3. Report From Secretary of the Treasury Dillon to President Kennedy0
REPORT TO THE PRESIDENT ONBALANCE OF PAYMENTS MEASURES
In your memorandum of February 17, 1961,1 you directed me, acting in close cooperation with the Bureau of the Budget, to undertake responsibility for coordinating the program of measures to improve our balance [Page 4]of payments position, and to report to you periodically on the progress achieved. Accordingly, I am submitting this report on the status of measures taken by the several Departments and Agencies to strengthen our balance of payments position.
In preparing this report I thought it would be most convenient for you if I referred to each of the measures which you described in your Balance of Payments Message to the Congress on February 6, 1961,2 in the order in which they appear therein. Some of these measures are ones on which work is actively being pursued but on which definite conclusions have not yet been reached.
On the basis of this review I conclude that no additional action on your part regarding the balance of payments problem is necessary at this time.
I. Measures to Ease the Short-Term Demand Problem
- Measures to Improve International Monetary Institutions. Treasury in consultation with the National Advisory Council on International Monetary and Financial Problems is intensively studying such meas-ures. The Under Secretary of the Treasury for Monetary Affairs (Mr. Roosa) is chairing a special ad hoc subcommittee on this problem. Also, the United States Executive Director on the International Monetary Fund3 is discussing the international aspects of the problem in the Board of Directors of the Fund. My objective is to assure that the Treasury’s study, when completed, will reflect the best judgment we can get from within our own government and from other governments.
Use of United States Drawing Rights in the International Monetary Fund. We are keeping track of the current situation carefully. I doubt that we will find it desirable to make a drawing on the Fund in the near future. In the meantime, the United States Executive Director in the Fund is continuing to press for the use by other countries of convertible currencies other than the dollar and sterling in their drawings from the Fund. This will help to avoid an increase in foreign country holdings of dollars and sterling due to drawings from the Fund.
Your statement of the United States attitude has itself had a great influence in causing other members to view the Fund’s total resources as more readily accessible for general use.
Special Interest Rates for Dollar Holdings by Foreign Governments and Monetary Authorities. Your message of February 6 outlined two companion measures to retain foreign short-term balances in this country.
The first is the plan for using the Treasury’s authority under the Second Liberty Bond Act, as amended, to issue securities at special rates [Page 5]of interest for subscription exclusively by foreign governments or monetary authorities.
To supplement this plan, and to prevent consequential losses to domestic commercial banks through its adoption, an Administration bill was sent to the Banking and Currency Committees of both branches of Congress on March 14, 1961, which would amend the Federal Reserve Act and the Federal Deposit Insurance Corporation Act to exempt from regulation the rates of interest paid by banks on time deposits held in this country by foreign governments or monetary authorities, and certain international institutions. No schedule for hearings on this Bill has yet been set.
After action has been taken on the proposed bill, the desirability of special Treasury issues to foreign governments and monetary authorities will be considered in the light of circumstances then obtaining.
Finally, an Administration bill to encourage foreign dollar holdings by unifying the tax treatment of income from various types of foreign central banks’ earning assets in this country was reported favorably by the Ways and Means Committee of the House on March 6, 1961. It is scheduled for House consideration today.
- Prohibition on Holding of Gold Abroad by Americans. The following steps are being taken for effective enforcement of the recent Executive Order forbidding the holding of gold abroad by Americans: (1) letters are being sent to the Central Intelligence Agency and other competent agencies requesting that they tap sources available to them for information relating to the illegal holding of gold abroad; and (2) the Bureau of the Mint is establishing a licensing procedure for foreign branches or subsidiaries of United States companies when such branches or subsidiaries are using gold abroad for industrial, professional or artistic purposes. This procedure among other things will require them to report on their stocks of gold.
(The following must be kept strictly confidential.) The National Bank of Switzerland is cooperating in our efforts by asking all commercial banks in Switzerland to notify all American holders of gold accounts that such holdings will be illegal under United States law after June 1, 1961. The Swiss National Bank has itself already refused to undertake or expedite transactions regarded by it as in violation of United States law. Central banks in other countries are taking less decisive but useful actions. Switzerland, however, is probably the principal center for holdings of gold abroad by American nationals.
II. Measures to Correct the Basic Payments Deficit and Achieve Longer-Term Equilibrium
- Action by the Senate to Approve the Organization for Economic Cooperation and Development (OECD). Favorable action was taken by the [Page 6]Senate on March 16, 1961. The Administration should proceed promptly with ratification of the Convention.4 It is important that we do this well before April 18, the date of the meeting of the Economic Policy Committee of the OEEC-OECD, which will be an important instrument for the coordination of economic policies of the Atlantic community.
