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TREASURY PRESS RELEASE SECRETARY DILLON'S MESSAGE TO PRESIDENT KENNEDY ON BALANCE OP PAYMENTS March 26, 1962 « « a n H K b M « « « . % V ' w a r * * - r^s^aimt.'wrjt^v'ia^ia.'irWms-^^^'^SBF^^Tf^^ \ > • , ir^l^RY r" JUN 1 •W ? TREASURY 0 S3~~^- KtW>U K* & THE SECRETARY OF THE TREASURY W A S H INGTON MAR 2 6 1962 Dear Mr. President: In accordance with my responsibilities for continuous review of all the programs and policies of this Administration with respect to the balance of payments, I am submitting to you herewith a report summarizing our progress of the past year and the nature of the tasks that lie ahead. Faithfully yours, /*/ Douglns Dillon Douglas Dillon The President The White House REPORT TO TH2 i'ri£3ID_OT BY THE S£CR£TAiC* OF TIB TREASURY ON THE MUMOZ OF PAYH&3TS A little mora than a year ago, shortly after taking office, you outlined in a special massage to the Congress a broad and. energetic attack on the balance of payments problem facing this country. In response to the clear and. urgent need, a wide variety of measures have been introduced and pursued with vigor by all agencies concerned. At your direction, X have assumed special responsibility for continuous review of all these activities, and for reporting to you at frequent intervals on the status of our International accounts. It is time now for me to measure our progress over the past year, and to assess the hard tasks that still lie ahead. During 1961, the immediate pressures apparent at the time you took office were relieved. Confidence in the dollar was strengthened; the gold outflow slowed; and the deterioration In our world competitive position arrested. Nevertheless, I must report that the task of eliminating our balance of payments deficit has only begun. Until it is finished, ye cannot rest easy. Tha main responsibility for righting our deficit lies in our own hands - in the sustained efforts of Government, business, and labor. But the cooperation of other free countries is also essential a» 2 •» if we are to build a stronger International financial system. ! That system must be capable not only of supporting end nourishing expanded trade among the free nations but also of withstanding the strains and pressures that are an Inevitable part of progress in this restless world. The results of our efforts thus far have been good enough to justify confidence that we have made the right start; they are not so good as to justify complacency. Part of our improve- ment In 1961 came from palliatives, and palliatives must be continued in 1962. But the cure has also begun to work, and it can be a lasting cure, so long as we recognise that itccan be neither simple nor painless. Full success will require time* The necessary time is ours if we use it effectively* Today the dollar is still strong, bulwarked by over 40% of the monetary gold atock of the free world. Time will not be our ally If we waste it, for then confidence will be shaken, the basis for essential cooperation among the leading financial power a lost, and the future will be in doubt* The jfatflre of the Problem In 1961, our basic accounts - which sum up all our recorded transactions with foreigners except flows of short-term capital * - 3 - were in deficit to the extent of $600 million, a substantial reduction from the basic deficits of $1.9 billion in 1960 and $4.3 billion in 1959. This reduction reflected both a larger export surplus and reduced net payments abroad on Government account - progress in the directions we must move. But, it is clear that our progress did not stem entirely from factors of a lasting sort. The large surplus of over $3 billion in our trade accounts excluding those exports financed by Government grants and capital resulted in part from the low import levels that accompanied the recent recession. In addition, special debt prepayments to the United States - by the Federal Republic of^Germany, the Netherlands, the Philippines, and Italy - contributed almost $700 million to our receipts, a much larger amount than can be expected year after year. Because these special factors were concentrated in the early part of the year, our basic deficit increased appreciably during the final six months. Moreover, on top of the basic deficit, short-term capital continued to flow abroad in amounts only slightly less than during I960. These flows were much less disturbing than in 1960, when speculation against the dollar developed. They did not reflect or arouse the same doubts over the future of the _4 — dollar. Instead, more of the outflow in 1961 consisted of com- mercial credits to other countries, Which helped to support a continued expansion of trade. But this vas only part of the cause, and last year the size of the short-term capital outflow clearly aggravated our problem. Altoother, our deficit in 1961 amounted to nearly $2.5 billion. Vfhile sharply below the average of $3.7 billion for the three previous years, this is still far from our target of equilibrium in our international accounts. A deficit of the proportions of 1961 could be, and ^as, financed without placing new strains on the monetary system only because confidence in the dollar was strong and our determination to meet our problem was apparent. A little over a third of our deficit in 1961, or $857 million, was reflected in gold sales from our monetary stocks. Of this, $124 million was purchased by foreigners in the single month of January, before you had made clear the determination of tills Administration to maintain the value of the dollar and to take the vigorous measures necessary to restore a balance to our International accounts without resort to direct controls or restrictions. Our ability to finance our deficit In 1961 cannot be permitted to obscure the nature of the continuing problem before us* *• 3 ** This country is agreed on its vital responsibilities for loader* ship in the defense of the free world and for assisting the developing nations to find a better life in free societies. But it is not always understood that these burdens cannot be carried if we do not, over a series of years, earn a larger surplus in our commercial accounts. if Equally important is the fact that a sound dollar is essential to the strength and stability of the whole international monetary syQt&mf and thus a vital concern to all our allies and trading partners. American dollars•, side