U.S. Now a Net Debtor Nation, Commerce Says

The United States suffered a record $78-billion decline in its international investment position in 1984, reflecting a speedy plunge toward the status of a net-debtor nation, the government reported Wednesday.

The Commerce Department said the surplus of U.S. investments overseas compared to foreign investment in this country shrank to $28.2 billion at the end of last year. The surplus had been $106.2 billion at the end of 1983.

The government reported last week that the broadest measure of U.S. foreign trade, the current account, ran a deficit of $30 billion in the first quarter of this year.

While that deficit would be enough to erase the $28.2-billion investment surplus held at the end of 1984, officials can’t pinpoint exactly when the country crossed the threshold to become a net-debtor nation because of certain factors not reflected in the current account number.

However, Commerce Secretary Malcolm Baldrige said last week that it was likely that the United States is now a net-debtor country for the first time since 1914.

The latest report showed just how rapidly the country has switched from owning more of the rest of the world to having the rest of the world own more of America.

The report showed that U.S. investment abroad, including such things as direct ownership of overseas factories, stock and bond holdings by U.S. investors and bank loans, totaled $914.7 billion at the end of 1984, a 2.6% increase over the 1983 figure.

However, foreign ownership of assets in the United States jumped by 12.5% during the same period, totaling $886.5 billion at the end of last year, leaving the U.S. investment surplus at $28.2 billion.

The $98.8-billion increase in foreign assets in the United States in 1984 followed a $95.6-billion rise in 1983.

Direct foreign investment in ownership of companies and real estate rose 16.4% in 1984 to total $159.6 billion.

Foreign investment in U.S. banks rose 11.3% to $312.3 billion, with much of the gain coming in the first half of the year when rising U.S. interest rates attracted overseas cash, the Commerce Department said.

The report said this flow of funds “helped finance strong bank credit expansion in the United States in the first half, which included financing for large mergers and acquisitions.”

The biggest percentage increase came in foreign holdings of U.S. government securities, which jumped 67.6% to a total of $56.9 billion, spurred primarily by the removal of the withholding tax on foreign investment.

The Reagan Administration has pushed to expand foreign investment in government securities as a way of reducing the government’s soaring borrowing costs. While critics have questioned the soundness of allowing foreigners to hold so much U.S. debt, the Administration maintains that it still is a small percentage of the total--4.1% at the end of 1984, up from 3% in 1983.

The Administration has also discounted the significance of the country becoming a net debtor, contending that it reflects the strong investment opportunities in America.

However, some private economists have warned that the United States is becoming more vulnerable to international capital markets because it must borrow more and more money from foreigners to pay its debts.