Mr. DILLON. I certainly agree that economic viability is our No. 1 objective in this program in these underdeveloped countries and it is more important than any other objective.

I do think we do need security in some of these countries and the military assistance which is needed to provide that security is a real necessity, but certainly you have put your finger on the key battle now, which is the economic viability of these countries.

Mr. HAYS. That is all, Mr. Chairman.

Chairman MORGAN. Dr. Judd.

Mr. JUDD. Thank you, Mr. Chairman.

First I want to express my appreciation and commendation to Secretary Dillon and Mr. McIntosh for the very effective, businesslike, and successful way in which they have carried on this program.

You have had the experience of those who have gone before to guide you, to be sure, but I think that the fund has moved along better than we had a right to expect in achieving the exact objectives we had in mind when we set it up; to give some continuity to this loan program, and to give loans not to governments in general, but to give loans for specific projects where there was a reasonable prospect of their contributing to the economy of the countries.

The question I would like to ask is: Is it possible to transfer into the Development Loan Fund moneys either in the pipeline or appropriated now or to be appropriated for other titles or sections of this Mutual Security Act?

Mr. DILLON. No, sir, that is specifically prohibited by law.

Mr. JUDD. No matter how much is in the pipeline for military assistance or even if we give them $1.6 billion new money as requested for the next fiscal year, none of that can be used for the Development Loan Fund activities?

Mr. DILLON. No. The President's transfer authority is by lawit specifically does not apply to the Development Loan Fund.

Mr. JUDD. And the same is true for defense support which is economic aid to countries to whom we are giving military assistance. None of that can be transferred into the Development Loan Fund? Mr. DILLON. Nothing can be transferred into the Development Loan Fund.

Mr. JUDD. The special assistance economic aid which goes to countries where we don't have military agreements, none of that can be transferred into the Development Loan Fund?

Mr. DILLON. That is correct.

Mr. JUDD. And the contingency fund-there is nothing in it at the moment, but if there were, is it or is it not possible for the President to use that to increase the capital of the Development Loan Fund?

Mr. DILLON. It is not possible.

Mr. JUDD. I wanted to have that on the record because some have claimed that there is lying around idle some $16 billion, $9 billion, all sorts of figures, that the President could use in the Development Loan Fund in place of this amount requested by him.

Questions are frequently brought to us like this, "You fellows on the Foreign Affairs Committee say, 'We should give money as loans.' All right, we will give money for loans, but have you cut down the amounts for grants?"

Have there been reductions in the amount of funds given as grants for economic purposes, as the Development Loan Fund has increased the amounts given as long-term loans?

Mr. DILLON. I have figures which show that between fiscal 1957 and 1958 funds used for grants decreased by something over $100 million. Also, as the Development Loan Fund became more active, this may be an interesting figure, the percentage of our economic aid that went in the form of loans was 24 percent in 1957 and in 1958 it was 27 percent and in 1959, the way we are running, it will be 34 percent, so it is a steady increase in the loan component.

Mr. JUDD. I have some figures that our staff dug out for development assistance which was a predecessor category. In 1955, $129 million went for grants and $55 million for loans.

In 1957, $50 million for grants-that is down $79 million-and $200 million for loans, which is up $145 million. Of course, in 1958, nothing was given as grants in the economic development field. The total that we made available last year was for loans.

Mr. DILLON. That is right.

Mr. JUDD. So we can show that development loans are not just added on to grants, but there is a definite shift. We give less for grants as we give more for loans which is better for the recipient and better for the American taxpayer.

Mr. DILLON. That is right.

Mr. JUDD. One more question, If I may.

Have you any estimate or information as to what percentage of the loans that are being made by the fund is repayable in dollars? Mr. DILLON. About 20 percent are repayable in dollars.

Mr. JUDD. I am glad to hear that because in the beginning there was talk that all of these would be loans from which we would never recover anything.

That is all I have time for, I guess, Mr. Chairman.

Chairman MORGAN. Mr. Selden.

Mr. SELDEN. Thank you, Mr. Chairman.

