- 21 -

a massive program to develop domestic energy resources.

We are moving rapidly toward major decisions on the
various options open to us under Project Independence --
decisions which will call for an extended national
commitment of capital, technology and manpower. We will
not allow ourselves to be held hostage -- politically or
economically -- to an over-dependence on imported oil.

Our imports must fall to at most one or two million barrels a day.

NATIONAL PROGRAMS

National programs such as Project Independence must
carry a major burden in developing new energy sources.

But no one country has a monopoly on the ideas and technology
required for this task. An effective program of international
cooperation will reinforce and enhance individual national
efforts.

- 22 -

We have already agreed on several joint research and development projects to be carried out under the new International Energy Agency in such fields as coal technology, thermonuclear fusion, and solar energy. The United States is prepared to expand these joint activities substantially.

We are also prepared to join with other countries to stimulate multinational ventures in the area of uranium enrichment -- to ensure that the great increase in world demand for this alternative fuel is met.

In addition we stand ready to explore on a multi-lateral basis the complex problems of how to promote international investments in domestic energy resources and how to provide the investment security necessary to stimulate large private expenditures in the energy sector.

- 23 -

**Financial Solidarity.** Despite the short-term reduction in import costs from conservation and the long-term promise of additional supplies, the industrialized countries are likely to be faced in 1975 and for several years thereafter with enormous import bills. Vast changes in the pattern of international trade and investment flows will result.

There is a distinct danger that -- in the absence of new measures of cooperation -- one or more of the allied industrial countries will be forced to endure acute economic hardship, pursue beggar-thy-neighbor policies or submit to intolerable political and economic conditions in return for financial help from the oil producers.

The consuming countries have the capacity, if they have the will, to preserve their integrity and manage

- 24 -

their own financial affairs. The producers are necessarily
placing their funds in the industrial countries on the
basis of criteria that meet their investment
preferences. Consumers can accept these preferences while at
the same time redistributing the funds among themselves
to meet their actual needs.

Private financial institutions are already doing
this in an efficient way. But while the capacity of private
channels has not yet been reached, we can not assume
that they can or should bear all the risk in loans to
governments that are clearly under great financial pressure.
We need not wait to test this capacity.

Governments can move now to position measures of
mutual support to augment private channels whenever needed.
We can provide the confidence which would allow each
of us to avoid internationally disruptive

- 25 -

economic policies. And by helping assure the stability
of the entire system and underpinning the credit-worthiness
of participating governments, we should reduce the eventual
requirement for official financing.

A mutual commitment to financial support would
build on and reinforce our undertakings in conservation
and the development of alternative sources. Financial
solidarity would assure cooperating governments that the
absence of external finance on tolerable terms will not
undermine the political and economic sacrifice they call
on their people to make. Each cooperating country would
be able to assure its people that sacrifices will be shared
equitably by major Western consumers and that the long-term
course can be stayed by all cooperating states, weaker and
stronger alike.

- 26 -

Therefore, the United States proposes the creation of a common fund of loan and guarantee-commitments to meet the requirement for financial solidarity. The cooperating countries would give themselves the means to recycle funds up to $25 billion, an amount corresponding to half their collective oil deficits next year. This would not be an aid fund, but a facility for redistributing at commercial interest cost funds flowing back to the industrial area from oil producers. Support from the common fund would not be automatic but follow reasonable self-help measures and full support to private financing opportunities.

Countries would share their financial commitment to and availability from the common fund on the basis of their need and ability to assist. Governments would individually choose the means best suited to meet their financing commitment to the joint effort.

- 27 -

The Developing World. The Western industrial countries
can reasonably approach their energy problem on the basis
of:

* Squeezing the waste out of their energy use;

* Building on extensive shared political interests and structures;

* Supporting and augmenting the predominant role of private financing arrangements that link their markets; and

* Meeting their borrowing needs on commercial terms.

The developing countries face a challenge of a
different nature. Their ability to reduce energy consumption
is very limited. Many cannot afford commercial terms for
all their financing needs and have depended heavily on
official international financing institutions. Therefore
support for the poorest developing countries must be aid,

- 28 -

on very concessional terms, and should be provided
significantly through international financial institutions.

The need to do this is compelling. Unless increased
financial support can be provided to the poorest developing
countries the burden of their import bills will bring
development projects to a halt while resources are
diverted to merely meeting the essential needs for sustaining
human life -- for food, energy and shelter.

At the World Food Conference I outlined an inter-
national strategy that includes the key elements needed
to meet the long-term problems of the poorer developing
countries in food: assistance to their own agricultural
development, interim food aid and an international approach
to financing the commercial transfers of food to the poorest
developing nations.

- 29 -

The United States will make a major contribution
on all these fronts.

