wondered about the effectiveness of he.
U.S.-proposed 10 per cent cut in imports, saying, "Since the supply sources are
limited, and petroleum itself is virtually an oligopoly, less oil in marketing
channels might touch off price increases.
Kuala Lumpur: "Producers Will React Sharply"
The Straits Times of Kuala Lumpur said today of the Kissinger speech, "The
oil-producers will react sharply to this program. It will not frighten them or
coerce them into price reductions. But they will resent American-led consumer
cooperation, and their money passing into international institutions which they do
not control. There will be confrontation before cooperation. "
Tehran: "Indifference Here"
Yesterday's independent Ettelaat of Tehran, in an editorial headed "Kissinger's
New Plan Creates Indifference,'' asserted that "contrary to Mr. Kissinger's
previous plans (it) did not create strong reaction in Tehran.
The paper continued, "Following his talks with the Shah, Kissinger was con
vinced that there was no hope for a reduction in oil prices. The experience f
the past year proved that even a war of nerves cannot change the. situation."
It added, "Kissinger's new plan puts the bulk of pressure on consuming countries
and demands only one thing from the OPEC countries, namely, recycling their
surplus revenues in the Western industrialized countries. Tehran supports any
proposition for cutting back oil consumption, but the experience of the past has
proved that it will be difficult for West Germany, Japan and even Great Britain
to implement Kissinger's proposal. So Tehran believes that Kissinger also
failed this time in his efforts.
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Jerusalem: "A Good Plan"
Semi-official Davar of Tel Aviv declared today that although "all five clauses
of Kissinger's oil plan are -economic... it should not be concluded that the U. S.
would rule out, in principle, the possibility of military action... if it sees no
other way to save the Western world from a deadly economic crisis. "
The independent pro-government Jerusalem Post remarked today, "Dr. Kissinger's
oil plan is good. Only a plan of this kind can restore the political independence
of Europe, some of whose nations have been more easily intimidated by Arab
blackmail than others... "
Dakar: "No Allowance for a Dialogue"
Government-directed Le Soleil of Dakar on Saturday. carried a byliner's assertion
that "the new remedy for the energy' crisis proposed by Mr. Kissinger to friendly
non-cartel countries can produce enthusiasm only among the Americans. Even
if it is true that the ultimate objective of his proposition is to reduce the consump-
tion of crude oil in the industrial countries in mitigation of their economic dis-
order, the proposal makes no allowance in the final analysis for a dialogue be-
tween consumers and producers. This is the bone of contention between France
and her lnrtners who still will not dare to say no to the Western superpower. "
In the writer's opinion, "The new cartel would certainly do well to cooperate with
OPEC in its own interest and the world's.... Instead of forming a club closed to
the oil producers, wouldn't it be better in this case to make one in which all the
interested parties could sit together around the same table to find a more equitable
strategy, better suited to benefit the entire world? In this business everyone has
something to say. "
"U. S. Pretext of Joint Action"
The English service of Moscow TASS yesterday said Pravda had described the
OECD agreement to establish an international energy agency as "an attempt to
come out in a united front against the national interests of petroleum.. exporting
countries" and added: "Recalling that the initiative of setting up a new headquarters
for struggle against the petroleum-producing countries was put forward by the
United States, Pravda writes: Washington's line on the oil issue remains the same--
to try to overcome the energy problems of the United States at the expense of
petroleum-producing countries, to bring pressure to bear on them with the aim of
winning a cut in the prices of this fuel, try to present the increases in the prices
of oil as almost the sole cause of the present economic ills of capitalist system.
"T he newspaper also notes the purely political aspect--the striving of the United
States to preserve for itself a leading role in the capitalist world under the pre-
text of joint actions. "
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 se .. .: IA-RDP79-0.1.194A00?1AO47OO
LondonSW1A IHG.
telephore: 01-930 5155
telegrams and cables
Flat-earth, mushrooms .
The only way, of- stopping lots
more countries going nuclear..
is to reject: simplistic ideas and
get down to the practical slog
of controlling "peaceful" pluto-.
nium, page 14. Big guns. shot at
Cluysler's:.- troubles multiply
avd ... : .
