The Fund has provided short-term financial assistance to 35 member countries, aggregating the equivalent of over $3 billion. Through such assistance and the influence it has been able to bring to bear for the adoption of sound currency and exchange policies, the Fund has contributed substantially towards monetary stability and freer flow of international trade and payments. The Bank has invested some $3.8 billion in productive development projects in 47 different countries and territories, most of them under-developed. Loans by the Bank are running at the rate of about $750 million a year. The Bank's financing and technical assistance activities have served to accelerate the pace of economic growth all over the free world; and it has carried on these activities on a basis that has earned for the Bank the confidence of all major private capital markets. The establishment of the International Finance Corporation, which supplies capital to encourage the growth of productive private enterprise, has recently increased the scope and flexibility of the Bank's field of operation.

The International Monetary Fund utilizes for its operations gold and member country currencies which have been provided to it by the member countries through their subscriptions to its capital. Advances by the Fund in the past two years have amounted to approximately $1.8 billion and nearly $900 million additional are in effect earmarked against standby commitments which the Fund has undertaken.

Under the charter of the International Bank, a small part of its authorized capital is available for loans, but the Bank must depend primarily on borrowings in the financial markets of the world. The major part of the authorized capital in effect constitutes a guarantee for these borrowings. The Bank has raised the equivalent of more than $2 billion through issuing its bonds denominated in six different currencies. At present the equivalent of about $1.7 billion is ourstanding in such bonds. The Bank's bond are recognized throughout the world as securities of the highest quality and, as a result, the Bank has been able to borrow large sums of money at frequent intervals at rates of interest comparable to those of highlyregarded government securities. This in turn has enabled the Bank to fix interest rates on its own loans at levels not imposing undue burdens on the borrowing countries concerned. While the Bank still has unused borrowing capacity, its volume of lending has expanded greatly and, if it is to continue to be able to meet legitimate loan requests likely to be submitted to it during the years ahead, it must go to the market for larger amounts of money than ever before. This would require a broadening of the market for the Bank's bonds and the tapping of sources of capital not yet reached.

During the annual meetings of the Bank and Fund at New Delhi early in October we should give consideration to ways and means of increasing the effectiveness of these two institutions. As U.S. Governor of the Bank and Fund, I would welcome your guidance with respect to these vital problems of policy. If you believe that certain avenues of action should be explored preparatory to the New Delhi meeting, I would ask the National Advisory Council to proceed promptly with detailed study and arrangements. We would, of course, wish to consult with members of the Congress who are particularly concerned with this subject.

A related matter has recently been under consideration by the Senate, which has adopted a resolution calling upon the National Advisory Council to undertake a study of the feasibility of an International Development Association as an affiliate of the International Bank. The resources of such an organization would be subscribed by the members of the Bank. The Association would finance development projects on the basis of long term loans at reasonably low interest rates repayable in whole or in part in local currencies. In the course of its study, the Council will also explore the possibility that such an affiliate of the Bank might prove to be a means, supplemental to our own national programs, for assuring productive investment of some part of the various local currencies becoming available to the United States through the sale of agricultural surpluses or other programs. It is intended to undertake informal discussions with other members of the Bank with a view to ascertaining their attitude toward an expansion of the Bank's activities along these lines.

I request your guidance as to whether, if the study indicates that the proposal is promising, you would wish to have the subject pursued formally with the governments of the other member countries of the International Bank.

Faithfully yours,

94-612 0-68- -3

ROBERT B. ANDERSON.

SPECIAL MESSAGE TO THE CONGRESS RECOMMENDING U.S. PARTICIPATION IN THE INTERNATIONAL DEVELOPMENT ASSOCIATION. FEBRUARY 18, 1960

To the Congress of the United States:

I herewith submit to the Congress the Articles of Agreement for the establishment of the International Development Association. I recommend legislation authorizing United States membership in the Association and providing for payment of the subscription obligations prescribed in the Articles of Agreement. The Association is designed to assist the less-developed countries of the free world by increasing the flow of development capital on flexible terms. The advisability of such an institution was proposed by Senate Resolution 264 of 1958. Following this Resolution, the National Advisory Council on International Monetary and Financial Problems undertook a study of the question. The Council's conclusions and the favorable response of representatives of other governments who were consulted during the course of the study have resulted in the Articles of Agreement which satisfy the objectives of that Resolution and which I am submitting herewith. The accompanying Special Report of the Council describes the Articles in detail.

We all know that every country needs capital for growth but that the needs are greatest where income and savings are low. The less-developed countries need to secure from abroad large amounts of capital equipment to help in their development. Some part of this they can purchase with their current savings, some part they can borrow on conventional terms, and some part is provided by private foreign investors. But in many less-developed countries, the need for capital imports exceeds the amounts they can reasonably hope to secure through normal channels. The Association is a multilateral institution designed to provide a margin of finance that will allow them to go forward with sound projects that do not fully qualify for conventional loans.

