Mr. HUGHES. We require appropriations for both, Mr. Bentley. Mrs. KELLY. May I read something just off the record. I just got this from Mr. Hill on what "Miscellaneous receipts to the Treasury" means. It is simply a general fund of the Treasury and no moneys may be spent from that fund without authorization and appropriation by Congress.

No funds are lost in this category because congressional action will be needed to authorize anything being taken from those local currencies.

So when it goes into the Treasury Congress has to authorize and appropriate for the use of that.

Mr. HAYS. What actually occurs and if I am not correct I hope someone will correct me is that this a bookkeeping transaction. We authorize $50 million with the understanding that they are going to draw some sort of a draft for $25 million which the Treasury will pay to itself and give you $25 million of various and assorted local currencies broken down however you request it, in return for that $25 million?

Mr. BENTLEY. Is there still an appropriation for the whole amount?

Mr. HAYS. That is right.

Mr. HUGHES. Yes, sir, Mr. Bentley. Each year we develop a program divided between dollars and local currencies and the gross appropriation covers both, and we actually purchase those currencies from the U.S. Treasury with the dollars that are appropriated.

Mr. BENTLEY. Well, I have more questions but I would rather, Mr. Chairman, that somebody else have a chance and then I will come back to question later.

Mr. HAYS. If we proceed informally, whoever cares to ask a question may proceed.

Mrs. KELLY. I waive.

Mr. BENTLEY. Do some of the other members want to ask questions?

Mr. FARBSTEIN. Pardon my ignorance, but is there a requirement that there be an equal sum in local currencies and an equal sum in U.S. currency?

Mr. HUGHES. There is no requirement, sir. It works out that way on the basis of the country and the projects that are to be carried out where there are local currencies.

In other words, we base this program as nearly as we can on the needs for facilities and if it is possible at all to finance it with available local currencies in the Treasury, then we do. If not, we program it in U.S. dollars.

Mr. FARBSTEIN. In other words, you only use U.S. currency where you do not have sufficient local currency, is that correct?

Mr. HUGHES. That is correct, sir.

Mr. HENDERSON. May I just add this? I know there is a fairly wide impression that we can spend local currencies whenever they are available, without an appropriation or even without an authorization. We can't do this. Local currencies are not made available to us unless there is an authority to appropriate them and second unless we can get an appropriation. We obtain the appropriation in dollars but as already pointed out these dollars are used to buy local currency. We then spend the local currency on our building program.

Mr. FARBSTEIN. May I ask another question: Is there precedence in connection with areas where building moneys are to be used? Mr. HUGHES. Do you mean as to priorities?

Mr. FARBSTEIN. I don't know what you mean by priorities. I mean precedence you need a building in Kenya, you need a building in another African country and then you may need a building in Italy. Now, where do you go first? Who determines which country gets precedence?

The corollary question to that is this: I think it is desirable that we first use up all local currencies that we have so that we don't have to tap our own funds. Now, with that in mind is it possible that the precedence, or the priorities as you suggest them-I don't know whether they mean the same thing can be maneuvered so that we will first build in those areas where we have local currencies so you don't have to come to the Treasury for any hard currency and just one local currency? Do you follow me there?

Mr. HUGHES. Yes, sir. I follow you, Mr. Farbstein.

I think it is fair to say that the first decision is made on the basis of the need for the facility. The second decision is made in terms of availability of currencies.

Now, if you have equal cases, we would prefer to utilize available local currencies. Because, sir, we think it is sound business to convert these curencies into realty as quickly as we can, because of the savings in dollar costs. But you can't operate this program exclusively on that basis because if you did, you would create a disbalance in the entire service and your decisions would be based strictly on availabilities of currencies.

Mr. FARBSTEIN. You had to take that into consideration in your coming to a determination?

Mr. HUGHES. Yes, indeed, sir.

Mr. BENTLEY. May I ask you to look at table 4 for a moment, please. Your first two figures. I read at line 15, which is the summary total. The first two figures represent the local currency and the dollar amounts for the entire 5-year program contemplated between 1961 and 1965, is that correct, sir?

Mr. HUGHES. That is the first two columns.

Mr. BENTLEY. $60 million in local currency, $59 million in dollars. Mr. HUGHES. That is correct.

Mr. BENTLEY. Now, the next two figures are obligations which would not be included in this program.

