Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

311. Report by Task Force on the Balance of Payments to President-elect Kennedy, December 27¹

December 27, 1960

FOREWORD

The following Report contains an analysis of the balance of payments and reserve problems of the United States and recommends the measures deemed necessary and appropriate to achieve their solution. While the Report reflects the consensus of the Task Force, its members do not necessarily subscribe to every detail.

The Report is divided into five parts.

Part One outlines the principal recommendations of the Task Force for executive and legislative action and international negotiation.

Part Two describes the nature of our balance of payments and reserve problems and discusses the need for prompt and appropriate solutions.

Part Three analyses the causes of the balance of payments deficit and identifies the appropriate measures for reducing and ultimately eliminating it.

Part Four suggests measures necessary to strengthen the dollar as a reserve currency.

Part Five discusses proposals to strengthen the reserve position of the entire Free World.

The Appendix consists of the following tables:

Table 1	Summary U.S. Balance of Payments, 1951–1960
Table 2	Changes in Gold and Foreign Exchange Reserves,1956–60
Table 3	Principal Factors in the U.S. Reserve Position
Table 4	European Long-Term Debts to the U.S. Government

MEMBERS OF THE TASK FORCE ON THE BALANCE OF PAYMENTS

George W. Ball	Chairman
Myer Rashish	Secretary

Edward M. Bernstein	President, EMB (Ltd.); former Director of Research and Statistics, International Monetary Fund
Otto Eckstein	Professor of Economics, Harvard University
Richard N. Gardner	Professor of Law, Columbia University Law School
Peter Kenen	Professor of Economics, Columbia University
Stanley D. Metzger	Professor of Law, Georgetown University; former Assistant Legal Advisor (Economic Affairs), Department of State
Paul H. Nitze	President, Foreign Service Educational Foundation
Joseph Pechman	Brookings Institution
Robert Roosa	Vice-President, Federal Reserve Bank of New York
Paul A. Samuelson	Professor of Economics, Massachusetts Institute of Technology
Robert Triffin	Professor of Economics, Yale University

PART ONE

RECOMMENDATIONS FOR ACTION

I

ACTIONS TO ELIMINATE BALANCE OF PAYMENTS DEFICIT

A. RECOMMENDATIONS FOR EXECUTIVE ACTION

1. Making United States Products More Competitive

(a) Direct Secretaries of Commerce and Labor to develop program for restraining cost-price increases in key industries (e.g., steel, machinery and automotive equipment).

(b) Direct Secretaries of Commerce and Labor to develop and recommend program for stimulating industrial productivity.

(c) Direct Secretary of Agriculture to recommend measures to adapt farm program to bring United States farm prices more nearly in line with prices in world markets.

2. Expanding Export Earnings

(a) Direct Secretary of Commerce to take measures to encourage exports, including the following:

(i) Enlist cooperation of industry and labor in national export drive.

(ii) Expand advisory services of Commerce Department to inform American business of opportunities for foreign sales.

(iii) Strengthen United States economic and consular staffs overseas to provide more assistance to American business.

(iv) Increase United States participation in international trade fairs.

(v) Develop recommendations for legislative program to increase exports, including proposals for enlarging scope and adequacy of export credits.

3. Expanding Earnings From Tourism

(a) Direct Secretary of Commerce to submit plans and programs for promoting tourism in United States, including proposals for legislation to make program effective.

(b) Direct Secretary of State to submit program for simplifying entrance and exit requirements of foreign visitors to United States.

4. Obtaining Close Surveillance Over Private Capital Outflow

(a) Instruct Secretary of Treasury to take necessary steps to keep currently advised regarding prospective short-term capital movements.

(b) Instruct Secretary of State to establish necessary machinery for informal consultations with American companies before they make substantial overseas investments.

B. RECOMMENDATIONS FOR LEGISLATIVE ACTION

1. Submit legislation embodying proposals for systematic machinery to restrain cost-price spirals.

2. Submit legislation to strengthen export credits and guarantees.

3. Request Congress to authorize and appropriate funds for program to encourage increased foreign tourism in the United States.

4. Obtain Congressional approval of the Convention creating the OECD (decision must be made as to whether convention is to be submitted for approval as a treaty or through joint resolution).

5. Obtain additional legislative authority to reduce American tariffs as essential condition to effective negotiations for removal of foreign restrictions on United States exports (this legislation is being considered by the Task Force on Foreign Economic Policy).

C. RECOMMENDATIONS FOR INTERNATIONAL NEGOTIATION

1. Reducing Foreign Import Restrictions

(a) Direct Department of State to negotiate through GATT to seek complete elimination of restrictions discriminating against United States exports.

(b) Direct Department of State to negotiate through GATT to seek elimination of all non-discriminatory import restrictions imposed for balance of payments reasons by industrialized countries.

(c) Direct Department of State to utilize forthcoming GATT tariff negotiations to secure unilateral tariff concessions from the European Common Market and Free Trade Association countries.

(d) Direct the Department of State to negotiate through OECD and GATT with the Common Market countries for liberalization of European agricultural policies.

(e) Direct the Department of State to endeavor, through OECD and bilateral negotiations, to secure untying of European aid programs so that United States exports can share the benefit of such financing.