.:, AT &--,T joins Xerox and.-
-
IBM under fire, page 98.'
On from Greece
Why the Greeks celebrated
being able to vote again, page
41- But will Europe's other
countries with communists at
the gates of power see the
issues as clearly? page 18.
Moll
Birmingham's legacy
The Birmingham outrage is one
.more step to civil war. Ulster is
under a second rank minister
and Mr Wilson does not care,
page
Government party
The 'British "I:abour party-has
its chance to put its own gov-
ernment in the dock next week,
page 16: The shift in the party's
executive, page 33:
Yade mecum
How to deal with the next stage
in the miners' dispute, page 81,
the problem -of a compulsory
incomes policy which will be
disobeyed,. page 84, the ex-
change rate crisis and petro-
dollar' recycling;: -'page 93,
Britain's soaring`-' government
expenditure, 'page 78, Britain's
inflateconomy turning still so
slowly towards slumpeconomy,
page 87; and -even how to tame
Mr? Benn's dear octopus, page
16, which wants to be ever so
participatory, page 91. , ??
Flop;
France's general strike was not
a grand success, but the gov-
ernment's problems are far
from over, page-83.
UNfair
The UN assembly's attempt to
stop Israel from .arguing. back
violates its own principles, page
42. Isolation makes Israelis
desperate, page 43, and Syria
may yet give their desperation
an excuse for action, page 46.
Soviet opposition
It is alive and dead, page 50,
MINIM 11
13 Ulster's Nero
14 Nuclear flat-earth thinking
16 Dear Octopus
16 Labour's victory rally
18. First time lucky
seems; Cabinet secretary,- Union - ballots;
-Teachers; Population; Devolution; Im aline
- 41 International . Report: The Greek , el,ction-a I
Japan; Germany; trelanu. n,~tauina gypt
Libya; Saudi Arabia; South east Asia
53 American Survey:. The tide turns in Ri :kefelIer's
Arab dialogue f a Pales- i
59 Europe: The Euro-
Butter up; ueej:.. Finance rnuu.,te , 5n
ministers: Greece; Bringing the chaps wd the
lads together; Regions: Tax evasion
77 This Week: Creeping unemployment
84 Disinflation without controntanon - I - _ -
87 Britain: Less slump, more flate;.Wag$s;Building
societies: North Sea tax; Benne :. Rates;
= 93 International: Everybody is floating i the wrong
101-Investment:_Charting_the drop int hen; -oil
Life Insurance; Hyper sharemarket; arker and
107 World Shares and Money
ks; 213 History and pictures; The middle a es: Charles
VII,' The Borgias; The Papacy; K g lames r;
Venice and Amsterdam; The ? Prirne Ministers:
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 Approved For Release 1999/09/02 : CIA-RDP79-01 194AO0010470001-4
8PYRGHT
ecyciing ere
Even if exchange Tates were floating the opportunity to aim in any way at aco
sensibly, America's Secretary of State, ordinated effort to avoid world recession,
of and indeed lean over backward to re-
t
r
d S
ecre
a
y
Mr Henry Kissinger; an
within this framework. Fortunately,
the Treasury, Mr William Simon, would assure those who fear inflation by saying
be abundantly right to call for urgent that loans from their proposed $25 internal domestic policies are now trying
action- to recycle petrodollars in 1975. billion fund for .1975 should be subject to pull the world away from slump. By
There should be three targets for any to, conditions, _ and made at market monetary. or fiscal policy, the United
plan, but unfortunately the Kissinger- interest rates. If the full $25 billion States,. Germany, Japan and Britain
Simon- -proposals. aim at only one of really is needed and disbursed, this last are all mildly reflating. If any country,
them: : : provision is a. nonsense, which is why because of respectable reflation, ran
(1) Anti-oil-prices. A co-ordin ated effort it perhaps does not matter; as with world into a current deficit above its normal
by. rich. countries to cut oil consump- war I international debts, there would capacity to borrow (Italy?), then
tion by 14 per cent in 1975. in practice have to be subsequent abnormal borrowing capacity would
(2) Anti-recession. 'A statement by each - arrangement of negotiated defaults. now probably be made available to its
country of the amount by which it The danger is that the money will But one danger is that the artificialities
intends its domestic demand to rise not be ready to be disbursed. Mr introduced into exchange rates have, at
next year. Countries with weak balances Kissinger talked of a "common loan and just the wrong moment, made fashion-
of payments should expand it by least, guarantee facility to provide for re- able again those. sudden runs from
and those with strong balances of pay- distributing up to $25 billion in 1975; currencies which a properly floating
meets should expand it by most, but and as much again the next year if system would have stopped. Another
the total needs to be big enough to avert necessary", but without being at all- is that in a new war with Israel the Arabs
world recession. clear who will hold. that $25 billion. might move money about with de-
(3) An international financial mechanism, Mr Simon seemed to envisage a scheme literately disruptive effect. A third is
established with speed to ensure that which would . require legislation by the that the beginning of the recession is
countries which are following reasonable American Congress, and bring every causing a wave of strikes to spread from
policies in these first respects will be sort of international financial institu- country to country (Scotland yesterday,
tion and talking shop somewhere into France today,, all Britain tomorrow?).
