These funds cannot be considered as resources available to finance interim needs during the period December 1, 1947, to March 31, 1948, because of their character of working balances.

2. Exporters' accounts.-At the beginning of October 1947, 24.6 million dollars were in the so-called conti valutari (exchange accounts) or exporters' accounts, belonging to private firms, which had earned them through exports or bought them from other exporters, in order to pay for essential imports.

The Italian exchange-control regulations allow exporters to retain a part (normally 50 to 75 percent) of their receipts from exports, while the balance must be sold at the official rate of exchange (350 lire per dollar, as compared with a free rate of about 610) to the Italian exchange office (Cambital). The purpose of this regulation is to liberalize as far as possible exchange transactions originating from foreign trade. At the same time existing regulations require that the entire proceeds of exports be used for essential imports. In effect: (a) Fifty to seventy-five percent must be sold to Cambital.

(b) The balance must be used for essential imports within 4 months.

The exporters' accounts are subdivided among many thousands of exporting firms, many of the accounts being very small. The firms use them as a basis for all their programs concerning import of foreign goods and count upon their gradual replenishment through new exports or through purchases of dollars from other exporters.

These accounts represent, therefore, the working balances of a key sector of the Italian economy-the sector which participates in foreign trade and is expected to earn 14 or 15 million dollars per month, to be used for the purchase of products other than food, fuel, and fertilizer.

3. Italian Institute of Foreign Exchange (Cambital).-The amount of $13,000,000, belonging to Cambital, is in turn the difference between a gross total of about $21,000,000 and commitments in the course of being paid for over $7,000,000. It must be explained in this connection that

(a) A considerable part of Italy's purchases abroad (such as cereals and coal outside the United States, petroleum supplies, and some other basic raw materials, etc.) are made directly, for technical reasons, by the Italian Government, using Cambital funds.

(b) A part of the Cambital funds (about 9 to 10 million dollars) is constantly represented by funds in transit between the importers who are selling the 50 to 75 percent they must turn over and banks which act as agents of Cambital. This part of Cambital's funds is, of course, of less immediate availability than the rest.

4. In order to understand fully the significance of these figures, it may be recalled that for the first half of 1947 Italian dollar payments for imports and invisible items have been estimated at over $400,000,000.

Mr. RICHARDS. I want to ask about the convertibility of sterling as it affects the Italian economy. I understand that Italy has about $80,000,000 worth of sterling that they cannot convert on account of the policy of Great Britain, and she is probably receiving about $6,000,000 of sterling per month through ordinary channels. Is anything being done, or is there anything that can be done now to remedy that situation?

Mr. LOVETT. The information you have as to the total is correct, as an approximate figure.

The Italians have been shipping goods to England and using sterling as the international liquidating currency through which to obtain their dollars. They could not buy what they wanted to in England, because England either did not have it or could not make it available in time. Therefore, when the convertible sections 7 and 8 of the Anglo-American loan were suspended, Italy's dollar balance equivalents in sterling were frozen. They were therefore not available to her in this country. In those circumstances, we are informed by the Italian Government

that they endeavored to work out with England at least a pro rata arrangement under which they would receive some of those dollars on a monthly basis. It could not be cleared up immediately.

The ordinary accumulation of sterling is at the rate or equivalent of $6,000,000 a month, but Italy has not yet gotten an agreement from the British Government to release it on a pro rata weekly or monthly schedule.

Mr. RICHARDS. Well, as a matter of fact, the thing that worries me about this thing is that the whole European economy is tied up on account of the inconvertibility of the pound, and evidently England had to take the action she did, stopping convertibility, in order to save her currency and her own economic stability. But when she did that she strangled a good many other nations of Europe that had sterling and could not use it anywhere but in England, where they could not buy what they needed."

Now, if there is not some attack made on that by the nations over there and some effort made to solve the situation created by that situation, it is just going to cost the taxpayers of the United States that much more.

Mr. LOVETT. That is one of the fundamental purposes, of course, in the whole economic recovery program, that trade should be reestablished so that it will not be dependent on procurement in this country

alone.

