CONGRESSIONAL RECORD -- SENATE
May 4, 1965
Page 9326
THE U.S. BALANCE OF PAYMENTS AND PROSPECTIVE DEVELOPMENTS
Mr. MUSKIE. Mr. President, the International Finance Subcommittee of the Banking and Currency Committee during March conducted a series of hearings on the problem of the continuing deficits in our balance of payments and the resulting outflow of gold with reference to possible means of dealing with these problems. The record of these hearings is being printed and will be available within the next week. The subcommittee plans to conduct further hearings on the subject.
Last week, Mr. Kermit Gordon, Director of the Bureau of the Budget, announced receipt from Dr. Edward M. Bernstein, Chairman of the Review Committee for Balance of Payments Statistics, of the formal report of the Committee -- a 200-page document entitled "The Balance of Payments Statistics of the United States: A Review and Appraisal." In connection with this announcement and release of the report, Mr. Gordon issued a statement explaining the genesis of the study and also issued a brief summary of the Bernstein committee report.
I ask unanimous consent to have printed in the RECORD at the conclusion of my remarks Mr. Gordon's statement and the summary of the Review Committee report. This report is being reviewed by an interagency committee before any steps are taken by the executive departments to accept or implement its recommendations.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. MUSKIE. Mr. President, as was announced by Senator PROXMIRE last week, Dr. Bernstein, accompanied by members of his committee, will appear before the Subcommittee on Economic Statistics of the Joint Economic Committee on May 11, to discuss their report and recommendations, which deal principally with technical aspects of statistical collection and presentation.
Dr. Bernstein, who is an outstanding expert on international finance, is scheduled to appear on May 17 before the International Finance Subcommittee of the Banking and Currency Committee to present his views regarding the broad aspects of the U.S. balance of payments and prospective development.
The analysis of the statistical problems and of concepts given in the report of the Bernstein Committee will doubtless contribute to a better understanding of the current problem, and its recommendations for improvements in data should be given most careful consideration by the executive departments and the Congress.
This report makes a number of recommendations as to improvements needed in our statistics to meet present and prospective requirements for detailed and accurate balance-of-payments data.
The proposal receiving most attention relates to a basic revision in the method of measuring the payments surplus or deficit. The new measurement of the deficit or surplus, proposed by the committee, called the "balance settled by official transactions" has for many years been consistently smaller than the "balance on regular types of transactions," the concept most frequently used in the past.
Although the committee expresses the belief that the "official settlements" concept "best summarizes the payments position," the report points out that the difference in means of measurement does not change, in basic nature or magnitude, the significance of the balance-of-payments problem. It calls attention to the fact that the current deficit under either concept is considerable and that "the need for policies to eliminate the deficit is no less urgent than before."
The report does not propose or discuss measures for reducing the deficit. These are the aspects of the problem that are being considered by the International Finance Subcommittee in its hearings.
EXHIBIT 1
EXECUTIVE OFFICE OF THE PRESI DENT, BUREAU OF THE BUDGET,
Washington, D.C.,
April 30, 1965.
Kermit Gordon, Director of the Bureau of the Budget, announced today that he has received from Dr. Edward M. Bernstein, chairman of the Review Committee for Balance of Payments Statistics, the formal report of the committee -- a 200-page document entitled "The Balance of Payments Statistics of the United States: A Review and Appraisal."
The review committee was appointed in April 1963 by the Director of the Bureau of the Budget, after discussion with the Secretary of Commerce, the Secretary of the Treasury, and the Chairman of the Council of Economic Advisers. It was asked to study the adequacy of the U.S. balance-of-payments statistics, and to make recommendations for their improvement. The review encompassed basic conceptual problems, problems of presentation and analysis, and technical statistical problems of data collection and related matters.
The report, while agreeing with the consensus of U.S. and foreign experts "that the balance-of-payments statistics of the United States are considerably better than those of most other countries," nevertheless finds that improvements are needed to meet present and prospective requirements for detailed and accurate balance-of-payments data. The report proposes a basic revision of the method for measurement of the balance-of-payments "surplus" or "deficit," urges the strengthening of the various bodies of data, and recommends changes in the presentation and publication programs.