Theable to. borrow wKissinger-Simon proposals call the act, so they may all be intent on That could be the worst of the worries
p arguing about their roles. as this cold northern winter begins.
on all countries to aim at the first target. It would be much better to co-ordinate
This is important, because such co--
ordination to cut oil consumption should plans to hit the first two targets, and
help to bring oil prices down. They miss
FOREIGN AFFAIR6
Vol. 53 OCTOBER 1974 No. 1
BEYOND DETENTE: TOWARD
INTERNATIONAL ECONOMIC SECURITY
By Walter F. IVlondale
CONOMIC issues are now front and center for the world's
political leaders, topping the agenda of both domestic and
foreign policy concerns. While the major international
security issues of the last quarter-century are still with us-the
competition in strategic nuclear arms, the struggle of differing
political systems, the confrontation of massively armed alliances
in Europe, the menace of great-power involvement in local con
flict=these are now being overshadowed by the risk that the
operation of the international economy may spin out of control.
For if this happens there will be no graver threat to international
CPYRGHT
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to say that central bank swaps will save
from balance of payments- crisis any-
developed,. country which is.. working
 'sfabillty; to the survivaI 6f Western democratic forms of. govern=
merit, and to national security itself.
Last June West German Chancellor Helmut Schmidt spoke
plainly at the NATO summit meeting. As he saw it, the most
serious risks facing NATO were not military. The growing eco-
nomic difficulties of its members, he said, "include dangers that
cannot be exaggerated. Inflation and the necessarily following
recession pose the greatest threat to the foundations of Western
sI}ciet}:"
Throughout the crisis of the Presidency, it was difficult for the
American public to focus on international issues. What serious
discussion there was dealt almost exclusively with the problems
detente with the Soviet Union. It is on this issue that Secretary
k: in,ger has called for a great debate, and Senator Fulbright
res'llonding by holding extensive hearings to air the views of
'' th critics and supporters of the Nixon Administration's deal-
u.ith the Soviet Union,
x: t.i nlc detente i's important. The gains in East-West rela-
tions must be consolidated on a realistic basis; negotiations on
strategic arms the European Security Conference and the ques-
tion of force levels in Europe must be pursued, and the attempt
to progress toward a peace settlement in the Middle East (itself
in part a test of the scope of detente) must command special and
unremitting attention.
But just as inflation has now emerged as by far the most press-
ing domestic concern, so international economic policy is now
our top external challenge. In terms of the scale of the problems
and the imagination required for their solutions-and especially
in light of the inadequate attention economic questions have re-
ceived in recent years-this is the area which calls for our great-
est efforts. The priority we have accorded for years to traditional
political and security concerns must now be given to international
economic issues. If we do not resolve them, the security problems
that may ensue could dwarf those that now remain.
That economic problems have become critical in their own
right should now be evident to us all. The first serious talk of
major depression since World War II is gaining currency. Ed-
itors and economic analysts, from The Journal of Commerce to
The New Republic, are pointing to the danger signs of eco-
nomic collapse. By midyear, even though the shock of the Arab
oil embargo and price rises had been largely absorbed in the
United States, inflation was running above ten percent, real GNP
was declining by o.8 percent, while unemployment stayed high at
5.2 percent and was expected to rise.
