Elusive Balance

Almost every year around this time, the U.S. balance of payments problem gets to be like the old Brooklyn Dodger lament: wait till next year. Last year the Kennedy Administration trumpeted that it would bring the nation's international payments into balance during 1963. Last week, acknowledging that it had been overoptimistic, the Commerce Department reported that the U.S. overseas deficit widened in this year's third quarter (see chart), would probably wind up at more than $2 billion for the whole year.

Though this is better than last year's deficit of $2.5 billion, the Treasury had hoped to get the deficit down to $1 billion or $1.5 billion. Still eager to harmonize U.S. trade and money balances, the Administration now hopefully talks about bringing payments into balance in 1964.

Plodding Progress. The deficit exists because U.S. business and Government spend, lend and invest more abroad than they bring home. As the deficits mount, gold flows out of the U.S. The gold supply has diminished by a shocking $1.3 billion in the past twelve months, is down to a 23-year low of $15.9 billion. At the same time, though the U.S. continues to export more than it imports, the trade surplus has narrowed, from $5.3 billion last year to an estimated $4.4 billion so far this year. Imports increased 13% in 1962's first three quarters, the highest jump in twelve years, while exports rose only 6%.

Europe feels less need to buy U.S. hard goods now that its own boom is wheezing a bit. But Europe borrows heavily in the U.S. because its own capital markets have not developed as rapidly as its industries. U.S. policymakers are urging foreign financial leaders to do more borrowing at home, but without much success.

Still, the U.S. is making some progress toward long-run balance. The deficit caused by large military spending is down from the recent annual average of $2.6 billion to $1.7 billion--not so much because the U.S. is spending less overseas, but because it has induced West Germany to buy some $600 million worth of its defense equipment in the U.S. In addition, about two-thirds of the U.S. foreign aid grants are now "tied" to a requirement that they be spent on U.S. goods. The direct investments of U.S. business abroad are down from $1.6 billion in 1960 to $1.2 billion this year, partly because of the signs of economic slowdown in Europe. Meanwhile, past investments abroad are beginning to pay off handsomely, with repatriated dividends and profits rising from $2.8 billion in 1960 to $3.6 billion this year. Also helping is the Treasury's determined drive to firm up short-term interest rates to slow the flight of capital into foreign lands where investments may be less secure but interest rates are more attractive.

Pushing the Limits. Encouraging as all this appears, these facts remain: there is a balance of payments gap, it has widened recently, and it is destined to widen further in the current quarter. European banks habitually build up their dollar accounts as "window dressing" for year-end bookkeeping, and this expands the U.S. deficit. Moreover, the U.S. has just about reached the limit in "tying" foreign aid funds to U.S. purchases, and it can hardly jack up interest rates much more during a period of economic sluggishness.

The real answer to the balance of payments in the end, says Treasury Secretary Douglas Dillon, falls on the foreign adventurism of the U.S. businessman. To close the payments gap, he says, "will take a substantial and accelerating increase in U.S. exports of goods and services."

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