Archive (Reagan Library)

Cold War: US Treasury briefing for President Reagan (Thatcher visit) [declassified 2000]

Document type: Declassified documents
Venue: US Department of the Treasury, Washington
Source: Reagan Library: European & Soviet Directorate (Thatcher Visit - Dec 84 [4] Box 909092)
Editorial comments: Declassified 17 May 2000.
Importance ranking: Major
Word count: 1,211 words
Themes: Economic policy - theory and process, Monetary policy, Taxation, Trade, Foreign policy (USA)

Declassified F97-013#28
By SMF, NARA, Date 5/17/00

(1) McFarlane memorandum for President, 20 December 1984:


White House

DATE: December 21, 1984
LOCATION: Oval Office
TIME: 9.30am

To brief you on economic issues that may arise during your December 22 meeting with Prime Minister Thatcher.

The Camp David meeting with Mrs. Thatcher will be relatively small and restricted; Secretary Shultz is the only Cabinet Member who will be present. Don Regan expressed an interest in briefing you personally and I am bringing him to my regular 9:30 meeting on Friday morning. Don has also provided a separate briefing memorandum which my staff is drawing from in preparing your overall briefing package for the Thatcher visit. Don will likely focus on the US recovery, interest rates, our budget deficit, and European economic stuctural problems, as well as special British concerns such as unitary taxation.

The President
The Vice President
Secretary Regan
Robert C. McFarlane
John M. Poindexter
Meese, Baker and Deaver will attend at their discretion
Peter R. Sommer, NSC

Not applicable.

Prepared by Peter R. Sommer

cc Vice President
Ed Meese
Jim Baker
Mike Deaver

[Initialled “RR”]

(2) US Treasury briefing materials for Thatcher meeting, 19 December 1984:


Key Economic Issues for Meeting Between President Reagan and Prime Minister Thatcher

Developments since the 1984 London Summit

a) US and World Economy. The London Summit Communique emphasised action to broaden and sustain the world recovery. Since then, signs of accelerating growth, without renewed inflation, have multiplied in both the industrial countries amd less developed countries (LDCs). High industrial country growth, especially in the United States, has strengthened recovery in the LDCs and eased debt problems somewhat as their exports have grown. Prime Minister Thatcher expressed concern at the Summit about the large prospective US budget deficit, claiming it would raise interest rates and choke off world recovery. Since that time:

-- On the basis of the “flash” estimate for the fourth quarter, real growth in the US will be 6.7 per cent, 1984 over 1983. The private consensus estimate in early June at the time of the London Summit on the comparable year-over-year basis was only 5.9 per cent. (On the basis of the flash, real growth will be 5.3 per cent for the four quarters of 1984.)

-- Interest rates have come down across the board since early June. Since June 11, 1984, US 3-month Treasury bill rate down 2.22 percentage points, and 6-month LIBOR down 3.07 percentage points.

-- US budget deficit in FY 1984 was $175.3 billion, 4.9 per cent of GNP; down from $195.4 billion, 6.1 per cent of GNP in FY 1983. (However, it appears that the FY 1985 deficit will exceed the FY 1984 level.) Currently developing budgetary plan for the future with heavy emphasis on control of expenditures.

-- Industrial country growth should be about 4-3/4 [sic] per cent in 1984 vs. 2.6 per cent in 1984; British growth will be about 2 per cent;

-- Non-OPEC LDC economic growth has improved, from 0.8 per cent in 1983 to an estimated 3.7 per cent in 1984.

b) European stuctural problems. At London, the United States expressed cocern about the high degree of government intervention in European labor and capital markets that has [end p1] inhibited economic growth and job creation abroad, thus exacerbating unemployment. British unemployment is high (12.9 per cent), but Mrs. Thatcher is taking major steps to reduce government’s role in the UK economy. The British have supported a US initiative for the Organisation for Economic and Development (OECD) to study policy barriers to stuctural change.

c) The debt strategy. Some Summit countries, including the British, wanted the London Summit to endorse additional financing for debtor countries, but all agreed in the end to reaffirm the debt strategy and consider ways to strengthen it. Economic adjustment remains the central element of the strategy: virtually all major debtors except Nigeria have undertaken debt adjustment programs. The Summit’s major initiative was to encourage more extended multiyear rescheduling for debtor countries undertaking successful efforts to improve their position. Our experience since the 1984 Summit has been favorable: commercial banks agreed to multiyear rescheduling for Mexico and Venezuela. In addition, the drop of about 3 percentage points in interest rates (LIBOR) since mid-year will lead over the next twelve months to a savings [sic] of $6 billion in interest payments for the seven largest LDC debtor countries. In the context of the debt strategy, Secretary Regan proposed a special dialogue between the developed and developing countries for the Spring 1985 IMF Interim Committee and World Bank Development Committee meetings to focus on medium term prospects for growth and adjustment.

d) International monetary reform. Work continues on the study of ways to improve the international monetary system initiated at the Williamsburg Summit. The final report will not be available until after the Bonn Summit.

e) New trade round. We have made some progress on convincing others, including the British, of the need for a new trade round. The European Community recently proposed to set up in July a preparatory committee for a new trade round with a new round to be launched six to eight months later.

f) Aid to Africa. The World Bank has issued a report outlining a joint program of action for sub-Saharan Africa. The US supports almost all the program’s aspects, especially improved coordination of donor activity in Africa. We will not participate in a special World Bank Fund for Africa, given the US Economic Policy Initiative for Africa.

Other Issues

a) Unitary taxation. There have been several favorable developments on unitary taxation. Recently, the Florida legislature repealed the use of unitary taxation, and the Massachusetts Supreme Court ruled that the unitary method was [end p2] illegal. In June, Indiana officials pledged to repeal “unitary” in January 1985, and Oregon repealed “unitary” in July. We hope the British will be patient while the eight remaining “worldwide unitary” states, particularly California, try to resolve this issue.

b) Export credits. At the December 11-12 OECD Export Credits Group meeting, the EC proposed that OECD countries make it more clear when they are using “tied aid credits” for commercial purposes instead of their intended aid purpose. Mrs. Thatcher may express concern over US rejection of this proposal, but we did not reject it. We said we could accept the EC proposal only if governments also agreed to make less use of these techniques.

c) Steel. After unsuccessful negotiations, the United States has halted imports of steel pipe and tube from the EC because European exports of these products surged above the levels cited in the US-EC Steel Arrangement. On other steel products, the EC has stayed within the quota levels, which are consistent with our objective of reducing imports from all sources to about 18.5 per cent of our market. We are willing to negotiate on pipe and tube.