removed consideration that is currently bothering us in the friction area of our relationships with the Soviets. I don't think anyone can disagree reasonably with the proposition that we must always seek a way to influence Communist Russia into an area of compatibility with us. But to turn around and say this is the way to do it, to me, is quite a different story. Senator MCINTYRE. Thank you, Mr. Ray. The CHAIRMAN. This was a very pertinent comment. We thank you very much. (The following article was submitted for the record by Mr. Ray :) U.S. WHEAT FOR RUSSIA ON CREDIT-PLAN TO GUARANTEE DEALERS AGAINST LOSS VIEWED AS NEW SOVIET-UNITED STATES TRADE POLICY (By David Lawrence) If the American people were asked to vote in a referendum as to whether they would like to see the U.S. Government lend money to the Soviet Union to buy wheat-which, in turn, could make possible the shipment of Russian grain to Red China or Cuba-it can hardly be doubted that the verdict of the electorate would be overwhelmingly in the negative. The Congress of the United States today is considering whether or not to pass a law prohibiting the Export-Import Bank-a U.S. Government agency-from guaranteeing the recently proposed transactions for the purchase of wheat by the Soviet Union. So the people's representatives will soon have an opportunity to approve or disapprove the measure. When the proposal to sell wheat to Russia was first announced, President Kennedy said it was to be a private transaction and "does not represent a new Soviet-American trade policy." But a few days later, it became apparent that a misleading impression had been conveyed. Senator Karl Mundt, of South Dakota, Republican, told the Senate Committee on Banking and Currency yesterday: "The financing arrangement for these sales to the Communist countries does represent a new departure the U.S. Government and the taxpaying citizens of this country are assuming full credit risk for these sales. Any loss sustained by the seller of the grain or the banks financing the sales by extending credit to Russia, Hungary, or other Communist bloc countries is insured by the Federal Government through its Export-Import Bank * "Now I presume the reason that the Export-Import Bank was brought into this transaction to guarantee payment of the obligations assumed by Communist countries for payment for this grain is that no commercial banker or exporter is willing to assume the credit risk of repayment involved in sales to Communist countries. The private exporters and bankers are reluctant to extend their own credit in order to get the profit and income they will receive from these transactions. That is, they must regard the transaction as a bad risk and the Communists as unsafe debtors." The South Dakota Senator said that, while President Kennedy had declared that American grain would not go to Cuba, the wheat "will simply become a substitute in Russia for the Russian grain which has been promised to Cuba and the other Communist countries." Senator Mundt added: "The Cubans will eat Russian grain and the Russians will eat American grain bought from American traders on credits * * "The way, therefore, seems to be opened for us to make possible the feeding of our enemies in Cuba, in Red China, and elsewhere even if we were all to agree to the shibboleth that Russia is not an enemy since Russia could use at home the specific bushels of wheat we sell her on U.S. Government credit while shipping to our other Communist adversaries the Russian wheat which our American wheat replaces * * *. "The American people and their Congress were led to believe that this grain sale would be a commercial cash transaction with private traders and bankers assuming any credit risk in return for a profitable sale and an interest bearing loan." Pointing out that the President, in his October 9 news conference, had declared that "the grain dealers will take the risks with the private banks," Senator Mundt said it now turns out that the Government itself will assume the risk. Senator Mundt is the author of the pending bill which would cover credit extensions on the sale of any products to all Communist-bloc countries. He insists that the passage of the bill would not interfere with the planned sales of wheat and grain to Russia and her satellites, "provided the sales are for cash, for gold, or for American dollars, or provided the granting of credit to the Communists is privately extended." The problem of furnishing economic aid to countries that are potential enemies has plagued the Western Allies for many years. Senator Mundt, in his speech this week, said: "Unfortunately, desire for profit-sometimes in the form of thinly disguised human greed-has made it difficult for the United States to enforce this policy of restricting trade with the Communist bloc or even to win the support of the foreign countries which we aid with our foreign assistance programs." It is true that some of the Allies of the United States-including those who have been receiving foreign aid-have been steadily increasing their trade with Russia and the Communist-bloc countries. This has produced resentment in Congress. The question of trading with the Communist countries is likely to be a major issue in the next several months. Senator DOMINICK. Mr. Chairman, I have no questions, but I have a memorandum from the Library of Congress to Senator Mundt concerning Soviet production and planning. I would like at this point to put it in the record. The CHAIRMAN. Without objection, it will be so ordered. (The memorandum