To make up for the temporary deferment of availability of some U.S. resources in the early years, other developed countries have agreed to accelerate the availability of their contributions for use by IDA. No change would take place in IDA's present method of operations with respect to borrowing countries. In particular, international competitive bidding would continue to be the rule. The management of IDA has given assurances that the entire arrangement is compatible with continued effective operations by the institution. The United States would have recourse to the arrangement only as long as its balance of payments situation required. A later acceleration in the rate of use of the U.S. contribution would have to be anticipated, as a corollary of the deferment we had received. The technical description of the workings of these arrangements is detailed in the NAC report. The point I wish to emphasize is that the balance of payments cost of the second replenishment of IDA will be zero while we are in serious overall balance of payments difficulties. The CHAIRMAN. That is, assuming you cure them. Secretary FOWLER. Assuming we cure them, which I very much assume because I think the arithmetic of the situation no longer leaves us any other recourse, Mr. Chairman. The CHAIRMAN. That assumes the war is over too, doesn't it? The CHAIRMAN. Oh? I would be interested to find out. Senator SYMINGTON. Mr. Chairman, may I ask just one question? The CHAIRMAN. Yes. CONTROL OVER USE OF LOANS Senator SYMINGTON. Would you have someone give us stipulations as to penalties, any policing methods to assure they do what you say they will do after they get the money. Secretary FOWLER. Well, that is within our control, Senator Symington, in that our obligation to provide cash is confined to disbursements resulting in the United States while the balance of payments safeguards indicated are operating. Now, as to itself, and how IDA operates on that score, it will be, of course, the function of the U.S. Executive Director and his deputy to see to it that the calls upon the cash available are roughly equivalent to the amount of procurement in the United States. Senator SYMINGTON. Yes, Mr. Secretary, but these countries purchase a great deal of goods in the United States. As I understand, what they would do in order to prove their position would simply be to submit vouchers. What I would like to know is what method is developed to insure that vouchers produced are not for goods they would have purchased from this country anyway. That is but one example. Secretary FOWLER. I would like to have the U.S. Director comment on this. Mr. MERCHANT. Senator, the purpose of the so-called critical industrial import loans or advances to India has been to supply materials vital to the maintenance of the industrial economy of India——— Senator SYMINGTON. It could be any other country that receives a soft loan. Mr. MERCHANT. Right. Well, I will put it this way, sir. The Board of the Bank and IDA are kept continuously informed by the staff of the progress of loan disbursements. The Bank itself and IDA have their own self-auditing or control procedures. I am satisfied that this is run on a basis which is entirely consistent and in conformity with the terms of the loans and the purposes for which they were made. There is one, I would say, additional matter which occupies a considerable portion of my time, and that of my deputy, and that is receiving or obtaining information on asserted grounds for complaint on the part of American business, industry, or representatives of the banking or industrial community in connection with any bid under international competitive bidding or in the administration of any loan or credit advanced. I have had the complete cooperation of the Bank staff in going into every complaint that is communicated to me, and I, you might say, am in the daily position of being a watch dog on behalf of American business insofar as these loans and credits are concerned. Secretary FOWLER. Mr. Chairman, finally, the last one or two more points I would like to make. REPLENISHMENT CANNOT PROCEED WITHOUT THE U.S. PARTICIPATION Under the resolutions governing the replenishment which are reproduced in annex A of the NAC report, the second replenishment cannot become effective until at least 12 contributing members, whose contributions aggregate not less than $950 million, shall have notified IDA that they will make their contributions. Because of the size of the U.S. contribution, the $950 million "trigger" amount cannot be reached without our participation. Our own action undoubtedly will stimulate early action on the part of a number of other governments. The Executive Directors of IDA have recommended that all governments act in time to permit the resolutions to come into effect on or before June 30, 1968. By acting promptly to meet that schedule we can reassert the constructive leadership regarding IDA that has characterized our earlier participation in the institution. NATURE OF LEGISLATION REQUIRED S. 3378, the bill introduced by the chairman of this committee, would provide the necessary authority for moving forward with our participation in the second replenishment. Hearings on an identical bill, H.R. 16775, were recently completed before the House Banking and Currency Committee. It would, first, authorize me, as U.S. Governor of IDA, to vote in favor of the resolution now pending before the Board of Governors on the replenishment, and to notify IDA formally, in accordance with paragraph (h) of the principal resolution, that the United States will make the contribution authorized for it in accordance with the terms of that resolution. To implement the agreement we would thus be entering into with the Association, S. 3378 authorizes the appropriation, without fiscal year limitation, of our full $480 million contribution. That amount would remain available until expended. The funds would in fact be made available to IDA in three installments, payable on November 8, 1968, 1969, and 1970. Upon formal notification