the new administration and it will be maintained until reasonable overall equilibrium in the U.S. balance of payments has been achieved.

It is clear that one result of the new Aid for International Development, when enacted, will be the production and shipment of billions of dollars of American goods to advance the development effort overseas; it is equally clear that the policies which result in a very high percentage of the goods being procured in the United States is based primarily upon minimizing any potential adverse impact upon our balance of payments and not upon subsidizing American industry

Senator MORSE. I want to thank you very much, Mr. Secretary. We will recess then until 2:30.

(Whereupon, at 12:40 p.m. the committee recessed to reconvene at 2:30 p.m. the same afternoon.)

AFTERNOON SESSION

Senator SYMINGTON (presiding). With the chairman's approval, Mr. Labouisse, we will open this meeting. I am sorry I could not be here all this morning, and have a few questions. The first has to do with the question of loans.

ADVANTAGES OF DEVELOPMENT LOANS

As I understood it yesterday, these loans are going to run as long as 50 years, at times will not bear interest, at times no principal repayment up to 10 years. With that in mind, I am not sure I see the advantage in loans as against appropriations on a no-year basis. Would you comment?

STATEMENTS OF HON. HENRY R. LABOUISSE AND FRANK M. COFFIN-Resumed

Mr. LABOUISSE. May Mr. Coffin respond?

Senator SYMINGTON. Would you respond, Mr. Coffin?

Mr. COFFIN. I think there is an advantage, although bearing in mind your comment of yesterday, this is not the kind of loan we talk about in normal commercial practice.

Yet it seems to me if we are to engage in a meaningful assistance program to the extent that we give assistance, it means to that extent we go beyond what a normal commercial loan would be.

No. 1, I think the very process of lending and borrowing is a useful procedure for the donor and recipient country or company to engage in, and sit down in an atmosphere which is businesslike, it is an atmosphere in which it is very realistic to say, "We will loan you but on these terms, these are the conditions of the loan."

These are not strings in the sense that we require adherence to certain treaties, but they are strings in the sense that we expect certain things to be done.

Senator Morse this morning was talking about writing in certain conditions which would be in a loan, and if these conditions were breached then payment would not be forthcoming.

So I think this is very useful atmosphere. It is not possible when you make a grant, and then you are remitted to making end-use checks and then following up. But a loan which is paid out and paid back again over a period of years, gives you an atmosphere

70569-61-pt. 1——17

Senator SYMINGTON. I am not criticizing the program. I am asking for assistance in understanding when a loan is hardly a loan. We were in the question yesterday of whether or not it was a hard loan. I think the Secretary of the Treasury felt in no sense could it be considered a hard loan.

A lot of people do not realize the great income this country has. Our gross national product is now around $1.4 billion a day. If you have to sell this program on the basis of these being loans which really they are not you get into a lot of problems. I wonder if you were justifying this policy on the grounds it is a more businesslike

transaction.

I think it businesslike for the American people to realize that it is in the interest of their existence in freedom, that they develop and expand this program. That was the reason for my question.

Mr. COFFIN. I agree with you, Senator. I think we have to realize that what we are talking about is-what we are seeking is the best tool to do the job that serves our own interests.

Now, we call this a loan, and it is. The IDA, however, recognizing the lack of complete comparison between a commercial loan and a development loan, have used the term development credit. I do not know, that may be a better term than development loan.

Senator SYMINGTON. I once had some interest in running a government agency that was a loan agency. In putting this program into loans, you get farther away from what might be called congressional supervision.

That being true, you have an increased problem of management because to any administration agency in Government, congressional supervision is a good check, and I am a little surprised at the emphasis on the loan aspect.

AMOUNTS REQUESTED FOR LOANS AND GRANTS

How much is the total amount of economic grants in this bill? Mr. LABOUISSE. This year the total, about 60 percent of the total this year, is in the form of grant, 40 percent in loans.

Senator SYMINGTON. What is that figure?

