Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

80. Minutes of Meeting of the Cabinet Committee on Balance of Payments¹

Washington, November 24, 1965.

The following attended the meeting for principals only of the Cabinet Committee on Balance of Payments on Wednesday, November 24, 1965:

• Secretary Fowler, Chairman
• Secretary McNamara, Defense
• Secretary Connor, Commerce
• Under Secretary Ball, State
• Under Secretary Schnittker, Agriculture
• Mr. Ackley, CEA
• Mr. Bell, AID
• Ambassador Roth, Trade Negotiations
• Mr. Bator, White House
• Governor Robertson, Federal Reserve
• Assistant Secretary Trued, Treasury

A draft of the proposed Memorandum for the President was distributed to the members attending the meeting prior to Secretary Fowler’s joining the group. A copy of the draft is attached.² A number of minor errors in the text and some inconsistencies in figures were pointed out and corrected.

When he joined the group, Secretary Fowler said that he proposed to send the Memorandum for the President forward as promptly as possible but that any member disagreeing with the program as outlined in the draft could submit his own views which would go along with the Report to the President.³ Secretary Fowler noted that substantial strengthening of the program was required in the light of the balance of payments results in 1965 and the outlook for next year, particularly as it involved prospective increases in outlays owing to the war in Vietnam.

Secretary Connor emphasized the need to get the program out quickly since businessmen were becoming very critical at the delay in finding out what was being proposed; he hoped that it could be gotten out certainly by December 1. He also felt it important that the President should be in some way linked into an announcement of the program since direct Presidential support for the measures would be necessary. Secretary Connor said that the program for industry as set forth in the draft Memorandum was acceptable to him but wished to add, for purposes of proper perspective, a reference to the fact that the projected outflow of direct investments next year would not be more than in 1964, since it was noted that the outlays would be well above the average of the 1962–1964 period. Secretary Connor emphasized that the program would be a tough one to sell and would occasion many and varied complaints, but he was willing to sell it and thought that the business community would find it tolerable, although unwelcome.

Secretary Fowler said that he did not see, with respect to the Federal Reserve program, that the outlook for 1966 justified any increase in the ceiling for banks lending to foreigners and referred to his previous comment that this should be left aside with an intent to look at this area again next summer when the balance of payments trends for the year were more evident. That would be the time when some increase in the ceiling might be appropriate. Governor Robertson said that he would, of course, seek to administer as best he could whatever program the Cabinet Committee decided upon. He wanted to emphasize, however, that it was important in his view to keep the program voluntary since an involuntary program would never do the job while at the same time creating grave difficulties. He noted that the banks had done an admirable job in the past year. He did not think it appropriate to hold to the 105 percent ceiling since the banks would view this as demonstrating that cooperation would not pay off and they would therefore be likely to move right up against the 105 percent ceiling, rather than remain comfortably below. He felt that continuation of the 105 percent ceiling might lead banks to go well over the guideline and there was a good possibility that we would then have a greater outflow than if the ceiling were raised. The program would be resented and we would run a real danger of testing too severely its voluntary nature. Governor Robertson said he had previously suggested a new ceiling of 110 percent but he had given further thought to the question and would now suggest that the ceiling be raised by one percentage point a quarter, thus setting a ceiling for the last quarter of 1966 at 109 percent of the base. This would help smooth out any outflow for the year, give banks the satisfaction of having outstanding perform-ance rewarded, and insure even more fully that our exports would find adequate financing.

Governor Robertson emphasized that we simply could not permit lack of financing to endanger our exports since an increase in exports was essential to longer run balance of payments equilibrium. Governor Robertson estimated that the additional outflow of bank funds to foreigners would be only some $100 million higher than it was with the retention of the 105 percent ceiling, with another roughly $70 million or so also in view if the Cabinet Committee agreed that, on grounds of equity, smaller banks ought to be given some lending capacity.

The Cabinet Committee discussed the points raised by Governor Robertson and promptly reached general agreement on a program along the lines he proposed.

Secretary McNamara was asked whether he wished to have an increase in expenditures for military spending in Vietnam wound into the forecast for 1966 but said that he would prefer to leave the reference to those increased expenditures in a footnote. Mr. Bell suggested language with respect to that part of the Report dealing with further possible savings in the AID program and the language was incorporated into the Report.

Secretary Fowler raised a question as to whether something more should be said on tourism expenditures but Mr. Bell suggested that there was danger in talking about this area at a time when there was no concrete proposal to deal with it effectively. Mr. Bell felt that as a general rule it was better not to mention the subjects if we were not prepared to act promptly.

Secretary McNamara said that he thought very strong reference to the desirability of selling wheat to the Soviet bloc should be incorporated in the draft, and this should be vigorously pushed. Secretary Fowler and others agreed this was an area in which we were losing sales needlessly and hoped that the Administration would succeed in eliminating obstacles to such sales.

Secretary Fowler said that we would be in touch as to a specific time for release of the Report, he wished to send it along to the President at the Ranch by Friday,⁴ and would also then receive some indication as to how it would be announced. Secretary McNamara requested that the table attached to the Memorandum be expanded to show our balance of payments position since 1960, and Secretary Fowler requested that charts be prepared to show major changes in balance of payments items.

Secretary Fowler asked that the principals quickly convey their comments or approval of the revised Memorandum for the President that would be circulated on Friday. Secretary McNamara said that he would be out of the country but that he knew that the program now was all agreed to and he would give Secretary Fowler his proxy. Under Secretary Ball and Ambassador Roth also said that Secretary Fowler had their approval in hand.

Merlyn N. Trued ⁵
Secretary to the Cabinet Committee on Balance of Payments

1. Source: Johnson Library, Fowler Papers, International Balance of Payments—Classified Material: Cabinet Committee Meeting, 11/24/65, Box 53. Secret. The meeting was held in Secretary Fowler’s office.
2. Not attached, but a copy is ibid.
3. A copy of the report, November 26, is ibid.
4. November 26.
5. Printed from a copy that indicates Trued signed the original.