UTILIZATION OF MSA FUNDS FOR COUNTRY AID EUROPEAN AND FAR EAST PROGRAMS COMBINED Billions of Dollars funds for country aid, gives you a general picture of the size of the Mr. LAWSON. This first chart which shows the utilization of MSA pipeline in the program. (The chart referred to is as follows:) Mr. LAWSON. You will note that for the fiscal years 1952 and 1953, the expenditures show a fairly constant relation. The chart shows that the expenditures in the program which are shown in pink indicate a fairly constant relation to the obligation line. The pipeline, the difference between obligations and expenditures, has remained relatively small throughout the program, although as new obligational authority has been reduced in successive years, the pipeline as has been shown in blue, has been shrinking. For country aid through the end of fiscal year 1953 cumulative obligations will have been $15,216 million. You cannot see this. It is written in pencil on the chart. Expenditures will have been $14,167 million, leaving a pipeline in country aid at the end of fiscal year 1953, of $1,049 million. Mr. VORYS. It shows $1,244 million here. Mr. LAWSON. This is just the obligated but unexpended country aid and excludes unobligated balances and such things as Spain, basic materials, administration, and technical assistance, and some other items, which make up the difference. I will be able to show you the difference on the next chart. Now this chart is a facsimile of the chart we referred to in the book before you. Mr. LAWSON. This shows that on June 30 we expected to have a total of $1,244 million in unexpended funds. This is the way in which we intend to use those unexpended funds. Mr. LANHAM. Those are obligated? Mr. LAWSON. All of these funds with the exceptions I will come to in a minute, sir, are expected to be obligated by the end of this year. Of the total availability in the pipeline, $876 million in European country aid will be obligated, but not spent. That means that that money is all at work. It will be by June 30 in the form of firm obligations for commodities or services. Mr. VORYS. Were you present when we had the discussion of "obligated" yesterday? Mr. LAWSON. No, sir; I was not. Mr. VORYS. What do you mean by obligated? Mr. LAWSON. An obligation in the Mutual Security Agency is represented by the issuance of a procurement authorization which the General Accounting Office recognizes as an obligation. A procurement authorization authorizes a country to procure goods or services specified in that procurement authorization. It does not represent firm contracts with suppliers as in the case, for instance, of the Defense Department or any of the other normal Government operations. This concept was adopted at the beginning of the Marshall plan when it was determined that this seemed to be the most logical and efficient way to make it possible for countries to go out in the market and procure commodities either in the United States or in other areas. We estimated at that time-I was working in the Bureau of the Budget at that time on this program, and the people in the ECA were able to convince us that to follow the normal obligational procedure of other agencies would greatly delay the reporting of the status of funds because you would make an allotment to a country of a given amount of funds, it would take them varying amounts of time to get those funds into firm contracts and frankly in those early days of the program we realized that because the countries were not well organized to handle the funds it was going to distort the status of funds if you had to wait until they could get contracts placed. Also it would have been much more difficult to get the program rolling. Mr. WOOD. I might add, Mr. Vorys, that most of these contracts are, in fact, placed by private buyers in the countries concerned. As you know, the dollars are made available to the country, which then allots those dollars in return for local currencies to individual buyersthousands of them-who having received an allotment of foreign exchange, then make their contracts with individual sellers in this country and all over the world. The procurement authorization constitutes an obligation of funds according to the General Accounting Office ruling, in that it does obligate the United States to make available these funds for the purposes indicated in the Mutual Security authorization. Mr. VORYS. It obligates the United States to whom? For instance, on the basis of the new Comptroller General's ruling with reference to military procurement, we found that the unobligated balance would be $1.6 billion on June 30. You have something unobligated on June 30, according to this procedure. If you followed the present Comptroller General's rule that it is not an obligation until it is a firm obligation, what would be your unobligated funds? Mr. WOOD. Mr. Vorys, you could not make that comparison. Mr.VORYS. That is what I want to make right now. Mr. WOOD. You see, the Defense Department is itself the buyer and therefore makes the contract. The Mutual Security Agency is not the buyer. The buyer is either a government, if they have government procurement, or an individual national of the country concerned who makes his contract with an individual or a company in the United States for the purchase of certain things. Therefore, the Mutual Security Agency, except for office supplies and some of the people it hires, does not buy anything. It makes no contracts. What it does is authorize the availability to a foreign government of dollars, which then allots those dollars to an individual buyer within that country who then makes the contract. We do not actually know who has made what contracts for what supplies until after the contract has in fact been made. We get documentation for checking as to the right price and all that sort of thing, after the individual buyer in the country concerned has made his contract, and after the supplies have been shipped and received by him. Mr. VORYS. In other words, there is not any obligation of the United States to pay until this foreign buyer has made a contract in reliance upon some authorization given. Mr. LAWSON. Under the General Accounting Office ruling on the procurement authorization, the United States Government is obligated to pay at the time it issues a procurement authorization to a country. In other words, an authorization to that country to go out and procure the commodities or services specified in the procurement anthorization. Mr. Wood. It is not an obligation in the sense that a contract has been made with a supplier for the purchase of that material, but it is an obligation in the sense that the United States Government has obligated itself to finance the purchase of that item when the proper documentation is received. Mr. LANHAM. It is an obligation to the country? Mr. WOOD. That is right, upon the basis of which that country goes ahead and firmly allots to a citizen of that country the foreign exchange which he will be required to pay to the seller in the United States when the goods are delivered. He could not go forward to make his contract with the seller in the United States unless he had that authorization. When the procurement authorization is issued it is an obligation of the funds of the United States even though at that time you could not tell who the man is who will finally draw that foreign exchange through his government to pay his bill to the American supplier. You do know what commodities have been authorized for purchase under this system. Mr. VORYS. Could you give us any idea of how many such obligations have been deobligated? Mr. LAWSON. I do not have a recent estimate of the amount of deobligations. We could get it for you, Mr. Vorys. Mr. VORYS. Would it be $1 billion? Mr. LAWSON. Oh, no. It would run possibly about $100 million to $150 million a year. Most of those de-obligations, Mr. Vorys, are mainly adjustmentsthey are really technical adjustments in the procurement authorization. For instance, if a shipment is scheduled to go Freight-alongsideShip and then is changed to CIF, the procurement authorization must be modified to reflect that change in shipping technique and those funds are thus technically de-obligated and re-obligated. When I was in the Bureau of the Budget a couple of years ago we got to worrying about to what extent ECA de-obligates and then uses the funds for an entirely different purpose. We went into it pretty thoroughly and we were satisfied as a result of that review with them, that this was not a device to do some year-end buying and then early in the next fiscal year de-obligate the money and use it for something entirely different. Mr. VORYS. Did you find it was just an extra burst of energy that caused excessive obligations in June? Mr. LAWSON. As a matter of fact ECA and MSA have had a pretty good record on year-end buying. They just have not done very much of it. We used to watch them like a hawk, Mr. Vorys. Mr. BURLESON. Mr. Chairman, after you are through declaring intents and purposes and the fixed charges which Mr. Wood explained yesterday afternoon, there is just no such thing as unobligated balances, is there? Mr. LAWSON. Yes, there are, sir. Mr. HARRISON. It is $26 million. Mr. BURLESON. We can disregard $26 million as compared to these billions. Mr. LAWSON. It is possible that at the end of this year there will be a few million dollars of unobligated funds in addition to the amounts I will come to. Last year it was roughly three million and the year |