149. Memorandum From the President’s Special Assistant (Rostow) to President
Johnson1
Washington, November 11, 1967.
SUBJECT
- Balance of Payments Program Announcement
Attached is Secretary Fowler’s
memo recommending a schedule of announcements and actions regarding the
balance of payments.
The main immediate issue is the announcement of 1968
guidelines for the Commerce and Federal Reserve voluntary
programs restraining foreign direct investments and bank
credits. These should be announced as soon as possible so as to affect
planning for next year by corporations and banks. Fowler proposes to do so at a press
conference he would hold on
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Friday, November 17, with Trowbridge and Governor Robertson of the Fed. At the same time he will release
the third quarter balance of payments figures—which will not make good
reading.2
I believe you should also announce earlier the same day, as Fowler suggests, appointment of the new
Travel Task Force3 so that Fowler at his press conference can refer to it as
another action designed to help our balance of payments.
Fowler also proposes for possible
release by December 1 a special report on the Balance
of Payments—what we have been doing, where we are, and where we
propose to go in dealing with the balance of payments.4 Your Cabinet Committee briefly discussed and
supported the general idea.
I believe the third recommendation—to defer a message
recommending elimination of the gold cover—makes sense at this
time. But we will have to look at this one carefully over the next two
months in conjunction with developments in dealing with current
pressures on sterling and with unsettled conditions in the gold
market.
The fourth recommendation asks you to defer a balance
of payments message now and submit it early next session. The
message would be built on a good export expansion package—which is now
being developed.
I concur in the four recommendations in Secretary Fowler’s cover memo.
Attachment
Washington, November 09,
1967.
Memorandum From Secretary of the Treasury
Fowler to President
Johnson6
SUBJECT
- Balance of Payments Program Announcement
This memorandum deals with the proposed schedule for handling our
1968 balance of payments program announcements.
[Page 429]
It involves somewhat of a revision of the plans discussed at the time
of my August 8 memorandum to you.7
In the light of intervening developments and current circumstances,
to be discussed, I would recommend now that:
(1) There be an announcement on Friday, November 17, of the Commerce
Department guidelines for 1968 as well as the new Federal Reserve
Board guidelines in a joint press conference in which Secretary
Trowbridge, Governor
Robertson and I would
participate. At the same time I am planning to announce the third
quarter balance of payments figures. This is a quarterly release and
I only have a one or two day leeway on the date. On September 21 you
met with Secretary Trowbridge, Mr. Field and me and
approved the Commerce Department program for 1968.8 I do not believe we will find it necessary to
involve you in any meeting on the Federal Reserve Board voluntary
program which we expect to iron out finally at a Cabinet Committee
meeting on Thursday, November 9.9
If you wish, there could be a simultaneous release on the day of the
press conference announcing the voluntary programs and the new
Travel Task Force.
Approve with simultaneous announcement of Travel
Task Force
Approve without simultaneous announcement of Travel
Task Force
Approve
Disapprove10
(2) As Chairman of the Cabinet Committee on Balance of Payments, I
submit on December 1 for public release a rather lengthy, detailed
report:
- (a)
- reciting in some detail all that we have been doing and
are doing to deal with our balance of payments problem,
and
- (b)
- describing in some detail the background and elements of a
long-range program on which the Cabinet Committee has been
working which would serve as a backdrop for a later
Presidential Balance of Payments Message featuring concrete
proposals on an export expansion program early in
January.
[Page 430]
Approve
Disapprove
Approve as modified11
(3) That you defer sending a Message at this time recommending the
elimination of the gold cover requirement.
Approve
Disapprove
Approve as modified12
(4) That instead of submitting a Balance of Payments Message this
fall toward the end of this session, you submit it as a separate
Message very early in the next session.
Approve
Disapprove
Approve as modified13
For your information in considering these recommendations, I am
submitting an attached background memorandum.
Attachment14
BACKGROUND MEMORANDUM
At the time of my August 8 memorandum to you and our meeting on
August 10,15 we considered tentatively
the presentation of a 1968 and long-range balance of payments
program in a mid-September Message to the Congress requesting
removal of the gold cover or the separate submission of a Balance of
Payments Message later in this fall.
Subsequent events have caused a change in that procedure. These
include the delay and deferment of action on the tax bill which is a
centerpiece
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for any
meaningful balance of payments program in 1968 or the future, the
emergence of an increasingly serious threat to the pound and a
highly unsettled and precarious condition in the gold market, and
the inability of the Cabinet Committee machinery to arrive in timely
fashion on agreed recommendations for a truly meaningful and
significant expansion of our balance of payments program.
Another consideration which I will relate to you orally also prompted
me to defer requesting you to send forward a Message on eliminating
the gold cover. It also underscores the desirability of a public
report along the lines recommended.