In receiving the report, Mr. Gordon said: "The committee's report is even more timely today than when the committee was appointed. With the growing awareness of the close relationship between the Nation's balance of payments and our domestic prosperity, it has become increasingly important that our balance-of-payments statistics be as reliable and informative as it is possible to make them. The recommendations of this expert committee, which grow out of 2 years of hard work and extensive consultation with users and compilers of these statistics, will be reviewed and evaluated with the greatest care."
The report is being distributed to the agencies of the Government concerned with balance-of-payments statistics, either as users or as compilers. An interagency committee under the chairmanship of William M. Capron, Assistant Director of the Bureau of the Budget, has been asked to review the recommendations made in the report. On the basis of this review, determinations will be made as to the extent to which the recommendations will be accepted and the manner of implementation.
The membership of the Review Committee for Balance of Payments Statistics consists of:
Edward M. Bernstein, chairman, president, EMB (Ltd.), Research Economists.
Richard E. Caves, professor of economics, Harvard University.
George Garvy, economic adviser, Federal Reserve Bank of New York.
Walter E. Hoadley, vice president and treasurer, Armstrong Cork Co.
Harry G. Johnson, professor of economics, University of Chicago.
Peter B. Kenen, professor of economics, Columbia University.
Roy L. Reierson, senior vice president, Bankers Trust Co.
Charles F. Schwartz, Assistant Director, Western Hemisphere Department, International Monetary Fund.
A brief summary of the committee's findings and recommendations supplied by the committee, is attached.
A BRIEF SUMMARY OF THE BALANCE-OF-PAY MENTS STATISTICS OF THE UNITED STATES: A REVIEW AND APPRAISAL
(Report of the Review Committee for balance-of-payments statistics to the Bureau
of the Budget)
The Review Committee for Balance-of-Payments Statistics, as requested by the Director of the Bureau of the Budget, has reviewed in detail the purposes for which balance-of-payments statistics are needed; the scope and quality of the statistics; the ways in which they are collected, processed, and presented to the public; and the important conceptual problem of defining a balance-of-payments surplus or deficit.
IMPROVING THE STATISTICS
The commission has concluded that in spite of the high quality of the balance-of-payments statistics, which is widely recognized in this country and abroad, improvements are urgently needed if the data are adequately to meet present and prospective needs for their use in economic analysis and in government policymaking and business planning.
The international transactions of the United States have become more complex and also more important for both the domestic economy and the world economy. Policy decisions in a variety of fields have in recent years been determined to an important extent by balance-of-payments considerations. Despite great improvements in the statistics, they have not kept pace with the growing need for balance-of-payments information. This need, although dramatized by the large and persistent deficit in the U.S. balance of payments, is not a temporary one peculiarly associated with the deficit, but will remain and grow even after the present payments problem is solved.
A large statistical discrepancy -- the "net errors and omissions" item -- indicates an inability to identify or measure a large volume of international transactions, and to interpret developments. For instance, the deficit settled by official transactions diminished by about $1 billion from 1962 to 1963. Yet the available data on trade, services, and capital transactions identify only about $250 million of this improvement. Larger changes, favorable to the extent of about $750 million, remain unidentified in net errors and omissions. And the sum of gross errors and omissions in individual accounts is probably considerably larger than the net discrepancy.
The committee reviewed in some detail the derivation of the various bodies of data which enter into the balance-of-payments statistics. A large number of specific recommendations are offered, aimed at improving the accuracy and coverage of the data and securing a better knowledge of the sources of remaining errors and omissions.
An important group of recommendations is concerned with improving the quality of the data through better reporting by those who fill in the forms on which the basic data are reported. In the interest of better understanding and response by the reporters, consultation between Government technicians and individual reporters should be carried or much more extensively and systematically. Reporting instructions should be clarified and adapted from time to time to changing circumstances; compact and comprehensible reporting manuals should be provided; and the significance of accurate reporting must be made clear to senior executives of reporting companies.
The committee recommends better coverage by existing reporting programs in certain areas, and, in general, a systematic review of the coverage of required reports. Also, various special studies or extensions of the reporting program are suggested, including bench mark surveys in areas where more frequent reporting is impossible or must be limited to sample coverage. The report urges a new census of U.S. business investments in foreign countries, special surveys of other asset holdings; a special survey to check the quality of current data on merchandise trade, and improved sample surveys of certain kinds of personal expenditures.