by side, with gold, are a part of the basic reserves of nearly every country in the free world. They use dollars to finance much of their world-wide trade, to pay for shipping and transportation, and to support their foreign investment or borrowing. It is this universal acceptability of the dollar as a reserve and trading currency that has 'made possible a vast expansion in world trade. The dollar can continue to perform these functions only so long as it is reliable- It must be imacdlately reliable as a currency that can be converted into gold at a fixed price. •• 6 — It must be ultiroately reliable as a solid claim on the enormous and richly varied resources of our abundant economy - a claim undiluted by inflation, creeping or rapid. The broad challenge before us is to maintain the value <of the dollar unquestioned - and to do so without impairing our vital domestic objectives, the strength of our mutual defense, or our ability to assist the less fortunate nations along the path to prosperity and freedom. inforcing. In the end, these tasks are mutually re- Me cannot afford to neglect one for another, for only tthen our economy is expanding at home, our defenses strong, and the poorer countries arereadingvisible progress can we command the sort of confidence in our own future that is necessary. The Over-all Objective Our programs and policies to maintain the strength of the dollar within a framework of free and expanding markets at home and abroad are focused on two broad and related objectives: First, we must eliminate the deficits in our international «p»**>ta#_W»*_rM* w accounts, taking the good years and the bad together, so that prolonged and e cessivc drains on our ova reserves cease. This fill require, above all, that we achieve a still larger commercial surplus by competing more vigorously with producers of other — 7m countries both in foreign markets and at home. It also requires that ve reduce our net payments to other countries on Government account to the minimum required by national security and economic development objectives. And, we must eliminate from our tax system artificial incentives - grounded in neither equity nor economic efficiency - to moving capital abroad. Second, on this* firm base, we must build a stronger framework of jautual cooperation among governments and monetary authorities. Acting with our partners, we must be able to defend the international monetary structure from speculative excesses and other strains. In particular, *4iile allowing short-term funds to move freely from country to country in accordance with private initiative, w& must make it impossible for sudden and capricious movements to undermine the stability of the payments system* To achieve these objective®, the energies and resources of all agencies of the United States Government have b®$n mobilised to specific tasks in the area of their responsibilities. To assure that the proper priorities are maintained and the appropriate sense of urgency prevails throughout Government, I have, under your authority, established procedures for continuous review of all these activities. Full reports on the actions of all Government - 8 • departments and agencies are, as you knew, prepared for your review at least once every thr~e months* Special actions being taken or needed throughout the Government to overcome our balance of payments problem are brought to your attention promptly, and you have issued a series of directives, and sent to Congress a number of proposals* to intensify and coordinate these efforts. Eliminating the Deficit "The balance of paymente is isade up of countless individual transaction**, each responding to a wide variety mf factors. Among theee factors some *re under the direct control of Gov&m_&&&; others reflect the performance of our whole domes tie economy* and still others the policies and performance of other: nations. Amid these complexities,, there can be no satisfactory single solution to the deficit* $*hat is needed is a concerted effort on all fronts - by the Government» business, labor, and finance in this country and by other leading countries as well, particularly those «hose balance of .payments surpluses represent the opposite side of Our deficit* The first line of attack The first line of attack ©n our balance of pay_*&nts deficit consists of measures 00 curtail the outflow of dollars a taunting • 9 • from the activities of Government itself. Many of these measures arc now well advanced* snd contributed to this isprovcsa&at it* 1261* Others are just now becoming effective, and should provide needed help this y#ar* But still more can and is being done to assure that all Goveraae&t programs are fully adjusted to- the ne#ds of today* - Th$ Secretary of Defenso is conducting negotiations with, certain of our allies tm offsets through the pur* chase by th$m of additional U.S. isillt&ry equipment ana1 servicest the htavy payments \4iich we''twist is&ke to maintain and support American forces in their countries participating in the common defense* Esspoadi* tuxes for defense purposes ov&rso&s were close to $_• billion in 1961. It is expected that our total sal^s of military equipment and s^rvlc^s will result in payments to the U* S» of more than $1 billion this year* oompsred to Ifess than half as much in 1961* This will h&lp greatly in reducing, our 196-2 deficit* - Tfea Defease Department has aliso directed the return of procurement to United States sources of a portion of th.