WILLIAMSBURG ECONOMIC SUMMIT BRIEFING PAPERS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000100130004-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 22, 2016
• Document Release Date: September 2, 2010
• Sequence Number: 4
• Publication Date: May 20, 1983
• Content Type: MEMO

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Routing Slip
TO: ACTION INFO DATE INITIAL
1 DCI
22 SECTARIAT
2 DDC
3 EXDIR
4 D/ICS
5 DDI
6 DDA
EXECUTIVE : -9
7 DDO
8 DDS&T
9 Chm/NIC
10 GC
11 IG
12 Compt
13 D/EEO
14 D/Pers
15 D/OEA
16 C/PAD/OEA
17 SA/IA
18 AO/DCI
19 C/IPD/OIS
20 JD LZo
21
SUSPENSE
Remarks: Date
Executi a Secretary
3637 (10 -81) 54 7~1 I B
Doti
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TH . W H I tUua vvIll IUL1 1L
? WASHINGTON
CABINET AFFAIRS STAFFING MEMORANDUM
DATE: 5/23/83
NUMBER: 1 8 7 o n_ A DUE BY:
SUBJECT: Cabinet council on Economic Affairs - TfiPSr1ay, May 9a _ i c)pj
9:00 p.m. in h RoosPy 1t Rnnm
ACTION FYI
ALL CABINET MEMBERS
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Counsellor
OMB
CIA
UN
USTR
CEA
CE
OS ?P
REMARKS:
ACTION FYI
Baker
2' ^
Deaver
^ ^
Clark
[[~ ^
Darman (For WH Staffing)
^
Harper
fiY ^
Jenkins
^ ^
^ ca--
^ ^
^ ^
^ ^
^ ^
^ ^
^ ^
CCCT/Gunn
^ ^
CCEA/Porter
0"' ^
CCFA/Boggs
^ ^
CCHR/Carleson
^ ^
CCLP/Uhlmann
^ ^
CCMA/Bledsoe
^ ^
CCNRE/Boggs
^ ^
The Cabinet Council on Economic Affairs will meet on Tuesday,
May 24, 1933 at 9:00 a.m. in the Roosevelt Room. The agenda
is as follows:
1. Report of the National Productivity Advisory Committee/CM255
(Paper distributed on Friday, May 20)
2. Impact of Disinflation on COLAs/CMO30 (Paper distributed 5/20/83)
3. Economic Summit Briefing/CM396 (Paper attached)
RETURN TO: ^ Craig L. Fuller [i - Becky Norton Dunlop
Assistant to the President Director, Office of
for Cabinet Affairs Cabinet Affairs
456-2823 456-2800
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Confidential Attaaments ?
May 20, 1983
MEMORANDUM FOR THE CABINET COUNCIL ON ECONOMIC AFFA
FROM: ROGER B. PORTER /V
SUBJECT: Williamsburg Economic Summit Briefing Papers
Allen Wallis has provided the attached set of briefing
materials for the Williamsburg Economic Summit Conference
for distribution in preparation for the Cabinet Council's
discussion on Tuesday, May 24.
Confidential Attachments
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? ?
MULTILATERAL SURVEILLANCE OF ECONOMIC POLICY
I. ISSUE
We should try to follow the more . structured pproach to
multilateral: surveillance . initiated. at Versailles. We seek to
==reaffirm the following objectives: achievement ofsustainable
:non-inflationary growth of real income and employment; improve-
ment of the process for discussion of policies designed to
narrow differences in economic conditions in Summit countries;
and assessment of progress toward achieving such convergence.
II. ESSENTIAL FACTS
As recovery is underway in most Summit countries, focus
should be on a non-inflationary one.
Inflation is still troublesome in France and Italy. They
need to follow firm, anti-inflationary policies.
While the medium-term is important, we want the shorter-
term focus on the surveillance process. We want more attention
on quantitative goals to measure performance and to identify
exchange rate implications of disparities in performance.
Criticism: France wants to stabilize exchange rates by
systematic intervention in foreign exchange markets.