follows:) To: The Honorable Karl E. Mundt. THE LIBRARY OF CONGRESS, LEGISLATIVE REFERENCE SERVICE, Washington, D.C., November 21, 1963. Subject: Soviet production and official holdings of gold. We are replying to your inquiry of November 18, 1963, on the subject as above. No statistical data of any sort concerning gold have been published by the Soviet Union since the midthirties. Hence, any figures that appear from time to time in official or nonofficial Western sources are merely educated guesses based on often widely different assumptions. The U.S. Bureau of Mines publishes in its Minerals Yearbook quantitative estimates of Soviet gold production. The dollar value of these estimates (at $35 an ounce) for recent years was as follows: 1959, $350 million; 1960, $385 million; and 1961, $420 million. Assuming a similar rate of increase as that shown for these years, the 1963 production should be in the vicinity of $500 million. In a recent interview with the U.S. News & World Report (issue of November 4, 1963), Eugene M. Braderman, Director of the Bureau of International Commerce, estimated Soviet current annual production of gold at $500 to $600 million. A similar level of gold output has been estimated by other financial circles. First National City Bank of New York, for example, placed Soviet gold production in 1962 within the $350 to $600 million range. On the high side, the London Statist quotes an estimate for the years 1955 through 1957, made by "Western sources," at the cumulative figure of $1,750 million, or some 70 percent over the U.S. Bureau of Mines estimate for those years. In 1959 the then South African Minister of Mines Jan de Klerk estimated Soviet gold production at $600 million. The highest estimates are those made by Franz Pick in his Currency Yearbooks; these are about double the Bureau of Mines figures. On the low side, some South African gold experts are of the opinion that the estimates of Soviet gold production are exaggerated and that the figures should be less than half the South African total, which would indicate gold production somewhat lower than the Bureau of Mines estimates. Some estimates, indeed, place it at the approximate level of current sales which, in recent years, have been in the $200 to $275 million range and in 1963 may reach about $400 million. In recent years reports in the Soviet press have indicated that extensive and rich new gold fields had been discovered, mainly in various regions of Siberia, but also elsewhere in the Soviet Union, and that the extraction of gold is being gradually mechanized. There have, on the other hand, also been some estimates that the cost of production is rather high and may be significantly higher than the current world price of gold. Since the estimates of Soviet official gold holdings depend to a great extent on estimated production data, it is understandable that the former reflect as wide differences of opinion as the latter. While the Bureau of Mines does not publish any estimates of Soviet gold holdings, Mr. Braderman in his interview indicated a range from $2.5 to $6 or $7 billion. The estimates made by several other experts fall within the same range. On the high side, experts whose production estimates are high also tend toward high estimates of holdings. These are usually at the $10 billion level or somewhat above it. VLADIMIR N. PREGELJ, Analyst in International Trade and Finance. The CHAIRMAN. As the chairman indicated this morning, we expect to conclude the testimony today. All of it will go to the printers tonight and we expect to have the hearings ready, and we will comply with the request of the Senate to handle the bill expeditiously. I have discussed the matter of a report with our splendid chief clerk and he tells me it will unfortunately be a physical impossibility to get together a report to be printed by Monday because some members will favor this bill for one reason and some for another reason, and some will oppose it for one reason, and some for another, so we don't plan to file any report, except what is printed on the report from itself, which will either be that we recommend that the bill be passed or that we recommend against passage. That is all the report we plan to file. So I put all members of this committee on notice to be prepared, when this bill is taken up on the floor, to submit their own report on the floor. As I stated on the morning we opened this hearing, this bill would normally have been been referred to the Subcommittee on International Finance, but the time limitations were such it wasn't practical for that subcommittee to conduct hearings, to have the testimony printed, to file their report, and then to put it before the full committee. In addition, the great importance of the bill has created wide interest in the hearings. Twelve members of the committee have participation actively in the questioning, and the other members of the committee would have come if other hearings and duties had not made it impossible. This too made it appropriate to hold the hearings in the full committee. I am happy, however, that the distinguished chairman of the Subcommittee on International Finance, the Honorable Joe Clark of Pennsylvania, has been a very faithful attendant here and he has graciously agreed to act during my temporary absence. I have a conflicting engagement. We have one witness now for the bill, we have six witnesses against it, and that will conclude the hearings, so far as I know. At this point, I will turn the chair over to the distinguished Senator from