Mrs. KELLY. Thank you, Mr. Chairman.

Mr. Dillon, the purpose of the development loan is to encourage private investors, in other words, make loans to private investors rather than to governments; isn't that correct?

Mr. DILLON. No, that was one of its purposes. It is the purpose also to provide loans for the public type of infrastructure thing such as highways, ports, irrigation work, big electricity projects, transportation, railroads that private industry is not interested in undertaking

in these countries.

Mrs. KELLY. I really believe the purpose was to make loans to private investors rather than to government because if the loan to the government was sound it would go to the Export-Import or World Bank, would it not?

Mr. DILLON. Not necessarily, no.

The Export-Import Bank, in the first place, cannot make a loan unless all the items financed are bought here in the United States.

As far as the World Bank is concerned, one of the reasons they look ! with favor on the Development Loan Fund is that, in the case of certain of these underdeveloped countries, where large basic facility projects are needed the analysis of the balance of payments of that country will show often that the country cannot afford to repay a loan for these good projects in dollars in a period of 10 to 15 years which the World Bank requires on its loans. Here the Development Loan Fund can make a loan for such a project with repayment terms tailored to the foreign exchange position of the borrower. This often means repayment in local currency.

Mrs. KELLY. That is why we call them soft loans?

Mr. DILLON. That is right, because of the nature of the repayment. We work together with the World Bank. We have made a number of joint projects.

For instance, Honduras wished to borrow to build a road. The World Bank felt that the Honduras economy could only pay back so many dollars, so they put up half the money and we put up the other half repayable in local currency.

Mrs. KELLY. Mr. Dillon, you are acquainted with this report to the president of the Committee on World Economic Practices?

Mr. DILLON. Yes, I am.

Mrs. KELLY. It seems to me that report is very contradictory. In one place it advocates the use of the Development Loan and in the second place it makes recommendations that are just the opposite. For instance, here it goes into the fact that the soft loan is almost a grant because in terms of-I suppose in terms of dollars-it is not being realized, and it continues to mention the fact that half of the loans should be private and half public.

Mr. DILLON. I think that is a fair criticism, but this was a report drawn up by a committee of about 10 different businessmen who had differing views. There was a certain amount of compromise to get an agreed document which they would all approve. I think that probably is the reason for some of those inconsistencies.

Mrs. KELLY. They are outstanding businessmen. Henry Alexander, Philip Reed, J. P. Morgan, and the chairman of General Electric, and Columbia Broadcasting.

From where and from whom did they get their background material? From you?

Mr. DILLON. Their information?

Mrs. KELLY. Yes.

Mr. DILLON. They got a great deal of their information from the government, yes. We gave them basic information. They had a lot of direct knowledge of their own. These were men who had long experience, either directly with foreign operations themselves, of their own businesses, or in banking. Many of their clients also had foreign operations.

Mrs. KELLY. That being the case, from experience, then, you would think that their report would not have been so contradictory.

Mr. DILLON. Some of them thought it was very sound. The majority did.

Mrs. KELLY. From what source did India receive its aid prior to the Development Loan Fund? Was that the mutual security for its first 5-year plan?

Mr. DILLON. The Indians received aid in their first 5-year plan from development assistance and technical cooperation funds under the mutual security program and from the World Bank. They also received a wheat loan from the United States. In addition, there was Colombo plan aid from Canada, the United Kingdom, Australia, and New Zealand. But they financed the bulk of the plan with their own funds. When they got into their second plan when business conditions turned down a bit in the world, they found themselves in need of rather substantial external financing, financing amounting to somewhere between 20 to 25 percent of the cost of the total second 5-year plan.

Mrs. KELLY. Where did they get their money for the first 5-year plan? Do you know? Did they get any from the United States? Mr. DILLON. From our mutual security funds and a wheat loan. Mrs. KELLY. They got a lot of grant aid promised, didn't they? I am sure they did. I understand they received over $400 million for the 5-year plan.

Mr. DILLON. We can give you the facts on this.

Mr. ZABLOCKI. We have had other aid programs in addition to Public Law 480. For example, the wheat loan and wheat grant aid programs.

I believe Mrs. Kelly would like to have the total that India has received as of now. I would like to have not only the total for India, but for all countries. The totals to include all programs.

Mr. DILLON. We will give that figure to you for the record.

(The information pertaining to U.S. assistance to India, is as follows:)

1 Tentative; subject to adjustment.

Includes portion of malaria eradication earmarked for India.

Sales agreements signed through Dec. 31, 1958. Of this amount $473.6 million is planned to be loaned or granted to India for economic assistance.

Authorizations at CCC costs.

Market value of shipments.

Value 3d country currencies to be made available to India for economic assistance.

"Up to $5,000,000 of interest payments on the wheat loan will be made available to India for educational purposes."

Mrs. KELLY. What realistic part does the Export-Import Bank take, or the World Bank play, in the Development Loan Fund?

Mr. DILLON. The main role for the Export-Import Bank and the World Bank is through their collaboration and coordination with the Development Loan Fund.

Mrs. KELLY. The studying of the loans?

Mr. DILLON. They always study them very carefully.

Mrs. KELLY. Isn't it true then they take the sound ones and the Development Loan Fund gets those which are actually grants?

Mr. DILLON. No, we don't think there is any difference in the soundness of the projects. The difference is in the ability of the country to repay in dollars rather than in the technical soundness of the particular project.

Chairman MORGAN. The gentlewoman's time has expired.

Mr. Merrow.