® major equipment, supplies* and services - 10 formerly purchased in foreign countries for the supply of our armed forchis overseas* It is streamlining over-1 seas deployments and pruning Installations with a view to o on serving dollars within the frsms^ork of our needed defease requirements. miliary and civilian personnel and -their dependents are being urged to reduce their personal expenditures overseas and to channel their family savings into United States savings bonds and other American securities or savings institutions* In our economic assistance programs, "we*are re* dyeing the portion transferred to foreign countries .in the form of dollars rather thim U. S« goods and services* Conversely, the share of our aid trans- ferred in the form of U. S* goods and services is being increased* Because aiisubstantisl part of current expenditures %tmm from eojsniltsBsnts m&d& under earlier policies* the full results of our new esnphasls have not yet bean reflected in the balance of paym-ants data* Roughly two-thirds of the funds expended for all our foreign eeonomle assistance prog-rams in 1961 (including foreign currency sales - 11 of agricultural surpluses) were initially utilised for expenditure in the United States. The portion spent in this country will increase as procurement orders under present directives become more fully reflected in our balance of p&vments. v&ys are being developed to reduce still further the impact of ecpnosiic assistanee on om balance of payments * without damage to the objectives Of the AH) program. - Our program for bartering agricultural surpluses under P. L. 430 is being reexamined to make sure, it will not adversely affect the balance of payments of the United States. The danger is that, in some instances, potential export sales for dollars may be diverted into barter arrangements that return to this country imports for iwhich there is no current need. This problem should be recognised in any modification of legislation or additional appropriations for the barter programs contemplated by the Congress. Longer range programs The task of reaching a balance in our international accounts is not one that Government can achieve alone. The private sector - 12 of the economy has an even more vital role to play. Long run equilibrium will be reached and maintained only if private industry Improves its efficiency more rapidly, produces goods and services fully competitive in world markets, and actively seeks out and fully exploits its export opportunities. ,. Here, Government can act as a prod and catalyst and help assure the proper environment. We have recognised that, if business moves ahead as w© aspect, a balanced budget in fiscal 1963 is an essential part of this environment. It will assure that the over-all fiscal program of the Government is in keeping with the n®^d to avoid excesses in our domestic* economy mnd to release savings and resources for productive investment* Moreover, our ssonetary policies are being conducted In a manner to assure that ample credit is available to finance domestic growth without providing new fuel for inflation. But, in the last analysis, the critical decisions and the crucial actions are those of private citizens •• Above all else is the cosnpelling ns&d for business and labor to exert conscious restraint in shaping wage and price policies* Our industry cannot remain competitive if we repeat the pattern of — 13 the 1950*s, ^ e n prices of industrial goods In this country advanced more rapidly than those of out leading competitors. Prices of American manufactured goods exports, for instance, rose 14% relative to those of-other Industrialised nations from 1953 to I960, Over the same period, our share of world exports of manu- factures declined from 25.9% to 21.6%. All the agencies of Government directly concerned - the Council of Economic Advisers, the Departments of Labor and Commerce, and we in the Treasury - are cooperating in the effort to bring home to all Americans the key fact that the United States can, in this intensely competitive world, win the battle for markets only by doing a better job in restraining our own prices and costs. Your Labor and Management Advisory Gotm_Ittee, too, is fully aware of the importance of price stability to our international payments situation, a® well as to our domestic economic welfare. That Committee can be of continued and even greater help In the future. Ihe Council of Economic Advisers has set forth guideposts for vage and price decisions consistent with our long-run needs. These guideposts would permit increases in average wages over - 14 time in line with increases in national productivity* Th&y would allow for th® correction of existing inequities in tho wage structure, and would penult market forces to be appropriately reflected in relative vages and prices. They do not provide precise answers to every question that arises amid the tug &n& pull of collective bargaining and pricing decisions. But they can indicate, amid £h~ strong, •pxmum:®® on both labor and management to seek Whatever bargaining advantage the moment offers, Where the public interest lies. Fortunately, we have so far come out of the recent recession without price Increases. Wholesale prices of Industrial eom&odi- * ties are actually a bit lower than a year ago despite a gain in production ©f over 12% - altogether the best performance of the postwar-'yenrs* At the same time, prices in most foreign countries have tended to rise. But, as the domestic economy moves ahead, and the benefits of extraordinary gains in productivity typical of the early stages of recovery are absorbed, we cannot relax our vigilance. A year ago, in taking office, you suggested that it was the responsibility of every citizen to ask what he could do for his country. In this area of price and wage decision, that challenge is clear and specific* - 15 More rapid .modernisation of our industrial plants, so that the United States can retain its leadership In efficient production, is another essential part of our longer-run effort to achieve and maintain a stronger position in export markets. Improved efficiency is the only vmy that we can hope to achieve faster growth at home and a better life f,c all of our citizens, uhile still meeting our cos_aitments abroad and remaining competitive In world markets* This improved efficiency is in good part dependent on bringing to our factories the fruits of modern science and te&hnology* Congress now has before it a bill that would pro- vide a tax credit to be applied against purchases of nei^ industrial equipment* !