USE OF 10 PERCENT COUNTERPART Increased amounts of 10 percent counterpart will be used for extensive productivity demonstration programs under the "and operating" clause of section 115 (b) 6 of the Economic Cooperation Act. Of a total of $11 million equivalent of 10 percent counterpart proposed to be used in fiscal year 1954 for the productivity and technical assistance program, an estimated $5 million equivalent will be used for demonstrations, the largest portion of which is for food and agriculture demonstrations. By such effort it will be possible to achieve largescale production improvement results which otherwise would require a decade or longer. Purposes EUROPEAN COOPERATIVE BANK As part of its effort to increase the efficiency of distribution and production in Western Europe, MSA proposes to explore the advisability of assisting the European cooperative movement by helping to establish a European Cooperative Bank. The purpose of such a bank would be to provide European cooperatives with reasonable credit to expand and modernize operations and thus enable them to exert greater pressure in promoting low-cost production and distribution in the very large areas of the European economy which they serve. Corollary benefits of such a bank would be to increase the flow of goods and services between European countries through increased cooperation between national cooperatives, and to promote the intra-European flow of capital by extending credits raised in one country to cooperatives in another country. The proposal has the full endorsement of, and is in fact partly sponsored by, the United States League of Consumer Cooperatives._MSA's proposed contribution will provide an initial stimulus to a new intra-European institution of great promise. Proposed use of MSA funds Organization expenses.-In view of the importance of these objectives, MSA proposes to use up to $100,000 of local currency to assist the cooperatives in meeting the detailed planning, organization and incorporation expenses necessary to establish a cooperative bank in Europe with branches or affiliates doing business in European countries participating in the Mutual Security Program. Any funds made available by MSA would at least be matched by contributions of European and United States cooperatives, which have already expended about $25,000 (exclusive of salaries) in preliminary meetings. MSA investment in capital of proposed European Cooperative Bank.-Representatives of the European and United States cooperatives have requested MSA to invest up to $5 million in the capital of the proposed bank-an amount which would again at least be matched by contributions of the cooperatives. Since the bank will operate on a multilateral basis and will contribute in some measure to liberalized trade and capital flow in Europe, MSA would plan to make this investment of 10 percent counterpart funds or by a transfer of funds under section 111 (d) of the Economic Cooperation Act of 1948, as amended. The terms on which such an investment might be made have not yet been determined, but depending on developments in the organization stage, the investment might take the form of grant, nonvoting equity, or long-term loan. Ch. II. Mutual defense financing-Productivity and technical-assistance program 1 Includes $559,413 deobligated in fiscal year 1953. These costs, estimated at $1.4 million were paid from 90-percent counterpart funds in fiscal year 1952. Mr. JAVITS. I would like to ask a question: By what standard of judgment is it determined that this money for this type of development should come from the United States instead of coming from either other international sources, or from the national treasuries of the countries whose dependent overseas territories these are? What is the criteria which has been established to determine when it should go in our program and when it should not? Mr. FITZGERALD. Mr. Chairman, first of all it is anticipated and contemplated that there will be investments in all these overseas development projects by the meteropoles of the countries concerned, or by private capital in the metropoles. The difficulty is that there is not sufficient capital in the metropoles to meet the requirements for investments in the projects here enumerated as well as other projects which the metropoles and the overseas territories themselves consider to be of the first importance. We have selected from a very large list of possible development activities in the overseas territories, those which from the point of view of the United States are the most urgently needed. Those which contribute to the basic economic development of the African territories. Those which contribute transportation or power to the production of raw materials which the free world needs and needs badly; those which, if we were not able to interest metropoles in helping in the contributions, would likely have a lower place on the metropole lists and not get done. These are the ones we feel should be done in the United States interests. They are usually the ones that will help the overseas territories and therefore the metropoles to earn dollars; they are the ones in territories where raw materials, not just lead and zinc which are in sur plus at the present time, but cobalt, radium in the Belgian