17. Letter From the Chairman of the Cabinet Committee on Balance of Payments (Dillon) to President Johnson 1

Dear Mr. President:

I have completed a review of our balance of payments position at this time, a review based on complete data for the first half of this year and partial data for the third quarter. This review shows that our national balance of payments program has produced striking results.

Our payments deficit on regular transactions through September of this year has been running at an annual rate of about $2 billion, against $3.9 billion in 1960 and $3.3 billion in 1963.

Our performance in selling goods abroad has made an important contribution to this improved position. Our exports this year have continued to run at record levels. They are 12 percent above a year ago and 27 percent above the 1960 level. Much of this improvement reflects the stable price level we have achieved domestically over these years, making our goods increasingly competitive in markets abroad.

Our imports have also risen as would be expected with the improved performance of our domestic economy—but at a slower rate than exports. As a result, our surplus on commodity trade is running close to $6–1/2 billion, as compared with about $4–1/2 billion in 1960 and $5 billion in 1963.

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A very significant part of the improvement in our balance of payments results from the actions we have taken to cut the outflow of dollars for Government spending abroad. In that regard, we are well on our way toward reaching the target of a $1 billion reduction in Government spending from 1962 levels which was set in President Kennedy’s Balance of Payments Message of July 18, 1963.2 During the fiscal year ended last June 30, we achieved more than one-half of that target. The impact of our aid expenditures abroad during that year was $340 million less than in 1962, while military expenditures and procurement of strategic goods were down by $180 million. And this was accomplished in the face of substantially rising costs abroad.

We must, of course, to protect our balance of payments position, carry forward and realize full success in achieving the $1 billion target—which will then have virtually its entire impact on our balance of payments in 1965.

On capital account, the flow of our savings into securities dropped to about $400 million, compared with $1.7 billion in the previous twelve months. While performance on our other capital accounts has been less satisfactory, expanding investment opportunities here at home have improved the attractiveness of investment in the United States—both for American and foreign investors.

This over-all improvement in our balance of payments has been the key factor inspiring new confidence in the dollar in markets throughout the world. This improvement has been crucial

  • —in bringing our gold losses to a halt—indeed, our total gold holdings so far this year have shown an increase for the first time in seven years; and
  • —in sustaining the close international financial relationships which have been developed to provide an effective answer to any speculative outburst against our currency in world markets.

The job is not yet complete—a gap still remains. That gap must be closed. But we have taken a long step forward. With the combined effort of Government and private sectors, we can reach that goal.

Douglas Dillon
  1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. 1, November 27, 1963 thru October 31, 1964, Box 1. No classification marking.
  2. See footnote 3, Document 2.