Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

70. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Bator) to Secretary of the Treasury Fowler¹

Washington, September 30, 1965.

SUBJECT

• Some thoughts for the Balance of Payments Meeting this Afternoon

I have now had time to go over the report of the Balance of Payments Information Committee on the 65–66 prospects, and to give some thought to where we go from here.² The following more or less random suggestions are for your consideration only: (I’ll give Mac a copy if and when he gets involved in this).

1. I think the most immediate problem is one of third and fourth quarter cosmetics. There is not much we can do about the third quarter now, but there are a number of quick-fix operations we could mount which would substantially reduce the 4th quarter deficit. We could push DOD payments from December to January, talk to the British about the use of their remaining EX–IM money and the handling of the portfolio, etc. Needless to say, these things would have to be kept even more quiet than budget finagling in June, but it seems to me worth the effort and risk.

2. From a longer-term standpoint, I think that the situation does warrant a substantial tightening of the Commerce program as soon as possible. I do not mean a shift to anything like a mandatory operation with sanctions. Rather, I have in mind a tightening which is entirely consistent with the spirit of the February 10 voluntary operation: (a) a sharpening of the criteria (Jack Connor, I understand, will have suggestions for us on this today); and (b) changes in the reporting system designed to give us more information much earlier on what is happening. (We might wish also to consider urging Jack to institute a system of advanced warning on major investments.)

3. It seems to me that the above steps are warranted even if one believes that our ′65 performance is likely to be pretty good relative to what we expected. Except for the help we gave the U.K., we have done a good deal better than expected over-all, and only the direct investment component has been really troublesome. Thus, there seems no reason for us to recommend to the President at this stage a qualitative change in the over-all program in the direction of mandatory restraints. But I don’t believe we should simply sit tight.

4. Obviously, we cannot ignore the possibility that our present forecasts are still too optimistic. In terms of your bargaining position on international money, we simply cannot afford a serious deterioration during the next year and a half. Hence I would think it important that the third element in the present package (on top of quick-fixes and a tightening of the Commerce operation) should be preparation of a full blown contingency package to keep in the safe, following the model of the Deming Committee.³ November 1 seems an appropriate target date—(I have not checked this with Stan Surrey).⁴

5. In connection with security, it would seem to me useful for you and the Cabinet Committee to instruct that all matters pertaining to the work of the Cabinet Committee be formally classified SECRET and handled on a strictly need-to-know basis. You might wish to consider taking some specific steps in connection with the Slevin problem.

Let me say again that, whereas my own judgment about the present situation is based in part on extended conversations with Art Okun, as well as Fred, Merlin, and Stan, this is a memorandum for you alone (and Mac, if and when he gets involved). The only copy is in my safe.

Francis M. Bator ⁵

1. Source: Johnson Library, Bator Papers, Balance of Payments, 1965 [3 of 4], Box 14. Secret; Eyes Only.
2. This report has not been found.
3. Reference is to the Deming Group; see footnote 3, Document 64.
4. Stanley S. Surrey, Assistant Secretary of the Treasury for Tax Policy.
5. Printed from a copy that bears this typed signature.