when it can sell a share that it acquired, to local capitalists. It does that and moves on to building a new plant someplace else..

This is promoting what is the most productive and the most effective system that ever has been devised for an economy, the system we have developed in this country.

You expressed respect for the World Bank. If I had a chance to spend an afternoon or evening with you, I think you would have great respect for the IFC.

GOLD RESERVE PROBLEM

Mr. PASSMAN. I want the record to show that I have never quarreled with the International Monetary Fund, the World Bank, the ExportImport Bank, or the technical aid program. But we have let this aid program go far afield.

I want you to correct me if I am wrong. Our gold in the past 12 years has dropped from $23,252 million down to about $13,632 million as of last Friday. We have lost almost half of our gold reserves. During that same period of time, the short-term demands for gold upon the U.S. Treasury of my country have gone from $10.5 billion to around $29 billion. If we want to be realistic, there has been only 1 year in the past 12 years where we had a balance-of-payments credit. That was in 1957, and it was only $500 million. All other years it has been out of balance several billions of dollars.

Now it appears that we are out of the world market. I visited a large steel warehouse in Kansas City the other day. A good friend of mine said, "Yes, I have been here a long time. I am now buying steel $11 a ton cheaper out of Japan than I can buy it out of Pittsburgh." Wherever you go, you see that we are losing our markets to foreign competition on account of our generosity.

We look at the budget. We balanced it only 6 times in the past. 36 years. We are not about to balance it in the foreseeable future, because we are passing too many authorization bills for new programs. You do not disagree with those statistics, either, do you?

Mr. MERCHANT. On the gold, no, to the best of my knowledge. Mr. PASSMAN. And the balance of payments?

Mr. MERCHANT. Yes. I am not a technician on the balance of payments.

Let me say, sir, I worry about the same things you do. I think the World Bank, which is my particular responsibility at this time, is doing a very important job in our interest. Like a drugstore which to make a profit has to have a soda fountain as well as a prescription counter as well as sell toothpaste, I think IDA, which is a relatively small part of the total Bank operation, is an important and essential

one.

Mr. Chairman, you are interested in it because we come up each year for an appropriation. I think you should back off, as you no doubt do, and look at it in the context of the whole World Bank family.

Mr. PASS IAN. I will never do it, because you have a tremendous surplus in the World Bank, and you are not about to disburse that surplus on the type of loans you are making in IDA. You are too smart to do it.

Mr. MERCHANT. Sir, we are using exactly the same banking criteria. Mr. PASSMAN. You are not giving 50-year terms at no interest, and with a 10-year grace period, and you never will.

Mr. MERCHANT. In terms of the economic payout estimate, it is the same.

(Off the record.)

Mr. PASSMAN. What we give away, we have first to take from the people, is that not correct?

Mr. MERCHANT. That is right, including me, sir.

Mr. PASSMAN. I want to say that I wish I knew of some way to raise cain about the foreign aid program. I do not like it. If you go into it, you would be just as frightened about it as I am about the trade balance, the balance of payments, and our dwindling gold

reserves.

During our most prosperous times is when we have the largest budget deficits.

Mr. MERCHANT. Conceding your thoroughness and interest and your motivation, Congressman, I think one can have honest differences of opinion and judgment. So long as you do not think my associates and I are not equally patriotic, you and I are going to get along fine. Mr. PASSMAN. Nobody on this side of the table ever questioned the patriotism of anybody on the other side of the table. But you do not go into what the aid program is actually doing to the economy of America. The people downtown say we do not have any inflation. If that be true, as I said earlier, when I finally get around to it, I am going to sue those people who are charging me about twice as much for a suit or tie or shirt as they did when I came here about 20 years ago.

RECIPIENT RECOGNITION OF AID SOURCE

Mr. SHRIVER. One thing bothers me about your discussion that this country is not receiving recognition of its generosity, that portion of your discussion, Mr. Ambassador.

Right now, aid is being sold to people of our country, as I view it, on the basis of our generosity, not on what you were talking about. Right now the papers are full-and I presume a lot of it is put out by the Government-of the need of our giving commodities and food to India, and our people will buy this and have in the past. I have had many letters from constituents of mine. Every year I put out an opinion poll, and I get the same response every year, that they are opposed to a foreign aid program because many of them have been out there and they believe there is not a feeling of appreciation on the part of many of the individual recipients.

It does bother me that this is not one of the goals or purposes of foreign aid, of the giving of our surpluses, of our wealth to others in the world. There should be, it seems to me, some recognition by countries, as well as individuals, of this generosity. If it works with people, why would it not with countries and with other people of the world?

Like Projects HOPE and CARE. They do not worry about where these things come from, do they?

Mr. MERCHANT. The people who come immediately in contact with such an operation, yes, I am sure they do, sir. I see nothing to be ashamed of in helping out people who are in trouble as we have with food for peace, where there have been disasters and famines and problems. I do not see anything wrong there, and I would hope that the people would have a warm feeling in their hearts toward the

American people in response to what was a generous action on the part of the American people.

I am speaking my own personal philosophy, having had something to do with the formulation of foreign policy. I think one in a responsible position has to pay very strict attention to one's national interests. I think there is the element of generosity in our aid program, and I applaud the American people for responding to it and being motivated by this.

I myself pay a great deal of attention to what can best be described or was described by Bob Lovett many years ago when he spoke of the United States being the fat boy with a bag of candy in a canoe. If we are to be in the decades ahead a little isolated oasis of tremendous, booming prosperity in a world of despair and poverty and revolution and Communists, I am saying our home is going to be pretty insecure. Mr. PASSMAN. Is it not true that some of the poorer nations told us to get out after we had given them hundreds of millions of dollars? (Off the record.)

