VIII. The Philippine Contribution

to the Program

In fiscal year 1956, as in earlier years, the cost of the Philippine program will be greater in local currency than in dollars. The necessary local currency financing will be provided by the Government, largely from special appropriations and public borrowing. Generation of counterpart through the sale of FOA-financed imports is an unimportant method of providing local currency to meet program costs in the Philippines. Since most projects are in the public sector, counterpart deposits are made from special Philippine appropriations. In table 8, which follows, the local currency cost of operating the Philippine grant project program in fiscal year 1956 and earlier years is compared with the FOA grants during the same years.

Table 8.—FOA and Philippine Contributions to Program Costs

1 Authorized withdrawals. Corresponds with Appendix D of the fiscal year 1955 counterpart program as revised October 1954.

2 Excludes defense support loan assistance of $25.0 million.

In fiscal year 1956, the equivalent of about $71.3 million (P142.7 million) will be needed to support initial costs of the fiscal year 1956 grant project program and initial and continuing costs of previous years' programs. The funds will have to be provided from counterpart (authorized withdrawals of P38.0 million $19.0 million), Philippine appropriations (P48.4 million-$24.2 million, excluding appropriations required for deposit to the counterpart fund), public borrowing (P27.8 million-$13.9 million), and municipal, provincial and private contributions (P28.5 million-$14.2 million). Over twothirds of the total costs will be required to support projects for which FOA dollar assistance will be provided in fiscal year 1956. About one-third of the cost will be for projects for which no additional dollars are included in the fiscal year 1956 program.

Local currency costs of the defense support loan program are expected to total the equivalent of about $17.7 million in fiscal year 1956.

These costs will be met largely by borrowing from the public and the banking system.

COUNTERPART PROGRAM ACTIVITY

CUMULATIVE FROM JUNE, 1951

It should be noted that local currency costs usually must be met well after the time when the corresponding FOA dollar obligations are established. Hence, most fiscal year 1956 local currency costs must be asociated with dollar assistance provided in earlier years The full local currency cost impact of the fiscal year 1956 FOA dollar program will not be felt until fiscal year 1957; thereafter it will decline.

IX. Relation of the Philippine Program

to Other Outside Resources

In fiscal year 1955 and fiscal year 1956 it is expected assistance to the Philippines, in addition to the FOA program, will include aid under the Colombo plan, United Nations Technical Assistance Administration, and the Fulbright and Smith-Mundt education programs. A limited number of training grants, offered through the University of the Philippines, are financed by three United States foundations. A few grants are also provided by private sponsors.

Assistance from these sources is invariably in the form of training grants, scholarships, and technical assistance grants; almost no commodity assistance is provided from any source other than under the FOA program. In fiscal year 1955 the Colombo plan will have available an estimated $100,000 to finance the training of selected Filipino specialists. The UNTA and other U.N. agency programs tentatively propose the expenditure of $380,000 and peso support of $175,000 to finance 34 technical assistants and 19 training fellowships. Operation of the Fulbright and Smith-Mundt programs, under the direction of the United States Department of State, will involve expenditure of an estimated $150,000 and 400,000 to finance some 75 trainee, research, and graduate scholarships as well as a number of foreign leader grants and exchange professorships. The total cost of all aid from the above sources will be equivalent to $1.2 million in fiscal year 1955. It is likely a similar amount may be available in fiscal year 1956.

The various training and scholarship activities financed by other agencies supplement and complement the FOA Type A technical assistance program. In almost all cases participants are selected by the sponsoring agencies on the basis of scholarship attainments or demonstrated ablility in specialized fields.

Technicians from the U.N. Technical Assistance Administration and other U.N. specialized agencies (WHO, FAO, UNESCO, UNICEF) are provided, for the most part, in fields to which FOA assistance is not extended. In some cases, however, a U.N. technician performs services in areas where FOA projects are in operation. In such cases, the U.N. contribution is complementary to FOA aid and supports project objectives. Close cooperation is maintained between the FOA and the U.N. Resident Technical Assistance Representative and a high degree of coordination achieved in field operations where the services of the two agencies must be blended. A typical example is the FOA-PHILCUSA Forest Products Laboratory project, which

X. Interview-Mr. H. W. Prentis, Jr.

With FOA Officials

Mr. Hagberg stated that the land title project was regarded as extremely important by the FOA as a means of combating the Huk Movement; that the Philippine Government had neither the organization nor the money to carry the land title project through; hence the necessity of the grant made by FOA for this purpose.

His comments regarding the $5 million of grant-in-aid assistance provided in the 1955 fiscal program for essential equipment to be purchased in local currency from Philcusa by small and medium sized private business enterprises in the Philippines, the sales proceeds for which are to be credited to the counterpart funds account, were as follows:

The Monetary Board of the Central Bank has been anxious to maintain a reserve of at least $300 million to stabilize the Philippine peso. At the present time these reserves stand at $283 million and hence it seems unwise to reduce them by another $5 million.

It is true that the Export-Import Bank has authorized a line of credit of $5 million to five Philippine commercial banking corporations and that so far this line of credit has not been utilized.

FOA and Philcusa have been working to set up an investment guarantee organization in the Philippines to encourage the investment of private capital in individual enterprises, and for this purpose $5 million of additional counterpart funds are required. That is the principal reason for the proposed $5 million grant-in-aid instead of using a portion of the Philippine international reserves, or utilizing the line of credit of the Export-Import Bank. Mr. Hagberg assured me that his general philosophy is not to give grants when the program is bankable and funds can be secured from either the Export-Import Bank or the International Bank of Reconstruction. I told him that in this case or any other case where the issue was finely divided, it should always be resolved in favor of the American taxpayer. He assured me that the general trend in the Philippines under the Magsaysay Administration is toward private enterprise. He mentioned particularly the leasing of the Manila Hotel to private managers and the discontinuance of the government operated Philippine airlines as practical illustrations of this trend. He assured me that if the machinery proposed to be purchased by the $5 million FOA grant was secured either through that means or through the Export-Import Bank line of credit, the 17 percent foreign exchange tax would have to be paid in either case.

The Philippine Government's contribution for the current fiscal year is $80 million; the contribution of the United States, $20 million. Of the $80 million contributed by the Philippine Government, about $30 million comes out of counterpart funds, so that the actual distribution of the expense of the Philippine program is about $50 million of the United States and $50 million for the Philippine Government. Mr. Hagberg assured me that the contribution made by the Philip