ternational assistance effort. The Bank conducts assessments of developing country needs which are made available to donor countries and takes the lead in negotiations over economic reforms or development policy with recipient nations. Assistance to most major developing countries is coordinated through a consortium of donors chaired by the World Bank.

Proposals to channel all U.S. economic assistance through multilateral institutions overestimate the administrative capacity of these institutions. They ignore the present character of the international development effort which is predicated on bilateral aid programs coordinated and supplemented by international institutions. A rapid increase in the U.S. contribution to these institutions without corresponding increases by the 16 other donor nations would threaten their international character. The U.S. cannot build international institutions unilaterally.

Multilateral and bilateral aid are complementary, not substitutes for one another. Both are needed now, and will continue to be needed for the foreseeable future. Bilatral aid is often more flexible and has historically been more innovative than multilateral aid. It serves areas of special interest to the U.S., such as Latin America. Bilateral aid can more easily tap special talents of individual countries such as the United States' technical competence in agriculture.

We should continue to provide our fair share of the support costs of the multilateral institutions. The authorization request before you proposes $134.8 million for the UN programs, including the UNDP, the UN Children's Fund, the FAO World Food Program, and the UN environment fund.

III. SUMMARY OF FY 1974 AUTHORIZATION REQUEST

The FY 1974 budget request in new obligational authority for economic assistance authorized under the Foreign Assistance Act totals $1,743,850,000. Of that amount $1,011,859,600 is for development assistance programs. A total of $632,000,000 is allocated for Indochina Postwar Reconstruction activities and the remaining $100 million is for security supporting assistance programs carried out in Thailand and the Middle East.

This is a reduction of $500 million or 23 percent from the A.I.D. oudget request for economic assistance in FY 1973. The development assistance request is almost 28 percent below that of FY 1973 and some $52 million below what we actually received under the Continuing Resolution. We do not believe that this level of bilateral funding responds adequately to the needs of the less developed world, but it represents the Administration's judgment as to what we should provide in light of the federal government's overriding need to economize its operations.

Together with other availabilities the development assistance request would fund a total program of $1,338,314,000. Of this amount $645,550.000 is for development loans in Asia, Africa, and Latin America, and $394,467,000 is for development grants, including population programs totaling $125,000,000. Other programs totaling $298,297,000 would provide support for international organizations such as the UNDP, the UN Environment Fund, the Indus Basin Development Fund, the American Schools and Hospitals Abroad program, the Contingency Fund, International Narcotics Control, and Administrative Expenses for A.I.D. and the Department of State.

Our request for economic assistance for the Indochina countries-South Vietnam, Laos, and Cambodia-totals $632 million. This assistance will permit a sound beginning in the process of rehabilitation, reconstruction and humanitarian assistance. Assistance for the thousands of refugees has a high priority as well as the restoration of essential community services in the war stricken

area.

The security supporting assistance request of $100 million, together with other availabilities, would fund a total program of $124.1 million for Thailand, Israel, Jordan, Malta, Spain, and the U.S. contribution to the U.N. Force in Cyprus.

IV. U.S. INTERESTS IN THE DEVELOPING COUNTRIES

In closing, Mr. Chairman, let me comment on the relation of development assistance to the United States' fundamental aspirations for enduring peace and a growing international economy.

The developing countries occupy two-thirds of the earth's land and control vast amounts of its natural resources. They contain 74 percent of the world's total population.

The poverty which afflicts these countries appeals to American sympathies.

But it is more than a moral dilemma. It is an increasingly dominant factor in determining the kind of world in which we and our children will live. Peace cannot be sustained in conditions of social upheaval or a growing confrontation between rich and poor.

The United States and the other industrial countries are linked to the developing countries by considerations of trade, investment, and critical resource needs. We share with them a common interest in an open international economic system in which all nations benefit from an increased flow of goods and services.

With six percent of the world's population, the United States consumes nearly 40 percent of the world's annual output of raw materials and energy. Increasingly, we depend on other countries for these supplies. U.S. imports of energy fuels and minerals are expected to increase from $8 billion in 1970 to more than $31 billion by 1985.