Mr. Secretary, was the development loan program for fiscal year 1959 set up on the basis of the amount appropriated by the Congress, or was it set up on the basis of the amount the administration could process in an orderly manner during the fiscal year?

Mr. DILLON. It was set up on the basis of what the Development Loan Fund could process in an orderly manner. That was an important decision and the decision on that was taken directly to the President and relying on the fact that a number of members of the conference on the appropriations bill last year indicated that they thought there were not adequate funds for the Development Loan Fund and indicated that the committees would give sympathetic consideration to a request for additional funds should it prove necessary. The President directed we proceed in an orderly fashion and if we used up the funds we would rely on the hope of getting a supplemental appropriation.

I think we should bear in mind that at the time last summer this bill was being considered, the Development Loan Fund had only been in business a very short time and there was a very real question in the minds of the Appropriations Committee, which was a very justified question, as to whether the Development Loan Fund would be able to obligate funds at the rate that we had thought we would.

When it was first proposed we had asked for $500 million and--that was in fiscal year 1958 and we had been given only 300 and in that year it turned out we were only able to obligate about 300-a little less than the 300. So actually we hadn't done quite as well in fiscal 1958 as we had expected because it had taken us longer to get into operation.

In fiscal 1959 the committee adopted the conservative view we again couldn't do as well and it has turned out we were able to do about what we expected.

Mr. SELDEN. In the 1960 request you have asked for $700 million. Now, let's suppose that Congress fails to authorize and appropriate that much. Will your program for next year be set up on the basis of the amount Congress appropriates, on the amount that was requested, or on the amount that can be processed during the next fiscal year?

Mr. DILLON. I would answer that this way: It would depend somewhat on the circumstances at the time, but if there didn't seem to be a special circumstance like last year where there was indication that a supplemental request would be welcomed, we would naturally try to gear the speed of our operations to the amount of funds that the Congress had made available. Because, running along and starting and stopping is certainly not a good procedure businesswise or foreign policy wise.

Mr. SELDEN. Can I assume then that your program would have been geared that way this year had you not been encouraged by the Appropriations Committee as to the possibility of a supplemental appropriation?

Mr. DILLON. That is correct, and that decision of the President was reflected immediately in September when they put out the semiannual report of the Bureau of the Budget and indicated there would be a supplementary request for the Development Loan Fund at that time. Mr. HAYS. Would the gentleman yield?

Mr. SELDEN. I will be happy to yield.

Mr. HAYS. Mr. Dillon, there has been a lot of comment around the Hill here that on this military appropriation the amount of money that is granted, actually the goods that are delivered in many cases, are surplus to our military needs, but that they are charged off at full price, whereas if the military had to dispose of them in the regular way, as surplus property, they might realize 10 or 20 cents on the dollar. Do you know anything about that?

Mr. DILLON. Well, I do know that there has been a good deal of criticism of that. I do know that the Defense Department has adopted new procedures in the past year or two to bring costs of items of the mutual security program down to what is considered to be a fair and reasonable cost.

They originally used to put them in as replacement costs which was away above what they were worth.

Mr. HAYS. If it was at actual cost, the same amount of money would deliver a different amount of goods; is that right?

Mr. DILLON. I think that has taken place. I would prefer to have one of the Defense witnesses answer in detail, but I believe that has been remedied. That was a criticism a year or two ago.

Mr. HAYS. Thank you.

Chairman MORGAN. Mr. Fulton.

Mr. FULTON. I would like to compliment Secretary Dillon on a very fine statement and for the work he is doing in his present capacity.

Likewise, I would like to compliment Dempster McIntosh, head of the Development Loan Fund, as well as Hart Perry, the Deputy Managing Director, for their competent work and their accomplishments to date.

I have followed the development loan agency closely and have watched the progress. As a former banking counsel myself, I think it is excellently run. It is something that we should have full confidence in and give them the full amount of money.

Now, in contradiction to that position, I want to oppose strenuously the International Finance Corporation which is a subsidiary of the International Bank for Reconstruction and Development, and I oppose our U.S. participation in it.

