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Letter to Secretary Fowler Approving the Recommendations of the Cabinet Committee on Balance of Payments.

December 05, 1965

[Released December 5, 1965. Dated December 2, 1965] Dear Mr. Secretary:

I have reviewed the report of the Cabinet Committee on the Balance of Payments and approved its recommendations for action. I would like you, Secretary Connor, and Chairman Martin to announce, explain, and put into effect the proposed changes in Government policy, and specifically the improvements in the Voluntary Program of February 10, 1965.

In explaining the changes in the Voluntary Program, I would like you, and all other responsible officials of the Government, to make it clear that:

1. The February 10 program has worked. During the first three quarters of this year, the overall deficit ran at an annual rate of $1.3 billion--less than half the deficit in 1964.

2. A large measure of the credit must go to the bankers and businessmen of America who have taken part in the program. At the White House last February, I asked them "to join hands with me in a voluntary partnership... to show the world that an aroused and responsible business community in America can close ranks and make a voluntary program work." They have answered that call.

3. We have done well, but we must do even better. The deficit has been much smaller since February 10 than for several years past. At its peak, in 1960, it reached $3.9 billion, three times the rate so far this year. But the present deficit is still too large. To assure that the dollar will remain as good as gold, we have to show the world that we can bring our accounts into sustainable balance, and keep them in balance.

4. To do the job, we propose not a new program, but an improved and strengthened version of the Voluntary Program that we tested in 1965. The improvements reflect the experience since February 10, and have been worked out in close consultation with Secretary Connor's senior business advisors and with the banker advisors of Chairman Martin and Governor Robertson of the Federal Reserve.

5. The Government will continue to do its part. Since 1960, Secretary McNamara has reduced the balance of payments cost of military spending abroad by about 40%-despite the increase in spending on Viet Nam. Administrator Bell has reduced the balance of payments impact of foreign assistance by 40%. I have instructed both of them, and all other senior officials of the Government, to spare no effort in reducing the dollar drain of their spending still further. But I reject the counsel of those who would have the Government do the entire job, at whatever cost to American security and leadership. It is private outflow that has grown so sharply since 1960. Some further reduction in that outflow is essential if we are to solve this problem without crippling our economy at home, or compromising our leadership abroad.

6. I know that this will involve some pain and sacrifice. But the stakes are great. What is at issue is whether we can meet our critical responsibilities abroad, and maintain the expanding prosperity of the past four years at home--the decline in unemployment, the rising profits, the improving standard of life for all our people--by relying on the voluntary cooperation of business, labor, and government. This is a test which America has met with dramatic success during the past few years. I am confident that we will continue to meet it in the future.

You and the other members of the Cabinet Committee are to be congratulated for your work in the preparation of the revised program for 1966.



[The Honorable Henry H. Fowler, the Secretary of the Treasury, Chairman, Cabinet Committee on Balance of Payments]

Note: In his letter the President referred to John T. Connor, Secretary of Commerce, William McC. Martin, Jr., Chairman of the Board of Governors, Federal Reserve System, J. L. Robertson, member of the Board of Governors, Federal Reserve System, Robert S. McNamara, Secretary of Defense, and David E. Bell, Administrator of the Agency for International Development.

A summary of the Committee's recommendations, dated December 3, 1965, was made public by the White House on December 5 (1 Weekly Comp. Pres. Does., p. 560). In the summary it was noted that the Committee recommended that:

"1. The present voluntary commerce program to reduce the outflow of business capital be reinforced by the establishment both of an overall target, similar to that of 1965, and a new target specifically applicable to direct investment calling upon corporations to limit direct investments during the 2-year period 1965-1966 to 90 percent of the amount invested during the 3-year period 1962-1964....

"2. The interest equalization tax on purchases of foreign securities and acquisitions of other long-term claims of foreigners by Americans be made applicable to Abu Dhabi, Bahrain, Indonesia, Iran, Iraq, Kuwait-Saudi Arabia Neutral Zone, Libya, Qatar, and Saudi Arabia.

"3. The present ceiling for bank lending to foreigners under the Federal Reserve program be raised from 105 percent of the December 31, 1964 base, in stages of 1 percentage point per quarter, to a new ceiling of 109 percent in the final quarter of 1966....

"4. The ceiling for lending by nonbank financial institutions to foreigners under the Federal Reserve program be increased, in the case of credits with maturities of 10 years or less, from 105 percent of the December 31, 1964 base in stages of 1 percentage point per quarter to a new ceiling of 109 percent in the final quarter of 1966. In the case of acquisitions by such institutions of foreign securities with maturities of more than 10 years, a ceiling of 105 percent of the September 30, 1965 amount would be set for securities of developed countries other than Canada and Japan.

"5. The basic arrangement with Canada regarding Canadian access to the United States capital market and exemption from the interest equalization tax for an unlimited amount of new Canadian security issues both be continued ....

"6. The current efforts by all Government agencies to reduce to a minimum the balance of payments impact of their operations be intensified ....

"7. Legislation to encourage foreign investment in the United States now before the Congress be enacted as soon as possible.

"8. Present efforts to encourage both foreign and domestic tourism in the United States be stepped up, and efforts by the Government to encourage and expand the activities of the private sector in this area be increased ....

"9. Present efforts both by Government and by private enterprise to expand U.S. export trade should be sharply stepped up."

Lyndon B. Johnson, Letter to Secretary Fowler Approving the Recommendations of the Cabinet Committee on Balance of Payments. Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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