The developing countries are increasingly important as markets for U.S. goods. In 1970, they accounted for 30 percent of U.S. exports. The investments of U.S. corporations in the developing countries presently total some $30 billion, and are growing at about ten percent a year.

The solution of such world problems as development of a satisfactory international monetary system, environmental pollution, narcotics control, and security of travel requires broad international cooperation with the developing countries.

What life in the United States will be like for our children and grandchildren depends largely on what the world will be like in the decades ahead.

Human problems do not stay bottled up behind national borders. Uncontrolled human reproduction vitally affects the well-being of all nations. Diseases ignore national boundaries. Polluted air and polluted waters flow freely between countries.

My children and grandchildren, like yours, must live in the same world with the children and grandchildren of the peoples of all continents, all colors, and all religions.

That is why I believe with deep conviction that we owe it to our own interest in the future of our own country to shape with utmost care the role our country is going to play in determining the kind of world it is going to be. That is what A.I.D.'s development assistance program is all about.

Senator PELL. Thank you very much.

I think it would be a good idea if Mr. Nooter presented his testimony and we will ask the questions.

Senator Case and Senator Aiken.

PADDOCK BOOK'S CRITICISM OF GUATEMALA EXPERIMENT STATION

Senator CASE. At sometime, Dr. Hannah, I wish you and your colleagues would comment, not generally, not adhominem, specifically on the Paddock book, what about the criticism of Guatemala and so forth down the line.

Senator PELL. He touched on that before you came.

Senator CASE. I did not know that he had. He talked in a general way. I am not aware he was questioned about what happened to the experiment station. In fact, people there did not know what was going on. The fact that he had asked to see, from the top down, four or five of the best programs indicated to him specific problems, not the general adhominem discussions. What we want are not generalities; we want facts.

Dr. HANNAH. What I would like to do, if agreeable, I would like to send to your office and also include in the record.

Senator CASE. I think it ought to be in the record.

Dr. HANNAH. We will put it in the record. The answers that we have prepared we think are sound. We will get it in the record and I will get a copy to your office today.

[The information referred to follows:]

AID COMMENTS ON "WE DON'T KNOW HOW"

[Supplied by AID]

William Paddock is a writer given to dismal generalizations. He is best known, perhaps, for a previous work he co-authored with his brother, Paul, in which they gloomily predicted massive famine throughout the underdeveloped world by 1975. He has now teamed up with his wife, Elizabeth, to produce a new broadside called "We Don't Know How."

The "don't know how" in the current book refers to the inability of developed countries, particularly the U.S., to help the underdeveloped countries in their efforts toward economic growth. For the purposes of this book, the Paddocks in 1969 visited Mexico and Central America, and collected a variety of opinions, guesses, hearsay, implications, and hypotheses, which they have recorded in great detail but with little effort at discrimination. On the basis of this busy methodology, they concluded that not only does AID not "know how", but neither does the Peace Corps, the Rockefeller Foundation, the World Bank, the InterAmerican Development Bank, the United Nations, nor the American Friends Service Committee. (By contrast, the United Fruit Company is cited as an organization which does "know how.")

There are three basic flaws in the Paddock argument:

1. The authors base their generalized critical conclusions about AID's world-wide operations on their examination of a few isolated projects in Mexico and three small Central American countries;

2. They overlook the basic responsibilities of the recipient countries to. put to effective use, within a much larger self-help context, the relatively limited amounts of foreign assistance available to them; and

3. They report out-of-date and inaccurate data for those few projects that they did examine.

The Paddocks state that they performed an "audit" of approximately 50 projects in Mexico and particularly in Central America, where William Paddock was once employed by a predecessor agency of AID. However, they comment on only half of the projects that they reported examined, and only about half of the projects that they comment on receiving any AID financing. This handful of unrepresentative activities, then, constitutes what the authors offer as "overwhelming evidence of the ineffectiveness" of AID to date.

The Paddock's book reflects their startlingly erroneous assumption that it is AID's task, as well as that of the other international donors, working by themselves, to bring the gifts of development to the poorer nations. As one passage puts it, "the U.S. AID program operates in a host country by its own initiative." This is, of course, total nonsense. In all countries where AID operates, its programs are subject to formal agreements developed in close consultation with the host governments, in which the responsibilities and contributions of all parties are specifically set forth.

