West Pakistan is poor also. Per capita income there is about $75 a year, but low as that is, it is at least 60 percent higher than per capita income in the east. This great gap between the levels of income in the two parts of the country-or better, the degrees of poverty-is one of the main, longstanding economic problems of Pakistan as well as the principal underlying cause of the current crisis. The stated official policy of Pakistan has been to annihilate this gap and to achieve income equality, but absolutely no progress has been made in executing this policy. On the contrary, the discrepancy has been growing. Over the last decade, total national income in West Pakistan rose by about 6 percent per year while in East Pakistan income increased by only 4 percent a year, most of which was eaten up by population growth.

One of the most bitterly contended issues in Pakistan is whether the official policy of eliminating the income disparity has been implemented sincerely. No one contests that the policy has been completely frustrated. There are instances and shreds of evidence on both sides of the debate and I cannot resolve it in the few moments available to me. The best indication, in my view, is the allocation of investment between East and West Pakistan, because public investment is directly controlled by the Government while private investment is indirectly controlled by the systems of industrial licensing and foreign exchange allocation. Public investment in East Pakistan has never been as great as in West Pakistan, though 55 percent of the people live in the East. In the past half-dozen years public investment in East Pakistan has climbed from about half of what it is in West Pakistan to approximately 90 percent of the amount in the West. Private investment is even more disproportionate; it is about three times as great in West Pakistan as in East Pakistan. So all together more than 60 percent of investment occurs in West Pakistan where only 45 percent of the people live.

This distribution of investment appeals to me as a strong indication that the day-to-day activities and programs of the Government have not implemented the announced policy of closing the income gap. There are other indications too, as well as some contrary ones. At any rate, the East Pakistanis find the results disheartening and are convinced that the great preponderance of Government programs favor the West and at their expense, almost as if they were an economic colony. I have to say that I personally agree with them.

It should be mentioned in extenuation of the foregoing data that the bulk of promising investment opportunities, both public and private, are located in West Pakistan. The United States and other donor nations have tended to allocate their funds in accordance with the normally sound principle of supporting the projects which promised to contribute most to economic development. So West Pakistan received a disproportionate share of foreign aid. We rarely asked whose economic development the projects contributed to. But that is a critical question in a bifurcated country such as Pakistan since projects in one part of the country make virtually no contribution to the advancement of the other part. By following this normally sound principle, we have contributed to the economic deprivation of East Pakistan. We can see now that that policy was a grievous mistake and bears some of the responsibility for the current crisis-so much for history.

I mentioned in my opening paragraph that we cannot avoid heavy responsibility for the course and outcome of the current struggle. In

principle, of course, this is an internal Pakistani affair and the United States ought to try to avoid intervening, however we may feel about the rights and wrongs. The problem is that we are so heavily involved already in the economy of Pakistan that whatever we do in our efforts to maintain neutrality will affect the balance of forces to a significant degree. To make this clear, I have to digress from economics for a moment to summarize the current state of military affairs.

The pitched battles are now over for awhile, and West Pakistan's tanks, planes, artillery and disciplined soldiers have won all of them. The troops now occupy Dacca, Chittagong and all the principal cities and towns, and all they now have to do is subjugate the rest of the countryside where most of the people live. But we know that can be quite a task. It requires them to maintain an expeditionary force of upwards of 50,000 troops at the end of a supply line 3,000 miles long and they are already a poor country in deep financial difficulties. In the past year, their foreign exchange reserves have been drawn down from over $300 million to less than $170 million. Their annual foreign trade deficit, even without the expenses and disruptions of warfare, is over $500 million, so that their current reserves are less than a third of their annual requirements or scarcely an adequate working balance. In fact, at the moment it appears that Pakistan is desperately seeking a moratorium on its debt installments that fall due this month. This means that if the war is to go on for more than a few months and essential imports are to be procured, outsiders are going to have to provide the resources, and the United States is the principal traditional source of external funds for Pakistan. By and large, American grants and loans have amounted to about $250 million a year, not counting our contributions to IDA and UNDP. This covers about half of Pakistan's adverse balance of trade. Therefore, the continued flow of American grant and loans is the most important immediate objective in West Pakistan's strategy, more important by far than any military operation.