Response: This does not work, as demonstrated by the
recent experience of the European Monetary System. Attempts to
rig exchange rates when policies are out-of-line lead to market
instability and disagreements among countries involved. Debate
should shift from quick-fix schemes to the improvement of
fundamental policy approaches. This would solve exchange rate
problems which now arise from differences among countries.
Exchange rate instability is a symptom, not a cause, of
differences in economic policies and performance.
It is not surprising that exchange markets have put
downward pressure on currencies of those countries whose
economic and inflation performances are weaker.
The lasting way to promote exchange market stability is
to obtain convergence of Allied economic conditions and policy.
We want to toughen the multilateral surveillance process
by setting quantitative targets, goals and measuring results.
CONFIDENTIAL
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? ?
EXCHANGE RATE STUDY AND POLICY
I. ISSUE
There is consensus that more uniformly sound;.policies in
major economies are needed for greater exchange rate stability.
Many claim the dollar exchange rate is volatile, tie dol.lar.is
overvalued,: and that we shoul.d.intervene more ofte in currency.
';.markets. France wants to move toward fixed exchange rates ;
II. ESSENTIAL FACTS
Other countries believe the US dollar has become artifi-
cially overvalued because of our high interest rates. They want
us to loosen monetary policy and cut the budget deficit in order
to bring them down. While interest rates have been one factor
in the dollar's strength, we attribute it more to confidence in
our ability to control inflation and manage our economy soundly
when conditions abroad were less satisfactory.
Some say that exchange market intervention by the US
could force the dollar down. At Versailles we commissioned an
intervention study to investigate this. It showed that the
impact of intervention on exchange rates is limited to the
short-run. Our Summit partners agree these results show that a
stable, non-inflationary policy environment is the way to obtain
more stable exchange markets. We should redouble our efforts at
fostering such policies in all major countries by improving the
multilateral surveillance process agreed to at Versailles. We
agreed to greater consultation and cooperation in this area and
to coordination of our intervention when we felt it would be
helpful. However, we retain the basic US policy of limiting
government interference in exchange markets.
Criticism: High interest rates overvalue the dollar. Cut
the budget deficit and loosen monetary policy to lower them.
Response: Other factors add to the dollar's strength. We
are trying to lower the deficit by control of non-defense items.
It is counterproductive to abandon monetary discipline.
Criticism: US should intervene to bring down the dollar.
Response: Intervention is not capable of doing that.
Criticism: US should agree to return to a more fixed
exchange rate system, such as setting target zones.
Response: There are arguments for both fixed and flexible
systems, but the type of system is not the real issue. Stable
and convergent policies are needed for exchange rate stability.
CONFIDENTIAL
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 CONFIDENTIAL
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INTEREST RATES AND MONETARY POLICY
I. ISSUE
Other Summit countries will complain that high US inter-
est rates block world recovery. At Versailles blame was placed
on excessively tight. US. monetary policy,. but with ore rapid
monetary growth since last fall, the complaint.hasshi.fted to
high federal budget deficits, especially for the out years.
Others exaggerate the interest rate impact of future US
deficits. France is looking for outside scapegoats for its pol-
icy failures. Interest rates levels are more influenced by
inflation rates than by the size of budget deficits. Short-term
interest rates have fallen sharply in countries that have pur-
sued successful anti-inflation policies. Since January 1981 US
short-term rates have been cut in half, from 18% to 9%. UK, FRG
and Japanese rates have fallen 3 to 7 percentage points in the
same period. Rates in Canada, a more recent convert to firm
anti-inflation policies, have declined nearly 8 points. Longer
term rates have not fallen as much, implying need for continued
pursuit of budgetary restraint and anti-inflation policies to
increase market confidence in the durability of low inflation
gains. Short-term interest rates have actually risen somewhat
in France and Italy, where only limited progress in controlling
inflation has been made. The US is also trying to reduce budget
deficits while deficits in major foreign countries (except the
UK) have been stable or rising as ,,a share of GNP/GDP.
III. KEY POINTS
Criticism: US interest'rates are too high.
Response: Rates are high but US short-term interest
rates have fallen sharply, declining from 18% two years ago to
8-9% today. Long-term rates have also fallen.