Mr. LABOUISSE. The loan component would be about $1.2 billion as against 30 percent this year.

Senator SYMINGTON. What is the grant figure?

Mr. LABOUISSE. $1,690 million. That includes contributions to international organizations, a contingency fund, administrative expenses, et cetera.

The actual grant program would be $610 million for supporting assistance, $389 million for development grants. That is $999 million. Those are two of the main components of the grant funds.

ADMINISTRATIVE PROBLEMS

Senator SYMINGTON. As you develop a program of loans instead of no-year grants, you are going to have more difficult problems, from the standpoint of efficient management.

I was much impressed with what you said about your regional directors and the desire for closer supervision.

It is my belief that the way this aid program is managed is going o have a great deal to do with the success of this administration in ts foreign relations position before the country.

Mr. LABOUISSE. Senator, on the question of loans, I think in addiion to what Mr. Coffin has said, that, first of all, I think a loan relaionship is a better relationship with the foreign country. It is more Jusinesslike. But another factor

Senator SYMINGTON. I am not sure about that.

Mr. LABOUISSE. I think we are going to get some of this money Jack.

Senator SYMINGTON. I have gone to countries where there were loans, but not much of the loans ever got to the common people. Also, there are businessmen in these countries interested in obtaining what you might call producer wealth as against consumer wealth. Unless you are careful in the loaning of money to a certain group in a certain country, they control that money more than if you were shipping in consumer wealth such as food. I ran into serious situations along those lines as far back as 1948, under the Marshall plan.

IMPORTANCE TO PROGRAM OF HIGHLY QUALIFIED MISSIONS DIRECTORS

You mentioned this morning you intended to have, and I took the words down, "highly qualified missions directors."

May I respectfully say I think your program may well stand or fall on just how qualified those men are.

Mr. LABOUISSE. I do, too.

Senator SYMINGTON. In summary, I hope the American people are persuaded as to the importance of this program, whether loan or a grant. This type and character of program is just as important as the building of missiles or submarines, from the standpoint of security.

I did not mean to interrupt you a minute ago.

Mr. LABOUISSE. That is all right. I do think we are going to get some of this money back, and I hope it is not all going to be 50-year

money.

This is the outside, and in some cases I think you can shorten the duration.

We may have there is a possibility, as the Secretary of the Treasury mentioned yesterday-some sort of a service charge, and the period of grace may be varied.

Senator SYMINGTON. I am sure you will get a lot of it back.

QUESTION OF DEFAULTING ON REPAYMENTS OF DLF LOANS

Have any countries defaulted on repayments of interest or principal on loans granted by the Development Loan Fund?

Mr. COFFIN. Senator, I think the answer to that question is "no." We have had one situation where there was potential trouble because of the way in which the enterprise was operating and it met with a lot of difficulties, and we had to sit down with some New York banks and work out a refinancing, but otherwise there have been no defaults. Senator SYMINGTON. Well, Mr. Chairman, would you supply any information for the record that would be more detailed on that subject.

Mr. COFFIN. I would be glad to.

(The information referred to is as follows:)

No countries borrowing from the DLF have defaulted on repayments of principal or interest. While there have been delays in repayment on some DLF loans to private borrowers, the DLF has not yet had to call any of these loans. The instance cited by Mr. Coffin was a private transaction. In that instance, a shipyard and fabricating operation which had been assisted by a DLF guarantee of its borrowing from two New York banks, suffered considerable losses. The DLF, on the basis of a thorough examination of the reasons for the loss by an established U.S. auditing firm and U.S. shipbuilding experts, agreed to participate in a refinancing of the operation on the basis of credits and guaran tees made available by government banks in the countries involved, credits from the U.S. parent company and extension of time for repayment by U.S. suppliers, and a new DLF guaranty of the balance of the loans due to the New York banks. The operating company has been reorganized and there are indications that it will receive stronger support from the host country than was previously the case.

