Connor Predicts Bigger Payments-Balance Gap

Secretary of Commerce John T. Connor said last night that the Federal government will not impose mandatory restrictions on direct investments by U.S. corporations abroad, although a "substantial balance-of-payments deficit" is expected in the last half of 1965.

The program of voluntary restrictions, he said in an interview, is "working very successfully." "It has produced results which are larger and more significant than could be achieved by mandatory controls or a punitive tax."

Although there may be some "tightening" of the voluntary controls, Connor said, "no material changes are planned at present." The "tightening" of the present guidelines would probably take the form of "more detailed reporting" on investments.

Connor declined to estimate the exact amount of the payments deficit anticipated in the third and four quarters of 1965. In a speech at the Harvard Law Forum he praised corporations for sacrificing profits in order to adhere to the voluntary program; and he cited their cooperation as an example of how business and government can work together in building the great society.

The present voluntary program calls for corporations to improve their overall contribution to the payments balance 15-20 per cent over last year. It leaves to companies the decision on the exact combination of measures -- repatriation of profits and short-term assets, cuts in investments abroad, or increases in investments -- to achieve this goal.

A recent report by the Commerce Department that U.S. companies plan a $1.3 billion, or 20% increase in direct investments abroad, has led some officials to fear that corporations may be ignoring the guidelines. Treasury Secretary Fowler announced last week that a top-level review is being set up to determine whether additional controls are necessary.

In the interview yesterday, however, Connor said that the information contained in the Commerce Department report is inaccurate because it is based on the expectations of executives about the level of investments in 1965, and "many of those executive have now changed their minds."

Any rise in the deficit, he said, must be attributed to "factors other than corporate investment abroad," such as increasing imports and tourism.

An anaylsis of the statistics in February, Connor said, wil show that corporations are cooperating with the guidelines. "The President," said Conner, "can be very persuasive."