To hear the authors tell it, AID and the other donors apparently are supposed to provide the dollars and the know-how, while the recipients simply sit back and let themselves be developed.

Nowhere do the Paddocks indicate that they understand the all important role of the recipient countries in the development process. Nowhere is there a recognition of AID's limited role as a catalyst, a supplier of marginal assistance which can be fully effective only in complementing the more basic efforts and contributions required of the recipients themselves. Nowhere in the Paddock book is there an acknowledgement of the deeply embedded cultural, social, and political problems which are not easily resolved, and which frequently impose heavy constraints on development efforts.

Had the Paddocks viewed AID's role as that of a collaborator and catalyst with the less developed countries, instead as merely a bearer of gifts, they would logically have come to a far different conclusion as to AID's effectiveness. The economic progress made by Korea, Taiwan, Indonesia, Brazil, and Columbia, to cite only a few of the more notable instances, graphically illustrate that AID indeed does know how.

For example, our willingness to assist Brazil had frequently been hampered during the post World War II era by the inability of past Brazilian administrations to apply the internal self-help measures that would permit U.S. assistance to be most effective. By 1964 Brazil was approaching bankruptcy, the annual rate of inflation had reached 144 percent, and there were signs of mounting chaos.

However, due to the courageous and effective reform and stabilization of the Brazilian Government which assumed office at that time, aided in its early years by substantial amounts of U.S. financial and technical assistance, inflation has since been brought under control. The U.S. and other donors have assisted Brazil in such ways as building highways, power facilities, water supply systems, and with agricultural diversification, and administrative reform.

As a result the country enjoys a growth rate of 10 percent, one of the highest anywhere in the world. Export earnings have risen 400 percent, with only 30 percent of the exports being provided by coffee, traditionally a supplier of some 70 percent of Brazilian export earnings. Agricultural production is increasing at a rate of about five percent annually, sparked by increased production of wheat, rice, soybeans, and corn. More than seven million Brazilians now pay direct taxes up from some 350 thousand in 1964. The federal bureaucracy has been overhauled, with progress especially notable in education where, in recent years, the U.S. has stressed assistance for secondary and university education. Since 1964 secondary enrollment has increased by nearly 150 percent, and university enrollment has more than tripled.

Another example disproving the despairing "we don't know how" theory of foreign assistance is the AID program in Indonesia. The end of the Sukarno era in late 1965 left the Indonesian economy in a state of chaos. Inflation was rampant, the basic infrastructure had deteriorated, and the foreign exchange for essential rice and textile imports was lacking.

As in Brazil, the Government of Indonesia has made impressive progress as a result of its own self-help measures and the effective use of substantial foreign assistance, provided within the framework of a multilateral Consultative Group. Indonesia formulated and carried out a stabilization program to curb inflation. Fiscal and credit restraints were imposed. Many direct economic controls were abandoned. The heavy foreign debt burden was rescheduled. Export earnings and domestic revenues have increased steadily and there has been a significant rise in the production of rice, the country's main staple, in the past few years, although this year's rice crop has suffered considerably from drought. Inflation, which at one point in 1966 hit an annual rate of 640 percent, is now running at about 25 percent. In short, the general economic situation has improved very considerably.

For the purpose of this study the Paddocks did not visit either Brazil or Indonesia or, for that matter, most of the other underdeveloped nations that have been making some significant progress in recent years. And somewhat paradoxically, the authors have not always been so despairing of AID's capacity to help poor nations, or so unmindful of the importance for those nations to help themselves. In 1967, for example, the Paddocks, in referring to the AID program in Tunisia, wrote: 1

"Just before this intensified program began I traveled in native buses the length of the country. I was depressed by the low quality of the farmland and the backwardness of the rural areas. Yet today, due not only to the concentration of American help but even more to the intelligent supervision of the Tunisian leadership, steady economic and social progress is underway." (Italics supplied.) Were the Paddocks to suggest that innovation is required for the removal of the obstacles to progress of the poorer nations, they would be on firm ground, since many of the problems of those nations are vastly different from the problems which earlier confronted the now industrialized countries. But this is not the Paddock message. What the authors are saying is that the U.S. is incapable of helping the poorer nations, and they exhibit little interest in the capacity of those countries to help themselves.

