⚫Chile, Colombia, Ghana, and Senegal became members of the Agency in 1960. The figures for these four countries count as additional assessments.

690-494-64- -54

Part XI

FOREIGN ECONOMIC POLICY-TRADE AND

TARIFFS

REVIEW OF THE INTERNATIONAL ECONOMIC POSITION OF THE UNITED STATES: Economic Report by the President (Eisenhower) to the Congress, Transmitted January 20, 19601

A. Balance of Payments Problems

378. STEPS TO BE TAKEN WITH RESPECT TO THE UNITED STATES BALANCE OF PAYMENTS: Directive Issued by the President (Eisenhower), November 16, 1960 2

The United States following World War II initiated and continued, through the Marshall Plan and other programs, an unprecedented series of moves calculated to help rebuild the war-devastated nations of Europe and Asia.

During the years of rebuilding, the United States, through various means, placed dollars in the hands of these other nations so that they might be able, in the processes of their rebuilding, to buy the services and goods which, in the period immediately after the war, only the United States could provide.

We fully recognized that these nations would need to increase their exports in order to eliminate their dependence on the United States and that this would involve competition with United States exports in world markets.

The effects of these policies on our balance of payments began to make themselves felt ever since about 1950 and have resulted in moderate balance of payments deficits in every year except 1957 because of the Suez crisis. It is just about two years ago that the

1H. Doc. 268, 86th Cong.; appropriate excerpts in the Department of State Bulletin, Feb. 22, 1960, pp. 301–307.

2

Text as printed in Report on the Activities of the National Advisory Council on International Monetary and Financial Problems During the Period July 1 to December 31, 1960 (H. Doc. 241, 87th Cong.), appendix D, pp. 43-47.

full impact of restoration and rebuilding of the European economies, as well as that of Japan, became apparent with almost dramatic suddenness. These once war-devastated nations have now become fully competitive with the United States in the markets of the free world. The United States has also bolstered the military security of friendly nations so as to contribute to our mutual security and to deter threats of external aggression. The programs through which these aims are carried out have likewise resulted in providing a flow of dollars abroad, largely as a result of the maintenance of our forces in foreign countries. At the same time the United States has undertaken substantial efforts in aiding the economic progress of the developing countries in an effort to create the economic conditions for lasting peace throughout the world. To the extent that these programs do not increase exports of United States goods and services, they too lead to an outflow of dollars to the competing nations in Europe and Japan.

THE BALANCE OF PAYMENTS PROBLEM

As a result of the above and other factors the United States has been facing continuous deficits in its balance of payments. In the last three years a total of about $10 billion more has been paid out than has been received. The resulting deficits are settled by sizable outflows of gold and increases in our dollar liabilities. A substantial part of our deficit has been settled in gold, resulting in a decline of about $412 billion in the Treasury gold stock since the end of 1957.

WHAT HAS BEEN DONE ABOUT THE PROBLEM

The Administration early recognized this problem, as have the financial institutions of the free world. The government has been giving close attention to it, and has been developing and putting into effect policies to help improve the balance of payments and to maintain confidence in the dollar.

Here at home, we have consistently endeavored to conduct our domestic financial and fiscal policies prudently-realizing that such policies are essential to the economic soundness not only of the United States but of the free world. We have brought inflation substantially to a halt and achieved surpluses in our Federal budget.

Without this firm display of fiscal prudence we could not hope to achieve price stability, and without reasonable price stability and freedom from the pernicious effects of inflation, we could not avoid a reduction in our exports or hope to continue to enjoy the confidence required by our role as a banker for the world.

On the international side, we have taken a number of steps designed to lessen the imbalance in our payments position with the rest of the world. In order to ensure continued progress and develop new methods to improve the balance of payments position, I approved a Cabinet decision last year directing that the Secretary of the Treasury, as Chairman of the National Advisory Council on International Monetary and Financial Problems, take the necessary steps to develop and coordinate actions of the departments and agencies concerned in the balance of payments area. As a result of this coordination and of

other activities we have, for example, continued to press for the removal of trade barriers erected by other countries against the sale of American goods. We conceived and sponsored the establishment of the International Development Association as an adjunct of the World Bank, through which other countries will share with us the burden of assisting the newly developing countries. We have also taken the leadership in the establishment of the Development Assistance Group, another mechanism through which we are urging other economically advanced countries to assume a larger share in aiding the newly developing areas of the world. We have put into effect an export financing and guaranty program to encourage the export of United States commodities. And the Development Loan Fund changed its policy in October 1959 so as to place primary emphasis on the financing of goods and services of United States origin."