In many messages to the Congress, I have emphasized the clear interest of the United States in the economic growth of the less-developed countries. Because of this fundamental truth the people of our country are attempting in a number of ways to promote such growth. Technical and economic aid is supplied under the Mutual Security Program. In addition, many projects are assisted by loans from the Export-Import Bank, and we also participate with other free world countries in the International Bank for Reconstruction and Development which is doing so much to channel funds, mainly from private sources, to the less-developed areas. While we have joined with the other American Republics to the Inter-American Development Bank, there is no wide international institution which, like our Development Loan Fund, can help finance sound projects requiring a broad flexibility in repayment terms, including repayment in the borrower's currency. Conceived to meet this need, the International Development Association represents a joint determination by the economically advanced countries to help accelerate progress in the less-developed countries. It is highly gratifying that so many other free world countries are now ready to join with us in this objective. The Association is cooperative venture, to be financed by the member governments of the International Bank. It is to have initial subscriptions totaling one billion dollars, of which the subscription of the United States would be $320.29 million and the subscriptions of the other economically-strong countries would be $442.78 million. The funds made available by these countries would be freely convertible. The developing countries would subscribe $236.93 million, of which ten per cent would be freely convertible. Members would pay their subscriptions over a five year period and would periodically re-examine the adequacy of the Association's resources.

The International Development Association thus establishes a mechanism whereby other nations can join in the task of providing capital to the less-developed areas on a flexible basis. Contribution by the less-developed countries themselves, moreover, is a desirable element of this new institution. In addition, the Association may accept supplementary resources provided by one member in the currency of another member. Thus, some part of the foreign currencies acquired by the United States primarily from its sales of surplus agricultural commodities may be made available to the Association when desirable and agreed to by the member whose currency is involved.

The Articles of Agreement give the Association considerable scope in its lending operations so that it can respond to the varied needs of its members. And because it is to be an affiliate of the International Bank, it will benefit from the long and successful lending experience of the Bank. By combining the Bank's high standards with flexible repayment terms, it can help finance sound projects that cannot be

undertaken by existing sources. With a framework that safeguards existing institutions and traditional forms of finance, the Association can both supplement and facilitate private investment. It will provide an extra margin of capital that can give further momentum to growth in the developing countries on terms that will not overburden their economies and their repayment capacities.

The peoples of the world will grow in freedom, toleration and respect for human dignity as they achieve reasonable economic and social progress under a free system. The further advance of the less-developed areas is of major importance to the nations of the free world, and the Association provides an international institution through which we may all effectively cooperate toward this end. It will perform a valuable service in promoting the economic growth and cohesion of the free world. I am convinced that participation by the United States is necessary, and I urge the Congress to act promptly to authorize the United States to join with the other free nations in the establishment of the Association.

DWIGHT D. EISENHOWER.

EXCERPT FROM PRESIDENT JOHNSON'S ECONOMIC REPORT TRANSMITTED TO THE CONGRESS JANUARY 1967

There should, however, be increasing efforts to make both the receiving and giving of aid a matter for creative international partnership. We shall therefore... seek the cooperation of other major donor countries this year in replenishing the resources of the International Development Association.

EXCERPT FROM PRESIDENT JOHNSON'S BUDGET MESSAGE FOR FISCAL YEAR 1968

The International Development Association, which is managed by the World Bank, has proven an effective means of international cooperation to promote economic development. Its current resources, however, will soon be exhausted. Following the successful conclusion of negotiations between the IDA and the developed nations of the world, I will request authorization for the United States to pledge its fair share towards an additional contribution to this organization in ways consistent with our balance of payments policy.

EXCERPT FROM PRESIDENT JOHNSON'S FOREIGN AID MESSAGE FOR
FISCAL YEAR 1969

This year we must take another important step to sustain those international institutions which build the peace.

The International Development Association, the World Bank's concessional lending affiliate is almost without funds. Discussions to provide the needed capital and balance of payments safeguards are now underway. We hope that these talks will soon result in agreements among the wealthy nations of the world to continue the critical work of the Association in the developing countries. The Administration will transmit specific legislation promptly upon completion of these discussions. I urge the Congress to give it full support.

The CHAIRMAN. Thank you, Mr. Secretary.

ADVANTAGES OF MULTILATERAL OVER BILATERAL AID

Is it fair to say, in summary, that you regard IDA as the most effective way that the United States can give economic aid to developing countries?

Secretary FOWLER. I do, sir.

The CHAIRMAN. Perhaps it isn't proper for you to comment on other programs, but I say that if we have to choose between this method and bilateral aid in which we give a hundred percent it would. seem to me that IDA is a much better and more efficient way to administer economic aid to the developing countries.

Secretary FOWLER. That is my point of view. However, I think there is a place for both forms.