CONDITIONS UNDER WHICH LOANS WOULD BE MADE TO INTERNATIONAL

ORGANIZATIONS

Senator SYMINGTON. Under the proposed development loan authority, provision is made for authority to make loans to international organizations. To a layman like myself that leaves it hanging.

You would not lend money to the United Nations to finance its activities in the Congo, would you?

Mr. COFFIN. No.

Senator SYMINGTON. Could you describe a case where you would lend money?

Mr. COFFIN. Well, I do not know-this is not one of the typical international organizations but we do have activity in the Indus Basin land. This is a group of nations helping out on the Indus Basin, and our Government, pursuant to the action taken last year, had engaged in that operation.

CONDITIONS UNDER WHICH LOW-INTEREST OR NO-INTEREST RATE LOANS WOULD BE MADE

Senator SYMINGTON. In your presentation book it is indicated, and I quote:

"Loans might be made at no interest at all or at nominal interest rates so as not to burden the balance of payments."

Is that the only reason for making no-interest rate or low-interest rate loans?

Mr. COFFIN. The major reason is that typical development loans will be made to a country which is just in the first stages of develop ment, and the whole eventual purpose of the development loan is to furnish the facilities, the basic structure of that country, so that in 10, 15, 20 years time it will begin to move at increasingly rapid rates, at which time we expect they will be able to service the debt."

In the early years we expect that if we are really going to help a nation we should not expect substantial repayments of principal or interest.

But if our loans are really development loans, by the end of 30 or 40 years, then that nation should have a capacity to service the debt.

HOW WOULD THE LOAN PROGRAM BE APPLIED IN AFRICA?

Senator SYMINGTON. In Africa, where I was fairly recently, it is hard to visualize formal loans as against grants.

Ambassador Dayal who the Senator from Tennessee had for lunch the other day, told us that in the entire Congo there were 11 college graduates, 1 lawyer and no doctors at all.

Mr. COFFIN. That is true.

Senator SYMINGTON. So, the idea you could get into a loan program, which they would

Mr. COFFIN. This is not true of some of the African countries like Nigeria and Tunisia, but it is true of a number of others, and therefore, our development grant category specifically recognizes that although most of our money in development grants will be in education and human resources, still in the very primitive countries where a capital project makes sense we shall be prepared to do it, not on a loan basis but on a grant basis.

Senator SYMINGTON. I noticed your statement segregates Nigeria, along with Tunisia, as countries which would be especially able to cope with this new program. Why do you segregate Nigeria, or emphasize Nigeria particularly as against other African states?

Mr. COFFIN. These were illustrative, these were not intended to be a definitive selection of these two, and only these two, but we have. been impressed with the work that has been going on in them.

First of all, in Nigeria they have an administrative capacity that has been a goodly heritage from the British rule.

Secondly, in their endeavors recently they have shown a disposition to engage in serious planning. This Ashby report on education is an impressive document.

We are not saying they have reached the stage yet, but we are saying here is a country where we see hope in engaging in a meaningful program with them on the basis of the criteria that we are talking

about.

Senator SYMINGTON. Based on their experience under British colonialism in the training of native public servants; is that correct? Mr. COFFIN. Yes, that is a substantial factor.

LOANS TO PRIVATE INVESTORS

Senator SYMINGTON. Would you explain the circumstances under which a development loan might be extended to a U.S. individual or corporation intending to undertake investments abroad? That was mentioned yesterday and passed over rather rapidly I thought, and naturally it would generate a great deal of interest in the business community here.

Mr. COFFIN. Senator, I have a prepared statement on private investment, and I had intended to present it at some time this afternoon. I suggest that when we are through with Mr. Labouisse we will be prepared to proceed with both private investment and with research. Senator SYMINGTON. Thank you.

The CHAIRMAN. Senator Gore, do you wish to ask Mr. Labouisse any questions? If not, we are going to proceed. Senator GORE. No.