Office of the Historian

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

Washington, December 7, 1966.

SUBJECT

  • 1967 Balance of Payments Program

The attached memorandum from Secretary Fowler contains the recommendations of your Cabinet Committee concerning the balance of payments program for 1967.2 Specifically, the recommendations are that:

1.
We continue the Federal Reserve Voluntary Program to restrain bank lending to foreigners. The Cabinet Committee is unanimous on this.
2.
We continue the voluntary Commerce program on direct investment abroad. There is no argument about the need for the program, but there is an important division between Jack Connor and the rest of us on how tight the Commerce guidelines should be:
  • —Connor proposes guidelines which would reduce the target for direct investment outflow and overseas retained earnings only by $100 million or so below the 1966 target.
  • —Joe Fowler and the rest of the Committee recommend that we tighten the guidelines by some $400 million, thereby trying to reduce direct investment outflows in ′67 to their 1964 level.

This is a tough decision. On the merits, my vote is strongly with Fowler and the rest of the Committee. There is a powerful case, given our situation, for putting more of a squeeze on direct investment abroad. However, this goes directly counter to the judgment of the Cabinet officer responsible for operating the program. Jack is worried that any such tightening will cause a quiet revolution among his clients—that an increasing number will begin to welch on the program, and that this could become contagious.

I do not want to hold up the Fowler memo for a full-dress exposition on our balance of payments prospects. On the above decision, I would urge that—before making up your mind—you have a talk on the telephone with Fowler and, especially if you are leaning toward a decision against him, with Connor. If you then wish to have further views from me, I will be standing by.

Francis M. Bator
  1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. 3 [1 of 2], Box 2. Confidential.↩
  2. Not attached, but presumably Document 108.↩