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

33. Memorandum for the Record⁰

Washington, September 12, 1963.

I found our discussions of September 11¹ helpful, and I think we must continue to give this problem our urgent attention. As a result of yesterday’s discussion I wish to make the following assignments for action and further study:

1. The Department of Defense, after discussion with the Department of State, to bring forward recommendations for further savings of overseas expenditures, without diminishing our effective military strength.

2. The Treasury to examine ways of further slowing² the outflow of capital including,

a. Broadening the interest equalization tax to cover bank loans;

b. Increasing efforts to dissuade American investors from committing funds abroad,³ including both large-scale direct investment and large-scale purchases of foreign securities, regardless of enactment of the interest equalization tax.

c. Discussing with the Western European finance ministers and central bankers at the Bank-Fund Meeting the possibilities of their taking action to slow direct U.S. investment in Europe.⁴

3. The Treasury⁵ to prepare contingency plans for all actions, including direct controls on capital movements, which might be necessary in three⁶ sets of circumstances: (a) if the interest equalization tax fails of enactment; (b) if the balance of payments fails to show adequate improvement during the early months of 1964; (c) if there should be a serious balance of payments crisis.⁷

In preparing the plans for the third⁸ contingency it may be desirable to consider what can now be done by administrative action, and to examine the possible desirability and feasibility of requests for new legislative authority concerning capital movements, suspension of the gold cover, and the like.

4. The Treasury, in consultation with the Council of Economic Advisers and the Bureau of the Budget, to prepare tax proposals for possible presentation to the next session of the Congress which will: (a) limit tourists’ expenditures overseas; (b) provide incentives for increased repatriation of foreign earnings and decreased direct investment in Western Europe by American firms; (c) encourage increased exports. On the third item in particular, the Treasury should consult with the Department of State and Department of Commerce⁹ as well.

5. The Department of State, in consultation with the Office of the Special Trade Representative and the Department of Commerce,¹⁰ to examine the nature and timing of the probable effects of the Kennedy round negotiations on our export earnings. In connection with this, they should also examine the possibility of emergency use of temporary countervailing duties as a balance of payments measure along the lines of the Canadian action last spring.¹¹

6. The Agency for International Development to prepare an evaluation of Ambassador Galbraith’s proposal for super-tying of aid.¹²

7. The consultants involved—Professors Galbraith, Tobin and Kaysen—to reflect further on our discussion and give me in writing any additional views they have.

8. I should like the papers called for at the earliest possible dates in each case, and I expect to renew our discussion when enough of them are available. The usual caution about holding these discussions within the smallest possible circle applies.

John F. Kennedy

0. Source: Kennedy Library, National Security Files, Subjects Series, Balance of Payments and Gold. Secret. A slightly different version, as indicated in footnotes 2-10 below, was prepared as a memorandum from President Kennedy to McNamara, Dillon, Ball, Roosa, Bell, Heller, Gordon, Sorensen, Bundy, Galbraith, Kaysen, and Tobin, September 12. (Department of State, Central Files, E 1 US) This memorandum was apparently not distributed or was recalled after distribution. An undated note by “sw” (presumably Seymour Weiss (U)), attached to this memorandum, reads: “Original copy—to U—returned to Anderson, 2:20 PM, who is eager for our copies to be destroyed. G/PM copy back.” Anderson is presumably Robert Anderson, Staff Assistant in U. A later version of this memorandum is summarized in Document 35.
1. No record of these discussions has been found.
2. The President’s September 12 memorandum (see the source note above) uses the words “limiting further” instead of “further slowing.”
3. The President’s memorandum does not include the rest of this sentence.
4. The President’s memorandum uses the word “limit” instead of “slow” and adds the following sentence: “Unless I hear convincing argument to the contrary, the Secretary and Under Secretary are to indicate our strong interest in effecting such a limitation.”
5. The President’s memorandum at this point adds the following: “in consultation with the Council of Economic Advisers and the Bureau of the Budget.”
6. Here the President’s memorandum reads: “two”.
7. The President’s memorandum contained no item (c). Item (b) in that memorandum reads: “if there is a serious balance-of-payments crisis in the first half of 1964.”
8. The President’s memorandum reads here: “second.”
9. The President’s memorandum does not include the words “and Department of Commerce.”
10. The President’s memorandum does not include the words “and the Department of Commerce.”
11. Reference is to surcharges imposed on imports, which the Canadian Government announced on June 24, 1962. These were gradually removed in the following months, the last one on April 1, 1963.
12. See footnote 3, Document 32.