Let me repeat again something I tried to emphasize earlier. This so-called interim aid is, of course, a preface to the recovery program. It is a method of obtaining some sort of option on the time necessary to work out the details and have the Congress consider them, and one of the great essentials in getting these countries through the winter months is to maintain at least the present level so that from this level recovery can start. And until recovery starts I do not know how you can work out either financial stability or international convertibility of currencies in those countries. What I am trying to say is that in my experience in the foreign business, which we talk a great deal about food and fuel and the necessary raw materials because, manifestly, people must work and eat and have shelter and heat, nevertheless, a matter of absolutely cardinal importance is the restoration of the normal financial stability and the introduction of honest currency again. Until that happens we are going to have artificial barriers between town and country and between country and country. And I know of no way in which the effects of suspension of British convertibility can be successfully cured until the production level and the financial stability level of western Europe is increased substantially above what it is at present.

Mr. RICHARDS. I am sure you agree that in any long-range plan for relief in Europe this problem should be attacked.

Mr. LOVETT. I agree most completely, Mr. Richards. Not only that, but I think it is very significant that the Paris report itself has this language in it on page 28, paragraph 65:

The success of the programs of the participating countries depends on the internal economic financial and monetary stability being restored and maintained.

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The production brackets cannot be achieved nor can European cooperation be accomplished unless the economies of all of the participating countries are sound and stable.

Mr. RICHARDS. Let me ask a question on France.

The original estimate of steel requirements for 6 months for France, as given to the House Select Committee on Foreign Aid on October 21, was $35,000,000, and on October 31 it was $27,000,000. Now, the figure on a 4 months' basis as submitted by the Secretary of State on November 10 showed only $10,000,000 of steel. That is very commendable, in view of the short supply of steel in this country and in the world; but right now the monthly steel exports to France have been running around $4,000,000. So I was wondering how you were able to cut down your figure so low.

Mr. LOVETT. What page and what item is that?

Mr. RICHARDS. That is on page 26. The figure you give there, as I understand, is $10,000,000. Now, the French had estimated their needs at $35,000,000 and then they cut it down to $27,000,000, and now we have the $10,000,000 figure, when, as a matter of fact, France is importing $4,000,000 worth of steel per month.

Mr. LOVETT. We have it both in tons and dollars. We are trying to identify it.

Mr. RICHARDS. It is on page 26 of your document.

Mr. LOVETT. In the early part of September, the French stopped purchasing. We were in short supply on the items allocated, and they began to run out of dollars, and they instructed their missions in this country to purchase only those items which were absolutely vital to life until they could get some assistance. I will check my dates on that to make sure I am right.

The confusion occurs from the fact there were substantial contracts placed in the early spring and summer, and the shipments which are continuing subsequent to September 1 are in fulfillment of the contracts issued earlier this year.

Mr. RICHARDS. And that cuts down the necessity for over $10,000,000 worth of steel in this period to March 31 of this year?

Mr. LOVETT. This particular period here is the period after the termination of the continuing purchases by the French mission.

Mr. RICHARDS. You mean they were stocked up on what steel they needed through orders already given and already placed, or shipments already made?

Mr. LOVETT. No, sir. Their minimum needs are $10,000,000, approximately. The $4,000,000 which is continuing is the residue of shipments under contracts which were made earlier in the year.

Mr. RICHARDS. One more question. The House Committee on Foreign Aid made this recommendation, and I want to know what you have to say about it.

"Emergency aid presents the same problem as does any general European-aid program, and the Congress should bear this in mind in setting up any emergency-aid program. Should Congress, through its responsible legislative committees, find as a practical matter it will not be able to set in motion other machinery for foreign aid by the end of the special session, the committee recommends that action should be taken prior to that time to authorize funds for the purchase of supplies through the Export-Import Bank and the Commodity Credit

Corporation for any aid for France and Italy found necessary to assist the countries through March 31."

Mr. LOVETT. I am informed that the Export-Import Bank machinery is not geared to purchase the multiple-commodity types that are involved in this 4 or 5 months' period. I will check and make sure that has been discussed with them.

[After a pause:] The Export-Import Bank is not a purchasing agency. Their normal transactions are loans to foreign governments or foreign groups that then handle the programs elsewhere.

Mr. RICHARDS. In Public Law 84, the Reconstruction Finance Corporation was given power to perform certain relief functions. I was wondering whether you could not amend this act, Public Law 84, to empower the Export-Import Bank and the Commodity Credit Corporation to perform certain additional functions, and probably that would be the simplest way to meet this situation.

