I do have a fairly good working knowledge of what the agency is attempting to do.

I have appeared before other appropriations committees during my tenure as Chairman of the Securities and Exchange Commission. I know what you would like to do, and I would like to have you know what we would like to do-we would like to cooperate in every way possible. We are not inclined, either basically or otherwise, to expend Government funds unless it is appropriate and can be substantiated by the work that is done. I find in the RFC a very good spirit. There are some changing sentiments about whether or not the work of the RFC is justified, but of course we are not here to debate that this afternoon.

We are doing all that we can-and I would like to make this clear to the committee-with the cooperation of a very marvelous staff who in themselves are cooperative and want to do the best they can. We are doing what we can to warrant or justify the use of the funds that are appropriated by you, or if you do not want to use the word "appropriated," the limitation of funds which we earn that we may

use.

I have a very short formal statement. Would you like for me to read it?

Mr. GARY. Yes.

Mr. McDONALD. Mr. Chairman, members of the committee, it is a pleasure to appear before you to present the program of the Reconstruction Finance Corporation for the fiscal year 1953.

LENDING PROGRAMS

I am sure you gentlemen are well acquainted with the functions of RFC and with its history, so I will confine my remarks to a brief discussion of our current activity. During the past year we have had a program of controlled lending. All of the business loans being made today are directly connected with the defense effort or are made to support businesses providing essential civilian goods. In addition to the business loans made under section 4 (a) of our act, we are making loans in support of defense activities under section 302 of the Defense Production Act. These loans are made for the acquisition of plants and equipment when a certificate of essentiality is received from the Defense Production Administration, the Defense Materials Procurement Administration, or the Department of Agriculture. This authority is also used to make working capital loans to companies having defense contracts. Many of these Defense Production loans are quite large. We have, for example, a loan of $57 million for the development of copper ore deposits in Michigan. That loan has been made. We have also spent a substantial amount of time screening applications for other loans of substantial amounts where eventually a certificate of essentiality was denied. The processing of applications for section 302 loans is now a substantial part of RFC's activity. In addition to loans under section 302 we are making loans to small business under section 714 of the Defense Production Act. While RFC's lending function has always been primarily to small business, loans under section 714 can be made under somewhat less stringent credit requirements than under the regular RFC authority. Through April 1952, 183 loan authorizations for $250,365,000 have been made

under section 302 and 25 loan authorizations for $1,600,000 have been made under section 714.

Under the controlled lending policy now in effect, our loan volume is considerably lower numerically than it has been in the past few years. I expect that it will remain at a point lower than previous volumes, barring an economic upheaval not now foreseen. On the other hand, as our defense efforts deepen and as further adjustments to the current level of defense spending take place within the economy, it is certain that the demand upon RFC for essential credit will increase. In order to speed the handling of loan requests, authority to approve certain RFC loans has been redelegated recently to the managers of the Corporation's loan agencies. Direct loans up to $50,000 and deferred participations in bank loans up to $100,000 may be approved in the field under this delegated authority, subject to the concurrence of the Washington office in the public interest features of the loan.

In revising our budget estimates, we reduced our forecast of loans from 2,600 on the fiscal year 1953 to 1,500. This compares with 2,700 loans made in fiscal year 1951. We have adjusted the lending segment of our organization to this volume and should a volume substantially greater than this occur, further expansion to our staff would be absolutely essential.

We are also making loans for the relief and rehabilitation of disaster victims. By its very nature, it is impossible to predict activity in a program of this type. However, it is our policy, whenever called upon to provide disaster relief in the form of loans, to absorb within our regular lending programs as much of the expense as possible. Even so, there are apt to be some occasions when the size of a disaster makes it impossible to absorb all of the extraordinary costs arising out of increased travel, the hiring of temporary clerical employees, and the rental of temporary office space.

During the past year the Nation has been plagued by a number of disasters. Last July, there was the unprecedented flood along the Missouri River. Then there was the tornado which hit Arkansas and Tennessee. More recently, there have been the floods along the Missouri and Mississippi Rivers and their tributaries.

Some figures on RFC's disaster loan program in connection with the floods of last July will illustrate the extent of activity under the disaster loan program. More than 14,000 interviews were held with victims. of that one flood. Over 3,000 sets of application forms were given out, and about 2,700 of these have been returned. Although the flood occurred last July, applications from that area are still being received. About three-fourths of the loans went to individuals for the purpose of rehabilitating damaged homes or for the purchase of new dwellings.

RUBBER PROGRAM

During the current year we reached the peak production rate of general-purpose synthetic rubber. Owing to the slackening of demand. and the greater availability of natural rubber, we are now in the process of gradually cutting this production back in consonance with demand. This cut-back will involve in the course of fiscal year 1953, the elimination of alcohol-produced butadiene, with a consequent substantial reduction in our costs. One or more copolymer plants will

be placed in stand-by. During the course of the year we raised the price of synthetic rubber from 241⁄2 to 26 cents a pound to reflect the higher cost of alcohol butadiene coming into production. When we were able to cut back the use of alcohol butadiene, we reduced the price to its current level of 23 cents a pound. We are continuing to produce synthetic rubber at less than the price of natural rubber. During the year we will have the continuing problem of improving efficiencies in our plants and of making adjustments necessary to meet the market demand. Research in synthetic rubber is continuing with promising results. It now appears that a much greater use will be made of so-called oil-extended master batches. The use of master batches permits a greater production of rubber at a lower cost.