WHY MORE MUST BE DONE

Had not the sound measures which I have mentioned been taken, our balance of payments problem would today be even more serious than it now is. But in spite of the progress made, there is much left to be done.

It is true we have had a significant and heartening improvement in our merchandise exports during the current year. In 1959 our merchandise trade surplus reached a postwar low of about $1 billion, whereas this year we may reach an annual rate of over $4 billion. If we exclude payments made on account of our military expenditures abroad, in 1959 our export surplus of goods and services reached a low of $3 billion, whereas this year we may reach a surplus on the same basis of about $6.5 billion. However, we are paying out for our military expenditures abroad, governmental programs of economic assistance, private long-term capital investments abroad, and acquisitions of short-term foreign assets at a rate of about $8.5 billion a year. Even after netting against this figure for our export surplus of goods and services of nearly $6.5 billion, we have an excess of out-payments in these accounts of about $2 billion.

Moreover, because of the net movements in other items, we are facing an even larger overall balance of payments deficit, which is running currently at the rate of over $3 billion a year and which may turn out to be not far short of the 1959 deficit of nearly $4 billion. This has resulted in an accumulation of gold and liquid dollar balances, largely by the industrialized countries.

This year we have had a large outward movement of short-term capital due in part to higher interest rates and to limited availability of capital in the other industrialized countries. This movement has been an important factor in our overall deficit. The amount and direction of the ebb and flow of funds of this character are impossible to predict, but it is clear that generally speaking we can expect international capital movements on a larger scale than in earlier postwar

5

གླ See ante, doc. 50 and the unnumbered titles which precede it, p. 140.

4 See ante, doc. 136.

See American Foreign Policy: Current Documents, 1959, p. 1686.

years. The recent volume of such capital movements, and the large purchases of gold by foreign monetary authorities in the last four months, make it imperative that we intensify our efforts to effect further improvement in our balance of payments.

The problem relates not only to the Federal Government, but also to private citizens concerned with our international trade. Therefore, the increase of our commercial exports must continue to be the object of an intensified and cooperative campaign by public and private groups. But since we face competitive conditions in the world that make it difficult to rely solely on an expansion of our cash receipts from exports, we must include in our efforts a reduction in certain governmental payments of dollars to foreign countries.

A definite improvement in our balance of payments situation is mandatory not only to insure our economic well-being and military security here at home but also to insure that the United States can continue as a strong partner in the future economic growth and military strength of the free world. We seek this improvement within policies which will not diminish our military strength, will not impair our international economic programs, and will enable us to continue to pursue our objectives of a higher level of world trade and the free flow of funds connected therewith.

The United States currency system serves a double purpose. It meets our domestic needs, and the dollar has also become an essential cornerstone in the international financial system of the free world. It is, therefore, imperative that the United States give the very highest priority to attaining a reasonable equilibrium in its international balance of payments.

To this end, we must take all those steps in the sphere of United States governmental activity that will immediately contribute to reducing the deficit in our international payments. In addition, we need to carry on and intensify those governmental policies which will contribute to this objective over a longer period, including the following: 1. In the field of international trade, we must:

(a) Continue to press other countries urgently, and particularly those that are economically and financially strong, to reduce tariffs, relax quotas, and remove trade restrictions that hamper United States exports, and also urge these countries to reduce or eliminate internal taxes and other measures that have a special impact in curtailing their purchases of United States goods and services.

(b) Continue to take all reasonable means to increase our exports, including facilitating the financing of exports where this is needed to increase our sales both of consumer goods and capital goods. 2. In the field of international finance, we must:

(a) Insist that our friends and allies accept their full share of the costs of maintaining the security of the free world.

(b) Continue urgently to insist that the other economically advanced countries of the free world increase their share of the longterm, truly developmental type of financing extended to the developing countries.