I would like to point out, insofar as burden sharing is concerned, I think that estimates drawn up in terms of the bilateral aid that is given by each country show that our bilateral aid has run over recent years about 55 to 60 percent of the total aid given by developed countries, but in IDA our share is 40 percent. I believe, therefore, we get a fairer and a more adequate burden sharing for the dollar we put through IDA than the dollar we put through bilateral aid.

The CHAIRMAN. That is the point I make. Unless we are going to abandon assistance to the developing countries altogether then we should continue this program certainly as a first priority. If we have any left over, we can go on with the other programs. This seems to me to be a logical way.

IDA ADMINISTERED BY WORLD BANK

Could you tell us about the experience in the administration of IDA? Have you had any serious difficulties, fraud, corruption, mismanagement, or anything such as has been so common in other programs?

Secretary FOWLER. Not to my knowledge, Mr. Chairman, but I would like to ask Mr. Merchant, the U.S. Executive Director, who lives with this day after day if he would wish to make any additional comment?

Mr. MERCHANT. To my knowledge, Mr. Chairman, IDA has encountered no cases of corruption. There have been cases where IDA, through the staff of the Bank and its intimate inspection and continued review of the progress of projects has requested borrowers to relet bids, for example, because they weren't satisfied possibly with the way the specification had been drawn or some other detail in the matter.

The Bank staff, which is the staff of IDA, follows in intimate detail the performance of the borrower under the IDA credits, and in certain cases will maintain a resident staff or employ a consulting firm to have resident engineers present to watch and inspect stage by stage development of the project.

The CHAIRMAN. Are the IDA loans audited in the same fashion that the Bank loans are? In other words, are all of the checking and auditing on the same level as the Bank's regular business?

Mr. MERCHANT. Exactly, sir.

The CHAIRMAN. And the same officers that administer and make policy for the Bank do it for IDA?

Mr. MERCHANT. Identical, IDA has no staff of its own.

The CHAIRMAN. It has no staff of its own and relies on the Bank's staff?

Mr. MERCHANT. Right.

The CHAIRMAN. You might say the principal difference is one of policy; that is, the terms for making the loan; otherwise the standards are about the same; is that correct?

Mr. MERCHANT. The standards, for all practical purposes, are identical. The only difference between the Bank loans and the IDA credits is in the repayment terms on which the money is made available. The operating policies, the inspection, the continuing review, the auditing process, are identical with Bank loans and IDA credit.

PURPOSES OF HARD AND SOFT LOANS

The CHAIRMAN. The purpose is economic development. Are there any differences as to the purposes or are they identical?

Secretary FOWLER. Well, I would say, yes; that the hard loan is more classically used for the heavy infrastructure, whereas, I think, you get in the soft loans a higher preference, for example, for agricultural development, for education, for matters of that nature. There is that substantial shading of difference.

Mr. Merchant, you may wish to answer.

Mr. MERCHANT. No, I think that is the answer, sir.

The CHAIRMAN. Is it fair to say that the Bank's hard loans usually relate to projects which are more likely to result in direct economic returns? I mean they are the type of business loans that generate the capacity to repay, whereas loans for education and so on are much longer term. I don't regard that as not contributing to the capacity to pay, but it takes much longer term to effect. Is that about the right way to describe it?

Secretary FOWLER. I don't know whether anyone would say that the difference is in the self-liquidating basis, but I would think it is more in the character of the project: the dam, the harbor, the railroad, the utility-what we think of as heavy infrastructure, the underlying basis that you have to have in order to have a functioning economy.

The CHAIRMAN. Yes. I don't want to take up all your time. All I can say is I think this is the preferable way for us to give aid abroad. Being in such difficulties, we obviously cannot do what we ought to be doing, perhaps, because of the other demands on our economy.

CONTROLLING U.S. BALANCE OF PAYMENTS

I hope your optimism about controlling the balance of payments is warranted. I don't know whether it is or not.

Secretary FoWLER. It is not optimism, Senator. It is realism. I don't think that the next President of the United States or the next administration can adopt any other course than the course the President announced to the Nation in his message on New Year's Day-that bringing our balance of payments into equilibrium is a matter of the highest national and international priority.

The CHAIRMAN. Yes, but you have made no progress, have you? Secretary FOWLER. That we must do.

The CHAIRMAN. Have you made any progress in the last three months?

Secretary FOWLER. Well, let me say that the principal obstacle to making progress in this area has been the delay and, up to now, the failure of the Congress to enact the tax increase-expenditure reduction package.

The CHAIRMAN. What about the war? Why do you always take the attitude the war has nothing to do with our problems? Secretary FoWLER. I don't take that attitude.

The CHAIRMAN. The Administration does.

TRADE SURPLUS

Secretary FOWLER. I say repeatedly the balance of payments costs of the war in Vietnam are running currently about a billion and a