We have:

-- Proposed to the Congress a doubling of our aid
to agricultural development, a request we do not wish
to be forgotten;

-- Announced our commitment to increase U.S. food
aid this year, and to do all that is humanly possible in
future years to prevent starvation;

-- Suggested that the new Ministerial Development
Committee of the World Bank and the IMF develop a long-term
strategy to finance the transfer of food from surplus
countries to the poorest deficit countries.

We cannot afford to let development hopes die.

- 30 -

The industrial countries must endeavor to at least
maintain aid flows so that their actions do not
aggravate an already acute problem. But the major burden
for increasing assistance lies with those who have the
increased means to help.

Recycling for developing countries must be dealt
with apart from the industrial countries' approach. They
cannot afford a second or third mortgage on their future
at eight percent interest.

To meet the needs of these countries, I propose a
new IMF facility for the least developed which would provide
them one to two billion dollars in desperately needed
financing during 1975. In some ways, its operations would
parallel those of the existing oil facility. But it would
share the burden more broadly and thereby provide more

- 31 -

relief to those least able to pay. I propose that the
oil producers provide the loan capital for this facility
and assume a third of the cost of interest in recognition
of the mounting debt burden of the poorest developing
countries. The membership of the fund could, for its
part, agree to cover a second third of the interest cost
through a fund established with some of the profits realized
from periodic sales of the IMF's gold holdings. The
developing countries themselves would pay the other third
of the interest cost, three to four percent.

**Relations with Producers.** In our relations with the producers we seek not confrontation but a meaningful basis for cooperation. We recognize that the oil producers' share of the world's wealth will be greater than has traditionally been the case. We support their peoples' aspiration for a better life.

- 32 -

We are assisting them to achieve a future not dependent
on oil alone.

The United States is not against a dialogue with
the producers. Indeed that was a key element in the strategy
we proposed to the Washington Energy Conference.

But consumers cannot expect that those who have
inflicted the present situation upon them will automatically
provide its solution. In fact, the consumer unity we seek
is necessary in the very areas of conservation, lessened
dependence on oil, and financial stability upon which the
oil producing countries themselves have urged our action.

Let us be realistic about what we could expect from
a producer-consumer conference in the present situation.
Let us consider what invariably happens when a

unified force meets a disunited chorus. Let us be clear
what negotiating from a position of weakness with no clear

- 33 -

objectives would achieve. And in fairness to the producers,
let us ask what precisely we would be asking them to do.

For example, we see no prospect that the consumers
could bargain effectively with the producers at this time
on the vital question of price. Yet the price of oil will
not come down on its own. The objective conditions that
will eventually do this are not present now, and will
not be later unless consumers act to create them. Financing
alone does nothing to change a price which, if sustained,
will provide such surplus wealth that producers will lose
all incentive to meet the growing need. We could thus
approach a classic situation of instability in which price
rises move us further and further from the point where the
supplies offered are likely to meet the demand.

- 34 -

Our obligation to the producers as well as to
ourselves is first to create by concerted acts of political
will the preconditions for constructive dialogue. We must
put our own house in order by accepting the self-discipline
to limit our demand for imported oil and develop alternative
energy sources. A premature effort to resolve the critical
problem of price would risk both fruitless confrontation
and embedding the current disequilibrium even more firmly
in the foundation of the world economy. This is a certain
prescripton for disaster.

A formal conference between oil producers and consumers
could be constructive and may even be essential. But
only when we have more firmly established a framework of consumer
cooperation should we move to that stage of the international
dialogue.

- 35 -

## CONCLUSION

Let me conclude.

The energy problem is soluble -- it would become insoluble only if we refused to face it. Its magnitude can call forth paralysis, or it can evoke great efforts and determination to prevail. We can shrink from reality, or strive to shape a world experiencing fundamental change. We have the ability, and we must have the will, to master our fate.

Above all the energy crisis tests the willingness of the consuming countries to trust each other. It tests our unity abroad and our cohesion at home. The crisis is possible only because a small group of producer countries have maintained greater unity among themselves than we have been able to among and within ourselves. Let us

- 36 -

now answer this challenge with a new effort of cooperation.

Let us face the hard questions and hard decisions that
are necessary, and let us face them together. We have
behind us the simple motive of necessity. At stake is our
continuation as free and prosperous societies.

A great responsibility rests upon us here in
America. For many years our country has carried a
disproportionate share of the burden of maintaining
the peace, of feeding the hungry, of stimulating global
economic growth. It has been a heavy burden -- which
we did not seek and which we have often been tempted to
put down. But we have not done so, nor can we afford to do
so now, for it is the generations who follow us who could pay
the price for abdication.

- 37 -

For more than a decade we have been torn by war and then constitutional crisis. We have been enervated by our exertions, and perhaps even more by self-doubt.