&fchin the framework of existing laws, .the Treasury also has underway a program of depreciation reform, updating the outmoded guidelines set years ago and permitting faster write-offs in U n a with current experience and technology. Together, these key reforms will provide incentives for nesj investment in the United States comparable to those available to investment In productive facilities in other industrialized countries of the free world. At the same time, our payments situation underlines the Importance of removing from our tax laws those provisions that - 16 give an unwarranted stimulus to investment by American firms in the developed countries abroad. American business does not re- quire the use of special tax privileges, and particularly aceess to tax havens that avoid practically all taxes, to operate effectively in developed countries with business ta& systems comparable to ours. Price stability and improved efficiency provide the essential underpinnings for any effort to expand our commercial trade surplus by penetrating export markets aggressively while at the same time meeting import competition without resort to restrictions. But, in addition, Government officials and businessmen alike must become export-minded - much more so than ever before* To assure that the opportunities open to us are fully exploited* efforts within Government to facilitate and encourage the flow of American goods and services to foreign markets have been greatly increased. The foreign trade functions of the Foreign Service &nd the Department of Commerce have been reshaped and Infused with fresh energy so that American business can be mad© aware of export opportunities as they arise* Foreign market surveys by our Foreign Service numbered - 17 over 34,000 in 1961, an increase of 73% over 1960. The Commerce Department has established a National Export Expansion Council, linked to 14 regional councils throughout the United State, on Oilch 1,000 business executives are being asked to servo. Efforts to familiarise foreign businessmen with American products and firms are also being intensified* The U. 8. Trade Center Program, initiated successfully in London last year, is being expanded - centers in Bangkok, Frankfurt, and Tokyo will open in 1962. Last year we participated in 11 international trade fairs and sent special trade missions to 12 countries. The Department of Agriculture, utilising foreign currencies received from our sales of^surpluses abroad, has expanded its program to develop foreign markets, for American ^ieat, feed grains, rice and other agricultural < products. Forty private trade groups are associated with the Department £n this effort. In 1961 alone, agricultural trade promotion exhibits were provided at 20 international fairs in Europe, Africa,' the Far East, and Latin America. - 13 Hie Export-Import Bank, in cooperation with 60 insurance companies, has developed a broad program of export credit insurance to be carried out through the ne^?ly created Foreign Credit Insurance Association* The FCIA, which began operations early In February, Is offering to exporters throughout the United States a single insurance policy, backed by extensive Government guarantees, covering both commercial and political risks connected with U, S. export sales to buyers in friendly foreign countries. Jticn fully effective, this new insurance program, together with existing Government and private facilities, should permit the American exporter to offer export credit on a footing at least as favorable as available to his foreign cosspe titers. To promote foreign travel to the United J'tates, and thereby reduce our deficit of roughly $1 billion a year on foreign travel account, the Department of Cotumerce has established a new agency - the United States Travel Service - assisted by a 36-man Travel Advisory Committee dra^n from our private travel mn6 - 19 - tourist industry. United States travel promotion personnel are now established in seven foreign cities * and are working with travel agents, carriers and the general public in 30 foreign countries* Procedures for entry into the U. S* for foreign business and vacation travellers have been simplified* Most visas for such visitors are now Issued in less than 30 minutes* The Department of State last year recommended legislation designed to simplify visa requirements for travellers still further and eliminate them entirely on the basis of reciprocity* Congress failed to act on this proposal last year, but it will be resubmitted at the present session* To assure that the maximum potential from this wide variety of efforts is reached, Secretary Hodges and I recommend that you appoint an Export Coordinator in the Department of Commerce* He should be a top level official, concentrating wholly on the overriding need to expand our export sales* The Export Coordinator would be responsible for developing. In consultation with private business, meaningful export targets by Industry, and b/ country and region of destiuation* He would assure that the vast facilities of Government are used to best advantage in helping our exporters to reach these targets. He would keep a close watch on performance, pursuing through his own small staff and existing channels the reasons for any shortfalls and assisting in the removal of obstacles as they develop. Finally, he should identify new problems that might arisa, and make recommendations for dealing with them to the proper officials* The role of other countries The deficit in our own balance of payments has sits counterpart in the surpluses of other countries. These surpluses, in recent years, hav® been largely concentrated in several of the Industrialised countries in Continental Western Europe* These countries have as great a responsibility for cutting down their surpluses as we have for reducing our defieit, if the international monetary system is to be both strong and stable. Substantial advances have occurred over.-the past year in this sharing of responsibility. 2her© were the military arrange- ments and sizable debt prepayments by certain of our allies already mentioned^ Further agreements along these lines are anticipated during 1962. But there must be more. We are hard at work now developing the means. Only a beginning has bean made in mutual support for the expanding noeds of the developing countries for economic assistance, - 21 on teruis and conditions suited to their circumstances. Conven- tinnallloans, repayable within relatively short periods at high rates of interest, do not adequately meet these needs. Other industrialized countries, In the years ahead, must contribute much more assistance to the developing countries, and on better terms* This must b© a continuing objective of our foreign policy* In most industrialised countries, businesses and individuals are still not free to invest where and v;hen they wish - outside their own currency areas. Frequently, they are not free to invest In the United States t&en they x*ant to, and in ways they prefer. Such restrictions can no longer be. generally justified on balance of payments grounds. Continued use of them is especially anomalous in the case of the countries with large and