Office of the Historian

138. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Bator) to President Johnson1

Washington, August 10, 1967.

Mr. President:

At your balance of payments meeting this morning (Fowler, Deming, Knowlton, Bator), Joe will raise two operational issues:

1.
Should we use the Commerce Voluntary Program on direct investment to really squeeze Trowbridge’s clients—for the first time? My own vote would be strongly in favor.
  • —Short of taxing tourists, or starting a trade war, or gutting your foreign policy, this is the only place where we can make a lot of money for the balance of payments. (I agree with Fowler that we should aim for an improvement in direct investment and repatriated earnings together of at least $1 billion in 1968 over the 1967 target. This should result in a net payments gain of some $600–$800 million.)
  • —Direct investment is about the only item which has not really been pinched so far. (The bankers, who have been squeezed, are especially resentful.)
  • —In getting the Europeans to cooperate in not buying gold, and accepting a U.S. deficit as not entirely illegitimate (we are not running an economy like Brazil), direct investment is our Achilles heel. They recognize the world-wide case for foreign aid, for military spending (even Vietnam) and for access to our capital markets. But many of them think that financing U.S. direct investment by means of a deficit is equivalent to buying up Europe with money borrowed from Europeans.
  • —The only negative argument is that the business community would not much like it. In the setting of Vietnam, however, I think it a [Page 407] good bet that they will cooperate. They really don’t have a leg to stand on. (You will not want to give us a final answer on this now. Trowbridge and Fowler and the rest of us will come back to you with concrete proposals soon.)
2.
Should we build into the gold-cover message, in mid-September, a new balance of payments program, focussing on direct investment as above, and a few other longer-term items? Joe is for it. I myself have doubts, which are shared by Okun, Dewey Daane and others. Rather than spelling out the arguments on paper, I would suggest that you ask Joe and myself at the meeting about the possible disadvantages.

Francis M. Bator 2
  1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. IV, January 1967 [1 of 2], Box 3. No classification marking.↩
  2. Printed from a copy that bears this typed signature.↩