Mr. HUGHES. Would not be.

Mr. BENTLEY. 1959 and 1960.

Mr. HUGHES. That is right.

Mr. BENTLEY. Why is the ratio of dollars to local currency so different over the next 2 years than it will be over the 5 years contemplated?

Mr. HUGHES. That is a very good question, Mr. Bentley. Because if you look at the priorities that we have put together here, at Mr. Hays' request, you will find that a good many of those priorities are aimed at posts in countries where there is high need but still there is no local currency and no prospect of local currency being generated either by the operation of Public Law 480, or residue balances in the lend-lease account, or in surplus properties disposal account.

37377-59-5

So you would find that the pattern in past years has been about 70 percent utilization of foreign currencies and about 30 percent utilization of dollars.

That ratio now in terms of needs as we see it becomes about 50-50.

Mr. BENTLEY. All right. Then let me go on a couple of columns. You've got and I suppose that we are talking now about over this 5-year period-I guess actually we are talking about more than that, we are talking about 1959 to 1965 which would be a 7-year period, I guess. You have over that period of time maximum available local currency $505 million.

Mr. HUGHES. $505 million, yes, sir.

Mr. BENTLEY. $505 million. But you figure the maximum amount that you can use in local currency would be 60 plus 39 would be $99 million out of that $505 million.

Mr. HUGHES. It would be only the $60 million.

Mr. BENTLEY. The 1959-60 period.

Mr. HUGHES. That is right.

Mr. BENTLEY. The rest of that local currency

Mr. HUGHES. It would be made available to other programs of the Government.

Mr. BENTLEY. But you couldn't use any more.

Mr. HUGHES. No. Not and carry out the program in terms of needs as we have it here.

Mr. BENTLEY. Could more become available if you could use it?

Mr. HUGHES. The trouble, Mr. Bentley, first of all-leaving aside authorization-is that if you look into the foreign currency picture closely you will find that $505 million is in a very limited number of countries and you will discover further that foreign currencies are being produced now in a very limited number of countries.

Mrs. KELLY. Where is the $505 million?

Mr. HUGHES. That is this here, Mrs. Kelly [indicating].

For example, your biggest production of local currencies today are in Spain, in Yugoslavia, India, and one or two other countries. But we can only use a limited number of those because in each of those countries we have already carried out building programs. You can't very well, Mr. Bentley, with soft currencies like these, utilize them in other countries.

Mr. BENTLEY. There is no way, for example, you can use one soft currency to purchase another one?

Suppose you have an excess of local currency available in Spain but your building program, we will say, is in Italy. You can't buy liras with Spanish pesos?

Mr. HUGHES. No, sir.

Mr. HAYS. The specific answer to that question is no.

Mr. BENTLEY. I just took two examples out of the air.
Mr. FARBSTEIN. Will the gentleman yield?

Mr. BENTLEY. Yes.

Mr. FARBSTEIN. Can you use the local currency of one country to buy building materials in another country?

Mr. HUGHES. Yes, sir.

Mr. FARBSTEIN. In other words, you may not be able to use that money but you can buy brick, you can buy steel, you can buy various other items with which to construct the building in another country,

thereby using up soft currency to a greater degree than what you perhaps may be using now.

Have you thought about that?

Mr. HUGHES. Yes, sir, and we use that procedure to the maximum extent possible.

Mr. BENTLEY. You still think that the 50 percent is the highest ratio you can go in the use of local currency?

Mr. HUGHES. I believe it is, Mr. Bentley. When you think of the projects we have set forth here, notably in the African posts.

(The following information was subsequently submitted for the record :)

SUPPLEMENTAL STATEMENT ON INCREASE IN DOLLAR UTILIZATION

Since 1947, when the utilization of foreign currencies was first applied to the buildings program, a total of $215 million has been authorized, of which $200 million is in local currencies and $15 million in dollars. In brief, the ratio is about 93 percent in local currencies and 7 percent in U.S. dollars. It must be noted, however, that a high percentage of this local currency utilization was made during the period from 1948 through 1952 when the emphasis of the program was centered upon the acquisition of improved properties abroad rather than upon the construction of new facilities.