growing monetary reserves* Surplus countries should move boldly now in freeing those capital laovement a. Moreover, our long-time objective - removal of controls over trade Itself - is only partially fulfilled. To be sure, quotas and other quantitative restrictions, so common earlier in the postwar period, are now largely gone for manufactured goods in the Industrialised countries* That has been a great gain* But barriers remain for agriculturaalgoods. , And the progress of - 22 the Common Market, desirable as it is, will bring into being a cotnmon external tariff - a barrier x&ieh must be lowered if the United States is to expand its sales to this great and growing market. l A breakthrough is imperative in this area. Broad-seal* trade negotiations under the authority of the Trade Expansion Act that you have already proposed to the Congress offers the only realistic opportunity. Strengthening tfoe ri»$orld Monetary System The first requisite for a strong and healthy international monetary system is progress toward resolving our own basic balance of payments problem. Only in that vny can there be a firm basis for continuing confidence in the dollar* But even then the system will remain exposed to potential shocks and strains arising from large-scale shifts of liquid funds from one country to another, Horraally, these short-term capital flows serve a constructive purpose in moving funds to the point of greatest need. But, these flows can also magnify temporary fluctuations in a nation4 s balance of payments and become a vehicle for speculation against one currency or another. No nation, however strong in reserves, - 23 could withstand alone the potential pressures~that could conceivably arise, Ths industrialised nations therefore have a common interest in protecting the system upon \^iich we all rely to facilitate the flow of trade among us. Basic to progress in meeting this problem are frank consultations and closa understanding arsons the leading financial nations* The working groups within the OECD and the regular meetings of European Central Bankers at Basle, to which the Federal Reserve now regularly sends an observer, have provided appropriate forums for such discussions, and I hen report that the cooperative spirit displayed has been gratifying. As a result> we csn now shape our policies with fuller understanding of the needs and responses of others. The uncertainties and •i lack of information that can be a breeding ground for speculation audiInstability have been largely dissipated. It tras this understanding and cooperative approach toward our mutual problems which made possible the agreement announced in December by ten leading industrialised countries to supple** ment the resources of the International Monetary Fund by means of a new system of lending arrangements totaling $6 billion. These arrangements will greatly enhance the ability of the Fund to cushion any significant shocks to the monetary system, from - 24 whatever source, and to diffuse the impact among the surplus countries best able to bear it. In particular, the new arrange- ments would greatly increase the potential resources of the Fund in currencies of the surplus countries of Western Europe, upon vhlch the United States would need to draw in the event of n&md0 He are awaiting final approval of the enabling legislation by the Congress* The Treasury also began, during the past year, to opmxmtm directly in the foreign exchange markets. Using in part currencies- borrowed in foreign markets, this intervention was helpful in damping down the kinds of temporary fluctuations in the exchanges that can set off excessive short-term capital movements* The Federal Reserve, acting undor its existing statutory authority, began in March to engage in foreign exchange operations in full consultation and cooperation with the Treasury. Hale participation by the Federal Reserve will strengthen this country1* resources mad facilities for countering any threatening pressures against the dollar in world exchange mnrlets. It will, in the end, contribute to the further use of : the dollar as a reserve and trading currency. There is oa& area in which the U. S. can itself take action to eliminate an incentive for short-term capital flo^?s that serve - „5 - no real economic purpose. Certain recently imposed taK.es abroad, in combination with the current provisions of our ta* la*s permitting a cr&dit for foreign taxes paid, have created, for soeui companies, an entirely artificial incentive to transfer liquid balances abroad. A specific recoexs&ndation for dealing with * this quirk in the application of our ta-* laws is being prepared by the Treasury so that an appropriate remedy m&y be included la the tax bill now before Congress. Prospects for 19§2 <jp*oni«*.liv*« 11 •ft**".—-iiiwuiMct—UK i-'—at>^--nfi*_*j* «*-*,->t*wt.fci-r.,--»» Changes in any nation's balance of payments from year to year, reflecting a mas® of cro*?3 currents in both ths domestic and foreign economies, are never fully predictable* neverthe- less, it is clear that ths measures already taken &n& proposed will not have had time to work th-Ir full effect In the space of 1.962. We ©ust therefore be prepared for another deficit this year. Th* principal factor working against a balance in 1962 is th® prospect ot! a ©harp increase in imports over the unusually low lev-I during th<@ early part of 1961. This can be expected in response to the growth of our domestic economy. The? mme sort of increase cannot safely b® assu&ed for exports, tied closely to market - 26 - conditions abroad, although we will be doing all we can to expand our foreign markets. Our commitments for defense and economic assistance should, however, impose a smaller burden, because of offsetting payments to the United States - related both to military purchases and debt prepayments - and necessary tying of aid. We must also be prepared for a possible further outflow of short-term capital, Borrowings in the American market by residents of other countries and foreign governments, unusually large over the past two years, are likely to slacken, but not to cease. In the conduct of our monetary and debt management policies, we must remain continually alert to assure that our own short-term market does not become so liquid that credit spills over unnecessarily into foreign lending. The means for financing our prospective deficit in 1962 are available. In