There are described below the more significant of the numerous inaccuracies and outdated material offered by the authors with regard to the few AIDsupported activities in Mexico and Central America that they did study.

MEXICO

The material in the book was gathered sometime in 1969. In the shifting circumstances of the development world, much of this material is outdated. For example, in Mexico, there has not been an AID program since 1966 or seven years ago. At that time, in view of the progress of the Mexicans, both the U.S. and Mexico agreed that further direct assistance from the U.S. was no longer re

1 William and Paul Paddock, Famine 1975! (Boston, Little Brown & Co., 1967) p. 215.

quired. By then, in relation to the mid 1940s, Mexican wheat production had tripled, corn production had doubled, and the average Mexican was consuming 40 percent more food. From 1960 to 1971 agricultural production as a whole increased by nearly 60 percent, and industrial production more than doubled. Despite the many development problems which Mexico continues to face, the progress and growth of that country is another of the many real life refutations of the Paddock thesis that, "We Don't Know How."

The only AID-financed project that the Paddocks looked at in Mexico was a loan-financed agricultural credit program, which they attempt to picture as a failure. A more careful, objective appraisal would have shown the program to be an outstanding success.

Specifically, the Paddocks visited only two of the more than 20,000 small farmers and ranchers (or less than one hundredth of one percent) who by then had received loans partially financed by this program through their private banks. Both farmers visited reported increased production made possible by their loans. However, the Paddocks critized the first farmer for having used a part of his loan proceeds to dig a well, instead of an irrigation ditch, as recommended by his credit supervisor. They faulted the second farmer because he used a portion of his loan to add some new cows to his dariy herd, instead of replacing his entire herd, as recommended by his credit supervisor.

In citing these isolated cases, the Paddocks overlooked the basic reforms in rural credit that have been made possible in Mexico through the supervised agricultural credit program. Prior to this program, it had been traditionally accepted in Mexico that the small farmers and ranchers, who compromise the bulk of the rural population, were not suitable clients for private credit. The AID loan, however, introduced the concept of long and medium term supervised credit to small farmers and ranchers on reasonable terms through the private banking system. Participation in the loans by the Mexican private banks with their own funds is required.

As a result of this program, the Bank of Mexico, which administers it through a special fund, established its own training program for agricultural credit supervisors, as well as a network of agronomists throughout the agricultural zones of Mexico. In fact, some of the private banks became so pleased with the discovery of the credit worthiness of the small farmers and ranchers that they have hired their own agronomists. The repayment record of the borrowers has been unusually good, with a default rate of almost zero.

Despite the Paddock indictment of failure, the first AID loan was followed by a second loan, both of which are fully disbursed, and are being repaid on schedule by the Mexican Government. Moreover, substantial follow-on financing has been provided for the program by both the Inter-American Development Bank and the World Bank, scarcely known for their investment in bankrupt projects.

Finally, in dramatic contrast to the negative views of the Paddocks, the success of the program led the Mexican Government to establish a new National Agricultural Bank, with an initial capital of $120 million, to provide a complementary source of rural credit through public sector financial institutions.

CENTRAL AMERICA

Central America, the other area where the Paddocks performed their "audit”, remains of significance to the U.S. foreign assistance program. However, the development problems confronting the 16 million people who live in that area should be placed in the perspective of the problems faced by the 300 million inhabitants in all of Latin America, or in the perspective of say, India, where even the smallest of states contains more than 16 million people.

The Paddocks examined a few, and far from representative, AID projects in Guatemala, El Salvador, and Nicaragua, as well as in the Central American Common Market. Whatever the validity of their findings, visits to three small Central American countries hardly offer a firm platform on which to indict the effectiveness of world-wide AID operations. As in the case of Mexico, the Paddock findings in Central America also require correction, clarification, and more objective assessment put in proper prespective in relation to the totality of AID programs and progress in the countries concerned.

GUATEMALA

The AID-financed projects in Guatemala singled out by the Paddocks for comment include the agricultural experiment stations at Los Brillantes, Chocola, and Barcenas, the Iowa State University study of agricultural development, and the Nueva Concepcion colonization project.