Given these developments it seems wise to change our planned
procedure to the pattern outlined in the cover memorandum. These are
some of the elements of the background for the recommendations in
the memorandum to which this is attached:
(1) Need to make voluntary program announcement no
later than middle of November.
It is necessary to release publicly the guidelines for the Commerce
Department voluntary program and the Federal Reserve Board voluntary
program so that the elements of the private sector affected may
crank the guidance into their forward planning for next year. It is
desirable to have the Commerce Department guidelines out so that
Secretary Trowbridge and his
colleagues can begin a series of individual conferences with
companies which appear to be out of line. Originally these figures
have come out in the first and second week of December and I think
this has been late. In fact, November 17—which is the date
recommended in the memorandum to which this is attached—is a little
later than the date I was originally hoping for.
(2) Balance of payments outlook.
In the first half of 1967 we were running along at a seasonally
adjusted annual rate of about a $2 billion deficit. The third
quarter has deteriorated and the prospects for the fourth quarter
are no better. While in 1965 and 1966 we had liquidity deficits of
$1.3 and $1.4 billion, we could double that level this year or end
up with a deficit of around $2.6 billion despite the benefit from a
sizeable amount of “Special Transactions” we have been able to
negotiate on a temporary basis. It may be even worse, depending upon
developments with respect to sterling and the impact these
developments have on our own position. (In this regard, we may have some option as to whether to take a
few hundred million dollars adverse effect of British actions in the
fourth quarter of 1967 or in 1968. While it is our general feeling
that it might be better to take it this year—and we can attribute it
to the British—our thinking has been influenced by what we see as
poor balance of payments prospects for 1968 in the $3 billion
range.)
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These large deficits—a return to the unacceptable levels of 1964 and
1965—underscore as nothing else could underscore the necessity of
providing clear and positive stimulants to our industry, that is to
those elements which produce the surplus
which the Government must have to be able to achieve our
international objectives in terms of the defense umbrella we
provide, as well as the investment and economic assistance we
provide.
These deficits also emphasize the crucial necessity in achieving any
long-term equilibrium of neutralizing the foreign exchange costs of
our military expenditures in NATO
and the Far East to provide financial viability for the long term
maintenance of our presence in those areas.
(3) IMF
review.
The International Monetary Fund sits down with the Government once a
year to go over in considerable detail our economic and balance of
payments policies and positions. These sessions are scheduled for
November 27–30 this year and starting on the 28th or 29th they will
focus primarily on our balance of payments posture and program. I
would like very much to have the background elements for our program
in the public domain by that time even though the implementing
Message to Congress on the export expansion program is not before
the Congress.
(4) The special need for a positive export
expansion program at the next session.
It has been my position for some time that the whole thrust of our
long-term U.S. balance of payments program must concentrate on
accentuating the positive; that is, encouraging additional exports
as well as receipts from direct investments abroad, increased
foreign travel in the United States and increased foreign investment
in the United States, while containing excessive balance of payments
outflow of both the private sector and the government alike.
You underscored this in your May 23 statement.16 At that time you asked Secretary
Trowbridge and the
Cabinet Committee on Balance of Payments to undertake a far-reaching
export study. On June 28, I held a meeting of the Cabinet Committee
on Balance of Payments at which there were reviewed and approved in
the broadest terms the thrust and major areas of the 1968
program.17
Since that time we have been developing this in detail.
In the meantime, with the Kennedy Round behind us and the prospect
for five years of periodic tariff reduction and with the increasing
pressure of protectionism on the home front which could thwart the
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advance of the Kennedy
Round, it seems very much in our interest to describe now and
advance early in the session a positive export expansion
program.
The program elements we have developed include:
- —Non-tax incentives, administered by
the Commerce Department, focusing upon small and medium sized
corporations, designed to assist them in selling
overseas.
- —Tax measures, including both administrative and legislative
features, which would make exporting much more attractive. This is the keystone of our program—it
would serve to create jobs at home and be the incentive for
additional efforts in exporting.
- —Financing designed to make export financing more attractive
to the private community. We have a couple of administrative
measures we can take as well as ones requiring legislative
action. The Export-Import Bank figures very prominently in this
area and the full cooperation of Mr. Linder will be necessary to achieve these
objectives.
- —The GATT. It is time for a positive and outward
looking re-examination of those provisions of the GATT which are trade restrictive in their nature. These provisions
may be trade restrictive in the sense of (1) what a country can
do when it is in balance of payments deficits, and they may be
trade restrictive; (2) in the area of non-tariff barrier
practices; as well as (3) the permissible subsidies which act
preferentially for one tax system (EEC, Japan, United Kingdom) and discriminate
against a country using another tax system (U.S.).
A review of this type is totally in keeping with the 20th anniversary
of GATT and falls in perfect stride
with the post-Kennedy Round situation. This would
provide another occasion to demonstrate to the world at large
and to our protectionists at home that we will use trade
expansive and not trade restrictive measures and the rules of
the game must be brought up to date to assure this.