the process, some portion will need to be settled in gold as some countries exchange part of their dollar holdings for gold to restore or maintain their varied rule of thumb ratios of gold to their total international reserves, although ratios of that sort have less relevance as international cooperation becomes closer and the payments sytem is strengthened. - 27 These gold losses in 1962 should not be of a size or character to cause dismay. But they will be a forceful reminder that, until our accounts are fully in order, we are using our reserves to buy time. We still have the time for the most important element in any real cure consistent with the maintenance of our commitments to free world security and economic progress in the developing countries - an expanded commercial surplus. To achieve that expanded commercial surplus we shall have to apply ourselves to the job at hand with the same urgency it would need if little or no time were left. And we shall also have to insist that other free countries able to do so assume and discharge their full share of the common burden, and provide us with the sort of trading opportunities that will permit us to carry our own full share* Needed Legislative Action f*»lhi»|iW»i»i*rf»««i*MiW^I»»*"*»^i**Wi «««H*i»>» qimiM»lr»MI •**«— HiUH'itf*!"**"**!—»* I Essential parts of this over-all program still require legislative action for their full implementation: * Authority to participate in the supplementary IMF arrangements. *' Authority to bargain effectively for lower tariffs with the European Common Market and other countries - 28 under the terms of the Trade Expansion Act. * Incentives for more rapid modernisation of industrial equipment by means of an investment tax credit. * The removal of special inducements to invest abroad by eliminating the possibilities for tax avoidance on foreign operations through the use of tax havens and unwarranted deferrals of taxes on operations of foreign subsidiaries. * New appropriations adequate to staff and operate effectively the Office of the recommended Export Coordinator and the enlarged functions of the Departments of Commerce and State in stimulating exports, •* Simplified visa requirements for foreign visitors. * Continuation of P. L. 480 in a form that will not adversely affect our balance of payments* Recognition of the problems before us, the wisdom to devise and ^forcefully apply appropriate remedies, the understanding - 29 cooperation of our allies abroad - all of these are critical elements in a successful resolution of our current difficulties. But in the end wo will succeed, as in all our endeavors, only as all Americans grasp the challenge, and demonstrate that combination of restraint in setting wages and prices and bold initiative in seizing export opportunities that the circumstances require. The stability of the dollar is a key to economic progress at home and abroad. Beyond that, it will stand as a symbol of our own determination to discharge the responsibility that is ours for leadership of the free world. March 26, 1962 <?) .*/&<** THE SECRETARY OF THE TREASURY WASHINGTON JUN 2 G .967 MEMORANDUM FOR: The Secretary of Defense The Secretary of Commerce The Under Secretary of State The Administrator, AID The Director, Bureau of the Budget The Chairman, Council of Economic Advisers C a b i n e ^ C o S ^ 1 * h a s u a s * e d «» to form a small intcrCaba.net Committee on the balance of payments not onlv to "keen f JT* P°UCy bUt« in the^sident's v^rJs, to keep a sharp eye on the management of our own disDavf^n%WiKh-n thC Executi™ franch." He haTasked t ™ B , ? 1I b *»S t o t h e n e w committee proposals for a gold budget" for controlling federal expenditures affecting the balance of payments. Pie * Tf th? President's memoranda to me on this fi„Hw? of J^'lf JT& 1 r d I2'and of "* ^orandum to M m or June 14, are enclosed, «,_. ^^^ements will be made for a first meeting of the committee at an early convenient date. *Tas DHxoa Douglas Dillon Enclosures: The President's memoranda of June 7 and 22. Memo of June 14 to the President. JMLeddy:cvb:6/25/62 THE WHITE HOUSE WASl!INOTO> June 22, 1962 M E M O R A N D U M FOR THE SECRETARY OF THE TREASURY I like the proposals in your memorandum of June 14tr _n the ways of carrying forward a small inter-Cabinet committee on the balance of payments. I agree with you thai the Director of the Bureau of the Budget should be added, and I also believe that we should have representation from the State Department -- presumably George Ball -- and from the Council of Economic Advisers. I doubt if we would need any further White House representation at this stage* I agree with your view that the group should begin to think hard about broad policy en the balance of payments, but I also want it to be a working committee that will keep a sharp eye on + ae management of our own disbursements within the Executive Branch. For this purpose I a m asking Dave Bell to be prepared to bring to the new committee proposals for what might be called a "gold budget" for use in controlling all federal expenditures that affect the balsT.ce of payments. A number of instances in recent weeks hi.ve made it clear that our Executive control in this area i* _o. what it ought to be, and I think the basic budgetary proce* provides an excellent analogy to the sort of thing we now need in the balance of payments field. " CC; "e"isA Fowler» Roos&» J.ad<;> A. JUN 11 1CS2 >IEI.OP>ANDUM FOk THE PRESIDENT I welcome your suggestion that a small intor-Cabinct Ceraittce on the balance of payments be established under cy chairmanship, including the Secretary of Dsfens_, the Secretary of Co_r_erco and the Director of the AID Agency. I would suggest adding the Director of the Eurcau of the Budget to the group* I believe that we should operate this group informally in order not to impair the wider interagency coordination which 1 aia carrying out In accordance with the directive in your memorandum to me of February 17, 1961, a copy of which is attached. I suggest that wc z_i£bt proceed as follows: Uhen the draft of xay next report to you on the balance of payments is ready — about the end of next month — 1 would call a meeting of the new informal Cabinet Ccasaitteo to go over the report and begin thinking about the further steps, or intensified action on existing steps, which could bo put together in a program or report toward the end of the year* This