Criticism: The prospect of high US budget deficits in
future years keeps interest rates high and could choke recovery.
Response: The deficit is too large. We have placed high
priority on reducing expenditures to reduce future deficits.
We all have work to do in getting our budget deficits down.
Criticism: US rate levels prevent recovery elsewhere.
Response: Reducing inflation expectations is the key to
lower interest rates. Interest rates have come down where
inflation has declined sharply. The US is not to blame for
inflation and inflationary policies in other countries.
CONFIDENTIAL
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ECONOMIC IMPACT OF OIL PRICE DECLINE
I. ISSUE
Since January 1 average world oil prices have fallen over
12%, from about $32.50/bbl to $28.50/bbl, and could decline
.further. The USG believes these price declines will bring
major beneficial effects for both developed and developing
nations, and thus, are to be welcomed. Such specific problems
:_:as may arise are tolerable and out-weighed by the gains. Other
OECD governments appear to have arrived at similar conclusions
but they differ on the issue of whether to pass through cuts in
energy prices to consumers or to preempt some portion of them
through import fees or energy taxes.
II. ESSENTIAL FACTS
USG study suggests that a 25% price cut to $25/bbl would:
-- slow OECD inflation by 1.5% within the first year,
-- increase OECD growth by 1% in the first year, and
1/2% in each of the two following years,
-- reduce unemployment by about 1% over three years,
-- improve the current account and budget, deficits
positions of OECD nations,
greatly improve export prospects for oil importing
LDCs, increase growth and debt servicing ability. However, LDC
exports could decline temporarily due to lower OPEC demand.
III. KEY POINTS
Criticism: Lower oil prices will severely impair the
ability of heavily indebted oil exporters such as Mexico,
Venezuela and Nigeria to manage their debt burdens.
Response: Eight of the 10 largest LDC debtors to banks
are oil importers. Whatever problems arise for heavily
indebted oil exporters and commercial banks are not insur-
mountable, and are outweighed by the benefits of cheaper oil.
Criticism: Import fees or energy taxes should be imposed
to prevent erosion of conservation gains.
Response: The stimulative effect of lower oil prices are
of overriding importance and cannot be obtained unless oil bill
savings are passed through to business and consumers.
CONFIDENTIAL
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US ECONOMIC SITUATION
At issue is the strength and sustainability of the
current US recovery and the degree to which an upturn in the
major industrialized countries can be translated ito.economic
improvement in other free market economies. The'ky is the
;,'mix of monetary, fiscal and trade policies that can achieve
.,.the growth and price stability goals of the Administration.
II. ESSENTIAL FACTS
The US recession ended in 4th quarter 1982. Preliminary
data show 3.1%.real growth for 1st quarter 1983, reflecting:
(1) a strong housing recovery with 1st quarter starts at the
1.7 million rate, almost 90% above levels of a year ago;
(2) a modest recovery in real consumer outlays which rose 2.3%
due to income gains and a drop in the saving rate; and
(3) the inventory cycle which is phasing out following a record
inventory liquidation in the 4th quarter.
The recovery is based on improved economic fundamentals,
including a decline in inflation reinforced by weakness in
prices for oil and commodities. Rising productivity is holding
down unit labor cost and aiding price stability.
The Administration forecast for 1983 shows an increase in
real GNP of 4.7% and an inflation rate of 4.5% measured from the
4th quarter 1982 to 4th quarter 1983. Unemployment is expected
to drop to 9.7% by year end. From 1984-88, progress in sustain-
ing economic growth and lower inflation is expected (long-term
real growth rate: 4%; inflation rate: 4.6%; unemployment at end
of 1988: about 6%) through continuation of current tax policies,
control of federal spending, and restrained monetary growth.
Criticism: Monetary policies have raised the value of
the dollar, rendered the US less competitive, and discouraged
world-wide economic expansion.
Response: Current policies are designed to reverse prior
conditions of inflation and destabilizing economic cycles.
Criticism: Large budget deficits absorb private saving,
reduce capital formation, and discourage long-term, growth.
