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velopment, representing 20 major countries, amount to roughly $6 billion a year. Responsible estimates made in recent years indicate that additional flows of development resources of several billion dollars a year could be promptly and effectively put to work in stimulating development and creating the necessary infrastructure for further growth in the developing countries. At the same time, the capacity of many developing countries to service additional debt is severely limited. It is because of that severe limitation that the Special Report of the National Advisory Council on the replenishment of IDA observes:

It is also clear that economic development of the developing countries cannot be carried out entirely on the basis of loans on conventional terms without potentially endangering seriously the soundness of the international financial structure. A replenishment of IDA at the level proposed would contribute to meeting the greater demands for funds by eliciting larger contributions from the other donors on terms that fully take into account the debt servicing burden of the developing countries.

We can be certain that, measured against either the readily apparent needs of the developing countries or their capacity to use external resources in conjunction with their own substantial self-help efforts, the proposed IDA replenishment will fill only part of the gap. The proposed amount of the replenishment-$400 million a year for the next 3 years, of which the U.S. share would be $160 million a year— represents what it has been possible to achieve international accord on among the economically advanced countries, over a rather extended period of negotiations, Mr. Chairman.

I have given my closest attention to each stage of the discussions and negotiations leading to the proposed multilateral accord before you today. As you well know, much of my time and energy as Secretary of the Treasury has been devoted to finding ways of achieving important U.S. international objectives within the constraints imposed by our balance of payments problem. In my judgment, this proposal reconciles the imperative need for continued U.S. support of IDA with our own need to avoid adverse balance of payments consequences from our contributions.

BIPARTISAN SUPPORT FOR IDA

In its original conception and in its subsequent development, IDA has merited and received bipartisan support. Proposed under President Eisenhower and expanded under Presidents Kennedy and Johnson, IDA meets needs that are recognized on both sides of the congressional aisle. I could hardly document the character of this bipartisan support better than by quoting from the Congressional Record of May 13, 1964, when the first replenishment of IDA was being debated, which sets forth the background of this organization going back to 1951, carrying through the midfifties, and finally culminating in 1959 when the initiative was taken under President Eisenhower's administration to set up the organization with which we are concerned. The distinguished Congresswoman from New Jersey, Mrs. Florence Dwyer, said on that occasion:

In 1960, as it is today and as it was when the idea was first suggested in 1951, the concept of an agency to supplement the World Bank by lending development funds on the easier credit terms which underdeveloped countries find essential

was completely bipartisan. The idea was first proposed 13 years ago by the Republican Chairman of an Advisory Board under a Democratic President. It was given new life 7 years later by a Democratic member of the other body during the Administration of a Republican President. A year later, 1959, the Republican Secretaries of State, Commerce and the Treasury, the Chairman of the Federal Reserve Board and the President of the Export-Import Bank formally approved the project. The World Bank itself then drew up the Articles of Agreement which were submitted by the President to the Congress which, in turn, approved U.S. participation. Congressional approval was urged by a broad range of private American organizations, including the U.S. Chamber of Commerce, the American Farm Bureau Federation, and the AFL-CIO.

President Johnson has given renewed emphasis to this multilateral endeavor. In his 1966 message on foreign aid, which was a policy statement delivered after considerable background study, he said:

I propose that the United States in ways consistent with its balance of payments policy-increase its contributions to multilateral lending institutions, particularly the International Development Association. These increases will be conditional upon appropriate rises in contributions from other members. We are prepared immediately to support negotiations leading to agreements of this nature for submission to the Congress. We urge other advanced nations to join us in supporting this work.

The United States is a charter member and the largest single contributor to such institutions as the World Bank, the International Development Association, and the Inter-American Development Bank. This record reflects our confidence in the multilateral method of development finance and in the soundness of these institutions themselves. They are expert financiers, and healthy influences on the volume and terms of aid from other donors.

CONCEPT OF IDA

I have attached to my statement several additional expressions of presidential support, present and past, for IDA.

