Journal of the House of Representatives of the United States

cation of the tax to bank loans of over 1 year will, in my judgment, create a sufficient threat to the international monetary system to justify a limited exemption.

These measures are designed to serve our balance-of-payments objectives without imposing direct controls on American business abroad. We seek to preserve the freedom of the marketplace. But we cannot succeed without the full cooperation of the business and financial community.

I hereby call on American businessmen and bankers to enter a constructive partnership with their Government to protect and strengthen the position of the dollar in the world today. In doing so, they will perform a major service to their Nation. And they will help assure a setting of economic prosperity at home and economic stability abroad in which to conduct their own business and financial operations.

Let me make clear that the Government does not wish to impede the financing of exports, or the day-to-day operation of American business abroad. But loans and investments which are not essential must be severely curtailed.

Specifically, I ask the bankers and businessmen of America to exercise voluntary restraint in lending money or making investments abroad in the developed countries. This request applies with special force to short-term loans and direct investments, that is, the capital outflows not covered by the interest equalization tax.

In connection with bank loans, I am asking the Chairman of the Board of Governors of the Federal Reserve System to work closely with the Secretary of the Treasury and the Nation's banks to develop a program that will sharply limit the flow of bank loans abroad. I have directed the Comptroller of the Currency, and the Chairman of the Federal Deposit Insurance Corporation to cooperate with the Federal Reserve and the Treasury in this undertaking.

To initiate this program, I am inviting a group of our leading bankers to meet with me, the Secretary of the Treasury, and the Chairman of the Federal Reserve Board in the near future.

Cooperation among competing banking interests could raise problems under the antitrust laws, and, if extended beyond measures essential to our balanceof-payments objectives, would damage our competitive system.

Therefore, I request the Congress to grant a statutory exemption from the antitrust laws to make possible the cooperation of American banks in support of our balance-of-payments objectives. I request, also, that the legislation require that this exemption be administered in ways which will not violate the principles of free competition.

Pending enactment of this legislation, the Secretary of the Treasury and the Federal Reserve will guide this program of voluntary restraint along lines which raise no antitrust problems.

In connection with short-term corporate lending and direct investment in ad

vanced countries abroad, I am asking a group of our leading businessmen to meet with me and the Secretary of Commerce for a full discussion of the voluntary methods by which we can achieve the necessary results. The Secretary of Commerce will remain in close contact with the responsible corporate officials. He will request periodic reports as the basis for appraising their contribution to our balance-of-payments targets.

I have no doubt that American bankers and businessmen will respond to the Nation's need. With their cooperation, we can block the leakage of funds abroad, without blocking the vital flow of credit to American business.

I am confident that the Federal Reserve, in carrying out its responsibilities for monetary policy, will continue its efforts to maintain short-term rates of return in the American money market. The Treasury will fully cooperate. At the same time-and in view of the heavy flow of private savings into our capital markets-I expect the continuation of essential stability in interest rates.

GOVERNMENT EXPENDITURES ABROAD

Since 1960, we have steadily reduced the dollar drain of our foreign aid program. We have steadily raised the percentage of AID dollars spent for U.S. goods and services-85 percent of new AID commitments are now spent within our borders. Until we master our balance-of-payments problem, AID officials will send no aid dollar abroad that can be sent instead in the form of U.S. goods and services.

The same rule will apply to our defense dollars. We have already made major progress in cutting the outflow of dollars for our defenses abroad-without impairing our strength or our defense commitment to the free world. I have directed the Secretary of Defense to intensify his program

To shift defense buying from sources abroad to sources in the United States; To reduce the staffs in oversea headquarters;

To streamline oversea support operations;

To work with our defense partners to increase their offset purchases of military equipment in the United States. The Department of Defense has already conserved hundreds of millions of dollars of foreign exchange by such actions. But the Secretary assures me he can do more, while fully protecting our security interests and discharging our responsibilities.

FOREIGN TRAVEL

The growing interest of our citizens in foreign lands, and the steady rise in their incomes, have greatly increased American vacation travel abroad. Foreign travel should be encouraged when we can afford it, but not while our payments position remains urgent. Today, our encouragement must be directed to travel in the United States, both by our own citizens and by our friends from abroad.

I ask the tourist industry to strengthen and broaden the appeal of American

vacations to foreign and domestic travelers, and I will support its efforts through the "See the U.S.A." program.

In order to cut the dollar outflows associated with foreign travel, I recommend that the Congress

Pass legislation to reduce the duty exemption on foreign purchases by U.S. citizens returning from abroad to $50, based on the price actually paid;

Limit the exemption to goods which accompany the returning travelers.

FOREIGN INVESTMENT IN U.S. SECURITIES

A truly worldwide market for capital among industrialized nations requires a two-way flow of investments. In order to stimulate a greater inflow of capital from advanced industrial countries, the Secretary of the Treasury will shortly request legislation, generally along the lines recommended by a Presidential Task Force, to remove tax deterrents to foreign investment in U.S. corporate securities. This action will encourageand will be reinforced by the efforts of American business and finance to market U.S. stocks and bonds to foreign investors.