to IDA of our acceptance of the second replenishment pursuant to this legislation and the requisite action by other countries, the United States would have a binding international obligation with IDA. To be in a position to meet this obligation, as soon as authorizing legislation is completed we would seek an appropriation of $160 million for the first installment payment that would fall due on November 8, 1968. We would seek appropriations in the same amount in each of the fiscal years 1970 and 1971. Installment payments would be made in the form of noninterest bearing letters of credit, which would be drawn on by IDA at a later date as its cash needs for disbursements arise. No budgetary expenditure is recorded until such drawings are made under the letters of credit. This is the procedure generally used in our participation in international financial institutions. New lending activity in the International Development Association is at a virtual standstill. Practically all of its funds have been committed. We are asking authority today to participate in a replenishment of its resources. As was intended when IDA was first set up, participation by the United States will be a minority participation— the other advanced countries put up 60 percent while we put up 40 percent. Although we have the smaller share, the arrangement cannot go forward at all without us. And it clearly should go forward. IDA is an effective and efficient multilateral instrument for sound development financing. It has been the major worldwide source of multilaterally supplied development funds on terms that take into account the debt service problem of the developing countries. The needs of these countries for external finance are massive and are not being adequately met. SUMMARY That the fact that the United States was the leader in establishing IDA and arranging the last replenishment of its resources should alone be reason for our continued support. I recognize, however, that two problems may induce some hesitancy in the Congress about giving that support. In my judgment, these problems have been fully taken into account the balance of payments impact of IDA in the past has been moderate. Nevertheless under the new proposal, we have achieved an agreement with other donors that if the U.S. balance of payments required such protections, there will be absolutely no balance of payments impact from IDA operations with the new funds until at least the beginning of fiscal year 1972. The proposal is consistent with our financial capabilities. It is one-third less than the amount originally budgeted for; it represents a smaller U.S. share of total IDA contributions by the developed countries than in the past; and it is likely in the near term to involve a lower annual level of cash expenditures than the level of previously authorized funds, due to the operation of the balance-of-payments safeguards. During the entire postwar period, the United States has followed the path of international financial cooperation. IDA was born of this policy and the proposed replenishment both reflects and extends this policy. Through IDA multilateral responsibilities are met in responsible multilateral ways. The Congress can give a new impetus to further international cooperation for development by adopting this legislation. I urge your favorable action and report to the full Senate. Thank you, Mr. Chairman. (Annex follows:) Hon. ROBERT B. ANDERSON, THE WHITE HOUSE, Washington, August 26, 1958. DEAR MR. SECRETARY: I have read with great interest your letter concerning the adequacy of the present resources of the International Monetary Fund and the International Bank for Reconstruction and Development. I thoroughly agree with you that the well-being of the free world is vitally affected by the progress of the nations in the less developed areas as well as the economic situation in the more industrialized countries. A sound and sustainable rate of economic growth in the free world is a central objective of our policy. It is universally true, in my opinion, that governmental strength and social stability call for an economic environment which is both dynamic and financially sound. Among the principal elements in maintaining such an economic basis for the free world are (1) a continuing growth in productive investment, international as well as domestic; (2) financial policies that will command the confidence of the public, and assure the strength of currencies; and (3) mutually beneficial international trade and a constant effort to avoid hampering restrictions on the freedom of exchange transactions. During the past year, as you know, major advances have been made in our own programs for dealing with these problems. These include an increase in the lending authority of the Export-Import Bank; establishment of the Development Loan Fund on a firmer basis through incorporation and enlargement of its resources; extension and broadening of the Reciprocal Trade Agreements Act; and continuation of the programs carried forward under the Agricultural Trade Development and Assistance Act. Our own programs, however, can do only a part of the job. Accordingly, as we carry them forward, we should also seek a major expansion in the international programs designed to promote economic growth with the indispensable aid of strong and healthy currencies. As you have pointed out, the International Bank for Reconstruction and Development and the International Monetary Fund are international instruments of proved effectiveness already engaged in this work. While both institutions still have uncommitted resources, I am convinced that the time has now come for us to consider, together with the other members of these two agencies, how we can better equip them for the tasks of the decade ahead. Accordingly, I request, assuming concurrence by the interested members of the Congress with whom you will consult, that you take the necessary steps in conjunction with the National Advisory Council on International Monetary and Financial Problems, to support a course