In Europe and Japan the situation is, if anything, worse. By
August the rate of inflation was roughly i8 percent in Great
Britain, more than 20 percent in Italy, IS=i6 percent in France,.
and about zs percent in Japan. Real GNP was dropping in
Britain and Italy, while even West Germany, with-the healthiest.:
economy in Europe, and Japan, with almost miraculous growth;
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rates in the past, were both down to only two percent gro%vth.
High interest rates have choked off investment everywhere:
while unemployment has grown ominously in almost all major,
European countries. To these grim statistics must be added the
oil bill, which this year will contribute to a European balance_
cern, fed by the collapse of the Herstatt Bank in Cologne. an'i.<
the near collapse of the Franklin National Bank in New York,
that the world's major financial institutions may be in jeopardy.
Bankers in Europe and the United States are deeply worried
that more banks may go under.
The outlook for the bulk of the poor nations is even more
bleak. The additional aid required this year to meet the increased
cost of food and energy is not materializing. This shortfall, and
the lower North American harvest now projected -for this fall,
may be laying the groundwork for widespread famine and food
shortages.
So far, however, the main dangers lie in the future, at least for
the industrialized countries. At this writing, competitive deval-
uations have not taken place. Arab oil receipts are being recycled.
The I.MF has-acted to help Italy and other countries meet their
massive balance-of-payments problems stemming from the oil
price rise. In early July, central bankers meeting in Basel agreed
to try to help banks in financial trouble. The OECD is now pre-
dicting a lower inflation rate in the major industrialized coun-
tries for the last half of 1974
Yet industrialized countries will remain under economic'pres-
sure. Even if oil prices soften somewhat, the energy bill will
remain staggering. In the United States serious proposals have
recen.ly.been advanced for at least two more years of stagnant
growth to tame inflation, and the prospect of more than six per-
cent unemployment has been greeted with equanimity by Admin-
istration officials.
Austerity measures in Italy, France and West Germany now
appear to be 'slowing inflation, but before these countries can
breathe a sigh of relief they are already .gritting their teeth over
the possibility of recession. Europeans and others must confront
growing internal pressure to resort to unilateral beggar-thy-
neighbor actions-export and import controls, exchange controls,
devaluations and dumping. Arab oil revenues may grow into a
massive and mercurial threat to international financial stability.
informal cooperation among economic authorities in the major
countries, which has been instrumental in containing the crisis
thus far, may not be able to stand up under persistent stress.
Ultimately, the intensity and duration of the current economic
crisis will depend upon what governments do about it. While it
IS imperative to avoid self-fulfilling prophecies of economic
d orri, there is no automatic guarantee that things will come out
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all right. Therefore, responsible leaders of all political persua-
sions throughout the industrialized world must, as a matter of
.prudence, give serious consideration to the grimmer assessments.
As they look upon the international economic scene, moreover,
apprehension is fueled by frustration, because the problems are
beyond the span of control of individual nations. With the
growth in economic interdependence, the problems are.inextri-
cably linked, and only a comprehensive and systematic interna-
tional effort can deal with them.
There is nothing new in the idea of a comprehensive approach
to dealing with the world's economic problems, nor in giving
such concerns high priority in our foreign policy. Even as World
War II raged, and with the consequences of the Great Depres-
sion still vivid, major efforts were made to build new economic
institutions on a worldwide basis. The Soviet Union was repre-
sented at the Bretton Woods Conference in 19, which estab-
lished the International Monetary Fund.and paved the way for
the World Bank, and the Soviets also were invited to partic-
ipate in the Marshall Plan.
Both Bretton Woods and the Marshall Plan stemmed from
the recognition of interdependence-that the economic health.
of the major countries of the world affected the security and well-
being of the others. It was clear that some kind of international
economic system would rise from the ashes of World War II and
the. real task was to assure that it promoted recovery and did not
go haywire as it had after World War I.