But we again face a world in grave danger, a world much in need of a self-confident America that understands that without its leadership there can be no stability, no permanent improvement in the human condition, and no lasting peace. Once again we are summoned to demonstrate that problems are soluble if we do but try. Once again we must show that it is right to seek to undo what is wrong with the world. Once again we must seek the excitement of new frontiers.

The magnitude of the energy problem is worthy of the total commitment of a great nation. For a great nation cannot be true to itself without a mighty cause.

Enders Draft 1

October 27, 1974

# DRAFT CHICAGO SPEECH

## INTRODUCTION

Not since the Second World War, in which Europe almost committed suicide, has the industrialized world faced a threat like the oil crisis.

The inflated price of oil contributes to all the world's economic ills -- inflation, stagnation; threatened financial collapse in some countries, and the danger that the poorest developing countries will be unable to purchase food, energy and other essentials of life itself. But its corrosive effect goes far beyond, sapping the force behind the political leadership of world society and supplanting the cooperative approaches to security and prosperity that guarantee it with a new impulse for individual countries to go it alone, to seek their advantage in the loss of the community. Industrial civilization, that in the last generation seemed to

2

to achieve an enduring vision of its oneness, is now
endangered in its very structure.

Many have not wished to see the danger. Others have
preached quick and automatic adjustments. But there
are no quick and automatic adjustments.

(A) It is tempting to hope that a resolution of the Middle Eastern problem will somehow solve the oil problem. This is not the case. The two problems reached the flash point at roughly the same time, and the focus of world attention on the Middle East conflict perhaps lowered initial resistance to the rise in oil prices. But the two problems have separate lives and must be addressed separately.

(B) The price of oil is also unlikely to decline
in response to diplomatic pressure alone. The rise in
the price did result from a political decision, but not

3

a capricious one. The possibility for it derived from
the political and economic conditions among the producing
and consuming states. The decision will not be reversed
until these conditions are changed. Until they are, any
attempt to negotiate prematurely with the producers might
worsen rather than improve our position.

(C) It is also wrong to view the economic effects
of the energy crisis as temporary problems of adjustment.
The international economic system proffers no automatic
adjustments that will overcome the effect of current oil
prices. We face rather a potentially long-term drain on
our economic health which challenges us to action not
patient confidence in the invisible helping hand.

The transfer of wealth and power. Internationally,
the transfer means a fundamental weakening of the world
power and leadership of the industrialized countries.

4

Initially, it weakens our economies, on which our
strength ultimately depends. It weakens our capacity
to devote resources to our defense and to aid developing
countries. It means a fundamental weakening of our
capacity to defend our interests and the interests we
have in common with others.

Meanwhile, the resources taken from us go to expand
the financial and military power of the producer
countries. The vast funds now at the disposal of the
producers give them a pervasive influence over the
world economy. Their wealth is also financing a
growth in military power. A stream of weapons of the
most modern kind has begun to flow into the Middle
East. The implications for regional, and for world,
stability are alarming. We have to face dangers of
living in a world where a small group of countries,

5

inexperienced in world leadership, have the capacity
literally to buy power and influence in any area of world
affairs.

For the fundamental reality is that a transfer of
economic power of this magnitude must inevitably mean a
transfer of political power as well. If oil deficits in
the industrialized countries continue at the present level,
many of these countries will inevitably become politically
as well as economically dependent on the producer nations
that have become their creditors. A large part of the
Western World will find itself under the control of
countries whose history has not prepared them for world
leadership. We cannot assume that the producer countries
will share our values or be sensitive to the needs of our
societies.

The developing countries would be even more dependent.
They need energy urgently to develop their economies.

6

They have few resources of their own. Their entire
hopes for the development of their societies would depend
upon the favor of the producing countries.

The transfer of wealth will threaten, not only the
strength of the industrialized countries, but the solidarity
between them. There will be a great temptation for individual
countries to conclude agreements with the producers at the
expense of other consumers. Such a course would only lead
to higher prices and catastrophe for us all. It would also
weaken the cooperation which we depend on to obtain our
other objectives in world affairs. The success of our policy
of detente with the Soviet Union and China requires that there
be more, not less, solidarity within the Western Alliance.
If the Alliance was divided on energy policy, it would also
be unable to resist renewed pressures from our traditional
adversaries. The world's hopes for a more secure peace
would be dashed.

7

Most fundamentally, the oil crisis and the rising power of the producer countries threaten the emergence of a world in which nations would be more equal in their power and prospects than ever before. The bipolar structure developing from the Cold War has given way to a more interdependent structure in which countries are coming to share opportunities and responsibilities more equally. But now a small group of countries has capitalized on the growing economic interdependence of the world to assert its own power. The forces of trade and the exchange of resources which should have tied all nations increasingly to the cause of peace have been exploited to the advantage of a few. This is the issue of power which all nations must address if they mean to maintain their hopes for a more equitable and peaceful world order.

