YOUR LUNCH WITH AMBASSADOR KEATING, TUESDAY, 7 JULY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90G00152R000400560001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 16
• Document Creation Date: December 27, 2016
• Document Release Date: March 13, 2012
• Sequence Number: 1
• Publication Date: July 2, 1987
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
THE FOLLOWING DOCUMENTS
ARE ATTACHED:
(Please do not remove)
SUBJECT:
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
GONFiBENTIAt
DCI Lu
suuict Mplio.q
Os 10ftw t n*,N". roam aumbar, am
T
buiWinel
EXECUTIVE REGISTRY
xec Assist to the DDCt
DCI
NI0/Economics
7E62, Hqs.
FORM 610 P1 us
ROUTING AND RECORD SHEET
02 J
L1987
=M i
NIC 02762-87
2 Ju1y 1987
COMMENTS (Number each comment to show from whom
4 whom. Grow a lino across column ofar ooeh cOmmeat.(
l-? * U.f. Qowrwn.nt hlntbl OHtctt ISS"94434dus $
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13 : CIA-RDP90GO0152R000400560001-4
Z ~~~
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
Iq
Next 3 Page(s) In Document Denied
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
' NIC 03060-85
Wahrfpn o c :mos .
18 June 1985
The Honorable Patrick J. Buchanan
Assistant to the President and
Director of Communications
The White House
I received a copy of Bill Middendorf's letter of May 30 to you
proposing White House backing for a conference to be sponsored by
Georgetown University on some of the themes raised in the report of the
President's Task Force on International Private Enterprise. This idea
has my endorsement.
It is my belief that Third World governments are shifting away from
comprehensive central planning and toward more pragmatic and market-
oriented economic policies. This trend began in the 1970s when the LDCs
encountered tough economic times (two oil price hikes, two recessions,
high interest rates, and massive debt), and has accelerated in the 19809,
paralleling similar changes taking place in the industrial world and
Eastern Europe. At the same time, the prospects for sizeable new amounts
of Western foreign assistance have dimmed, with funds flows increasingly
going for security assistance, humanitarian purposes and debt repayment.
This changing climate presents significant economic opportunities for
the US:
to increase the promotion of small-scale private sector
economic activity with LCD5,
to enlarge the flow of foreign direct investment,
to help state enterprises to become more efficient and
find ways to relinquish some functions to the private
sector, and
to strengthen trade, finance, and investment links with
LCDs based upon a growing mutuality of economic interest.
c-s39
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
 CANPInENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90G00152R000400560001-4
These forces should strengthen the West's position relative to that of
the Soviet Union in LDCs as well.
In order to implement the President's views on the role of private
enterprise, much broader initiatives must be undertaken by the Adminis-
tration, and this conference would help to define some of the mechanisms
for improvement. If there are any ways in which we can be of support,
please contact my National Intelligence Officer for Economics, David B.
Low at
cc: Mr. Robert McFarlane
Ambassador J. William Middendorf, II
STAT
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90G00152R000400560001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
25 Jt.4 1985
INTERNATIONAL PRIVATE ENTERPRISE:
WHEN WILL THE REAGAN REVOLUTION BEGIN?
Talking Points
1. The President at Cancun in 1981 articulated a positive program of action
for economic development which emphasized the need to encourage LDC growth
through the private sector. The President's program, however, remains
unfulfilled for the Administration's strategy and mechanisms for carrying
out the goals are flawed.
2. Changing economic circumstances in the Third world have created a new
context for political and economic relations and new opportunities to
enhance US security interests. Many Third World leaders now recognize that
rigid Marxist-socialist models will not yield economic and industrial growth.
They are increasingly concerned with the "politics of economics" and not
the "politics of socialism," and look to market-oriented approaches to
rebuild shattered economies. Moreover, the Soviets are not able to offer
much in the way of economic assistance, and Soviet economic and financial
constraints over the next 10 years will make Moscow even less able to
cospete in non-military sectors.
THE OwAENGE
3. The growing American economy and its private sector is an irresistable
example impelling change in the economies of both the industrial and Third
World countries. If we are able to take advantage of the economic forces
for change in the Third world, then the West's position relative to the
Soviet Union would be strengthened. In specific countries, US security
interests will often coincide with opportunities for economic support of
private sector enterprise and can be mutually reinforcing.