During this same period, the late ig4os, there was a parallel-
effort to build a comprehensive system of collective military
security via the United Nations. This, too, was based on the con
viction that security was interdependent, or as it was fashionable
to say at the time, indivisible.
These first tentative structures for a reasonably universal eco-
nomic and security system cracked apart in the intensity of the
cold war. The industrialized market-economy countries ended.
up organizing the international economic system on their olvm
while the Communist countries withdrew into autarky and set
up their own more rudimentary arrangements. The Third World=
was so dependent on the industrialized world as to be only an
appendage of it.
Over the next two decades, the lg5os and ig6os, the colonial
nations of the Third World became independent, but wielded
little economic or political power. Competition between East
and West, along with traditional ties to the West, assured the
Third World a certain amount of development assistance. Over
time the Communist countries grew stronger and came to trade
.more with both the West and the Third World, while the latter
began to participate to some degree in the management of the
international economic system through the World Bank and
IMF-in particular the Committee of 20 dealing 'ith monetary
affairs.
CPYR HT
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 egrTrTir3'g'of`th s'~'ec~e mein 't~ie-Ynited States
and the rest of the Western industrialized world, including
Japan, clearly controlled our own economic security. Interdepen-
dence seemed only limited. For practical purposes the interna-
tional economy was the economy of the Western world. `Vi'e did
not depend on the economic behavior of the Communist world in
ar,y significant way, and we were largely in control of what we
needed from the Third World, despite the clamor of its repre-
sentatives for greater equity.
The situation has changed markedly in the last four years. The
West's international economic system is no longer insulated. Both
the Third World and the Communist countries have dramat-
ically demonstrated a capacity to'd.isrupt it through cartel pric-
ing of oil and massive grain purchases respectively.
In addition, just this year a "Fourth World" has precipitated
out from the Third. Its members are those who lack.major re-
sources or economic power. The nations in this group are more
dependent, more deprived and more aware of it than.any large
segment of the world's population in history. That some of the
desperate nations of this Fourth World now may have access to
.nuclear weapons only adds to the prospects for tragedy.
There is a new distribution of economic power in the world
and we must learn to.deal with it. However, the sudden emer-
gence of this changed economic equation is not just th
l
f
e resu
t o
Soviet grain purchases and the oil crisis. The impact of those
developments has been directly proportional to the long-range
changes already underway inside the Western. international eco-
nomic system.
By the early 1970S this system faced a visible breakdown in
the way it managed its monetary affairs, and was already in the
throes of an acute crisis of inflation-which spread from country
to country in accordance with a sort of Gresham's Law toward
the highest national rate. Inflation accompanied by stagnation
was a new and bewildering phenomenon, undermining confi-
dence in our ability to manage our industrial economies. Aid to
developing countries had declined, generating increased despera-
tion and resentment. In the last year, all these developments com-
bined to form the essence of what may now be termed a total
crisis: one that is both economic and political and involves the
entire international system.
Fortunately this crisis coincides with a period in which polit-
ical and military security issues are muted, and some of the major
divisions in the world are being bridged and even healed. But
we must seize the opportunities presented by.detente and other
improvements .in the international picture to deal effectively
.with our economic problems, or the progress we have made to-
ward a more secure world. may be undone.
In the late 1920s there was also a version of detente, symbol-
ized by the Treaty of Locarno, and at the same time an emerging
depression. When the nations of the world failed to cooperate to
deal with the depression, its consequences rapidly unraveled the
elements of that detente and in
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 Appro
tri ute mtig t i y hot to 1Utt1 1e e'mergence of g a t 001-4
Germany and Japan and to the paralysis of other nations, includ- CP RGHT
ing the United States, in the face of those threats.
It is not 'alarmist to suggest that something of the same sort
could happen today. If the economic crisis continues to deepen,
detente, now stalled at several key points, could well go into re-
verse. Already the economic pressures on the members of NATO
are undermining their defense postures and reducing Soviet in-
centives to negotiate. A more grave economic crisis in the West
could generate dangerous temptations for the relatively less-
affected Communist countries, possibly reviving their hope for
the "demise of capitalism" and encouraging a more aggressive
and interventionist foreign policy.