These are part of the dislocations that result from the most massive transfer of wealth in history. The United

8

States acquired dollars 65 billion in investments in other industrial countries over a century. OPEC's financial holdings in the industrial world will increase by that much as a result of one-year's revenue. We have had a huge, sudden and unexpected claim levied on our resources -- an enormous, continuing assessment on us, with no offsetting benefit.

We cannot foresee all of the dislocations that such a claim on our resources will entail. History offers us no parallel. The German transfer problem of a half century ago, however, provides some hint of the strains that a sudden and massive external assessment imposes on a national economy.

The consequences for industrial societies. Now let us look more closely at what the consequences of the energy crisis must be for us domestically. We face a series of serious oil-related economic problems.

9

(A) A continuing drain through high oil prices, of purchasing power from the industrial economies, frustrating plans to restore the momentum of growth. Under present circumstances, expansionary government economic policies will be trying to refill consumer purses which have a large hole in them -- the oil bill.

(B) We also confront a continuing inflationary push as higher oil prices work their way through the product chain. Furthermore, reinvigorating our economies threatens to translate quickly into increased energy use and more upward pressure on oil prices. Therefore, unless we can change our economies' pattern of energy use we face the dilemma of either driving with the brakes on or pushing a very inflationary accelerator.

(C) The industrial countries also inevitably will have enormous balance-of-payments deficits requiring exceptional amounts of financing. This financing burden

- 10 -

brings a cumulating pressure on to the credit-worthiness
of nations and ultimately poses the political and financial
limits of their willingness to go into debt to others.

(C) In attempting to finance these deficits,
industrial countries must accept the clear certainty that
the oil producers' funds flowing back to the major financial
centers will not at all match the pattern of actual financing
needs of consumer countries. The countries most in need of
financing, such as the smaller European states, are the
least likely to receive it. Some strong money markets may
be showered with more deposit funds than they seek or want.
The usual shifting of such liquid funds, when done on the
mega-scale of oil funds, could place great strains on
public and private financial institutions in the
industrialized world.

- 11 -

(E) We need more stable, long-term financing arrangements, but neither the producing countries nor the consuming countries are prepared to see large parts of their economies bought by oil producer governments.

(F) The cumulative effect of these risks and uncertainties has been to push governments and bankers alike toward very cautious policies, high interest rates, restraint on expansion and a general bias against growth.

The domestic political consequences would also be severe. The industrialized countries have been dedicated to continuous economic growth. Their populations have come to expect steady improvements in their standards of living. Hence, for this progress to stop would place severe strains on their social cohesion. Once total national income ceased to grow, or declined, groups would compete much more urgently than before for their share of it. Class conflicts would rise. The stability of governments would fall. Many countries would have no recourse but to

-12-

accept participation in government by parties which
were fundamentally opposed to their principles. Our
disorder at home would be as great as the disorder in the
world.

Further, any policies which we may devise to cope
with these consequences internally will be subject to the
external influence of the producers. Through the investment
of their revenues in our economies, they will acquire
substantial control over our fiscal and monetary conditions.
At any moment, they will have the power to cause havoc
in our economic institutions by transfers of funds or
denials of energy supplies. We would be unable, as a result,
to deal with the consequences of the energy crisis on a
national basis.

The choices for consuming countries. In dealing
with the assessment on their resources levied by current

- 13 -

oil prices, the industrial consuming countries have three
courses of economic and political action.

(A) Inflation, ultimately to the point where the
monetary value of their export goods covers their oil bill.
This entails inflating the value of all goods so that the
industrial countries could cover that two and one-half
percent of their consumption represented by oil imports.
This would be a grotesque type of adjustment in which all
elements of balance in our political and economic structure
would be destabilized to balance one -- the oil bill.

(B) Financial assistance from the oil rich, if we
are willing to go into debt to these countries, with the
political and economic implications this entails.

(C) Cooperative action, to reduce our dependence
on imported energy and financial solidarity to preserve
our traditional private financing channels and augment
them where necessary by public ones.

- 14 -

A prolonged high rate of inflation involves unaccept-
able risks for Western democracies in terms of social strife
based on increasingly strident struggle among economic
groups, a disintegration of the middle class, and possible
reformulation of broad-based political party systems along
class and ideological lines. It would represent a reversal
of 200 years of historical development of one of the
fundamental elements of stability in our political system.
Moreover, there is every reason to think that this would
engage oil producers and consumers in a destructive spiral
of competitive inflation. Inflation is not the way out
of our difficulties.

Assistance from producer countries to finance our
oil bills is possible, but it entails a requirement for
continuing funds, with the inevitable result that the
lender will increasingly set the terms and conditions

- 15 -

of each refinancing. The decision to place one's political
future in the hands of another country is a major one; some
of the weaker industrial states may now face this choice and
the implications of this for the Western Alliance have to be
faced. As time goes by, even major industrial states will
reach a point where they are unwilling, if not unable, to go
further into debt to foreign countries. In short, producer
financing is not a final answer for the Western industrial
countries if we want to preserve their economic and political
strength.

