, lt4TERNATIONAL DIVISION :- B-146749 Dear Mr. Secretary: Over the years the United States has accumulated millions of dollars of foreign currencies as a by-product of its foreign aid loan programs and its ssles of agricultural commodities under the authority of title I of the Agricultural Trade Development and Assistance Act of 1954, as amended (Public Law 480). On May 28, 1971, we sent to the Depar"kents of State and Treasury a draft report dealing with selected-aspects of the management of U.S.- o-med I- excess foreign currencyb particularly with respect to sales of curr&&.es to tourists and-non-profit organizations for dollars and to conversions to dollars or other currencies. Comments were received from the respective departments on September 28, 1971, and July 13, 1971. Our draft report covered the following matters: Effect of Accounting Practice on Balance-of-Payments ! From 1961 through 1970 the Treasury Depsrtmentfs convertible currency accounts were charged with the equivalent of $llO million to pay for general U.S. Government obligations. These obligations could have been paid for with non-convertible currencies which would have increased the potential for benefitting the U.S. balsnce- of-payments position. Since the convertible currencies are avail- able for sale to tourists and non-profit organizations, when U.S. obligations are paid with these currencies, that much less is available for sale for dollars. The Department of Treasury acknowledged that I'-x*+onsultations between the GAOand Treasury staffs during the process of writing your report had stimulated a highly useful reexamination of procedures for the sales or conversions of local currencies in excess currency countries, -7 ’ "The procedures now in effect in excess and near- excess countries operate so as to preserve the convertible portion of local currency holdings for ~-146749 convertible uses, as recommended in your report. As the report indicates, we have already restored almost three quarters of the $110 million you estimate were drawn from convertible locsl currency belances when the use of non-convertible accounts would have served the purpose. Additional amounts are being restored." The Department of Treasury response pointed out, however, that because of the fairly large excess currency balances, there was no balance of payments loss by the use of the old sales procedures. It went on to say that the new procedures may yield future balance of payments benefits as accruals to convertible currency accounts diminish with the termination of P.L. 480 sales for local currency (scheduled for December 31, 19'71). Potential for Greater Balance-of-Payments 3enefits Through Sales or Conversions of Excess Foreign Currencies Approximately 90 percent of the cumulative total of $167 million of U.S.-owned excess foreign currencies available for sale to U.S. tourists and non-profit organizations remained unsold as of December 1970." In view of the reported difficulties in selling foreign cur- rencies to eligible parties, and the precedent established in converting these currencies on a government-to-government level, we proposed that host country conversion of unsold amounts be pursued as the most practical means for the United States to achieve maximum benefits from these currency holdings. r P- The Depertment of State disagreed with this recommendation / saying: "We believe it impracticable to reopen the terms of old agreements for the sole purpose of modifying them in the U.S. financial interest. The greatly tightened payment terms required by law in new P.L, 4.80 sales agreements leave little leverage for adjustment of pwent terms in prior agreemen%, purely for United States benefit." They suggested an alternative solution in the utilization of Qese amounts for payment of U.S. obligations, i_n_par%xiLax for aWe understand that during the period January 1, 1971 through June 30, 1971, an addition&L $1 million of the aroount av&lable was sold. -2- payment of internationsl travel. The Department of Treasury advised that the basic agreements usually impose no limitation for payments of international travel; the estimates for international travel are significant--for all excess currency countries $7 million were expended in calendar year 1969, the only year for which figures are available. We agree that the alternative solution offers good prospects for additional utilization. In view of the Department of Statels belief that it is impracticable to reopen the terms of the old agreements, we do not plan to pursue our earlier proposal on this matter at this time. Delays in Conversion of Foreign Currencies Delays in conversion of foreign currencies for agricultural market development purposes and to finance cultural. and educational exchange programs have occurred as a result of (1) administrative procedures of the U.S. Government for requesting conversions and (2) the failure of certain countries to promptly effect conversions requested. These delays have been costly in terms of additional interest cost on increased U.S. Treasury borrowings because of unconverted funds. There is also potentisl loss from devaluation of currencies. During the course of our review we suggested certain modifica- tions to U.S. Government administrative procedures for conversion of foreign currencies, As a result of these suggested changes, a Treasury official acknowledged that the new system reduced the usual time for conversions from about 6 months to about 3 months. Concerning delays in conversions by foreign governments, we proposed to the Department of State that it provide the necessary monitoring service and follow up with appropriate foreign govern- ment officials to mir&nize conversion delays. The Department of State replied: "We have no objection to this recommendation. We will continue to fulfill this role in the future, as we believe that we have in the past, together with the Treasury Depar+Jnent and the appropriate American embassies.l' The Department was concerned that our report might leave the impression that -they have been lax in seeking conversions for educational exchange and wished to emphasize that they have assiduously pursued -3- . _- z B-146749 the most rapid conversions possible; that the significant reason for delayed conversions has been the difficulties of the foreign governments in effecting timely conversions; and that the political and economic reasons for the present inability to make conversions in the outstanding balances in the United Arab Republic and Pakistan are self evident. In view of the actions taken and proposed to be taken by the departments, we do not plan any further reporting on this matter. This letter is also being addressed to the Secretary of State. Copies of this letter are being sent today to the Senate and t,1.: -- House Committees on Government Operations, the Foreign Operations c, ?'; and Government Information Subcommittee of the House Committee oz ~ 5^_ Government Operations; the Senate end House Appropriations .c Committees; the Senate Foreign Relations Committee; the House .'. Foreign Affairs Committee; and the Office of Management and 3udget. A I' ' ; We should like to express our appreciation for the cooperation and assistance given our representatives during the course of this review. Sincerely yours, / ye V. Stovdl 2 Director The Honorable The Secretary of the Treasury -4-
Selected Aspects of the Management of U.S.-Owned Excess Foreign Currency
Published by the Government Accountability Office on 1971-12-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)