I do not intend today to dwell on the early operations of IDA or the details of its current operations. This committee and the Senate itself have been intimately associated with IDA since its inceptionindeed, it was in the Senate of the United States that S. Res. 264, introduced in 1958 by Senator Monroney, provided the impetus leading to IDA's establishment in 1960. You already know that IDA embodies the concepts of

Multilaterally-shared resources with other countries putting up $3 for every $2 the United States contributes;

Sound development financing with credits repayable in hard currencies;

Repayments on liberal amortization terms and low service charge adapted to the debt servicing capabilities of borrowing countries;

Effective and efficient administration by the skilled management and staff of the World Bank.

You know also that the resources provided by IDA represent a modest but very important part of the total flow of funds to the developing countries. The Special Report of the National Advisory Council which is before you, brings up to date, the record of IDA's lending operations.

IDA'S RESOURCES

When IDA was established in 1960, its authorized capital was $1 billion, of which the economically advanced member countries provided approximately three-quarters. These contributions were payable

to IDA on a 5-year schedule running from fiscal year 1961 through fiscal year 1965.

By 1963, it was clear that IDA's resources would have to be replenished because of the rapid pace at which it proved possible to commit the initially available resources. Accordingly, in 1964, the first replenishment of IDA became effective, providing for additional resources of $750 million, all provided by the economically advanced member countries (the so-called part I countries of IDA). The resources of the first replenishment were scheduled for payment to IDA over the 3 fiscal years 1966, 1967, and 1968.

U.S. CONTRIBUTION

Senator SYMINGTON. Mr. Chairman, at that point, would it be in order to ask how much the U.S. has contributed of the total of $750 million?

Secretary FOWLER. Yes, sir.

I have those figures for you and will supply them for the record at this point. I think it is roughly, with this contribution, $632 million, but I would have to check my memory on that.

Senator SYMINGTON. By the time my time for questioning comes you will probably have it.

Secretary FOWLER. The correct figure is $632 million.
Senator SYMINGTON. Thank you.

Secretary FOWLER. The last of these three payments was completed recently.

LENDING OPERATIONS VIRTUALLY CEASING

Unlike the situation in 1963-64 when action to replenish IDA was taken well ahead of the completion of the current contribution schedule and ahead of full commitments of IDA's available funds for loans, the present situation finds IDA with its available funds almost completely committed and the last payment on contributions already made. Because the first replenishment was timely, there was almost no interruption in the pace of IDA commitments. Now, however, such interruption has already taken place. The NAC report makes this state of affairs abundantly clear-this valuable affiliate of the World Bank has virtually ceased lending operations because of lack of funds. Without the proposed replenishment, IDA cannot resume its important role. This committee, and this Congress, now have the opportunity to determine if an international institution created largely on American initiative is to continue, with American participation, as an effective entity.

AMOUNT OF REQUEST

In brief, our request this morning is for new authority to contribute $160 million to IDA in each of the 3 fiscal years, 1969, 1970, and 1971. This authority, totaling $480 million over the 3-year period, would represent a 40 percent U.S. share in contributious to IDA by the economically advanced countries totaling $1.2 billion during that period.

Eighteen other countries would put up the balance of $720 million, at the rate of $240 million per year. Under arrangements agreed to by the other countries which I shall describe shortly, U.S. funds would be provided on a basis guaranteeing that, if our balance of payments

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situation should continue to be a serious problem, our IDA contribution would involve a zero balance of payments cost at least until the beginning of fiscal year 1972 and possibly longer.

SHARE PROVIDED BY OTHER COUNTRIES

The figures I have just mentioned on relative contributions by the United States and the other developed countries clearly reveal one of the main arguments for continued U.S. participation in IDA. For every $2 the United States puts up through this multilateral channel, the other advanced countries put up $3. It is clearly to our advantage to have others bear the major burden of development financing, while we assume an appropriate but minority share.

I would also like to emphasize that our present 40-percent share reflects the fact that we have been able to reduce our share of IDA contribution since IDA was established. This has resulted in seemingly modest but, to me, clearly significant dollar savings in relation to the new overall IDA replenishment figure. Under the present request, the United States would contribute $37 million less than would be the case if our 1960 share of IDA contributions were maintained. Together with a similar calculation of savings in connection with the first replenishment of IDA, our total contributions will be nearly $50 million less than they would have been had we not negotiated vigorously to achieve a reduced share. These efforts were carried out, I might add, with considerable encouragement from the Congress expressed during earlier hearings on IDA legislative requests.