The course of cooperative action. This leaves us
the political challenge, and the economic necessity, of
cooperative action. This is not an obvious or easy alternative.
To pursue it, we have to recognize that energy is a common
problem, from which escape by individual countries is not
possible. The past several months have confirmed that there
is no acceptable alternative to full cooperation among the

- 16 -

major oil importing countries. No single oil consuming
country, except conceivably the U.S. can solve by itself the
critical problems posed by the oil prices.

The United States, because of its economic strength
and relative abundance of domestic energy resources, might
be able to pursue a unilateral policy on oil. We could
act to secure imports paying the price this would entail,
although not without considerable cost to other areas of
our economy. But this would be an act of international
irresponsibility. Our abandonment of the rest of the oil
importing world would cause grave political and economic
problems, and we have for that reason ruled out a unilateral
approach.

Rather, we are committed to the approach we initiated
at the height of the crisis of last winter -- an approach
based on international cooperation. International cooperation --

first

based on international cooperation, international cooperation--

at the height of the crisis of last winter - an approach

rather, we are committed to the approach we initiated

approach.

importing world would cause grave political and economic
irreASONability. Our abandonment of the rest of the oil

oil would be an act of international

our economy, but this would be an act of international
although not without considerable cost to other areas of

be able to purchase a unilateral policy on oil. We could

country, except conceivably the U.S., can solve by itself the
major oil importing countries. No single oil consuming

10

- 17 -

first among the major oil importing countries and eventually
between the consumers and the oil producers -- is absolutely
essential to world stability and to our common economic well-
being.

The cooperation of the United States, Europe, Canada,
and Japan which has secured our collective defense and
prosperity for a quarter century must be the basis of our
response to the greatest challenge this group has faced since
post-war reconstruction. To meet this challenge, we need that
same tough self-discipline and willingness to accept collective
sacrifice now for a more stable and prosperous future. We
are not hapless, we can solve our energy problems. The basic
choice for consuming countries is whether they will wait
passively while others impose their solutions on them, or
whether they will attempt to master their own fate.

- 18 -

We can mold our own fate if we tackle the oil crisis
on the basis of a long-term strategy to get us out from
under impossible bills for imported energy. There are no
quick solutions. Confrontation is not the answer. Nor will
the oil price come down on its own. The objective conditions
that will eventually do this are not present now, and will
not be later unless consumers act. Financing alone does nothing
to change a bloated price that, if sustained, will provide
more and more overseas producers such unusual wealth that they
will produce less, not more, as prices rise. At the current
price, an increasing number of producers would over time
lose any incentive to meet growing consumer needs. We could
thus approach a classic situation of instability in which price
rises move us further and further from the point where
supplies offered are likely to meet demand.

19

We must, therefore, act to create the objective

conditions necessary to assure us adequate energy at a price

we can afford.

A program of action. Our required program of action
is clear. We must:

(A) Take immediate action to limit our political and
economic vulnerability to interruptions of oil supplies;

(B) Begin promptly to reduce our consumption of
imported oil;

(C) Embark upon comprehensive national and joint
programs to develop alternative supplies of energy;

(D) Make arrangements to deal with the actual and
potential problems of recycling in a way which does not
prejudice our political freedom;

(E) Endeavor to lessen the burden imposed by higher
oil bills on the developing world; and

offence on the developing world; and

(ii) endeavor to lessen the burden imposed by higher
prejudice our political freedom;

potential problems of recycling in a way which does not
make arrangements to deal with the actual and
programs to develop alternative supplies of energy;

(c) embark upon comprehensive national and joint
imported oil;

(d) begin promptly to reduce our consumption of
economic vulnerability to international oil supplies;

(A) Take immediate action to limit our political and
facilities of immediate action be clear. We must:
is clear. We must:

A program of action. Our required program of action
we can afford.

conditions necessary) to assure us adequate energy at a price

We must, therefore, set to create the objective

- 20 -

(F) Improve our dialogue with the oil producing countries in preparation for the time when we can deal with them from a strong base of common policy on the critical questions of oil price and supply.

Most importantly, we must carry out this action program within a well-organized framework of consumer country cooperation, one on which individual parts reinforce one another both politically and economically.