progr_ia or report would, aaong othor things, assess the realism of the targets for achieving balance by 1964, which X sent to you in ay xncraorandum of June 1* it would also list any alternative stops that may bo required to achieve such balance* I think it would bo helpful to designate someone fros* the Vhito House staff to sit in on the July meeting* If you agree* Z will proceed accordingly on the basin of the authority in your sxesaorandum of February 17, 1961*. Douglas Dillon Enclosure: Copy of February 17, 1961 memo. , 9125 THE WHITE HOUSE WASHINOTON • June 7, 1962 M E M O R A N D U M FOR SECRETARY DILLON • I think we should have established an inter-Cabinet Committee with you as Chairman, Secretary of Defense, Secretary of Commerce and the Director of the Aid Agency to work on thxs balance of payments problem. It may be desirable to assign a permanent-staff member to the White House to work with this Committee, Thig inter*Cabinet Committse should come forward with a program perhaps in November with assurances of bringing this problem under control within a reasonable period of time* I would a__reciate your thoughts on this. V" 0 iy /_,'/,*/ MAR 2 6 1962 Dear Salphs I understand that you have already been inf creed by Alan Holta93 that ^crctary Dillon has agreed to reconstitute the Ad Hoc C c ^ t t c e on D^Ocncc^*!^'za»to Statistics, in order to -col l&ffia, "laroa_er' aspects "of 'thebalance of paycants. X vill serve as Chairman of the CocEaittoo, end w havo e4_od Walthor Lodcrer of the Dspartsient of C_s3&erce to its c m ^ r s h i p . Please inforn IDS if you miam to -rake any change in the roprascatatioa of the Board. X surest that the initial asetlng of the Caraaittee ta_» place at 11:00 a.ia* on $o_nesday, tfarch _£, in Boon 4426, Treasury itepmrtsz&at. We will bo in touch by telephone with your rcprcccatativaa vita aeespoet to the a&todm for the first raetisg* 1 trust these arrtosecssnts will be •atiafaotoiy. Sincerely yours, (sign*) John u. x*« JobnU* Icddy 1 . 'jv... __?. Salph A* Young Acvisory to the Board Federal Reserve Systeo tfasl_iagton 25, D* C« flTOtW-^^nfflfapyiflg 3-22»42 THE WHITE H O U S E W A S HI N G T O N March 9, 1961 M E M O R A N D U M FOR THE H O N O R A B L E DOUGLAS DILLON This memorandum is to confirm the action of the President today in terminating the informal,Cabinet Committee on Balance of Paymenfs~PrbbIelints~.™^_'he action* was" taken in conjunction'wlifi the directive of the President that responsibility for coordinating the governmentwide effort on balance of payments problems will be lodged with the Secretary of the Treasury. Frederick G. Dutton Special Assistant to the President COPY THS UHITE HOUSE WASHINGTON February 1 7 , 1961 <x \ [ORANBUM FOR THE SECRETARY OF THE TREASURY my Message of February 6, 1961 to the Congress dealing th the balance of payments and gold, I assigned to the dividual Departments and Agencies most immediately c o n med the responsibility for impleraanting the measures ich I directed to be taken. should like you, as the chief financial officer of the svcrnnient, acting in close cooperation with the Bureau ; the Budget, to undertake coordinating responsibility >r that program and to report to ma periodically on le. progress achieved, along with any recommendations >r additional action deemed necessary on the balance I payments problem. In carrying out this responsiLlity, you should consult yith the heads of other apartments and Agencies concerned. aa sanding copies of this memorandum to heads of the ther Departments and Agencies which have been assigned pacific implementing tasks* ' Signed by President Kennedy m fov" "^wv THE WHITE HOUSE WASHINGTON February 17, 1961 ME__)RAKDIiM TO: The Secretaries of State, Treasury, Commerce and the Attorney General FROM: The President ' As one of the measures to correct the "basic "balance of payments deficit, I have directed the Secretaries of State and Commerce to develop a major new program to encourage foreign travel in the United States. As I stated in my Message of February 6, I96I, an essential part of this program is "action to simplify our visa and entry procedures for temporary visitors." Therefore, the appropriate departments are requested: .l) Immediately to take all necessary administrative steps to facilitate the granting of nonimmigrant visas overseas where now required "by law, recognizing that the Congress will "be asked to amend applicable statutes to waive nonimmigrant visas insofar as security considerations permit. y. 2) To take other administrative steps necessary to encourage an inflow of foreign tourists and expedite their entry, including easing of financial capacity requirements and customs procedures. ^ 3) To prepare for suw-Lssion to Congress amendments to the Immigration and Nationality Act to waive nonimmigrant visas, on a basis of reciprocity, and particularly with respect to nationals of non-quota countries and of countries whose quotas are normally undersubscribed. The Secretary of Commerce shall be responsible for coordinating this program and keeping me currently informed on its progress. -_::cr3# Abrascon, Hally, Widaiaa, Siyte*x,;'_v Kj_cU* US/3/1G3 M«P :> «1983) Tour Reference! QIC Gentleaeni Kofcrence la cada to the requeet of the Secretary of State* dated February 17* I960, for the designation of a Treasury Department nonlnee to serve as /dviser to the United Status Delegations to the jE«lanoe of ^^ents^onsultaticiut.ai*d the SixteentnSession of the Contractine Parties* This Department vishes to noainste for this purpose Kr. Korris J* Fields* The required security clearance for Mr* Fields Is enclosed herewith* Sincerely yours, / Assistant Secretary mt the Treasury Office of International Conferences, Department of State* Washington 2$, D. C« Enclosure. The clearance referred to above* HF-ef 2/2^/60 MN *0 Oft* Dear i'v. Gatem You will roncnbcr that last Fall you and others mat with focrot&ry Anderson &s anjinforrasl _AC ro^-QXt-thg. ^U* £_.JaftIanco of payracntg* £inee that tirae work "hoc prorTorcocTdrrcone aspects of this problem without the need for n full xa_etln& of the consulttee* On the other hand, it h&s becor» appprcnt that a large number of aspects of thia problem, which by their nature* need not be restricted to the Secretary1* group itself, could be beet handled by a staff group of the agencies that *r© now in the Secretary• a group, and that the work could be distributed