4. Our private enterprise, not government direction, created the economic
system which provides the resources we transfer to LDCs. Yet our economic
assistance generally ignores our own model of growth. Virtually all US
aid moves from US bureaucracy to foreign bureaucracy before any of it has
the opportunity to move to the private sector. Significant change in the
private sector cannot be leveraged primarily on the back of governmental
institutions.
5. AID, as currently structured, is not the solution. In fact, it is part of
the problem. Present developmental assistance efforts show little positive
correlation with private sector growth. AID's understanding of the private
sector is limited, and its resource transfers to LDC governments may support
short-term political stability but often they retard long-term growth of
private enterprise.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
 Declassified in Part -Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
THE PROPOSALS FOR CHANGE
6. The Peterson Commission in 1972, the Reagan Transition Team in 1980-81,
the Carlucci Commission of 1982, a portion of the President's Task Force,
on International Private Enterprise in 1984, and others, have concluded
that AID is the wrong institution to carry out the private sector mandate.
These groups have proposed that resources be transferred from AID to an
environment which understands the private sector (e.g., an expanded OPIC
or a US International Development Bank). Unless the Administration is
prepared to do this, the President's Cancun goals will not be fulfilled.
(AID's legislation and institutional orientation reflect the dominance
of the humanitarian aspect of development assistance, and it seems
reasonable that AID should continue to be predominantly a humanitarian
institution.)
7. In order to implement an Administration commitment to change, the
President can:
a. Appoint a new head of the International Development Corporation
Agency (IDCA) which was established by Reorganization Plan No. 2
of 1979 to be a focal point for international issues affecting US
relations with developing countries. This already established
position would offer the opportunity to implement the President's
Cancun goals, to develop strategies and modalities for stimulating
private enterprise in the Third World, and to support more effectively
US private sector investments in LDCs. (The AID Director is currently
Acting Director of IDCA.)
b. Appoint a special assistant to the President for International Private
Enterprise. This would be an alternative choice which would allow
attainment of the goals expressed in Option 1.
c. Appoint a new director of AID who would blunt the current policy drift
which is counter to many of the president's private sector objectives.
The new director, however, would be confronted with a staff that does
not understand the private sector and bureaucratic inertia or resistance
to change would consume a great deal of time.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
2 July 1987
THE WORLD BANK
The World Bank (the International Bank for Reconstruction and
Development) is a specialized agency of the United Nations. Its primary
goal is to foster broad-based growth in incomes and employment in member
countries by facilitating investment of capital for productive purposes,
promoting private capital investment, and when private capital is not
available on reasonable terms, to provide supplemental lending from Bank
resources. Almost all non-Communist countries are members of the Bank.
The Bank makes long-term loans at market rates of interest to
members using funds from member country subscriptions to the Bank's
capital stock, by selling its own bonds in international capital
markets, and by selling its own loan portfolios to private
investors.
IBRD loans must be guaranteed by the government of the borrowing
country and repaid in hard currency.
Most Bank loans finance infrastructure investment in
transportation, electric power, agriculture, water supply and
education.
Since the early 1980s the Bank also has provided some loans to promote
stable financial conditions needed before long-term development programs can
be undertaken. In this, Bank activities have come to somewhat overlap the
work of the International Monetary Fund, its sister agency.
CONF.WNTIAL
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
Iq
Next 1 Page(s) In Document Denied
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
.i .
-'t=;~ta s~S ~~At~$A~SSAOeR,.f~3ER:T~;~,, :1 a?TI. ? AttiANANAR ?VG .25 ECTIutu. 1 .OF . .
:?? : f O'.ROBAI APE~];y..`THE.
f VADM? a~~fiti'M. rO~IVLi~~G7t~'~n~ ~?'^"'~.+;.r? ?a. .~?;~: .? '.~".f?_ ?rL. .'~.'i:.~t' ,e~~. it~f.:~?~~;!~a::t ~?t+_'~.~s
TO: ROBERT C. MCFARLANE, THE WHITE HOUSE
VADM JOHN M. POINDEXTER
FROM : AMBASSADOR ROBERT B. KEATING
SUBJECT: THE REAGAN REVOLUTION IN DEVELOPMENT ASSISTANCE
(THE FOLLOWING EVALUATION. IS THE RESULT OF OVER TWO DECADES
OF CLOSE ENCOUNTERS OVERSEAS WITH AID PROGRAMS WHOSE LARGE
OVERHEAD COSTS AND IMPRECISE RESULTS WITH RESPECT TO U.S.