**Conservation.** Most immediately, we must move to establish the objective conditions within our own countries which are necessary to bring about a reduction in the price of imported oil. We must demonstrate that:

(A) We are prepared to accept the self-discipline and national sacrifice necessary to limit our consumption of energy and particularly our consumption of imported oil; and that

(B) We are determined to commit the capital and

oil; and that

of energy and particularly our consumption of energy

and additional sacrifice necessary to limit our consumption

(A) We are prepared to accept the self-discipline of imported oil. We must demonstrate that:

which are necessary to print about a reduction in the price established the objective conditions within our own countries (Conservation). Most immediately, we must move to

one another both politically and economically).

country cooperation, one on which individual parties reinforce program within a well-organized framework of consumer

questions of oil price and supply).

countries in preparation for the first when we can deal with

(F) We improve our dialogue with the oil producing

- 2 -

- 21 -

technology required to accelerate the development
of alternative sources of energy.

We believe that effective cooperative action in
these areas should be conceptually linked to our approach
to the problem of recycling and assistance to the developing
world.

Meaningful energy conservation offers the most
immediate prospect for relief from the crushing burden
of high oil prices. We must quite simply consume less of
this very expensive imported oil. A substantial reduction
in demand will have the important added benefit of exerting
pressure for a downward movement of prices.

The U.S. has already set a national goal of reducting
oil imports by one million barrels per day by the end of
1975. Other countries have begun similar programs. The
United States is prepared to join others in achieving
further savings if that is necessary to achieve our goal.

- 22 -

We are convinced that to be truly effective
conservation must be addressed on a multilateral basis.

The austerity efforts of any one consuming country can be
negated unless all major consuming countries are pursuing
complementary goals. The consuming countries vary greatly
in their patterns of energy consumption and dependence
on imported oil. But with serious effort we can establish
a timely multilateral program of conservation. We require
a coordinated approach which apportions the burden of
conservation equitably and which establishes a joint target
for the reduction of consumption, incorporating and
reinforcing national goals.

We have begun discussions of this coordinated
approach with some of the other major consumers. We are
aiming for the prompt establishment of a broadly based
multilateral conservation commitment within the framework
of our continuing cooperation in the new International Energy
Agency.

- 23 -

New energy sources. The development of new energy sources does not promise the same immediate benefit to the world supply-demand equation as does conservation. But an immediate commitment is no less urgent. Only by starting now can we insure that we will have substantial amounts of new energy in the 1980's. More importantly, we must demonstrate to the oil producing governments that we will respond to their political decision to raise prices astronomically by developing our own energy resources.

The United States has begun under Project Independence a massive program to develop domestic energy resources. We are moving rapidly toward major decisions on the various options open to us under Project Independence -- decisions which will call for an extended national commitment of capital, technology, and manpower.

which will call for an extended national commitment of
obligations open so as under Project Independence -- decisions
where are moving rapidly toward major decisions on the various
a massive program to develop domestic energy resources.

The United States has begun under Project Independence
prices astronomically high developing own energy resources
that we will need to meet our political decision to raise
we must demonstrate for the oil introducing governments
amounts of new energy in the 1980's. More importantly,
starting now can we imagine that we will have substantial
but an immediate commitment is no less urgent. Only by
the world supply-demand equation as does conservation.
sources does not promise the same immediate benefit to
new energy sources. The development of new energy

23

- 24 -

We will begin to develop fully our own oil and
natural gas resources, to exploit our reserves of coal,
to accelerate our commitment to nuclear power, and to
develop solar and geothermal energy -- the important new
energy sources for the next generation.

These are expensive national commitments. But we
have no alternative if we want to maintain our economic
vitality. Moreover, we must act urgently. By the
beginning of the next decade, we must have substantially
reduced our reliance on imported oil. We will not allow
ourselves to be held hostage -- politically or economically --
to an over-dependence on imported oil. Our imports must
fall to one or two million barrels a day at most.

- 25 -

We are also prepared to join with other countries
stimulate multinational ventures in the area of uranium
enrichment to ensure that the great increase in world demand
for this alternative fuel is met.

In addition, we stand ready to explore on a multi-
lateral basis the complex problems of how to promote
international investments in domestic energy resources
and how to provide the investment security necessary to
stimulate large private expenditures in the energy sector.

- 26 -

Financial solidarity. Our financing arrangements
for the duration of the oil crisis should have two objectives.

(A) To preserve our private financial institutions by using them for what they can do, while safeguarding them from any eventual burdens they may not reasonably bear.

(B) To assure that none of the allied industrial countries has to endure acute economic hardship, pursue beggar-thy-neighbor policies or submit to intolerable political economic influence because financing of its essential requirements is not available on acceptable terms.

The consuming countries have it in their capability to manage their financial affairs so as to meet these objectives. The producers are necessarily placing their funds in the industrial countries on the basis of criteria that meet these countries' investment preferences. Consumers can accept these preferences while at the same time redistributing the funds among themselves to meet their actual needs.