So part of America's dilemma in this tragic moment is how to follow a neutral course, when continuing the flow of aid dispersements will provide indispensable support to the suppressive efforts of the Government of Pakistan, while discontinuing the flow will interrupt a traditional relationship on which the Government of Pakistan has come to rely. Since either policy is consequential we are involved inexorably no matter how earnestly we wish we could stand apart. Besides, our own national interests are engaged.

East Pakistan is in the corner of the Indian subcontinent and what goes on there is of vital concern to Pakistan, India, mainland China, and Burma at least. It affects political alinements and the balance of power throughout South Asia. Our national interest in South Asia is principally to maintain peace and tranquility. I don't say that out of high-minded or of humanitarian motives. A protracted struggle in East Pakistan will engage the attentions of both India and Pakistan, will weaken both of them, will inflame their animosities to a dangerous degree, and will divert their energies from the peaceful solution of their political and economic problems. It will in short, endanger the stability of the whole subcontinent with consequences that cannot be foretold.

Second, the longer the struggle goes on the more likely it is that it will take a sinister as well as a tragic turn. At the moment, the movement toward autonomy in East Pakistan is led by a Western

educated, Western-oriented middle-class. It is confined to a sectional struggle with only slight ideological overtones. But experience teaches that it is very hard for moderates with democratic aspirations to keep control of an inflammatory, hate-breeding struggle. In such struggles, the leadership tends to gravitate into the hands of extremist factions. who feel no constraints against exploiting the hatreds that the struggle engenders. Such factions are already present in East Pakistan, notably certain elements of the National Awami Party and the "Naxalites," an illegal West Bengali party with Maoist connections. The danger that these elements will take control of the rebellion if it continues. unresolved for very long is much more than 50-50. You can picture for yourself the implications of a Maoist-led rebellion in East Pakistan. So America's overwhelming concern must be to restore peace in East Pakistan as promptly as possible. We cannot intervene nor should we even want to. But we have already seen that we are in a position in which we cannot avoid influencing the course of events. We should use our influence to work toward a compromise rather than military suppression. We can do this by refusing to finance the military operations.

I do not believe that neutrality obliges us to make our funds and resources available for prosecuting an internal war, funds and resources that can be used properly only for fostering economic development and defending the country against external aggressors. We ought to make it perfectly clear that our policy is that no American funds should be diverted from development purposes to military purposes. To this end we should attach effective safeguards to all future American disbursements in order to assure that they will not be used directly or indirectly to further the war effort. In addition, of course, we should discontinue military assistance forthwith. Of course we should nonetheless stand ready to provide food and medical relief to East Pakistan, where the disruption is virtually certain to cause a famine of serious proportions. Such relief also should be safeguarded against diversion to military purposes.

Those are the objectives that I strongly recommend that we pursue. I have not thought through the ways and means for attaining them. They probably entail a virtual cessation of commodity and program aid to Pakistan and a substantial restriction of project aid. The crucial difficulty is that almost any commodities or funds that we might provide to Pakistan for development purposes can be used to meet requirements for military support that otherwise would have to be met by foreign exchange purchases. So, in effect, giving development aid in such forms is an indirect way to finance the war effort. Any substantial reduction in development support would have unfortunate consequences, but continued development aid would be largely fruitless anyhow until a political settlement is reached and attention can once more be concentrated on economic development. I believe that if this policy is followed the Government of Pakistan will be under irresistable pressure to seek a political settlement, and one that will assure to East Pakistan genuine equity in the pursuit of democracy and economic development. It would contribute to the stability of the entire continent, and be in everyone's interest. I want to thank you for the opportunity to express my views. Mr. GALLAGHER. Thank you very much, Dr. Dorfman, for a splendid statement, and for coming here today.

What kind of a political settlement do you visualize would be acceptable to the Government and to the people in East Pakistan?

Mr. DORFMAN. I think that both contending parties will have to do very unwelcome things from their point of view, but I should think that the East Bengali could be persuaded to remain legally part of a united Pakistan, provided that they are given the substance of the demands of six points of the Awami League, and that the West Pakistani troops are withdrawn.

I think in West Pakistan the strains of continuing the conflict will be so severe that they could reconcile themselves to almost any settlement that leaves the East part of the country. The thing they have to avoid is separation.