OBJECTIVES OFTEN PUZZLED AND CONCERNED ME. I HAVE OBSERVED
AND INTERACTED WITH THESE PROGRAMS IN THE COURSE OF EXTENSIVE
EXPERIENCE GRAPPLING WITH THIRD WORLD DEVELOPMENT PROBLEMS AS:
STAFF ENGINEER WITH THE WORLD BANK; DIRECTOR OF THE CHILE-
CALIFORNIA PROGRAM; SENIOR ADVISOR TO THE INTER-AMERICAN
,DEVELOPMENT BANK; DIRECTOR GENERAL OF THE MINISTRY OF PUBLIC
WORKS I N ZAIRE; SENIOR CONSULTANT TO U. S. INDUSTRIES I N AFRICA,
LATIN AMERICAN AND SOUTHEAST ASIA; U.S. AMBASSADOR TO MADAGASCAR
AND THE COMOROS, AND. CHAIRMAN OF THE NSC-DIRECTED THIRD WORLD
HUNGER STUDY.)
IN THE PAST TEN YEARS, CHANGING CIRCUMSTANCES IN-THE
THIRD WORLD HAVE CREATED A NEW CONTEXT FOR ECONOMIC AND
POLITICAL RELATIONS AND NEW OPPORTUNITIES FOR U.S. FOREIGN POLICY.
WE HAVE SO FAR FAILED TO CAPITALIZE ON THE POTENTIAL OF THESE
CHANGES. THEY CREATE AN UNPRECEDENTED OPPORTUNITY FOR THE
UNITED STATES TO BUILD TIES TO THE THIRD WORLD BASED ON ENERGING
MUTUALITY OF ECONOMIC INTERESTS. A REAGAN REVOLUTION IN DEVELOP-
MENT ASSISTANCE IS NEEDED IF WE ARE TO MEET THESE CHALLENGES.
THE CHANGING ECONOMIC CIRCUMSTANCES
SOCIALIST SYSTEMS. WHICH HAVE DOMINATED THE ECONOMIES OF
DEVELOPING COUNTRIES FOR SEVERAL DECADES HAVE FAILED TO ACHIEVE.
ECONOMIC GROWTH. THEY HAVE EMPHASIZED URBAN DEVELOPMENT AT
THE EXPENSE OF THE COUNTRYSIDE AND ITS AGRICULTURE, DRIVING
FARMERS INTO MERE SUBSISTENCE. CENTRAL PLANNERS SET UP
INEFFICIENT STATE ENTERPRISES AT ENORMOUS COST, BANKRUPTING
THEIR ECONOMIES. TIMES GOT TOUGHER I N THE SEVENTIES. TWO OIL
HIKES, TWO RECESSIONS, ACCUMULATED DEBT AND HIGH INTEREST RATES
ALL MADE DEVELOPMENT MORE DIFFICULT. WITH THE FAILURE OF
PRODUCER CARTELS AND OPEC'S CURRENT PROBLEMS, DEVELOPING COUNTRIE
NOW REALIZE -THEY HAVE LESS COLLECTIVE POWER THAN EARLIER IMAGINED
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
?;:',? .: ??.." ~:~b"X i't`? FOR-.: YS , O.U r F.,._?. 0., Ot9I C U ~i
ASSI~.;i~1II1= ?T:.i7~? ^C ~~ ~'~3i~~F?~C E.`3::~t.ND.:-- ?'.'_, .,:~,._
HAVE FINALLY PERCEIVED THAT T}xE ?SOV?IrET-UNION~ Ow' A~ S` Cp . . ".,,,~? ,;; ~_ :~;;.
