Mr. BARR. That is right.

Mr. PASSMAN. As to the good will. If the tens of billions of dollars we have given them, and the terrific amount that we are going to give the same people this year, if that has not created good will I just wonder how much good will you expect to get out of this Bank.

I hope it is terrific. I hope it is tremendous, but to me it is just another organization on an international basis. Do you ever get any ideas from any other people or do we have to come up with all these ideas?

Mr. BARR. Mr. Chairman, when I explained the reasons why this Bank attracted me, I didn't mean to emphasize good will.

Mr. PASSMAN. Your colleague was impressed by good will.

Mr. BARR. I was impressed at the opportunity for Asian cooperation for helping themselves and the fact that other nations have joined with us in carrying what I think is a reasonable share of the load. These are the things that impressed me about this institution, Mr. Chairman.

Mr. PASSMAN. Off the record.

(Discussion off the record.)

Mr. PASSMAN. Thank you, gentlemen.

INTER-AMERICAN DEVELOPMENT BANK

WITNESSES

ALEXANDER M. ROSENSON, ALTERNATE U.S. EXECUTIVE DIRECTOR, INTER-AMERICAN DEVELOPMENT BANK

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

MILAN C. MISKOVSKY, ASSISTANT GENERAL COUNSEL, TREASURY DEPARTMENT

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

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

Mr. PASSMAN. The next item the committee will consider is the budget request of $250 million for the Inter-American Development Bank. We have the Honorable Alexander M. Rosenson, Alternate U.S. Executive Director, Inter-American Development Bank, and other distinguished gentlemen who are supporting witnesses.

You may proceed.

GENERAL STATEMENT

Mr. ROSENSON. Mr. Chairman and members of the committee, I appear before you today in support of the request for appropriation of $250 million to meet the third installment on the U.S. obligation arising from the increase in the resources of the Fund for Special Operations (FSO) of the Inter-American Development Bank (IDB). The administration's request for this appropriation arises from the commitment approved by the Congress through Public Law 89-6, enacted April 30, 1965, which authorized the Secretary of the Treasury, as U.S. Governor of the IDB to vote in favor of an increase equivalent to $900 million in the resources of the FSO and authorized the appropriation of $750 million as the U.S. share of this increase, payable in three annual installments of $250 million each. The payments of the first two installments were made in fiscal years 1965 and 1966 and the third is due in 1967 (on or before December 31, 1966). The first installment was appropriated under Public Law 89-16, and the second under Public Law 89-273. The request for the appropriation of this third installment of $250 million has been included in the fiscal year 1967 budget in order to enable the United States to make the payment falling due December 31, 1966.

The Latin American members of the IDB have contributed $100 million in their own currencies as their part of the total increase and will contribute an additional $50 million in this third installment. As you may recall from testimony last year, this increased U.S. participation in the FSO is in lieu of any further contribution to the Social Progress Trust Fund.

In view of the committee's familiarity with the history and structure of the IDB and the scope of the U.S. participation in this institution as well as the purpose for which this appropriation is requested, I shall, Mr. Chairman, review these points briefly:

BACKGROUND.

While the requested appropriation is concerned solely with the Fund for Special Operations, the activities of the Fund may be understood only in the context of the efforts of the United States to assist Latin American economic and social development and to promote hemispheric cooperation and stability through the Alliance for Progress.

The Bank was established at the end of 1959 and began its operations in the fall of the following year. Its original and current membership includes all countries represented in the Organization of American States; Cuba has never joined and, with its withdrawal from the OAS, is no longer eligible for membership. Under its charter, the Bank has the primary aim of accelerating the economic development of its member countries, both individually and collectively. In fulfilling this purpose it has used the resources entrusted to it and has promoted the investment of Latin American private and public capital.

In addition, it has provided advice and technical assistance on development plans and projects. Moreover, it has administered funds provided by its member countries-preponderantly by the United Statesfor Latin American social advancement.

To date, the Bank has conducted its activities through what may be termed three windows: its ordinary capital, the FSO, and the Social Progress Trust Fund (SPTF). The resources of these three funds are administered and accounted for completely separately from one another.

ORDINARY OPERATIONS

A substantial part of the Bank's own resources is devoted to economic development lending on conventional or "hard" terms comparable to those of the World Bank. The initial source of funds for these ordinary operations was the paid-in portion of the member countries' subscriptions to the ordinary capital. This portion amounted to a total of almost $382 million, of which about $266 million took the form of U.S. dollars or gold and the remainder was paid in other national currencies; the U.S. share of that total was $150 million. Since 1962, however, reliance has been placed upon funds raised from bond issues floated on the private capital markets. From that year until the present seven such issues in the total amount of close to $310 million have been made in the United States, Italy, West Germany, and the United Kingdom.

The voting strength of a member country in the Bank on any subject (including transactions in any of the three windows) is determined by its subscription to the ordinary capital. The United States has about 42 percent of the total voting power.

As of the end of 1965, ordinary lending operations had resulted in 125 loans in 17 Latin American countries, totaling about $656 million. The normal interest rate ordinary capital loans is currently 6 percent, and the usual term has been from 12 to 15 years.