However, the dangers are not solely from the Communist, world. New. or dormant ambitions may be kindled in countries
internally divided by economic disruption. Economic differences
could precipitate a breakdown in our security relationships with
Japan and Europe, leading perhaps to go-it-alone defense pol-
icies with profound consequences for regional stability. Other
countries may become so self-absorbed as to completely with-
draw from their responsibilities for international security: Great
Britain may be nearing this point already, and some believe that
Italy is past it.
The time has come to face the fact that the fundamental secur-
ity objectives underlying the process of detente are now linked t
the world economic situation. The economic cooperation that i
required will involve us most deeply with our traditional.postwa
allies, Western Europe and Japan, but it must also embrace
new measure of comity with the developing countries, and in
elude the Soviet Union and other Communist nations in sig
nificant areas of international economic life. Only thus ca
the present precarious period of detente lead beyond.uncertai
balance-of-power arrangements to the worldwide sense of com-
mon economic interest that is an essential underpinning of a rela-
tively peaceful. world.
IV
The economic and. financial dislocations created by last year
fourfold increase in oil prices pose the most urgent set of issues
with which we must deal. The size of the price increase and th
abrupt manner in which it was imposed (not to mention the u
of oil as a political weapon) smacked of economic aggressio
The first task of a foreign policy aimed at enhancing economic
security should be to try to get an oil price rollback. Because f
overproduction and decreased consumption there is some pro -
pect for lower oil prices. We should do all we can to encoura e
the trend (and ensure its being "passed through" to the co -
sumer), but as a realistic matter we must also plan our econom c
strategy on the assumption that high oil prices will continue.
The oil price hike is like a huge tax levied on most oft e
world's economies. However, it is .a form of taxation witho it
representation, for the size and expenditure of this tax is beyo d
the control of those who pay it or of their governments. Most f
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 Landon and New York, where they are recycled back into the
world economy. Nonetheless important problems remain:
-the burden of recycling the oil receipts is threatening to un-
dermine the stability of the international banking system;
-the recycling of oil `?tax" receipts is not putting funds into
the hands of those who need it most.
To these pressing issues must be added the longer-term problem
of how to handle the continued acquisition of foreign exchange
reserves by the oil-producing countries-an accumulation which
could reach over a trillion dollars by ig8o.
Today oil revenues are taking the form of short-term demand
deposits in European, and increasingly American, banks, while
the banks themselves must make longer-term loans for normal
purposes such as capital investment, and now also to help gov-
ernments meet the balance-of-payments cost of the oil price in-
creases. The possibility of being caught in the squeeze (borrow-
ing short and lending long) is real, particularly since no one
knows how volatile the oil funds will prove to be.
. Banks are also being pressed to hedge against potential ex-
change rate fluctuations stemming at least in part from -the bal-
ance-of-payments drain of higher oil prices. This can involve
extensive foreign exchange dealings of the kind that drove Frank-
lin National and Herstatt to the wall.
The private international banking system must not be asked
to take on alone this task of recycling oil receipts. Not only is it
too great a burden on the system, but it also means that the re
cycling, the loans that are made, will be on the basis of commer-
cial criteria when larger political and security objectives often
should be controlling. Thus we find bankers understandably
concerned about the credit-worthiness of countries such as Italy,
when unfortunately the overriding issue is whether democracy
will survive or be replaced with a far Left or rightist revolution-
ary regime-with profound effects on NATO? and stability in
the Mediterranean.
To ensure that such political and strategic requirements are
met, and to calm the anxieties of the international banking com-
munity, governments must now take on the task of reapportion-
ing credit and financial resources. Acting together with the cen-
tral banks and the IMF, governments must in. some fashion as-
sume the responsibility of lender of last resort. Clearly, certain
safeguards must be built-in so that private banks. do not have a
blank check that they can cash to save themselves from the con-
sequences of imprudence and mismanagement. But this risk is far
less significant than the risk of collapse of major financial institu-
tions and even of governments.
Such support for the international banking system, hopefully.
will be sufficient to meet the reallocation problems of the indus-
trialized countries without the need to resort to large-scale direct
government aid, although such a possibility has been the object
of lively debate among policy planners in Washington through-
out the summer. For the have-not nations of the Fourth World,
however, a substantial governmental aid effort is required.