Mr. PASSMAN. I believe Mrs. Gandhi is over here at this time. Is she not seeking more aid?

Mr. MERCHANT. She is over here. I do not know what her agenda is for talking.

Mr. Passman. If we look at the record of India and Pakistan, we have given them about $10 billion of our wealth in the past few years, and both nations have been kicking us in the pants and in the face, too, for the last year and a half. I am just wondering what would have happened if we had not given the $10 billion. That is a good question. If they are kicking us in the pants after we have tried to help them by giving them $10 billion of our wealth, what would have been our position if we had not given it to them? (Off the record.)

Mr. PASSMAN. Thank you very much, gentlemen.

MONDAY, MARCH 28, 1966.

ASIAN DEVELOPMENT BANK

WITNESSES

JOSEPH W. BARR, UNDER SECRETARY OF THE TREASURY MERLYN N. TRUED, ASSISTANT SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS

BERNARD ZAGORIN, U.S. DIRECTOR-DESIGNATE, ASIAN DEVELOPMENT BANK

RALPH HIRSCHTRITT, DEPUTY TO THE ASSISTANT SECRETARY FOR INTERNATIONAL FINANCIAL AND ECONOMIC AFFAIRS,

TREASURY DEPARTMENT

ROY T. ENGLERT, ASSISTANT GENERAL COUNSEL, TREASURY DEPARTMENT

E. JAY FINKEL, DEPUTY DIRECTOR, OFFICE OF INTERNATIONAL FINANCIAL POLICY COORDINATION AND OPERATIONS, TREAS

URY DEPARTMENT

ERNEST C. BETTS, JR., DEPUTY ASSISTANT SECRETARY FOR ADMINISTRATION AND BUDGET OFFICER, TREASURY DEPART

MENT

Mr. PASSMAN. We will consider next the appropriation request for the new Asian Development Bank. We have with us the Honorable Joseph W. Barr, Under Secretary of the Treasury, and supporting

witnesses.

We will at this time hear from Mr. Barr.

GENERAL STATEMENT OF UNDER SECRETARY BARR

Mr. BARR. Mr. Chairman and members of the committee, I am happy to appear before you this afternoon to discuss the administration request for $140 million in appropriations toward our financial participation in the Asian Development Bank. On March 16, President Johnson signed Public Law 89-369 authorizing U.S. membership in the Bank and the appropriation of the amounts necessary for our subscription of $200 million.

The passage of authorizing legislation for a U.S. role in this new Asian initiative was marked by strong bipartisan support. The House of Representatives approved H.R. 12563 by a vote of 292 to 80 on February 9. The House action followed unanimous endorsement of the bill by the House Banking and Currency Committee. The Senate Foreign Relations Committee likewise endorsed the bill unanimously, and the measure was adopted by a voice vote in the Senate on March 2. Early action on appropriations for our subscription obligations will permit the United States to make a timely deposit of its instrument of ratification of the Asian Development Bank Agreement and assure us of a voice in the formative period of the Bank's existence.

Because the subject of the Asian Development Bank is now before this committee for the first time, I would like to list briefly some of the practical reasons why U.S. participation is desirable:

The Asian Development Bank will make sound loans for economic development in Asia.

Its lending will complement and extend the effectiveness of the economic assistance the United States and others are now giving in Asia.

When outlays of capital for the new Bank are matched against our exports it appears that any effects upon our balance of payments will be very small.

Countries in the Asian region are contributing 65 percent of the authorized capital of the Bank, giving clear evidence of their deep commitment to the idea of regional cooperation for development.

Our economic interests will be well served by membership in the Asian Development Bank.

While our subscription of $200 million represents 20 percent of the Bank's authorized capital, the expected subscriptions of the other advanced countries Japan, Australia, and New Zealand in the Asian region, and nearly a dozen elsewhere represent more than double that amount.

PROPOSED BANK'S RESOURCES

The Asian nations are providing the major part of the Bank's capital. In addition to the subscriptions of the developing countries of Asia, Japan has offered to provide no less than $200 million-an amount equal to the U.S. pledge-to the Bank's proposed authorized capital of $1 billion. Australia and New Zealand, as countries within the region, made further pledges totaling over $100 million. From countries outside the region, the United States has pledged $200 million and nonregional countries have made pledges totaling $150 million, thus bringing nonregional pledges up to the full $350 million allocated by the Bank's charter for such subscriptions. These other pledges include $34 million from Germany, $30 million from Great Britain, $25 million from Canada and $20 million from Italy. I should also mention that the Asian nations themselves have pledged virtually the full amount of $650 million allocated for regional subscriptions. The Bank is, therefore, now practically assured that it can open its doors as a billion-dollar institution.

The Bank's articles permit it to increase its resources beyond its capital subscriptions in ways already familiar in the existing international development institutions.

The Bank is authorized to accept from member or from nonmember countries, or from others, special funds which the Bank may administer on terms designated by the donor, so long as the purposes are consistent with the Bank's development objectives and methods.

The Bank may enlarge its resources by borrowing through the sale of its bonds in the world's capital markets. It is not expected that the Bank will be in position to commence such borrowing for some time. When it does begin, it is required to avoid any undue concentration of its borrowing in any one financial center.

The Bank can reconstitute its capital by sales from its portfolio. The Bank is permitted to borrow or to sell from its portfolio in member countries only with prior official approval.

RELATION OF THE ASIAN DEVELOPMENT BANK TO DEVELOPMENT ASSISTANCE IN ASIA

The proposed Bank can make an important addition to what is now being done to help the Asian nations, and its activities will in many