SAND ITS'"CLftN`f "L` ??.. .~.. _~`; :''; STATES ARE DISMAL EXAMPLES OF AGRICULTURAL AND INDUSTRIAL
PRODUCTIVITY. UNABLE TO SUPPLY MUCH ECONOMIC ASSISTANCE, THE
SDVIET UNION HAS HAD TO BIND THEM TO ITS SIDE WITH SUPPLIES OF
SURPLUS MILITARY EQUIPMENT. MEANWHILE, IESTERN DEVELOPMENT
AGENCIES BUILT PONDEROUS BUREAUCRACIES AT HOME AND ABROAD TO
ADMINISTER RURAL WELFARE TO THE POOREST OF THE POOR, WITHOUT
CONTRIBUTING TO ECONOMIC GROWTH.
IN THIS DARK LANDSCAPE, THERE IS LIGHT AND IT COMES FROM
AN EXPANDING AMERICAN ECONOMY WATCH STANDS AS A MODEL AND
PULLING ENGINE FOR WORLD ECONOMIC GROWTH. AMONG DEVELOPING
-COUNTRIES, THOSE WITH THE MOST OPEN ECONOMIES :AND CLOSEST TIES
WITH THE UNITED STATES (E.G., THE ASEAN COUNTRIES) HAVE MOST
EFFECTIVELY OVERCOME THE LAST DECADE'S ADVERSE ECONOMIC CIRCUM-
aANCES. TECHNOLOGIES FROM U.S.-SPONSORED RESEARCH ARE OPENING
A NEW ERA OF PRODUCTIVITY FOR THIRD WORLD FARMERS. BECAUSE OF.
OIL CONSERVATION, OPEC'S CARTEL IS BROKEN WITH THE PROSPECT THAT
DEVELOPING COUNTRIES CAN NOW AFFORD PESTICIDES, FERTILIZERS AND
FUEL FOR IRRIGATION AND MACHINERY. UNDERNEATH THE SURFACE
OF STATE REGULATION, BURGEONING SECOND ECONOMIES ARE BREAKING
OPEN OLD CONTROLS, CAUSING CENTRALLY-DIRECTED ECONOMIES TO
CHANGE. THIRD WORLD LEADERS, ONCE ENAMORED OF SOCIALIST
MODELS, ARE NOW BETTING ON MARKET-ORIENTED POLICY CHANGES IN
FOUR CRITICAL AREAS:
-- AGRICULTURAL PRICES
-- MARKETING REFORM AND LIBERALIZATION
-- INPUT SUPPLY AND DISTRIBUTION
-- PRIVATE SECTOR INVOLVEMENT IN AGRICULTURE AND INDUSTRY
IMPLICATIONS FOR U.S. POLICY
THE GROWING AMERICAN ECONOMY IS AN IRRESISTABLE FORCE
IMPELLING CHANGE IN THE ECONOMIES OF THE THIRD WORLp. IN A
SYSTEM OF FREE TRADE, THE UNl TED STATES AND DEVELOPING NATIONS
ARE INEXTRICABLY TIED TOGETHER BY THE MUTUALITY OF -ECONOMIC
INTERESTS.
ALTHOUGH BUDGETARY COOSTHAI NTS WILL REQUIRE CUTS I N OUR
DEVELOPMENT ASSISTANCE, ECONOMIC GROWTH I N THE UNITED STATES
AND THE FREE WORLD IS CREATING PRIVATE INVESTMENT CAPITAL THAT,
F -'r.; ' as ai.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90G00152R000400560001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/13: CIA-RDP90GO0152R000400560001-4
LF PRQPERLY ENCOURAGED, COULD HELP TURN AROUND THE ECONOMIES OF
:- 'D 1~ELOPIf~G'' `OWfl1E5 ':"tHd?RA- IOiLD::LEADERS~:RR :,:ItJC.~EASINGLY
.: 0 ?~ ??' '=.i'~+Lti?;:,,-
%:..: ?:At+fAR&~'0 T'Hi ?' H;~:;F 3i,~ii TNT Y E S EC
?+~ ~?.. N IR':GOJ.t~ ? R1c: t;Of~1?C?
SALVATION LIES IN THE WEST WITH" HE EAS'T'' PA -, `DT'fl3'~:'iT~LE' IM'~A'`?=''''~?