The possibility of obtaining balance-of-payments data through established surveys presently conducted for other purposes should be explored, and new sources of data Sad ways of cross-checking them should be developed. The committee has offered various specific suggestions, including greater use of statistics collected in foreign countries.
Users of the statistics should be provided with an up-to-date manual of the methodology used in compiling them, and with ancillary information, such as measures of reliability of the data and indexes of import and export prices.
STAFF AND ORGANIZATION
The committee notes the need for increases in the personnel of agencies directly engaged in the statistical work, and particularly of the balance-of-payments division of the Office of Business Economics. Pointing to a serious overload of work on the present staff, the report urges staff increases at all levels and greater reliance on automatic data processing.
The recommended improvements will require the cooperation of a number of Government agencies which contribute to the statistics in various ways, and the committee emphasizes the importance of central leadership by the Office of Statistical Standards in the Bureau of the Budget, pursuant to its Government-wide responsibilities for the quality of Federal statistics. This office should make sure that the data are systematically evaluated on a continuing basis, lend support to the program of the cooperating agencies, and seek professional consensus within the Government on questions involving the compilation and presentation of the data. To perform these functions, the Office requires strengthening.
PRESENTATION OF THE BALANCE OF PAYMENTS
The committee recommends an extensive revision in the method of presentation of the data. A quarterly summary table would show the main features of the balance of payments in what the committee regards as a shorter and clearer form than the several summary tables now published.
Detailed tables dealing with important components of the balance of payments and keyed clearly to the summary table would also appear in each quarterly presentation. A yearbook on the balance of payments would provide a convenient source for more detailed information, including data now published in special articles in the "Survey of Current Business" and in occasional statistical supplements. The report contains tables illustrating the committee's proposals for both the quarterly and the yearbook presentations.
MEASURING THE DEFICIT
No single number can adequately describe the international payments position of the United States at any time. However, the committee recognizes the legitimate need for summary indicators of the position and recommends that the principal measure of the surplus or deficit be the balance settled by official transactions. This is shown by changes in the reserve assets of U.S. monetary authorities, changes in all U.S. liabilities to foreign monetary authorities, and certain special transactions consisting of large prepayments of official debts to the United States. The main difference between this concept of balance and that embodied in the liquidity approach of the currently published official statistics is in its treatment of certain flows of foreign capital. Thus inflows that increase U.S. liabilities to foreign creditors other than monetary authorities are regarded under the official settlements concept as capital inflow helping to reduce the U.S. deficit, rather than helping to finance it.
The committee believes that the official settlements concept of deficit or surplus in international payments, with its stress on the distinction between monetary authorities and all other transactions, best summarizes the payments position in a world of stable exchange rates in which the authorities typically have to fill any gap between normal supply of and demand for foreign exchange. This concept has the added advantage of being symmetrical when used by different countries, and it is less subject to errors and omissions than the currently published measure of surplus or deficit.
INTERPRETATION OF THE PAYMENTS POSITION
The interpretation of the balance-of-payments position of the United States requires careful analysis of the statistics. An important part of such analysis consists of identifying interrelationships among particular credit items (such as exports) and related debit items (such as imports, foreign investments, Government aid, etc.). But statistics alone can never identify these interrelationships, and standard statistical presentations should not attempt to do so. Gross flows
should be shown wherever practical, and analysis of net impacts should be reserved for special tabulations and articles.
A primary responsibility for analysis rests on the able staff of the balance-of-payments division of the Office of Business Economics, which, however, should be strengthened to permit it to make a greater contribution than is possible with its present resources. Agencies concerned with balance-of-payments policy should also give greater attention to analysis, and agencies with important international transactions should expand and coordinate analytical studies of their own operations.
The balance on official settlements would show a deficit from 1958 through 1964 averaging $2.6 billion a year, lower by about $900 million a year than the so-called balance on regular transactions emphasized in the official figures. (See appended table.) Despite the fact that the deficit is smaller under the committee's definition than under the present definition, the payments deficit to be eliminated is still considerable. The need for policies to eliminate the deficit is no less urgent than before.
The table below presents a highly condensed version of the main summary table recommended by the committee for the regular quarterly presentation, and a reconciliation of the balance settled by official transactions, as recommended by the committee, with the balance on regular types of transactions, as currently presented in the official statistics.
[TABLE OMITTED]