for themselves specific force goals to be raised during the calendar year 1952. Those goals have substantially been met. The accession of Greece and Turkey to NATO and the resultant addition of their substantial forces to those of the other NATO members have provided the supreme Allied commanders a sizable combat force which already has served as a strong deterrent to aggression.

This same period has also seen a substantial expansion and development of the physical facilities required by the forces which are being created. Airfields, communications networks, jet-fuel systems, and other segments of the so-called infrastructure program, which were lacking in the beginning, are now becoming available both for the training of units and for operational use should such use become

necessary.

One of the principal accomplishments of this last NATO meeting was the reaching of agreement on the balance of the infrastructure program and the sharing of its cost by the participating nations. This will permit badly needed advance planning and will insure the making of adequate provision in the national defense budgets to provide for this highly essential segment of the NATO defense buildup.

An important part of the ability to resist aggression is the provision of the necessary backup to enable this resistance to be maintained effectively over a period of time long enough to permit the bringing up of reserves. A good start in this direction has been made in expanding the NATO production base both through the United States offshore procurement program and through a general improvement of the production capabilities of the NATO countries through our defense-support assistance.

A sound offshore procurement program makes good sense to me. It will help to utilize the great production potential of Western Europe. It will establish a production base nearer to the point of possible use a particularly important consideration in connection with such items as ammunition which are rapidly expended in the early days of hostilities before supplies can begin to flow across the seas. Also by establishing production within nondollar areas, the trade between the United States and such areas will be brought into better balance without the necessity of direct dollar assistance.

It is my expectation that the countries where we are placing offshore procurement orders can in general produce as cheaply or even more cheaply than the items can be produced in the United States. This is an essential requirement of a sound offshore procurement program. While we were in Paris, the defense ministers of five NATO countries, including myself, participated in a ceremony marking the execution of contracts for the procurement of half a billion dollars' worth of fighting aircraft sorely needed for the buildup of the NATO air strength. I personally inspected and witnessed flight tests of the French Mystere Mark IV and the British Hawker Hunter, two types of interceptor fighters which are being purchased by the United States as a part of its contribution to the jointly financed program. I was favorably impressed by the performance of these planes, and I feel the United States as well as the other participating nations will get good value for the money invested in this program. I understand that the legislation now under consideration contemplates a substantial expenditure for additional offshore procurement. Properly executed, this is a sound course of action.

One of the points in which the other NATO representatives were particularly interested during the recent meeting in Paris was the extent to which in coming months the United States would be able to make good on deliveries of military equipment under the mutual defense assistance program. I made a full report to the Council on this subject in which I outlined the improvement that has been made in the production of certain items of equipment which are in short supply. I pointed out that during the first 2 months of the current year, $669 million of MDAP equipment was supplied by the United States to its allies throughout the world. I concluded that with the flow of production as we now see it coming, I believed we would be able to keep deliveries under our military assistance program geared to the ability of the NATO member nations to receive, maintain, and effectively utilize the equipment.

Because I have been so close to the European scene in recent weeks, I have concentrated my observations on the NATO part of the proposed program. However, the fact that I have dwelt at some length on European problems does not mean that the Department of Defense has its eyes focused on Europe alone.

Since the cost of the Korean war effort is included in our United States defense budget, and not in the mutual security legislation, I am not dealing with the Korean problem at this time.

I have been closely following the situation in southeast Asia since the attack on Laos, and while in Paris had a number of discussions of the problem with the French. I feel that substantial aid from the United States will be required if the efforts of the French, and the Associated States are to be successful in stemming the tide of aggression. Meanwhile every effort is being made to see that the forces fighting communism in Indochina will not suffer for lack of equipment. The threat to Thailand is also being taken fully into account. You will see as the program for the Far East is laid out for you that, together with the further strengthening of Japan, Formosa, and the Philippines, more than 25 percent of the total proposed military aid is designed to replace weakness with strength in this vitally important

area.

Likewise, the crucial Middle East is not being neglected. Our efforts are assisting cooperative nations to strengthen their defenses so that they may not only defend their own countries but do their part in the defense of the free world. My discussions with the NATO commanders for this area have convinced me there is a real need for improving the situation in this area. Substantial funds are, therefore, requested to create strength where weakness now may be a temptation for further aggression.

Thus, from the examination which I have been able to make of the program which Governor Stassen has outlined for you, I believe it to be a balanced program which takes into account the most vital needs in the effort we and our partners are making to achieve security for the free world. The amount of additional aid now asked for represents a substantial reduction from amounts previously contemplated, some $1,800,000,000 less.

I believe, however, that it represents the proper amount which should be requested at this time. In considering this military-aid program we have looked at it in the same way as we have our own

defense requirements. We have kept both need and cost in mind and we have encouraged our NATO partners to do the same. It is our objective to achieve greater efficiency and economy. It is our aim to achieve a balanced program by deferring production of military equipment and other items not now contributing directly or effectively to the common defense. This will permit to some extent distributing the economic burdens of defense over a greater number of years without to any important degree sacrificing a reasonable defense posture. Moreover, the present request is based upon the validated need for new obligational authority in the fiscal year 1954 in relation to required deliveries and production, taking fully into account unexpended balances from previous appropriations.

In conclusion, it is my opinion, confirmed by the judgment of other members of the executive branch, that this program is what can and should be done by way of military assistance in the fiscal year 1954. I hope that after it has been explained to you in further detail by the witnesses to follow, you will agree that it is the program which should be authorized by the Congress of the United States.