Mr. GALLAGHER. Do you feel that it is in the interest of both wings of Pakistan to have a political settlement and remain a viable nation? Mr. DORFMAN. I don't know how long a political settlement would stick. The hatreds that have grown up are substantial. The countries, of course, were widely separated geographically, culturally, ethnically, even by language previously, so that people have long been predicting that the union would fall apart sooner or later. How violently, I suppose no one anticipated. But I think under the circumstances, rather than have a fight to the finish now, they should try for a compromise and try to make it work.

Mr. GALLAGHER. Do you see any possibility of it working, in view of your long experience?

Mr. DORFMAN. Yes, I do, though it will require more good will on both sides than they have displayed so far. There is no conflict of interest. If the West were able to allow the East to follow an economic policy that was not in the West's favor but in the East's, and if the other nations repented, as I am sure we do, of their excessive obsession with West Pakistan, I am sure they could stay together.

Mr. GALLAGHER. I note in your statement that "nevertheless we should stand ready to provide food and medical relief to East Pakistan." How do you feel the distribution should be made?

Mr. DORFMAN. In East Pakistan at present?

Mr. GALLAGHER. I mean should the Government of the United States make that distribution bilaterally into East Pakistan?

Mr. DORFMAN. I think we should not. Supervisory administration by the U.N. or the International Red Cross would be needed.

Mr. GALLAGHER. Wouldn't that be the only real effective way of doing it?

Mr. DORFMAN. That way, plus an informal recognition that relief supplies sent to the nearby regions of India are likely to leak across the border also. It is quite a long and open border.

Mr. GALLAGHER. How would distribution be made, if we did it in that way?

Mr. DORFMAN. Very little information

Mr. GALLAGHER. Is not one of the real problems now that the channels of distribution are disrupted?

Mr. DORFMAN. I believe the autonomous regime does have something like a government structure in large areas of the India border regions.

Mr. GALLAGHER. Do you think it would be feasible for the United States to deal with East Pakistan?

Mr. DORFMAN. Not officially.

Mr. GALLAGHER. But if we deal directly with them, would we not be doing the opposite of what you feel should happen in a political accommodation between both?

Mr. DORFMAN. I would not deal directly with them, no.

Mr. GALLAGHER. If there were a real separation, do you feel, with its limitations of resources that it would be economically possible for East Pakistan or Bangla Desh to survive economically?

Mr. DORFMAN. I am engaged in studies of the economic future of East Pakistan right now. You must understand that their affiliation with West Pakistan has not helped make them a viable country in the past. On the contrary, they have been probably contributing capital to West Pakistan. So they would be better off than they are now. Whether they are viable or not is another matter.

In my testimony, I said they are a mistake, and in a sense they are. How that country can support so many people is very hard to conceive. But separation in the form of either an autonomous economy or a legal separation would do no harm.

Mr. GALLAGHER. If an accommodation were reached, would not this mean American assistance for both wings? What would your estimate be of the expense involved in aiding both wings of Pakistan? Mr. DORFMAN. I should hope that we would continue to contribute to Pakistan as a whole, at least on the level of the past, which I estimated as an ongoing level of about $250 million a year. But I would like to see the distribution changed and to give a larger share to East Pakistan than to West Pakistan.

Mr. GALLAGHER. Mr. Bingham?

Mr. BINGHAM. Thank you, Mr. Chairman. You have actually covered most of the questions I had in mind. But I do have one other question.

You mentioned that if the unity is to continue, a political settlement had to be arrived at between East and West Pakistan; that West Pakistan should discontinue an economic policy in East Pakistan that works in favor of West Pakistan and not in the interest of East Pakistan. Would you develop that a little further? What are the specific things that illustrate this point?

Mr. DORFMAN. One of the specific types of measure I mentioned in my prepared statement is the allocation of both public and private investment in Pakistan, which up to the present has been controlled in West Pakistan by the central government. That certainly should be decentralized so that a reasonable allocation of foreign resources is made to East Pakistan and the administration is done by the Government of East Pakistan, either independently or as a component of the whole Pakistani Government.

The licensing procedures now are centralized 1,000 air miles and at the moment 3,000 air miles from East Pakistan. The structure of tariffs and subsidies which, again, is part of the central government program, has been very heavily slanted in the direction of protecting local manufacturing, nearly all of which is concentrated in West Pakistan, and has required the East Pakistanis, in effect, to purchase from West Pakistan rather than from the outside world, a policy that we encountered in our own history before the War of Independence, when we had similar ties with the manufacturing in Great Britain, and with many of the same results, both economic and as to our feelings.