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 poorest countries-primar y on e In ran u o f CPYRGHI~
in Africa, and in parts of Latin America-are suffering severely
from the oil price hike. It has been estimated that the increase in
the oil bill for the developing countries this year more than can-
cels out the aid. they are receiving. The skyrocketing costs of food
and fertilizer are equally large. As a result, the developing coun-
tries face a total increase in import costs this year of $t5 billion,
which is twice the amount of all the aid they receive.
While some of the developing countries will get by, for others
-notably India, Pakistan and Bangladesh-it is not an exaggera-
tion to characterize the situation as desperate. Just to get through
this year will require an estimated $3 to $4. billion in additional.
aid, if the lives of nearly one billion people are not to be threat-
ened by economic collapse and ultimately starvation. The special
$3 billion oil loan facility set up last June by the IMF will be of
some help, but because of the IMF's formula for lending to its
126 members, the poorest countries cannot get sufficient assistance
from this source.
Additional help is needed; it can take many forms, from
financial assistance to concessional sales of food, fertilizer and
energy. The U.N. Secretary-General's effort to develop a special
emergency fund or the IMF's Committee of 20 proposal for an
IMF-World Bank joint Ministerial Committee on aid to the
less-developed countries could become means to work out a pack-
age of emergency help. Moreover, the joint Ministerial Com-
mittee in particular, to be set up in October with its member-
ship from both the developed and developing countries and
strong representation by finance ministers, holds out the possibil-
ity of becoming a much needed vehicle for more long-term plan-
ping and greater support for international economic develop-
ment.
n_
W`'e must, of course, have no illusions about the difficulty of
moving the Soviet Union to recognize the long-run interest it has
in cooperating in these areas. Soviet officials often regard the
raising of legitimate trade problems as being "anti-detente." Eco-
nomic aid to the less-developed world has always been regarded
as a political weapon. The notion of exercising restraint is novel
and controversial to Soviet leaders in regard to political issues,
let alone economic interests.
Yet, the Soviet Union's hopes for basic internal improvement
-hopes central to the power position of the Soviet leadership
hinge on the development of much greater economic ties with
and it effect economic assistance from, the industrialized world
Moreover, it was the Soviet Union that became in World Wa
II the greatest victim of the chain of political and security con-
sequences stemming from the Great Depression. If there is an
other worldwide depression, the Soviet Union too will suffer!
Hence it should be in the Soviet interest to involve itself mor
responsibly in world economic cooperation. Indeed., the West i
now justified in making such cooperation a, central test and touch
stone of detente. Western credits and peaceful non-strategi
trade should be related to commitments on the part of the Corn
munist countries to work out a reasonable code of economi
behavior with. the Western market-economy countries, and t
participate in the new aid effort required for the deve.lopin
countries.
Today, the fact that major aspects of detente-SALT, MBF
and the European Security Conference-are bogged down i
raising serious questions about ultimate Soviet intentions and th
I In a recent column, Victor Zorza comments on the Soviet attitude. "While some Soviet
leaders appear to welcome the opportunity for gain with which the instability of the Wes
may present them, others are not so sure. 'We are well aware,' says Georgi Arbatov, head
of the Soviet Institute of U.S. Studies, that the crisis of bourgeois society may have various
political results, that the crisis of the :93os produced Roosevelt and the New Deal in the
United States, and Hitler, Fascism and war in Germany."' The Washington Post, July
30, 1974.
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 Approve"
ity of detente. However, we need not, indeed cannot, re-
main fixated on issues that divide East. and West. By taking
advantage of the measure of detente we now have, and by moving
forward to systematically engage the Soviet Union in some of the
economic problems besetting us, we can test the strength of
detente and the broad intentions of the, East. This also may be
the only way to establish the kind of relationship that will enable-
us to resolve the East-West issues we still face.
VIII
From this examination of the specific immediate and long-term
actions now required, it is possible to envision the general out-
lines of a system of international economic security:
-A deeper measure of coordination of national and interna-
tional economic policies among the industrialized nations in
Europe, North America, and Japan.