asongst thesu Secretary Anderson hopoe that you could appoint a deputy to represent your repartment la this connection* Alfred JJ* Yon Klcispcrcr. -ho ia Assistant to the recretftry and acts a_~T71iirryaolatJ^^ the Afork* of this group._It would be appreciated if your deputy could coxz&inicate with hin to that he can call a £&etin& of the group at an amrl? date* Secretary Anderson has asked as to tell you that in view of the interest shown by the Bureau of the Budget in the balance of paysaente paroblas,tfaurioeStans bee been sdded to his balance of payaeats group* Sincerely, J_llan B. Balrd Uador £*cr»tsiy Honorable Tho_sas S. Gates, J** Secretory of tmSonsm Ecpartsant of DoXans* Washington 2$9 D* C* AV_/iah 1-20-60 JAN ? r %/f) loar r_^r$&l9Tu You will re»ttG»be.r that last Fall you and others asct with Secretary Anderson as an infernal HAC group on the U* £. balance of pcya&nts* Since that tiroa work has prOf-resrTod on $o*m aspects ol this problow without the need for a fullrawsting of the corralttce. On the other hand, it hae becosa Apparent that a largo number of aspects of this problek, which "iiy their nature n&ed not bo restricted to the Secretary' n group itself, could be best handled by a staff group of the agencies that are now In the Secretary's group, and that the work could be distributed amongst then* Secretary Anderson hopes that you could appoint a deputy to represent your Fepartaaat in this connection* lifted H. Von &ei$wrer 9 who is Assistant to the Secretary and acts as ?. Orsydon Upton's deputy, has been asked to coordinat* tho work of this group. It would be appreciated if your deputy could co*?ttttlc&t€ with bin so that he can call a n&etiag of the group at an early date* Secretary Anderson baa asked wa to tell you that in view of the interest shown by the Bureau of the budget in the balance of pays&nts problem, ilaurico Stan* hat bean addmd to his balance of payments group* Sincarely, y^_u^ Julian B* Baird Oader Secretary Honorable Douglas Dillon Under Secretary of State Icpartomt at State Washington, D. C* AVX/lsh 1-20-60 m' «' Doar *_%—Martin: _ou will resienbor that last Fall you and others a»t with Secretary Anderson as an informal MC group on the U. S* balance of payments* Since that tlao work h«s progredcod on sos» aspects of this problem without the need for a full ncetlng of the cozsolttce* On the other hand, it has becocae apparent that a largo number of aspects of this problen, wlilch by their nature need not be roc trie tad to the £ecret»ry'8 group itself, could bo best handled by a staff group of the agencies that are now in the Secretary* c croup, and that the work could be distributed «2_>n£5t then. Secretary Anderson hopes that you could appoint a deputy to represent the Board in this connection. Alfred H. Von Klezsperer, who is Assistant to the Secretary and T. Croydon Upton's deputy, has been asked to coordinate the work of this .roup* It would be appreciated if your deputy could cwncunlcate with him so that ho can call a nesting of the croup at an early date* Secretary Anderson has asked ma to tell you that In view of tho interest shown by the Bureau of the Budget in the balance of payasata problem, y_turioo Stan* has been added to his balance of payncnto croup. Sincerely, A/ B* Baird Julian finder Secretary Honorable Williaa ^cChoanoy jfertin Chairman, Federal Kascrvo Board Washington, D* C. AVK/iah 1-20-60 JAN 2 0 i960 Door :-_%-*4_<*ll0ri _ou will rcwcabcr that last Fall you and others net with Secretary Anderson as an informal I&C group on the U* £. balorxjo of paytasnts. Gince that tlr» work has progressed on soae aspects of this problesi without the need for a full faceting of tho corjalttee. On the other hend, It has becosa apparent that a large rtuober of aspects of this problcia, which by their nature need not bo restricted to the Secretary^ group itself, could be bast handled by a staff group of tho agencies that ara now in tho Secretary^ group, and that the work could bo distributed _non&8t then. Secretary Anderson hopes that you could appoint a deputy to represent your Depoxtsient in this connection. Alfred H* Vonftessperor,who is Assistant to the Secretary and acts as ?« Grsydon Upton's deputy, has been asked to coordinate tho work of this croup. It would bo appreciated if your deputy could coiaemr-Icate with bin go that he can call a netting of tho group at an early date* Secretary Anderson has asked BO to tell you that in view of the interact shown by the ifurean of the Budget in tho balance- of paysonts problem, Eurico Ettas has boon added to his balance of payKents group. Sincerely, Julian B. Baird Once* Secretary Honorable Frederick 3* Huellor Secretary or Co£3_3rco Departcnnt of Cosasarco Washington 25, 2)* C* AV_/±sh 1-20-60 JAN 2 0 I960 You will reaesker that last Fall you and others ioet with Secretary Anderson as an informal 3£AC group on the 0. S. balance of payisents. Since that t l m work has progressed on sorso aspects of this problem without the need for a full jaeeting of tho comittee* On the other hand, it has becerao apparent that a large na_ber of aspects of tills problem, which by their nature mad not be restricted to the rccrotary's group Itself, could be best handled by a staff group of tho agencies that are now in the Secretary's group. «nd that tho work could be diotributed aaotigst then* Secretary Anderson hopes that you could appoint m deputy to represent tho Export-Inport Bank in this connection. Alfred K. Von Klerapcrcr, who is Assistant to the Secretary and acts as T. Ciraydon Upton's deputy, has boon asked to coordinate the work of this group* It would bo appreciated if your deputy could coissunicate with him so that be can call a meting of the group at an early date* Secretary Anderson has asked xae to tell you that in view of tho interest shown by the Bureau of the Budget In tho balance of paytaeato problon, Haurieo Stano bos boon added to hia balance of poyaents group* Sincerely, #0M4*W Julian B* liaird Under Secretary Honorable Snraiol C. Vaugh President and Chairman Export-Export Bonk of Vaehlagtoa 811 Vermont Avenue, S* V« c&shiagtoa, P. C* AV_/ish 1-20-60 Treas. HJ , 10 .A13P4 v 131 U.S. Treasury Dept. Press Releases — — Treas. HJ LU 10 , TT c Treasury Dept AUTHOR Press Releases UBRARY ROOM KQ3Q JUN 1 51972 aanmmaiaav&aw*'***' -^^ sP TREASURY DEPARTMENT U.S. TREASURY LIBRARY 1 0031503
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