I feel that our U.S. investment of $35,168,000 in that institution is a waste and that we should not either expand our U.S. capital contribution, or initiate any expansion of capital of the IFC itself.

The reason I say that is this: The purpose of the U.S. Development Loan Fund, is always to carry out U.S. foreign policy; is that not right?

Mr. DILLON. That is correct; yes, sir.

Mr. FULTON. I opposed the formation of the International Finance Corporation, in 1954 at the Rio Economic Conference in Brazil where it was proposed by George Humphrey, then Secretary of the Treasury. Under the IFC charter there can be no foreign policy of any country purpose in any loan. It is especially restricted under section 9, article 3 of the IFC charter that economic considerations alone shall be relevant to the decisions of the International Finance Corporation. That means that there is no possibility of a choice as to which are the best strategic areas to develop in these many underdeveloped areas, but it must be made solely by this Board of the IFC, on the basis of economic considerations; is that not right?

Mr. DILLON. I understand that is the policy of the IFC; yes, sir. Mr. FULTON. That, to me, is a tremendous defect because, compared to the Development Loan Corporation, the IFC is an expensive and delayed operation and it is not really in effective operation yet. It has taken a long time to get into existence and I believe that the expenses of management are greatly disproportionate to those of the Development Loan Fund.

At this point in the record, could I have you supply for me, Mr. McIntosh, the difference in expenses of operating, administration expenses of the two funds, and also the differences in handling the loans and also the period of time?

(The information requested is as follows:)

COMPARATIVE IFC-DLF DATA

Summary data on administrative expenses, loan commitments and loan disbursement of the IFC and DLF are given below. The data covers the first full year of operations of the two organizations; i.e., fiscal year 1958 for the IFC and fiscal year 1959 for the DLF.

International Finance Corporation (fiscal year 1958):

Administrative expenses_

Loan commitments_

Loan disbursements_

Development Loan Fund (fiscal year 1959):

$1, 149, 445

7, 947, 000

3, 317, 000

1,250,000

430, 270, 000

1

2

372, 206, 000

Administrative expenses (total limitations). Loan commitments (through Mar. 20, 1959). Obligations for loans (through Mar. 20, 1959). Loan disbursements (through Mar. 20, 1959) – 1This amount, together with $267,636,000 in fiscal year 1958 loan commitments, makes $697,906,000 in total DLF commitments.

$ 25, 489, 000

Excludes fiscal year 1958 obligations of $102,100,000. The full-year estimate for fiscal year 1959 is $499,750,000.

3 Excludes fiscal year 1958 disbursements of $1,500,000. The full-year estimate for fiscal year 1959 is $100 million.

Mr. FULTON. Under section 413 of the International Cooperation Administration Act of last year, we have the guaranteed program. That is the program which is to help with the development of private trade abroad, and also to assist our U.S. investors, as well as help underdeveloped countries.

My suggestion is, first, that the guarantee program contracts be widened to insure investors against losses of internal disorder, riot, and civil unrest.

Secondly, I would recommend that the guarantee program be broadened to include the subsidiaries of American corporations operating in foreign countries, even when they are incorporated in the local foreign country.

Thirdly, I would recommend that it be widened to include the participation of American investors, possibly on a 50-50 basis, with local investors.

I wish you would consider those three recommendations.

My next recommendation is that the guarantee loan program be moved in full to the Development Loan Fund because it is for the same purposes, only using a different means.

I would like to have you people survey that subject, tell us how to do it, and I would be very glad to sponsor an amendment. I would appreciate it if you will put that in the record. I will give back the balance of my time. Thank you.

Chairman MORGAN. Mr. Pilcher.

Mr. PILCHER. Mr. Secretary, the Soviets have always called us imperial capitalists and have disagreed with our free enterprise system, whereas theirs is government-owned and a government operation.

Now, aren't we in lots of these underdeveloped countries, with the mutual security program, helping form the same kind of government in some of these countries that the Soviets have; that is, direct government-owned, government-controlled, government-operated— especially some of the underdeveloped countries?

Mr. DILLON. No, sir, I don't think we are helping form the same governments that the Soviets believe in at all.