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You Play an Important Role in International Finance via BOP

THERE'S A TERM used in our monetary world with which each Navyman and his family should become familiar.

It's called BOP-balance of payment.

As technical as it may sound, BOP is relatively simple, even though it involves billions of dollars.

Essentially, it is the balance of money the U. S. treasury has at the end of a fixed period after all dollars, such as foreign aid and trade, have entered or left the country.

There are times, however, when situations such as the Vietnam crisis develop. There are military requirements that can only be satisfied by procurement of material and services from foreign sources. This creates a flow of dollars abroad and increases the U. S. Balance of Payments deficit. These expenditures, coupled with commercial trade, foreign aid, bank loans, and so forth, when in excess of receipts from foreign countries, result in a BOP deficit.

In other words, the nation as a whole spends more than it receives in its foreign commerce.

This problem has become critical.

For example, if the foreign countries were, for some reason, to demand an exchange of U. S. dollars for gold, which we use to back up our currency, it might deplete our reserves to where the value of the dollar could be placed in distrust.

We faced this problem during the Korean conflict when the drain of gold left us with an annual deficit which averaged 1.5 billion dollars until 1957 (the only year the U. S. has had a credit in the national balance of payments since 1950).

However, in 1958 and 1959, because of the Berlin crisis, the deficit increased to 3.5 and 3.8 billion dollars, respectively. The following year, the deficit reached a new high of 3.9 billion.

To offset this drain, the government encouraged an export drive. The success of this drive quieted fears that the U. S. had priced itself out of world markets, but failed to reduce the balance of payments deficit below the 3.5 billion level.

The major reasons may be attributed to two trends: an increase in U. S. investments abroad plus an outflow of hot capital (money deposited overseas which draws high interest rates).

Military expenditures and the support of U. S. military establishments overseas also accounted for a portion of the balance of payments deficit. Pay and allowances to servicemen stationed overseas were a major portion of these military expenditures.

Steps were taken, in one form or another, by the government to reduce the balance of payment deficit in many areas of international finance. However, a very large portion of this money was being spent by military personnel and their families stationed overseas.

To help decrease this amount, the President in 1960 directed that the number of dependents overseas be reduced by one-third. This order was later rescinded on the assurance by the Department of Defense that the serviceman could contribute to the balance of payments credit in other ways.

To begin with, members and their dependents overseas have been asked to trim spending for foreign materials to $100 per year per person.

In addition, DOD urges families to buy only those foreign goods of necessity which are not available through exchanges or the U. S. Compatible with this request, certain foreign products and U. S. goods previously unavailable are now stocked in overseas exchanges.

Commanders abroad are also hiring servicemen for after-hours employment in nonappropriated fund activities, and dependents for fulltime work to the maximum extent possible.

Applying these cost reduction plans is essential if the U. S. is to realize any substantial savings in the immediate future. As it stands now, our military spending overseas increases daily. This drain on our savings is primarily due to increased operations and maintenance costs, increased military manpower overseas, and increased military construction expenditures, particularly in Vietnam.

To offset this overseas spending, DOD has outlined these latest programs, and is asking Navymen to consider their application when assigned overseas.

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