Export Promotion. Since February 6, 1961, the Department of Commerce, working through 33 regional export expansion committees has organized and participated in 44 clinics, work shops, and trade meetings for the promotion of exports. A film entitled “Exportunities” is being effectively used in this connection. The Secretary of Commerce and his staff have constantly urged export expansion in their public speeches.
Abroad, the first United States foreign trade center is scheduled to open in London on June 26, 1961. Negotiations are progressing for additional foreign trade centers in Southeast Asia, South America, Europe, and Africa.
A follow-up procedure has been established to assure that trade opportunities developed by our trade missions abroad will eventuate in as many export orders as possible.
- Cost and Price Stabilization. The first meeting of the Advisory Committee on Labor and Management Policy is scheduled for March 21, 1961. I hope that this Committee will encourage productivity gains and other measures designed to make American goods competitive in international markets.
- Export Guarantees and Financing. The Export-Import Bank has made excellent progress in developing a new program of export credit guarantees comparable to those offered by foreign countries. I am sure that the new program will meet the objective of placing our exporters on a basis of full equality with their competitors in other countries. The National Advisory Council approved this program in principle today. I recommend that at your press conference this week you inform the Congress and the public of the principles on which this new program will be based. I will submit a draft statement for your consideration tomorrow. The details of the new program will be worked out after talks with private business interests over the next few weeks.
- Foreign Travel to the United States. The Department of Commerce is planning a promotional campaign in the United States and abroad. The task group established by your directive of February 17, 1961, to simplify visa and entry procedures5 has decided to recommend the submission of [Page 7]legislation to establish a new 90-day “tourist” visa classification with authorization to waive such visas on a reciprocal basis. Details of plans and prospects of the Foreign Travel Program are included in a special report by the Secretary of Commerce to you.
- Agricultural Exports. The Department of Agriculture is studying how to improve the effectiveness of our foreign market development program, particularly in countries which offer the best cash market prospects. I have requested the Secretary of Agriculture for an appraisal of the effects on our cash dollar exports of the various operations under Public Law 480,6 including barter operations. I will ask that this study be undertaken promptly so as to assist in policy developments with respect to the Food-for-Peace Program.
Policy on Economic Assistance. The policy adopted in October 1959 to emphasize procurement from United States sources under Development Loan Fund loans7 is being implemented so that for the loans and commitments made since that time (apart from those made for covering local currency costs or for foreign development bank financing) only about 14 percent of the disbursements will be made offshore.
The International Cooperation Administration reports that a trial period of at least one year will be required to determine the effects of a new procedure adopted last December under which an orderly cessation of commodity procurement in a specified list of industrialized countries was undertaken. At present, waivers are being granted in cases where the new policy would interfere with United States foreign policy objectives. I am asking the Secretary of State to keep me informed on waivers granted under this new policy, indicating the amounts of such waivers and the justification supporting them.
As regards ICA cash transfers to foreign governments, efforts to minimize procurement in the countries referred to above are being carried out on a case-by-case basis.
Action in accordance with earlier directives has not been taken by DLF or ICA on the establishment of ceilings for offshore expenditures because such ceilings would not be meaningful for FY 1961 and would be premature for FY 1962 since requests for funds for that year are now under review. I believe that ceilings should be adopted as soon as FY 1962 funds are voted and that State Department witnesses should be prepared to make provisional estimates during Congressional hearings.
Tariffs, Restrictions and Discriminations Against American Exports. The Department of State is continuing its efforts to obtain the removal by [Page 8]foreign countries of quantitative import restrictions which affect our exports. American Embassies abroad have recently approached the governments of Austria, Colombia, France, and the Netherlands on specific commodity problems. Moreover, during recent visits by representatives of Germany and the United Kingdom, the need to liberalize imports of specific commodities was discussed, and it is likely that some relaxation of these restrictions will be announced in the near future.
The problem of gaining concessions for United States agricultural exports continues to be most difficult. Under Secretary Ball, on his current trip to Europe,8 will talk with officials of certain European Economic Community member states regarding the necessity of safeguarding access of United States agricultural exports to the Community market as well as an opportunity to share in the enlarged consumption of agricultural products within the Community.
- Promotion of Foreign Investment in the United States. Techniques are being considered for achieving and maintaining a higher degree of liberalization of capital investment in the United States and other foreign countries by European countries with strong reserve positions. The Department of Commerce has also assembled material to enlist the interest of foreigners who may wish to invest in the United States.