A new role for the oil-producing countries in the manage-
ment of the international economy and new responsibilities for
aiding stability, growth, and in the poorest countries, economic
development.
-A new relationship between the industrialized and raw ma-
terial producing countries assuring more stable prices and sup-
plies.
-A more. constructive involvement of the Communist coun-
tries, particularly the Soviet Union, in world trade and the task
of eco.nomic development.
Not all of these broad objectives should be pursued at the same
time or with equal vigor. Some of the specific issues in the present
crisis are clearly more urgent than others, and for a few problems
there may not be ready answers. But the important thing is that
.U.S. policies be informed by a comprehensive. vision of the kind
of world economic system we hope to achieve.
And we must begin at once. With each passing week the eco-
nomic problems we face become less susceptible to wise solutions.
Progress on the urgent issues will facilitate tackling the longer
range questions.
Initiatives and cooperation must come from many quarters if
such a vision of worldwide economic relationships is to be real-
ized. In particular, American leadership is indispensable. We
are still the largest single economy and have the greatest impact
on international trade and finance. Only if the United States
plays its full part can the current trend toward economic frag-
mentation and disorder be turned around in the direction of a
Comprehensive and global effort of economic cooperation.
At present our government is poorly equipped in terms of
talent and organization to handle such a role. Compared to the
credentials of the Secretary of State and Secretary of Defense
'n the field of international security, those charged with interna-
'mnal economic affairs are by no means the kind of strong Lrroun
the United States put together in 1947 on a bipartisan basis and
could surely assemble again.
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 App
rov n 001-4
mitment and capable people. But one clear need is to coordinate C
the diverse governmental organizations that affect. interna-
tional economic policy: State, Treasury, Commerce, Agriculture,
the Council of Economic Advisers, the Federal Reserve, etc.
The present Council on International Economic Policy has never
been able to perform the task of developing coherent policies and
strategies. Perhaps what is needed is something more akin to the
National Security Council, with a statutory base and a strong
substantive staff that can cut through the welter of conflicting
interests and views to develop clear policy alternatives.
But there should be at least one major difference from the NSC
system: the director of such a staff on international economic
policy must be accessible to the Congress and to the public. The
issues involved are too closely related to domestic policy to be
shrouded from public view by the trappings of diplomatic or
even presidential confidentiality. And the Congress must, as it did
in 1947 and 1948, play a crucial affirmative role. For this it will
need to 'exert greater efforts to coordinate the work of the many
committees and subcommittees that have an impact on our econ-
,omy: The new Budget Committee and the congressional Office
of the Budget can make an important contribution in this regard
by exerting more responsive and responsible control over fiscal
policy. .
IX
Finally, an effective international economic policy must be.
grounded on a sound and equitable domestic economic program.
Help for the international banking system or emergency aid for
the have-not nations cannot possibly command the necessary sup-~
port if the new Administration turns a blind eye to six percent
unemployment. President Ford has an opportunity now to ex--
plain the facts of our current economic crisis to the American
people and to take and propose decisive action. There may be
strong differences over the right combination of policies and how
the cost of meeting our present difficulties should be apportioned,:
but there is also a tremendous desire in Congress and the public
for firm and bold leadership.
Because international economic issues bear so directly on our
domestic.concerns, moving toward a new system of international
economic, security and making it our first priority in world affairs
could provide a basis for rebuilding the consensus among the
American people in support of our foreign policy. The source
of increasing isolationist sentiment in the United States is not
some atavistic streak in the American character, but rather the
fact that the ordinary American no longer sees'his primary inter-
ests as being served by the current definition of American foreign
policy.
If we can redefine our foreign policy and our national security
to include not only the concern over strategic position and polit-
ical influence but also the basic issues of inflation, economic sta
bility, jobs and growth, and in fact make these a key concern, we
will find that once again a broad consensus on our world role is
PYRGHT
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g7ill a i pace in our
di
l
p
omacy, the American people will not only support efforts of
been in
---a .
the past to accept short-term sacrifices in order to achieve long-
range success. To meet the threat we now face to our economic
security, foreign policy must truly become the extension of do-.
mestic policy by other means.
CPYRGHT
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