Mr. MERROW. Thank you, Mr. Chairman.

Mr. Secretary, you have before you the letter from our colleague, Mr. Passman, to which Mr. Chiperfield referred?

Mr. DILLON. I have not had time to read the letter, but I have a table here before me, yes.

Mr. MERROW. I refer to paragraph 4 in this letter which states:

I should like to point out the amount of foreign aid funds available in all categories on July 1, 1958, the first day of the present fiscal year. I quote verbatim from information furnished by the Office of Business Economics, U.S. Department of Commerce, and published by the Library of Congress: "Thus,

the carryover funds of 9.5 billions, plus new funds of 6.1 billions, provided an estimated availability of 15.6 billions for foreign aid during fiscal year 1959."

I wondered if you would be willing to comment on that. Mr. DILLON. Well, since I have not seen the report as yet and don't have it before me, I don't know what funds they are talking about. I can comment on this: They talk about new funds of $6.1 billion and as this committee is well aware, the Congress last year voted new funds of $3,298 million for the mutual security program.

Where the other roughly $3 billion comes from, I don't know. Maybe they added in there the authorization for Public Law 480 that was passed by the last Congress, which was a rather large authorization. They may have added in the expansion of the Export-Import Bank last year. I have no idea what makes up that extra $6.1 billion. Mr. MERROW. I wonder if you would devote attention to that and present the committee and explanation of those amounts?

It indicates that the $15.6 billion available beginning with the present fiscal year-I would like to know how that is made up.

Mr. DILLON. The next paragraph indicates that maybe that figure also includes the figures for overseas military construction for our own Armed Forces, so it obviously includes a great many things that are not ordinarily called foreign aid.

Mr. MERROW. It would include many other items, would it not? Mr. DILLON. Yes, sir.

Mr. MERROW. I think you have given a very adequate explanation and have emphasized the necessity of doing something about the Development Loan Fund.

If the appropriation is not increased, then is it an exaggeration to say that the operation of the Fund will be practically paralyzed? Mr. DILLON. Yes. It will stop operating.

Mr. MERROW. It will stop operating, will it not?

Mr. DILLON. That is right.

Mr. MERROW. That is all, Mr. Chairman.
Chairman MORGAN. Mr. Hays.

Mr. HAYS. Thank you, Mr. Chairman.

Mr. Secretary, this bill presents to the committee $2,435 million for the military; is that correct?

Mr. DILLON. You are adding the defense support in with the military assistance?

Mr. HAYS. Yes.

Then they are asking for $200 million in the emergency fund, the contingency fund, and what is the President asking for in the President's special fund? I don't find that.

Mr. DILLON. That is what the contingency fund is.

Mr. HAYS. What about this special assistance fund?

Mr. DILLON. Special assistance is the same kind of funds that we use for defense support. It is for the same purposes, but it goes to countries where we do not support large-scale military establishments. Mr. HAYS. What is the amount of that?

Mr. DILLON. I think it is $272 million.

Mr. HAYS. Roughly then there is about $2.9 billion of this that could conceivably go to military support. In the President's fund and the other it could be either one, but the maximum could go to military support.

Now the Development Loan Fund and related funds are used, as I understand it, to build up the economic viability of these countries; is that correct?

Mr. DILLON. That is correct.

Mr. HAYS. And that is rather an emergency; is that right? Mr. DILLON. That is a continuing emergency need in this area. to have some progress in their development, or some hope of progress. Mr. HAYS. If you can believe what the Communist leaders say, that their fight is going to be made the economic front-now I think you are enough of a realist to know that this bill is going to have some funds cut out of it before it ever gets through Congress. If it does not it will be the first time, and I will be willing to wagerMr. CURTIS. Mr. Chairman, we cannot hear down at this end of the table.

Chairman MORGAN. Will the gentleman please get closer to the microphone?

Mr. HAYS. Faced with the fact that money will be taken out of this bill, do you think it will be more important to have the economic assistance funds remain relatively untouched and take that money out of the military and the defense support?

I realize that is a very hard proposition to face, but I am of the opinion-and this is a leading question-that it is more important to leave the economic relatively alone and if we are going to win this fight that we have to concentrate on that area.

I wonder if you would like to address yourself to that proposition? Mr. DILLON. In general I would agree that economic aid funds in underdeveloped countries are more important than military funds. I would like to say one thing, though, to qualify one thing that has been said, and that is that funds that go for defense support are basically designed to aid the economies of these countries who happen to have these big military establishments and unless there are adequate funds there you are apt to get serious inflation, serious fiscal dislocations in these countries, which would make it hard to have worthwhile development programs in them at the same time. So there is an economic need for defense support. It isn't purely military because we can't just wish away these armies that are there. The burden is on those countries and it will take a while to reduce it even if we go at it very rapidly.

Mr. HAYS. I understand that, but faced with this very realistic problem of having to give up funds some place, it seems to me that it is more important to concentrate on strengthening the economic viability of these nations so that the Communists can't appeal to the masses and say, "If you will come over to our side we can give you a better way of life" than it is to load them up with a lot of military hardware that, if they use at all, they very well may use against their own people or against each other in the area, or even perhaps against us. For instance, in the case of Iraq, and this is a sort of a post mortem, it seems to me that if we had pushed the economic side of the program there, pushed the land redistribution, pushed the irrigation projects and given some indication that we were on the move there, that we might have had a friendly government still there, but the reason it was overthrown, as I see it, was because the appeal was made to the people that nothing was being done to improve their standards of living. Do you agree with that?