Can accept these preferences while at the same time distribut-
ing them in the industrial countries on the basis of criteria
that meet these contractual investment preferences. Consumers
choose the industrial countries that are necessary facing their
objectives. The producers are necessarily placed in the
situation of managing their financial affairs so as to meet these

to manage their financial affairs so as to meet these
requirements. It is not available on acceptable terms.
economic influence because financing of its essential
neighbor policies or commitment to intangible political
commitments is not available to them.
It has to ensure acute economic hardship, puree welfare,
and political stability.

(b) To assure that none of the affiliated industrial countries
from any eventualтурine may not reasonably bear.

Maintain them for what they can do, while assuring them

(A) to preserve our private financial institutions by

for the donation of the oil crisis should have two objectives.

Financial solidarity, our financing arrangements

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Private financial institutions are already doing this in an efficient way. Central banks at Basle and in subsequent discussions have moved to see that their backing of banks liquidity supports their continuing ability to do so. The capacity of private channels has not yet been reached, but we can not assume that they can or should bear all the risk in loans to governments that are clearly under great financial pressure. We need not wait to test this capacity.

Governments can move now to position mutual support measures which can augment private channels whenever needed. We can thereby provide in advance confidence which would allow both weaker and stronger countries to avoid internationally disruptive economic policies which they might otherwise take out of extreme fear of the future. Such a safety net or back-up system of official finance, by assuring

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the stability of the entire system and underpinning the
credit-worthiness of participating governments, should
reduce the eventual requirement for official financing.

A mutual commitment to financial support would
build on our undertakings in energy conservation and
development of alternative sources and reinforce these
commitments economically and politically. Financial solidarity
would assure the cooperating governments that the absence
of external finance on tolerable terms will not undermine
the political and economic sacrifice they call on their
people to make. Each cooperating country would be able to
assure its people that sacrifices will be shared equitably
by major Western consumers and that the long-term course
can be stayed by all cooperating states, the weaker and the
stronger.

stronger.

can be achieved by all cooperating states, the weaker and the
by major Western consumers and that the long-term course
measure its people that sacrifices will be shared equitably
people to make. Each cooperating country would be able to
the political and economic sacrifice they call on their
of external finance on tolerable terms will not undermine
would assure the cooperating governments that the absence
commitments economically and politically. Financial solidarity
development of alternative sources and reinforce those
built on our undertakings in energy conservation and
Vermanss commitment to financial support would
reduce the eventual requirement for official financing.
credit-worthiness of participating governments, among
the stability of the entire system and underpinning the

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The United States proposes that the OECD countries which have started this effort create a common fund of loan and guarantee-commitments to meet the requirement for financial solidarity. The cooperating countries would thereby give themselves the means to recycle funds up to dollars 25 billion, an amount corresponding to half their collective oil deficits next year. This would not be an aid fund, but a facility for redistributing, at commercial interest cost, funds flowing back to the industrial area from oil producers. Support from the common fund would not be automatic but follow reasonable self-help measures and full resort to private financing opportunities.

Countries would share their financial commitment to, and availability from, the common fund on a single basis affecting both their need and ability to assist. Governments would individually choose the means best suited to meet their financing commitment to the joint effort.

financing commitment to the joint effort
would individually choose the means best suited to meet their
affecting both their need and ability to assist. Governments
and availability from the common fund ongoing to the states.

Countries would share their financial commitment to
full support to private financing opportunities.
be automatic but follow reasonable soft-help measures and
from oil producers. Support from the common fund would not
interest cost. Funds flowing back to the industrial area
would fund, but a facility for redistributing, at commercial
collective oil deficits next year. This would not be an
dollars 12 billion, an amount corresponding to half their
thereby give themselves the means to recycle funds up to
financial solidarity. The cooperating countries would
join and guarantee commitments to meet the requirement for
which have started this effort create a common fund of
The United States proposes that the U.S. countries

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The developing world. The Western industrial
countries can reasonably approach their energy problem
on the basis of:

(A) Squeezing the waste out of their energy use;

(B) Building one extensive shared political interests
and structures, NATO, OECD, the Energy Coordinating Group,
the EC, etc.

(C) Supporting and augmenting the predominant role
of private financing arrangements that link their markets;

(D) Meeting their borrowing needs on commercial terms.

support for the poorest developing countries must be given, official international financing institutions. Therefore, all their financing needs and have depended heavily on its very limited. Many cannot afford commercial terms for different nature. Their ability to reduce energy consumption the developing countries face a challenge of a

(b) Meeting their borrowing needs on commercial terms.

(c) Supporting and supplementing the predominant role of private financing arrangements that link their markets.

(d) Supporting and supplementing the predominant role of public financing arrangements that link their markets.

the EC etc.

and structures, WTO, OECD, the Energy Coordinating Group,

(e) Building onceextensive shared political interests

(f) Concerning the waste out of their energy needs;

on the basis of:

the developing world. The Western industrial

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- 31 -

on very concessional terms, and should be provided signifi-
cantly through the international financial institutions.

