Mr. SHUFF. Mr Meyer, not attempting to answer your question on Algeria, but talking on the general subject for just a second, in our testimony here in prior times, I have likened the mutual security program, our specific part of it, the military assistance portion, to be like

cake mix.

You will find as we go on through this presentation that it is bad to generalize in this program.

I think of the various programs for the various countries as a cake, where different ingredients go in the cake. The ingredients being military, political, and economic.

The same kind of political ingredient or the same amount of it certainly doesn't go into the mix in France as it goes into the mix in Laos.

Nor is the economy so important in France as it is in Laos. So that we have to be very careful not to generalize.

I think you may have heard this before. In the very first chapter of this act it says:

It is the purpose of this chapter to authorize measures in the common defense, including the furnishing of military assistance to friendly nations and international organizations in order to promote the foreign policy, security, and general welfare of the United States and to facilitate the effective participation of such nations in arrangements for individual and collective self-defense.

This would be a much easier program to administer if it were purely a military program. In no case is it purely a military programno case. Going from country to country, you get a greater, or a lesser increase in the political and economic ingredients and that is why it makes it so terribly difficult to talk about this in a general way.

I think, as Mr. Irwin has stated here, when you get three of us lined up here representing the political, the military, and the economic, we can't duck, we can't dodge. I think you can get a specific answer to a specific question.

Mr. MEYER. Well, that is what I want. I don't like cake mixes too much. I like to know what the actual facts are when we come right down to a specific thing and that is what I have been driving to get on many occasions and have failed to receive throughout.

Thank you.

Mr. CARNAHAN. Mr. Murphy.

Mr. MURPHY. No questions.

Mr. CARNAHAN. Mr. Beckworth.

Mr. BECKWORTH. How many countries is Russia in, with economic and defense aid? I am talking about one or the other. Some of the older members doubtless know the answer.

Mr. FULTON. We have a chart of that from last year and it is also in the mutual security program papers prepared for our committee study this year.

STATEMENT OF P. P. CLAXTON, DEPUTY ASSISTANT SECRETARY OF STATE FOR CONGRESSIONAL RELATIONS (FOR MUTUAL SECURITY AFFAIRS)

Mr. CLAXTON. There are 18.

Mr. IRWIN. There is a chart on page 4 of this 1959 summary presentation of the mutual security program.

Mr. BECKWORTH. Russia is in 18 and we are in how many, as a total, with economic and military aid?

Mr. CLAXTON. Sixty-one, plus nine territories.

Mr. Chairman, could I point something out that I think ought to be added to the answer. The chart on page 4 refers only to non-SinoSoviet bloc countries, that is free world countries which the Soviet Union is trying to penetrate.

To get a proper answer to the Congressman's question you should realize also that inside the bloc, in the Warsaw Pact area, the Soviet Union is giving aid to many satellite countries, as are the Chinese.

Mr. BECKWORTH. Do you know the total number of all of those, Mr. Claxton?

Mr. CLAXTON. There are 11 countries or parts of countries which have been taken under the control of international communism to which the Soviet Union, during the period 1956-57, has extended about one-half billion dollars in long-term credits and grants. This is in addition to assistance furnished to free world countries.

During the last 10 years this aid to the bloc runs into billions of dollars.

Mr. BECKWORTH. I want the record to show how many countries we are in and how many they are in, first with economic aid and, second, with military aid.

Mr. CARNAHAN (presiding). If there are no further questions, the committee will stand adjourned.

(Whereupon, at 1:25 p.m., the committee adjourned.)

MUTUAL SECURITY ACT OF 1959

TUESDAY, MARCH 24, 1959

HOUSE OF REPRESENTATIVES,
COMMITTEE ON FOREIGN AFFAIRS,

Washington, D.C.

The committee met, pursuant to adjournment, at 10:40 a.m., in room 363, Old House Office Building, Hon. Thomas E. Morgan (chairman) presiding.

Chairman MORGAN. The hearing will be in order.

This is a continuation of the hearings on Mutual Security Act of

1960.

We have with us this morning the Honorable C. Douglas Dillon, Under Secretary of State for Economic Affairs, and the Honorable Dempster McIntosh, Managing Director of the Development Loan Fund.

After consultation with the committee, I have decided that we are going to have Mr. Dillon read his statement in open session. Mr. McIntosh well then present his statement, after which the members may ask questions and the witnesses may answer as a team. You may proceed, Mr. Dillon.

STATEMENT OF HON. C. DOUGLAS DILLON, UNDER SECRETARY OF STATE FOR ECONOMIC AFFAIRS

Mr. DILLON. I appear before you today both as coordinator of the mutual security program and as Chairman of the Board of Directors of the Development Loan Fund. My purpose is to present the executive branch proposals for legislation affecting the Development Loan Fund, both from the standpoint of overall foreign policy requirements and the operating needs of the institution itself.

The President has recommended that the Congress authorize and appropriate $700 million to become available to the Development Loan Fund beginning in fiscal year 1960. He has also requested revisions in the Mutual Security Act which would make available to the Development Loan Fund, after administrative needs of other agencies are met, local currency repayments under mutual security loans concluded since 1954, and which would provide a clear and more flexible basis under which the Development Loan Fund can work out arrangements for the fiscal administration of loans.

