105. Memorandum From Secretary of the Treasury Fowler to President Johnson1
SUBJECT
- Balance of Payments Planning for 1967
The Cabinet Committee on Balance of Payments has had two recent meetings and is deeply engaged in planning for next year.2 We have covered the waterfront in our discussions, giving attention to both the overall outlook and the major components of our balance of payments statement (emphasizing trade, tourism, government expenditures, and capital outflows covered by our voluntary programs).
These meetings have made it clear that there are unusual uncertainties ahead:
- —the fate of the German offset (Will we receive the $1,000 million owed us between now and June 30th?)
- —the cost of Vietnam
- —the domestic economic program for 1967.
It is clear that the decisions we make on the domestic front with respect to fiscal and monetary policies will have an important impact on our trade surplus and our capital flows next year.
The Cabinet Committee believes that our overall objective in 1967 should be to “continue to move toward balance of payments equilibrium as fast as the continued financial costs of Vietnam permit”.
Even if those uncertainties described above are resolved on the favorable side, our forecasts suggest an unacceptable deficit in 1967—in [Page 305] relation to this objective—if we do not continue an active restraint program. With this starting point we have been considering a program basically voluntary in character.
- —Industry has cooperated under the Commerce program so far. Can we tighten the program without having it come apart at the seams?
- —The Federal Reserve guidelines have a large leeway, due to tight money conditions. Can we tighten this program while providing adequate financing for lesser developed countries and exports?
- —Governmental outflows have been reduced by improved procedures and other than more efficient management of these procedures in 1967 it is difficult to find other significant savings.
- —The Interest Equalization Tax expires June 30 and its extension should be planned.
- —The tourism outflow continues to mount.
- —in view of the Vietnam emergency would the people respond to an appeal to moderate foreign travel?
- —would such an appeal help sell stiffer programs to banks and corporations?
- —Foreign travel in the U.S. still lacks active stimulus. Can we get appropriations for an enlarged U.S. Travel Service?
Timing of announcement could be done in two phases:
- —Outline by early December the voluntary character and highlights of the corporate and bank programs, in time for industry’s forward planning.
- —Detail the full program at the time of your Budget Message, waiting until then because of the major influence the Government’s 1967 economic program has on our balance of payments picture.
If you agree, I could indicate at my November 14th press conference (on third quarter balance of payments results) the nature of this proposed timetable in order to dispel any uncertainties.