Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

162. Memorandum From the Director of the Office of Food for Peace (Reuter) to the Director of the Bureau of the Budget (Gordon)⁰

Washington, March 26, 1963.

Few subjects have been more frequently considered, reviewed, and evaluated than that of local currencies generated as a result of the sales of agricultural commodities under Title I of Public Law 480.¹ Because these sales run from $1 billion to $1-1/2 billion equivalent per year, and account for better than two-thirds of the Food For Peace volume, this subject of the use of local currencies is of major significance in terms of the value of the Food For Peace program.

I am firmly convinced that we are using and can use food in place of dollars advantageously in enough instances to make this an item of importance in the solution of our balance of payments problem.

Nevertheless, a negative attitude stemming from the “disposal of surplus” psychology still persists and, it seems to me, restricts our view as to the value of these currencies. It was discouraging to me to see for the first time this morning the section on PL 480 in the preliminary draft of the current study on balance of payments.² I believe the approach here again reflects a basically negative attitude. The implication is that PL 480 hurts normal commercial sales and hence adversely affects our dollar position. From our experience over the last eight years, I do not think this is a justified position.

The savings indicated in the current study would be something over $50 million. With a more imaginative approach to the balance of payments issue, I believe we can significantly increase this saving.

Specifically, we are using food in place of dollars to generate local currency for U.S. needs. Last year we “saved” more than $150 million by using these currencies in place of appropriated dollars. By deliberately “selling” food in countries where we have currency needs we should be able to double this figure within a year.

In addition there are indirect savings. “Cooley” loans³ which can use almost $100 million equivalent a year do in fact cut off some dollar outflow by the private sector without stopping our overseas expansion. Economic development loans and military support items, to some degree, are also factors that can and do minimize dollar use while maintaining approved programs. There are distinct limitations but we have not yet reached these limitations.

Actually, the overall use of food in place of the dollars that would otherwise be spent overseas could total at least a half billion a year. Our staff is working with Ed Fox,⁴ Treasury people and Agriculture on this question now. Before the end of the week, I will send you a more detailed report and breakdown.⁵ We are talking of potentially big figures and this, it seems to us, justifies further study.

Since the establishment of P.L. 480, we have generated almost $6 billion equivalent in some 44 different currencies, and have disbursed, through last June 30, somewhat over $3 billion equivalent. A quick review of current reports indicates that at the present time, we have in the U.S. Treasury the equivalent of more than $2 billion in unexpended local currencies. A new approach we are presently studying may have a short-run dollar saving of some significance. While those Treasury local currency holdings are allocated, many of the funds (i.e., Reserves for program adjustments, market development funds, etc.) may not be dispersed for one or more years. We might consider “borrowing” these local currencies where U.S.-use amounts are not adequate for present U.S. needs. Paraguay, Greece and Chile are three countries that immediately come to mind where such action would save dollars immediately. Careful programming could replace many of these allocations with newly-generated local currencies which would then mean a permanent saving of the dollars.

Because of your meeting on this question this afternoon, I did wish to send this preliminary memorandum quickly as a follow-up on our conversation.⁶

Richard W. Reuter⁷

0. Source: Kennedy Library, National Security Files, Kaysen Series, Balance of Payments, Cabinet Committee, 3/63#7/63. Official Use Only. A copy was sent to Kaysen.
1. Title I of P.L. 480 permitted foreign countries to use their own currencies to purchase U.S. agricultural products.
2. Reference presumably is to the study by the Cabinet Committee on Balance of Payments. See Document 10.
3. Reference is to the so-called Cooley Amendment to P.L. 480 (P.L. 85-128, approved August 13, 1957; 71 Stat. 345), which provided that up to 25 percent of local currency proceeds would be made available for loans through the Export-Import Bank to U.S. private firms for business development and trade expansion and for activities increasing the consumption of U.S. farm products.
4. Not further identified.
5. No further report from Reuter to Gordon has been found, but Reuter forwarded a more detailed report and breakdown in a memorandum to Freeman, April 2; see the Supplement.
6. Neither the meeting nor the earlier conversation has been further identified.
7. Printed from a copy that bears this typed signature.