- Abuse of “Tax Havens”. Taxation of American Investment Abroad. The Treasury has under study the question of whether present tax laws may be stimulating in undue amounts the flow of American capital to industrial countries abroad through special preferential treatment. This study is expected to be completed shortly so that recommendations may be included in your April tax message.
- Increased Contributions by Other Industrialized Countries to the Less Developed Countries and to the Common Defense. The objectives to be sought in this field are under consideration and will be discussed by the Under Secretary of State for Economic Affairs in his current trip to European capitals and to the meeting of the Development Assistance Group in London, March 27-29, 1961.
- Reduction of Customs Exemption for Returning American Traveller. The Administration Bill on this subject is currently held up in the House Ways and Means Committee. The State Department has written the Committee stating that there is no reason to expect that enactment of this legislation would provoke foreign retaliation. It is hoped that this information will lead to early favorable Committee action.
- Centralized Review of Dollar Outlays. The Treasury Department and the Bureau of the Budget have started to consult on procedures for [Page 9]analyzing that part of the appropriation request of Departments and Agencies which will involve dollar expenditures abroad.
- U.S. Military Expenditures Abroad. The
Defense Department reports that action to effect savings has been
taken in all of the principal categories in which it has foreign
expenditures. These have been implemented by the military services
and instructions have been sent to the field. In the case of
personal expenditures, new actions are being taken in lieu of the
previous order to reduce the number of dependents abroad. Actual
results are not yet available, but the estimated savings during
CY 1961 are:
- $65 million in the purchase of equipment, materials and supplies.
- $25 million in offshore procurement under the Military Assist-ance Program.
- In the case of personal expenditures of troops and
employees overseas, a saving of about $80 million in CY 1961 is hoped for by such
- Discouraging the purchase of foreign goods and other expenditures in the local economies.
- Prohibiting the transportation at Government expense of foreign cars acquired after March 6, 1961.
- Encouraging savings programs by personnel, particularly through the purchase of United States Savings Bonds in which Defense is cooperating with the Treasury Department.
- Allowing the duty-free entry of gifts to be reduced from $50 to $10 when the present temporary legislation expires June 30, 1961.
No fixed estimates are available of savings in the categories of construction and contractual services.
Also, in accord with your message the Defense Department is reviewing savings which might be accomplished in the area of logistic support for our forces, particularly through the combined use of facilities with our allies. Discussions conducted by Ambassador Dowling have begun with the Germans in Bonn. Also under review are increased purchases of newer weapons and weapons systems by those countries financially capable of paying for them. It is estimated that sales to the financially capable countries of Europe will increase in CY 1961 to $230 million from $188 million in CY 1960. Grant aid by the United States to Western Europe (excluding Greece and Turkey) is estimated to decline from $400 million to about $350 million between 1960 and 1961.
Since the effectiveness of the directives will in large measure depend upon the way in which they are carried out at subsidiary levels, periodic follow-ups and reviews will be necessary.
I find it a matter of disappointment that the Defense Department has been unable to achieve more savings from its direct operations—which [Page 10]so far are estimated at only $170 million for calendar year 1961. With annual outlays of close to $3 billion I would hope that at least $500 million in savings could be found. In particular, I believe that much more than the $65 million estimate could be cut from the almost $1 billion of procurement overseas. Unless we do better I fear that public pressure for the reduction of our forces overseas will again emerge. I intend to meet with Secretary McNamara, David Bell and appropriate Defense officials to see what can be done to achieve greater progress in this area.
- Source: Kennedy Library, President’s Office Files, Treasury, 1/61-9/61. Confidential. The unsigned report was transmitted under cover of a March 20 letter from Dillon to the President, in which he added: “I believe we should plan on making a comprehensive public report sometime in May after our first quarter payments statistics have become available.”↩
- See Document 2.↩
- See Document 2.↩
- Frank A. Southard, Jr.↩
- President Kennedy ratified the OECD for the United States on March 23. See Public Papers of the Presidents of the United States: John F. Kennedy, 1961, pp. 212-213.↩
- Not found.↩
- P.L. 480 was formally entitled the Agricultural Trade Development and Assistance Act, enacted on July 10, 1954. For text, see 68 Stat. 454.↩
- Regarding this policy, see Foreign Relations, 1958-1960, vol. IV, p. 353.↩
- George Ball traveled to Europe March 18-30; see Documents 99–102.↩