eral by the depositing country to carry out mutual security objectives agreed to jointly with the United States. Requirements for the deposit of counterpart funds by recipient countries have varied widely, depending on their financial condition, the legislation under which the program was conducted, and the nature of the aid program. Usually the amount of the counterpart deposits is equivalent to the value of the United States grant aid extended, subject to many exceptions or variations. In each country a portion of these funds, usually not more than 10 percent, is set aside for United States use in defraying its local currency expenses in the country. The 90 percent or more remaining is used within the country for projects agreed to by the country and the United States. The general policies which govern release of counterpart funds from the United States standpoint are laid down by the National Advisory Council on International Monetary and Financial Problems, of which the Secretary of the Treasury is chairman. Other members are the Secretaries of State and Commerce, the Director of FOA, and the Chairman of the Federal Reserve Board. Often the general use, but not the specific projects, to which counterpart may be put is specified in the various bilateral agreements. Counterpart deposits exist in 27 countries, mostly in Europe and the Far East. The aid program in Latin America has never been on a basis which generates counterpart funds. Up to December 31, 1954, the United States had spent a total of $14,348,647,121 in forms which generated counterpart funds. Most of the total amount of counterpart thus created has already been spent, but as of December 31, 1954, the worldwide balance in counterpart funds was equivalent to more than $978 million and an additional amount equivalent to more than $380 million was still to be deposited by the foreign countries. Counterpart funds are not fiscal assets of the United States, although the United States retains a voice in their use. The United States portion of the counterpart funds, however, are the property of the Federal Government and are deposited in United States Treasury accounts overseas. Government agencies, including FOA, needing foreign currencies must purchase them from the United States Treasury with appropriated dollars. Another type of foreign currency deposits are created by the programs for disposal of surplus agricultural commodities abroad under section 550 of the Mutual Security Act of 1953, section 402 of the 1954 act, and provisions of the Agricultural Trade Development and Assistance Act (Public Law 480) of 1954. These funds are United States assets and are available to FOA without payment in dollars to the Treasury. The funds arising from the Mutual Security Acts may be used for a variety of purposes consistent with the legislation, such as offshore procurement or economic assistance. As of December 31, 1954, expenditures for these surplus commodity programs have totaled more than $232,700,000. Local currency receipts have lagged behind United States spending and as of December 31, 1954, totaled $180 million. Receipts in foreign currencies from sales under the Agricultural Trade Development and Assistance Act also are available for the several purposes set forth in that act. These receipts are United States Government assets but the specific purposes for which they will be used are generally negotiated with the purchasing country at the time of the sale. This program is presented in greater detail in a separate paper. Discussion Since counterpart deposits are not usually made for direct military assistance, it appears that additional deposits will drop rapidly in those countries, chiefly in Europe, where the economic phases of the foreign aid program have ended or are winding up. In these countries where the various aspects of the economic aid program are being terminated, it seems appropriate also for the United States to take such steps as might be feasible to facilitate the disposal of the remaining counterpart deposits. This would permit termination of all the aspects of the economic aid program without undue delay. Exchange Rates Counterpart funds of all types, of course, are deposited in local currencies and the amount of counterpart due from each recipient country is determined by converting the value of United States aid into local currency equivalents on the basis of exchange rates which are negotiated between the two countries. In general, the deposits are computed at the agreed exchange rate in effect at the time FOA disburses the dollar aid funds. The dollar equivalent of withdrawals is generally calculated at the rate in effect at the time of withdrawal, and the balance remaining is calculated at the current rate. In some countries current exchange rates have varied widely both between commodities and between time periods. In these cases an average rate is sometimes used in order to reflect a more consistent picture. Since the exchange rates can affect assets of the United States Government in the local currency accounts in the United States Treasury, as well as the financial situation in the recipient country, their negotiation is a complex and even delicate business. It does not appear sound to expect the United States Government to deal in foreign currency transactions which, in fact, would not be legal in the country concerned, but many variations are found in legal rates which can effect United States transactions. However, United States officials should make every effort consistent with good foreign relations to secure the most favorable exchange rates possible with each country. Summary Comments The fiscal aspects of the foreign aid program of course are largely determined by the broader aspects of policy which govern the scope and nature of the program itself. Considerable progress has been made in welding an effective and uniform system of accounts and fiscal controls out of the diversity which grew up when the aid programs were separately administered by ECA, TCA, IIAA, etc. The foreign aid program has many aspects of a large-scale financial and banking operation, especially in connection with procurement through private channels. All the available evidence indicates that those responsible for the development and administration of budgeting, auditing, fiscal, and accounting procedures of FOA have done an excellent job, despite the magnitude and complexity of the task. The general area of flexibility appears to have a high potential for improvements which could lead to increased economy and effectiveness. Establishment of a new emergency or contingent fund, in substitution for the existing cumbersome transfer and special fund provisions, would provide increased flexibility in the program and at the same time provide a means of putting the bulk of the foreign aid program on a firm, soundly planned base. It probably would permit elimination of the use of an illustrative program, insure better Congressional control, fewer reprogramming operations after Congress has acted, and swifter translation of the program into effective deeds. Creation of such a fund would also lead the way to establishment of program goals based on real achievements rather than merely on the desirability of spending money at whirlwind pace. Establishment of an emergency or disaster staff as suggested would aid effective operations and help to insure maximum results from United States efforts overseas. Because the foreign aid program by its very nature involves the operations and activities of other sovereign nations, its fiscal problems are different and to some extent more complex than those of the general agencies of the Government. Funds which are obligated by means of an international agreement between the United States and a foreign country may not always be deobligated without concurrence of the foreign government. Certain fiscal aspects of the program involve exchange rates between currencies, a matter of deep and often delicate concern to both countries. These factors point up the desirability of the continued development and refinement of fiscal controls for the foreign aid program and suggest that the new administrators of the program seek the advice of agencies in these areas, including the General Accounting Office and Bureau of the Budget as well as draw on the past experience of FOA, MSA, ECA, TCA, etc. Since many of the fiscal aspects of the foreign aid program hinge on the results of negotiations and relations with foreign governments, the United States personnel who negotiate the agreements and generally handle our relations with the recipient countries play a major role in determining the success or failure of the program. Their ability and effectiveness will be reflected in the character and accomplishments of the aid program. Steps to strengthen our Foreign Service Officer Corps, as discussed in a separate paper, will produce improvements in this fiscal area, as well as in many others. THE EFFECT OF FLEXIBILITY ON THE DEVELOPMENT DIRECT FORCES SUP TECH ASSISTANCE OTHER PROGRAMS THE TRANSITION STAGES TOTAL APPROPRIATION $2.8 BILLION |