The need to do this is compelling. Unless increased
financial support can be provided to the poorest developing
countries the burden of their import bills will bring
development projects to a halt while resources are diverted
to meet the essential needs of supporting human life -- food,
en energy, shelter and health services.

At the World Food Conference I outlined an international
strategy that includes the key elements needed to meet the
long-term problems of the poorer developing countries:
aid to their own agricultural development, interim food
aid, and an international approach to financing the commercial-
transfers of food to the poorest developing nations that will
realistically have to provide the bulk of their import needs
if these are not to weaken their own agricultural development

if these are not to weaken their own agricultural development
realistically have to provide the bulk of their import needs
transfers of food to the poorer developing nations that will
aid and an international approach to financing the commercial
aid to their own agricultural development, interim app
long-term problems of the poorer developing countries.

At the World Food Conference, identified an international
energy, shelter and health services.

en to meet the essential needs of supporting human life

development projects to a level while resources are diverted

countries, the burden of their import bills will bring

financial support can be provided to the poorer developing

canily through the international financial institutions.

on very concessional terms, and should be provided sufficiently

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efforts. The United States is moving on all these fronts.

We have

(A) Proposed to the Congress a doubling of our aid to agricultural development, a request we do not wish to be forgotten;

(B) Announced our commitment to increase U.S. food aid this year;

(C) Suggested that the new IMF/IBRD Ministerial Development Committee consider alternatives for a long-term strategy to meet the problem of financing the transfer of food from food-surplus countries to the poorest food-deficit countries.

We cannot afford to let development hopes die. The major burden for increasing who have the increased means to help. But the industrial countries must endeavor to maintain and flows so that their action does not aggravate

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an acute problem. The Congress has now approved a major
U.S. contribution to IDA and we are seeking its concurrence
in an early U.S. commitment to make this funding available
so that the bank can proceed to authorize the actual development
projects.

Recycling for developing countries has to be dealt
with apart from the industrial countries' approach.
A second or third mortgage on their future at 8 percent
interest.

To meet the needs of these countries, I propose a
new IMF facility for the least developed which would provide
them dollars one to two billion in desperately needed financing
during 1975. In some ways, its operations would parallel
those of the existing oil facility but it would share the burden
more broadly and thereby provide more relief to those least
able to pay. I propose that the oil producers provide the

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loan capital for this facility and assume a third of the
cost of interest in it in recognition of the mounting
debt burden of the poorest developing countries. The
membership of the fund could, for its part, agree to cover
a second third of the interest cost through a fund
established with some of the profits realized from periodic
sales of the IMF's gold holdings. The developing countries
themselves would pay the other third of the interest cost,
three to four percent.

Relations with producers. The oil producing countries
should not view our drive for consumer country cooperation
as a move toward political confrontation or an effort to
construct an anti-cartel. We do not advocate the establishment
of an offensive mechanism.

Rather, we seek the consumer unity necessary to act
effectively on the critical issues of conservation, lessened
dependence on oil, and financial stability about which the

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oil producing countries have themselves expressed concern
and on which they have urged that we take action. We as
consuming countries must act to assure world economic
well-being and political stability. But these are vital
interests shared by all countries, whether they are importers
or exporters of oil.

We do not want to exclude the producing countries
from the international dialogue. In fact, we want to strengthen
the ties between consumers and producers, and the United States
is prepared to explore all ways to promote stronger ties and
a more effective dialogue.

But we must also be realistic about what a producer-
consumer dialogue can accomplish at this time. For example,
we see no prospect that the consumers could at this time
bargain effectively with the producers on the vital question
of price. It is an illusion to hope that political action
by itself can reduce oil prices. Our task as consumers is

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first to create through coordinated acts of political will
the objective conditions in our own countries which are
essential to a productive discussion of the price of oil
with the producers. We must first put our own house in order
by accepting the self-discipline necessary to limit our
demand for imported oil and to develop urgently alternative
energy resources. Any premature effort to resolve the critical
problem of oil prices before we take these difficult steps
would risk embedding the current disequilibrium even more
firmly in the foundation of the world economy, thereby
preparing a great catastrophe for the future.

Eventually a formal conference between oil producers
and consumers could be constructive and may even be essential.
But only when we have established a strong framework of
consumer country cooperation will we be able to move to that
stage of the international dialogue.

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Conclusion. Above all, the energy crisis tests the ability of the consuming countries to trust each other. It tests our unity abroad and our cohesion at home. The crisis is possible only because a small group of producer countries have maintained greater unity among themselves than we have been able to among and within ourselves. Let us now answer this challenge with a new effort of cooperation. Let us face the hard questions and hard decisions that are necessary, and let us face them together. We have behind us the simple motive of necessity. At stake is our continuation as free and prosperous societies.