Congo, for example, and other products and raw materials are involved and are urgently needed in the United States. It is to induce further production in these lines of development that we have recommended to the committee this $25 million of funds for the overseas territories. Mr. JAVITS. Is there a time within which you require such projects to be producing as part of your criteria? In other words, if the project is going to be producing beyond the criteria year, it has to be omitted. Is there any such criteria? Mr. FITZGERALD. We have selected only those projects which in our opinion-and of course it is a personal judgment-are those which should be started in fiscal year 1954 if they are to mature at the time the production from them appears likely to be needed by the United States or other countries in the free world. Mr. JAVITS. You spoke of 1962. Do you call that such a year? Mr. JAVITS. I wasn't so much worried about how long it takes, but will it do our country any good in connection with this program? Do we consider that we need it and it contributes to our security if it is going to be there in 1962? Mr. FITZGERALD. Very definitely in some instances we do, Mr. Chairman. Mr. JAVITS. So you have no set cutoff date, at all, in your criteria? Mr. FITZGERALD. Let me put it this way: We have not included in these projects any which would produce results which would have production which would not be necessary in our best judgment at the time the production came into being. Mr. BENTLEY. We go out and build up these sources of supply of strategic materials abroad which we believe may be necessary to us at some time in the future when demand has caught up with supply. Now at that time, assuming that the time will come, we will then be required to go out and purchase these things from the various producing countries at current world market prices? Is there some understanding or arrangement whereby we can recoup some of our original investment at such a time that the purchase of these raw materials may be in our interests? Mr. FITZGERALD. On projects, sir, which directly relate to raw material production, we contemplate those types of arrangements which appear to be, at the time the arrangements are entered into, the most appropriate financial circumstances of the metropole and the overseas territory. Mr. BENTLEY. I don't understand that. I am sorry. Mr. FITZGERALD. First of all, let me say this: Any project which will qualify for bank financing we will not underwrite. We will not finance it. I think it is very important that we are very clear on that point, and to relate that to the funds we are requesting for basic-materials development. The fact that these funds are available and can be made available in the event that no other source of financing can be tapped, that has in it a tendency to result in other sources of financing becoming available. Take for example the Pafuri Cutoff. Here is a map of Africa south of the Sahara. Here are the important copper and other mineral areas of central Africa. Here is a line which cuts off hundreds of miles of railroad called the Pafuri Cutoff. It runs through southern Rhodesia and Mozambique. That project had been kicked around for years. A little more than a year ago, because we did have some funds available to finance in part this cutoff, we got both British and southern Rhodesians and the Portuguese to employ an engineering firm to develop it and they made a survey of that area and a specific engineering proposal. When it came in to us for financing-and it was about $28 million as I remember it-we referred that first of all to the International Bank and the Export-Import Bank. Because it had been carefully engineered, because it did seem possible for funds to be made available to finance that cutoff, we were able to get the Export-Import Bank to finance the Portuguese part of this cutoff, and the IBRD to finance the southern Rhodesia part of the cutoff. Though we had funds we could have used, since we induced them to have an engineering firm to make a project, they could get regular financing. Mr. BENTLEY. Assuming it had been necessary for us to use our own money, then to what extent would we have come to an understanding with the various recipients of our money whereby we might be in a position to recoup some of our original investment? Mr. FITZGERALD. We would have recommended, sir, to the National Advisory Counsel that we-MSA-make that money on a dollar-loan basis because it was a sound, loanable project and can be paid off in dollars and will be paid off in dollars. Mr. BENTLEY. Does that apply generally to these projects? Mr. FITZGERALD. If there are projects in here which are dollar loanable but for one reason or another, neither the Export-Import Bank or the IBRD, or private capital will take them, we would propose to make a dollar loan. We won't want to give this money away when it isn't necessary to do so. On this kind of thing, we don't think it is necessary to do so. Mr. JAVITS. Do you have any experience in the fiscal year 1952–53 where such projects have been financed with Mutual Security or TCA funds on a straight dollar-loan basis? Mr. FITZGERALD. What fiscal years did you say? Mr. JAVITS. The current fiscal year. Mr. FITZGERALD. The current fiscal year, no. In