CONSISTENCY WITH EXPENDITURE RESTRAINTS

In this period of rigorous scrutiny of all of our future spending plans, I know you will want to assure yourselves on the size of the request. I have already touched on the pressing need for development finance and on the fact that IDA, even at the level of this request, can provide but a part of what is needed-although a vital part. If the United States were to fail to contribute its 40-percent share of the proposed increase in IDA resources, the entire proposal, involving contributions by 18 other developed countries who are putting up more than we are, would collapse, and the vital work of this institution would come to a complete halt. It is not in our interest to let this happen.

Several further points should be noted in this regard. The budget as presented in January provides for $240 million for the first year of the U.S. contribution to this replenishment. This figure was entered in the budget at a time when negotiations with the other countries involved had not yet been completed and it was not possible to determine the final level of the package that might be agreed upon. When the final $1.2 billion, 3-year package was agreed upon, by referendum, among the representatives of the part I countries, we were able to determine that our 40-percent share would require contributions of only $160 million each year. We therefore, will need only two-thirds of the amount shown in the January budget.

Furthermore, the balance of payments safeguards which I have referred to briefly and will discuss in greater detail shortly are of such nature that the budgetary effect of our contributions to this replenishment will be sharply reduced below their normal amount

in the next 3 fiscal years should our balance of payments situation I require. Our contribution installments of $160 million each will be made in the form of letters of credit. These will be drawn upon only as needed for disbursements. Even if we did not take advantage of the balance of payments safeguard, we would not expect the actual cash drawing under our first installment to exceed $100 million in fiscal year 1969. But if we do take advantage of the balance of payments safeguard arrangements, we could expect the actual cash drawing to be less than half of this amount. Such a development would mean a very substantial reduction, not only below the level we might have anticipated with the new funds, but also substantially below the level of usage of the funds we have been providing to IDA.

EFFECT ON OUR BALANCE OF PAYMENTS

I know this is a matter of great concern to members of this committee and indeed to the Congress at large, as it is indeed to me: the effect on our balance of payments.

From the very earliest discussions of IDA replenishment, I made clear, both publicly and privately, that an arrangement taking into account the situation of donor countries with balance of payments deficits was a prerequisite to final agreement on the part of the United States. The proposal now before you reflects the substantial acceptance of this viewpoint by the other contributing countries.

In its operations to date, IDA has had only minor effect on the U.S. balance of payments deficit. Procurement in the United States financed by IDA has offset a significant part of the cash flow of U.S. resources to IDA. Although in each of the past 3 fiscal years the United States provided $104 million to IDA, this contribution was in the form of non interest bearing letters of credit rather than cash. These letters of credit are not drawn on until much later than the time they are delivered, and then are drawn only at the rate required for disbursement. Only these cash drawings affect the balance of payments. The average cash effect of IDA operations so far has been about $30 million per year. Nevertheless, I have felt it desirable to eliminate even this much balance of payments drain from IDA operations with its new money.

Accordingly, we have obtained the agreement of all other participating countries that they will permit IDA to operate in a fashion that will give us--if we require it because of a serious balance of payments problem-complete balance of payments protection during the fiscal years in which contribution payments are being made; that is, at least through the end of fiscal 1971. This agreement is formally embodied in the resolutions which appear as an annex to the NAC report.

Our contributions to IDA have an adverse effect on our balance of payments only when they exceed the amount of procurement obtained in the United States under IDA financing. The essence of the new arrangement is that the U.S. contribution would be drawn on only in the amount of procurement identified as taking place in the United States. The balance between this amount and what we would have put up as our normal share would be deferred for a fixed period of 3 years. Thus, as long as we so elect, no drawings of free foreign exchange from the United States would take place prior to July 1, 1971, and some of the U.S. contribution could be deferred until a period well beyond that date.