Mr. LOVETT. First, I think there is some misunderstanding about the Reconstruction Finance Corporation's part in Public Law 84. That did not do anything but provide an authorization to advance funds to the President after the passage of the enabling act and prior to action by the Appropriation Committees.

Mr. RICHARDS. Then you do not think the Export-Import Bank and the Commodity Credit Corporation could meet the needs of this situation?

Mr. LOVETT. As to the Commodity Credit Corporation part of your question, we do now use the Commodity Credit Corporation for procurement. As to the Export-Import Bank, this is, in essence, a grant program, and the Export-Import Bank is a loan agency. Therefore, the two things are incompatible.

Mr. RICHARDS. But if Congress amended the law creating those agencies, giving them further powers to handle this program, do you think they could operate expeditiously and effectively to handle this interim relief program?

Mr. LOVETT. No, sir. I do not think they could, effectively and within this period of time; because even if they were supplied with a new charter and broad powers, it would require a degree of coordination. not only in purchasing, transportation, and shipping, which are extremely involved, but also requirements in supervision of the bilateralagreements program for distribution abroad. So that you would have that unfortunate confusion of two agencies in the same general field in this country and the necessity in any event of operating through Mr. Allen's agency abroad.

Mr. RICHARDS. You think the same agency that handled the $350,000,000 authorization and appropriation under Public Law 84 should handle it?

Mr. LOVETT. That is our recommendation, sir.

Mr. RICHARDS. That is all.

Mr. JARMAN. Mr. Secretary, I want to revert to the questions which were propounded to you a while ago about whether this was a relief bill or a military defense bill. The question was directed primarily to the Greek-Turkish, and German relief bill this spring, and then the question was propounded to you whether this was a relief bill or a defense bill.

Now, while I thoroughly agree with what I believe was your reply that it was primarily a relief bill, in view of the correctness of your statement that we cannot count on a peaceful world when such a large part is in distress, and in view of our knowledge that this distress will certainly increase with the consequent danger to world peace and our peace, from a long-range viewpoint, is this, in fact, not à defense bill, indirectly, as well as a relief bill?

Mr. LOVETT. Mr. Jarman, as I recall the question, Mr. Jonkman used the word "defense" in connection with the Greek and Turkish aid, and in those two instances military supplies constituted a very substantial part of the program. In the case of Turkey, it was completely military, and, in the case of Greece, it represented a high proportion. I was endeavoring to point out that the word "defense" in those connections connotated a delivery of military supplies. That is not in contemplation in the interim aid bill.

If I understand your question correctly, anything which we do in the furtherance of peace and stability is, of course, a defense measure. Mr. JARMAN. That is what I meant. And in your reply, in thinking of the Greco-Turkish bill as a defense bill, you had in mind primarily the defense of Greece and Turkey?

Mr. LOVETT. As I understood, the defense related to the means of defense the military aspects of aid.

Mr. JARMAN. To those countries?

Mr. LOVETT. Yes, sir.

Mr. JARMAN. And my reaction was, as I say, I do not believe it is possible, since we have tried it twice and succeeded very well for 2 or 3 years and then failed, I do not believe it is possible for us to remain aloof from any future substantial war in the world, and anything we do like this to prevent it, whereby it creates stability, is at least indirectly a defense measure for this country, if not for those countries concerned. Is that not true?

Mr. LOVETT. You could say, I think, Mr. Jarman, that anything we are able to do to promote the return to normal production, normal trade, normal governmental processes in western Europe and which through that contribution makes us have a better chance to attain the goal of peace, which we have not yet attained as a result of our victory in the war, is definitely in the national interest, and therefore I assume it could reasonably be called a matter of national defense.

Mr. JARMAN. Thank you. That is what I had in mind.

Mr. MERROW. Mr. Secretary, I have a feeling that all proposals for assistance to any foreign country could be considered in terms of our own national interest and in terms of the security of the United States. Can it not be correctly said that France and Italy constitute the western front against the spread of communism and Russian aggression?

Mr. LOVETT. I think it can be said that the countries of western Europe represent an area of free states as compared with the police state group; but I am not sure, sir, that I could make the direct assertion which your question would imply.

Mr. MERROW. It seems to me that they constitute the western front, and I have had the feeling that our aid should accomplish three things-the rehabilitation of the countries in question, prevent them from going communistic, and prevent the iron curtain from reaching the Atlantic Ocean and the Mediterranean Sea.