FUND FOR SPECIAL OPERATIONS

At the time of the Bank's establishment the FSO was created as a separate entity within the Bank which could make loans on flexible terms to member countries having balance-of-payments difficulties which would create problems in servicing additional loans repayable in hard currency on conventional terms. It was the purpose of the FSO, moreover, to assist in financing projects which were of basic developmental importance but the economic benefits of which could only be realized over the long term.

Contributions made by the member countries to the Fund for Special Operations since the Bank's inception amount to $820,391,500. Of this amount, the United States has provided $650 million and the Latin American member countries $170,391,500. As will be explained presently, the original scope of this Fund was expanded in 1965 to include social development projects previously financed with the Social Progress Trust Fund. As of December 31, 1965, the Bank had committed from the FSO $366.4 million, of which $196.6 million was authorized in calendar 1965.

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The approval of any transactions involving the use of FSO resources requires a two-thirds majority vote of the Board of Executive Directors; this is also true of the operations of the Social Progress Trust Fund. Thus, with its voting strength of roughly 42 percent the United States in effect possesses a veto power in all the soft loan operations of the Bank.

SOCIAL PROGRESS TRUST FUND

The third "window" of the Bank, the Social Progress Trust Fund, was established in 1961 as a means of helping the Latin American countries cope with the enormous social problems confronting them. By means of special agreement with the Bank, the United States undertook to make available resources to be administered by the Bank through the Trust Fund. A total of $525 million has thus been contributed to the SPTF by the United States for lending on easy terms and for technical assistance in the fields of low-income housing, land settlement and improved land use, water supply and sanitation, advanced education, and training. In accordance with the agreement technical assistance has also been provided for the mobilization of domestic financial resources. By the end of 1965 the original resources of the Trust Fund had been completely committed after having helped to finance 117 projects.

INCREASE OF RESOURCES OF FSO

Since the enactment of Public Law 89-6 authorizing the increase of $900 million in the Fund for Special Operations, no further contributions have been made to the Social Progress Trust Fund, and the operations of the Bank's three "windows" have been concentrated in two. The primary purpose of merging the operations of the two soft "windows" has been to simplify and strengthen the Bank's operating struc

ture.

The additional U.S. contribution to the FSO has been tied to the purchase of goods and services produced in this country by means of a letter of credit. Further, the U.S. contribution is made available to the Bank only as funds are required for disbursement on loans.

The resources of the expanded FSO are being used by the Bank to provide financial assistance both for essential social projects and programs of the kinds mentioned above and for high priority development projects in such basic fields as power, transportation, and agriculture. Increasing emphasis has been given by the Bank to the expansion and improvement of technical, vocational, and scientific education in Latin America. Loans have been made for the purchase of laboratory equipment, construction of new facilities, and the contracting of expert services to revamp school administrations and modernize curriculums. Funds have also been provided for resource surveys and feasibility studies to provide a rational basis for development of specific sectors of the economy and for programs of investment in specific fields.

In its administration of its resources, the Bank has continued to take into account the institutional improvements which the borrowing country is undertaking, the steps taken to achieve the success of the specific project proposed for financial assistance, the extent to which local contributions are made available for financing the project, and lastly, but perhaps most important, the extent and effectiveness of the overall self-help practices of the borrowing country, in conformity with the principles established by the Charter of Punta del Este.

RELATIONSHIP TO U.S. BILATERAL AID POLICIES

Both the manner in which the funds of the expanded FSO are being utilized, and the overall policies of the Inter-American Development Bank are fully in accord with the major policy guidelines established by Congress for the U.S. bilateral aid program. No funds provided to the expanded FSO are available to Communist-bloc countries. With respect to the expropriation of private property of U.S. nationals it will be recalled that Congress added an amendment to the authorizing legislation of the expanded FSO requiring that the U.S. voting power in the Bank be exercised to disapprove any loan to a country against which it has been necessary to invoke the Hickenlooper amendment requiring the suspension of U.S. assistance. If such circumstances should ever arise this parallel action can easily be taken in the Fund for Special Operations, because the U.S. vote of 42 percent is necessary to obtain the two-thirds majority required for favorable consideration of any loan to be made from the Fund.

SUMMARY OF LOAN OPERATIONS

On December 31, 1965, the total amount committed by the Bank in loans from its own resources and those it administers amounted to over $1.5 billion. The lending volume averaged approximately $300 million a year between 1961 and 1964, and rose to $373.5 million in 1965. The total cost of the projects financed is estimated at approximately $4.2 billion. Thus, the Bank's operations have been instrumental in mobilizing additional funds for Latin American development, mostly within the borrowing countries, to the extent of approximately $2.7 billion, representing about two-thirds of the total investment. Along with its loan operations, the Bank has supplied a substantial volume of resources for technical assistance related to economic and social development in its member countries.

CONCLUSION

In summary, the appropriation here requested by the Administration for the Inter-American Development Bank for the fiscal year 1967 is needed to permit the United States to fulfill an international commitment, authorized by the Congress, to meet the third install