SENIOR INTERDEPARTMENTAL GROUP ON INTERNATIONAL ECONOMIC POLICY (SIG-IEP)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R000400550025-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 7
• Document Creation Date: December 20, 2016
• Document Release Date: December 13, 2007
• Sequence Number: 25
• Publication Date: September 13, 1983
• Content Type: MEMO

Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
EXECUTIVE SECRETARIAT
Routing Slip
Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
 Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
WASHINGTON 20220
September 13, 1983
THE
VICE PRESIDENT
THE
SECRETARY
OF
STATE
THE
SECRETARY
OF
DEFENSE
THE
SECRETARY
OF
AGRICULTURE
THE
SECRETARY
OF
COMMERCE
DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
v[JIIRECTOR OF CENTRAL INTELLIGENCE
UNITED STATES TRADE REPRESENTATIVE
CHAIRMAN, COUNCIL OF ECONOMIC ADVISORS
ASSISTANT TO THE PRESIDENT FOR
NATIONAL SECURITY AFFAIRS
ASSISTANT TO THE PRESIDENT FOR POLICY DEVELOPMENT
ADMINISTRATOR, AGENCY FOR INTERNATIONAL DEVELOPMENT
SUBJECT Senior Interdepartmental Group on
International Economic Policy (SIG-IEP)
A meeting of the SIG-IEP is scheduled for Friday,
September 16, at 11:00 a.m., in the Roosevelt Room. The
agenda is as follows:
1. International Debt Update; and
2. Proposed Inter-American Investment Corporation.
A paper on agenda item 2 is attached. Attendance will
be principal, plus one.
Donald T. Regan
Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
 Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
U.S. Participation in
Proposed Inter-American Investment Corporation
Treasury is seeking SIG-IEP support for U.S. participation
in a proposed $200 million Inter-American Investment Corporation
(IIC). The IIC would be an affiliate of the Inter-American
Development Bank (IDB); it would be located in IDB headquarters
in Washington and would rely on the IDB for administrative and
logistical support.
The U.S. share of the proposed corporation would be up to
35 percent or $70 million. U.S. subscriptions to the Corpora-
tion would be paid in four equal installments beginning in FY
1985. Funding for the IIC has been included in the planning
figures for the FY 1985-88 budgets.
The IIC fills a need created by the economic evolution of
Latin America and the Caribbean. As th'e'IDB's borrowing member
countries have developed, it has become evident that a serious
economic constraint has been a lack of private sector access to
capital markets particularly for equity investments. The IDB
conservatively estimates a gap of $1.2 billion annually in
the long-term financing of small and medium scale enterprises
(SMSEs) of the region. The IDB also estimates that the above
figure includes approximately $410 million annually in equity
requirements. Clearly the proposed IIC will not fill all the
financial requirements of the regions SMSEs. By creating the
IIC, however, we will be expanding the scope of IDB activities
more completely in order to address the development needs of
Latin America and the Caribbean, particularly its poorest mem-
bers.
Description
The IIC is designed to support private sector activities
in Latin America through equity and loan investments. The
primary focus of the IIC would be SMSEs. Enterprises with
partial government involvement would be eligible for financing
if the proposed investments could be demonstrated to strengthen
private sector activities. Because of the focus of the IIC, we
expect that the primary beneficiaries will be the poorest coun-
tries of the region, principally in Central American and the
Caribbean.
Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
 Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
The IIC will be a multilateral organization whose member-
ship, at the present time, will include almost all of the IDB's
borrowing member countries, the United States and Italy. On the
basis of communications with nonregional countries, we are confi-
dent that more countries will seek to join the IIC soon (partic-
ularly Japan, Germany, France and Spain). All subscriptions to
the IIC will be made in convertible currencies thus significantly
leveraging the U.S. subscription.
Overview
The most recent discussions surrounding the creation of a
private sector oriented affiliate of the IDB began over two
years ago at the initiative of the Venezuelan Government.
Venezuela had become interested in creating a new organiza-
tion because of their disappointment with the performance of
their own IDB administered Venezuelan Trust Fund (VTF). Though
the VTF was empowered to make equity investments, it became
clear that IDB expertise and administrative procedures did not
lend themselves to the task of making equity or loan investments
to the private sector. In order to overcome this problem, the
Venezuelans broached the idea of creating an independent organi-
zation aimed solely at promoting private sector development in
the region.
The United States agreed to work with the Venezuelans on
their initiative because of our long term view that the creation
of such an affiliate would reflect the institutional evolution
of the IDB and help meet the financial needs of the Bank's bor-
rowing members by directly assisting a critical part of their
economies - the private sector. An analysis of the IDB's finan-
cial requirements revealed early on that the economic development
in many parts of the region had lessened the need for continued
large inflows of concessional resources. What was needed to
address the economic requirements of the 1980s and beyond was a
program that would (1) concentrate the Bank's resources on the
poorer members of the Bank, (2) expand access to the world's
capital markets for all developing member countries and (3)
create a mechanism that would stimulate private sector activ-
ities particularly in the poorest countries. The first two
objectives were achieved with the completion of the IDB's
Sixth Replenishment negotiations. The last objective is to be
realized through the creation of the IIC.
The creation of the IIC will add a new, important, and
complementary dimension to our goal of providing effective eco-
nomic assistance to the poorest countries in the region partic-
ularly Central America and the Caribbean.
Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
 Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
-3-
Structure of IIC
- U.S. Objectives
Our overriding goal in designing the structure of the IIC
was to create an efficient and professionally
in which there would be sufficient internal checks and balances
to ensure that decision making would be bas run organization
quality of the p ed solely on thences
with a Latin American edesire ato?retainhnominalls ntr to of
meshed rol institution, i.e., they wished to be the majority shareho the
As the negotiations progressed, it became clear that the
would relinquish considerable operational authority holders.
organization if they Latins
could retain symbolic control. over the
The tentative agreement that was reached at the July and 15 meetings of interested parties reflects the meshing of
these objectives. 14
Tentative Agreement
The tentative agreement contains the following elements:
Size: $200 million, to be Paid in countries in convertible currencieover'4 years by participating
Distribution of Capital
would receive 55 percent Latin America and the Caribbean
and other industrialized countries would receive 45 pnrcen Stofes
which the U.S. share would be up percent. This compares
to the current shares in the IDB of almost 54 Percent, of
America and the Caribbean and 46 Percent for Latin countries. The U.S. owns 34.5 percent for the industrialized
percent of the IDB's Fund Percent a IDB capital and 41%
on the Board of Executive Directors awillebetequal t
shares. Voting power
o capital
Executive Committee: Although Latin America and the Caribbean
will hold nominal control of the IIC, actual approval of individual equity and loan operations will be
a four-person Executive Committee selected from theBoarrdeof ed by
Executive Directors. The Executive Committee would review investments Prior to consideration by Directors. the Board of Executive))
This committee would be comprised of two Latins,
one American, and one nonregional, each member would have a
percent vote. Approval of an investment operation requires a
favorable vote by three out of four of the Executive commit
members. a
emb of DIf approval is granted, the proposal oche f tee wherer unless a Director specifically asks
l
Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
 Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
for a Board discussion within a specified time period, it is
considered approved. In instances where at least three out of
four.Executive Committee members vote against a proposal, the
proposal is considered terminated. An individual Board member
can, however, request a review and explanation by Management
and the Board can make recommendations regarding the operation.
The Board cannot, however, overrule a negative decision by the
Executive Committee.
In cases of a tie vote, the proposal will be sent back to
Management for reformulation if considered desirable or possible.
If Management believes that the concerns raised by the Executive
Committee are valid and the proposal cannot be reformulated,
they can terminate the proposal at that stage. If they choose
to bring it forward a second time, and a tie-again results,
the Chairman of the Board of Directors of IIC, who will be the
President of the IDB, will cast the deciding vote.
Board of Executive Directors: The Board of Executive Directors
will be comprised of thirteen directors, nine from Latin
America and the Caribbean, one from the United States, and
three from other countries. This formulation is similar to
that of the IDB except that the IIC has one additional director
from Latin America.
The additional seat was required to give more complete
Latin representation on the IIC Board. In order to keep admin-
istrative expenses to a minimum, it has been decided that mem-
bers of the IDB Board of Directors will act, wherever possible,
as members of the IIC Board of Directors.
General Manager: It is our view that the success or failure of
the IIC will be determined in large measure by the quality of
the person chosen to be General Manager. The General Manager,
in practice, will be responsible for the daily operations of
the IIC including the hiring and firing of IIC personnel. The
General Manager also has ultimate responsibility for selection,
preparation, and submission of investment proposals to the
Executive Committee. In order to ensure that the individual
selected has the widest possible support, the charter will
require that members comprising 80 percent of the total voting
power concur in the selection. This percentage will also
allow a U.S. veto in the selection process.
Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
 Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4
Issues Still to be Resolved
Though significant progress was reached in the July 14-15
meeting, two issues remain. While they are important, we do
not believe they are sufficiently serious as to put the creation
of the IIC at risk. These are:
a. Distribution of Capital Shares Among Member Countries:
A consensus was reached that the Latin Americans and
the Caribbean would receive approximately 55 percent
of the IIC while the U.S. and other interested parties
would receive 45 percent. Specific country shares
have not been finalized though it would appear that
the U.S. will initially take approximately 30 percent
and Italy 5 percent leaving approximately 10 percent
open for other industrialized countries interested
in joining the IIC. We would consider lowering our
share a few percentage points to permit the greatest
number of nonregional countries to join. The Latin
American situation is somewhat'mor.e contentious. The
Venezuelans, as co-sponsors of the`IIC, would like to
be equal to the largest Latin member. However, Brazil
and Argentina, currently the co-largest Latin members
in the IDB, insist that they retain their IDB ranking
in the IIC. While a difficult issue for the Latins,
we believe they will be able to arrive at a solution
before the next meeting of interested parties.
b. Majority needed for Special Votes: Voting arrange-
ments for membership, capital expansion, and transfer
of resources usually require special majorities (e.c.,
such language usually requires the approval of members
accounting for three-fourths of total votes and two-
thirds of the Governors). Some percentages have not
yet been agreed upon though we do not expect that this
will be a serious issue.
Next Step
The next meeting of interested parties is now scheduled
for November 3rd. Working Groups comprised of IDB Executive
Directors are expected to have ironed out most of the remaining
issues prior to the meeting. If the SIG-IEP concurs, the U.S.
would formally indicate its intention to join the IIC and the
level of our participation at the time of the next meeting.
Formal U.S. participation in the IIC will be subject to
Congressional authorization and appropriations.
SEP. 1 3 1983
Approved For Release 2007/12/13: CIA-RDP85M00364R000400550025-4