97. Circular Telegram From the Department of State to Certain Posts1
2270. Balance of payments data for first quarter revealed today at joint press conference held by Secretaries Fowler and Connor and Vice Chairman Robertson of Federal Reserve Board. Data show deficit on liquidity basis (all figures in millions of dollars) of 582 seasonally adjusted (80 unadjusted). On official settlements basis seasonally adjusted deficit 262. Main elements include exports of 7,113 and imports of 6,007; new security issues 454 with inflow of 132 from redemptions and transactions in outstandings; banks report net inflows of 120 on long-term and 135 on short-term. Foreign purchases of U.S. securities showed net of 151 and foreign long-term claims on U.S. banks provided inflow of 36.
In prepared statement Secretary Fowler said that in terms of over-all results U.S. had “been little more than holding our own” since mid-1965 beginning with large buildup in direct and indirect costs of military and aid operations in SE Asia. In reaching this conclusion Fowler took into account shifting of 150 of Canadian security issues from fourth quarter 1965 to first quarter 1966 and fluctuations in flow of receipts from military offset arrangements with Germany. Adjusting for these factors over-all deficit becomes 377 in third quarter 1965, 341 in fourth quarter and 382 in first quarter 1966.
Fowler referred to: (a) rising balance of payments costs in SE Asia of military and aid programs and (b) direct and indirect trade impact of Viet Nam on domestic economy. Said both direct and indirect effects substantial, noting trade surplus had dropped to annual rate of 4,400. Exports increased at annual rate of 350 over fourth quarter while imports up 1,000. Concluded U.S. might have moved substantially closer to equilibrium during these quarters absent Viet Nam buildup.
Fowler then listed actions being taken including: (a) President on March 8 instructed Government Departments to reduce dollar outflows to absolute minimum;2 (b) DOD began in March to consider new measures to reduce foreign exchange costs of its activities; (c) AID continues efforts to minimize aid in form of financial resources rather than real resources; (d) Foreign Tax Investors Act “should become law as soon as [Page 286] possible” to help expand private foreign portfolio investment in U.S.; (e) Government studying ways of increasing effectiveness of present program designed to stimulate travel in U.S.; (f) Commerce attempting make clear that exports are matter of critical concern. The Export-Import Bank has announced adjustments in its policies and other recommendations in reports of National Export Expansion Council under study.
Concluding statement Fowler said “our goal is still the achievement of equilibrium—sustained equilibrium. The multiple costs of Viet Nam have made the task more difficult to be sure, and it may be that we will have to settle for an interim objective of equilibrium exclusive of the costs of Viet Nam … we will reach an appropriate degree of equilibrium and we will do so in ways consistent with our obligations, as we see them, to our own citizenry and to the remainder of the Free World.”
Secretary Connor in supplementary statement drew attention to fact that data on voluntary balance of payments program of corporate community released last week reflected only projections of 618 companies and not entire business community. Said he expected meet with Commerce Department’s Advisory Committee and assess expectations for future. Government not in position to specify arbritary goals since program voluntary, but would identify realistically obtainable objectives. Connor said he felt that in absence of program capital outflows in 1966 would have exceeded 1965 level by one billion or more. Connor also pointed out that companies were not cutting back on investments in LDCs. He also said he thought it likely the over-all tabulations had a conservative bias and that actual performance might be better than projections reported by companies. “At this juncture we should perhaps agree simply that evidence so far indicates that the companies are well within the direct investment target and will make a healthy improvement in other accounts as well.”
Robertson characterized performance of financial institutions as “remarkable” but denied that success scored at expense of other important national objectives. Said that although was no statistical evidence on effect of program on exports, fact that banking system was over 800 below ceilings suggested by guidelines indicated that program “has afforded and still affords ample room for all bankable export credits.”
Questions by reporters concentrated heavily on estimate costs Viet Nam conflict and on possibilities of restrictions on U.S. tourist expenditures abroad. There was also noteworthy question on whether Germany falling behind in meeting offset. On Viet Nam costs Fowler stated $700 million figure used last fall still constitutes fair estimate minimum figure for Viet Nam costs, but indicated very difficult predict size of effort necessary and therefore what actual cost might turn out to be. Fowler said tourist balance prospects have recently been carefully examined and it was decided not to take any restrictive measures, such as tourist tax. In [Page 287] answer question whether U.S. citizens should have any qualms about traveling abroad Fowler replied “Each should decide for himself.” On German offset Fowler’s reply was that arrangement with Germans did not contemplate any quarter-to-quarter schedule but he had every confidence Germans will meet offset target for period as a whole. When asked why U.S. with $700 billion economy should be concerned with deficit of say $2 billion a year, Fowler answered simply “Because other people are concerned.”
- Source: Department of State, Central Files, FN 12 US. Unclassified. Drafted by F.L. Widman (Treasury) on May 18, cleared by Winthrop Knowlton (Treasury), and approved by Matilda Milne (E/OMA). Sent to 14 European posts and Tokyo, and pouched to Mexico City, Rio de Janeiro, Buenos Aires, and New Delhi.↩
- President Johnson’s March 8 memorandum to Cabinet officers and heads of major agencies is printed in American Foreign Policy: Current Documents, 1966, pp. 975–976.↩