7. Memorandum From Secretary of the Treasury Dillon to President Johnson1


  • First Quarter Balance of Payments Results

The Department of Commerce has just compiled the preliminary official balance of payments results for the first quarter. As I indicated to you in my memorandum of April 24, 1964,2 they have included a seasonal adjustment of $250 million which is substantially higher than has been seen in the past for the first quarter. As a result, on a seasonally adjusted basis, our overall deficit for the quarter amounted to $41 million or $165 million at an annual rate. The deficit on regular transactions amounted to $139 million, the difference being accounted for by advance progress payments on military sales. At an annual rate this deficit would be approximately $555 million.

These figures substantially bear out our earlier expectations but they should be heavily qualified when used because of the artificial and temporary nature of the improvement during March. As you will recall, we received an inflow of $250 million in short-term funds from Canada during March, all of which was reversed during the first three weeks of April. We now have the pre-preliminary, “flash” report on the April results which shows a substantial overall deficit, and points to a deficit on regular transactions of at least $395 million for April. Apparently, some of this represented temporary adverse flows that have come back to us early in May. Nevertheless, on an overall basis, the data indicate that so far this year our deficit on regular transactions has been running at an annual rate somewhere between $1.5 and $2 billion. This is right in line with the prognostication of the staff experts of the Cabinet Committee on the Balance of Payments. It underlines the importance of continued governmental efforts in this area, and particularly the crucial importance of favorable Senate action on the interest equalization tax.

Douglas Dillon
  1. Source: Johnson Library, White House Central Files, Confidential File, FO 4–1, Balance of Payments (1963–1965), Box 32–39. Confidential.
  2. Document 3.