previous fiscal years, yes. Mr. JAVITS. Now can we take this assurance as official that whereever possible if these projects are to be financed, they will be done on a dollar-loan basis? Not counterpart, but a dollar loan? Mr. FITZGERALD. Yes, sir. If the Export-Import Bank and IBRD are not prepared to make a dollar loan on a dollar-loanable project, our proposal would be to make a dollar loan. Mr. JAVITS. Can you give us an estimate before we take this bill to the floor of how much of the money that is requested here for the dependent overseas territories and for the basic materials, how much of that you estimate will actually be on dollar loans? Mr. FITZGERALD. I would hope very little of it, sir, because I would hope that Export-Import Bank and IBRD would pick up all the good dollar loanable projects that we are able to generate. Mr. JAVITS. What would happen to the authorization? This year we had $29 million of funds available for basic materials development and we will be spending not more than $5 million. Mr. BENTLEY. The $14 million left will be listed as unobligated? Mr. FITZGERALD. That is right, unobligated, for basic materials. It was taken into account in the $354 million that the committee has been notified about that would reduce next year's request. We won't use it unless we have a good constructive use for it. Mr. JAVITS. You will submit for the record how much of this request for authorization it is expected will be put out on loan if it is used at all? Mr. FITZGERALD. Yes, sir. (The information requested is as follows:) DOLLAR LOANS AND OTHER METHODS OF FINANCING CONTEMPLATED UNDER THE FISCAL YEAR 1954 BASIC MATERIALS AND DEPENDENT OVERSEAS TERRITORIES PROGRAMS Dollar loans in fiscal year 1954 repayable in dollars would be the rare exception in connection with the $25 million appropriation requested for the dependent overseas territories program or in connection with either the $25 million of appropriated dollars for the basic materials program under section 514 or the $25 million authorization to spend 10 percent counterpart funds for the basic materials program. Projects on which it would be possible to make dollar loans repayable in dollars would normally involve loans that the Export-Import Bank, IBRD, or DMPA would take. In no case would MSA finance a project which these institutions or private enterprise would undertake. However, there are a few loans repayable in dollars that might be made with MSA funds. For example, among the illustrative projects, there are $3 million for mineral development banks in Angola, Mozambique, and Goa. Since Portugal is not a member of the IBRD, it could not borrow from that source. Portugal might not be able to borrow from the Export-Import Bank under the current rule of the bank that funds must be spent in the United States. Furthermore, the Export-Import Bank might feel that it was unwise to make an exception to this rule, particularly where funds were being advanced to finance a development bank rather than to finance a specific and limited project. Under such conditions, after further study and after consultation with the NAC, MSA might very well make a dollar loan repayable in dollars, because Portugal could probably service a loan on behalf of the development of exports from its DOT's. It seems extremely doubtful that more than $5 million of DOT and basic materials funds would be lent in fiscal year 1954 on the basis of dollar loans repayable in dollars with advantage to the programs. Indeed, it is conceivable that no dollar loans at all may be made by MSA, because the Export-Import Bank or the IBRD may be prepared to finance all such projects, although MSA would continue to make dollar loans repayable with dollars (after consultation with the NAC) wherever such loans seem appropriate. MSA would propose in each basic materials project under section 514 to obtain terms as favorable to the United States as practicable, considering the financial position of the country concerned, the significance of the project, and the degree to which financial terms might affect the desired increase in materials production. To the extent that terms more favorable to the United States than outright grants were proposed in arrangements with the governments or other entities, or that loans to private enterprise were proposed, the National Advisory Council would be consulted. However, MSA expects that all funds requested for fiscal year 1954 will be needed, whether for projects that can be financed through dollar loans or for other types of project involving expanded production of materials needed by the free world, but which require other methods of financing. MSA hopes that a significant part of the basic materials fund and the overseas development program in fiscal year 1954 can be put out on terms, acceptable to the NAC, that involve some return to the United States. However, it will be necessary in the case of some basic materials projects to make dollar grants under section 514 with or without counterpart deposit, or grants of 10 percent counterpart, or of local currency acquired with dollars. Also some of the funds provided under the DOT program will be used for projects of a non-self-liquidating character and for TA, and will have to be grants rather than loans. |