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P A P E R S Ol llliNRY F O W L E R
Federal Reserve Bank o f St. Louis


International Balance of Payments
Classified Material:
Committee on B/P, 8/65—12/66
Federal Reserve Bank o f St. Louis

OCT 1 2 065
ffcj C ___ NAHA, DateLf2<fy

Your Cabinet Committee on B a la n c e of Payment! met tn
Sept^-.ber 30 in the first a ten toward an intensified scd
comprehensive review of w r present .. .ition anci the out*
look for 1965 and 1966. Tec or three more wetins's will
be held during October in order to complete this ^ tailed
study* Tha nsxt otm 1* scheduled for Monday, Octo w r l o *
Specific «!COTTaendations with respect to tt» balsn*# ot
payments program will then be forwarded to yo<*. Thia is
an interim report*
Although a firm evaluation and appropriate recctnnendations must await further detailed analyses end assessment,
svn- broad conclusions seem warranted, as follows:

Wc are reasonably on target with your balance of
payment* program; results for the c-atit: year
1965 p ro m is e to be close to those we anticir>eted
ac Che beginning of the year. The specific balance
S l S i omtr-‘
-utlis to tbi. p . t f o r - ^ .
vary significantly from those we expeetcd | u t j “
total result indicates a m^casiful over-all, program


Sense isnediste actions are necessary to guard again?:.
a sharp worsening of the payments situation daring
the fourth quarter of 1965. The actions required
av & qu t lined be low •


The preliminary outlook for 196b, on the beela
aresent program, is for modest improvement; reinforce
particularly of tte Comnerce Depart*: ent prograir,
la essential if satisfactory progress toward equilib­
rium is to be assured.





- 2 f*deral 8 w » m p r o R g n with respect Co beaks end
nonbanking financial institut ions is paying off hsndsomely,
far in excess Of our expectations, end promises effectiveness
at least through next year. Banks have sore than done their
Job: they are now $600 million below their permitted ceiling
on credits to foreigners. This very success, however, poses
e threat to the fourth quarter results if hanks move vigorously
toward the ceiling during the rest of 1965. To help guard
against such a sudden outflow, the Federal geserve has
“ advised the institutions concerned that the ceiling
for 1S66 will employ the m m end*of-1964 credit
bese. banks therefore need not ru^h out to a-ake
loans to bring them up to their current ceiling
in feer that a new bese will be established which
would penalise their failure to be at maxioum lending
capacity to foreigners. Even with this precautionary
step, soma adverse effect in the fourth quarter
remains e clear possibility.
Substantial reinforcement of the program administered by
the Oepartatnt of Commerce is clearly in order in view of the
very heavy increase in direct investment sbrosd this year and
the Indications that this will continue. A reinforcement of
that progrsa is now in the making. It essentially will Involve

the establishment of firm suideposts for corporate
behavior in investing a b n a d , sharp tightening of
performance standards and Improvement in the departDent of CosMezce’ ebilicy to analyse performence
results and undertake frequent discussions with the
laggards. We believe such tightening could being
about substantial improvement, yet retain the
eeeentially voluntary nature of the program.

Improved performance in this corporate sector is essential
in the very practical tense of oalance of payments results —
but also to insure that other parts of trie over-all program*
remain acceptable as being fairly imposed.

-m c k e t

More immediately, Commerce will

re-emphasise to the corporations the need tc
continue to repatriate earnings, to borrow
abroad and bring back all dollar* held abroad
not absolutely naaded for working purposes.

This etwuld help to minimise streina avan whil* the
new measures are being developed and ieeuad.
A U o , 1 took advantage of the presence bare **5^*8
Che Bank and Fund m e t i n g of Lord Cromer, bead of tne
of England, to urge the deferral by the United Kingdow
of any further action on their part this year
drawdown of their long standing Export-Iwport Beak Credit)
that night adversely effect the 4tb quarter picture. I
believe they will be In e position to cooperate and artwilling to do so.
Ocher measures ere aleo now under critical review
determine those further geine that can be recorded with the
eoo cation of feeeible neaaures to exporta, tourism, ailitary
S ^ o c S c aid - particularly important over the longer-run.

The above observations suggest that your pres ear. p w ^ a s ,
suitably reinforced lwt beeically voluntary, can t»rinjj
Lnproventnt needed in our belence of p e y r e m s this y«ar ana
a further stride toward equilibrium In 1964. W e auat, Iswersr,
continue to be cooetantly elert to any indication that the
procree la faltering since the balance of peymeuta reeulta
r e a e in critical to world wids confidence in the dollar and
to our ability to gain any w M u u n ^ t u l step toward substantial
improvement of the international payments system. W do not
lareeee at this time any need for wore d r a a t i x n e a e u r a s .
i n ^ A rK— e could be Sharply counterproductive. Never the less,
contingency planning within a small interagency group will
continue at Che top of the working agenda. Your COTwlttee
is fully aware that this phaae of interagency planning mist
be strictly guarded since rumor of it could bring ebout
substantial epeeulecive or anticipatory o u t f l w s of funds.
Federal Reserve Bank o f St. Louis

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102