19. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Kaysen) to the President’s Special Assistant for National Security Affairs (Bundy)0
- Observation on the Balance of Payments for the President’s Discussion with the NSC Tomorrow
It is most unlikely that we can achieve the goal of balance in our international accounts by the end of 1963. In fact, 1965 looks like the earliest [Page 44]realistic target year, and that may be optimistic. We have cut the proportion of government grants and loans which result in dollar outflows from about 36% in calendar year 1960 to about 24% for last year, and we expect to get it below 20% in the next year. It will be difficult to cut it any further. We are still reducing net military expenditures abroad, mostly by increasing use of offset arrangements with our NATO Allies. We also propose to negotiate offset arrangements with Spain and Japan. Here, as in the loans and grants fields, we are running into diminishing returns. Nonetheless, the importance of maintaining these efforts is great.
Ultimately we must look for a solution to the balance of payments problem in a substantial increase in our exports, unless we are to make fundamental changes in our foreign commitments. This is mainly a matter of domestic economic policy, in keeping our products competitive in world markets in terms of price and quality. However, it also depends on conscious effort, both in trade negotiations and export promotion. We are expanding export promotion programs for this purpose.
It is clear that the importance of monetary arrangements which serve to defend the dollar will remain1 through the next several years, and that we can count on Treasury’s continued ingenious efforts to deal with this problem. But we must not look on it as a technical monetary problem alone, but also as an important problem of foreign policy in which joint action among the leading Western nations in a variety of ways will continue to be of the greatest importance.