Pennsylvania, who would ordinarily have presided over this bill, could we have given it its normal handling. Senator CLARK (presiding). I thank the chairman for his kind words. Our next witness is Mr. James S. Bush, banker from Minneapolis, Minn. Mr. Bush, would you come forward, please? STATEMENT OF JAMES S. BUSH, MINNEAPOLIS, MINN. Mr. BUSH. I do not have a prepared statement. Senator CLARK. You understand the rule is 10 minutes? Senator CLARK. Please proceed in your own way. Mr. BUSH. First may I say it is a tremendous pleasure to see you again and Senator Dominick, and other friends of mine here. At the present time I am president of the Northwest International Bank, which is domiciled in New York City. We are owned, our bank is owned by the Northwest Bank Corp., which also owns 77 banks in a 7-State area; the States being Minnesota, North Dakota, South, Dakota, Iowa, Nebraska, Montana, and Wisconsin. Senator CLARK. Pretty much the Wheat Belt? That seven-State area accounts for approximately 10 percent of the exports leaving the shores of the United States each year. I just returned from Minneapolis last night at midnight, where I spent several days in Duluth, Minneapolis, and St. Paul, and I found there that all of my associates in the area are very much opposed to the Mundt bill. The feeling of our group is that it is strictly a commercial transaction, something that the Export-Import Bank has done for many years, in various parts of the world. In fact, it is a much better deal, because in this instance the United States is being paid 25 percent cash payment as part of the terms, with not more than 75 percent. being financed by the commercial banks. I found from talking to all commercial banks that they do not feel it would be possible to finance this transaction without a guarantee from the Export-Import Bank. Therefore they feel if the guarantee was not forthcoming, that there would be no possibility to effect. a transaction except on a cash basis, which of course would be a very fine thing. Further than that, Mr. Chairman, I have nothing to say, unless some of you gentlemen would care to ask me questions. Senator CLARK. Thank you, Mr. Bush. Senator Proxmire? (No response.) Senator DOMINICK. I want to ask a couple of questions and welcome Mr. Bush before the committee. I would hope he comes down here often. We welcome him. Does the group of banks that you mention have an interest in this, as far as granting credits are concerned in this particular deal? Mr. BUSH. We have not granted any credits up to this time. It would be the intention for at least four of the larger banks to do so: yes, sir. This would be because of the longstanding relationships between grain dealers and flour millers and so forth with our banks. Senator DOMINICK. I assure you I am not implying any conflict of interest or anything else. I was just asking this. Now, if the Export-Import Bank should not guarantee any credit which might be offered by your banks or any other, what would be the position of the banks? Would they be willing to give the credit on a higher interest rate, or would they say they wouldn't give it at all? Mr. BUSH. They would not give it at all. Senator DOMINICK. On what basis? Mr. BUSH. Because they do not feel that a bank of deposit-these banks are all banks of demand deposit-and they do not feel it would be an appropriate credit for a bank to lend their money for that purpose. Senator DOMINICK. What is inappropriate about it? Mr. BUSH. Well, because for one thing, from my own experience, I imagine that the bank examiners would make them write the loan down to zero. Senator DOMINICK. Why? Mr. BUSH. Because the bank examiners would not consider it a satisfactory loan, without a guarantee from the Export-Import Bank. Senator DOMINICK. Because of the risk of the Soviets not paying their bills? Mr. BUSH. Yes. Senator DOMINICK. That is all, Mr. Chairman. Senator CLARK. Mr. Bush, do you think the bank examiners would be taking a realistic view as to whether this credit will or will not be paid, if they would write the loan down to zero? Mr. BUSH. Would they be taking a realistic view? Senator DOMINICK. Yes, don't you think this loan is going to be paid? Mr. BUSH. Yes, I do. I certainly do think so. There is no doubt in my mind whatever. What I think and what bank examiners think are different things. Senator DOMINICK. I used to be counsel for a bank for some time, and it is my recollection that there is some difference of view between bankers and bank examiners. Senator CLARK. Senator McIntyre? Senator MCINTYRE. No questions. Senator CLARK. Thank you very much, Mr. Bush. Our next witness is Alfred W. Barth, executive vice president, Chase Manhattan Bank. STATEMENT OF ALFRED W. BARTH, EXECUTIVE VICE PRESIDENT, THE CHASE MANHATTAN BANK Senator CLARK. Mr. Barth, we are happy to have you with us. I see you have a prepared statement. Would you please proceed in your own way? You realize there is a 10-minute limitation on your oral presentation. Mr. BARTH. Yes, sir. Mr. Chairman and members of the committee. My name is Alfred W. Barth, and I am an executive vice president of the Chase Manhattan Bank in charge of our international activities. I appreciate and welcome the opportunity to testify this morning on bill S. 2310 which, if it becomes law, would prohibit any Government agency, including the Export-Import Bank, from guaranteeing any obligation incurred by any Communist country or any agency or national thereof. I will not discuss the bill from the foreign policy viewpoint. Others |