EXPORTS AND COMPETITION

Finally, and most important for the long pull, American business, labor, agriculture, and Government must work together to maintain stable costs and prices and strengthen our trade position in the world.

Essential to a strong competitive position is an expanding economy operating at or near capacity, yet holding costs and prices in check. Sharp reductions in income taxes-with more liberal depreciation allowances and special incentives for cost-cutting investment-have played a key role in creating such strength. Rising volume, rising productivity, and falling tax rates have enabled U.S. industry to hold the line on costs and prices while earning record profits and paying record wages.

As a result, U.S. prices and wage costs have remained more stable in recent years than those of any of our major competitors. The 27-percent rise in commercial exports since 1960-and especially the 15-percent rise in the past year-bear witness to our growing ability to compete in foreign markets. And the moderate rise in our imports demonstrates our growing ability to meet and beat foreign competition in our home markets.

But we must not take that ability for granted. Unwarranted price and wage increases could destroy it all too quickly. Unless American business and labor hew to the Government's price-wage guideposts, we will run grave risks of losing our competitive advantage.

Wage increases which exceed economy-wide productivity gains and price decisions which ignore falling unit costs and there have been recent instances of both do us all a disservice.

I call on all Americans to do their share in maintaining our generally excellent record of wage and price moderation. They will thereby strengthen their country both at home and abroad.

On a foundation of stable costs and prices, we will build an increasingly vigorous program of export expansion:

I urge the Congress to approve the $13 million budget request for our export expansion program in the next fiscal year. We will step up our efforts to assure American industry sound and fully competitive export financing.

We will strive to eliminate such artificial barriers to U.S. exports as discriminatory freight rates on ocean traf

fic.

Policies for an expanding economy coupled with responsible price and wage decisions and special measures to convert our competitive advantage into greater exports-this is the combination that holds the key to a lasting solution of our balance-of-payments problem.

EVOLUTION OF THE INTERNATIONAL
PAYMENTS SYSTEM

The measures I have proposed in this message will hasten our progress toward international balance without damage to our security abroad or our prosperity at home. But our international monetary responsibilities will not end with our deficit. Healthy growth of the free world economy requires orderly but continuing expansion of the world's monetary reserves.

During the past decade, our deficits have helped meet that need. The flow of deficit dollars into foreign central banks has made up about half of the increase in free world reserves. As we eliminate that flow, a shortage of reserves could emerge. We need to continue our work on the development of supplementary sources of reserves to head off that threat. And we need to perfect our mechanisms for making international credit available to countries suffering from balance-of-payments difficulties-on terms that will assure orderly correction of imbalances without forcing deflation on deficit countries or inflation on surplus countries.

To go back to a system based on gold alone to the system which brought us all to disaster in the early 1930's-is not an answer the world will, or should, accept. Rather we must build on the system we now have, a system which has served the world well during the past 20 years.

We have already made an excellent start. Our short-term defenses against speculative crises have proved their strength and flexibility. The proposed increase in IMF quotas is a constructive forward step. Further, for some time we have been jointly exploring with our major trading partners how best to create new reserve assets that will be available if needed to supplement gold and dollars.

We must press forward with our studies and beyond, to action-evolving arrangements which will continue to meet the needs of a fast growing world economy. Unless we make timely progress, international monetary difficulties will exercise a stubborn and increasingly frustrating drag on our policies for pros

perity and progress at home and throughout the world.

Let no one doubt it

We will eliminate our international deficit.

We will maintain the dollar at full value.

Our instruments and our actions must be as strong as our resolve. That is why I have taken the additional steps, and am asking the Congress for the new legislation. These measures will focus our great economic strength more sharply on our payments problem.

This is a problem that involves us all— as workers, as businessmen, as bankers, and as Government officials.

I know that the Congress and the American public will respond in full measure to the challenge.

LYNDON B. JOHNSON. THE WHITE HOUSE, February 10, 1965.

The message was referred to the Committee of the Whole House on the State of the Union and ordered to be printed. UNIFORMED SERVICES

ALLOWANCES FOR

EVACUATION FROM DANGER AREAS On motion of Mr. RIVERS of South Carolina, by unanimous consent, the Committee of the Whole House on the State of the Union was discharged from further consideration of the bill (H.R. 3043) to amend title 37, United States Code, to authorize payment of special allowances to dependents of members of the uniformed services to offset expenses incident to their evacuation, and for other purposes.

When said bill was considered and read twice.

The following amendment, recommended by the Committee on Armed Services, was agreed to:

Page 4, after line 6, insert:

Sec. 2. This Act becomes effective on February 1, 1965.

The bill, as amended, was ordered to be engrossed and read a third time, was read a third time by title, and passed.