This committee is well aware of the economic and social revolution which is sweeping the less-developed areas of the free world. A billion people have their eyes set on economic progress. With the newfound political independence that has come to many nations has come a demand for similar social and economic progress. The question is,

38361-59-pt. 1- -12

will this progress take place in freedom, will our free institutions. prove equal to the task of meeting the economic aspirations of the peoples of Asia, Africa, and Latin America?

This poses a great challenge and a great responsibility for the entire free world. One of the most hopeful signs of the past year has been the way in which other industrialized nations have joined in making external capital available. In my appearance before this committee on January 29, I described the expanded efforts of England, Germany, Canada, and Japan in this field. France for some time has been devoting substantial resources to the development of the African territories of the French Union and Italy is now preparing to help, particularly in the Arab countries. Nevertheless, as the wealthiest and most industrialized of all nations, with capital available for export, the United States remains the principal single source in the free world for the foreign capital needed by the less developed countries to supplement their own efforts. Although this. challenge is compelling, our interests go beyond it. We now depend on the less-developed areas for a critical margin of the raw materials which feed our industries; and that dependence is likely to increase as our national resources are depleted and our industries grow. The less-developed countries hold within their bor

ders enormous natural resources which constitute a vast and relatively untapped potential for the entire free world.

Moreover, the populations of the less-developed countries present the prospect of substantial markets for our goods. Although they are not now large scale customers, their purchases can be expected to rise as development progresses. Higher incomes mean more purchasing power. The export opportunities which would be presented if the incomes of each of the millions of people in Asia, Africa, and Latin America were increased by a small margin would indeed be impressive.

Independent of, but intensifying these challenges, is the aggressive presence of Communist imperialism. The Soviet bloc is well aware of the profound urge for a better life that has swept the lessdeveloped areas and the opportunities which this situation presents for furthering its own purposes. In my appearance before this committee last January, I noted that from 1954 through 1958 the SinoSoviet bloc agreed with 18 underdeveloped countries to provide $2.4 billion in credits and grants for economic and military aid, of which $1.6 billion was for economic aid alone. Agreements totaling $1 billion were completed in 1958, reflecting a marked stepup in the ef forts of the bloc. From all indications, this accelerated pace will be maintained.

The breadth, scope, and intensity of the Soviet effort is illustrated in the charts on pages 35, 36 and 38 of the printed record of the January 29 hearings. I should like to offer them, Mr. Chairman, for inclusion in this record as well.

(The charts referred to appear on pp. 204-206.)

In the face of these challenges, the Congress 2 years ago established the Development Loan Fund and stated in so doing the fundamental truth "that the progress of free peoples in their efforts to further their economic development, and thus to strengthen their freedom, is important to the security and welfare of the United States."

The Development Loan Fund was established for a particular, specialized purpose: The provision of capital for productive economic growth. With the exception of the technical cooperation program, the other elements of the mutual security program are not designed to promote economic development. They provide in-v stead the military strength required to offset the Communist threat, and they help to maintain political and economic stability from year? to year. These are both essential prerequisites to development itself, but their usefulness and purpose would be largely lost in the absence of adequate provision for forward movement in the development process. For this reason, an adequate Development Loan Fund can be considered the keystone of the arch in our mutual security program.

The development needs of the free world are so large that they require the combined efforts of public and private capital from all the industrialized countries. Recognizing this, the Development Loan Fund has been designed to supplement but not compete with other free world sources of financing. It does not compete with private investment capital, the Export-Import Bank, or the International Bank for Reconstruction and Development. It works in the closest cooperation with these institutions. Because of the flexible terms on which its loan can be made, including the acceptance of local currencies in repayment, the Development Loan Fund can help to bring to fruition sound and worthwhile projects which otherwise could not be realized. This is so because many less developed countries are not as yet able to earn enough foreign exchange to fully repay the loans required to complete large projects in the standard 10 to 15 years usually required by private capital and by the ExportImport Bank and the World Bank.

The operating methods of the Development Loan Fund are designed to promote efficient, long-term economic growth. Its financing is exclusively in the form of loans or other types of credit; it does not make grants. It makes loans only for specific projects and there is a separate loan agreement on each project tailored to the specific situation. The Development Loan Fund does not program in advance annual levels of assistance for particular countries. It focuses the primary responsibility on the governments or private businessmen concerned by responding only to sound proposals which they submit. Furthermore, the Development Loan Fund is not required to obligate its capital within any specific time period; it obligates funds only when it is convinced that efficient use can be made of them in connection with particular projects. In this way the Development Loan Fund promotes economic growth through the employment of devices which encourage the efficient, businesslike use of resources.

An essential element in the effective use of the Development Loan Fund is an adequate measure of continuity. Without assurances that funds will be available over a period of years, the Development Loan Fund cannot realize its full potential in promoting sound development planning. It is also difficult to work with the international lending institutions in the absence of continuity. We have a vivid example of that situation today. As you know, the Development Loan Fund is now out of funds. Of the $700 million appropriated so far, less than $1 million is still unallocated. Unless the Congress