Chairman WILEY. Thank you, Mr. Charles E. Wilson, Secretary of Defense.

We will now be privileged to hear the Honorable George M. Humphrey, Secretary of the Treasury. Mr. Humphrey, it is good to see you, sir. Will you carry on in your own inimitable manner?

STATEMENT OF HON. GEORGE M. HUMPHREY, SECRETARY OF THE TREASURY

Secretary HUMPHREY. Mr. Chairman and members of the committee, you have noted from what has previously been said by the preceding witnesses that the great bulk of the money that is now being requested is to be spent for direct contributions to our security. It will be largely for military end items or directly contributing to our friends and our own mutual defense. You have also heard it said by the previous witnesses that we will get as much, or more, for our money in security in this way than by making additional direct military expenditures. It is our purpose to secure the maximum of security wherever it may be for the least possible expenditures of money. I believe that the assistance proposed in this legislation meets that requirement. I think it should be rendered and that we can render it advantageously as compared with any equal expenditures elsewhere. It is understood, of course, by all concerned that as time goes on and if conditions change, proposed expenditures will be reduced or omitted wherever that can properly and suitably be done without prejudice to our security, and at all times every effort will be made to get our full money's worth.

A good part of the money being requested in this bill will not be spent in the coming fiscal year. Its authorization enables the forward planning and contracting that is necessary when you are engaged in building a defense force. But it is planned for expenditure at a later

date.

This question of continuing new obligational authority has been a matter of deep concern to the administration. As you know, when President Eisenhower entered office he inherited the problem of $81 billion in outstanding obligations and unsatisfied authorizations to spend Government funds. The expenditures for the fiscal year 1954the expenditures I will talk about in a few minutes-will come largely from this overhang.

If we are ever going to balance the budget and bring expenditures within the tightest possible control, we must do something about achieving a runoff of the large carryover of unspent authorizations. We cannot continue to ask each year for substantially more money than we will actually spend in the ensuing 12 months, because that means the overhang constitutes a snowballing threat to financial stability.

Now we have tried to do something about this problem in the bill that is before you. We are changing the direction that has been followed in the past few years. But we are not proposing to do so with unreasoning abruptness. We are trying to strike a proper balance between maintaining an adequate and continuing free world defense and creating the conditions for long-term financial stability in this country.

The way to do that, it seems to me, is to request each year less than will be spent in the next 12 months. You will note from the exhibits before you that we are beginning to put that policy into practice right now. Changing the practice of the past, we now propose that the Congress authorize new funds for foreign assistance in an amount smaller than the anticipated expenditures during the coming fiscal year. As we do our future planning we will have constantly before us the objective of reducing the overhang of unutilized authorizations. That is a very important objective, and I want you to know that it is not only our objective but is now our determined practice. That is why I have talked first about this problem of new obligational authority.

Now I turn to the problem of actual expenditures during fiscal year 1954. These will be large. There is no question that these expenditures and others necessary to our national security will affect the possibility of balancing the budget and the time when we can look forward to tax reductions. Because this administration is committed to a program of sound money and of reducing taxation at the earliest possible time, I can assure you that these expenditures have been most carefully studied from the standpoint not only of their effectiveness but also from the point of view of the necessity of making them in the proposed amounts to contribute to essential security. We are committed to the policy of constantly reviewing the necessity of making the expenditures currently during the year and will make reductions or eliminations whenever and wherever justified. Although expenditures of such magnitude will necessarily create problems, they can be handled under the sound financial principles to which we are committed.

In formulating the foreign assistance program, close attention has also been given to the desirability of fostering private investment abroad. This will not only reduce public expenditure but the Government should not undertake activities that can better be carried on by the people themselves. In this direction we will be constantly

alert to utilizing the International Bank for Reconstruction and Development and the International Monetary Fund wherever that is possible. To this end also it is the policy of the Government that interest rates on any governmental loans which may be necessary shall be such as not to discourage private investment.

As we progress throughout the year, we will give serious consideration to the problem of the rate of expenditures which we will lay before you next year. We will strive for proper balance between military preparedness in the United States and overseas, and maintenance of economic strength at home. We have already laid the groundwork for establishing that balance. In the NATO meeting in Paris last month my associates and I took steps in that direction. Our friends abroad were fully advised of this policy. As we go through the next year we will build upon that foundation.

Meanwhile, we feel that the program which has been presented to you today is the best balance between security for our friends and ourselves and our necessity for reducing expenditures that can be appropriately managed at this time. We are looking forward to making savings wherever possible and further progress in making additional reductions in the future.

Thank you very much.

Chairman WILEY. Thank you, Mr. George M. Humphrey, Secretary of the Treasury.

We also want to say that we are very grateful for hearing the facts that have been given us from the representatives of the executive department.

The next meeting of the Senate Foreign Relations Committee will be held in the Old Supreme Court Chamber, in the Capitol Building, at 10:30 a. m. tomorrow, and Mr. Stassen will be the witness.

The House committee will have Mr. Dulles as their witness.

There are no more witnesses to appear before us this morning, and the meeting stands adjourned.

(Whereupon, at 11:30 a. m., the committees adjourned; the Senate Committee on Foreign Relations to reconvene at 10:30 a. m., Wednesday, May 6, 1953, in the Old Supreme Court Chamber, Capitol Building.)