of action along the following lines: First: In your capacity as United States Governor of the International Monetary Fund, I should like to have you propose, at the Annual Meeting of the Fund at New Delhi in October, that prompt consideration be given to the advisability of a general increase in the quotas assigned to the member governments. The past ten years testify to the important role played by the International Monetary Fund in assisting countries which, from time to time, have encountered temporary difficulties in their balance of payments. We are now entering a period when the implementation of effective and sound economic policies may be inincreasingly dependent in many countries upon the facilities and technical advice which the Fund can make available as they meet temporary external financial difficulties. This is particularly true of the less developed countries with the great variability in foreign exchange receipts to which they are subject from time to time. It also applies to industrialized countries which are dependent on foreign trade. Through its growing experience and increasingly close relations with its members, the Fund can also help see to it that countries are encouraged to pursue policies that create stable financial and monetary conditions while contributing to expanding world trade and income. The International Monetary Fund is uniquely qualified to harmonize these objectives but its present resources do not appear adequate to the task. Second: In your capacity as United States Governor of the International Bank for Reconstruction and Development, I should like to have you propose, at the Annual Meeting of the Bank, that prompt consideration be given to the advisability of an increase in the authorized capital of the Bank and to the offering of such additional capital for subscription by the Bank's member governments. Such additional capital subscriptions, if authorized, would not necessarily require additional payments to be made to the Bank; they would, however, ensure the adequacy of the Bank's lending resources for an extended period by strengthening the guarantees which stand behind the Bank's obligations. The demands upon the Bank for development loans have been increasing rapidly, and it is in a position to make a growing contribution to the economic progress of the free world in the period which lies ahead. Moreover, it can do this by channeling the savings of private investors throughout the world into sound loans, repayable in dollars or other major currencies. But to meet the rising need for such sound development loans, it must be able to raise the funds in the capital markets of the free world. An increase in the Bank's subscribed capital, by increasing the extent of the responsibility of member governments for assuring that the Bank will always be in a position to meet its obligations, would enable the Bank to place a larger volume of its securities in a broader market, while still maintaining the prime quality of its securities and hence the favorable terms on which it can borrow and re-lend funds. Third: With respect to the proposal for an International Development Association, I believe that such an affiliate of the International Bank, if adequately supported by a number of countries able to contribute, could provide a useful supplement to the existing lending activities of the Bank and thereby accelerate the pace of economic development in the less developed member countries of the Bank. In connection with the study of this matter that you are undertaking in the National Advisory Council pursuant to the Senate Resolution, I note that you contemplate informal discussions with other member governments of the Bank with a view to ascertaining their attitude toward an expansion of the Bank's responsibilities along these lines. If the results indicate that the creation of the International Development Association would be feasible, I request that, as a third step, you initiate promptly negotiations looking toward the establishment of such an affiliate of the Bank. The three-point program I have suggested for consideration would require intensified international cooperation directed to a broad attack upon some of the major economic problems of our time. A concerted and successful international effort along these lines would, I feel certain, create a great new source of hope for all those who share our conviction that with material betterment and free institutions flourishing side by side we can look forward with confidence to a peaceful world. Sincerely, DWIGHT D. EISENHOWER. The PRESIDENT, The White House. THE SECRETARY OF THE TREASURY, DEAR MR. PRESIDENT: We have frequently discussed together the importance of a sound and sustainable growth in the economy of the free world to both the foreign and domestic policy objectives of the United States. Over the longer term, I believe that the well-being of the friendly nations depends not only on the economic and financial health of the industrialized nations of Europe, North America, and elsewhere, but also upon the economic growth and progress of nations in the less developed areas of the free world. Through a number of measures the United States has been pursuing these objectives, and this year we have taken major steps forward in our own programs. It would seem highly desirable that the nations of the free world as a whole should move forward cooperatively to deal more effectively with the problem. One of the best ways of achieving such cooperation would be by strengthening the financial institutions already established. In the Internatioual Bank for Reconstruction and Development and the Internatioual Monetary Fund we have seasoned international instruments now engaged in this work. Both of these organizations have staffs of internationally recruited experts who, with over a decade of experience behind them, have demonstrated their ability to act effectively and impartially. Both have established operating standards and policies which command the respect of their member governments. |