TIN PROGRAM

I believe you were told last year of the difficulties of securing an adequate supply of tin metal at a reasonable cost. We are now receiving adequate supplies of tin metal.

I would like to insert into the record at this point a memorandum that I have today which is very interesting, from Mr. Shannon, who is looking after the tin program, and I am going to read it at this point.

RFC resumed the purchase of tin metal on January 22, 1952, and to date has made purchases of tin metal, calling for delivery during 1952, of a minimum 51,000 tons and a maximum of 54,000 tons. Our present contracts with the Indonesian and Belgian Congo producers will provide for deliveries of tin metal to the United States of a minimum of 15,000 tons and a maximum of 19,000 tons annually and will continue at this rate until March 1, 1954.

Our current purchases of tin in concentrates for 1952 to date are approximately 23,000 tons of contained tin. Approximately 13,000 tons of this quantity were obtained in recent purchases of Bolivian ores stored in the ocean ports in Peru and Chile. There have been no recent negotiations for purchases of current or future Bolivian production pending clarification of the governmental status.

The present Indonesian and Belgian Congo contracts combined provide tin concentrates at the rate of approximately 10,000 tons of contained tin annually until March 1, 1954.

Spot purchases of tin concentrates will continue in Thailand, Portugal and Mexico.

The recent concentrate purchases will permit resumption of full scale production at the smelter (2,500 to 3,000 tons of tin metal per month) by the latter part of July and continue throughout the balance of 1952.

Purchases of tin metal and tin in concentrates during 1952 approximate 74,000 to 77,000 tons to date.

Consumption of primary tin in the United States is presently about 60,000 tons per year.

We still have before us, however, the difficult problem of arriving at a satisfactory contract for tin ores with the Bolivians. It is my hope that this situation will be greatly clarified within the immediate future.

ABACÁ FIBER PROGRAM

We are continuing our program of exploration and development leading toward the expansion of abacá production in Central and South America to 50,000 acres. This program is proceeding somewhat slower than originally planned because of the necessity of being absolutely sure of getting the best possible acreage and operating and financial arrangements before proceeding with our investment. This program will be fully under way during the next fiscal year.

The liquidation of the World War II assets assigned to RFC is at this stage necessarily proceeding slowly. We have now reached the point where the assets and liabilities remaining are not easily disposable, either because of long-term arrangements such as leases, or because of protracted litigation. We now have for disposition assets amounting to $76.0 million. By June 30, 1953, this will be reduced to $56.9 million.

The operations of RFC continue to return a net profit to the Treasury. In the last fiscal year we declared a dividend of $16 million to the Treasury as a result of our lending operations. Proceeds from the operating programs and from the liquidation of assets to the Treasury were $75 million. This year will show a similarly profitable operation.

ADMINISTRATIVE EXPENSES

As you gentlemen know, administrative expenses of the Corporation are paid out of income, rather than from appropriated funds. We had originally submitted to your committee a proposed limitation on these expenses of $18.5 million. You have recently received an amended limitation reducing this to $16,850,000. This amendment represents a reduction of $1,650,000 from the original estimates and $900,000 from the current year's authorization. It was initiated in recognition of the smaller volume of new loans previously referred to, and because we have been able to tighten our overhead structure. This will be the lowest administrative expense RFC has had for many years and represents, in my judgment, a sound and prudent. forecast of requirements.

In connection with the submission of this estimate we have asked the committee to approve the establishment of a specific fund for the financing of the rubber, tin, and abacá operating programs. At the present time these programs are being operated from funds available from liquidation of wartime assets. These operating programs have little in common with the liquidating program. They will continue as substantial operations until such time as the Congress, through legislation, transfers them to private operation. The establishment of this fund provides a more orderly method of financing and budgeting and permits more effective control by the Congress.

I have with me members of my staff who are available to answer any detailed questions with which I may not be familiar. Mr. GARY. Thank you very much.

COMPARISON OF ORIGINAL AND REVISED BUDGETS, 1952 AND 1953

We will insert at this point in the record a table which has been furnished the committee, since the justifications were first submitted, showing the comparison of original and revised budgets for the fiscal years 1952 and 1953.

(The matter referred to follows:)

Comparison of original and revised budgets, fiscal years 1952 and 1953

Mr. GARY. We will also insert at this point in the record the analysis of major programs appearing on pages 19, 20, 22, 23, 24, and 25 of the justifications.

(The matter referred to follows:)

ANALYSIS OF MAJOR PROGRAMS

LENDING PROGRAMS

The Corporation's lending programs are being carried on in conformance with the policies of the Government regarding restriction of credit. Loans are restricted to those which contribute directly to the defense program or which provide for essential civilian activities.

At the end of June 1951, the loans, investments, and commitments of the lending programs totaled $1,134,000,000. By the close of fiscal year 1953, this amount will have been reduced to $906,448,000.

Business loans. The major portion of the Corporation's current lending activities is found in loans to business enterprises. Estimates of activity for fiscal years 1952 and 1953 are compared with 1951 experience in the following table: