Remarks to Business and Banking Leaders on the Balance of Payments Problem.

Gentlemen:

I want to welcome you to the White House today and I want to personally thank each of you for taking your time and your money to come here to visit with us about problems that concern your country.

I asked you here today because you are America's leaders in the world of international business and banking. Your country needs your help. I think you all know the tough problems the balance of payments brings us to face. So I hope that you will feel that you can join your Government in a new and I believe a bold attack on this problem.

I want no one to mistake my message. I believe America leads from strength.

Today, as you know so well, our economy is more productive and is more efficient than any economy in the world.

America holds the world's strongest creditor position.

America has the world's most favorable trade position.

America has the world's largest supply of gold.

Along with 4 years of steady expansion, we can take great pride in more stable costs and more stable prices than can any other country.

We take pride in the striking advances in America's ability to meet and beat competition in world markets.

We can take pride in renewed confidence in the dollar, as we have again proved our ability and our resolve to keep it good as gold, at $35 an ounce.

So our economy is strong and our dollar is sound.

Yet we face a problem that we must not ignore. Our cash position has been impaired by 7 straight years of balance-of-payments deficits. Our wealth abroad, however, has grown steadily and this year our balance-of-payments position actually improved although the last quarter did not permit it to improve to the extent that we had anticipated.

You bankers might put it this way: We are highly solvent, but we are not liquid enough. Or some of you business executives might say: our balance sheet is strong, but our current ratio could be better.

This problem is a very stubborn one but it is not staggering and it can be solved. It means wiping out a deficit that is less than one-half of 1 percent of our gross national product.

Problems do not have to be big in order to be serious. President John Adams once wrote his wife, "Those who attend to small expenses are always rich." In terms of our payments deficit, let me recast his advice to read: "Those who ignore small deficits will not remain rich."

Like any good company, our Nation must correct this drain on its cash reserves. We mean to do it without disorder and without prejudice to our Nation's role as leader in the free world.

There are no easy, painless solutions to this problem. A painless program would be a pointless program. But we can correct our external payments deficit without crippling our economy.

The job that we face together requires the best efforts that we can muster.

Secretary McNamara will tell you of the fine progress that has been made by the Defense Department in cutting back military outlays abroad. And despite this fine record I have asked him to redouble his efforts so that not one unnecessary dollar goes overseas. I think I will ask him to tell you what he has done, what he proposes to do, and then answer any questions that you care to ask him about it. So those of you who want to bring the troops home, those who want to cancel the 6 billion orders he received through his sales office in sales abroad, get your pencils out and prepare your questions and I will see if he can answer them.

Administrator Bell will report to you of the foreign aid administration purchases that are now made here at home. I believe he will tell you that more than 85 cents out of every dollar allotted in foreign aid is purchased here at home. I have asked him to see that no assistance leaves this country in the form of cash that could in any way go in the form of goods or services.

Your Government is doing its utmost to cut back its dollar drain.

We are determined to do what we can to encourage a more favorable dollar balance through constructive steps:

To assist the American businessman to develop even bigger export markets.

To abolish discriminatory freight rates and other obstacles to American exports.

To encourage greater foreign purchases of corporate securities in this country.

To promote more travel in the United States by American and foreign tourists.

Most important--and here Government relies on business and labor--to support the wage-price guideposts and keep American products competitive in world markets.

As you know, our payments problem is not an export problem. As a matter of fact, we have none of the traditional earmarks of the payments problem--trade deficits and inflation. On the contrary, we have a rising trade surplus and we have price stability.

You men deserve a lion's share of the credit for that. You can--and I know that you will--try to cooperate with us in helping to do more. Your great talent for developing markets, meeting consumer needs, promoting sales must, and I hope will, be used to the hilt in trying again this year to boost our exports further.

But to get the whole job done we need to go beyond these efforts. We have to deal head-on with the surging outflow of private capital. Last year it ran more than $2 billion over 1963, and it ran more than $2½ billion over 1960.

And as a result, our rising exports, rising short-term interest rates, and falling defense and aid outflows have not yet cut our deficit enough, although we cut it last year. So we must act and we must act together, we must act promptly, we must act firmly, and we must try to curb this drain.

As the distinguished Secretary of the Treasury, Mr. Dillon, will tell you, we have already acted to cut down the flow of dollars to foreign borrowers. I have invoked the Gore amendment to apply the interest equalization tax to bank loans of more than 1 year. And we are asking the Congress to continue the tax and to extend it to nonbank credit of 1 year or more maturity.

We think this will help. But you and I know that it is not enough. Capital will still flow abroad to the advanced countries from your banks and from your businesses unless you stop it.

So I am asking you today to join hands with your Government in a voluntary partnership. I am asking you to show the world that an aroused and a responsible business community in America can close ranks and make a voluntary program work.

I want you to go back to your offices and call to your desk your financial men and your economists and your comptrollers and your vice presidents. And I would hope that you would ask them in a reasonable way to consult with you every time they face a decision that involves sending money abroad. And I count on you just as I am going to count on Bob McNamara and Dave Bell to cut those outflows as much as possible.

I know this will involve some pain. I know it will involve some sacrifices and it will mean passing up some opportunities for additional profits, but in the end I earnestly believe that your country and your industry and your stockholders will be the better for it.

My counselors tell me that $2 billion of American-owned money is held overseas in time-deposits and liquid securities that earn an interest advantage of a fraction of 1 percent. For every million dollars of this drain on your country's balance of payments your company is earning an after-tax return of, at the most, $2,500 a year. I ask you to balance this small gain against your Nation's loss,

Every bank and every company will face choices like this. And I ask you to face even tougher decisions: to postpone, to redirect, or to refinance activities in the developed world in ways that will cut your country's dollar outflows; to speed the return of foreign earnings to this country and to boost our dollar inflows.

I would hope that you would apply this test to your decisions: not simply, "What is my short-run responsibility to my stockholders and my investors?" but, "What is their larger--their longer-range--interest?" and, "What is my country's interest?"

You won't have easy decisions to make. Secretary Dillon, Secretary Connor, and Chairman Martin of the Federal Reserve will offer some targets and some guidelines, some advice and some sympathy, some help and, I hope, some leadership. But the decisions are going to be yours, that you will voluntarily make.

And as you make those hard choices in behalf of your country's well-being, I hope you will remember that you are not acting alone. As President of your country, I pledge you whatever actions prove necessary to keep your country strong and to keep your dollar sound.

Together, I would like to say to the rest of the world and to show the rest of the world that our Government-business partnership in America works. And in spite of some pain and some cost, and some loss in business and some loss in profits, I believe I know you well enough to say that you will feel that you are getting something really invaluable in return.

I believe that you will improve the prospects for your own business future by removing a threat which could block our future expansion.

I believe you will have the satisfaction and the pride of having made a voluntary contribution to increasing the strength of your country.

I have faith in the free enterprise system. I have faith that you can take up this challenge with the same vigor, with the same vision, with the same progressive enlightened self-interest that you have already shown in building the great economy of this Nation and setting the pace that every other country in the world would like to emulate. Thank you very much.