(f) Direct the Department of State to seek agreement of European countries through OECD to confine their programs for financing and insuring export credits to measures that do not have the indirect effect of subsidizing exports.

2. Eliminating Exchange Controls of Foreign Countries

(a) Direct the Treasury Department to press within the International Monetary Fund for the removal by European countries with strong reserve positions of restrictions against the export of private capital to the United States.

3. Obtaining the Cooperation of “Surplus” Countries

(a) Direct the Department of State to seek the recognition through OECD of the following principles:

(i) That problems of an individual nation’s balance of payments should not be permitted to inhibit the accomplishment of the common economic objectives of the member countries.

(ii) That any “surplus” country accumulating foreign exchange as a direct result of expenditures by another member country in furtherance of a common military purpose or the provision of assistance to less developed areas, should accept the responsibility to take measures to increase its imports of goods and services, expand its foreign aid, and, in the case of a NATO country, increase its contribution to the common defense.

(b) Direct the Department of State to conduct bilateral negotiations, particularly with Germany, as a supplement to multilateral negotiations through OECD (pending final approval of OECD, the OEEC mechanism should be employed).

D. RECOMMENDATIONS FOR FURTHER STUDY AND CONSIDERATION

1. Initiate inter-departmental study (Treasury, State, Commerce) of desirability of changing the tax treatment of United States private investment abroad.

2. Direct Secretary of Defense to prepare recommendations as to how overseas military expenditures might be reduced, consistent with security objectives, by means of economies resulting from changing strategy and weapons technology.

II

ACTIONS TO RESOLVE THE UNITED STATES RESERVE PROBLEM

A. RECOMMENDATIONS FOR EXECUTIVE ACTION

1. In public statement outlining program for combatting economic recession and correcting payments deficit, reaffirm the intention of your Administration “to maintain the international convertibility of the dollar at its present gold parity.”

2. Direct Secretary of Treasury to make use of United States drawing rights in International Monetary Fund as the need arises.

3. Direct Secretary of Treasury to consult with Chairman of the Board of Governors of the Federal Reserve System on ways to maintain low interest rates on long-term securities while allowing sufficient flexibility on short-term rates to restrain the outflow of capital.

B. RECOMMENDATIONS FOR LEGISLATIVE ACTION

1. Obtain authority from Congress to issue special United States Government securities to foreign governments and institutions carrying higher interest rates than are payable to American holders.

2. Submit proposals for legislation eliminating the 25% gold reserve requirement at such time as confidence in the dollar is improving and in conjunction with other measures to strengthen our reserve position.

C. RECOMMENDATIONS FOR INTERNATIONAL NEGOTIATION

1. Direct Secretaries of State and Treasury to undertake negotiations for the accelerated repayment of loans owed to the United States by surplus countries of Western Europe.

2. Direct Secretary of the Treasury to press for revision of International Monetary Fund lending policy so that future drawings are mainly in currencies of surplus countries.

3. Direct Secretary of Treasury to explore possibilities of coordinating our short-term interest rate policies with those of the United Kingdom.

D. RECOMMENDATIONS FOR FURTHER STUDY AND CONSIDERATION

1. Direct Secretary of Treasury to study the desirability and feasibility of giving a gold guarantee to foreign official holders of dollars.

2. Direct Secretary of Treasury to study the quantitative effects and feasibility of a prohibition on the holding of gold abroad by residents of the United States.

3. Direct Secretary of Treasury to undertake study of desirability of continuing free gold markets and desirability and feasibility of direct and indirect United States intervention in such markets.

III

ACTIONS TO ACHIEVE INTERNATIONAL MONETARY REFORM

A. RECOMMENDATIONS FOR FURTHER STUDY AND CONSIDERATION

1. Direct inter-agency committee (Treasury, State, Federal Reserve Board) to study alternative proposals for meeting growing reserve needs of the Free World while protecting the United States and Britain against large scale capital movements.

IV
RESTRICTIONIST MEASURES NOT RECOMMENDED

The measures listed below are discussed in the Report. Your Task Force does not recommend the adoption of these measures. Some of them are impractical. Others would have serious adverse consequences for the security and prosperity of the United States and the entire Free World. On the other hand, an attempt has been made in the Report to appraise these measures in terms of their feasibility and adverse consequences, in the event that our problems cannot be fully resolved by the expansionist solutions recommended above.

1. Exchange controls on capital transfers.

2. Reduction of duty-free tourist allowance or direct limitation of spending by American tourists abroad.

3. Restriction of United States imports through increased tariff and quota protection and other restrictive measures.

4. Increase in the price of gold in terms of dollars or in terms of all currencies.

5. Reduction of foreign aid.

6. Reduction of overseas military spending below levels necessary for Free World defense.

7. Any measures which would resolve our payments and reserve problems by undermining the payments and reserve positions of other Free World countries in the security and welfare of which we have a vital stake.

1. Balance of payments/reserve problems and recommended solutions. No classification marking. 11 pp. Kennedy Library, National Security Files, Kaysen Series, Balance of Payments, General, 12/60–6/62, Box 362.