Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

356. Notes on Dillon’s Conversation with McNamara, January 23¹

January 23, 1963

Notes on Secretary Dillon’s conversation with Secretary McNamara, at the Treasury, 1:15 p.m., January 23, 1963 (based on the Secretary’s oral briefing of Mr. Roosa and Mr. Bullitt)

Secretary McNamara felt that the gold budget project for controlling U.S. dollar outlays abroad had bogged down and was not proving effective. The Bureau of the Budget and the other technical people were spending too much time trying to reconcile statistical differences and that the BOB was doing little more than assemble agency submissions on their own plans and activities. He considered that the gold budget should be as binding a document as the regular Federal budget, and that agencies should face up to the necessity of changing their programs when they came up against ceilings. He agreed that the Treasury should have a major voice in policy decisions when the gold budget was drawn or revised; that it also should patrol major developments; and that the lines of communication with State and Defense in this area should be cleared.

Secretary Dillon said that for various reasons, including the habit of the State Department of using John Leddy to do a great many things which he shouldn’t have had to do in his Treasury capacity, no effective working level group had been set up to act for the Cabinet Committee on the Balance of Payments. He proposed to remedy that by putting John Bullitt at the head of such a committee, at the Assistant Secretary level, and Secretary McNamara agreed that that would be a good idea.

Secretary McNamara was quite pleased with the outcome of his exchange-saving program for FY 1963, and said that it would come within around $100,000 of the target figure of last July. But for FY 1964, the outlook was less good.

The figure for Germany was larger than the 1963 figure. Overall, a presently planned $1,550 billion would have to be reduced to $1½ billion net. Secretary McNamara had ordered the Defense Department to do that. The only way to make these reductions was for the Secretary himself to make it clear that the money had to be saved, and to tell the services how and what should be cut.

Meanwhile, Mr. McNamara has also run into trouble with his 50 percent figure because nothing like it was observed by other Departments, whose expenditures may not be large in comparison with those of Defense, but whose refusal to hold the line makes it harder for him to do so.

He expects squawks from the State Department when he has to take measures which cause them political problems, but considers that they have to be handled like the military departments. If, for example, they object to closing a depot in Japan, he will insist that they find an alternative there which saves an equal amount of money.

Secretary McNamara also said that he is going to get the British to start sharing in the costs of the Polaris development. He had had violent protests from Mr. Thorneycroft and from the State Department, but Mr. Thorneycroft had agreed that Secretary McNamara’s position was perfectly reasonable, adding only that it came at an unfortunate time.

Secretary Dillon asked for a report on Project 8. Mr. McNamara did not respond directly but gave the Secretary to understand that he would rather not talk about that; he thinks, now, that the only way to secure meaningful further savings is to close bases or cut out other sorts of operations.

Secretary Dillon asked if it would not be useful that he be included in the State-Defense talks, to which Mr. McNamara agreed. Secretary Dillon could be very helpful, for example, in such matters as the Polaris case. He was sure Secretary Rusk would approve, and Secretary Dillon plans to talk to Mr. Rusk.

Secretary Dillon reiterated the importance of the balance of payments in making or breaking the Administration’s ability to carry through its entire program; Mr. McNamara agreed wholeheartedly. They agreed it was especially important to the President, both as a matter of national policy and as a political problem. Secretary Dillon also described his plans for a White House Conference on Exports, and discussed monetary policy.

Secretary Dillon will now talk with Secretary Rusk and Budget Director Gordon, and then with the President.

1. U.S. dollar outlays abroad; DOD deficit proposals; and importance of balance of payments to administration. Confidential. 2 pp. Kennedy Library, Dillon Papers, Memcons, 1963, Box 15.