New Dam for the Dollar Drain

In its struggle to dam the dollar outflow, the Administration has cut tourists' take-home liquor, curbed bank loans, substituted scrip for soldiers' cash salaries in Viet Nam and even persuaded federal junketeers to stop at U.S.-run hotels abroad. Lately, it has not only leaned hard on investment by U.S. business in foreign plants and companies but has been warning that businessmen will be expected to do still more next year to help the U.S. achieve "equilibrium" in its balance of payments.

A Bone for Banks. This week the White House spelled out the new rules tightening and expanding the Administration's "voluntary" restraints on overseas business spending. Partially retroactive, onerous enough to provoke new grumbling by businessmen, the rules also implied a threat of mandatory controls if businessmen do not comply. The nation's 900 largest corporations (v. only 500 up to now) will be expected to limit their outlays in foreign countries during 1965 and 1966 to 135% of each company's annual average during 1962-64. Moreover, the Government will count undistributed profits of subsidiaries abroad as foreign investment, thus thwarting companies that have been keeping profits overseas in lieu of borrowing. To restrict another source of dollar drain, the Administration will extend the unpopular 15% interest-equalization tax on foreign borrowing in the U.S. to ten more countries (33 in all), including the oil states of the Middle East. Throwing a bone to the banks, it will allow a 4% increase in overseas loans next year (to 109% of their 1964 level).

The new brakes, the Administration feels, will slow the nation's dollar outflow by $1 billion in 1966, thus bringing it into equilibrium--a balance of payments deficit or surplus of no more than $250 million. Whether they will also tend to choke off investments that produce a golden stream of returning profits is another question. Voicing that fear last week, General Electric President Fred J. Borch expressed alarm at the global trend toward "resurgent nationalism" in economic affairs. "Businessmen all over the world cannot fail to be greatly concerned," he said, "about today's mushrooming restrictions on international trade and investment. Once set in motion, they will be difficult to turn back, leading to an escalation of protectionism."

One-Track Approach. However unpopular its measures may be, the Treasury has certainly missed few opportunities to keep U.S. dollars at home. When French Banker Baron Guy de Rothschild's three-year-old colt, Diatome, won last month's Washington, D.C. International, Treasury's Fowler was right there to present the $90,000 prize money. Fowler lost no time in expressing his hope that the baron would leave his winnings in the U.S., where they would not contribute to the payments deficit. Rothschild agreed to do just that.

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