Response: Increased defense spending is imperative for
national security. But we agree that credible strategy is
needed to keep future deficits declining. We have proposed
such strategy (see paper. on budget policy) and welcome Summit
support for this effort.
CONFIDENTIAL
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ISSUE
V
UNITED STATES BUDGET POLICY
Leaders of several Summit countries remain concerned that
continued US budget deficits are causing abnormally high inter-
est rates and thwarting their attempts at. economic- recovery.
II. .ESSENTIAL FACTS
When your Administration took office it inherited a major
budgetary imbalance. The social insurance system was growing
rapidly and in 1981 was almost 7% of GNP, 2.5 times greater than
in 1963. At the same time, means-tested entitlements had grown
rapidly; between 1970 and 1981 real spending for these programs
more than doubled. Increases in domestic spending were financed
by both rising tax burdens and substantial reductions in defense
spending, neither of which was sustainable
This inh
it
.
er
ed
budgetary imbalance was accompanied by an economic imbalance.
The prolonged economic adjustment of 1981-83 was essential to
bring inflation under control, but it lowered the long-term path
of nominal GNP and revenues and increased the Federal deficit.
III. KEY POINTS
Criticism: US has not done enough to lower its deficit.
Response: The budgetary actions of the last two years
represent a good start toward lowering the inherited imbalances.
The 1984 Budget proposes continued progress in reordering budget
priorities and reducing projected, budget deficits. The budget
essentially freezes total outlays in real terms at 1983 levels.
The annual growth in nominal outlays is down from 17-1/2% in
1980 to 5-1/2% in 1984. We project the deficit to drop from
$190 billion in 1984 to $102 billion in 1988. As a share of
GNP, it should drop from 6.5% in 1983 to 2.1% by 1988.
To assure that the deficit drops over time, the Adminis-
tration has proposed a deficit insurance policy in the form of
a stand-by tax equal to 1% of corporate and individual taxable
income and a $5/barrel oil excise tax. These taxes would be
triggered in 1986-88 only if the deficit exceeds 2.5% of GNP.
Since the budget was proposed, two important bills dealing
with the problems of social security financing and unemployment
have passed. Congress recently passed the 1983 Social Security
Amendment, which resolves both the short and long-term financing
crises in Social Security, instilling new confidence in the
system. The Jobs Bill legislation enacted by Congress acceler-
ates already planned spending. This will increase jobs in the
near term without impinging on the long-term budget outlook.
The budget outlook uses prudent economic assumptions that
are more conservative than many forecasters. The budget outlook
will improve if the economy does better than expected.
CONFIDENTIAL
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COMBATTING PROTECTIONISM
_tion, calls for protectionism are louder than in many years.
Faced with the worldwide problems of ?recess.i and :infla-
I. ISSUE
ESSENTIAL FACTS
Restrictive trade policies will only serve to further
distort international trade and investment flows and could
threaten the post-World War II trading system as we know it.
The US has taken the lead in the post-war period in creating an
international trading and financial system that limits govern-
ments' ability to disrupt trade. History has taught us that
the freer the flow of trade across borders, the greater world
economic progress and the greater the impetus for world peace.
While the US cannot continue to tolerate unfair trading
practices which adversely affect either our domestic market or
our opportunity to trade and invest elsewhere, US policy has
been and should continue to be one which seeks additional
market access rather than protectionism.
Therefore, the US feels it must resist domestic and for-
eign protectionism and do whatever is necessary to preserve the
open and competitive world trading and financial systems.
Either the free world continues to move forward and
sustain the postwar drive toward more open markets, or we risk
sliding back to the tragic mistakes of the 1930s.
Criticism: It is not credible to say you are against pro-
tection when the US and others are taking trade restrictive or
distorting actions when it suits their domestic political needs.
Response: All of us take such actions. We need to avoid
slipping into a pattern of protection as the easy way out. The
only way to do so credibly is to charge our governments with
developing a coherent program to reduce barriers. That is why
we want the Summit to endorse the call to begin work now on a
program to implement the OECD declaration calling for
progressive dismantling of barriers, and to prepare for new
negotiations in a few years time.
CONFIDENTIAL
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