In addition, during these years the acquisition of these properties was largely based upon those posts where local currencies were readily available as a result of the settlement of World War II lend-lease accounts and the disposal of surplus war materials and counterpart funds generated by U.S. occupation. Specifically, large property holdings during this period were achieved in London, Paris, Italy, Germany and other European posts. It may be said that as a general rule the acquisition of improved properties can be accomplished with a minimum utilization of U.S. dollars and this is particularly true in countries where currencies from many sources are readily available.

Beginning in 1952, the Department entered into a rather widespread construction program. In recent years the construction of new facilities has been emphasized, especially in posts where the need is the greatest. Many of these construction activities, because of need, have been carried out despite availability of local currencies. It is to be noted that since 1952 $92,296,590 have been obligated, of which $70,922,950 have been in foreign currencies and $21,373,640 in U.S. dollars or 77 percent foreign currencies and 23 percent dollar utilization.

In 1955 the administrative cost of the buildings program was transferred from the salaries and expenses fund of the Department of State to the buildings program itself. This expense is largely in dollars and includes salaries, travel, allowances, and similar costs for American personnel both Washington and field. This expense annually amounts to about 6 percent of the gross program or about $1,300,000 in dollars.

The program projected for the immediate future is based upon need rather than upon availability of currencies so far as the posts are concerned. In addition, the program immediately ahead envisages the construction of many new facilities in posts where conditions are such that construction is the only practical alternative available to the Department. It is expected that the dollar cost of the program immediately ahead will rise to about 50 percent of the gross program because of these factors.

The Department of State believes it is sound business to utilize foreign currencies to the maximum extent possible in the overseas buildings program. On the other hand, the Department believes equally firmly that in those posts where physical conditions are difficult and where available properties are below any acceptable American standards, it is sound business for our Government to construct new facilities.

Mr. HAYS. Take this new program they brought up. It might be a good thing to go over that area by area.

Mr. BENTLEY. Could I ask just one more question on this table, though, before we leave it?

There are two more columns here in which I am interested in getting an explanation, Mr. Hughes. One is this question of shortages of foreign exchange. What is the estimated shortage of foreign exchange? One billion, six hundred odd million dollars.

Mr. HUGHES. Mr. Bentley, that is a figure furnished us by the Treasury Department. Because, as you may know, the Treasury actually is the manager, worldwide, for all currencies. And knowing the demands, for example, of the military programs, the educational exchange programs, this program, and then there are many others which utilize currencies, projecting the demands of these various programs, the Treasury Department says as we stand today there would be a shortage of $1.6 billion to accommodate all of the demands these programs are making for local currency.

Mr. BENTLEY. In other words, shortage of available local currency over demands?

Mr. HUGHES. That is right, sir.

Mr. BENTLEY. For which we will presumably have to spend $1.6 billion to buy this local currency.

Mr. HUGHES. Presumably.

Mrs. KELLY. Will you yield, sir?

Mr. BENTLEY. Yes.

Mrs. KELLY. That is not just in this program, is it?

Mr. BENTLEY. No, it is total.

One more question and I will leave the table.

The two columns here under the availabilities for Public Law 480 activities. From Treasury sales, $429 million. The loan program, $1.5 billion, roughly.

Would the sum of those two represent the total amount of local currencies available under Public Law 480 at the present time?

Mr. HUGHES. In the light of the agreements already made, yes, sir. Mr. BENTLEY. In other words, we have got close to $2 billion available in local currencies from Public Law 480 at the present time. Mr. HUGHES. We have a potential, Mr. Bentley, because in this column, called the loan program, are the authorizations for the loan back to countries of the proceeds that are generated by 480. This, in other words, is a repayment potential of $1.5 billion equivalent in local currencies generated by the sale of agricultural commodities that have been or will be loaned back to those countries for several purposes, including economic development.

Mr. FARBSTEIN. Will the gentleman yield?

Mr. BENTLEY. I will be glad to yield.

Mr. FARBSTEIN. This is over $2 billion in local currencies owing under the Mutual Security Act and Public Law 480 between 1953 and 1957. As a matter of fact in Austria we have $67 million. In Germany we have $92 million, in Italy we have $160 million, and in the United Kingdom about $68 million that totals almost $400 million. Four hundred million dollars is an awful lot of money that could be utilized before using American money.

Mr. BENTLEY. We will have to take the statement of the State Department people as authority for the fact that they are making maximum use of local currency.

Mr. FARBSTEIN. I am satisfied to accept it.

Mr. BENTLEY. We can't police them on that, obviously.